SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
Commission File No.: 000-21557
ACI TELECENTRICS, INC.
(Name of Small Business Issuer as specified in its charter)
MINNESOTA 41-1572571
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3100 WEST LAKE STREET, SUITE 300, MINNEAPOLIS, MINNESOTA, 55416
(Address of principal executive offices)(Zip Code)
Issuer's telephone number, including area code: (612) 928-4700
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, no par value per share
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $15,253,893.
The aggregate market value of the Common Stock held by nonaffiliates of the
Registrant as of February 28, 1998 was approximately $4,166,000 based upon the
average of the closing bid and asked prices of the Registrant's Common Stock on
such date.
There were 5,714,803 shares of Common Stock, no par value, outstanding as of
February 28, 1998.
------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference pursuant to Rule 12b-23: Portions of the
Registrant's 1997 Annual Report to Shareholders for fiscal year ended December
31, 1997 and Proxy Statement for its 1998 Annual Meeting of Shareholders are
incorporated by reference into Items 6 and 7 of Part II and Items 9, 10, 11 and
12 of Part III, respectively.
Transitional Small Business Disclosure Format (check one). Yes [ ] No [X]
<PAGE>
I N D E X
<TABLE>
<CAPTION>
Description Page
- ----------- ----
PART I
<S> <C> <C>
ITEM 1. DESCRIPTION OF BUSINESS..........................................................................1
ITEM 2. DESCRIPTION OF PROPERTY..........................................................................3
ITEM 3. LEGAL PROCEEDINGS................................................................................3
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............................................4
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........................................5
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............5
ITEM 7. FINANCIAL STATEMENTS.............................................................................5
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.............5
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT.......................................................................6
ITEM 10. EXECUTIVE COMPENSATION..........................................................................6
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................6
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................................6
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K................................................................6
</TABLE>
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
ACI Telecentrics, Inc. (the "Company") was incorporated under the name
Automated Communications, Incorporated under Minnesota law on January 13, 1987
and changed its name to ACI Telecentrics, Inc. on July 26, 1996. The Company
provides telephone based sales and marketing services, broadly defined as
teleservices. As of December 31, 1997, the Company operated 361 outbound and 27
inbound workstations in eight call centers located in Minnesota, North Dakota,
South Dakota, Nebraska and Indiana.
Prior to August 1, 1997, the Company had focused primarily on the
telecommunications, publishing and financial services industries. On August 1,
1997, the Company acquired all of the outstanding common stock of Encyclopaedia
Britannica Communications Corporation ("EBCC"), which operated call centers in
Lombard, Illinois and Merrillville, Indiana. With the acquisition of EBCC, the
Company began to offer services to the insurance industry. In the
telecommunications industry, the Company markets caller ID services to the
customers of Regional Bell Operating Companies. In the publishing industry, the
Company's telemarketing programs assist newspaper, magazine, and book publishers
in acquiring new subscribers, soliciting subscription renewals, and
cross-selling products. In the financial services industry, the Company conducts
telemarketing projects for banks and financial services companies in the areas
of insurance; credit card customer acquisition, retention and renewal; credit
card enhancement services; account generation and retention; and customer
service. In the insurance industry, the markets specified insurance products for
its insurance company clients.
INDUSTRY AND MARKET
The Company believes that the telemarketing sector of marketing
expenditures will continue to grow and that the trend towards outsourcing
telemarketing programs will continue. Many companies are choosing to use
telemarketing for customer retention, customer service and customer care
programs in addition to the traditional sales programs. The telecommunications
and financial services industries, which ACI already serves, are undergoing
deregulation or consolidation, which provides the Company with additional growth
opportunities as these businesses search for low cost solutions for their
marketing, sales and customer support needs. In 1997, businesses within the
telecommunications, publishing and insurance industries accounted for most of
the Company's revenues. The industries targeted by the Company and the principal
services provided are described below.
TELECOMMUNICATIONS. The Company entered the telecommunications segment of the
market in 1996, and in that year revenues from this segment accounted for 42.6%
of revenues. ACI has leveraged our expertise in this market to secure programs
in 1998 with US West and GTE. The Company's principal telecommunications
customer in 1997 was CIDCO, Inc.
PUBLISHING. ACI provides telemarketing services to publishers, including
subscription renewals, subscription sales, and customer services. The Company's
program managers work closely with publishing clients to develop individually
tailored programs to enhance their marketing and sales efforts. The Company has
conducted telemarketing services for such companies as Cahners Publishing
Company and Cy DeCosse, Incorporated.
INSURANCE. ACI provides insurance companies with a wide range of telemarketing
services, including upgrading current policies, acquiring new customers and
retaining current customers. The Company has conducted telemarketing services
for such companies as Providian and Union Fidelity.
SALES AND MARKETING
ACI's marketing strategy emphasizes customized marketing solutions
tailored to meet the individual client's
<PAGE>
needs. The Company currently has three sales directors. The Company attracts
clients through its sales force by (i) encouraging referrals from existing
clients who are satisfied with the Company's quality service, (ii) attending
trade shows, (iii) advertising in trade publications, and (iv) direct
prospecting by our sales force.
PRINCIPAL CUSTOMERS
In 1997, the Company's three largest clients and the percentage of 1997
revenues attributable to such clients were CIDCO Inc., a marketer of caller ID
systems (60.8%), Cy DeCosse Incorporated, a publisher of book continuity
programs (6.8%) and Cahners Publishing Company, a publisher of trade
publications (6.5% ).
COMPETITION
The telemarketing industry is highly competitive, but also continues to
be highly fragmented. The Company competes with both in-house telemarketing
organizations as well as other independent out-source telemarketing operations.
In-house telemarketing organizations provide a variety of services to their
organizations and comprise the majority of the telemarketing industry.
Independent telemarketing organizations range from numerous small,
single-facility operations to large, multi-facility operations such as MATRIXX
Marketing Inc., SITEL Corporation, APAC Teleservices Inc., ITI Marketing
Services, Inc., and West Telemarketing Corporation. The Company also competes
with other forms of marketing such as direct mail, television and radio. The
Company believes that the primary competitive factors in the telephone-based
marketing industry are reputation for quality service, marketing results,
technological expertise, price, and the ability to design customized marketing
programs which address the needs of clients. The Company believes that most of
its competitors are, like ACI, highly dependent on a small number of clients for
a large percentage of their business.
GOVERNMENT REGULATION
The telemarketing industry is subject to a significant amount of
federal and state regulation. The federal Telephone Consumer Protection Act of
1991 (the "TCPA") prohibits telemarketers from using automated telephone dialing
equipment to call certain types of telephone numbers such as hospital emergency
room telephone numbers. In addition, the TCPA prohibits the initiation of
telephone calls to any residential telephone line using an artificial or
prerecorded voice to deliver a message without the prior consent of the called
party. The federal Telemarketing and Consumer Fraud and Abuse Prevention Act of
1994 (the "TCFAPA") broadly authorizes the Federal Trade Commission (the "FTC")
to issue regulations prohibiting misrepresentation in telemarketing sales. In
August 1995, the FTC issued regulations under the TCFAPA which, among other
things, prohibit initiating an outbound telephone call to a person that has
stated that he or she does not wish to receive an outbound call on behalf of the
seller whose goods or services are being offered, prohibit calls at any time
other than between 8:00 a.m. and 9:00 p.m. local time, require a telemarketer to
make certain disclosures to the person receiving the call, and prohibit
misrepresentations regarding the cost, terms, restrictions, or performance of
products or services offered by phone. To the best of the Company's knowledge,
its telemarketing procedures comply with all state and federal rules.
A number of states have enacted or are considering legislation to
regulate telemarketing. For example, telephone sales in certain states cannot be
final unless a written contract is delivered to and signed by the buyer and may
be cancelled within three business days. At least one state provides that
telemarketers may not require payment by credit card, and several other states
impose license or bond requirements upon telemarketers. From time to time bills
are introduced in the U.S. Congress or state legislatures which could further
regulate certain aspects of the telemarketing business. The Company cannot
predict whether any such proposed legislation will become law or what effect
such laws would have on the business of the Company.
Several of the industries served by the Company are subject to varying
degrees of government regulation, particularly the financial services industry.
Clients in these industries are obligated to provide the Company with scripts
for the Company's telemarketers which comply with applicable industry
regulations. Although compliance with these regulations is generally the
responsibility of the Company's clients, the Company could be subject to a
variety of enforcement or private actions for its failure or the failure of its
clients to comply with such regulations as the same relate to telemarketing
operations. In addition, the Company is required to employ licensed insurance
agents to make
<PAGE>
sales of insurance products in the states where such employees are licensed, and
the Company is required to be licensed as an insurance agency in certain states.
PERSONNEL
The Company had approximately 689 full and part time employees as of
December 31, 1997. None of the Company's employees are subject to a collective
bargaining agreement and the Company believes its relationship with its
employees is good.
ITEM 2. DESCRIPTION OF PROPERTY
FACILITIES
The Company's corporate headquarters is located in Minneapolis,
Minnesota in a leased facility consisting of approximately 12,000 square feet of
office space. The lease expires on July 31, 2000.
The Company also leases eight call center facilities in the Midwest.
Information related to those call centers is as follows:
YEAR OPENED/ NUMBER OF
OUTBOUND ACQUIRED TERM EXPIRES WORKSTATIONS
- -------- --------- ---- ------- ------------
Twin Valley, MN 1993 5 yr 8/98 40
Valley City, ND 1995 5 yr 6/00 48
Devils Lake, ND 1996 5 yr 4/01 60
Redfield, SD 1997 5 yr 8/01 48
Pierre, SD 1997 5 yr 4/02 40
Chadron, NE 1997 10 yr 7/07 60
Merrillville 1997 Month to Month ----- 65
Total Outbound 361
---
INBOUND
Lombard, IL 1997 5 yr 9/98 27
Total workstations at December 31, 1997 388
===
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to, nor is its property the subject of, any
material pending legal proceeding.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the shareholders of the
Company during the fourth quarter of 1997.
EXECUTIVE OFFICERS OF THE COMPANY
The name and ages of all of the Company's executive officers and the
positions held by them are listed below.
Name Age Position
---- --- --------
Rick N. Diamond 35 Chairman of the Board, Chief Executive Officer,
Secretary, and Diretor
Gary B. Cohen 36 President and Director
Steven A. Kahn 48 Vice President and Chief Financial Officer
Dana A. Olson 36 Vice President - Operations
Lois J. Dirksen 42 Vice President - Sales
Robert Shelton, Jr. 30 Vice President - Information Systems
RICK N. DIAMOND is co-founder of the Company and has served as the
Chief Executive Officer and a director of the Company since its inception in
1987. Mr. Diamond holds a B.A. degree from the University of Wisconsin and J.D.
degree from Washington University in St. Louis, Missouri. Prior to and since
founding the Company, he has been active in community and business affairs.
GARY B. COHEN is co-founder of the Company and has served as the
Company's President and as a director since its inception in 1987. Mr. Cohen
holds a B.S. degree from the University of Minnesota. Prior to and since
founding the Company, he has been active in community and business affairs.
STEVEN A. KAHN joined the Company as Vice President and Chief Financial
Officer in July 1996. Mr. Kahn was Vice President and Chief Financial Officer of
Shuffle Master, Inc., a supplier to the gaming industry, from September 1995 to
June 1996. Prior to Shuffle Master, Inc., Mr. Kahn was Vice President and
Controller of ConAgra Trading Companies in Minneapolis, Minnesota. He holds a
B.S. degree in business administration from Northeastern University in Boston,
Massachusetts and is a Certified Public Accountant.
DANA A. OLSON joined ACI in September 1990, serving as shift manager
before becoming Operations Manager in April 1991 and Vice President of
Operations in March 1994. Mr. Olson attended Mankato State University, majoring
in Business Administration.
LOIS J. DIRKSEN joined ACI as a Vice President in May 1995 and became
Vice President of Sales in August 1996. Prior to joining the Company, Ms.
Dirksen was Vice President of Sales for Rezound International, a publisher of
audio books, from April 1994 to May 1995 and Director of Direct Response for
Minnesota Mutual from March 1990 to April 1994. Ms. Dirksen holds a B.S. degree
in Political Science from Arizona State University.
ROBERT SHELTON, JR. joined ACI as Director of Information Systems in
May 1996 and became Vice President of Information Services in January 1997.
Prior to joining the company Mr. Shelton was Director of Information Services
for Einhorn Yaffee Prescott, an architectural and engineering company. Mr.
