<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1996
REGISTRATION NO. 333-04097
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
TELETECH HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 84-1291044
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employee
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
1700 LINCOLN STREET, SUITE 1400
DENVER, COLORADO 80203
(303) 894-4000
(Address, including zip code, and telephone number, including
area code, of registrant's executive offices)
KENNETH D. TUCHMAN
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
TELETECH HOLDINGS, INC.
1700 LINCOLN STREET, SUITE 1400
DENVER, COLORADO 80203
(303) 894-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------
WITH COPIES TO:
<TABLE>
<S> <C>
CHARLES EVANS GERBER, ESQ. HOWARD S. LANZNAR, ESQ.
HELEN N. KAMINSKI, ESQ. MARK D. WOOD, ESQ.
Neal, Gerber & Eisenberg Katten Muchin & Zavis
Two North LaSalle Street 525 West Monroe Street
Chicago, Illinois 60602 Chicago, Illinois 60661
(312) 269-8000 (312) 902-5200
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION ON SUCH DATE AS MAY BE
NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES OF
1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS
THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TELETECH HOLDINGS, INC.
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, SECTION 501(B)
<TABLE>
<CAPTION>
FORM S-1 ITEM LOCATION IN PROSPECTUS
------------------------------------------------------- -----------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus........................ Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................ Inside Front and Outside Back Cover Pages of
Prospectus; Additional Information
3. Summary Information, Risk Factors and Ratio of Earnings
to Fixed Charges...................................... Prospectus Summary; The Company; Risk Factors;
Business
4. Use of Proceeds........................................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price........................ Outside Front Cover Page of Prospectus; Underwriters
6. Dilution............................................... Dilution
7. Selling Security Holders............................... Principal and Selling Stockholders
8. Plan of Distribution................................... Outside and Inside Front Cover Pages of Prospectus;
Underwriters
9. Description of Securities to be Registered............. Prospectus Summary; Capitalization; Description of
Capital Stock
10. Interests of Named Experts and Counsel................. Legal Matters; Experts
11. Information with Respect to the Registrant............. Cover Page of Registration Statement; Outside and
Inside Front Cover Pages of Prospectus; Prospectus
Summary; The Company; Risk Factors; Use of Proceeds;
Dividend Policy; Capitalization; Dilution; Selected
Financial Data; Management's Discussion and Analysis
of Financial Condition and Results of Operations;
Business; Management; Certain Relationships and
Related Party Transactions; Principal and Selling
Stockholders; Description of Capital Stock; Shares
Eligible for Future Sale; Legal Matters; Experts;
Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities........................ *
</TABLE>
- ---------
*Inapplicable
<PAGE>
EXPLANATORY NOTES
Amendment No. 1 is being filed for the sole purpose of filing the Report of
Independent Public Accountants of Access 24 Service Corporation Pty Limited,
which is found on page F-4, and certain additional exhibits, as indicated on the
Exhibit Index of the Registration Statement.
This Registration Statement contains two forms of prospectuses: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in connection with a concurrent international
offering (the "International Prospectus") of the Common Stock, par value $.002
per share, of TeleTech Holdings, Inc. The form of U.S. Prospectus is included
herein and is followed by the outside front cover page to be used in the
International Prospectus, which is the only differing page of the International
Prospectus. The outside front cover page of the International Prospectus
included herein is labeled "Alternative Page for International Prospectus."
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED , 1996
6,000,000 SHARES
[LOGO]
COMMON STOCK
--------------
OF THE 6,000,000 SHARES OF COMMON STOCK BEING OFFERED, 4,000,000 SHARES ARE
BEING SOLD BY THE COMPANY AND 2,000,000 SHARES ARE BEING SOLD BY THE SELLING
STOCKHOLDERS NAMED HEREIN. THE COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS
FROM THE SALE OF SHARES BY THE SELLING STOCKHOLDERS. SEE "PRINCIPAL AND
SELLING STOCKHOLDERS." OF THE SHARES BEING OFFERED, SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF
THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC
MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY
ANTICIPATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$ AND $ . SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS CONSIDERED IN DETERMINING THE INITIAL
OFFERING PRICE.
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 6 HEREOF.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
PER SHARE............................. $ $ $ $
TOTAL (3)............................. $ $ $ $
</TABLE>
- ---------
(1) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT
$ . THE COMPANY HAS AGREED TO PAY THE EXPENSES OF THE SELLING
STOCKHOLDERS, OTHER THAN UNDERWRITING DISCOUNTS AND COMMISSIONS.
(3) ONE OF THE SELLING STOCKHOLDERS HAS GRANTED THE U.S. UNDERWRITERS AN
OPTION, EXERCISABLE WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO
AN AGGREGATE OF 900,000 ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO
PUBLIC LESS UNDERWRITING DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF
COVERING OVER-ALLOTMENTS, IF ANY. IF THE U.S. UNDERWRITERS EXERCISE SUCH
OPTION IN FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND
COMMISSIONS, PROCEEDS TO COMPANY AND PROCEEDS TO SELLING STOCKHOLDERS
WILL BE $ , $ , $ , AND $ , RESPECTIVELY. SEE
"UNDERWRITERS."
------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY KATTEN MUCHIN & ZAVIS, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT
DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT , 1996 AT THE OFFICE OF
MORGAN STANLEY & CO. INCORPORATED, NEW YORK, NEW YORK, AGAINST PAYMENT THEREFOR
IN IMMEDIATELY AVAILABLE FUNDS.
-------------------
MORGAN STANLEY & CO.
INCORPORATED
ALEX. BROWN & SONS
INCORPORATED
SMITH BARNEY INC.
, 1996
<PAGE>
INSIDE FRONT COVER OF PROSPECTUS:
The inside front cover is a gatefold which opens to a multicolor graphic
layout containing, in the upper right-hand corner, the title "integrated
customer lifecycle management." Under the title is written: "TeleTech's
solutions integrate all phases of the customer lifecycle -- customer
acquisition, service and retention, satisfaction and loyalty -- and are designed
to maximize the lifetime value of its client's customer relationships."
The gatefold contains six photographs of the Company's call centers (two
overlapping photographs in each of the lower left-hand, upper left-hand and
upper right-hand corners with the word "TeleTech" superimposed). In the center
of the gatefold, there is an oval photograph of a woman speaking on the
telephone, which is labelled "Client's Customer." This photograph is surrounded
by three smaller oval photographs of faces, each of which is labelled "TeleTech
representative." Radiating outward from the center oval photograph of the
Client's Customer are 16 curved lines, each of which terminates at an oval
point, adjacent to which is a question or request that the customer might have
regarding a particular product or service. Following this "customer lifecycle"
clockwise from a point labelled "Start", the questions or requests that a
customer might ask appear as follows:
"Tell me about it."
"Where can I buy it?"
"I want to order it."
"How do I activate it."
"Help me navigate it."
"Send someone to repair it."
"I want to upgrade it."
"My billing address has changed for it."
"How do I take care of it?"
"I want to complain about it."
"I want to rave about it."
"Make me a preferred customer and I'll keep buying it."
"Register me for the event celebrating it."
"Contact my friend about trying it."
"I'd like to buy it again."
These questions or requests are classified by color into the following three
phases of the customer lifecycle: "CUSTOMER ACQUISITION/SHORT-TERM VALUE,"
"CUSTOMER SERVICE + RETENTION/SUSTAINED VALUE," "CUSTOMER SATISFACTION +
LOYALTY/MAXIMUM VALUE."
Centered along the lower edge of the gatefold, is an oval graphic containing
text that lists under the heading "TeleTech's Core Strengths" the following
words: "People -- Infrastructure -- Technology -- Process -- Strategy --
Innovation." On either side of this text is an arrow, one of which points to the
left indicating "Customer Benefits" (listed as "Access to direct product and
service providers -- Rapid, single-call resolution -- Personalized service --
Long-term, loyal supplier relationships"), and the other of which points to the
right indicating "Client Benefits" (listed as "Reduced operating costs -- Core
competency concentration -- Enhance service quality -- Enlightening customer
relationships -- Maximum customer value").
TeleTech's corporate logo appears in the lower left-hand corner of the
gatefold, under which are written the words: "COPYRIGHT 1996."
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY ANY SELLING STOCKHOLDER
OR BY ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF ANY OFFER TO BUY BY ANY PERSON IN ANY JURISDICTION IN WHICH
IT IS UNLAWFUL TO MAKE SUCH AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
-------------------
UNTIL , 1996 (25 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
-------------------
For investors outside of the United States: No action has been or will be
taken in any jurisdiction by the Company or by any Underwriter that would permit
a public offering of the Common Stock or possession or distribution of this
Prospectus in any jurisdiction where action for that purpose is required, other
than in the United States. Persons into whose possession this Prospectus comes
are required by the Company and the Underwriters to inform themselves about and
to observe any restrictions as to the offering of the Common Stock and the
distribution of this Prospectus.
In this Prospectus references to "dollars" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Prospectus Summary......................................................................................... 3
The Company................................................................................................ 5
Risk Factors............................................................................................... 6
Use of Proceeds............................................................................................ 11
Dividend Policy............................................................................................ 11
Capitalization............................................................................................. 12
Dilution................................................................................................... 13
Selected Financial Data.................................................................................... 14
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 17
Business................................................................................................... 23
Management................................................................................................. 34
Certain Relationships and Related Party Transactions....................................................... 41
Principal and Selling Stockholders......................................................................... 42
Description of Capital Stock............................................................................... 44
Shares Eligible for Future Sale............................................................................ 46
Certain United States Federal Tax Consequences for Non-U.S. Holders of Common Stock........................ 48
Underwriters............................................................................................... 50
Legal Matters.............................................................................................. 53
Experts.................................................................................................... 53
Additional Information..................................................................................... 53
Index to Financial Statements.............................................................................. F-1
</TABLE>
-------------------
The Company intends to furnish to its stockholders annual reports containing
consolidated financial
statements audited by an independent accounting firm and quarterly reports for
the first three quarters of each fiscal year containing interim unaudited
financial information.
-------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. EXCEPT AS OTHERWISE NOTED HEREIN, INFORMATION IN THIS
PROSPECTUS (I) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION,
(II) REFLECTS A FIVE-FOR-ONE SPLIT OF THE COMPANY'S COMMON STOCK TO BE EFFECTED
IMMEDIATELY PRIOR AND SUBJECT TO THE CLOSING OF THIS OFFERING (THE "OFFERING")
AND (III) REFLECTS THE CONVERSION OF ALL OUTSTANDING SHARES OF CONVERTIBLE
PREFERRED STOCK, PAR VALUE $6.45 PER SHARE, OF THE COMPANY ("PREFERRED STOCK")
INTO 9,300,000 SHARES OF COMMON STOCK TO BE EFFECTED IMMEDIATELY PRIOR AND
SUBJECT TO THE CLOSING OF THE OFFERING (THE "PREFERRED STOCK CONVERSION"). SEE
"DESCRIPTION OF CAPITAL STOCK" AND "UNDERWRITERS." UNLESS OTHERWISE INDICATED,
REFERENCES TO "TELETECH" AND THE "COMPANY" MEAN TELETECH HOLDINGS, INC. AND ITS
WHOLLY-OWNED SUBSIDIARIES OR, FOR PERIODS PRIOR TO DECEMBER 1994, MEAN TELETECH
TELECOMMUNICATIONS, INC. AND TELETECH TELESERVICES, INC., COLLECTIVELY. SEE "THE
COMPANY."
THE COMPANY
TeleTech is a leading provider of customer care solutions for Fortune 1000
companies. Customer care encompasses a wide range of customer acquisition,
retention and satisfaction programs designed to maximize the lifetime value of
the relationships between TeleTech's clients and their customers. TeleTech's
customer care programs involve all stages of the customer lifecycle and usually
consist of a variety of customer service and technical and product support
activities, such as product information, program enrollment, help desk support,
account inquiries, problem resolution and satisfaction assessments. TeleTech
works closely with its clients to rapidly design and implement large scale,
tailored customer care programs that provide integrated, comprehensive solutions
to specific business needs.
TeleTech delivers its customer care services primarily through
customer-initiated ("inbound") telephone calls and also over the Internet.
Services are provided by trained customer care representatives
("Representatives") in TeleTech call centers ("Call Centers") in response to an
inquiry that a customer makes by calling a toll-free telephone number or by
sending an Internet message. Representatives respond to these inquiries
utilizing state-of-the-art workstations that leverage TeleTech's advanced
technology platform and enable them to provide rapid, single-call resolution.
This platform incorporates digital switching, client/server technology,
object-oriented software modules, relational database management systems,
proprietary call tracking management software, computer telephony integration
and interactive voice response. TeleTech's services generally are provided on
either a fully outsourced or facilities management basis.
TeleTech seeks to establish long-term, strategic relationships, typically
formalized by multi-year contracts, with selected clients in the
telecommunications, technology, transportation, health care and financial
services industries. TeleTech targets clients in these industries because of
their complex product and service offerings and large customer bases, which
require frequent, often sophisticated, customer interactions. The Company
recently entered into significant, multi-year contracts with CompuServe and
United Parcel Service and has obtained additional business from AT&T. Additional
clients include Apple Computer, Bell Atlantic, Novell, NYNEX and Wells Fargo
Bank.
The Company was founded in 1982 and has been providing inbound customer care
solutions since its inception. Since January 1995, the Company has opened,
acquired or initiated management of seven Call Centers. As of April 30, 1996,
TeleTech owned, leased or managed nine Call Centers in the United States, the
United Kingdom, Australia and New Zealand equipped with a total of 4,560
state-of-the-art workstations. TeleTech currently plans to open two additional
Call Centers and expand an existing Call Center by the end of 1996. In the first
quarter of 1996, approximately 95% of the Company's call handling revenues were
derived from inbound inquiries. TeleTech's revenues increased 42.3% to $50.5
million in 1995 from $35.5 million in 1994. In the first quarter of 1996,
revenues increased 111.5% to $22.0 million from $10.4 million in the same period
of 1995.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered......................... 6,000,000 shares
4,000,000 shares by the Company
2,000,000 shares by the Selling Stockholders
U.S. offering.............................. shares
International offering..................... shares
Common Stock to be outstanding after the
Offering.................................... 55,046,240 shares(1)
Use of proceeds to the Company............... For working capital and general corporate
purposes and to repay outstanding short-term
indebtedness.
Proposed Nasdaq National Market Symbol....... TTEC
</TABLE>
- ------------
(1) Includes 9,300,000 shares of Common Stock to be issued upon the conversion
of all 1,860,000 outstanding shares of Preferred Stock pursuant to the
Preferred Stock Conversion. Excludes 4,968,500 shares of Common Stock
issuable upon exercise of options outstanding at May 15, 1996 with a
weighted average exercise price of $4.69 per share. See "Capitalization,"
"Management-- Compensation of Directors," "Management--Teletech Stock Option
Plan," "Underwriters" and note 11 to the Company's Consolidated and Combined
Financial Statements (the "Financial Statements").
SUMMARY FINANCIAL INFORMATION (1)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
<TABLE>
<CAPTION>
YEAR ENDED ELEVEN YEAR ENDED THREE MONTHS ENDED
JANUARY 31, MONTHS ENDED DECEMBER 31, MARCH 31,
--------------------- DECEMBER 31, ------------------ ------------------
1993 1993 1994 1995 1995 1996
------- ------------ ------- ------- ------- -------
1992
-----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................................... $ 5,751 $13,814 $19,520 $35,462 $50,467 $10,412 $22,019
Income (loss) from operations..................... (332) 250 837 2,196 4,596 614 2,723
Net income........................................ 214 52 548 1,695 4,156(2) 1,628(2) 1,258
Pro forma net income.............................. 214 52 299(3) 1,037(3) 4,156(2) 1,628(2) 1,258
Pro forma net income per share of Common Stock and
equivalents (4).................................. -- -- .01(3) .02(3) .08(2) .03(2) .02
Weighted average shares outstanding (4)........... 44,085 44,085 44,085 44,085 54,658 54,586 54,682
OPERATING DATA:
Number of Call Centers............................ 1 1 2 2 3 3 9
Number of workstations............................ 300 300 560 560 960 960 3,107
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA (5) AS ADJUSTED (6)
--------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................... $ 5,380 $ 5,380
Total assets............................................................. 49,454 49,454
Long-term debt, net of current portion................................... 6,536 6,536
Total stockholders' equity............................................... 9,829 22,908
</TABLE>
- ------------
(1) The Summary Financial Information presented in this table is derived from
the "Selected Financial Information" and the Financial Statements included
elsewhere in this Prospectus.
(2) Includes the $2.4 million pre-tax net proceeds of a one-time payment made by
a former client to TeleTech in connection with such client's early
termination of a contract.
(3) During 1993 and 1994, the Company was an S corporation under Subchapter S of
the Internal Revenue Code of 1986, as amended (the "Code"), and,
accordingly, was not subject to federal income taxes. Pro forma net income
includes a provision for income taxes at an effective rate of 44.4% for the
11 months ended December 31, 1993 and 39.5% for the year ended December 31,
1994.
(4) Calculated in the manner described in note 1 to the Financial Statements.
(5) Reflects the conversion of 1,860,000 shares of Preferred Stock into
9,300,000 shares of Common Stock pursuant to the Preferred Stock Conversion.
(6) Reflects the sale of 4,000,000 shares of Common Stock being offered by
TeleTech at an assumed initial price to public of $ per share (net of
approximately $ million of estimated offering expenses and underwriting
discounts and commissions) and the application of the estimated net proceeds
therefrom, including repayment of short-term indebtedness. See "Use of
Proceeds" and "Capitalization."
4
<PAGE>
THE COMPANY
TeleTech is a leading provider of customer care solutions for Fortune 1000
companies. Customer care encompasses a wide range of customer acquisition,
retention and satisfaction programs designed to maximize the lifetime value of
the relationships between TeleTech's clients and their customers. TeleTech's
customer care programs involve all stages of the customer lifecycle and usually
consist of a variety of customer service and technical and product support
activities, such as product information, program enrollment, help desk support,
account inquiries, problem resolution and satisfaction assessments. TeleTech
delivers its customer care services primarily through customer initiated
telephone calls and also over the Internet. Services are generally provided by
customer care Representatives in Call Centers in response to an inquiry that a
customer makes by calling a toll-free telephone number or by sending an Internet
message. Representatives respond to these inquiries utilizing state-of-the-art
workstations that leverage TeleTech's advanced technology platform and enable it
to provide rapid, single-call resolution. TeleTech's services are generally
provided on either a fully outsourced or facilities management basis.
Companies today are finding it increasingly difficult to satisfy their
customers' needs for service and information. The Company believes that customer
care has become a clear competitive differentiator and that consumers
increasingly consider the relative effectiveness, ease of use and responsiveness
of customer service when evaluating comparable products or services.
Historically, companies have provided customer care and support in-house because
they believed that the "customer interface" was too critical to be outsourced.
Many now acknowledge that they do not have the core competencies or are
unwilling to invest the substantial resources necessary to provide high quality,
inbound customer care solutions on a timely, cost effective basis. As a result
of these trends, a large and rapidly growing customer care outsourcing industry
has emerged. Management believes that companies considering outsourcing their
customer care activities increasingly are seeking a strategic partner that can
understand their business, can provide a comprehensive range of services, and
has the flexibility, scalability, management expertise, facilities and
sophisticated technological and educational resources to serve effectively their
customers' long-term needs.
TeleTech designs and implements customer care programs that are customized
to provide an integrated solution tailored for each client. The Company's
programs are designed to (i) improve the quality and yield of customer
interactions, (ii) reduce the operating costs associated with the delivery of
customer service and product support, (iii) minimize the client's required
investment in and technology risks associated with operating in-house call
centers, (iv) eliminate the need to manage large numbers of call center
employees and (v) enable clients to focus on their core competencies. These
programs address inbound customer interactions in a manner that is seamless with
the client's operations and transparent to the customers. TeleTech effectively
delivers these programs by rapidly deploying the technology and human resources
required to implement and manage comprehensive, integrated customer care
solutions.
TeleTech seeks to establish long-term, strategic relationships, typically
formalized by multi-year contracts, with selected clients in the
telecommunications, technology, transportation, health care and financial
services industries. TeleTech targets clients in these industries because of
their complex product and service offerings and large customer bases that
require frequent, often sophisticated, customer interactions.
TeleTech's principal executive offices are located at 1700 Lincoln Street,
Suite 1400, Denver, Colorado 80203 and its telephone number is (303) 894-4000.
TeleTech was incorporated under the laws of Delaware in December 1994 in
connection with a restructuring of the ownership of TeleTech Telecommunications,
Inc., which was incorporated under the laws of California in October 1982, and
TeleTech Teleservices, Inc., which was incorporated under the laws of Colorado
in November 1992. As a result of such restructuring, TeleTech Teleservices and
TeleTech Telecommunications became wholly-owned subsidiaries of TeleTech.
5
<PAGE>
RISK FACTORS
IN EVALUATING THE COMPANY'S BUSINESS, PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER THE FOLLOWING FACTORS IN ADDITION TO THE OTHER INFORMATION PRESENTED IN
THIS PROSPECTUS.
RELIANCE ON MAJOR CLIENTS. The Company has strategically focused its
marketing efforts on developing long-term relationships with Fortune 1000
companies in targeted industries. As a result, a substantial portion of the
Company's revenues is derived from relatively few clients. Collectively, the
Company's 10 largest clients in 1995 accounted for approximately 82.1% of the
Company's 1995 revenues. The Company's three largest clients in 1995 were AT&T,
Continental Airlines and Apple Computer, which accounted for approximately 31%
(including 11% from AT&T's subsidiary McCaw Communications d/b/a Cellular One),
18% and 9%, respectively, of the Company's 1995 revenues. The Company's program
for Continental Airlines was completed in March 1996 and was not renewed. The
Company expects that its three largest clients in 1996, which it anticipates
will be AT&T, CompuServe and United Parcel Service, collectively will account
for an even greater percentage of the Company's 1996 net revenues. There can be
no assurance that the Company will be able to retain its significant clients or
that, if it were to lose one or more of its significant clients, it would be
able to replace such clients with clients that generate a comparable amount of
revenues. Consequently, the loss of one or more of its significant clients could
have a material adverse effect on the Company's business, results of operations
or financial condition. See "Business--Business Strategy," "-- Markets and
Clients," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Substantially all of the Company's significant arrangements with its clients
generate revenues based, in large part, on the amount of time which the
Company's personnel devotes to such clients' customers. Consequently, and due to
the primarily inbound nature of the Company's business, the amount of revenues
generated from any particular client is generally dependent upon consumers'
interest in, and use of, the client's products and/or services. Furthermore, a
significant portion of the Company's expected revenues for 1996 relate to
recently-introduced, unproven product or service offerings of the Company's
clients, including two significant programs developed for two of the Company's
largest clients. There can be no assurance as to the number of consumers who
will be attracted to the products and services of the Company's clients and who
will therefore need the Company's services, or that the Company's clients will
develop new products or services that will require the Company's services.
MANAGEMENT OF GROWTH. The Company has experienced rapid growth over the
past several years and anticipates continued future growth. Continued growth
depends on a number of factors, including the Company's ability to (i) initiate,
develop and maintain new client relationships and expand its marketing
operations, (ii) recruit, motivate and retain qualified management and hourly
personnel, (iii) rapidly identify, acquire or lease suitable Call Center
facilities on acceptable terms and complete build-outs of such facilities in a
timely and economic fashion, and (iv) maintain the high quality of the services
and products that it provides to its clients. The Company's continued rapid
growth can be expected to place a significant strain on the Company's
management, operations, employees and resources. There can be no assurance that
the Company will be able to maintain or accelerate its current growth,
effectively manage its expanding operations or achieve planned growth on a
timely or profitable basis. If the Company is unable to manage growth
effectively, its business, results of operations or financial condition could be
materially adversely affected. See "Business--Growth Strategy," "--Operations"
and "--Facilities."
RISKS ASSOCIATED WITH THE COMPANY'S CONTRACTS. Although the Company
currently seeks to sign multi-year contracts with its clients, the Company's
contracts do not assure the Company a specific level of revenues and they
generally do not designate the Company as the client's exclusive service
provider. The Company believes maintaining satisfactory relationships with its
clients has a more significant impact on the Company's revenues than the
specific terms of its client contracts. Certain of the Company's current
contracts (representing approximately 36% of the Company's 1995 revenues) have
terms of one year or less and there can be no assurance that the clients will
renew or extend such contracts. In addition, the Company's contracts are
terminable by its clients on relatively short notice. Although many of such
contracts require payment of a contractually agreed amount in the event of early
termination, there can be no
6
<PAGE>
assurance that the Company will be able to collect such amount or that such
amount, if received, will sufficiently compensate the Company for the investment
it has made to support the cancelled program or for the revenues it may lose as
a result of the early termination. In addition, some of the Company's contracts
limit the aggregate amount the Company can charge for its services during the
term of the contract and several prohibit the Company from providing services to
a direct competitor of a client that are similar to the services the Company
provides to such client. Although a few of the Company's more recently executed
contracts provide for annual increases in the rates paid by clients in the event
of increases in certain cost or price indices, most of the Company's contracts
do not include such provisions and some of the contracts currently in effect
provide that the service fees paid by clients may be adjusted downward if the
performance objectives specified therein are not attained or, at least in one
case, in the event of a decrease in a price index. Furthermore, there can be no
assurance that the adjustments based upon increases in cost or price indices
will fully compensate the Company for increases in labor and other costs that it
may experience in fulfilling its contractual obligations. See
"Business--Business Strategy," "--Services" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON LABOR FORCE. The Company's success is largely dependent on
its ability to recruit, hire, train and retain qualified employees. The
Company's industry is very labor intensive and has experienced high personnel
turnover. A significant increase in the Company's employee turnover rate could
increase the Company's recruiting and training costs and decrease operating
effectiveness and productivity. Also, the addition of significant new clients or
the implementation of new large-scale programs may require the Company to
recruit, hire and train qualified personnel at an accelerated rate. There can be
no assurance that the Company will be able to continue to hire, train and retain
sufficient qualified personnel to adequately staff new customer care programs.
Because a significant portion of the Company's operating costs relate to labor
costs, an increase in wages, costs of employee benefits or employment taxes
could have a material adverse effect on the Company's business, results of
operations or financial condition. In addition, certain of the Company's
facilities are located in geographic areas with relatively low unemployment
rates, thus potentially making it more difficult and costly to hire qualified
personnel. See "Business--Human Resources" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON KEY PERSONNEL. The Company's success to date has depended in
large part on the skills and efforts of Kenneth D. Tuchman, the Company's
founder, Chairman of the Board, President and Chief Executive Officer. There can
be no assurance that the Company will be able to hire or retain the services of
other officers or key employees. The loss of Mr. Tuchman or the Company's
inability to hire or retain such other officers or key employees could have a
material adverse effect on the Company's business, results of operations or
financial condition. The Company's success and achievement of its growth plans
depend on its ability to recruit, hire, train and retain other highly qualified
technical and managerial personnel, including individuals with significant
experience in the industries targeted by the Company. The inability of the
Company to attract and retain the necessary technical and managerial personnel
could have a material adverse effect on the Company's business, results of
operations or financial condition. See "Management."
DEPENDENCE ON KEY INDUSTRIES. The Company's clients are concentrated
primarily in the telecommunications, technology and transportation industries
and, to a lesser extent, the health care and financial services industries. The
Company's business and growth is largely dependent on the continued demand for
the Company's services from these industries and current trends in such
industries to outsource certain customer care services. A general economic
downturn in any of these industries or a slowdown or reversal of the trend in
any of these industries to outsource certain customer care services could have a
material adverse effect on the Company's business, results of operations or
financial condition. Additionally, a substantial percentage of the revenues
generated by clients in the telecommunications industry relate to the Company's
provision of legally required third-party verification of long-distance service
sales. The elimination of this requirement as a result of changes in the law
could have a material adverse effect on the Company's business, results of
operations or financial condition. See "Business--Industry Background" and
"--Markets and Clients."
RISK OF BUSINESS INTERRUPTION. The Company's operations are dependent upon
its ability to protect its Call Centers, computer and telecommunications
equipment and software systems against damage from fire,
7
<PAGE>
power loss, telecommunications interruption or failure, natural disaster and
other similar events. In the event the Company experiences a temporary or
permanent interruption at one or more of its Call Centers, through casualty,
operating malfunction or otherwise, the Company's business could be materially
adversely affected and the Company may be required to pay contractual damages to
some clients or allow some clients to terminate or renegotiate their contracts
with the Company. While the Company maintains property and business interruption
insurance, such insurance may not adequately compensate the Company for all
losses that it may incur. See "Business--Operations."
RISKS ASSOCIATED WITH TECHNOLOGY. The Company's business is highly
dependent on its computer and telecommunications equipment and software systems.
The Company's failure to maintain the superiority of its technological
capabilities or to respond effectively to technological changes could have a
material adverse effect on the Company's business, results of operations or
financial condition. The Company's future success also will be highly dependent
upon its ability to enhance existing services and introduce new services or
products to respond to changing technological developments. There can be no
assurance that the Company can successfully develop and bring to market any new
services or products in a timely manner, that such services or products will be
commercially successful or that competitors' technologies or services will not
render the Company's products or services noncompetitive or obsolete. See
"Business--Technology."
COMPETITION. The market in which the Company competes is highly competitive
and fragmented. The Company expects competition to persist and intensify in the
future. The Company's competitors include small firms offering specific
applications, divisions of large entities, large independent firms and, most
significantly, the in-house operations of clients or potential clients. A number
of competitors have or may develop greater capabilities and resources than those
of the Company. Similarly, there can be no assurance that additional competitors
with greater resources than the Company will not enter the Company's market.
Because the Company's primary competitors are the in-house operations of
existing or potential clients, the Company's performance and growth could be
negatively impacted if its existing clients decide to provide in-house customer
care services that currently are outsourced or if potential clients retain or
increase their in-house customer service and product support capabilities. In
addition, competitive pressures from current or future competitors could cause
the Company's services to lose market acceptance or result in significant price
erosion, with a material adverse effect upon the Company's business, results of
operations or financial condition. See "Business--Competition."
RISKS ASSOCIATED WITH ACQUISITIONS AND JOINT VENTURES. One component of the
Company's growth strategy is to pursue strategic acquisitions of companies that
have services, products, technologies, industry specializations or geographic
coverage that extend or complement the Company's existing business. There can be
no assurance that the Company will be able successfully to identify, acquire on
favorable terms or integrate such companies. If any acquisition is completed,
there can be no assurance that such acquisition will enhance the Company's
business, results of operations or financial condition. The Company may in the
future face increased competition for acquisition opportunities, which may
inhibit the Company's ability to consummate suitable acquisitions on terms
favorable to the Company. A substantial portion of the Company's capital
resources, including proceeds from the Offering, could be used for acquisitions.
The Company may require additional debt or equity financing for future
acquisitions, which financing may not be available on terms favorable to the
Company, if at all. As part of its growth strategy, the Company may also pursue
opportunities to undertake strategic alliances in the form of joint ventures.
Joint ventures involve many of the same risks as acquisitions, as well as
additional risks associated with possible lack of control of the joint ventures.
See "Business--Growth Strategy."
The Company recently acquired Access 24 Service Corporation Pty Limited, an
Australian company ("Access 24"). Certain of Access 24's services, now provided
as part of the Company's health care and financial services strategic business
units ("SBUs"), differ from the traditional outsourcing services of the
Company's United States business. The Company also recently entered into a joint
venture with a subsidiary of PPP Healthcare Group plc ("PPP") to provide
services in the United Kingdom and Ireland similar to those provided by Access
24. The anticipated benefits of the Access 24 acquisition and the joint venture
with
8
<PAGE>
PPP, including the successful offering in the United States of services similar
to those provided by Access 24, may not be achieved. See "Business--Markets and
Clients--Health Care," "Business--Markets and Clients--Financial Services" and
"Business--International Operations."
RISK ASSOCIATED WITH INTERNATIONAL OPERATIONS AND EXPANSION. As a result of
the recent acquisition of Access 24 and the joint venture with PPP, the Company
now conducts business in the United Kingdom, Australia and New Zealand. A key
component of the Company's growth strategy is its continued international
expansion. There can be no assurance that the Company will be able successfully
to market, sell and deliver its services in international markets, or that it
will be able successfully to acquire companies, or integrate acquired companies,
to expand international operations. In addition, there are certain risks
inherent in conducting international business, including exposure to currency
fluctuations, longer payment cycles, greater difficulties in accounts receivable
collection, difficulties in complying with a variety of foreign laws, unexpected
changes in regulatory requirements, difficulties in staffing and managing
foreign operations, political instability and potentially adverse tax
consequences. There can be no assurance that one or more of such factors will
not have a material adverse effect on the Company's international operations
and, consequently, on the Company's business, results of operations or financial
condition. See "Business-- Growth Strategy" and "--International Operations."
VARIABILITY OF QUARTERLY OPERATING RESULTS. The Company has experienced,
and in the future could experience, quarterly variations in revenues as a result
of a variety of factors, many of which are outside the Company's control,
including: the timing of new contracts; the timing of new product or service
offerings or modifications in client strategies; the expiration or termination
of existing contracts; the timing of increased expenses incurred to obtain and
support new business; changes in the Company's revenue mix among its various
service offerings; and the seasonal pattern of certain of the businesses
serviced by the Company. In addition, the Company's planned staffing levels,
investments and other operating expenditures are based on revenue forecasts. If
revenues are below expectations in any given quarter, the Company's operating
results would likely be materially adversely affected for that quarter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results."
GOVERNMENT REGULATION. Because the Company's current business consists
primarily of responding to inbound telephone calls, it is not highly regulated.
However, in connection with the limited amount of outbound telemarketing
services that it provides, the Company is required to comply with the Federal
Communications Commission's rules under the Federal Telephone Consumer
Protection Act of 1991 and the Federal Trade Commission's regulations under the
Federal Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, both
of which govern telephone solicitation. In the event that the Company decides to
expand its outbound telemarketing services, such rules and regulations would
apply to a larger percentage of the Company's business. Furthermore, there may
be additional federal or state legislation, or changes in regulatory
implementation, that limit the activities of the Company or its clients in the
future or significantly increase the cost of compliance. Additionally, the
Company could be responsible for its failure, or the failure of its clients, to
comply with regulations applicable to its clients.
CONTROL BY PRINCIPAL STOCKHOLDER. Following completion of the Offering,
Kenneth D. Tuchman, the Company's Chairman, President and Chief Executive
Officer, will beneficially own approximately 72.1% of the outstanding shares of
Common Stock (approximately 70.5% if the Underwriters' over-allotment is
exercised in full). As a result, Mr. Tuchman will continue to be able to elect
the entire Board of Directors of the Company and to control substantially all
other matters requiring action by the Company's stockholders. Such voting
concentration may have the effect of discouraging, delaying or preventing a
change in control of the Company. See "Principal and Selling Stockholders."
NO PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE. Prior to the
Offering, there has been no public market for the Common Stock, and there can be
no assurance that an active public market for the Common Stock will develop or
be sustained after the Offering. The initial public offering price of the Common
Stock offered hereby was determined by negotiations between the Company and the
Underwriters based upon several factors. See "Underwriters" for a discussion of
the factors considered in determining the initial public offering price. The
market price of the Common Stock is likely to be highly volatile and could
9
<PAGE>
be subject to wide fluctuations in response to quarterly variations in operating
results, announcements of new contracts or contract cancellations, announcements
of technological innovations or new products or services by the Company or its
competitors, changes in financial estimates by securities analysts or other
events or factors. In addition, the stock market has experienced significant
price and volume fluctuations that have particularly affected the market prices
of equity securities of many companies and that have often been unrelated to the
operating performance of such companies. These broad market fluctuations may
adversely affect the market price of the Common Stock. In the past, following
periods of volatility in the market price of a company's securities, securities
class action litigation has often been instituted against such a company. Any
such litigation instigated against the Company could result in substantial costs
and a diversion of management's attention and resources, which could have a
material adverse effect on the Company's business, results of operations or
financial condition.
SHARES ELIGIBLE FOR FUTURE SALE. The sale of a substantial number of shares
of Common Stock, or the perception that such sales could occur, could adversely
affect prevailing market prices of the Common Stock. The Company is unable to
make any prediction as to the effect, if any, that future sales of Common Stock
or the availability of Common Stock for sale may have on the market price of the
Common Stock prevailing from time to time. In addition, any such sale or such
perception could make it more difficult for the Company to sell equity
securities or equity related securities in the future at a time and price that
the Company deems appropriate. Upon completion of the Offering, the Company will
have outstanding an aggregate of 55,046,240 shares of Common Stock, excluding
shares of Common Stock issuable upon exercise of outstanding options. The Common
Stock offered hereby will be freely tradeable (other than by an "affiliate" of
the Company as such term is defined under the Securities Act of 1933, as amended
(the "Securities Act")) without restriction or registration under the Securities
Act. All remaining outstanding shares of Common Stock may be sold under Rule 144
or Regulation S promulgated under the Securities Act, subject to the holding
period, volume, manner of sale and other restrictions of Rule 144 or Regulation
S and subject in certain cases to 180-day lock-up agreements with the
Underwriters. See "Description of Capital Stock," "Shares Eligible for Future
Sale" and "Underwriters."
DILUTION. Investors participating in the Offering will incur immediate,
substantial dilution. To the extent outstanding options to purchase the
Company's Common Stock are exercised, there will be further dilution. See
"Dilution."
ANTI-TAKEOVER PROVISIONS. The Board of Directors has the authority to issue
up to 10,000,000 shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any vote or action by the stockholders. The rights of the holders
of the Common Stock will be subject to, and may be adversely affected by, the
rights of the holders of any preferred stock that may be issued in the future.
The issuance of the preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. The Company has no present plan
to issue any additional shares of preferred stock. Furthermore, certain
provisions of the Company's Restated Certificate of Incorporation and By-laws
and of Delaware law could delay or make difficult a merger, tender offer or
proxy contest involving the Company. See "Description of Capital Stock."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to TeleTech from the sale of the 4,000,000 shares of Common
Stock being offered by TeleTech are estimated to be approximately $ ,
after deducting underwriting discounts and commissions and estimated offering
expenses. TeleTech will not receive any proceeds from the sale of shares of
Common Stock by the Selling Stockholders. See "Principal and Selling
Stockholders." TeleTech intends to use the net proceeds it will receive from the
Offering primarily for working capital and general corporate purposes, including
the purchase of computer hardware and software needed to equip and open
additional Call Centers and expand existing Call Centers. In addition, TeleTech
intends to use a portion of the net proceeds of the Offering to repay
outstanding short-term indebtedness under its $15 million unsecured revolving
line of credit, which expires on May 31, 1998. Outstanding borrowings under this
line of credit bear interest at various rates, selected by TeleTech at the time
a draw is made. On May 17, 1996, a total of $6.0 million was outstanding under
this line of credit, of which $3.5 million bears interest at a rate of 6.6875%
and $2.5 million bears interest at a rate of 6.63%. The proceeds of such
outstanding indebtedness have been used by TeleTech for general corporate
purposes. See note 6 to the Financial Statements. A portion of the net proceeds
also may be used for the acquisition of businesses, products and technologies
that extend or complement TeleTech's existing business; however, TeleTech has no
current plans, agreements or commitments and is not currently engaged in any
negotiations with respect to any such transaction. Pending such uses, TeleTech
plans to invest the net proceeds, other than net proceeds used to repay
short-term indebtedness, in investment grade, interest bearing securities.
DIVIDEND POLICY
In 1995 TeleTech paid a dividend of approximately $452,000 to its principal
stockholder. TeleTech does not expect to pay dividends on its Common Stock in
1996 or in the foreseeable future. The Board of Directors anticipates that all
cash flow generated from operations in the foreseeable future will be retained
and used to develop and expand TeleTech's business. Any future payment of
dividends will depend upon TeleTech's results of operations, financial
condition, cash requirements and other factors deemed relevant by the Board of
Directors.
11
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1996 the Company's (i) actual
short-term debt and capitalization, (ii) short-term debt and capitalization on a
pro forma basis after giving effect to the Preferred Stock Conversion and (iii)
short-term debt and capitalization as adjusted to reflect the sale of Common
Stock offered hereby (at an assumed initial offering price of $ per share
and after deducting the estimated underwriting discounts and commissions and the
Offering expenses payable by the Company) and the application of the net
proceeds therefrom as described herein under "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ------------- --------------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt and current portion of long-term debt.................. $ 5,819 $ 5,819
--------- -------------
--------- -------------
Long-term debt, net of current portion (1)............................. $ 6,536 $ 6,536
--------- -------------
Mandatorily redeemable convertible preferred stock, par value $6.45 per
share (2)............................................................. 13,079 --
Stockholders' equity:
Common stock, par value $.002 per share (3).......................... 83 102
Additional paid-in capital........................................... 7,401 20,461
Cumulative translation adjustment.................................... 141 141
Restricted stock..................................................... (380) (380)
Retained earnings.................................................... 2,584 2,584
--------- -------------
Total stockholders' equity......................................... 9,829 22,908
--------- -------------
Total capitalization............................................. $ 29,444 $ 29,444
--------- -------------
--------- -------------
</TABLE>
- ---------
(1) See notes 4, 5 and 7 to the Financial Statements contained elsewhere herein
for information regarding the Company's long-term debt.
(2) The 1,860,000 shares of mandatorily redeemable convertible preferred stock,
including accrued dividends thereon of $1.1 million, will be converted into
9,300,000 shares of Common Stock. See note 11 to the Financial Statements
contained elsewhere herein.
(3) Does not include 7,750,000 shares reserved for issuance upon exercise of
outstanding options under the TeleTech Holdings, Inc. Stock Plan (the
"Option Plan") and the TeleTech Holdings, Inc. Directors Stock Option Plan
(the "Directors Option Plan") and for future awards thereunder. At May 15,
1996, options to acquire 4,743,500 shares were outstanding under the Option
Plan and options to acquire 225,000 shares were outstanding under the
Directors Option Plan, which options have a weighted average exercise price
of $4.68 per share and $5.00 per share, respectively. See
"Management--Compensation of Directors," "Management--Executive
Compensation" and "TeleTech Stock Option Plan."
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<PAGE>
DILUTION
The net tangible book value of TeleTech as of March 31, 1996, after giving
effect to the five-for-one stock split and the Preferred Stock Conversion, was
$16,635,826, or $0.33 per share of Common Stock. "Net tangible book value" per
share is equal to the aggregate tangible assets of TeleTech less its aggregate
liabilities, divided by the total number of shares of Common Stock outstanding
on March 31, 1996. After giving effect to the estimated net proceeds to TeleTech
of the Offering, the pro forma net tangible book value of TeleTech as of March
31, 1996 would have been approximately $ , or $ per share of Common
Stock. This represents an immediate increase in net tangible book value per
share of $ to existing stockholders and an immediate dilution in net
tangible book value per share of $ to purchasers of Common Stock in the
Offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......................... $
Net tangible book value per share at March 31, 1996..................... $ 0.33
Increase in net tangible book value per share attributable to new
investors..............................................................
---------
Pro forma net tangible book value per share after the Offering.......... $
----------
Dilution per share to new investors..................................... $
----------
----------
</TABLE>
TeleTech has reserved 7,750,000 shares of Common Stock, as adjusted to
reflect the five-for-one stock split of the Company's Common Stock, for issuance
upon exercise of outstanding options and future awards. As of May 15, 1996,
there were outstanding options to purchase an aggregate of 4,743,500 shares of
Common Stock under the Option Plan, at a weighted average price of $4.68 per
share, and outstanding options to purchase an aggregate of 225,000 shares of
Common Stock under the Directors Option Plan, at a price of $5.00 per share. Of
the foregoing, options to purchase an aggregate of 472,085 shares of Common
Stock are currently exercisable. See "Management--Stock Option Plan" and
"Management--Compensation of Directors."
The following table sets forth as of May 15, 1996 the relative investments
of the existing TeleTech stockholders and of the new investors, giving pro forma
effect to (i) the sale by TeleTech of 4,000,000 shares and the sale by the
Selling Stockholders of 2,000,000 shares of the Common Stock being offered
hereby, at an assumed offering price of $ per share, (ii) the five-for-one
stock split and (iii) consummation of the Preferred Stock Conversion:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................. 49,046,240 89% $ % $
New investors..................................... 6,000,000 11% %
------------ ----- ------------- -----
Total......................................... 55,046,240 100% $ 100%
------------ ----- ------------- ----- -------------
------------ ----- ------------- ----- -------------
</TABLE>
The foregoing table assumes no exercise of the Underwriters' over-allotment
option and no exercise of the options outstanding at May 15, 1996. To the extent
that any of such options are exercised, there will be further dilution to new
investors.
13
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and the related notes appearing
elsewhere in this Prospectus. The following table presents selected (a)
consolidated and combined financial data for TeleTech for (i) the year ended
January 31, 1992, which have been derived from reviewed financial statements;
(ii) the year ended January 31, 1993, which have been derived from audited
financial statements; (iii) the eleven months ended December 31, 1993, which
have been derived from financial statements (including those set forth elsewhere
in this Prospectus) that have been audited by Gumbiner, Savett, Finkel,
Fingleson & Rose, Inc., independent public accountants (formerly Gumbiner,
Savett, Friedman and Rose, Inc.); (iv) each of the two years in the period ended
December 31, 1995, which are derived from financial statements (including those
set forth elsewhere in this Prospectus) that have been audited by Arthur
Andersen LLP, independent public accountants; and (v) the three months ended
March 31, 1995 and 1996; and (b) unaudited pro forma consolidated financial data
for the year ended December 31, 1995. The selected financial data for the three
months ended March 31, 1995 and 1996 are derived from unaudited financial
statements that, in the opinion of management, include all adjustments,
consisting principally of normal recurring accruals, necessary for a fair
presentation of such data. The results for the three months ended March 31, 1996
are not necessarily indicative of the results expected for the full fiscal year.
<TABLE>
<CAPTION>
ELEVEN
MONTHS THREE MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
JANUARY 31, DECEMBER DECEMBER 31, MARCH 31,
------------------- 31, -------------------- ----------------
1993 1993 1994 1995 1995 1996
------- ---------- ---------- ------- ------- -------
PRO
FORMA (1)
YEAR ENDED
1992 DECEMBER
--------- 31,
1995
(UNAUDITED) ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 5,751 $13,814 $19,520 $ 35,462 $50,467 $60,706 $10,412 $22,019
Costs of services..................... 2,703 7,324 10,726 17,406 27,246 31,239 5,469 11,194
SG&A expenses......................... 3,380 6,240 7,956 15,860 18,625 24,908 4,329 8,102
--------- ------- ---------- ---------- ------- ---------- ------- -------
Income (loss) from operations........... (332) 250 837 2,196 4,596 4,559 614 2,723
Other income (expenses)................. 707 (125) (299) (481) 2,489(2) 2,784(2) 2,338(2) (464)
Provision for income taxes.............. (161) (73) 10 (20) (2,929) (3,353) (1,324) (1,001)
--------- ------- ---------- ---------- ------- ---------- ------- -------
Net income.............................. 214 52 548 1,695 4,156(2) 3,990(2) 1,628(2) 1,258
Pro forma net income.................... 214 52 299(3) 1,037(3) 4,156(2) 3,990(2) 1,628(2) 1,258
Pro forma net income per share of Common
Stock and equivalents (4).............. -- -- .01(3) .02(3) .08(2) .07(2) .03(2) .02
Weighted average shares outstanding
(4).................................... 44,085 44,085 44,085 44,085 54,658 54,658 54,586 54,682
OPERATING DATA:
Number of Call Centers................ 1 1 2 2 3 3 9
Number of workstations................ 300 300 560 560 960 960 3,107
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1996
JANUARY 31, DECEMBER 31, ----------------------
------------------------ ------------------------------- PRO
1993 1993 1994 1995 ACTUAL FORMA (5)
--------- --------- --------- --------- --------- -----------
PRO FORMA
DECEMBER 31,
1992 1995 (1)
------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit)............ $ 221 $ (250) $ (228) $ (780) $ 11,305 $ 8,341 $ 5,380 $ 5,380
Total assets.......... 2,238 4,617 12,034 10,102 30,583 39,882 49,454 49,454
Long-term debt, net of
current portion...... 828 1,416 3,528 2,463 3,590 5,468 6,536 6,536
Total stockholders'
equity............... 338 394 942 2,197 3,791 8,220 9,829 22,908
<CAPTION>
PRO FORMA AS
ADJUSTED (6)
-------------
<S> <C>
BALANCE SHEET DATA:
Working capital
(deficit)............ $
Total assets..........
Long-term debt, net of
current portion......
Total stockholders'
equity...............
</TABLE>
- ------------
(1) Reflects the consolidated operating results and financial position of Access
24 and its subsidiaries, which were acquired by the Company effective
January 1, 1996, as if such acquisition had been completed on January 1,
1995. Costs and expenses of Access 24 have been reflected, for purposes of
this presentation, as costs of services.
(2) Includes the $2.4 million pre-tax net proceeds of a one-time payment made by
a former client to TeleTech in connection with such client's early
termination of a contract.
(3) During 1993 and 1994, the Company was an S corporation and, accordingly, was
not subject to federal income taxes. Pro forma net income includes a
provision for income taxes at an effective rate of 44.4% for the 11 months
ended December 31, 1993 and 39.5% for the year ended December 31, 1994.
(4) Calculated in the manner described in note 1 to the Financial Statements.
(5) Reflects the conversion of 1,860,000 shares of Preferred Stock into
9,300,000 shares of Common Stock pursuant to the Preferred Stock Conversion.
(6) Reflects the sale of 4,000,000 shares of Common Stock being offered by
TeleTech at an assumed initial price to public of $ per share (net of
approximately $ million of estimated offering expenses and underwriting
discounts and commissions) and the application of the estimated net proceeds
therefrom, including repayment of short-term indebtedness. See "Use of
Proceeds" and "Capitalization."
15
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma consolidated condensed income statement
gives effect to the acquisition of Access 24 as if it had occurred on January 1,
1995 and does not purport to represent what the Company's results of operations
actually would have been if such transactions had in fact occurred on such date.
See "Business--International Operations." The pro forma adjustments are based on
currently available information and upon certain assumptions that management
believes are reasonable under current circumstances. The unaudited pro forma
consolidated financial information and accompanying notes should be read in
conjunction with the Financials Statements and the related notes thereto, and
other financial information pertaining to the Company and Access 24 including
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--International Operations," included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------
TELETECH
--------- ACCESS 24 PRO FORMA
------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE
STATEMENT OF OPERATIONS DATA: DATA)
Revenues................................................................... $ 50,467 $ 10,239 $ 60,706
Operating expenses......................................................... 45,871 10,276(1) 56,147
--------- ------------ -----------
Income (loss) from operations.............................................. 4,596 (37) 4,559
Other income............................................................... 2,489 295 2,784
Provision for income taxes................................................. (2,929) (424) (3,353)
--------- ------------ -----------
Net income (loss).......................................................... $ 4,156 $ (166) $ 3,990
--------- ------------ -----------
--------- ------------ -----------
Pro forma net income per share............................................. $ .08 $ .07
Shares used in computing pro forma net income per share (2)................ 54,658 54,658
</TABLE>
- ---------
(1) Includes amortization of $422,000 of goodwill arising on the Company's
acquisition of Access 24, approximately $300,000 associated with the opening
of a Call Center in the United Kingdom and a $141,000 write-off of an
unrecoverable loan associated with the disposition of an unrelated business.
(2) Includes outstanding shares of common stock and common stock equivalents.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
TeleTech generates its revenues by providing customer care solutions, both
from TeleTech-owned Call Centers (traditional outsourcing) and client-owned Call
Centers (facilities management). The Company normally bills for its services
based on the amount of time Representatives devote to a client's program and
revenues are typically recognized as services are provided. The Company seeks to
enter into multi-year contracts that cannot be terminated early except upon the
payment of a contractually agreed amount. In 1995, revenues from multi-year
contracts represented 64% of total revenues. In the second half of 1995, the
Company signed large, multi-year contracts with United Parcel Service and
CompuServe and obtained additional business from AT&T for programs commencing
principally in the first quarter of 1996. Accordingly, management expects
revenues from multi-year contracts to increase as a percentage of total revenues
in 1996.
TeleTech's profitability is significantly influenced by its Call Center
capacity utilization. The Company seeks to optimize new and existing Call Center
capacity utilization during both peak and off-peak (night and weekend) periods
to achieve maximum fixed cost absorption. The Company carefully plans the
development and opening of new Call Centers to minimize the financial impact
resulting from excess capacity.
The Company records costs specifically associated with client programs as
costs of services. These costs, which include direct labor wages and benefits,
telecommunication charges, sales commissions and certain facility costs, are
primarily variable in nature. All other expenses of operations, including
expenses attributable to technology support, sales and marketing, human resource
management and other administrative functions and Call Center operational
expenses that are not allocable to specific programs are recorded as selling,
general and administrative ("SG&A") expenses. SG&A expenses tend to be either
semi-variable or fixed in nature. Historically, the majority of the Company's
operating expenses have consisted of labor costs. Accordingly, Representative
wage rates, which comprise the majority of the Company's labor costs, have been
and are expected to continue to be a key component of the Company's expenses.
The cost characteristics of TeleTech's traditional outsourcing programs
differ significantly from the cost characteristics of its facilities management
programs. Under facilities management programs, Call Centers are owned by the
client but are staffed and managed by TeleTech. Accordingly, facilities
management programs have higher costs of services as a percentage of revenues
and lower SG&A expenses as a percentage of revenues than traditional outsourcing
programs. As a result, the Company expects that its overall gross margin will
fluctuate as revenues attributable to traditional outsourcing programs vary in
proportion to revenues attributable to facilities management programs. Based on
the foregoing, management believes that, for purposes of measuring profitability
on a period-to-period basis, operating margin, which is income from operations
expressed as a percentage of revenues, may be less subject to fluctuation as the
proportion of the Company's business portfolio attributable to outsourcing
contracts versus facilities management contracts changes.
TeleTech's revenues and income from operations have grown significantly over
the past three years. During this period, the Company's revenues have grown from
$19.5 million for the 11 months ended December 31, 1993 to $50.5 million for the
year ended December 31, 1995 and operating margin has increased from 4.3% in
1993 to 9.1% in 1995. In the first quarter of 1996, the Company's operating
margin rose to 12.4%. Management attributes this growth to the successful
implementation of the Company's strategy of developing long-term strategic
relationships with large corporate clients in targeted industries and the
Company's resulting ability to spread its fixed costs over a larger revenue
base.
The Company acquired Access 24 and its subsidiaries effective January 1,
1996 for consideration of $2.3 million cash and 970,240 shares of Common Stock.
Access 24's consolidated results of operations are included in the Company's
operating results beginning with the first quarter of 1996. The operations of
Access 24, which consist of inbound, client-branded customer care services, have
been substantially integrated into TeleTech's operations. Access 24 typically
bills its clients monthly, based on the number of
17
<PAGE>
customers enrolled in a client's program, pursuant to multi-year agreements.
Access 24 is headquartered in Sydney, Australia with Call Centers in Australia
and New Zealand. On April 30, 1996, the Company sold a 50% interest in Access 24
Limited, the Company's United Kingdom subsidiary that owns and operates a Call
Center in London, for $3.8 million to PPP Healthcare Group plc, a subsidiary of
a large private health insurer in the United Kingdom. The Company anticipates
recognizing an after-tax gain of approximately $1.6 million on this sale in the
second quarter of 1996. TeleTech will account for its investment in Access 24
Limited as an unconsolidated subsidiary. See "Business--International
Operations" and the Consolidated Financial Statements of Access 24 contained
elsewhere in this Prospectus.
During 1993 and 1994, the Company was an S corporation and, accordingly, was
not subject to income taxes. Pro forma net income includes a provision for
federal income taxes at an effective rate of 44.4% for the 11 months ended
December 31, 1993 and 39.5% for the year ended December 31, 1994.
RESULTS OF OPERATIONS
The following table sets forth certain income statement data as a percentage
of revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1993(1) 1994 1995 1995 1996
----------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues.............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of services................................... 54.9 49.1 54.0 52.5 50.8
SG&A expenses....................................... 40.8 44.7 36.9 41.6 36.8
Income from operations................................ 4.3 6.2 9.1 5.9 12.4
Other income (expenses)............................... (1.5) (1.4) 4.9(2) 22.5(2) (2.1)
Provision for income taxes (3)........................ -- -- (5.8) (12.8) (4.6)
Net income (3)........................................ 2.8 4.8 8.2(2) 15.6(2) 5.7
Pro forma net income (3).............................. 1.5 2.9 8.2(2) 15.6(2) 5.7
</TABLE>
- ---------
(1) Includes only eleven months due to a change in the Company's fiscal year
end.
(2) Includes the $2.4 million pre-tax net proceeds of a one-time payment made by
a former client to TeleTech in the first quarter of 1995 in connection with
such client's early termination of a contract (the "One-Time Payment").
(3) During 1993 and 1994, the Company was an S corporation and, accordingly, was
not subject to federal income taxes. Pro forma net income includes a
provision for income taxes at an effective rate of 44.4% for the 11 months
ended December 31, 1993 and 39.5% for the year ended December 31, 1994.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
REVENUES. Revenues increased $11.6 million, or 111.5%, to $22.0 million for
the first quarter of 1996 from $10.4 million for the first quarter of 1995. This
increase resulted from revenues of $9.6 million generated from new clients and
$3.3 million in revenues of Access 24, which was acquired in the first quarter
of 1996. These increases were partially offset by loss in revenues due to the
expiration of certain contracts. The Company's program for Continental Airlines
was completed in March 1996 and, due to Continental's excess in-house call
center capacity, was not renewed. Revenues for the first quarter of 1996 reflect
the first period in which the Burbank Call Center, which opened in February
1995, was fully utilized and additional capacity in the Denver Call Center,
which was expanded in February 1996.
COSTS OF SERVICES. Costs of services increased $5.7 million, or 104.7%, to
$11.2 million for the first quarter of 1996 from $5.5 million for the first
quarter of 1995. Costs of services decreased as a percentage of revenues to
50.8% for the first quarter of 1996 from 52.5% for the first quarter of 1995.
This change was primarily due to increased productivity as revenues increased at
a faster rate than personnel costs.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased $3.8 million,
or 87.2%, to $8.1 million for the first quarter of 1996 from $4.3 million for
the first quarter of 1995. As a percentage of revenues,
18
<PAGE>
SG&A expenses decreased to 36.8% for the first quarter of 1996 from 41.6% for
the first quarter of 1995 reflecting economies of scale associated with
spreading fixed and semi-variable costs over a larger revenue base. This
decrease primarily resulted from a 3.5% decrease in wage expense as a percentage
of revenues.
INCOME FROM OPERATIONS. Operating income increased $2.1 million, or 343.2%
to $2.7 million in the first quarter of 1996 from $0.6 million during the first
quarter of 1995. Operating income as a percentage of revenues increased to 12.4%
in the first quarter of 1996 from 5.9% in the same period in 1995.
OTHER INCOME (EXPENSES). Other income (expenses) decreased $2.8 million, or
(119.8%), to ($464,000) million for the first quarter of 1996 from $2.3 million
for the first quarter of 1995. This decrease primarily resulted from the
One-Time Payment.
NET INCOME. As a result of the foregoing factors, net income decreased
$370,000, or 27.7%, to $1.3 million for the first quarter of 1996 from $1.6
million for the first quarter of 1995. Excluding the One-Time Payment, net
income for the three months ended March 31, 1995 would have been $116,000.
Accordingly, net income would have increased $1.1 million, or 984.5%, in the
first quarter of 1996 compared to the same period in 1995.
1995 COMPARED TO PRO FORMA 1995
Pro forma 1995 reflects the combined operating results of TeleTech and
Access 24, as if Access 24 had been acquired by TeleTech on January 1, 1995. For
the 12 months ended December 31, 1995, Access 24 had revenue of $10.2 million, a
loss from operations of approximately $37,000 and a net loss of $166,000. The
results for such period reflect amortization of $422,000 of goodwill arising
from the Company's acquisition of Access 24, approximately $300,000 of expenses
associated with the opening of a Call Center in the United Kingdom and a
$141,000 write-off of an unrecoverable loan associated with the disposition of
an unrelated business. On April 30, 1996, the Company sold a 50% interest in the
United Kingdom Call Center to PPP, a large private health insurer in the United
Kingdom. See "Business--International Operations."
1995 COMPARED TO 1994
REVENUES. Revenues increased $15.0 million, or 42.3%, to $50.5 million in
1995 from $35.5 million in 1994, reflecting an increase in revenues from
existing clients of approximately $9.7 million and revenues from new clients of
approximately $7.6 million. These increases were partially offset by the
expiration without renewal of certain other client contracts. See "Other Income
(Expense)" below.
COSTS OF SERVICES. Costs of services increased $9.8 million, or 56.5%, to
$27.2 million in 1995 from $17.4 million in 1994. The increase resulted in part
from the opening in February 1995 of the Company's Burbank Call Center. Costs of
services also increased as a percentage of revenues to 54.0% in 1995 from 49.1%
in 1994. The new Call Center was not fully utilized immediately after opening,
resulting in an increase in Call Center expenses without a corresponding
increase in revenues.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased $2.8 million,
or 17.4%, to $18.6 million in 1995 from $15.9 million in 1994. As a percentage
of revenues, SG&A expenses decreased to 36.9% in 1995 from 44.7% in 1994. A
substantial part of this change resulted from a 4.0% reduction in wage expense
as a percentage of revenues.
INCOME FROM OPERATIONS. Income from operations increased $2.4 million, or
109.3%, to $4.6 million in 1995 from $2.2 million 1994. Operating income as a
percentage of revenues increased to 9.1% in 1995 from 6.2% in 1994.
OTHER INCOME (EXPENSES). Other income (expenses) increased $3.0 million to
$2.5 million in 1995 from ($481,000) in 1994. This increase resulted from the
One-Time Payment as well as increased interest income attributable to the $12.0
million proceeds received by the Company from the sale of Preferred Stock in
1995.
NET INCOME AND PRO FORMA NET INCOME. Net income increased $2.5 million, or
145.2%, to $4.2 million in 1995 from $1.7 million in 1994. As a result of the
foregoing factors, net income in 1995 increased $3.1
19
<PAGE>
million, or 300.7%, to $4.2 million from pro forma net income of $1.0 million in
1994. Excluding the One-Time Payment, net income for 1995 would have been $2.6
million. Accordingly, net income for 1995 would have increased $1.6 million, or
60%, over pro forma income of $1.0 million for 1994.
1994 COMPARED TO 1993
During 1993, the Company changed its fiscal year to December 31. As a
result, the 1993 fiscal year consists of the eleven months ended December 31,
1993.
REVENUES. Revenues increased $15.9 million, or 81.7%, to $35.5 million in
1994 from $19.5 million in 1993. This increase consisted primarily of $14.2
million of revenues generated from new clients, with the remaining increase
generated from existing clients. The increase reflects a full year of operations
of the Denver Call Center, which generated $13.9 million of revenue in 1994
versus $2.9 million of revenue in 1993.
COSTS OF SERVICES. Costs of services increased $6.7 million, or 62.3%, to
$17.4 million in 1994 from $10.7 million in 1993. Costs of services decreased as
a percentage of revenues to 49.1% in 1994 from 55.0% in 1993. Much of this
percentage decrease resulted from an increased proportion of services being
performed in 1994 for higher-margin client programs compared to in 1993.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased $7.9 million,
or 99.3%, to $15.9 million in 1994 from $8.0 million in 1993. SG&A expenses
increased as a percentage of revenues to 44.7% in 1994 from 40.8% in 1993. Much
of this increase resulted from increased compensation expense associated with
growth in administrative functions necessary to support projected expansion.
INCOME FROM OPERATIONS. Income from operations increased $1.4 million, or
162.1%, to $2.2 million in 1994 from $837,000 in 1993. Operating income as a
percentage of revenues increased to 6.2% in 1994 from 4.3% in 1993.
PRO FORMA NET INCOME. As a result of the foregoing factors, and a decrease
in the effective tax rate to 39.5% for the year ended December 31, 1994 from
44.4% for the 11 months ended December 31, 1993, pro forma net income increased
$738,000, or 247.2%, to $1.0 million in 1994 from $299,000 in 1993.
QUARTERLY RESULTS
The information set forth below is derived from unaudited quarterly
operating results of the Company for each quarter of 1994 and 1995 and the first
quarter of 1996. The data has been prepared by the Company on a basis consistent
with the Financial Statements included elsewhere in this Prospectus and includes
all adjustments, consisting principally of normal recurring accruals, that the
Company considers necessary for a fair presentation thereof. These operating
results are not necessarily indicative of the Company's future performance.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------
1994 1995
---------------------------------------------- --------------------------------------------
MAR 31 JUN 30 SEP 30 DEC 31 MAR 31(1) JUN 30 SEP 30 DEC 31
----------- ----------- --------- --------- ----------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......................... $ 8,976 $ 8,406 $ 8,080 $ 10,000 $ 10,412 $ 11,879 $ 12,692 $ 15,484
Costs of services.............. 4,715 4,314 3,719 4,658 5,469 6,407 6,899 8,471
SG&A expenses.................. 3,556 4,014 3,702 4,588 4,329 4,265 4,575 5,456
Income from operations........... 705 78 659 754 614 1,207 1,218 1,557
Other income (expenses).......... (118) (154) (102) (107) 2,338(1) 35 38 78
Provision for income taxes....... (15) 3 (2) (6) (1,324) (449) (394) (762)
Net income....................... 572 (73) 555 641 1,628 793 862 873
Pro forma net income (2)......... 359 (49) 336 391 1,628 793 862 873
Pro forma net income per share... .01 -- .01 .01 .03 .01 .02 .02
Weighted average shares
outstanding..................... 44,085 44,085 44,085 44,085 54,586 54,682 54,682 54,682
<CAPTION>
1996
---------
MAR 31
---------
<S> <C>
Revenues......................... $ 22,019
Costs of services.............. 11,194
SG&A expenses.................. 8,102
Income from operations........... 2,723
Other income (expenses).......... (464)
Provision for income taxes....... (1,001)
Net income....................... 1,258
Pro forma net income (2)......... 1,258
Pro forma net income per share... .02
Weighted average shares
outstanding..................... 54,682
</TABLE>
20
<PAGE>
The following table sets forth certain income statement data as a percentage
of revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
1994 1995 1996
------------------------------------------- ------------------------------------------ ---------
MAR 31 JUN 30 SEP 30 DEC 31 MAR 31 JUN 30 SEP 30 DEC 31 MAR 31
--------- --------- --------- ---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of services....... 52.5 51.3 46.0 46.6 52.5 53.9 54.4 54.7 50.8
SG&A expenses........... 39.6 47.8 45.8 45.9 41.6 35.9 36.0 35.2 36.8
Income from operations.... 7.9 0.9 8.2 7.5 5.9 10.2 9.6 10.1 12.4
Other income (expenses)... (1.3) (1.8) (1.3) (1.0) 22.4(1) 0.3 0.3 0.5 (2.1)
Provision for income
taxes.................... 0.2 -- -- -- (12.7) (3.8) (3.1) (4.9) (4.6)
Net income................ 6.4 (0.9) 6.9 6.5 15.6(1) 6.7 6.8 5.7 5.7
Pro Forma net income...... 4.0 (0.6) 4.2(2) 3.9(2) 15.6 6.7 6.8 5.7 5.7
</TABLE>
- ---------
(1) Includes the One-Time Payment.
(2) During 1993 and 1994, the Company was an S corporation and, accordingly, was
not subject to federal income taxes. Pro forma net income includes a
provision for income taxes at an effective rate of 44.4% for the 11 months
ended December 31, 1993 and 39.5% for the year ended December 31, 1994.
The Company has experienced and in the future could experience quarterly
variations in revenues as a result of a variety of factors, many of which are
outside the Company's control, including: the timing of new contracts, the
timing of new product or service offerings or modifications in client
strategies; the expiration or termination of existing contracts; the timing of
increased expenses incurred to obtain and support new business; changes in the
Company's revenue mix among its various service offerings; and the seasonal
pattern of certain of the businesses serviced by the Company. In addition, the
Company's planned staffing levels, investments and other operating expenditures
are based on revenue forecasts. If revenues are below expectations in any given
quarter, the Company's financial results would likely be materially adversely
affected for that quarter.
For the quarterly periods in 1994, revenues fluctuated principally due to a
reduction in services provided for, and the ultimate termination of, a large
client program in the first half of 1994. The decrease in revenues from this
client program was partially offset by revenues from new client programs
throughout 1994 and fully offset in the fourth quarter of 1994 by revenues
relating to increased services for new and existing clients. The quarterly
revenue increases throughout 1995 and the first quarter of 1996 reflect
increased services provided for existing clients and the addition of certain new
programs.
In 1994, costs of services declined from 52.5% of revenues in the first
quarter to 46.6% in the fourth quarter due to the implementation of certain
higher margin programs as well as the lower wages that were paid to
Representatives during the training phase of several new programs. The increase
in costs of services from 46.6% of revenues in the fourth quarter of 1994 to
52.5% in the first quarter of 1995 resulted from a change in the allocation of
certain costs from SG&A expenses to costs of services. For the final three
quarters of 1995, costs of services ranged between 53.9% and 54.7% of revenues,
but declined to 50.8% in the first quarter of 1996 due to increased productivity
resulting from higher Call Center capacity utilization.
SG&A expenses increased from 39.6% of revenues in the first quarter of 1994
to 47.8% in the second quarter of 1994 due to a lower revenue base, costs
associated with the relocation of the Company's corporate offices to Denver,
Colorado and increased management staffing to support the Company's growth. SG&A
expenses decreased to 45.8% of revenues in the third quarter of 1994, due
principally to lower travel and advertising costs, and 45.9% of revenues in the
fourth quarter of 1994 as fixed and semi-variable costs were spread over a
larger revenue base. Despite a shift of certain costs from SG&A expenses to
costs of services in the first quarter of 1995, SG&A expenses as a percentage of
revenues were essentially unchanged due to increased overhead costs associated
with establishing the Company's Burbank Call Center without a corresponding
increase in revenues for the first quarter of 1995. Once the Burbank Call Center
became fully operational in the second quarter of 1995, SG&A expenses as a
percentage of revenues ranged from 35.2% to 36.8% from the second quarter of
1995 through the first quarter of 1996.
21
<PAGE>
Income from operations fluctuated within the quarterly periods primarily
based on the factors noted above. Additionally, other income (expenses)
increased to $2.3 million in the first quarter of 1995 due to the One-Time
Payment. The provision for income taxes in the first quarter of 1995 reflects
the impacts of the One-Time Payment and the Company's change from an S
corporation to a C corporation.
LIQUIDITY AND CAPITAL RESOURCES
Historically, TeleTech has funded its operations and capital expenditures
primarily through cash flow from operations, borrowings under several lines of
credit and the sale of $12.0 million of Preferred Stock in January 1995. The
Company has a $15.0 million unsecured revolving operating line of credit, which
expires on May 31, 1998. Borrowings under this line bear interest at various
rates that are selected by TeleTech each time a draw is made. At May 17, 1996,
outstanding borrowings under this facility were $6.0 million, which accrue
interest at rates varying from 6.63% to 6.6875%. Borrowings under this line have
been made primarily to fund working capital. Under this line of credit, the
Company has agreed to maintain certain financial ratios and has agreed that,
during any fiscal year during which the line remains in place, it will not incur
operating lease expenses or make investments in fixed assets or in capital
leases in excess of $15.0 million in the aggregate.
In addition, the Company has two master lease agreements. Under one
agreement, the Company may lease equipment up to an aggregate value of $15.0
million. As of March 31, 1996, amounts outstanding under this agreement were
approximately $3.4 million. Lease rates under this agreement are based upon a
125 basis points spread over 3-year U.S. Treasury notes. Under the second
agreement, the Company's borrowings are approved, and specific terms are set, on
a case-by-case basis. As of March 31, 1996, the total amount outstanding under
this agreement was approximately $921,855.
Cash provided by operating activities was $1.5 million for the first quarter
of 1996, $4.1 million in 1995 and $3.6 million in 1994. From the beginning of
1994 through the first quarter of 1996, the Company generated an aggregate of
$9.3 million in cash from operating activities, consisting of $12.0 million of
total net income before depreciation, amortization and other non-cash charges,
offset in part by $(2.7) million changes in working capital. Changes in working
capital consist primarily of fluctuations in accounts receivable, accounts
payable and accruals arising from the growth of the Company's operations.
The amount of cash used by the Company in investing activities was $3.0
million for the first quarter of 1996 and $12.1 million and $1.9 million for
1995 and 1994, respectively. In the first quarter of 1996, the Company's capital
expenditures were $3.3 million and the Company used $2.3 million for the Access
24 acquisition while short-term investments decreased by $2.5 million. In 1995,
the Company's capital expenditures were $1.7 million and the Company's
short-term investments increased by $10.4 million. In 1994, capital expenditures
were $1.9 million. Historically, capital expenditures have been, and future
capital expenditures are anticipated to be, primarily for the development of
Call Center facilities and the acquisition of equipment to support expansion of
the Company's existing Call Centers and expansion of and improvements to the
Company's call and data management systems and management information systems.
Capital expenditures, including new capital leases, equaled $5.8 million and
$2.1 million in 1995 and 1994, respectively. The Company currently expects to
make capital expenditures in 1996 of approximately $26 million, $3.3 million of
which was spent during the first quarter.
Cash provided by financing activities for the first quarter of 1996 was $2.1
million, representing borrowings on the Company's line of credit, net of capital
lease payments. In 1995, cash provided by financing activities of $8.0 million
resulted primarily from the sale of $12.0 million of Preferred Stock in January
1995, which was partially offset by $2.8 millon of loan repayments, tax
distributions and dividends paid by the Company to its principal stockholder. In
1994, the Company used $1.7 million for financing activities, consisting
primarily of repayments on the Company's bank line of credit and other long-term
debt.
The Company believes that the net proceeds of the Offering, together with
cash from operations, existing cash and available borrowings under its line of
credit and master lease agreements, will be sufficient to finance the Company's
current operations, planned capital expenditures and anticipated growth at least
through 1997. However, if the Company were to make any significant acquisitions
for cash, it may be necessary for the Company to obtain additional debt or
equity financing. Any sale of additional equity or equity-related securities
could result in additional dilution to the Company's stockholders.
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BUSINESS
TeleTech is a leading provider of customer care solutions for Fortune 1000
companies. Customer care encompasses a wide range of customer acquisition,
retention and satisfaction programs designed to maximize the lifetime value of
the relationships between TeleTech's clients and their customers. TeleTech's
customer care programs involve all stages of the customer lifecycle and usually
consist of a variety of customer service and technical and product support
activities, such as product information, program enrollment, help desk support,
account inquiries, problem resolution and satisfaction assessments. TeleTech
works closely with its clients to rapidly design and implement large scale,
tailored customer care programs that provide integrated, comprehensive solutions
to specific business needs.
TeleTech delivers its customer care services primarily through
customer-initiated ("inbound") telephone calls and also over the Internet.
Services are provided by trained customer care representatives
("Representatives") in TeleTech call centers ("Call Centers") in response to an
inquiry that a customer makes by calling a toll-free telephone number or by
sending an Internet message. Representatives respond to these inquiries
utilizing state-of-the-art workstations that leverage TeleTech's advanced
technology platform and enable them to provide rapid, single-call resolution.
This platform incorporates digital switching, client/server technology,
object-oriented software modules, relational database management systems,
proprietary call tracking management software, computer telephony integration
("CTI") and interactive voice response (IVR). TeleTech's services generally are
provided on either a fully outsourced or facilities management basis.
TeleTech seeks to establish long-term, strategic relationships, typically
formalized by multi-year contracts, with selected clients in the
telecommunications, technology, transportation, health care and financial
services industries. TeleTech targets clients in these industries because of
their complex product and service offerings and large customer bases, which
require frequent, often sophisticated, customer interactions. The Company
recently entered into significant, multi-year contracts with CompuServe and
United Parcel Service and has obtained additional business from AT&T. Additional
clients include Apple Computer, Bell Atlantic, Novell, NYNEX and Wells Fargo
Bank.
The Company was founded in 1982 and has been providing inbound customer care
solutions since its inception. Since January 1995, the Company has opened,
acquired or initiated management of seven Call Centers. As of April 30, 1996,
TeleTech owned, leased or managed nine Call Centers in the United States, the
United Kingdom, Australia and New Zealand equipped with a total of 4,560
state-of-the-art workstations. TeleTech currently plans to open two additional
Call Centers and expand an existing Call Center by the end of 1996. In the first
quarter of 1996, approximately 95% of the Company's call handling revenues were
derived from inbound inquiries. TeleTech's revenues increased 42.3% to $50.5
million in 1995 from $35.5 million in 1994. In the first quarter of 1996
revenues increased 111.5% to $22.0 million from $10.4 million in the same period
of 1995.
INDUSTRY BACKGROUND
Companies today are finding it increasingly difficult to satisfy their
customers' needs for service and information. As products and services become
more complex and product and service choices multiply, customers require more
information to make intelligent purchase decisions and to use products and
services properly. In addition, customers have less time to shop for, evaluate
and learn how to use new products and services, driving demand for faster and
better service. While these trends have been evolving, the burden of providing
personalized customer service has largely shifted from traditional retailers to
product manufacturers and service providers. Also, many companies have realized
that retaining customers generally is more profitable than acquiring new
customers. As a result of these and other factors, the Company believes that
customer care has become a clear competitive differentiator and that consumers
increasingly consider the relative effectiveness, ease of use and responsiveness
of customer service and product support when evaluating comparable products or
services.
Many companies find it difficult to provide high quality customer service
and product support without diverting significant resources away from their core
businesses. Historically, companies have provided
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customer service in-house because they believed that the "customer interface"
was too critical to be outsourced. Many now acknowledge that they do not have
the core competencies or are unwilling to invest the substantial resources
necessary to provide high quality, inbound customer care services on a timely,
cost effective basis. As a result, a large and rapidly growing customer care
outsourcing industry has emerged. Industry sources estimate that telephone-based
direct marketing expenditures were $80 billion in 1995 with roughly 95% of the
industry comprised of captive (in-house) telemarketing organizations. Management
believes that large corporations are increasingly outsourcing their
telephone-based marketing and customer services activities as part of an overall
effort to focus internal resources on their core competencies, improve operating
efficiencies and reduce costs. This is particularly true in industries that are
undergoing deregulation and increased competition.
Although there are many independent teleservices firms, most are small,
single facility operations that primarily provide outbound services. Many
currently do not have the financial resources, industry expertise, technological
capabilities, human resources or facilities to provide high-quality, inbound
customer care. TeleTech believes that companies considering outsourcing their
customer care activities increasingly are seeking a strategic partner that can
understand their business, can provide a comprehensive range of services, and
has the flexibility, scalability, management expertise, facilities and
technological and educational resources to serve their customers' long-term
needs effectively and efficiently.
THE TELETECH SOLUTION
TeleTech develops and implements strategic customer care solutions designed
to improve the lifetime value of its clients' customers by enhancing customer
satisfaction and promoting long-term loyalty, which in turn can increase each
client's revenues and profitability. The Company devotes significant resources
to understanding a client's industry, products, services, processes and culture
and then designs programs to (i) improve the quality of customer interactions,
(ii) capture customer data and feedback, (iii) reduce the operating costs
associated with the delivery of customer service and product support, (iv)
minimize the client's required investment in and technology risks associated
with operating in-house call centers, (v) eliminate the need to manage large
numbers of call center employees and (vi) enable clients to focus on their core
competencies. These programs address inbound customer interactions in a manner
that is seamless with the client's operations and transparent to the customers.
TeleTech effectively delivers these programs by rapidly deploying the technology
and human resources required to implement and manage comprehensive, integrated
customer care solutions.
TeleTech strives to be a strategic partner to its clients. TeleTech believes
that its willingness to invest resources to identify the customer needs of a
potential client and its ability to quickly understand the fundamental
operations of a client's business differentiate TeleTech from its competitors
and enable it to offer unique and effective customer care solutions. By fully
understanding a client's industry, products, services, processes and culture,
TeleTech can design customized solutions that add value to a client's day-to-day
interactions with its customers. Additionally, TeleTech's responsive, flexible
and scalable technology platform enables it to design customer care programs
that can be adapted quickly and cost effectively to meet changing client and
customer needs. TeleTech's open-systems, client/server technology can be
integrated with its clients' information systems, enabling data captured from
customer interactions to be reviewed and analyzed by TeleTech and its clients on
a real-time basis.
BUSINESS STRATEGY
Key elements of the Company's business strategy are to:
ENHANCE CLIENTS' RELATIONSHIPS WITH THEIR CUSTOMERS THROUGH INNOVATIVE
CUSTOMER CARE SOLUTIONS
The Company believes that enhancing the client's relationship with its
customers at each stage of the customer lifecycle is crucial to providing a
value-added solution to a client's customer service and product support needs.
TeleTech works closely with its clients to identify the particular needs of
their customers, design appropriate solutions and implement specially tailored
customer care programs. TeleTech's solutions are designed to be cost effective
and to improve the quality of customer interactions and foster lifetime
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customer loyalty. As part of its integrated solutions, TeleTech collects and
disseminates customer information to enable its clients to analyze and better
manage their customer bases while identifying new revenue generating
opportunities.
DEVELOP LONG-TERM STRATEGIC RELATIONSHIPS WITH LARGE CLIENTS IN TARGETED
INDUSTRIES
TeleTech seeks to develop long-term strategic relationships with large
corporate clients in targeted industries. The Company focuses on industries
containing companies with complex product and service offerings and with large
customer bases that require frequent, often sophisticated, customer
interactions. In establishing long-term strategic relationships with its
clients, TeleTech seeks to enter into multi-year contracts that generate
recurring revenues for TeleTech and allow the Company to leverage its
technology, human resource and training investments. The Company has established
strategic business units ("SBUs"), with specialized business development
personnel, that target the telecommunications, technology, transportation,
health care and financial services industries.
APPLY FLEXIBLE, INNOVATIVE TECHNOLOGICAL SOLUTIONS
TeleTech's technological expertise and scalable open-systems, client/server
architecture enable the Company to rapidly design customized customer care
programs, achieve seamless integration with its clients' information systems and
adapt quickly to new technologies. The Company seeks to differentiate itself
from in-house and other outsourced competitive service providers by creatively
employing hardware configurations and software applications to add flexibility
and responsiveness to its clients' customer service and product support
processes. TeleTech leverages its experience in the development of customized
software applications by combining industry-leading operating software with its
extensive library of proprietary, object-oriented applications to rapidly and
cost-effectively design intuitive, user-friendly custom software applications.
IMPLEMENT AND MAINTAIN SUPERIOR OPERATIONAL PROCESSES
To manage its growth and provide high levels of client service, the Company
is committed to implementing and maintaining superior operational processes
capable of efficiently executing customer care programs. Recognizing that it is
providing one of the client's most important and sensitive functions, the
Company adheres to a rigorous framework of quality processes based on ISO 9002,
an internationally recognized series of quality assurance standards, to ensure
successful on-going delivery of client programs. The Company designs and builds
its Call Centers based on a standardized model to provide efficient,
fully-integrated operations while increasing employee productivity. By linking
its Call Centers together into a seamless wide area network (WAN), the Company
also ensures rapid transfer of voice and data information to provide additional
call capacity and disaster recovery, as needed.
MAINTAIN EXCELLENCE IN HUMAN RESOURCE AND CALL CENTER MANAGEMENT
The Company believes that its ability to attract, hire, train and manage its
employees and efficiently manage its Call Centers is critical to its ability to
develop new and maintain existing long-term client relationships. TeleTech uses
proprietary software to automate much of its hiring, training, quality assurance
and staffing management functions. In an effort to reduce turnover and improve
the quality of its services, the Company devotes significant resources to
attracting and hiring skilled employees and provides extensive initial and
on-going product and service training. The Company's Representatives generally
are full-time and dedicated to a single client program. Representatives receive
from one to five weeks of on-site training in TeleTech's or the client's
training facilities before handling customer interactions, plus a minimum of six
to eight hours per month of ongoing training. Representatives often receive
supplemental laboratory training as needed to provide a specific customer
service successfully.
GROWTH STRATEGY
The Company's growth strategy is designed to capitalize on the increasing
demand for outsourced customer care solutions and to maintain and expand its
leadership position in its industry. The Company's primary growth strategies are
to:
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EXPAND SERVICES PROVIDED TO EXISTING CLIENTS AND ESTABLISH NEW RELATIONSHIPS
IN TARGETED INDUSTRIES
The Company believes it has substantial opportunities to expand services
provided to existing clients and obtain new clients within its currently
targeted industries. Specifically, the Company is focusing on opportunities to
expand existing programs while cross-selling TeleTech's services to other
divisions or operations within its existing clients' organizations. For example,
TeleTech implemented its initial program for AT&T in 1991 and has since expanded
its relationship to include four separate programs for various AT&T products and
services. As part of its SBU strategy, the Company also is focusing on
developing new relationships with companies within its targeted industries.
DEVELOP NEW PRODUCTS AND SERVICES
Continued rapid technological advances, coupled with the on-going evolution
in retail and product distribution trends, will create new opportunities for
TeleTech. TeleTech expects that the proliferation of new interactive media will
provide more sophisticated customer interactions and additional opportunities to
provide expanded services to customers. TeleTech intends to capitalize on these
trends by developing new products and services, such as database marketing
solutions and real-time interactive support for Web sites on the Internet.
EXPAND INTO NEW INDUSTRIES AND GEOGRAPHIC MARKETS
TeleTech has identified additional industries that are experiencing many of
the same trends affecting its currently targeted industries and may establish
new SBUs to focus on evolving market opportunities. In addition, the Company
believes that trends toward increased customer care and recognition of the
benefits of outsourcing, which have been experienced in the U.S., are occurring
in international markets. TeleTech also believes that many multi-national
companies, including several of its existing clients, are seeking a single
provider of world-wide customer care solutions. To capitalize on these
international opportunities, the Company intends to further expand its
operations outside of the United States.
SELECTIVELY PURSUE COMPLEMENTARY ACQUISITIONS
The Company may selectively acquire complementary companies that extend its
presence into new geographic markets or industries, expand its client base, add
new product or service applications or provide substantial operating synergies.
The Company believes that there will be many potential domestic and
international acquisition opportunities as the teleservices industry
consolidates and as large corporations consider selling their existing call
center facilities and operations. For example, the Company may consider
acquiring a primarily outbound teleservices provider that could provide
substantial operating synergies and improve Call Center utilization during the
currently underutilized off-peak (night and weekend) periods resulting from the
Company's focus on inbound interactions.
SERVICES
TeleTech offers a wide range of services designed to provide superior
customer care. An integral component of these services is process reengineering,
by which the Company develops and applies enhanced processes to make a client's
customer service or product support processes more cost-effective, productive
and valuable. At the start of a potential new client relationship, TeleTech
assesses the client's existing capabilities, goals and strategies, customer
service or product support processes and related software, hardware and
telecommunications systems and training. After presenting a proposed solution
and being awarded a contract, TeleTech works closely with the client to further
develop, refine and implement more efficient and productive customer interaction
processes and technological solutions that seamlessly link the customer, the
client and TeleTech. These processes generally include the development of
event-driven software programs for the dynamic scripting of telephone
interactions, where script flow is predicated on variables in the customer file
or on the Representative's interaction with the customer.
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Following the design and development of a customer care program,
Representatives provide a wide range of on-going voice and data communications
services integrating customer acquisition, service and retention and
satisfaction and loyalty programs. In a typical inbound customer interaction, a
customer calls a toll-free number to request product, service or technical
information or assistance. TeleTech's advanced telecommunications system
automatically identifies each inbound call by its telephone number and routes
the call to the appropriate Representative that is trained for that particular
client program. Upon receipt of the call, the Representative's computer screen
automatically displays the client's specific product, service or technical
information to enable the Representative to assist the customer.
Each customer interaction, even in its simplest form, presents TeleTech and
its clients with an opportunity to capture valuable customer information,
including the customer's demographic profile and preferences. This information
can prompt the Representative to make logical, progressive inquiries about the
customer's interest in additional services, identify additional revenue and
cross-selling opportunities or resolve other customer issues relating to a
client's products or services. TeleTech frequently provides several of the
services listed below in an integrated program tailored to its clients' needs.
CUSTOMER ACQUISITION PROGRAMS. Customer acquisition programs are designed
to secure new customers and can include a wide range of activities depending
upon the customer inquiry. A sampling of these services includes:
- providing pre-sales product or service education
- processing and fulfilling information requests for product or service
offerings
- verifying sales and activating services
- directing callers to product or service sources
- receiving orders for and processing purchases of products or services
- providing initial post-sales support, including operating instructions for
new product or service use
TeleTech's current customer acquisition programs do not include outbound
"cold calling," which is an outsourcing service typically provided by
traditional telemarketing firms.
CUSTOMER SERVICE AND RETENTION PROGRAMS. Customer service and retention
programs are designed to maintain and extend the customer relationship and
maximize lifetime customer value. These programs are generally driven by the
customer's receipt of a product or service, or by the customer's need for
on-going help-desk resources. The majority of the Company's revenues are
generated in the provision of customer service and retention programs. A
sampling of these services includes:
- providing technical help desk, product or service support
- activating product or service upgrades
- responding to billing and other account inquiries
- resolving complaints and product or service problems
- registering warranty information
- dispatching on-site service
CUSTOMER SATISFACTION AND LOYALTY PROGRAMS. Customer satisfaction and
loyalty programs are designed to enable clients to learn from their customers,
to be more responsive to the customer's needs and concerns and to reward
customers for their continued patronage. A sampling of these services includes:
- responding to client promotional, affinity-building initiatives
- developing and implementing client-branded loyalty programs
- conducting satisfaction assessments
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- confirming receipt of promised products or services
- reserving and reconfirming space at product or service seminars
An example of a client-branded loyalty program is TeleTech's Emergency Home
Assist, which it implements for many of Australia's leading insurers and
financial institutions. Under Emergency Home Assist, if, for example, a storm
damages the roof of a customer insured by a TeleTech client, the customer calls
the toll-free number provided by the client. A Representative answers the
telephone on the client's behalf and contacts, books and dispatches tradesmen to
the customer's home to make repairs, while simultaneously opening an insurance
claims file. TeleTech's insurance company client, which directly pays the
tradesmen's invoices, is positioned as a caring, total solution provider, rather
than just a reimbursement agent. In addition, the insurer is able to control
costs by its early intervention and contracting in advance with qualified
tradesmen to provide services at a reasonable price.
MARKETS AND CLIENTS
TeleTech focuses its marketing efforts on Fortune 1000 companies in the
telecommunications, technology, transportation, health care and financial
services industries. To provide effective customer care solutions, TeleTech has
developed a separate SBU to serve each of these industries. Each SBU is
comprised of business development personnel, systems engineers, application
specialists and other support personnel, most of whom have prior industry
experience. Each SBU is responsible for developing and implementing customized,
industry-specific customer service and product support.
TELECOMMUNICATIONS. The Telecommunications SBU primarily services
long-distance carriers, regional telephone companies, wireless providers and
cable operators. Services include verifying long-distance service sales,
responding to customer inquiries, providing consumer and business telephone
service account management and providing on-going product and service support.
Clients include AT&T, NYNEX and Bell Atlantic. TeleTech believes that the
Telecommunications Act of 1996 and the development of new wireless products,
including products and services utilizing personal communication services (PCS)
technology, will expand the breadth of product and service offerings that will
require customer service and support and will create additional demand for
TeleTech's services.
TECHNOLOGY. The growth of high technology product offerings and service
introductions, including Internet-related products and services, has increased
demand for consumer and technical product support services. Clients include
AT&T, CompuServe, Apple and Novell. The Company currently provides telephone and
real-time, on-line interactive support to subscribers of CompuServe's WOW!
service and to customers of AT&T. TeleTech intends to leverage its technological
capabilities on the Internet and is exploring business opportunities related to
new interactive media.
TRANSPORTATION. TeleTech's Transportation SBU provides a variety of
services to clients in the package delivery and travel industries. In October
1995, TeleTech was awarded a contract to manage several Call Centers and provide
customer service and support on behalf of United Parcel Service, one of the
nation's largest parcel delivery companies. Under its five-year contract,
TeleTech will provide services to United Parcel Service from three Call Centers
leased by United Parcel Service but staffed and managed by TeleTech. TeleTech
also provides reservation call handling services for Reno Air and Midway
Airlines. See "--Case Study."
HEALTH CARE. TeleTech provides customer care solutions on behalf of health
care providers in the United Kingdom, Australia and New Zealand, including
Medical Benefits Funds of Australia Limited, Hospital Benefits Fund of Western
Australia, Inc., Southern Cross Medical Care Society and PPP. These services
include emergency and non-emergency medical information and referral services,
neonatal information and assistance to parents of newborns, information about
drug interventions, referrals to community support organizations such as home
care, child care and counseling options, and medical claims review services. The
Company provides these services to customers by means of telephone access to
registered nurses, counselors, pharmacists, medical librarians, dieticians and
other specially trained Representatives. TeleTech believes that there are
substantial opportunities to introduce comparable services in the U.S. market.
See "--International Operations."
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FINANCIAL SERVICES. TeleTech is developing new and more responsive delivery
capabilities to satisfy the demands of financial institutions seeking to reduce
customer reliance on face-to-face interactions and increase customer utilization
of electronic and telephone banking and automated teller machines. From its Call
Centers in Australia and New Zealand, TeleTech provides customer care solutions
to customers of insurance company and automobile club clients, such as
Mercantile Mutual Insurance (Australia) Ltd, Zurich Australian Insurance Ltd and
Royal Automobile Club of Victoria (RACV) Insurance Pty Ltd. Solutions include
emergency home repair assistance, responding to customer inquiries regarding
property damage and insurance coverage, procuring emergency roadside automobile
and medical assistance and facilitating motor vehicle claims. TeleTech believes
that many of these customer care solutions are readily transferable to the U.S.
market. See "--International Operations."
CASE STUDY
In 1994, United Parcel Service operated regional Customer Service Telephone
Centers across the United States that provided customers with information
regarding package pick-ups and deliveries, package tracking and tracing and rate
information. To re-engineer its telephone-based customer service and support
strategy, United Parcel Service consolidated these regional centers into seven
national centers and decided to outsource the facilities management and staffing
functions. United Parcel Service benchmark studies led to the conclusion that
this reengineering would result in significant quality improvements while
creating a more efficient and much less costly operation.
In October 1995, after a competitive bidding process, TeleTech was awarded a
multi-year contract to staff and manage three United Parcel Service customer
service telephone centers and was granted the option to manage a fourth facility
if United Parcel Service requires additional capacity. By April 1996, TeleTech
began operating Call Centers in Tucson, Arizona and Greenville, South Carolina.
The third Call Center, located in Tampa, Florida, is scheduled to open in June
1996.
Telephone calls from United Parcel Service customers primarily consist of
customer service and package tracking inquires. TeleTech Representatives assist
customers by scheduling package pick ups, tracking packages, calculating
shipping rates, explaining package insurance options, describing types of
service and rates and answering other types of inquires.
TeleTech recruits, interviews, hires, and trains all personnel for the
United Parcel Service Call Centers. To manage the considerable human resources
and facilities management tasks associated with a customer care and support
program of this magnitude and complexity, TeleTech identified and hired a
separate project management team to launch and direct the program. In addition,
the Company devised an innovative incentive and gain-sharing plan to motivate
TeleTech personnel. TeleTech has introduced automated quality control processes,
electronic applicant screening and assessment, and is working in concert with
United Parcel Service to develop innovative technology to further optimize the
call handling process.
SALES AND MARKETING
As most companies consider the customer care function to be critical, the
Company's business development personnel generally focus their marketing efforts
on potential clients' senior executives. TeleTech hires business development
personnel and employees for each SBU who have substantial industry expertise and
can identify and generate sales leads.
TeleTech employs a consultative approach to assess the current and
prospective strategic needs of a potential client. Following initial discussions
with a client, a carefully chosen TeleTech team, usually comprised of
applications and systems specialists, operations experts, human resources
professionals and other appropriate SBU management personnel, thoroughly studies
the client's operations. The Company invests significant resources during the
development of a client relationship to understand the client's existing
customer service processes, culture, decision parameters and goals and
strategies. TeleTech assesses the client's customer care needs and, with input
from the client, develops and implements tailored customer care solutions.
As a result of its consultative approach, TeleTech can identify new revenue
generating opportunities, customer communication possibilities and product or
service improvements previously overlooked or not
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adequately addressed by the client. TeleTech's technological capabilities enable
it to develop working prototypes of proposed customer care programs and to
rapidly implement strategic customer care solutions, generally with minimal
capital investment by the client.
TeleTech generally provides customer care solutions pursuant to written
contracts with terms ranging from one to five years, which often contain renewal
or extension options. Under substantially all of its significant contracts,
TeleTech generates revenues based on the amount of time Representatives devote
to a client's program. In addition, clients typically are required to pay fees
relating to TeleTech's training of Representatives to implement the client's
program, set-up and management of the program, and development of computer
software and technology. Many of TeleTech's contracts also require the client to
pay TeleTech a contractually agreed amount in the event of early termination.
When negotiating new contracts, TeleTech strives to obtain a contract term of at
least two years and contractual provisions adjusting the amount of TeleTech's
fees if there are significant variances from estimated implementation expenses.
OPERATIONS
TeleTech provides its customer care services through the operation of
state-of-the-art Call Centers located in the United States, the United Kingdom,
Australia and New Zealand. As of April 30, 1996, TeleTech leased seven Call
Centers and also managed two Call Centers on behalf of United Parcel Service.
Additional expansion planned for 1996 includes the opening of a new
Company-owned Call Center, expansion of an existing facility and opening of a
third United Parcel Service-owned Call Center. See "-- Facilities."
TeleTech uses its standardized development procedures to minimize Call
Center development lead times. The Company applies predetermined site selection
criteria to identify locations conducive to operating large scale, sophisticated
customer care facilities in a cost-effective manner. TeleTech can establish a
new, fully operational, inbound Call Center containing 450 or more workstations
within 90-150 days. In the last fourteen months, TeleTech has established two
Company-owned Call Centers and two United Parcel Service-owned Call Centers,
including a total of approximately 2,400 workstations.
A typical U.S. TeleTech Call Center has approximately 50,000 square feet of
space and contains approximately 450 workstations. Call Center capacity can vary
based on the complexity and type of customer care programs provided. All
TeleTech Call Centers are designed to operate 24 hours a day, seven days a week.
TeleTech received ISO 9002 certification for its Burbank Call Center in 1995 and
currently is involved in a Company-wide ISO 9002 certification process.