Shelton holds an Associates in Arts Degree from Prince George's Community
College.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the Nasdaq SmallCap
Market under the symbol ACIT since October 21, 1996. Prior to that date, the
Company's Common Stock was not publicly traded. The following table sets forth
the high and low bid prices, as reported by either the Nasdaq SmallCap Market or
the National Quotation Bureau Incorporated of Jersey City, New Jersey or Metro
Data Company of Minneapolis, Minnesota. The bid quotations represent interdealer
prices and do not include retail mark-ups, mark-downs or commissions and may not
necessarily represent actual transactions.
Fiscal Year Ended
December 31, 1996 Low High
- ----------------- --- ----
Fourth Quarter $5.00 $6.125
Fiscal Year Ended
December 31, 1997 Low High
- ----------------- --- ----
First Quarter 5.50 6.50
Second Quarter 5.75 6.50
Third Quarter 5.00 6.00
Fourth Quarter 3.00 5.38
On February 28, 1998, the fair market value of the Company's Common
Stock was $15,716,000 based on the average of the closing bid and asked prices
on at that date. As of December 31, 1997, the Company had approximately 88
shareholders of record.
The Company has not paid cash dividends on its Common Stock since its
initial public offering of stock. The Board of Directors presently intends to
retain earnings for use in the Company's business and does not anticipate paying
cash dividends on Common Stock in the foreseeable future. Any future
determinations as to the payment of dividends will depend on the financial
condition of the Company and such other factors as are deemed relevant by the
Board of Directors.
The effective date of the Company's Registration Statement, Commission
file number 3-33053-70, was October 21, 1996. On January 1, 1997, the Company
had a balance of $4,400,000 remaining from this offering invested in short term
securities. During 1997, the Company used: (i) $1,430,000 to acquire all of the
outstanding stock of Encyclopaedia Britannica Communications Incorporated and
$500,000 to secure certain contingent payments related to this acquisition; (ii)
$730,000 in operating activities; and (iii) $1,626,000 to acquire certain
property and equipment.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by Item 6 is incorporated herein by reference
to the Section labeled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" which appears in the Registrant's 1997
Annual Report to Shareholders.
ITEM 7. FINANCIAL STATEMENTS
The information required by Item 7 is incorporated herein by reference
to the Consolidated Financial Statements, Notes thereto and Independent
Auditor's Report thereon which appears in the Registrant's 1997 Annual Report to
Shareholders.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by Item 9 regarding the Company's executive
officers is set forth in Part I of this report. The information required by
Item 9 concerning the directors of the Company is incorporated by reference from
the Company's definitive proxy statement for its 1998 Annual Meeting of
Shareholders under the caption "Election of Directors." The Company's proxy
statement will be filed pursuant to Rule 14a within 120 days after the close of
the fiscal year for which this report is filed.
The information required by Item 9 relating to compliance with Section
16(a) of the Exchange Act is incorporated herein by reference from the Company's
definitive proxy statement for its 1998 Annual Meeting of Shareholders under the
caption "Compliance with Section 16(a)of the Exchange Act". The Company's proxy
statement will be filed pursuant to Rule 14a within 120 days after the close of
the fiscal year for which this report is filed.
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 is incorporated herein by reference
to the section labeled "Executive Compensation" which appears in the
Registrant's definitive Proxy Statement for its 1998 Annual Meeting of
Shareholders. The Company's proxy statement will be filed pursuant to Rule 14a
within 120 days after the close of the fiscal year for which this report is
filed.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 is incorporated herein by reference
to the section labeled "Principal Shareholders and Management Shareholdings"
which appears in the Registrant's definitive Proxy Statement for its 1998 Annual
Meeting of Shareholders. The Company's proxy statement will be filed pursuant to
Rule 14a within 120 days after the close of the fiscal year for which this
report is filed.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 is incorporated by reference to the
section labeled "Certain Transactions" which appears in the Registrant's
definitive Proxy Statement for its 1998 Annual Meeting of Shareholders. The
Company's proxy statement will be filed pursuant to Rule 14a within 120 days
after the close of the fiscal year for which this report is filed.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. Exhibits are numbered in accordance with Item 601 of Regulation
S-B. See "Exhibit Index" immediately following the signature page of this Form
10-KSB.
(b) Reports on Form 8-K. On August 1, 1997, the Company acquired all of the
outstanding common stock of Encyclopaedia Britannica Communications Corporation
as more fully described in Form 8-K which was filed August 12, 1997 and Form
8-KA which was filed October 14, 1997.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACI TELECENTRICS, INC.
Dated: March 30, 1998 By: /s/ RICK N. DIAMOND
-------------------
Rick N. Diamond, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act 1934, this
Report has been signed by the following persons on behalf of the Company, in the
capacities, and on the dates, indicated.
POWER OF ATTORNEY
-----------------
Each person whose signature appears below constitutes and appoints RICK
N. DIAMOND and GARY B. COHEN as true and lawful attorneys-in-fact and agents,
each acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments to this Annual Report on Form 10-KSB and to file the same, with all
exhibits thereto, and other documents in connection thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE
- ------------------- ----
<S> <C>
/s/ RICK N. DIAMOND March 30, 1998
- -----------------------------------------------
Rick N. Diamond, Chief Executive Officer
and Director (principal executive officer)
/s/ GARY B. COHEN March 30, 1998
- -----------------------------------------------
Gary B. Cohen, President and Director
/s/ STEVEN A. KAHN March 30, 1998
- -----------------------------------------------
Steven A. Kahn, Vice President and Chief Financial Officer
(principal financial and accounting officer)
/s/ DOUGLAS W. FRANCHOT March 30, 1998
- -----------------------------------------------
Douglas W. Franchot, Director
/s/ PHILLIP T. LEVIN March 30, 1998
- -----------------------------------------------
Phillip T. Levin, Director
/s/ SEYMOUR LEVY March 30, 1998
- -----------------------------------------------
Seymour Levy, Director
/s/ JAMES W. LUPIENT March 30, 1998
- -----------------------------------------------
James W. Lupient, Director
/s/ THOMAS F. MADISON March 30, 1998
- -----------------------------------------------
Thomas F. Madison, Director
</TABLE>
<PAGE>
ACI TELECENTRICS, INCORPORATED
EXHIBIT INDEX TO FORM 10-KSB
Exhibit
Number Description
------ -----------
3.1 Restated Articles of Incorporation (Incorporated by reference to
Exhibit 3.1 to Registration Statement on Form SB-2, SEC File No.
333-05370)
3.2 Restated Bylaws (Incorporated by reference to Exhibit 3.2 to
Registration Statement on Form SB-2, SEC File No. 333-05370)
4.1 Form of Stock Certificate (Incorporated by reference to Exhibit
4.1 to Registration Statement on Form SB-2, SEC File No.
333-05370)
4.2 Articles of Incorporation (filed as Exhibit 3.1)
4.3 Bylaws (filed as Exhibit 3.2)
10.1 1996 Stock Option Plan (Incorporated by reference to Exhibit 10.1
to Registration Statement on Form SB-2, SEC File No. 333-05370)**
10.2 1996 Employee Stock Purchase Plan (Incorporated by reference to
Exhibit 10.2 to Registration Statement on Form SB-2, SEC File No.
333-05370)**
10.3 Employment Agreement with Rick N. Diamond, dated June 30, 1996
(Incorporated by reference to Exhibit 10.3 to Registration
Statement on Form SB-2, SEC File No. 333-05370)**
10.4 Employment Agreement with Gary B. Cohen, dated June 30, 1996
(Incorporated by reference to Exhibit 10.4 to Registration
Statement on Form SB-2, SEC File No. 333-05370)**
10.5 Buy/Sell Agreement by and among Automated Communications,
Incorporated, Rick N. Diamond and Gary B. Cohen, dated June 30,
1996 (Incorporated by reference to Exhibit 10.5 to Registration
Statement on Form SB-2, SEC File No. 333-05370)**
10.6 Promissory Note by Automated Communications, Incorporated in
favor of Riverside Bank, dated June 5, 1996 (including documents
related thereto) (Incorporated by reference to Exhibit 10.6 to
Registration Statement on Form SB-2, SEC File No. 333-05370)
10.7 Installment Note by Twin Valley Communications, Incorporated in
favor of Northwest Minnesota Initiative Fund, dated June 15, 1994
(including documents related thereto) (Incorporated by reference
to Exhibit 10.7 to Registration Statement on Form SB-2, SEC File
No. 333-05370)
10.8 Promissory Note by Twin Valley Communications, Incorporated in
favor of City of Twin Valley, dated June 15, 1994 (including
documents related thereto) (Incorporated by reference to Exhibit
10.8 to Registration Statement on Form SB-2, SEC File No.
333-05370)
- -------------------
* Filed herewith
** Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-KSB
<PAGE>
Exhibit
Number Description
------ -----------
10.9 Promissory Note by Automated Communications, Incorporated in
favor of Riverside Bank, dated November 16, 1995 (including
documents related thereto) (Incorporated by reference to Exhibit
10.9 to Registration Statement on Form SB-2, SEC File No.
333-05370)
10.10 Note by Automated Communications, Incorporated in favor of Twin
Valley State Bank, dated September 13, 1993 (including documents
related thereto) (Incorporated by reference to Exhibit 10.10 to
Registration Statement on Form SB-2, SEC File No. 333-05370)
10.11 Loan Commitment Agreement by and between Twin Valley
Communications, Incorporated and Northwest Regional Development
Commission, dated June 15, 1994 (including documents related
thereto) (Incorporated by reference to Exhibit 10.11 to
Registration Statement on Form SB-2, SEC File No. 333-05370)
10.12 Lease Agreement by and between ACKY-3100 Lake Limited Partnership
and Automated Communications, Incorporated, dated June 13, 1995
(Incorporated by reference to Exhibit 10.12 to Registration
Statement on Form SB-2, SEC File No. 333-05370)
10.13 Sublease by and between Valley City-Barnes County Development
Corporation and Valley City Communications, Incorporated, dated
April 24, 1995 (Incorporated by reference to Exhibit 10.13 to
Registration Statement on Form SB-2, SEC File No. 333-05370)
10.14 Sublease by and between Forward Devils Lake Corporation and
Devils Lake Communications, Incorporated, dated January 2, 1996
(Incorporated by reference to Exhibit 10.14 to Registration
Statement on Form SB-2, SEC File No. 333-05370)
10.15 Lease by and between Twin Valley-Ulen Telephone Company, Inc. and
Twin Valley Communications, Incorporated, dated September 1, 1993
(Incorporated by reference to Exhibit 10.15 to Registration
Statement on Form SB-2, SEC File No. 333-05370)
10.16 Agreement of Lease by and among EIS Leasing Corp., Automated
Communications, Incorporated and Devils Lake Communications,
Incorporated, dated March 22, 1996 (including documents related
thereto) (Incorporated by reference to Exhibit 10.16 to
Registration Statement on Form SB-2, SEC File No. 333-05370)
10.17 Agreement of Lease by and among EIS Leasing Corp., Automated
Communications, Incorporated and Valley City Communications,
Incorporated, dated June 5, 1995 (including documents related
thereto) (Incorporated by reference to Exhibit 10.17 to
Registration Statement on Form SB-2, SEC File No. 333-05370)
10.18 Agreement of Lease by and between EIS Leasing Corp. and Automated
Communications, Incorporated, dated December 28, 1994 (including
documents related thereto) (Incorporated by reference to Exhibit
10.18 to Registration Statement on Form SB-2, SEC File No.
333-05370)
10.19 Rental Agreement by and between Electronic Information Systems,
Inc. and Automated Communications, Incorporated, dated December
16, 1993 (including documents related thereto) (Incorporated by
reference to Exhibit 10.19 to Registration Statement on Form
SB-2, SEC File No. 333-05370)
- -------------------
* Filed herewith
** Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-KSB
<PAGE>
Exhibit
Number Description
------ -----------
10.20 Agreement of Lease by and between EIS Leasing Corp. and Automated
Communications, Incorporated, dated December 15, 1993 (including
documents related thereto) (Incorporated by reference to Exhibit
10.20 to Registration Statement on Form SB-2, SEC File No.
333-05370)
10.21 Amended and Restated Equipment Lease (with Purchase Option) by
and between Valley City-Barnes County Development Corporation and
Valley City Communications, Incorporated, dated June 15, 1995
10.22 Vehicle Lease Agreement by and between Lupient Leasing and
Automated Communications, Incorporated, dated December 15, 1995
(Incorporated by reference to Exhibit 10.22 to Registration
Statement on Form SB-2, SEC File No. 333-05370)**
10.23 Lease Agreement by and between Automated Communications,
Incorporated and NTFC Capital Corporation, dated August 7, 1995
(Incorporated by reference to Exhibit 10.23 to Registration
Statement on Form SB-2, SEC File No. 333-05370)
10.24 Equipment Lease by and between Forward Devils Lake Corporation
and Devils Lake Communications, Incorporated, dated May 1, 1996
(Incorporated by reference to Exhibit 10.24 to Registration
Statement on Form SB-2, SEC File No. 333-05370)
10.25 Lease Agreement by and between Sanwa Leasing Corporation and
Automated Communications, Incorporated, dated July 20, 1995
(Incorporated by reference to Exhibit 10.25 to Registration
Statement on Form SB-2, SEC File No. 333-05370)
10.26 Promissory Note by ACI Telecentrics, Incorporated in favor of
Riverside Bank dated September 30, 1996 (including documents
related thereto) (Incorporated by reference to Exhibit 10.26 to
Registration Statement on Form SB-2, SEC File No. 333-05370)
10.27 Agreement for telemarketing services with Cy DeCosse, Inc.
(Incorporated by reference to Exhibit 10.27 to Registration
Statement on Form SB-2, SEC File No. 333-05370)
10.28 Agreement for telemarketing services with CIDCO, Inc.
(Incorporated by reference to Exhibit 10.28 to Registration
Statement on Form SB-2, SEC File No. 333-05370)
10.29 Lease Agreement by and between Redfield Industrial Development
Corporation and ACI Telecentrics, Incorporated, dated November
26, 1996
10.30 Stock Purchase Agreement dated August 1, 1997, by and among ACI
Telecentrics Incorporated and Encyclopaedia Britannica, Inc.
(Incorporated by reference to Exhibit 2.1 to Form 8-K, SEC File
No. 000-21557)
10.31* Lease Agreement by and between Kay Barth and ACI Telecentrics,
Incorporated dated April 13, 1997.
10.32* Lease Agreement by and between C. H. Young, Trustee, and Mary M.
Young, Trustee and ACI Telecentrics dated September 5, l997.
10.33* Lease Agreement by and between Wilkinson Development, Inc. and
ACI Telecentrics, Incorporated dated September 9, 1997.
10.34* Memorandum of Understanding for Project #97-ED-008 between the
Nebraska Department of Economic Development, the City of Chadron
Nebraska, Dawes County Nebraska and ACI Telecentrics,
Incorporated.
- -------------------
* Filed herewith
** Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-KSB
<PAGE>
Exhibit
Number Description
------ -----------
10.35* Memorandum of Understanding for Project # 97-ED-014 between
Nebraska Department of Economic Development, the City of Ogallala
Nebraska and ACI Telecentrics, Incorporated.
10.36* Memorandum of Understanding for project # 97-ED-015 between
Nebraska Department of Economic Development, the City of
Valentine Nebraska and ACI Telecentrics, Incorporated.
10.37* Lease Agreement by and between Pierre Economic Development
Corporation and ACI Telecentrics, Incorporated originally dated
May 5, 1997 and amended March 4, 1998.
13.1* 1997 Annual Report to Shareholders.
23.1* Consent of Deloitte & Touche LLP, independent public accountants
24* Power of Attorney (included on signature page of this Report)
27* Financial Data Schedule
- -------------------
* Filed herewith
** Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-KSB
LEASE AGREEMENT
Exhibit 10.31
Barth Building
300 E. Second St.
Chadron, NE 69937
Lessor:
Ms. Kay Barth
P.O. Box 1177
Bismarck, ND 58502
Lessee:
ACI Telecentrics, Inc.
Lake Pointe Corporate Centre
3100 West Lake Street, Suite 300
Minneapolis, MN 55416-4510
Prepared by:
Bevin B. Bump
Bump and Bump
PO Box 1140
Chadron, NE 69337
<PAGE>
<TABLE>
<CAPTION>
LEASE AGREEMENT
TABLE OF CONTENTS
<S> <C>
1. LEASE-----------------------------------------------------------------------------------------------1
-----
1.01 LEASED PREMISES-------------------------------------------------------------------------------------1
1.02 LEASE TERM------------------------------------------------------------------------------------------1
1.03 BASIC RENT------------------------------------------------------------------------------------------1
1.04 TENANT'S PERMITTED USE------------------------------------------------------------------------------2
1.05 UNLAWFUL USE----------------------------------------------------------------------------------------2
1.06 HAZARDOUS SUBSTANCE---------------------------------------------------------------------------------2
1.07 WARRANTIES OF TITLE AND QUIET POSSESSION------------------------------------------------------------2
1.08 RESTORE PREMISES-----------------------------------------------------------------------------2
2. REMODELING OF REMISES--------------------------------------------------------------------------------2
---------------------
2.01 PARTIES AGREEMENT------------------------------------------------------------------------------------2
2.02 APPROVALS--------------------------------------------------------------------------------------------2
2.03 TENANT'S ACCESS--------------------------------------------------------------------------------------2
2.04 OWNER'S WORK-----------------------------------------------------------------------------------------3
2.05 TENANT'S ACCEPTANCE----------------------------------------------------------------------------3
3. TAXES, MAINTENANCE, REPAIRS AND UTILITIES------------------------------------------------------------3
-----------------------------------------
3.01 ADDITIONAL RENT--------------------------------------------------------------------------------------3
3.02 TAXES------------------------------------------------------------------------------------------------3
3.03 MAINTENANCE AND REPAIR-------------------------------------------------------------------------------3
3.04 UTILITIES--------------------------------------------------------------------------------------------3
3.05 INSPECTION-------------------------------------------------------------------------------------4
4. INSURANCE-------------------------------------------------------------------------------------------4
---------
4.01 INSURANCE COVERAGE----------------------------------------------------------------------------------4
4.02 CASUALTY INSURANCE----------------------------------------------------------------------------------4
4.03 PUBLIC LIABILITY INSURANCE--------------------------------------------------------------------------5
4.04 FAILURE TO RENEW OR HAVE INSURANCE COVERAGE---------------------------------------------------------5
4.05 PROOF OF LOSS UPON DAMAGE TO PROPERTY---------------------------------------------------------------5
4.06 SETTLEMENT WITH INSURANCE CARRIERS------------------------------------------------------------------5
4.07 BLANKET INSURANCE POLICY----------------------------------------------------------------------------5
4.08 CERTIFICATE OF INSURANCE----------------------------------------------------------------------6
5. DAMAGE OR DESTRUCTION--------------------------------------------------------------------------------6
---------------------
5.01 BUILDING REPAIR, REPLACEMENT AND REBUILDING----------------------------------------------------------6
5.02 EXCEPTION--------------------------------------------------------------------------------------6
<PAGE>
6. EMINENT DOMAIN---------------------------------------------------------------------------------------7
--------------
6.01 EMINENT DOMAIN----------------------------------------------------------------------------------7
7. TENANTS FURTHER OBLIGATION TO OWNER------------------------------------------------------------------7
-----------------------------------
7.01 SUBORDINATION----------------------------------------------------------------------------------------7
7.02 TENANT TO HOLD OWNER HARMLESS------------------------------------------------------------------------8
7.03 INTEREST---------------------------------------------------------------------------------------------8
7.04 SURRENDER OF PREMISES--------------------------------------------------------------------------------8
7.05 HOLDING OVER-----------------------------------------------------------------------------------8
8. DEFAULT OF TENANT------------------------------------------------------------------------------------9
-----------------
8.01 DEFAULT OF TENANT------------------------------------------------------------------------------------9
8.02 OWNER'S REMEDIES UPON TENANT'S DEFAULT----------------------------------------------------------9
9. ASSIGNMENTS OF LEASE--------------------------------------------------------------------------------10
--------------------
9.01 OWNER MAY ASSIGN------------------------------------------------------------------------------------10
9.02 ASSIGNMENT------------------------------------------------------------------------------------10
9.03 SUBLETTING------------------------------------------------------------------------------------10
10. MISCELLANEOUS--------------------------------------------------------------------------------------11
-------------
10.01 REASONABLE CONSENT---------------------------------------------------------------------------------11
10.02 NOTICES--------------------------------------------------------------------------------------------11
10.03 PERSONAL PROPERTY AT TENANT'S RISK-----------------------------------------------------------------11
10.04 NO PARTNERSHIP, JOINT VENTURE OR PRINCIPAL/AGENT
RELATIONSHIP CREATED------------------------------------------------------------------------11
10.05 AMENDMENT------------------------------------------------------------------------------------------11
10.06 SEVERABLE PROVISION--------------------------------------------------------------------------------12
10.07 ENTIRE AGREEMENT-----------------------------------------------------------------------------------12
10.08 REPRESENTATIVES------------------------------------------------------------------------------------12
10.09 DUPLICATE ORIGINALS--------------------------------------------------------------------------------12
10.10 CAPTIONS, HEADINGS, OR TITLES----------------------------------------------------------------------12
10.11 WAIVER---------------------------------------------------------------------------------------------12
10.12 NEBRASKA LAW---------------------------------------------------------------------------------------12
10.13 SUCCESSORS AND ASSIGNS-----------------------------------------------------------------------12
10.14 CONTINGENCY----------------------------------------------------------------------------------13
</TABLE>
<PAGE>
LEASE AGREEMENT
THIS AGREEMENT made this thirtieth day of April, 1997, by and between KAY
BARTH, P.O. Box 1177, Bismarck, ND 58502, as the Owner, and ACI TELECENTRICS
INCORPORATED, Lake Pointe Corporate Centre, 3100 West Lake Street, Suite 300,
Minneapolis, MN 55416-4510, as the Tenant, and therefore. IT IS MUTUALLY
UNDERSTOOD AND AGREED BY AND BETWEEN THE PARTIES AS FOLLOWS:
1. LEASE
1.01 LEASED PREMISES: Owner in consideration of the agreements and
covenants of Tenant, set forth herein, does hereby Lease to Tenant the building,
containing approximately nine thousand four hundred (9,400) square feet,
together with all of the parking area containing at least twenty-one parking
stalls, at 300 East Second Street in Chadron, Nebraska, referred to herein as
"premises", all located on the following described real estate: Lots One (1),
Two (2), Three (3), Four (4) and Five (5) in Block One (1) of the Original Town
(now city) of Chadron, Dawes County, Nebraska.
1.02 LEASE TERM: The Lease term is for ten (10) years and commences on July
1, 1997, and expires on June 30, 2007.
1.03 BASIC RENT: Tenant, in consideration of leasing the premises,
covenants and agrees with Owner, to pay Owner as basic rent the total sum of
Four Hundred Twenty Thousand Dollars ($420,000.00) payable in the following
manner: $3,500.00 on the first day of July, 1997, and $3,500.00 on the first day
of each month thereafter during the term of this Lease, by mailing the same to
Owner at Owners address set out herein, or wherever Owner should later
designate.
<PAGE>
1.04 TENANT'S PERMITTED USE: Tenant covenants and agrees that the premises
will be used for the purpose of conducting thereon a telemarketing business.
1.05 UNLAWFUL USE: Tenant agrees not to commit or permit any act to be
performed on the premises or any omission to occur which will be in violation of
any statute, regulation, or ordinance of any governmental body.
1.06 HAZARDOUS SUBSTANCE: Tenant will not use, store, keep or permit any
hazardous, toxic, explosive or flammable substances on the property without the
express written consent of Owner.
1.07 WARRANTIES OF TITLE AND QUIET POSSESSION: The Owner warrants that the
Owner has full right to make this Lease subject to the terms of this Lease, and
the Tenant shall have quiet and peaceable possession of the premises during the
term of this Lease as against the acts of all parties claiming title to, or a
right to possession of, the premises.
1.08 RESTORE PREMISES: In the event Tenant defaults or terminates this
agreement, Tenant agrees to restore the premises to substantially the same
condition as it is at the completion of its remodeling as hereafter provided.
2. REMODELING OF PREMISES
2.01 PARTIES AGREEMENT: It is agreed by the parties hereto that Owner shall
be remodeling the premises during the months of May and June, 1997, pursuant to
the specifications prepared and submitted by Fuller Construction of Chadron,
Nebraska, formulated around the general requirements of Tenant as explained to
Fuller Construction by Dana Olson representing Tenant. Such specifications,
marked Exhibit A are attached hereto and made apart hereof by this reference.