CALL CENTER MANAGEMENT. TeleTech manages its U.S. Call Centers through its
Technology Command Center in Colorado (the "Command Center"). The Command Center
operates 24 hours per day, 7 days a week, and is responsible for monitoring,
coordinating and managing TeleTech's U.S. operations. Each U.S. Call Center is
connected to the Command Center and to other U.S. Call Centers through multiple
fiber optic voice/data T-1 circuits to form an integrated and redundant wide
area network. This network connectivity provides a high level of security and
redundancy that is integral to TeleTech's ability to ensure recovery
capabilities in the event of a disaster or structural failure. If a Call Center
were to experience extreme excess call volume or become non-operational, the
Command Center is configured to re-route incoming calls to another Call Center
in a virtually transparent, uninterrupted manner.
TeleTech also has established a set of uniform operational policies and
procedures to ensure the consistent delivery of high-quality service at each
Call Center. These policies and procedures detail specific performance
standards, productivity and profitability objectives and daily administrative
routines designed to ensure efficient operation. TeleTech believes that
recruiting, training and managing full-time Representatives who are dedicated to
a single client facilitates seamless integration between client and
Representative, enhances service quality and efficiency and differentiates
TeleTech from its competitors.
TeleTech utilizes a number of sophisticated applications designed to
minimize administrative burdens and maximize productivity. Such applications
include a proprietary, integrated agent performance system
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that tracks Representative activity at each workstation and a proprietary
billing system that tracks time expended on administration, training, data
processing and other processes conducted in support of client or internal tasks.
QUALITY ASSURANCE. TeleTech monitors and measures the quality and accuracy
of its customer interactions through a quality assurance department located at
each Call Center. Each department evaluates, on a real-time basis, at least 1.5%
of all calls per day. TeleTech also has the capabilities to enable its clients
to monitor customer interactions on a real-time basis. Quality assurance
professionals monitor customer interactions and simultaneously score
Representatives according to criteria mutually determined by the Company and the
client. Representatives are evaluated and provided with feedback on their
performance on a weekly basis and, as appropriate, recognized for superior
performance or scheduled for additional training and coaching.
TECHNOLOGY
Utilizing industry standard tools, the Company creates relational database
management systems customized for each client. These systems enable it to track
the details of each customer interaction and consolidate that information into a
customer file, which can be accessed and referred to by Representatives as they
deliver services. TeleTech Call Centers employ state-of-the-art technology that
incorporates digital switching technology, object-oriented software modules,
relational database management systems, proprietary call tracking and workforce
management systems, CTI and interactive voice response. TeleTech's digital
switching technology enables calls to be routed to the next available
Representative with the appropriate knowledge, skill and language sets. Call
tracking and workforce management systems generate and track historical call
volumes by client, enabling the Company to schedule personnel efficiently to
accommodate anticipated fluctuations in call volume. This technology base
enables TeleTech to provide single call resolution and decrease customer hold
times, thereby enhancing customer satisfaction.
TeleTech-owned Call Centers utilize "Universal Representative" workstations
with inbound, outbound, Internet and faxback capabilities, the majority of which
run on Pentium-Registered Trademark--based computers. All workstations are
PC-based and utilize CTI technology, which connects the computer to a telephone
switch allowing calls and computer data to be transferred simultaneously. By
using simple, intuitive graphical user interfaces (GUI), which substitute
graphics for text, TeleTech enables its Representatives to focus on assisting
the customer, rather than on the technology, and obtain customer information
using significantly fewer keystrokes. The user-friendly interface also helps to
decrease training time and increase the speed of call handling.
TeleTech's applications software is designed using products developed by
Microsoft, Oracle, Novell, IBM and others. TeleTech has invested significant
resources in designing, developing and debugging industry-specific and
open-systems software applications and tools. As a result, TeleTech maintains an
extensive library of reusable object-oriented code modules for use by TeleTech's
applications development professionals to develop customized customer care
software. TeleTech's systems capture and download a variety of information
obtained during each customer interaction into relational databases for
real-time, daily, weekly or monthly reporting to clients. TeleTech runs its
applications software on open-systems, client-server architecture that utilizes
computer processors, server components and hardware platforms produced by
manufacturers such as Compaq, Hewlett Packard, IBM and Sun Microsystems.
TeleTech has and will continue to invest significant resources into the research
and development of new and emerging customer care and technical support
technologies.
HUMAN RESOURCES
TeleTech's success in recruiting, hiring and training large numbers of
skilled employees is critical to its ability to provide high-quality customer
care solutions to its clients. TeleTech generally locates its Call Centers in
metropolitan areas that have access to higher education and a major
transportation infrastructure. TeleTech endeavors to offer a competitive pay
scale, hire primarily full-time employees who are eligible to receive the full
range of employee benefits and provide employees with a clear, viable career
path.
31
<PAGE>
TeleTech is committed to the continued education and development of its
employees and believes that providing TeleTech employees with access to new
learning opportunities produces job satisfaction, ensures a higher quality labor
force and fosters loyalty between TeleTech's employees and the clients they
serve. Before taking customer calls, Representatives receive from one to five
weeks of on-site training in TeleTech's or the client's training facilities to
learn about the client's corporate culture, specific product or service
offerings and the customer care program that TeleTech and the client will be
undertaking. Representatives also receive a minimum of six to eight hours of
on-going training per month and often receive supplemental laboratory training
as needed to provide high-quality customer service and product support.
As of April 30, 1996, TeleTech had 3,653 employees. Of its total employees,
2,795 were full-time Representatives, constituting 81.5% of its total
Representatives. None of TeleTech's employees are subject to a collective
bargaining agreement and TeleTech believes its relations with its employees are
good.
INTERNATIONAL OPERATIONS
TeleTech operates one Call Center in each of Australia and New Zealand, and
a third Call Center located in the United Kingdom that is operated through the
Company's joint venture with a subsidiary of PPP Healthcare Group plc ("PPP"),
one of the largest private medical insurers in the United Kingdom. In January
1996, TeleTech acquired Access 24, a leading provider of customer care solutions
to Australian and New Zealand companies primarily in the health care and
financial services industries. The operations of Access 24 have been
substantially integrated with TeleTech's operations and the Company intends to
leverage Access 24's experience by introducing similar services in the United
States. TeleTech operates Call Centers in Sydney, Australia and Auckland, New
Zealand, containing an aggregate of 131 workstations, and intends to develop a
traditional customer care outsourcing business in Australia and New Zealand, as
well as the United Kingdom.
On April 30, 1996, TeleTech entered into a joint venture with PPP, which
currently serves more than 2.3 million customers throughout the United Kingdom
and owns long-term health insurance, dental care and finance companies. TeleTech
and PPP have agreed to provide, exclusively through the joint venture and
initially solely in the United Kingdom and Ireland, distinct, value-added
customer care services. Apart from the joint venture, TeleTech intends to
provide traditional outsourcing services, similar to the type TeleTech provides
in the United States, in the United Kingdom. See "Business--Services." The joint
venture, which will operate initially from the 172-workstation Call Center
located in London, currently provides services only to PPP customers but intends
to eventually offer its services to customers of other companies.
COMPETITION
The Company believes that it competes primarily with the in-house
teleservices and customer service operations of its current and potential
clients. TeleTech also competes with certain companies operating in the
teleservices industry, including Access Health, Inc., APAC Teleservices, AT&T
American Transtech, Electronic Data Systems, MATRIXX Marketing Inc., SITEL
Corporation, STREAM and Sykes Enterprises Incorporated. TeleTech competes
primarily on the basis of quality and scope of services provided, speed and
flexibility of implementation and technological expertise. Although the
teleservices industry is very competitive and highly fragmented with numerous
small participants, management believes that TeleTech generally does not
directly compete with traditional telemarketing companies, which provide
primarily outbound "cold calling" services.
32
<PAGE>
FACILITIES
TeleTech's corporate headquarters are located in Denver, Colorado in
approximately 27,000 square feet of leased office space that also contains a 553
workstation Call Center. As of April 30, 1996, TeleTech leased (unless otherwise
noted) and operated the following Call Centers, containing an aggregate of
approximately 225,000 square feet:
<TABLE>
<CAPTION>
YEAR OPENED OR NUMBER OF
LOCATION ACQUIRED WORKSTATIONS(1)
- --------------------------------------------------------------- --------------- -----------------
<S> <C> <C>
U.S. CALL CENTERS
Sherman Oaks, California....................................... 1985 388
Denver, Colorado............................................... 1993 553
Burbank, California............................................ 1995 414
Thornton, Colorado............................................. 1996 475
INTERNATIONAL CALL CENTERS (2)
Sydney, Australia.............................................. 1996 104
London, United Kingdom (3)..................................... 1996 172
Auckland, New Zealand.......................................... 1996 27
MANAGED ON BEHALF OF UNITED PARCEL SERVICE
Greenville, South Carolina..................................... 1996 725
Tucson, Arizona................................................ 1996 762
Tampa, Florida (4)............................................. 1996 940
-----
Total number of workstations............................... 4,560
-----
-----
</TABLE>
- ---------
(1) Includes training positions, which are fully operative as production
positions when necessary.
(2) Acquired January 1, 1996 through TeleTech's acquisition of Access 24. See
"--International Operations."
(3) Managed through the Company's joint venture with PPP. See "--International
Operations."
(4) The Company expects to commence operations at this Call Center in June 1996.
The leases for TeleTech's U.S. Call Centers have terms ranging from one to
eight years and generally contain renewal options. The Company plans to open a
United Parcel Service-owned Call Center in Tampa, Florida in June 1996, as well
as a Call Center in Houston, Texas in August 1996. It also plans to expand its
Thornton Call Center by 267 positions by July 15, 1996. Pursuant to its
agreement with United Parcel Service, if United Parcel Service opens a fourth
call center, TeleTech has the option to staff and manage such Call Center. The
Company believes that its existing Call Centers are suitable and adequate for
its current operations but that additional Call Centers, including the expansion
currently planned for 1996, will be required to support continued growth.
LEGAL PROCEEDINGS
From time to time the Company is involved in litigation, most of which is
incidental to its business. In the Company's opinion, no litigation to which the
Company currently is a party is likely to have a material adverse effect on the
Company's results of operations or financial condition.
33
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- --- --------------------------------------------------------
<S> <C> <C>
Kenneth D. Tuchman 36 Chairman of the Board, President, Chief Executive
Officer and Director
Joseph D. Livingston 51 Senior Vice President and Chief Operating Officer
Steven B. Coburn 42 Chief Financial Officer
Alan Silverman (1) 52 Director
Richard Weingarten (1) 45 Director
Samuel Zell 53 Director
</TABLE>
- ---------
(1) Member of the Compensation and Audit Committees of the Board of Directors of
the Company.
MR. TUCHMAN founded TeleTech and has served as its Chairman of the Board of
Directors, President and Chief Executive Officer since TeleTech's formation in
December 1994. Mr. Tuchman also is the founder and has served as the President
and Chief Executive Officer of each of TeleTech Telecommunications, Inc. and
TeleTech Teleservices, Inc., two operating subsidiaries of TeleTech, since their
formation in October 1982 and November 1992, respectively.
MR. LIVINGSTON has served the Company since February 1992 in various
capacities, including as Senior Vice President and Chief Operating Officer and
previously as Vice President of Operations and Technology. From 1989 to 1992,
Mr. Livingston was the Director of MIS Systems & Operations of Livestone
Corporation, a division of American Eastern Securities, and from 1985 to 1989 he
was employed by Coopers & Lybrand, an international accounting firm, as Director
of West Region MIS and Strategic Management Services for International Business.
MR. COBURN has served as Chief Financial Officer of the Company since
October 1995. From October 1989 to September 1995, Mr. Coburn was employed by U
S West, a diversified telecommunications company, and various of its affiliates,
during which time he served as Finance Director and Chief Financial Officer of
Interactive Video Enterprises, as Finance Director of U S West Marketing
Resources Group and as Finance Director and Controller of U S West Marketing
Services. In 1993, Mr. Coburn established and managed the finance, accounting
and treasury activities of U S West Polska, a start up operation in Warsaw,
Poland.
MR. SILVERMAN, who has served as a director of TeleTech since January 1995,
is an independent investor and has been a director of Exhibition Video
International, a company that is developing technology for satellite and video
transmissions, since 1992. Mr. Silverman has served since 1970 as a director and
is President of Essaness Theatres Corporation ("Essaness"), an investment
holding company. Mr. Silverman is a director of Keystone Biomedical, Inc., a
company that develops, tests and licenses pharmaceutical agents, and, since
1980, has been a director of Video 44, a Hispanic television broadcasting
company. Mr. Silverman also serves as a director of various private
corporations.
MR. WEINGARTEN has served as a director of TeleTech since January 1995. Mr.
Weingarten founded Richard Weingarten & Company, Inc., a company that provides
investment banking and financial advisory services, in 1991 and has served as
its President since its formation. From 1988 through 1991, Mr. Weingarten was a
Managing Director of Bear, Stearns & Co., Inc. and, from 1989 until 1991, served
as Director of Corporate Finance for its Southeastern region. Mr. Weingarten
currently serves as a director of Capsure Holdings Corp. ("Capsure"), a holding
company whose principal subsidiaries are specialty property and casualty
insurers.
34
<PAGE>
MR. ZELL has served as a director of TeleTech since January 1995. Mr. Zell
serves as Chairman of the Board of Great American Management and Investments,
Inc., a diversified holding company, Anixter International Inc., a provider of
integrated network and cabling solutions, Falcon Building Products, Inc., a
manufacturer and supplier of building products, American Classic Voyages Co., an
owner and operator of cruise lines, Manufactured Home Communities, Inc., a real
estate investment trust specializing in the ownership and management of
manufactured home communities, Capsure, Equity Group Investments, Inc. and other
private corporations. Mr. Zell also serves as Chairman of the Board of Trustees
of Equity Residential Properties Trust, an owner and operator of multifamily
residential properties, and as Co-Chairman of the Board of Revco D.S., Inc., a
drug store chain. Mr. Zell is a director of Quality Food Centers, Inc., an
independent supermarket chain, and Sealy Corporation, a maker of bedding and
related products. Mr. Zell was President of Madison Management Group, Inc., a
holding company of low-tech manufacturing companies ("Madison"), prior to
October 4, 1991. Madison filed a petition for reorganization under the Federal
bankruptcy laws in November 1991.
ARRANGEMENTS FOR NOMINATION AS DIRECTOR
Directors are elected at each annual meeting of stockholders of the Company
to serve for one-year terms. After the closing of the Offering, the directors
intend to appoint persons in accordance with TeleTech's By-laws to fill the
current vacancies on the Board of Directors.
In connection with the sale of its Preferred Stock in January 1995, certain
stockholders of TeleTech executed an agreement (the "Investment Agreement")
pursuant to which they agreed to elect each year to TeleTech's Board of
Directors two individuals nominated by TeleTech Investors General Partnership
("TIGP") and Essaness and five individuals designated by Mr. Tuchman. Each of
the current directors of TeleTech was elected as a nominee of Mr. Tuchman or of
TIGP and Essaness pursuant to the Investment Agreement. The rights and
obligations of Mr. Tuchman, TIGP and Essaness to elect directors under the
Investment Agreement will terminate upon the closing of the Offering.
TeleTech's Certificate of Incorporation entitles the holders of Preferred
Stock, as a class, to elect two individuals, and entitles the holders of Common
Stock, as a class, to elect five individuals, to the Board of Directors of
TeleTech. The Restated Certificate of Incorporation, to be filed immediately
prior to the closing of the Offering, provides that the holders of a majority of
the outstanding Common Stock will elect all directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has standing Audit and Compensation Committees, which
assist the Board in the discharge of its responsibilities. Members of each such
committee are elected by the Board at its first meeting following the annual
meeting and serve for one year terms.
The Audit Committee reports to the Board regarding the appointment of the
independent public accountants of TeleTech, the scope and fees of the
prospective annual audit and the results thereof, compliance with TeleTech's
accounting and financial policies and management's procedures and policies
relative to the adequacy of TeleTech's internal accounting controls. The current
members of the Audit Committee are Alan Silverman and Richard Weingarten,
neither of whom is an employee of TeleTech.
The Compensation Committee reviews and approves the annual salary and bonus
for each executive officer (consistent with the terms of any applicable
employment agreement), reviews, approves and recommends terms and conditions for
all employee benefit plans (and changes thereto) and administers the Option Plan
and such other employee benefit plans as may be adopted by TeleTech from time to
time. The current members of the Compensation Committee are Alan Silverman and
Richard Weingarten, each of whom is a non-employee director of TeleTech.
COMPENSATION OF DIRECTORS
TeleTech does not pay its directors a fee for their services as such;
however, all directors are reimbursed for travel expenses incurred in attending
board and committee meetings.
35
<PAGE>
The TeleTech Holdings, Inc. Directors Stock Option Plan, which was approved
by the Board of Directors of the Company effective January 1996 (the "Directors
Option Plan"), provides for the automatic annual grant, to each director who is
neither an employee of the Company nor, after this Offering, the beneficial
owner of 5% or more of the outstanding Common Stock, of options to acquire
shares of Common Stock. A total of 750,000 shares of Common Stock are reserved
for issuance pursuant to options granted under the Directors Option Plan. All
options granted under the Directors Option Plan are non-qualified options that
are not intended to qualify under Section 422 of the Code.
The Directors Option Plan currently provides that each eligible director
will receive options to acquire (i) 12,500 shares of Common Stock upon such
director's initial election to the Board of Directors and (ii) on the date of
each annual meeting of stockholders held each year thereafter at which such
director is re-elected, 12,500 shares of Common Stock for services to be
rendered as a director and 6,250 for services as a member on each committee of
the Board of Directors to which such director is appointed. The exercise price
of each option granted under the Directors Option Plan shall be equal to the
fair market value of the Common Stock on the date of grant. Options granted
under the Directors Option Plan (a) vest immediately, (b) are not exercisable
until six months after the date of grant and (c) expire on the earliest to occur
of the tenth anniversary of the date of grant, one year following the director's
death or immediately upon the director's termination of membership on the Board
of Directors for Cause (as defined in the Directors Option Plan).
As of May 15, 1996, options to acquire an aggregate of 225,000 shares of
Common Stock, at an exercise price of $5.00 per share, were outstanding under
the Directors Option Plan. Each of Messrs. Silverman, Weingarten and Zell has
been granted options under the Directors Option Plan to acquire 25,000 shares of
Common Stock in consideration for services rendered as a director of the Company
during 1995. In addition, each of Messrs. Weingarten and Silverman has been
granted options under the Directors Option Plan to acquire an additional 25,000
shares of Common Stock for services rendered during 1995 as members of the Audit
and Compensation Committees of the Board of Directors. Messrs. Weingarten,
Silverman and Zell have been granted options to acquire 37,500, 37,500 and
25,000 shares of Common Stock, respectively, for services rendered and to be
rendered as a director of the Company in 1996.
INCENTIVE COMPENSATION PLAN
In order to attract, retain and motivate qualified employees, align employee
interests with those of the stockholders and reward employees for enhancing the
value of the Company, TeleTech has established the TeleTech Holdings, Inc.
Incentive Compensation Plan (the "Incentive Plan"). Under the Incentive Plan,
certain management-level employees of the Company are eligible to receive annual
performance bonuses based upon the Company's achievement of certain
predetermined financial goals. Awards under the Incentive Plan will be paid
annually from an incentive pool, which is funded annually by a percentage of the
amount by which the net income of the Company exceeds the established threshold
performance level for that year. From this incentive pool, each SBU executive,
manager and key employee is entitled to receive a cash incentive award up to an
annual bonus limitation, which is determined each year based upon the
recipient's base salary. No awards will be made under the Incentive Plan, which
was adopted on May 14, 1996, until 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Alan Silverman and Richard Weingarten are the current members of the
Compensation Committee of the Board of Directors.
Pursuant to the Amended and Restated Investment Agreement to take effect
upon the closing of the Offering, certain existing stockholders of the Company
(the "Existing Stockholders") are entitled, by majority vote, to require
TeleTech, at its sole expense, to register under the Securities Act all or part
of their Common Stock. In addition, if TeleTech proposes to register any of its
securities under the Securities Act for its own account, the Existing
Stockholders may require TeleTech, at its sole expense, to include in such
registration all or part of the 8,300,000 shares of Common Stock owned by the
Existing Stockholders. Mr. Silverman owns 258,330 shares of Common Stock. TIGP,
a partnership of which Mr. Weingarten is a general partner, owns 8,525,000
shares of Common Stock; however, the managing general partner of TIGP
36
<PAGE>
holds sole power to vote and dispose of all shares owned by TIGP. The Company
has been advised that, immediately following the closing of the Offering, TIGP
will be dissolved and its assets will be distributed to its partners. See
"Principal and Selling Stockholders."
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION. The following table sets
forth information with respect to all compensation earned by TeleTech's chief
executive officer and TeleTech's two other executive officers as of December 31,
1995 (collectively, the "Named Executive Officers") for services rendered to
TeleTech during 1995.
SUMMARY COMPENSATION TABLE FOR 1995
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) ($) ($) (1)
- ---------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Kenneth D. Tuchman, Chairman, President & Chief
Executive Officer.................................. $ 750,000 $ 250,000 $ 56,300(2) $ 10,830
Joseph D. Livingston, Senior Vice President & Chief
Operating Officer.................................. 174,090(3) 168,743(4) -- 4,500
Steven B. Coburn, Chief Financial Officer........... 28,000(5) -- -- --
</TABLE>
- ---------
(1) Represents the full dollar value of premiums paid by the Company with
respect to life insurance for the benefit of Mr. Tuchman or Mr. Livingston
and his respective beneficiaries.
(2) Includes $20,000 in aggregate membership dues and initiation fees, $17,500
paid as a car allowance, $15,600 for lease of a townhouse and other
perquisites and personal benefits paid by the Company to or on behalf of Mr.
Tuchman.
(3) Includes approximately $11,340 paid to Mr. Livingston for accrued but unused
vacation time.
(4) Includes a $75,000 annual performance bonus and an approximately $93,700
one-time bonus for Mr. Livingston's assistance in obtaining a client
contract.
(5) Mr. Coburn joined TeleTech in October 1995 at an annual base salary of
$120,000. See "--Employment Agreements."
OPTION GRANTS. The following table sets forth information regarding grants
of stock options under the Option Plan during 1995 to the Named Executive
Officers.
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED ANNUAL
SHARES PERCENTAGE OF RATES OF STOCK PRICE
UNDERLYING TOTAL OPTIONS APPRECIATION FOR OPTION
OPTIONS GRANTED TO EXERCISE TERM (3)
GRANTED EMPLOYEES IN PRICE PER EXPIRATION ------------------------
NAME (#) FISCAL YEAR SHARE (1) DATE (2) 5% 10%
- ----------------------------------- ----------- ----------------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth D. Tuchman................. -- -- -- -- -- --
Joseph D. Livingston............... 750,000 36% $ 1.29 1/1/2005 $ 608,456 $ 1,541,946
Steven B. Coburn................... 250,000 12% 2.00 9/15/2005 314,447 796,871
</TABLE>
- ---------
(1) Each option has been granted pursuant to the Option Plan and expires on the
date ten years after the date of grant. The exercise price equals the fair
market value of the Common Stock on the grant date, as determined by the
Board of Directors based upon the most recent price prior to the grant date
at which the Company, in arms' length transactions, had issued Common Stock
in connection with acquisitions or had sold Preferred Stock in capital
raising transactions.
37
<PAGE>
(2) Options granted to Messrs. Livingston and Coburn vest pro rata over the
three years and five years, respectively, following the date of grant.
(3) The potential realizable value is calculated assuming that the fair market
value on the date of grant, which equals the exercise price, appreciates at
the indicated annual rate (set by the Commission), compounded annually for
the term of the option. Based on the initial price to public in the
Offering, the actual realizable value of the options will substantially
exceed the potential realizable values shown in the table.
OPTION HOLDINGS. No options were exercised by Named Executive Officers in
1995. The following table sets forth information with respect to the aggregate
number and value of shares underlying unexercised options held by each of the
Named Executive Officers as of December 31, 1995.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AS OF DECEMBER 31, IN-THE- MONEY OPTIONS AS
1995 OF DECEMBER 31, 1995 (1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kenneth D. Tuchman.................................. -- -- -- --
Joseph D. Livingston................................ 250,000 500,000 $ 927,500 $ 1,855,000
Steven B. Coburn.................................... -- 250,000 -- 750,000
</TABLE>
- ---------
(1) The exercise price of each option was based on the deemed fair market value
of the option shares at fiscal year end ($5.00 per share as determined by
the Board of Directors based on the most recent price prior to December 31,
1995 at which the Company had issued or agreed to issue Common Stock) less
the exercise price payable for such shares.
TELETECH STOCK OPTION PLAN
The Company's Option Plan was adopted by the Board of Directors in December
1994 and by the Company's stockholders in January 1995 and was amended and
restated in January 1996. The Option Plan authorizes the issuance of up to
7,000,000 shares of Common Stock through the grant of (i) incentive stock
options ("ISOs") within the meaning of Section 422 of the Code, (ii) stock
options that are not intended to qualify under Section 422 of the Code ("NSOs"
and together with ISOs, "Options"), (iii) stock appreciation rights ("SARs"),
(iv) restricted stock and (v) phantom stock. Directors, officers, employees,
consultants and independent contractors of the Company or any subsidiary of the
Company, as selected from time to time by the committee administering the Option
Plan, are eligible to participate in the Option Plan. As of May 15, 1996,
Options to acquire an aggregate of 472,085 shares of Common Stock and 76,000
shares of restricted stock were outstanding. No SARs or phantom stock have been
issued under the Option Plan.
The Option Plan provides that it is to be administered by a committee
comprised of two or more disinterested directors appointed by the Board of
Directors (the "Committee"). The Compensation Committee of the Board of
Directors, which is comprised of two disinterested directors of the Company,
currently acts as the Committee under the Option Plan. Subject to certain
limitations, the Committee has complete discretion to determine which eligible
individuals are to receive awards under the Option Plan, the form and vesting
schedule of awards, the number of shares subject to each award and the exercise
price, the manner of payment and expiration date applicable to each award.
All awards under the Option Plan are subject to vesting and forfeiture.
Unless the Committee establishes otherwise at the time of award, all awards
under the Option Plan vest at an accelerating rate over a period of five years.
Set forth below is a summary of the terms of the Option Plan that are
applicable to each of the various types of awards covered thereby.
38
<PAGE>
OPTIONS. All Options expire on the date that is the earliest of three
months after the holder's termination of employment with the Company (other than
termination for Cause), six months after the holder's death and 10 years after
the date of grant. Options also are subject to forfeiture upon termination of
employment or directorship for "Cause." The exercise price per share of an ISO
is determined by the Committee at the time of grant but in no event may be less
than the fair market value of the Common Stock on the date of grant.
Notwithstanding the foregoing, if an ISO is granted to a participant who owns
more than 10% of the voting power of all classes of stock of the Company, the
exercise price must be at least 110% of the fair market value of the Common
Stock and the exercise period must not exceed five years from the date of grant.
The exercise price per share of an NSO is determined by the Committee in its
sole discretion.
SARS. SARs may be issued independent of an Option or, alternatively, in
connection with an Option (a "Tandem SAR"), in which case the Tandem SAR
terminates simultaneously upon the expiration of the related Option. A Tandem
SAR is only exercisable if the fair market value of a share of Common Stock
exceeds the exercise price of the related Option.
RESTRICTED STOCK. Restricted stock entitles the holder thereof to
participate as a stockholder of the Company; however, the holder may not sell,
transfer, pledge or otherwise encumber such stock prior to the time it vests. A
holder of restricted stock forfeits all unpaid accumulated dividends and all
shares of restricted stock that have not vested prior to the date that such
holder's employment with the Company is terminated for any reason.
PHANTOM STOCK. Phantom stock entitles the holder thereof to surrender any
vested portion of such phantom stock in exchange for cash or shares of Common
Stock, as the Committee may determine, in an amount equal to the fair market
value of Common Stock on the date of surrender.
EMPLOYMENT AGREEMENTS
TeleTech entered into an employment agreement with Kenneth D. Tuchman as
Chairman of the Board and President of TeleTech for a term commencing on January
1, 1995 and ending on December 27, 1997 (the "Term"). Subsequent thereto, Mr.
Tuchman also was elected as the Chief Executive Officer of TeleTech. Pursuant to
the agreement, Mr. Tuchman is entitled to receive an annual base salary of
$750,000, as adjusted on January 1 of each year during the Term by the annual
percentage increase in the Consumer Price Index for Urban Wage Earners and
Clerical Workers for the Denver metropolitan area (the "CPI Percentage"). Mr.
Tuchman also is eligible to receive an annual performance bonus not to exceed
$250,000, as adjusted annually by the CPI Percentage, based upon TeleTech's
achievement of certain predetermined performance goals. The agreement requires
the Company to maintain, on behalf of Mr. Tuchman, a $24 million life insurance
policy (half of which is payable to his beneficiaries), disability insurance,
accident, death and dismemberment insurance, errors and omissions insurance with
a policy limit of not less than $1 million and entitles Mr. Tuchman to receive
certain perquisites specified therein. Under the terms of his agreement, Mr.
Tuchman is prohibited, during his employment and for three years thereafter,
from disclosing any confidential information or trade secrets of TeleTech. Mr.
Tuchman also is prohibited, during his employment and for three years after the
Company terminates his employment for Good Cause (as defined therein) or Mr.
Tuchman voluntarily terminates his employment with the Company, from engaging in
any business, or becoming employed by or otherwise rendering services to any
company (other than TeleTech) that has as its primary business inbound or
outbound teleservices. The agreement provides that if TeleTech terminates Mr.
Tuchman's employment for Good Cause, TeleTech will pay Mr. Tuchman his salary as
accrued through the date of termination. If TeleTech terminates Mr. Tuchman's
employment without Good Cause, TeleTech will pay to him the lesser of (i) the
sum of his salary as accrued through the date of termination, his performance
bonus, prorated for any portion of the year remaining and calculated as if
TeleTech had achieved its performance goals, and the present value of all
payments that otherwise would have been made to him during the remainder of the
Term, calculated as if TeleTech had achieved its performance goals, or (ii)
three times the aggregate salary and performance bonus earned by him in the
immediately preceding year.
TeleTech entered into an employment agreement with Joseph D. Livingston as
Senior Vice President and Chief Operating Officer of TeleTech effective January
1, 1995. Pursuant to the agreement, as amended,
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Mr. Livingston is entitled to receive an annual base salary of $160,000 for 1995
and $250,000 for 1996 and thereafter and also is eligible to receive an annual
performance bonus based upon TeleTech's achievement of certain predetermined
performance goals. TeleTech also has granted Mr. Livingston options to purchase
750,000 and 75,000 shares of Common Stock at an exercise price of $1.29 and
$8.00 per share, respectively, which options vest over three and five years from
the date of grant, respectively. Mr. Livingston's employment with TeleTech is
terminable at any time by either party, with or without cause. Upon termination
of employment, Mr. Livingston will be entitled to unpaid compensation for
services rendered through the date of termination, together with employee
benefits accrued through the date of termination. Under the terms of his
agreement, Mr. Livingston is prohibited from disclosing any confidential
information or trade secrets of TeleTech. The Agreement also prohibits Mr.
Livingston, for the three years after termination of his employment with
TeleTech, from engaging in any business or becoming employed or otherwise
rendering services to any company engaging in, inbound or outbound teleservices,
development or maintenance of voice or data communication, certain software
applications, customer communications services or technological innovation or
support for any of the foregoing.
The Company entered into a three year employment agreement commencing on
October 2, 1995 with Steven B. Coburn. Pursuant to the agreement, Mr. Coburn
serves as Chief Financial Officer of the Company and is entitled to receive an
annual base salary of $120,000 for 1995 and, commencing January 1, 1996, an
annual base salary of $135,000. Mr. Coburn also is eligible to receive an annual
performance bonus of not more than twenty-five percent of his salary upon the
Company's achievement of certain predetermined performance goals. The Company
has granted Mr. Coburn options to purchase 250,000 shares of Common Stock at an
exercise price of $2.00 per share, which options vest over a period of five
years beginning with the thirteenth month of his employment. The agreement
prohibits Mr. Coburn from disclosing any confidential information or trade
secrets of the Company. Mr. Coburn also is prohibited, during his employment and
for three years after the Company terminates his employment for Good Cause (as
defined therein) or Mr. Coburn voluntarily terminates his employment with the
Company, from engaging in any business, or becoming employed by or otherwise
rendering services to any company (other than TeleTech), that has as its primary
business inbound or outbound teleservices or technological innovation or support
with respect thereto.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
TeleTech's Restated Certificate of Incorporation and By-laws provide that
TeleTech shall indemnify its directors, and may indemnify its officers,
employees and other agents, to the fullest extent permitted by Delaware law. The
Company also is authorized to secure insurance on behalf of any person it is
required or permitted to indemnify. Pursuant to this provision, TeleTech
maintains liability insurance for the benefit of its directors and officers.
TeleTech has entered into agreements to indemnify its directors and certain
of its officers, in addition to the indemnification provided for in TeleTech's
Restated Certificate of Incorporation and By-laws. These agreements provide,
among other things, that TeleTech will indemnify its directors and officers for
all direct and indirect expenses and costs (including, without limitation, all
reasonable attorneys' fees and related disbursements, other out-of-pocket costs
and reasonable compensation for time spent by such persons for which they are
not otherwise compensated by TeleTech or any third person) and liabilities of
any type whatsoever (including, but not limited to, judgements, fines and
settlement fees) actually and reasonably incurred by such person in connection
with either the investigation, defense, settlement or appeal of any threatened,
pending or completed action, suit or other proceeding, including any action by
or in the right of the corporation, arising out of such person's services as a
director, officer, employee or other agent of TeleTech, any subsidiary of
TeleTech or any other company or enterprise to which the person provides
services at the request of TeleTech. TeleTech believes that these provisions and
agreements are necessary to attract and retain talented and experienced
directors and officers.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In addition to the transactions described elsewhere in this Prospectus, the
following transactions have been effected, or are being contemplated, involving
the Company, and its directors, executive officers or stockholders. See
"Management--Compensation Committee Interlocks and Insider Participation" and
"Shares Eligible for Future Sale."
During 1995, TeleTech provided reservations call handling services to Midway
Airlines Corporation ("Midway"), a majority-owned subsidiary of Zell/Chilmark
Fund, L.P. Samuel Zell, a director of TeleTech, is an affiliate of Zell/Chilmark
Fund, L.P. During the twelve months ended December 31, 1995 and March 31, 1996,
TeleTech charged Midway an aggregate of $1,291,862 and $600,904, respectively,
for services rendered by TeleTech. As of December 31, 1995 and March 31, 1996,
the total amounts due from Midway for services rendered by TeleTech were
$535,845 and $570,274, respectively, of which $354,526 and $462,958,
respectively, were past due. TeleTech has continued to provide reservations call
handling services to Midway in the current fiscal year.
In April 1996, TeleTech agreed to accept from Midway, and Midway delivered
to the Company, a promissory note in the principal amount of $500,000 to
evidence a portion of the total amount due and owing. The note bears interest at
a rate of 8% per annum and is payable in 12 equal installments of principal,
together with interest, commencing May 1, 1996.
TeleTech has agreed to pay, prior to the closing of the Offering, $1 million
to Equity Group Investments, Inc. ("EGI"), an affiliate of Mr Zell, a director
of TeleTech, for certain advisory services rendered by EGI in connection with
the Offering, the acquisition of Access 24 and the joint venture with PPP. The
Company may retain EGI, or other affiliates of Mr. Zell, to render similar
services after the Offering. Any such engagement, and the terms upon which such
engagement will occur, will be subject to the prior approval of disinterested
directors of the Company. Of the $1 million payable to EGI, approximately
$500,000 relate to services rendered in connection with the Offering and are
included as expenses thereof.
TeleTech has utilized the services of The Riverside Agency, Inc. in
reviewing, obtaining or renewing various insurance policies. The Riverside
Agency, Inc. is a wholly-owned subsidiary of EGI. During the twelve months ended
December 31, 1995, The Riverside Agency, Inc. invoiced TeleTech an aggregate of
$23,965 and $47,930, respectively, for services rendered.
Under the terms of the Stock Transfer and Registration Rights Agreement
among Access 24 Holdings Pty Limited and Bevero Pty Limited, existing holders of
Common Stock (the "Common Stockholders"), and TeleTech, if TeleTech proposes to
register any of its securities under the Securities Act for its own account, the
Common Stockholders may require TeleTech, at its sole expense, to include in
such registration all or part of the 970,240 shares of Common Stock held by the
Common Stockholders. None of such shares are being registered in connection with
the Offering.
In 1993 and 1994, Mr. Tuchman made loans to the Company that were evidenced
by subordinated promissory notes with an interest rate of 8% per annum. In 1995,
the Company paid interest of $11,000 to Mr. Tuchman on such notes. In connection
with the Company's restructuring and sale of $12 million of Preferred Stock in
January 1995, the Company repaid the approximately $1.2 million outstanding
balance of such notes. Also in 1995, TeleTech paid a dividend of approximately
$452,000 to Mr. Tuchman.
TeleTech believes that all transactions disclosed above have been, and
TeleTech's Board of Directors intends that any future transactions with its
officers, directors, affiliates or principal stockholders will be, on terms that
are no less favorable to TeleTech than those that are obtainable in arms' length
transactions with unaffiliated third parties.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of May 15, 1996, and as
adjusted to reflect the sale of shares of Common Stock being offered hereby, by
(i) each stockholder who is known by the Company to beneficially own more than
5% of the currently outstanding shares of Common Stock, (ii) each of the
Company's directors and the Named Executive Officers, (iii) all directors and
executive officers of the Company as a group and (iv) the Selling Stockholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED PRIOR SHARES BENEFICIALLY OWNED
TO THE OFFERING NUMBER OF AFTER THE OFFERING
DIRECTORS, EXECUTIVES OFFICERS ------------------------------- SHARES BEING ----------------------------
AND CERTAIN STOCKHOLDERS (1) NUMBER PERCENT OFFERED (2) NUMBER PERCENT
- ----------------------------------------------- ------------------ ----------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Kenneth D. Tuchman............................. 40,700,000(3) 79.7% 1,000,000 39,700,000 72.1%
Joseph D. Livingston........................... 354,167(4) * -- 354,167 *
Steven B. Coburn............................... -- * -- -- *
Alan Silverman................................. 345,830(5)(6) * -- 345,830 *
Richard Weingarten............................. 87,500(6)(7) * -- 255,834(7) *
Samuel Zell.................................... 8,575,000(8) 16.8 950,000(9) 2,570,973(8) 4.7%
All directors and executive officers as a group
(6 persons)................................... 50,049,997 98.1 1,950,000(10) 42,647,637 77.7
Jack Silverman................................. 258,340(11) * 50,000 208,340 *
TeleTech Investors General Partnership
c/o Equity Group Investments, Inc.
Two North Riverside Plaza
Chicago, Illinois 60606........................ 8,525,000(12) 16.7 950,000 -- *
</TABLE>
- ---------
* Less than one percent
(1)The address of each director and executive officer is in care of the
Company, 1700 Lincoln Street, Suite 1400, Denver, Colorado 80203.
(2)Assumes no exercise of the Underwriters' over-allotment option. If the
Underwriters' over-allotment option is exercised, Mr. Tuchman will sell up
to 900,000 additional shares and, assuming all such shares are sold, he will
beneficially own 38,800,000 shares or 70.5% of the total outstanding shares.
(3)Mr. Tuchman is the founder, Chairman of the Board of Directors, President
and Chief Executive Officer of TeleTech. See "Management."
(4)Includes 354,167 shares of Common Stock subject to options granted under the
Option Plan, which are exercisable as of the date of this Prospectus. Mr.
Livingston is the Senior Vice President and Chief Operating Officer of the
Company. See "Management."
(5)Includes 258,330 shares of Common Stock issuable upon conversion of 51,666
shares of Preferred Stock owned by Mr. Silverman, which he has agreed to
convert into Common Stock pursuant to the Preferred Stock Conversion, and
87,500 shares subject to options exercisable as of the date of this
Prospectus. See note (6) below.
(6)Includes 87,500 shares of Common Stock subject to options granted to each of
Messrs. Silverman and Weingarten under the Directors Option Plan. See
"Management--Compensation of Directors."
(7) Mr. Weingarten, as a general partner of TeleTech Investors General
Partnership ("TIGP"), owns an undivided interest in the 8,525,000 shares of
Common Stock issuable upon conversion of TIGP's 1,705,000 shares of
Preferred Stock. Zell General Partnership, Inc., an affiliate of Mr. Zell
and the managing general partner of TIGP (the "Managing General Partner"),
has the sole power to vote and dispose of these shares. Upon dissolution of
TIGP (see note (8) below), Mr. Weingarten will receive a
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<PAGE>
distribution of his proportionate share of the net proceeds from TIGP's sale
of Common Stock and the remaining shares of Common Stock not sold by TIGP in
the Offering. Following such distribution, Mr. Weingarten will own 255,834
shares of Common Stock, which includes 87,500 shares of Common Stock subject
to options granted under the Directors Option Plan.
(8) Includes 50,000 shares of Common Stock subject to options granted to Mr.
Zell under the Directors Option Plan and, prior to the Offering 8,525,000
shares of Common Stock issuable upon conversion of the 1,705,000 shares of
Preferred Stock owned by TIGP. See note (10) below and "Certain
Relationships and Related Party Transactions." The Managing General Partner
has agreed to convert, pursuant to the Preferred Stock Conversion, all of
its shares of Preferred Stock into shares of Common Stock. The Company has
been advised that, immediately after the closing of the Offering, TIGP will
be dissolved and the net proceeds from TIGP's sale of Common Stock, and the
remaining shares of Common Stock not sold by TIGP in the Offering, will be
distributed to its partners. Following such distribution, Mr. Zell will
beneficially own 2,570,973 shares of Common Stock, which includes 50,000
shares of Common Stock subject to options granted under the Directors Option
Plan. See "Management" and "Certain Relationships and Related Party
Transactions."
(9) Represents the shares being sold by TIGP.
(10) Represents the shares being sold by Mr. Tuchman and TIGP.
(11) The shares reflected in the table are issuable upon conversion of, and Mr.
Silverman has agreed to convert in the Preferred Stock Conversion, his
51,668 shares of Preferred Stock into shares of Common Stock.
(12) Includes 8,525,000 shares of Common Stock issuable upon the conversion, to
occur immediately prior and subject to consummation of the Offering, of the
1,705,000 shares of Preferred Stock owned by TIGP. The Company has been
advised that, immediately after the closing of the Offering, TIGP will be
dissolved and its assets will be distributed to its partners. See notes (7)
and (8) above.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Pursuant to the Company's Certificate of Incorporation, the Company has
authority to issue an aggregate of 51,860,000 shares of capital stock,
consisting of 50,000,000 shares of Common Stock, par value $.002 per share, and
1,860,000 shares of Preferred Stock, par value $6.45 per share. As of May 15,
1996, after giving effect to the five-for-one stock split, the Company's issued
and outstanding capital stock consisted of 41,746,240 shares of Common Stock,
held by five holders of record, and 1,860,000 shares of Preferred Stock, held by
four holders of record. Pursuant to the Preferred Stock Conversion, the holders
of all of the issued and outstanding shares of Preferred Stock have agreed to
convert, immediately prior and subject to the closing of the Offering, all of
the 1,860,000 shares of Preferred Stock owned by them into an aggregate of
9,300,000 shares of Common Stock. Thus, no information regarding the currently
outstanding Preferred Stock is set forth below.
Concurrently with the closing of the Offering, officers of the Company will
cause to be filed in Delaware and to take effect a Restated Certificate of
Incorporation of the Company (the "Restated Certificate"). Under the Restated
Certificate, the Company will have authority to issue an aggregate of
160,000,000 shares of capital stock, consisting of 150,000,000 shares of Common
Stock, par value $.002 per share, and 10,000,000 shares of preferred stock.
Set forth below is a description of the Common Stock, and of preferred stock
that may be issued, under the Restated Certificate.
COMMON STOCK
The rights of the holders of the Common Stock discussed below are subject to
such rights as the Board of Directors may hereafter confer on the holders of the
preferred stock; accordingly, rights conferred on holders of preferred stock
issued under the Restated Certificate may adversely affect the rights of holders
of the Common Stock.
Subject to the right of holders of Preferred Stock, the holders of
outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available therefor, at such times and in such amounts as the
Board of Directors may from time to time determine. See "Dividend Policy." The
shares of Common Stock are neither redeemable nor convertible and the holders
thereof have no preemptive or subscription rights to purchase any securities of
the Company. Upon liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive, PRO RATA, the assets of the
Company that are legally available for distribution, after payment of all debts
and other liabilities and subject to the prior rights of any holders of
Preferred Stock then outstanding. Each outstanding share of Common Stock is
entitled to one vote on all matters submitted to a vote of stockholders. There
is no cumulative voting in the election of directors.
PREFERRED STOCK
The Restated Certificate authorizes the Board of Directors to issue
preferred stock in classes or series and to establish the designations,
preferences, qualifications, limitations or restrictions of any class or series
with respect to, among other things, the rate and nature of dividends, the
price, terms and conditions on which shares may be redeemed, the terms and
conditions for conversion or exchange into any other class or series of the
stock and voting rights. The Company will have authority, without approval of
the holders of Common Stock, to issue preferred stock that has voting, dividend
or liquidation rights superior to the Common Stock and that may adversely affect
the rights of holders of Common Stock. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, adversely affect the voting power
of the holders of Common Stock and could have the effect of delaying, deferring
or preventing a change in control of the Company. The Company currently has no
plans to issue any shares of preferred stock.
DELAWARE STATUTORY BUSINESS COMBINATION PROVISION
Section 203 of the Delaware General Corporation Law ("DGCL") is applicable
to corporate takeovers in Delaware. Subject to certain exceptions set forth
therein, Section 203 of the DGCL provides that a corporation shall not engage in
any business combination with any "interested stockholder" for a three-year
44
<PAGE>
period following the date that such stockholder becomes an interested
stockholder unless (a) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder, (b) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain specified shares) or (c) on or subsequent to such
date, the business combination is approved by the board of directors of the
corporation and by the affirmative vote of at least 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder. Except as
specified therein, an "interested stockholder" is defined to include any person
that is (i) the owner of 15% or more of the outstanding voting stock of the
corporation, (ii) an affiliate or associate of that corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation, at any
time within three years immediately prior to the relevant date, and (iii) an
affiliate or associate of the persons described in the foregoing clauses (i) or
(ii). Under certain circumstances, Section 203 of the DGCL makes it more
difficult for an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
stockholders may, by adopting an amendment to the corporation's certificate of
incorporation or By-laws, elect for the corporation not to be governed by
Section 203, effective twelve months after adoption. None of the Certificate of
Incorporation, the Restated Certificate and the By-laws exempt the Company from
the restrictions imposed under Section 203 of the DGCL. It is anticipated that
the provisions of Section 203 of the DGCL may encourage companies interested in
acquiring the Company to negotiate in advance with the Board of Directors of the
Company because the stockholder approval requirement would be avoided if a
majority of the directors then in office approve either the business combination
or the transaction that results in the stockholder becoming an interested
stockholder.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is
.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, TeleTech will have outstanding 55,046,240
shares of Common Stock. Of these outstanding shares of Common Stock, 8,015,200
shares, including the shares to be sold in the Offering, will be freely
tradeable without restriction or further registration under the Securities Act,
unless purchased by "affiliates" of TeleTech, as that term is defined in Rule
144 promulgated under the Securities Act. The remaining 49,031,040 shares of
Common Stock are "restricted securities" as the term is defined in Rule 144
("Restricted Shares"). Restricted Shares may be sold in the public market only
if registered or if such shares qualify for an exemption from registration under
Rules 144 or 701 promulgated under the Securities Act, which are summarized
below. Sales of the Restricted Shares in the public market, or the availability
of such shares for sale, could adversely affect the market price of the Common
Stock.
All officers and directors and certain stockholders (including the Selling
Stockholders) and option holders of TeleTech have agreed that they will not,
directly or indirectly, without the prior written consent of Morgan Stanley &
Co. Incorporated, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of any shares of
Common Stock or any securities convertible into or exchangeable for Common
Stock, for a period of 180 days after the date of this Prospectus. The Company
has been advised that TIGP, one of the Selling Stockholders, intends to dissolve
after the Offering and distribute its shares of Common Stock to its partners,
provided that all of such partners have agreed to be bound by the 180-day
lock-up arrangement. The number of outstanding shares subject to the lock-up
arrangements that will be available for sale in the public market, upon
expiration of the 180-day lock-up period, will be approximately shares.
The approximately remaining Restricted Shares will become eligible for
sale upon expiration of their respective two-year holding periods or upon
exercise of the registration rights described below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years (including, in certain circumstances, the holding period of a
prior owner) would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (i) one percent of the number of
shares of Common Stock then outstanding (which will equal approximately 570,400
shares immediately after the Offering); or (ii) the average weekly trading
volume of the Common Stock during the four calendar weeks preceding the filing
of a Form 144 with respect to such sale. Sales under Rule 144 are also subject
to certain "manner of sale" provisions and notice requirements and to the
availability of current public information about TeleTech. Under Rule 144(k), a
person who is not deemed to have been an affiliate of TeleTech at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least three years (including, in certain
circumstances, the holding period of a prior owner), is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144; therefore, unless otherwise
restricted, "144(k) shares" may be sold immediately upon the completion of the
Offering.
In addition, any employee, officer or director of or consultant to TeleTech
who purchased his or her shares pursuant to a written compensatory plan or
contract may be entitled to rely on the resale provisions of Rule 701. Rule 701
permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the public information, volume limitation or
notice provisions of Rule 144.
Following the Offering, the Company intends to file under the Securities Act
one or more registration statements on Form S-8 to register all of the shares of
Common Stock (i) subject to outstanding options and reserved for future option
grants under the Option Plan and (ii) subject to options granted outside of the
Option Plan. These registration statements are expected to become effective upon
filing and shares covered by these registration statements will be eligible for
sale, subject, in the case of affiliates only, to the restrictions of Rule 144,
other than the holding period requirement, and subject to expiration of the
lock-up agreements with the Underwriters.
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<PAGE>
Pursuant to the Amended and Restated Investment Agreement to take effect
upon the closing of the Offering, the Existing Stockholders are entitled, by
majority vote, to require TeleTech, at its sole expense, to register under the
Securities Act all or part of their Common Stock. In addition, if TeleTech
proposes to register any of its securities under the Securities Act for its own
account, the Existing Stockholders may require TeleTech, at its sole expense, to
include in such registration all or part of the 9,300,000 shares of Common Stock
owned by the Existing Stockholders. These registration rights will continue in
effect following the Preferred Stock Conversion and the closing of the Offering.
An aggregate of 1,000,000 such shares are being registered by the Selling
Stockholder in connection with the Offering. See "Compensation Committee
Interlocks and Insider Participation."
Under the terms of the Stock Transfer and Registration Rights Agreement, if
TeleTech proposes to register any of its securities under the Securities Act for
its own account, the Common Stockholders may require TeleTech, at its sole
expense, to include in such registration all or part of the 970,240 shares of
Common Stock held by the Common Stockholders. None of such shares are being
registered in connection with the Offering. See "Certain Relationships and
Related Party Transactions."
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<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following discussion concerns the material United States federal income
and estate tax consequences of the ownership and disposition of shares of Common
Stock applicable to Non-U.S. Holders of such shares of Common Stock. In general,
a "Non-U.S. Holder" is any holder other than (i) a citizen or resident of the
United States, (ii) a corporation or partnership created or organized in the
United States or under the law of the United States or any State or (iii) an
estate or trust whose income is includible in gross income for United States
federal income tax purposes regardless of its source. The discussion is based on
current law, which is subject to change retroactively or prospectively, and is
for general information only. The discussion does not address all aspects of
federal income and estate taxation and does not address any aspects of state,
local or non-U.S. tax laws. The discussion does not consider any specific facts
or circumstances that may apply to a particular Non-U.S. Holder (including the
fact that in the case of a Non-U.S. Holder that is a partnership, the United
States tax consequences of holding and disposing of shares of Common Stock may
be affected by certain determinations made at the partner level). Accordingly,
prospective investors are urged to consult their tax advisors regarding the
United States federal, state, local and non-U.S. income and other tax
consequences of holding and disposing of shares of Common Stock.
DIVIDENDS. Dividends, if any (see "Dividend Policy"), paid to a Non-U.S.
Holder generally will be subject to United States withholding tax at a 30% rate
(or a lower rate as may be prescribed by an applicable tax treaty) unless the
dividends are effectively connected with a trade or business of the Non-U.S.
Holder within the United States. Dividends effectively connected with a trade or
business will generally not be subject to withholding (if the Non-U.S. Holder
properly files an executed United States Internal Revenue Service ("IRS") Form
4224 with the payor of the dividend) and generally will be subject to United
States federal income tax on a net income basis at regular graduated rates. In
the case of a Non-U.S. Holder which is a corporation, such effectively connected
income also may be subject to the branch profits tax (which is generally imposed
on a foreign corporation on the repatriation from the United States of
effectively connected earnings and profits). The branch profits tax may not
apply if the recipient is a qualified resident of certain countries with which
the United States has an income tax treaty. To determine the applicability of a
tax treaty providing for a lower rate of withholding, dividends paid to a
stockholder's address of record in a foreign country are presumed, under the
current IRS position, to be paid to a resident of that country, unless the payor
has knowledge that such presumption is not warranted or an applicable tax treaty
(or United States Treasury Regulations thereunder) requires some other method
for determining a non-U.S. Holder's residence. However, recently proposed U.S.
Treasury Regulations, if adopted, would modify the forms and procedures for this
certification.
SALE OF COMMON STOCK. Generally, a Non-U.S. Holder will not be subject to
United States federal income tax on any gain realized upon the disposition of
such holder's shares of Common Stock unless (i) the gain is effectively
connected with a trade or business carried on by the Non-U.S. Holder with the
United States (in which case the branch profits tax may apply); (ii) the
Non-U.S. Holder is an individual who holds the shares of Common Stock as a
capital asset and is present in the United States for 183 days or more in the
taxable year of the disposition and to whom such gain is United States source;
(iii) the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S.
tax law applicable to certain former United States citizens or residents; or
(iv) the Company is or has been a "U.S. real property holding corporation" for
federal income tax purposes (which the Company does not believe that it is or is
likely to become) at any time during the five year period ending on the date of
disposition (or such shorter period that such shares were held) and, subject to
certain exceptions, the Non-U.S. Holder held, directly or indirectly, more than
five percent of the Common Stock.
ESTATE TAX. Shares of Common Stock owned or treated as owned by an
individual who is not a citizen or resident (as specifically defined for United
States federal estate tax purposes) of the United States at the time of death
may be subject to United States federal estate tax.
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<PAGE>
BACKUP WITHHOLDING AND INFORMATION REPORTING
DIVIDENDS. The Company must report annually to the IRS and to each Non-U.S.
Holder the amount of dividends paid to and the tax withheld, if any, with
respect to such holder. These information reporting requirements apply
regardless of whether withholding was reduced by an applicable tax treaty.
Copies of these information returns may also be available under the provisions
of a specific treaty or agreement with the tax authorities in the country in
which the Non-U.S. Holder resides. Dividends that are subject to United States
withholding tax at the 30% statutory rate or at a reduced tax treaty rate and
dividends that are effectively connected with the conduct of a trade or business
in the United States (if certain certification and disclosure requirements are
met) are exempt from backup withholding of U.S. federal income tax. In general,
backup withholding at a rate of 31% and information reporting will apply to
other dividends paid on shares of Common Stock to holders that are not "exempt
recipients" and fail to provide in the manner required certain identifying
information (such as the holder's name, address and taxpayer identification
number). Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients.
DISPOSITIONS OF COMMON STOCK. The payment of the proceeds from the
disposition of shares of Common Stock through the United States office of a
broker will be subject to information reporting and backup withholding unless
the holder, under penalties of perjury, certifies, among other things, its
status as a Non-U.S. Holder, or otherwise establishes an exemption. Generally,
the payment of the proceeds from the disposition of shares of Common Stock to or
through a non-U.S. office of a broker will not be subject to backup withholding
and will not be subject to information reporting. In the case of the payment of
proceeds from the disposition of shares of Common Stock through a non-U.S.
office of a broker that is a U.S. person or a "U.S.-related person," existing
regulations require information reporting (but not backup withholding) on the
payment unless the broker receives a statement from the owner, signed under
penalties of perjury, certifying, among other things, its status as a Non-U.S.
Holder, or the broker has documentary evidence in its files that the owner is a
Non-U.S. Holder and the broker has no actual knowledge to the contrary. For tax
purpose, a "U.S.-related person" is (i) a "controlled foreign corporation" for
United States federal income tax purposes or (ii) a foreign person 50% or more
of whose gross income from all sources for the three year period ending with the
close of its taxable year preceding the payment (or for such part of the period
that the broker has been in existence) is derived from activities that are
effectively connected with the conduct of a United States trade or business.
Any amount withheld from a payment to a Non-U.S. Holder under the backup
withholding rules will be allowed as a credit against such holder's United
States federal income tax liability and may entitle such holder to a refund,
provided that the required information is furnished to the IRS. Non-U.S. Holders
should consult their tax advisors regarding the application of these rules to
their particular situations, the availability of an exemption therefrom and the
procedures for obtaining such an exemption, if available.
49
<PAGE>
UNDERWRITERS
Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof, the U.S. Underwriters named below, for whom
Morgan Stanley & Co. Incorporated, Alex. Brown & Sons Incorporated and Smith
Barney Inc. are serving as U.S. Representatives, have severally agreed to
purchase, and the Company and the Selling Stockholders have severally agreed to
sell, and the International Underwriters named below, for whom Morgan Stanley &
Co. International Limited, Alex. Brown & Sons Incorporated and Smith Barney Inc.
are serving as International Representatives (collectively with the U.S.
Representatives, the "Representatives"), have severally agreed to purchase, and
the Company and the Selling Stockholders have severally agreed to sell, the
respective number of shares of Common Stock that in the aggregate equal the
number of shares set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- --------------------------------------------------------------------------------------------- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated........................................................
Alex. Brown & Sons Incorporated..........................................................
Smith Barney Inc.........................................................................
Subtotal.............................................................................
---------
International Underwriters:
Morgan Stanley & Co. International Limited...............................................
Alex. Brown & Sons Incorporated..........................................................
Smith Barney Inc.........................................................................
---------
Subtotal.............................................................................
---------
Total................................................................................
---------
---------
</TABLE>
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by counsel and to certain other conditions, including the
conditions that no stop order suspending the effectiveness of the Registration
Statement is in effect and no proceedings for such purpose are pending before or
threatened by the Securities and Exchange Commission and that there has been no
material adverse change or any development involving a prospective material
adverse change in the earnings, results of operations or financial condition of
the Company and its subsidiaries, taken as a whole, from that set forth in the
Registration Statement. The Underwriters are obligated to take and pay for all
of the shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any are taken.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions set
forth below, (i) it is not purchasing any U.S. Shares (as defined below) for the
account of anyone other than a United States or Canadian Person (as defined
below) and (ii) it has not offered or sold, and will not offer or sell, directly
or indirectly, any U.S. Shares or distribute this Prospectus outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions set forth below, (a) it is not purchasing any International Shares
(as defined below) for the account of any United States or Canadian Person and
(b) it has not offered or sold, and will not offer or sell, directly or
indirectly, any International Shares or distribute this Prospectus within the
United States or Canada or to any United States or Canadian Person. The
foregoing limitations do not apply to stabilization transactions or to certain
other transactions specified in the Agreement Between U.S. and International
Underwriters. With respect to Smith Barney Inc.
50
<PAGE>
and Alex. Brown & Sons Incorporated, the foregoing representations or agreements
(a) made by them in their capacity as U.S. Underwriters shall apply only to
shares of Common Stock purchased by them in their capacity as U.S. Underwriters,
(b) made by them in their capacity as International Underwriters shall apply
only to shares of Common Stock purchased by them in their capacity as
International Underwriters and (c) shall not restrict their ability to
distribute this Prospectus to any person. As used herein, "United States or
Canadian Person" means any national or resident of the United States or Canada
or any corporation, pension, profit-sharing or other trust or other entity
organized under the laws of the United States or Canada or of any political
subdivision thereof (other than a branch located outside of the United States
and Canada of any United States or Canadian Person) and includes any United
States or Canadian branch of a person who is not otherwise a United States or
Canadian Person, and "United States" means the United States of America, its
territories, its possessions and all areas subject to its jurisdiction. All
shares of Common Stock to be offered by the U.S. Underwriters and International
Underwriters under the Underwriting Agreement are referred to herein as the
"U.S. Shares" and the "International Shares," respectively.
Pursuant to the Agreement Between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and the International Underwriters of
any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price and
currency settlement of any shares of Common Stock so sold shall be the public
offering price range set forth on the cover page hereof, in United States
dollars, less an amount not greater than the per share amount of the concession
to dealers set forth below.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in
Canada in contravention of the securities laws of Canada or any province or
territory thereof and has represented that any offer of such shares in Canada
will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer is made.
Each U.S. Underwriter has further agreed to send to any dealer who purchases
from it any shares of Common Stock a notice starting in substance that, by
purchasing such shares, such dealer represents and agrees that it has not
offered or sold, and will not offer or sell, directly or indirectly, any of such
shares in Canada in contravention of the securities laws of Canada or any
province or territory thereof and that any offer of shares of Common Stock in
Canada will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer is made,
and that such dealer will deliver to any other dealer to whom it sells any of
such shares a notice to the foregoing effect.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented that (i) it has not offered or sold
and will not offer or sell any shares of Common Stock to persons in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to such shares in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and will
only issue or pass on to any person in the United Kingdom any document received
by it in connection with the issue of such shares, if that person is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995, or is a person to whom such document
may otherwise lawfully be issued or passed on.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that it has not offered or
sold, and will not offer or sell, directly or indirectly, in Japan or to or for
the account of any resident thereof, any shares of Common Stock acquired in
connection with the Offering, except for offers or sales of Japanese
International Underwriters or dealers and except pursuant to any exemption from
the registration requirements of the Securities and Exchange Law of Japan. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of such shares of Common Stock a notice stating in substance that
such dealer may not offer or sell any
51
<PAGE>
of such shares, directly or indirectly, in Japan or to or for the account of any
resident thereof, except pursuant to any exemption from the registration
requirements of the Securities and Exchange Law of Japan, and that such dealer
will send to any other dealer to whom it sells any of such shares a notice to
the foregoing effect.
The Underwriters propose to offer part of the shares of Common Stock offered
hereby directly to the public at the public offering price set forth in the
cover page hereof and part to certain dealers at a price which represents a
concession not in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share to other Underwriters or to certain other dealers.
After the initial offering of the shares of Common Stock, the offering price and
other selling terms may from time to time be varied by the Representatives.
Pursuant to the Underwriting Agreement, Mr. Tuchman, one of the Selling
Stockholders, has granted to the U.S. Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional 900,000
shares of Common Stock at the public offering price set forth on the cover page
hereof, less underwriting discounts and commissions. The U.S. Underwriters may
exercise such option to purchase solely for the purpose of covering
over-allotments, if any, incurred in the sale of the shares of Common Stock
offered hereby. To the extent such option is exercised, each U.S. Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such U.S. Underwriters' name in the preceding table bears to the total number of
shares of Common Stock offered hereby to the U.S. Underwriters.
The Representatives have informed the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
See "Shares Eligible for Future Sale" for a description of certain
arrangements by which all officers, directors and certain stockholders and
option holders of the Company have agreed not to sell or otherwise dispose of
Common Stock or convertible securities of the Company for up to 180 days after
the date of this Prospectus without the prior consent of Morgan Stanley & Co.
Incorporated. The Company and the Selling Stockholders have agreed in the
Underwriting Agreement that they will not, directly or indirectly, without the
prior written consent of Morgan Stanley & Co. Incorporated, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any shares of Common Stock or any securities convertible
into or exchangeable for Common Stock, for a period of 180 days after the date
of this Prospectus, except under certain circumstances. TIGP, one of the Selling
Stockholders, is permitted to distribute its remaining shares of Common Stock to
its partners, provided that all of such partners have agreed to be bound by the
180-day lock-up arrangement.
PRICING OF THE OFFERING
Prior to the Offering, there has been no public market for the Company's
Common Stock. The initial public offering price will be determined by
negotiation between the Company and the Representatives. Among the factors to be
considered in determining the initial public offering price will be the future
prospects of the Company and its industry in general, revenues, earnings and
certain other financial and operating information of the Company in recent
periods and the price-earnings ratios, price-revenues ratios, market prices of
securities and certain financial and operating information of companies engaged
in activities similar to those of the Company. The estimated initial public
offering price range set forth on the cover page of this Preliminary Prospectus
is subject to change as a result of market conditions and other factors.
52
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for TeleTech by Neal, Gerber & Eisenberg, Chicago, Illinois. Certain legal
matters in connection with the Offering will be passed upon for the Underwriters
by Katten Muchin & Zavis, Chicago, Illinois.
EXPERTS
The financial statements of TeleTech as of December 31, 1994 and 1995, and
for each of the two years in the period ended December 31, 1995 and the
financial statements Access 24 for the 10 months ended December 31, 1995 and for
the year ended February 28, 1995 included in this Prospectus and elsewhere in
the Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
The financial statements of TeleTech as of December 31, 1993 and for the 11
month period ended December 31, 1993 included in this Prospectus and elsewhere
in the Registration Statement have been audited by Gumbiner, Savett, Finkel,
Fingleson & Rose, Inc. (formerly Gumbiner, Savett, Friedman & Rose, Inc.),
independent public accountants, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
TeleTech has filed with the Commission under the Securities Act a
Registration Statement on Form S-1 with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
omits certain of the information contained in the Registration Statement and the
exhibits and schedules thereto on file with the Commission pursuant to the
Securities Act and the rules and regulations of the Commission thereunder. For
further information with respect to TeleTech and the Common Stock, reference is
made to the Registration Statement and the exhibits and schedules thereto. The
Registration Statement, including exhibits and schedules thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission, including at the Commission's Public Reference Room, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
Regional Offices at 7 World Trade Center, Suite 1300, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies may be obtained at prescribed rates from the Public Reference
Section of the Commission as its principal office in Washington, D.C.
Statements contained in this Prospectus as to the contents of any contract
or other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other documents filed as an
exhibit to the Registration Statement, each such statement being qualified in
its entirety by such reference.
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
TELETECH HOLDINGS, INC.
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Gumbiner, Savett, Finkel, Fingleson & Rose, Inc. (formerly Gumbiner, Savett, Friedman & Rose,
Inc.)..................................................................................................... F-2
Report of Arthur Andersen LLP.............................................................................. F-3
Consolidated and Combined Balance Sheets as of December 31, 1994 and 1995, and
March 31, 1996............................................................................................ F-4
Consolidated and Combined Statements of Income for the eleven months ended December 31, 1993, the years
ended December 31, 1994 and 1995 and the three months ended March 31, 1995 and 1996....................... F-6
Consolidated and Combined Statements of Stockholders' Equity for the years ended December 1994 and 1995.... F-7
Consolidated and Combined Statements of Cash Flows for the eleven months ended December 31, 1993, the years
ended December 31, 1994 and 1995 and the three months ended March 31, 1995 and 1996....................... F-8
Notes to Consolidated and Combined Financial Statements for the years ended December 31, 1994 and 1995 and
for the eleven months ended December 31, 1993 and for the three months ended March 31, 1995 and 1996...... F-10
</TABLE>
ACCESS 24 SERVICE CORPORATION PTY LIMITED
AND CONTROLLED ENTITIES
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated Balance Sheets as of February 29, 1995 and December 31, 1995.................................. F-26
Consolidated Profit and Loss Accounts for the year ended February 28, 1995 and the ten months ended
December 31, 1995......................................................................................... F-27
Consolidated Statements of Cash Flows for the year ended February 28, 1995 and the ten months ended
December 31, 1995......................................................................................... F-28
Notes to the Consolidated Financial Statements for the years ended February 28, 1995 and the ten months
ended December 31, 1995................................................................................... F-29
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
TeleTech Holdings, Inc.
Denver, Colorado
We have audited the accompanying combined statements of income and cash
flows of TeleTech Telecommunications, Inc. and TeleTech Teleservices, Inc. ("the
Companies") (see Note 1) for the eleven months ended December 31, 1993. These
combined statements of income and cash flows are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
combined statements of income and cash flows based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined statements of income and cash
flows are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
statements of income and cash flows. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the combined statements of income and
cash flows. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the combined statements of income and cash flows referred to
above present fairly, in all material respects, the results of the Companies'
operations and cash flows for the eleven months ended
December 31, 1993 in conformity with generally accepted accounting principles.
GUMBINER, SAVETT, FINKEL, FINGLESON & ROSE, INC.
(formerly Gumbiner, Savett, Friedman & Rose, Inc.)
Santa Monica, California
April 13, 1994
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TeleTech Holdings, Inc.:
We have audited the accompanying consolidated and combined balance sheets of
TELETECH HOLDINGS, INC. (a Delaware corporation) and subsidiaries, as of
December 31, 1994 and 1995, and the related consolidated and combined statements
of income, 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 consolidated and combined financial statements referred
to above present fairly, in all material respects, the consolidated and combined
financial position of TeleTech Holdings, Inc. and subsidiaries as of December
31, 1994 and 1995, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 10, 1996.
F-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the members of
Access 24 Service Corporation Pty Limited
We have audited the accompanying financial statements of Access 24 Service
Corporation Pty Limited and Controlled Entities and of the economic entity for
the periods ended 28 February 1995 and December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on those financial statements based on
our audit.
We conducted our audit in accordance with Australian Auditing Standards,
which do not differ substantially from generally accepted auditing standards in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free from material misstatements. An audit includes examining, on a test
basis, evidence supporting 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 audit provides 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 Access 24 Service
Corporation Pty Limited and Controlled Entities as of 28 February 1995 and
December 31, 1995, and the results of the group's operations and cash flows for
the periods then ended in accordance with Australian Accounting Standards.
There are certain differences between Australian Accounting Standards and
those generally accepted in the United States of America. Application of the
generally accepted accounting principles in the United States of America would
not result in material differences to these financial statements.
ARTHUR ANDERSEN
Chartered Accountants
/s/ Arthur Andersen Chartered
Accountants
Sydney, Australia,
May 21, 1996
F-4
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED AND COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
ASSETS 1994 1995
- ---------------------------------------------------- ------------- ------------- MARCH 31, PRO FORMA
1996 MARCH 31,
------------- 1996
(UNAUDITED) -------------
(UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................... $ 37,733 $ 42,304 $ 728,403
Short-term investments............................ -- 10,361,213 8,203,527
Accounts receivable, net of allowance for doubtful
accounts of $172,512, $788,907 and $896,685,
respectively..................................... 4,298,147 9,786,123 14,280,609
Prepaids and other assets......................... 201,439 238,022 608,896
Deposits.......................................... 123,883 220,243 432,010
Deferred tax asset (Note 8)....................... -- 485,742 637,720
------------- ------------- -------------
Total current assets............................ 4,661,202 21,133,647 24,891,165
------------- ------------- -------------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $3,935,136, $6,059,424 and
$6,987,766, respectively........................... 5,386,456 9,103,701 16,308,351
------------- ------------- -------------
OTHER ASSETS:
Deposits.......................................... 53,968 -- --
Deferred contract costs (Note 1).................. -- 345,978 1,731,234
Goodwill (net of amortization of $108,000) (Note
1)............................................... -- -- 6,272,193
Other assets...................................... -- -- 251,297
------------- ------------- -------------
Total assets.................................... $ 10,101,626 $ 30,583,326 $ 49,454,240
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-5
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED AND COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1995
- --------------------------------------------------------- ------------ ------------ MARCH 31, PRO FORMA
1996 MARCH 31,
------------ 1996
(UNAUDITED) ------------
(UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Bank overdraft......................................... $ 560,490 $ 1,427,017 $ --
Short term borrowings (Note 6)......................... 638,635 1,000,000 3,500,000
Current portion of capital lease obligations
(Note 4).............................................. 401,001 1,255,966 2,129,440
Current portion of other long-term debt (Note 5)....... 624,483 195,660 189,443
Current portion of subordinated notes payable to
stockholder (Note 7).................................. 145,299 -- --
Accounts payable....................................... 1,442,503 2,604,297 4,820,221
Accrued employee compensation.......................... 962,664 1,742,915 3,452,438
Other accrued expenses................................. 475,142 1,261,984 4,322,239
Customer advances and deposits......................... 165,756 292,626 537,282
Deferred income........................................ 25,683 47,699 560,215
------------ ------------ ------------
Total current liabilities............................ 5,441,656 9,828,164 19,511,278
DEFERRED TAX LIABILITIES (Note 8)........................ -- 507,365 498,790
LONG-TERM DEBT, net of current portion:
Capital lease obligations (Note 4)..................... 911,578 3,192,997 5,408,307
Subordinated note payable to stockholder
(Note 7).............................................. 959,038 -- --
Other debt (Note 5).................................... 592,282 396,618 1,127,846
------------ ------------ ------------
Total liabilities.................................... 7,904,554 13,925,144 26,546,221
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 9)
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK (Notes
1 and 11):
$6.45 par value, 1,860,000 shares authorized, zero,
1,860,000, 1,860,000, and zero shares respectively
issued and outstanding (including accrued dividends of
zero, $867,430, $1,078,645 and zero).................. -- 12,867,430 13,078,645 --
------------ ------------ ------------ ------------
STOCKHOLDERS' EQUITY (Note 1):
Common stock, $.002 par value, 150,000,000 shares
authorized, zero, 40,700,000, 41,746,240 and
51,046,240 shares, respectively issued and
outstanding........................................... -- 81,400 83,493 102,093
Common stock of combined entities, no par value
10,000,000 shares authorized, 127,500, zero, zero and
zero shares, respectively, issued and outstanding..... 25,000 -- -- --
Additional paid-in capital............................. -- 2,172,072 7,401,179 20,461,224
Cumulative translation adjustment...................... -- -- 141,095 141,095
Unearned compensation-restricted stock................. -- -- (380,000) (380,000)
Retained earnings...................................... 2,172,072 1,537,280 2,583,607 2,583,607
------------ ------------ ------------ ------------
Total stockholders' equity........................... 2,197,072 3,790,752 9,829,374 22,908,019
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity........... $ 10,101,626 $ 30,583,326 $ 49,454,240
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-6
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
ELEVEN THREE MONTHS ENDED MARCH
MONTHS ENDED YEAR ENDED DECEMBER 31, 31,
DECEMBER 31, -------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES.................................... $ 19,519,593 $ 35,462,172 $ 50,467,490 $ 10,412,306 $ 22,019,345
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES:
Costs of services......................... 10,726,189 17,405,789 27,245,961 5,468,962 11,194,498
Selling, general and administrative
expenses................................. 7,956,176 15,860,157 18,625,431 4,328,934 8,102,020
------------ ------------ ------------ ------------ ------------
Total operating expenses................ 18,682,365 33,265,946 45,871,392 9,797,896 19,296,518
------------ ------------ ------------ ------------ ------------
INCOME FROM OPERATIONS...................... 837,228 2,196,226 4,596,098 614,410 2,722,827
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES):
Interest expense.......................... (299,552) (481,516) (459,589) (102,912) (234,013)
Interest income........................... -- -- 577,350 152,400 111,308
Other (Note 14)........................... -- -- 2,371,221 2,288,390 (341,278)
------------ ------------ ------------ ------------ ------------
(299,552) (481,516) 2,488,982 2,337,878 (463,983)
------------ ------------ ------------ ------------ ------------
Income before income taxes.............. 537,676 1,714,710 7,085,080 2,952,288 2,258,844
PROVISION (BENEFIT) FOR INCOME TAXES........ (10,000) 19,736 2,928,996 1,324,463 1,001,302
------------ ------------ ------------ ------------ ------------
Net income.............................. $ 547,676 $ 1,694,974 $ 4,156,084 $ 1,627,825 $ 1,257,542
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
SHARES USED IN COMPUTING PRO FORMA NET
INCOME PER COMMON AND COMMON EQUIVALENT
SHARE...................................... 54,657,975 54,585,654 54,682,083
------------ ------------ ------------
------------ ------------ ------------
PRO FORMA NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE........................... $.08 $.03 $.02
------------ ------------ ------------
------------ ------------ ------------
PRO FORMA NET INCOME AND EARNINGS PER COMMON
SHARE (UNAUDITED)
(Notes 1 and 8):
Historical net income before income
taxes.................................. $ 537,676 $ 1,714,710
Historical provision (benefit) for
income taxes........................... (10,000) 19,736
Pro forma income tax effects............ 248,996 657,866
------------ ------------
Pro forma net income.................... $ 298,680 $ 1,037,108
------------ ------------
------------ ------------
Pro forma common shares outstanding..... 44,085,354 44,085,354
------------ ------------
------------ ------------
Pro forma earnings per common share..... $.01 $.02
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MANDATORILY
REDEEMABLE, STOCKHOLDERS' EQUITY
CONVERTIBLE ----------------------------------------------------------
PREFERRED COMMON
STOCK COMMON STOCK STOCK OF ADDITIONAL CUMULATIVE
---------------------- -------------------- COMBINED PAID-IN TRANSLATION
SHARES AMOUNT SHARES AMOUNT ENTITIES CAPITAL ADJUSTMENT
--------- ----------- --------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1994................ $ 25,000 $ -- $ --
Distribution to stockholder............ -- -- --
Net income............................. -- -- --
----------- ---------- -----------
BALANCES, December 31, 1994.............. -- $ -- -- $ -- 25,000 -- --
Issue of Preferred Stock (Note 11)..... 1,860,000 12,000,000 -- -- -- -- --
Adjustment to reclassify retained
earnings to additional paid in capital
upon termination of S corporation
election
(Note 11)............................. -- -- -- -- -- 2,172,072 --
Stock exchange (Note 1)................ -- -- 40,700,000 81,400 (25,000) -- --
Distribution to stockholder............ -- -- -- -- -- -- --
Net Income............................. -- -- -- -- -- -- --
Dividends accrued on Preferred Stock
(Note 11)............................. -- 867,430 -- -- -- -- --
--------- ----------- --------- --------- ----------- ---------- -----------
BALANCES, December 31, 1995.............. 1,860,000 12,867,430 40,700,000 81,400 -- 2,172,072 --
Purchase of Access 24 (Note 16)........ -- -- 970,240 1,941 -- 4,849,259 --
Cumulative translation adjustments..... -- -- -- -- -- -- 141,095
Net income............................. -- -- -- -- -- -- --
Dividends accrued on Preferred Stock
(Note 11)............................. -- 211,215 -- -- -- -- --
Issuance of restricted stock for
compensation.......................... -- -- 76,000 152 -- 379,848 --
--------- ----------- --------- --------- ----------- ---------- -----------
BALANCES, March 31, 1996 (unaudited)..... 1,860,000 13,078,645 41,746,240 83,493 -- 7,401,179 141,095
Pro Forma adjustment to reflect
conversion of Mandatorily Redeemable
Preferred Stock to Common Stock (Note
11)................................... (1,860,000) (13,078,645) 9,300,000 18,600 -- 13,060,045 --
--------- ----------- --------- --------- ----------- ---------- -----------
BALANCES, Pro Forma March 31, 1996
(unaudited)............................. -- $ -- 51,046,240 $ 102,093 $ -- $20,461,224 $ 141,095
--------- ----------- --------- --------- ----------- ---------- -----------
<CAPTION>
UNEARNED
COMPENSATION- TOTAL
RESTRICTED RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
-------------- --------- ------------
<S> <C> <C> <C>
BALANCES, January 1, 1994................ $ -- $ 917,098 $ 942,098
Distribution to stockholder............ -- (440,000) (440,000)
Net income............................. -- 1,694,974 1,694,974
-------------- --------- ------------
BALANCES, December 31, 1994.............. -- 2,172,072 2,197,072
Issue of Preferred Stock (Note 11)..... -- -- --
Adjustment to reclassify retained
earnings to additional paid in capital
upon termination of S corporation
election
(Note 11)............................. -- (2,172,072) --
Stock exchange (Note 1)................ -- (56,400) --
Distribution to stockholder............ -- (1,694,974) (1,694,974)
Net Income............................. -- 4,156,084 4,156,084
Dividends accrued on Preferred Stock
(Note 11)............................. -- (867,430) (867,430)
-------------- --------- ------------
BALANCES, December 31, 1995.............. -- 1,537,280 3,790,752
Purchase of Access 24 (Note 16)........ -- -- 4,851,200
Cumulative translation adjustments..... -- -- 141,095
Net income............................. -- 1,257,542 1,257,542
Dividends accrued on Preferred Stock
(Note 11)............................. -- (211,215) (211,215)
Issuance of restricted stock for
compensation.......................... (380,000) -- --
-------------- --------- ------------
BALANCES, March 31, 1996 (unaudited)..... (380,000) 2,583,607 9,829,374
Pro Forma adjustment to reflect
conversion of Mandatorily Redeemable
Preferred Stock to Common Stock (Note
11)................................... -- -- 13,078,645
-------------- --------- ------------
BALANCES, Pro Forma March 31, 1996
(unaudited)............................. $ (380,000) $2,583,607 $22,908,019
-------------- --------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN THREE MONTHS ENDED MARCH
MONTHS ENDED YEAR ENDED DECEMBER 31, 31,
DECEMBER 31, -------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 547,676 $ 1,694,974 $ 4,156,084 $ 1,627,825 $ 1,257,542
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities--
Depreciation and amortization....... 722,753 1,164,696 2,124,287 435,998 1,047,383
Allowance for doubtful accounts..... 302,408 (20,381) 616,395 46,545 107,778
Deferred taxes on income............ (22,000) -- 21,623 212,500 (160,553)
Changes in assets and liabilities--
Accounts receivable............... (4,804,330) 2,288,110 (6,104,371) (1,466,617) (3,135,533)
Prepaids and other assets......... (162,599) 75,774 (36,583) (16,080) (169,594)
Deposits.......................... (125,144) (26,327) (42,392) (39,872) (129,853)
Deferred costs.................... -- -- (345,978) -- (1,385,256)
Other assets...................... -- -- -- -- 101,871
Bank overdraft.................... 81,277 479,213 866,527 (560,490) (1,572,294)
Accounts payable.................. 2,298,421 (1,860,500) 1,161,794 (234,569) 1,941,453
Accrued expenses.................. 133,076 200,925 786,842 1,725,434 2,012,477
Accrued employee compensation..... (129,094) 328,371 780,251 1,122,634 1,344,802
Customer advances and deposits.... 309,863 (213,933) 126,870 (118,868) 244,656
Deferred income................... 492,350 (466,667) 22,016 675,796 (16,255)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities............. (355,343) 3,644,255 4,133,365 3,410,236 1,488,644
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.... (1,589,609) (1,932,312) (1,735,206) (243,469) (3,301,426)
Purchase of Access 24, net of cash
acquired............................. -- -- -- -- (2,218,149)
(Increase) decrease in short-term
investments............................ -- -- (10,361,213) (11,840,569) 2,499,017
------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities....................... (1,589,609) (1,932,312) (12,096,419) (12,084,038) (3,020,558)
------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN THREE MONTHS ENDED MARCH
MONTHS ENDED YEAR ENDED DECEMBER 31, 31,
DECEMBER 31, -------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term
borrowings............................... $ 832,000 $ (840,365) $ 361,365 $ (388,635) $ 2,500,000
Payments on long-term debt................ (157,756) (418,241) (624,487) (113,121) (47,829)
Proceeds from long-term debt borrowings... 1,042,374 475,000 -- -- --
Payments under capital lease
obligations.............................. (99,984) (324,924) (969,942) (149,522) (356,895)
Payments under subordinated notes payable
to stockholder........................... (49,695) (125,680) (1,104,337) (1,104,337) --
Distributions to stockholder -- (440,000) (1,694,974) (1,210,000) --
Issuance of preferred stock............... -- -- 12,000,000 12,000,000 --
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities................. 1,566,939 (1,674,210) 7,967,625 9,034,385 2,095,276
------------ ------------ ------------ ------------ ------------
Effect of exchange rate changes on cash..... -- -- -- -- 122,737
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ (378,013) 37,733 4,571 360,583 686,099
CASH AND CASH EQUIVALENTS, beginning of
period..................................... 378,013 -- 37,733 37,733 42,304
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period.... $ -- $ 37,733 $ 42,304 $ 398,316 $ 728,403
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest.................... $ 299,552 $ 455,375 $ 464,551 $ 101,403 $ 155,904
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Cash paid for income taxes................ $ 108,085 $ 13,506 $ 2,423,591 $ -- $ 525,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Assets acquired through capital leases.... $ 2,137,884 $ 211,194 $ 4,106,326 $ 1,589,799 $ 1,712,887
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Stock issued in purchase of Access 24..... $ -- $ -- $ -- $ -- $ 4,851,200
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-10
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1993
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
TeleTech Holdings, Inc. ("THI" or the "Company") is a provider of outsourced
strategic customer care solutions for Fortune 1000 corporations in targeted
industries in the United States, United Kingdom, Australia and New Zealand.
Customer care encompasses a wide range of customer acquisition, retention and
satisfaction programs designed to maximize the lifetime value of the
relationship between the Company's clients and their customers.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements are comprised of the accounts of THI
and its wholly owned subsidiaries, TeleTech Telecommunications, Inc., a
California corporation ("TTC"), TeleTech Teleservices, Inc., a Colorado
corporation ("TTS") and effective January 1, 1996, Access 24 and subsidiaries
(Note 16), (jointly "the Group"). Prior to January 1, 1995, the Group comprised
TTC and TTS, held under the common ownership of a sole stockholder ("the
Stockholder"). Financial statements for 1993 and 1994 represent the combined
financial statements of TTC and TTS.
In January 1995, a Preferred Stock Purchase Agreement and an Investment
Agreement (collectively the "Agreements") were executed by TeleTech Investors
General Partnership ("TIGP"), Essaness Theaters Corporation ("Essaness") and the
Stockholder. The Stockholder of TTC and TTS contributed 100% of his shares in
these companies to THI, a newly formed Delaware corporation, in exchange for
40,700,000 shares of THI's common stock, which constituted 100% of THI's
outstanding stock. Concurrent with this stock exchange, TIGP and Essaness
purchased an aggregate of 1,860,000 shares of THI's convertible preferred stock
("Preferred Stock") for $12 million. The Preferred Stock is initially
convertible into 9,300,000 shares of THI's common stock (Note 11). TIGP and
Essaness purchased 1,705,000 and 155,000 shares of the Preferred Stock,
respectively. The Agreements also required THI to enter into employment
agreements with key executives, to obtain key man life and disability insurance
policies and to adopt a stock option plan for key employees.
The exchange of stock constituted a reorganization of entities under common
control and the assets and liabilities of TTC and TTS are reflected in the
consolidated financial statements of THI based on their historical cost to TTC
and TTS.
All intercompany balances and transactions have been eliminated in the
consolidated and combined financial statements.
UNAUDITED PRO FORMA INFORMATION
If the offering contemplated by this Prospectus is consummated, all of the
Preferred Stock outstanding at the closing date will be converted into shares of
Common Stock ("Common Stock"). The unaudited pro forma balance sheet as of March
31, 1996, reflects the conversion of outstanding Preferred Stock at March 31,
1996 into 9,300,000 shares of Common Stock.
INTERIM FINANCIAL STATEMENTS
The consolidated financial statements of THI as of March 31, 1995 and 1996
presented herein have been prepared by THI without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. The financial
statements reflect all adjustments (consisting of only normal recurring
accruals) which, in the opinion of management, are necessary to present fairly
the financial position, results of operations and cash flows of THI and
subsidiaries as of March 31, 1995 and 1996, and for the periods then ended.
F-11
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1993
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign subsidiaries whose
functional currency is other than the U.S. Dollar are translated at the exchange
rates in effect on the reporting date, and income and expenses are translated at
the weighted average exchange rate during the period. The net effect of
translation gains and losses are not included in determining net income, but are
accumulated as a separate component of shareholders' equity. Foreign currency
transaction gains and losses are included in determining net income. Such gains
and losses were not material for any period presented.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Additions, improvements, and major renewals are capitalized. Maintenance,
repairs, and minor renewals are expensed as incurred. Amounts paid for software
licenses and third-party packaged software are capitalized. Costs relating to
the internal development of software are expensed as incurred.
Depreciation is computed on the straight-line method based on the estimated
useful lives of the assets, as follows:
<TABLE>
<S> <C>
Computer equipment and software........................................... 5 years
Telephone equipment....................................................... 5 years
Furniture and fixtures.................................................... 5-7 years
Leasehold improvements.................................................... 5-7 years
Vehicles.................................................................. 5 years
</TABLE>
Assets acquired under capital lease obligations are amortized over the life
of the applicable lease of four to seven years (or the estimated useful lives of
the assets, of four to seven years, where title to the leased assets passes to
the Company on termination of the lease).
REVENUE RECOGNITION
The Company recognizes revenues at the time services are performed. The
Company has certain contracts which are billed in advance. Accordingly, amounts
billed but not earned under these contracts are excluded from revenues and
included in deferred income.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations when incurred and
are included in operating expenses. Research and development costs amounted to
approximately $430,000, $684,000, $458,000, $108,000 (unaudited) and $102,000
(unaudited) for the eleven months ended December 31, 1993, the years ended
December 31, 1994 and 1995, and the three-month periods ended March 31, 1995 and
1996, respectively.
DEFERRED CONTRACT COST
The Company defers certain direct costs incurred in connection with
preparing to provide services under long-term facilities management agreements.
Costs that have been deferred include the costs of hiring dedicated personnel to
manage client-owned facilities, their related payroll and other directly
associated costs from the time long-term facilities management agreements are
entered into until the beginning of providing services. Such costs are amortized
ratably over the life of the long-term facilities management agreements based on
total estimated revenues to be earned under the agreements. Deferred contract
costs
F-12
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1993
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
at December 31, 1995 and March 31, 1996 include costs incurred in preparing to
provide services under a five year agreement entered into in October, 1995,
under which the Company began providing services during April 1996.
INTANGIBLE ASSETS
The excess of cost over the fair market value of tangible net assets and
trademarks of acquired businesses is amortized on a straight-line basis over the
periods of expected benefit of 15 years. Accumulated amortization of intangible
assets for the three-month period ended March 31, 1996, was $108,000
(unaudited). No amortization expense was recorded in prior periods.
Subsequent to an acquisition, the corporation continually evaluates whether
later events and circumstances have occurred that indicate the remaining
estimated useful life of an intangible asset may warrant revision or that the
remaining balance of an intangible asset may not be recoverable. When factors
indicate that an intangible asset should be evaluated for possible impairment,
the corporation uses an estimate of the related business' undiscounted future
cash flows over the remaining life of the asset in measuring whether the
intangible asset is recoverable. Management does not consider that any provision
for impairment of intangible assets is required.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109") which requires recognition of deferred tax assets and liabilities for the
expected future income tax consequences of transactions which have been included
in the financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Net deferred tax assets are then reduced by a valuation allowance for amounts
which do not satisfy the realization criteria of SFAS 109.
During 1993 and 1994, TTC and TTS were S corporations and their income was
taxable to the Stockholder rather than the companies. Effective January 1, 1995,
S corporation status terminated and THI and its domestic subsidiaries began to
file consolidated corporate Federal and state income tax returns (Access 24,
(Note 16) will file separate tax returns in Australia). As required by SFAS 109,
this change in tax status was recognized by establishing deferred tax assets and
liabilities for temporary differences between the tax basis and amounts reported
in the accompanying consolidated balance sheet (Note 8).
EARNINGS PER SHARE
Earnings per share are computed based upon the weighted average number of
common shares and common share equivalents outstanding. The shares of
convertible Preferred Stock are considered common stock equivalents due to the
mandatory conversion provision (Note 11). Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 83, common stock and common stock
equivalent shares issued by the Company at prices below the assumed public
offering price during the twelve month period prior to the proposed offering
date (using the treasury stock method) have been included in the calculation as
if they were outstanding for all the periods presented regardless of whether
they are antidilutive. On May 14, 1996, the Company approved a five for one
share common stock split to be effective immediately prior and subject
F-13
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1993
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
to the closing of the offering contemplated by this Registration Statement.
Common stock amounts, equivalent share amounts and per share amounts have been
adjusted retroactively to give effect to the stock split.
The weighted average number of common shares and common share equivalents
was calculated as follows assuming the anticipated five-for-one stock split:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED 31,
DECEMBER 31, --------------------------
1995 1995 1996
------------ ------------ ------------
PRO FORMA ELEVEN PRO FORMA
MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1993 1994
---------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Common shares outstanding............ 40,700,000 40,700,000 40,700,000 40,700,000 41,746,240
Convertible preferred stock.......... -- -- 9,300,000 9,300,000 9,300,000
Common equivalent shares............. 3,385,354 3,385,354 4,657,975 4,585,654 3,635,843
---------------- ------------ ------------ ------------ ------------
Shares used in computing pro forma
net income per common and common
equivalent share.................... 44,085,354 44,085,354 54,657,975 54,585,654 54,682,083
---------------- ------------ ------------ ------------ ------------
---------------- ------------ ------------ ------------ ------------
</TABLE>
For comparative purposes, the earnings per share for 1993 and 1994 have been
calculated on a pro-forma basis as the historical earnings per share is not
meaningful due to the Company reorganization on January 1, 1995.
A portion of the proceeds from the proposed public offering will be used to
repay short-term borrowings. If this reduction had taken place at January 1,
1995 or January 1, 1996, the effect on pro forma earnings would have been
immaterial.
INCREASE IN AUTHORIZED SHARES
On May 14, 1996, the Board of Directors authorized an amendment to the
Company's Certificate of Incorporation that will be effective upon the closing
of the proposed public offering of the Company's Common Stock. The amendment
increases the authorized shares of Common Stock to 150,000,000 shares. The
amendment also authorizes the Company to issue up to 10,000,000 shares of
preferred stock.
RESTRICTED STOCK AWARDS
In January 1996, the Company awarded 76,000 restricted shares of the
Company's common stock to certain employees as compensation to be earned over
the term of the employees' related employment agreements (three years). The
market value of the stock at the date of award was $380,000. This amount has
been recorded as unearned compensation-restricted stock and is shown as a
separate component of stockholders' equity.
CASH AND CASH EQUIVALENTS
For the purposes of the statement of cash flows, the Company considers all
cash and investments with an original maturity of 90 days or less to be cash
equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-14
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1993
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." SFAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS 121 is effective for
financial statements for fiscal years beginning after December 15, 1995. The
adoption of SFAS 121 on January 1, 1996 had no impact on the Company's
consolidated financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123. "Accounting for Stock Based Compensation." With respect to stock options
granted to employees, SFAS No. 123 permits companies to continue using the
accounting method promulgated by the Accounting Principles Board Opinion No. 25
("APB No. 25"), "Accounting for Stock Issued to Employees," to measure
compensation or to adopt the fair value based method prescribed by SFAS No. 123.
If APB No. 25's method is continued, pro forma disclosures are required as if
SFAS No. 123 accounting provisions were followed. Management has determined not
to adopt SFAS No. 123's accounting recognition provisions (Note 12).
(2) CONCENTRATIONS
The Company's revenues from major customers (revenues in excess of 10% of
total sales) are from entities involved in the telecommunications, technology,
transportation, healthcare and financial services industries and for the periods
ended December 31, 1993, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ELEVEN YEAR ENDED ENDED
MONTHS ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ----------------- -----------------
1993 1994 1995 1995 1996
------------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Customer A.................... 23% 18% 31% 33% 22%
Customer B.................... -- 5% 18% 24% 6%
Customer C.................... 21% 17% 9% 13% 6%
Customer D.................... -- 13% -- -- --
Customer E.................... 18% -- -- -- --
-- -- -- -- --
62% 53% 58% 70% 34%
-- -- -- -- --
-- -- -- -- --
</TABLE>
The loss of one or more of its significant customers could have a material
adverse effect on the Company's business, operating results or financial
condition.
To limit the Company's credit risk, management performs ongoing credit
evaluations of its customers and maintains allowances for potentially
uncollectible accounts. Although the Company is directly impacted by economic
conditions in the telecommunications, technology, transportation, healthcare and
financial services industries, management does not believe significant credit
risk exists at December 31, 1995 or at March 31, 1996.
F-15
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1993
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(CONTINUED)
(2) CONCENTRATIONS (CONTINUED)
GEOGRAPHIC AREA INFORMATION
Prior to the acquisition of Access 24 in January 1996 (Note 16), the Company
operated exclusively within the United States. Unaudited geographic area
information for the three months ended March 31, 1996 is as follows:
<TABLE>
<CAPTION>
UNITED STATES EUROPE ASIA PACIFIC TOTAL
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues.............................................. $ 18,680,313 $ 476,576 $ 2,862,456 $ 22,019,345
Income (loss) before income taxes..................... 2,054,659 (86,676) 290,861 2,258,844
Assets................................................ 37,317,780 1,794,743 10,341,717 49,454,240
</TABLE>
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1994 and
1995, and March 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995
------------- ------------- MARCH 31,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and software..................................... $ 5,848,105 $ 9,807,113 $ 11,197,300
Telephone equipment................................................. 1,105,246 1,219,642 1,851,831
Furniture and fixtures.............................................. 1,507,171 2,938,478 5,307,555
Leasehold improvements.............................................. 861,070 1,197,892 4,915,141
Vehicles............................................................ -- -- 24,290
------------- ------------- -------------
9,321,592 15,163,125 23,296,117
Less--Accumulated depreciation...................................... (3,935,136) (6,059,424) (6,987,766)
------------- ------------- -------------
$ 5,386,456 $ 9,103,701 $ 16,308,351
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Included in the cost of property and equipment above is equipment obtained
through capitalized leases. The following is a summary of equipment under
capital leases as of December 31, 1994 and 1995, and March 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
------------ ------------- MARCH 31,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and software....................................... $ 726,569 $ 3,227,113 $ 4,166,995
Telephone equipment................................................... 282,969 310,295 737,314
Furniture and fixtures................................................ 847,984 2,038,597 3,854,957
Vehicles.............................................................. -- -- 1,811
------------ ------------- -------------
1,857,522 5,576,005 8,761,077
Less--Accumulated depreciation........................................ (556,704) (1,291,704) (1,073,018)
------------ ------------- -------------
$ 1,300,818 $ 4,284,301 $ 7,688,059
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
Depreciation expense related to leased equipment under capital leases was
$109,556, $409,518, $984,597, $77,947 (unaudited) and $312,265 (unaudited) for
the eleven months ended December 31, 1993, the years ended December 31, 1994 and
1995, and the three-month periods ended March 31, 1995 and 1996, respectively.
F-16
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1993
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(CONTINUED)
(4) CAPITAL LEASE OBLIGATIONS
On July 11, 1995, the Company negotiated a master lease agreement with a
bank under which it may lease equipment up to a value of $8,000,000. As of May
13, 1996, the master lease has been amended to increase the lease line to
$15,000,000. The term of the leases are 48 months and interest is payable at the
then most recent weekly average of three-year Treasury notes plus 125 basis
points. In August 1995, the Company entered into another master lease agreement
with a bank under which it may lease equipment. Under the agreement, individual
lease terms are negotiated on a lease by lease basis. Subsequent to December 31,
1995, the Company entered into several leases under this agreement which are
being accounted for as operating leases (See Note 9).