2.02 APPROVALS: All remodeling plans shall be approved by the State of
Nebraska Fire Marshall and the City of Chadron Building Official.
2.03 TENANT'S ACCESS: Tenant shall have access to the premises during the
months of May and June, 1997, while the premises is being remodeled, by making
arrangements with Fuller Construction, the General Contractor.
<PAGE>
2.04 OWNER'S WORK: Owner agrees, at its cost, to construct those
improvements to the premises identified in the Fuller Construction bid attached
hereto as Exhibit A, and to complete such work on or before July 1, 1997.
2.05 TENANT'S ACCEPTANCE: After acceptance of the premises by Tenant, Owner
will be under no obligation to alter, change, decorate or improve the premises,
except for items not completed in accordance with Section 2.04 above.
3. TAXES, MAINTENANCE, REPAIR AND UTLITIES
3.01 ADDITIONAL RENT: This Lease is a triple-net Lease and in consideration
of this Lease and the rate of rent contained in this Lease Tenant agrees that
during the term of this Lease, Tenant will, at it's own expense, pay all taxes,
maintenance, repair, utilities and insurance that are specifically set out
herein.
3.02 TAXES: Tenant shall pay the real estate taxes levied upon the building
and lots during the term of this Lease. Taxes shall be paid to Owner within ten
(10) days from demand by Owner, and Owner shall furnish Tenant with Tax Receipts
from the Dawes County Treasurer. If the Tenant does not occupy the property for
an entire tax year, then the Tenant shall pay taxes upon a pro-rata basis.
3.03 MAINTENANCE AND REPAIR: (a.) Tenant shall, at its sole expense, keep
and maintain the interior and parking area of the premises in good condition and
repair. The standard for comparison and need of repair will be the condition of
the premises at the time of completion of remodeling and all repairs shall be
made by a licensed and bonded contractor. Tenant shall pay for the maintenance
of any and all windows, doors and glass. Parking lot maintenance shall include,
but be not limited to; snow removal, painting stripes and sealing cracks. (b.)
Owner shall be responsible for maintenance and repair of the HVAC, the exterior
of the building, the roof and structural integrity of the building, unless
damage is caused by the negligence or intentional acts of Tenant, it's agents,
employees, visitors or licenses.
3.04 UTILITIES: Tenant shall at its cost keep and maintain all utilities
and fixtures used by Tenant in good order and repair and furnish all expendables
(light bulbs, ballast, paper goods, soaps, etc.) used in the premises. Tenant
further agrees to pay
<PAGE>
from time to time, as the utility payments come due, all utility payment
including; telephone, water, gas, electricity, sewer, trash removal and similar
payments.
3.05 INSPECTION: Tenant covenants and agrees that the Owner shall, at
reasonable times, have the right to enter and inspect all portions of the leased
premises.
4. INSURANCE
4.01 INSURANCE COVERAGE: All insurance provided for in this Lease will be
issued by an Insurance Company authorized to do business in the State of
Nebraska and which has and maintained a rating of A/VII in the Best's Insurance
Report or the equivalent; be primary and noncontributing with any insurance
carried by the Owner, and shall name Tenant and Owner as insureds, as their
respective interests may appear. The payment of all required premiums herein
made by the Tenant, for all insurance policies required by this Lease shall be
made by the Tenant as additional rent. All insurance policies maintained
pursuant to this Lease shall provide that there shall be no cancellation,
non-renewal, termination for any reason, or modification without at least ten
(10) days prior written notification to Owner. To the extent obtainable, all
policies shall contain an agreement by the insurers (a) that any loss shall be
payable to Owner notwithstanding any act or negligence of Tenant which might
otherwise result in forfeiture of such insurance, (b) that such policies shall
not be cancelled except upon ten days prior written notice to Owner, and (c)
that the coverage afforded thereby shall not be affected by the performance of
any work in or about the leased premises. Owner shall not have any right of
action against Tenant on account of any loss or damage from fire and extended
coverage, provided such loss is covered by insurance and provided this waiver by
Owner does not invalidate any insurance policy.
4.02 CASUALTY INSURANCE: Owner agrees to insure the building with a hazard
insurance policy which shall insure the improvements and personal property which
are part of the building against loss or damage by fire, lightning, and other
perils as required by the Nebraska Standard Fire Insurance Policy and extended
coverage endorsements, together with plate glass coverage insurance in amounts
sufficient to prevent Owner or Tenant from becoming a coinsured within the terms
of the applicable
<PAGE>
policies, and in any event in an amount equal to 100% of the full replacement
value of the building and the building service equipment, with no deductions for
depreciation. Tenant shall pay the insurance premium for such hazard insurance
coverage upon the building during the term of this Lease. Such premium shall be
paid by Tenant to Owner within ten days from demand by Owner, and Owner shall
furnish Tenant with receipts showing proof of payment of such insurance. If
Tenant does not occupy the premises for an entire calendar year, then Tenant
shall pay the insurance premium upon a pro-rata basis.
4.03 PUBLIC LIABILITY INSURANCE: Tenant shall keep the leased premises
insured throughout the term of this Lease, at its sole cost and expense and pay
the insurance premium for insurance policies to provide coverage for claims for
personal injury or property damage, under a policy of general public liability
insurance, with such limits as may reasonably be requested by the Owner from
time to time, but not less than $300,000 / $1,000,000 in respect to bodily
injury, and $100,000 for property damage.
4.04 FAILURE TO RENEW OR HAVE INSURANCE COVERAGE: If any policy maintained
pursuant to this Lease is not renewed on or before fifteen (15) days prior to
its expiration date or if no insurance policy is in force at any time, the Owner
may procure such insurance, pay the premiums therefor, and such sums shall be
immediately due and payable with interest, at the rate provided in this Lease,
until paid.
4.05 PROOF OF LOSS UPON DAMAGE TO PROPERTY: If any loss occurs which may be
covered by insurance, Tenant will immediately notify Owner of the loss and shall
make the proof of loss within the earlier of seven (7) days or the time required
under the insurance policy. If Tenant fails to make the proof of loss, the Owner
may make the proof of loss.
4.06 SETTLEMENT WITH INSURANCE CARRIER: If the hazard insurance carrier refuses
to pay a claim or offers to settle for less than the full cost of repairs or
replacement, Tenant shall advise the Owner. Tenant shall not make a settlement
for less than the full cost of repair or replacement without the written consent
of Owner. Any attorney fees or other costs which are incurred by Owner in any
action against an insurance carrier shall be repaid by Tenant upon demand.
4.07 BLANKET INSURANCE POLICY: In the event Tenant provides any insurance
required by this Lease in the form of a blanket policy, the Tenant shall furnish
satisfactory proof
<PAGE>
that such blanket policy complies in all respects with the provisions of the
Lease, and that the coverage thereunder is at least equal to the coverage which
would be provided under a separate policy.
4.08 CERTIFICATE OF INSURANCE: Tenant will deliver a Certificate of Insurance or
a copy of the policy to the Owner within thirty (30) days of execution of this
Lease and will provide evidence of renewed insurance coverage at each
anniversary, and prior to the expiration of any current policies. Tenant's
failure to provide evidence of this coverage to Owner may, in Owners sole
discretion, constitute a default under this Lease.
5. DAMAGE OR DESTRUCTION
5.01 BUILDING REPAIR, REPLACEMENT, AND REBUILDING: If the building or any
improvement upon the leased premises is totally or partially destroyed or
damaged as a result of a casualty or hazard, Owner shall promptly repair,
replace, and rebuild such building or other improvement at least to the extent
of its value immediately prior to such occurrence. If the work of repairing,
replacing, or rebuilding shall not be commenced within thirty (30) days and
completed within a reasonable time as agreed upon by the parties, then Tenant
shall have the right to terminate this Lease, by giving to Owner at least 30
days written notice of such intention. If before the expiration of such 30 day
period such work shall not have been commenced and the other conditions hereof
complied with, this Lease shall cease and expire and the insurance proceeds
received and receivable shall belong to and be retained by Owner, without claim
thereon by Tenant.
5.02 EXCEPTION: Except as otherwise provided in this Lease, this Lease
shall not terminate or be affected in any manner by reason of the damage or
destruction, by fire or other casualty, in whole or in part, of the leased
premises or the building or improvement thereon, or by reason of the
untenantability of the leased premises; provided however, the fixed rent
reserved in this Lease, as well as all other charges payable hereunder, shall
abate until such time as such damage or destruction has been repaired and the
premises shall be made tenantable.
<PAGE>
6. EMINENT DOMAIN
6.01 EMINENT DOMAIN: If the premises are taken by any public authority
under the power of eminent domain or sold to any public authority pursuant to
threat of eminent domain, then division of damages shall be made as follows;
(a) The Owner shall receive the full appraised value of the building
(valued at the greater of the value with this Lease or the value
without this Lease).
(b) The Owner shall receive any other damages or other awards based upon
considerations other than value of the building which were awarded to
the Owner.
(c) The Tenant shall receive any excess amount of any damages over the
Owner's full appraised value determined in subparagraph (a) above,
which are awarded to the extent of the damages which Tenant has
suffered for the loss of the remainder of its Lease.
(d) The Owner shall receive any excess damages based upon the value of the
building.
(e) The Tenant shall receive any other damages or other awards based upon
considerations other than value of the building which were awarded to
the Tenant.
(f) The allocation of damages shall be mutually agreed upon by the
governmental authorities exercising the power of eminent domain, by the
Owner and by the Tenant. In the event that there is not agreement on
allocation as provided in this paragraph, the parties may agree to an
award of damages for the value of the building and the Lease.
7. TENANTS FURTHER OBLIGATION TO OWNER
7.01 SUBORDINATION: The Tenant agrees that at the Owner's election, this
Lease shall be subordinate to any land lease, mortgages or trust deeds now on or
placed on the property and to any and all advances to be made thereunder, and to
the interest
<PAGE>
thereon, and to all renewals, replacements and extensions thereof, so long as
such land lessor or lender provides Tenant with a non-disturbance agreement.
7.02 TENANT TO HOLD OWNER HARMLESS: Except in the case of the negligence of
the Owner, the Owner's agents or the Owner's employees, the Tenant agrees to
indemnify and defend the Owner against any liability for damages to any person
or property in or about the premises, caused by Tenant or Tenant's agents,
employees, officers or invitees. The Owner shall not be liable to the Tenant,
its agents, employees, representatives, customers or invitees for any personal
injury, death or damage to property caused by theft, burglary, water, gas,
electricity, fire or for any other cause occurring on or about the property.
7.03 INTEREST: In the event Tenant fails to perform any of its promises
contained in this Lease, including the failure to pay rent, then any unpaid rent
and any sum advanced by the Owner under the terms of this agreement shall bear
interest from the due date or the date of payment by the Owner, respectively, to
the date of payment to the Owner by the Tenant at the rate of 16% per annum.
7.04 SURRENDER OF PREMISES: The Tenant shall quit and surrender the
premises at the end of the term in as good condition as the reasonable use
thereof will permit, and shall not make any alterations, additions or
improvement to the premises, except as provided herein, without the written
consent of the Owner, and all alteration, additions or improvements which may be
made by either of the parties hereto on the premises, except movable furniture,
fixtures and equipment put in at the expense of the Tenant, shall be the
property of the Owner, and shall remain on and be surrendered with the premises
as part thereof at the termination of this Lease, without hindrance, molestation
or injury. It is agreed that movable partitions made of wood and glass and set
on top of the carpet and not attached to the ceiling and building are movable
furniture, fixtures and equipment.
7.05 HOLDING OVER: In the event that the Tenant remains in possession of
the premises after the expiration of this Lease without the execution of a new
Lease, Owner may take any legal action to remove the Tenant. If the Owner
accepts a rent payment for a period of time after the end of the Lease or
otherwise acknowledges the tenancy, then Tenant is deemed to be occupying the
premises as a Tenant from month-to-month. Any month-to-month tenancy is subject
to all the conditions, provisions, and
<PAGE>
obligations of this Lease. The increased base rent shall then be adjusted by any
CPI inflation index or by any other adjustment method provided in this Lease.