The Company finances a substantial portion of its property and equipment
under noncancelable capital lease obligations. Accordingly, the fair value of
the equipment has been capitalized and the related obligation recorded. The
average implicit interest rate on these leases was 8.9% at December 31, 1995.
Interest is charged to expense at a level rate applied to declining principal
over the period of the obligation.
The future minimum lease payments under capitalized lease obligations as of
December 31, 1995 and March 31, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------- MARCH 31,
1996
-------------
(UNAUDITED)
<S> <C> <C>
Year ending December 31--
1996.............................................................................. $ 1,658,828 $ 2,159,825
1997.............................................................................. 1,594,470 2,608,577
1998.............................................................................. 1,246,793 2,116,303
1999.............................................................................. 570,519 1,217,108
2000.............................................................................. 54,875 211,443
------------- -------------
5,125,485 8,313,256
Less--Amount representing interest................................................ (676,522) (775,509)
------------- -------------
4,448,963 7,537,747
Less--Current portion of capital lease obligations................................ (1,255,966) (2,129,440)
------------- -------------
$ 3,192,997 $ 5,408,307
------------- -------------
------------- -------------
</TABLE>
Interest expense on the outstanding obligations under such leases was
$39,981, $160,483, $312,653, $73,350 (unaudited) and $135,524 (unaudited) for
the eleven months ended December 31, 1993, the years ended December 31, 1994 and
1995, and the three-month periods ended March 31, 1995 and 1996, respectively.
F-17
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1993
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(CONTINUED)
(5) LONG-TERM DEBT
As of December 31, 1994 and 1995 and March 31, 1996, long-term debt
consisted of the following (unsecured unless otherwise stated):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
------------ ------------ MARCH 31,
1996
------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable, interest at 8% per annum, principal and interest payable
monthly at $3,594, maturing May 2000................................... $ 189,177 $ 160,131 $ 152,500
Note payable, collateralized by all of the assets of TTS, interest
payable monthly at 6% per annum, principal due July 1995............... 350,000 -- --
Note payable, interest at 6% per annum, principal and interest payable
monthly at $4,563, maturing January 1997............................... 106,989 57,297 44,403
Note payable, interest at 13% per annum, principal and interest payable
monthly at $9,266, maturing April 1995................................. 95,599 -- --
Note payable, interest at 6% per annum, principal and interest payable
monthly at $3,598, maturing June 1997.................................. 100,000 61,786 51,869
Note payable, interest at 5% per annum, principal and interest payable
monthly at $7,077, maturing January 2000............................... 375,000 313,064 295,675
Note payable to a bank, interest at 8-9% per annum, principal payable
annually at $154,568 maturing September 2000, secured by an equitable
mortgage over all assets and uncalled capital of Access 24............. -- -- 772,842
------------ ------------ ------------
1,216,765 592,278 1,317,289
Less--Current portion................................................. (624,483) (195,660) (189,443)
------------ ------------ ------------
$ 592,282 $ 396,618 $ 1,127,846
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Annual maturities of the long-term debt described above are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------ MARCH 31,
1996
------------
(UNAUDITED)
<S> <C> <C>
Year ended December 31--
1996............................................................................... $ 195,660 $ 147,831
1997............................................................................... 134,324 288,892
1998............................................................................... 115,210 269,778
1999............................................................................... 122,278 276,846
2000............................................................................... 24,806 179,372
Thereafter......................................................................... -- 154,570
------------ ------------
$ 592,278 $ 1,317,289
------------ ------------
------------ ------------
</TABLE>
F-18
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1993
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(CONTINUED)
(6) SHORT-TERM BORROWINGS
On June 23, 1994, TTC entered into a revolving line of credit agreement (the
"Credit Agreement") with a bank under which it could borrow up to $3,000,000
through June 30, 1995. Initial borrowings under this line of credit were used to
retire TTC's previous line of credit. Interest is payable monthly at the bank's
prime rate plus 1.75% (10.25% at December 31, 1994).
On April 12, 1995, the Company negotiated a new unsecured revolving line of
credit agreement with the bank under which it may borrow up to $5,000,000.
Interest is payable at various interest rates. The borrowings can be made at (1)
the bank's prime rate, (2) a CD rate plus 125 basis points for periods of 7 to
90 days with minimum advances of $500,000 with $100,000 increments, (3) LIBO
rate plus 125 basis points for borrowing periods of 1, 2, 3 or 6 months, or (4)
agreed upon rates. At December 31, 1995 and March 31, 1996, the amount
outstanding under this facility was $1,000,000 and $3,500,000, respectively, and
is classified as short-term.
In April 1996, the Company was granted an increased line of credit of
$15,000,000 through May 1998. The terms of this line of credit remained
unchanged from the previous $5,000,000 line of credit.
The Company is required to comply with certain minimum financial ratios
under covenants in connection with the borrowings described above.
(7) SUBORDINATED NOTES PAYABLE TO COMMON STOCKHOLDER
At December 31, 1994 subordinated notes payable to the Stockholder with
interest at 8% per annum amounted to $1,104,337, of which $145,299 was due
within one year.
These notes payable were subordinated to the long-term debt (Note 5) and the
short-term borrowings (Note 6) as specified in the credit agreements. Interest
incurred on indebtedness to the stockholder amounted to approximately $91,000,
$96,000, $11,000, $11,000 (unaudited) and $0 (unaudited) for the eleven months
ended December 31, 1993, the years ended December 31, 1994 and 1995, and the
three months ended March 31, 1995 and 1996, respectively.
In February 1995, in conjunction with the Company's reorganization and stock
sale (Note 1), the Company paid in full these subordinated notes payable.
(8) INCOME TAXES
As stated in Note 1, TTC and TTS terminated their S corporation status
effective January 1, 1995. This change in tax status was recognized by
establishing net deferred tax liabilities of approximately $212,000 on that date
for temporary differences between tax basis and amounts reported in the
accompanying combined balance sheets of TTC and TTS. The current provision for
income taxes for 1994 and for the 11 months ended December 31, 1993, reflects
only amounts payable to certain state tax jurisdictions that do not recognize S
corporation status. Beginning in 1995, THI and its domestic subsidiaries will
file consolidated corporate federal and state income tax returns. Access 24
(Note 17) will file separate tax returns in the various countries in which it
provides services.
F-19
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1993
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(CONTINUED)
(8) INCOME TAXES (CONTINUED)
The components of income before income taxes are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
-------------------------- --------------------------
1994 1995 1995 1996
------------ ------------ ------------ ------------
ELEVEN
MONTHS ENDED
DECEMBER 31,
1993
-------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Domestic.................................. $ 537,676 $ 1,714,710 $ 7,085,080 $ 2,952,288 $ 2,054,659
Foreign................................... -- -- -- -- 204,185
------------- ------------ ------------ ------------ ------------
Total..................................... $ 537,676 $ 1,714,710 $ 7,085,080 $ 2,952,288 $ 2,258,844
------------- ------------ ------------ ------------ ------------
------------- ------------ ------------ ------------ ------------
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED 31,
DECEMBER 31, --------------------------
1995 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Current provision:
Federal.............................................................. $2,472,925 $ 952,940 $ 942,658
State................................................................ 433,813 159,023 145,691
Foreign.............................................................. -- -- 73,506
------------ ------------ ------------
2,906,738 1,111,963 1,161,855
------------ ------------ ------------
Deferred provision:
Federal.............................................................. (153,610) -- (132,761)
State................................................................ (36,632) -- (27,792)
------------ ------------ ------------
(190,242) -- (160,553)
Change in tax status from S corporation to C corporation............... 212,500 212,500 --
------------ ------------ ------------
$2,928,996 $ 1,324,463 $ 1,001,302
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The following reconciles the Company's effective tax rate to the federal
statutory rate for the year ended December 31, 1995 and for the three months
ended March 31, 1995 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED 31,
DECEMBER 31, --------------------------
1995 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Income tax expense per federal statutory rate.......................... $2,408,927 $ 1,003,778 $ 768,007
State income taxes, net of federal deduction........................... 262,139 98,687 111,813
Effect of change in tax status from S corporation to C corporation..... 212,500 212,500 --
Permanent differences.................................................. 37,210 9,498 114,482
Environmental tax...................................................... 8,220 -- --
Foreign income taxed at higher rate.................................... -- -- 7,000
------------ ------------ ------------
$2,928,996 $ 1,324,463 $ 1,001,302
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-20
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1993
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(CONTINUED)
(8) INCOME TAXES (CONTINUED)
The Company's deferred income tax assets and liabilities are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------ THREE MONTHS
ENDED MARCH
31, 1996
-------------
(UNAUDITED)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts................................................... $ 178,068 $ 292,496
Vacation accrual.................................................................. 307,674 345,224
------------ -------------
485,742 637,720
Deferred tax liabilities:
Excess depreciation for tax....................................................... (507,365) (498,790)
------------ -------------
Net deferred income tax (liability) asset........................................... $ (21,623) $ 138,930
------------ -------------
------------ -------------
</TABLE>
A valuation allowance has not been recorded as the Company expects that all
deferred tax assets will be realized in the future.
The combined statement of income for 1993 and 1994 presents, on an unaudited
pro forma basis, net income as if the Company had filed consolidated C
corporation federal and state income tax returns for that year. The pro forma
tax effects assume that the deferred tax assets established effective January 1,
1995, as described above, would have been provided for as the related temporary
differences arose. The pro forma provision for income taxes for 1993 and 1994 is
reconciled to the amount computed by applying the statutory federal tax rate to
income before taxes as follows:
<TABLE>
<CAPTION>
UNAUDITED
------------------------
1993 1994
(PRO FORMA) (PRO FORMA)
----------- -----------
AMOUNT AMOUNT
----------- -----------
<S> <C> <C>
Income tax expense per federal statutory rate........................................... $ 182,810 $ 583,001
State income taxes, net of federal deduction............................................ 23,410 81,491
Permanent differences................................................................... 32,776 13,110
----------- -----------
Total pro forma provision for income taxes............................................ 238,996 677,602
Historical provision (benefit) for income taxes......................................... (10,000) 19,736
----------- -----------
Pro forma tax effects................................................................... $ 248,996 $ 657,866
----------- -----------
----------- -----------
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
The Company leases its premises in Sherman Oaks and Burbank, California and
Denver, Colorado pursuant to agreements expiring through 2003. The monthly rents
are subject to certain operating expenses and real estate taxes.
The Company has various operating leases for equipment and office space.
Lease expense under operating leases was approximately $626,000, $1,366,000,
$442,000, $88,000 (unaudited) and $118,000 (unaudited), for the eleven months
ended December 31, 1993, the years ended December 31, 1994 and 1995, and the
three months ended March 31, 1995 and 1996, respectively.
F-21
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1993
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(CONTINUED)
(9) COMMITMENTS AND CONTINGENCIES (CONTINUED)
The future minimum rental payments required under noncancelable operating
leases as of December 31, 1995, and March 31, 1996, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------- MARCH 31,
1996
------------
(UNAUDITED)
<S> <C> <C>
Year ended December 31--
1996............................................................................... $ 2,611,341 $ 1,494,490
1997............................................................................... 2,202,442 1,982,791
1998............................................................................... 1,877,301 1,946,135
1999............................................................................... 1,773,350 1,645,375
2000............................................................................... 768,452 347,356
Thereafter......................................................................... 1,974,493 302,900
------------- ------------
$ 11,207,379 $ 7,719,047
------------- ------------
------------- ------------
</TABLE>
(10) EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Profit Sharing Plan which covers all employees who
have completed one year of service, as defined, and are 21 or older.
Participants may defer up to 19% of their gross pay up to a maximum limit
determined by law. Participants are always 100% vested in their contributions.
The Company may make discretionary contributions to the plan which are
distributed to participants in accordance with the plan. Participants are vested
in these contributions at a rate of 20% per year. For the eleven months ended
December 31, 1993 and the years ended December 31, 1994 and 1995, the Company's
contributions to the plan were $40,000, $64,000 and $131,000, respectively.
There were no contributions made during the periods ended March 31, 1995 and
1996.
(11) MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
In January, 1995, the Company issued 1,860,000 shares of convertible
preferred stock, $6.45 par value, at $6.45 per share for gross proceeds of
$12,000,000. The Company used the funds for the repayment of certain notes as
well as for working capital requirements.
Preferred Stock is initially convertible at the option of the preferred
stockholders, into 9,300,000 shares of common stock. This number of shares of
common stock is subject to adjustment in the event of certain issuances of
common stock, excluding up to 7,000,000 shares of common stock that may be
issued upon exercise of stock options, to ensure that preferred stockholders
maintain ownership of 16.9% of the common stock on a fully diluted basis (as
adjusted pursuant to the Company's Certificate of Incorporation).
In the event that preferred stockholders do not exercise their conversion
rights set out above, the preferred stock converts to common stock at the rate
set out above, at the earlier of the consummation of a qualified initial
offering of shares to the public (as defined in the Company's Certificate of
Incorporation) or May 18, 2002.
In the event that the holders of Preferred Stock have not exercised their
conversion rights prior to May 18, 2002, they are entitled to either convert
their Preferred Stock to shares of common stock or redeem their shares for cash.
Such conversion is to provide an internal rate of return to the Preferred
Stockholders of 7% per annum. Accordingly, dividends are accrued cumulatively at
the rate of 0.5833% per month.
F-22
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1993
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(CONTINUED)
(12) STOCK OPTION PLANS
The Company adopted a stock option plan during 1995 and amended and restated
the plan in January 1996, for directors, officers, employees, consultants and
independent contractors. The plan reserves 7,000,000 shares of common stock and
permits the award of incentive stock options ("ISOs"), other non-qualified
options ("NSOs"), stock appreciation rights ("SARs") and restricted stock. Under
the terms of this plan, the purchase price of shares subject to each ISO granted
must not be less than the fair market value on the date of grant. The
compensation committee of the Board of Directors has complete discretion as to
exercise prices of all other awards, including NSOs. Outstanding options vest
over a three or five-year period and are exercisable for ten years from the date
of grant.
In January, 1996, the Company adopted a stock option plan for non-employee
directors (the "Director Plan"), covering 750,000 shares of common stock. All
options are to be granted at fair market value at the date of grant. Options
vest as of the date of the option and are not exercisable until six months after
the option date. Options granted are exercisable for ten years from the date of
grant unless a participant is terminated for cause or one year after a
participant's death. Options to purchase 225,000 shares were outstanding at
March 31, 1996.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123 ("SFAS 123")
During 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock Based Compensation," which defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation cost for those plans using the method of accounting
prescribed by the Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees." Entities electing to remain with the
accounting in APB 25 must make pro forma disclosures of net income and earnings
per share, as if the fair value based method of accounting defined in this
Statement has been applied.
The Company has elected to account for its stock-based compensation plans
under APB 25; however, the Company has computed for pro-forma disclosure
purposes the value of all options granted during 1995 and in the quarter ended
March 31, 1996, using the Black-Scholes option pricing model as prescribed by
SFAS 123 and the following weighted average assumptions used for grants:
<TABLE>
<S> <C>
Risk-free interest rate................................................. 6.34%
Expected dividend yield................................................. 0%
Expected lives.......................................................... 4.48 years
Expected volatility..................................................... 59%
</TABLE>
Options were assumed to be exercised upon vesting for the purpose of this
valuation. Adjustments are made for options forfeited prior to vesting. The
total value of options granted was computed to be the following approximate
amounts, which would be amortized on a straight line basis over the vesting
period of the options:
<TABLE>
<S> <C>
Year ended December 31, 1995.............................................. $ 340,727
Three months ended March 31, 1996 (unaudited)............................. $ 335,010
</TABLE>
If the Company had accounted for these plans in accordance with SFAS 123,
the Company's net income and pro forma net income per share would have been
reported as follows:
F-23
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1993
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(CONTINUED)
(12) STOCK OPTION PLANS (CONTINUED)
NET INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------ THREE MONTHS ENDED
MARCH 31, 1996
-------------------
(UNAUDITED)
<S> <C> <C>
As Reported......................................................... $4,156,084 $ 1,257,542
Pro Forma........................................................... 3,815,357 922,532
</TABLE>
PRO FORMA NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
--------------- THREE MONTHS ENDED
MARCH 31, 1996
---------------------
(UNAUDITED)
<S> <C> <C>
As Reported......................................................... $ 0.08 $ 0.02
Pro Forma........................................................... $ 0.07 $ 0.02
</TABLE>
A summary of the status of the Company's two stock option plans at March 31,
1996 and December 31, 1995 together with changes during the periods then ended
are presented in the following table:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
PRICE PER PRICE PER
SHARES SHARE SHARES SHARE
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of period...................... -- 2,355,000 $ 1.88
Grants during period.................................... 2,355,000 $ 1.88 793,750 $ 5.13
---------- ----------
Outstanding at end of period............................ 2,355,000 $ 1.88 3,148,750 $ 2.70
---------- ----------
---------- ----------
</TABLE>
The following table sets forth the exercise price range, number of shares,
weighted average exercise price and remaining contractual lives by groups of
similar price and grant date:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE NUMBER OF WEIGHTED CONTRACTUAL
PRICE RANGE SHARES AVERAGE PRICE LIFE
- -------------- ---------- --------------- ---------------
<S> <C> <C> <C>
$ 1.29 - $1.30 1,400,000 $ 1.29 10
$ 2 455,000 $ 2.00 10
$ 3 - $5 1,243,750 $ 4.36 10
$ 7 50,000 $ 7.00 10
</TABLE>
Subsequent to March 31, 1996, THI granted an additional 1,819,750 options at
a weighted average price of $8.15.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values of cash equivalents and other current amounts receivable and
payable approximate the carrying amounts due to their short-term nature.
Short-term investments consist of overnight deposits in mutual funds. These
funds hold short-term investments which include primarily U.S. Government
Treasury
F-24
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1993
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(CONTINUED)
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Bills, bankers' acceptance notes, commercial paper and Master notes with
maturities of 90 days or less. Interest accrues daily on these funds, and
accordingly, the carrying values of these investments approximate their fair
values.
Debt carried on the Company's consolidated balance sheet of $592,278 and
$1,317,289 at December 31, 1995 and March 31, 1996, has an estimated fair value
of $626,478 and $1,173,339, respectively. The fair value of the long-term
portion of the Company's debt is based on discounting future cash flows using
current interest rates adjusted for risk. The fair value of the short-term debt
approximates its recorded value due to its short-term nature.
(14) OTHER INCOME
Other income (expense) for the year ended December 31, 1995 and for the
three months ended March 31, 1995 includes $2,400,000 received in settlement of
a premature termination of a contract.
(15) RELATED PARTY TRANSACTIONS
During fiscal 1995, the Company provided reservations call handling services
to Midway Airlines Corporation ("Midway"), a majority-owned subsidiary of
Zell/Chilmark Fund, L.P. Samuel Zell, a director of the Company, is an affiliate
of Zell/Chilmark Fund, L.P. During the twelve months ended December 31, 1995 and
the three months ended March 31, 1996, the Company charged Midway an aggregate
of $1,291,862 and $600,904, respectively, for services rendered by the Company.
As of December 31, 1995 and March 31, 1996, the amounts due from Midway for
services rendered by the Company was $535,845 and $570,274 (unaudited),
respectively, of which $354,526 and $462,958 (unaudited), respectively, was past
due.
In April 1996, the Company agreed to accept from Midway, and Midway
delivered to the Company, a promissory note in the principal amount of $500,000
to evidence a portion of the total amount due. The note bears interest at a rate
of 8% per annum and is payable in 12 equal installments of principal, together
with interest, commencing May 1, 1996. The Company is continuing to provide call
handling services to Midway.
The Company utilizes the services of The Riverside Agency, Inc. for
reviewing, obtaining and/or renewing various insurance policies. The Riverside
Agency, Inc. is a wholly owned subsidiary of Equity Group Investments, Inc., of
which Samuel Zell, a director of the Company, is Chairman of the Board. During
the twelve months ended December 31, 1995 and the three months ended March 31,
1996, the Company incurred $23,965 and $47,930, respectively, for such services.
(16) ACQUISITIONS
On January 1, 1996, the Company acquired 100% of the common stock of Access
24 Services Corporation Pty Limited (with its subsidiaries, "Access 24"), for
consideration of $7.1 million, consisting of cash of $2.27 million and 970,240
shares of common stock in the Company. Access 24 provides inbound, toll free
customer service, primarily to the healthcare and financial services sector in
Australia, the United Kingdom and New Zealand.
This acquisition has been accounted for using the purchase method. Goodwill
of $6.3 million arising on the acquisition is being amortized over 15 years on a
straight line basis.
F-25
<PAGE>
TELETECH HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1993
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(CONTINUED)
(16) ACQUISITIONS (CONTINUED)
The following unaudited pro forma consolidated income statement gives effect
to the consummation of the acquisition as if it had occurred on January 1, 1995:
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------
THI ACCESS 24 PRO FORMA
--------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenue......................................................................... $ 50,467 $ 10,239 $ 60,706
--------- ----------- -----------
--------- ----------- -----------
Net income (loss)............................................................... $ 4,156 $ (166) $ 3,990
--------- ----------- -----------
--------- ----------- -----------
Pro forma net income per common and common equivalent share..................... $ 0.08 $ 0.07
--------- -----------
--------- -----------
Shares used in computing pro forma net income per common and common equivalent
share.......................................................................... 54,658 54,658
--------- -----------
--------- -----------
</TABLE>
Pro forma net loss for Access 24 for the year ended December 31, 1995
reflects a charge of $422,000 for amortization of goodwill arising on
acquisition.
(17) SUBSEQUENT EVENTS (UNAUDITED)
SALE OF STOCK
As of April 30, 1996, the Company sold 50% of the common stock of Access 24,
Limited (the Company's United Kingdom subsidiary that operates a call center in
London, England) to PPP Healthcare Group plc ("PPP") for cash consideration of
$3.8 million. This transaction resulted in an after-tax gain of approximately
$1.6 million.
In addition, Access 24, Limited also issued 1,000,000 Cumulative 7%
Preference Shares at a par value of 1 pound each, redeemable in 2006, to PPP for
consideration of $1.5 million.
Access 24, Limited did not contribute significantly to the results of
operations of the Company for any of the periods presented herein.
BONUS PLAN
In May, 1996, the Company adopted the 1996 Management Bonus Plan ("Bonus
Plan") to provide a performance-based incentive for the Company's executive
officers and key employees. The compensation committee of the Board of Directors
administers the Bonus Plan and determines which employees are eligible for
anticipation. Bonuses are based on the Company's results of operations.
TRANSACTION FEES
In May 1996, the Board of Directors approved the payment of fees to the
Equity Group Investments, Inc., an affiliate of Samuel Zell, a director of the
Company, for advice and assistance in consummating the following transactions:
<TABLE>
<S> <C> <C>
i) Access 24 purchase (Note 16)............................... $ 300,000
ii) The Company's proposed initial public offering of stock.... 500,000
iii) Sale of Access 24, Limited stock to PPP.................... 200,000
---------
$1,000,000
---------
---------
</TABLE>
Fees associated with the Access 24 purchase will be allocated to the
purchase price. Fees associated with the proposed public offering of common
stock will be netted against the offering proceeds. Fees associated with the
sale of stock to PPP will be netted of against the gain arising on this sale.
F-26
<PAGE>
ACCESS 24 SERVICE CORPORATION PTY LIMITED AND CONTROLLED ENTITIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1995 FEBRUARY 29,
------------ 1995
NOTE ------------
----- A$
(NOTE 22) A$
<S> <C> <C> <C>
CURRENT ASSETS
Cash........................................................................ 5 816,220 1,837,982
Receivables................................................................. 6 1,976,041 1,340,978
Other....................................................................... 7 401,173 165,432
------------ ------------
TOTAL CURRENT ASSETS.......................................................... 3,193,434 3,344,392
------------ ------------
NON-CURRENT ASSETS
Property, plant and equipment............................................... 8 4,217,281 2,170,050
Intangibles................................................................. 9 1,964,360 2,163,362
Other....................................................................... 10 466,726 366,517
------------ ------------
TOTAL NON-CURRENT ASSETS...................................................... 6,648,367 4,699,929
------------ ------------
TOTAL ASSETS.................................................................. 9,841,801 8,044,321
------------ ------------
CURRENT LIABILITIES
Creditors and borrowings.................................................... 11 3,042,545 2,230,026
Provisions.................................................................. 12 802,176 1,586,870
------------ ------------
TOTAL CURRENT LIABILITIES..................................................... 3,844,721 3,816,896
------------ ------------
NON-CURRENT LIABILITIES
Creditors and borrowings.................................................... 13 2,521,226 791,276
Provisions.................................................................. 14 169,943 97,216
------------ ------------
TOTAL NON-CURRENT LIABILITIES................................................. 2,691,169 888,492
------------ ------------
TOTAL LIABILITIES............................................................. 6,535,890 4,705,388
------------ ------------
NET ASSETS.................................................................. 3,305,911 3,338,933
------------ ------------
------------ ------------
SHAREHOLDERS' EQUITY
Share capital............................................................... 15 212 212
Reserves.................................................................... 16 3,017,136 3,007,188
Retained profits............................................................ 288,563 331,533
------------ ------------
TOTAL SHAREHOLDERS' EQUITY.................................................... 3,305,911 3,338,933
------------ ------------
------------ ------------
</TABLE>
The accompanying notes form an integral part of this balance sheet.
F-27
<PAGE>
ACCESS 24 SERVICE CORPORATION PTY LIMITED AND CONTROLLED ENTITIES
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
TEN MONTHS
ENDED YEAR ENDED
DECEMBER 31, FEBRUARY 28,
1995 1995
NOTE ------------ ------------
----- A$ A$
(NOTE 22)
<S> <C> <C> <C>
Operating revenue............................................................. 2 12,208,051 12,726,187
------------ ------------
------------ ------------
Operating profit.............................................................. 2 463,916 1,611,910
Income tax attributable to operating profit................................... 3 492,351 612,820
------------ ------------
Operating profit/(loss) after income tax...................................... (28,435) 999,090
Retained profits at the beginning of the period............................... 331,533 118,101
Adjustment to retained profits at the beginning of the period re AASB 1028:
Accounting for Employee Entitlements......................................... 1 (14,535) --
------------ ------------
Adjusted retained profits at the beginning of the financial period............ 316,998 --
------------ ------------
Total available for appropriation............................................. 288,563 1,117,191
Dividends provided for........................................................ -- 785,658
------------ ------------
Retained profits at the end of the financial period........................... 288,563 331,533
------------ ------------
------------ ------------
</TABLE>
The accompanying notes form an integral part of this profit and loss account.
F-28
<PAGE>
ACCESS 24 SERVICE CORPORATION PTY LIMITED AND CONTROLLED ENTITIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS
ENDED YEAR ENDED
DECEMBER 31, FEBRUARY 28,
1995 1995
NOTE ------------- ------------
------------ A$ A$
(NOTE 22)
<S> <C> <C> <C>
Cash flows from operating activities
Receipts from customers................................................... 11,936,094 12,451,360
Payments to suppliers and employees....................................... (10,749,686) (9,938,953)
Interest paid............................................................. (10,972) --
Interest received......................................................... 82,708 87,747
Advances to related parties............................................... (68,591) --
Repayment of advances to related parties.................................. -- 78,855
Interest paid (leases).................................................... (128,958) (70,192)
Income taxes paid......................................................... (578,105) (209,093)
------------- ------------
Net operating cash flows.................................................. 21(b) 482,490 2,399,724
------------- ------------
Cash flows from investing activities
Cash paid for acquisition of property, plant and equipment................ (1,510,622) (684,091)
Payments for investments.................................................. -- --
Proceeds from sale of fixed assets........................................ 60,079 54,187
Acquisition of intangibles................................................ -- (1,547)
------------- ------------
Net investing cash flows.................................................. (1,450,543) (631,451)
------------- ------------
Cash flows from financing activities
Proceeds from borrowings.................................................. 1,000,000 -
Repayment of hire purchase and lease liabilities.......................... (456,043) (260,613)
Advances to controlled entities........................................... -- --
Repayment of advances to controlled entities.............................. -- --
Dividends paid............................................................ (785,658) --
------------- ------------
Net financing cash flows.................................................... (241,701) (260,613)
------------- ------------
Net increase/(decrease) in cash held........................................ (1,209,754) 1,507,660
Cash at the beginning of the financial period............................... 1,837,982 327,538
Exchange rate variations on foreign cash balances........................... (8,461) 2,784
------------- ------------
Cash at the end of the financial period..................................... 21(a) 619,767 1,837,982
------------- ------------
------------- ------------
</TABLE>
The accompanying notes form an integral part of this statement of cash flows.
F-29
<PAGE>
ACCESS 24 SERVICE CORPORATION PTY LIMITED AND CONTROLLED ENTITIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995
AND THE TEN MONTHS ENDED DECEMBER 31, 1995
NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES:
(a) BASIS OF THE PREPARATION OF THE FINANCIAL STATEMENTS
The financial statements have been prepared in accordance with the
historical cost convention using the accounting policies described below and do
not take account of changes in either the general purchasing power of the dollar
or in the prices of specific assets.
The carrying amounts of all non-current assets are reviewed at least
annually to determine whether they exceed their recoverable amount. The
recoverable amounts of all non-current assets have been determined using net
cash flows which have not been discounted to their present value.
All amounts are in Australian dollars.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
the parent entity, Access 24 Service Corporation Pty Limited and its controlled
entities. The term "Economic Entity" used throughout these financial statements
means the parent entity and its controlled entities.
Where a controlled entity has been acquired during the period, its results
are included in the consolidated result from the date of acquisition. Similarly,
where a controlled entity is sold, its results are included in the consolidated
result until the date of disposal.
All inter-entity balances and transactions have been eliminated.
(c) OPERATING REVENUE
Sales revenue represents revenue earned (net of discounts and allowances)
from the sale of services. Other revenue includes interest income on short term
deposits and gross proceeds from the sale of non-current assets.
(d) PLANT AND EQUIPMENT
(i) ACQUISITION
Items of plant and equipment are recorded at cost and depreciated as
outlined below.
(ii) DISPOSALS OF ASSETS
The gain or loss on disposal of assets is calculated as the difference
between the carrying amount of the asset at the time of disposal and the
proceeds on disposal, and is included in the result of the economic entity in
the period of disposal.
(iii) DEPRECIATION AND AMORTIZATION
Items of plant and equipment, and leasehold property, are
depreciated/amortized over their estimated useful lives ranging from 3 to 30
years. The straight line method is used except in the case of one controlled
entity where the reducing balance method is used in respect of all plant and
equipment.
(iv) LEASED PLANT AND EQUIPMENT
Assets of the economic entity acquired under finance leases are capitalized.
The initial amount of the leased asset and corresponding lease liability are
recorded at the present value of minimum lease payments. Leased assets are
amortized over the life of the relevant lease or, where it is likely the
economic entity will obtain ownership of the asset on expiration of the lease,
the expected useful life of the asset. Lease liabilities are reduced by the
principal component of lease payments. The interest component is charged against
operating profit.
F-30
<PAGE>
ACCESS 24 SERVICE CORPORATION PTY LIMITED AND CONTROLLED ENTITIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995
AND THE TEN MONTHS ENDED DECEMBER 31, 1995
(CONTINUED)
NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Operating leases are not capitalized and rental payments are charged against
operating profit in the period in which they are incurred.
(e) INCOME TAX
The economic entity adopts the liability method of tax effect accounting.
Income tax expense is calculated on operating profit adjusted for permanent
differences between taxable and accounting income. The tax effect of timing
differences which arise from items being brought to account in different periods
for income tax and accounting purposes, is carried forward in the balance sheet
as a future income tax benefit or a deferred tax liability.
Future income tax benefits relating to tax losses are only brought to
account when their realization is virtually certain.
(f) FOREIGN CURRENCY
TRANSACTIONS
Foreign currency transactions are translated to Australian currency at the
rates of exchange ruling at the dates of the transactions. Amounts receivable
and payable in foreign currencies at balance date are translated at the rates of
exchange ruling on that date.
TRANSLATION OF FINANCIAL STATEMENTS OF OVERSEAS OPERATIONS
All overseas operations are deemed self-sustaining as each is financially
and operationally independent of Access 24 Service Corporation Pty Limited. The
financial statements of overseas operations are translated using the current
rate method and any exchange differences are taken directly to the foreign
currency translation reserve.
(g) PROVISIONS
EMPLOYEE ENTITLEMENTS
Provision has been made in the financial statements for benefits accruing to
employees in relation to such matters as annual leave and long service leave.
Long service leave provisions are calculated based on the probability of
employee's service continuity, even though in some cases such amounts are not
currently vesting.
From this financial year, all on-costs, including payroll tax, workers'
compensation premiums and fringe benefits tax are included in the determination
of provisions for annual leave and long service leave. Provisions for annual
leave and current long service leave are measured at their nominal value. Non
current long service leave is measured at its present value where materially
different from the nominal value. All provision where previously measure at
their nominal value. This represents a change in accounting policy so as to
satisfy the requirements of AASB 1028--Accounting for Employee Entitlements.
The impact of this change in policy for the economic entity is to reduce
opening retained profits by $14,535.
DOUBTFUL DEBTS
The collectibility of debts is assessed at year end and specific provision
is made for any doubtful accounts.
F-31
<PAGE>
ACCESS 24 SERVICE CORPORATION PTY LIMITED AND CONTROLLED ENTITIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995
AND THE TEN MONTHS ENDED DECEMBER 31, 1995
(CONTINUED)
NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
(h) SUPERANNUATION FUND
Contributions to a defined contribution superannuation fund are expensed in
the year they are paid or become payable. No amount is recognized in the
accounts or group accounts in respect of the net surplus or deficiency of each
plan.
(i) INTANGIBLES
Goodwill represents the excess of the purchase consideration over the fair
value of identifiable net assets acquired at the time of acquisition of a
business or shares in a controlled entity.
Goodwill is amortized by the straight line method over the period during
which benefits are expected to be received. This is taken as being 10 years.
(j) COMPARATIVE BALANCES
Certain prior year comparatives have been amended to accord with current
year disclosure.
NOTE 2. REVENUE AND EXPENSES:
<TABLE>
<CAPTION>
TEN MONTHS
ENDED YEAR ENDED
DECEMBER 31, FEBRUARY 28,
1995 1995
------------- -------------
<S> <C> <C>
Operating profit/(loss) for the period has been arrived at
after including:
Operating Revenue:
Fees received................................................ $ 11,783,312 $ 12,316,889
Interest from:
--other persons............................................ 84,986 87,747
Other revenue................................................ 339,753 321,551
------------- -------------
Total operating revenue........................................ 12,208,051 12,726,187
------------- -------------
------------- -------------
EXPENSES:
Abnormal item:
Write off of non recoverable loan............................ 188,952 --
------------- -------------
Other expenses:
Provision for doubtful debts................................. (42,135) 35,255
Provision for annual leave................................... 408,906 389,223
Provision for long service leave............................. 16,203 25,230
Rental expense on operating leases........................... 466,083 216,506
Depreciation of plant and equipment.......................... 547,589 346,420
Interest paid
--Other persons............................................ 19,203 --
--Finance leases and hire purchases........................ 130,408 70,192
Amortization of goodwill..................................... 210,048 237,668
Amortization of finance lease assets......................... 196,086 203,335
Foreign exchange (gains)/losses.............................. 9,128 (36,841)
(Gain)/loss on disposal of fixed assets (a).................. (28,929) 71,733
------------- -------------
(a) Proceeds on the disposal of fixed assets were:........... 60,079 54,187
------------- -------------
------------- -------------
</TABLE>
F-32
<PAGE>
ACCESS 24 SERVICE CORPORATION PTY LIMITED AND CONTROLLED ENTITIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995
AND THE TEN MONTHS ENDED DECEMBER 31, 1995
(CONTINUED)
NOTE 3. INCOME TAX:
(a) The difference between income tax expense provided in the financial
statements and the prima facie income tax expense is reconciled as follows.
<TABLE>
<CAPTION>
TEN MONTHS
ENDED YEAR ENDED
DECEMBER 31, FEBRUARY 28,
1995 1995
------------ ------------
<S> <C> <C>
Operating profit..................................................................... $ 463,916 $ 1,611,910
------------ ------------
------------ ------------
Prima facie tax expense thereon at 36% (February 28, 1995: 33%)...................... 167,010 531,930
Increase/ (decrease) in prima facie tax expense arising from:
Amortization of goodwill........................................................... 57,830 78,430
Entertaining....................................................................... 3,833 2,724
Fringe benefit tax................................................................. -- 2,141
Write-off of non-recoverable loan.................................................. 68,023 --
Other non-deductible items......................................................... 21,585 (3,667)
Effects of lower rates of tax on overseas income................................... (5,537) --
Prior year adjustment.............................................................. 10,708 1,262
Tax losses not brought to account.................................................. 168,899 --
------------ ------------
Total income tax attributable to operating profit.................................... 492,351 612,820
------------ ------------
------------ ------------
Total income tax expense comprises movements in:
Provision for income tax........................................................... 445,758 656,627
Provision for deferred income tax.................................................. 52,246 47,045
Future income tax benefit.......................................................... (5,653) (90,852)
------------ ------------
$ 492,351 $ 612,820
------------ ------------
------------ ------------
</TABLE>
(b) As at 31 December 1995, there are companies within the economic entity
which have income tax losses available to offset against future years' taxable
income. The benefit of these losses has not been brought to account as
realization is not virtually certain.
F-33
<PAGE>
ACCESS 24 SERVICE CORPORATION PTY LIMITED AND CONTROLLED ENTITIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995
AND THE TEN MONTHS ENDED DECEMBER 31, 1995
(CONTINUED)
NOTE 4. PARENT ENTITY INVESTMENT IN CONTROLLED ENTITIES AND CONTRIBUTION TO
CONSOLIDATED RESULT:
(a) Particulars in relation to controlled entities
<TABLE>
<CAPTION>
CONTRIBUTION TO
% OF SHARES HELD BOOK VALUE OF INVESTMENT CONSOLIDATED PROFIT/(LOSS)
----------------------------------- -------------------------------- --------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1995 1995 1995
DECEMBER 31 1995 ---------------- DECEMBER 31 --------------- ------------
----------------- 1995 DECEMBER 31
--------------- 1995
(NOTE 22) (NOTE 22) ------------
(NOTE 22)
<S> <C> <C> <C> <C> <C> <C>
Access 24 Service
Corporation Pty Limited.... -- -- $ -- $ -- $ 343,285 $ 852,890
Access 24 (Service
Corporation) Limited
(incorporated in New
Zealand)................... 100% 100% 83 83 99,021 146,200
Controlled entities acquired
during the period:
Support 24 Pty Limited
(incorporated in
Australia) (iii)(vi)..... -- -- -- -- -- --
Access 24 Limited
(incorporated in the
United Kingdom)
(iii)(iv)................ 100% -- 4 -- (440,535) --
High Performance
Healthcare Pty Limited
(incorporated in
Australia) (v)........... 100% -- 99 -- (30,206) --
----- ----- ------------ ------------
$ 186 $ 83 $ (28,435) $ 999,090
----- ----- ------------ ------------
----- ----- ------------ ------------
</TABLE>
- ------------
(i) All entities operate solely in their place of incorporation.
(ii) The financial year ends of each controlled entity are the same as that of
the parent entity.
(iii)This company is not audited by the parent entity auditor or their
affiliates.
(iv) The parent entity acquired this company for cash consideration of $4. The
company did not trade prior to the acquisition by the parent entity.
(v) The parent entity acquired this company for cash consideration of $99. The
company did not trade prior to the acquisition by the parent entity.
(vi) A 51% shareholding in this company was acquired for nil consideration on
July 1, 1995 and was sold for $1 consideration on December 22, 1995. At the
date of acquisition, the net deficiency of Support 24 was $145,983 made up
of the following assets and liabilities by major class: Cash balances
$2,089, Receivables $10,522, Fixed Assets $10,875 and Creditors &
Borrowings $(169,469). At the date of disposal, the net assets of Support
24 were $892 and were made up of: Receivables $59,967 and Creditors &
Borrowings $(59,075). A loss of $42,078 had been generated from trading
activities during the period the company was a controlled entity and Access
24 Service Corporation Pty Limited forgave a loan of $188,952 resulting in
an operating profit of $146,874 for the same period.
F-34
<PAGE>
ACCESS 24 SERVICE CORPORATION PTY LIMITED AND CONTROLLED ENTITIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995
AND THE TEN MONTHS ENDED DECEMBER 31, 1995
(CONTINUED)
NOTE 4. PARENT ENTITY INVESTMENT IN CONTROLLED ENTITIES AND CONTRIBUTION TO
CONSOLIDATED RESULT: (CONTINUED)
(b) Segment information
<TABLE>
<CAPTION>
TEN MONTHS ENDED DECEMBER 31, 1995
-------------------------------------------------------
EXTERNAL INTERGROUP TOTAL SEGMENT SEGMENT
REVENUE REVENUE REVENUE RESULT ASSETS
--------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Australia................................. $10,085,045 $ 251,754 $10,336,799 $ 313,079 $8,080,913
New Zealand............................... 1,645,502 -- 1,645,502 99,021 1,203,597
United Kingdom............................ 477,504 -- 477,504 (438,957) 2,170,657
Eliminations.............................. -- (251,754) (251,754) (1,578) (1,613,366)
--------- ----------- --------- --------- ---------
Consolidated.............................. $12,208,051 $ -- $12,208,051 $ (28,435) $9,841,801
--------- ----------- --------- --------- ---------
--------- ----------- --------- --------- ---------
<CAPTION>
YEAR ENDED FEBRUARY 28, 1995
-------------------------------------------------------
EXTERNAL INTERGROUP TOTAL SEGMENT SEGMENT
REVENUE REVENUE REVENUE RESULT ASSETS
--------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Australia................................. $11,228,111 $ 169,891 $11,398,002 $ 852,890 $7,440,308
New Zealand............................... 1,498,076 -- 1,498,076 146,200 1,137,691
Eliminations.............................. -- (169,891) (169,891) -- (533,678)
--------- ----------- --------- --------- ---------
Consolidated.............................. $12,726,187 $ -- $12,726,187 $ 999,090 $8,044,321
--------- ----------- --------- --------- ---------
--------- ----------- --------- --------- ---------
</TABLE>
The group derives income by providing emergency medical and trade
assistance.
(c) Ultimate Parent Entity
The ultimate parent entity of Access 24 Service Corporation Pty Limited is
the Royal Automobile Club of Victoria (RACV) Limited, a company incorporated in
the state of Victoria.
NOTE 5. CASH:
<TABLE>
<CAPTION>
FEBRUARY 28,
1995
DECEMBER 31, ------------
1995
------------
(NOTE 22)
<S> <C> <C>
Cash at bank and in hand......................................... $ 807,875 $ 1,797,191
Cash held in trust............................................... 8,345 40,791
------------ ------------
$ 816,220 $ 1,837,982
------------ ------------
------------ ------------
</TABLE>
NOTE 6. RECEIVABLES:
<TABLE>
<CAPTION>
FEBRUARY 28,
1995
DECEMBER 31, ------------
1995
------------
(NOTE 22)
<S> <C> <C>
Trade debtors.................................................... $1,288,033 $ 801,326
Provision for doubtful trade debtors............................. (1,530) (43,665)
------------ ------------
1,286,503 757,661
Trade balances receivable from related parties................... 186,474 117,882
Amounts receivable from controlled entities...................... -- --
Accrued fees..................................................... 499,624 462,059
Other debtors.................................................... 3,440 3,376
------------ ------------
$1,976,041 $ 1,340,978
------------ ------------
------------ ------------
</TABLE>
F-35
<PAGE>
ACCESS 24 SERVICE CORPORATION PTY LIMITED AND CONTROLLED ENTITIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995
AND THE TEN MONTHS ENDED DECEMBER 31, 1995
(CONTINUED)
NOTE 7. OTHER CURRENT ASSETS:
<TABLE>
<CAPTION>
FEBRUARY 28,
1995
DECEMBER 31, ------------
1995
------------
(NOTE 22)
<S> <C> <C>
Other assets..................................................... $ 121,621 $ 96,348
Prepayments...................................................... 279,552 69,084
------------ ------------
$ 401,173 $ 165,432
------------ ------------
------------ ------------
</TABLE>
NOTE 8. PLANT AND EQUIPMENT:
Plant and equipment and leasehold improvements:
<TABLE>
<CAPTION>
FEBRUARY 28,
1995
DECEMBER 31, ------------
1995
------------
(NOTE 22)
<S> <C> <C>
At cost (a)...................................................... $4,285,965 $ 2,124,874
Less accumulated depreciation.................................... (924,807) (375,932)
------------ ------------
$3,361,158 $ 1,748,942
------------ ------------
Leased plant and equipment:
Capitalized value of leased plant and equipment................ $1,236,861 $ 667,753
Less accumulated amortization.................................. (380,738) (246,645)
------------ ------------
856,123 421,108
------------ ------------
$4,217,281 $ 2,170,050
------------ ------------
------------ ------------
</TABLE>
(a) A charge has been registered by a finance company, over assets under hire
purchase of a controlled entity, to the value of $83,584.
NOTE 9. INTANGIBLES:
<TABLE>
<CAPTION>
FEBRUARY 28,
1995
DECEMBER 31, ------------
1995
------------
(NOTE 22)
<S> <C> <C>
Goodwill at cost................................................. $2,455,393 $ 2,443,866
Accumulated amortization......................................... (491,033) (280,504)
------------ ------------
$1,964,360 $ 2,163,362
------------ ------------
------------ ------------
</TABLE>
F-36
<PAGE>
ACCESS 24 SERVICE CORPORATION PTY LIMITED AND CONTROLLED ENTITIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995
AND THE TEN MONTHS ENDED DECEMBER 31, 1995
(CONTINUED)
NOTE 10. OTHER NON-CURRENT ASSETS:
<TABLE>
<CAPTION>
FEBRUARY 28,
1995
DECEMBER 31, ------------
1995
------------
(NOTE 22)
<S> <C> <C>
Investments
--Controlled entities (Note 4(a)).............................. $ -- $ --
Security deposits................................................ 110,770 82,895
Future income tax benefit........................................ 270,871 276,523
Amount receivable from a controlled entity....................... -- --
Other non-current assets......................................... 85,085 7,099
------------ ------------
$ 466,726 $ 366,517
------------ ------------
------------ ------------
</TABLE>
NOTE 11. CREDITORS AND BORROWINGS (CURRENT):
<TABLE>
<CAPTION>
FEBRUARY 28,
1995
DECEMBER 31, ------------
1995
------------
(NOTE 22)
<S> <C> <C>
Bank overdraft................................................... $ 196,453 $ --
Trade creditors.................................................. 357,306 294,785
Sundry creditors................................................. 948,329 928,507
Lease and hire purchase liabilities (Note 18(a))................. 821,968 607,080
Prepaid fees and claims:
--Trade........................................................ 710,527 322,548
--Trust accounts............................................... 7,962 41,316
Amounts due to related parties................................... -- 35,790
------------ ------------
$3,042,545 $ 2,230,026
------------ ------------
------------ ------------
</TABLE>
NOTE 12. PROVISIONS (CURRENT):
<TABLE>
<CAPTION>
FEBRUARY 28,
1995
DECEMBER 31, ------------
1995
------------
(NOTE 22)
<S> <C> <C>
Dividend......................................................... $ -- $ 785,657
Taxation......................................................... 423,680 567,220
Employee entitlements............................................ 378,496 233,993
------------ ------------
$ 802,176 $ 1,586,870
------------ ------------
------------ ------------
</TABLE>
NOTE 13. CREDITORS AND BORROWINGS (NON-CURRENT):
<TABLE>
<CAPTION>
FEBRUARY 28,
1995
DECEMBER 31, ------------
1995
------------
(NOTE 22)
<S> <C> <C>
Bank Loan (a).................................................... $1,000,000 $ --
Lease and hire purchase liabilities (Note 18(a))................. 1,521,226 791,276
------------ ------------
$2,521,226 $ 791,276
------------ ------------
------------ ------------
</TABLE>
(a) The bank loan is secured by a registered mortgage debenture over all the
assets/undertakings of the parent entity and by a letter of support to the value
of $3.77m from the ultimate parent entity, the RACV.
F-37
<PAGE>
ACCESS 24 SERVICE CORPORATION PTY LIMITED AND CONTROLLED ENTITIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995
AND THE TEN MONTHS ENDED DECEMBER 31, 1995
(CONTINUED)
NOTE 14. PROVISIONS (NON-CURRENT):
<TABLE>
<CAPTION>
FEBRUARY 28,
1995
DECEMBER 31, ------------
1995
------------
(NOTE 22)
<S> <C> <C>
Deferred income tax.............................................. $ 111,345 $ 59,099
Employee entitlements............................................ 58,598 38,117
------------ ------------
$ 169,943 $ 97,216
------------ ------------
------------ ------------
</TABLE>
NOTE 15. SHARE CAPITAL:
<TABLE>
<CAPTION>
FEBRUARY 28,
1995
DECEMBER 31, -------------
1995
-------------
(NOTE 22)
<S> <C> <C>
Authorized capital:
--10,000,000 ordinary shares of $1 each...................... $ 10,000,000 $ 10,000,000
------------- -------------
Issued and fully paid:
--212 ordinary shares of $1 each............................. $ 212 $ 212
------------- -------------
------------- -------------
</TABLE>
NOTE 16. RESERVES:
<TABLE>
<CAPTION>
FEBRUARY 28,
1995
DECEMBER 31, ------------
1995
------------
(NOTE 22)
<S> <C> <C>
Share premium account............................................ $2,999,900 $ 2,999,900
Foreign currency translation..................................... 17,236 7,288
------------ ------------
$3,017,136 $ 3,007,188
------------ ------------
------------ ------------
Foreign currency translation
--Balance at beginning of year................................. $ 7,288 $ (273)
--Gain on translation of overseas controlled entities.......... 9,948 7,561
------------ ------------
--Balance at end of period..................................... $ 17,236 $ 7,288
------------ ------------
------------ ------------
</TABLE>
NOTE 17. REMUNERATION OF AUDITORS:
Amounts received or due and receivable by the auditors of the company for:
<TABLE>
<CAPTION>
FEBRUARY 28,
1995
DECEMBER 31, ------------
1995
------------
(NOTE 22)
<S> <C> <C>
- --Audit services................................................. $ 43,363 $ 20,418
- --Other services................................................. -- 20,250
------------ ------------
$ 43,363 $ 40,668
------------ ------------
------------ ------------
</TABLE>
F-38
<PAGE>
ACCESS 24 SERVICE CORPORATION PTY LIMITED AND CONTROLLED ENTITIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995
AND THE TEN MONTHS ENDED DECEMBER 31, 1995
(CONTINUED)
NOTE 18. COMMITMENTS:
<TABLE>
<CAPTION>
FEBRUARY 28,
1995
DECEMBER 31, ------------
1995
------------
(NOTE 22)
<S> <C> <C>
(a) Finance lease and hire purchase expenditure contracted for is
payable as follows:
Not later than one year........................................ $ 852,954 $ 623,191
Later than one year and not later than two years............... 727,574 423,010
Later than two years and not later than five years............. 771,673 463,396
------------ ------------
2,352,201 1,509,597
Deduct future finance charges (i)................................ (9,007) (111,241)
------------ ------------
Net lease and hire purchase liability............................ $2,343,194 $ 1,398,356
------------ ------------
------------ ------------
Reconciled to:
Current liability (Note 11).................................... $ 821,968 $ 607,080
Non-current liability (Note 13)................................ 1,521,226 791,276
------------ ------------
$2,343,194 $ 1,398,356
------------ ------------
------------ ------------
</TABLE>
(i) In the current period, assets under hire purchase have been recorded on
a gross basis, resulting in the recognition of a liability and equivalent asset
equal to the amount of future interest payable. The finance charges disclosed
for the current year relate solely to finance leases while the prior year
comparatives include interest on assets under hire purchase.
<TABLE>
<CAPTION>
FEBRUARY 28,
1995
DECEMBER 31, ------------
1995
------------
(NOTE 22)
<S> <C> <C>
b) Operating leases
expenditure contracted for is payable as follows:
Not later than one year........................................ $ 302,129 $ 238,429
Later than one year and not later than two years............... 320,008 243,739
Later than two year and not later than five years.............. 361,031 517,833
------------ ------------
$ 983,168 $ 1,000,001
------------ ------------
------------ ------------
</TABLE>
The above operating lease commitments include amounts for rental operating
leases which are gross of amounts received for subleases of various premises.
F-39
<PAGE>
ACCESS 24 SERVICE CORPORATION PTY LIMITED AND CONTROLLED ENTITIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995
AND THE TEN MONTHS ENDED DECEMBER 31, 1995
(CONTINUED)
NOTE 19. REMUNERATION OF DIRECTORS:
The number of directors of the parent entity who received, or were due to
receive, remuneration (including brokerage, commissions, bonuses, retirement
payments and salaries, but excluding prescribed benefits) directly or indirectly
from the company or any related body corporate, as shown in the following bands
were:
<TABLE>
<CAPTION>
PARENT ENTITY
--------------------------
DECEMBER 31, FEBRUARY 28,
1995 1995
------------ ------------
<S> <C> <C>
$ 0 - $ 9,999.................................................................... -- 2
$ 20,000 - $ 29,999................................................................... 1 --
$ 50,000 - $ 59,999................................................................... 1 --
$110,000 - $119,999................................................................... 1 --
$210,000 - $219,999................................................................... 2 --
$250,000 - $259,999................................................................... -- 2
$260,000 - $269,999................................................................... -- 1
$270,000 - $279,999................................................................... 1 --
The aggregate remuneration of the directors referred to in the above bands was: $ 904,589 $ 776,821
------------ ------------
------------ ------------
</TABLE>
The total of all remuneration received, or due and receivable, directly or
indirectly, from the respective corporations of which they are a director, or
any related body corporate, by all the directors of each corporation in the
economic entity of December 31, 1995 and February 28, 1995 $904,589 and
$839,301, respectively.
<TABLE>
<S> <C> <C>
Amounts paid to or on behalf of directors of the company in respect
of retirement benefits and superannuation contributions were: $ 53,071 $ 67,043
----------- -----------
----------- -----------
</TABLE>
NOTE 20. RELATED PARTY DISCLOSURES:
(a) The directors of Access 24 Service Corporation Pty Limited during the
financial period were:
Dr. John Eric Kendall
Mr. Louis Thomas Carroll
Mr. Nigel Alexander Dick
Mr. John Norman Isaac
Mr. Keith William Blyth (resigned August 1, 1995)
Mr. Edmund Christopher Johnson (appointed September 8, 1995)
F-40
<PAGE>
ACCESS 24 SERVICE CORPORATION PTY LIMITED AND CONTROLLED ENTITIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995
AND THE TEN MONTHS ENDED DECEMBER 31, 1995
(CONTINUED)
NOTE 20. RELATED PARTY DISCLOSURES: (CONTINUED)
(b) The following related party transactions occurred during the financial
period:
<TABLE>
<CAPTION>
NATURE OF RELATIONSHIP WITH ACCESS 24 SERVICE OWNERSHIP
IDENTITY OF RELATED PARTY CORPORATION PTY LIMITED INTEREST
- -------------------------------------------------- -------------------------------------------------- --------------
<S> <C> <C>
RACV Insurance Pty Limited Commonly controlled entity --
Access 24 (Service Corporation) Limited (NZ) Controlled entity 100%
Access 24 Limited (UK) Controlled entity 100%
High Performance Healthcare Pty Ltd Controlled entity 100%
Support 24 Pty Limited Controlled entity 51%
Auto 24 Pty Limited Commonly controlled entity --
Dataview Solutions Pty Limited Director related entity --
</TABLE>
<TABLE>
<CAPTION>
VOLUME
TERMS & CONDITIONS OF EACH FEBRUARY 28,
IDENTITY OF RELATED PARTY TYPE OF TRANSACTION TRANSACTION 1995
- ----------------------------- ----------------------------- ----------------------------- VOLUME ------------
DECEMBER 31,
1995
------------
(NOTE 22)
<S> <C> <C> <C> <C>
RACV Insurance Pty Limited Sales Commercial terms and $ 779,467 $ 693,039
conditions
Auto 24 Pty Limited Staff services fees Commercial terms and 877,093 448,863
conditions
Loans advanced Interest charged at 651,050 545,000
commercial bank rates
Loan repayments 632,459 427,118
Interest receipts 18,392 --
High Performance Healthcare Loans advanced Nil interest 34,933 --
Pty Limited
Access 24 (Service Management fees Commercial terms and 251,754 169,891
Corporation) Limited conditions
Loans advanced Nil interest -- 555,000
Loan repayments 220,708 42,000
Support 24 Pty Limited Loans advanced Nil interest 313,952 --
Loan repayments 75,000 --
Dataview Solutions Pty Rent and related costs, Commercial terms and $ 100,329 $ 133,906
Limited software development, and conditions
accounts preparation
Access 24 Limited Loan advance Nil interest 1,256,206 --
</TABLE>
(c) During the current financial period, the parent entity entered into
certain contracts on behalf of a controlled entity. These contracts are for:
- the provision of services to third parties,
F-41
<PAGE>
ACCESS 24 SERVICE CORPORATION PTY LIMITED AND CONTROLLED ENTITIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995
AND THE TEN MONTHS ENDED DECEMBER 31, 1995
(CONTINUED)
NOTE 20. RELATED PARTY DISCLOSURES: (CONTINUED)
- operating lease for premises,
- finance lease for equipment.
The assets, liabilities, revenues and expenses associated with these
contracts have been reflected in the financial statements of the economic
entity. They have not been reflected in the financial statements of the parent
entity as, in substance, the transactions relate solely to the operations of the
controlled entity.
(d) Interests in the shares of entities within the economic entity held by
directors of the reporting entity and their director related entities, as at
December 31, 1995:
<TABLE>
<CAPTION>
ACCESS 24 SERVICE CORPORATION
PTY LTD
--------------------------------
$1 ORDINARY SHARES, FULLY PAID
--------------------------------
DECEMBER 31, FEBRUARY 28,
1995 1995
--------------- ---------------
<S> <C> <C>
J. E. Kendall........................................ 70 70
L. T. Carroll........................................ 36 36
</TABLE>
NOTE 21. CASH FLOWS:
(a) Reconciliation of cash
For the purposes of the statement of cash flows, cash includes cash on hand
and in banks and deposits at call, net of outstanding bank overdrafts. Cash at
the end of the financial period as shown in the statement of cash flows is
reconciled to the related items in the balance sheet as follows:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1995
------------ ------------
<S> <C> <C>
Cash balance comprises:
Cash at bank and on hand....................................... $ 807,875 $ 1,797,191
Cash held in trust............................................. 8,345 40,791
------------ ------------
816,220 1,837,982
Bank overdraft................................................. (196,453) --
------------ ------------
$ 619,767 $ 1,837,982
------------ ------------
------------ ------------
</TABLE>
F-42
<PAGE>
ACCESS 24 SERVICE CORPORATION PTY LIMITED AND CONTROLLED ENTITIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995
AND THE TEN MONTHS ENDED DECEMBER 31, 1995
(CONTINUED)
NOTE 21. CASH FLOWS: (CONTINUED)
(b) Reconciliation of operating profit/loss after tax to net cash flows from
operating activities:
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28,
1995
TEN MONTHS ------------
ENDED
DECEMBER 31,
1995
------------
(NOTE 22)
<S> <C> <C>
Operating profit/(loss) after tax................................ $ (28,435) $ 999,090
Depreciation and amortization:
--Property, plant and equipment................................ 547,589 346,420
--Intangibles.................................................. 210,048 237,668
--Leased assets................................................ 196,086 203,335
Gain/(loss) on sale of non-current assets........................ (28,929) 70,736
Bad and doubtful debts........................................... (42,135) 35,255
Changes in assets and liabilities:
Trade receivables................................................ (486,706) (128,396)
Other receivables................................................ (64) 2,662
Advances to related parties...................................... (68,592) --
Intercompany trade receivables................................... -- --
Security deposits................................................ (27,875) --
Accrued fees..................................................... (37,565) --
Future income tax benefit........................................ 5,652 (90,852)
Prepayments...................................................... (210,468) (65,178)
Other assets..................................................... (6,449) --
Trade creditors.................................................. 62,521 4,359
Sundry creditors and accruals.................................... 19,822 225,978
Prepaid fees and claims:
--Trade creditors.............................................. 387,979 --
--Trust accounts............................................... (33,354) (4,498)
Amounts due to related parties................................... (35,790) --
Repayment of advances to related parties......................... -- 78,855
Tax provision.................................................... (143,540) 447,534
Deferred income tax liability.................................... 52,246 47,045
Adjustment to retained earnings (re AASB 1028: Accounting for
Employee Entitlements).......................................... (14,535) --
Employee provisions.............................................. 164,984 (10,289)
------------ ------------
Net cash flows from operating activities......................... $ 482,490 $ 2,399,724
------------ ------------
------------ ------------
</TABLE>
(c) Non-cash financing and investing activities:
Purchases of certain plant and equipment has been conducted through finance
leases and hire purchase agreements. These transactions do not result in cash
outflows until the lease payments occur as per the individual agreements.
Purchases of property, plant and equipment financed in this way for the 10
months ended December 31, 1995 totalled $630,789 for Access 24 and $1,304,100
for the economic entity ($826,505 and $787,960 for the year ended February 28,
1995). The total value of property, plant and equipment under lease and the
resulting lease liabilities are disclosed in the financial statements.
F-43
<PAGE>
ACCESS 24 SERVICE CORPORATION PTY LIMITED AND CONTROLLED ENTITIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995
AND THE TEN MONTHS ENDED DECEMBER 31, 1995
(CONTINUED)
NOTE 22. FINANCIAL PERIOD:
The parent entity and its controlled entities have changed financial year
end from February 28 to December 31. As a result, these financial statements
cover the ten month period from March 1 1995 to December 31, 1995. The
comparative figures relate to the year ended February 28, 1995.
F-44
<PAGE>
INSIDE BACK COVER OF PROSPECTUS:
The inside back cover is a multicolor graphic layout entitled "CUSTOMER
CONNECTIVITY through TeleTech's network of people and technology." AFTER THE
WORDS "CUSTOMER CONNECTIVITY", THERE IS A SUPERSCRIPT "R" SURROUNDED BY A
CIRCLE, INDICATING THAT THE WORDS ARE A REGISTERED TRADEMARK OF TELETECH.
Located in the center of the page is a rectangular photograph of a call
center over which is superimposed the word "TELETECH". Along the bottom edge of
this photograph are four ovals labelled as follows (from left to right): "PHONE"
(together with graphic icon of telephone handset); "INTERNET" (together with
graphic icon of arrow "clicking" on a computer screen); "IVR" (together with a
graphic icon of three buttons arranged vertically and labeled "1, 2 and 3"); and
"FAX" (together with graphic icon of telephone handset and a sheet of paper).
Located towards the bottom of the page, below the above-described
rectangular photograph and connected to the same by a curvilinear line, is an
oval graphic labeled "teletech's clients", beneath which is written "fortune
1000."
Located above the rectangular photograph are six oval photographs containing
close-up of one or more faces and labelled "client's customers." Overlapping
each of these oval photographs is one of graphic icons identified along the
bottom of the rectangular photograph, which indicates the services provided by
TeleTech to the client's customer (e.g., FAX, PHONE, IVR [interactive voice
response] and INTERNET). Each oval photograph is connected to the rectangular
photograph by a curvilinear line.
TeleTech's corporate logo appears in the lower left-hand corner of the page,
under which are written the words: "COPYRIGHT 1996."
<PAGE>
OUTSIDE BACK COVER OF PROSPECTUS
[LOGO]
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED , 1996
6,000,000 SHARES
[LOGO]
COMMON STOCK
--------------
OF THE 6,000,000 SHARES OF COMMON STOCK BEING OFFERED, 4,000,000 SHARES ARE
BEING SOLD BY THE COMPANY AND 2,000,000 SHARES ARE BEING SOLD BY THE SELLING
STOCKHOLDERS NAMED HEREIN. THE COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS
FROM THE SALE OF SHARES BY THE SELLING STOCKHOLDERS. SEE "PRINCIPAL AND
SELLING STOCKHOLDERS." OF THE SHARES BEING OFFERED, SHARES ARE
BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS.
SEE "UNDERWRITERS." PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC
MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY
ANTICIPATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$ AND $ . SEE "UNDERWRITERS" FOR A DISCUSSION
OF THE FACTORS CONSIDERED IN DETERMINING THE
INITIAL OFFERING PRICE.
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 6 HEREOF.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
PER SHARE............................. $ $ $ $
TOTAL (3)............................. $ $ $ $
</TABLE>
- ---------
(1) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT
$ . THE COMPANY HAS AGREED TO PAY THE EXPENSES OF THE SELLING
STOCKHOLDERS, OTHER THAN UNDERWRITING DISCOUNTS AND COMMISSIONS.
(3) ONE OF THE SELLING STOCKHOLDERS HAS GRANTED THE U.S. UNDERWRITERS AN
OPTION, EXERCISABLE WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO
AN AGGREGATE OF 900,000 ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO
PUBLIC LESS UNDERWRITING DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF
COVERING OVER-ALLOTMENTS, IF ANY. IF THE U.S. UNDERWRITERS EXERCISE SUCH
OPTION IN FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND
COMMISSIONS, PROCEEDS TO COMPANY AND PROCEEDS TO SELLING STOCKHOLDERS
WILL BE $ , $ , $ , AND $ , RESPECTIVELY. SEE
"UNDERWRITERS."
------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY KATTEN MUCHIN & ZAVIS, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT
DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT , 1996 AT THE OFFICE OF
MORGAN STANLEY & CO. INCORPORATED, NEW YORK, NEW YORK, AGAINST PAYMENT THEREFOR
IN IMMEDIATELY AVAILABLE FUNDS.
-------------------
MORGAN STANLEY & CO.
INTERNATIONAL
ALEX. BROWN & SONS
INCORPORATED
SMITH BARNEY INC.
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses (other than the SEC registration
fee, NASD filing fee and the Nasdaq National Market application fee) of the
issuance and distribution of the securities being registered, all of which will
be paid by TeleTech Holdings, Inc. ("TeleTech").
<TABLE>
<S> <C>
SEC registration fee............................................ $41,637.93
NASD filing fee................................................. 12,575.00
Nasdaq National Market application fee.......................... 50,000.00
Printing expenses............................................... *
Fees and expenses of counsel.................................... *
Fees and expenses of accountants................................ *
Transfer agent and registrar fees............................... *
Blue sky fees and expenses...................................... *
Miscellaneous................................................... *
---------
Total....................................................... $ *
---------
---------
</TABLE>
- ---------
*To be provided by amendment.
TeleTech will bear all of the foregoing expenses. In addition, TeleTech intends
to pay all expenses of registration, issuance and distribution, excluding
underwriters' discounts and commissions, with respect to the shares being sold
by the Selling Stockholders.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Delaware law, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to an action (other than an action by
or in the right of the corporation) by reason of such person's service as a
director of officer of the corporation, or such person's service, at the
corporation's request, as a director, officer, employee or agent of another
corporation or other enterprise, against expenses (including attorneys' fees)
that are actually and reasonably incurred by such person ("Expenses"), and
judgments, fines and amounts paid in settlement that are actually and reasonably
incurred by such person, in connection with the defense or settlement of such
action; provided that such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the corporation's best
interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that such person's conduct was unlawful. Although
Delaware law permits a corporation to indemnify any person referred to above
against Expenses in connection with the defense or settlement of an action by or
in the right of the corporation, provided that such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
corporation's best interests, if such person has been judged liable to the
corporation, indemnification is only permitted to the extent that the
adjudicating court (or the court in which the action was brought) determines
that, despite the adjudication of liability, such person is entitled to
indemnity for such Expenses as the court deems proper. The determination as to
whether a person seeking indemnification has met the required standard of
conduct is to be made (1) by a majority vote of a quorum of disinterested
members of the board of directors, or (2) by independent legal counsel in a
written opinion, if such a quorum does not exist or if the disinterested
directors so direct, or (3) by the stockholders. The General Corporation Law of
Delaware also provides for mandatory indemnification of any director, officer,
employee or agent against Expenses to the extent such person has been successful
in any proceeding covered by the statute. In addition, the General Corporation
Law of Delaware provides for the general authorization of advancement of a
director's or officer's litigation expenses in lieu of requiring the
authorization of such advancement by the board of directors in specific cases,
and that indemnification and advancement of expenses provided by the statute
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement or otherwise.
II-1
<PAGE>
TeleTech's Restated Certificate of Incorporation and By-laws provide that
TeleTech shall indemnify its directors, officers, employees and other agents to
the fullest extent permitted by Delaware law.
TeleTech has also entered into agreements to indemnify its directors and
certain of its officers, in addition to the indemnification provided for in
TeleTech's Restated Certificate of Incorporation and By-laws. These agreements
provide, among other things, that TeleTech will indemnify its directors and
officers for all direct and indirect expenses and costs (including, without
limitation, all reasonable attorneys' fees and related disbursements, other
out-of-pocket costs and reasonable compensation for time spent by such persons
for which they are not otherwise compensated by TeleTech or any third person)
and liabilities of any type whatsoever (including, but not limited to,
judgements, fines and settlement fees) actually and reasonably incurred by such
person in connection with either the investigation, defense, settlement or
appeal of any threatened, pending or completed action, suit or other proceeding,
including any action by or in the right of the corporation, arising out of such
person's services as a director, officer, employee or other agent of TeleTech,
any subsidiary of TeleTech or any other company or enterprise to which the
person provides services at the request of TeleTech. TeleTech believes that
these provisions and agreements are necessary to attract and retain talented and
experienced directors and officers.
TeleTech maintains liability insurance for the benefit of its directors and
officers.
Under the terms of the Underwriting Agreement, the Underwriters have agreed
to indemnify, under certain conditions, TeleTech, its directors, certain of its
officers and persons who control TeleTech within the meaning of the Securities
Act of 1933, as amended (the "Securities Act") against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The shares of common stock, par value $.002 per share (the "Common Stock"),
issued in the transactions described below reflect a five-for-one split of the
Common Stock to be effected immediately prior to the closing of the Offering
contemplated by this Registration Statement.
Pursuant to the terms of, and as a condition precedent to consummation of
the transactions contemplated by, that certain Preferred Stock Purchase
Agreement dated as of December 22, 1994 by and among TeleTech Teleservices,
Inc., a Colorado corporation ("TTS"), TeleTech Telecommunications, Inc., a
California corporation ("TTC"), TeleTech, TeleTech Investors General
Partnership, an Illinois general partnership (the "Partnership"), and Essaness
Theaters Corporation, a Delaware corporation ("Essaness"), TeleTech, on January
17, 1995, issued (a) 40,700,000 shares of Common Stock to Kenneth D. Tuchman
("Tuchman") in exchange for all of the issued and outstanding shares of capital
stock of TTS and TTC then owned by Tuchman, and (b) and 1,705,000 and 155,000 of
its convertible preferred stock, par value $6.45 per share ("Preferred Stock"),
to the Partnership and Essaness, respectively, in exchange for $11,000,000 and
$1,000,000 respectively. Each share of Preferred Stock is convertible into five
shares of Common Stock, subject to adjustment under various anti-dilution
provisions.
Between January 1, 1995 and May 15, 1996, TeleTech granted to certain of its
officers, employees, consultants and independent contractors options to acquire
an aggregate of 4,968,500 shares of Common Stock. All of such options were
granted pursuant to option agreements between TeleTech and each option holder
and are subject to the terms of the TeleTech Holdings, Inc. Stock Plan ("Option
Plan").
On January 1, 1996, TeleTech acquired all of the outstanding capital stock
of Access 24 Service Corporation Pty Limited, a corporation incorporated under
the laws of New South Wales, Australia ("Access 24"). As consideration for such
capital stock, TeleTech issued 712,520 shares of Common Stock to Bevero Pty
Limited and paid $2.27 million and issued 257,220 shares of Common Stock to
Access 24 Holdings Pty Limited.
In connection with the acquisition of Access 24, TeleTech entered into an
employment agreement dated as of January 1, 1996 with Dr. John E. Kendall, as
Vice President, Strategic Planning, of TeleTech. In connection with Dr.
Kendall's execution of the agreement, TeleTech issued to Dr. Kendall 38,000
shares of Common Stock, which shares constitute restricted stock subject to the
terms of the Option Plan and vest proportionately over the three year period
commencing on the date of issuance.
II-2
<PAGE>
Also in connection with the acquisition of Access 24, TeleTech caused Access
24 to enter into an employment agreement dated as of January 1, 1996 with Louis
T. Carroll, as Managing Director of Access 24. In connection with Mr. Carroll's
execution of the agreement, TeleTech issued to Mr. Carroll 38,000 shares of
Common Stock, which shares constitute restricted stock subject to the terms of
the Option Plan and vest proportionately over the three year period commencing
on the date of issuance.
During 1996, TeleTech has granted options to acquire 225,000 shares of
Common Stock to its former and current non-executive directors, at an exercise
price of $5.00 per share, pursuant to the TeleTech Holdings, Inc. Directors
Stock Option Plan (the "Directors Plan"). All of such options are subject to the
terms of the Directors Plan and were granted pursuant to option agreements
between TeleTech and each director who received such options.
No underwriters were involved in the transactions described above. All of
the shares and options issued in the foregoing transactions were issued or
granted by the Company in reliance upon the exemptions from registration
available under Section 4(2) of the Securities Act, including Rule 701,
Regulation D or Regulation S promulgated thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
See attached Exhibit Index.
(b) Financial Statement Schedules:
None
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closings specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Securities Act, (i) the information omitted
from the form of prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective and (ii) each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Denver, Colorado on June 5, 1996.
By: /s/ KENNETH D. TUCHMAN
-----------------------------------
Kenneth D. Tuchman
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED ON JUNE 5, 1996 BY
THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
<TABLE>
<C> <S>
SIGNATURE TITLE
- ------------------------------------------------------ ---------------------------------------------------------
/s/ KENNETH D. TUCHMAN
------------------------------------------- Chairman of the Board, President and Chief Executive
Kenneth D. Tuchman Officer (Principal Executive Officer)
* STEVEN B. COBURN
------------------------------------------- Chief Financial Officer (Principal Financial and
Steven B. Coburn Accounting Officer)
* ALAN SILVERMAN
------------------------------------------- Director
Alan Silverman
* RICHARD WEINGARTEN
------------------------------------------- Director
Richard Weingarten
* SAMUEL ZELL
------------------------------------------- Director
Samuel Zell
*By: /s/ KENNETH D. TUCHMAN
--------------------------------------
Kenneth D. Tuchman
As Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement
3.1* Restated Certificate of Incorporation of TeleTech
3.2* Amended and Restated By-laws of TeleTech
4.1* Amended and Restated Investment Agreement dated as of May , 1996 among TeleTech, TeleTech Investors
General Partnership, Alan Silverman, Susan Silverman and Jack Silverman
4.2* Stock Transfer and Registration Rights Agreement dated as of January 1, 1996 among TeleTech, Access 24
Holdings Pty Limited, Bevero Pty Limited and Access 24 Service Corporation Pty Limited
4.3* Specimen Common Stock Certificate
5.1* Opinion of Neal, Gerber & Eisenberg, counsel to TeleTech
10.1** Employment Agreement dated as of January 1, 1995 between Kenneth D. Tuchman and TeleTech
10.2** Employment Agreement dated as of January 1, 1995 between Joseph D. Livingston and TeleTech (the
"Livingston Employment Agreement")
10.3* Amendment to the Livingston Employment Agreement dated May , 1996
10.4* Employment Agreement dated as of September 30, 1995 between Steven B. Coburn and TeleTech
10.5** Preferred Stock Purchase Agreement dated as of December 22, 1994 among TeleTech Teleservices, Inc.,
TeleTech Telecommunications, Inc., TeleTech, TeleTech Investors General Partnership and Essaness
Theaters Corporation
10.6* Subscription and Shareholders Agreement dated April 30, 1996 among TeleTech, Access 24 Limited and
Priplan Investments Limited
10.7** TeleTech Holdings, Inc. Stock Plan
10.8** TeleTech Holdings, Inc. Director Stock Option Plan
10.9 Sublease Agreement dated September 26, 1994 between International Business Machines Corporation and
TeleTech Telecommunications, Inc.
10.10 Agreement dated March 16, 1993 between 1700 Lincoln Limited and TeleTech Telecommunications, Inc. and
TeleTech Teleservices, Inc.
10.11** Lease dated September 21, 1995 between First Union Management, Inc. and TeleTech Teleservices and
TeleTech
10.12 Form of Client Services Agreement
10.13* Agreement for Call Center Management between United Parcel General Services Co. and TeleTech
10.14* Office Lease dated July 24, 1992 between Sam Menlo, d/b/a Menlo Enterprises and TeleTech Telecom-
munications
10.15** Business Loan Agreement dated March 29, 1996 among TeleTech Telecommunications, Inc., TeleTech
Teleservices, Inc. and TeleTech, as Borrower, and First Interstate Bank of California, as Lender;
Addendum dated March 29, 1996
10.16** Stock Purchase Agreement dated as of January 1, 1996 among Access 24 Holdings Pty Limited, Bevero Pty
Limited, Access 24 Service Corporation Pty Limited and TeleTech
10.17* Master Lease Agreement dated as of July 11, 1995 among First Interstate Bank of California, TeleTech,
TeleTech Telecommunications, Inc. and TeleTech Teleservices, Inc.
10.18 Master Equipment Lease Agreement dated as of August 16, 1995 between NationsBanc Leasing Corporation and
TeleTech
21.1* List of subsidiaries
23.1 Consent of Arthur Anderson LLP, independent public accountants
23.2 Consent of Gumbiner, Savett, Finkel, Fingleson & Rose, Inc. (formerly Gumbiner, Savett, Friedman & Rose,
Inc.), independent public accountants
23.3* Consent of Neal, Gerber & Eisenberg (included in Exhibit 5.1)
24.1** Power of Attorney (previously included on the signature page to the Registration Statement)
27** Financial Data Schedule
</TABLE>
- ----------
*To be filed by amendment.
**Previously filed
<PAGE>
Exhibit 10.9
SUBLEASE AGREEMENT
2130 N. HOLLYWOOD WAY, BURBANK, CALIFORNIA 91504
THIS SUBLEASE AGREEMENT ("SUBLEASE"), made as of September 26, 1994,
between INTERNATIONAL BUSINESS MACHINES CORPORATION, a New York corporation,
having its principal office at Armonk, New York 10504, hereinafter called
"Sublessor" and TELETECH TELECOMMUNICATIONS, INC., a California corporation,
having its principal office at 15355 Morrison Street, Sherman Oaks, CA 91403,
hereinafter called "SUBLESSEE".
WITNESSETH:
WHEREAS, by Agreement of Lease dated July 16, 1993, as amended by that
certain Amendment No. 1 to Lease dated as of September 15, 1993, and by that
certain Amendment No. 2 to Lease and Lease Assignment and Assumption dated as of
September 26, 1994, a true and complete copy of which is attached hereto as
Sublease Exhibit A and incorporated herein by this reference (collectively,
herein called the "PRIME LEASE"), Sublessor leases from CP Private Partners,
LP-1 (the "PRIME LESSOR") the building commonly known as 2130 N. Hollywood Way,
Burbank, CA 91504 (the "BUILDING"); and
WHEREAS, Sublessee desires to sublease a portion of the Building from
Sublessor, and Sublessor desires to sublease such portion of the Building to
Sublessee; and
WHEREAS, Sublessor represents, warrants, and covenants that the Prime Lease
is enforceable against the owner of the "Land" as such term is defined in the
Prime Lease.
NOW, THEREFORE, for and in consideration of the foregoing and for other
good and valuable consideration and of the mutual agreements hereinafter set
forth, Sublessor and Sublessee stipulate, covenant and agree as follows:
1. PREMISES. Sublessor does hereby sublease to Sublessee a portion of the
Building consisting of approximately 44,973 square feet of rentable area (the
"Sublease Premises") as outlined on Sublease Exhibit C, which is attached hereto
and made a part hereof. Unless a different meaning is clearly expressed in this
Sublease, all terms having their initial letters capitalized and used without
definition shall have the meaning ascribed to them in the Prime Lease.
2. SUBLEASE TERM.
2.1 COMMENCEMENT DATE. The term of this Sublease shall commence on the
date ("Commencement Date") which is the earlier of (a) the date the Sublease
Premises are ready for occupancy as specified in Section 2.2; (b) the date on
which Sublessee takes possession of or occupies any portion of the Sublease
Premises for the conduct of its business; or (c) the date the Sublease Premises
would have been ready for occupancy but for Sublessee Delay (as
<PAGE>
defined in Sublessor's Improvement Letter) and shall end on January 14, 2000,
unless sooner terminated pursuant hereto ("Sublease Term"). The Commencement
Date is projected to occur on or before January 15, 1995. Promptly following the
Commencement Date, Sublessor and Sublessee shall execute and acknowledge a
Memorandum of Sublease Commencement in the form attached hereto as Sublease
Exhibit D, setting forth the Commencement Date and the expiration date of the
Sublease Term.
2.2 OCCUPANCY DATE. Sublessor shall construct and complete all
construction for the Sublease Premises for occupancy by Sublessee on or before
January 15, 1995, in accordance with the specifications and drawings approved by
Sublessee and Sublessor and in accordance with the provisions of Sublessor's
Improvement Letter, attached hereto as Sublease Exhibit E. Sublessor shall
deliver to Sublessee a written notice stating the date on which the Sublease
Premises will be ready for occupancy (the "Occupancy Date"), such notice to be
given not less than 30 days prior to the Occupancy Date indicated in the notice.
The Sublease Premises shall be deemed ready for occupancy when (a) Sublessee has
uninterrupted and safe access to the Sublease Premises; (b) the Building Service
Systems, the Leased Premises Service Systems, and the Building Parking Area are
operational to the extent necessary to service the Sublease Premises; (c)
Sublessor has provided Sublessee the number of parking spaces set forth in
Section 12 and the Building Parking Area is ready for the parking of such
automobiles; (d) Sublessor has substantially completed all the work and
improvements (as described in Sublessor's Improvement Letter) required to be
performed by Sublessor other than (i) minor details of construction and
decoration and minor mechanical adjustments which do not materially interfere
with Sublessee's use of the Sublease Premises (i.e., punch list items), and (ii)
any work or improvements on any portion of the Sublease Premises which is not
completed due to any Sublessee Delay (as defined in Sublessor's Improvement
Letter); and (e) Sublessor shall have (i) obtained a Certificate of Occupancy
for the Building or a temporary Certificate of Occupancy (or equivalent permit
from the city of Burbank) permitting occupancy of the portion of the Building on
which the Sublease Premises are located, or (ii) completed all work and
improvements necessary to entitle Sublessor to the issuance of such a
Certificate of Occupancy or a temporary Certificate of Occupancy (or equivalent
permit) for such space, other than for work and improvements not completed due
to any Sublessee Delay. Notwithstanding anything to the contrary set forth
above, if the Occupancy Date is delayed as a result of any act or omission of
any kind by Sublessee, its agents or employees, the Commencement Date (and the
commencement of Sublessee's obligation to pay rent) shall be determined without
regard to such delay.
2.3 ACCEPTANCE. By entering into possession and occupancy of the Sublease
Premises and except for such matters as Sublessee shall specify to Sublessor in
writing within thirty (30) days
- 2 -
<PAGE>
thereafter, Sublessee shall be conclusively deemed to have accepted the Sublease
Premises and to have agreed that Sublessor, up to the time of such occupancy,
had performed all of its obligations hereunder with respect to the Sublease
Premises and that the Sublease Premises are in satisfactory condition and in
full compliance with the requirements of this Sublease, except for minor details
of construction, decoration and mechanical adjustments referred to in Section
2.2.
2.4 CANCELLATION FOR FAILURE TO COMPLETE. Sublessee shall have the right
to cancel and terminate this Sublease (and the rights and obligations of the
parties hereunder) if, on or before April 15, 1995 ("Completion Date"), the
Commencement Date has failed to occur. In the event of such termination,
Sublessor shall immediately return to Sublessee all sums paid by Sublessee to
Sublessor pursuant to this Sublease. The Completion Date shall be delayed, on a
day-for-day basis, by any Sublessee Delay of the type described in Sublessor's
Improvement Letter. The Completion Date shall also be delayed, on a day-for-day
basis for up to three (3) additional months, by force majeure delays as
described below.
2.4.1 Delays due to fire, earthquake, flood, enemy actions, civil
commotion, unavoidable casualty, acts of God, or action or inaction of
government entities shall be deemed force majeure delays for purposes of this
Section 2.4.
2.4.2 Sublessee's right to cancel and terminate this Sublease must
be exercised by a written notice to Sublessor given within thirty (30) days
after the Completion Date. Sublessee's cancellation and termination of this
Sublease pursuant to this Section 2.4 shall be effective thirty (30) days after
delivery of said cancellation notice to Sublessor, if, within said thirty (30)
day period, the Commencement Date has still not occurred. Landlord shall be
deemed to have satisfied all of its obligations under this Section 2.4 upon the
occurrence of the Commencement Date.
2.5 HOLDOVER. If Sublessee remains in the Sublease Premises beyond the
expiration or earlier termination of the Sublease Term, such holding over in
itself shall not constitute a renewal or extension of this Sublease but in such
event, a tenancy from month to month shall arise. During the holdover period,
Sublessee shall pay a monthly rental (holdover Base Rent") equal to the
following:
2.5.1 If Sublessee is the sole occupant of the Building, Holdover
Base Rent shall equal: (a) Sublessor's installment of holdover rent payable to
Prime Lessor pursuant to Article 25 of the Prime Lease for the same month of the
Sublease Term, plus (b) Operating Expenses and Real Estate Taxes payable by
Sublessor to Prime Lessor.
2.5.2 If Sublessee is not the sole occupant of the Building, the
Holdover Base Rent shall equal: (a) Sublessee's PRO
- 3 -
<PAGE>
RATA share of Sublessor's installment of holdover rent payable to Prime Lessor
pursuant to Article 25 of the Prime Lease for the same month of the Sublease
Term, plus (b) Sublessee's PRO RATA share of Operating Expenses and Real Estate
Taxes payable by Sublessor to Prime Lessor.
3. USES. Sublessee shall use and occupy the Sublease Premises for general
office and storage uses only. Sublessor shall be responsible for obtaining
permits for Sublessee's uses that will be required for Sublessee's occupancy of
the Sublease Premises. If, thereafter, Sublessee shall institute a special use
of the Sublease Premises, which requires an amendment to the existing
certificate of occupancy, Sublessee shall be responsible for obtaining the same
as well as any other governmental permit, approval or license required by
applicable Laws. Sublessor shall cooperate with Sublessee and shall execute all
applications, authorizations and other instruments reasonably required to enable
Sublessee to fulfill its responsibilities under this Section.
3.1 RESTRICTIONS ON OPENINGS IN NORTHERN WALL OF BUILDING. Sublessee
acknowledges that the City of Burbank has required that Prime Lessor execute and
record a Statement of Covenants in the form of Exhibit A to Amendment No. 1 to
the Prime Lease (the "Statement of Covenants"). Sublessee acknowledges that
under the circumstances described in the Statement of Covenants, Prime Lessor
may be required to remove any openings in the northern wall of the Building to
the extent required to comply with applicable Uniform Building Code
requirements. In such event, notwithstanding anything to the contrary in this
Sublease, Sublessee shall cooperate with Prime Lessor and permit such work to be
completed in accordance with the Statement of Covenants (including without
limitation paragraphs 3 and 4 thereof) in an efficient and expeditious manner.
Any such alterations shall be at Prime Lessor's sole expense.
4. RENTS AND ADDITIONAL RENT.
4.1 SUBLEASE RENT. Sublessee shall pay Sublessor the annual rent of Six
Hundred Forty-Seven Thousand Six Hundred Eleven and 20/100 Dollars ($647,611.20)
payable in equal monthly installments of Fifty-Three Thousand Nine Hundred
Sixty-Seven and 60/100 Dollars ($53,967.60) in advance on the first day of each
month during the term of this Sublease without deduction, set off or demand.
Rent for any portion of a month shall be prorated on a thirty (30) day basis.
Rent payments will be delivered to Sublessor's office located at Scribcor,
Incorporated, as agent for IBM lease administration, P.O. Box 809224 Chicago,
Illinois 60680-9224, or such other place as Sublessor may designate in writing.
The annual rent set forth above is comprised of a base rent of Fourteen and
40/100 Dollars ($14.40) per square foot of rentable area.
4.2 ADDITIONAL RENT. Sublessee shall pay as additional rent its PRO RATA
share of any increases in Operating Expenses and Real
- 4 -
<PAGE>
Estate Taxes above Base Year Operating Expenses and Base Year Real Estate Taxes,
which are due under Sections 3.04 and 3.05 of the Prime Lease. Sublessee's PRO
RATA share is 50.01 %, which is the ratio that 44,973 square feet of rentable
area of the Sublease Premises bears to 89,780 square feet of rentable area in
the Building. In interpreting and applying the terms of the Prime Lease to
Sublessee, Sublessor agrees that Sublessee is responsible for only its PRO RATA
share of Operating Expenses, Real Estate Taxes, and other items of Additional
Rent to the extent such charges are not allocated PRO RATA according to rentable
area of the Building in the Prime Lease. Sublessor shall furnish Sublessee with
a true copy of the statement of Operating Expenses and Real Estate Taxes,
delivered by Prime Lessor to Sublessor pursuant to the Prime Lease and include
thereon a detailed statement of Sublessee's PRO RATA share of any increase in
Operating Expenses or Real Estate Taxes. Sublessee shall reimburse Sublessor
within thirty (30) days after the Operating Expense or Real Estate Taxes
statement is furnished to Sublessee.
5. INCORPORATION OF PRIME LEASE.
5.1 This Sublease is subject to all of the terms of the Prime Lease with
the same force and effect as if fully set forth herein at length, excepting only
as otherwise specifically provided herein. All of the terms with which
Sublessor is bound to comply under the Prime Lease shall, to the extent only
that they apply to the Sublease Premises and except as otherwise provided
herein, be binding upon Sublessee, and all of the obligations of Prime Lessor
set forth in the Prime Lease shall, to the extent that they apply to the
Sublease Premises, inure to Sublessee's benefit. It is the intention of the
parties that, except as otherwise provided in this Sublease, the relationship
between Sublessor and Sublessee shall be governed by the language of the various
articles of the Prime Lease as if they were typed out in this Sublease in full,
and the words "Lessor", "Lessee", and "Lease" as used in the Prime Lease, shall
read, respectively, "Sublessor", "Sublessee", and "Sublease". The deletions and
changes to the Prime Lease set forth in this Section 5 are made only in
reference to the interpretation of the provisions of the Prime Lease between
Sublessor and Sublessee and not between Prime Lessor and Sublessor.
5.2 For the purposes of this Sublease, Section 1.02(c) (discussing single
tenant occupancy of the Building) of the Prime Lease is deleted in its entirety.
5.3 For the purposes of this Sublease, Section 2.01 ("Initial Term") of
the Prime Lease is deleted in its entirety.
5.4 For the purposes of this Sublease, Section 2.02 ("Extended Term") of
the Prime Lease is deleted in its entirety and replaced with the following:
- 5 -
<PAGE>
"Section 2.02. All adjustments to the Lease to accommodate a
multi-tenant building shall be made on a proportionate basis
(for example, adjustments in Tenant's share of the Operating
Expenses), except if the adjustment cannot be made on a
proportionate basis (for example, signage and other Tenant
rights), the adjustment shall be made on a fair and
equitable basis. Any disagreements shall be subject to
arbitration pursuant to Article Thirty-Eight. "
5.5 For the purposes of this Sublease, Section 3.01 ("Annual Rent") of the
Prime Lease is deleted in its entirety.
5.6 For the purposes of this Sublease, Section 3.02 ("Extended Term Rent")
of the Prime Lease is deleted in its entirety.
5.7 For the purposes of this Sublease, the first paragraph only of Section
3.04 ("Operating Expenses") of the Prime Lease is deleted in its entirety and
replaced with the following:
"Section 3.04 OPERATING EXPENSES. Tenant shall pay as Additional
Rent the amount by which the annual Operating Expenses for each
Operating Expense Escalation Year exceed the Operating Expenses
of the calendar year 1995 ("Operating Expense Base Year").
Notwithstanding the foregoing, during the Initial Term, Tenant's
payment for increases in property management, contract services,
landscaping and parking lot maintenance shall be limited to a
four percent (4%) increase in any one year over the previous
year."
5.8 For the purposes of this Sublease, Section 3.04(a)(A)(3) (listing
items included in operating expenses) of the Prime Lease is deleted in its
entirety and replaced with the following:
"(3) the cost of replacements for tools and maintenance
equipment (such equipment shall not include air conditioning
equipment, boilers, or any items of a capital nature; all
tools and maintenance equipment purchased prior to and
during the first year of full occupancy of the Building
shall be considered capital items.);"
5.9 For the purposes of this Sublease, Section 3.04(b) (defining
"Operating Expense Base Year") of the Prime Lease is deleted in its entirety and
replaced with the following:
- 6 -
<PAGE>
"(b) The words "Operating Expense Base Year" shall mean
calendar year 1995 for the Sublease Term."
5.10 For the purposes of this Sublease, Section 3.05(c) (defining "Real
Estate Tax Base Year") of the Prime Lease is deleted in its entirety and
replaced with the following:
"(c) The words "Real Estate Tax Base Year" shall mean
calendar year 1995 or the first year in which the Building
is assessed as fully completed, including the construction
and completion of the Base Building and Tenant's
Improvements (collectively referred to as the "Landlord's
Work" in Exhibit C), whichever occurs later."
5.11 For the purposes of this Sublease, Section 4.01 ("Construction") of
the Prime Lease is deleted in its entirety.
5.12 For the purposes of this Sublease, Section 4.02 ("Term Commencement
Date") of the Prime Lease is deleted in its entirety.
5.13 For the purposes of this Sublease, Section 4.06 ("Tenant's Rights") of
the Prime Lease is deleted in its entirety.
5.14 For the purposes of this Sublease, Section 8.02 ("Special Uses") of
the Prime Lease is deleted in its entirety.
5.15 For the purposes of this Sublease, Article 7 ("Parking") of the Prime
Lease is deleted in its entirety.
5.16 For the purposes of this Sublease, Section 13.01(a) ("Tenant's Changes
- - No Approval") of the Prime Lease is deleted in its entirety and replaced with
the following:
"Section 13.01. SUBLESSEE'S CHANGES-NO APPROVAL
(a) Sublessee may place and replace its trade fixtures,
tools, machinery, furniture, floor covering, equipment and
other tangible personal property ("Sublessee's Personal
Property") in the Sublease Premises and may make
alterations, improvements (including painting) replacements
and other changes to the Leased Premises Service Systems and
to the interior of the Sublease Premises as it may desire at
its own expense without Sublessor's consent, provided that
Sublessee complies with all applicable laws. Sublessee shall
not alter, improve, replace or change the Building Service
Systems or the Structure except in
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accordance with Section 13.02. Sublessee's alterations, improvements,
replacements and other changes to the Leased Premises Service Systems
or Building Service Systems shall be made in a manner which does not
impair the performance of, or cause damage to, such Service Systems,
and does not increase Sublessor's maintenance obligations. At least
five business days prior to the commencement of any such work within
the Sublease Premises, Sublessee shall notify Sublessor of the
expected date of commencement and Sublessor shall then have the right
at any time and from time to time to post and maintain on the Sublease
Premises such notices as Sublessor reasonably deems necessary to
protect the Sublease Premises, the Building and Sublessor from
mechanics' and other liens. In any event, Sublessee shall not permit
any mechanics' or other liens to be levied against the Project for any
labor or materials furnished to Sublessee or claimed to have been
furnished to Sublessee or to Sublessee's agents or contractors. All
alterations, improvements or additions in or about the Sublease
Premises performed by or on behalf of Sublessee shall be done in a
good, workmanlike manner (consistent with a quality office
environment) and in compliance with all applicable laws, ordinances,
regulations and orders of any governmental authority having
jurisdiction thereover. Notwithstanding the foregoing, this provision
shall only apply to alterations, improvements, replacements and other
changes to the Sublease Premises costing less than Fifty Thousand
Dollars ($50,000) in each instance and Sublessee shall obtain prior
written approval of Sublessee's contractors from Prime Lessor."
5.17 For the purposes of this Sublease, Article 17 ("Signs") of the Prime
Lease is deleted in its entirety.
5.18 For the purposes of this Sublease, Article 20 ("IBM Rent Guaranty") of
the Prime Lease is deleted in its entirety.
5.19 For the purposes of this Sublease, Section 24.02 ("Suspension of
Tenant Default") of the Prime Lease is deleted in its entirety.
5.20 For the purposes of this Sublease, Article 25 ("Holdover") of the
Prime Lease is deleted in its entirety.
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<PAGE>
5.21 For the purposes of this Sublease, Article 26 ("Notices") of the Prime
Lease is deleted in its entirety.
5.22 Sublessor and Sublessee acknowledge that the Prime Lease is missing
its EXHIBIT F, referenced in Article 32 ("Rules and Regulations") which sets
forth the rules and regulations applicable to the Project. For the purposes of
this Sublease, the Rules and Regulations" attached hereto as Sublease Exhibit F
shall be deemed to be the Rules and Regulations referred to in Article 32
("Rules and Regulations") of the Prime Lease. In the event the terms of the
Rules and Regulations are inconsistent with the terms and conditions of this
Sublease, the terms and conditions of this Sublease shall control. The Rules
and Regulations shall not be deemed to apply to any trailer, container, or other
facility housing Sublessee's emergency generator equipment.
5.23 For the purposes of this Sublease, Article 37 ("Brokers") of the Prime
Lease is deleted in its entirety and replaced with the following:
"ARTICLE THIRTY-SEVEN
BROKER
Sublessee warrants that it has not had any contact or
dealings with any person or real estate broker other than
Beitler Commercial Real Estate Services and CB Commercial
Real Estate Group, Inc., which would give rise to the
payment of any fee or brokerage commission in connection
with this Sublease, and Sublessee shall indemnify, hold
harmless and defend Sublessor from and against any liability
with respect to any fee or brokerage commission (except one
owing to Beitler Commercial Real Estate Services or CB
Commercial Real Estate Group, Inc.) arising out of any act
or omission of Sublessee. Sublessor covenants and agrees to
pay all real estate commissions due in connection with this
Lease to CB Commercial Real, Estate Group, Inc. in
accordance with the terms and conditions of Sublessor's
commission agreement."
5.24 For the purposes of this Sublease, any arbitration proceeding between
Sublessor and Sublessee pursuant to Section 38.03 ("Selection of Arbitrator")
shall take place at a mutually acceptable location in the City of Los Angeles,
California. To the extent that any arbitration proceeding involves Prime
Lessor, Sublessor agrees to use its best efforts to have such arbitration
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<PAGE>
proceeding take place at a mutually acceptable location in the City of Los
Angeles, California.
5.25 For the purposes of this Sublease, Article 44 ("Project Management
Moving Expenses") of the Prime Lease is deleted in its entirety.
5.26 For the purposes of this Sublease, Exhibit D ("IBM Rent Guaranty") of
the Prime Lease is deleted in its entirety.
6. BURBANK BLENDING FACILITY. Sublessor and Sublessee acknowledge that the
Project is immediately adjacent to the Burbank Blending Facility (Project
#04-2708) ("BURBANK FACILITY"), which facility is intended to remediate
contaminated groundwater in the surrounding area.
6.1 NOISE MITIGATION. Sublessor shall cause Prime Lessor to mitigate
noise from the Burbank Facility pursuant to the letter dated July 16, 1993, that
is referenced in Article Forty-Three of the Prime Lease.
6.2 ENVIRONMENTAL LIABILITY. Notwithstanding Article 15 of the Prime
Lease, in no event will Sublessee have any obligation or liability with respect
to compliance with environmental Laws associated with the Burbank Facility or
the contaminated groundwater in the surrounding area and Project, if any.
7. QUIET ENJOYMENT
7.1 SUBLESSOR. Sublessor covenants and agrees with Sublessee that upon
Sublessee paying the rent and additional rent reserved in this Sublease and
observing and performing all of the other obligations, terms, covenants and
conditions of this Sublease on Sublessee's part to be observed and performed,
Sublessee may peaceably and quietly enjoy the Sublease Premises during the
Sublease Term. Sublessee shall have no claim against Sublessor for any earlier
termination of the Sublease Term unless such termination was caused by the
default of Sublessor in the performance of its obligations under the Prime Lease
which have been assumed by Sublessor under this Sublease and have not been
assumed by Sublessee hereunder.
7.2 SUBLESSEE. Sublessee covenants and agrees that Sublessee shall not do
or suffer or permit anything to be done which would constitute a default under
the Prime Lease or would cause the Prime Lease to be canceled, terminated or
forfeited by virtue of any rights of cancellation, termination, or forfeiture
reserved or vested in Prime Lessor under the Prime Lease, and that Sublessee
will indemnify and hold harmless Sublessor from and defend Sublessor against all
claims, liabilities, losses and damages of any kind whatsoever (excepting
special and consequential damages)
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<PAGE>
that Sublessor may incur by reason of, resulting from or arising out of any such
cancellation, termination or forfeiture.
8. NOTICES. Any notice, demand or request under this Sublease shall be in
writing and shall be considered properly delivered when addressed as hereinafter
provided and delivered by registered or certified mail (return receipt
requested) which is deposited in the United States general or branch post
office, or delivered by private express mail service. Any notice, demand or
request by Sublessor to Sublessee shall be addressed to Sublessee at:
TeleTech Telecommunications, Inc.
1700 Lincoln Street
14th Floor
Denver, CO 80203-4514
Attention: Mr. Kenneth D. Tuchman
prior to the Commencement Date and at the Sublease Premises after the
Commencement Date, with a copy sent simultaneously to:
AHN & LEE
Suite 2000
3435 Wilshire Boulevard
Los Angeles, CA 90010-2006
Attention: Charles Ahn, Esq.
until otherwise directed in writing by Sublessee. Any notice, demand or request
by Sublessee to Sublessor shall be addressed to Sublessor at:
IBM Real Estate Services
355 South Grand Avenue
12th Floor
Los Angeles, CA 90071
Attention: Program Manager
with a copy sent simultaneously to:
IBM Real Estate and Procurement Services
Old Orchard Road
Armonk, NY 10504
Attention: Associate General Counsel - Real Estate and Procurement
Services
until otherwise directed in writing by Sublessor. Rejection or other refusal to
accept or the inability to deliver because of a changed address of which no
notice was given shall be deemed to be receipt of the notice, demand or request
sent.
9. ASSIGNMENT AND SUBLETTING.
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<PAGE>
9.1 For the purposes of this Sublease, Article 27 ("Assignment or
Sublease") of the Prime Lease is deleted in its entirety and replaced with the
following:
"ARTICLE TWENTY-SEVEN
ASSIGNMENT AND SUBLETTING
Without the consent of Sublessor, Sublessee may assign this
Sublease or sublet all or any part of the Sublease Premises
at any time during the Sublease Term to (a) an Affiliated
Person of Sublessee, or (b) a successor entity created by
merger, reorganization, recapitalization, or acquisition.
Sublessee shall be permitted to retain the profit, if any
from such assignment or sublease. For purposes of this
Section, the words "Affiliated Person of Sublessee" mean a
Person, directly or indirectly, through one or more
intermediaries, controlled by Sublessee or under common
control with Sublessee."
9.2 In addition to Sublessee's right to assign, sublet, or both under
Section 9.1 above, Sublessee shall have all the rights of Sublessor under the
Prime Lease to assign, sublet, or both to the extent such rights, if any, may be
exercised by Sublessee as a sublessee under the Prime Lease. Sublessor shall
cooperate with Sublessee, as reasonably requested by Sublessee, in any efforts
by Sublessee to obtain the consent of Prime Lessor to any assignment or
subletting.
9.3 No assignment or sublease of the Sublease shall operate to release
Sublessee from its obligations under this Sublease. Failure of Sublessor to
obtain the consent of Prime Lessor, if required, or submission by Sublessee of a
proposed assignee or subtenant who, in the opinion of Sublessor reasonably
exercised, is a competitor of Sublessor shall in each case be a reasonable and
conclusive basis for withholding consent.
10. PRIME LESSOR'S RESPONSIBILITIES. Sublessee recognizes that Sublessor is
not in a position to furnish the services set forth in the Prime Lease, obtain
an agreement of non-disturbance, or how to perform certain other obligations
which are not within the control of Sublessor, such as, without limitation,
maintenance, repairs and replacements to the Building and premises, compliance
with laws, and restoration of the premises and Building after casualty or
condemnation. Therefore, notwithstanding anything to the contrary contained in
this Sublease, Sublessee agrees that Sublessee shall look solely to Prime Lessor
to furnish all services and to perform all obligations agreed upon by Prime
Lessor under the Lease to furnish and perform. Sublessor shall not be liable to
Sublessee or
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<PAGE>
be deemed in default hereunder for failure of Prime Lessor to furnish or perform
the same. However, whenever under the terms of the Prime Lease, Prime Lessor
shall fail to perform any of its Prime Lease obligations pertaining to the
Sublease Premises, Sublessee may, at its option, enforce performance thereof if
and to the extent authorized by the terms of the Prime Lease, and Sublessor
shall cooperate with Sublessee in such enforcement. Notwithstanding the
foregoing sentence, Sublessor shall not be obligated to cooperate with Sublessee
in enforcing Prime Lessor's Prime Lease obligations under Sections 6.02, 9.04,
13.01, or 24.03 of the Prime Lease if Sublessor reasonably determines in good
faith that Prime Lessor has not breached or defaulted on its Prime Lease
obligations under such Sections of the Prime Lease.
11. CASUALTY AND CONDEMNATION. Article 10, titled "Fire and Other Casualty -
Insurance", and Article 12, titled "Condemnation", of the Prime Lease are
modified to provide that: (a) every reference to a time period in excess of two
hundred (200) days is to be reduced to one hundred twenty-five (125) days, and
(b) if by operation of either of these two Articles the Prime Lease is not
terminated and continues in full force and effect, this Sublease shall not be
terminated but shall also continue in full force and effect, except that until
the premises are restored in accordance with these two Articles there shall be a
proportionate abatement of annual rent and additional rent payable hereunder to
the extent of damage to the premises as determined by Prime Lessor, Sublessor
and Sublessee; provided, however, that such abatement shall in no event exceed
the abatement granted to Sublessor under the Prime Lease for the premises and,
provided further, that no compensation or claim or reduction will be allowed or
paid by Sublessor by reason of inconvenience, annoyance or injury to Sublessee's
business arising from the necessity of effecting repairs to the premises or any
portion of the Building, whether such repairs are required by operation of these
two Articles or any other provision of the Prime Lease.
12. PARKING. Sublessor shall, without charge to Sublessee, provide and
maintain for the exclusive use of Sublessee's employees and invitees, designated
parking areas in the Building Parking Area as shown on Sublease Exhibit C
sufficient to accommodate One Hundred Twenty-Six (126) automobiles (as striped
on the execution date of this Sublease). On or before the Commencement Date,
Sublessor shall have the option of (a) providing Sublessee with an additional
Sixty-Three (63) spaces for a total of One Hundred Eighty-Nine (189) spaces
during the Sublease Term, or (b) waiving Sublessee's monthly installment of all
rents for the second month of the Sublease Term. If Sublessor and Four Media
Company execute a sublease for part of the Building prior to the Commencement
Date, Sublessor and Sublessee agree that Sublessor shall exercise option (a) of
the prior sentence and provide Sublessee with the additional Sixty-Three (63)
parking spaces. Sublessee shall have access to the Building Parking Area
twenty-four (24) hours a day, seven (7)
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<PAGE>
days a week. The Building Parking Area shall be illuminated to maintain a safe
environment and maintained in a clean, safe and good condition. Sublessor
reserves the right to enforce Sublessee's use of only its designated portion of
the Building Parking Area at Sublessee's expense, subject to Sublessee's
additional parking rights set forth below.
12.1 RESTRIPING. After obtaining Sublessor's written consent, which
consent shall not be unreasonably withheld or delayed, Sublessee at its expense
may restripe its designated parking areas within the Building Parking Area shown
on Sublease Exhibit C. Any additional parking spaces created by such restriping
shall be reserved for the exclusive use of Sublessee's employees and invitees.
At the end of the Sublease Term and if requested in writing by Prime Lessor,
Sublessee shall restore the parking configuration of its designated parking
areas to the condition as striped on the execution date of this Sublease.
12.2 PARKING RIGHTS OF OTHER SUBTENANTS. Sublessor agrees to use
reasonable diligence in minimizing the number of parking spaces used by, or
granted to, other subtenants to the Building. In no event, however, will
Sublessor provide a subtenant of the Building, other than Sublessee, more than
2.8 parking spaces per 1,000 square feet of subleased premises for that
subtenant.
13. SECURITY DEPOSIT. Sublessee shall give Sublessor a check for $107,935.20
made to "Scribcor, Inc.", when the Sublease is executed by Sublessee. Such
$107,935.20 check shall represent payment of $53,967.60 for the first month's
rent and a $53,967.60 refundable security deposit.
14. SIGNAGE. Sublessee shall have the right to install its sign on the top of
the shared building monument and on the facade of the Building above its front
entry doors to the Sublease Premises, at Sublessee's expense, provided however
that such signage may be included as part of the work and improvements provided
for in Sublessor's Improvement Letter and may be installed prior to completion
of all work and improvements, subject to Sublessor's reasonable approval. The
exact location, size, materials, coloring, lettering and lighting of all the
foregoing signage shall be agreed upon by Sublessor and Sublessee.
15. CONSENT OF PRIME LESSOR. This Sublease shall not become effective unless
and until Sublessor has obtained and delivered to Sublessee the written consent
of Prime Lessor to the subletting herein within ten (10) days after the
execution of this Sublease by both Sublessor and Sublessee. The failure to
obtain the written consent of Prime Lessor shall not terminate this Sublease nor
terminate any further claim by either party against the other hereunder.
16. RIGHT OF FIRST OFFER.
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16.1 PROPOSAL TO LEASE. Provided Sublessee is not in default hereunder,
whenever any portion of the Building is available for lease to others (the
"AVAILABLE SPACE"), Sublessee shall have a right of first offer as set forth
herein. Provided Sublessee has given Sublessor notice of Sublessee's interest in
leasing Available Space (which notice shall contain the approximate amount of
rentable area in which Sublessee is interested) Sublessor shall not, within
thirty (30) days after receipt of such notice, enter into or commit to enter
into any lease of Available Space containing rentable area in an amount which
does not differ by more than twenty percent (20%) from the rentable area
specified in Sublessee's notice without first proposing to Sublessee a rent and
other lease terms for such space. The Rent for the Available Space shall be the
Fair Market Rental Rate (including the cost of tenant improvements and any other
prevailing economic terms? as reasonably determined by Sublessor; provided,
however, in no event shall the Rent for the Available Space per square foot of
rentable area be more than one hundred fifty percent (150%) of the Rent per
square foot of rentable area payable by Sublessee for the Sublease Premises
initially leased hereunder, as the same may be adjusted from time to time. If
Sublessee does not accept the terms of such proposal within five (5) days after
receipt thereof, or does not execute an appropriate lease amendment reflecting
such acceptance within fifteen (15) days after receipt thereof, Sublessor shall
be free to lease such space to any other person.
16.2 SAME TERMS AND CONDITIONS. As of the date that Sublessor delivers
actual possession to Sublessee of any Available Space subleased by Sublessee,
such Available Space shall become part of the Sublease Premises and, except for
the Fair Market Rental Rate as determined in this Section 16, shall be leased
upon the same terms and conditions as the Sublease Premises.
17. BINDING AND ENTIRE AGREEMENT. This Sublease shall be binding on Sublessee
and its heirs and executors, and on the respective legal representatives,
successors and assigns of the parties. This Sublease contains the entire
agreement of the parties with respect to the subject matter herein and may not
be modified except by instrument in writing which is signed by both parties.
IN WITNESS WHEREOF, duly authorized representatives of the parties hereto
have executed this Sublease as of the day and year first above written.
INTERNATIONAL BUSINESS MACHINES TELETECHTELECOMMUNICATIONS, INC.
CORPORATION
By: /s/ Paul T. Dimeo By: /s/ Kenneth D. Tuchman
---------------------------- -------------------------------------
Paul Dimeo, Program Manager Kenneth D. Tuchman, President
IBM Real Estate Services
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<PAGE>
This sublease document is not intended to be a binding agreement until fully
executed by both parties.
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<PAGE>
SUBLEASE EXHIBIT A
PRIME LEASE
- --------------------------------------------------------------------------------
LEASE
CP PRIVATE PARTNERS LP-1
"LANDLORD"
and
ALTIUM
"TENANT"
Dated: July 16, 1993
A-1
<PAGE>
BASIC LEASE INFORMATION
The following Basic Lease Information is attached to the Lease for
reference and convenience only. The Basic Information is qualified in all
respects by the applicable provisions of the Lease, and if there is a conflict
between the Basic Lease Information and the provisions of the Lease, the
provisions of the Lease shall control.
Date of Lease: July 16, 1993
Landlord: CP Private Partners LP-1
c/o Cabot Partners Limited Partnership
Landlord Address: Sixty State Street:
Boston, Massachusetts 02109
Tenant: Altium
Tenant Address:
After Term Commencement Date:
2130 N. Hollywood Way,
Burbank, CA 91504
Before Term Commencement Date:
1935 N. Buena Vista Street;
Burbank, CA 91504
Building Address: 2130 N. Hollywood Way;
Burbank, CA 91504
Leased Premises: Approximately 89,780 square feet of rentable area
consisting of the entire Building.
Building: Approximately 89,780 square feet of rentable area
Parking Spaces: 269
Term: Five (5) years
The target date is estimated to be January 15, 1994
Options to Extend: Two (2) consecutive
Five (5) year options
Tenant's Share: One Hundred percent (100%) of the Building
Annual Rent: $1,346,700.00 per annum, computed at $15.00 per square
foot of rentable area
Service of Notices: By personal delivery, registered or certified mail, or
by express mail as set forth in Article 26 of the
Lease.
A-2
<PAGE>
List of Exhibits: Exhibit A: Site Plan
Exhibit B: Maintenance Specifications
Exhibit C: Improvements Work Letter
Exhibit C: Attachment 1
Attachment 1-A Site Plan
Attachment 1-B Elevation
Attachment 1-C Pricing Plan PP-1
Attachment 1-C.1 Final Space Plan
Attachment 1-D Pricing Plan PP-2
Attachment 1-E Pricing Plan PP-3
Attachment 1-F Roofing Plan
Attachment 1-G Equipment Heat Loads
Attachment 1-H Computer Room Heat Loads
Exhibit D: IBM Rent Guaranty
Exhibit E: Title Exceptions
A-3
<PAGE>
LEASE
PARTIES
THIS LEASE, made as of July 16, 1993, between CP Private Partners LP-1, a
Delaware Limited Partnership having an office at Sixty State Street, Boston,
Massachusetts 02109 hereinafter called "Landlord," and Altium, a California
corporation, having its principal office at 2130 No. Hollywood Way, Burbank,
California 91504 hereinafter called "Tenant."
ARTICLE ONE
PREMISES
Section 1.01 LEASE OF PREMISES. Landlord hereby leases to Tenant, and
Tenant hereby leases from Landlord, upon and subject to the covenants,
agreements, provisions and conditions of this Lease, the Leased Premises
comprising the entire building, together with the improvements to be constructed
upon said Leased Premises (the "Building") known by the name and street address
of 2130 North Hollywood Way, Burbank, California, situated on a plot of land
(the "Land") described on EXHIBIT A. The Land, Building, Leased Premises,
Building Service Systems, Leased Premises Service Systems, and Building Parking
Area are collectively referred to in this Lease as the "Project."
Section 1.02 LEASED PREMISES.
(a) The Leased Premises shall mean the entire Building, as shown on
EXHIBIT A. The actual rentable area of the Building is 89,780 square feet,
which square footage Landlord represents and warrants has been determined as set
forth in Section 1.02(b) below.
(b) The rentable area of the Building and the Leased Premises shall be
computed whenever required pursuant to this Lease in accordance with the
"American National Standard Method for Measuring Floor Area in Office Buildings
ANSIZ65.1-1980 (reaffirmed 1989), approved June 21, 1989, incorporated herein by
reference. Within sixty (60) days after the Leased Premises is Substantially
Completed, either party may request that the Leased Premises and the Building be
remeasured by Landlord's architect. If the actual rentable area of the Leased
Premises is less, or the actual rentable area of the Building is more than the
square footage set forth in Section 1.02(a), the Annual Rent and Tenant's Share
of Additional Rent shall be decreased accordingly and the parties shall execute
an amendment to this Lease which incorporates the changes. If the actual
rentable area of the Leased Premises is more, or the actual rentable area of the
Building is less than the
A-4
<PAGE>
square footage set forth in Section 1.02(a), there shall be no change.
(c) Provided that Tenant continues to occupy the entire Building, the
Leased Premises shall have the same meaning as the Project.
ARTICLE TWO
TERM
Section 2.01 INITIAL TERM. Tenant shall lease the Leased Premises for an
initial term of five (5) years ("Initial Term") to commence on the Term
Commencement Date (as defined in Section 4.02), the target date for which is
January 15, 1994, subject to extension and earlier termination as hereinafter
provided. If the Initial Term commences on a date other than the first day of a
month, it shall expire at the end of the day five (5) years from the last day of
the month in which it commenced. If the Initial Term commences on the first day
of a month, it shall expire at the end of the day five (5) years from the last
day of the preceding month. The parties shall enter into a Supplemental
Agreement setting forth the commencement and expiration dates of the Initial
Term.
Section 2.02 EXTENDED TERM.
(a) Provided Tenant is not in default of any provisions of this Lease at
the time of exercise of the option, which shall mean that Tenant has failed to
cure any such default within the applicable grace period provided in Article 24,
Tenant shall have the option to extend the term of this Lease for all or part of
the Leased Premises for two (2) consecutive five (5) year term(s) (each an
"Extended Term"). Each option shall be exercised by written notice to Landlord
given at least nine (9) months prior to the expiration of the Initial Term or
the applicable Extended Term. Each Extended Term shall be upon the same
covenants, agreements, provisions and conditions that are contained herein for
the Initial Term, except as expressly provided herein to the contrary and
except for provisions that are inapplicable to an Extended Term. The Annual
Rent payable during the applicable Extended Term shall be calculated in
accordance with Section 3.02. As a condition to extending the term of this
Lease, Tenant shall deliver a Lease Guaranty from International Business
Machines Corporation in the form of Exhibit D, modified as necessary to reflect
the dates and Annual Rent payable during the applicable Extended Term;
alternatively, Tenant shall provide proof of similar creditworthiness or other
corporate guaranty reasonably acceptable to Landlord.
A-5
<PAGE>
(b) If Tenant exercises either of its options to extend the term of this
Lease for only part of the Leased Premises ("Partial Leased Premises"), the
rentable square footage and location of such Partial Leased Premises shall be as
described in Exhibit A (dotted line). If the first Extended Term applies only
to the Partial Leased Premises, then Tenant's option as to the second Extended
Term shall apply only to the Partial Leased Premises. In the event of the
exercise of such option, the parties agree to amend this Lease and to make the
appropriate adjustments insofar as necessary to make the Lease applicable to the
commercially reasonable requirements of a multi-tenant building. All
adjustments to the Lease to accommodate a multi-tenant building shall be made on
a proportionate basis (for example, adjustments in Tenant's share of the
Operating Expenses), except if the adjustment cannot be made on a proportionate
basis (for example, signage and other Tenant rights), the adjustment shall be
made on a fair and equitable basis. Any disagreements shall be subject to
arbitration pursuant to Article Thirty-Eight.
Section 2.03 TERM OF THIS LEASE. The word "Term" and the words "Term of
this Lease" shall mean the Initial Term and any Extended Term which may become
effective.
ARTICLE THREE
RENT AND ADDITIONAL RENT
Section 3.01 ANNUAL RENT. Commencing on the Term Commencement Date and
subject to the provisions of this Lease, Tenant shall pay the Annual Rent of One
Million Three Hundred Forty-Six Thousand Seven Hundred Dollars ($1,346,700.00)
payable in equal monthly installments in advance of One Hundred Twelve Thousand
Two Hundred Twenty-Five Dollars ($112,225.00) on the first day of each calendar
month during the Initial Term. The Annual Rent has been calculated at the
annual rate of Fifteen Dollars ($15.00) per square foot of rentable area Rent
for any period of less than one month shall be apportioned based on the number
of days in that month Tenant will pay the Annual Rent and Additional Rent to
Landlord at the address stated above, or to such other person Of at such other
place as Landlord may designate in writing. Upon execution of this Lease by
both parties, Tenant shall deposit with Landlord the sum of One Hundred Twelve
Thousand Two Hundred Twenty-Five Dollars ($112,225.00) which amount represents
the first monthly installment of Annual Rent.
Section 3.02 EXTENDED TERM RENT. The Annual Rent for each of the
Extended Terms shall be calculated as follows:
(a) Within thirty (30) days of Tenant's notification to Landlord of its
exercise of the option for an Extended Term, Landlord shall provide Tenant with
written notice of the rent for
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the Extended Term, calculated at ninety-three percent (93%) of the then
prevailing Fair Market Rental Value for the first Extended Term, but not to
exceed one hundred thirty percent (130%) of the sum of the Annual Rent and
Additional Rent payable by Tenant for Real Estate Taxes and Operating Expenses,
during the last year of the Initial Term. The rent for the second Extended Term
shall be calculated at ninety-five percent (95%) of the then prevailing Fair
Market Value for the second Extended Term. Fair Market Rental Value shall mean
the rental rate, rent escalation provisions including a new base year for
Operating Expenses and Real Estate Taxes, rental concessions, and the value of
all other economic terms upon which similar Premises are being leased in the
general area in which the Building is located, including the fact that Tenant's
parking spaces are being provided free of charge during each Extended Term.
(b) If Tenant objects in writing to such terms as proposed by Landlord
within thirty (30) days following receipt of written notice of Landlord's
determination of such Fair Market Rental Value, then Landlord and Tenant shall
each select a qualified MAI appraiser with at least five (5) years experience in
the Burbank, Glendale and Pasadena commercial office building real estate
market, and the two selected appraisers shall jointly select a third appraiser.
Landlord's and Tenant's appraisers shall each conduct separate appraisals and if
the two appraisals are within ten percent (10%) of each other, the two
appraisals shall be averaged to determine the Fair Market Rental Rate. If the
difference in the two appraisals is in excess of ten percent (10%), the third
appraiser will determine which appraisal of the two shall be selected as the
determination of Fair Market Rental Value. The fees and expenses of the
appraiser selected by each party shall be borne by each party, and those of the
third appraiser, shall be borne equally by Landlord and Tenant.
Section 3.03 ADDITIONAL RENT. In addition to Annual Rent, Tenant shall
pay Additional Rent which shall mean all sums of money payable by Tenant under
this Lease other than Annual Rent.
Section 3.04 OPERATING EXPENSES. Tenant shall pay as Additional Rent the
amount by which the annual Operating Expenses for each Operating Expense
Escalation Year exceed the Operating Expenses for the calendar year 1994
("Operating Expense Base Year"). Notwithstanding the foregoing, during the
Initial Term, Tenant's payment for increases in property management, contract
services, landscaping and parking lot maintenance shall be limited to a four
percent (4%) increase in any one year over the previous year.
(a) The words "Operating Expenses" shall mean the operating costs
specified below in Paragraph A which are actually incurred by Landlord in the
Operating Expense Base Year and in an Operating Expense Escalation Year, to the
extent they are properly allocable
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(in accordance with generally accepted accounting principles and practices
consistently applied) to the operation, repair and maintenance of the Project.
Any cost allocable to the items specified below in Paragraph B and any costs
incurred in or allocated to the period after the expiration or earlier
termination of the Term shall be excluded from Operating Expenses.
A. ITEMS INCLUDED IN OPERATING EXPENSES:
(1) salaries, wages, and all other expenses incurred for the employment of
the Building operating personnel, excluding Landlord's officers and partners,
the Building manager and engineer and headquarters staff (such costs being
covered under subparagraph (9);
(2) the cost of materials and supplies;
(3) the cost of replacements for tools and maintenance equipment (such
equipment shall not include air conditioning equipment, boilers, or any items of
a capital nature; all tools and maintenance equipment purchased during the first
year of full occupancy of the Building shall be considered capital items.);
(4) amounts paid by Landlord to independent contractors for services
(including full or part-time labor) and materials;
(5) Intentionally deleted
(6) Intentionally deleted
(7) the cost of telephone service, postage, office supplies, maintenance
and repair of office equipment and similar charges related to operation of the
Building;
(8) premiums for insurance purchased by Landlord pursuant to Subsection
10.02(a), subject to Paragraph B, subparagraph (11) below;
(9) a management fee equal to 3.4% of the Annual Rent;
(10) all costs and expenses (other than those of a capital nature) of
maintaining, repairing and replacing paving, curbs, walkways and landscaping;
(11) Intentionally deleted
(12) the cost of normal maintenance of mechanical and electrical equipment,
including heating, ventilating and air conditioning, but excluding capital
expenditures (If because of guarantees, warranties or any other reasons, all of
such costs are not incurred in the Operating Expense Base Year, the Operating
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Expense Base Year for such costs shall be the first full calendar year that all
such costs are incurred).
(13) legal expenses arising out of the operation, use, occupation, or
maintenance of the Project or the enforcement of the provisions of any
agreements affecting the Project in an amount not to exceed One Thousand Dollars
($1,000.) for any one calendar year during the term of this Lease;
(14) costs incurred by Landlord in making capital improvements to the
Project following a fire or other casualty, subject to the limit in subparagraph
B.(10) below, and the costs incurred by Landlord, during the Extended Terms
only, in making capital improvements to the Leased Premises, the Building or the
Project so as to comply with the requirements of Section 15.02.
Operating Expenses shall be reduced by the amounts of any reimbursement,
refund or credit received or receivable by Landlord with respect to any item of
Operating Expenses. If any such reimbursement, refund or credit is received or
receivable by Landlord in a later Operating Expense Escalation Year, it shall be
applied against the Operating Expenses for such later Operating Expense
Escalation Year; and, if the Term has expired, Tenant's Share of such item shall
be promptly refunded by Landlord to Tenant.
B. ITEMS EXCLUDED FROM OPERATING EXPENSES:
(1) Intentionally deleted
(2) the cost of installing, operating and maintaining any specialty
service, such as an observatory, broadcasting facility, luncheon club, retail
store, sundry shop, newsstand, concession, or athletic or recreational club;
(3) the cost of correcting defects in construction and removal of
asbestos-containing material;
(4) salaries of Landlord's officers and partners, its Building engineer
and manager and its headquarters staff;
(5) Intentionally deleted
(6) Intentionally deleted
(7) the cost of any items for which Landlord is reimbursed by insurance
proceeds, condemnation awards, or otherwise;
(8) the cost of any additions to the Project, or Operating Expenses
generated by such additions, after the date of this Lease;
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(9) the cost of any repairs, alterations, additions, changes, replacements
and the like which under generally accepted accounting principles and practices
are properly classified as capital expenditures;
(10) the cost of any repair made in accordance with Articles Ten and Twelve
of this Lease entitled "Fire and Other Casualty - Insurance" and "Condemnation",
except to the extent such cost, not to exceed Ten Thousand Dollars ($10,000.) in
any one calendar year, is not covered due to deductible amounts under insurance
Landlord is required to carry pursuant to this Lease;
(11) Intentionally deleted
(12) interest and principal payments on any debt, depreciation, and rental
under any ground lease or other underlying lease;
(13) Intentionally deleted
(14) any advertising expenses;
(15) any costs representing an amount paid to a Related or Affiliated
Person of Landlord which is in excess of the amount which would have been paid
in the absence of such relationship;
(16) payments for rented equipment, the cost of which equipment would
constitute a capital expenditure if the equipment were purchased;
(17) any expenses for repairs or maintenance which are covered by
warranties, guarantees or service contract (excluding any mandatory
deductibles);
(18) legal expenses arising out of the construction of the Project or the
enforcement of the provisions of this Lease;
(19) new items not included in the Operating Expense Base Year, subject to
Paragraph A, subparagraphs (12) above;
(20) capital improvements to the Leased Premises, the Building or the
Project which Landlord makes during the Initial Term in order to comply with the
requirements of Section 15.02.
(b) The words "Operating Expense Base Year" shall mean calendar year 1994
for the Initial Term and the first full calendar year of each Extended Term.
(c) The words "Operating Expense Escalation Year" shall mean each calendar
year, commencing with the first full calendar year after the Operating Expense
Base Year. Any increase of Operating Expenses for any calendar year during the
term of this Lease shall
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be apportioned so that Tenant shall pay Tenant's Share of only that portion of
the increase for such year as falls within the Term.
(d) Intentionally deleted
Section 3.05 REAL ESTATE TAXES.
(a) Landlord shall pay when due all real estate taxes, assessments and
other governmental charges which shall be levied or assessed or which become
liens upon the Project (hereinafter called "Real Estate Taxes"). Tenant shall
pay Landlord, as Additional Rent, Tenant's Share of the amount by which the Real
Estate Taxes for each Real Estate Tax Escalation Year exceed the Real Estate
Taxes for the Real Estate Tax Base Year.
(b) Real Estate Taxes shall not include (1) income tax, tax on rents or
rentals, excess profits or revenue tax, excise tax or inheritance tax, gift tax,
gains tax, franchise tax, corporation tax, capital levy transfer, estate,
succession or other similar tax or charge that may be payable by or chargeable
to Landlord under any present or future Laws; (2) increases in assessments
caused by Landlord's sale of all or any part of the Project or an interest
therein or Landlord's refinancing of all or any part of the Project, any of
which occurs during the Initial Term; (3) interest or penalties imposed upon
Landlord for late payment of Real Estate Taxes; (4) special assessments ant Real
Estate Taxes resulting from the expansion or renovation of the Project or from a
tenant's improvements not approved by Tenant, and (5) Real Estate Taxes and
assessments for a facility (such as a garage) and land used in connection
therewith, including retail and other non-office space in the Project, for which
a fee or rent is charged.
(c) The words "Real Estate Tax Base Year" shall mean calendar year 1994 or
the first year in which the Building is assessed as fully completed, including
the construction and completion of the Base Building and Tenant's Improvements
(collectively referred to as the "Landlord's Work" in Exhibit C), whichever
occurs later.
(d) The words "Real Estate Tax Escalation Year" shall mean each year after
the Real Estate Tax Base Year.
(e) If the Project is not taxed as a separate and independent tax lot,
Landlord shall make application showing authorities to obtain a separate and
independent assessment thereof. If the taxing authorities refuse to do so, the
taxes assessed against the said tax lot shall be equitably apportioned.
(f) The increase in Real Estate Taxes that Tenant is obligated to pay
hereunder shall be the amount of Real Estate Taxes finally determined to be
legally payable by legal proceedings or
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otherwise and paid by Landlord. If allowed by law, Landlord shall pay Real
Estate Taxes in installments.
(g) Any incentives or abatements of Real Estate Taxes which are received
by or credited to Landlord shall be passed through to Tenant.
Section 3.06 COMPUTATION AND BILLING.
(a) ESTIMATED PAYMENTS.
(1) Landlord and Tenant agree that Operating Expenses for the Operating
Expense Base Year is included in the Annual Rent. At least thirty (30) days
prior to the beginning of the second calendar year and each calendar year
thereafter (including partial years) during the Term, Landlord shall furnish
Tenant with a statement setting forth the Landlord's estimate of the Operating
Expenses for such calendar year. If, in the statement, the Landlord estimates
that the sum of Operating Expenses then constituting a component of the Annual
Rent (the "component") and estimated Operating Expenses then being paid by
Tenant will not be sufficient to cover the Operating Expenses for such second or
following year, Tenant shall pay on the first day of each calendar month during
such second or following calendar year an amount equal to one-twelfth (1/12th)
of the estimated increase in Operating Expenses shown on the statement such that
the sum of the component and the estimated increase in Operating Expenses will
be sufficient to cover Operating Expenses for such second or following calendar
year.
(2) Landlord may not always be able to comply with paragraph (1) and
furnish a new statement prior to the year covered by the new statement. If
Landlord shall furnish the statement after the beginning of the calendar year
covered by the statement then, until the first day of the first month which is
at least thirty (30) days following the date Tenant receives that statement (the
"payment date"), Tenant shall continue to pay Landlord the same monthly sum, if
any, then being paid by Tenant pursuant to this Section. Landlord shall notify
Tenant in the new statement whether the sum of the component and estimated
Operating Expenses paid by Tenant during the period between the end of the prior
calendar year and date of the new statement is greater or less than the
component and estimated monthly payments to be made in accordance with the new
statement. If there is a deficiency, Tenant shall pay the lump sum amount
thereof to Landlord on the payment date. If there was an overpayment, Landlord
shall promptly refund the same to Tenant. On the payment date, and on the first
day of each calendar month thereafter until the payment date with respect to the
next statement, Tenant shall pay Landlord an amount equal to one-twelfth
(1/12th) of the component (or downward adjustment thereof, if appropriate) and
the estimated increase in Operating Expenses shown on the statement.
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(3) If Tenant has made an overpayment by more than four percent (4%), the
refund to Tenant shall include interest on the amount of the refund at the
Interest Rate, determined as of the date of cash overpayment and accruing from
the date of each overpayment to the date of refund by the Landlord.
(b) ACTUAL EXPENSES. Within one hundred twenty (120) days after the last
day of the second calendar year and each calendar year thereafter, Landlord
shall furnish Tenant a statement for the prior calendar year setting forth the
actual Operating Expenses for the prior calendar year, copies of any and all
Real Estate Tax bills with respect to the Project for that year and such other
data with respect to the statement as Tenant may reasonably request. Tenant's
request may be made after Tenant is required to make a payment under this
paragraph, in which event Tenant shall make payment without prejudice to
Tenant's rights under Section 3.06(d). Within thirty (30) days after receiving
Landlord's statement, copies of Real Estate Tax bills for such year and such
other data, (A) Tenant shall pay Landlord the amount by which the actual
Operating Expenses for the year covered by the statement exceeds the aggregate
of the component and estimated monthly installments of Operating Expenses
actually paid by Tenant during such year, or (B) if Tenant overpaid, Landlord
shall promptly refund the overpayment to Tenant; provided that if Tenant has
overpaid by more than four percent (4%), the refund to Tenant shall include
interest on the amount of the overpayment at the Interest Rate, determined as of
the date of each overpayment and accruing from the date of each overpayment to
the date of refund by the Landlord.
(c) If the Term Commencement Date occurs on a date other than the first
day of a calendar month, or the Term expires on a date prior to the end of a
calendar month, the monthly installments payable under paragraphs (a) and (b)
for the fractional months shall be appropriately prorated based upon a thirty
(30) day month
(d) Tenant may, at Tenant's sole cost and expense, audit Landlord's books
and records relating to the computation of Operating Expenses for any year or
portion thereof that falls within the Term and not more than once within twenty-
four (24) months after the later of the expiration or earlier termination of the
Term or the date Tenant receives Landlord's statement pursuant to this Section
with respect to the last year of the Term (including a partial year). Landlord
agrees that it will make available to Tenant and its designated auditors', at
Landlord's office during business hours, all appropriate records or copies
thereof required for the performance of the audit Tenant's access to these books
and records may be restricted to periods of time during which Landlord docs not
reasonably require access to them in connection with the operation or management
of the Project. If any audit reveals that the Operating Expenses for a calendar
year or portion thereof have been incorrectly computed, and if Landlord agrees
with such audit, Landlord and Tenant shall make appropriate
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reconciliation payments, in cash, between themselves based on the correct amount
of Operating Expenses for such period. If Tenant disputes any portion of
Landlord's statement, Tenant shall be entitled to have a firm of independent
certified public accountants (or other representatives or consultants
experienced in commercial lease accounting) audit Landlord's books, receipts,
records and statement with respect to cash item included in Landlord's
Statement. The results of any such audit shall be binding upon Landlord and
Tenant, provided that the parties may elect not to be bound by the results of
any audit rendered by parties other than certified public accountants unless and
until the results of such audit are reviewed and verified by a certified public
accountant reasonably approved by landlord and Tenant, or either party may
resolve the matter by arbitration as provided in Article Thirty-Eight. If the
parties do not resolve the matter with arbitration and agree to be bound by such
audit and such audit reveals that the amounts in Landlord's Statement billed to
Tenant by Landlord vary by more than two percent (2%) from the actual operating
expenses and/or real estate taxes for such period as determined by the audit,
Landlord shall reimburse Tenant on demand for all costs reasonably incurred by
Tenant in connection with such audit. Pending resolution of any dispute, Tenant
may withhold payment of the amount in dispute.
(e) If Tenant has not received Landlord's Statement by the end of twelve
(12) months following the year (whether calendar or fiscal) in which the
Operating Expenses or Real Estate Taxes are payable by Landlord, Landlord agrees
that landlord has waived its claim against Tenant for Tenant's Share of any
increase in Operating Expenses and Real Estate Taxes for that year.
(f) This Article shall survive the expiration or earlier termination of
the Term.
Section 3.07 TAX CONTEST.
(a) In consideration of Tenant's undertaking to reimburse Landlord for an
increase in Real Estate Taxes, Tenant shall have the right, by appropriate
proceedings, to protest any assessment or reassessment or any special
assessment, or any change in the tax rate, or the validity of any of the above.
(b) If Landlord shall receive a reduction or refund for any year for which
Tenant shall be obligated to pay or shall have paid an increase in Real Estate
Taxes, the amount of such reduction or refund shall be subtracted from the Real
Estate Taxes payable or paid by Landlord for the tax year to which the reduction
or refund applies and proper reimbursement shall be made by Landlord to Tenant
promptly after Landlord receives or is credited with such refund or reduction.
Landlord agrees to keep Tenant apprised of all tax protest filings and
proceedings undertaken by Landlord or others to obtain a tax reduction or refund
for the Project.
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Landlord may deduct from the total refund any reasonable attorneys' fees and
other reasonable expenses incurred by Landlord therefor.
ARTICLE FOUR
PREPARATION FOR OCCUPANCY
Section 4.01 CONSTRUCTION. Landlord shall promptly commence, and shall
pursue with due diligence until completion, the construction of the Landlord's
Work in accordance with the provisions of this Lease, including EXHIBIT C.
Landlord shall pay for all of the Work excepting only for Tenant's Work, which
shall be paid by Tenant, in accordance with EXHIBIT C.
Section 4.02 TERM COMMENCEMENT DATE. The words "Term Commencement Date
shall mean the twenty-second (22nd) day after the date the Landlord's Work is
Substantially Completed and Landlord delivers possession of the Leased Premises
to Tenant, free of all tenants and occupants; provided, however, the Term
Commencement Date shall in no event occur prior to the target date set forth in
Section 2.01 without Tenant's prior written consent unless Tenant occupies the
Leased Premises after expiration of the period specified in Section 4.04. The
words "Substantially Completed" shall mean the date when:
(1) the Landlord's Work has been completed (except for Punch List Items)
in accordance with the provisions of this Lease; and
(2) all of the Building's sanitary, electrical, heating, ventilating, air
conditioning and other Building Service Systems, the Leased Premises Service
Systems, the Building Parking Area, and the exterior landscaping have each been
completed (except for Punch List Items) in accordance with the provisions of
this Lease and are in good order and operating condition; and
(3) Landlord has obtained a certificate of occupancy or comparable
municipal authorization (temporary or permanent) permitting Tenant's use and
enjoyment of the Leased Premises, Building Facilities and Building Parking Area
for the purposes authorized by the provisions of this Lease; and
(4) the Building lobbies and exterior and main entrance of the Building,
as well as the sidewalks, streets and plazas adjacent thereto shall be free of
scaffolding, hoists, construction equipment and materials and shall be in a safe
condition; and
(5) Landlord has delivered to Tenant written certification from Landlord's
architect that Landlord has met its obligations under clauses (1) through (4) of
this Section; and
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(6) Tenant has had a minimum period of twenty-one (21) calendar days to
allow for move-in of furniture, fixtures and equipment prior to the Term
Commencement Date as specified in Section 4.04.
Section 4.03 PUNCH LIST ITEMS.
(a) Within thirty (30) days after the date the Work is Substantially
Completed in accordance with Section 4.02, Landlord's architect shall deliver to
Tenant for Tenant's approval a current list ("Punch List") of Punch List Items
for the Project that Landlord is obligated by the provisions of this Lease to
complete. Tenant shall return the Punch List to Landlord within ten (10) days
after receipt thereof. Punch List Items shall be completed by Landlord within
thirty (30) days after the date the Work is Substantially Completed, with the
exception of items on back order in which case Landlord shall use its best
efforts to expedite delivery of such items. If Landlord has obtained a
temporary certificate of occupancy Landlord shall, with due diligence, complete
the remaining items of Work required to obtain, and shall thereupon obtain, a
permanent certificate of occupancy for the Project as required by Laws.
(b) The words "Punch List Items" shall mean details of construction,
decoration and mechanical and electrical adjustments which, in the aggregate,
are minor in character and do not materially interfere with Tenant's use or
enjoyment of the Project in accordance with the provisions of this Lease.
Section 4.04 TENANT'S RIGHTS OF ACCESS.
(a) In addition to construction rights granted to Tenant in EXHIBIT C,
Tenant shall have at least twenty-one (21) days prior to the Term Commencement
Date to install its equipment and furnishings and to perform such other related
activity in the Leased Premises preparatory to its occupancy. Landlord shall
notify Tenant at least thirty (30) days in advance of the anticipated date the
Work will be Substantially Completed to permit Tenant entry into the Leased
Premises for the purposes stated above.
(b) Tenant's activity within the Leased Premises prior to the Term
Commencement Date or Tenant's acceptance of possession of the Leased Premises
shall not be deemed a waiver of any of the obligations under this Article to be
performed by Landlord, including the completion of Punch List Items. However,
after entering into possession of any part of the Leased Premises Tenant shall
promptly bring to Landlord's attention any deficiencies in construction which
come to Tenant's attention, and Landlord shall promptly correct the same at
Landlord's expense.
Tenant's activity within the Leased Premises prior to the Term Commencement
Date shall be subject to schedules imposed by
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landlord's contractor and shall be accomplished in a manner which does not
delay, interfere with or damage the work of Landlord's contractor. Tenant's
activities in the Leased Premises shall also be subject to the requirements of
EXHIBIT C.
Section 4.05 RESTRICTION ON TRANSFER OF PROJECT. Landlord agrees that it
will not assign, pledge, mortgage, transfer or sell its rights or interests in
this Lease or in the Project (except an assignment to an institutional lender to
fund construction of the Project) or be relieved of its obligations under this
Lease until it has complied with the provisions of this Article and has
completed the Work, including all Punch List Items.
Section 4.06 TENANT'S RIGHTS.
(a) Notwithstanding anything in this Lease to the contrary, if for any
reason other than delays caused by Tenant which materially and adversely
interfere with Landlord's ability to comply with Section 4.02, or Excusable
Delays as defined in Article 39, Landlord has not Substantially Completed
Landlord's Work and delivered possession of the Leased Premises as required by
the provisions of this Lease to Tenant on or before January 15, 1994, Tenant may
deletion, by written notice to Landlord, declare an event of default, complete
Landlord's Work, and deduct the cost thereof from the Annual Rent and Additional
Rent due and to become due under this Lease.
(b) If Tenant does not elect to complete Landlord's Work and deduct the
cost thereof as set forth above, and in addition to and not in limitation of
Tenant's right to terminate this Lease as set forth in this Section 4.06,
Landlord shall pay to Tenant, as liquidated damages, and not a penalty, and as
Tenant's sole remedy, except for Tenant's right to terminate as set forth
herein, the amount of One Thousand Six Hundred Sixty-Six Dollars ($1,666.) per
day, commencing January 16, 1994 and for each day thereafter until the date
either: (i) the Initial Term commences or (ii) Tenant terminates this Lease.
The parties agree that any failure by Landlord to deliver possession to Tenant
of the Leased Premises as required by the provisions of this Lease on or before
January 15, 1994 will cause serious and substantial damage to Tenant, and the
aforementioned liquidated damages have been agreed upon as a result of the
difficulty of accurately proving loss and the nonfeasibility of Tenant's
obtaining an adequate remedy. In no event shall the amount of liquidated
damages payable by Landlord to Tenant exceed Two Hundred Fifty Thousand Dollars
($250,000.).
(c) If the Term Commencement Date does not occur on or before May 15, 1994
due to delays other than those caused by Tenant which materially and adversely
interfere with Landlord's ability to comply with Section 4.02 or Excusable
Delays as defined in Article 39, then Tenant shall have the right to terminate
the Lease effective as of the date of such notice. In the event of such
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termination, Landlord shall immediately return to Tenant all sums paid by Tenant
pursuant to Section 3.01.
(d) If the Term Commencement Date does not occur on or before September
15, 1994 due to Excusable Delays as defined in Article 39, then Tenant shall
have the right to terminate the Lease effective as of the date of such notice.
In the event of such termination, landlord shall immediately return to Tenant
all sums paid by Tenant pursuant to Section 3.01.
ARTICLE FIVE
LANDLORD'S TITLE AND ALLOWABLE USE
Section 5.01 LANDLORD'S REPRESENTATIONS REGARDING TITLE AND USE.
Landlord represents and warrants as a condition of this Lease that it possesses
good marketable fee title to the Project, as "marketable" is described in, and
subject to the exceptions set forth in, Landlord's owner's policy of title
insurance, a copy of which has been provided to Tenant under Section 5.03; that
it is authorized to make this Lease for the Term that the provisions of this
Lease do not or will not conflict with or violate the provisions of existing or
future agreements between Landlord and third parties; that the certificate of
occupancy for the Project allows, or not later than the Term Commencement Date
will allow Tenant to use and enjoy the Leased Premises and Common Building
Facilities for the purposes set forth in this Lease; that the Leased Premises
and Common Building Facilities and the uses thereof generally for the use
permitted in this Lease are, or on the Term Commencement Date will be in
conforming with all applicable Laws, including all construction, environmental,
asbestos, health and safety Laws and Laws covering the disabled and that
Landlord will deliver the Leased Premises and Tenant's parking spaces to Tenant,
free of all tenants and occupants and claims thereto. All representations
regarding compliance of the Project with environmental and asbestos laws are
subject to and based upon the information contained in environmental reports
prepared for Landlord copies of which reports have been made available to Tenant
for its review, as well as any reports independently prepared for Tenant. In
addition, Tenant acknowledges the potential presence of ground water
contamination related to the aquifer under the Project. The foregoing
acknowledgment and information received by Tenant shall not limit landlord's
liability under all applicable Laws. In addition, any representation regarding
the compliance of the Leased Premised with health and safety, zoning, occupancy,
fire and other Laws relate only to the purpose generally permitted under the
Lease.
Section 5.02 LANDLORD'S REPRESENTATIONS REGARDING LAWSUITS. Landlord
represents and warrants that as of the date hereof there are no pending or, to
the best of its knowledge, threatened claims,
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causes of action, lawsuits, or judgments against the Project or Landlord which
may affect title or Tenant's use of the Project as herein provided. If any such
lawsuit is filed or threatened, Landlord shall notify Tenant within fifteen (15)
days of Landlord's knowledge thereof.
Section 5.03 TITLE MATTERS. Landlord has delivered to Tenant a copy of
Landlord's title insurance policy for the Project and represents and warrants
that the policy is a true and complete copy of the original; that there have
been no changes as of the date of this Lease to any matters set forth in such
policy, and that on the date of this Lease the policy is, and will continue
during the Term to be in full force and effect. A list of all encumbrances,
restrictions, agreements, covenants, declarations, lis pendens, mechanics'
liens, and other matters affecting title, whether of record or known by Landlord
on the date hereof to exist or which Landlord anticipates will exist or will be
recorded within six (6) months from the date hereof (including all mortgages and
superior leasehold interests), are listed on EXHIBIT E.
ARTICLE SIX
SERVICES
Section 6.01 SERVICES PROVIDED BY LANDLORD. Landlord shall, at its
expense and subject to Section 3.04, furnish to Tenant the following services,
supplies and facilities:
(1) Access to the Leased Premises twenty-four (24) hours a day, seven (7)
days a week.
(2) Intentionally deleted
(3) Maintenance and repair of the heat, ventilation and air conditioning
("HVAC") in accordance with EXHIBIT C.
(4) Landscaping and parking lot maintenance, in accordance with the
specifications set forth in EXHIBIT B.
(5) Hot and cold running potable water for Tenant's purposes (at Tenant's
expense).
(6) Periodic roof inspection and cleaning of roof drains and downspouts;
(7) Electricity for lighting and for the operation of Tenant's office
machines, appliances and equipment, and for the Common Building Facilities and
Building Parking Area (at Tenant's expense).
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(8) Providing, installing and replacing bulbs and ballasts in the Building
ParKing Area.
(9) Removing of ice and snow from the Building Parking Area.
(10) Vermin extermination and repair and replacing any item in the Building
damaged by vermin.
(11) Intentionally deleted
(12) Property management and maintenance staff. Any management agreement
shall provide that the managing agent shall operate the Building in good
condition and in the most cost-effective manner possible, so as to minimize the
Operating Expenses, consistent with providing good quality service.
Section 6.02 LANDLORD'S FAILURE TO PROVIDE SERVICES.
(a) If after notice to Landlord of default in furnishing or paying for any
utilities, services or facilities to be furnished to Tenant hereunder, Landlord
fails or refuses to cure such default within a reasonable time specified by
Tenant in the notice, Tenant may declare an event of default and cure such
default. Landlord shall reimburse Tenant within thirty (30) days after Landlord
receives Tenant's invoice.
(a.i) If Landlord disputes any default declared by Tenant pursuant
to this Article or the reasonableness of time granted to cure the default, or
the amount of costs and expenses incurred by Tenant to cure Landlord's default
or the reasonableness of such amount, Landlord may submit the disputed matter to
arbitration in accordance with Article 38 within ten (10) days after receiving
Tenant's notice or invoice.
(a.ii) If Landlord fails to reimburse Tenant within the time
specified in (a) above and Landlord does not dispute any such default declared
by Tenant, Tenant may, by notice to Landlord given within ten (10) days
following the end of the thirty (30) day period specified in (a) above, submit
the matter to arbitration in accordance with Article Thirty-Eight.
(a.iii) If judgment is in favor of the Tenant in the arbitration,
Tenant shall have the right to deduct any costs and expenses incurred by Tenant
to cure Landlord's default from each monthly installment of Annual Rent due or
to become due in an amount not to exceed ten percent (10%) of such installment,
until Tenant has been paid in full.
(b) In the event that Tenant is prevented from using and does not use the
Premises or any portion thereof, for five (5) consecutive business days
commencing from the date Tenant gives Landlord written notice as a result of (i)
the lack of services to
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be provided by Landlord as set forth in Section 6.01 of this due to Landlord's
breach of its obligations under this Lease or (ii) any inability of Tenant to
gain reasonable access to: the Premises due to Landlord's breach of its
obligations under this Lease (other than in the event of damage or destruction,
in which event the provisions of Section 10.01 of this Lease shall control),
then the Annual Rent and Additional Rent shall be abated or reduced, as the case
may be, during the period during which Tenant continues to be so prevented from
using the Leased Premises, or a portion thereof, in the proportion that the
rentable area of the portion of the Leased Premises that Tenant is prevented
from using and does not use, bears to the total rentable area of the Leased
Premises. In addition, in the event that, as a result of any failure to provide
the services described in this Lease or any inability of Tenant to gain
reasonable access to the Premises due Landlord's breach of its obligations under
this Lease, all or part of the Premises (the "Affected Area") is rendered
untenantable for a period of more than Two Hundred Twenty-Five (225) days,
Tenant shall have the right to terminate this Lease with respect to the Affected
Area, or in the event that the Affected Area constitutes at least thirty percent
(30%) of the Leased Promises and constitutes a space which is necessary for the
operation of Tenant's business or if access to the Leased Premises is prevented
for such period with respect to the entire Leased Premises. The Two Hundred
Twenty-Five (225) day period referred to in the preceding sentence shall be
extended, up to a maximum of sixty (60) additional days, for each day
restoration of the services to the Premises sufficient to make the Premises
tenantable, is delayed due to force majeure delays. It is understood and agreed
that Tenant shall not be entitled to the abatement rights set forth in this
paragraph if the failure to provide services or the inability to gain access to
the Leased Premises results from Tenant's negligence or intentional misconduct.
(c) The remedies set forth in this Article shall be in addition to other
remedies granted to Tenant elsewhere in this Lease or at law or in equity and
shall not affect any claim for actual or constructive eviction or other claim
for damages or relief to which Tenant may be entitled.
(d) If Landlord disputes any default declared by Tenant pursuant to this
Article or the reasonableness of time granted to cure the default, landlord may
submit the disputed matter to arbitration in accordance with Article Thirty-
Eight within ten (10) days after receiving Tenant's notice or invoice.
ARTICLE SEVEN
PARKING
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Landlord shall at its expense, provide Tenant with a minimum of two hundred
fifty-two (252) parking spaces (which number Landlord represents complies with
the city of Burbank's requirements for Tenant's use of the Leased Premises)
within the Building Parking Area for Tenant's use. The Building Parking Area is
shown on EXHIBIT A. The Building Parking Area shall be available for use
twenty-four (24) hours a day, every day of the year during the Term and shall be
illuminated when necessary to maintain a safe environment. Further, Landlord
shall keep and maintain the Building Parking Area in a clean, safe and good
condition.
ARTICLE EIGHT
USE OF LEASED PREMISES
Section 8.01 GENERAL USES. Tenant is in the business of developing and
producing computer software. Tenant shall have the right to use the Leased
Premises for executive and administrative offices; sale, display, storage,
service, repair and use of Tenant's products and equipment; engineering;
education and training of Tenant's customers and employees, and all other uses
incidental and related thereto, and for other lawful business and commercial
purposes consistent with a quality office environment, and for no other purpose.
Section 8.01(a). Other than those amounts used in an office environment
in the normal course of conducting its business Tenant shall not cause, or allow
anyone else to cause, any Hazardous Materials to be used, generated, stored, or
disposed of on or about the Leased Premises, the Building or the Project without
the prior written consent of Landlord, which consent may be withheld in the sole
discretion of Landlord, and which consent may be revoked at any time. As herein
used, Hazardous Materials shall include, but not be limited to, those materials
identified in Sections 66680 through 66685 of Title 22 of the California Code of
Regulations, Division 4, Chapter 30, as amended from time to time, and those
substances defined as "hazardous substances", "hazardous materials", "hazardous
wastes", "chemicals known to cause cancer or reproductive toxicity",
"radioactive materials", or other similar designations in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended 42
U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 et seq., the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801 et seq., 33 U.S.C. Section 1251 et seq., 42 U.S.C. Section
300(f) et seq., 42 U.S.C. 7401 et seq., California Health and Safety Code
Section 252495 et seq., California Water Code Section 13000 et seq., California
Health and Safety Code Section 39000 et seq. and any other statutes, ordinances,
rules, regulations, and precautions adopted pursuant to the preceding laws or
other similar laws, regulations and guidelines now or hereafter in effect.
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Section 8.02 SPECIAL USES. Landlord shall be responsible for obtaining
permits required for any Tenant's uses as contemplated by the description of
Landlord's Work in Exhibit C which will be required for Tenant's occupancy of
the Building. If, thereafter, Tenant shall institute a special use of the
Leased Premises which requires an amendment to the existing certificate of
occupancy, Tenant shall be responsible for obtaining the same as well as any
other governmental permit, approval or license required by applicable Laws.
Landlord shall cooperate with Tenant and shall execute all applications,
authorizations and other instruments reasonably required to enable Tenant to
fulfill its responsibilities under this Section.
ARTICLE NINE
REPAIRS AND MAINTENANCE
Section 9.01 LANDLORD'S REPAIRS. Landlord shall perform all maintenance
and perform all repairs, restoration work and replacements to the Project not
specifically imposed upon Tenant by the provisions hereof. Without limiting the
generality of the foregoing sentence or the following, Landlord shall maintain,
repair and replace, as necessary, and keep in good order, safe and clean
condition (1) the unexposed electrical, excluding data and telephone cabling,
the plumbing, sprinkler, HVAC and electrical and mechanical lines and equipment
associated therewith, boilers, broken or damaged glass and damage by vandals;
(2) utility and trunk lines, sewage systems, tanks and transformers and the
interior and exterior structure of the Building, including the roof, exterior
walls, bearing walls, support beams, floor slabs, foundation, support columns,
window and window frames and all latent defects in the Project (excluding
defects relating to alterations or improvements installed by Tenant); (3)
improvements to the Land, including ditches, shrubbery, landscaping and fencing,
and (4) loading areas, the Building Parking Area and access ways therefor, and
all walks and driveways of the Project. Further, Landlord shall perform all
repairs and restoration work required by Article Ten, "Fire and Other Casualty -
Insurance" and Article Twelve, "Condemnation."
Section 9.02 TENANT'S REPAIRS. At its expense, Tenant shall perform all
repairs and replacements to the Project which are specifically agreed upon in
this Lease to be Tenant's obligations. Without limitation, Tenant shall not be
liable for repairs or replacements necessitated by ordinary wear and tear,
damage by fire or other casualty and damage caused by Landlord or by others for
whom Tenant is not responsible.
Section 9.03 TENANT'S MAINTENANCE. Tenant shall, at its own expense,
maintain the interior portion of the Leased Premises in good condition and
repair (including the interior walls, ceilings, floor coverings, outlets and
bulbs, but excluding all
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maintenance and repairs which Landlord is required to perform pursuant to
Section 9.01). If after written notice by Landlord, Tenant fails or refuses to
perform any such maintenance work which it is required to perform hereunder
within a reasonable time specified by landlord in its notice (which shall in no
event be less than ten business days), Landlord may, but shall not be required
to, enter the Leased Premises and put them in good condition, and Landlord's
costs thereof shall be payable by Tenant within thirty (30) days after Tenant
receives Landlord's invoice. Tenant shall be responsible for the provision, at
its expense, of appropriate janitorial service for the Leased Premises.
Section 9.04 LANDLORD'S FAILURE TO MAKE REPAIRS.
(a) If after notice by Tenant, Landlord fails or refuses to perform any
repairs, restoration work, or replacements which it is required to perform under
Section 9.01 or elsewhere in this Lease within a reasonable time specified by
Tenant in its notice, Tenant may declare an event of default and cure such
default. Landlord shall reimburse Tenant within thirty (30) days after Landlord
receives Tenant's invoice.
(a.i) If Landlord disputes any default declared by Tenant pursuant to
this Article or the reasonableness of time granted to cure the default, or the
amount of costs and expenses incurred by Tenant to cure Landlord's default or
the reasonableness of such amount, Landlord may submit the disputed matter to
arbitration in accordance with Article 38 within ten (10) days after receiving
Tenant's notice or invoice.
(a.ii) If Landlord fails to reimburse Tenant within the time specified
in (a) above and Landlord does not dispute any such default declared by Tenant,
Tenant may submit the matter to arbitration in accordance with Article 38.
(a.iii) If judgment is in favor of the Tenant in the arbitration, Tenant
shall have the right to deduct any costs and expenses incurred by Tenant to cure
Landlord's default from each monthly installment of Annual Rent due or to become
due in an amount not to exceed ten percent (10%) of such installment, until
Tenant has been paid in full.
(b) The remedies set forth in this Article shall be in addition to other
remedies granted to Tenant elsewhere in this Lease or at law or in equity, and
shall not affect any claim for actual or constructive eviction or other claim
for damages or relief to which Tenant may be entitled.
(c) If Landlord disputes any default declared by Tenant pursuant to this
Article or the reasonableness of time granted to cure the default, or the amount
of costs and expenses incurred by Tenant to cure Landlord's default, Landlord
may submit the disputed
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matter to arbitration in accordance with Article Thirty-Eight within ten (10)
days after receiving Tenant's notice or invoice.
Section 9.05 EMERGENCY REPAIRS. If during the Term repairs, restoration
work or replacements become necessary because of an emergency and the provisions
hereof require the Landlord to make these repairs and replacements Tenant may
perform them if, in Tenant's opinion, they are necessary to preserve the Leased
Premises, or the safety or health of the occupants in the Leased Premises, or
Tenant's Property, or are required by the Laws; provided, however, that Tenant
shall first make a reasonable effort to inform Landlord before making them.
ARTICLE TEN
FIRE AND OTHER CASUALTY - INSURANCE
Section 10.01 DAMAGE OR DESTRUCTION.
(a) If any portion of the Project is damaged by fire, earthquake, flood or
other casualty, or by any other cause of any kind or nature (the "Damaged
Property") and the Damaged Property can, in the opinion of Landlord's architect
reasonably exercised, be repaired within two hundred twenty-five (225) days from
the date of the damage, Landlord shall proceed immediately to make such repairs
as required by paragraph (c). This Lease shall not terminate, but Tenant shall
be entitled to a pro rata abatement of Annual Rent and Additional Rent payable
during the period commencing on the date of the damage and ending on the date
the Damaged Property is repaired as aforesaid and the Leased Premises are
delivered to Tenant. The extent of rent abatement shall be based upon the
portion of the Leased Premises rendered untenantable, unfit or inaccessible for
use by Tenant for the purposes stated in this Lease during such period. When
required by this Article, the architect's opinion shall be delivered to Tenant
within thirty (30) days from the date of the damage. The architect's opinion
shall be made in good faith after a thorough investigation of the facts required
to make an informed judgment. The architect's shall consider and include as
part of his evaluation the period of time necessary to obtain the required
approvals of the mortgagee/insurer, and municipal authorities, to order and
obtain materials, and to engage contractors.
(b) If (1) in the opinion of Landlord's architect reasonably exercised,
damage to the Damaged Property cannot be repaired within two hundred twenty-five
(225) days from the date of the damage, or (2) Landlord commences and proceeds
with due diligence but fails to complete the repair of the Damaged Property as
required by paragraph (c) within the two hundred twenty-five (225) day period,
subject to an extension of time allowed for an Excusable Delay, or (3) the Term
will expire within one (1) year from the date of the
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damage and Tenant fails to extend the Term in accordance with any right granted
in Section 2.02, either party may terminate this Lease as follows: for the
reason stated in subparagraph (1), by notice to the other within twenty (20)
days from the date on which the architect's opinion is delivered to Tenant; (2)
for the reason stated in subparagraph (2), by such notice within twenty (20)
days from the end of the two hundred twenty-five (225) day Period, as it may
have been extended by an Excusable Delay, and (3) for the reason stated in
subparagraph (3), by such notice within tone hundred (100) days from the date of
the damage. Upon termination, Annual Rent and Additional Rent shall be
apportioned as of the date of the damage and all prepaid Annual Rent and
Additional Rent shall be repaid.
(c) If neither party exercises its option to terminate hereunder Landlord
shall, with due diligence, repair the Damaged Property as a complete
architectural unit of substantially the same usefulness, design and construction
existing immediately prior to the damage; provided, that, with respect to
Tenant's Work as outlined in Exhibit C (as they may be changed by Tenant) Tenant
shall pay sums which are not covered by insurance Landlord is required to
maintain under this Lease (other than deductibles). The parties shall in good
faith, follow the agreement and procedures set forth in EXHIBIT C. Tenant shall
be entitled to a pro rata abatement of Annual Rent and Additional Rent in the
manner and to the extent provided in paragraph (a).
(d) If by operation of this Article Landlord undertakes but fails to
complete repairs of the Damaged Property as required by the provisions of this
Article and deliver the Leased Premises to Tenant within two hundred fifty-five
(255) days from the date of the damage, for any reason other than a material and
adverse delay caused by Tenant, Tenant may exercise its rights under Section
24.03, failing which either party may terminate this Lease by notice to the
other within two hundred seventy-five (275) days from the date of the damage.
If either party elects to terminate, this Lease and the Term shall end on the
date specified in the notice and Annual Rent and Additional Rent shall be
apportioned as of the date of the damage and all prepaid Annual Rent and
Additional Rent shall be repaid.
(e) The word "repair" shall include rebuilding, replacing, and restoring
the Damaged Property.
Section 10.02 CASUALTY INSURANCE.
(a) From and after the date hereof, Landlord shall maintain a policy of
insurance covering the Project (including Tenant's Improvements, to the extent
not paid for by Tenant, and Landlord's Property located within the Project)
against loss, damage, or destruction caused by boiler explosion, machine
breakdown, fire and the perils specified in the standard extended coverage
endorsement,
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by vandalism and malicious mischief, and by sprinkler, gas, water, steam and
sewer leakage. The amount of insurance shall equal at least ninety percent
(90%) of the replacement cost of the Project, excluding the Land but including
Tenant's Improvements as aforesaid and Landlord's Property. Landlord represents
and warrants that this insurance policy is now, and during the Term will
continue to be in full force and effect. The words "Landlord's Property" shall
mean trade and other fixtures, machinery, equipment, tools, furniture and other
tangible personal property owned by Landlord.
(b) Landlord ant Tenant each hereby waives its respective right of
recovery against the other and each releases the other from any claim arising
out of loss, damage or destruction to the Project, and contents thereon or
therein, or any other property of the waiving party whether or not such loss,
damage or destruction may be attributable to the fault or negligence of either
party or its respective agents, invitees, contractors or employees. Each
casualty insurance policy shall include a waiver of the insurer's rights of
subrogation against the party hereto who is not an insured under said policy.
Each party shall look solely to the proceeds of its respective casualty
insurance policy (and to its own funds to the extent it is self-insured) to
compensate it for any such loss, damage or destruction.
(c) Intentionally deleted
(d) So long as Tenant is International Business Machines Corporation or
its wholly-owned subsidiary, Tenant shall have the right to self-insure through
the use of deductibles or other prudent risk retention techniques. Tenant shall
protect, defend, indemnify and hold Landlord harmless from and against all loss,
cost, liability, expense or damage which Landlord would have been indemnified
and protected against under the insurance policies Tenant is required to
maintain as provided in paragraph (e) but which is not covered by insurance due
to self-insurance by Tenant as provided in this paragraph (d). Tenant hereby
waives any defense or defenses available to it with respect to the foregoing
indemnity which would not be available to an insurer with respect to an
insurance policy issued by such insurer consistent with the requirements of
paragraph (e).
(e) If Tenant is not International Business Machines Corporation or its
wholly-owned subsidiary ant Tenant has subleased or assigned all or any part of
the Leased Premises, Tenant shall obtain and maintain during the term of this
Lease comprehensive general liability insurance with a combined single limit for
personal injury and property damage in an amount not less than $2,000,000, and
employer's liability and workers' compensation insurance as required by law.
Tenant's comprehensive general liability insurance policy shall be endorsed to
provide that (1) it may not be cancelled or altered in such a manner as
adversely to affect the coverage afforded thereby without 30 days' prior written
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notice to Landlord, (2) Landlord is named as additional insured, (3) the insurer
acknowledges acceptance of the mutual waiver of claims by Landlord and Tenant
pursuant to Section 10.02(b), and (4) such insurance is primary with respect to
Landlord and that any other insurance maintained by Landlord is excess and
noncontributing with such insurance. Tenant shall also obtain and maintain
insurance ("Personal Property Insurance") covering leasehold improvements paid
for by Tenant and Tenant's personal property and fixtures from time to time in,
on, or at the Leased Premises, in an amount not less than 90% of the full
replacement cost, without deduction for depreciation, providing protection
against events protected under "Fire and Extended Coverage", as well as against
sprinkler damage, vandalism, and malicious mischief. Prior to the commencement
of the Initial Term, Tenant shall deliver to Landlord a duplicate of such policy
or a certificate thereof with endorsements, and at least 30 days prior to the
expiration of such policy or any renewal thereof, Tenant shall deliver to
Landlord a replacement or renewal binder, followed by a duplicate policy or
certificate within a reasonable time thereafter. If Tenant fails to obtain such
insurance or to furnish Landlord any such duplicate policy or certificates as
herein required, Landlord may, after having first given Tenant written notice of
such failure and thirty (30) days during which to cure such failure, procure and
maintain such coverage and Tenant shall reimburse Landlord on demand as
additional rent for any premium so paid by Landlord. Tenant shall have the
right to provide all insurance coverage required herein to be provided by Tenant
pursuant to blanket policies so long as such coverage is expressly afforded by
such policies.
Prior to the commencement of any Extended Term, Landlord shall have the
right to review and change the foregoing insurance requirements to ensure
consistency with industry standard insurance requirements existing as of that
date on comparable buildings located in the general vicinity for the Project.
ARTICLE ELEVEN
INDEMNIFICATION
Subject to the provisions of Section 10.02(b), Landlord and Tenant each
agree to indemnify and save the other harmless from any and all claims for
bodily injury (including death) or property damage made against one of the
parties hereto if (1) arising from any breach or default by the other party
hereto (including its agents, invitees, employees or contractors) in the
performance of any covenant or agreement on its part to be performed pursuant to
the provisions of this Lease, or (2) occurring within the Project limits and
arising from the misconduct or negligence of the other party (including its
agents, invitees, employees or contractors), or (3) arising out of a (i)
representation in this Lease of the
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other party which was intentionally false or misleading in any material respect
when made, or (ii) material breach of any of the warranties made in this Lease
by the other party. This indemnity shall include all court costs, reasonable
attorneys' fees, expenses and liabilities incurred by the indemnified party
against which the claim is made. If any action or proceeding is brought against
either Landlord or Tenant by reason of any such claim, the indemnifying party
agrees to defend the action or proceeding at its expense upon notice from the
party to be indemnified.
ARTICLE TWELVE
CONDEMNATION
Section 12.01 TAKING - LEASE ENDS. If at any time during the Term the
whole of the Building shall be taken for any public or quasi-public use, under
any statute or by right of eminent domain, this Lease shall terminate on the
date of such taking except as provided in Section 12.03. If less than all of
the Building shall be so taken and in Tenant's reasonable opinion the remaining
part is insufficient for the conduct of Tenant's business Tenant may, by notice
to landlord within sixty (60) days after the date Tenant is notified of such
taking, terminate this Lease. If Tenant exercises its option, this Lease and
the Term shall end on the date specified in Tenant's notice and the Annual Rent
and Additional Rent shall be apportioned and paid to he date specified in
Tenant's notice.
Section 12.02 TAKING - LEASE CONTINUES. If less than all of the Building
shall be taken and, in Tenant's reasonable opinion communicated by notice to
Landlord within sixty (60) days after Tenant is notified of such taking, Tenant
is able to gain access to and continue the conduct of its business in the part
not taken, this Lease shall remain unaffected, except that Tenant shall be
entitled to a pro rata abatement of Annual Rent and Additional Rent based upon
the nature of the space taken (office space, storage, parking area) and upon the
proportion which the area of the Leased Premises or Building Parking Area, as
case may be, so taken bears to the area of the Leased Premises or Building
Parking Area, as case may be, immediately prior to such taking
Section 12.03 TEMPORARY TAKING. If the use and occupancy of the whole or
any part of the Building is such that the remaining part is insufficient for the
conduct of Tenant's business, as determined by Tenant in its sole opinion, is
temporarily taken for a public or quasi-public use for a period less than the
balance of the Term, and provided any such taking continues for a period of at
least seven (7) consecutive days from the date Tenant gives written notice to
Landlord thereof, at Tenant's option to be exercised in writing and delivered to
Landlord not later than sixty (60) days after the date Tenant is notified of
such taking, this Lease and the Term shall terminate on the date specified in
Tenant's notice
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or shall continue in full force and effect. If this Lease remains in effect
Tenant shall be entitled to a pro rata abatement of Annual Rent and Additional
Rent in the manner and to the extent provided in Section 12.02 or, at its
option, receive that portion of the award for such taking which represents
compensation for the value of Tenant's leasehold estate and the Term demised
hereunder, in which case Tenant shall continue to pay the Annual Rent and
Additional Rent in full when due.
Section 12.04 LANDLORD'S AWARD. Landlord shall be entitled to receive the
entire award or awards in any condemnation proceeding without deduction
therefrom for any estate vested in Tenant and Tenant shall receive no part of
such award or awards from Landlord or in the proceedings except as otherwise
expressly provided in this Article. Subject to the foregoing, Tenant hereby
assigns to Landlord any and all of Tenant's right, title and interest in or to
such award or awards or any part thereof.
Section 12.05 TENANTS AWARD. If there is a taking hereunder, Tenant shall
be entitled to receive out of the award or, if allowed by the Laws, to appear,
claim, prove and receive in the condemnation proceeding (1) the unamortized
value over the Term of Tenant's improvements, alterations, replacements and
other similar changes to the Leased Premises, provided the same shall have been
paid for by Tenant but regardless of whether the same might be considered by the
Laws or otherwise as a part of the Building or shall be or become Landlord's
Property under the provisions of this Lease; (2) the value of Tenant's Personal
Property that is damaged, destroyed or taken hereunder, (3) the cost of
relocation; and (4) special awards or allowances paid to tenants when their
rental space is taken by eminent domain.
Section 12.06 RESTORATION BY LANDLORD. If there is a taking hereunder and
this Lease is continued landlord shall, at its expense, proceed with reasonable
diligence to repair, replace and restore the Building as a complete
architectural unit of substantially the same proportionate usefulness, design
and construction existing immediately prior to the date of taking.
Section 12.07 DEFINITIONS. Taking by condemnation or eminent domain
hereunder shall include the exercise of any similar governmental power and any
sale, transfer or other disposition of the Building or Land in lieu or under
threat of condemnation. The word "Building," as used in this Article only,
shall mean the Leased Premises, Building Parking Area and access ways thereto
and Common Building Facilities.
ARTICLE THIRTEEN
ALTERATIONS AND IMPROVEMENTS
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Section 13.01 TENANT'S CHANGES - NO APPROVAL.
(a) Tenant may place and replace its trade fixtures, tools, machinery,
furniture, floor covering, equipment and other tangible personal property
("Tenant's Personal Property") in the Leased Premises and may make alterations,
improvements (including painting), replacements and other changes to the Leased
Premises Service Systems and to the interior of the Leased Premises as it may
desire at its own expense without Landlord's consent, provided that Tenant
complies with all applicable laws. Tenant shall not alter, improve, replace or
change the Building Service Systems or the Structure except in accordance with
Section 13.02. Tenant's alterations, improvements, replacements and other
changes to the Leased Premises Service Systems or Building Service Systems shall
be made in a manner which does not impair the performance of, or cause damage
to, such Service Systems, and does not increase Landlord's maintenance
obligations. At least five business days prior to the commencement of any such
work within the Leased Premises, Tenant shall notify Landlord of the expected
date of commencement and Landlord shall then have the right at any time and from
time to time to post and maintain on the Leased Premises such notices as
Landlord reasonably deems necessary to protect the Leased Premises, the Project
and Landlord from mechanics' and other liens. In any event, Tenant shall not
permit any mechanics' or other liens to be levied against the Project for any
labor or materials furnished to Tenant or claimed to have been furnished to
Tenant or to Tenant's agents or contractors. All alterations, improvements or
additions in or about the Leased Premises performed by or on behalf of Tenant
shall be done in a good, workmanlike manner (consistent with a quality office
environment) and in compliance with all applicable laws, ordinances, regulations
and orders of any governmental authority having jurisdiction thereover.
(b) The words "Leased Premises Service Systems" shall include the
electrical, HVAC, mechanical, plumbing, safety and health and telecommunication
(voice/data/signal) systems that directly service the Leased Premises from a
localized point of distribution. Such systems are dedicated to the Leased
Premises at their available capacities and do not service any space other than
the Leased Premises. Provided Tenant continues to occupy the entire Building,
and for purposes of this Article 13, Building Service Systems shall mean the
Leased Premises Service Systems.
Section 13.02 TENANT'S CHANGES - LANDLORD'S APPROVAL.
(a) Tenant may make alteration improvements, replacements and other
changes to the Building Service Systems and to the Structure if Landlord
consents thereto, which consent shall not be unreasonably withheld or delayed.
As a condition to giving such consent, Landlord may require, at the time consent
is given that Tenant remove any such alterations, improvements or additions at
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the expiration or earlier termination of the Term, and restore the Leased
premises to their prior condition.
(b) If Tenant desires to make alterations, improvements, replacements or
other changes to the Structure or Building Service Systems, or exterior of the
Building Tenant shall make a request for Landlord's approval by submitting to
Landlord a list of proposed contractors and plans and specifications for the
work to be performed Landlord shall respond within five (5) business days from
receipt of the same, approving those contractors ant those portions of the work
that are acceptable and disapproving those contractors and portions of the work
that are, in Landlord's judgment reasonably exercised, unacceptable and
specifying in detail the nature of Landlord's objection. Failure of Landlord to
respond as aforesaid shall be tantamount to approval of such contractors and
plans and specifications in all respects. At least five business days prior to
the commencement of any such work within the Leased Premises, Tenant shall
notify Landlord of the expected date of commencement and Landlord shall then
have the right at any time and from time to time to post and maintain on the
Leased Premises such notices as Landlord reasonably deems necessary to protect
the Leased Premises, the Project and Landlord from mechanics' and other liens.
In any event, Tenant shall not permit any mechanics' or other liens to be levied
against the Project for any labor or materials furnished to Tenant or claimed to
have been furnished to Tenant or to Tenant's agents or contractors. All
alterations, improvements or additions in or about the Leased Premises performed
by or on behalf of Tenant shall be done in a good, workmanlike manner
(consistent with a quality office environment) and in compliance with all
applicable laws, ordinances, regulations and orders of any governmental
authority having jurisdiction thereover.
(c) The words "Building Service Systems" shall mean the electrical HVAC,
mechanical, plumbing, safety and health and telecommunication (voice/data/
signal) systems that service the Building up to the point of localized
distribution. Such systems provide the main source of supply and distribution
throughout the Building. Provided that Tenant continues to occupy the entire
Building, and for purposes of this Article 13, the Building Service Systems
shall include the Leased Premises Service Systems.
(d) The word "Structure" shall mean bearing walls, roof, exterior walls,
support beams, foundation, window frames, floor slabs and support columns of the
Building.
Section 13.03 TENANT'S OWNED PROPERTY. All of Tenant's Personal Property,
whether paid for directly by Tenant or purchased by Tenant's Work or/and
constituting Tenant's Quantities (collectively, "Tenant's Owned Property") shall
be owned by and remain the property of Tenant notwithstanding Landlord's
obligations to insure any part of the same under Section 10.02(a).
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Section 13.04 REMOVAL OF TENANT'S OWNED PROPERTY. Tenant may remove all
or any of Tenant's Owned Property at any time during the Term provided that upon
the expiration or earlier termination of the Term Tenant shall remove the same
from the Leased Premises. Any items not so removed may, at Landlord's option,
be deemed to have been transferred to Landlord, or may be deemed to be abandoned
and removed from the Leased Premises, stored and disposed of at Tenant's
expense. If Tenant removes such things or any of them, Tenant shall not be
required to remove pipes, wires and the like from the walls, ceilings or floors,
provided Tenant properly cuts, disconnects and caps such pipes and wires and
seals them off as required by the Laws.
Section 13.05 LANDLORD'S CHANGES - TENANT'S APPROVAL. During the Term,
Landlord shall obtain Tenant's consent, which shall not be unreasonably withheld
or delayed, before making any substantial addition to the Building or materially
altering the external appearance thereof, constructing additional buildings on
the Land, or making any other substantial alteration or change (other than as
reasonably required incidental to repairs and maintenance) to the Common
Building Facilities or to the Building Parking Area, unless required by the
Laws.
ARTICLE FOURTEEN
LANDLORD'S ACCESS
(a) Landlord shalt upon advance oral notice to Tenant (except in an
emergency), have the right (1) at all reasonable times during Tenant's business
hours to inspect the Leased Premises and to show the same to prospective
mortgagees and purchasers; (2) during the last six (6) months of the Term, to
show the same to prospective tenants and (3) at all times to make repairs or
replacements as required by this Lease or as may be necessary, provided,
however, that Landlord shall use all reasonable efforts not to disturb Tenant's
use and occupancy of the Leased Premises.
(b) Landlord shall have the right to enter the Leased Premises at all
times in emergencies.
(c) Tenant may designate one or more areas in the Leased Premises as
secure areas, and Landlord shall have no right of access thereto without being
accompanied by Tenant's designated representative except in the case of
emergencies.
ARTICLE FIFTEEN
COMPLIANCE WITH LAWS
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Section 15.01 TENANT'S COMPLIANCE WITH LAWS. Tenant shall comply with all
federal state and local statutes, rules, ordinances, orders, codes and
regulations and legal requirements and standards issued thereunder (collectively
referred to in this Lease as the "Laws") which are applicable to Tenant's use
and manner of use of the Leased Premises. Nothing herein shall be deemed to
impose any obligation upon Tenant for any elements of the Structure or Building
Service Systems, or for any restoration, alterations, replacements or repairs
required to be made by Landlord pursuant to the provisions of this Lease.
Notwithstanding the foregoing, Tenant shall reimburse Landlord, within thirty
(30) days after written demand by Landlord, for all costs incurred by Landlord
in making alterations or improvements of the Leased Premises, the Building, or
the Project required by Laws due to or as a result of a change in Tenant's use
or manner of use of the Leased Premises from the general uses set forth in
Section 8.01.
Section 15.02 LANDLORD'S COMPLIANCE WITH LAWS.
(a) Landlord shall comply with all Laws which (1) affect the Project or
(2) relate to the performance by Landlord of any duties or obligations to be
performed by Landlord under this Lease. Without limitation, Landlord agrees
that the Project shall at all times during the Term comply with all design,
construction, conservation, environmental asbestos, fire, health and safety
Laws, and Laws covering the disabled. Notwithstanding the foregoing, Landlord
shall only be required under this section to make capital improvements to the
Leased Premises, the Building or the Project at Landlord's expense with respect
to those Laws in effect during the Initial Term. Thereafter, Tenant shall pay
all costs incurred by Landlord in complying with the requirements of this
section.
(b) All boilers and other pressure vessel equipment shall be constructed
and maintained by Landlord in accordance with the ASME Standards and Codes.
(c) Landlord shall regularly inspect and maintain the HVAC system and
treat the cooling tower water with U.S. Environmental Protection Agency
registered chemicals to prevent the buildup of slime, algae and bacteria, and
shall follow the latest recommendations of the Centers for Disease Control or
current practices of the American Society of Heating, Refrigeration and Air
Conditioning Engineers.
ARTICLE SIXTEEN
SURRENDER OF POSSESSION
Subject to Section 9.02 above, at the expiration or earlier termination of
the Term, Tenant will peaceably yield up the Leased Premises to Landlord in good
condition and repair with respect to
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Tenant's obligations pursuant to Sections 9.02 and 9.03, ordinary wear and tear
excepted.
ARTICLE SEVENTEEN
SIGNS
Section 17.01 TENANT'S SIGNS. Tenant may place its signs in, on or about
the Leased Premises, provided they comply with all applicable laws.
Section 17.02 PROJECT SIGN AND NAME.
(a) So long as Tenant shall lease sixty percent (60%) or more of the
rentable area of the Building, it shall have the exclusive right to design and
designate the location of signs naming the Project and to prohibit any other
sign to be placed outside of or on the Building or within the lobby or other
prominent area inside the Building which is visible to the public where such
sign identifies or is associated with the name of a competitor of Tenant.
(b) If Tenant shall lease less than forty percent (40%) of the rentable
area of office space in the Building and if at any time after the execution of
this Lease Landlord changes the Building Name or installs new or substitute
signs which are not the Building Name, Landlord shall notify Tenant at least
sixty (60) days prior to the date of the proposed change. If the proposed new
or changed name identifies, or the proposed signs identify or may be associated
with, a competitor of Tenant and Landlord denies Tenant's written request, made
within thirty (30) days after notification of the proposed change, not to use
the proposed name or install the signs, Tenant may, at its option exercised by
notice to Landlord within ninety (90) days from the date the proposed name is
adopted or the signs are installed, terminate this Lease. In such event, the
Term shall end on the date specified in Tenant's notice, Annual Rent and
Additional Rent shall be apportioned and paid to the date of termination, and
Tenant shall have no further liability to Landlord arising out of this Lease.
Section 17.03 LIMITATIONS ON LANDLORD'S RIGHTS. Neither Tenant nor
Landlord shall install or permit installation of any signs, sculptures and/or
graphics which adversely reflect on the dignity or character of the Project as a
first class office Project. No "for rent" or other similar signs or flags,
other than the American flag and flag of the State in which the Building is
located, may be placed within the Project limits without Tenant's written
approval, which will not be unreasonably withheld or delayed.
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Section 17.04 COMPLIANCE WITH LAWS. All signs installed by Landlord and
Tenant shall comply with applicable Laws and shall be installed in a good
workmanlike manner.
ARTICLE EIGHTEEN
SUBORDINATION AND NON-DISTURBANCE
This Lease shall be subordinate and subject to all ground and underlying
leases and to any first mortgages thereon and to any First mortgages covering
the fee of the Project, and to all renewals, modifications or replacements
thereof, provided, however, that with respect to any existing ground lease,
underlying lease and/or mortgage, no later than the date Tenant executes and
delivers this Lease and with respect to any future ground lease, underlying
lease and/or mortgage, on or before the effective date thereof, Landlord shall
obtain from its ground lessor, underlying lessor and/or mortgagee, as the case
may be, a written agreement with Tenant in form acceptable to Tenant which
includes the conditions set forth in this Article 18. The agreement shall be
binding on their respective legal representatives, successors and assigns and
provide, among other provisions, that so long as this Lease shall be in full
force and effect (a) Tenant's possession and use of the Project in accordance
with the provisions of this Lease shall not be affected or disturbed by reason
of the subordination to or any modification of or default under the ground or
underlying lease or mortgage and (b) the ground and underlying lessor and
mortgagee will make available to Landlord the insurance proceeds payable under
policies of insurance required to be carried by Landlord in Article Ten for the
purposes agreed upon in Article Ten, subject to reasonable restrictions and
controls regarding such issues as approval of construction documents and
progress payment disbursements and showing of no material impairment of security
following reconstruction. If the ground or underlying lessor and/or mortgage or
any successor in interest shall succeed to the rights of Landlord under this
Lease, whether through possession, surrender, assignment, subletting, judicial
or foreclosure action, or delivery of a deed or otherwise, Tenant will attorn to
and recognize such successor-landlord as Tenant's landlord provides the
successor-landlord accepts such attornment and recognizes Tenant's rights of
possession and use of the Leased Premises in accordance with the provisions of
this Lease. If Tenant is joined as a defendant in any proceeding which may be
instituted to terminate or enforce the ground or underlying lease or to
foreclose or enforce the mortgage, Landlord shall indemnify and hold Tenant
harmless from all costs, attorneys' fees, expenses, liabilities and damages
incurred by Tenant in connection therewith.
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ARTICLE NINETEEN
MECHANICS' LIENS
During the Term, Tenant shall discharge by payment, bond or otherwise those
mechanics' liens filed against the Project for work, labor, services or
materials claimed to have been performed at or furnished to the Leased Premises
for or on behalf of Tenant, except when the mechanics' liens are filed by a
contractor, supplier, materialman or laborer retained by Landlord, in which
event Landlord shall discharge the liens by payment, bond or otherwise.
ARTICLE TWENTY
IBM RENT GUARANTY
Simultaneous with the execution and delivery of this Lease by Tenant,
International Business Machines Corporation shall cause to be executed and
delivered to Landlord a Guaranty in the form of Exhibit D hereto, accompanied by
evidence of requisite corporate approval and authority for such execution and
delivery in a form reasonably satisfactory to Landlord.
ARTICLE TWENTY-ONE
Intentionally deleted
ARTICLE TWENTY-TWO
Intentionally deleted
ARTICLE TWENTY-THREE
Intentionally deleted
ARTICLE TWENTY-FOUR
DEFAULT
Section 24.01 DEFAULT BY TENANT.
(a) If Tenant shall default in the payment of Annual Rent or Additional
Rent and the default shall continue for ten (10) days after notice thereof from
Landlord, or if Tenant shall default in the performance or observance of any of
its other covenants or obligations set forth in this Lease, and if the default
shall
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continue for thirty (30) days after notice thereof from Landlord specifying in
what manner Tenant has defaulted (except that if the default cannot be cured
within said thirty (30) day period, this period shall be extended for a
reasonable additional time, provided that Tenant commences to cure the default
within such thirty (30) day period and proceeds diligently thereafter to effect
such cure) within one hundred twenty (120) days Landlord may, at its option and
without any further notice or demand, in addition to any other rights and
remedies given hereunder or by law, do any of the following:
(1) Landlord shall have the right, so long as such default (after
expiration of all cure periods as set forth in paragraph (a) above) continues,
to give notice of termination to Tenant, and on the date specified in such
notice this Lease shall terminate.
(2) In the event of any such termination of this Lease, Landlord may then
or at any time thereafter, re-enter the Leased Premises and remove therefrom all
persons and property and again repossess and enjoy the Leased Premises, without
prejudice to any other remedies that Landlord may have by reason of Tenant's
default or of such termination.
(3) In the event of any such termination of this Lease, and in addition to
any other rights and remedies Landlord may have, Landlord shall have all of the
rights and remedies of a landlord provided by Section 1951.2 of the California
Civil Code. The amount of damages which Landlord may recover in event of such
termination shall include, without limitation, (i) the worth at the time of
award (computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent) 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, (ii) all legal expenses and other related costs incurred by Landlord
following Tenant's default, (iii) all costs (including, without limitation, any
brokerage commissions) incurred by Landlord in reletting the Leased Premises
which are allocable to the then remaining Term.
(4) For the purpose of determining the unpaid rent in the event of a
termination of this Lease, or the rent due hereunder in the event of a reletting
of the Leased Premises, the monthly rent reserved inn this Lease shall be deemed
to be the sum of the Annual Rent and all periodic Additional Rent (including
Operating Expenses and Real Estate Taxes) last payable by Tenant.
(5) After terminating this Lease, Landlord may remove any and all personal
property located in the Leased Premises and place such property in a public or
private warehouse or elsewhere at the sole cost and expense of Tenant.
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(b) Even though Tenant has breached this Lease and abandoned the Leased
Premises, this Lease shall continue in effect for so long as Landlord does not
terminate Tenant's right to possession, and Landlord may enforce all its rights
and remedies under this Lease, including the right to recover rental as it
becomes due under this Lease. Acts of maintenance or preservation, efforts to
relet the Leased Premises, or the appointment of a receiver upon initiative of
Landlord to protect Landlord's interest under this Lease, shall not constitute a
termination of Tenant's right to possession.
(c) All amounts of Annual Rent and Additional Rent not paid by Tenant when
due shall bear interest from the date due until paid in full at the lesser of
ten percent (10%) per annum or the maximum rate permitted by law.
Section 24.02 SUSPENSION OF TENANT DEFAULT. Subject to Section 24.03
below, if Tenant shall dispute any sum claimed by Landlord to be specifying in
reasonable detail the basis for its dispute, Tenant may pay the amount in
dispute to an independent escrow agent of its choice, to be held by the agent
pending resolution of the dispute by arbitration or otherwise. Tenant's rights
under this Section 24.02 shall be limited to disputes regarding sums other than
(1) monthly installments of Annual Rent and (2) periodic payment of Real Estate
Taxes, not contested by Tenant by notice to landlord given within thirty (30)
days following Landlord's notice of any change in such amounts. Tenant shall
not be deemed to be in default hereunder by reason of such payment until the
dispute is resolved in favor of Landlord and Tenant fails to cause the agent to
pay the amount determined to be payable to Landlord within ten (10) days after
Tenant is notified of the determination. Tenant and Landlord shall negotiate in
good faith to resolve the dispute by agreement, failing which either may proceed
to arbitration in accordance with Article Thirty-Eight.
Section 24.03 DEFAULT BY LANDLORD. If and when Tenant discovers that
Landlord has made a representation in this Lease which was intentionally false
or misleading in any material respect when made, or that Landlord has committed
a material breach of any of the warranties made in this Lease, Tenant may
declare an event of default. Further, if Landlord defaults in the performance
or observance of any of its covenants or obligations set forth in this Lease,
Tenant shall give Landlord notice specifying in what manner Landlord has
defaulted and if the default shall not be cured by Landlord within the period of
time provided for elsewhere in this Lease, and otherwise within thirty (30) days
after the delivery of such notice (except that if the default cannot be cured
within said thirty (30) day period, this period shall be extended for a
reasonable additional time, provided that Landlord commences to cure the default
within the thirty (30) day period and proceeds diligently thereafter to effect
such cure) Tenant may declare an event of default. If Landlord disputes any
default declared by
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Tenant pursuant to this Article or the reasonableness of time granted to cure
the default, Landlord may submit the disputed matter to arbitration in
accordance with Article Thirty-Eight within ten (10) days after receiving
Tenant's notice. Alternatively, if Landlord fails to reimburse Tenant within
thirty (30) days after it receives Tenant's invoice and Landlord fails to submit
the disputed matter pursuant to Article Thirty-Eight, Tenant shall have the
right to submit the disputed matter to arbitration in accordance with Article
Thirty-Eight by notice given within ten (10) days following the end of such
thirty (30) day period. If judgment is in favor of Tenant in the arbitration,
Tenant shall have the right to deduct any costs and expenses incurred by Tenant
to cure Landlord's default from each monthly installment of Annual Rent due or
to become due in an amount not to exceed ten percent (10%) of each monthly
installment, until Tenant has been paid in full. If Landlord's default
materially and adversely affects Tenant's rights under this Lease and the
default cannot be cured within a reasonable time or at a reasonable cost by
either Tenant or Landlord, as determined by the circumstances, Tenant shall have
all right and remedies available at law or in equity, including, without
limitation, the right to claim actual or constructive eviction. Tenant may
recover all damages it incurs as a result including (1) the unamortized value
over the Term of Tenant's improvements, alterations, replacements and other
similar changes to the Leased Premises, provided the same shall have been paid
for by Tenant but regardless of whether the same might be considered by the Laws
or other vise a part of the Building or shall be or become Landlord's Property
under the provisions of this Lease; (2) the value of Tenant's Personal Property
that cannot be removed from the Building without incurring substantial cost; (3)
the cost of relocation; and (4) that portion of annual rent and additional rent
that Tenant is required to pay at a new location which exceeds the Annual Rent
and Additional Rent.
ARTICLE TWENTY-FIVE
HOLDOVER
If Tenant remains in the Leased Premises beyond the expiration or earlier
termination of the Term, such holding over in itself shall not constitute a
renewal or extension of this Lease but in such event, a tenancy from month to
month shall arise. During the first three (3) months of the holdover period,
Tenant shall pay a monthly rental (the "Holdover Base Rent") equal to the
installments of Annual Rent and increases in Real Estate Taxes and Operating
Expenses payable for the last month of the Term of the Lease. Thereafter (i)
the monthly rental for the first three months shall be 110% of the Holdover Base
Rent and (ii) the monthly rental thereafter shall be 150%, of the Holdover Base
Rent.
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ARTICLE TWENTY-SIX
NOTICES
Any notice, request or demand under this Lease shall be in writing and
shall be considered properly delivered when addressed as hereinafter provided,
and (a) served personally, (b) registered or certified (return receipt
requested) and deposited in a United States general or branch post office, or
(c) sent by a private express mail carrier. Any notice, request or demand by
Tenant to Landlord shall be addressed to Landlord at:
CP Private Partners LP-1
c/o Cabot Partners Limited Partnership
Sixty State Street, Boston, MA 02109
Attention: Asset Management Department
until otherwise directed in writing by Landlord and, if requested in writing by
Landlord, simultaneously served on or sent to Landlord's first mortgagee at the
address specified in such request.
Any notice, request or demand by Landlord to Tenant shall be addressed to Tenant
at:
Altium
2130 N. Hollywood Way
Burbank, CA 91504
Attention: General Counsel
until otherwise directed in writing by Tenant.
Rejection or other refusal to accept a notice, request or demand, or the
inability to deliver the same because of a changed address of which no notice
was given, shall be deemed to be receipt of the notice, request or demand sent.
ARTICLE TWENTY-SEVEN
ASSIGNMENT AND SUBLETTING
Section 27.01 ASSIGNMENT OR SUBLEASE. Without the consent of Landlord:
(i) Tenant may assign this Lease or sublet all or any part of the Leased
Premises at any time during the Term to (a) an Affiliated Person of Tenant or
(b) a successor entity created by merger, reorganization, recapitalization, or
acquisition, or (ii) Tenant may sublet the Leased Premises to any person or
entity occupying in the aggregate less than twenty-five percent (25%) of the
Leased Premises. Tenant shall be permitted to retain the profit, if any from
such sublease or assignment. For purposes of this Section the words "Affiliated
Person of Tenant" mean a Person
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directly or indirectly, through one or more intermediaries, controlled by Tenant
or under common control with Tenant.
Section 27.02 Except as set forth in Section 27.01, Tenant shall not
assign this Lease or any interest herein or sublet the Leased Premises or any
part thereof without the prior consent of Landlord, which consent shall not be
unreasonably withheld or delayed. In connection with each consent requested by
Tenant, Tenant shall submit to Landlord the terms of the proposed transaction,
the identity of the parties to the transaction, the proposed documentation for
the transaction, current financial statements of any proposed assignee or
sublessee and an other information reasonably requested by Landlord concerning
the proposed transaction ant the parties involved therein.