8. DEFAULT OF TENANT
8.01 DEFAULT OF TENANT: A default by Tenant under this Lease shall occur if
any of the following occur, but a default is not limited to the following:
(a) Any one or more rent payments due from the Tenant to the Owner shall be
and remain unpaid in whole or part within three (3) days after receipt
of written notice from Owner that such payment is in default;
(b) The Tenant fails to provide insurance as required by this Lease and the
default continues for more than 10 days after notice from Owner;
(c) The Tenant violates or defaults in any of the other covenants,
agreements, stipulations or conditions herein and such violation or
default shall continue for a period of thirty (30) days after written
notice from the Owner of such violation of default;
(d) If the Tenant shall become insolvent, make an assignment for the
benefit of its creditors, or if a receiver is appointed for the Tenant;
(e) Abandonment of the property by the Tenant (any absence by Tenant for
more than seven days without notice to Owner shall be presumed to be an
abandonment).
8.02 OWNER'S REMEDIES UPON TENANT'S DEFAULT: The remedies provided in this
paragraph are not exclusive and are in addition to any other remedies now or
later allowed by law. Upon default of the Tenant:
(a) The Owner may, at its option, declare this Lease forfeited, the term of
the Lease ended, has the right to reenter the property and further the
right to take possession of the property without any further obligation
to Tenant. Owner may remove all persons and property at the cost of
Tenant.
<PAGE>
(b) Owner may instead elect to keep Tenant in possession and continue to
have all rights and remedies under this Lease. If Owner elects to keep
Tenant in possession, Owner shall have the rights under subparagraph
(a) for any future defaults of for any previous default which remains
uncured.
(c) If Owner elects under subparagraph (b) to keep the Lease in force,
Owner may lease the premises to a new Tenant at a rate of rent
determined by Owner to be reasonable. Tenant shall pay to Owner any
costs incurred in leasing the property and any rents under this Lease
in excess of the rent which Owner actually receives from new Tenant.
The new Tenant may pay rents directly to Owner.
(d) Nothing in this paragraph shall be interpreted to release Tenant from
any liability for any indemnification provided to Owner under this
Lease for any occurrence or omission prior to the date of termination
of the Lease.
9. ASSIGNMENTS OF LEASE
9.01 OWNER MAY ASSIGN: Owner's rights to assign this Lease are and shall
remain unqualified. No assignment by Owner shall release Owner of any of its
obligations under this Lease for any time prior to the date of the assignment.
9.02 ASSIGNMENT: During the first five years of this Lease Tenant shall not
assign or transfer this Lease or any interest in this Lease or any portion of
this Lease. After the fifth year of this Lease Tenant may assign or transfer
this Lease or any interest in this Lease or any portion of its Lease with the
prior written consent and approval of Owner in each instance. No assignment or
transfer shall release Tenant of its obligations under this Lease unless
approved by Owner. This provision shall apply to any assignment or transfer of
this Lease, whether by voluntary act, operation of law, or otherwise.
9.03 SUBLETTING: Tenant may not sublet the property or any part of the
property without the prior written consent of Owner in each instance during the
first five year term of this Lease. Thereafter Tenant may sublease the Premises,
provided Tenant gives Owner a thirty (30) day prior written notice of such
sublease, containing the name, address and telephone number of Sub-Tenant. This
provision shall apply to any
<PAGE>
sublease, whether by voluntary act, operation of law, or otherwise. The
subletting of the Lease premises by Tenant shall not release Tenant of its
obligations under this Lease.
10. MISCELLANEOUS
10.01 REASONABLE CONSENT: Whenever the Owner's or the Tenant's consent
shall be required under this Lease, such approval or consent shall not be
arbitrarily or unreasonably conditioned, delayed, or withheld. The consent of
Owner or of Tenant shall be deemed to have been given, unless within twenty (20)
days of the request for such approval or consent, the Owner or the Tenant, as
appropriate, notifies the requesting party that the receiving party is denying
such approval or consent. The refusal must state the reasonable ground for the
refusal to grant such approval or consent.
10.02 NOTICES: All notices, statements, demands, requests, consents,
approvals, authorizations, offers, agreements, appointments, or designations
under this Lease by either party to the other will be in writing and will be
considered sufficiently given and served upon the other party if sent by
certified or registered mail, return receipt requested, postage prepaid,
delivered personally, or by a national overnight delivery service and addressed
to the other party at the parties address set out herein or otherwise
designated.
10.03 PERSONAL PROPERTY AT TENANT'S RISK: All personal property including
fixtures, kept, stored or maintained on the premises by Tenant shall be so kept,
stored or maintained at the sole risk of the Tenant.
10.04 NO PARTNERSHIP, JOINT VENTURE OR PRINCIPAL/AGENT RELATIONSHIP CRATED:
Nothing in this agreement shall be interpreted as creating a partnership, joint
venture or relationship of principal and agent between the parties.
10.05 AMENDMENT: No amendment of this agreement shall be valid unless it is in
writing and is signed by the parties or by their duly authorized
representatives, and unless it specifies the nature and extent of the amendment.
<PAGE>
10.06 SEVERABLE PROVISION: Each provision, section, sentence, clause, phrase and
word of this agreement is intended to be severable. If any provision, section,
sentence, phrase, or word herein is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity of the
remainder of this Lease.
10.07 ENTIRE AGREEMENT: This agreement contains the entire understanding of the
parties hereto with respect to the transactions contemplated hereby and
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
10.08 REPRESENTATIONS: No representations, warranties, undertakings or promises,
whether oral, implied, written, or otherwise, have been made by either party
hereto to the other unless expressly stated in this agreement. Neither party has
relied on any verbal representations, agreements, or understandings not
expressly set forth in this agreement.
10.09 DUPLICATE ORIGINALS: This agreement may be executed in several duplicate
originals, but all copies shall be only one agreement.
10.10 CAPTIONS, HEADINGS, OR TITLES: All captions, headings, or titles in the
paragraphs or sections of this agreement are inserted for convenience of
reference only and shall not constitute a part of this agreement as a limitation
of scope of the particular paragraphs or sections to which they apply.
10.11 WAIVER: Any Waiver by either party of default of the other party of this
agreement shall not affect or impair any right arising form any subsequent
default. No custom or practice of the parties which varies from the terms of
this agreement shall be a waiver of either party's right to demand exact
compliance with the terms of this agreement.
10.12 NEBRASKA LAW: This agreement shall be construed and enforced in
accordance with the laws of the State of Nebraska.
10.13 SUCCESSORS AND ASSIGNS: This agreement shall be binding on and shall
inure to the benefit of the parties to this agreement and their respective
assigns, executors, heirs, personal representatives, and successors.
<PAGE>
10.14 CONTINGENCY: The parties hereto acknowledge that this Lease is
contingent upon Tenant obtaining approval and execution, by the Nebraska
Department of Economic Development, of that certain Memorandum of Understanding
with the Nebraska Department of Economic Development, identified as #97-ED-001.
Upon such approval this contingency in this Section has been met and Section
10.14 is thereupon stricken and deleted from this Lease.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease Agreement
the day and year first above written.
/s/ KAY BARTH
Kay Barth, OWNER
/s/ WILLIAM R. BARTH, JR.
William R. Barth, Jr.
ATTEST: ACI TELECENTRICS, INC. a Corporation, TENANT
/s/ Steven A. Kahn
- ---------------------- -----------------------
Secretary Vice President
STATE OF NORTH DAKOTA,)
) SS.
County of Morton ,)
The foregoing Lease Agreement was acknowledged before me this __ day of
________, 1997, by Kay Barth, and William R. Barth, Jr. Wife and Husband.
------------------
Notary Public
My Comm. Expires:
STATE OF MINNESOTA,)
) SS.
County of Hennepin ,)
The foregoing Lease Agreement was acknowledged before me this __ day of
____________, 1997 by ____________________ President of ACI TELECENTRICS, INC, a
Corporation, on behalf of the Corporation.
------------------
Notary Public
My Comm. Expires:
Exhibit 10.32
BUILDING LEASE
This indenture, made this 5th day of September, 1997, by and between C.
H. Young, Trustee, and Mary M. Young, Trustee, hereinafter called the lessor,
and ACI Telecentrics, Incorporated, a Minnesota corporation, hereinafter called
the lessee.
Witnesseth:
The lessor, for and in consideration of the covenants and agreements
hereinafter contained to be kept and performed by the lessee, does hereby demise
and lease to the lessee and the lessee does hereby hire and take from the lessor
the premises, together with improvements thereon (hereinafter the premises),
located at 202 North Main, in the City of Valentine, County of Cherry, State of
Nebraska, and described as Lots 17 and 18, Original Town of Valentine, Cherry
County, Nebraska.
To have and to hold the premises hereby demised together with the rights,
easements, and appurtenances thereto belonging to the lessee, its successors,
and its assigns, on the following terms and conditions:
1. Term and use. The term of this lease shall be for a period of 120 months
commencing on November 15, 1997 , and shall continue to and include November 14,
2007, unless extended or sooner terminated as hereinafter provided. The lessee
may not use the premises for any unlawful use. The lessee further acknowledges
that it has inspected the premises and accepts the premises in an "as is"
condition.
2. Rent. (a) Fixed rent. The lessee shall pay to the lessor as and for fixed
rent (fixed rent) for the premises the amount of $420,000, payable $3,500 per
month, which amount shall be paid on the first day of each month during the term
hereof. The fixed rent shall be payable at the office of the lessor at the
address on the signature page of this lease, or such other place as is
designated by the lessor.
In the event of any fractional months occurring during the term of this lease,
the lessee shall pay rent on a pro rata basis calculated on the ratio of the
actual number of days of possession by the lessee to the total days in the month
in question.
(b) Additional rent. As and for additional rent (additional rent), the lessee
shall pay all costs and expenses of any nature or kind whatsoever attributable
to the premises during the term of this lease. These costs and expenses, if
applicable, shall include but are not necessarily limited to the following:
utilities (that is, gas, water, electric, and so forth); maintenance of the
premises, including but not necessarily limited to snow removal, sweeping of
sidewalks, painting, window cleaning, glass replacement, repair and upkeep of
roof, repair and upkeep of heating, airconditioning, and ventilation systems,
and repair and upkeep of plumbing and electrical systems; real estate taxes for
the premises and special assessments payable therewith prorated during the term
of this lease; all improvements placed on the premises by the lessee; and all
insurance premiums relative to the premises. It is specifically contemplated and
understood by the parties that by the terms of this section 2(b), the lessor
will not incur any financial responsibility relative to the premises during the
term of this lease.
3. Possession. Except as herein provided, the lessor shall deliver possession of
the premises in the condition required by this lease on or before the date
hereabove specified for commencement of the term, subject to unavoidable delays
beyond the lessor's control, but delivery of possession
<PAGE>
prior to such commencement date shall not affect the expiration date of this
lease. If the premises shall not be available to the lessee for occupancy on the
first day of the term, the lessor shall not be liable to the lessee for damages,
but a pro rata part of the rent shall be abated until the premises are ready for
occupancy. The taking of possession of the premises by the lessee shall be
conclusive evidence that the premises are in the agreed condition at the
commencement of the lease term.
4. Unlawful use. The lessee agrees not to commit or permit any act to be
performed on the premises or any omission to occur that will be in violation of
any statute, regulation, or ordinance of any governmental body, that will
increase the insurance rate on the building, or that will be in violation of any
insurance policy carried on the premises by the lessor. The lessee shall not
disturb other occupants of the building by making any undue noise or otherwise
and shall not do or permit to be done in or about the premises anything that
will be dangerous to life or limb.
4.1. Environmental provisions.
(a) Lessor's representations. To the best of lessor's knowledge after
reasonable inquiry, lessor represents and warrants as follows:
(i) No claim, lawsuit, agency proceeding, or other legal
quasi-legal or administrative challenge has been brought concerning the
property, the operation of the property, or the existence of any
hazardous substances thereon during lessor's period of ownership.
(ii) Lessor has not used the property for any industrial or
commercial operation that utilizes hazardous substances. Owner is not
aware of any such prior use of the property.
(iii) Lessor has not spilled, discharged, released, deposited, or
emplaced any hazardous substance on the property, whether in containers
or other impoundments, or directly in the lands or waters of the
property. Lessor is not aware of any such substances in or on the
property.
(iv) Lessor has not installed or affixed any asbestos-containing
materials in the structures on the property.
(v) Lessor has not affixed or installed any electrical
transformers, fluorescent light fixtures or other electrical equipment
containing PCBs in the property.
(vi) Lessor has not installed any storage tanks, barrels, sumps,
impoundments, or other containers or equipment (movable or fixed) for
the containment of hazardous substances in any part of the property.