Without limiting the other instances in which it may be reasonable for
Landlord to withhold its consent to an assignment or subletting, Landlord and
Tenant acknowledge that it shall be reasonable for Landlord to withhold its
consent in the following instances:
(1) if, in Landlord's reasonable judgment, the financial worth of the
proposed assignee or sublessee does not meet the credit standards applied
by Landlord and its affiliates for other tenants under isis with comparable
terms, or the character, reputation or business of the proposed assignee or
sublessee is not consistent with the quality of the other tenancies in
properties owned by Landlord or its affiliates;
(2) in the case of a subletting of less than the entire Leased Premises,
if the subletting would result in the division of the Leased Premises into
more than three subparcels, would create a subparcel of a configuration
that is not suitable for normal leasing purposes, or would require access
to be provided through space leased or held for lease to another tenant or
improvements to be made outside of the Leased Premises; or
(3) if at the time consent is requested or at any time prior to the
granting of consent, Tenant remains in default under the Lease after
Landlord has given Tenant notice thereof and an opportunity to cure as set
forth in Article 24.
Section 27.03 No sublessee shall have a right to further sublet, and any
assignment by a sublessee of its sublease shall be subject to Landlord's prior
consent in the same manner as if Tenant were entering into a new sublease.
Section 27.04 LIABILITY OF TENANT. Tenant shall be permitted to retain
fifty percent (50%) of the profits, if any, from such sublease or assignment
during the Term. Profits shall be defined to mean income received by Tenant
from any such sublease or
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assignment less the cost of subleasing or assignment, including brokerage
commission, legal fees and related expenses, out of pocket economic concessions
granted by Tenant, including tenant improvement allowances and lease takeovers.
Landlord shall not have the right to recapture any space so subleased or
assigned by Tenant. If Tenant assigns or sublets hereunder, Tenant shall remain
responsible for the faithful performance and observance of all of its covenants
and obligations set forth in this Lease. Landlord agrees that if Tenant assigns
this Lease and the assignee defaults and fails to cure such default within the
applicable grace period provided in Article Twenty-Four, Tenant shall have the
right to recover possession of the Leased premises by curing the assignee's
default within ten (10) days thereafter, after Landlord has first delivered to
Tenant a copy of Landlord's notice of default concurrent with Landlord's giving
notice to the assignee. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting. In the event of
default by any assignee of Tenant or any successor of Tenant in the performance
of any of the terms hereof, Landlord may proceed directly against Tenant without
the necessity of exhausting remedies against such assignee or successor.
ARTICLE TWENTY-EIGHT
EQUAL EMPLOYMENT OPPORTUNITY
There are incorporated in this Lease the provisions of Executive Order
11246 (as amended) of the President of the United States on Equal Employment
opportunities and the rules and regulations issued pursuant thereto with which
Landlord represents that it will comply unless exempted.
ARTICLE TWENTY-NINE
QUIET ENJOYMENT
Provided Tenant performs the covenants and obligations in this Lease on
Tenant's part to be performed, Landlord covenants and agrees to take all
necessary steps to secure and to maintain for the benefit of Tenant the quiet
and peaceful possession of the Leased Premises, the Common Building Facilities
and Building Parking Area for the Term, without hindrance, claim or molestation
by Landlord or any other Person.
ARTICLE THIRTY
WAIVER
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Failure by either party to complain of any action, inaction or default of
the other party shall not constitute a waiver of the aggrieved party's rights
hereunder. Waiver by either party of any right to claim a default of the other
party shall not constitute a waiver of any right to claim a subsequent default
of the same obligation or to claim any other default, past, present or future.
Landlord and Tenant hereby waive trial by jury in any action, proceeding or
counterclaim brought by either against the other concerning any matters
whatsoever arising out of or in any way connected with this Lease or the
relationship of the parties hereunder.
ARTICLE THIRTY-ONE
PARTIAL INVALIDITY
If any covenant, condition or provision of this Lease, or the application
thereof to any Person or circumstance, shall be held to be invalid or
unenforceable, then in each such event the remainder of this Lease or the
application of such covenant, condition or provision to any other Person or any
other circumstance (other than those as to which it shall be invalid or
unenforceable) shall not be thereby affected, and each covenant, condition and
provision hereof shall remain valid and enforceable to the fullest extent
permitted by the Laws.
ARTICLE THIRTY-TWO
RULES AND REGULATIONS
Section 32.01 TENANT'S OBLIGATION. Tenant shall abide by and observe the
rules and regulations marked EXHIBIT F and such other rules and regulations
which are necessary for the safety, security, care and appearance of the Project
or the preservation of good order therein, or for the operation and maintenance
of the Project or equipment therein (the "Rules and Regulations"); provided the
same are in conformity with common practice and usage in similar buildings, are
not inconsistent with the provisions of this Lease and apply to all tenants and
occupants of the Building, and provided further that a copy thereof is received
by Tenant.
Section 32.02 STANDARDS APPLICABLE TO LANDLORD. Landlord shall (a) not
disseminate against Tenant in enforcing the Rules and Regulations; (b) not
unreasonably withhold or delay its consent to any approval required by Tenant
under the Rules and Regulations, and (c) exercise its judgment in good faith in
any instance when the exercise of Landlord's judgment under the Rules and
Regulations is required.
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Section 32.03 LANDLORD'S ENFORCEMENT. Landlord shall use its best efforts
to obtain compliance of the Rules and Regulations by all tenants and other
occupants within the Project limits, but Landlord may permit reasonable waivers
so long as such waivers do not unreasonably interfere with or materially and
adversely affect Tenant in the conduct of its business in the Leased Premises or
violate any rights granted to Tenant under this Lease.
Section 32.04 CONFLICT. If there is a conflict between or ambiguity
created by the provisions of this Lease and Rules and Regulations published
pursuant to this Article, the provisions of this Lease shall control and be
binding on the parties hereto.
ARTICLE THIRTY-THREE
ESTOPPEL CERTIFICATES
Section 33.01 TENANT'S ESTOPPEL CERTIFICATE. Tenant agrees, at any time
and from time to time, upon not less than ten (10) days prior notice from
Landlord, and not more than thirty (30) days after Landlord's giving notice to
Tenant execute, acknowledge and deliver to Landlord or any Person designated by
Landlord a statement in writing (1) certifying that this Lease is unmodified and
in full force and effect (or if there have been modifications, that this Lease
is in full force and effect as modified and stating the modifications); (2)
whether or not the Term has commenced and if it has commenced, stating the dates
to which the Annual Rent and Additional Rent have been paid by Tenant, and (3)
stating, to the best of Tenant's knowledge, whether or not Landlord is in
default in the performance of any covenant, agreement or condition contained in
this Lease, and if Tenant has knowledge of such a default, specifying each such
default.
Section 33.02 LANDLORD'S ESTOPPEL CERTIFICATE. Prior to commencement of
and during the Term, Landlord shall, within ten (10) days after Tenant's
request, deliver an estoppel certificate to Tenant or any Person designated by
Tenant relative to the status of this Lease and/or any ground lease, underlying
lease and/or mortgage encumbering the Project.
ARTICLE THIRTY-FOUR
EXECUTION OF LEASE
THIS DOCUMENT SHALL NOT BE A VALID AGREEMENT WHICH IS BINDING ON EITHER
PARTY HERETO UNTIL AT LEAST ONE (1) COUNTERPART, EXECUTED BY DULY AUTHORIZED
REPRESENTATIVES OF LANDLORD AND TENANT, HAS BEEN DELIVERED BY EACH PARTY TO THE
OTHER.
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ARTICLE THIRTY-FIVE
COUNTERPARTS
When several counterparts of this Lease have been executed, each shall be
considered an original for all purposes, provided, however, that an counterparts
shalt together, constitute one and the same instrument.
ARTICLE THIRTY-SIX
ANTENNA
Tenant may install and, once installed, modify a microwave, satellite or
other antenna communications system on the roof of the Building for use in
connection with Tenant's business. Tenant shall furnish detailed plans and
specifications for the system (or modification) to Landlord for approval, which
approval shall not be unreasonably withheld or delayed. Upon approval, the
system shall be installed, at Tenant's expense, by a contractor selected in the
manner agreed to in Section 13.02. Tenant is hereby granted such easements and
licenses for (a) use of any Building shafts and other Common Building Facilities
required to install the electrical or communication wiring, (b) access to the
roof at all reasonable times and in emergencies and (c) use of a mutually agreed
upon area of the roof to install and operate the system. Tenant shall be
responsible for procuring whatever licenses or permits may be required from
third Persons for the use or operation of the system, and Landlord makes no
warranties or representations as to the permissibility of the system under
applicable Laws. The system shall not constitute a nuisance or unreasonably
interfere with the operations of Landlord or other tenants occupying the
Project. Landlord agrees that after the date Tenant installs its system,
Landlord will not permit the installation of a similar system on the roof of the
Building by any Person without Tenant's prior written approval, which approval
shall not be unreasonably withheld or delayed, provided that Tenant may withhold
approval where the installation and/or operation of the other system would
interfere with the operation of Tenant's system. Upon the expiration or earlier
termination of the Term, Tenant shall remove all equipment placed or installed
on the roof of the Building, together with related signal wiring, properly patch
and fill all roof penetrations, and repair any damage to the roof resulting from
the installation or removal of Tenant's equipment.
ARTICLE THIRTY-SEVEN
BROKER
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The parties warrant and represent to each other that no Person has
negotiated or brought about this transaction other than Cushman Realty
Corporation and CB Commercial Real Estate Group, Inc. Tenant shall defend,
indemnify and save harmless Landlord from and against any claim which may be
asserted against Landlord by any Person other than the Person named above if (a)
the claim is made in connection with this transaction and (b) Tenant employed
the claiming Person. Tenant shall reimburse Landlord for reasonable expenses,
losses, costs and damages (including reasonable attorneys' fees and court costs
if Tenant fails or refuses to defend as herein required) incurred by Landlord in
connection with such claims. Landlord shall defend, indemnify and save harmless
Tenant from and against any claim which may be asserted against Tenant by any
Person if the claim (a) is made in connection with this transaction and (b)
arises out of conversations or dealings between Landlord and any claiming Person
(including the Person named above) other than a Person employed by Tenant for
this transaction, or (c) results from a fraud committed or misrepresentation
made by Landlord or any Person employed by Landlord. Landlord shall reimburse
Tenant for reasonable expenses, losses, costs and damages (including reasonable
attorneys' fees and court costs if Landlord fails or refuses to defend as herein
required) incurred by Tenant in connection with such claims. Landlord agrees
that its payment to the named Person shall not be a release of Landlord from its
obligation of indemnification hereunder or of Tenant's right to enforce such
indemnity. This Article shall survive the expiration or earlier termination of
this Lease.
ARTICLE THIRTY-EIGHT
ARBITRATION
Section 38.01 APPLICABILITY.
(a) If arbitration is agreed upon hereunder as a dispute resolution
procedure, the arbitration shall be conducted as provided in this Article. All
proceedings shall be conducted according to the Commercial Arbitration Rules of
the American Arbitration Association, except as hereinafter provided. No action
at law or in equity in connection with any such dispute shall be brought until
arbitration hereunder shall have been waived, either expressly or pursuant to
this Article. The judgment upon the award rendered in any arbitration hereunder
shall be final and binding on both parties hereto and may be entered in any
court having jurisdiction thereof.
(b) During an arbitration proceeding pursuant to this Article, the parties
shall continue to perform and discharge all of their respective obligations
under this Lease, except as otherwise provided in this Lease.
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Section 38.02 NOTICE AND DEMAND. All disputes that may be arbitrated in
accordance with this Article shall be raised by notice to the other party, which
notice shall state with particularity the nature of the dispute and the demand
for relief, making specific reference by article number and title of the
provisions of this Lease alleged to have given rise to the dispute. The notice
shall also refer to this Article and shall state whether or not the party giving
the notice demands arbitration under this Article. If no such demand is
contained in the notice, the other party against whom relief is sought shall
have the right to demand arbitration under this Article within five (5) business
days after such notice is received. Unless one of the parties demands
arbitration, the provisions of this Article shall be deemed to have been waived
with respect to the dispute in question.
Section 38.03 SELECTION OF ARBITRATOR. Tenant and Landlord shall mutually
and promptly select one person who has demonstrated at least ten (10) years'
experience in commercial real estate matters and, in particular, the subject
matter of the dispute, to act as arbitrator hereunder. If a selection is not
made within thirty (30) days after a demand for arbitration is made, upon the
request of either party the arbitrator shall be appointed by The American
Arbitration Association. The arbitration proceedings shall take place at a
mutually acceptable location in ________.
Section 38.04 SCOPE.
(a) When resolving any dispute, the arbitrator shall apply the pertinent
provisions of this Lease without departure therefrom in any respect. The
arbitrator shall not have the power to change any of the provisions of this
Lease, but this Section shall not prevent in any appropriate case the
interpretation, construction and determination by the arbitrator of the
applicable provisions of this Lease to the extent necessary in applying the same
to the matters to be determined by arbitration. The arbitrator shall limit his
or her deliberations to the following issues only and no others:
(1) Under Article Six, Nine or Twenty-Four of this Lease (a) whether a
party has committed an event of default, (b) whether a party either has failed
to cure the default within the grace period allowed by the provisions of this
Lease for curing the default or, having eventually cured the default,
nevertheless has failed to proceed with due diligence, (c) whether the length of
time specified by Tenant in a notice of default given under Article Six, Nine or
Twenty-Four was reasonable, taking into consideration the nature of the default
and surrounding circumstances (such as availability of parts, required municipal
approvals, and effect of the default on occupants and invitees of the Project)
existing at the time notice was given, (d) whether the Construction Documents
prepared by Landlord under the Work Letter, set forth in Exhibit C, provide for
construction which is the logical extension of
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the design, quality and quantity shown in the Schematics, or (e) whether the
proposed lease amendment meets the requirements of paragraph 2.02(b).
(2) Whether an item included in Landlord's Statement as Operating Expenses
or Real Estate Taxes is properly includable pursuant to Article Three.
(b) The right of Landlord and Tenant to submit a dispute to arbitration is
limited to issues agreed in this Lease to be submitted to arbitration.
ARTICLE THIRTY-NINE
EXCUSABLE DELAY
Whenever a party hereto is required by the provisions of this Lease to
perform an obligation and such party is prevented beyond its reasonable control
from doing so by reason of an Excusable Delay, such party shall be temporarily
relieved of its obligation to perform, provided it promptly notifies the other
party of the specific delay and exercises due diligence to remove or overcome
it. The words "Excusable Delay" shall mean any delay due to strikes, lockouts
or other labor or industrial disturbance; civil disturbance; future order of any
government, court or regulatory body claiming jurisdiction; act of the public
enemy, war, riot, sabotage, blockade or embargo; failure or inability to secure
materials, supplies or labor through ordinary sources by reason of shortages or
priority or similar regulation or order of any government or regulatory body,
lightning, earthquake, fire, storm, hurricane, tornado, flood, washout or
explosion, or act or omission of one party hereto which prevents the party
claiming delay from complying, or which materially and adversely interferes with
the claiming party's ability to comply with an obligation under this Lease on
its part to be performed.
ARTICLE FORTY
MISCELLANEOUS
Section 40.01 RULES OF INTERPRETATION. This Lease shall be strictly
construed neither against Landlord or Tenant; each provision hereof shall be
deemed both a covenant and a condition running with the Land; except as
otherwise expressly provided in this Lease and its Exhibits and other
attachments, the singular includes the plural and the plural includes the
singular, "or" is not exclusive; a reference to an agreement or other contract
includes supplements and amendments thereto to the extent permitted by this
Lease; a reference to the Laws includes any amendment or supplement to such
Laws; a reference to a Person includes its
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permitted successors ant assigns; accounting provisions have the meanings
assigned to them by generally accepted accounting principles and practices
applied on a consistent basis; the words "such as," "include," "includes" and
"including" are not limiting, except as specifically agreed upon in this Lease,
any right may be exercised at any time and from time to time and all obligations
are continuing obligations throughout the Term, and in calculating any time
period, the first day shall be excluded and the last day shall be included and
all days are calendar days unless otherwise specified; whenever the consent or
approval of either party is required, such consent or approval shall not be
unreasonably withheld or delayed; and whenever either party is granted a right
to take action, exercise discretion or make an allocation, judgment or
determination, such party shall act in good faith in a reasonable and prudent
manner.
Section 40.02 NO EXCLUSIVE REMEDIES. No remedy or election given by any
provision in this Lease shall be deemed exclusive unless so indicated, but each
shall, wherever possible, be cumulative in addition to all other remedies at law
or in equity which either party may have arising out of an event of default of
the other party.
Section 40.03 PROJECT CONTRACTORS AND SUPPLIERS. Except as otherwise
specifically set forth in this Lease, Landlord hereby covenants and represents
that Tenant may deal with any Person for services (including food and vending
services), supplies, materials, labor, equipment, transportation, tools,
machinery and any other similar or dissimilar services or items in connection
with the use and occupation of the Leased Premises and any work performed
therein.
Section 40.04 GOVERNING LAWS. This Lease shall be governed in all
respects by the Laws of the State of California.
Section 40.05 NON-DISCLOSURE OF LEASE.
(a) Prior to the Tenn Commencement Date, Landlord and its agents,
employees and contractors shall not disclose the existence of this Lease without
Tenant's written consent.
(b) Landlord, its agents, employees and contractors shall keep the
provisions of this Lease in confidence and shall not publish or disclose the
same at any time during the Term except as permitted by Article Forty-One.
(c) This Section shall not apply to disclosures that must be made by
Landlord or Tenant to obtain financing for the Project, or as related to
Landlord's efforts to sell the Project.
ARTICLE FORTY-ONE
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MEMORANDUM OF LEASE
This Lease shall not be recorded by either Landlord or Tenant. However,
either party may request that a memorandum of this Lease be recorded in a form
reasonably acceptable to both. The requesting party shall pay all costs of
recording.
ARTICLE FORTY-TWO
BINDING AGREEMENT
This Lease shall bind and inure to the benefit of Landlord and its
executors, distributees and heirs, and to Tenant's and Landlord's respective
representatives, successors and permitted assigns.
ARTICLE FORTY-THREE
ENTIRE AGREEMENT
This Lease, including all Exhibits, other attachments and the letter dated
July 16, 1993 from Eugene Reilly to Christine von Wrangel regarding sound
mitigation, contain the entire agreement of Landlord and Tenant with respect to
the matters stated herein, and may not be modified except by an instrument in
writing which is signed by both parties and delivered by each to the other.
Exhibits and such other attachments are incorporated herein as fully as if their
contents were set out in full at each point of reference to them.
ARTICLE FORTY-FOUR
PROJECT MANAGEMENT/MOVING EXPENSES
Landlord shall reimburse Tenant for the cost of project management services
provided by A. Epstein and Sons and for all associated moving expenses necessary
to relocate to the Leased Premises up to $150 per rentable square foot, within
thirty (30) days after the Term Commencement Date.
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IN WITNESS WHEREOF, this Lease has been executed by the duly authorized
representatives of Landlord and Tenant as of the date first above written.
LANDLORD
CP PRIVATE PARTNERS, LP-1,
a Delaware limited partnership
By: Cabot Partner Limited
Partnership, general partner
By: Cabot Realty Advisors
Corporation, general partner
By: /s/ (illegible)
--------------------------------
Its: President
-------------------------------
TENANT
ALTIUM
a California corporation
By: /s/ Lee Amunay
--------------------------------
Its: President
-------------------------------
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EXHIBIT A - To be attached
(with dotted line to show Partial Leased Premises)
SITE PLAN
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EXHIBIT B
MAINTENANCE SPECIFICATIONS
LANDLORD'S LANDSCAPE SERVICE - One visit per week
1. Hand pick weeds and trash in the planting areas.
2. Hand water and/or regulate the watering system.
3. Shrub beds will be fertilized every two months.
4. Provide the labor to repair or replace the sprinkler system heads and
risers.
5. Trim all trees, shrubs, and plants as required.
6. Replace all plantings that die or are damaged.
7. Keep all sidewalks and grounds free from gardening debris to maintain a
neat and clean appearance.
8. Stake and tie trees as required.
9. Provide labor to eradicate rodents from landscape areas by setting traps,
or other means.
10. Provide the labor and materials to minor applications of pesticides,
herbicides, and fungicides.
11. Walkway areas will be swept or blown clean.
12. Repair damage due to acts of nature (storm runoff, water overflow,
excessive winds) mechanical malfunctions, broken water lines, vandalism,
and theft.
LANDLORD'S PARKING LOT MAINTENANCE:
1. Blow away from curbs and vacuum sweep parking lot once a month.
2. Blow clean sidewalks, courtyards and steps once a week.
3. Hand pick or blow away trash from planters and landscape areas once a week.
4. Blow clean trash enclosures once a week.
5. Repaint all handicap stalls annually or as needed.
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LANDLORD'S HVAC MAINTENANCE:
1. Change air filters on a monthly basis.
2. Check fan belts monthly and replace as needed.
3. Maintain water treatment in chiller units for proper levels of
microbicides, PH balance, and ionizers.
4. Faulty electrical ground and city power will be tested and corrected as
needed.
5. Water temperature and pressure and coolant levels in all HVAC units
required monthly.
6. Check and service HVAC units at least monthly.
7. Test and service all backflow and pressure relief valves annually.
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EXHIBIT C
IMPROVEMENTS WORK LETTER
FOR 2130 NORTH HOLLYWOOD WAY, BURBANK
This Agreement is incorporated into that certain Lease (the "Lease") dated July
16, 1993, between ALTIUM, as "Tenant", and CP PRIVATE PARTNERS, LP-1, as
"Landlord." All of the defined terms as used in the Lease shall have the same
meanings herein. In the event of a conflict between the provisions of the Lease
and the provisions of this Exhibit C, the provisions of the Lease shall prevail.
1. LANDLORD'S WORK. Landlord, through its general contractor, shall at
Landlord's sole cost, arrange to design, furnish, construct and install
upon and within the Leased Premises (the "Project") in accordance with the
drawings and specifications finally approved by Landlord and Tenant
(collectively), as "Landlord's Work." The Landlord's Work generally
covers, but is not limited to, exterior building modifications, exterior
windows, landscaping, site work, building entrance features, partitions,
doors, lighting fixtures, acoustical ceilings, window coverings, floor
coverings, electrical, telephone, plumbing, heating, ventilating and air
conditioning equipment, fire sprinklers, general life safety, computer
room, employee center, eating/food service areas, restrooms and other items
of general construction as set forth in the drawings and specifications
described in Section 2 below. The quantities, character and manner of
installation of all of the Landlord's Work shall be subject to the
limitations imposed by any applicable laws and governmental regulations.
Prior to selecting a general contractor to construct the Landlord's Work,
Landlord shall include any contractors designated by Tenant in the group
from which it solicits proposals. Landlord shall act in a financially
responsible and commercially reasonable manner in paying the consultants
and contractors providing services in connection with the Landlord's Work
and in discharging liens which may be filed.
2. DRAWINGS AND SPECIFICATIONS. Landlord and Tenant have approved the
schematic drawings and scope of work specifications for Landlord's Work.
Copies of such documents (the "Schematics") are attached as ATTACHMENT 1.
Landlord, through its architect, Stewart Romberger Associates, shall
furnish drawings and specifications (the "Construction Documents") required
for the pricing and construction of the Landlord's Work and in accordance
with the schedule outlined below. Such documents shall be prepared as the
logical extension and in accordance with the design, quality and
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quantity shown in the Schematics and shall be submitted to Tenant for its
approval. Tenant's approval shall not unreasonably be withheld and shall
be deemed given if not denied in a notice given to Landlord within five
business days of Landlord's request which notice includes a detailed
explanation of noted material deviations of the work described in the
proposed Construction Documents from the scope of work described in the
Schematics. Landlord disagrees with any of the reasons for Tenant's
denial of its approval, Landlord may nevertheless deem that the proposed
documents are approved and proceed to construct the Landlord's Work
including those portions not approved by Tenant, but Tenant may, by
notice to Landlord given within 15 days after Landlord gives notice to
Tenant of its intention to proceed notwithstanding Tenant's disapproval,
subject the issue to arbitration under Article 38 of the Lease. If
Tenant prevails, the arbitrator's award may include a requirement that
Landlord modify the Landlord's Work as necessary to meet Tenant's
objections.
3. CHANGES TO LANDLORD'S WORK. From time to time, Tenant may request changes
to the drawings, plans and specifications for the Project including but
without limitation, all Construction Documents defined in Section 2.
Landlord will review and respond within two (2) business days to Tenant's
request for any reasonable "Minor Change", i.e. reposition a door, and
shall not unreasonably withhold its approval of such request provided there
is no schedule delay or increase in cost for such change and such change
does not violate any Laws, or require an amendment or variance to
applicable zoning ordinances. Such Minor Changes shall be at no cost to
Tenant provided they are at no cost to Landlord. If Landlord reasonably
determines that the Tenant requested change would cause a delay to the
Construction Schedule or increase the cost of Landlord's Work, then
Landlord shall submit to Tenant in writing, within five (5) business days,
or as soon thereafter as it has obtained requisite information from its
architect and contractor, that the requested change is considered a "Major
Change." This notice will explain any additional charges that will be
assessed to Tenant and the period of time, if any, that the change will
materially and adversely affect the approved Construction Schedule. Tenant
shall bear all of the identified additional charges for Major Changes to
Landlord's Work, together with a fee for the Landlord's construction
administration of 4% of the cost of such change. In the event Landlord or
its general contractor is instructed to proceed with such changes without
approval of such increased cost or time delay by Tenant, the amount and
time thereof shall be reasonably determined by Landlord upon completion of
Landlord's Work, subject to Landlord's furnishing to Tenant appropriate
back-up information from Landlord's architect and general contractor
concerning increased fees and costs and construction delays.
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4. PAYMENT OF TENANT'S COST. Tenant shall pay to Landlord all amounts due
under the terms of this Agreement within thirty (30) days after billing by
Landlord. Bills may be rendered during the progress of the Landlord's
Work. Landlord shall not be obligated to continue installation of any
change in the Landlord's Work requested by Tenant if Tenant does not pay
the cost of such change to Landlord when due. If Tenant does not make
timely payment to Landlord, Landlord may, but shall not be obligated to,
advance Landlord's funds to pay Tenant's costs and any funds so advanced
shall be payable to Landlord upon demand as Additional Rent and shall bear
interest as provided in the Lease. Notwithstanding anything contained
herein to the contrary, Tenant may elect to convert all or any portion of
Tenant's Cost to a credit to Rent payable at the beginning of the Initial
Term up to $168,337.50, in which case the amount credited shall be
amortized over the remainder of the Initial Term at nine percent (9%) per
annum and shall be payable by Tenant in equal monthly installments as
Additional Rent. In such event, Tenant and Landlord agree to amend the
Lease with an appropriate adjustment.
5. TENANT'S WORK.
(a) Any Items or work beyond the scope of Landlord's Work for which Tenant
contracts separately (hereinafter "Tenant's Work"), shall be subject
to Landlord's and its contractor's policies and schedules and shall be
conducted in such a way as not to hinder, cause any disharmony with or
delay completion of Landlord's Work. The schedule for Tenant's Work
shall be arranged with Landlord's contractor and no work shall be done
by Tenant which would cause Landlord's contractor to be dependent upon
such work for completion of Landlord's contractor's work or effect the
critical path of Landlord's contractor's work. In no event shall work
involving the roof, sprinkler, plumbing, mechanical, electrical power,
lighting or general life safety systems of the Building be performed
by other than Landlord's approved subcontractors.
TENANT'S WORK -- The following items shall be provided by Tenant at
Tenant's expense:
- Video/graphics laboratory and control room special finishes,
including the auxiliary interior lighting and control system,
surface applied soundproofing, curtain back drop and low voltage
wiring;
- Card-key security system, hardware and control units;
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- Data and phone cable;
- The employee cafeteria kitchen serving counter, stoves, sinks,
built-ins, and kitchen equipment, including the exhaust hood but
not including employee "vending area" which shall be Landlord's
Work.
- Interior signage (except code required fire and life safety signs
which shall be part of the Landlord's Work).
(b) TENANT ACCESS: The Landlord shall provide the Tenant, at no cost to
the Tenant, with reasonable access to the Premises at all reasonable
times during construction, including access for the purpose of the
Tenant installing the Tenant's telecommunication and computer cabling
systems and any other fixtures and equipment. The Landlord shall
provide the Tenant with access to the Building during the Move-In
Period for the purpose of installing the Tenant's furniture, fixtures
and other equipment. The Tenant shall perform its work so as to not
interfere with the timely completion at the construction work being
performed by the Landlord. The Tenant shall not be charged any fee
for parking, the use of the Building's utilities or operating expenses
until the Term Commencement Date. As used herein, the term "Move-In
Period" shall mean the twenty-one (21) day period immediately
preceding the Term Commencement Date.
(c) Not less than ten (10) business days prior to the date Tenant desires
to commence Tenant's Work, it shall give a written request to Landlord
setting forth or accompanied by all of the following:
1. A description and schedule for the work to be performed;
2. The names and addresses of all contractors, subcontractors and
material suppliers who will perform Tenant's Work;
3. The approximate number of individuals, itemized by trade, who
will be present in the Leased Premises;
4. Copies of all drawings and specifications pertaining to that
portion of Tenant's Work;
5. Copies of all licenses and permits which may be required in
connection with the performance of Tenant's Work, and
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6. Certificates of insurance indicating compliance with the
insurance requirements set forth in the Lease.
All of the foregoing shall be subject to Landlord's approval, which
approval shall not unreasonably be withheld or delayed.
(d) Tenant shall be responsible for any hoisting charges incurred in
connection with Tenant's Work and for any expenses incurred by
Landlord due to inadequate cleanup by those performing Tenant's Work.
(e) If, in Landlord's reasonable judgment, any supplier, contractor or
worker performing Tenant's Work hinders or delays, directly or
indirectly, completion of the Landlord's Work by Landlord's contractor
or performs any work which may or does impair the quality, integrity
or performance of any portion of the Building, Landlord shall give
notice to Tenant and immediately thereafter Tenant shall cause such
supplier, contractor or worker immediately to cease working in the
Building. Landlord and Tenant shall then determine what corrective
action should be taken. As Additional Rent under the Lease, Tenant
shall reimburse Landlord for any repairs or corrections to Landlord's
Work or the cost of any delays caused by or resulting from the actions
or omission of anyone performing Tenant's Work.
6. PROGRESS SCHEDULE FOR LEASED PREMISES IMPROVEMENTS. With respect to the
Landlord's Work and Tenant's Work, Landlord and Tenant shall maintain the
following progress schedule, with dates and times for performance for
actions as follows, subject to extension for delays for events ("Excusable
Delays") beyond the control of either party:
ACTION DATE OR TIME
------ ------------
(a) Delivery to Tenant of No later than August 27,
proposed Construction 1993
Documents under Paragraph 2
above
(b) Review by Tenant of drawings 5 business days after
and specifications after submission or
submission or resubmission resubmission
to Tenant by Landlord
(c) Response by Tenant to 5 business days after
Landlord or its architect's request
request for additional
information
(d) Construction start date No later than September
13, 1993. Unless delay
caused by Major Change
requested or approved by
Tenant.
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(e) Commencement of Tenant's December 21, 1993 or the
move-in as per Lease number of business days
Section 4.02(6) after December 21, 1993
for which Tenant has
approved construction
delays or reasonable
delays which are a
result as described in
Paragraph 8 below.
7. AVAILABILITY OF LANDLORD'S CONSTRUCTION INFORMATION. Landlord shall, upon
request by Tenant, cause to be made available for inspection by Tenant all
information relating to construction of and changes to the Landlord's Work
requested by Tenants including, but not limited to, contractor bids, change
orders, cost reports, applications for payment and other relevant backup
information and records with respect to such construction.
8. COMPLETION; TENANT DELAY. If Landlord shall be delayed in achieving
Substantial Completion of the Landlord's Work as a result of:
(i) Tenant's failure to comply with the progress schedule in paragraph 6;
or
(ii) Changes requested by Tenant in the scope of Landlord's Work from that
set forth in the Schematics or changes to the Construction Documents
requested by Tenant after approval thereof pursuant to paragraph 2 which
cause an actual schedule delay (including without limitation delays caused
by responding to or implementing changes which are requested but not
subsequently approved by Tenant); or
(iii) Any interruption or interference in Landlord's construction of
the Landlord's Work caused by Tenant, its contractors or its vendors; or
(iv) Tenant's failure to timely pay any amounts which Tenant is obligated
to pay under this Agreement; or
(v) Any other act, neglect, failure or omission of Tenant, its agents,
employees or contractors which delays the progress of achieving Substantial
Completion (items (i) through (v) being collectively referred to as "Tenant
Delays");
then Landlord shall give Tenant notice thereof and the date upon which the
payment of scheduled Annual Rent under the Lease is to commence shall not
change unless there are any additional days to increase the date for
Landlord's failure to meet the Substantial Completion Date. There shall be
no delay in start of Rent payable by Tenant for Tenant Delays. If
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Tenant disputes Landlord's claim that there has been a Tenant Delay,
Tenant shall have the right to submit the disputed matter to arbitration
in accordance with Article Thirty-Eight within 10 days after Landlord has
given notice to Tenant of any such Tenant caused delay.
9. WARRANTIES. Landlord shall obtain for the benefit of Tenant appropriate
warranties from contractors and material suppliers to repair or replace
materials, workmanship fixtures and equipment incorporated in the
Landlord's Work which appear to be defective within the warranty period.
Landlord hereby assigns to Tenant any and all such warranties.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
respective dates they executed the Lease,
LANDLORD
CP PRIVATE PARTNERS, LP-1,
a Delaware limited partnership
By: Cabot Partners Limited
Partnership, general partner
By: Cabot Realty Advisors
Corporation, general partner
By: /s/ (illegible)
--------------------------------
Its: President
-------------------------------
TENANT
ALTIUM
a California corporation
By: /s/ Lee Amunay
------------------------------------------
Its: President
-----------------------------------------
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<PAGE>
ATTACHMENT 1
TO EXHIBIT C
SECTION 1.01 This is a definition and specification for Landlord's scope of
work (Landlord's Work) including tenant improvements, base
building and site improvements. This Scope of Work is written in
a Construction Specification Institute format. The attached
Exhibits are an integral part of this Attachment 1. Tenant's
Work exceptions are specifically noted herein. Tenant has
approved a final space plan dated July 15, 1993 ("Attachment
1-C.1"). Attachment 1-C.1 is the controlling document in the
event of any conflict with any other specification or attachment
referenced herein.
SECTION 1.02 CODES
All work is to conform to all pertaining federal, state and local
laws, codes, regulations and requirements of regulatory public
agencies. Such codes include but are not limited to:
Uniform Building Code
California Administrative Code
Division of Industrial Safety, Safety Orders (CAL/OSHA)
Title 24, Building Standards (CAC)
Uniform Mechanical Code
Uniform Plumbing Code
National Fire Protection Association
National Electrical Code
State and Local Public Health Codes
Americans with Disabilities Act
SECTION 2. SITE WORK
A. (1) Existing paving to be patched, slurry coated and
restriped.
(2) Stamped concrete to be constructed at entrance parking
area, see Attachment 1-A.
B. (1) Landscaping shall be refurbished. New landscaping
shall be added along the south property line. All
landscaping shall be provided with an irrigation system
appropriate to the plantings. The landscape plan shall
be approved by Altium and included as a lease exhibit.
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(2) A ten (10) foot high split face or equal wall shall be
constructed along the south property line from the
southeast intersection with the PSD (Burbank Public
Services Department property with a street address of
2030 N. Hollywood Way, Burbank) property to a point
where the Landlord's wall meets the north-south PSD
wall near the southwest intersection of the PSD
property.
(3) Front landscaping to include garden effect with berm/
wall to obscure roadway, see Attachment 1-A.
(4) Fence at rear of parking lot (east property line) to be
replaced by a 6' chain link fence with slats from the
southeast intersection of the PSD property, north to
the southeast corner of the Pacific Avenue access.
Fence at north end of rear parking lot to have slats.
C. An outdoor patio eating area will be built to include a
driveway perimeter wall to obscure view from parking lot and
to provide landscaping with trees to provide shade. The
paved eating area to be 750 S.F. minimum, see Attachment
1-A.
D. Demolition: The existing mezzanine, approximately 11,000
S.F. (excluding the portion of the mezzanine and the
adjoining stairs above the existing central restrooms) is to
be demolished in such a way to minimize damage to existing
building systems. All other constructed elements not
included in the new design are to be demolished.
SECTION 3. CONCRETE
A. Existing concrete tilt-up panels to be cut and reinforced to
include windows. Score lines to be depicted on Hollywood
Way elevation and not on the south elevation. Example of
size of typical openings to be included as an exhibit to the
lease, see Attachment 1-B.
B. The facade along Hollywood Way to be improved to eliminate
the existing river rock surface. The facade is to have a
three dimensional design as depicted on exterior elevation
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drawings approved by Altium and attached as Attachment 1-B.
C. Existing concrete slab to be trenched, dowelled and filled
as required to provide electricity and data cable ducts to
systems furniture and for under floor plumbing as required.
D. Existing depression for pre-existing computer room to be
filled to form a concrete slab level with the surrounding
slab.
E. The existing concrete slab is to be patched and repaired.
Existing floor materials and other foreign matter are to be
removed to the original concrete.
SECTION 4. MASONRY See Attachment 1-A and Section 2 and 3.
SECTION 5. STRUCTURAL STEEL AND MISCELLANEOUS METALS
A. Structural steel as required to frame window openings in
exterior tilt-up concrete walls.
B. All columns from the demolished mezzanine to be removed down
to slab level to provide a flat even surface.
C. Decorative steel on exterior per approved elevation
drawings, see Attachment 1-B.
D. Lockable chain link, 6' gate to be added to rear driveway
entrance from Pacific Avenue subject to the approval of
governmental agencies.
SECTION 6. CARPENTRY/MILLWORK
A. Plastic laminate veneered millwork required in the following
areas:
Executive conference room pantry
Vending area coffee counter with uppers and lowers
Customer center
Phone room counters
Customer center coffee counter uppers and lowers
Locker/restroom sink counter, make-up counter
2 Coffee/satellite mail rooms including uppers and lowers
Janitorial closets - single shelf
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Employee service area of cafeteria (vending area)
B. An allowance of $40,000 is to be provided by Landlord for
fabrication and installation of solid ash with cherry stain
trim and ash veneer millwork required in the following
areas:
Executive Waiting Area - trim details as required
Executive Reception Desk
Executive Conference Room - cabinets, chair rail, base,
other trim as required
Private Executive Conference Room - Chair rail, base, other
trim as required
Executive Area - Trim and details as required
Main Lobby - reception desk, product display pedestals, trim
as required in design
Main Conference Room - built in supply cabinets
Display rail on one wall of each conference room
C. All cabinetry to be built to applicable AWI and WIC quality
standards
D. All walls to support millwork to have blocking
E. Rain forest wood products, such as mahogany, shall not be
used.
F. Tenant's Work will include cafeteria seating areas:
- Banquettes
- Condiment Counter
- Tray Storage
- Trash Enclosure
SECTION 7. MOISTURE PROTECTION
A. Existing roof to be patched and repaired as per
recommendations of roofing report, Attachment 1-F. Roof
repairs to be inspected by independent agency or author of
roofing report.
B. All roof penetrations and wall penetrations to be flashed,
caulked and sealed.
SECTION 8. DOORS, WINDOWS & GLASS
A. All exterior doors at main lobby, cafeteria and employee
entrance to be glass doors in aluminum
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frames suitable for automatic security controls. All other
exterior doors to be steel doors and frames.
B. All interior doors to be cherry stained ash veneered solid
core doors 8'0" high in aluminum frames. All offices to
have 18" wide full height sidelights. Executive offices and
private executive conference room to have glass walls. All
wood doors to be factory finished.
Exception: Doors from main lobby to adjacent departments
may be "herculite" type glass doors as determined in design.
Interior fire doors to be held in open position in wall
pockets by magnetic hold-opens triggered by local dedicated
smoke detectors.
C. Window systems to be installed in new openings in exterior
tilt-up panels.
D. Other interior windows to be installed as required by
design, including:
5' x 5' one way glass window in the Human Factors Lab.
5' high glass windows between Control Room and Computer
Room, Printer room, and hallway (per Attachment 1-C)
E. Exterior window glass will match existing glass on south
elevation. The front glass on the west side of building
will be replaced with the building standard glass.
F. Relocate revolving door from present ALTIUM building to
south employee entrance, subject to governmental codes.
Installation per Attachment 1-C.
SECTION 9. FINISHES
A. Painting:
All interior corridors and open office areas to have
"Toll-o-flect" (or equivalent) painted walls. Lobby and
display/exhibit area to have "Zolatone" painted walls.
Employee entrance, and cafeteria to have Toll-o-flect or
equal. All gypboard surfaces in the following rooms to be
gloss or semi gloss as required:
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Executive Conference Room Pantry
Servery
Kitchen
Vending Area
Coffee/Satellite Mail Rooms
Janitorial Storage & Closets
Bathrooms, Shower & Locker Rooms
All Other Gypboard Surfaces to have Satin Finish, all paint
on gypboard to have minimum 1 coat of primer and two coats
of paint. Landlord to touch up painted and stained surfaces
as required following the Tenant's move into the Building.
B. An allowance of $20,100 is to be provided by Landlord for
fabric wallcovering to be included in:
Executive Offices
Private Executive Conference Room
Executive Waiting/Reception Area/Adjacent Hallways
Executive Conference Room Executive Conference Room Foyer
Sound absorbent wall covering to be included in
testing/plotter room and graphic video lab.
C. The following rooms to have ceramic tile finishes:
Kitchen & Servery as required by Health Department - floors
and base
New Restrooms - Floors and walls up to same height as
existing restrooms
Showers - Floors and Walls
Locker Rooms - Floor area adjacent to shower and sinks
Cafeteria seating area walkways (An allowance of $7.00 per
square foot to be provided by Landlord)
D. Lobby to have "syndicrete" or tile flooring.
E. Warehouse & janitor closets to have painted concrete floors.
F. Carpet: Areas shown on Attachment 1-E.
(1) Executive area to have Bentley Kings Road premiere
edition
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(2) All corridors to have Collins & Aikman Sisal weave 18"
x 18" carpet tiles.
(3) All generic office areas to have carpet per Attachment
1-E.
(4) Cafeteria seating area
(5) Locker Room dry area to have indoor/outdoor type carpet
tiles
(6) Vinyl 12" x 12" flooring required in some auxiliary
areas per Attachment 1-E.
G. Acoustical ceiling: Areas shown on Attachment 1-D.
(1) General office area tile: 2' x 2' USG auratone, omni-
fissured, white; grid: USG, Donn Finezine white with
white reveals (blue reveals in executive conference
room).
(2) Open work station area tile: Armstrong "nubby" 1" thick
foil backed with regular edge 2' x 2' or equal; grid:
same as above.
(3) Auxiliary areas tile: 2' x 4' auratone omni fissured,
white; grid: Armstrong prelude 15/16" T-bar or equal.
H. Cafeteria Ceiling: Areas shown on Attachment 1-D.
Hunter Douglass, 12" cell frame module with 4" cell inset.
I. Ceiling height to be minimum 10'-0" throughout offices.
Open workstation areas to have raised portions to create
interest. Open office areas without visual contact to
outside light to have raised simulated skylights, see
Attachment 1-D.
J. Corridors to have gypboard ceilings or acoustical per H(1)
above.
K. An Allowance of $5,000 is to be provided by Landlord for
horizontal element at 8'0" A.F.F. ("Boston Bumper").
SECTION 10. SPECIALTIES
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A. Signage: Building sign on feature at entry per Attachment
1-B.
B. Raised access flooring to be in operations equipment room,
printer room, and control room. Stairs and ramp per plan.
C. All conference rooms to have built-in marker boards.
D. Main conference room to have an 3 operable walls, with an
STC rating of 50. The total linear feet is to be 60 feet.
The height is to be 10 feet.
SECTION 11. EQUIPMENT
A. All conference rooms to have electric roll down projection
screens. Three such screens can be removed from Altium's
current premises and reinstalled in new facility. One to be
reused from existing Hollywood Way facility. Five others to
be furnished by Tenant and installed by Landlord.
B. Residential Appliances:
(1) To be supplied by Tenant and installed by Landlord: All
coffee areas, the vending area and the executive pantry
to have a microwave and a refrigerator with ice maker.
The executive pantry to have one dishwasher and garbage
disposal. The vending area to have under counter
freezer and under counter ice maker.
(2) To be supplied and installed by Landlord: One
dishwasher and garbage disposal in Executive Pantry.
SECTION 12. FURNISHINGS
A. All exterior windows to have Levelor or equal 3-1/2" wide
8050 white vertical perforated PVC blinds. Percentage of
perforation to be chosen by Altium.
SECTION 15. MECHANICAL SYSTEMS
A. Heating and Air Conditioning Systems
(1) Existing Systems Inspection and Servicing:
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The existing heating, ventilating and air conditioning
systems and equipment shall be tested for proper operation,
serviced and repaired as necessary to meet the manufacturers
specifications. This includes all chillers, cooling towers,
heat pumps, air conditioners, exhaust fans and all
associated controls, ductwork pumps, valves and accessories.
Inspections, testing and repairs shall include, but not be
limited to:
(a) All leaks, significant corrosion and fouling shall be
eliminated from equipment, piping and ductwork
(b) Coils shall be inspected and cleaned, where necessary.
(c) Chiller compressors shall be inspected and fully
serviced. All leaks shall be repaired and belts
replaced as necessary.
(d) Air handlers shall be inspected, tested and adjusted
for proper airflow and static pressure. Air handler
sensors and controls shall be inspected, adjusted and
replaced if necessary. Filters shall be replaced. All
bearings shall be serviced or replaced as necessary.
All belts shall be inspected and replaced as necessary.
(e) All exhaust fans shall be inspected and tested for
proper operation. All bearings shall be serviced and
worn belts replaced. Visible corrosion shall be
mechanically removed and primer and paint re-applied as
necessary.
(f) All equipment, dampers, valves and controls shall be
checked and adjusted to proper manufacturers
specifications or design settings and repaired or
replaced as necessary.
(g) Pneumatic system compressors shall be checked for leaks
and fully serviced and adjusted. Pneumatic tubing,
thermostats, valves and other associated controls shall
be checked for leaks and properly adjusted. Repair or
replace as necessary.
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(2) Tenant Improvement Requirements:
The design and installation of the heating, ventilating and
air conditioning tenant improvements shall meet the
following requirements:
(a) The design shall provide systems of sufficient capacity
to be capable of maintaining 78 degrees F. maximum on
the cooling cycle within all spaces with a minimum of
74 degrees F. during the heating cycle and during off
schedule hours.
(b) The design shall allow for all personnel, equipment,
lighting, solar, exterior and all miscellaneous heating
and cooling loads. The calculations shall be performed
on a space-by-space basis determining the individual
loads per space and the associated required airflow for
sizing volume control dampers, ductwork, diffusers,
grilles, etc. as well as block loads for determining
the HVAC equipment capacities required. Equipment Heat
loads to be provided by Tenant, see Attachment 1-G.
(c) The HVAC tenant improvements shall be designed and
installed with Carrier Variable Air Volume, Variable
Temperature (VAVVT) volume control dampers, by pass
dampers, perimeter reheat coils (if applicable) and
electronic controls or an equivalent variable air
volume system suitable for use with the existing
constant volume packaged rooftop heat pump units.
Zoning requirements and the number of zones shall be as
required to meet the performance criteria set forth in
this Section 2(a).
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(d) The HVAC system tenant improvements for the new
computer room shall be a stand alone system(s)
dedicated to serving only the computer room with
sufficient capacity to meet all anticipated computer
room loads per computer equipment list provided by
Altium, see Attachment 1-H, with a spare capacity of
20% minimum. The system shall be capable of
maintaining a minimum computer room temperature of 68
degrees F. with the maximum temperature not to exceed
78 degrees F. and a humidity range of 10%-70%. The
system(s) shall be connected to the emergency
electrical power system, if available. In addition to
the stand alone system, the computer room shall be
provided with a conditioned air supply from one of the
building systems of sufficient capacity to maintain a
computer room temperature of not greater than 78
degrees F. should the dedicated stand alone system
fail. This building supply shall also provide the
required minimum fresh air for ventilation for the
computer room at all times.
(e) The minimum outdoor air supply rates shall not be less
than 0.15 CFM/SPSF or 20 CFM/person outdoor air,
whichever is greater. All HVAC units over 25 tons to
have economizer cycles.
(f) The HVAC shall be capable of cooling a process load
(personal computers) in every workstation. The
planning load for each workstation is 430 watts, see
Attachment 1-G.
(g) The systems serving general office areas shall be
equipped with 30% efficiency filters, and the computer
room system shall be equipped with 50% efficiency
filters, rated in accordance with the atmospheric dust
spot method per ASHRAE standard 52, "method of testing
air cleaning
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devices used in general ventilation for removing
particulate matter."
(h) Exhaust hood and integral fire suppression system
to be furnished by Tenant and installed by
Landlord for cooking area in cafeteria kitchen.
Landlord will be responsible for all ducting from
the hood.
B. Plumbing
Hot and cold water to be supplied to all coffee rooms,
executive pantry restrooms, cafeteria and vending area.
Kitchen to have grease trap and 3 floor sinks as required in
kitchen vendor design. Janitor closets and janitor storage
to have a total of 3 floor height mop sinks.
SECTION 16. ELECTRICAL
A. Components -- Service switchboards, distribution boards,
transformers, generator, feeders, panelboards, controls,
switches/disconnects branch circuits, etc.
B. Complete systems of conduit, outlets and cabinets or
terminal backboards for the following systems:
(1) Telephone
(2) Computers
(3) CCIV Surveillance
(4) Card Access Systems
C. Branch circuit wiring for:
(1) HVAC/Plumbing equipment
(2) Lighting Fixtures and controls
(3) Convenience outlets
(4) Electrically-operated equipment furnished under other
sections of the work
(5) Kitchen/Food service, refrigeration, etc.
(6) Vending machines
(7) Emergency egress/exit lighting
(8) Exterior and landscape lighting
D. Convenience outlets
(1) In all public corridors and lobbies, spaced at not more
than 30 foot centers.
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(2) In all mechanical and electrical equipment areas.
(3) As required for food service and vending equipment.
(4) Two convenience outlets in each P-4 size office (10' x
15'); three in each P-3 office; four in each P-2 and
targer.
(5) Each P-2, 3 & 4 office to have two dedicated circuits
with a common isolated ground.
(6) All workstations will have a tenant installed power
distribution system. System to be hardwired to
junction mounted in wall where stations abut a wall or
column or a floor monument mounted to existing or new
underfloor raceway.
(a) All MIS and development workstations to have two
convenience duplex outlets and three dedicated
duplex outlets on a single 20 amp rated circuit
grounded to the conduit for P.C's.
(b) All other workstations to have three convenience
duplex outlets and one dedicated outlet on a
circuit shaped with two other workstations for
P.C.'s.
(7) Appliances specified in other sections.
(8) Altium will provide equipment list for all Tenant
supplied equipment other than standard P.C.'s
accommodated by paragraph 6. including copiers,
printers, plotters, fax machines, etc., see Attachment
1-G.
E. Lighting in general will comply with California
Administrative Code, Title 24, Part 6 Article 2 "Energy
Conservation Standards for New Non-Residential Buildings",
Division 9 and still provide standard illumination levels.
(1) Lighting fixtures in all areas accessible to the public
will be as required by the interior designer and/or
Architect. The
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following lighting fixtures are to be used:
(a) General open office area lighting to be LC1
PI-314-T8-SP35-ELB-RF-277 Matte White. Pendant
mounted light fixtures to achieve minimum 30 foot
candles at the work surface.
(b) Private offices, Conference Rooms to have recessed
four lamp 2' x 4' deep cell parabolic fluorescent
fixtures or equivalent per Attachment 1-D.
(c) Other light fixtures to be specified in Attachment
1-D.
(2) Switching and controls
(a) Rooms per interior design requirements
(b) General areas per Title 24.
(c) Exterior and parking by automatic time clock
control.
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SUBLEASE EXHIBIT B
LESSOR'S CONSENT
September 26, 1994
CP Private Partners LP-1
c/o Cabot Partners Limited Partnership
Sixty State Street
Boston, Massachusetts 02109
Attention:
Sublease: Dated as of September 26, 1994, between International
Business Machines Corporation ("IBM") and TeleTech
Telecommunications, Inc. ("Sublessee")
Sublease Premises: Portion of the Building at 2130 N. Hollywood Way, Burbank,
CA 91504
Prime Lease: Dated July 16, 1993, between CP Private Partners LP-1
and IBM, successor-in-interest to Altium, a California
corporation.
Gentlemen:
International Business Machines Corporation ("IBM") is hereby requesting your
consent to the proposed subletting of the Sublet Space, more particularly
described in the Sublease attached, subject to and upon the following terms and
conditions to which IBM and Sublessee expressly agree. The phrases "You" and
"Master Landlord" are alternatively used herein to refer to the "Landlord" under
the Prime Lease.
1. This subletting and the Sublease are and shall be subject and
subordinate at all times to all of the covenants, provisions and conditions of
the Prime Lease and of this consent. Neither IBM nor the Sublessee shall do or
permit anything to be done in connection with this subletting to which will
violate the Prime Lease. In the case of any conflict between the provisions of
the Prime Lease and the provisions of the Sublease, the provisions of the Prime
Lease shall prevail unaffected by the Sublease. Any breach or violation of any
provisions of the Prime Lease by Sublessee shall be deemed to be, and shall
constitute, a breach or violation by IBM of such provisions.
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2. This consent is limited to this subletting to Sublessee only, and
nothing contained herein shall be deemed a waiver of Master Landlord's right
under the Prime Lease to approve or disapprove in writing any further
subletting by IBM or Sublessee of any part of the premises described in the
Prime Lease, or approve or disapprove assignment of the Prime Lease or the
Sublease.
3. Although the Sublease has been delivered to you and for your
information, nothing contained therein or herein shall be construed (a) as
consent, approval or ratification by you of any of the specific provisions of
the Sublease or as a representation or warranty by you, or (b) to modify, waive
or affect any of the provisions, covenants or conditions set forth in the Prime
Lease, and you shall not be bound or estopped in any way by any of the
provisions of the Sublease. The Sublease shall be subject and subordinate at all
times to the Prime Lease and to all of the covenants and conditions of the Prime
Lease and of this consent.
4. Neither the Sublease nor your consent to this subletting shall release
or discharge IBM from any of IBM's liability under the Prime Lease. IBM shall
continue during the term of the Prime Lease, including any renewals or
extensions thereof, as provided for under the Prime Lease, to be liable and
responsible for the due performance of all of the covenants, provisions and
conditions set forth in the Prime Lease to be performed by Tenant thereunder. In
addition, to the extent covenants, provisions and liability under the Prime
Lease survive the expiration or earlier termination of the Prime Lease, IBM
shall continue to be liable and responsible for same. IBM shall also be
responsible for all charges incurred by or imposed upon Sublessee by Master
Landlord for services rendered and materials supplied to Sublessee or the Sublet
Space if not paid by Sublessee. Nothing herein contained is intended to waive
any breach of the Prime Lease or any of your rights thereunder, or to enlarge or
increase your obligations thereunder.
5. This consent shall not be assigned or transferred by IBM or Sublessee.
6. Subject to paragraph 7 below, upon the expiration or earlier
termination of the term of the Prime Lease, or in case of the surrender of the
Prime Lease by IBM to you, the Sublease and its term shall expire and come to an
end as of the effective date of such expiration, termination or surrender, and
Sublessee shall vacate the Sublet Space on or before such date in accordance
with the provisions of the Prime Lease. If Sublessee fails to so vacate, you
shall be entitled to all of the rights and remedies available to you against IBM
and Sublessee under the Prime Lease and at law or in equity, by reason of such
holdover.
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7. If IBM defaults under the Prime Lease you may, at your option and
without terminating the Sublease, elect to collect from Sublessee (and Sublessee
shall pay you on demand) the rent, additional rent and other sums then due or
thereafter becoming due and payable from Sublessee to IBM pursuant to the terms
of the Sublease, which payments to you shall constitute partial rent payments
under the Prime Lease, but shall not affect or modify the relationship between
the parties as Sublessor and Sublessee and Landlord and Tenant under the
Sublease and Prime Lease or, except to the extent of sums actually received by
you from Sublessee, affect or modify IBM's liability or obligations under the
Prime Lease. If the Prime Lease shall expire or terminate during the term of the
Sublease for any reason other than condemnation or destruction by fire or other
cause, or if IBM shall surrender the Prime Lease to you during the term of the
Sublease, you may, at your option elect to continue the Sublease (without any
additional or further agreement of any kind on the part of the Sublessee) with
the same force and effect as if you as Landlord and Sublessee as Tenant had
entered into a lease as of the effective date of such expiration, termination or
surrender for a term equal to the then remaining term of the Sublease, in which
case Sublessee shall attorn to you and become your tenant pursuant to the
covenants, provisions and conditions of the Sublease, however, such adoption and
attornment shall not release IBM from the performance of what would have been
"Tenant's obligations under the Prime Lease if the Prime Lease had not so
expired or been so terminated or surrendered, and in no event shall you be (a)
liable for any act or omission by IBM, (b) subject to any offsets or defenses
which Sublessee had or might have against IBM, (c) bound by any rent or
additional rent or other payment paid by Sublessee to IBM in advance (except to
the extent you actually receive the same), or (d) bound by any amendment to the
Sublease not consented to by you. You shall give at least three (3) days'
written notice to IBM and Sublessee of your exercise of either or both of the
options set forth in this Paragraph 7 in the manner provided in the Prime Lease
for the giving of notices.
8. Any notice or communication which any party hereto may desire or be
required to give any other party under or with respect to this consent shall be
given in the manner provided in the Prime Lease for the giving of notices and
shall be addressed to such other party as follows:
TO IBM: IBM Real Estate Services
355 South Grand Avenue
12th Floor
Los Angeles, CA 90071
Attention: Program Manager
with a copy sent simultaneously to:
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IBM Real Estate and Procurement Services
Old Orchard Road
Armonk, NY 10504
Attention: Associate General Counsel
Real Estate and Procurement
Services
until otherwise directed in writing by Sublessor.
TO MASTER LANDLORD: As set forth in the Prime Lease
TO SUBLESSEE: TeleTech Telecommunications, Inc.
2130 North Hollywood Way
Burbank, CA 91504
Attention: Mr. Kenneth D. Tuchman
with a copy sent simultaneously to:
Ahn & Lee
3435 Wilshire Boulevard
Suite 2000
Los Angeles, CA 90010-2006
Attention: Charles Ahn, Esq.
or at such other address as any other party hereto may have designated by notice
given in accordance with the provisions of this Paragraph 8. Rejection or other
refusal to accept or the inability to deliver because of a changed address of
which no notice was given shall be deemed to be receipt of the notice, demand or
request sent.
9. IBM and Sublessee hereby represent and warrant that the Sublease and
the documents referenced therein contain the entire agreement of the parties
thereto with respect to the subject matter thereof. IBM and Sublessee agree that
no modification or amendment of the Sublease, that requires the approval of
Master Landlord, will be made without the prior written consent of Master
Landlord.
10. Any rights and remedies of Sublessee, if any, will be solely against
IBM and not against Master Landlord.
11. This consent shall be construed in accordance with the laws of the
State of California and contains the entire agreement of the parties hereto with
respect to the subject matter hereof and may not be changed or terminated
orally or by course of conduct.
12. This consent shall be incorporated in the Sublease.
B-4
<PAGE>
Your consent to this subletting shall not be effective until this letter is
signed by you and delivered to IBM and until original counterparts, executed by
duly authorized representatives of IBM and Sublessee, have been delivered by IBM
and Sublessee, respectively, to you. This consent may be executed in counterpart
and all counterparts shall together constitute one and the same instrument.
Therefore, if you agree to the foregoing covenants, provisions and conditions,
kindly sign below where indicated and return the two (2) originals of this
letter to IBM, attention: Paul Dimeo, Program Manager. Please retain this letter
for your file.
Very truly yours,
International Business Machines WITNESS:
Corporation, a New York corporation
By:
--------------------------- ------------------------------
- --------------------------------------------------------------------------------
Title:
------------------------
Accepted this day of September, 1994.
Accepted this day of September, 1994.
TeleTech Telecommunications, Inc.,
a California corporation
WITNESS:
By:
--------------------------- ------------------------------
- --------------------------------------------------------------------------------
Title:
------------------------
B-5
<PAGE>
Accepted this day of September, 1994.
CP Private Partners LP-1, Witness:
a Delaware limited partnership
By: Cabot Partners Limited Partnership
Its: General Partner
------------------------------
By: Cabot Realty Advisers Corporation
Its: General Partner
By:
----------------------
Title:
-------------------
B-6
<PAGE>
SUBLEASE EXHIBIT C
FLOOR PLAN OF SUBLEASE PREMISES (AND BUILDING PARKING AREA)
[Exhibit B consists of a sketch of the premises, including the parking area,
subject to the sublease.]
C-1
<PAGE>
SUBLEASE EXHIBIT D
MEMORANDUM OF SUBLEASE COMMENCEMENT
By this MEMORANDUM dated ________________, 199__, the parties to the
Sublease dated as of September 26, 1994 made by and between INTERNATIONAL
BUSINESS MACHINES CORPORATION, as Sublessor and TELETECH TELECOMMUNICATIONS,
INC., as Sublessee, agrees as follows with respect to the Sublease Premises
located at 2103 N. Hollywood Way, Burbank, California 91504:
1. The Sublease Premises have been delivered to and accepted by
Sublessee.
2. The Commencement Date of the Sublease is _____________, 1995. The
term of the Sublease shall expire on January 14, 2000, unless sooner
terminated pursuant to the
Sublease.
IN WITNESS WHEREOF, this MEMORANDUM has been executed by the duly
authorized representative of Sublessor and Sublessee as of the date first above
written.
Sublessor:
INTERNATIONAL BUSINESS MACHINES CORPORATION
By:
------------------------------------
Paul Dimeo, Program Manager
IBM Real Estate Services
Sublessee:
TELETECH TELECOMMUNICATIONS, INC.
By:
--------------------------------
Title:
--------------------------------
D-1
<PAGE>
SUBLEASE EXHIBIT E
SUBLESSOR'S IMPROVEMENT LETTER
This Sublessor's Improvement Letter supplements the Sublease Agreement
("SUBLEASE") dated as of September 26, 1994, executed concurrently herewith, by
and between INTERNATIONAL BUSINESS
MACHINES CORPORATION, as Sublessor, and TELETECH TELECOMMUNICATIONS, INC., as
Sublessee, covering certain premises described in the Sublease (the "SUBLEASE
PREMISES"). Terms having
their initial letters capitalized, but not otherwise defined herein, shall have
the meanings ascribed to them in the Sublease.
The parties hereby agree as follows:
1. BASE BUILDING DEFINITION. Sublessor shall construct the Building (except
for the parking area layout) in accordance with the plans dated August 30, 1993,
prepared by ISI and attached to this Sublessor's Improvement Letter as Schedule
1 (collectively referred to as the "BASE BUILDING IMPROVEMENTS").
2. PLANS AND SPECIFICATIONS.
2.1 AGREEMENT ON PLANS AND SPECIFICATIONS. Sublessee and Sublessor have
agreed on complete construction documents for the Sublease Premises, which are
plans and specifications for the layout, improvement and finish of the Sublease
Premises consistent with the design and construction of the Base Building
Improvements (collectively, "CONSTRUCTION PLANS"). All improvements required by
the Construction Plans that are not part of the Base Building Improvements shall
be called "SUBLESSEE IMPROVEMENTS".
2.1.1 On or before September 26, 1994, Sublessor shall submit to
Sublessee a written estimate ("ESTIMATE") of the cost of all Sublessee
Improvements, including the general contract, subcontract, purchase order, or
labor and materials cost of the Sublessee Improvements, plus the general
contractor's fee and general conditions charges, if any. The Estimate will
include cost estimates for the following items: (a) the HVAC control system and
2 1/2 ton HVAC unit for the kitchen, (b) the cost of metal locking thermostat
covers, (c) the cost of upgrading the telecom cabling and jacks from Category 3
to Category 5, (d) the additional cost of Ledalite pendant light fixtures above
parabolic light fixtures for the Sublease Premises, (e) the additional cost of
any other item to be added by Sublessee to the Construction Plans without a
corresponding cost saving deletion after the September 26, 1994,
Construction Plans have been completed and approved by both parties
(collectively, the "TELETECH UPGRADES").
E-1
<PAGE>
2.1.2 If the Estimate is for less than Thirty-Five Dollars ($35.00) per
square foot of rentable Sublease Premises, Sublessee shall have five (5)
business days after its receipt of the Estimate to approve such Estimate. If
the Estimate exceeds Thirty-Five Dollars ($35.00) per square foot of rentable
Sublease Premises (which results in an Estimate greater than $1,574,055.00,
based on a Sublease Premises size of 44,973 square feet), then Sublessee shall
have ten (10) business days after its receipt of the Estimate to coordinate with
Sublessor's architect and contractor, revise the Construction Plans, and approve
of such revised Estimate, if any. Upon Sublessee's approval of the Estimate,
Sublessor shall commence construction of the Sublessee Improvements. Provided
that Sublessor's architect and contractor provide Sublessee with a revised
Estimate within two (2) business days after Sublessee presents its requested
changes to Sublessee's architect and contractor, any delay beyond the time
permitted herein in obtaining Sublessee's approval of the Estimate shall be
deemed a Sublessee Delay.
2.1.3 Construction of the Sublessee Improvements shall be the
responsibility of Sublessor. Sublessor shall be responsible for compliance and
coordination of the Construction Plans with the mechanical and electrical
elements of the Building and compliance of the Sublessee Improvements with all
governmental codes, rules, laws and regulations. Sublessor shall secure the
approval of governmental authorities and obtain all permits required by
governmental authorities having jurisdiction over the Sublessee Improvements,
with Sublessee's cooperation to the extent reasonably required.
2.2 AS-BUILT PLANS. Within sixty (60) days after the occupancy of the
Sublease Premises, Sublessor shall provide to Sublessee a set of "as-built"
plans incorporating all changes and/or revisions to the Construction Plans.
2.3 CONSTRUCTION MONITORING AND PAYMENT RECONCILIATION. Sublessor shall
keep Sublessee fully informed with respect to construction progress and the
costs actually incurred by Sublessor at all times during the construction of the
Sublessee Improvements. As soon as practicable after the Commencement Date,
Sublessor shall prepare and submit to Sublessee a statement showing a complete
cost itemization for the Sublessee Improvements.
2.3.1 Sublessor shall pay for the actual cost of the Sublessee
Improvements ("BUILDOUT COST") (after deducting the actual cost of the TeleTech
Upgrades) up to a maximum of Thirty-Five Dollars ($35.00) per square foot of
rentable Sublease Premises. Sublessee may elect to substitute certain items
with items of equal value provided the Buildout Cost remains unchanged.
E-2
<PAGE>
2.3.2 If the Buildout Cost (after deduction of the actual cost of
the Teletech Upgrades) is less than Thirty Dollars ($30.00) per square foot of
rentable Sublease Premises, then Sublessor shall pay to Sublessee an amount
equal to fifty percent (50%) of the difference between: (a) Thirty Dollars
($30.00) multiplied by the rentable square feet of the Sublease Premises, and
(b) the Buildout Cost (after deduction of the actual cost of the Teletech
Upgrades).
2.3.3 If the Buildout Cost (after deduction of the actual cost of
the Teletech Upgrades) is more than Thirty-Five Dollars ($35.00) per square foot
of rentable Sublease Premises, then Sublessee shall pay to Sublessor the
difference between: (a) the Buildout Cost (after deduction of the actual cost of
the Teletech Upgrades), and (b) Thirty-Five Dollars ($35.00) multiplied by the
rentable square feet of the Sublease Premises within thirty (30) days after
Sublessee's receipt of the cost itemization for the
Sublessee Improvements.
2.3.4 Within thirty (30) days after receipt of the cost
itemization for the Sublessee Improvements, Sublessee shall pay to Sublessor the
actual cost of the Teletech Upgrades after deduction for any cost saving
deletions or substitutions by Sublessee to the Construction Plans.
3. CONSTRUCTION.
3.1 CONSTRUCTION COMMENCEMENT. Following Sublessee's approval of the
Estimate of the cost of all Sublessee Improvements, a contractor or contractors
selected and employed by Sublessor shall commence and diligently proceed to
construct and complete all Sublessee Improvements.
3.2 PUNCH LIST. On or before the date upon which Sublessee occupies the
Sublease Premises, Sublessor shall cause the general contractor to inspect the
Sublease Premises with a representative of Sublessee and complete a written
punch list of unfinished items of Sublessee Improvements prior to Sublessee's
moving into the Sublease Premises. Sublessee's representative shall execute
said punch list to indicate approval thereof.
3.3 WARRANTY. Upon completion of the Sublessee Improvements, Sublessor
represents, warrants, and covenants the following to Sublessee:
3.3.1 The Base Building Systems servicing the Sublease Premises
conform to the Construction Plans, comply with all applicable governmental
codes, rules, laws and regulations, and have received all required permits.
E-3
<PAGE>
3.3.2 The Sublessee Improvements conform to the Construction
Plans, comply with all applicable governmental codes, rules, laws and
regulations, and have received all required permits.
3.3.3 The roof to the Building passed water testing and inspection
within sixty (60) days prior to the Commencement Date and has a remaining
service life beyond the Sublease Term.
3.3.4 Sublessor will cooperate with Sublessee in Sublessee
obtaining the benefit of any warranties or guaranties for the Sublessee
Improvements and for the portion of Base Building Systems
servicing the Sublease Premises. Upon request from Sublessee, Sublessor will
assign any rights under such warranties or guaranties to Sublessee.
4. CHANGES, ADDITIONS OR ALTERATIONS. If Sublessee shall request any change,
addition or alteration in the Construction Plans ("Change Order"), Sublessor
shall, before proceeding with any Change Order, submit to Sublessee an estimate
of the additional costs or savings involved and the period of time, if any, by
which the change will affect the completion date for construction of the
Sublessee Improvements. If Sublessee fails to approve such estimate within five
(5) business days following receipt thereof, the same shall be deemed
disapproved and Sublessor shall not proceed with the Change Order. If Sublessee
approves said estimate within said period, Sublessor shall cause the approved
Change Order to be made. The delay, if any, specified in the approved estimate
by Sublessor shall be considered a Sublessee Delay under Section 5. Sublessor
shall promptly proceed with the Change Order as soon as reasonably practical
after Sublessee's approval of the foregoing estimate by Sublessor.
Notwithstanding the foregoing, Sublessee shall not be responsible for the
additional cost for any Change Order(s) to the extent that other Change Order(s)
result in cost savings to the actual Buildout Cost.
5. DELAY. Sublessee shall be responsible only for, and pay costs and expenses
incurred by Sublessor in connection only with delays in the commencement or
completion of the Sublessee Improvements. The date on which the Sublease
Premises are ready for occupancy in accordance with Section 2.1 of the Sublease
shall be determined without regard to any delay in the commencement or
completion of the Sublessee Improvements described in this Sublessor's
Improvement Letter, caused by (a) Sublessee's failure to approve or disapprove
the Estimate within the time period required herein, or (b) any other delay
requested or caused solely by Sublessee, including delays caused by Change
Orders requested by Sublessee. The foregoing delays are referred to herein and
in the
E-4
<PAGE>
Sublease as "SUBLESSEE DELAY". All other delays (including FORCE MAJEURE
events) shall be deemed delays by Sublessor.
6. REASONABLE DILIGENCE. Both Sublessor and Sublessee agree to use reasonable
diligence in performing all of their respective obligations and duties under
this Sublessor's Improvement Letter and in proceeding with the construction and
completion of the Base Building Improvements and all Sublessee Improvements in
the Sublease Premises.
Sublessor:
INTERNATIONAL BUSINESS MACHINES CORPORATION
By:
---------------------------
Paul Dimeo, Program Manager
IBM Real Estate Services
Sublessee:
TELETECH TELECOMMUNICATIONS, INC.
By:
---------------------------
Kenneth D. Tuchman, President
E-5
<PAGE>
SCHEDULE 1 TO SUBLESSOR'S IMPROVEMENT LETTER
BASE BUILDING IMPROVEMENTS
Page S-1 to Sublessor's Improvement Letter
<PAGE>
SUBLEASE EXHIBIT F
RULES AND REGULATIONS
1. No advertisements, pictures or signs of any sort shall be displayed on or
outside the premises without the prior written consent of Sublessor. This
prohibition shall include any portable signs or vehicles placed within the
parking lot, common areas or on streets adjacent thereto for the purpose of
advertising or display. Sublessor shall have the right to remove any such
unapproved item without notice and at Sublessee's expense.
2. Sublessee shall not park or store motor vehicles, trailers or containers
outside of the Sublease Premises after the conclusion of normal daily
business activity except in approved areas specifically designated by
Sublessor.
3. Sublessee shall not use any method of heating or air-conditioning other
than that supplied by Sublessor without the prior written consent of
Sublessor.
4. All window coverings and window films or coatings installed by Sublessee
and visible from outside of the Building require the prior written approval
of Sublessor. Except for dock shelters and seals as may be expressly
permitted by Sublessor, no awnings or other projections shall be attached
to the outside walls of the Building.
5. Sublessee shall not use, keep or permit to be used or kept any foul or
noxious gas or substance on, in or around the Sublease Premises unless
approved by Sublessor. Sublessee shall not use, keep or permit to be used
or kept any flammable or combustible materials without proper governmental
permits and approvals.
6. Sublessee shall comply with all reasonable requirements of the Sublessor's
insurance underwriters, which do not conflict with its rights under the
Prime Lease.
7. Sublessee shall not use, keep or permit to be used or kept food or other
edible materials in or around the Sublease Premises in such a manner as to
attract
F-1
<PAGE>
rodents, vermin or other pests. Sublessee shall not permit cooking in or
about the Sublease Premises.
8. Sublessee shall not use or permit the use of the Sublease Premises for
lodging or sleeping, for public assembly, or for any illegal or immoral
purpose.
9. Sublessee shall not alter any lock or install any new locks or bolts on any
door at the Sublease Premises without the prior written consent of
Sublessor. Sublessee agrees not to make any duplicate keys without the
prior consent of Sublessor.
10. Sublessee shall park motor vehicles only in those general parking areas as
designated by Sublessor except for active loading and unloading of
containers. Sublessee shall not permit or otherwise allow any portion of
the parking areas, other than those portions designated as loading areas,
to be used for any purpose other than the parking of vehicles no larger
than full sized passenger automobiles or pick-up trucks. Sublessee shall
not unreasonably interfere with traffic flow within the parking area and
loading and unloading areas of other sublessees.
11. Storage of forklift propane tanks, whether interior or exterior, shall be
in secure and protected storage enclosures approved by the local fire
department and, if exterior, shall be located in areas specifically
designated by Sublessor. Safety equipment, including eye wash stations and
approved neutralizing agents, shall be provided in areas used for the
maintenance and charging of lead-acid batteries. Sublessee shall protect
electrical panels and building mechanical equipment from damage from
forklift trucks.
12. Sublessee shall not disturb, solicit or canvas any sublessee of the
Building and shall cooperate to prevent same.
13. No person shall go on the roof without Sublessor's permission.
14. No animals, fish or birds of any kind may be brought into or kept in or
about the Sublease Premises.
F-2
<PAGE>
15. Machinery, equipment, and apparatus belonging to Sublessee which cause
noise or vibration that may be transmitted to the structure of the
Building, to such a degree as to be objectionable to Sublessor or other
sublessees or to cause harm to the Building, shall be placed and maintained
by Sublessee, at Sublessee's expense, on vibration eliminators or other
devices sufficient to eliminate the transmission of such noise and
vibration. Sublessee shall cease using any such machinery which causes
objectionable noise and vibration which cannot be sufficiently mitigated.
16. All goods, including material used to store goods, delivered to the
Sublease Premises of Sublessee shall be immediately moved into the premises
and shall not be left in parking or exterior loading areas overnight.
17. Tractor trailers which must be unhooked or parked with dolly wheels beyond
the concrete loading areas must use steel plates or wood blocks of
sufficient size to prevent damage to the asphalt paving surfaces. No
parking or storing of such trailers will be permitted in the parking area
or on streets adjacent thereto.
18. Forklifts which operate on asphalt paving areas shall not have solid rubber
tires and shall use only tires that do not damage the asphalt.
19. Sublessee is responsible for the safe storage and removal of all pallets.
Pallets shall be stored behind screened enclosures at locations approved by
the Sublessor. If pallets are stored within the premises, storage shall
comply with safe practices as described in [Factory Mutual Loss Prevention
Data Sheet 8-24].
20. Sublessee is responsible for the safe storage and removal of all trash and
refuse. All such trash and refuse shall be contained in suitable
receptacles stored behind screened enclosures at locations approved by
Sublessor. Sublessor reserves the right to remove, at Sublessee's expense
without further notice, any trash or refuse left elsewhere outside of the
Sublease Premises.
21. Sublessee shall not store or permit the storage or placement of goods or
merchandise in or around the common areas surrounding the premises. No
displays
F-3
<PAGE>
or sales of merchandise shall be allowed in the parking area or other
common areas.
22. [Sublessee shall appoint an Emergency Coordinator who shall be responsible
for assuring notification of the local fire department in the event of an
emergency, assuring that sprinkler valves are kept open, and implementing
the Factory Mutual "Red Tag Alert" system including weekly visual
inspection of all sprinkler system valves on or within the Sublease
Premises.]
F-2
<PAGE>
September 26, 1994
Mr. Paul DiMeo
Program Manager
IBM Real Estate Services
International Business Machines Corporation
355 S. Grand Avenue
12th Floor
Los Angeles, 90071-0737
Re: 2130 North Hollywood Way Parking - Letter Agreement
---------------------------------------------------
Dear Paul:
This letter will confirm our understanding that in addition to our parking
rights for the above-referenced property as set forth in that certain Sublease
Agreement made as of September 26, 1994, ("SUBLEASE") between International
Business Machines Corporation, a New York corporation ("SUBLESSOR"), and
Teletech Telecommunications, Inc., a California corporation ("SUBLESSEE"),
Sublessee has certain additional parking rights:
Until such time as Sublessor has other subtenants occupying the Building,
Sublessee has the right to use all the parking spaces available for the Project
except for those parking spaces immediately adjacent to the Building shown on
the parking plan attached hereto as Parking Exhibit A.
Unless a different meaning is clearly expressed in this Letter Agreement,
all terms herein having their initial letters capitalized and used without
definition shall have the meaning ascribed to them in the Sublease.
Very truly yours,
Teletech Telecommunications, Inc., a California
corporation
By: /s/ Kenneth Tuchman
---------------------------
Kenneth D. Tuchman
Its: President
<PAGE>
Mr. Paul DiMeo
International Business Machines Corporation
September 26, 1994
Page 2
Acknowledged and agreed as of September 26, 1994.
International Business Machines Corporation
By: /s/ Paul Dimeo
------------------------------
Paul Dimeo, Program Manager
IBM Real Estate Services
<PAGE>
Exhibit 10.10
AGREEMENT
This Agreement is executed this 16th day of March, 1993, by and between
1700 Lincoln Limited, a Colorado limited partnership, whose address for purposes
hereof is 1700 Lincoln, Suite 1303, Denver, Colorado 80203 (hereinafter
designated "1700"), and TeleTech Telecommunications, Inc., a California
corporation, whose address for purposes hereof is 15355 Morrison Street, Sherman
Oaks, California 91403 (hereinafter designated "TeleTech California") and
TeleTech Teleservices, Inc., a Colorado corporation, whose address is 1700
Lincoln, Suite 1400, Denver, Colorado 80203 (hereinafter designated "TeleTech
Colorado"). TeleTech California and TeleTech Colorado are hereafter jointly
designated "TeleTech."
RECITALS:
WHEREAS, 1700 is the Lessor of certain leased premises under that certain
Lease Agreement between 1700 as Lessor and Apache Corporation, a Delaware
corporation ("Apache"), as Lessee, dated December 4, 1986, and any and all
amendments thereto ("Lease"); and
WHEREAS, Apache and TeleTech are entering into a sublease wherein Apache is
to be the "Sublandlord" and TeleTech is to be the "Subtenant," an executed copy
of which Sublease is attached to this Agreement as Exhibit A ("Sublease"); and
WHEREAS, 1700 and TeleTech as the direct Lessor and the Subtenant desire to
memorialize certain direct agreements between 1700 and TeleTech;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein set forth, 1700 and TeleTech hereby agree as follows:
1. SUBLEASE BY 1700. Upon execution and delivery by Apache and
TeleTech of the Sublease and this Agreement, 1700 will execute and deliver to
Apache the letter attached hereto as Exhibit B.
2. RELOCATION. 1700 hereby agrees that 1700 will not require
TeleTech to relocate from the premises demised to it under the Sublease while
the Sublease remains in effect nor require TeleTech to relocate from the
premises demised to it under the Exhibit C Lease (as defined below) while the
Exhibit C Lease is in effect.
3. PARKING.
(a) APACHE ALLOCATION. On the basis of Apache's representations
to 1700 as to how many of Apache's permits to park ("parking spaces")
in the Garage referred to in the Lease (the "Garage") have heretofore
been
<PAGE>
assigned to third parties, it is hereby acknowledged that Apache has
an allocation of parking spaces under the terms of the Lease on an
unassigned basis in excess of 90 parking spaces for use 24 hours a
day, seven days a week. It is further acknowledged that 90 of those
parking spaces allocated to Apache under the terms of the Lease are
hereby allocated to and taken by TeleTech. 1700 and TeleTech agree
that the charge per parking space per month for each of those parking
spaces shall be $60.00 or, if greater, 80% of the then current regular
charges made from time to time to other tenants of the building
("Building") owned by 1700 which is the subject matter of the Lease,
and TeleTech hereby agrees to pay such charges to 1700 in advance on a
monthly basis. The only parking spaces which Apache is making
available to TeleTech are the 90 referred to above in this
subparagraph (a).
(b) ADDITIONAL SPACES. 1700 and TeleTech agree that 1700 shall
make available to TeleTech up to an additional 90 parking spaces on an
unassigned basis in an area of the Garage to be designated by 1700 for
use 24 hours a day, seven days a week. The exact number of such
parking spaces shall be as elected in writing by TeleTech from time to
time on at least one month's prior notice to 1700. TeleTech hereby
agrees to pay to 1700 in advance on a monthly basis the sum of $27.50
per space for each of such parking spaces. It is also agreed that
1700 from time to time may terminate any or all of these parking
spaces on one month's written notice to TeleTech.
(c) ADDITIONAL SPACES FROM 7:00 P.M. TO 6:00 A.M. AND ON
SATURDAYS, SUNDAYS AND HOLIDAYS.
(i) Provided that TeleTech has elected by at least one
month's prior written notice to 1700, then 1700 further agrees to make
available to TeleTech, beginning on September 1, 1993, up to 180
parking spaces, but only on Levels 10 and above of the Garage, on an
unassigned basis for use from 7:00 p.m. to 6:00 a.m. (Mountain
Standard Time or Mountain Daylight Savings Time, whichever is
applicable), Monday through Friday, and 24 hours per day on Saturdays,
Sundays and holidays as defined in the Exhibit C lease, at a cost per
month, in total, of $1,000 regardless of how many of said 180 spaces
TeleTech uses from time to time. TeleTech hereby agrees to make said
payments to 1700 in advance on a monthly basis.
(ii) Provided that TeleTech has elected by at least one
month's prior written notice to 1700, then 1700 further agrees to make
available to TeleTech, beginning on December 1, 1993 or on the first
day of any month
2
<PAGE>
thereafter during the term of the Sublease, up to 300 parking spaces,
on the Levels of the Garage and for the hours and on the days set
forth above in subparagraph (c)(i), at a cost per month, in total, of
$1,500 regardless of how many of said 300 spaces TeleTech uses from
time to time. TeleTech hereby agrees to make said payments to 1700 in
advance on a monthly basis. If TeleTech makes the election permitted
by this subparagraph (c)(ii) it cannot thereafter revert to the number
of spaces referred to in subparagraph (c)(i). Parking spaces taken
under this subparagraph (c)(ii) are in lieu of those taken under
subparagraph (c)(i) and TeleTech shall then have no further rights
under subparagraph (c)(i).
(d) Anything in subparagraphs (c)(i) and (c)(ii) above
notwithstanding, TeleTech's rights to the parking spaces therein
respectively described are subject to 1700's sole determination from
time to time that prudent operation of the Garage permits TeleTech's
use of those spaces.
(e) All rights of TeleTech to parking spaces as provided in
this paragraph 3 shall remain in effect only so long as the Lease to
Apache remains in effect.
4. ALTERATIONS AND PHYSICAL ADDITIONS. No alterations or physical
additions shall be made to the premises covered by the Sublease without the
prior written consent of 1700. To the extent that Apache has so agreed in
writing in the Sublease, such written consent by 1700 to TeleTech shall also
constitute 1700's consent to Apache, as Lessee under the Lease, to such
alterations or physical additions; provided however that nothing in this
paragraph 4 shall relieve or be deemed to relieve such Lessee from any other or
further obligation, responsibility, consequence, or liability with respect to or
arising out of the making of such alterations or physical additions. Except for
the generator and electrical feed discussed below in paragraph 6, all such
alterations and physical additions made by TeleTech shall become part of the
Building and title thereto shall vest in 1700 as provided in the Lease.
5. NON-DISTURBANCE AND ATTORNMENT. It is hereby acknowledged and
agreed between 1700 and TeleTech that in the event that the Lease between 1700
as Lessor and Apache as Lessee terminates for any reason including any default
thereunder by Apache or any of Apache's subtenants, other than TeleTech, that
that certain Lease Agreement, executed between 1700 as Lessor and TeleTech as
Lessee, which Lease is attached hereto as Exhibit C (the "Exhibit C Lease"),
shall immediately become effective and that TeleTech shall not be disturbed in
its rights to occupy the premises which until then were demised to it under the
Sublease and
3
<PAGE>
that the relationship between 1700 and TeleTech shall then be direct as set
forth in the Exhibit C Lease.
6. GENERATOR.
(a) LOCATION. It is hereby acknowledged that TeleTech will be
acquiring a generator, the description of which will be attached
hereto as Exhibit D as soon as the same is available. 1700 hereby
agrees to allow TeleTech, during the terms of the Sublease and the
Exhibit C Lease, to install such generator in the basement of the
Building in a place designated by 1700.
(b) MAINTENANCE. TeleTech shall be wholly responsible for the
maintenance and repair of the generator and the electrical feed, and
1700 shall have no such responsibility. 1700 shall allow access to
the generator at all reasonable times, to be coordinated with 1700
except in the case of an emergency; and in the case of an emergency
1700 shall allow access at any time provided however that in the event
of a simultaneous emergency involving the Building, 1700 and its
employees and contractors shall have sole access to the area to the
extent they deem necessary.
(c) ENGAGEMENT OF MAINTENANCE CONTRACTOR. 1700 may recommend to
TeleTech a maintenance contractor or contractors from which TeleTech
may at its election select a maintenance contractor to perform
maintenance and repair on the generator. In any event, 1700 shall
have no responsibility or liability for any damage or injury to the
generator or to any other property or to any person, or for any
failure of the generator to fulfill the purposes for which it is
designed or intended. TeleTech hereby agrees to indemnify 1700 and
hold it harmless from all claims for any such damage or injury.
(d) All of the obligations imposed in the Exhibit C Lease on
TeleTech with respect to Lessee's fixtures, equipment and personal
property shall be applicable also to the generator during the period
of the Sublease and during the period of the Exhibit C Lease; provided
however that the generator shall not become a part of the Building or
the property of 1700 and at the expiration or earlier termination of
both the Sublease and the Exhibit C Lease the generator and the
electrical feed shall be removed and any damage to the Building shall
be repaired, to 1700's satisfaction, all at the expense of TeleTech.
The generator and electrical feed may be removed at any time by
TeleTech or the person who holds the first lien
4
<PAGE>
thereon under TeleTech on condition that any damage be repaired as
provided in the preceding sentence.
7. HVAC. 1700 and TeleTech hereby acknowledge, for HVAC purposes, that
normal Building hours, exclusive of holidays, are weekdays from 7:00 a.m. to
6:00 p.m. and Saturdays from 7:00 a.m. to 1:00 p.m. (Mountain Standard Time and
Mountain Daylight Savings Time, as applicable). Provided that the same are
asked for at least five business days before the end of a month, 1700 shall
provide at times other than the aforesaid hours, HVAC at $7.00 per hour per one-
half floor in the summer and $9.00 per hour per one-half floor in the winter.
Air circulation only shall be billed at the rate of $4.00 per hour per one-half
floor. These rates shall be effective through the term of the Sublease, but are
subject to adjustment by 1700 if the rate for the entire Building is changed.
These rates are also predicated on TeleTech contracting for overtime HVAC in
minimum one-month blocks.
Any other requests for HVAC during hours outside of normal Building hours
shall be billed at the normal Building rates.
8. TIME OF OPERATION. The provisions of this Agreement shall operate at
all times during the term of the Sublease and, as applicable, during the term of
the Exhibit C Lease.
9. NOTICES. Notices shall be given to 1700 and TeleTech in the manner
and at the addresses set forth for such parties in the Exhibit C Lease. Copies
of notices given by 1700 to TeleTech shall also be given as follows:
To: TeleTech Telecommunications, Inc.
15355 Morrison Street
Sherman Oaks, California 91403
and
Theodore Z. Gelt
Suite 2600
1600 Broadway
Denver, Colorado 80202-4926
but the giving or receipt of such copies shall not defer or delay the
effectiveness of any notice given to TeleTech as described above in the first
sentence of this paragraph.
10. CONSTRUCTION. This Agreement shall be construed under and in
accordance with the laws of the State of Colorado.
11. NON-MERGER. Notwithstanding anything in the Lease, or the Exhibit C
Lease, the terms of this Agreement shall not be merged therewith.
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<PAGE>
12. TELETECH CALIFORNIA AND TELETECH COLORADO JOINTLY AND SEVERALLY
LIABLE. TeleTech California and TeleTech Colorado hereby agree that they are
jointly and severally liable for all of the obligations of TeleTech California
or of TeleTech Colorado, or of both of them, under this Agreement or under the
Exhibit C Lease or under both thereof. Any default or breach by one of them
shall be deemed to be the default or breach of both of them.
13. APACHE'S LIABILITY UNDER THE LEASE CONTINUES. Nothing in this
Agreement, or in the Sublease attached hereto, or in Exhibit B hereto or in
Exhibit C hereto shall relieve or be deemed to relieve Apache from any
obligation, responsibility, consequence, or liability under the Lease.
14. LIMITATION OF 1700'S PERSONAL LIABILITY. Apache and TeleTech
specifically agree to look solely to 1700's interest in the Building for the
recovery of any judgment from 1700 arising out of the Lease, the Sublease, or
this Agreement, it being agreed that 1700 (and its partners and shareholders of
partners) shall never be personally liable for any such judgment. The provision
contained in the preceding sentence is not intended to, and shall not, limit any
right that Apache or TeleTech might otherwise have to obtain injunctive relief
against 1700 or 1700's successors in interest or any suits or actions in
connection with enforcement or collection of amounts which may become owing or
payable under or on account of insurance maintained by 1700.
IN WITNESS WHEREOF, this Agreement is executed the 16th day of March,
1993.
1700 LINCOLN LIMITED, a Colorado
limited partnership
By: HINES COLORADO LIMITED, a
Colorado limited partnership
By: /s/ Louis S. Sklar
------------------------------
Gerald D. Hines, a
General Partner of Hines
Colorado Limited
[Louis S. Sklar,
Attorney-In-Fact
For Gerald D. Hines]
By: HINES COLORADO CORPORATION, a
General Partner of Hines
Colorado Limited
By: /s/ Louis S. Sklar
------------------------------
Gerald D. Hines,
President
[Louis S. Sklar,
Attorney-In-Fact
For Gerald D. Hines]
6
<PAGE>
TeleTech Telecommunications, Inc., a
California corporation
By: /s/ Kenneth Tuchman
-----------------------------------
Kenneth Tuchman, President
Attest: /s/ (signature illegible)
-------------------------
Secretary
TeleTech Teleservices, Inc., a
Colorado corporation
By: /s/ Kenneth Tuchman
-----------------------------------
Kenneth Tuchman, President
Attest: /s/ (signature illegible)
-------------------------
Secretary
7
<PAGE>
ACCEPTED AND AGREED TO:
Apache Corporation,
a Delaware corporation
By: /s/ Roger B. Rice
-----------------------------------
Attest: /s/ James S. (illegible)
------------------------
Assistant Secretary
8
<PAGE>
STATE OF TEXAS )
) ss.
CITY AND COUNTY OF HARRIS )
The foregoing instrument was acknowledged before me this 16th day of March,
1993, by Louis S. Sklar, Power of Attorney for Gerald D. Hines, President of
Hines Colorado corporation, a Colorado corporation, in its capacity as general
partner of Hines Colorado Limited, a Colorado limited partnership, in turn the
general partner of 1700 Lincoln Limited, a Colorado limited partnership.
Witness my hand and official seal.
My commission expires 1-22-95 .
------------------
/s/ Deborah Emery
-----------------------------
(SEAL) Notary Public
STATE OF TEXAS )
) SS.
CITY AND COUNTY OF HARRIS )
The foregoing instrument was acknowledged before me this 16th day of March,
1993, by Louis S. Sklar, Power of Attorney for Gerald D. Hines, a general
partner of Hines Colorado Limited, a Colorado limited partnership, in turn the
general partner of 1700 Lincoln Limited, a Colorado limited partnership.
Witness my hand and official seal.
My commission expires 1-22-95 .
-------------------
(SEAL) /s/ Deborah Emery
--------------------------
Notary Public
9
<PAGE>
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 22nd day of
February, 1993, by Kenneth Tuchman, President of TeleTech Telecommunications
Inc., a California corporation.
Witness my hand and official seal.
My commission expires 4-23-93 .
-------------------
/s/ Susan Brown
--------------------------
(SEAL) Notary Public
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 22nd day of
February, 1993, by Kenneth Tuchman, President of TeleTech Teleservices, Inc., a
Colorado corporation.
Witness my hand and official seal.
My commission expires 4-23-93 .
-------------------
/s/ Susan Brown
--------------------------
(SEAL) Notary Public
10
<PAGE>
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this
1st day of March, 1993, by Roger B. Rice as Vice President of Apache
Corporation, a Delaware corporation.
Witness my hand and official seal.
My commission expires 6-26-93 .
-------------------
/s/ Susan Garcia
--------------------------
(SEAL) Notary Public
11
<PAGE>
EXHIBIT "A"
SUBLEASE
THIS SUBLEASE is made and entered into as of January 29, 1993, by and
between APACHE CORPORATION, a Delaware corporation ("Sublandlord") and TELETECH
TELECOMMUNICATIONS, INC., a California corporation ("TeleTech California") and
TELETECH TELESERVICES, INC., a Colorado corporation ("TeleTech Colorado")
(TeleTech California and TeleTech Colorado are hereinafter collectively referred
to as "Subtenant").
RECITALS
A. Sublandlord, as lessee, has entered into a Lease Agreement (the "Lease
Agreement") dated December 4, 1986 with 1700 Lincoln Limited, a Colorado limited
partnership, as lessor (hereinafter, "Lessor"), for the lease of certain
premises in an office building (the "Building") located on all or parts of Lots
16 through 30, and a portion of Lot 31 (together with those portions of the
vacated alley adjacent thereto), Block 30 of H.C. Brown's Addition in the City
and County of Denver, Colorado.
B. The Lease Agreement has been amended by a First Lease Amendment dated
June 1, 1988, a Second Lease Amendment dated June 21, 1991, and a Third Lease
Amendment dated ________________ 1992 (collectively, the "Lease Amendments").
C. The Lease Agreement, as amended by the Lease Amendments, all of which
are attached hereto as EXHIBIT A, are hereinafter collectively referred to as
the "Master Lease." The entire premises leased to Sublandlord under the Master
Lease is hereinafter referred to as the "Premises."
D. Sublandlord desires to sublease to Subtenant, and Subtenant desires to
sublease from Sublandlord a portion of the Premises (the "Subleased Premises,"
as further defined in this Sublease) on the terms and conditions set forth in
this Sublease.
For and in consideration of the foregoing recitals, the mutual promises and
covenants of the parties, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Sublandlord and Subtenant
hereby agree as follows:
1. SUBLEASE. Sublandlord hereby leases the Subleased Premises to
Subtenant, and Subtenant leases the Subleased Premises from Sublandlord on the
terms and conditions set forth in this Sublease.
2. SUBLEASED PREMISES. The "Subleased Premises" shall mean the 44,569
square feet of net rentable area, being all of the 14th and 15th floors of the
Building, as depicted on EXHIBIT B to this Sublease.
<PAGE>
3. DELIVERY OF SUBLEASED PREMISES. Sublandlord shall deliver possession
of the Subleased Premises to Subtenant upon mutual execution of this Sublease
and Lessor consenting to this Sublease as provided in paragraph 16. THE
SUBLEASED PREMISES SHALL BE DELIVERED ON AN "AS IS" CONDITION, WITHOUT ANY
REPRESENTATIONS OR WARRANTIES AS TO ITS CONDITION OR FITNESS FOR A PARTICULAR
USE. Sublandlord shall not be obligated to make any alterations or improvements
to the Subleased Premises on account of this Sublease.
4. LEASEHOLD IMPROVEMENTS. Subtenant shall construct the improvements
(the "Leasehold Improvements") described in the Work Letter attached hereto as
EXHIBIT C. The costs of design, construction and installation of the Leasehold
Improvements shall be paid as provided in the Work Letter. All Leasehold
Improvements constructed pursuant to the Work Letter shall become a part of the
Premises, and title to all Leasehold Improvements shall vest in accordance with
the Master Lease.
5. TERM. The term of this Sublease will begin as of the date of mutual
execution of this Sublease and will terminate on May 31, 1997.
6. BASIC RENT. Subtenant shall pay to Sublandlord as Basic Rent for the
Subleased Premises the sum of $2,446,121.00, payable in advance, without notice,
demand, offset or counterclaim, in equal monthly installments of $54,803.00 due
and payable on the first day of each calendar month commencing on September 1,
1993 (the "Sublease Rent Commencement Date") and continuing through May 31,
1997.
The Basic Rent is subject to adjustment based upon the actual cost of
Leasehold Improvements and certain delays outside of the control of Subtenant as
provided in the Work Letter. If the Basic Rent is so adjusted then, upon the
request of either party, Sublandlord and Subtenant shall execute an amendment to
this Sublease (in a form to be submitted by Sublandlord) confirming the Basic
Rent and the payment schedule for the Basic Rent under this Sublease. If the
Sublease Rent Commencement Date is other than the first day of the month or if
the term ends on other than the last day of the month, rent shall be
appropriately prorated. All rent payable under this Sublease shall be paid to
Sublandlord at Sublandlord's address as set forth in this Sublease.
7. ADDITIONAL RENT. During the term of this Sublease, Subtenant shall
pay to Sublandlord as and when due under the Master Lease any additional rent
which may be due and payable pursuant to the Master Lease which is attributable
to the Subleased Premises including, but not limited to:
(a) Any adjustment to Basic Rent which Sublandlord is required to pay
pursuant to Article II, Sections 4(d) and (e) of the Master Lease which is
attributable to the Subleased
2
<PAGE>
Premises; for purposes of determining increases in "Lessee's Share of
Computed Operating Expenses" and "Lessee's Share of Computed Tax Expenses",
(i) the Initial Operating Expense Basic Cost and the Initial Tax Basic Cost
for the Subleased Premises will be the Actual Operating Expenses and
Impositions attributable to the Subleased Premises for the calendar year
1993, and Subtenant shall be obligated to pay additional rent (and payments
for estimated increases) based upon increases from such Initial Operating
Expense Basic Cost and Initial Tax Basic Cost); and (ii) Subtenant's
proportionate share of increases in such expenses for the Building as a
whole will be 3.782%, which is based upon dividing the 44,569 square feet
of net rentable area of the Subleased Premises by the 1,178,560 square feet
of net rentable area of the entire Building (as represented by the Lessor
in the Master Lease), provided such percentage shall be subject to
adjustment if the area of either the Subleased Premises or the entire
Building is modified during the term of this Sublease; and
(b) Any other rent or other sums payable as additional rent under the
Master Lease attributable to the Subleased Premises or Subtenant's
activities.
Sublandlord shall provide Subtenant with a copy of the statements of Lessee's
Share of Computed Operating Expenses Tax Expense which Sublandlord receives from
Lessor for calendar year 1993 and each subsequent year during the term of this
Sublease. If Sublandlord shall receive any refund or credit for overpayment of
Operating Expenses, Impositions or any other additional rent which is
attributable to the Subleased Premises and the term of this Sublease, Subtenant
shall be entitled to the refund or credit of so much thereof as shall be
attributable to prior payments by Subtenant.
8. PARKING. Sublandlord shall make available to Subtenant Sublandlord's
right to park 90 automobiles in the Garage. Subtenant shall acquire all such
rights directly from Lessor on such terms and conditions and at such monthly
rate as agreed upon by Lessor and Subtenant.
9. SERVICES. Sublandlord shall not be obligated to provide any services
to Subtenant or repairs or maintenance to the Subleased Premises or the
Building; provided, however, upon the reasonable request of Subtenant,
Sublandlord shall provide reasonable assistance to Subtenant in enforcing the
terms of the Master Lease requiring Lessor to provide services, repairs or
maintenance to the Subleased Premises or the Building. Sublandlord shall not be
required to incur any out-of-pocket expenses in providing such assistance, and
Sublandlord may condition its assistance upon any such expenses being prepaid by
Subtenant. The exact nature of the assistance to be provided by Sublandlord
shall be determined by Sublandlord, in its reasonable discretion, and
3
<PAGE>
Sublandlord shall not be required to provide assistance in any manner which, in
Sublandlord's sole discretion, may adversely affect Sublandlord's relationship
with Lessor or otherwise expose Sublandlord or any of its other tenants to risk
of injury or other damage. Subtenant's sole source of services shall be Lessor
pursuant to the terms of the Master Lease. Sublandlord makes no representations
or warranties as to the availability or adequacy of services. Subtenant's
covenants to pay rent under this Sublease are separate and independent from any
covenant of Sublandlord or Lessor to provide services or other amenities
hereunder or Sublandlord's agreement to provide assistance to Subtenant
hereunder. Notwithstanding the foregoing, if the Subleased Premises become
untenantable for seven consecutive business days (Monday through Friday, but
excluding Holidays, as defined in the Master Lease) owing to the cessation of
services, if Subtenant has provided Sublandlord written notice of such cessation
of services and if Sublandlord has received an abatement of rent under the
Master Lease with respect to the Subleased Premises because of the cessation of
services, then rent shall partially abate under this Sublease after the seven
day period. The portion of the rent for which the abatement will be applicable
will be all rent exclusive of that portion of the Basic Rent which is applicable
to the cost of Leasehold Improvements, as described in the Work Letter. Upon
receipt of notice of cessation of services from Subtenant for which Subtenant is
entitled to an abatement of rent, Sublandlord shall use good faith efforts in
attempting to obtain an abatement of rent under the Master Lease. The abatement
under this Sublease shall cease at such time and to the extent Sublandlord is no
longer entitled to an abatement of rent under the Master Lease with respect to
the Subleased Premises.
10. SIGNAGE. Sublandlord shall cooperate with Subtenant in having
Subtenant's name and location of its office placed on the Building directory in
the lobby of the Building, its name placed near the elevator on the floor on
which the Subleased Premises are located and otherwise in placing a placard
designating Subtenant's name, either on the entrance to the Subleased Premises
or immediately adjacent thereto. All such signage shall be standard signage for
the Building and subject to the approval of Lessor.
11. MASTER LEASE. This Sublease is subject and subordinate to the Master
Lease. The provisions of the Master Lease are incorporated into this Sublease
as the agreement of Sublandlord and Subtenant and are applicable to this
Sublease with the same force and effect as though Sublandlord was landlord under
the Master Lease, and Subtenant was tenant under the Master Lease. Subtenant
assumes and agrees to make all payments with respect to the Subleased Premises
and to perform and be bound by all of Sublandlord's covenants contained in the
Master Lease with respect to the Subleased Premises. In the event of any
conflict between the terms and provisions of the Master Lease and this Sublease,
the
4
<PAGE>
terms and provisions of the Master Lease shall prevail and control.
12. DEFAULT BY SUBTENANT. Subtenant shall not cause or allow to be caused
any default under the Master Lease, nor shall Subtenant permit anything to be
done which would cause the Master Lease to be terminated or forfeited by reason
of any right of termination or forfeiture reserved or vested in Lessor under the
Master Lease. In the event of any breach by Subtenant under the Master Lease or
this Lease, Sublandlord shall have all the rights against Subtenant as would be
available to the landlord against the tenant under the Master Lease if such
breach were by the tenant thereunder including, but not limited to, the right to
terminate Subtenant's right to possession of the Subleased Premises and any
options granted under this Sublease and all other rights upon default as set
forth in Article V, Section 8 of the Master Lease.
13. SUBTENANT INDEMNIFICATION. In addition to all other obligations it
may have under this Sublease, each Subtenant shall indemnify, defend and hold
Sublandlord harmless from and against any losses, liabilities, obligations,
damages, costs and expenses (including reasonable attorneys' fees and costs)
arising out of any default under the Sublease or the Master Lease caused by
either Subtenant or either Subtenant's employees, agents or contractors
including, but not limited to, those relating directly or indirectly to either
Subtenant remaining in possession of the Subleased Premises beyond the term of
this Sublease; provided, however, Subtenant shall have no obligation to
indemnify Sublandlord for matters arising out of the default, negligence or
willful misconduct of Sublandlord or its employees, agents or contractors.
14. SUBLANDLORD INDEMNIFICATION. Sublandlord shall duly and punctually
perform all of its obligations under the Master Lease. Sublandlord shall
indemnify, defend and hold Subtenant harmless from and against any and all
losses, liabilities, obligations, damages, costs and expenses (including
reasonable attorneys' fees and costs) arising out of any default under the
Master Lease caused solely by Sublandlord or its employees, agents or
contractors; provided, however, Sublandlord shall have no obligation to
indemnify Subtenant for matters arising out of the default, negligence or
willful misconduct of Subtenant or its employees, agents or contractors.
15. PROCEDURES FOR INDEMNIFICATION. Upon the occurrence of any event
giving rise to a claim, demand or other matter for which either party believes
the other is required to indemnify, defend or hold harmless under this Sublease,
the party requesting indemnification (the "Indemnified Party") shall give
written notice to the other party (the "Indemnifying Party"), and shall give the
Indemnifying Party a reasonable opportunity to defend the same at its own
expense and with counsel of its own selection. The Indemnified Party shall at
all times also have the right to fully
5
<PAGE>
participate at its expense in the defense of such matter with counsel of its
choosing. If the claim is one that cannot by its nature be defended solely by
the Indemnifying Party, the Indemnified Party shall make available all
information and assistance that the Indemnifying Party may reasonably request.
If the Indemnifying Party shall fail to defend within a reasonable time after
demand to do so, the Indemnified Party shall have the right, but not the
obligation, to undertake the defense of, and to compromise or settle (exercising
reasonable business judgment), the claim or other matter on behalf, for the
account and at the risk of the Indemnifying Party.
If Sublandlord is the Indemnifying Party, Sublandlord shall have the right
to treat TeleTech California and TeleTech Colorado as if they were a single
entity; Sublandlord shall not be required to retain separate counsel for each;
and TeleTech California and TeleTech Colorado shall waive any conflict of
interest in having a single counsel representing both of them.
If a material conflict of interest exists in having counsel chosen by the
Indemnifying Party assume the defense, then the Indemnified Party may appoint
independent counsel, subject to the approval of the Indemnifying Party, to
represent the Indemnified Party with respect to the issues for which the
conflict of interest exists. On all other issues, the independent counsel's
participation shall be subject to the direction and lead of the counsel
appointed by the Indemnifying Party to assume the defense. The fees charged by
the independent counsel shall be limited to reasonable fees, and shall otherwise
be consistent with the fee structure and policies of the Indemnifying Party in
paying its outside counsel. If for any reason during the course of
representation the independent counsel is no longer acceptable to the
Indemnifying Party, then the Indemnifying Party may require that substitute
counsel be appointed by the Indemnified Party, again subject to the approval of
the Indemnifying Party. The Indemnifying Party shall be responsible for such
reasonable fees as may be incurred in the transition to such substitute counsel.
16. LESSOR CONSENT. This Sublease is contingent upon Lessor consenting to
this Sublease and Subtenant and Lessor entering into an agreement (the "Lessor's
Agreement") relating to, among other things, after hours HVAC, parking,
nondisturbance and attornment, approval of Construction Drawings and an extended
term. Subtenant and Lessor shall look solely to one another for performance of
their respective obligations under the Lessor's Agreement, and shall hold
harmless Sublandlord with respect to any covenants, agreements, representations
or warranties made in the Lessor's Agreement. If Lessor's consent to this
Sublease is conditioned and Subtenant and Sublandlord accept such consent
notwithstanding such condition, this Sublease shall be subject to the terms of
Lessor's consent.
6
<PAGE>
17. CONFIDENTIALITY. Sublandlord and Subtenant hereby covenant and agree
that, at all times during the term of this Sublease, unless consented to in
writing by the other party, no press release or other public disclosure
concerning this Sublease shall be made, and each party agrees not to disclose
the terms of this Sublease other than (a) to directors and officers of the
parties, and employees, agents and affiliates of the parties who are involved in
the ordinary course of business with this transaction, all of whom shall be
instructed to comply with the nondisclosure provisions hereof; (b) Lessor and
its property manager and their employees, agents and affiliates; (c) in response
to lawful process or subpoena or other valid enforceable order of a court or
other authority of competent jurisdiction; and (d) in any filings with any
governmental authorities required by reason of the transaction provided for in
this Sublease. Sublandlord and Subtenant shall have their respective brokers
execute confidentiality agreements in which they agree not to disclose the terms
of this Sublease.
18. FUTURE ASSIGNMENT OR SUBLEASE. Subtenant shall not assign or
otherwise transfer, mortgage, pledge, hypothecate or encumber this Sublease or
the Subleased Premises, or any interest therein, and shall not sublet the
Subleased Premises or any part thereof, or any right or privilege appurtenant
thereof, or permit any other party to occupy the Subleased Premises, or any
portion thereof, without the written consent of Sublandlord. Sublandlord may
condition its consent upon Lessor also giving its consent. The transfer or
agreement to transfer of more than 49% (cumulative taking into account other
transfers) of the issued and outstanding shares of stock of either Subtenant,
the transfer of all or substantially all of the assets of either Subtenant, or
the merger of either Subtenant with another corporation, shall be treated as a
sublease or assignment of this Sublease; provided, however, that any public or
private offering of the shares of stock of either Subtenant which results in not
less than $500,000 of additional unrestricted cash being contributed to the
capital of that Subtenant shall not be considered such an assignment or
sublease. Sublandlord may not withhold its consent to any sublease or assignment
if the proposed subtenant or assignee provides Sublandlord with satisfactory
evidence of net cash flow and net worth in accordance with generally accepted
accounting principles consistently applied at least as great as the cash flow
and net worth of Subtenant as of the date of this Sublease. Sublandlord's
consent to any assignment, transfer or subletting by Subtenant shall not relieve
Subtenant from any of its obligations under this Sublease.
19. TENANT ALTERATIONS. Subtenant shall make no alteration, change,
improvement, repair, replacement or addition to the Subleased Premises without
the prior written consent of Sublandlord unless Lessor has approved or has no
right to approve the changes and Subtenant has given Sublandlord prior written
notice of such
7
<PAGE>
changes. Subtenant shall provide to Sublandlord copies of any and all plans,
specifications, notices and other correspondence delivered by Subtenant to
Lessor which relate to Subtenant's request for Lessor's approval hereunder.
20. INSURANCE. Subtenant shall maintain, throughout the term of this
Sublease, such policy or policies of insurance with respect to the Subleased
Premises as Sublandlord is required to maintain pursuant to the Master Lease
including, but not limited to, the policies required pursuant to Article V,
Section 11 of the Master Lease. Notwithstanding the policy limits set forth in
the Master Lease, Subtenant shall obtain and maintain throughout the term of the
Lease comprehensive general and contractual liability insurance against claims
for personal injury, death and property damage occurring in or about the
Subleased Premises, such insurance to afford protections in limits of not less
than $1,000,000.00 in respect of injury to or death of any number of persons
arising out of any occurrence and $1,000,000.00 in respect of any instance of
property damage. The foregoing liability policies shall name Sublandlord and
Lessor as an additional insured, shall insure performance of the indemnities of
Subtenant contained in this Sublease and shall be primary coverage in the
instance of Subtenant's indemnities, so that any insurance coverage obtained by
Lessor or Sublandlord shall be in excess thereto. All policies required under
this Sublease shall be endorsed to provide a waiver of subrogation as to
Sublandlord and Lessor in accordance with the terms of the Master Lease.
Subtenant shall from time to time promptly deliver to Sublandlord evidence that
all premiums have been paid and all policies are in full force and effect, all
in such form as Sublandlord may reasonably request. All policies required under
this Sublease shall include an agreement by the insurer that the policy shall
not be canceled, terminated, modified or allowed to expire without 15 days'
written notice to Sublandlord.
21. HAZARDOUS SUBSTANCES. Subtenant shall not cause or permit any
hazardous substances to be used, stored, generated or disposed of on the
Subleased Premises by Subtenant or its agents, employees, contractors or
invitees. The foregoing shall not apply to the presence, use, storage or
disposal of small quantities of hazardous substances that are generally
recognized to be appropriate in normal, general office uses. Hazardous
substances are those substances or materials defined as toxic or hazardous
substances or materials by any environmental law; environmental laws shall mean
any federal laws, rules or regulations and the laws, rules and regulations of
the jurisdiction in which the Building is located that relate to health, safety
or environmental protection.
22. TERMINATION OF MASTER LEASE. Sublandlord shall not do or suffer or
permit anything to be done which would constitute a default under the Master
Lease or would cause the Master Lease to
8
<PAGE>
be canceled, terminated or forfeited by virtue of any rights of cancellation,
termination or forfeiture reserved or vested in the Lessor under the Master
Lease. Notwithstanding the foregoing, Sublandlord may voluntarily terminate the
Master Lease during the term of this Sublease provided Lessor agrees in writing
to treat such termination as an assignment of this Sublease by Sublandlord to
Lessor. In the event of any such termination, Subtenant shall be bound to
Lessor for the balance of the term of this Sublease as if Lessor were the
Sublandlord under this Sublease, Subtenant shall attorn to Lessor as its
landlord, Sublandlord shall be released from any liability with respect to such
termination and no liability or obligation shall thereafter accrue against
Sublandlord with respect to this Sublease. In such event, Subtenant and Lessor
may enter into a direct lease which replaces this Sublease, provided there is no
adverse economic effect to Sublandlord by reason of the relationship between
Lessor and Subtenant being through a direct lease rather than a continuation of
this Sublease.
23. ADDITIONAL SPACE. If Subtenant desires to sublease any additional
space in the Building from Sublandlord, Subtenant shall give Sublandlord written
notice of such desire, and Sublandlord and Subtenant shall attempt to negotiate
the terms for the sublease of additional space. The notice shall include a
brief description of the space which Subtenant desires to sublease, the proposed
commencement date for such sublease and the rental rate which Subtenant is
willing to pay. Sublandlord agrees to negotiate with Subtenant but shall be
under no obligation to sublease any additional space to Subtenant except on
terms acceptable to Sublandlord as set forth in an agreement executed by
Sublandlord and Subtenant.
24. GOVERNING LAW. This Sublease shall be governed by and construed in
accordance with the laws of the State of Colorado.
25. SEVERABILITY. Should any of the provisions of this Sublease to any
extent be held to be invalid or unenforceable, the remainder of this Sublease
shall continue in full force and effect.
26. ENTIRE AGREEMENT. Except as provided in the next sentence, this
Sublease embodies the entire understanding and agreement among the parties
relative to the matters contained herein, and supersedes all prior negotiations,
understandings or agreements in regard to the Subleased Premises or the
subleasing of the Subleased Premises, whether written or oral including, but not
limited to, the nonbinding letter of intent executed by Sublandlord on October
8, 1992 and Subtenant on October 15, 1992. Separate and independent of this
Sublease are the following agreements and documents between Sublandlord and
Subtenant or otherwise relating to the Subleased Premises which are not
superseded by this Sublease: (a) Promissory Note executed by Subtenant for the
benefit of Sublandlord; (b) Security Agreement between Sublandlord, as Secured
Party, and Subtenant, as Debtor, and any other documents
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<PAGE>
and instruments now or hereafter executed by Sublandlord or Subtenant relating
to the obligations secured thereunder; (c) Nondisclosure Agreement between
Sublandlord and Subtenant; (d) the Lessor's Agreement between Lessor and
Subtenant; and (e) a letter agreement between Sublandlord and Kenneth Tuchman
("Tuchman"), the sole shareholder of Subtenant, relating to the covenants set
forth in paragraph 38 of this Sublease.
27. WAIVER. No provision of this Sublease may be waived, except by an
agreement in writing signed by all of the parties hereto. A waiver of any term
or provision shall not be construed as a waiver of any other term or provision.
28. HEADINGS. The subject headings used in this Sublease are included for
purposes of reference only, and shall not affect the construction or
interpretation of any of its provisions.
29. AMENDMENT. This Sublease may be amended, altered or revoked only by
written instrument executed by all of the parties.
30. NOTICES. All notices required or permitted by this Agreement shall be
in writing and shall be given by personal delivery or sent to the address of the
party set forth below by registered or certified mail, postage prepaid, return
receipt requested, or by reputable overnight courier, prepaid, receipt
acknowledged. Notices shall be deemed received on the earlier of the date of
actual receipt or, in the case of notice by mail or overnight courier, the date
of receipt marked on the acknowledgment of receipt. Rejection or refusal to
accept or the inability to deliver because of change of address of which no
notice was given shall be deemed to be received as of the date such notice was
deposited in the mail or delivered to the courier.
If to Sublandlord: Apache Corporation
2000 Post Oak Boulevard, Suite 100
Houston, TX 77056-4400
Attn: Greg L. Pyles,
Manager of General Services
With a copy to: Apache Corporation
2000 Post Oak Boulevard, Suite 100
Houston, TX 77056-4400
Attn: George J. Morgenthaler, General Counsel
10
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If to TeleTech Colorado (following occupancy of the Subleased
Premises):
TeleTech Teleservices, Inc.
1700 Lincoln Street, Fourteenth Floor
Denver, CO 80203
If to TeleTech California:
TeleTech Telecommunications, Inc.
15355 Morrison Street
Sherman Oaks, CA 91403
With a copy to: Theodore Z. Gelt, Esq.
Gelt, Fleishman & Sterling, P.C.
1600 Broadway, Suite 2600
Denver, CO 80202
If to Tuchman pursuant to paragraph 38:
Kenneth Tuchman
1700 Lincoln Street, 14th Floor
Denver, CO 80203
Any party may change its address to which notices should be sent to it by giving
the other parties written notice of the new address in the manner set forth in
this paragraph.
31. NOTICES FROM LESSOR. Sublandlord and Subtenant shall use good faith
efforts to promptly forward to one another copies of any notices applicable to
this Sublease or the Subleased Premises which either of them may receive from
Lessor under the Master Lease.
32. CONSTRUCTION. All terms used in this Sublease shall have the same
meaning as assigned to them in the Master Lease except as otherwise expressly
provided herein.
33. FURTHER ACTS. Upon reasonable request from a party hereto, from time
to time, each party shall execute and deliver such additional documents and
instruments and take such other actions as may be reasonably necessary to give
effect to the intents and purposes of this Sublease.
34. ATTORNEYS' FEES. In the event of any litigation or arbitration
proceedings between the parties hereto concerning the subject matter of this
Sublease, the prevailing party in such litigation or proceeding shall be
awarded, in addition to the amount of any judgment or other award entered
therein, the costs and expenses, including reasonable attorneys' fees, incurred
by the prevailing party in the litigation or proceeding.
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<PAGE>
35. BINDING EFFECT. This Sublease shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
36. BROKERS. Each party represents and warrants to the other that it has
not dealt with any real estate broker or finder in connection with this Sublease
other than Cushman Realty Corporation and Beitler Commercial Realty Services,
both of which shall be compensated by Sublandlord. Each party shall indemnify
and hold harmless the other from any loss, claim, damage, obligation, cost or
expense, including reasonable attorneys' fees, arising out of any claim made by
any other broker or finder claiming by, through or under such party.
37. AUTHORITY. Each party represents and warrants unto the other that (a)
it is a duly organized and existing legal entity under the laws of the State in
which it is organized, and in good standing and authorized to do business in the
State of Colorado, (b) it has full right and authority to execute, deliver and
perform this Sublease, (c) the person executing this Sublease is authorized to
do so, and (d) upon request of Sublandlord, such person executing on behalf of
Subtenant will deliver satisfactory evidence of his or her authority to execute
this Sublease on behalf of Subtenant.
38. FINANCIAL COVENANTS. During the term of this Lease and so long as
Subtenant owes any obligation to Sublandlord under this Sublease, each Subtenant
covenants and agrees as follows:
(a) Subtenant and Subtenant Affiliates shall keep and maintain
accurate books, records and accounts reflecting in accordance with
generally accepted accounting principles consistently applied (and
consistent with the manner in which Subtenant currently keeps and maintains
same) all items of income and expense of Subtenant in connection with its
operations and upon request of Sublandlord, shall make such books, records
and accounts available to Sublandlord for inspection at the Subleased
Premises at all reasonable times (but no more frequently than once per
calendar quarter).
(b) Following the end of each of its fiscal years, the chief
financial officer of Subtenant will certify and furnish to Sublandlord
Subtenant's balance sheet, statement of earnings and statement of cash flow
as of the end of and for the preceding fiscal year. All such financial
statements shall be prepared consistent with the manner in which Subtenant
currently prepares such statements, which is in accordance with generally
accepted accounting principles, consistently applied. The financial
statements to be provided by Subtenant shall be prepared both internally by
Subtenant and externally by Subtenant's certified public accountants
(provided that unless Subtenant is otherwise doing so, the
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financial statements shall not be required to be audited). The internal
statements shall be delivered to Sublandlord within 60 days following the
end of each of Subtenant's fiscal years and the external financial
statements shall be delivered to Sublandlord within 120 days following the
end of each of Subtenant's fiscal years; provided, however, that if there
is a delay in the accountants furnishing such external financial statements
to Subtenant, then, upon request of Subtenant given prior to the expiration
of such 120 day period, Sublandlord will grant Subtenant a reasonable
extension within which to furnish the external financial statements, which
extension shall not exceed an additional 60 days. Within 45 days following
the end of each of its fiscal quarters, Subtenant shall deliver to
Sublandlord internal quarterly and year to date financial statements as of
the end of the preceding fiscal quarter in the same format as the year end
financial statements, except the quarterly statements need not be audited
or certified.
(c) From time to time, and not more often than once per calendar
quarter, Subtenant shall provide Sublandlord with such further information
regarding the business, affairs and financial condition of Subtenant and
any Subtenant Affiliate as Sublandlord may reasonably request; provided any
such information so requested by Sublandlord must be in the possession or
control of Subtenant or any Subtenant Affiliate or within its reasonable
abilities to obtain and in a format normally utilized by Subtenant. As a
part of providing such information, Subtenant shall make available for
conference with representatives of Sublandlord (but not more often than
once per calendar quarter), Kenneth Tuchman, and the chief financial
officer of Subtenant or any Subtenant Affiliate as Sublandlord may from
time to time reasonably request. All such conferences shall be held at the
Subleased Premises or such other place and at such reasonable time as
mutually agreed upon by Sublandlord and Subtenant.
(d) As a part of the financial statements certified annually in
accordance with paragraph 38(b), Subtenant and Tuchman shall each certify
in writing to Sublandlord as to the total aggregate payments and
distributions made directly or indirectly to Tuchman and all Tuchman
Affiliates from Subtenant and all Subtenant Affiliates for the previous
fiscal year, itemized in such detail as Sublandlord may reasonably request.
As a part of the quarterly financial statements to be delivered pursuant to
paragraph 38(b), Subtenant shall also deliver to Sublandlord a similar
itemized report within 45 days following the end of each fiscal quarter
with quarterly and year to date totals of all such payments and
distributions to Tuchman and Tuchman Affiliates, provided the quarterly
statements need not be certified.
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<PAGE>
(e) The total aggregate payments of any kind made by Subtenant and
Subtenant Affiliates to Kenneth Tuchman and all Tuchman Affiliates in any
fiscal year of Subtenant (or Subtenant Affiliates, as applicable) shall
not exceed the total of the following (the "Permitted Payments"):
(i) $300,000.00, plus
(ii) the product of the total of the highest marginal taxable
rates for Federal tax law purposes and state tax laws purposes that
applies to Tuchman or the Tuchman Affiliates, as appropriate, and the
taxable income required to be included by Tuchman or the Tuchman
Affiliates as a result of distributions from Subtenant or operation of
the tax law on Subtenant, Subtenant Affiliates, Tuchman and Tuchman
Affiliates, as determined for Federal and State income tax purposes,
plus
(iii) 20% of the pre-tax income of Subtenant, as determined for
federal income tax purposes.
Any payment or other distribution directly or indirectly to Tuchman or Tuchman
Affiliates from Subtenant or Subtenant Affiliates, including, but not limited
to, the note payable to Tuchman from Subtenant in the original principal amount
of approximately $634,415, shall be debited against the Permitted Payments.
Provided Subtenant is not in default of this Sublease, Sublandlord shall not
unreasonably withhold its consent to a request from Subtenant and Tuchman to
allow payments to Tuchman in excess of the Permitted Payment if (1) Tuchman
reinvests such payment (net of income taxes) into either Subtenant, either in
the form of capital or loans which are subordinated to the obligations of
Subtenant to Sublandlord under this Sublease, or (2) during such times as
Subtenant has established to Sublandlord's reasonable satisfaction that
Subtenant has and will continue to maintain combined unrestricted cash reserves
from operations of not less than the lesser of $500,000 or the total Basic Rent
due under this Sublease, in excess of the combined, known payables and short
term liabilities of Subtenant; provided, however, payments to Tuchman and
Tuchman Affiliates shall again be restricted without notice from Sublandlord if
such minimum unrestricted cash reserves are no longer available. For purposes
of this paragraph 38, the term "Subtenant Affiliates" shall mean any entity
owned or having common ownership with Subtenant; and the term "Tuchman
Affiliates" shall mean Tuchman's spouse, ancestors, lineal descendants; any
corporation, partnership or other entity in which Tuchman, his spouse, ancestors
or lineal descendants have any interest; or any purchaser or other assignee of
any of Tuchman's stock in either TeleTech California or TeleTech Colorado.
(f) If Subtenant fails to fulfill any of the covenants set forth in
paragraphs 38(a), (b), (c) or (d), Subtenant
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<PAGE>
shall be deemed to be in default of such covenant only if the following
notice and right to cure periods have been satisfied:
(i) Sublandlord shall give Tuchman and Subtenant written
notice of the default and specifics in reasonable detail as to the
nature of the alleged default. If any notice of alleged default is
not given by Sublandlord in a timely manner, the default shall be
deemed waived by Sublandlord. Any waiver under this subparagraph (f)
shall not affect any future or ongoing defaults by Subtenant, provided
Sublandlord gives notice of such defaults in a timely manner, nor
shall such waiver apply to fraud.
A notice of default will be deemed to be given in a timely manner
only if given within the following time frames: (1) with respect to an
alleged default under subparagraph 38(a), only if the default notice
is given within 90 days from the date of any review or inspection of
the books and records or if the books and records are not made
available for review or inspection, within 90 days from the date of
the request for the review or the inspection of the books and records;
(2) with respect to an alleged default under subparagraph 38(b), only
if the default notice is given within 90 days following the date such
financial statement is required to be delivered; (3) with respect to
an alleged default under subparagraph 38(c), only if the default
notice is given within 90 days following the date the information is
given or conference is held, as appropriate, and if the requested
information is not made available or the conference is not held,
within 90 days from the date Sublandlord requested such information or
conference; and (4) with respect to an alleged default under
subparagraph 38(d), only if the default notice is not given within 90
days following Sublandlord's receipt of all of the other financial
statements required to be delivered under subparagraph 38(b).
(ii) Subtenant shall not be in default if Subtenant cures the
default within 30 days following receipt of the written notice of
default or, if by the nature of the default it is not reasonable to
cure within 30 days, if Subtenant commences to cure within such 30 day
period and thereafter diligently and continuously pursues to cure to
completion.
The foregoing requirements of notice, right to cure and waiver of default
shall apply only to defaults under subparagraphs 38(a), (b), (c) and (d) of this
Sublease, and shall not be applicable to any other defaults under this
Sublease.
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<PAGE>
39. SUBTENANT LIABILITY. The obligations of TeleTech California and
TeleTech Colorado under this Sublease are joint and several. Any default by one
Subtenant under this Sublease shall be deemed to be a default by both
Subtenants.
THIS SUBLEASE is executed by the parties as of the date first above
written.
SUBLANDLORD:
APACHE CORPORATION,
a Delaware corporation
By:/s/ R.B. Rice
-------------------------------------
Its: Vice President, Human Resources
SUBTENANT:
TELETECH TELECOMMUNICATIONS, INC.,
a California corporation
By:/s/ Kenneth Tuchman
-------------------------------------
Its: President
TELETECH TELESERVICES, INC.,
a Colorado corporation
By:/s/ Kenneth Tuchman
-------------------------------------
Its: President
16
<PAGE>
January 29, 1993
Mr. Kenneth Tuchman
15355 Morrison Street
Sherman Oaks, CA 91403
Re: Sublease dated January 29, 1993, between
Apache Corporation, as Sublandlord, and
TeleTech Telecommunications, Inc.
("TeleTech California") and TeleTech
TeleServices, Inc. ("TeleTech
Colorado"), as Subtenant, relating to
the 14th and 15th floors of One Norwest
Center, Denver, Colorado
Dear Mr. Tuchman:
Apache Corporation ("Apache") has been requested to enter
into the referenced Sublease with TeleTech California and TeleTech Colorado
(collectively, "Subtenant"), corporations in which you are the sole shareholder.
Apache is willing to enter into the Sublease if and only if you confirm the
following representations, warranties, covenants and agreements that you have
made to Apache:
1. You represent and warrant that you are the sole
shareholder of TeleTech California and TeleTech Colorado.
2. Subject only to the notice, cure and waiver
provisions set forth in paragraph 38(f) of the Sublease, you unconditionally and
irrevocably guaranty the timely payment and performance of all of the
obligations, covenants and agreements of the Subtenant as set forth in paragraph
38 of the Sublease.
3. Until all of Subtenant's obligations under the
Sublease have been satisfied, you hereby postpone and subordinate to the claims
of Apache against either Subtenant any indebtedness owed to you by Subtenant or
any Subtenant Affiliate (as defined in the Sublease) or any other claim which
you may have against Subtenant or any Subtenant Affiliate in excess of the
"Permitted Payments," as defined in the Sublease. You agree not to assign or
otherwise transfer any right or claim you may have against either Subtenant or
any Subtenant Affiliate unless your successor in interest agrees in writing to
the terms set forth in this letter relating to the subordination and
postponement.
<PAGE>
Mr. Kenneth Tuchman
January 29, 1993
Page 18
4. In the event of any failure to cure any default
under paragraph 38 of the Sublease for which notice was properly given and for
which default was not waived, you shall be personally responsible for and
guaranty payment and performance by Subtenant of all of their obligations under
the Sublease.
5. You agree to pay all the costs, fees and expenses
including, without limitation, reasonable attorneys' fees, which may be incurred
by Apache in enforcing your obligations under this letter which shall not be
duplicitous of the attorneys' fees incurred in collection against Subtenant
under the Sublease.
6. Your obligations in this letter are direct and
independent of any obligation of Subtenant to Apache. In the event of your
breach of any of the terms in this letter, Apache shall proceed directly and
jointly against you and Subtenant to enforce Apache's rights under this letter.
Apache may do so without pursuing any other right or remedy available to Apache
whatever. Any payment made by Subtenant shall reduce the amount of the recovery
to which Apache shall be entitled against you.
7. Your obligations set forth in this letter shall
terminate only upon Subtenant performing (or otherwise being released from
performance by waiver or otherwise but not by bankruptcy) all of their
obligations under the Lease. The terms of this letter shall be binding upon you
and your successors and assigns.
8. No circumstance which operates to discharge or to
bar, suspend or delay Apache's right to enforce any obligation of either
Subtenant (including, but not limited to, the pendency or conclusion of any
proceeding under any federal bankruptcy laws or any similar present or future
federal or state law) other than both Subtenants performing (or being released
from performance including by waiver) all of their obligations under the
Sublease, shall have any effect upon the enforceability of any of your
obligations to Apache hereunder.
Please confirm your understanding and agreement to be
bound by the foregoing representations, warranties, covenants and agreements by
executing a copy of this letter in the space provided below. You understand
that Apache will be relying upon this letter in entering into the Sublease.
<PAGE>
Mr. Kenneth Tuchman
January 29, 1993
Page 19
APACHE CORPORATION
By: /s/ R.B. Rice
-----------------------------------
Its: Vice President - Human Resources
-----------------------------------
Approved and agreed on
January 29, 1993:
/s/ Kenneth Tuchman
- -----------------------------------
Kenneth Tuchman
<PAGE>
FIRST AMENDMENT TO SUBLEASE
THIS FIRST AMENDMENT TO SUBLEASE ("Amendment") is made and entered into as
of February 17, 1993, by and between APACHE CORPORATION, a Delaware corporation
("Sublandlord"), and TELETECH TELECOMMUNICATIONS, INC., a California corporation
and TELETECH TELESERVICES, INC., a Colorado corporation ("Subtenant").
RECITALS
A. Sublandlord and Subtenant have entered into a Sublease dated as of
January 29, 1993 relating to the 14th and 15th floors of the One Norwest Center
building, Denver, Colorado (the "Sublease").
B. Sublandlord and Subtenant desire to amend the Sublease on the terms
and conditions set forth in this Amendment.
FOR AND IN CONSIDERATION of the foregoing recitals, the mutual promises and
covenants of the parties and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Sublandlord and Subtenant
hereby agree as follows:
1. AMENDMENT. Paragraph 21 of the Sublease shall be amended by deleting
that entire paragraph and replacing it with the following:
21. HAZARDOUS SUBSTANCES. Subtenant shall not cause or permit
any hazardous substances to be used, stored, generated or disposed of
on the Subleased Premises by Subtenant or its agents, employees,
contractors or invitees. The foregoing shall not apply to the
presence, use, storage or disposal of small quantities of hazardous
substances that are generally recognized to be appropriate in normal,
general office uses, provided that such presence, use, storage and
disposal are lawful under all environmental laws. Hazardous substances
are those substances or materials defined as toxic or hazardous
substances or materials by any environmental law; environmental laws
shall mean any federal laws, rules or regulations and the laws, rules
and regulations of the jurisdictions in which the Building is located
that relate to health, safety or environmental protection.
2. NO FURTHER AMENDMENTS. Except as set forth in this Amendment, the
Sublease shall remain in full force and effect, without any change or
modification whatsoever.
<PAGE>
THIS FIRST AMENDMENT TO SUBLEASE is executed by the parties as of the date
first above written.
SUBLANDLORD:
APACHE CORPORATION,
a Delaware corporation
By:/s/ R.B. Rice
-------------------------------------
Its:Vice President
------------------------------------
SUBTENANT:
TELETECH TELECOMMUNICATIONS, INC.,
a California corporation
By:/s/ Kenneth Tuchman
-------------------------------------
Its:President
------------------------------------
TELETECH TELESERVICES, INC.,
a Colorado corporation
By:/s/ Kenneth Tuchman
-------------------------------------
Its:President
------------------------------------
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<PAGE>
SECOND AMENDMENT TO SUBLEASE
THIS SECOND AMENDMENT TO SUBLEASE ("Amendment") is made and entered into as
of 1-21, 1994, by and between APACHE CORPORATION, a Delaware corporation
("Sublandlord"), and TELETECH TELECOMMUNICATIONS, INC., a California
corporation, ("Teletech California") and TELETECH TELESERVICES, INC., a Colorado
corporation, ("Teletech Colorado") (Teletech California and Teletech Colorado
and hereinafter referred to as "Subtenant").
RECITALS
C. Sublandlord and Subtenant have entered into a Sublease dated as of
January 29, 1993 and a First Amendment to Sublease dated February 17, 1993 (as
amended, the "Sublease"), relating to approximately 44,569 square feet of net
rentable area, on the 14th and 15th Floors of the One Norwest Center, Denver,
Colorado (the "Building").
D. Subtenant has requested from Sublandlord the right to use on a
temporary basis approximately 6,000 square feet located on the 36th floor of the
Building which Sublandlord currently subleases from Enserch Corporation
("Enserch").
E. Sublandlord desires to allow Subtenant to use such space, defined in
the amendment as the "Temporary Space," on the terms and conditions set forth in
this Amendment and subject to the terms of the consent of Enserch attached
hereto as EXHIBIT B ("Enserch Consent").
FOR AND IN CONSIDERATION of the foregoing recitals, the mutual promises and
covenants of the parties and other good and valuable consideration, Sublandlord
and Subtenant hereby agree as follows:
1. CONSENT TO USE. Sublandlord hereby consents to Subtenant using the
Temporary Space on the terms and conditions set forth in this Amendment.
2. TEMPORARY SPACE. The "Temporary Space" shall mean the approximately
6,000 square feet of net rentable area which is that portion of the 36th floor
of the Building as depicted on EXHIBIT A to this Amendment.
3. USE OF SPACE. Subtenant shall use the Temporary Space solely for
training and recruiting purposes in connection with its TCI project and for no
other purposes.
4. CONDITION OF SPACE. THE TEMPORARY SPACE SHALL BE MADE AVAILABLE TO
SUBTENANT ON AN "AS IS" CONDITION WITHOUT ANY REPRESENTATIONS OR WARRANTIES AS
TO ITS CONDITION OR FITNESS FOR A PARTICULAR USE. Sublandlord shall not be
obligated to make any alterations or improvements to the Temporary Space.
<PAGE>
5. TERM. The right to use the Temporary Space shall begin as of the date
of mutual execution of this Amendment and shall terminate on May 31, 1994.
6. BASIC RENT. Subtenant shall pay to Sublandlord as additional Basic
Rent the sum of five hundred dollars ($500.00) per month or any part thereof
that Subtenant uses any of the Temporary Space.
7. ADDITIONAL RENT. During the term of this Amendment, Subtenant shall
pay to Sublandlord, as and when due under the Master Lease or the Enserch
Sublease, any additional rent or other sums which may be due and payable by
Sublandlord pursuant to the Master Lease or the Enserch Sublease which is
attributable to the Temporary Space or Subtenant's activities thereon,
including, but not limited to any rental and other payments which Sublandlord
may be required to pay under the Master Lease or the Enserch Sublease by reason
of Subtenant remaining in the possession of the Temporary Space after the
expiration of the term of the Enserch Sublease. The payment of any holdover rent
and liquidated damages shall be in addition to, and not in lieu of, any other
rights that Sublandlord shall have by reason of such default.
8. SERVICES. Sublandlord shall not be obligated to provide any services,
repairs or maintenance to the Temporary Space. Subtenant's sole source of such
services shall be Lessor and Enserch pursuant to the terms of the Master Lease
and the Enserch Sublease, respectively. Subtenant shall contract directly with
Lessor in the scheduling and payment for any after-hours air conditioning for
the Temporary Space. Any requests for correction of deficiencies of services
provided to the Temporary Space shall be made by Subtenant to Sublandlord in the
same manner as provided for the Subleased Premises as set forth in the Sublease.
9. MASTER LEASE AND ENSERCH LEASE. Subtenant's right to use the Temporary
Space is subject and subordinate to the terms of the Master Lease and the
Enserch Sublease. In consideration of the below market rent being paid for the
Temporary Space, Subtenant's sole recourse against Sublandlord with respect to
the Temporary Space or under this Amendment is to the interest of Sublandlord in
the Temporary Space. Subtenant shall not have any right to satisfy any judgment
which it may have against Sublandlord with respect to the Temporary Space or
this Amendment from any other assets of Sublandlord.
10. ALTERATIONS. Subtenant shall make no alteration, change, improvement,
repair, replacement or addition to the Temporary Space without the prior written
consent of Sublandlord which consent may be withheld for any reason. Subtenant
may install certain voice/data cabling in and to the Temporary Space, provided
that all such installation work shall comply with the terms of the Sublease,
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<PAGE>
Master Lease and the Enserch Sublease and shall have been approved by the Lessor
and Enserch, as applicable.
11. OBLIGATIONS ASSUMED. Subtenant acknowledges that pursuant to the
Enserch Consent, Sublandlord's grant to Subtenant of the right to use the
Temporary Space does not constitute a sublease of the Temporary Space to
Subtenant. Subtenant hereby expressly waives any claims that it is subleasing
the Temporary Space from Sublandlord and agrees that Subtenant's rights to use
of the Temporary Space shall be strictly limited to the rights granted in this
Amendment. Notwithstanding that Subtenant's rights are limited to the right to
use the Temporary Space, Subtenant's obligations with respect to the Temporary
Space shall be the same as if the Temporary Space was included within the
definition of the Subleased Premises during the term of this Amendment. These
obligations include, but are not limited to, the obligations to indemnify, to
maintain confidentiality, to maintain minimum levels and types of insurance, not
to sublease or assign, not to permit any hazardous substances and not to suffer
or permit any default under the Master Lease or the Enserch Sublease or cause
any cancellation, termination of forfeiture of either of such leases.
12. LESSOR CONSENT. This Amendment and all of the rights of Subtenant to
use the Temporary Space are subject to Lessor giving it written consent to the
terms of this Amendment.
13. DEFINED TERMS. Except as otherwise provided in this Amendment, all
capitalized terms used in this Amendment shall have the same meaning as assigned
to them in the Sublease.
14. ENTIRE AGREEMENT. This Amendment embodies the entire understanding and
agreement among the parties relative to the matters contained herein, and
supersedes all prior negotiations, understandings or agreements in regard
thereto, whether written or oral, including, but not limited to, a Letter of
Intent dated January 4, 1994 from Kenneth D. Tuchman, on behalf of Subtenant,
and Gregory L. Pyles, on behalf of Sublandlord.
15. NO FURTHER AMENDMENT. Except as provided in this Amendment, the
Sublease shall remain in full force and effect, without any amendment or
modification whatsoever.
3
<PAGE>
THIS SECOND AMENDMENT TO SUBLEASE is executed by the parties as of the date
first above written notwithstanding date of actual execution.
SUBLANDLORD:
APACHE CORPORATION,
a Delaware corporation
By:/s/ (illegible)
-------------------------------------
Its:Manager, General Services
------------------------------------
SUBTENANT:
TELETECH TELECOMMUNICATIONS, INC.,
a California corporation
By: /s/ Kenneth Tuchman
------------------------------------
Its:
------------------------------------
SUBTENANT:
TELETECH TELESERVICES, INC.,
a California corporation
By: /s/ Kenneth Tuchman
------------------------------------
Its:
-------------------------------------
4
<PAGE>
EXHIBIT A
TEMPORARY SPACE
[MAP OF PREMISES COVERED BY SECOND AMENDMENT TO SUBLEASE]
5
<PAGE>
EXHIBIT B
ENSERCH CONSENT
[omitted from original document]
6
<PAGE>
SECOND AMENDMENT TO SUBLEASE
THIS SECOND AMENDMENT TO SUBLEASE ("Amendment") is made and entered into as
of October 5, 1995, by and between APACHE CORPORATION, a Delaware corporation
("Sublandlord") and TELETECH TELECOMMUNICATIONS, INC., a California corporation,
and TELETECH TELESERVICES, INC., a Colorado corporation (collectively,
"Subtenant").
RECITALS
A. Sublandlord and Subtenant have entered into a Sublease dated as of
January 29, 1993, relating to the 14th and 15th Floors of the One Norwest Center
(the "Building"), Denver, Colorado, and a First Amendment to Sublease dated
February 17, 1993 (as amended, the "Sublease"), the premises thereunder being
defined in the Sublease as the "Subleased Premises."
B. The parties have agreed to an expansion of the Subleased Premises on
the terms and conditions set forth in this Sublease.
FOR AND IN CONSIDERATION of the foregoing Recitals, the mutual promises and
covenants of the parties and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Sublandlord and Subtenant
hereby agree as follows:
1. EXPANSION PREMISES. The "Subleased Premises" shall be amended to
include the 4,427 square feet of net rentable area, being a portion of the 17th
Floor of the Building as depicted on Exhibit A to this Amendment. This
additional 4,427 square feet of net rentable area is sometimes referred to in
this Amendment as the "Expansion Premises." The total net rentable area of the
Subleased Premises, including the Expansion Premises, is agreed to be 48,996
square feet.
2. TERM. The Expansion Premises shall be deemed to be a part of the
Subleased Premises effective as of the date of mutual execution of this
Amendment and will continue as a part of the Expansion Premises through August
31, 1996 (the "Expansion Premises Termination Date"), subject to Subtenant's
option to extend the term with respect to the Expansion Premises, as provided in
this Amendment. Subtenant shall vacate and quit the Expansion Premises on the
Expansion Premises Termination Date.
3. BASIC RENT. The Basic Rent for the Subleased Premises is hereby
increased by $44,270. The increased Basic Rent shall be paid by increasing the
monthly installments of Basic Rent under the Sublease by $4,427 comencing with
the installment due November 1, 1995, and continuing on the first day of each
calendar month through the Expansion Premises Termination Date.
4. ADDITIONAL RENT. For purposes of calculating the Additional Rent
due with respect to the Expansion Premises (both during the initial term and the
option term if the Expansion
<PAGE>
Premises Option is exercised), the Initial Operating Expense Basic Cost and the
Initial Tax Basic Cost for the Expansion Premises will be the Actual Operating
Expenses and Impositions attributable to the Expansion Premises for the calendar
year 1995.
5. DELIVERY OF EXPANSION PREMISES. Sublandlord shall deliver
possession of the Expansion Premises to Subtenant upon mutual execution of this
Amendment. THE EXPANSION PREMISES SHALL BE DELIVERED ON AN "AS IS" CONDITION,
WITHOUT ANY REPRESENTATIONS AND WARRANTIES AS TO ITS CONDITION OR FITNESS FOR A
PARTICULAR USE. Sublandlord shall not be obligated to make any alterations or
improvements to the Expansion Premises. Any improvements that Subtenant may
desire to construct on the Expansion Premises shall be subject to approval by
Sublandlord and all of the other terms and conditions of the Sublease.
6. OPTION TO EXTEND EXPANSION PREMISES TERM. Subtenant is hereby
granted an option to extend the term of the Sublease with respect to the
Expansion Premises (the "Expansion Premises Option") beyond the Expansion
Premises Termination Date, in accordance with the following terms and
conditions:
(a) Subtenant shall exercise the Expansion Premises Option, if at
all, by giving written notice of exercise to Sublandlord on or before July
15, 1996.
(b) The right of Subtenant to exercise the Expansion Premises Option
shall be subject to there being no event of default by Subtenant existing
under the Sublease at the time of exercise.
(c) Upon an effective exercise of the Expansion Premises Option, (i)
the Subleased Premises shall continue to include the Expansion Premises
through May 31, 1997, at which time the Sublease terminates as to all of
the Subleased Premises; (ii) the Basic Rent shall be increased by an
additional $39,843 which amount shall be paid by Subtenant continuing to
pay the increase in the monthly installments of Basic Rent of $4,427 on the
first day of each calendar month through May 31, 1997; and (iii) the
Expansion Premises will continue to be subleased on an "AS IS" basis,
without any representations or warranties as to the condition or fitness
for a particular use, and Sublandlord shall not be required to make any
alterations or improvements to the Expansion Premises.
7. TUCHMAN CONSENT. This Amendment is contingent upon Kenneth Tuchman
consenting to its terms.
8. DEFINED TERMS. Except as otherwise provided in this Amendment, all
capitalized terms used in this Amendment shall have all of the same meanings as
assigned to them in the Sublease.
2
<PAGE>
9. STATUS OF SUBLEASE. Subtenant hereby acknowledges that, as of the date
of this Amendment, there are no known defaults by Sublandlord under the Sublease
or any facts or circumstances which, but for the giving of notice or lapse of
time, will constitute a default by Sublandlord under the Sublease.
10. NO FURTHER MODIFICATION. Except as provided in this Amendment, the
Sublease shall remain in full force and effect, without any amendment or
modification whatsoever.
THIS SECOND AMENDMENT TO SUBLEASE is executed by the parties as of the date
first above written.
SUBTENANT: SUBLANDLORD:
TELETECH TELECOMMUNICATIONS, INC., APACHE CORPORATION,
a California corporation a Delaware corporation
By:/s/ Joseph D. Livingston By:/s/ (illegible)
------------------------------- --------------------------------
Its:SRVP/COO Its:Dir. Gen SVCS
------------------------------ -------------------------------
TELETECH TELESERVICES, INC.,
a Colorado corporation
By: /s/ Joseph D. Livingston
-------------------------------
Its:SRVP/COO
-------------------------------
CONSENT OF KENNETH TUCHMAN
Kenneth Tuchman hereby consents to the foregoing Second Amendment to
Sublease, agrees to continue to be bound by the terms of the Letter Agreement
dated January 29, 1993, between Kenneth Tuchman and Apache Corporation, and
further agrees that the terms of such Letter Agreement will not be affected by
the terms of the foregoing Second Amendment to Sublease.
DATED October 23, 1995.
/s/ Kenneth Tuchman
----------------------------------------
Kenneth Tuchman
3
<PAGE>
EXHIBIT A
DESCRIPTION OF EXPANSION PREMISES
<PAGE>
EXHIBIT A TO SUBLEASE DATED MARCH 16, 1993
MASTER LEASE
ONE UNITED BANK CENTER
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into this 4th day of December,
1986 by and between 1700 LINCOLN LIMITED, a Colorado limited partnership, whose
address for purposes hereof is 1700 Lincoln, Suite 1303, Denver, Colorado 80203
(hereinafter called "Lessor"), and APACHE CORPORATION, a Delaware corporation,
whose address for purposes hereof is 1700 Lincoln, Suite 4800, Denver, Colorado
80203 (hereinafter called "Lessee");
W I T N E S S E T H:
I
1. LEASED PREMISES. Subject to and upon the terms, provisions and
conditions hereinafter set forth, and each in consideration of the duties,
covenants and obligations of the other hereunder, Lessor leases to Lessee and
Lessee leases from Lessor those certain premises in the building (hereinafter
sometimes called the "Building") presently constructed by Lessor on all or a
part of Lots 16 through 30 and a portion of Lot 31 (together with those portions
of the vacated alley adjacent thereto), Block 30 of H. C. Brown's Addition in
the City and County of Denver, Colorado (hereinafter sometimes called the
"Land"), such premises being more particularly described as follows:
(a) INITIAL TEMPORARY SPACE. The "Initial Temporary Space" shall
consist of approximately 20,000 square feet of net rentable area on the 29th
floor of the Building and at a location on such floor to be determined by
Lessor.
(b) SECONDARY TEMPORARY SPACE. The "Secondary Temporary Space" shall
consist of approximately 10,000 square feet of net rentable area on a floor and
at a location on such floor within the Building to be determined by Lessor,
which may or may not be contiguous to the Initial Temporary Space.
(c) PERMANENT SPACE. The "Permanent Space" shall consist of
approximately 159,447 square feet of net rentable area on those floors within
the Building indicated below and at the locations shown on the floor plans
attached hereto as EXHIBIT A.
A-1
<PAGE>
Floor Net Rentable Area
----- -----------------
15 22,144 sq. ft.
16 22,891 sq. ft.
17 22,828 sq. ft.
18 23,053 sq. ft.
20 23,053 sq. ft.
19 23,053 sq. ft.
14 22,425 sq. ft.
The Initial Temporary Space and the Secondary Temporary Space shall
sometimes be collectively referred to as the "Temporary Space." That portion of
the Permanent Space located on floors 15, 16, 17, 18 and 20 of the Building
shall sometimes be collectively referred to herein as the "Initial Permanent
Space." The term "leased premises" shall include the Temporary Space (so long
as it is subject to this lease), the Permanent Space and any additional premises
within the Building hereafter included in this lease pursuant to the terms
hereof or any addendum or amendment thereto.
The term "net rentable area", as used herein, shall refer to (i) in the
case of a single tenancy floor, all floor area measured from the inside surface
of the outer glass line of the Building excluding only the areas ("service
areas") used for building stairs, fire towers, elevator shafts, flues, vents,
stacks, pipe shafts and vertical ducts (which service areas shall be measured
from the midpoint of walls enclosing such service areas), but including any such
service areas which are for the specific use of the particular tenant such as
special stairs or elevators, plus an allocation of the square footage of the
Building's elevator, machine rooms, main mechanical and electrical rooms and
public lobbies (all of such areas being called the "general common areas"), and
(ii) in the case of a floor to be occupied by more than one tenant, all floor
areas within the inside surface of the outer glass line enclosing the leased
premises and measured to the mid-point of the walls separating areas leased by
or held for lease to other tenants or from areas devoted to corridors, elevator
foyers, rest rooms, mechanical rooms, janitor closets and other similar
facilities for the use of all tenants on the particular floor (hereinafter
sometimes called "common areas"), and excluding service areas as aforesaid, but
including a proportionate part of the common areas located on such floor based
upon the ratio which the tenant's net rentable area (excluding common areas) on
such floor bears to the aggregate net rentable area (excluding common areas) on
such floor, plus an allocation of the square footage of the general common
areas. No deductions from net rentable area shall be made for columns or
projections necessary to the Building. The net rentable areas in the Initial
Temporary Space, the Secondary Temporary Space and the Permanent Space have been
calculated on the basis of the foregoing definition and are hereby stipulated
for all purposes hereof to be the square footages set forth in subparagraphs
(a), (b) and (c) above, whether the same
A-2
<PAGE>
should be more or less as a result of minor variations resulting from actual
construction and completion of the leased premises for occupancy.
2. PRIOR LEASE. Lessor and Lessee entered into a Lease Agreement dated
May 4, 1984 (together with Schedules 1 and 2, Exhibits A, A-1 and B, Rider No.
1, and Addendum to Lease Agreement), as amended by a First Lease Amendment dated
May 22, 1985 (together with Exhibits C and D attached thereto), a Lease
Agreement Amendment dated June 24, 1985, and a Second Lease Amendment dated
October 14, 1985 (together with Exhibit C attached thereto) (collectively, the
"Prior Lease"), covering and relating to 62,905 square feet of net rentable area
on the 28th, 45th, 48th and 49th floors of the Building (the "Existing Space").
Lessee shall vacate the Existing Space and the Prior Lease shall terminate and
no longer be of any force or effect when the Commencement Dates (as defined
below) shall have occurred for the first three floors of the Initial Permanent
Space. If the Commencement Dates for the first three floors of the Initial
Permanent Space shall vary, Lessee shall vacate the Existing Space and the Prior
Lease shall terminate on a floor by floor basis as of the Commencement Dates as
each shall occur. In the event that such a floor by floor transition is
necessary, Lessee shall have the right to elect the order in which it shall
vacate floors 45, 48 and 49 of the Existing Space, and Lessee shall vacate the
Existing Space located on floor 28 on the same date as Lessee is to vacate the
last of these full floors. The termination of the Prior Lease shall not release
either party from any obligations under the Prior Lease which had accrued prior
to the date of termination or from any obligations which would otherwise survive
termination of the Prior Lease.
II
1. TERM. (a) Subject to and upon the terms and conditions set forth
herein, or in any exhibit, addendum or rider hereto, this lease shall continue
in force for the following terms:
(b) INITIAL TEMPORARY SPACE. The term of this lease for the Initial
Temporary Space shall commence on October 31, 1986, or the Lessee's actual
occupancy of the Initial Temporary Space, whichever is earlier (the "Initial
Temporary Space Commencement Date"), and shall terminate on Lessee's vacation of
the Initial Temporary Space, which shall occur no later than thirty (30) days
after the Commencement Date for any of the floors comprising the Initial
Permanent Space.
(c) SECONDARY TEMPORARY SPACE. The term of this lease for the
Secondary Temporary Space shall commence on December 1, 1986, or Lessee's actual
occupancy of the Secondary Temporary Space, whichever is earlier (the "Secondary
Temporary Space Commencement Date"), and shall terminate on Lessee's vacation of
the Secondary Temporary Space, which shall occur no later than
A-3
<PAGE>
thirty (30) days after the Commencement Date for any of the floors comprising
the Initial Permanent Space.
(d) PERMANENT SPACE. The term of this lease for the Permanent Space
shall commence on differing dates, dependent on the floor of the Building on
which the Permanent Space is located. Subject to adjustment in accordance with
Item 6 of the Addendum to the Lease Agreement attached hereto (the "Addendum"),
the commencement dates for the respective floors comprising the Permanent Space
shall be the dates listed below, or the dates on which Lessee actually occupies
such space, whichever is earlier (the "Commencement Dates").
Floor Commencement Date
----- -----------------
15 May 15, 1987
16 May 15, 1987
17 May 15, 1987
18 May 15, 1987
20 May 15, 1987
19 June 1, 1987
14 July 1, 1987
The term of this lease for the entire Permanent Space shall end on May 31, 1997.
The terms of the lease periods set forth above for the floors comprising the
Permanent Space shall commence on their respective Commencement Dates, which
dates shall be subject to adjustment in accordance with Item 6 of the Addendum,
regardless of whether the Lessee actually occupies the premises on such dates.
2. USE. The leased premises are to be used and occupied by Lessee solely
for general office purposes. Without limiting the generality of the foregoing,
the leased premises shall not be used for any activity which would tend to lower
the first-class character of the Building. Lessee shall have the same rights to
use of the public areas of the Building and of the Land as have the other
tenants of the Building, including access through the lobby and use of the
elevators and elevator foyers in the lobby area, and any other floor which
Lessee shares in common with other tenants, of the corridors, elevator foyers
and rest rooms thereon.
3. RENT. (a) Lessee hereby agrees to pay a base annual rental (herein
called "Basic Rent"), in the following amounts:
(1) TEMPORARY SPACE. Lessee shall pay Lessor Basic Rent for the
Temporary Space equal to the sum of Five Dollars and Seventy-five Cents
($5.75) per square foot of net rentable area per year, commencing for the
Initial Temporary Space on the Initial Temporary Space Commencement Date
and for the Secondary Temporary Space on the Secondary Temporary Space
Commencement Date.
A-4
<PAGE>
(2) PERMANENT SPACE. Lessee shall pay Lessor Basic Rent for the
Permanent Space equal to the sum of Seventeen Dollars and Fifty-five Cents
($17.55) per square foot of net rentable area per year (which includes the
"Initial Tax Basic Cost," and the "Initial Operating Expenses Basic Cost"
as defined below), commencing for the respective floors comprising the
Permanent Space on their respective Commencement Dates.
Lessee shall also pay, as additional rent, all such other sums of money which
become due from and payable by Lessee to Lessor under this lease. Lessor shall
have the same remedies for default in the payment of additional rent as are
available to Lessor in the case of a default in the payment of Basic Rent. The
Basic Rent, together with any adjustment of rent provided for herein then in
effect (including but not limited to the adjusted Basic Rent described in
Paragraphs 4(a), 4(d) and 4(e) of this Article II), shall be due and payable in
twelve (12) equal installments on the first day of each calendar month during
the initial term of this lease and any extensions or renewals thereof, and
Lessee hereby agrees to so pay such rent to Lessor at Lessor's address as
provided herein (or such other address as may be designated by Lessor from time
to time) monthly in advance, without demand, counterclaim or set-off, except as
provided in Paragraph 1(c) of Article III hereof and Item 5 and Item 6 of the
Addendum. If the Initial Temporary Space Commencement Date, the Secondary
Temporary Space Commencement Date or any of the Commencement Dates are other
than the first day of a calendar month, or the term for occupation of any of the
leased premises terminates on other than the last day of a calendar month, then
the installments of Basic Rent Initial Operating Expenses Basic Cost and Initial
Tax Basic Cost for such month or months shall be prorated and the installment or
installments so prorated shall be paid in advance. All installments of any sums
due by Lessee to Lessor which are not paid within ten (10) calendar days after
the same were due hereunder shall bear interest from the date the same were due
until paid at a rate per annum until paid equal to the prime rate (hereinafter
called the "Prime Rate") charged by Norwest Bank Minneapolis N.A. (or its
successor) from time to time to its most credit-worthy corporate borrowers.
4. RENT ADJUSTMENTS.
(a) Lessee shall have the election to have Lessor share in the
expense of continuing to lease the Minneapolis Space as set forth in Item 5 of
the Addendum to Lease Agreement attached hereto. In the event that Lessee shall
elect to exercise this option in accordance with that provision, the Basic Rent
for the Permanent Space set forth in Paragraph 3(a)(2) above shall be adjusted
upward to $18.55 per square foot of net rentable area.
(b) "Actual Operating Expenses" shall mean all of Lessor's operating
expenses incurred in the operation and
A-5
<PAGE>
maintenance of the Building and the Land and related facilities and such
facilities added in subsequent years as may be determined by Lessor to be
necessary or reasonable. Operating expenses will be computed on the accrual
basis and in accordance with the terms of this lease. The term "operating
expenses" shall include all expenses, costs and disbursements (except for
"Impositions" as defined below) of every kind and nature which Lessor shall pay
or become obligated to pay because of or in connection with the ownership and
operation of the Building and the Land, including but not limited to, the
following:
(1) Wages and salaries of all employees engaged in the operation and
maintenance of the Building (except that as to employees engaged only part-
time in the operation and maintenance of the Building, such wages and
salaries shall be included only to the extent that the same are
attributable to said operation and maintenance), including personnel for
security or who may provide traffic control relating to ingress and egress
to and from the parking facilities serving the Building to the adjacent
public streets. All taxes, insurance and benefits relating to employees
providing these services shall be included.
(2) All supplies and materials used in the operation and maintenance
of the Building.
(3) Cost of all utilities for the Building, including, but not
limited to, the cost of water, power, heating, lighting, air conditioning
and ventilating (excluding those costs billed to specific tenants).
(4) Cost of all maintenance and service agreements for the Building
and the equipment therein, including, but not limited to, security service,
window cleaning, elevator maintenance and janitorial service.
(5) Cost of all insurance relating to the Building, including, but
not limited to, the cost of casualty, rental abatement and liability
insurance applicable to the Building and Lessor's personal property used in
connection therewith.
(6) Cost of repairs and general maintenance (excluding repairs and
general maintenance paid by proceeds of insurance or by Lessee or other
third parties, and alterations attributable solely to tenants of the
Building other than Lessee).
(7) Amortization of the cost of capital investment items which are
primarily for the purpose of reasonably reducing operating costs, except
that the amount of such amortized cost, for each capital investment item,
which is included each year in operating expenses shall not exceed the
reduction in
A-6
<PAGE>
operating costs for that year attributable to such capital investment item
or Lessor's reasonable estimate of such reduction if the exact reduction
cannot be determined; and amortization of the cost of capital investment
items which may be required by governmental authority, but only to the
extent that such governmental requirement was not in effect on the date
that both Lessor and Lessee have executed this lease. All such costs shall
be determined and amortized over the reasonable life of the capital
investment items in accordance with generally accepted accounting
principles. In no event shall such amortization period extend beyond the
reasonable life of the Building.
(8) Lessor's central office accounting costs applicable to the
Building.
(9) The Building's share of all the expenses described in (1) through
(8) to the extent incurred for or in connection with the bridge across
Lincoln Street (which share is one-half) or any tunnels or bridges
connecting the Building to any parking facility serving the Building.
(10) A contribution (the "Management Fee Contribution") towards a
management fee payable to the manager of the Building, said contribution to
be at all times equal to three percent (3%) of the Basic Rent (as the same
may be adjusted from time to time) and of the Lessee's Share of Computed
Operating Expenses (less Initial Operating Expenses Basic Cost, the same
being included in the Basic Rent) and the Lessee's Share of Computed Tax
Expenses (less Initial Tax Basic Cost, the same being included in the Basic
Rent) as described below (but excluding the Management Fee Contribution).
The term "operating expenses" shall not include (i) depreciation on the
Building or interest or principal payments on any mortgage or deed of trust now
or hereafter on the Building and/or the Land; (ii) expenses directly resulting
from the negligence of Lessor or its agents, servants or employees; (iii) legal
fees, space planners' fees, real estate brokers leasing commissions and
advertising expenses incurred in connection with the original development or
original leasing of the Building or future releasing of the Building; (iv) any
bad debt loss, rent loss or reserves for bad debts or rent loss; (v) costs
associated with the operation of the business of the corporation, partnership or
other entity which constitutes Lessor as the same are distinguished from the
costs of operation of the Building, including formation, internal accounting and
legal matters, costs of defending any lawsuits with any mortgagees of the
Building and/or the Land (except as the actions of Lessee may be an issue),
costs of selling, syndicating, financing, mortgaging or hypothecating any of
Lessor's interest in the Building, costs of any disputes between
A-7
<PAGE>
Lessor and its employees (if any) not engaged in Building management or
operation or outside fees paid in connection with disputes with other tenants;
(vi) any amounts paid as ground rental by Lessor; (vii) costs incurred in
connection with any major change in the Building, such as adding or deleting
floors; (viii) costs of alterations or improvements of the leased premises or
the premises of any other tenant; (ix) costs of correcting defects or
inadequacies of the initial design or construction of the Building; (x) costs
for which Lessor is reimbursed by insurance, whether by its carrier or any
tenant's carrier; or (xi) fines, penalties and interest, including any penalties
paid by Lessor to any tenant of the Building, except fines, penalties and
interest incurred as a result of the outcome of any dispute regarding the
Building and/or the Land in which Lessor is engaged in good faith. Operating
expenses shall reflect all cash discounts, trade discounts or quantity discounts
received by Lessor or Lessor's manager of the Building in the purchase of goods,
utilities or services in connection with the operation of the Building. Lessor
shall make payments for goods, utilities and services in a timely manner to
obtain available discounts unless Lessor is contesting the charge for the same
or otherwise deems it prudent to delay payment.
As used herein, the term "Impositions" shall mean all taxes, assessments
and governmental charges, whether federal, state, county or municipal, and
whether they be by taxing districts or authorities presently taxing the Building
and the Land or by others subsequently created or otherwise, and any other taxes
and assessments attributable to the Building and the Land or their operation,
whether or not directly paid by Lessor, excluding, however, federal and state
taxes on income, death taxes, excess profit taxes, franchise taxes, or other
taxes imposed or measured on or by the income of Lessor from the operation of
the Building or imposed in connection with any change of ownership of the
Building or the Land; provided, however, that if at any time during the term of
this lease, the present method of taxation or assessment shall be so changed
that the whole or any part of the taxes, assessments, levies, impositions or
charges now levied, assessed or imposed on real estate and the improvements
thereon shall be discontinued and as a substitute therefor, or in lieu of an
addition thereto, taxes, assessments, levies, impositions or charges shall be
levied, assessed and/or imposed wholly or partially as a capital levy or
otherwise on the rents received from said real estate or the rents reserved
herein or any part thereof, then such substitute or additional taxes,
assessments, levies, impositions or charges, to the extent so levied, assessed
or imposed, shall be deemed to be included within Impositions to the extent that
such substitute or additional tax would be payable if the Building and the Land
were the only property of Lessor subject to such tax. It is agreed that Lessee
will be responsible for ad valorem taxes on its personal property and on the
value of the leasehold improvements in the leased premises to the extent that
the same exceed building standard allowances as set forth in Items 1 through 9
of Schedule
A-8
<PAGE>
3 to the Addendum (and if the taxing authorities do not separately assess
Lessee's leasehold improvements, Lessor may make a reasonable allocation of the
Impositions to the same). If special assessments which are payable in annual
installments are levied against the Land and/or the Building, the Impositions
for a given calendar year shall include only the installment (together with
interest thereon if applicable) for that year. If the Building shall be sold at
a demonstrably inflated price for tax-shelter purposes of the buyer, then any
increased ad valorem real estate taxes resulting from an increase in assessed
valuation of the Building based in turn on such inflated sales price shall not
be included in Impositions.
(c) The "Initial Operating Expenses Basic Cost" (including the
Management Fee Contribution) is stipulated to be $4.34 per square foot of net
rentable area of the leased premises, less the Storage Space (as that term is
defined in Item 7 of the Addendum). The "Initial Tax Basic Cost" is stipulated
to be $1.21 per square foot of net rentable area of the leased premises, less
the Storage Space.
(d) The term "Computed Operating Expenses" shall mean, with respect
to each calendar year during the term of this lease, the Actual Operating
Expenses for said year computed in accordance with the provisions of Paragraph
4(b) of this Article II, but excluding the Management Fee Contribution. The
term "Lessee's Share of Computed Operating Expenses" shall mean, with respect to
any calendar year, the sum of (i) the Management Fee Contribution for such year,
and (i) the Computed Operating Expenses for such year (y) divided by the net
rentable area of the Building, which is represented by Lessor to be 1,178,560
square feet, and (z) multiplied times the number of square feet of net rentable
area contained within the leased premises, less the Storage Space.
For each calendar year during the term of this Lease, prior to January 1 of
each such year (or prior to the commencement of the term of this lease as to the
year in which said commencement occurs), Lessor shall provide Lessee in writing
a comparison of the Initial Operating Expenses Basic Cost with the projected
Lessee's Share of Computed Operating Expenses with respect to such year, and
thereafter Lessee shall pay an adjusted Basic Rent for such year which shall
include an appropriate amount on account of the excess of such projected
Lessee's Share of Computed Operating Expenses over the Initial Operating
Expenses Basic Cost. Lessor shall, within a period of one hundred fifty (150)
days (or as soon thereafter as possible) after the close of each such calendar
year, provide Lessee a statement of the operating expenses for such year
prepared by a certified public accountant of recognized standing, and a
calculation (based thereon) prepared by Lessor of Lessee's Share of Computed
Operating Expenses for such year. If Lessee's Share of Computed Operating
Expenses for such year is greater than the projected amount theretofore paid by
Lessee for such year,
A-9
<PAGE>
Lessee shall pay to Lessor within thirty (30) days after Lessee's receipt of the
statement the amount of such excess. However, if Lessee's Share of Computed
Operating Expenses for such year is less than the projected amount theretofore
paid by Lessee for such year, Lessor shall pay to Lessee within thirty (30) days
after Lessee's receipt of the statement the amount of such overpayment. Any
sums payable by Lessee under this paragraph 4(d) of Article II shall be deemed
additional rent.
(e) The term "Lessee's Share of Computed Tax Expenses" shall mean,
with respect to each calendar year, the Impositions for said year (y) divided by
the net rentable area of the Building, which is agreed by Lessor and Lessee to
be 1,178,560 square feet, and (z) multiplied times the number of square feet of
net rentable area contained within the leased premises, less the Storage Space.
For each calendar year during the term of this lease, prior to January 1 of
each such year (or prior to the commencement of the term of this lease as to the
year in which said commencement occurs, Lessor shall provide Lessee in writing a
comparison of the Initial Tax Basic Cost with the projected Lessee's Share of
Computed Tax Expenses with respect to such year, and thereafter Lessee shall pay
an adjusted Basic Rent for such year which shall include an appropriate amount
on account of the excess of such projected Lessee's Share of Computed Tax
Expenses over the Initial Tax Basic Cost. Lessor shall, within a period of one
hundred fifty (150) days (or as soon thereafter as possible) after the close of
each such calendar year, provide Lessee a statement of the Impositions for such
year prepared by a certified public accountant of recognized standing, and a
calculation (based thereon) prepared by Lessor of Lessee's Share of Computed Tax
Expenses for such year. If Lessee's Share of Computed Tax Expenses for such
year is greater than the projected amount theretofore paid by Lessee for such
year, Lessee shall pay to Lessor within thirty (30) days after Lessee's receipt
of the statement the amount of such excess. However, if Lessee's Share of
Computed Tax Expenses for such year is less than the projected amount
theretofore paid by Lessee for such year, Lessor shall pay to Lessee within
thirty (30) days after Lessee's receipt of the statement the amount of such
overpayment. Any sums payable by Lessee under this Paragraph 4(e) of Article II
shall be deemed additional rent.
(f) Should this lease commence or terminate at any time other than
the first day of a calendar year, Lessee's Share of Computed Operating Expenses
and Lessee's Share of Computed Tax Expenses referred to in Paragraphs 4(d) and
4(e) of this Article II shall be calculated, for the commencement or termination
year only, by the following formula:
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<PAGE>
Days Occupied X Lessee's Share of Computed Operating Expenses
- ------------- (or Lessee's Share of Computed Tax Expenses)
365
= Adjusted Lessee's Share of Computed Operating
Expenses (or Adjusted Lessee's Share
of Computed Tax Expenses)
If the terms of portions of the leased premises commenced on different
dates, Lessee's Share of Computed Operating Expenses (or Lessee's Share of
Computed Tax Expenses) shall be separately calculated, for the commencement
year(s) only, for each portion of the Leased premises with a different
commencement date, as provided in Paragraphs 4(d) and 4(e) of this Article II
above. Lessee's Share of Computed Operating Expenses (or Lessee's Share of
Computed Tax Expenses) as so calculated shall be separately applied in the above
formula and the sum of all amounts resulting from such separate applications
shall constitute Lessee's share of Computed Operating Expenses and Lessee's
share of Computed Tax Expenses for such commencement year(s).
(g) Lessor shall keep accurate books and records on the Building,
operating expenses and Impositions, and, on reasonable notice from Lessee, make
copies thereof available in Denver, Colorado. Lessee shall have the right at
all reasonable times, and at its sole expense, to audit Lessor's books and
records relating to this lease for any year or years for which additional rental
payments become due; or at Lessor's sole discretion Lessor will provide such
audit prepared by a certified public accountant. If Lessor reasonably agrees
that any such audit establishes that operating expenses or Impositions are less
than theretofore reported by Lessor, then Lessor shall promptly remit Lessee's
proportionate share of such overage pursuant to such audit. If Lessor
reasonably agrees that any such audit prepared at Lessee's expense establishes
that the operating expenses and Impositions for any such year, in combined
aggregate, theretofore reported by Lessor have been overstated by two percent
(2%) or more, then Lessor shall refund to Lessee the cost of such audit.
(h) Notwithstanding any other provision herein to the contrary, it is
agreed with regard to cleaning and utilities only, that in the event the
Building is not fully occupied during any calendar year, or in the event the
entire Building is not furnished with building standard services during any
calendar year, an adjustment shall be made in computing the Computed Operating
Expenses for such year so that the Computed Operating Expenses shall be computed
for such year as though the Building had been fully occupied during such year,
and as though the entire Building had been provided with building standard
services during such year. Lessor shall use reasonable efforts to operate the
Building efficiently and economically at all times during the term of this lease
so as to give Lessee all the services required for tenants of first class office
buildings and at the same time keep operating
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expenses to a reasonable amount. Lessor shall demonstrate to Lessee's
satisfaction Lessor's determination and computation of Lessee's share of
Computed Operating Expenses.
(i) Lessor agrees that, per square foot of net rentable area,
Lessee's Share of Computed Operating Expenses (excluding the Management Fee
Contribution) will not exceed that of any other tenant in the Building.
III
Lessor and Lessee covenant and agree as follows:
1. SERVICES TO BE FURNISHED BY LESSOR.
(a) Lessor shall use its best efforts to cause public utilities to
furnish the electricity and water utilized in operating any and all facilities
serving the leased premises.
(b) Lessor shall furnish Lessee while occupying the leased premises:
(i) Domestic warm and cold water at certain points of
supply available on each floor in the Building, with toilet facilities and
supplies to be available on each floor; central heat and air conditioning
in season, at such temperatures and in such amounts as are considered by
Lessor to be standard, but such service at times during weekdays other than
normal business hours for the Building, on Saturday afternoons, Sundays and
holidays to be furnished only upon request of Lessee, who shall pay the
charges described in Schedule 5 attached to the Addendum; routine
maintenance and electric lighting service for all public areas and special
service areas of the Building in the manner and to the extent deemed by
Lessor to be standard.
(ii) Janitor service on a five (5) day week basis at no
extra charge in accordance with the Janitorial Specifications attached
hereto as Exhibit B, as the same may be reasonably amended by Lessor from
time to time; provided, however, Lessee shall pay as additional rent, upon
presentation of Lessor's statement, the additional cost for cleaning its
floor coverings and other improvements which are not building standard.
Failure to pay such additional rent shall constitute a default hereunder.
(iii) Personnel or equipment to maintain security for the
Building. Except as provided in the next sentence, Lessor shall, however,
not be responsible to prevent, or be liable for, and Lessee shall indemnify
Lessor against, all liability or loss to Lessee, its agents, employees and
visitors arising from theft, burglary, or damage
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<PAGE>
or injury to persons or property caused by persons (other than the officers
or employees of Lessor) gaining access to the Building or the leased
premises. The preceding sentence shall not be deemed to excuse Lessor from
any negligence of Lessor or its officers or employees with respect to
theft, burglary, damage or injury to persons or property caused by Lessor's
independent contractors or the officers or employees of such independent
contractors. On notice from Lessee, Lessor will make reasonable efforts to
require Lessor's independent contractors to deny access to the leased
premises to such officers or employees of such independent contractors as
Lessee has specifically identified.
(iv) Sufficient electrical capacity to furnish one hundred
twenty (120) volt power for typewriters, voice writers, calculating
machines and other machines of similar low electrical power consumption
(provided that the total consumption on each floor does not exceed one watt
per square foot of net rentable area). In addition, Lessor shall provide
electrical capacity for building standard lighting at no premium cost to
Lessee, which building standard lighting has been designed for three watts
per square foot of net rentable area, and Lessor shall provide sufficient
electrical capacity to meet Lessee's electrical requirements for the
technical service area described in Item 6 of the Addendum. Lessor shall
have the right, if it determines that Lessee is using electric current in
excess of what is described above, to install a check meter to determine
the amount of electric current that Lessee is using. If Lessee is using
electric current in excess of what is described above, the cost of
installing and monitoring such check meter, together with such excess
current, shall be charged to Lessee as additional rent. Electrical
equipment loads which in total on any floor exceed one-half (1/2) watt per
square foot of net rentable area may require installation of additional air
conditioning capacity above that provided by the building standard system,
which additional air conditioning installation and operating costs relating
thereto will be the obligation of Lessee unless Lessor has specifically
agreed to pay any such costs pursuant to Item 6 of the Addendum.
Electrical capacity is not provided on a building standard basis for
electrical equipment which singly consumes more than five hundred (500)
watts (at rated capacity), such as electrical data processing equipment,
duplicating machines, and special (incandescent) lighting, or for voltage
other than one hundred twenty (120) volts.
(v) All fluorescent and incandescent bulb replacement in
public areas, and, upon notice from and at Lessee's expense, in the leased
premises.
(vi) Non-exclusive passenger elevator service to the leased
premises twenty-four (24) hours per day and non-
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<PAGE>
exclusive freight elevator service during normal business hours.
(vii) Commence removal of snow and ice on the sidewalks
adjacent to the Building within a reasonable time after snowfall or ice
accumulation.
Failure by Lessor to any extent to furnish the above described services, or
any cessation thereof, resulting from causes beyond the reasonable control of
Lessor shall not render Lessor liable in any respect for damages to either
person or property, nor be construed as an eviction of Lessee, nor work an
abatement of rent, nor relieve Lessee from fulfillment of any covenant or
agreement hereof. Should any of the equipment or machinery break down, or for
any reason cease to function properly, Lessee shall have no claim for rebate of
rent or damages on account of an interruption in service occasioned thereby or
resulting therefrom; provided, however, Lessor agrees to use its best efforts to
promptly repair said equipment or machinery and to restore said services.
(c) Notwithstanding the foregoing, if the leased premises shall
become untenantable for five (5) consecutive business days (Monday through
Friday but excluding holidays as defined in SCHEDULE 5 attached to the Addendum)
owing to the cessation of such services, and if Lessee has provided Lessor
written notice of such cessation of services, rent shall abate after the five
day period and until such time as the services have been restored so as to make
the leased premises tenantable; and if the leased premises remain untenantable
for a continuous period of six (6) months, after notice by Lessee to Lessor,
owing to cessation of such services Lessee may terminate this lease as of the
end of such six-month period, in which event neither Lessor nor Lessee shall
have any further liability by reason of this lease or any other document
executed in connection herewith.
2. KEYS AND LOCKS. Lessor shall furnish Lessee two (2) keys for each
corridor door entering the leased premises. Additional keys will be furnished
by Lessor at a charge to Lessee equal to Lessor's cost on an order signed by
Lessee or Lessee's authorized representative. All such keys shall remain the
property of Lessor. No additional locks shall be placed on any door of the
leased premises without Lessor's permission, which permission shall not be
unreasonably withheld, and Lessee shall not make, or permit to be made, any
duplicate keys, except those furnished by Lessor. Upon termination of this
lease, Lessee shall surrender to Lessor all keys of the leased premises, and
give to Lessor the explanation of the combination of all locks for safes, safe
cabinets and vault doors, if any, in the leased premises.
3. GRAPHICS. Lessor shall provide and install, at Lessee's expense
except as provided hereinbelow, all letters or numerals on entrance doors to the
leased premises. All such letters and
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<PAGE>
numerals shall be in the building standard graphics, and no others shall be used
or permitted on the exterior of, or which may be visible from outside, the
leased premises without Lessor's prior written approval, which shall not be
unreasonably withheld. Lessor also agrees to provide and install a listing of
Lessee on the Building's directory board consisting of a maximum of thirty (30)
lines, in addition to those lines presently listed on the directory board, all
of which shall be at Lessee's expense.
4. PEACEFUL EMPLOYMENT. Lessor covenants that Lessee shall and may
peacefully have, hold and enjoy the leased premises, subject to the other
provisions of this Lease, including Paragraph 11 of Article IV, provided that
Lessee pays the rental and other sums herein recited to be paid by Lessee and
performs all of Lessee's covenants and agreements herein contained. It is
understood and agreed that this covenant and any and all other covenants of
Lessor contained in this lease shall be binding upon Lessor and its successors
only with respect to breaches occurring during its and their respective
ownership of the Lessor's interest hereunder.
5. LIMITATION OF LESSOR'S PERSONAL LIABILITY. Lessee specifically agrees
to look solely to Lessor's interest in the Building for the recovery of any
judgment from Lessor, it being agreed that Lessor (and its partners and
shareholders) shall never be personally liable for any such Judgment. The
provision contained in the foregoing sentence is not intended to, and shall not,
limit any right that Lessee might otherwise have to obtain injunctive relief
against Lessor or Lessor's successors in interest or any suit or action in
connection with enforcement or collection of amounts which may become owing or
payable under or on account of insurance maintained by Lessor.
6. PARKING RIGHTS. Lessee shall have the rights to the parking permits
described on, but subject to the terms and conditions of Rider No. 1.
IV
Lessee and Lessor further covenant and agree as follows:
1. PAYMENTS BY LESSEE. Lessee shall pay all rent and sums provided to be
paid to Lessor hereunder at the times and in the manner herein provided, without
demand, counterclaim or set off, except as provided in Paragraph 1.(c) of
Article III above and in Items 5 and 6 of the Addendum.
2. REPAIRS BY LESSOR. Prior to the Commencement Dates, Lessor shall use
its best efforts to put the leased premises, parking garage, Building and all
Building and parking garage service systems (including, without limitation,
plumbing and electrical systems, boilers and elevators) in good repair and
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<PAGE>
condition, and covenants and agrees that at the commencement of the term these
systems will be in good electrical, mechanical and operating condition. Unless
otherwise stipulated in this lease, Lessor shall not be required to make any
improvements to or repairs of any kind or character on the leased premises
before or during the term of this lease, except such repairs as may be necessary
for normal maintenance operations for a first-class office building. The
obligation of Lessor to maintain and repair the leased premises shall be limited
to building standard items, as set forth in Schedule 3 attached to the Addendum.
Non-building standard leasehold improvements will, at Lessee's written request,
be maintained by Lessor at Lessee's expense, at a cost or charge equal to the
costs incurred in such maintenance plus an additional charge of fifteen percent
(15%) to cover Lessor's overhead. Lessor will, to the extent permitted by such
warranties, assign to Lessee any warranties obtained by Lessor in constructing,
installing, maintaining or repairing non-building standard leasehold
improvements. Notwithstanding any provisions of this lease to the contrary, all
repairs, alterations or additions to the Building (as opposed to those involving
leasehold improvements) shall be made by Lessor or its contractor only, and
except as otherwise provided in, and subject to the other terms and conditions
of, this lease, Lessor shall keep the public areas of the Building in the
condition expected for first-class office buildings.
3. REPAIRS BY LESSEE. Subject to Paragraph 13 of Article V, Lessee shall
at its own cost and expense, repair or replace any damage or injury done to its
leasehold improvements, or any part thereof, caused by Lessee or Lessee's
agents, employees or invitees. If Lessee fails to make such repairs or
replacements to its leasehold improvements promptly, Lessor may, at its option,
make such repairs or replacements, and Lessee shall pay Lessor on demand
Lessor's actual costs in making said repairs or replacements plus a charge of
fifteen percent (15%) to cover Lessor's overhead. Any damage or injury caused
to the Building (as opposed to those involving Lessee's leasehold improvements)
by Lessee, its agents, employees or invitees shall be repaired or replaced by
Lessor, but at Lessee's expense plus a charge of fifteen percent (15%) to cover
overhead.
4. CARE OF THE LEASED PREMISES. Lessee shall not commit or allow to be
committed any waste or damage on any portion of the leased premises, and at the
termination of this lease, by lapse of time or otherwise, shall deliver up the
leased premises to Lessor in as good condition as at date of possession by
Lessee, ordinary wear and tear excepted, and subject to the provisions of
Paragraph 4 of Article V below. Upon such termination of this lease, Lessor
shall have the right to re-enter and resume possession of the leased premises.
5. ASSIGNMENT OR SUBLEASE.
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<PAGE>
(a) Lessee may sublet all or any portion of the leased premises or
assign this lease, at any time, to any successor entity of Lessee without having
first to obtain Lessor's consent, PROVIDED HOWEVER, that such successor entity's
use thereof shall be consistent with Paragraph 2 of Article II. A "successor
entity" means another corporation at least fifty-one percent (51%) of whose
voting stock is owned by Lessee at all times while such sublease or assignment
is in effect or an entity which hereafter acquires all of the corporate stock of
Lessee.
(b) Subject to Lessor's prior written approval of each subtenant,
which approval shall not be unreasonably withheld or delayed, Lessee may sublet
up to 50% of the leased premises; provided, however, that each subtenant's use
of the leased premises is consistent with Paragraph 2 of Article II. In the
event Lessee should desire to sublet the leased premises or a portion thereof,
Lessee shall give Lessor written notice of such desire at least thirty (30) days
in advance of the date on which Lessee desires to make such sublease. Lessor
shall then have a period of ten (10) days following receipt of such notice
within which to provide its written approval of the proposed sublease. Failure
by Lessor within such ten (10) day period to give written approval to such
subletting shall be deemed disapproval thereof by Lessor. If Lessor approves
such sublease, Lessor shall be entitled to receive one-half of all excess
rentals to be paid to or owed by such subtenant to Lessee. "Excess rentals"
include all lump-sum payments, payments on account of operating expenses and
Impositions, payments of rent net of such payments on account of operating
expenses and Impositions, and all other payments paid or owed by such sub-tenant
for the sublet space in excess of Basic Rent, Initial Operating Expenses Basic
Cost and Initial Tax Basic Cost (x) as adjusted under Paragraphs 4(d) and 4(e)
of Article II owed by Lessee under this lease, and (y) as increased by the pro
rata share allocable to the sublet space of any cash inducement or other
payments, inducements or concessions made by Lessor to Lessee in connection with
Lessee's entering into this lease, such pro rata share to be determined by
amortizing such cash inducement or other payments, inducements or concessions
over the term of this lease and allocating the same on an even square foot basis
over all of the initial 159,447 square feet of net rentable area; provided,
however, that Lessee shall be permitted to deduct the following sums from the
payments made by the subtenant before excess rentals in which Lessor is entitled
to share arise: (i) any brokerage and legal expense reasonably incurred by
Lessee in connection with such sublease; (ii) rentals paid by Lessee to Lessor
for any period during which the sublet space was vacant and Lessee was actively
seeking a subtenant therefor; (iii) any unamortized value (such amortization to
be over the term of this lease) of the leasehold improvements in the sublet
space which were paid for by Lessee, depreciated from the date of installation
to the date of commencement of the term of the sublease, regardless of whether
said improvements might be considered a part of the leased premises
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<PAGE>
or shall be or become the property of Lessor under the terms of this lease; and
(iv) such portion of costs and expenses incurred by Lessee, in connection with
the sublease to improve the sublet space as is allocable to the sublease, such
portion being determined by amortizing the cost of such improvements to the
sublet space over the life of such improvements. Assignments by Lessee of an
interest in the leased premises shall be treated the same as and aggregated with
subleases. Lessee shall not be liable to Lessor for payment of excess rentals
owed to Lessor hereunder except to the extent that such subtenant or assignee
has actually paid excess rentals to Lessee. Subleases or assignments made
pursuant to subparagraph (a) of this Paragraph 5 are not subject to this
subparagraph (b).
(c) Notwithstanding that Lessor may have approved all subleases and
assignments, if Lessee shall have sublet greater than an aggregate of 50% of the
leased premises, Lessor may elect either (i) to terminate this lease in its
entirety by written notice to Lessee, or (ii) to keep this lease in full force
and effect and to receive directly from all subtenants 50% of all excess rentals
to be paid by or owed by all subtenants to Lessee. On the day that Lessee has
sublet greater than an aggregate of 50% of the leased premises, Lessee shall
notify Lessor in writing of that fact and Lessor shall have thirty days after
receipt of such notice to elect under option (i) or (ii). If Lessor elects
option (i), then Lessee shall have no further liability under this lease except
for liabilities which have accrued prior to such termination. Failure by Lessor
to make a written election shall be deemed to be an election under option (ii).
"Excess rentals" shall be calculated in the manner set forth in subparagraph (b)
of this Paragraph 5. Assignments by Lessee of an interest in the leased
premises shall be treated the same as and aggregated with subleases. In
calculating whether the 50% aggregate (counting both such assignments and
subleases) has been exceeded, subleases or assignments pursuant to subparagraph
(a) of this Paragraph 5 shall not be included, but if such 50% aggregate has
been otherwise exceeded, then Lessor's election under (i) or (ii) of this
subparagraph (c) shall be equally applicable to subleases and assignments under
said subparagraph (a).
No assignment or subletting by Lessee, whether or not pursuant to
subparagraph (a) of this Paragraph 5 and whether or not approved by Lessor,
shall relieve Lessee of any obligation under this lease. Any attempted
assignment or sublease by Lessee in violation of the terms and covenants of this
Paragraph 5 shall be void. Any consent by Lessor to a particular assignment or
sublease shall not constitute Lessor's consent to any other or subsequent
assignment or sublease.
6. ALTERATIONS, ADDITIONS AND IMPROVEMENTS.
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(a) Lessor shall deliver and Lessee shall accept the Temporary Space
in its present condition (on an "as is" basis) and Lessee shall not be entitled
to receive any contribution or allowance from Lessor for improvement thereof.
With respect to the Permanent Space, the respective obligations of Lessor and
Lessee in connection with the improvement and alteration of the space is set
forth in Item 6 of the Addendum. All work to be done by Lessor shall be
completed in a good workmanlike manner and in compliance with federal, state and
local law, and shall include delivery by Lessor of a certificate of occupancy or
other form of authorization, if required by law, issued by the appropriate
government or agency thereof, stating that the premises may lawfully be occupied
for the uses permitted by this lease. Lessor will prepare the Permanent Space
in accordance with Item 6 of the Addendum, but Lessor shall be required to bear
the expense of building out the Permanent Space only to the extent set forth in
Item 6 of the Addendum.
(b) Lessee shall not allow (except as otherwise provided in this
lease) any alterations or physical additions to be made in or to the leased
premises, or place signs on the leased premises which are visible from outside
the leased premises, or place safes or vaults within the leased premises,
without first obtaining the written consent of Lessor, which consent shall not
be unreasonably withheld or delayed.
(c) All alterations and physical additions in or to the leased
premises which are paid for by Lessor shall, when made, become the property of
Lessor and shall be surrendered to Lessor upon termination of this lease,
whether by lapse of time or otherwise. If Lessee is not then in default, at the
termination of this lease Lessee may remove above-building standard improvements
which have been paid for by Lessee provided that Lessee shall have put the
leased premises in at least building standard condition and left the premises in
good condition and repair, and may likewise remove movable equipment or
furniture owned by Lessee. Lessee agrees specifically that no food, soft drink
or other vending machine will be installed within the leased premises without
the written consent of Lessor; provided, however, that Lessee may install said
machines for the exclusive use of its employees and guests as long as the same
are not visible from any public areas of the Building, the number and types of
said machines are reasonably approved by Lessor, Lessee takes such measures as
may be necessary for adequate rodent and insect control and the prevention of
odors from emanating therefrom, and Lessee complies with such other reasonable
rules and regulations as Lessor may promulgate from time to time, and Lessee
shall promptly remove any machine that does not so comply. Additionally, Lessee
will be solely responsible for access for servicing same during normal business
hours.
(d) Lessee has no authority or power to cause or permit any lien or
encumbrance of any kind whatsoever whether created by
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act of Lessee, operation of law or otherwise, to be attached to or placed upon
Lessor's title or interest in the leased premises or the Building or Land.
Should any mechanics' or materialmen's lien ("mechanics' lien") be filed or
recorded against the leased premises, the Building or the Land owing to any
labor or service claimed to have been performed for or materials claimed to have
been furnished at the request of Lessee or its contractors or subcontractors,
Lessee covenants and agrees to cause such mechanics' lien to be released and
removed of record within fifteen (15) days after Lessee learns of the filing or
recording of such mechanics' lien (or such shorter period, after Lessee learns
of such recording or filing, as may be required by any mortgage, deed of trust,
land or ground lease which may now or hereafter encumber the Building and/or the
Land) unless Lessor by written notice shall extend such time. Lessee shall
promptly notify Lessor of the filing or recording of any such mechanics' lien of
which Lessee learns and of any notice of intent to file a mechanics' lien
statement which is served upon Lessee. Lessor shall have the right to post and
keep posted on the leased premises until any alterations, additions,
improvements, or repairs are completed any notices permitted or required by law
which Lessor shall deem proper for the protection of Lessor, the leased
premises, the Building or the Land, or any party having an interest therein,
from mechanics' liens. In the performance of all alterations, additions,
improvements, or repairs conducted by Lessee's contractors or subcontractors,
all such contractors and subcontractors shall be required to maintain casualty
and liability insurance coverage as is reasonably adequate to fully protect
Lessor and Lessee.
7. LEGAL USE AND VIOLATIONS OF INSURANCE COVERAGE. Lessee shall not
occupy or use, or permit any portion of the leased premises to be occupied or
used, for any business or purpose which is unlawful or deemed to be hazardous on
account of fire or other hazards, or permit anything to be done which would in
any way void or increase the rate of fire or liability or any other insurance
coverage on the Building and/or its contents. Lessor acknowledges that Lessee's
occupancy and use of the technical service area described in Item 6 of the
Addendum in the manner proposed by Lessee would not constitute an unlawful use
and would not void or increase insurance coverage on the Building.
8. LAWS AND REGULATIONS; RULES OF BUILDING. Lessee shall comply with all
laws, ordinances, orders, rules and regulations (of state, federal, municipal
and other agencies or bodies having any jurisdiction thereof) relating to the
use, condition or occupancy of the leased premises, and Lessor will comply with
such thereof as relate to the use, condition or occupancy of the public areas in
the Building. Lessee will comply with the rules of the Building adopted and
altered by Lessor from time to time for the safety, care and cleanliness of the
leased premises and Building and for preservation of good order therein, all of
which shall be administered by Lessor in a non-discriminatory manner and all of
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which will be sent by Lessor to Lessee in writing and shall be thereafter
carried out and observed by Lessee, its employees, contractors, agents, invitees
and customers.
9. ENTRY FOR REPAIRS AND INSPECTION. Lessee shall permit Lessor or its
agents or representatives to enter into and upon any part of the leased
premises, upon reasonable prior notice to Lessee except in case of emergency, at
all reasonable hours to inspect the same, clean or make repairs, alterations or
additions thereto, and show the same to prospective tenants, as Lessor may deem
necessary or desirable, and Lessee shall not be entitled to any abatement or
reduction of rent by reason thereof; provided, however, that except in case of
emergency Lessor shall not enter into any area designated as a confidential or
secure area by Lessee in a written notice to Lessor unless accompanied by a
representative of Lessee.
10. NUISANCE. Lessee shall conduct its business and control its agents,
employees and invitees in such manner as not to create any nuisance.
11. SUBORDINATION.
(a) Lessor will obtain from the existing ground lessor and the
beneficiary of the existing deed of trust on the Building, agreements with
Lessee guaranteeing nondisturbance of Lessee, in the event of termination of the
ground lease or foreclosure of the deed of trust, so long as Lessee is in full
compliance with its obligations under this lease.