(vii) No governmental entity has served upon lessor any notice
claiming any violation of any statutes, ordinance, or regulations or
noting the need for any repair, construction, alteration, or
installation with respect to the property and hazardous substances or
radon, requiring any change in the means or methods of those conducting
operation thereon.
(b) Lessee's right to inspect. The lessee has been entitled to make an
environmental assessment by complete inspection and investigation of the
premises, either individually or by utilizing a third party. The lessee has
determined the premises to be free of hazardous substances.
(c) Maintenance.
(i) Lessee shall, at its expense, maintain and return the premises
free of any
<PAGE>
contamination or damage by or from any hazardous substances.
(ii) Lessee shall not, without written consent of lessor, use,
maintain, or dispose of hazardous substances on the premises.
(d) Release. Lessee hereby waives, releases, and discharges forever lessor
from all present and future claims, demands, suits, legal and administrative
proceedings, and from all liability for damages, losses, costs, liabilities,
fees, and expense, present and future, arising out of or in any way connected
with lessor's use, maintenance, or operation of the premises prior to the
commencement of this lease term, any current condition of the environmental
contamination on the premises or the present existence of hazardous substances
on the premises, however they came to be placed thereon.
(e) Response. The parties may wish to decide prior to the lease on the
appropriate cleanup and/or legal response in case of contamination.
5. Lessor's access. The lessor, its employees, and its agents shall have the
right to enter the premises at all reasonable times for the purpose of
inspection, cleaning, repairing, altering, or improving the premises or to
exhibit the premises to prospective tenants, purchasers, or other. Nothing in
this section shall be interpreted as requiring the lessor to perform any such
acts independent of the requirements of the other provisions of this lease. The
lessor shall also be permitted to enter the premises for the purpose of posting
notices of nonresponsibility for alterations, additions, and repairs.
6. Improvements, alterations, and remodeling. The lessee shall be permitted to
perform the improvements, alterations, or remodeling on or to the premises as
set forth in exhibit B, attached hereto and made a part hereof; provided,
however, that they shall be done at the sole expense of the lessee. Any other
improvements, alterations, and remodeling shall be performed only with the
written consent of the lessor.
The lessor shall not be permitted to make any improvements or alterations to the
premises without the written consent of the lessee, except however, the lessor
may make repairs to the premises without the written consent of the lessee in
the event it reasonably appears that the lessee has failed to make the repairs
and when the continued failure to so repair will result in a substantial
diminution of the value of the lessor's reversionary interest in the premises.
The cost of any such repairs made by the lessor pursuant to this paragraph may
be charged to the lessee as additional rent.
7. Care of premises. All care, maintenance, and repair of the premises shall be
the sole responsibility of the lessee and shall be performed at the discretion
and expense of the lessee. In the event any such care, maintenance, or repair is
performed by the lessor or its designees, the lessor shall be entitled to
reimbursement therefor pursuant to the provisions contained in section 2 hereof.
8. Warranties of title and quiet possession. The lessor covenants that the
lessor has full right to make this lease subject to the terms hereof, and the
lessee shall have quiet and peaceful possession of the premises during the term
hereof as against the acts of all parties claiming title to, or a right to the
possession of, the premises.
9. Assignment and subletting. The lessee may not assign or hypothecate this
lease or sublet the premises or any part thereof, whether by voluntary act,
operation of law, or otherwise, without the prior written consent of the lessor
in each instance. Consent by the lessor to one assignment of this lease or to
one subletting of the premises shall not be a waiver of the lessor's rights
under this lease as to any subsequent assignment or subletting. The lessor's
rights to assign this lease
<PAGE>
are and shall remain unqualified. No assignment shall release the lessee of any
of its obligations under this lease.
10. Eminent domain. If the premises are taken by any public authority under the
power of eminent domain or sold to any public authority pursuant to threat of
eminent domain, the lessee shall receive a proportionate share of the damages it
has suffered for the loss of the remainder of its lease. These damages shall be
mutually agreeable to the governmental authorities exercising the power of
eminent domain, to the lessor, and to the lessee. In the event that there is not
mutuality of agreement, the division of the damages shall be determined by
arbitration.
11. Fire and other casualty. If fire or other casualty shall render the premises
untenantable, this lease shall terminate forthwith, and any prepayments of rent
shall be refunded by the lessor pro rata; provided, however, that if the
premises can be repaired within ninety (90) days from the date of such event,
then at the lessor's option, by notice in writing to the lessee, mailed within
thirty (30) days after such damage or destruction, this lease shall remain in
full effect, but the rent for the period during which the premises are
untenantable shall be abated pro rata.
12. Insurance. It shall be the responsibility of the lessee to assure that the
premises are covered by hazard and public liability insurance policies. The
hazard insurance policies shall insure the premises against loss or damage by
fire and other perils as required by the Nebraska Standard Fire Insurance Policy
and extended coverage endorsements. Property damage shall be insured against in
the amount of $300,000.00. The public liability insurance policy shall provide
coverage at least in the amount of $1,000,000.00 per incident. The payment of
the premiums therefor shall be made by the lessee as additional rent, and in the
event the lessee chooses to maintain the current policies, a proration as of the
commencement of the term of this lease of any prepaid premiums shall be made.
The lessee shall at the request of the lessor provide proof of insurance
coverage required by this section.
13. Surrender. On the last day of the term of this lease or on the sooner
termination thereof, the lessee shall peaceably surrender the premises in good
condition and repair, reasonable wear and tear excepted, consistent with the
lessee's duty to make repairs as provided in section 6 hereof. On or before the
last day of the term of this lease or the sooner termination thereof, the lessee
shall at its expense remove all of its equipment from the premises, and any
property not removed shall be deemed abandoned. All alterations, additions, and
fixtures, other than the lessee's equipment, which have been made or installed
by either the lessor or the lessee on the premises shall remain as the lessor's
property and shall be surrendered with the premises as a part thereof. If the
premises are not surrendered at the end of the term or on the sooner termination
thereof, the lessee shall indemnify the lessor against any loss or liability
resulting from delay by the lessee in so surrendering the premises, including
without limitation claims made by any succeeding tenant founded on such delay.
The lessee shall promptly surrender all keys for the premises to the lessor at
the place then fixed for payment of rent and shall inform the lessor of
combinations on any locks and safes on the premises. In no event shall the
lessee be deemed to have abandoned the premises or this lease during the terms
hereof unless the lessee first obtains the express permission of the lessor. The
provisions of this section shall survive the termination of this lease.
14. Holding over. In the event that the lessee remains in possession of the
premises after the expiration of this lease without the execution of a new
lease, it shall be deemed to be occupying the premises as a tenant from month to
month, subject to all the conditions, provisions, and obligations of this lease
insofar as they can be applicable to a month-to-month tenancy.
15. Nonpayment of rent; defaults. On the occurrence of any of the following: (a)
a rent payment from the lessee to the lessor shall be and remain unpaid in whole
or part for more than thirty (30) days after it is due and payable; (b) the
lessee's violation or default in any of the other covenants,
<PAGE>
agreements, stipulations, or conditions herein, and such violation or default
shall continue for a period of thirty days after written notice from the lessor
of such violation or default; or (c) if the lessee shall become insolvent or
have appointed a receiver of its property; then it shall be optional for the
lessor to declare this lease forfeited and the terms ended and to reenter the
premises.
16. Default of lessor. The lessor shall not be deemed to be in default under
this lease until the lessee has given the lessor written notice specifying the
nature of the default and unless the lessor does not cure the default within
thirty (30) days after the receipt of the notice or within such reasonable time
thereafter as may be necessary to cure the default where it is of such a
character as to reasonably require more than thirty (30) days to cure.
17. Covenants to hold harmless. Except in the case of the negligence of the
lessor, its agents, or its employees, the lessee agrees to save, hold harmless,
and defend the lessor against any liability for damages to any person or
property in or about the premises. The lessor shall not be liable to the lessee,
its agents, employees, representatives, customers, or invitees for any personal
injury, death, or damage to property caused by theft, burglary, water, gas,
electricity, fire, or for any other cause occurring on or about the premises.
All property kept, stored, or maintained in the premises shall be so kept,
stored, or maintained at the sole risk of the lessee. The lessee agrees to
promptly pay all sums of money in respect to labor, services, materials,
supplies, or equipment furnished or alleged to have been furnished to the lessee
in or about the premises.
18. Waiver of subrogation. The lessor and the lessee hereby mutually waive as
against each other any claim or cause of action for any loss, cost, damage, or
expense as a result of the occurrence of perils covered by the Nebraska Standard
Fire Insurance Policy and extended coverage endorsements.
19. Mechanic's liens. The lessee hereby covenants and agrees that the lessee
will not permit or allow any mechanic's or materialman's liens to be placed on
the lessor's interest in the premises during the term hereof. Notwithstanding
the previous sentence, however, in the event any such lien shall be so placed on
the lessor's interest, the lessee shall take all steps necessary to see that it
is removed within thirty (30) days of its being filed; provided, however, that
the lessee may contest any such lien provided the lessee first post a surety
bond, in favor of and insuring the lessor, in an amount sufficient to remove the
lien pursuant to the terms of the Nebraska lien laws.
20. No partnership, joint venture, or fiduciary relationship created hereby.
Nothing contained in this lease shall be interpreted as creating a partnership,
joint venture, or relationship of principal and agent between the lessor and the
lessee, it being understood that the sole relationship created hereby is one of
landlord and tenant.
21. Cumulative rights. No right or remedy herein conferred on or reserved to the
lessee or the lessor is intended to be exclusive of any other right or remedy
hereof provided by law, but each shall be cumulative in and in addition to every
other right or remedy given herein or not or hereafter existing at law or in
equity or by statute.
22. Reasonable consent. Whenever the lessor's or the lessee's consent shall be
required herein, such approval or consent shall not be arbitrarily or
unreasonably conditioned, delayed, or withheld and shall be deemed to have been
given, unless within twenty (20) days of the request therefor, the lessor or the
lessee as appropriate, notifies the requesting party that the lessor or the
lessee, as appropriate, is denying such approval or consent, stating in such
notice the reasonable ground therefor.
23. Further assurances. In addition to any other information which may
reasonably be requested, either party shall without charge, at any time and from
time to time hereafter, within ten (10) days
<PAGE>
after written request for the same, certify by written instrument duly executed
and acknowledged to any person, firm, or corporation specified in such request:
(a) Whether this lease has been supplemented or amended, and if so, the
substance and manner of such supplement or amendment;
(b) The validity and force and effect of this lease, in accordance with its
tenor as then constituted;
(c) The existence of any default thereunder;
(d) The existence of any offsets, counterclaims, or defenses there to on
the part of such other party; and
(e) The commencement and expiration dates of the term of this lease.
Any such certificate may be relied on by the party who requested it and by any
other person, firm, or corporation to whom it may be exhibited or delivered, and
the contents of the certificate shall be binding on the party executing it.
24. Notices. All communications, demands, notices, or objections permitted or
required to be given or served under this lease shall be in writing and shall be
deemed to have been duly given or served if delivered in person to the other
party or its duly authorized agent or if deposited in the United States mail,
postage prepaid, for mailing by certified or registered mail, return receipt
requested, or if telegraphed, by prepaid telegram, and addressed to the other
party to this lease, to the address set forth next to that party's signature at
the end of this lease, or if to a person not a party to this lease, to the
address designated by a party to this lease in the foregoing manner. Any party
may change its address by giving notice in writing, stating its new address, to
any other party as provided in the foregoing manner. Commencing on the tenth
(lOth) day after the giving of notice, the newly designated address shall be
that party's address for the purpose of all communications, demands, notices, or
objections permitted or required to be given or served under this lease.
25. Successors and assigns. This lease shall be binding on and shall inure to
the benefit of the parties hereto and their respective assigns, executors,
heirs, personal representatives, and successors.
26. Subordination. The lessee agrees that at the lessor's election this lease
shall be subordinate to any land lease, mortgages, or trust deeds now on or
placed on the premises and to any and all advances to be made thereunder, and to
the interest thereon, and all renewals, replacements, and extensions thereof.
The lessee hereby appoints the lessor as its attorney-in-fact to execute such
documents as may be required to accomplish such subordination.
27. Brokerage fees. Each party hereto warrants that it has not incurred any real
estate brokerage fees, finders' fees, loan brokerage fees, or any other fees to
any third party in connection with this lease other than those listed by each
party in a n attached list marked Exhibit A. Each party shall be liable for any
such fees incurred by such party.