(b) Lessee agrees that, upon the request of Lessor made in writing,
Lessee will subordinate this lease to any first mortgage or deed of trust, or
any lien co-equal to such mortgage or deed of trust ("mortgage") which may
hereafter encumber the Building and/or the Land and to all renewals,
modifications, consolidations, replacements and extensions thereof, provided
that such mortgagee enters into an agreement with Lessee guaranteeing
nondisturbance of Lessee, in the event of foreclosure of the mortgage, so long
as Lessee is in full compliance with its obligations under this lease. If such
mortgagee enters into such agreement, then in the event of foreclosure by the
mortgagee of any such mortgage, Lessee will automatically become the Lessee of
such successor in interest without change in the terms or provisions of this
lease. However, such mortgagee or successor in interest shall not be (i) bound
by any payment of rent or additional rent for more than one month in advance
except prepayments in the nature of security for the performance by Lessee of
its obligations under this lease, (ii) bound by any amendment or modification of
this lease made without the written consent of such mortgagee or such successor
in interest (provided that the interest of the mortgagee or successor in
interest existed at the time of such amendment or modification), (iii) liable
for any previous act or omission of Lessor, or (iv) subject to any abatement,
deduction, counterclaim
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or offset against Lessee's obligations to pay rent, which shall have theretofore
accrued to Lessee against Lessor, except as provided in Paragraph 1(c) of
Article III above and in Items 5 and 6 of the Addendum. Upon request by such
successor in interest, Lessee shall execute and deliver an instrument or
instruments confirming the attornment herein provided for.
(c) Notwithstanding anything contained in this lease to the contrary,
in the event of any default by Lessor in performing its covenants or obligations
hereunder which would give Lessee the right to terminate this lease, Lessee
shall not exercise such right unless and until (i) Lessee gives written notice
of such default (which notice shall specify the exact nature of said default and
how the same may be cured) to the owner or holder of any mortgage, deed of
trust, land or ground lease now or hereafter encumbering the Building and/or the
Land who has theretofore notified Lessee in writing of its interest and the
address to which notices are to be sent, and (ii) said holder or owner fails to
cure or cause to be cured said default thirty (30) days from the giving of such
notice by Lessee. The provisions of Paragraph 14 of Article V shall govern the
manner and effective date of any notice to be given by Lessee to any such holder
or owner.
12. ESTOPPEL CERTIFICATE. Lessee agrees, at any time and from time to
time, upon not less than ten (10) business days prior written notice from
Lessor, to execute, acknowledge and deliver to Lessor (if true) a statement in
writing (1) certifying that this lease is unmodified and is in full force and
effect (or if there have been modifications, that this lease is in full force
and effect as modified and stating the modifications); (2) stating the dates to
which the rent and other charges hereunder have been paid by Lessee; (3) stating
whether or not Lessee has knowledge that Lessor is in default in the performance
of any covenant, agreement or condition contained in this Lease, and, if Lessee
has knowledge of such a default, specifying each such default; and (4) stating
the address to which notice to the Lessee shall be sent. Prior to the
commencement of or during the term of this lease Lessor shall if required by
Lessee, upon not less than ten (10) business days prior written notice from
Lessee, deliver an estoppel certificate, in the substance and form described
above, relative to the status of this lease and/or any ground lease, underlying
lease and/or mortgage encumbering the Building, parking garage or land.
V
Lessor and Lessee additionally mutually covenant and agree as follows:
1. CONDEMNATION. If the leased premises shall be taken or condemned for
any public purpose to such an extent as to render the leased premises wholly or
in substantial part untenantable, this lease shall, at the option of either
party, forthwith cease and
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terminate as of the date of such taking or condemnation. Otherwise, this lease
shall continue in full force and effect and rent shall not be abated or
redeemed. All proceeds from any taking or condemnation shall belong to and be
paid to Lessor.
2. DAMAGES FROM CERTAIN CAUSES. Except for its negligence and except as
otherwise provided in Paragraph 13 of Article V or elsewhere in this lease,
neither Lessee nor Lessor shall be liable or responsible to the other 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, or any cause beyond its
control.
3. HOLDING OVER. In the event of holding over by Lessee after expiration
or termination of this lease without the written consent of Lessor, Lessee shall
pay as liquidated damages one hundred and fifty per cent (150%) of the rent
(including the Basic Rent and all adjustments thereto as described in Paragraphs
3 and 4 of Article II of this lease) for the entire holdover period. No holding
over by Lessee after the term of this lease shall be construed to extend the
lease. In the event of any unauthorized holding over, Lessee shall also
indemnify Lessor against all claims for damages by any other lessee to whom
Lessor may have leased all or any part of the leased premises effective upon the
termination of this lease. Any holding over with the consent of Lessor in
writing shall thereafter constitute this lease a lease from month to month.
4. FIRE CLAUSE. Lessee shall immediately notify Lessor of fire or other
casualty in the leased premises. If through no fault or neglect of Lessee, its
agents, employees, or invitees the leased premises are partially destroyed by
fire or other casualty, the rental provided for herein shall abate as to those
portions of the leased premises rendered untenantable thereby until such time as
such portions are made tenantable as determined by Lessor. In the event of the
total destruction of the leased premises without fault or neglect of Lessee, its
agents, employees, or invitees, or if from any cause without fault or neglect of
Lessee, its agents, employees or invitees, the leased premises or the Building
shall be so damaged that Lessor shall decide not to rebuild, then Lessee shall
pay all rent owed up to the time of such destruction or termination and this
lease shall terminate. Notwithstanding anything contained in this Paragraph 4,
Lessor shall not be obligated to restore or rebuild the leased premises to above
building standard condition as set forth in Schedule 3 to the Addendum;
provided, however, where Lessor has elected to rebuild or restore the leased
premises, Lessee shall have the right to cause Lessor to rebuild or restore the
leased premises to the condition they were in prior to such damage or
destruction, in which event Lessee shall bear the cost of such restoration or
rebuilding to the extent the same exceeds the costs Lessor would have incurred
had
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only building standard improvements as set forth in Schedule 3 to the Addendum
been used. In the event this lease has not terminated pursuant to the foregoing
provisions of this Paragraph 4 and Lessor has not completed the restoration or
repairs to the leased premises within one (1) year after the date the fire or
other casualty occurred, then Lessee may elect to terminate this lease and
Lessee's rent obligation shall be to pay all rent due and owing (excluding any
rent abated to the extent permitted under the foregoing provisions of this
Paragraph 4) up to the date of such termination, and this lease shall then
terminate.
5. ATTORNEY'S FEES. In the event either party defaults in the
performance of any of the terms, agreements or conditions contained in this
lease and the other party places the enforcement of this lease, or any part
thereof, or the collection of any rent due, or to become due hereunder or
recovery of the possession of the leased premises, in the hands of an attorney
who files suit upon the same, the non-prevailing party agrees to pay the other
party's reasonable attorney's fees.
6. ALTERATION. This lease may not be altered, changed or amended, except
by an instrument in writing signed by both parties hereto.
7. ASSIGNMENT BY LESSOR. Lessor shall have the right to transfer and
assign, in whole or in part, all its rights and obligations hereunder and in the
Building, the Land and property referred to herein, and in such event and upon
such transfer (any such transferee to have the benefit of, and be subject to,
the provisions of Paragraphs 4 and 5 of Article III) no further liability or
obligation shall thereafter accrue against Lessor hereunder.
8. DEFAULT OF LESSEE. If default shall be made in the payment of any sum
to be paid by Lessee under this lease, and such default shall continue for five
(5) days after written notice to Lessee, or if default shall be made in the
performance of any of the other covenants or conditions which Lessee is required
to observe and to perform and such default shall continue for twenty (20) days
after written notice to Lessee, or if the interest of Lessee under this lease
shall be levied on under execution or other legal process, or if any petition
shall be filed by or against Lessee to declare Lessee a bankrupt or to delay,
reduce or modify Lessee's debts or obligations, or if any petition shall be
filed to reorganize or modify Lessee's capital structure, or if Lessee be
declared insolvent according to law, or if any assignment of Lessee's property
shall be made for the benefit of creditors, or if a receiver or trustee is
appointed for Lessee or its property, or if Lessee shall abandon the leased
premises during the term of this lease or any renewals or extensions thereof
(except that so long as Lessee is fully complying with the terms and provisions
of this lease, vacation alone of the leased premises shall not constitute
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abandonment), or if Lessee shall cease to exist as a corporation in good
standing in the state of its incorporation then Lessor may treat the occurrence
of any one or more of the foregoing events as a breach of this lease (provided
that no such levy, execution, legal process or petition filed against Lessee
shall constitute a breach of this lease if Lessee shall vigorously contest the
same by appropriate proceedings and shall remove or vacate the same within
thirty (30) days from the date of its creation, service or filing, and provided
further that as to any default (other than a failure to pay money or carry
insurance as required by this lease and other than such levy, execution, legal
process or petition as aforesaid) which cannot be cured by Lessee within said
twenty (20) day period, Lessee shall not be deemed to be in default so long as
Lessee diligently commences curative efforts within said twenty (20) day period
and thereafter pursues the same to diligent completion) and thereupon, at
Lessor's option, Lessor may have any one or more of the following described
remedies in addition to all other rights and remedies provided at law or in
equity:
(a) Lessor may terminate this lease and forthwith repossess the
leased premises and be entitled to recover forthwith from Lessee as damages an
amount equal to the total of
(i) the cost including reasonable attorney's fees of
recovering the leased premises,
(ii) all unpaid rentals earned at the time of termination of
this lease, plus interest thereon at the rate per annum equal to five
percent (5%) above the Prime Rate, and
(iii) any other money and damages owed by Lessee to Lessor.
In addition, Lessor shall also be entitled to recover from Lessee as
damages the amounts determined at Lessor's election under either (x) or (y)
below:
(x) The amount of all rentals which would have been payable
herewith if this lease had not been terminated less the net proceeds, if
any, received by Lessor from any reletting of the leased premises, after
deducting all reasonable out-of-pocket costs incurred by Lessor in finding
a new tenant and reletting the space, including remodeling and refinishing
space for a new tenant, reasonable and customary tenant inducements, and
paying any reasonable and customary brokerage fees or agents' commissions
in connection therewith, redecorating costs, reasonable attorney's fees and
other costs and expenses incident to the reletting of the leased premises.
Lessee shall pay such damages to Lessor on the days on which the monthly
rent would have been payable if this lease had not terminated.
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(y) The present value discounted at the date of ten percent
(10%) per annum of the balance of the rent for the remainder of the term of
this lease after the termination date less the present value (discounted at
the same rate) of the fair rental value (such rental value to include all
costs and expenses set forth in subparagraph (x) above) of the leased
premises for said period.
(b) Lessee's right to possession of the leased premises and leasehold
estate and options hereunder shall, after ten (10) days further notice and
Lessee's failure to cure such default during such ten (10) day period,
immediately cease and terminate, and Lessor lawfully may immediately or at any
time thereafter with or without legal process, enter into or upon the leased
premises or any part thereof and repossess same and remove all persons and
property therefrom (Lessee hereby waiving any claim by reason of the issuance of
any distress warrant or writ of sequestration, except claims arising out of
Lessor's failure to exercise reasonable care as to Lessee's property), and
without prejudice to any remedies which Lessor may have for arrears of rent or
breach of covenant. No such re-entry or repossession of the leased premises by
Lessor shall be construed as an election on Lessor's part to terminate this
lease unless a written notice of termination is given to Lessee by Lessor.
Notwithstanding such re-entry and termination of Lessee's rights of possession,
Lessee agrees that Lessee shall remain liable for all rentals due and to become
due hereunder, and the same shall be paid by Lessee to Lessor on the regular
days stipulated herein for payment of rent; however, if the leased premises be
relet (Lessor hereby agreeing to use its best efforts to relet the leased
premises) in whole or in part, Lessor shall keep all rentals paid thereby, but
Lessee shall be entitled to a credit in the net amount of the rent received by
Lessor as a result of such reletting (after deducting all reasonable out-of-
pocket costs incurred by Lessor in finding a new tenant and reletting the space,
including rebuilding and refinishing space for a new tenant, reasonable and
customary tenant inducements, and paying any reasonable and customary brokerage
fees or agent's commissions in connection therewith, redecorating costs,
attorney's fees and other costs and expenses incident to the aforesaid
repossession of the leased premises and reletting of same); Lessee will remain
obligated to pay Lessor the amount of any deficiency of the rent actually
received on such reletting below the rent reserved herein. If this lease is
terminated by operation of law as a result of Lessor's actions under this (b),
then Lessor shall be entitled to recover damages from Lessee as provided above.
Lessor shall have the right to collect from Lessee amounts equal to said
deficiencies and damages provided for above by suits or proceedings brought from
time to time on one or more occasions without Lessor being obligated to wait
until the expiration of the term of this lease.
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Whether Lessor proceeds under subparagraph (a) or subparagraph (b) of this
Paragraph 8, Lessor shall use reasonable efforts to mitigate its damages.
9. NON-WAIVER. Failure of either party to declare any default
immediately upon occurrence thereof, or delay in taking any action in connection
therewith, shall not waive such default, but said party shall have the right to
declare any such default at any time and take such action as might be lawful or
authorized hereunder, either in law or in equity.
10. CASUALTY INSURANCE. Lessor shall maintain fire and extended coverage
insurance on the Building (excluding leasehold improvements) and on all building
standard leasehold improvements. Said insurance shall be maintained with an
insurance company authorized to do business in Colorado, in amounts desired by
Lessor and at the expense of Lessor (but with the same to be included in the
operating expenses of the Building as described in Paragraph 4 of Article II of
this lease) and payments for losses thereunder shall be made solely to Lessor.
If Lessor receives insurance proceeds for any damage occurring within the leased
premises then (except as any mortgage or deed of trust or ground or land lease
now or hereafter covering the Building and/or the Land may otherwise require and
unless Lessor elects pursuant to the provisions of Paragraph 4 of Article V not
to rebuild or restore the leased premises) such insurance proceeds shall be used
to rebuild or restore the leased premises. Lessee shall maintain at its expense
fire and extended coverage insurance on all of its personal property, including
removable trade fixtures, located in the leased premises and on its non-building
standard leasehold improvements and all additions and improvements made by
Lessee and not required to be insured by Lessor above. If the annual premiums
to be paid by Lessor shall exceed the standard rates because Lessee's
operations, contents of the leased premises, or improvements with respect to the
leased premises beyond building standard, result in hazardous exposure, Lessee
shall promptly pay the excess amount of the premium upon request by Lessor (and
if necessary, Lessor may allocate the insurance costs of the Building to give
effect to this sentence).
11. LIABILITY INSURANCE. Lessor and Lessee shall each, at their
respective expense, maintain a policy or policies of comprehensive general
liability insurance with the premiums thereon fully paid on or before the due
dates, issued by and binding upon some solvent insurance company, such insurance
to afford minimum protection (which may be effected by primary and/or excess
coverage) of not less than $300,000 in respect of personal injury or death in
respect of any one occurrence and of not less than $100,000 for property damage
in any one occurrence, provided Lessee shall carry such greater limits of
coverage as Lessor may reasonably request from time to time.
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12. HOLD HARMLESS. Lessor shall not be liable to Lessee, its agents,
servants, employees, customers or invitees for any damage to person or property
caused by any act, omission or neglect of Lessee, its agents, servants or
employees or invitees, and Lessee agrees to indemnify and hold Lessor harmless
from all liability and claims for any such damage. Lessee shall not be liable
to Lessor, or to Lessor's agents, servants, employees, customers or invitees for
any damage to person or property caused by any act, omission or neglect of
Lessor, its agents, servants or employees, and Lessor agrees to indemnify and
hold Lessee harmless from all claims for such damage.
13. WAIVER OF SUBROGATION RIGHTS. Anything in this lease to the contrary
notwithstanding, Lessor and Lessee each hereby waives any and all rights of
recovery, claim, action or cause of action, against the other, its agents,
officers, partners, shareholders or employees, for any loss or damage that may
occur to the leased premises or the Building, or any improvements thereto, or
any personal property of such party therein, by reason of fire, the elements, or
any other cause which is or could be insured against under the terms of the
standard fire and extended coverage insurance policies referred to in Paragraph
10 of Article V, regardless of cause or origin, including negligence of the
other party hereto, its agents, officers, partners, shareholders or employees,
and covenants that no insurer shall hold any right of subrogation against such
other party.
14. NOTICES. Any notice or other communications to Lessor or Lessee
required or permitted to be given under this lease (and copies of the same to be
given to the persons below described) must be in writing and shall be
effectively given if delivered to the addresses for Lessor and Lessee stated
above or if sent by United States mail, certified or registered, return receipt
requested, to said addresses. Any notice mailed shall be deemed to have been
given on the regular business day next following the date of deposit of such
item in a depository of the United States Postal Service. Notice effected other
than by mail shall be deemed to have been given at the time of actual delivery.
Either party shall have the right to change its address to which notices shall
thereafter be sent by giving the other notice thereof. Additionally, Lessee
shall send copies of all notices required or permitted to be given to Lessor to
any holder or owner of a mortgage, deed of trust or land or ground lease
encumbering the Building and/or the Land who notifies Lessee in writing of its
interest and the address to which notices are to be sent.
15. BUILDING NAME. Lessor reserves the right to change the name of the
Building from time to time as Lessor shall deem proper, except that if during
the initial ten (10) year term of this lease Lessor changes the name to that of
another entity whose primary business activity is that of oil and gas
exploration and which is perceived by the general public to be a competitor of
Lessee (a
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"competitor's name"), then Lessee may give notice to Lessor that unless Lessor
changes the name back to One United Bank Center or to another name that is not a
competitor's name within ninety (90) days, Lessee will cancel this lease at the
end of not to exceed an additional one hundred eighty (180) days; and if Lessor
does not so change the name then this lease shall terminate and neither party
shall have any further rights or duties under this lease. Lessee shall pick the
exact date within said total of two hundred seventy days on which this lease
shall so terminate by written notice to Lessor not less than ninety (90) days
prior to such exact date, and in the absence of such notice from Lessee to
Lessor this lease shall terminate on said two hundred and seventieth (270th)
day.
16. MISCELLANEOUS. This lease shall be binding upon and inure to the
benefit of the successors and assigns oL Lessor, and shall be binding upon and
inure to the benefit of Lessee, its successors, and, to the extent assignment
may be approved by Lessor hereunder if required, Lessee's assigns. The pronouns
of any gender shall include the other genders, and either the singular or the
plural shall include the other.
Whenever in this lease there is imposed upon Lessor the obligation to use
best efforts, Lessor shall be required to do so only to the extent the same is
economically feasible and otherwise will not impose upon Lessor extreme
financial or other burdens.
All rights and remedies of Lessor under this lease shall be cumulative and
none shall exclude any other rights or remedies allowed by law; and this lease
is declared to be a Colorado contract, and all of the terms thereof shall be
construed according to the laws of the State of Colorado.
The terms and provisions of Addendum to Lease Agreement, Exhibits A and B,
Schedules 1, 2, 3, 4, 5 and 5-A, and Rider No. 1 attached hereto are hereby made
a part hereof for all purposes.
IN TESTIMONY WHEREOF, the parties hereto have executed this lease as of the
date aforesaid.
1700 LINCOLN LIMITED
By: HINES COLORADO LIMITED, a Colorado
Limited Partnership
By: /s/ Gerald D. Hines
-----------------------------------
Gerald D. Hines, a General Partner
of Hines Colorado Limited
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By: Hines Colorado Corporation, a
General Partner of Hines Colorado
Limited
ATTEST:
By: /s/ Gerald D. Hines
- ------------------------------ -----------------------------------
Secretary LESSOR
APACHE CORPORATION,
a Delaware corporation
ATTEST:
/s/ Barbara G. Nielson By: James R. Bauman
- ------------------------------ -----------------------------------
Secretary Vice President
LESSEE
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EXHIBIT A TO LEASE AGREEMENT
[FLOOR PLANS]
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EXHIBIT B TO LEASE AGREEMENT
Janitorial Specifications
Cleaning and related services shall be provided five (5) days each week and
these days shall be either Monday through Friday inclusive or such other five
days as the Owner may from time to time designate. Services shall include, but
not be limited to the following:
I. OFFICE AREAS
A. Services performed nightly:
1. Empty, and clean (if necessary) all waste receptacles and remove
waste paper and rubbish from the premises.
2. Empty and damp wipe all ash trays; screen all sand urns and
supply and replace sand as necessary.
3. Vacuum all rugs and carpet, unobstructed by furniture, in the
offices, lobbies and corridors.
4. Hand dust and wipe clean with damp or treated cloth all office
furniture, files, fixtures, paneling, window sills and all other
horizontal surfaces.
5. Damp wipe and polish all glass furniture tops.
6. Remove all finger marks and smudges from all vertical surfaces,
including doors, door frames, around light switches, private
entrance glass, partitions, pictures and wall decorations.
7. Wash clean all water coolers.
8. Sweep all stairways and vacuum if carpeted.
9. Sweep all uncarpeted floors employing dust controlled techniques.
B. Services performed as necessary:
1. Wash waste receptacles.
2. Wash window sills.
3. Damp mop floors where spillage occurred.
4. Damp dust and sanitize all telephones.
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5. Dress and buff floors to maintain scuff-free high gloss.
6. Dust lights.
7. Vacuum carpet under furniture and along edges.
C. Services performed when requested by Property Manager:
1. Spot clean all rugs in carpeted areas.
D. Services performed monthly:
1. Tile floors waxed and buffed.
E. Services performed quarterly:
1. Strip and reseal floors.
II. RESTROOMS
A. Services performed nightly:
1. Wet mop, and rinse floor.
2. Clean all mirrors, bright work and enameled surfaces.
3. Wash and disinfect all basins, urinals and bowls using
nonabrasive cleaners to remove stains and clean undersides of rim
on urinals and bowls.
4. Scrub all fixtures using a cleaner to remove all stains.
5. Wash both sides of all toilet seats with soap and water to
disinfect.
6. Damp wipe all partitions, tile walls and outside surfaces of all
dispensers and receptacles.
7. Empty and sanitize all trash receptacles and sanitary disposals.
8. Fill toilet tissue, soap, towel and sanitary napkin dispensers.
9. Clean flushometers, piping, toilet seat hinges and other metal.
B. Services performed as necessary:
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1. Scrub floors.
C. Services performed monthly:
1. Thoroughly wash all partitions, tile walls, dispensers and
receptacles.
2. Wash and polish all walls, partitions, tile walls and enamel
surfaces from trim to floor.
3. Vacuum all louvers, ventilating grills and dust light fixtures.
D. It is the intention to keep the restrooms thoroughly cleaned and not
to use a disinfectant or deodorant to kill odor. If a disinfectant is
necessary, an odorless product will be used.
III. Public Areas
A. Terrazzo flooring
1. Services performed nightly:
a. Sweep, heavy wash and dress.
Buff.
B. Composition floors and bases
Services performed nightly:
a. Sweep.
b. Spray buff.
1. Services performed as necessary:
a. Waxed and buffed.
2. Services performed quarterly:
a. Strip and reseal.
C. Carpeted area
Services performed nightly:
a. Vacuum carpet unobstructed by furnishings.
b. Spot remove stains.
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1. Services performed as necessary:
a. Shampooing.
b. Vacuum all carpet and edging.
D. Brick or stone floors
1. Services performed nightly:
a. Sweep, wash and buff.
2. Services performed quarterly:
a. Strip and reseal.
E. Walls
1. Services performed as necessary:
a. Dust.
b. Spot wash.
c. Wash thoroughly.
F. Ceilings
1. Services performed as necessary:
a. Dust.
2. Services performed monthly:
a. Thoroughly dust.
G. Bright Work
1. Services performed nightly:
a. Dust and polish.
H. Lights
1. Services performed as necessary:
a. Dust.
b. Wash.
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I. Elevators
1. Services performed nightly:
a. Dust all surfaces, clean and polish all metals.
b. If carpet, vacuum and clean.
c. If tile, sweep, wash, dress and buff.
2. Services performed as necessary:
a. Dust light fixtures.
b. Dust ceiling.
c. Shampoo carpet.
d. If tile, scrub and wax.
3. Services performed quarterly:
a. If tile, strip and reseal.
J Ash urns
1. Services performed nightly:
a. Clean and polish.
2. Services performed as necessary:
a. Empty and replace sand.
K. Water Cooler
1. Services performed nightly:
a. Wash, disinfect and dry polish.
L. Stairways and landings
1. Services performed nightly:
a. Sweep risers.
b. If carpet, vacuum.
c. Police.
2. Services performed as necessary:
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a. Dust railing and adjacent areas.
b. Dust walls and spot wash walls.
3. Services performed weekly:
a. If carpet, spot stain removal.
4. Services performed monthly:
a. Wet mop risers.
5. Services performed biannually:
a. If carpet, shampoo.
M. Fire extinguisher and cabinet
1. Services performed as necessary:
a. Clean and dust.
N. Doors
1. Services performed as necessary:
a. Dust wooden doors.
O. Glass
1. Services performed nightly:
a. Clean glass entrance doors and adjacent glass panels.
P. General
1. Services performed nightly:
a. Sweep and/or vacuum entrance mats.
b. Thoroughly wash transoms high and low.
c. Police and spot sweep outside plaza and sidewalk and pick up
trash in parking garage.
d. Keep slopsink rooms in a clean, neat and orderly condition.
e. Remove fingerprints and smudges from directory boards.
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f. Maintain building lobby corridors and other public areas in
a clean condition.
2. Services performed as necessary:
a. Wash and/or shampoo mats and/or blotters.
b. Hose and/or steam, plaza sidewalk areas.
c. Dust and/or wash all directory boards.
3. Services performed as requested by Property Manager:
a. Wipe all interior metal window frames, mullions and other
unpainted interior metal surfaces of the perimeter walls of
the building each time the interiors of the windows are
washed.
4. Services performed quarterly:
a. Dust and wipe clean all closet shelving when empty and
carpet sweep or dry mop all floors in closets if such are
empty.
b. Dust all picture frames, charts, graphs and similar wall
hangings.
c. Dust clean all vertical surfaces such as walls, partitions,
door bucks and other surfaces above shoulder height.
d. Damp dust all ceiling air conditioning diffusers, wall
grills, registers and other ventilation louvers.
e. Dust the exterior surfaces of lighting fixtures, including
glass and plastic enclosures.
Q. Day Services
1. At least once, but not more than twice during the day check men's
washrooms for toilet tissue replacement.
2. At least once, but not more than twice during the day check
ladies' washrooms for toilet tissue and sanitary napkin
replacements.
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3. Supply toilet tissue, soap and towels in men's and ladies'
washrooms and sanitary napkins in ladies' washrooms.
4. As needed, vacuuming of elevator cabs will be performed.
There will be a constant surveillance of public areas to insure
cleanliness.
6. Perform special cleaning needs of individual tenants as
authorized by the Property Manager.
IV. Exterior Windows
A. Services Performed Quarterly:
1. Wash exterior windows.
Upon completion of nightly duties the floor supervisors will insure that all
offices have been cleaned and left in a neat and orderly condition, all lights
have been turned off, and all doors locked.
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<PAGE>
ADDENDUM TO LEASE AGREEMENT DATED MAY 4, 1984
This addendum forms an integral part of the Lease Agreement ("Lease")
executed this 4th of December, 1986 by and between 1700 Lincoln Limited, as
Lessor, and Apache Corporation, as Lessee, as fully as if this addendum were
physically incorporated in said Lease Agreement.
ITEM 1. RENEWAL OPTIONS
So long as Lessee is not in default in the performance of its covenants
under this Lease, Lessee is hereby granted the option to renew the term of this
Lease for all, and not less than all, space then under lease to Lessee for two
renewal periods of five (5) years each, to commence at the expiration of the
initial term of this Lease ("Renewal Options"). These renewal periods shall
hereafter be referred to as the "Renewal Terms." Lessee shall maintain its
right to exercise the Renewal Options by delivering written notice of its
interest in exercising such option(s) to Lessor, not less than seventeen (17)
months prior to the end of the initial lease term or the first Renewal Term, as
the case may be. The Basic Rent for the leased premises during the Renewal
Terms (inclusive of the portion of Basic Rent attributable to operating expenses
and Impositions) shall be equal to ninety percent (90%) of the fair market
rental rate for comparable space at the time the Renewal Term commences, which
fair market rental rate shall be determined in accordance with SCHEDULE 1 to
this Addendum. Adjustments to the Basic Rent shall be calculated and payable as
provided ln Paragraphs 4(d) and 4(e) of Article II of the Lease. In the event
Lessee shall deliver to Lessor written notice of is intent as provided above,
Lessor shall, no later than sixteen (16) months prior to the end of the initial
lease term or the First Renewal Term, as the case may be, advise Lessee as to
what the Basic Rent would be for the leased premises for such Renewal Term.
Lessee shall then have until fifteen (15) months prior to the end of the initial
lease term or the first Renewal Term, as the case may be, in which to exercise
such Renewal Option by delivering written notice of its intent to exercise the
option to Lessor. Any such renewal of this Lease shall be upon the same terms
and conditions of this Lease, except (a) the Basic Rent during the Renewal
Term(s) shall be as set forth above, and all additional rent shall be calculated
and payable in accordance with this Lease, (b) Lessee shall have no option to
renew this Lease beyond the expiration of said Renewal Terms, (c) Lessee may
assign the Renewal Options only to an assignee of all of Lessee's rights under
this Lease, pursuant to an assignment approved by Lessor under Paragraph 5 of
Article IV of this Lease, and (d) the leasehold improvements will be provided in
their then existing condition (on an "as is" basis) at the commencement of the
Renewal Term(s).
ITEM 2. FIRST EXPANSION OPTION
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So long as Lessee is not in default in the performance of its covenants
under this Lease, Lessee shall have and is hereby granted an expansion option
("First Expansion Option") to lease all, but not a portion of, one floor within
the Building contiguous to the leased premises and consisting of one of floors
thirteen (13) through twenty-three (23), in accordance with the following terms
and conditions:
(a) Lessor shall, in its sole discretion, determine which floor
meeting the above criteria (the "First Expansion Space") is to be offered
to Lessee.
(b) Lessor, no later than twelve (12) months prior to the date on
which Lessor would make available to Lessee the First Expansion Space if
Lessee exercises the First Expansion Option, shall give Lessee written
notice of (i) the size and location of the First Expansion Space; (ii) the
date on which the First Expansion Space would be made available to Lessee,
provided that such date shall be after May 15, 1988 but no later than
November 15, 1988; (iii) the amount of the Basic Rent for the First
Expansion Space, which shall be the lesser of either (x) ninety percent
(90%) of the fair market rental rate (inclusive of the portion of Basic
Rent attributable to operating expenses and Impositions) determined in
accordance with Schedule I attached hereto, for a lease term of
approximately nine (9) years as of the daze on which the First Expansion
Space would be made available to Lessee, or (y) $12.00 (or $13.00 if Lessor
exercised its option pursuant to Paragraph 4(a) of Article II of the Lease)
per square foot of net rentable area, plus the Initial Operating Expenses
Basic Cost and the Initial Tax Basic Cost; and (iv) the projected Lessee's
Share of Computed Operating Expenses and the projected Lessee's Share of
Computed Tax Expense for the calendar year in which the First Expansion
Space would be made available to Lessee.
(c) Lessee shall exercise the First Expansion Option by giving Lessor
written notice of such exercise within thirty (30) days after Lessor's
notice pursuant to paragraph (b) of this Item 2 has been given; and upon
Lessor's making available the First Expansion Space, Lessee's right to
occupy the First Expansion Space shall continue to and expire on the same
date Lessee's right to the initial leased premises terminates.
(d) If Lessor does not receive said notice from Lessee within said
thirty (30) days, Lessee's right to exercise the First Expansion Option
shall expire.
(e) Upon making available the First Expansion Space to Lessee, all
references in the Lease to the leased premises and the net rentable area
contained in the leased premises shall be adjusted to include the First
Expansion Space and the terms
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<PAGE>
and conditions of the First Expansion Option shall be the same terms and
conditions as set forth in this Lease, except that:
1. Up to the expiration of the initial term of the Lease, the
Basic Rent for the First Expansion Space shall be the rental rate specified
in Lessor's written notice to Lessee. Adjustments to the Basic Rent shall
be calculated and payable as provided in Paragraphs 4(d) and 4(e) of
Article II of the Lease, and any other additional rent shall be calculated
and payable in accordance with the Lease. If Lessee continues to occupy
the First Expansion Space in accordance with one or both of the Renewal
Options, the Basic Rent for such space shall be established as set forth in
Item 1;
2. Lessor shall deliver and Lessee shall accept the First
Expansion Space in its then existing condition (on an "as is" basis), and
Lessee shall not receive any contribution or allowance from Lessor for any
Improvement thereof; and
3. Lessee shall commence payment of Basic Rent, together with
the projected Lessee's share of Computed Operating Expenses and Lessee's
Share of Computed Tax Expenses for the calendar year in question on the
First Expansion Space on the date Lessor makes available to Lessee the
First Expansion Space but not sooner than the date speciFied in Lessor's
written notice to Lessee unless Lessee occupies the First Expansion Space
prior to said date.
(f) Lessee's net rentable area, as defined in this Lease, shall be
adjusted appropriately to include the net rentable area of the First
Expansion Space and Lessor and Lessee shall execute, at the request of the
either, a recordable instrument delineating and describing Lessee's net
rentable area, as so adjusted.
(g) Lessee may assign the First Expansion Option only to an assignee,
approved by Lessor under Paragraph 5 of Article IV of the Lease, of all of
Lessee's rights under this Lease; Lessee's assignment of the First
Expansion Option to any other parry shall be void and shall constitute a
default under this Lease.
ITEM 3. SECOND EXPANSION OPTION
So long as Lessee is not in default in the performance of its covenants
under this Lease, Lessee shall have and is hereby granted an expansion option
("Second Expansion Option") to lease all, but not a portion of, one floor within
the Building contiguous to the then leased premises and consisting of one of
floors thirteen (13)
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through twenty-three (23), in accordance with the following terms and
conditions:
(a) Lessor shall, in its sole discretion, determine which floor
meeting the above criteria (the "Second Expansion Space") is to be offered
to Lessee.
(b) Lessor, no later than twelve (12) months prior to the date on
which Lessor would make available to Lessee the Second Expansion Space if
Lessee exercises the Second Expansion Option, shall give Lessee written
notice of (i) the exact size and location of the Second Expansion Space;
(ii) the date on which the Second Expansion Space will be made available to
Lessee, provided that such date shall be after November 15, 1988 and no
later than May 15, 1989; (iii) the amount of the Basic Rent for the Second
Expansion Space, which shall be the lesser of either (x) ninety percent
(90%) of the fair market rental rate (inclusive of the portion of Basic
Rent attributable to operating expenses and Impositions) determined in
accordance with SCHEDULE I attached hereto for a lease term of
approximately eight (8) years as of the date on which the Second Expansion
Space would be made available to Lessee, or (y) $12.00 (or $13.00 if Lessor
exercised its option pursuant to Paragraph 4(a) of Article II of the Lease)
per square foot of net rentable area plus the Initial Operating Expenses
Basic Cost and the Initial Tax Basic Cost; and (iv) the projected Lessee's
Share of Computed Operating Expenses and the projected Lessee's Share of
Computed Tax Expense for the calendar year in which the Second Expansion
Space would be made available to Lessee.
(c) Lessee shall exercise the Second Expansion Option by giving
Lessor written notice of such exercise within thirty (30) days after
Lessor's notice pursuant to paragraph (b) of this Item 3 has been given;
and upon Lessor's making available the Second Expansion Space, Lessee's
right to occupy the Second Expansion Space shall continue to and expire on
the same date Lessee's right to the initial leased premises terminates.
(d) If Lessor does not receive said notice from Lessee within said
thirty (30) days, Lessee's right to exercise the Second Expansion Option
shall expire.
(e) Upon making available the Second Expansion Space to Lessee, all
references in the Lease to the leased premises and the net rentable area
contained in the leased premises shall be adjusted to include the Second
Expansion Space and the terms and conditions of the Second Expansion Option
shall be the same terms and conditions as set forth in this Lease, except
that:
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<PAGE>
1. Up to the expiration of the initial ten-year term of the
Lease, the Basic Rent for the Second Expansion Space shall be the rental
rate specified in Lessor's written notice to Lessee. Adjustments to the
Basic Rent shall be calculated and payable as provided in Paragraphs 4(d)
and 4(e) of Article II of the Lease, and any other additional rent shall be
calculated and payable in accordance with the Lease. If Lessee continues
to occupy the Second Expansion Space in accordance with one or both of the
Renewal Options, the Basic Rent for such space shall be established as set
forth in Item 1 above;
2. Lessor shall deliver and Lessee shall accept the Second
Expansion Space in its then existing condition (on an "as is" basis) and
Lessee shall not receive any contribution or allowance from Lessor for any
improvement thereof; and
3. Lessee shall commence payment of Basic Rent, together with
the projected Lessee's share of Computed Operating Costs and Lessee's share
of Computed Tax Expenses for the calendar year in question on the Second
Expansion Space on the date Lessor makes available to Lessee the Second
Expansion Space but no sooner than the date specified in Lessor's written
notice to Lessee unless Lessee occupies the Second Expansion Space prior to
said date.
(f) Lessee's net rentable area, as defined in this Lease, shall be
adjusted appropriately to include the net rentable area of the Second
Expansion Space and Lessor and Lessee shall execute, at the request of the
either, a recordable instrument delineating and describing Lessee's net
rentable area, as so adjusted.
(g) Lessee may assign the Second Expansion Option only to an
assignee, approved by Lessor under Paragraph 5 of Article IV of the Lease,
of all of Lessee's rights under this Lease; Lessee's assignment of the
Second Expansion Option to any other party shall be void and shall
constitute a default under this Lease.
ITEM 4. RIGHT OF FIRST OFFER.
So long as Lessee is not in default in the performance of any of its
covenants under the Lease and subject to the rights of tenants under any
existing leases of space within the Building or the rights of tenants under
leases that Lessor may hereafter enter into for space within the Building,
("third-party leases") and any rights of expansion, first refusal, first offer
or similar options or rights of any tenant under any of the third-party leases
("third-party rights"), Lessee shall have a continuing right of first offer to
lease any space that becomes available on floors 13
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through 30, inclusive, at the expiration or earlier termination of any such
third-party leases, subject and subordinate to any third-party rights ("Right of
First Offer"). Lessor shall use its best efforts to make space available on
such floors to accommodate the expansion needs of Lessee, provided, however,
that Lessor shall not be obligated to relocate existing tenants, obtain waivers
of third party rights or restrict its efforts in negotiating new third party
leases or granting new third party rights in order to accommodate Lessee's
expansion needs if any of these efforts or activities would adversely effect the
overall profitability of Lessor's leasing operations for the entire Building.
The Right of First Offer shall be exercised in accordance with and subject to
the following terms and conditions:
(a) No earlier than twelve (12) months before an existing third-party
lease on space located on floors 13 through 30, inclusive, will or does
expire or terminate, Lessor shall notify Lessee in writing of the
availability of the space and in addition such notice shall specify the
following:
1. The specific location of the space and the exact net
rentable area comprising the space; and
2. The date on which said space will become available for
leasing by Lessee; and
3. The Basic Rent to be charged by Lessor, which shall include
the Initial Operating Expenses Basic Cost and the Initial Tax Basic
Cost, which Basic Rent Lessor shall determine in its sole discretion.
4. A description of the nature and extent of all third party
rights which may affect the space.
(b) No more than thirty (30) days after Lessee receives Lessor's
notice, Lessee shall notify Lessor in writing of Lessee's election
concerning exercise of the Right of First Offer as to the space identified
in that particular notice from Lessor. If Lessee exercises the Right of
First Offer, then the leasing of the subject space identified in Lessor's
notice pursuant to paragraph (a)(i) shall be on the same terms and
conditions as set forth in the Lease except as follows:
1. That Basic Rent shall be as set forth in Lessor's notice and
adjusted as provided in Paragraphs 4(d) and 4(e) of Article II of the
Lease. In addition, Lessee shall pay all additional rent calculated
in accordance with the Lease.
2. Lessee's obligation to pay rent for any space leased
pursuant to its exercise of the Right of First
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<PAGE>
Offer shall commence on the date such space is made available to
Lessee, but no sooner than the date specified in Lessor's notice
unless Lessee occupies the space prior to such date; and
3. Lessor shall deliver and Lessee shall accept the subject
space in its then existing condition (on an "as is" basis) and Lessee
shall not be entitled to receive any con on or allowance from Lessor
for improvement thereof;
(c) Lessee's net rentable area, as defined in this Lease, shall be
adjusted appropriately to include the net rentable area of the subject
space and Lessor and Lessee shall execute, at the request of either, a
recordable instrument delineating and describing Lessee's net rentable
area, as so adjusted;
(d) Lessee's right to occupy the subject space shall continue to and
end at the same time as its right to occupy the leased premises, whether or
not that be pursuant to Item 1 above, except in those instances in which
the subject space is subject to third-party rights of tenants under renewal
or expansion options contained in third-party leases of space in the
Building in which event Lessee's right to occupy the subject space will end
on the date such space must be made available to such other tenants;
(e) If Lessee does not exercise the Right of First Offer strictly in
accordance with this Item 4, the time provisions herein being of the
essence, the Right of First Offer shall be deemed waived as it relates to
that particular notice and Lessor thereafter shall be free to lease the
subject space without restriction (except for Lessee's First and Second
Expansion Options if the time for the exercise of such Options has not
passed) but the Right of First Offer shall remain in full force and effect
as to any other space on floors 13-30, inclusive, that subsequently becomes
available (including, at Lessor's option, any space as to which Lessee
previously declined to exercise the Right of First Offer and that
thereafter again becomes available) during the term of the Lease;
(f) Lessee may not assign the Right of First Offer, or any rights
granted thereunder, to any sublessee of the leased premises or to any
assignee of Lessee's rights under the Lease, provided, however, that if
Lessee has exercised the Right of First Offer and has leased any space on
floors 13 through 30, inclusive, pursuant thereto, then thereafter Lessee's
right to assign the Lease or sublet the leased premises, including the
portion thereof constituting any space leased pursuant to an exercise of
the Right of First Offer,
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<PAGE>
shall be as set forth in paragraph 5 of Article IV of the Lease.
(g) All references to "leased premises" within the Lease shall be
deemed to include the net rentable area attributable to any space leased
pursuant to an exercise of the Right of First Offer if and when said space
is leased by Lessee.
ITEM 5. MINNEAPOLIS LEASE.
Lessor and Lessee acknowledge that Lessee currently has certain rental
obligations under an existing lease and related documents dated November 13,
1984, by and between Baput Minneapolis Limited Partnership, a Minnesota limited
partnership, as landlord, and Lessee, as tenant (the "Minneapolis Lease") for
certain space in the Peavey Building, Minneapolis, Minnesota (the "Minneapolis
Space"). Lessee has provided to Lessor a true, complete and correct copy of the
Minneapolis Lease, including all modifications and amendments thereto. Lessee
shall have the option to have Lessor pay a portion of certain expenses related
to the Minneapolis Lease, provided, however, that if Lessee elects to exercise
this option, the Basic Rent under the Lease shall be adjusted upward in
accordance with paragraph 4(a) of Article II of the Lease. Lessee must provide
Lessor written notice of its exercise of the option contained in this Item 5 on
or before March 6, 1987. If Lessee should fail to provide Lessor notice of such
election by that date, Lessee shall be deemed not to exercise such option and
this Item shall no longer be of any force or effect.
In the event Lessee elects to exercise its option as set forth herein,
Lessor agrees to pay Lessee on a monthly basis, an amount equal to one-half
(1/2) of the "losses" incurred by Lessee under the Minneapolis Lease for each
month commencing on the date that Lessee substantially vacates all its space in
the Peavey Building or June 1, 1987, whichever occurs later, until December 1,
1994 or the earlier termination or expiration of the Minneapolis Lease. The
term "losses" shall be determined by adding (i) the gross rentals payable by
Lessee under the Minneapolis Lease, (ii) any increased costs of insurance paid
by Lessee on the Minneapolis Space which results from Lessee's abandonment of
those premises, and (iii) any commissions, finder's fees, tenant inducements,
allowances or concessions which are paid in order to procure subtenants or
assignees for any portion of the Minneapolis Space, and then subtracting rom
such amount any offsets or credits against rents to be paid under the
Minneapolis Lease and all rental income received under any subleases or
assignments of the Minneapolis Lease. Should Lessor fail to pay its share of
the Losses under the Minneapolis Lease as set forth above, Lessee shall receive
a credit against the next monthly installment of Basic Rent due under the Lease
equal to Lessor's unpaid share of losses under the Minneapolis Lease. Lessor's
obligation to pay one-half (1/2) of the losses under the Minneapolis Lease shall
continue only so long
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as (i) Lessee shall continue to observe and perform all material covenants and
conditions of the Minneapolis Lease and this Lease, (ii) no event shall have
occurred which constitutes an event of default under this Lease, and (iii) no
event shall have occurred which constitutes an event of default under the
Minneapolis Lease and which shall remain uncured for a period of time in excess
of thirty (30) days, or which otherwise gives the landlord under the Minneapolis
Lease a right to accelerate rentals due under such lease or to seek material
damages from Lessee (which right is exercised by landlord). Any profits
realized over the entire term of the Minneapolis Lease as a result of any
assignment or sublease of the Minneapolis Space shall remain the property of
Lessee. Lessee agrees that, prior to its election of the option set forth in
this Item 5, it shall not enter into any amendments or modifications of the
Minneapolis Lease which would either increase the losses on the Minneapolis
Space or make the Minneapolis Space materially less desirable to a prospective
subtenant or assignee. Lessee further agrees that, upon election of the option
set forth in this Item 5, it shall not in any way amend or modify the
Minneapolis Lease without Lessor's prior written consent, which consent shall
not be unreasonably withheld.
If Lessee exercises the option set forth in this Item 5, Lessor and Lessee
agree that they shall cooperate with one another and shall keep each other
apprised of their respective efforts to procure subtenants or assignees for all
or some portion of the Minneapolis Space. If Lessee exercises the option set
forth in this Item 5, both Lessor and Lessee must approve of any proposed
assignment or sublease of all or any portion of the Minneapolis Space, provided,
however, nothing contained herein shall prevent Lessor or Lessee from offering
all or some portion of the Minneapolis Space to a prospective sublessee or
assignee on terms acceptable to the offering party, provided that such offer
shall not be binding upon the non-offering party until it has approved the
arrangement. It is acknowledged that certain commissions, finder's fees, tenant
inducements, allowances or concessions may have to be paid or given to procure
such subtenants or assignees. If any sublease or assignment of the Minneapolis
Lease is for a term longer than December 1, 1994, Lessor shall not be required
to pay its portion of those costs which are attributable to the portion of the
term after December 1, 1994. In the event that Lessee exercises the option set
forth in this Item 5 and so long as Lessor has agreed that Lessee shall not be
liable for any costs which are attributable to any portion of the term after
December 1, 1994, if Lessor shall procure a
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<PAGE>
subtenant or assignee (other than an affiliate of or entity related to Lessor)
for all or any portion of the Minneapolis Space and Lessee shall, for any
reason, withhold its consent to such arrangement, all losses thereafter payable
annually under the Minneapolis Lease shall be reduced in an amount equal to the
annual gross rental such sublease or assignment would have produced. In the
event that Lessee exercises the option set forth in this Item 5 and Lessee shall
thereafter procure a subtenant or assignee (other than an affiliate of or entity
related to Lessee) for all or any portion of the Minneapolis Space and Lessor
shall, for any reason, withhold its consent to such arrangement, all losses
thereafter payable annually under the Minneapolis Lease shall be increased in an
amount equal to the annual gross rental such sublease or assignment would have
produced. For the purposes of determining Lessor's payment obligation hereunder
the amount of such reduction or increase shall be prorated on an equal monthly
basis.
Lessor and Lessee expressly agree that, notwithstanding any provision in
this Item 5 to the contrary, Lessor's obligations under this Item 5 are to
Lessee only and do not create any rights or benefits in favor of any third
party, including but not limited to the landlord under the Minneapolis Lease.
ITEM 6. ALTERATION AND IMPROVEMENT TO PREMISES.
Lessor shall cause a single space plan or a series of space plans for the
Permanent Space to be prepared under Lessor's direction by Gensler & Associates
which shall at a minimum include those items shown in Schedule 2 attached hereto
("Space Plan(s)"). It is the intent of Lessee and Lessor that the Space Plan(s)
shall provide for improvements to the Permanent Space which (i) are comparable
in quantity and quality to those contained in the Minneapolis Space, (ii)
utilize the existing improvements to the Permanent Space if doing so does not
materially or adversely affect Lessee's use of the Permanent Space as reasonably
determined by Lessor and Lessee, and (iii) are in conformity with the plans and
specifications for the Building. In determining the quantity and quality of
improvements contained in the Minneapolis Space, reference shall be made to the
items shown on Schedule 3 attached hereto.
Upon completion of the Space Plan(s), it shall be submitted to Lessee for
its approval, which approval shall not be unreasonably withheld. Lessee shall
deliver to Lessor written approval or rejection of the Space Plan(s) no later
than six (6) days after Lessee shall receive the Space Plan(s), or any one of
them. If Lessee shall fail to provide Lessor with either its written approval
of the Space Plan(s) or its rejection with a statement of reasons therefore by
said date, each day thereafter shall constitute one day of Lessee Delay. In the
event Lessee shall deliver to Lessor notice of its rejection of the Space
Plan(s) and the modifications desired by Lessee shall exceed the quality of
improvements to the Minneapolis Space, all delay associated with the
modification of the Space Plan(s) shall be "Lessee Delay." Any delays
associated with any design modification or change order by Lessee after Lessee's
approval of the Space Plan(s) shall also constitute "Lessee Delay."
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Upon Lessee's approval of the Space Plan(s), Lessor shall promptly cause
mechanical and electrical working drawings to be prepared by an engineer and
structural consultant. The selection of an engineer and structural consultant
by Lessor shall be subject to Lessee's approval, which approval shall not be
unreasonably withheld. Failure of Lessee to approve or reject the engineer and
structural consultant proposed by Lessor within five (5) days shall be "Lessee
Delay." Finally, any other delay in the completion of the improvements to the
Permanent Space caused by Lessee's failure to timely perform its
responsibilities in accordance with the work schedule attached hereto as
SCHEDULE 4 shall constitute "Lessee Delay." Any delay in completion of
improvements to the Permanent Space in accordance with the Space Plan(s) on or
before the respective Commencement Dates not caused by Lessee Delay shall be
deemed to be "Lessor Delay."
Lessor agrees that it will complete the buildout of the Permanent Space at
no cost to Lessee except as provided below, in accordance with the Space
Plan(s). Lessor shall use its best efforts to complete the buildout of the
Permanent Space on or before the respective Commencement Dates. Failure to
complete any of the Permanent Space due to Lessee Delay shall not result in any
delay of the Commencement Dates or of Lessee's obligations to pay rent as
provided in the Lease, or make Lessor liable to Lessee for any damages caused by
any delay in buildout or occupancy. For each day of Lessor Delay which results
in Lessee's inability to occupy all or a portion of the Permanent Space, the
Commencement Date for that portion of the Permanent Space so affected and that
portion alone shall be delayed one day, and Lessee's obligation to commence
payment of rent for such space shall be similarly delayed; provided, however,
that Lessor shall have no liability to Lessee for any damages caused to Lessee
as a result of such delay in occupancy. Any failure to complete all of any
floor within the Permanent Space caused by Lessor Delay shall result in a delay
of the Commencement Date for the entire floor. Any delay in the Commencement
Date for a single floor within the Permanent Space shall have no effect upon the
Commencement Dates for the other floors comprising the Permanent Space. In the
event that the Commencement Date for any portion of the Permanent Space shall be
delayed and shall occur after July 1, 1987, the expiration date of the initial
term of the Lease shall be extended beyond May 31, 1997 for the period of time
that the latest Commencement Date for any portion of the Permanent Space shall
exceed July 1, 1987.
Notwithstanding any other provision in this Item 6 to the contrary, Lessee
shall be responsible for and shall pay for the following: (i) all furniture,
telecommunications equipment, EDP equipment and all other office equipment of
whatever nature, (ii) all design fees applicable to items other than those
contained in the approved Space Plan(s), (iii) all expenses attendant upon
Lessee's relocation or move into the leased premises, (iv) all costs resulting
from any change order made by Lessee after Lessee's
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approval of the Space Plan(s), including costs of design and construction and
costs incurred by Lessor because of the impact of such change orders on previous
construct on or on the construction work schedule. Lessee shall pay the costs
of the materials and labor for each of the foregoing, together with associated
architectural and engineering fees.
In addition to Lessor's obligations hereunder, Lessor shall on April 1,
1987 pay to Lessee the sum of $400,000.00 in contribution to Lessee's cost of
building out the technical service area to be located on the leased premises.
Lessor shall provide the space for the technical service area in a shell
condition with no walls and the payment of the sum mentioned above shall be
Lessor's sole obligation with respect to the technical service area. Lessee
shall pay all costs of material and labor, and all associated architectural,
engineering or consultancy fees associated with the design and construction of
the technical service area. In the event that Lessor shall fail to pay to
Lessee the sum of $400,000.00 on April 1, 1987, the Lessee shall receive a
credit against its payment of the monthly installments of Basic Rent under the
Lease until such time as the total amount of credits, together with payments
made by Lessor to Lessee on account of the technical service area, shall equal
the sum of $400,000.00.
Lessor's obligations hereunder are limited to the provision of items for
the initial completion of the Space Plan(s) and Lessor shall have no obligation
thereafter to repair or replace any such items that may require repair or
replacement after Lessee takes possession of the leased premises except as
provided in Article IV, Paragraph 2 of the lease.
ITEM 7. STORAGE SPACE
Upon the termination of the Prior Lease as set forth in Paragraph 2 of
Article I of the Lease, Lessor shall provide Lessee and Lessee shall lease from
Lessor twenty four hundred (2400) square feet of storage space at a location in
the Building to be designated by Lessor (the "Storage Space"). Lessee's use and
occupancy of the Storage Space shall be subject to such reasonable rules and
regulations with respect thereto as Lessor may from time to time adopt. Lessee
acknowledges that the Storage Space shall be in "shell condition" only and
agrees that it shall accept the space in such condition on the date of delivery
of the Storage Space. Lessee shall pay to Lessor as rental for the Storage
Space the sum of Six Dollars ($6.00) per square foot per annum through the term
of the Lease. The rental rate for the Storage Space during any renewals of the
term of the Lease shall be equal to the then current market rate being charged
by Lessor. All rental shall be payable in equal monthly installments with the
monthly installments of Basic Rent hereunder. Lessor shall have the right at
any time and from time to time to relocate the Storage Space provided that
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Lessee shall first be provided with notice and Lessor shall pay all expenses
associated with such relocation.
ITEM 8. BROKERAGE COMMISSIONS
Lessee and Lessor represent and warrant that they have dealt with no broker
or finder in connection with the negotiation or execution of this lease other
than Bauman and Nelson Inc. and John Tietz. Lessee agrees that it will pay all
fees and expenses of Bauman and Nelson, Inc. and of John Tietz and will
indemnify Lessor against all claims for a broker's, finder's or other commission
or fee by anyone claiming by, through or under Lessee.
ITEM 9. MISCELLANEOUS
Whenever in this Addendum it is provided that space will be made available
to Lessee between specified dates or during a specified period, Lessor shall
choose the date between such specified dates or within such specified period on
which such space shall be made available to Lessee. Notwithstanding any other
provision in this Lease, Lessor shall have no obligation to make any cash
contributions, allowances, payments or loans to Lessee in connection with any
option exercised by Lessee pursuant to Items 1-4 in this Addendum.
IN TESTIMONY WHEREOF, the parties hereto have executed this Addendum to
Lease Agreement as of the date aforesaid.
1700 LINCOLN LIMITED
By: HINES COLORADO LIMITED, a Colorado
Limited partnership
By: /s/ Gerald D. Hines
------------------------------
Gerald D. Hines, a General
Partner of Hines Colorado
Limited
By: Hines Colorado Corporation, a
General Partner of Hines
Colorado Limited
ATTEST:
By: /s/ Gerald D. Hines
- ----------------------------------- ------------------------------
Secretary LESSOR
APACHE CORPORATION, a Delaware
corporation
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ATTEST:
/s/ Barbara G. Nielson By: /s/ James R. Bauman
- ------------------------- -----------------------------------
Barbara Nielson LESSEE
Assistant Secretary James R. Bauman, Vice President
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SCHEDULE 1 TO ADDENDUM TO LEASE AGREEMENT DATED MAY 4, 1984
DETERMINATION OF FAIR MARKET RENTAL RATE
The "fair market rental rate", as such term is used in Items 1, 2 and 3 of
this Addendum, shall mean and refer to the prevailing rental rate (inclusive of
operating expenses, taxes and other such costs) per square foot of net rentable
area then being offered by landlords to tenants of similar size for comparable
space in similar first-class high-rise office buildings located in the downtown
Denver, Colorado metropolitan area, which high-rise office buildings were
constructed between the calendar years 1983 and 1985, inclusive, which together
with the Building shall be referred to as the "Subject Buildings." In
determining the fair market rental rate, Lessor shall be entitled to take into
consideration (without the same being determinative) the rental rates per square
foot of net rental area then being obtained for single tenant occupancy floors
in the Subject Buildings in which the leased premises are located, with
appropriate adjustment for floor location within the Subject Buildings, the date
of signing and the term of any such other lease, rent concessions, tenant finish
allowances and credits provided to such other tenant, the amount of space
leased, the creditworthiness of the tenant, moving concessions, commissions and
any other matter that a reasonably prudent tenant and landlord would consider in
the determination of rent and similar items. In addition, in the instances in
which the parties seek to determine the fair market rental rate for space that
is subject to one of the Expansion Options and that has been built out for
another tenant, the parties will take into account the existing condition of the
subject space and its suitability for Lessee's use.
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SCHEDULE 2 TO ADDENDUM TO LEASE AGREEMENT DATED MAY 4, 1984
MINIMUM INFORMATION REQUIRED OF LESSEE SPACE PLAN
Floor Plans Indicating:
1. Location and type of all partitions.
2. Location and types of all doors - indicate hardware and provide keying
schedule.
3. Location and type of glass partitions, windows and doors.
4. Location of telephone equipment room.
5. Indicate critical dimensions necessary for construction.
6. Location of all building standard electrical items - outlets switches,
telephone outlets. (Building standard lighting will be determined by
building architect.)
7. Location and type of all non-building standard electrical items including
non-building light fixtures.
8. Location and type of equipment that will require special electrical
requirements. Provide manufacturer's specifications for use and operation.
9. Location, weight per square foot and description of any exceptionally heavy
equipment or filing system exceeding 50 psf live load.
10. Requirements for special air conditioning or ventilation.
11. Type and color of floor covering.
12. Location, type and color of wall covering.
13. Location, type and color of building standard and non-building standard
paint or finishes.
14. Location and type of plumbing.
15. Location and type of kitchen equipment.
Details Showing:
1. All millwork with verified dimension and dimensions of all equipment to be
built-in.
2. Suite entrance.
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SCHEDULE 3.1 TO ADDENDUM TO LEASE AGREEMENT DATED MAY 4, 1984
ARCHITECT AND CONTRACTOR
Landlord will employ Gensler and Associates as project interior architect to
provide architectural and space planning services. Any mechanical, electrical
or structural engineering required for the project will be provided, paid for
and coordinated by the Landlord.
Hines will provide for architects and/or engineering consultants to be available
to meet with Tenant representatives in Minneapolis to review progress and
collect necessary information as required. All reimbursable expenses will be
the responsibility of the Landlord. The Tenant reserves the right to
participate in design coordination and construction meetings and may request at
any time, meetings with the Architect, Landlord, Engineer and Contractor to
discuss the project.
The Landlord will inform Tenant in writing of any requests made by the Tenant
that are deemed Additional Service prior to proceeding with the work. Estimates
for Additional Service shall be submitted by Landlord simultaneously with
notification. If Additional Services are not identified before the work is
performed, Tenant will not be responsible.
Mr. Grant Stevens will be the Landlord's lead representative ("Project Manager")
to work with the Tenant Architects, Engineer and Contractor throughout the
design, construction and move-in process. This individual will have the
authority to make decisions on behalf of the Landlord.
A substantial completion date will be established fifteen (15) days prior to
scheduled move-in date. A complete punch list will be prepared on that date by
the Tenant, Landlord, Architect and Engineer. All punch list items shall be
completed within thirty (30) days unless mutually agreed upon by both Tenant and
Landlord.
The Landlord will employ a general contractor of size and experience capable of
completing a Job of this magnitude within the time constraints established by
the approved project schedule.
The Landlord will submit, for Tenant review and approval, unit costs for items
identified by the Tenant per Schedule 3.3 to Addendum ("Standard Unit Prices").
Unit costs will apply for all changes made by the Tenant during construction.
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SCHEDULE 3.2 TO ADDENDUM TO LEASE AGREEMENT DATED MAY 4, 1984
APACHE'S MINNEAPOLIS SPACE
LEASEHOLD IMPROVEMENT STANDARDS
HEATING, VENTILATING AND AIR CONDITIONING (HVAC)
1. A complete quality HVAC system will be installed to serve the office space
according to tenant's plans and specifications. All necessary diffusers,
ductwork, and controls will be installed in accordance with tenant floor plans.
2. The building HVAC system must meet or exceed all applicable ventilation
code requirements.
3. Landlord shall provide exhaust fans sized for task and areas identified on
tenant plans. Exhaust fans shall include all equipment, control devices,
insulated ductwork and associated electrical.
ACOUSTICAL STANDARDS
Mechanical sound and vibration isolation assemblies and devices for mechanical
equipment, piping systems and ductwork distribution to control sound and
structure-borne vibration and wall assemblies will be installed within the space
to permit attaining sound pressure levels as existing in the areas located in
One United Bank Center as described below.
Area Floors/Rooms
---- ------------
Halls, corridors and toilets (core area) 45, 48, 49
Lobbies (elevator) 45
Private offices, conference rooms, reception 45
Open office area 48
Board Room Room No. 4514
CEILINGS
1. The grid suspension system shall be composed of 1'-0" x 1'-0" concealed
spine acoustical ceiling tiles. The system will be modified to allow for deck-
to-deck wall construction as specified (see partitions).
2. The acoustical ceiling tile shall have a NRC rating of .55-.65 and a STC
rating of 35-39.
3. The ceiling shall be installed at a minimum height of 9'-0" above the
finished concrete floor for all areas leased and occupied by Apache personnel.
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4. Gypsum board ceilings may be installed in the elevator lobbies, reception
areas and the board room.
FLOORS/FLOOR COVERING
1. All floors within the base office space shall be troweled smooth concrete
ready to accept tenant's flooring. Floors shall be constructed to provide level
surfaces with accepted industry standards.
2. Floors shall be designed to accept 50 psf live load (general office area)
and shall be modified to accept special loading conditions as defined by the
tenant on selected areas. Tenant shall be responsible for all costs associated
with moveable file systems.
3. Floor covering: All typical office areas will be carpeted. Building
standard carpeting for these areas shall have the minimum yarn weight of 32
ounces. To the extent that tenant elects not to use building standard carpet,
tenant shall receive a credit of fifteen dollars ($15.00) per square yard for
labor and materials. Any special floor covering materials for the executive
floor shall be equal in quality and quantity of materials existing of floor ten
(10) in Minneapolis (Executive Floor).
WALLS/WALL COVERING
1. Standard office partition walls shall be constructed of metal studs (2-
1/2"), 5/8" gypsum drywall both sides, taped, sanded and primed. The walls will
be constructed to the underside of the acoustical ceiling. Sound insulation
will be installed in the stud cavity and above the ceiling extending 2'-0" each
side of the partitions per tenant plans.
2. Full height partition walls shall be constructed from deck to deck. Full
height partitions will be constructed per tenant plans. These walls will be
constructed of 2-1/2" metal studs, 5/8" gypsum drywall both sides, taped,
sanded, primed and acoustically insulated as identified on tenant plans.
3. All private offices and general office areas shall have vinyl wall fabric.
All executive offices, reception areas, and board rooms shall have fabric
covered walls. Vinyl wall covering shall be of Type 2 quality (20-32
ounce/lineal yard in 54" width), selected by tenant. Painted walls shall be
primed and painted with two coats. Fabric wall coverings shall be selected by
the tenant and equal to Minneapolis standards.
4. Vinyl base, 2-1/2" straight shall be provided on all walls. Wood base will
be provided in the reception area, executive suite and the board room as defined
by Tenant. The color will be selected by the tenant.
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DOORS/FRAMES/HARDWARE
1. All office doors shall be building standard. Fire rated doors, as
required, shall be provided. Entry doors shall be selected by the tenant.
Entry hardware, including a card access system shall be provided and installed.
2. All wood doors shall be set in building standard RACO frame.
3. All hardware shall be building standard hardware. The landlord shall
provide latchsets, locksets, closures, floor stops, coat hooks and silencers as
required by the tenant's plans.
WINDOW COVERING
1. All exterior windows shall be covered with a fully operating 1" horizontal
window blind.
2. Where required, landlord shall install "backing" for the installation of
drapes or shades selected by the tenant. (Executive Suites)
ELECTRICAL
1. Building standard light fixtures (22-0" x 4'-0", parabolic fluorescent
fixture with a 4" deep .025 gauge louver) to be installed and switched in
accordance with tenant's reflective ceiling plans.
2. One single pole light switch shall be provided and installed according to
tenant plans.
3. Accent/special lighting will be required in selected areas. Lutron dimmer
controls shall be installed on all of these fixtures in accordance with approved
reflective ceiling plans.
4. Electrical service panels will be installed which will provide a minimum of
4.0 watts/net rentable sq. ft. of space (2.0 watts/sq. ft. net rentable for
lighting and other 277/480 volt requirements; 2.0 watts/sq. ft. net rentable for
receptacles and other 120/208 volt requirements). Panel boards shall be
provided on each floor and equipped with a main breaker. If transformers are
required, they shall be provided and installed per specifications.
5. All switch plates, cover plates, wall plates, etc., shall be building
standard.
6. Duplex receptacles will be installed per tenant plans and specifications.
7. Telephone and CRT outlets will be installed per tenant plan.
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8. Private offices, work stations and selected special use areas may require
dedicated circuits for computer equipment.
9. Floor mounted boxes providing power and voice/data communications to
tenant's "furniture system" shall be provided by Landlord. Tenant's furniture
system will include a power/communications raceway (Haworth).
SPRINKLER SYSTEM
1. The sprinkler system will be modified to tenant's plans.
PLUMBING
1. A minimum of two chilled water drinking fountains will be installed on each
floor of occupied space.
2. All sinks, fixtures, drains, vent pipes, water piping and water heaters
will be provided based on tenant plans and specifications per Minneapolis
standards.
3. The executive suite will include toilets, urinal, sinks and shower, with
full ceramic tile and exhaust fan.
COUNTERS/CABINETS
1. Base and upper cabinets will be custom designed and fabricated to
specification. Cabinet locations to include executive kitchen, toilet rooms,
board room and lunchrooms.
2. All counter tops shall be plastic laminate.
LIFE/SAFETY
Any modifications, including expansion, to the life/safety requirements or
security system resulting from the tenant's plans and specifications will be the
responsibility of the landlord with the exception of the computer room.
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SCHEDULE 3.3 TO ADDENDUM TO LEASE AGREEMENT DATED MAY 4, 1984
STANDARD UNIT PRICES
The following list identifies items for which Apache Corporation requests unit
prices. All unit prices should include material, labor, equipment, tax and
contractor's mark-up.
UNIT
1. ELECTRICAL: Includes cable, device, J-box,
conduit, cover plates, etc.
Wall Outlet (Duplex) EA.
Wall Outlet (Double Duplex) EA.
Floor Outlet (Duplex) EA.
Floor Outlet (Double Duplex) EA.
Dedicated Circuit (Floor) EA.
Dedicated Circuit (Wall) EA.
Single Pole Switch EA.
Dimmer Switch for Incandescent Light EA.
CRT/Tele. (Wall) No Cable EA.
CRT/Tele. (Floor) No Cable EA.
Incandescent Recessed Light (Std.) EA.
Furnish & Install Standard
Fluorescent Fixture EA.
2. MECHANICAL:
Ceiling Exhaust fan (Including all electrical,
grills, ductwork, etc.)
150 CFM EA.
300 CFM EA.
3. PLUMBING: Include pipe, fixture, valves, etc.
Sink (i.e., coffee station, workroom) EA.
4. WALLS:
Standard 9'-0" Wall without insulation LF.
Standard 9'-0" Wall with Insulation LF.
Full Height (Deck to Deck) LF.
5. BASE:
Vinyl Base (Std. 2 1/2" straight) LF.
Wood Base (4") LF.
6. DOORS/FRAMES:
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Standard full height solid core wood
door with RACO frame and latchset EA.
Standard wood door, wood frame and latchset EA.
7. HARDWARE:
Lockset (Premium to change latchset to lockset) EA.
8. COUNTERS/CABINETS:
Wall mount upper cabinets LF.
Base cabinets with plastic laminate countertops LF.
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SCHEDULE 4 TO ADDENDUM TO LEASE AGREEMENT DATED MAY 4, 1984
WORK COMPLETION SCHEDULE
[omitted from original document]
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SCHEDULE 5 TO ADDENDUM TO LEASE AGREEMENT DATED MAY 4, 1984
1. Building standard air conditioning system throughout the leased
premises in accordance with Schedule 3-A attached hereto.
2. Unlimited building standard ceiling and lighting throughout the leased
premises.
3. Unlimited building standard height partitioning.
4. Unlimited building standard doors and frames with latchset hardware.
One (1) lockset in lieu of latchset for each corridor door entering the leased
premises (but not to exceed one (1) per floor).
5. Building standard wall mounted telephone outlets as required by
Lessee's plans, not to exceed one (1) per every two hundred ten (210) square
feet of floor area occupied by Lessee outside the core area of the Building
("Usable Area").
6. Building standard wall mounted duplex electrical outlets as required
by Lessee's plans, not to exceed one (1) per every one hundred twenty (120)
square feet of Usable Area.
7. One (1) wall-mounted toggle light switch per every three hundred (300)
square feet of Usable Area.
8. Building standard carpet throughout office premises.
9. Horizontal slat aluminum mini-blinds for all exterior window openings.
10. Holidays:
The following days shall constitute "holidays" as said term is used in this
lease:
(1) New Year's Day
(2) Memorial Day
(3) Independence Day
(4) Labor Day
(5) Thanksgiving Day
(6) Friday following Thanksgiving Day
(7) Christmas
If in the case of any holiday listed in (1) through (7) a different day shall be
observed than the respective days described in (1) through (7), then that day
which constitutes the day observed by national banks in Denver, Colorado, on
account of such holiday shall constitute the holiday under this lease.
11. Air Conditioning and Heating:
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Upon and subject to the provisions of Paragraph 1 of Article III of this
lease, Lessor will furnish building standard air conditioning and heating during
the normal business hours of the Building. Until Lessor reasonably elects to
change the same, the normal business hours of the Building shall be 7 a.m. to 6
p.m. five days a week, that is, from Monday through Friday, inclusive, and from
9 a.m. to 1 p.m. on Saturdays, exclusive of holidays. Upon request of Lessee,
Lessor will use its best efforts to furnish air conditioning and heating at
other times (that is, at times other then the times specified above); provided,
however, Lessee must request such additional services before 2:00 p.m. on the
day Lessee desires the same, unless Lessee desires the same on a Saturday,
Sunday or holiday, in which event Lessee must request such additional services
before 2:00 p.m. on the business day prior to the Saturday, Sunday or holiday.
If such services are furnished by Lessor at any such other times, Lessee shall
pay Lessor twenty dollars ($20.00) per half-floor per hour of such service to
the leased premises during the year 1986, and a rate which may be increased
thereafter to reflect any increases in Lessor's actual cost for furnishing such
services.
12. To the extent that Lessee elects not to use building standard carpet,
Lessee shall receive a credit toward the charges incurred by Lessee for the
carpet selected by Lessee of fifteen dollars ($15.00) per square yard for labor
and materials.
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SCHEDULE 5-A TO LEASE AGREEMENT DATED MAY 4, 1984
HVAC SPECIFICATIONS
a. Outside design conditions are as follows:
Dry Bulb Wet Bulb
DEG. F DEG. F
-------- --------
Summer Outside Air Temperature 91 63
Winter Outside Air Temperature 1 --
b. Cooling inside design conditions are as follows:
Dry Bulb Wet Bulb
DEG. F DEG. F
-------- --------
Inside Temperature
(Offices & Lobbies) 78 64
Elevator Machine Rooms 85 --
c. Heating inside design conditions are as follows:
Dry Bulb Wet Bulb
DEG. F DEG. F
-------- --------
Inside Temperature
(Offices & Lobbies) 72 --
Penthouse and Basement
Machine Rooms 65 --
d. Elevation: 5,280 feet above sea level.
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Rider No. 1
Garage Parking
Rider No. 1 to Lease Agreement dated _______________, 198__, by and between 1700
Lincoln Limited, as Lessor and Apache Corporation as Lessee.
Lessor hereby agrees to make available to Lessee, each month and on a month-to-
month basis, for use by Lessee's employees, during the initial ten-year term of
this lease and any renewal terms, permits to park on an assigned basis six (6)
automobiles and permits to park on an unassigned basis, up to three hundred
twenty (320) automobiles (hereinafter called the "Garage Parking Permits") in
the parking garage (hereinafter called the "Garage") constructed by Lessor on
all or a part of Lots 11 through 20 and a portion of Lot 10 (together with those
portions of the vacated alley adjacent thereto), Block 35, H. C. Brown's
Addition to the City and County of Denver, Colorado. In addition, Lessor agrees
to make available to Lessee, for use by Lessee's employees, during said initial
ten-year term, one additional permit to park, on an unassigned basis, one
automobile for each full five hundred (500) square feet of net rentable area
then leased by Lessee pursuant to the First Expansion Option, Second Expansion
Option or Right of First Offer as provided in the Addendum to Lease Agreement of
even date between Lessor and Lessee. During the initial ten-year term of this
Lease, all parking spaces made available shall be at a charge to Lessee equal to
eighty percent (80%) of the then current market rate being charged by Lessor.
During any renewal term of this lease, all parking spaces made available shall
be at a charge equal to one hundred percent (100%) of the then current market
rate being charged by Lessor.
In the event all or a portion of the Garage is destroyed by fire or other
casualty, Lessor shaLl use reasonable efforts to rebuild the same or another
garage of comparable quality, but Lessor shall otherwise have no liability
relating thereto.
Such of Lessee's employees as have been issued computer activating cards will
have access to the Garage twenty-four (24) hours per day and seven (7) days per
week through use of such cards, but subject to computer malfunction,
construction work within or to the Garage or access thereto, or any other matter
beyond Lessor's reasonable control.
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ATTORNMENT AND NON-DISTURBANCE AGREEMENT
This Attornment and Non-Disturbance Agreement ("Agreement") is dated as of
this ________ day of ___________________, 198__, by and between APACHE
CORPORATION, a Delaware corporation ("Tenant") and ARICO AMERICA REALESTATE
INVESTMENT COMPANY, a Nevada corporation ("ARICO").
RECITALS
A. Tenant is a lessee under a certain Lease Agreement dated December 5,
1986 ("Lease") entered into with 1700 Lincoln Limited, a Colorado limited
partnership, wherein Tenant has leased certain premises described as:
Floors 14, 15, 16, 17, 18, 19 and 20 in the building presently constructed on
all or part of Lots 16 through 30 and a portion of Lot 31 (together with those
portions of the vacated alley adjacent thereto), Block 30 of H.C. Brown's
Addition to the City and County of Denver, Colorado.
The foregoing real property and all improvements located thereon shall be
referred to as the "Premises".
B. ARICO is the beneficiary of a Deed of Trust, Security Agreement and
Assignment of Rents dated May 5, 1981 and recorded on July 2, 1981 in Book 2404
on Page 447 of the real property records for tho City and County of Denver (the
"Mortgage").
C. The Mortgage affects and pertains to real property which includes the
Premises and is an interest in the Premises prior and superior to Tenant's
interest in the Premises under the Lease.
D. In the event of foreclosure or acceptance of a deed in lieu of
foreclosure of the Mortgage, Tenant desires to attorn to ARICO as its landlord
and in consideration of such attornment, ARICO wishes to assure Tenant that its
continued possession of the Premises under the Lease shall not be disturbed, all
in accordance with the terms and conditions set forth herein.
AGREEMENT
In consideration of the mutual covenants contained herein, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Upon notice of a completion of a foreclosure of the Mortgage or
acceptance of a deed in lieu of foreclosure of the Mortgage, Tenant agrees to
attorn to ARICO as if ARICO were the Landlord under the Lease, with such
attornment to be effective and self-operative immediately upon receipt of such
notification. At such time, Tenant agrees to perform all its duties and
obligations
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under the Lease in favor of ARICO, including but not limited to, directing
payment of all of its rent obligations to ARICO.
2. So long as Tenant is in full compliance with all of the terms,
covenants and conditions on part of Tenant to be observed and performed under
the Lease, ARICO agrees that Tenant's right of peaceful and quiet possession of
the Premises under the Lease and all other rights and privileges of Tenant under
the Lease shall not be disturbed or affected in any way by the foreclosure of
the Mortgage or acceptance of a deed in lieu of foreclosure of the Mortgage.
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This Agreement has been executed by the parties as of the date first
written above.
ARICO:
ARICO AMERICA REALESTATE INVESTMENT COMPANY, a Nevada corporation
By
----------------------------------------------------------------------
Its
----------------------------------------------------------------------
TENANT:
APACHE CORPORATION, a Delaware corporation
By
----------------------------------------------------------------------
Its
----------------------------------------------------------------------
STATE OF ________________)
) ss.
COUNTY OF _______________)
This instrument was acknowledged before me this _______ day of
_____________________, 198__, by _______________________________, as
______________ of ARICO America Realestate Investment Company, a Nevada
corporation.
Witness my hand and official seal.
My commission expires:
-----------------
---------------------------------------------------------------------------
Notary Public
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Address
A-70
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
This instrument was acknowledged before me this 13th day of January, 1987
by James R. Bauman, as Vice President of Apache Corporation, a Delaware
corporation.
Witness my hand and official seal.
---------------------------------------------------------------------------
Linda Rich, Notary Public 1700 Lincoln Street, Suite 4900
Denver, Colorado 80203-4549
My Commission Expires February 5, 1989
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[Amendment to Lease Agreement]
FIRST LEASE AMENDMENT
THIS FIRST LEASE AMENDMENT ("Amendment") is entered into as of the 1st day
of June, 1988, by and between 1700 LINCOLN LIMITED, a Colorado limited
partnership ("Lessor") and APACHE CORPORATION, a Delaware corporation
("Lessee").
RECITALS
A. Lessor and Lessee entered into a Lease Agreement dated December 4,
1988 (which together with all Schedules, Riders, Exhibits and Addenda thereto
shall be collectively referred to as the "Lease"). All terms used in this
Amendment and not otherwise defined herein shall have the same meaning as set
forth in the Lease.
B. The Lease affects and pertains to approximately 159,447 square feet of
net rentable area located on floors 14-20 of the building constructed on a
portion of Block 30 of H.C. Brown's Addition in the City and County of Denver,
commonly referred to as One United Bank Center.
C. Lessor and Lessee now mutually desire to amend the Lease as set forth
herein.
AMENDMENT
In consideration of the mutual agreements contained herein, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lessor and Lessee agree as follows:
1. NO STORAGE SPACE. Effective as of May 31, 1988, Item 7 of the
Addendum to Lease Agreement attached to the Lease shall be deleted and shall no
longer be of any force or effect. Accordingly, from and after such date, Lessee
shall not lease the Storage Space from Lessor. Lessee agrees that it shall
vacate the Storage Space and remove all of its property from such space no later
than May 31, 1988.
2. NO EXPANSION OPTIONS. Item 2 and Item 3 of the Addendum to Lease
Agreement attached to the Lease are hereby deleted and shall no longer be of any
force or effect. Accordingly, Lessee shall no longer have or enjoy the First
Expansion Option or the Second Expansion Option or any other rights thereunder.
3. WAIVER OF RIGHT OF FIRST OFFER. Item 4 of the Addendum to Lease
Agreement attached to the Lease is hereby amended so that the Right Of First
Offer shall not arise until after April 3, 1993. Item 4 of the Addendum to
Lease Agreement shall not be effective,
B-1
<PAGE>
and Lessee shall not enjoy the Right of First Offer, until after April 3, 1991.
4. NO OTHER AMENDMENTS. Except as expressly set forth herein, the Lease
shall remain unmodified and in full force and effect.
This First Lease Amendment has been executed by Lessor and Lessee as of the
date first set forth above.
LESSOR:
1700 LINCOLN LIMITED,
a Colorado limited partnership
By: Hines Colorado Limited,
General Partner of
1700 Lincoln Limited
By: /s/ (signature illegible)
------------------------------
Gerald D. Hines,
a General Partner of
Hines Colorado Limited
By: Hines Colorado Corporation,
a General Partner of
Hines Colorado Limited
By: /s/ (signature illegible)
------------------------------
Gerald D. Hines, President
LESSEE:
APACHE CORPORATION,
a Delaware corporation
By: /s/ (signature illegible)
-----------------------------------
Its: Director, Office Services
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<PAGE>
[Amendment to Lease Agreement]
SECOND LEASE AMENDMENT
THIS SECOND LEASE AMENDMENT ("Amendment" is entered into as of the 21st day
of June, 1991, by and between 1700 LINCOLN LIMITED, a Colorado limited
partnership ("Lessor") and APACHE CORPORATION, a Delaware corporation
("Lessee").
RECITALS
A. Lessor and Lessee entered into a Lease Agreement dated as of December
4, 1986, as amended by a First Lease Amendment dated as of June 1, 1988 (which
together with all schedules, riders, exhibits and addenda thereto shall be
collectively referred to as the "Lease"). All terms used in this Amendment and
not otherwise defined herein shall have the same meaning as set forth in the
Lease.
B. The Lease affects and pertains to approximately 159,447 square feet of
net rentable area located on floors 14-20 of the Building constructed on a
portion of Block 30 of H.C. Brown's Addition in the City and County of Denver,
commonly referred to as One United Bank Center.
C. Lessor and Lessee now mutually desire to amend the Lease as set forth
herein.
AMENDMENT
In consideration of the mutual agreements contained herein, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lessor and Lessee agree as follows:
1. LEASE OF ADDITIONAL SPACE. Paragraph 1 of Article I of the Lease is
amended through the addition of the following as subparagraph (d).
(d) ADDITIONAL SPACE. The "Additional Space" shall consist
of approximately 7,799 square feet of net rentable area on
the 23rd floor of the Building at the location shown on the
floor plans attached as Exhibit A to the Amendment.
In addition, the definition of "leased premises" contained within Paragraph 1 of
Article I of the Lease is expanded to include the Additional space.
C-1
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2. TERM OF LEASE FOR ADDITIONAL SPACE. Paragraph 1(a) of Article II of
the Lease is amended through the addition of the following as subparagraph (d):
(d) ADDITIONAL SPACE. The term of this lease for the
Additional Space shall be nine (9) months, to commence on
July 1, 1991 and to expire on March 31, 1992, and thereafter
on a month-to-month basis; provided, however, that from and
after March 31, 1992, either party shall have the right to
terminate the lease with respect to the Additional Space by
providing the other party with no less than thirty (30) days
prior written notice of their election to terminate. The
exercise by Lessor or Lessee of the option to terminate this
lease as it pertains to the Additional Space shall have no
affect upon the respective parties' rights or obligations
under this Lease to the leased premises other than the
Additional Space.
3. RENT FOR ADDITIONAL SPACE. Paragraph 3(a) of Article II of the Lease
is amended through the addition of the following as subparagraph (3):
ADDITIONAL SPACE. Lessee shall pay Lessor Basic Rent for
the Additional Space equal to the sum of Eleven Dollars
($11.00) per square foot of net rentable area per year,
which includes the "Initial Tax Basic Cost" and the "Initial
Operating Expenses Basic Cost," as defined below. The
Initial Tax Basic Cost with respect to the Additional Space
shall be $1.29 per square foot of net rentable area. The
Initial Operating Expenses Basic Cost with respect to the
Additional Space shall be $3.75, PLUS the Management Fee
Contribution calculated using that figure, per square foot
of net rentable area.
4. CONDITION OF ADDITIONAL SPACE. Lessor shall paint the Additional
Space and clean the carpet. Except for the foregoing, Lessee hereby accepts the
Additional Space in its existing condition on an "As-Is" basis; Lessee
acknowledges and agrees that Lessor shall have no obligation to make any
improvements to the Additional Space; and Lessee further acknowledges and agrees
that Lessor shall have no obligation to make any contribution or concession to
Lessee in connection with any improvements undertaken by Lessee to the
Additional Space.
C-2
<PAGE>
5. NO OTHER AMENDMENTS. Except as expressly set forth herein, the Lease
shall remain unmodified and in full force and effect.
LESSOR:
1700 LINCOLN LIMITED
By: HINES COLORADO LIMITED,
a Colorado limited partnership
By:
------------------------------
Gerald D. Hines,
a General Partner of
Hines Colorado Limited
By: Hines Colorado
Corporation, a General
Partner of Hines Colorado
Limited
By:
-------------------------
Gerald D. Hines,
President
LESSEE:
APACHE CORPORATION,
a Delaware corporation
By: /s/ (signature illegible)
-----------------------------------
Its: (illegible)
-----------------------------------
[map of premises covered by Second Lease Amendment]
C-3
<PAGE>
[Amendment to Lease Agreement]
THIRD LEASE AMENDMENT
THIS THIRD LEASE AMENDMENT ("Amendment") is entered into as of the _____
day of ______________, 1992, by and between 1700 LINCOLN LIMITED, a Colorado
limited partnership ("Lessor"), and APACHE CORPORATION, a Delaware corporation
("Lessee").
RECITALS
A. Lessor and Lessee have entered into a Lease Agreement dated as of
December 4, 1986, as amended by a First Lease Amendment dated as of June 1, 1988
and a Second Lease Amendment dated as of June 21, 1991 (which, together with all
schedules, riders, exhibits and addenda thereto shall be collectively referred
to as the "Lease". All terms used in this Amendment and not otherwise defined
herein shall have the same meaning as set forth in the Lease.
B. The Lease affects and pertains to approximately 167,446 square feet of
net rentable area located on Floors 14-20 and 23 of the Building constructed on
a portion of Block 30 of H.C. Brown's Addition in the City and County of Denver,
Colorado, commonly referred to as One Norwest Center and formerly known as One
United Bank Center.
C. Lessor and Lessee now mutually desire to amend the Lease as set forth
herein.
AMENDMENT
In consideration of the mutual agreements contained herein, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lessor and Lessee agree as follows:
1. Article IV, Section 5(b) shall be amended by replacing the first
sentence of that Section with the following sentence:
Subject to Lessor's prior written approval of each
Subtenant, which approval shall not be unreasonably withheld
or delayed, Lessee may sublet the leased premises, provided
that each Subtenant's use of the leased premises is
consistent with paragraph 2 of Article II.
2. Article IV, Section 5(c) is hereby deleted in its entirety.
D-1
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3. Except as expressly set forth herein, the Lease shall remain
unmodified and in full force and effect.
THIS THIRD LEASE AMENDMENT has been executed by Lessor and Lessee as of the
date first set forth above.
LESSOR:
1700 LINCOLN LIMITED,
a Colorado limited partnership
By: HINES COLORADO LIMITED, General
Partner of 1700 Lincoln Limited
By: /s/ Gerald D. Hines
------------------------------
Gerald D. Hines,
a general partner of
Hines Colorado Limited
By: HINES COLORADO CORPORATION,
a General Partner of Hines
Colorado Limited
By: /s/ Gerald D. Hines
------------------------------
Gerald D. Hines, President
LESSEE:
APACHE CORPORATION,
a Delaware corporation
By: /s/ (signature illegible)
Its: Vice President
D-2
<PAGE>
EXHIBIT A
SUBLEASED PREMISES
[map of premises covered by Third Lease Amendment]
D-3
<PAGE>
EXHIBIT C
WORK LETTER TO SUBLEASE
THIS WORK LETTER is attached to and made a part of the Sublease dated
January 29, 1993, pursuant to which APACHE CORPORATION ("Sublandlord"), has
subleased to TELETECH TELECOMMUNICATIONS, INC., a California corporation, and
TeleTech TeleServices, Inc., a Colorado corporation (collectively, "Subtenant"),
the 14th and 15th floors of One Norwest Center located at 1700 Lincoln Street,
Denver, Colorado.
1. PRELIMINARY DRAWINGS. Sublandlord and Subtenant have approved the
preliminary drawings (the "Preliminary Drawings") for improvements to be
constructed in the Subleased Premises (the "Leasehold Improvements") prepared by
Gensler & Associates (the "Architect"). The Preliminary Drawings shall be used
as the basis for developing final drawings for the Leasehold Improvements.
2. APPROVAL OF CONSTRUCTION DRAWINGS. Immediately upon the date of
execution of this Sublease, Subtenant shall cause the Architect to promptly and
diligently commence and thereafter pursue to completion the preparation of the
final drawings, plans and specifications for the Leasehold Improvements (the
"Final Draft Drawings") whereupon Subtenant shall forward the Final Draft
Drawings to Sublandlord. Within 5 business days after receipt of the Final
Draft Drawings, Sublandlord shall, by written notice to Subtenant and the
Architect, either approve the Final Draft Drawings or state the specific items
thereof which Sublandlord disapproves and the reasons therefor. Sublandlord's
approval shall not be unreasonably withheld, provided the Final Draft Drawings
are consistent with the Preliminary Drawings, the Lease and are otherwise
approved by Lessor. If Sublandlord disapproves of any aspect of the Final Draft
Drawings, Subtenant shall cause the Architect to revise the applicable documents
to address Sublandlord's objections, and shall deliver such revised
documentation to Sublandlord. Sublandlord shall then have 2 business days after
receipt of such revisions within which to review the revised documents and
respond in writing to Subtenant and the Architect in the same manner as provided
above. Thereafter, the parties shall continue to cooperate to review, revise
and finalize the Final Draft Drawings in the same manner and subject to the same
time frames as provided above. The fully approved Final Draft Drawings shall be
signed by Sublandlord and Subtenant and thereafter shall be referred to as the
"Construction Drawings."
3. RESPONSIBILITY FOR DESIGN. Notwithstanding that the Construction
Drawings may be reviewed and approved by Sublandlord and any other input
Sublandlord may have with respect to the Leasehold Improvements, Subtenant is
solely responsible for the design, function and maintenance of all Leasehold
Improvements.
D-4
<PAGE>
Further, such involvement with the Construction Drawings by Sublandlord and its
architect and other representatives shall not constitute any representation or
warranty by Sublandlord or such architects as to the adequacy, efficiency,
performance or desirability of any space layout or improvements. Subtenant and
Architect shall be solely responsible for ensuring that the design and
improvements of the Subleased Premises comply with the Americans With
Disabilities Act (the "ADA"), and Subtenant shall hold harmless Sublandlord in
connection therewith. After completion of the Leasehold Improvements, any
modifications, alterations and improvements in the Subleased Premises which may
be required pursuant to the ADA shall be made by Subtenant at its sole cost and
expense. It is understood that Subtenant will look solely to Lessor for
compliance with the ADA with respect to those portions of the core and common
areas of the Building which are not part of the Subleased Premises.
4. CONSTRUCTION OF LEASEHOLD IMPROVEMENTS. Promptly after the mutual
execution of the Sublease and approval of the Construction Drawings, Subtenant
shall furnish, construct and install the Leasehold Improvements in substantial
compliance with the Construction Drawings. All such work shall be undertaken
and completed by Subtenant in compliance with the terms of the Master Lease.
All costs and expenses associated with the design, construction and installation
of the Leasehold Improvements shall be paid by Subtenant including, without
limitation, all architectural design, engineering, construction and construction
management fees associated with the construction of the Leasehold Improvements,
some or all of which shall be paid out of the Improvement Allowance, as defined
in paragraph 6 of this Work Letter. Subtenant shall pay all such costs and
expenses promptly as they come due, some or all of which shall be paid out of
the Improvement Allowance, and specifically shall comply with the terms of
Article IV, Section 6(d) of the Master Lease in not allowing any lien or
encumbrance to be attached or placed upon Lessor's or Sublandlord's title or
interest in the Premises, the Subleased Premises, the Building or the Land.
5. SUBLANDLORD'S OBLIGATIONS. Sublandlord shall have no obligations with
respect to Subtenant's contractors other than to deliver the Subleased Premises
as of the date of commencement of this Sublease. Subtenant shall be solely
responsible for all of the activities of its contractors and subcontractors.
Sublandlord and its representatives shall have reasonable access to the
Subleased Premises to review and inspect the work being undertaken pursuant to
this Work Letter.
6. IMPROVEMENT ALLOWANCE. Sublandlord shall make available to Subtenant
an allowance in the amount of $1,114,225.00 (the "Improvement Allowance") to pay
the costs of design, construction and installation of the Leasehold
Improvements, but excluding any moveable furniture, equipment, personal property
and other trade
D-5
<PAGE>
fixtures not physically attached to the Subleased Premises. Sublandlord shall
make advances of the Improvement Allowance to Subtenant (or, at Sublandlord's
option, jointly to Subtenant and Subtenant's contractor) as the construction of
the Leasehold Improvements progresses. Advances shall be made not more
frequently than once per month, and shall be conditioned upon the allowance
being used for proper purposes and (a) Sublandlord's receipt of copies of all
invoices or other evidence reasonably acceptable to Sublandlord, substantiating
the amount of the costs incurred by Subtenant and that the costs have been
incurred for design, construction and installation of the Leasehold
Improvements, (b) certification by Subtenant's architect and the construction
manager that the work for which payment is requested has been completed
substantially in accordance with the approved Construction Drawings, as amended
by approved changed orders; and (c) Sublandlord's receipt of lien waivers in
form and substance satisfactory to Sublandlord from the contractor and all
subcontractors, and certification from the construction manager that such lien
waivers satisfy the requirements of this Work Letter. Advances shall be made
within 30 days after Sublandlord's receipt of Subtenant's request and such
required documentation. If Subtenant's construction manager requests
modifications to the foregoing payment schedules and procedures, such changes
shall be made with the prior written consent of Sublandlord, which consent shall
not be unreasonably withheld, conditioned or delayed. Subtenant shall have no
claim to any portion of the Improvement Allowance which it does not use for
design, construction and installation of the Leasehold Improvements.
Sublandlord may reject any requests for draws on the Improvement Allowance which
are made more than 60 days after the date Subtenant commences occupancy of any
of the Subleased Premises.
7. ADJUSTMENT TO BASIC RENT. If the total amount of the Improvement
Allowance which is actually paid by Sublandlord is less than $1,114,225.00, then
the monthly installments of Basic Rent shall be reduced by the amount necessary
to amortize the unused portion of the Improvement Allowance in equal monthly
installments, with interest at 8% per annum, over the then remaining term of the
Sublease. A corresponding adjustment shall be made to the total Basic Rent due
for the balance of the term of this Sublease. Upon the final payment from the
Improvement Allowance, Sublandlord shall give written notice to Subtenant of the
revised Basic Rent. Sublandlord and Subtenant shall, within 5 days following
the request of either party, execute and deliver an amendment to this Sublease
specifying the Basic Rent, as so adjusted.
8. COORDINATION WITH LESSOR AND MASTER LEASE. Subtenant shall be
responsible for having all Leasehold Improvements reviewed and approved by
Lessor and to have all design, construction and installation work comply with
the terms of the Master Lease. Sublandlord has made no representations or
warranties as to
D-6
<PAGE>
Lessor's review of or consent to the Construction Drawings or Leasehold
Improvements.
9. CHANGE ORDERS. All changes in the Construction Drawings will be
subject to Sublandlord's prior written approval, which approval shall not be
unreasonably withheld, conditioned or delayed. Material change orders, as
determined by Sublandlord in its reasonable discretion, shall also be subject to
the written approval of Lessor.
10. FAILURE TO PERFORM. Any default by Subtenant under this Work Letter
shall constitute a default under the Sublease affording Sublandlord all of the
rights and remedies available to it under the Sublease.
11. CONSTRUCTION MANAGER. The terms of this Work Letter have been
approved by Sublandlord in reliance upon Subtenant's representation that
Subtenant will be retaining Hines Interests Limited Partnership ("Hines") to act
as construction manager for the construction of the Leasehold Improvements.
Hines is also property manager of the Building for Lessor and, in such capacity,
will also be acting on behalf of Lessor to assure Lessor and Sublandlord that
the Leasehold Improvements are in compliance with the terms of the Master Lease.
If the construction manager is anyone other than Hines, Sublandlord shall have
the right to withdraw its approval of this Work Letter, in which event the terms
of this Work Letter shall be revised to include such other reasonable covenants,
procedures and warranties as Hines, Lessor or Sublandlord may deem necessary.
12. COMPLETION AND RENT COMMENCEMENT DATE. Subtenant's obligation for the
payment of Basic Rent pursuant to the Sublease will commence as of September 1,
1993, the Sublease Rent Commencement Date, as set forth in this Sublease.
Delays in the completion of the Leasehold Improvements shall not affect the
validity or continuance of this Sublease, nor the term or obligations of
Subtenant under this Sublease. In the event of delays in the completion of
construction of the Leasehold Improvements outside of the control of Subtenant,
Subtenant shall have the right to request a delay in the Sublease Rent
Commencement Date of up to one month on the terms provided in this paragraph.
In order to request any such delay in the Sublease Rent Commencement Date,
Subtenant shall, upon the occurrence of a delay outside of its control, give
prompt written notice to Sublandlord of such delay and the circumstances
surrounding the delay. Thereafter, Subtenant shall use good faith efforts to
make up for the time lost as a result of the delay. If Subtenant is unable to
make up such lost time caused by the delay outside of the control of Subtenant,
the Sublease Rent Commencement Date shall be delayed one day for each day's
delay.
D-7
<PAGE>
There shall be no extension of the Sublease Rent Commencement Date to the
extent the delay is caused by a Subtenant Delay. "Subtenant Delay" means any
delay in the completion of the Leasehold Improvements caused in whole or in part
by any act or omission of Subtenant, its agents, employees or contractors, which
has the effect of hindering or delaying timely completion of any of the Work,
including, but not limited to delays caused by: (a) Subtenant's failure to
supply in a timely manner any information necessary to complete the Construction
Drawings; (b) modifications, revisions and changes to the construction Drawings
requested by or on behalf of Subtenant; (c) changes in the work requested by or
on behalf of Subtenant, or orders to halt or delay the work given by or on
behalf of Subtenant, whether or not such order is permitted hereunder; and (d)
any other delay of any kind or nature caused by Subtenant, its employees, agents
or contractors.
The determination as to whether a delay is a Subtenant Delay or a delay is
outside of the control of Subtenant and the number of days' delay in the
Sublease Rent Commencement Date shall be made by Sublandlord in its sole
discretion. Upon Sublandlord confirming the existence and the extent of any
such delay for which an extension is permitted, the Basic Rent shall be
recalculated over the balance of the remaining term of this Sublease, using the
same principles as used in originally calculating the Basic Rent.
D-8
<PAGE>
EXHIBIT B TO SUBLEASE DATED MARCH 16, 1993
[Hines Interests Limited Partnership letterhead]
February , 1993
---------
Apache Corporation
2000 Post Oak Blvd., Suite 100
Houston, TX 77056-4400
Attention: Greg Pyles
Ladies and Gentlemen:
Pursuant to that certain Lease Agreement dated December 4, 1986, between you as
Lessee and 1700 Lincoln Limited as Lessor, as amended (the "Lease Agreement"),
we hereby consent to your request to sublease 44,569 square feet on Floors 14
and 15 of One Norwest Center to TeleTech Telecommunications, Inc., a California
corporation, and TeleTech Teleservices, Inc., a Colorado corporation (together
"TeleTech"), from June 1, 1993 to May 31, 1997.
This consent applies only to your subleasing the above described space to
TeleTech for the term stated and shall in no manner be construed as consent to
further subletting or assigning.
By this consent 1700 Lincoln Limited does not approve or disapprove the
sublease agreement and neither the execution of the sublease agreement, nor
anything done pursuant to the provisions thereof, nor this consent shall be
deemed or taken to modify the Lease Agreement.
Very truly yours,
1700 LINCOLN LIMITED
By: Hines Colorado Limited
General Partner of
1700 Lincoln Limited
By:
-------------------------
Vice President of
Hines Colorado Limited
D-9
<PAGE>
EXHIBIT "C" TO SUBLEASE DATED MARCH 16, 1993
Note: For copy of Exhibit "C", see Lease Agreement at Item 5 of this Index.
D-10
<PAGE>
EXHIBIT D TO SUBLEASE DATED MARCH 16, 1993
Description of Generator
D-11
<PAGE>
Exhibit 10.12
FORM OF
CLIENT SERVICES AGREEMENT
This Client Services Agreement ("CSA"), dated ________, 1996, is by and between
TELETECH __________________INC., a___________ corporation, with offices at
______________________________("TeleTech"), and _____________________
_________________, a ________________ corporation, with offices at _____________
___________________________________ ("Client").
1. DEFINITIONS
1.1 "Service(s)" shall mean any and all services and deliverables, as
defined in the attached Task Order, including but not limited to
customer service, ordering and program development, to be provided by
TeleTech, or any subcontractor hired by TeleTech, to Client.
1.2 "Task Order" shall mean the statement attached hereto that contains a
complete description of Services to be provided by TeleTech and may
include deliverables, milestones, hardware, software and telecom
requirements, payment schedules, etc.
1.3 "Term" shall mean the length of time TeleTech is to provide Client
with Services as set forth in the Task Order.
2. PAYMENTS
2.1 Set-up fees and/or milestone payments will be billed in accordance
with the Task Order. TeleTech will bill client for on-going Services
every week. Invoices will include Task Order number(s), number of
individuals and hours billed. Invoices will be due and payable 7 days
after receipt via wire transfer to First Interstate Bank, Account #
__________, TeleTech Telecommunications, Inc., ABA # __________.
2.2 Client will be responsible for any and all taxes associated with
Services and billing for Services, except for any taxes based solely
on TeleTech's net income.
2.3 Client shall reimburse TeleTech for all reasonable Client-requested
travel expenses related to the set-up and/or performance of Services,
including but not limited to meals, lodging, transportation, car
rental and incidental expenses for which TeleTech provides Client with
copies of receipts or other documentation.
2.4 Time is of the essence with respect to all amounts payable hereunder.
Any amount not paid when due will bear interest at the rate of 1.5%
per month but will not exceed the maximum rate allowed by law. In
addition, any amount not paid within 15 days of the due date will be
subject to a late fee equal to 5% of the amount owing, which the
parties agree is a reasonable sum that takes into consideration all of
the circumstances existing on the date thereof, including the
difficulty in fixing TeleTech's actual damages resulting from Client's
failure to make timely payments, and is a fair and reasonable estimate
of the costs and expenses that will be incurred by TeleTech due to
Client's failure to make timely payments.
2.5 The prices contained in the Task Order shall automatically increase at
the end of each 12 month period by the same percentage as the most
recently published Department of Labor Consumer Price Index.
3. PERSONNEL
3.1 Client may require the removal of any individual performing Services
if Client reasonably believes that individual is not qualified to
perform Services or does not meet applicable professional standards,
as set out in the Task Order. In such event, any replacement
personnel will have qualifications and experience equal to or better
than the individual replaced. Client will pay any additional training
costs associated with replacement, unless otherwise agreed in the Task
Order. TeleTech will not be liable for any delays in performance due
to such replacement.
1
<PAGE>
3.2 TeleTech is an independent contractor and has the sole right and
obligation to manage or direct its employees, and the sole
responsibility for all remuneration of its employees, including any
withholding or taxes on such remuneration.
3.3 Unless otherwise mutually agreed upon, Client shall not solicit or
hire, in any capacity, any then-current TeleTech employee during the
term of this CSA, or for the 24 months immediately following its
termination or expiration. If this section is breached, Client shall
pay 4 times the hired employee's annual gross salary and benefits to
TeleTech.
4. ACCESS TO FACILITIES
4.1 Should Client reasonably require access to TeleTech's facilities,
Client will follow all TeleTech policies and procedures regarding the
workplace, copies of which will be provided upon request. TeleTech
shall have the right to immediately remove from its premises and/or
require the permanent replacement on TeleTech premises of any Client
personnel in violation of its policies or procedures or whom TeleTech
reasonably believes to be in violation of its policies or procedures.
4.2 All Client personnel will prominently display a TeleTech-issued badge
identifying Client's company at all times while in TeleTech
facilities.
4.3 Client shall be liable for any and all personal injury and/or property
damage resulting from the acts or omissions of Client's personnel
while in TeleTech facilities.
4.4 TeleTech and Client agree that neither TeleTech, nor TeleTech's other
clients intend to disclose to Client, nor does Client intend to
receive, confidential information as a result of Client's presence in
TeleTech facilities. If, in the course and scope of its duties while
in TeleTech facilities, Client inadvertently receives confidential
information not its own, it will protect such information from any
further disclosure and will not use such information in any way.
5. WARRANTIES AND DISCLAIMER OF WARRANTIES
5.1 TeleTech warrants that Services will be performed in a good and
workperson-like manner.
5.2 EXCEPT AS STATED HEREIN, TELETECH SPECIFICALLY DISCLAIMS ANY AND ALL
OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO
THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
5.3 Client warrants that all information supplied by Client shall be
accurate and complete, to Client's best knowledge and belief.
6. LIMITATIONS OF LIABILITY
6.1 TeleTech's entire liability to Client, regardless of the form of
action, and whether in tort or contract, shall not exceed the
amount(s) paid by Client to TeleTech hereunder.
6.2 Client's sole remedy for any recording error TeleTech makes when
receiving information from Client or Client's current or prospective
customers shall be a credit equal to the price paid by Client per call
times the number of calls for which errors were recorded. To obtain
such credit, Client must inform TeleTech of such error(s) in writing
no more than 30 days after receipt by Client of the TeleTech invoice
containing the call(s) in question.
6.3 Client agrees that TeleTech will not be liable for delays, cost
increases or other consequences resulting from Client's acts or
omissions, including without limitation, Client providing incomplete
and/or inaccurate information. Any deadline affected by Client's acts
or omissions shall be extended automatically by the amount of any
delay caused thereby plus an additional period of time, as reasonably
necessary in TeleTech's sole discretion, to compensate therefor. In
addition, Client agrees to reimburse TeleTech for any costs or
expenses incurred in the performance of any Task Order under this CSA
2
<PAGE>
as a result of Client's acts or omissions.
6.4 TELETECH SHALL NOT BE LIABLE FOR LOST PROFITS, NOR ANY SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES, REGARDLESS OF WHETHER TELETECH
HAS BEEN INFORMED OF THE LIKELIHOOD OF SUCH DAMAGES.
6.5 Client may not bring any action, regardless of form, more than one (1)
year after the cause of action has accrued, unless such limitation is
prohibited by law.
7. TERMINATION
7.1 Except as otherwise provided herein, if a party breaches a material
provision of this CSA and does not cure the breach within 30 days
after written notice by the nonbreaching party, the nonbreaching party
may immediately terminate this Agreement.
7.2 In the event that Client defaults on payment of any amount due to
TeleTech and does not cure such default within 15 days after being
given written notice thereof, then TeleTech may immediately terminate
this Agreement.
7.3 For purposes of section 7.1 above, the term "breach" shall include,
without limitation: a) Any proceedings against either party, whether
voluntary or involuntary, in bankruptcy or insolvency; b) Any
appointment, with or without the consent of either party, of a
receiver or an assignee for the benefit of creditors; or c) Any other
failure to comply with any material provision of this CSA.
7.4 The rights and remedies granted to both parties under this Agreement,
other than those outlined in section 6.2, above, are cumulative in
nature and in addition to all other rights or remedies available at
law or in equity.
8. LIQUIDATED DAMAGES
8.1 Client agrees that the termination without cause of any Task Order(s)
hereunder, or of this CSA while any Task Order(s) hereunder is in
effect, will cause TeleTech to incur certain costs and expenses
including, but not limited to, administrative costs, collection costs,
lost opportunities, and other direct and indirect costs in an
uncertain amount, making it impracticable to fix the exact amount of
such costs. Accordingly, the parties agree that Client will pay 55%
of the maximum remaining payments to be made hereunder upon Client's
termination without cause, in addition to the total lease payments for
any dedicated facilities, purchases or other commitments made on
behalf of Client and any unpaid software set-up fees, hardware set-up
fees, or training set-up fees as defined herein or in a Task Order.
This amount is deemed a reasonable estimate of TeleTech's damages and
shall not be construed as a penalty.
9. FORCE MAJEURE
9.1 TeleTech shall be excused from performance as result of causes beyond
its reasonable control and/or that of its subcontractors. Such causes
shall include without limitation acts of God, strikes, lockouts,
riots, acts of war, epidemics, governmental regulations superimposed
after the fact, fire, communication line failures, failures of third
party vendors, power failures, earthquakes, floods or other natural
disasters. In the event of delays for sixty (60) days or more, either
party may terminate this Agreement by giving written notice thereof to
the other party.
10. OWNERSHIP OF MATERIALS
10.1 All intellectual and physical materials developed by TeleTech with or
without the assistance of Client (including but not limited to all
writings, software, software modifications, enhancements,
customizations, developments, specifications and documentation) will
be the exclusive property of TeleTech. Client
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<PAGE>
hereby assigns to TeleTech all right, title and interest in such
materials (including but not limited to all copyrights, patents,
trademarks, servicemarks and other protectable property) and agrees to
execute all documents necessary to evidence the same.
10.2 TeleTech grants Client a non-exclusive, royalty-bearing, non-
transferable license to use any software developed in accordance with
section 10.1, above. Such license is restricted to the term of the
provision of Services and solely for the provision of Service. No
right to grant sublicenses is provided.
11. CONFIDENTIAL INFORMATION
11.1 All Client confidential or proprietary information disclosed to
TeleTech shall be clearly marked as such, or if disclosed orally,
shall be designated as confidential or proprietary in writing within
10 days of disclosure.
11.2 TeleTech shall keep such information protected for a period of 2
years, exercising the same degree of care it uses to protect its own
information of like nature, but in any event, no less than a
reasonable degree of care.
11.3 TeleTech shall have no obligation to protect information that:
a) Is or becomes publicly available through no fault of TeleTech;
b) Is independently developed by TeleTech without violating this CSA;
c) Is already rightfully in TeleTech's possession;
d) Is rightfully received by TeleTech from a third party without a
duty of confidentiality;
e) Is disclosed by Client to a third party without a duty of
confidentiality; or
f) Is disclosed under operation of law.
12. ARBITRATION
12.1 The parties agree to submit to final and binding arbitration, to be
conducted in accordance with the Judicate Rules of Procedure of the
Judicate National Private Court System, in Denver, Colorado, by a
retired judge mutually agreed upon by the parties, or, if the parties
cannot agree within 10 days, then selected by Denver District Court's
Presiding Judge. Each party shall bear half the costs of the
arbitrator, unless otherwise allocated by the arbitrator.
12.2 No discovery will be allowed, other than the production of documents,
the responses to which must be received within 10 days of any written
request and no later than 10 days prior to the arbitration hearing.
All pretrial proceedings may be conducted by telephone conference.
12.3 The arbitrator is authorized to grant any and all legal and equitable
remedies, including a default judgment, but shall not have the
authority to alter or amend these arbitration provisions. The
arbitrator will issue a written decision resolving the matter,
including findings of fact and conclusions of law, within 30 days
after giving the parties opportunity to present evidence under Colo.
Rev. Stats. Any decision rendered may be entered in any court having
jurisdiction.
13. MISCELLANEOUS PROVISIONS
13.1 The parties hereby agree that this CSA has been jointly negotiated and
drafted by the parties and that it shall not be construed either for
or against either party based upon who drafted any part of it.
13.2 THIS CSA SHALL BE GOVERNED BY THE LAWS OF THE STATE OF COLORADO, OTHER
THAN ITS CHOICE OF LAW RULES.
13.3 Any waiver by either party of a term of provision of this CSA shall
not be construed as a waiver of any subsequent breach.
13.4 Neither party shall have the right to assign this CSA, in whole or in
part, without the prior written consent of the other, such consent not
to be unreasonably withheld.
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13.5 Any and all obligations under this CSA which, by their very nature,
would survive the termination or expiration if this CSA, shall so
survive.
13.6 Should any provision of this CSA be held unlawful, this CSA shall be
interpreted so as to exclude such unlawful provision.
13.7 All notices shall be by registered mail, return receipt requested, or
hand-delivered or via overnight delivery with signed receipt, and
shall be directed to the addresses set forth in this CSA.
13.8 Neither party publicly shall use the other's name or refer to the
other in any way, including without limitation, in advertising,
without the other party's prior written consent, such consent not to
be unreasonably withheld.
13.9 The prevailing party in any dispute arising under this CSA shall be
entitled to all reasonable costs, including attorneys' fees.
13.10 Any amendment or modification to this CSA, or any attachments or
Exhibits hereto, shall be effective only if reduced to writing and
signed by both parties.
13.11 This CSA and any Exhibits attached hereto shall constitute the entire
agreement between the parties and supersedes all prior agreements,
discussions, proposals, representations or warranties, whether written
or oral on this subject matter.
TELETECH ______________________________
By:____________________________ By:____________________________
(duly authorized) (duly authorized)
Title:_________________________ Title:_________________________
Date:__________________________ Date:__________________________
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NATIONSBANK
MASTER EQUIPMENT LEASE
NATIONSBANC LEASING CORPORATION LEASE AGREEMENT NUMBER 08713-00300
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THIS MASTER EQUIPMENT LEASE AGREEMENT (this "Lease") dated as of August 16,
1995, between NationsBanc Leasing Corporation ("Lessor"), a corporation
organized under the laws of North Carolina, having its chief executive office at
2300 Northlake Centre Drive, Suite 300, Tucker GA 30084, and Teletech Holdings,
Inc. ("Lessee"), a Delaware corporation of 1700 Lincoln Street, Suite 1400,
Denver, CO 80203 hereby agree as follows.
1. LEASE AGREEMENT. Subject to the terms and conditions hereinafter set
forth, Lessor shall lease to Lessee, and Lessee shall hire from Lessor, the
units of personal property (collectively with all attached parts, replacements,
additions, accessions and accessories attached thereto, the "Equipment")
described in one or more equipment schedules (each a "Schedule") which
incorporate by reference this Master Equipment Lease Agreement. Each Schedule
shall constitute a separate and independent lease and contractual obligation of
Lessee. Until a Schedule is duly signed and delivered by Lessor, a Schedule
signed and delivered by Lessee constitutes an irrevocable offer by Lessee to
lease the Equipment described in such Schedule from Lessor.
2. TERM OF LEASE; RENTALS AND DEPOSIT. The lease term with respect to any
Equipment covered by a Schedule shall consist of an "Interim Term" and a "Base
Term" as provided in the Schedule covering such Equipment. Lessee shall pay
rent for the Interim Term ("Interim Rent") as provided and in amounts determined
by Lessor as set forth in the applicable Schedule, and shall pay rent for the
Base Term ("Base Rent") in such amounts and at such times as shall be specified
in the applicable Schedule. At the time Lessee signs and delivers a Schedule,
Lessee shall deposit with Lessor such additional sum ("Security Deposit"), if
any, specified in the Schedule as security for the payment and performance of
any obligation of Lessee hereunder.
3. LOCATION AN USE OF EQUIPMENT. Each item of Equipment shall at all times
be and remain in the possession and control of Lessee at the address stated in
the Schedule covering such item. Lessee will use, operate, protect, and
maintain the Equipment in compliance with all applicable insurance policies,
laws, ordinances, rules, regulations, and manufacturer's instructions. The
Equipment shall be used solely for commercial or business purposes, and not for
any consumer, personal home, or family purpose. Lessee shall not, through
modifications, alterations or any other method, impair the originally intended
function of any Equipment without the prior written consent of Lessor. Any
replacement or substitution of parts, improvements or additions to the Equipment
made by Lessee shall become and remain the property of Lessor. If requested by
Lessor, Lessee shall cause each item of Equipment to be and remain plainly and
conspicuously marked by insignia, stenciling, plaques, tags, decals or other
forms of notice to disclose Lessor's ownership of the Equipment. Lessee shall
keep the Equipment free and clear of any liens, encumbrances, claims and charges
(except for those created expressly by Lessor) and shall not in any way encumber
its rights hereunder or under any Schedule.
4. TAXES. Lessee shall reimburse Lessor on demand for all taxes assessments
and other governmental charges paid by Lessor in connection with the Equipment
or its use, ownership or operation while in Lessee's possession or the payment
or receipt of rent or other charges under any Schedule, including but not
limited to foreign, federal, state, county and municipal fees and taxes, ad
valorem, sales, use excise, stamp and documentary taxes (other than federal and
state taxes based on Lessor's net income), and all related penalties, fines and
interest charges (unless any such penalties, fines, and interest charges are
directly and primarily caused by Lessor's negligence). Upon Lessor's request,
Lessee will immediately furnish to Lessor such information as Lessor shall
require in connection with the preparation and filing of all returns relating to
such taxes, assessments, or charges.
5. NET LEASE, LOSS AND DAMAGE.
(a) Each Schedule is a net lease. All costs, expenses and other liabilities
associated with the Equipment shall be borne by Lessee. Lessee's obligations
under any and all Schedules are absolute and unconditional, and are not to be
subject to any abatement, deferment, reduction, setoff, defense, counter claim
or recoupment for any reason whatsoever.
<PAGE>
Except as otherwise expressly provided herein, no Schedule shall terminate nor
shall the obligations of Lessee be affected, by reason of any defect or damage
to, or any destruction, loss, theft, forfeiture, governmental requisition or
obsolescence of the Equipment, regardless of cause.
(b) Lessee assumes all risk of damage to or loss, theft or destruction of the
Equipment from any cause whatsoever from the date the Equipment is shipped by
the vendor or manufacturer. In the event of loss or destruction of the
Equipment from any cause whatsoever from the date the Equipment is shipped by
the vendor or manufacturer but prior to its acceptance by Lessee, Lessee shall
promptly pay to Lessor all sums heretofore paid by Lessor to such vendor or
manufacturer and Lessor shall assign to Lessee all of its rights or causes of
action, if any, against such vendor or manufacturer. In the event of damage of
any kind whatsoever to any item of the Equipment on or after its acceptance by
Lessee, Lessee shall, at Lessor's option, either place the same in good repair,
condition or working order or if in the reasonable judgment of Lessor the
Equipment is determined by Lessor to be lost, stolen, destroyed or damaged
beyond repair, Lessee shall pay Lessor the Stipulated Loss Value therefor. Upon
such payment, the Lease of such Equipment shall terminate and Lessee thereupon
shall become entitled to such item of the Equipment "As Is and Where Is" without
warranty, express or implied, with respect to any matter whatsoever. The
Stipulated Loss Value of any Equipment shall be determined by Lessor in
accordance with the provisions of the Schedule covering such Equipment.
Proceeds of Insurance may be available for the repair or payment of the
Stipulated Loss Value, in accordance with Section 6 hereof.
6. INSURANCE. Lessee shall, at its own expense, procure and maintain the
following insurance coverages on the Equipment until the Equipment is returned
to Lessor or Lessee's obligations with respect thereto under any applicable
Schedule are otherwise terminated: (i) insurance against theft, fire, and such
other risks as Lessor shall specify or (absent any written specification by
Lessor) as are customarily insured against in Lessee's trade or industry, under
policies naming Lessor as loss payee and (ii) comprehensive public liability and
property damage insurance, under policies naming Lessor as additional insured.
Each such insurance policy shall: (a) include provisions for the protection of
Lessor notwithstanding any action or inaction, neglect, breach, violation, or
default of or by Lessee of any warranty, condition or declaration, (b) provide
for payment of insurance proceeds to Lessor to the extent of its liability or
interest, (c) provide that such policy may not be modified, terminated or
canceled unless Lessor is given at least thirty (30) days' advance written
notice thereof (d) provide that the coverage is "primary coverage" for the
protection of Lessee and Lessor notwithstanding any other coverage carried by
Lessee or Lessor protecting against similar risks or liabilities and (e) be
issued in such amounts (which in the case of casualty insurance will never be
less than the Stipulated Loss Value of the Equipment covered thereby), with such
deductibles, by such insurance company, and otherwise in such form as shall all
be reasonably satisfactory to Lessor. Lessee shall furnish Lessor with
certificates or other satisfactory evidence of such insurance, and shall furnish
Lessor with a renewal certificate for each policy at least ten (10) days before
the policy renewal date. Lessor shall have no duty to examine any certificate
or other evidence of insurance, or to advise Lessee in the event that its
insurance is not in compliance with this Section 6. The proceeds of any public
liability or property damage insurance shall be payable first to Lessor to the
extent of its liability, if any, and the balance to Lessee. The proceeds of
fire, theft, or other casualty insurance shall be payable solely to Lessor and
shall be used for the repair or replacement of the affected Equipment, unless an
event of default shall have occurred and be continuing, in which event such
proceeds may, at Lessor's sole option, be applied toward the payment of Lessee's
obligations under the applicable Schedule. Lessee hereby appoints Lessor as
Lessee's agent and attorney-in-fact with full power to do all things (including
but not limited to making, adjusting, and settling claims, and receiving
payments and endorsing documents, checks, or drafts) necessary or advisable to
secure payment due under any insurance policy contemplated hereby.
7. GENERAL INDEMNITIES. LESSEE SHALL INDEMNIFY LESSOR AGAINST ALL CLAIMS,
LIABILITIES, LOSSES AND EXPENSES WHATSOEVER, INCLUDING REASONABLE ATTORNEYS'
FEES AND COSTS (EXCEPT THOSE DIRECTLY AND PRIMARILY CAUSED BY LESSOR'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT), IN ANY WAY RELATING TO OR ARISING OUT OF THE
EQUIPMENT OR ANY PART THEREOF, OR THE ORDERING, ACQUISITION, REJECTION,
INSTALLATION, POSSESSION, MAINTENANCE, USE, OWNERSHIP, CONDITION, DESTRUCTION,
RETURN, OR DISPOSITION OF THE EQUIPMENT OR ANY PART THEREOF, INCLUDING
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NEGLIGENCE AND STRICT LIABILITY IN TORT AND INCLUDING ANY INFRINGEMENT CLAIM.
LESSEES OBLIGATIONS UNDER THIS PROVISION SHALL SURVIVE ANY PARTIAL OR TOTAL
TERMINATION, EXPIRATION, OR CANCELLATION OF THIS LEASE.
8. TAX INDEMNITY.
(a) All references to "Lessor" in this Section 8 shall include each member of
the affiliated group of corporations, as defined in Section 1504(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), of which Lessor is a
member.
(b) Lessor and Lessee agree that Lessor shall be treated for federal, state and
local income tax purposes as the owner of the Equipment and shall be entitled to
take into account in computing its income tax liabilities, all items of income,
deduction, credit, gain or loss relating to ownership of the Equipment as are
provided under the Code and applicable state and local tax laws to owners of
similar equipment (hereinafter collectively, the "Tax Benefits").
(c) If (i) Lessor shall lose, shall be delayed in claiming, shall not have a
right to claim, shall be required to recapture (other than in connection with a
sale of the Equipment following the end of the lease term, provided Lessee is
not then in default), shall not be allowed or shall not claim as a result of a
written opinion of independent tax counsel selected by Lessor to the effect that
Lessor's claiming of such Tax Benefits probably would not be upheld by a court
if the matter were litigated (that is, that the chances of a finding against
Lessor are at least as great as the chances in favor of Lessor), all or any
portion of any Tax Benefits, under any circumstances, at any times and for any
reason; or (ii) the federal, state or local income tax rates in effect on the
commencement date of the lease term for such Equipment (the "Tax Rates") are
changed with respect to any period on or prior to the disposition of the
Equipment by Lessor; or (iii) Lessor is required under Section 467 of the Code
or otherwise to include in its gross income with respect to any Schedule or item
of Equipment any amount at any time other than rentals and other amounts payable
by Lessee hereunder at the times such amounts are payable as provided herein,
then Lessor and Lessee agree that, upon Lessor's demand and at Lessor's option,
either: (x) all further rental payments with respect to such Equipment, if any,
shall be increased, or (y) Lessee shall pay to Lessor a lump sum amount, which
shall in either case maintain the net economic after-tax yield, cash flow and
rate of return Lessor originally anticipated based on the assumptions (including
Tax Rates) that were originally utilized by Lessor in originally evaluating the
transaction and setting the rental therefor and the other terms thereof. Lessee
shall also pay to Lessor all interest, costs (including attorney's fees) and
penalties associated with the loss of Tax Benefits or the change in Tax Rates,
including costs of collecting amounts under this Section 8.
(d) For purposes of paragraph (c) above, Lessor shall at all times be deemed to
have sufficient taxable income and tax liability to be able to utilize the Tax
Benefits on a current basis and the fact that Lessor may lose Tax Benefits
solely because it either (i) has insufficient taxable income or tax liability or
(ii) is subject to the alternative minimum tax shall not be taken into account.
9. DELIVERY, ACCEPTANCE AND RETURN OF EQUIPMENT.
(a) Upon delivery to and acceptance by Lessee of any Equipment, Lessee shall
execute and deliver the Schedule relating to such Equipment identifying same and
acknowledging receipt thereof with all information required on the Schedule
fully completed. Lessee's execution of such Schedule shall constitute
acceptance of delivery of such Equipment and Lessee's acknowledgment that such
Equipment is in good operating order, repair, condition and appearance, is of
the manufacture, design and capacity selected by Lessee, and is suitable for the
purposes for which such Equipment is leased.
(b) Subject to the provisions of any applicable Schedule, at the expiration of
the lease term with respect to any Equipment, including any renewal thereof upon
demand Lessee shall, at its own expense, return such Equipment to Lessor at a
place reasonably designated by Lessor, in the same operating order, repair,
condition and appearance as when received, reasonable wear and tear excepted.
If upon such expiration or termination Lessee does not
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<PAGE>
immediately return an item of Equipment to Lessor, such item shall continue to
be held subject to all the terms and conditions hereof and Base Rent and other
charges shall continue to accrue and be payable hereunder with respect to such
item until it is returned to Lessor. Payment or acceptance of any such rent or
other charge shall not be deemed a waiver of any default and shall not suspend
or otherwise affect any right or remedy hereunder including without limitation
Lessee's obligation to return immediately (and Lessor's right to take immediate
possession of) any such item.
10. MAINTENANCE. Lessee shall at its own expense, maintain and keep the
Equipment in good working order, repair, appearance and condition and make all
necessary adjustments and repairs thereto and replacements thereof, all of which
shall become the property of Lessor.
11. RENEWAL AND PURCHASE. Except as set forth in the applicable Schedule,
Lessee may not renew or extend the lease term with respect to any Equipment, nor
shall Lessee have any option to purchase such Equipment.
12. ASSIGNMENT OF WARRANTIES AND LIMITATION OF RESPONSIBILITY. LESSOR HEREBY
TRANSFERS AND ASSIGNS TO LESSEE, TO THE EXTENT ALLOWABLE BY LAW, FOR AND DURING
THE LEASE TERM OF EACH SCHEDULE WITH RESPECT TO ANY EQUIPMENT COVERED BY SUCH
SCHEDULE, THE WARRANTIES, IF ANY, OF THE MANUFACTURER ISSUED ON SUCH EQUIPMENT,
AND HEREBY AUTHORIZES LESSEE TO OBTAIN AT ITS OWN EXPENSE THE CUSTOMARY SERVICE
FURNISHED BY THE MANUFACTURER IN CONNECTION THEREWITH. LESSEE ACKNOWLEDGES THAT
LESSOR IS NOT A MANUFACTURER, THE AGENT OF A MANUFACTURER OR ENGAGED IN THE SALE
OR DISTRIBUTION OF THE EQUIPMENT AND HAS NOT MADE, AND DOES NOT HEREBY MAKE, ANY
REPRESENTATION AS TO MERCHANTABILITY, PERFORMANCE, CONDITION, FITNESS OR
SUITABILITY OF ANY OF THE EQUIPMENT FOR THE PURPOSES OF LESSEE OR MAKE ANY OTHER
REPRESENTATION WITH RESPECT THERETO. LESSOR SHALL NOT BE LIABLE TO THE LESSEE
FOR ANY LOSS, CLAIM, LIABILITY, COST, DAMAGE OR EXPENSE OF ANY KIND CAUSED, OR
ALLEGED TO BE CAUSED, DIRECTLY OR INDIRECTLY, BY ANY EQUIPMENT, OR BY AN
INADEQUACY THEREOF FOR ANY PURPOSE, OR BY ANY DEFECT THEREIN, OR THE USE OR
MAINTENANCE THEREOF, OR ANY REPAIRS, SERVICING OR ADJUSTMENTS THEREOF, OR ANY
DELAY IN PROVIDING OR FAILURE TO PROVIDE THE SAME, OR ANY INTERRUPTION OR LOSS
OF SERVICE OR USE THEREOF OR ANY LOSS OF BUSINESS, PROFITS, CONSEQUENTIAL OR
OTHER DAMAGE OF ANY NATURE. LESSEE AGREES THAT ITS OBLIGATIONS HEREUNDER SHALL
NOT IN ANY WAY BE AFFECTED BY ANY DEFECT OR FAILURE OF PERFORMANCE OF EQUIPMENT.
13. PERSONAL PROPERTY. The Equipment shall remain personal property at all
times, notwithstanding the manner in which it may be attached or affixed to
realty, and title shall at all times continue in Lessor. Lessee warrants that
at any time any of the Equipment is leased hereunder, or is removed to a new
location that Lessee shall provide to Lessor written notice thereof within
thirty (30) days of the date of such relocation and either (i) the premises in
which such Equipment will be installed will be owned by Lessee free of any liens
or encumbrances, or (ii) if not owned by Lessee free and clear of all liens or
encumbrances, the owner of such premises and/or the holder of any such liens or
encumbrances on such premises shall have consented and acknowledge that such
Equipment is and shall remain personal property subject to all the provisions of
this Lease. Lessee will obtain and record such instruments and take such steps
as may be necessary to prevent any person from acquiring any right in any
Equipment paramount to the rights of Lessor by reason of such Equipment being
deemed to be real property. If any third party should attempt to establish any
legal right in any Equipment, then Lessee shall, promptly after learning
thereof, notify Lessor in writing and, within thirty (30) days after the date of
such notice, either (i) cause such right to be waived or eliminated to the
satisfaction of Lessor or (ii) otherwise stay such action or indemnity Lessor to
Lessor's satisfaction.
14. DEFAULT AND REMEDIES.
(a) Each of the following shall constitute an event of default hereunder and
under any and all Schedules then in effect (each, an "Event of Default"): (1)
nonpayment when due of any installment of rent or other sum owing by Lessee
hereunder, under any Schedule or under any other agreement between Lessor and
Lessee if such nonpayment continues for ten (10) days; (2) Lessee's failure to
perform and comply with any other provision or condition hereunder or under any
Schedule if such failure continues for ten (10) days after written notice
thereof by Lessor to Lessee; (3) Lessee's attempt to sell, lease or encumber any
item of the Equipment without Lessor's prior written consent, or the attachment
of any lien to any such item in favor of anyone other than Lessor, or any
attempted levy, seizure or attachment on such item;
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(4) any representation or warranty made by Lessee to Lessor hereunder or under
any Schedule, certificate, agreement, instrument or other statement including
income and financial statements, proves to have been incorrect in any material
respect when made; (5) the reorganization or dissolution of Lessee or the
suspension of Lessee's present business; (6) the merger, consolidation or
transfer of a controlling stock interest in Lessee and such merger,
consolidation or transfer materially adversely affects Lessor's ability to
collect the obligations hereunder and under the Schedules; (7) Lessee's general
assignment for the benefit of creditors or commencement of any voluntary case or
proceeding for relief under the Bankruptcy Code, or any other present or future
law for the relief of debtors, or the taking of any action to authorize or
implement any of the foregoing; (8) the filing of any petition or application
against Lessee under any present or future law for the relief of debtors,
including proceedings under the Bankruptcy Code, or for the subjection of
property of Debtor to the control of any court, receiver or agency for the
benefit of creditors if such petition or application is consented to by Lessee
or not dismissed within sixty (60) days from the date of filing; (9) a default
exists under any other agreement or instrument of Lessee's with or in favor of
Lessor or any direct or indirect affiliate of Lessor; (10) the attempted
repudiation of any guaranties for obligations of Lessee to Lessor; (11) the
Pension Benefit Guaranty Corporation's commencement of proceedings under Section
4042 of the Employee Retirement Income Security Act of 1974 to terminate any
employee pension benefit plan of Lessee; (12) Lessee's failure to maintain any
of the minimum financial covenants set forth in Section 17(b) of this Lease; or
(13) the occurrence of any event described in clauses (7), (8), (9), or (11) of
this Section 14 with respect to any guarantor or the person liable for payment
or performance of Lessee's obligations under this Lease.
(b) Upon the occurrence of an Event of Default, Lessor may at its option: (1)
proceed by appropriate court action or actions, either at law or in equity, to
enforce performance by Lessee of the applicable covenants hereunder and under
any or all Schedules or to recover damages for the breach thereof or (2) cancel
Lessee's right of possession of any or all of the Equipment, whereupon all
rights of Lessee to use the Equipment shall absolutely cease and terminate, but
Lessee shall remain liable as herein provided. Upon such cancellation, Lessee
shall at its own expense, immediately redeliver such Equipment to Lessor at a
place within the continental United Sates designated by Lessor. If Lessee shall
fail to do so, Lessor may retake possession of same, free from any right of
Lessee, its successors or assigns. If Lessor elects to cancel Lessee's right of
possession of any Equipment, Lessor may recover from Lessee any and all amounts
that, under the terms of the applicable Schedule, are then due or that have
accrued to the date of such termination, and may also recover forthwith from
Lessee, as damages for loss of its bargain and not as a penalty, an amount equal
to the Stipulated Loss Value of such Equipment as of the rental payment date on
or next preceding the date of default. However, if Lessor recovers possession
of such Equipment, Lessee's obligations under the preceding sentence shall be
reduced by (1) the net amount Lessor in fact receives from the sale of any such
Equipment, or (2) at Lessor's election, the present value (determined on the
basis of the "Discount Rate" as hereinafter defined) of the noncancelable
regularly scheduled rentals receivable under a subsequent lease of any of the
Equipment, taking into account only the rentals receivable from the commencement
date of such subsequent lease until the end of the lease term for such Equipment
under the applicable Schedule. For purposes of this Section 14, the Discount
Rate shall be a rate of interest equal to four percent (4.0%) plus the "Prime
Rate" of NationsBank of Georgia, NA, Atlanta, Georgia (or any successor thereto
as announced on the day on which the commencement date of such subsequent lease
occurs.
(c) In addition to any amount recoverable under paragraph (b) above, Lessor may
recover from Lessee all Lessor's reasonable costs and expenses incurred by
reason of Lessee's breach or default, including without limitation reasonable
costs and expenses of repossession storing, holding, transporting, insuring,
servicing, repairing, maintaining, renting, and selling any Equipment and
collecting rents and other proceeds of its disposition, and fees and expenses of
attorneys in the amount fifteen percent (15%) of all amounts due on or after the
time of such breach or default (but not to exceed the amount of reasonable fees
and expenses actually incurred), and other professionals employed by Lessor in
connection with the protection and enforcement of its title and interest in any
and all Equipment and its rights under any and all Schedules. From and after
the occurrence of an event of default, any installment of rent or other sum
owing under any schedule that is not paid when due shall accrue interest from
the date of such event of default or (if later) the date such amount
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becomes due to the date it is paid, at a per annum rate equal to the lessor of
(i) fifteen percent (15%), or (ii) the highest rate, if any, permitted by
applicable law.
(d) Except as otherwise expressly provided herein, all rights and remedies of
Lessor are concurrent and cumulative. The exercise or partial exercise of any
remedy shall not restrict Lessor from further exercise of that remedy or any
other remedy provided for herein or otherwise available under applicable law.
To the extent permitted by applicable law, Lessee waives any rights now or
hereafter conferred by statute or otherwise that may require Lessor to selL
release or otherwise use or dispose of any of Equipment in mitigation of
Lessor's damages or that may otherwise limit or modify any of Lessor's rights or
remedies.
15. ASSIGNMENT BY LESSOR. Lessor may assign or transfer, and Lessee hereby
consents to the assignment or transfer, of all or any part of any Schedule or
Lessor's interest tn any Equipment without notice to Lessee. Lessee agrees that
the liability of Lessee to any assignee of Lessor, or any subsequent assignee of
such assignee, shall be absolute and unconditional and shall not be affected by
any default hereunder of Lessor whatsoever or by any breach of any warranty,
express or implied, in respect of any Equipment or Schedule. Lessee further
agrees that no such assignee shall be required to assume any of the obligations
of Lessor under any schedule except (i) the obligation in respect of the
application of any insurance monies received by such assignee, as hereinabove
provided, (ii) that the assignee shall be responsible for its own misconduct
after the assignment, and (iii) that any successor lessor shall be responsible
for the lessor's duties hereunder accruing after any such assignment. Lessee
acknowledges that no such assignment shall materially change Lessee's duties
hereunder or materially increase any burden or risk imposed on Lessee hereunder.
16. PROHIBITION OF ASSIGNMENT BY LESSEE. LESSEE SHALL NOT ASSIGN OR IN ANY WAY
DISPOSE OF ALL OR ANY PART OF ITS RIGHTS OR OBLIGATIONS UNDER ANY SCHEDULE OR
ENTER INTO ANY SUBLEASE OF ALL OR ANY PART OF ANY EQUIPMENT WITHOUT THE PRIOR
WRITTEN CONSENT OF LESSOR, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD.
17. FINANCIAL AND OTHER DATA
(a) During the term of this Lease, Lessee (i) shall furnish Lessor annual
balance sheets and profit and loss statements of Lessee and of any guarantor of
Lessee's obligations under any Schedule, and (ii) at Lessor's written request,
shall furnish Lessor all other financial information and reports reasonably
requested by Lessor at any time, including quarterly or other interim balance
sheets and profit and loss statements of Lessee and of any such guarantor.
Lessee shall furnish such other information as Lessor may reasonably request at
any time concerning Lessee and its affairs, including without limitation
information concerning the Equipment covered by a Schedule.
(b) During the term of this Lease, Lessee shall maintain the following minimum
financial covenants as computed pursuant to generally acceptable accounting
principles:
(i) for each fiscal year end period, the ratio of Lessor's total
liabilities to total shareholder equity shall be less than 1.00:1;
(ii) Lessee shall maintain a minimum total shareholder equity of fourteen
million dollars as of December 31, 1995, and Lessee's total shareholder equity
shall increase by not less than one million dollars each fiscal quarter
thereafter; and
(iii) Lessee shall post a positive net profit for each fiscal year end
period.
(c) Lessee represents and warrants that all information furnished and to be
furnished by Lessee to Lessor is accurate and that all financial statements
Lessee has furnished and hereafter may furnish to Lessor, including operation
statements and statements of condition, are and will be prepared in accordance
with generally accepted accounting principles, consistently applied, and
reasonably reflect and will reflect, as of their respective dates, results of
the operations and the financial condition of Lessee and of any other entity
they purport to cover.
-6-
<PAGE>
18. MISCELLANEOUS.
(a) Each Schedule is and is intended to be a lease, and Lessee does not acquire
hereby or under any Schedule any right, title or interest in or to the
Equipment, except the right to use the same under the conditions hereof and
under the additional conditions set forth in the applicable Schedule. Lessee
waives any right to assert any lien or security interest on the Equipment in
Lessee's possession or control for any reason.
(b) The relationship between Lessor and Lessee shall always and only be that of
lessor and lessee. Lessee shall never at any time for any purpose whatsoever be
or become the agent of Lessor and Lessor shall not be responsible for the acts
or omissions of Lessee or its agents.
(c) At Lessor's request, Lessee shall execute, deliver, file, and record such
financing statements and other documents as Lessor shall deem necessary or
advisable to protect Lessor's interest in the Equipment and to effectuate the
purposes of this Lease. Lessee hereby irrevocably appoints Lessor as Lessee's
agent and attorney-in-fact for Lessee to execute, deliver, file, or record any
such item, and to take such action for Lessee and in Lessee's name, place and
stead.
(d) Lessor, its agents and employees shall have the right to enter any property
where Equipment is located and inspect any Equipment at any reasonable time.
Lessor's right to inspect the Equipment is solely for the benefit of Lessor and
shall not impose any obligation of any kind whatsoever on Lessor.
(e) Lessee agrees to pay Lessor a late charge equal to three percent (3%) of
the rental on all rentals not paid by Lessee to Lessor within ten (10) days of
when due and owing under the provisions of this Lease.
(f) To secure the full and punctual payment and performance of its obligations
under each Schedule, Lessee hereby grants to Lessor a security interest in all
Lessee's right, title and interest, whether now existing or hereafter arising,
in, under and to each other Schedule, lease, security agreement or other
agreement between Lessor and Lessee, and each item of Equipment or other
tangible personal property covered thereby.
(g) Lessor's rights and remedies with respect to any of the terms and
conditions of each Schedule shall be cumulative and not exclusive and
shall be in addition to all other rights and remedies in its favor. Lessor's
failure to enforce strictly any of the provisions of any Schedule shall not be
construed as a waiver thereof or as excusing Lessee from future performance.
(h) The invalidity of any portion of this Lease or any Schedule shall not
affect the force and effect of the remaining valid portions thereof.
(i) All notices shall be binding upon the parties hereto if sent to the
respective addresses set forth herein, or to such other address as either party
may designate in a written notice to the other party. Except as otherwise
expressly provided herein, all notices shall be deemed effective when deposited
in the United States mail (if sent by registered, certified or first-class mail,
postage prepaid) or when received (if sent by any other means).
(j) Except as expressly provided herein, no representation, warranty, promise,
guaranty or agreement, oral or written, expressed or implied has been made by
either party herein with respect to any Schedule or Equipment. This Lease and
the Schedules governed hereby constitute she entire agreement between the
parties herein with respect to the leasing of the Equipment. Any change or
modification to this Lease or any Schedule governed hereby must be made in
writing and signed by the parties hereto.
(k) To the extent permitted by applicable law, this is a "finance lease" under
Section 2A-103(g) of the Uniform Commercial Code. Lessee waives any right (i)
to cancel or repudiate this Lease or any Schedule governed hereby, (ii) to
reject or revoke acceptance of any item of Equipment, and (iii) to recover from
Lessor any general or consequential damages, for any reason whatsoever.
-7-
<PAGE>
(l) THIS LEASE AND EACH SCHEDULE INCORPORATING ITS TERMS AND CONDITIONS SHALL
BE GOVERNED BY AND CONSTRUED ACCORDING TO THE INTERNAL LAW OF THE STATE OF
GEORGIA AS OF THO DATE HEREOF, WITHOUT GIVING EFFECT TO ANY PRINCIPLE OF
CONFLICTS OF LAW OR CHOICE OF LAW THAT WOULD OTHERWISE MAKE THE LAW OF ANY OTHER
JURISDICTION THE LAW GOVERNING THIS LEASE OR ANY SUCH SCHEDULE.
(m) LESSOR AND LESSEE EACH WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM BROUGHT BY EITHER AGAINST THE OTHER ON ANY MATTER HOWEVER ARISING
OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE OR ANY SCHEDULE.
(n) Lessee shall reimburse Lessor upon demand for all costs and expenses
incurred by Lessor in connection with the execution and delivery of this Lease
and the transactions contemplated hereunder including, without limitation, any
lien search and filing fees.
(o) Should Lessee give Lessor written notice of a breach of Lessor's covenant
to Lessee of quiet use and enjoyment of the Equipment and, within sixty (60)
days after such notice (the "Expiration Date"), Lessor shall fail to cure such
breach, Lessee may, effective as of the last day of the lease month following
the Expiration Date, terminate the Term of the Lease for not less than all of
the Equipment by paying Lessor, in immediately available funds, the Stipulated
Loss Value of the Equipment plus applicable taxes and all other charges then due
and owing under the Lease. Immediately upon Lessor's receipt of such payment in
full, all of Lessor's and Lessee's future obligations under the Lease shall
terminate (excepting only the obligations under Section 7 of this Lease) and,
promptly thereafter, Lessor shall execute and deliver to Lessee a bill of sale
conveying all of Lessor's right, title and interest in and to the Equipment to
Lessee, "As-Is and Where-Is" with no warranty (explicit or implicit) as to any
matter whatsoever, except that no security interest, lien or encumbrance against
the Equipment then exists that has been created by or through Lessor.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the date
first above written.
NATIONSBANC LEASING CORPORATION (LESSOR) Teletech Holdings, Inc.
(Lessee)
By: /s/ James R. Bates By: /s/ Steven B. Coburn
---------------------------------- ------------------------------
Printed Name: James R. Bates Printed Name: Steven B. Coburn
------------------------- --------------------
Title: Assistant Vice President Title: CFO
------------------------------- ---------------------------
-8-
<PAGE>
NATIONSBANK
NATIONSBANC LEASING CORPORATION EQUIPMENT LEASE SCHEDULE
FOR MASTER EQUIPMENT LEASE AGREEMENT
- --------------------------------------------------------------------------------
SCHEDULE NUMBER 1
This Schedule, dated as of December 21, 1995, between NATIONSBANC LEASING
CORPORATION ("Lessor") and Teletech Holdings, Inc. ("Lessee") is executed
pursuant to and is subject to the terms and conditions of Master Equipment Lease
Agreement Number 08713-00300 dated as of December 21, 1995 (the "Lease").
Unless otherwise defined herein, capitalized terms used in this Schedule have
the respective meanings assigned to such terms in the Lease. Should any terms
and conditions of this Schedule conflict with any provision of the Lease, the
terms and conditions herein shall supersede conflicting terms and conditions in
the Lease.
Lessee hereby authorizes Lessor to insert herein the serial numbers and other
identification data of the Equipment, when determined by Lessor, and dates or
other omitted factual matters.
DESCRIPTION OF EQUIPMENT, the total cost of which to Lessor is $870,849.33
("Total Capitalized Cost"):
QUANTITY DESCRIPTION SERIAL NUMBER COST
1 AT&T G3R Model 07C Phone Switch $870,849.33
with Call Management System
Total Capitalized Cost $870,849.33
TERM OF LEASE WITH RESPECT TO EQUIPMENT: The term of the Lease for the
Equipment described herein is for an Interim Term commencing on the Acceptance
Date set forth below, and continuing through and including the day preceding the
Base Term Commencement Date; and for a Base Term of seventy-two (72) months
commencing on the first (1st) day of the calendar month following the Acceptance
Date (the "Base Term Commencement Date").
RENTAL: Base Rent shall be payable in seventy-two (72) consecutive monthly
installments of $14,246.29 each, or as set forth in the Schedule of Base Rent
installments attached hereto, the first Base Rent installment being payable on
the Base Term Commencement Date and the remaining Base Rent installments being
payable on the first (1st) day of each succeeding month. Lessee shall not be
obligated to pay Interim Rent.
STIPULATED LOSS VALUE: After the occurrence of any casualty loss or other event
giving Lessor the right to require payment of the Equipment's Stipulated Loss
Value, Lessor shall calculate such Stipulated Loss Value and give Lessee written
notice thereof. Such "Stipulated Loss Value", as of any particular date, shall
be the product obtained by multiplying the Total Capitalized Cost for the item
of Equipment in question by the percentage, as set forth in the attached
"Schedule of Stipulated Loss Values", specified opposite the rent installment
number becoming due immediately after the date Lessor gives Lessee notice
requiring payment of the Stipulated Loss Value (the "SLV Payment Date"). On
the SLV Payment Date, Lessee shall pay Lessor the Stipulated Loss Value plus the
rent installment then due together with any other unpaid amounts then due and
owing under this Schedule. If only a portion of the Equipment is affected by
any event causing calculation of Stipulated Loss Value, and the cost of such
portion cannot be readily determined from the Total Capitalized Cost set forth
above, then the Total Capitalized Cost for such portion shall be as reasonably
calculated by Lessor, with written notice of such Total Capitalized Cost being
sent to Lessee by Lessor.
ASSETS CLASS AND DEPRECIABLE LIFE: Lessee hereby warrants and represents that
the above described Equipment qualifies under asset guideline class 48.121 and
constitutes "5-year property" within the meaning of Internal Revenue Code
Section 168.
LOCATION-OF EQUIPMENT: Equipment will be located at 2130 Hollywood Way,
Burbank, Los Angeles, CA 91505.
INSURANCE REQUIREMENTS: In addition to the requirements set forth in the Lease,
the following shall apply:
-1-
<PAGE>
LIABILITY: Not less than $500,000.00 combined single limit liability insurance,
including bodily injury and death and property damage, covering activities of
Lessor and Lessee and naming Lessor as additional insured.
PHYSICAL DAMAGE: Comprehensive insurance, including loss by burglary, theft,
malicious mischief and fire, for an amount not less than the Stipulated Loss
Value of the Equipment, and naming Lessor as loss payee.
END OF BASE TERM OPTIONS: In lieu of Lessee's obligation to return the
Equipment to Lessor, Lessee may, provided Lessee is not in default under any of
the provisions of the Lease or this Schedule, and upon its having provided to
Lessor written notice not less than ninety (90) days prior to the expiration of
the Base Term of its election (which shall be irrevocable) to:
(i) extend the Base Term for a period to be agreed upon by Lessee and
Lessor for an amount equal to the Equipment's then fair market rental value as
determined by Lessor. The fair market rental value shall be payable monthly by
Lessee to Lessor on the first day of each month during the extension lease term;
(ii) purchase all of Lessor's right, title and interest in and to all,
but not less than all, of the Equipment on an "As-Is", "Where-Is" basis, with no
warranties (express or implied) as to any matter whatsoever, except that no
security interest, lien or encumbrance against such Equipment then exists that
has been created by Lessor, for a purchase price equal to the then Fair Market
Value of the Equipment. Lessee shall pay Lessor the purchase price, plus any
applicable taxes, on the expiration of the Base Term in immediately available
funds;
(iii) arrange for the public or private sale of the Equipment, as of the
last day of the lease term, on the open market in a commercially reasonable
manner. Lessor shall have no obligation to solicit bids or buyers for any such
sale. Lessee shall cause the proceeds of such sale to be transmitted directly
and promptly to Lessor on the expiration of the Base Term in immediately
available funds. If the proceeds of such sale, after deducting the expenses
incurred in connection therewith, are more than $11,129.45, Lessor shall pay
such excess to Lessee. If the net proceeds are less than $11,129.45, Lessee
shall forthwith pay Lessor an amount equal to such deficiency. Upon the
consummation of such an approved sale, Lessor will execute and transmit to buyer
(or, if none, to Lessee) a bill of sale conveying all Lessor's right, title and
interest "As-Is", "Where-Is" basis, with no warranties (express or implied) as
to any matter whatsoever, except that no security interest, lien or encumbrance
against such Equipment then exists that has been created by Lessor.
RETURN CONDITIONS: In addition to the maintenance and return conditions set
forth in the Lease, the Equipment covered by this Schedule also shall be subject
to the following conditions:
1. Throughout the term of the Lease, the Equipment shall be maintained
by either the manufacturer or a factory authorized technician representing the
manufacturer. Upon Lessor's request, and upon reasonable notice, Lessor shall
have the right to (i) review and approve Lessee's maintenance procedures and
(ii) review copies of all maintenance contracts and records, such copies to be
provided by Lessee.
2. Prior to return, at Lessee's expense, the Equipment shall be
deinstalled and packaged by manufacturer's technicians or factory authorized
representatives of the manufacturer in accordance with manufacturer's
recommendations for shipment. Lessee shall deliver with the returned Equipment
(i) a certification as to the condition of the Equipment upon shipment and (ii)
all instruction manuals, service manuals, service records and descriptive
brochures (if any) relating thereto.
3. Upon Lessor's receipt thereof, the returned Equipment must be re-
certified as eligible for the manufacturer's current maintenance program, at the
manufacturer's then standard rates, the cost of such re-certification to be
borne by Lessee.
-2-
<PAGE>
4. If a sale of the Equipment is arranged at the expiration of the term
of the Lease, Lessee shall be responsible for any applicable licensing or like
fees relating to such sale.
EARLY TERMINATION: Should the Equipment become obsolete or no longer useful in
Lessee's business, and provided that Lessee is not in default under any of the
provisions of the Lease or this Schedule, Lessee may, upon giving Lessor not
less than sixty (60) days' prior written notice (which shall be irrevocable),
terminate the lease term for not less than all the Equipment on the last day of
the 12 month of the Base Term. Upon return of the Equipment to Lessor, Lessor
shall sell the Equipment by public or private sale, for immediately available
funds, to a third party unrelated to Lessee. Lessee shall continue to pay
Lessor monthly rentals for the Equipment until Lessor receives proceeds of sale.
Lessee shall use diligent efforts to solicit bids and buyers for such a sale.
Lessor shall have the right, but no obligation, to solicit bids or buyers for
any such sale. The proceeds of sale shall be applied in the following order to:
(i) pay the reasonable expenses of (a) holding and preparing the Equipment for
sale, and (b) selling the Equipment, and; (ii) the remaining proceeds of sale
(the "Net Proceeds") to Lessor. If the Net Proceeds are less than $750,141.97,
then Lessee shall promptly pay to Lessor, as additional rent, at the same time
and in the same manner as the proceeds of sale are required to be paid to
Lessor, an amount equal to such deficiency- provided however, the maximum amount
Lessee shall pay Lessor for such deficiency shall be $651,395.30, together with
all other sums then due and owing by Lessee hereunder. Upon the consummation of
such an approved sale, Lessor will execute and transmit to buyer (or, if none,
to Lessee) a bill of sale conveying all Lessor's right, title and interest "As-
Is", "Where-Is" basis with no warranties (express or implied) as to any matter
whatsoever, except that no security interest, lien or encumbrance against such
Equipment then exists that has been created by Lessor.
Early Purchase Option: Provided Lessee is not in default under any provisions of
the Lease or this Schedule, Lessee may, upon giving Lessor not less than sixty
(60) days' prior written notice (which shall be irrevocable), purchase all, but
not less than all, of the Equipment from Lessor "as is, where is" with no
warranty (explicit or implicit) as to any matter whatsoever, on the last day of
any month of the Base Term identified below as a "Purchase Month" for a purchase
price equal to the amount set forth below opposite such Purchase Month plus
applicable taxes. Lessee shall remit such purchase price, together with all
other amounts due and owing hereunder, in immediately available funds.
PURCHASE MONTH PURCHASE PRICE
-------------- --------------
57th $219,541.09
60th 179,220.77
63rd 138,116.69
NO MATERIAL ADVERSE CHANGE: Lessee represents and warrants that there has been
no material adverse change in its business or financial condition since December
20, 1995. Lessor shall not be obligated to execute this Schedule and lease the
Equipment hereunder to Lessee if there shall have occurred any change in
applicable law that would have a material adverse impact on the transaction
contemplated hereby or there shall have occurred a material adverse change (in
Lessor's sole judgment) in the financial or business condition of Lessee.
ACKNOWLEDGMENT OF RECEIPT OF EQUIPMENT: Lessee acknowledges that the Equipment
described herein above has been delivered to and received by it, is conforming
as represented, and is acceptable and satisfactory to it and that the same has
been irrevocably accepted as Equipment leased by Lessee under this Schedule as
of the date written below (the "Acceptance Date").
-3-
<PAGE>
NATIONSBANC LEASING CORPORATION (LESSOR) Teletech Holdings, Inc. (Lessee)
By: /s/ James R. Bates By: /s/ Steven B. Coburn
----------------------------------- ----------------------------
Printed Name: James R. Bates Printed Name: Steven B. Coburn
------------------------- ------------------
Title: Assistant Vice President Title: Chief Financial Officer
--------------------------------- -------------------------
Acceptance Date: 1/12/96
07N72
-4-
<PAGE>
NATIONSBANK
NATIONSBANC LEASING CORPORATION SCHEDULE OF STIPULATED LOSS VALUES
FOR EQUIPMENT LEASE SCHEDULE
- --------------------------------------------------------------------------------
SCHEDULE NUMBER 1
This Schedule of Stipulated Loss Values is made a part of Equipment Schedule
Number 1 dated December 21, 1995 to Master Equipment Lease Agreement Number
08713-00300 dated December 21, 1995, between NATIONSBANC LEASING CORPORATION
("LESSOR") and Teletech Holdings, Inc. ("Lessee").
Base Rent Stipulated Base Rent Stipulated Base Rent Stipulated
Installment Loss Value Installment Loss Value Installment Loss
Number Percent Number Percent Number Value Percent
------ ------- ------ ------- ------ -------------
1 98.32027 25 70.19976 49 35.65580
2 97.25744 26 68.91200 50 34.16787
3 96.19461 27 67.61516 51 32.67003
4 95.12364 28 66.30921 52 31.17005
6 94.03753 29 64.99868 53 29.66010
6 92.94319 30 63.67898 54 28.14796
7 91.83362 31 62.35464 55 26.62581
8 90.71572 32 61.02107 56 25.09360
9 89.58945 33 59.67823 57 23.55911
10 88.44781 34 58.33065 58 22.01451
11 87.29772 35 56.97375 59 20.45975
12 86.13912 36 55.60749 60 20.00000
13 84.96501 37 54.23639 61 20.00000
14 83.78231 38 52.85586 62 20.00000
15 82.59097 39 51.46588 63 20.00000
16 81.39096 40 50.06638 64 20.00000
17 70.18249 41 48.66192 65 20.00000
18 78.96527 42 47.24789 66 20.00000
19 77.73951 43 45.82882 67 20.00000
20 76.50494 44 44.40013 68 20.00000
21 75.261S1 45 42.96178 69 20.00000
22 74.00944 46 41.51829 70 20.00000
23 72.74844 47 38.60208 71 20.00000
24 71.47848 48 37.13386 72 20.00000
IN WITNESS WHEREOF, the Lessor and Lessee have caused this Schedule of
Stipulated Loss Values to be executed this twenty-first (21st) day of
December, 1995.
NATIONSBANC LEASING CORPORATION (LESSOR) Teletech Holdings, Inc. (Debtor)
By: /s/ James R. Bates By: /s/ Steven B. Coburn
------------------------------------ ----------------------------
Printed Name: James R. Bates Printed Name: Steven B. Coburn
------------------------- ------------------
Title: Assistant Vice President Title: Chief Financial Officer
-------------------------------- -------------------------
-5-
<PAGE>
NATIONSBANK
NATIONSBANC LEASING CORPORATION EQUIPMENT LEASE SCHEDULE
FOR MASTER EQUIPMENT LEASE AGREEMENT
- --------------------------------------------------------------------------------
SCHEDULE NUMBER 2
This Schedule, dated as of March 7, 1996, between NationsBanc Leasing
Corporation, as Lessor, and Teletech Holdings, Inc., as Lessee, is executed
pursuant to and is subject to the terms and conditions of Master Equipment Lease
Agreement Number 08713-00300 dated as of December 21, 1995 (the "Lease"). Unless
otherwise defined herein, capitalized terms used in this Schedule have the
respective meanings assigned to such terms in the Lease. Should any terms and
conditions of this Schedule conflict with any provision of the Lease, the terms
and conditions herein shall supersede conflicting terms and conditions in the
Lease.
Lessee hereby authorizes Lessor to insert herein the serial numbers and other
identification data of the Equipment, when determined by Lessor, and dates or
other omitted factual matters.
DESCRIPTION OF EQUIPMENT, the total cost of which to Lessor is $119,990.00
("Total Capitalized Cost"):
See Exhibit A - Description of Equipment attached hereto and made a part hereof.
TERM OF LEASE WITH RESPECT TO EQUIPMENT: The term of the Lease for the Equipment
described herein is for an Interim Term commencing on the Acceptance Date set
forth below, and continuing through and including the day preceding the Base
Term Commencement Date; and for a Base Term of sixty (60) months commencing on
the 1st day of the calendar month following the Acceptance Date (the "Base Term
Commencement Date").
RENTAL: Base Rent shall be payable in sixty (60) consecutive monthly
installments of $2,045.83 each, or as set forth in the Schedule of Base Rent
installments attached hereto, the first Base Rent installment being payable on
the Base Term Commencement Date and the remaining Base Rent installments being
payable on the 1st day of each succeeding month.
STIPULATED LOSS VALUE: After the occurrence of any casualty loss or other event
giving Lessor the right to require payment of the Equipment's Stipulated Loss
Value, Lessor shall calculate such Stipulated Loss Value and give Lessee written
notice thereof Such "Stipulated Loss Value", as of any particular date, shall be
the product obtained by multiplying the Total Capitalized Cost for the item of
Equipment in question by the percentage, as set forth in the attached "Schedule
of Stipulated Loss Values", specified opposite the rent installment number
becoming due immediately after the date Lessor gives Lessee notice requiring
payment of the Stipulated Loss Value (the "SLV Payment Date"). On the SLV
Payment Date, Lessee shall pay Lessor the Stipulated Loss Value plus the rent
installment then due, together with any other unpaid amounts then due and owing
under this Schedule. If only a portion of the Equipment is affected by any event
causing calculation of Stipulated Loss Value, and the cost of such portion
cannot be readily determined from the Total Capitalized Cost set forth above,
then the Total Capitalized Cost for such portion shall be as reasonably
calculated by Lessor, with written notice of such Total Capitalized Cost being
sent to Lessee by Lessor.
ASSETS CLASS AND DEPRECIABLE LIFE: Lessee hereby warrants and represents that
the above described Equipment qualifies under asset guideline class 57 and
constitutes "5-year property" within the meaning of Internal Revenue Code
Section 168.
LOCATION OF EQUIPMENT: Equipment will be located at 400 East 84th Avenue #200,
Thornton, Adams, CO 80229.
INSURANCE REQUIREMENTS: In addition to the requirements set forth in the Lease,
the following shall apply:
-1-
<PAGE>
LIABILITY: Not less than $500,000.00 combined single limit liability insurance,
including bodily injury and death and property damage, covering activities of
Lessor and Lessee and naming Lessor as additional insured.
PHYSICAL DAMAGE: Comprehensive insurance, including loss by burglary, theft,
malicious mischief and fire, for an amount not less than the Stipulated Loss
Value of the Equipment, and naming Lessor as loss payee.
END OF BASE TERM OPTIONS: In lieu of Lessee's obligation to return the
Equipment to Lessor, Lessee may, provided Lessee is not in default under any of
the provisions of the Lease or this Schedule, and upon its having provided to
Lessor written notice not less than ninety (90) days prior to the expiration of
the Base Term of its election (which shall be irrevocable) to:
(i) purchase all of Lessor's right, title and interest in and to all,
but not less than all, of the Equipment for a purchase price equal to the
greater of (a) the then Fair Market Value of the Equipment, or (b) $23,998.00.
(ii) elect to extend the Base Term for a period to be agreed upon by
Lessee and Lessor for an amount equal to the Equipment's then fair market rental
value as determined by Lessor. The fair market rental value shall be payable
monthly by Lessee to Lessor on the first day of each month during the extension
lease term.
Should Lessee elect to return the Equipment to Lessor, in accordance with the
terms and conditions of the Lease, Lessee shall pay to Lessor a reconditioning
charge equivalent to $7,199.40 simultaneous with Lessee's return of such
Equipment to Lessor.
EARLY PURCHASE OPTION: Provided Lessee is not in default under any provisions
of the Lease or this Schedule, Lessee may, upon giving Lessor not less than
sixty (60) days' prior written notice (which shall be irrevocable), purchase
all, but not less than all, of the Equipment from Lessor "as is, where is" with
no warranty (explicit or implicit) as to any matter whatsoever, on the last day
of the 52nd month of the Base Term for a purchase price equal to the amount of
$41,672.53 plus applicable taxes. Lessee shall remit such purchase price,
together with all other amounts due and owing hereunder, in immediately
available funds.
OTHER CONDITIONS:
NO MATERIAL ADVERSE CHANGE: Lessee represents and warrants that there has been
no material adverse change in its business or financial condition since December
20, 1995. Lessor shall not be obligated to execute this Schedule and lease the
Equipment hereunder to Lessee if there shall have occurred any change in
applicable law that would have a material adverse impact on the transaction
contemplated hereby or there shall have occurred a material adverse change (in
Lessor's sole judgment) in the financial or business condition of Lessee.
ACKNOWLEDGMENT OF RECEIPT OF EQUIPMENT: Lessee acknowledges that the Equipment
described herein above has been delivered to and received by it, is conforming
as represented, and is acceptable and satisfactory to it, and that the same has
been irrevocably accepted as Equipment leased by Lessee under this Schedule as
of the date written below (the "Acceptance Date").
NationsBanc Leasing Corporation Teletech Holdings, Inc.
By: /s/ James R. Bates By: /s/ Steven B. Coburn
------------------------------ ------------------------------
Printed Name: James R. Bates Printed Name: Steven B. Coburn
-------------------- --------------------
Title: Assistant Vice President Title: Vice President/CFO
--------------------------- ---------------------------
Acceptance Date: 3/12/96
-----------
-2-
<PAGE>
EXHIBIT A TO EQUIPMENT LEASE SCHEDULE NUMBER 2
Lessee: Teletech Holdings, Inc.
Lessor: NationsBanc Leasing Corporation
Quantity Description Serial Number Cost
1 Cummins Generator, 1000DFJD 69164, L950594824, Exide $119,990.00
Total Cap Cost $119,990.00
-3-
<PAGE>
NATIONSBANKS
NATIONSBANC LEASING CORPORATION SCHEDULE OF STIPULATED LOSS VALUES
FOR EQUIPMENT LEASE SCHEDULE
- --------------------------------------------------------------------------------
SCHEDULE NUMBER 2
This Schedule of Stipulated Loss Values is made a part of Equipment
Schedule No. 2, dated March 7, 1996, to Master Equipment Lease Agreement Number
08713-00300, dated as of December 21, 1995, between NationsBanc Leasing
Corporation (as "Lessor") and Teletech Holdings, Inc. (as "Lessee").
Base Rent Stipulated Loss Base Rent Stipulated Loss
Install Number Value Percent Install Number Value Percent
-------------- ------------- -------------- -------------
1 100.46682 35 59.18790
2 99.42322 36 57.79243S
3 98.37090 37 56.38667
4 97.30806 38 54.97594
5 96.23642 39 53.55487
6 95.15595 40 52.12875
7 94.06484 41 50.69222
8 92.96480 42 49.24523
9 91.85580 43 47 79309
10 90.73603 44 46.33041
11 89.60721 45 44.85716
12 88.46930 46 43.37863
13 87.32226 47 41.88946
14 86.15914 48 40.38960
15 84.98678 49 38.87900
16 83.79824 50 37.34997
17 82.60033 51 35.8iol4
18 81.39303 52 34.26478
19 80.16939 53 32.70855
20 78.93624 54 31.14138
21 77.69353 55 29.56857
22 76.43433 56 27.98476
23 75.16545 57 26.38990
24 73.88686 58 24.78928
25 72.59851 59 23.17752
26 71.30112 60 21.55459
27 69.99388
28 68.67752
29 67.35123
30 66.01497
31 64.66945
32 63.31388
33 61.94821
34 60.57315
In Witness Whereof, Lessee and Lessor have caused this Schedule of
stipulated Loss Values to be executed by its authorized officers.
NationsBanc Leasing Corporation Teletech Holdings, Inc.
By: /s/ James R. Bates By: /s/ Steven B. Coburn
------------------------------ ------------------------------
Printed Name: James R. Bates Printed Name: Steven B. Coburn
-------------------- --------------------
Title: Assistant Vice President Title: Vice President/CFO
--------------------------- ---------------------------
-4-
<PAGE>
NATIONSBANKS
NATIONSBANC LEASING CORPORATION EQUIPMENT LEASE SCHEDULE
FOR MASTER EQUIPMENT LEASE AGREEMENT
- --------------------------------------------------------------------------------
SCHEDULE NUMBER 3
This Schedule, dated as of April 24, 1996, between NATIONSBANC LEASING
CORPORATION, as Lessor, and Teletech Holdings, Inc., as Lessee, is executed
pursuant to and is subject to the terms and conditions of Master Equipment Lease
Agreement Number 08713-00300 dated as of December 21, 1995 (the "Lease").
Unless otherwise defined herein, capitalized terms used in this Schedule have
the respective meanings assigned to such terms in the Lease. Should any terms
and conditions of this Schedule conflict with any provision of the Lease, the
terms and conditions herein shall supersede conflicting terms and conditions in
the Lease.
Lessee hereby authorizes Lessor to insert herein the serial numbers and other
identification data of the Equipment, when determined by Lessor, and dates or
other omitted factual matters.
DESCRIPTION OF EQUIPMENT, the total cost of which to Lessor is $994,825.05
("Total Capitalized Cost"):
QUANTITY DESCRIPTION COST
One (1) AT&T G3R Model 07C Phone Switch with
Call Management System and all present and
future accessions and attachments thereto. $994,825.05
TERM. The term of the Lease for the Equipment described herein is for a Base
Term of seventy-two (72) months commencing on May 1, 11996 (the "Base Term
Commencement Date").
RENTAL. Base Rent shall be payable in seventy-two (72) consecutive monthly
rental installments of $ 17,001.56 each commencing on the Base Term Commencement
Date, the first Base Rent installment being payable on the Base Term
Commencement Date and the remaining Base Rent installments being payable on the
first (1st) day of each succeeding month.
STIPULATED LOSS VALUE: After the occurrence of any casualty loss or other event
giving Lessor the right to require payment of the Equipment's Stipulated Loss
Value, Lessor shall calculate such Stipulated Loss Value and give Lessee-written
notice thereof Such Stipulated Loss Value", as of any particular date, shall be
the product obtained by multiplying the Total Capitalized Cost for the item of
Equipment in question by the percentage, as set forth in the attached "Schedule
of Stipulated Loss Values", specified opposite the rent installment number
becoming due immediately after the date Lessor gives Lessee notice requiring
payment of the Stipulated Loss Value (the "SLV Payment Date"). On the SLV
Payment Date, Lessee shall pay Lessor the Stipulated Loss Value plus the rent
installment then due, together with any other unpaid amount then due and owing
under this Schedule. If only a portion of the Equipment is affected by [any
event causing calculation of Stipulated Loss Value and the cost of such portion
cannot be readily determined from the Total Capitalized Cost set forth above,
then the Total Capitalized Cost for such portion shall be as reasonably
calculated by Lessor, with written notice of such Total Capitalized Cost being
sent to Lessee by Lessor.
ASSETS CLASS AND DEPRECIABLE LIFE: Lessee hereby warrants and represents that
the above described Equipment qualifies under asset guideline class 57 and
constitutes "5-year property" within the meaning of Internal Revenue Code
Section 168.
LOCATION OF EQUIPMENT: Equipment will be located at 400 East 8th Avenue, #200,
Thornton, CO 80229.
INSURANCE REQUIREMENTS: In addition to the requirements set forth in the Lease,
the following shall apply:
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<PAGE>
LIABILITY: Not less than $500,000.00 combined single limit liability insurance,
including bodily injury and death and property damage covering activities of
Lessor and Lessee and naming Lessor as additional insured.
PHYSICAL DAMAGE: Comprehensive insurance, including loss by burglary, theft,
malicious mischief and fire, for an amount not less than the Stipulated Loss
Value of the Equipment, and naming Lessor as loss payee.
END OF BASE TERM OPTIONS: In lieu of Lessee's obligation to return the
Equipment to Lessor, Lessee may, provided Lessee is not in default under any of
the provisions of the Lease or this Schedule, and upon its having provided to
Lessor written notice not less than ninety (90) days prior to the expiration of
the Base Term of its election (which shall be irrevocable) to:
(i) extend the Base Term for a period to be agreed upon by Lessee and
Lessor for an amount equal to the Equipment's then fair market rental value as
determined by Lessor. The fair market rental value shall be payable monthly by
Lessee to Lessor on the first (1st) day of each month during the extension lease
term: or,
(ii) purchase all of Lessor's right, title and interest in and to all,
but not less than all, of the Equipment on an "As-Is", "Where-Is" basis, with no
warranties (express or implied) as to any matter whatsoever, except that no
security interest, lien or encumbrance against such Equipment then exists that
has been created by Lessor, for a purchase price equal to the then Fair Market
Value of the Equipment Lessee shall pay Lessor the purchase price, plus any
applicable taxes, on the expiration of the Base Term in immediately available
funds, or,
(iii) arrange for the public or private sale of the Equipment, as of the
last day of the lease term, on the open market in a commercially reasonable
manner. Lessor shall have no obligation to solicit bids or buyers for any such
sale. Lessee shall cause the proceeds of such sale to be transmitted directly
and promptly to Lessor on the expiration of the Base Term in immediately
available funds. If the proceeds of such sale, after deducting the expenses
incurred in connection therewith, are more than $33,127.67, Lessor shall pay
such excess to Lessee. If the net proceeds are less than $33,127.67, Lessee
shall forthwith pay Lessor an amount equal to such deficiency. Upon the
consummation of such an approved sale, Lessor will execute and transmit to buyer
(or, if none, to Lessee) a bill of sale conveying all Lessor's right, title and
interest "As-Is", "Where-Is" basis, with no warranties (express or implied) as
to any matter whatsoever, except that no security interest, lien or encumbrance
against such Equipment then exists that has been created by Lessor.
RETURN CONDITIONS: In addition to the maintenance and return conditions set
forth in the Lease, the Equipment covered by this Schedule also shall be subject
to the following conditions:
1. Throughout the term of the Lease, the Equipment shall be maintained
by either the manufacturer or a factory authorized technician representing the
manufacturer. Upon Lessor's request, and upon reasonable notice, Lessor shall
have the right to (i) review and approve Lessee's maintenance procedures and
(ii) review copies of all maintenance contracts and records, such copies to be
provided by Lessee.
Prior to return, at Lessee's expense, the Equipment shall be
deinstalled and packaged by manufacturer's technicians or factory authorized
representatives of the manufacturer in accordance with manufacturer's
recommendations for shipment. Lessee shall deliver with the returned Equipment
(i) a certification as to the condition of the Equipment upon shipment and (ii)
all instruction manuals, service manuals, service records and descriptive
brochures (if any) relating thereto.
3. Upon Lessor's receipt thereof, the returned Equipment must be re-
certified as eligible for the manufacturer's current maintenance program, at the
manufacturer's then standard rates, the cost of such re-certification to be
borne by Lessee.
-2-
<PAGE>
4. If a sale of the Equipment is arranged at the expiration of the term
of the Lease, Lessee shall be responsible for any applicable licensing or like
fees relating to such sale.
EARLY TERMINATION: Should the Equipment become obsolete or no longer useful in
Lessee's business, and provided that Lessee is not in default under any of the
provisions of the Lease or this Schedule, Lessee may, upon giving Lessor not
less than sixty (60) days' prior written notice (which shall be irrevocable),
terminate the lease term for not less than all the Equipment on the last day of
the 12 month of the Base Term. Upon return of the Equipment to Lessor, Lessor
shall sell the Equipment by public or private sale, for immediately available
funds, to a third party unrelated to Lessee. Lessee shall continue to pay
Lessor monthly rentals for the Equipment until Lessor receives proceeds of sale.
Lessee shall use diligent efforts to solicit bids and buyers for such a sale.
Lessor shall have the right, but no obligation, to solicit bids or buyers for
any such sale. The proceeds of sale shall be applied in the following order to:
(i) pay the reasonable expenses of (a) holding and preparing the Equipment for
sale, and (b) selling the Equipment, and; (ii) the remaining proceeds of sale
(the "Net Proceeds") to Lessor. If the Net Proceeds are less than $889,075.14,
then Lessee shall promptly pay to Lessor, as additional rent, at the same time
and in the same manner as the proceeds of sale are required to be paid to
Lessor, an amount equal to such deficiency- provided however, the maximum amount
Lessee shall pay Lessor for such deficiency shall be $740,647.24, together with
all other sums then due and owing by Lessee hereunder. Upon the consummation of
such an approved sale, Lessor will execute and transmit to buyer (or, if none,
to Lessee) a bill of sale conveying all Lessor's right, title and interest "As-
Is", "Where-Is" basis, with no warranties (express or implied) as to any matter
whatsoever, except that no security interest, lien or encumbrance against such
Equipment then exists that has been created by Lessor.
EARLY PURCHASE OPTION: Provided Lessee is not in default under any provisions
of the Lease or this Schedule, Lessee may, upon giving Lessor not less than
sixty (60) days' prior written notice (which shall be irrevocable), purchase
all, but not less than all, of the Equipment from Lessor "as is, where is" with
no warranty (explicit or implicit) as to any matter whatsoever, on the last day
of any month of the Base Term identified below as a "Purchase Month" for a
purchase price equal to the amount set forth below opposite such Purchase Month
plus applicable taxes. Lessee shall remit such purchase price, together with
all other amounts due and owing hereunder, in immediately available funds.
PURCHASE MONTH PURCHASE PRICE
-------------- --------------
57th $291,483.73
60th $245,721.78
63rd $198,766.04
NO MATERIAL ADVERSE CHANGE: Lessee represents and warrants that there has been
no material adverse change in its business or financial condition since December
20, 1995. Lessor shall not be obligated to execute this Schedule and lease the
Equipment hereunder to Lessee if there shall have occurred any change in
applicable law that would have a material adverse impact on the transaction
contemplated hereby or there shall have occurred a material adverse change (in
Lessor's sole judgment) in the financial or business condition of Lessee.
ACKNOWLEDGMENT OF RECEIPT OF EQUIPMENT: Lessee acknowledges that the Equipment
described herein above has been delivered to and received by it, is conforming
as represented, and is acceptable and satisfactory to it and that the same has
been irrevocably accepted as Equipment leased by Lessee under this Schedule as
of the date written below (the "Acceptance Date").
-3-
<PAGE>
NationsBanc Leasing Corporation Teletech Holdings, Inc.
By: /s/ James R. Bates By: /s/ Steven B. Coburn
------------------------------ ------------------------------
Printed Name: James R. Bates Printed Name: Steven B. Coburn
-------------------- --------------------
Title: Assistant Vice President Title: CFO
--------------------------- ---------------------------
Acceptance Date: 5/2/96
-----------------
-4-
<PAGE>
NATIONSBANKS
NATIONSBANC LEASING CORPORATION EQUIPMENT LEASE SCHEDULE
FOR MASTER EQUIPMENT LEASE AGREEMENT
- --------------------------------------------------------------------------------
SCHEDULE NUMBER 3
This Schedule of Stipulated Loss Values is made a part of Equipment
Schedule Number 3, dated April 24, 1996, to Master Equipment Lease Agreement
Number 08713-00300 dated December 21, 1995, between NATIONSBANC LEASING
CORPORATION ("LESSOR") and Teletech Holdings, Inc. ("Lessee").
Base Rent Stipulated Base Rent Stipulated Base Rent Stipulated
Installment Loss Value Installment Loss Value Installment Loss
Number Percent Number Percent Number Value Percent
- ------------ ---------- ----------- ---------- ----------- -------------
1 100.54004 25 74.10036 49 41.30242
2 99.57074 26 72.85051 50 39.81230
3 98.58894 27 71.59075 51 38.31622
4 97.59768 28 70.32014 52 36.80811
5 96.59691 29 69.03863 53 35.28793
6 95.58350 30 67.74705 54 33.76163
7 94.56047 31 66.44447 55 32.22316
8 93.52777 32 65.13083 56 30.67246
9 92.48227 33 63.80696 57 29.11548
10 91.42698 34 62.47192 58 27.54619
11 90.36188 35 61.12567 59 25.96451
12 89.28689 36 59.76814 60 24.37039
13 88.19429 37 58.40530 61 22.77364
14 87.09168 38 57.03111 62 21.15901
15 85.97131 39 55.65152 63 20.00000
16 84.84080 40 54.26050 64 20.00000
17 83.70008 41 52.85797 65 20.00000
18 82.54141 42 51.44992 66 20.00000
19 81.37241 43 50.03028 67 20.00000
20 80.19301 44 48.59900 68 20.00000
21 78.99548 45 47.16205 69 20.00000
22 77.78741 46 45.71337 70 20.00000
23 76.56876 47 44.25291 71 20.00000
24 75.33947 48 42.78060 72 20.00000
IN WITNESS WHEREOF, the Lessor and Lessee have caused this Schedule of
Stipulated Loss Values to be executed this (2) day of May, 1996.
NATIONSBANC LEASING CORPORATION (LESSOR) Teletech Holdings, Inc. (Lessee)
By: /s/ James R. Bates By: /s/ Steven B. Coburn
------------------------------ ------------------------------
Printed Name: James R. Bates Printed Name: Steve Coburn
Title: Assistant Vice President Title: CFO
-5-
<PAGE>
NATIONSBANK
NATIONSBANC LEASING CORPORATION EQUIPMENT LEASE SCHEDULE FOR
MASTER EQUIPMENT LEASE AGREEMENT
- --------------------------------------------------------------------------------
SCHEDULE NUMBER 4
This Schedule, dated as of April 24, 1996, between NATIONSBANC LEASING
CORPORATION, as Lessor, and Teletech Holdings, Inc., as Lessee, is executed
pursuant to and is subject to the terms and conditions of Master Equipment Lease
Agreement Number 08713-00300 dated as of December 21, 1995 (the "Lease").
Unless otherwise defined herein, capitalized terms used in this Schedule have
the respective meanings assigned to such terms in the Lease. Should any terms
and conditions of this Schedule conflict with any provision of the Lease, the
terms and conditions herein shall supersede conflicting terms and conditions in
the Lease.
Lessee hereby authorizes Lessor to insert herein the serial numbers and other
identification data of the Equipment, when determined by Lessor, and dates or
other omitted factual matters.
DESCRIPTION OT EQUIPMENT, the total cost of which to Lessor is $56,834.02
("Total Capitalized Cost"):
DESCRIPTION COST
Operating software for AT&T G3R Model 07C Phone $56,834.02
Switch with Call Management System
TERM. The term of the Lease for the Equipment described herein is for a Base
Term of sixty-eight (68) months commencing on May 1, 1996 (the "Base Term
Commencement Date").
Rental. Base Rent shall be payable in sixty-eight (68) consecutive monthly
rental installments of $977.54 each commencing on the Base Term Commencement
Date, the first Base Rent installment being payable on the Base Term
Commencement Date and the remaining Base Rent installments being payable on the
first (lst) day of each succeeding month.
Stipulated Loss Value: After the occurrence of any casualty loss or other event
giving Lessor the right to require payment of the Equipment's Stipulated Loss
Value, Lessor shall calculate such Stipulated Loss Value and give Lessee written
notice thereof. Such "Stipulated Loss Value", as of any particular date, shall
be the product obtained by multiplying the Total Capitalized Cost for the item
of Equipment in question by the percentage, as set forth in the attached
"Schedule of Stipulated Loss Values", specified opposite the rent installment
number becoming due immediately after the date Lessor gives Lessee notice
requiring payment of the Stipulated Loss Value (the "SLV Payment Date"). On the
SLV Payment Date, Lessee shall pay Lessor the Stipulated Loss Value plus the
rent installment then due, together with any other unpaid amounts then due and
owing under this Schedule. If only a portion of the Equipment is affected by
any event causing calculation of Stipulated Loss Value, and the cost of such
portion cannot be readily determined from the Total Capitalized Cost set forth
above, then the Total Capitalized Cost for such portion shall be as reasonably
calculated by Lessor, with written notice of such Total Capitalized Cost being
sent to Lessee by Lessor.
ASSETS CLASS AND DEPRECIABLE LIFE: Lessee hereby warrants and represents that
the above described Equipment qualifies under asset guideline class 00.13 and
constitutes "5-year property" within the meaning of Internal Revenue Code
Section 168.
LOCATION OF EQUIPMENT: Equipment will be located at 2130 Hollywood Way,
Burbank, CA 91505.
INSURANCE REQUIREMENTS: In addition to the requirements set forth in the Lease,
the following shall apply:
LIABILITY: Not less than $500,000.00 combined single limit liability insurance,
including bodily injury and death and property damage, covering activities of
Lessor and Lessee and naming Lessor as additional insured.
-1-
<PAGE>
PHYSICAL DAMAGE: Comprehensive insurance, including loss by burglary, theft,
malicious mischief and fire, for an amount not less than the Stipulated Loss
Value of the Equipment, and naming Lessor as loss payee.
END OF BASE TERM OPTIONS: In lieu of Lessee's obligation to return the
Equipment to Lessor, Lessee may, provided Lessee is not in default under any of
the provisions of the Lease or this Schedule, and upon its having provided to
Lessor written notice not less than ninety (90) days prior to the expiration of
the Base Term of its election (which shall be irrevocable) to:
(i) extend the Base Term for a period to be agreed upon by Lessee and
Lessor for an amount equal to the Equipment's then fair market rental value as
determined by Lessor. The fair market rental value shall be payable monthly by
Lessee to Lessor on the first (1st) day of each month during the extension lease
term: or,
(ii) purchase all of Lessor's right, title and interest in and to all,
but not less than all, of the Equipment on an "As-Is", "Where-Is" basis, with no
warranties (express or implied) as to any matter whatsoever, except that no
security interest, lien or encumbrance against such Equipment then exists that
has been created by Lessor, for a purchase price equal to the then Fair Market
Value of the Equipment. Lessee shall pay Lessor the purchase price, plus any
applicable taxes, on the expiration of the Base Term in immediately available
funds; or,
(iii) arrange for the public or private sale of the Equipment, as of the
last day of the lease term, on the open market in a commercially reasonable
manner. Lessor shall have no obligation to solicit bids or buyers for any such
sale. Lessee shall cause the proceeds of such sale to be transmitted directly
and promptly to Lessor on the expiration of the Base Term in immediately
available funds. If the proceeds of such sale, after deducting the expenses
incurred in connection therewith, are more than $3,029.25, Lessor shall pay such
excess to Lessee. If the net proceeds are less than $3,029.25, Lessee shall
forthwith pay Lessor an amount equal to such deficiency. Upon the consummation
of such an approved sale, Lessor will execute and transmit to buyer (or, if
none, to Lessee) a bill of sale conveying all Lessor's right, title and interest
"As-Is", "Where-Is" basis, with no warranties (express or implied) as to any
matter whatsoever, except that no security interest, lien or encumbrance against
such Equipment then exists that has been created by Lessor.
RETURN CONDITIONS: In addition to the maintenance and return conditions set
forth in the Lease, the Equipment covered by this Schedule also shall be subject
to the following conditions:
1. Throughout the term of the Lease, the Equipment shall be maintained by
either the manufacturer or a factory authorized technician representing the
manufacturer. Upon Lessor's request, and upon reasonable notice, Lessor shall
have the right to (i) review and approve Lessee's maintenance procedures and
(ii) review copies of all maintenance contracts and records, such copies to be
provided by Lessee.
2. Prior to return, at Lessee's expense, the Equipment shall be
deinstalled and packaged by manufacturer's technicians or factory authorized
representatives of the manufacturer in accordance with manufacturer's
recommendations for shipment. Lessee shall deliver with the returned Equipment
(i) a certification as to the condition of the Equipment upon shipment and (ii)
all instruction manuals, service manuals, service records and descriptive
brochures (if any) relating thereto.
3. Upon Lessor's receipt thereof, the returned Equipment must be re-
certified as eligible for the manufacturer's current maintenance program, at the
manufacturer's then standard rates, the cost of such re-certification to be
borne by Lessee.
4. If a sale of the Equipment is arranged at the expiration of the term of
the Lease, Lessee shall be responsible for any applicable licensing or like fees
relating to such sale.
EARLY TERMINATION: Should the Equipment become obsolete or no longer useful in
Lessee's business, and provided that Lessee is not in default under any of the
provisions of the Lease
-2-
<PAGE>
or this Schedule, Lessee may, upon giving Lessor not less than sixty (60) days'
prior written notice (which shall be irrevocable), terminate the lease term for
not less than all the Equipment on the last day of the 8th month of the Base
Term. Upon return of the Equipment to Lessor, Lessor shall sell the Equipment
by public or private sale, for immediately available funds, to a third party
unrelated to Lessee. Lessee shall continue to pay Lessor monthly rentals for
the Equipment until Lessor receives proceeds of sale. Lessee shall use diligent
efforts to solicit bids and buyers for such a sale. Lessor shall have the
right, but no obligation, to solicit bids or buyers for any such sale. The
proceeds of sale shall be applied in the following order to: (i) pay the
reasonable expenses of (a) holding and preparing the Equipment for sale, and (b)
selling the Equipment, and; (ii) the remaining proceeds of sale (the "Net
Proceeds") to Lessor. If the Net Proceeds are less than $52,571.46, then Lessee
shall promptly pay to Lessor, as additional rent, at the same time and in the
same manner as the proceeds of sale are required to be paid to Lessor, an amount
equal to such deficiency; provided however, the maximum amount Lessee shall pay
Lessor for such deficiency shall be $44,353.26, together with all other sums
then due and owing by Lessee hereunder. Upon the consummation of such an
approved sale, Lessor will execute and transmit to buyer (or, if none, to
Lessee) a bill of sale conveying all Lessor's right, title and interest "As-Is",
"Where-Is" basis, with no warranties (express or implied) as to any matter
whatsoever, except that no security interest, lien or encumbrance against such
Equipment then exists that has been created by Lessor.
EARLY PURCHASE OPTION: Provided Lessee is not in default under any provisions
of the Lease or this Schedule, Lessee may, upon giving Lessor not less than
sixty (60) days' prior written notice (which shall be irrevocable), purchase
all, but not less than all, of the Equipment from Lessor "as is, where is" with
no warranty (explicit or implicit) as to any matter whatsoever, on the last day
of any month of the Base Term identified below as a "Purchase Month" for a
purchase price equal to the amount set forth below opposite such Purchase Month
plus applicable taxes. Lessee shall remit such purchase price, together with
all other amounts due and owing hereunder, in immediately available funds.
PURCHASE MONTH PURCHASE PRICE
53th $14,327.85
56th $11,696.44
59th $9,013.87
NO MATERIAL ADVERSE CHANGE: Lessee represents and warrants that there has been
no material adverse change in its business or financial condition since December
20, 1995. Lessor shall not be obligated to execute this Schedule and lease the
Equipment hereunder to Lessee if there shall have occurred any change in
applicable law that would have a material adverse impact on the transaction
contemplated hereby or there shall have occurred a material adverse change (in
Lessor's sole judgment) in the financial or business condition of Lessee.
ACKNOWLEDGMENT OF RECEIPT OF EQUIPMENT: Lessee acknowledges that the Equipment
described herein above has been delivered to and received by it, is conforming
as represented, and is acceptable and satisfactory to it, and that the same has
been irrevocably accepted as Equipment leased by Lessee under this Schedule as
of the date written below (the "Acceptance Date").
NationsBanc Leasing Corporation (Lessor) Teletech Holdings, Inc. (Lessee)
By: /s/ James R. Bates By: /s/ Steven B. Coburn
------------------------------ -------------------------------
Printed Name: James R. Bates Printed Name: Steven B. Coburn
--------------------- ---------------------
Title: Assistant Vice President Title: CFO
--------------------------- --------
Acceptance Date: 5/2/96
-------
-3-
<PAGE>
NATIONSBANC
NATIONSBANC LEASING CORPORATION SCHEDULE OF STIPULATED LOSS VALUES
FOR EQUIPMENT LEASE SCHEDULE
- --------------------------------------------------------------------------------
SCHEDULE NUMBER 4
This Schedule of Stipulated Loss Values is made a part of Equipment Schedule
Number 4 dated April 26, 1996, to Master Equipment Lease Agreement Number
08713-00300 dated December 21, 1995, between NationsBanc Leasing Corporation
("Lessor") and Teletech Holdings, Inc. ("Lessee").
Base Rent Stipulated Base Rent Stipulated Base Rent Stipulated
Installment Loss Value Installment Loss Value Installment Loss
Number Percent Number Percent Number Value Percent
------ ------- ------ ------- ------ -------------
1 100.25352 25 67.93636 49 29.06994
2 98.99215 26 66.37266 50 27.24694
3 97.71947 27 64.79916 51 25.40990
4 96.43540 28 63.21282 52 23.56674
5 95.13628 29 61.61357 53 21.70943
6 93.82565 30 60.00435 54 20.00000
7 92.50345 31 58.38211 55 20.00000
8 91.16601 32 56.74679 56 20.00000
9 89.81688 33 55.10132 57 20.00000
10 88.45600 34 53.44266 58 20.00000
11 87.08331 35 51.77075 59 20.00000
12 85.69336 36 50.08552 60 20.00000
13 84.29147 37 48.39492 61 20.00000
14 82.87218 38 46.69091 62 20.00000
15 81.44080 39 44.98144 63 20.00000
16 79.99726 40 43.25847 64 20.00000
17 78.53613 41 41.52193 65 20.00000
18 77.06270 42 39.77978 66 20.00000
19 75.57692 43 38.02396 67 20.00000
20 74.07334 44 36.25442 68 20.00000
21 72.55725 45 34.47910 69 20.00000
22 71.02860 46 32.68996 70 20.00000
23 69.48733 47 30.88693
IN WITNESS WHEREOF, the Lessor and Lessee have caused this Schedule of
Stipulated Loss Values to be executed this (2) day of May, 1996.
NationsBanc Leasing Corporation (Lessor) Teletech Holdings, Inc. (Lessee)
By: /s/ James R. Bates By: /s/ Steven B. Coburn
------------------------------ ------------------------------
Printed Name: James R. Bates Printed Name: Steven Coburn
--------------------- ---------------------
Title: Assistant Vice President Title: CFO
---------------------------- ----------------------------
-4-
<PAGE>
NATIONSBANK
NATIONSBANC LEASING CORPORATION ADDENDUM 1 TO
LEASE SCHEDULES
- --------------------------------------------------------------------------------
RE: Equipment Lease Schedules Numbers 1 and 4 dated December 21, 1995, and
April 26, 1996 respectively (individually "Schedule 1" or "Schedule 4" as
applicable or a "Schedule", collectively the "Schedules") to that certain
Master Equipment Lease Agreement Number 08713-00300 (collectively with the
Schedules, the "Lease") dated December 21, 1995, between NATIONSBANC
LEASING CORPORATION ("Lessor") and Teletech Holdings, Inc. ("Lessee").
THIS LEASE ADDENDUM, is entered into and delivered by Lessor and Lessee this
twenty-sixth (26th) day of April, 1996.
Whereas, Lessor and Lessee entered into and delivered the Lease for the lease by
Lessor to Lessee of the equipment described in the Schedules; and
Whereas, the Equipment leased under Schedule 4 has been permanently affixed to
the Equipment leased under Schedule 1.
Now, therefore, in consideration of good and valuable consideration, the receipt
and sufficiency whereof is hereby acknowledged, Lessor and Lessee agree as
follows:
1. The occurrence of any casualty loss or other event giving Lessor the
right to require immediate payment of the Stipulated Loss Value of the
Equipment leased under Schedule 1 or Schedule 4 shall constitute an
event giving Lessor the right to require immediate payment of the
Stipulated Loss Value of the Equipment leased under both Schedules.
2. Lessee's election to exercise any such termination option with respect
to Schedule 1 shall constitute an event giving Lessor the right to
require immediate payment of the Stipulated Loss Value of the
Equipment leased under Schedule 4.
3. The Stipulated Loss Value of the equipment leased under a Schedule
shall be calculated as set forth in that respective Schedule.
4. Lessee's rights and obligations regarding any Renewal, Purchase
Option, or return of the Equipment leased under the Schedules, shall
be exercised and satisfied consistently and concurrently with respect
to the Equipment leased under each Schedule.
5. If Lessee exercises any rights of Renewal or Purchase Options, Lessor
may, in Lessor's sole discretion, determine any fair market rental
values or Fair Market Values of the Equipment leased under the
Schedules as a single item or as multiple items of Equipment.
6. By the reference hereinabove, the terms and conditions of the Lease
are hereby incorporated in this Addendum. Any capitalized terms used,
but not defined, herein shall have the same meanings ascribed them in
the Lease.
IN WITNESS WHEREOF, the parties hereto have caused this Lease Addendum to be
duly executed as of the day and year first above written.
NATIONSBANC LEASING CORPORATION (Lessor) Teletech Holdings, Inc. (Lessee)
By: /s/ James R. Bates By: /s/ Steven B. Coburn
------------------------------- ----------------------------
Printed Name: James R. Bates Printed Name: Steven B. Coburn
--------------------- -------------------
Title: Assistant Vice President Title: CFO
--------------------------- -----
-5-
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of all our
reports (and to all references to our Firm) included in or made a part of this
Registration Statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Denver, Colorado
June 4, 1996.
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GUMBINER, SAVETT, FINKEL, FINGLESON & ROSE, INC.
CONSENT OF INDEPENDENT AUDITORS
As independent public accountants, we hereby consent to the incorporation of
our report dated April 13, 1994, with respect to the combined statements of
income and cash flows of TeleTech Telecommunications, Inc. and TeleTech
Teleservices, Inc. for the eleven months ended December 31, 1993 in Amendment
Number One to the Registration Statement on Form S-1 to be filed by TeleTech
Holdings, Inc. with the Securities and Exchange Commission, and to all
references to our firm included therein.
/s/ Gumbiner, Savett, Finkel, Fingleson & Rose, Inc.
GUMBINER, SAVETT, FINKEL, FINGLESON & ROSE, INC.
(Formerly Gumbiner, Savett, Friedman & Rose, Inc.)
Santa Monica, California
June 4, 1996