28. Amendment, modification, or waiver. No amendment, modification, or waiver of
any condition, provision, or term of this lease shall be valid or of any effect
unless made in writing, signed by the party or parties to be bound or by its
duly authorized representative, and specifying with particularity the extent and
nature of such amendment, modification, or waiver. Any waiver by any party of
any default of another party shall not affect or impair any right arising from
any subsequent default.
29. Severable provisions. Each provision, section, sentence, clause, phrase, and
word of this lease is intended to be severable. If any provision, section,
sentence, clause, phrase, or word hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the
<PAGE>
validity of the remainder of this lease.
30. Entire agreement. This lease contains the entire understanding of the
parties hereto with respect to the transactions contemplated hereby and
supersedes all proper agreements and understandings between the parties with
respect to such subject matter. No representations, warranties, undertakings, or
promises, whether oral, implied, written, or otherwise, have been made by either
party hereto to the other unless expressly stated in this lease or unless
mutually agreed to in writing between the parties hereto after the date hereof,
and neither party has relied on any verbal representations, agreements, or
understandings not expressly set forth herein.
31. Captions, headings, or titles. All captions, headings, or titles in the
paragraphs or sections of this lease are inserted for convenience of reference
only and shall not constitute a part of this lease as a limitation of the scope
of the particular paragraphs or sections to which they apply.
32. Reference to gender. Where appropriate, the feminine gender may be read as
the masculine gender or the neuter gender; the masculine gender may be read as
the feminine gender or the neuter gender; and the neuter gender may be read as
the masculine gender or the feminine gender.
33. Nebraska law. This lease shall be construed and enforced in accordance with
the laws of the state of Nebraska.
34. LB 775. All sales and use tax refunds payable pursuant to the Nebraska
Employment and Investment Growth Act ("LB 775") for construction of the
improvements pursuant to Section 6 hereof and the payment of sales and use taxes
for the purchase or lease of tangible personal property in conjunction with the
construction of the improvements shall be paid to lessee, whether paid directly
by the State of Nebraska to lessee, or is such amounts are initially paid to
lessor, such amounts will be remitted by lessor to lessee. All applicable
Nebraska state and local use taxes will be paid by lessor and lessor's
contractors and subcontractors. Lessor will contractually rquire all its
contractors and subcontractors to pay such taxes. Lessor shall appoint lessor's
contractors and subcontractors as agents to purchase the tangible personal
property (such as building materials) to be incorporated into the Building. The
appointment shall be made by having lessor enter into purchasing agent
appointment agreements with lessor's contractors and subcontractors before such
property is purchased by lessor's contractors and subcontractors. This
purchasing agent appointment agreement shall be in such form as is necessary for
purposes of LB 775. Lessor shall keep sufficient written records to establish
the payment to the State of Nebraska of all Nebraska state and local sales and
use taxes paid by lessor and lessor's contractors and subcontractors on tangible
personal property incorporated into the Building.
<PAGE>
In witness whereof, the parties hereto have executed this lease the day and year
first above written.
/s/ C.H. YOUNG ACI TELECENTRICS, INCORPORATED
C. H. YOUNG, TRUSTEE, LESSOR LESSEE
/s/ MARY M. YOUNG /s/ STEVEN A. KAHN
MARY M. YOUNG, TRUSTEE, LESSOR
Lessors' address: 143 North Main, Lessee's Address: 3100 West Lake St.
Valentine, NE 69201 Suite 300
Minneapolis, MN 55416
STATE OF NEBRASKA )
) ss.
COUNTY OF CHERRY )
The foregoing instrument was acknowledged before me on September 9,
1997, by C. H. Young, Trustee, and Mary M. Young, Trustee.
----------------------------------
NOTARY PUBLIC
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me on September 5, 1997,
by Steven A. Kahn, Vice President of ACI Telecentrics, Incorporated, a Minnesota
corporation, on behalf of said corporation.
----------------------------------
NOTARY PUBLIC
Exhibit 10.33
OFFICE LEASE
THIS LEASE, dated for reference purposes only, the 9th day of
September, 1997, is made by and between WILKINSON DEVELOPMENT, INC. ("Lessor")
and ACI TELECENTRICS, INCORPORATED ("Lessee").
1. Premises Leased. Subject to the terms and conditions hereinafter
set forth, Lessor hereby leases to Lessee and Lessee hereby leases from Lessor
an area within Lessor's office building to be built by Lessor and to be located
at 512 East B Street South, City of Ogallala, County of Keith, State of Nebraska
(the "Building"). The area being leased is 7,448 square feet of the Building as
particularly described on Exhibit A attached hereto and incorporated by
reference (the "Premises"). Lessee shall also have available for its use so much
of the parking area adjacent to or held for the benefit of the Building as is
reasonably necessary for the use of Lessee's employees and customers.
2. Term. The term of this Lease shall be as follows:
(a) Effective Date. The effective date of this Lease shall be the
1st day of February, 1998 (the "Effective Date"); provided, however, if
possession is not delivered until a later date as provided in Section 2(c)
below, then the Effective Date shall be the date that Lessor completes
construction of the Building and delivers possession of the Premises to Lessee.
(b) Term. The term of this Lease shall be ten (10) year(s)
commencing on the Effective Date.
(c) Possession. Lessor shall deliver possession of the Premises to
Lessee on the Effective Date. If Lessor fails to deliver possession of the
Building to Lessee on the 1st day of February, 1998, or within 30 days after the
1st day of February, 1998, in accordance with the terms hereof, Lessee may, at
Lessee's option, terminate this Lease by giving notice of such termination to
Lessor, in which event Lessee shall have no obligation or liability to Lessor
hereunder.
(d) Renewal Option. Lessee shall have the option to renew and extend
this Lease for two (2) additional terms of five (5) years each, upon the same
terms and conditions as provided herein, except rental, by giving Lessor notice
of Lessee's election to renew or extend this Lease at least ninety (90) days
prior to the expiration of the then current primary or renewal term.
3. Rental. Lessee shall pay to Lessor as rental for the Premises
during the term of this Lease, the sum of $504,000.00 for the entire term of
this Lease, to be paid in monthly installments of $4,200.00 each, in advance.
The first monthly rental payment (or proportionate share thereof) shall be due
on the Effective Date and successive monthly rental payments shall be due and
payable on the 1st day of each successive month thereafter. Rental for any
portion of a calendar month shall be prorated on a per diem basis. If Lessee
shall fail to pay, within 10 days of the due date of the same, any rent, such
unpaid rent shall bear interest from the due date thereof to the date of payment
at the rate of 16% per annum. Commencing on the first day of each renewal term
hereunder (each of which shall be the "Adjustment Date"), the Base Rent shall be
increased by an amount equal in proportion to the increase, if any, in the
United States Department of Labor Statistics, Consumer Price Index-all items,
Urban Consumers (the "CPI"). If the CPI for the applicable Adjustment Date (the
"Extension Index") shows an increase over the CPI for the Effective Date, (the
"Base Index"), the monthly rent, as determined in this Section 3 shall be
multiplied by the percentage increase of the Extension Index for the year of
adjustment over the Base Index, the resulting amount to be added to the monthly
rent, which amount shall then be the adjusted monthly rent due and payable
commencing on the Adjustment Date of that year through the sooner of the next
Adjustment Date or the expiration of any Renewal Term of this Lease.
4. Use. Lessee shall use and occupy the Premises as telemarketing
offices, general office space and any other lawful use, other than commercial
food service.
<PAGE>
5. Utilities. Lessor shall provide electricity, water, gas and
sewage connection at Lessor's sole cost and expense; provided, however, that
Lessee shall pay all of its own telephone connection, equipment and service fees
and, to the extent water, gas and/or electricity are separately metered to the
Premises, shall pay the cost of the same.
6. Compliance with Law.
(a) Lessor covenants and warrants to Lessee that the Premises,
including any improvements to be constructed by Lessor pursuant to Section 8
below, does not violate any applicable building code, regulation or ordinance as
of the Effective Date. In the event it is determined that this warranty has been
violated, then it shall be the obligation of Lessor, after receipt of notice of
such violation from any source whatsoever, to promptly, at Lessor's sole cost
and expense, rectify, correct or eliminate any such violation.
(b) Except as provided in Section 6(a) above, Lessee shall, at
Lessee's sole cost and expense, comply promptly with all applicable statutes,
ordinances and regulations in effect during the term of this Lease regulating
the use of the Premises by Lessee. Lessee shall not use or permit the use of the
Premises in any manner which will tend to create waste or a nuisance or, if
there shall be more than one tenant in the Building of which the Premises are a
part, shall tend to unreasonably disturb such other tenants.
7. Signs. Lessee shall be permitted, at Lessee's expense, to erect
on the Premises such signs as are reasonably necessary in the judgment of Lessee
to apprise the public of Lessee's business. Lessee may remove its signs at the
expiration of the term of this Lease.
8. Lessee Improvements. Lessor shall install and construct, prior to
the Effective Date, the Building and those improvements and alterations to the
Building described in Exhibit B attached hereto and incorporated by reference
herein, which shall be installed and constructed with new materials and in a
good and workmanlike manner.
Lessor hereby grants Lessee the privilege of installing, at Lessee's
expense, removable trade fixtures, partitions, equipment, and floor coverings as
Lessee deems necessary for purposes of finishing off Lessee's space within the
Premises. Lessee shall make no structural alteration or modification of the
Premises without Lessor's prior written consent, which consent shall not be
unreasonably withheld or delayed. Lessee may, but shall not be required to,
remove any of its trade fixtures, partitions, equipment, and floor covering
placed on the Premises on or after the Effective Date hereof.
9. Maintenance and Repairs. Lessor shall perform all maintenance and
repairs to the Premises and the Building of which the Premises are a part,
including structural components, foundations, walls, roof, sidewalks, and
parking areas, and all heating, ventilating, air conditioning, plumbing and
electrical equipment, in order to maintain the same in good, proper and safe
condition and repair and shall be responsible for the operation and maintenance
of any common areas and facilities provided in connection with the Premises;
provided, however, Lessee shall, at its sole expense, keep the interior of the
Premises in good order and repair, ordinary wear and tear and damage by fire,
water or other casualty excepted. Lessee shall also be responsible for keeping
the interior of the Premises clean, changing all light bulbs and filters,
removing all trash from the Premises, including hauling away such trash, and
keeping the parking areas and sidewalks around the Building free of snow. All
damage due to water entering Lessee's facility to be repaired by the Lessor at
Lessor's sole expense, which shall include repairing any and all damages to the
Premises and Lessee's assets. Lessor shall operate the heating, ventilating and
air conditioning equipment in the Building so as to provide a comfortable level
of heating and air conditioning within all areas of the Premises at all times;
provided, however, if repairs are required to be made to the heating,
ventilating and air conditioning equipment in the Building, such repairs shall
be made by Lessor in a reasonable period of time.
<PAGE>
10. Property Insurance.
(a) Lessor's Insurance. Lessee agrees that it will keep the
improvements, structures, machinery and equipment in and upon the Building
insured, at a minimum, against loss or damage by fire with extended coverage
endorsement, vandalism and malicious mischief coverage, in an amount sufficient
to prevent Lessee from being a co-insurer under the terms of the applicable
policies, but in any event in an amount not less than one hundred percent (100%)
of the full replacement value of the Building as determined from time to time.
Such insurance shall have a deductible of no less than $1,000.00 per occurrence.
Any insurance proceeds to be paid pursuant to such insurance policy shall be
paid solely to Lessor. Lessor shall be named as an insured on said policy. Such
insurance shall be issued by financially responsible insurers duly authorized to
do business in the state where the Premises are located, and shall contain a
provision that no act or omission of Lessor or Lessee shall affect or limit the
obligation of the insurance company to pay the amount of any loss sustained and
shall contain the standard form of waiver of subrogation. The insurance company
shall be required to give Lessor not less than thirty (30) days notice in the
event of cancellation or material alteration of such coverage. As to any
insurable risks of loss or damage to the Building not required to be insured
hereunder, Lessor shall bear the cost of the same. Lessor shall be deemed to be
a self-insurer as to the deductible or any co-insurance applicable to such
insurance coverage and shall pay any deductible or co-insurance amount
applicable in the event of such loss or damage.
(b) Waiver of Subrogation. The parties hereby release each other and
their respective officers, employees, and agents from all claims for damage to
the Building, Premises and to the fixtures, personal property, equipment and
improvements of either Lessor or Lessee in or upon the Building, notwithstanding
that any such loss or damage may be due to or result from the negligence of
either of the parties or their respective officers, employees or agents.
11. Indemnity.
(a) Insurance Requirements. The parties each agree during the term
hereof to maintain adequate public liability and other insurance with reputable,
duly qualified insurance companies approved by each other as hereinafter set
forth and, upon request, to furnish each other with certificates of insurance
properly executed by their respective insurance companies evidencing such fact,
giving thirty (30) days notice to the other in the event of cancellation or
material alteration of such coverage. The insurance coverage to be maintained by
both parties shall be comprehensive general liability insurance, including
blanket contractual liability coverage against claims for bodily injury, death
and property damage occurring in or about the Building or Premises, affording
minimum single limit protection of One Million Dollars ($l,000,000.00) with
respect to personal injury or death and property damage occurring or resulting
from one occurrence.
(b) Indemnity by Lessee. Lessee agrees to indemnify and hold
harmless Lessor from and against all third-party claims of whatever nature
arising from any act, omission or negligence of Lessee, or Lessee's officers,
agents or employees, or arising from any accident, injury or damage whatsoever
caused to any third person, or to the property of any such person, occurring
during the term of this Lease in or about the Building or arising from any
accident, injury or damage occurring outside the Building where such accident,
damage or injury results from an act or omission on the part of Lessee or its
officers, agents or employees. The terms of this paragraph shall survive the
termination of this Lease.
(c) Indemnity by Lessor. Lessor agrees to indemnify and hold
harmless Lessee from and against all third-party claims of whatever nature
arising from any act, omission or negligence of Lessor or Lessor's officers,
agents or employees or arising from any accident, injury or damage whatsoever
caused to any third person, or to the property of any such person, occurring
during the term of this Lease in or about the Building or arising from any
accident, injury or damage occurring outside the Building where such accident,
damage or injury results from an act or omission on the part of Lessor or its
officers, agents or employees. The terms of this paragraph shall survive the
termination of this Lease.
<PAGE>
12. Surrender. On the last of the term of this Lease, or upon any
sooner termination as provided herein, Lessee shall surrender the Premises to
Lessor in substantially the same condition as when received, ordinary wear and
tear, natural deterioration beyond the control of Lessee, and damage by fire,
tornado or other casualty or act of God excepted.
13. Eminent Domain. If the whole of the Premises, or such portion
thereof as will make the Premises unsuitable for the purposes for which they
were leased hereunder, shall be taken by any public authority under the power of
eminent domain, then in either of such events this Lease shall terminate upon
the date of taking by such public authority, and rental shall abate and be
accounted for between Lessor and Lessee as of the date of such taking. Such
termination shall be without prejudice to the rights of either Lessor or Lessee
to recover compensation from such public authority for any loss or damage caused
by such taking. Neither Lessor nor Lessee shall have any right or claim in or to
any award made to the other by such public authority.
If any part of the Premises shall be so taken and this Lease shall
not terminate under the provisions of the preceding subsection, then the rental
shall be equitably reduced in proportion to the area so taken and its effect on
Lessee's use, and Lessor shall restore the remaining portion of the Premises at
its own expense to the extent necessary to render the Premises suitable for the
purposes for which they were leased, and make all repairs to the parking areas
and the improvements on the Premises to the extent reasonably necessary to
constitute the Building and improvements a complete architectural and functional
unit and to restore the Premises as nearly as possible to their prior condition.
14. Casualty to the Premises.
(a) Total Destruction. If the Building or the Premises shall be
totally or substantially destroyed by fire or other casualty so that the
Premises shall be untenantable or unfit for the further use and conduct of
Lessee's business, then either Lessor or Lessee shall have the right to
terminate this Lease by giving notice to the other party of its election within
fifteen (15) days following the occurrence of such damage or destruction, and
all rents and other charges shall be adjusted and prorated as of the date of
such destruction. As used in this Section, the term "substantially destroyed"
shall mean damage to the Building and the Premises equal to or in excess of 25%
of the fair market value thereof prior to such destruction.
(b) Partial Destruction. Except for damage to the Premises caused by
the negligence or intentional act of Lessee or Lessee's employees or agents
(which will be repaired by Lessee at Lessee's cost), in the event the Premises
shall be partially damaged or destroyed by fire or other casualty so that the
same are still reasonably tenantable and fit for the continued conduct of
Lessee's business (or if neither party elects to terminate under Section 14(a)
above), Lessor shall proceed with all reasonable diligence to repair the damage
and restore the Premises to substantially their condition immediately prior to
the happening of such event. In the event the Premises are not restored and
repaired within 90 days after the occurrence of such fire or other casualty, or
if it reasonably appears that said repairs and restoration cannot be effected
within 90 days following the date of such occurrence, then Lessee may, at its
option, terminate this Lease by giving notice to Lessor, which termination shall
be effective upon receipt by Lessor.
(c) Abatement of Rent. In the event of damage or destruction of the
Premises, rent shall abate or be reduced proportionately from the date of such
damage or destruction until the improvements have been repaired or restored and
the Premises have been delivered to Lessee in the manner and in the condition
provided by this Section. If Lessee exercises its option to terminate this Lease
because of such fire or other casualty, rent shall be prorated as of the date of
damage or destruction.
<PAGE>
15. Taxes. Lessee shall pay before delinquent all property taxes and
ad valorem taxes and/or assessments (which can be paid in installments as
allowed by law) that are levied against the Building and the Premises and/or
Lessor's personal property installed or located in or about the Building and the
Premises, which are assessed or payable during any year within the term of this
Lease. Lessor shall not be liable for any taxes on Lessee's personal or other
property located on or at the Premises.
16. Quiet Enjoyment. Lessor covenants, warrants and represents that
it has full right and power to execute this Lease and to grant the estate
demised herein and Lessee shall peaceably hold and quietly enjoy the Premises,
and shall have the right of ingress and egress to and from the Premises.
17. Default by Lessee; Remedies. It is mutually agreed that in the
event Lessee shall default in the payment of rent herein reserved when due,
Lessor shall forward notice in writing of such default to Lessee, and failure of
Lessee to cure such default within thirty (30) days after the date of receipt of
such notice shall, at the option of Lessor, constitute an event of default. If
Lessee shall be in default in performing any of the terms or provisions of this
Lease other than the provision requiring the payment of rent, and if Lessor
shall give Lessee notice in writing of such default and if Lessee shall fail to
cure such default within thirty (30) days after the date of receipt of such
notice or if the default is of such a character as to require more than thirty
(30) days to cure then, if Lessee shall fail to use reasonable diligence in
curing such default within such additional time as is reasonably necessary to do
so, Lessor shall have the right to cure such default and the sums reasonably
expended by Lessor in doing so shall be deemed to be additional rent and on
demand shall be paid by Lessee on the date when rent shall next become due and
payable. Upon the failure of Lessee to cure its default as provided herein,
Lessor shall have the immediate right to terminate this Lease, at its option and
pursue whatever rights and remedies it may have against Lessee by reason of such
default. The remedies provided to Lessor herein are nonexclusive and cumulative
and the pursuit by Lessor of one remedy does not waive its right to pursue any
and all other remedies it may have.
18. Default by Lessor; Remedies. Lessor shall in no event be charged
with default in the performance of any of its obligations hereunder unless and
until Lessor shall have failed to perform such obligations within thirty (30)
days after notice by Lessee to Lessor specifying the manner in which Lessor has
failed to perform any such obligation, or if the default is of such a character
as to require more than thirty (30) days to cure then, if Lessor shall fail to
use reasonable diligence in curing such default within such additional time as
is reasonably necessary to do so; provided, however, this shall not be construed
as granting Lessor additional time within which to effect repairs as provided in
Section 14 above. Upon the failure of Lessor to cure its default as provided
herein, Lessee shall have the immediate right to terminate this Lease or cure
Lessor's default and deduct any amounts expended in so curing from the rental or
other payments due by Lessee to Lessor under any agreement, at its option, and
to pursue whatever other rights and remedies it may have against Lessor by
reason of its default. The remedies provided to Lessee herein are nonexclusive
and cumulative and the pursuit by Lessee of one remedy does not waive its right
to pursue any and all other remedies it may have.
19. Time of the Essence. The parties hereto agree that with respect
to the performance of all terms, conditions and covenants of this Lease, time is
of the essence.
20. Incorporation of Prior Agreements and Amendments. This Lease
contains all agreements of the parties with respect to any matter mentioned
herein. No prior agreement or understanding pertaining to any such matters shall
be effective. This Lease may be modified in writing, signed by the parties in
interest at the time of such modification.
21. Notices. All notices under this Lease must be in writing and
sent by United States mail, postage prepaid, addressed as follows, except that
any party may by written notice given as aforesaid change its address for
subsequent notices to be given hereunder:
<PAGE>
(a) Lessor: Wilkinson Development, Inc.
P. O. Box 905
102 North Dewey Street
North Platte, NE 69103
(b) Lessee: ACI Telecentrics, Incorporated
3100 West Lake St., Suite 300
Minneapolis, MN 55416
22. LB 775. All sales and use tax refunds payable pursuant to the
Nebraska Employment and Investment Growth Act ("LB 775") for construction of the
Building to be constructed by Lessor pursuant to Section 8 hereof and the
payment of sales and use taxes for the purchase or lease of tangible personal
property in conjunction with the construction of the Building shall be paid to
Lessee, whether paid directly by the State of Nebraska to Lessee, or if such
amounts are initially paid to Lessor, such amounts will be remitted by Lessor to
Lessee. All applicable Nebraska state and local use taxes will be paid by Lessor
and Lessor's contractors and subcontractors. Lessor will contractually require
all its contractors and subcontractors to pay such taxes. Lessor shall appoint
Lessor's contractors and subcontractors as agents to purchase the tangible
personal property (such as building materials) to be incorporated into the
Building. The appointment shall be made by having Lessor enter into purchasing
agent appointment agreements with Lessor's contractors and subcontractors before
such property is purchased by Lessor's contractors or subcontractors. This
purchasing agent appointment agreement shall be in such form as is necessary for
purposes of LB 775. Lessor shall keep sufficient written records to establish
the payment to the State of Nebraska of all Nebraska state and local sales and
use taxes paid by Lessor and Lessor's contractors or subcontractors on tangible
personal property incorporated into the Building.
23. Binding Effect. This Lease, when fully executed and approved,
shall be binding upon and inure to the benefit of the parties hereof, their
heirs, administrators, executors, successors and assigns.
24. Assignment or Subletting. Lessee may not mortgage, pledge,
assign or sublease any right, title or interest that Lessee has in and to this
Lease as to any portion of the Premises herein leased or otherwise allow
occupancy to another without the prior written consent of Lessor, provided that
the sublessee or assignee and Lessee remain bound by the terms of this Lease.
25. Waiver. Any waiver by Lessor and Lessee of any breach of any
term, covenant, or condition herein contained shall not be deemed to be a waiver
of any subsequent breach of the same or any other term, covenant, or condition
herein contained. The subsequent acceptance of rent hereunder by Lessor shall
not be deemed to be a waiver of any preceding breach by Lessee of any term,
covenant, or condition of this Lease, other than the failure of Lessee to pay
the particular rent so as accepted, regardless of Lessor's knowledge of such
preceding breach at the time of acceptance of such rent.
26. Inspection. Except in the case of an emergency when no notice is
required, Lessor shall have the right to go upon the Premises at reasonable
times and hours and inspect the same with 24 hour prior notice, for the purpose
of ascertaining the compliance of Lessee with the terms of this Lease.
<PAGE>
IN WITNESS WHEREOF, this Lease has been executed in multiple copies,
each of which shall for all purposes be deemed an original and all of which
shall evidence but one agreement between the parties hereto.
LESSOR: LESSEE:
WILKINSON DEVELOPMENT, INC. ACI TELECENTRICS, INCORPORATED
By: /s/ MARK D. WILKINSON By: /s/ STEVEN A. KAHN
Title: PRESIDENT Title: VICE PRESIDENT
STATE OF __________ )
)
COUNTY OF ________ )
On this _____ day of September, 1997, before me a Notary Public in
and for said county and state, personally appeared ___________________________,
known to me to be the identical person who subscribed (his/her) name to the
foregoing as ________________ of WILKINSON DEVELOPMENT, INC., a _______________
corporation, and acknowledged the execution thereof to be (his/her) voluntary
act and deed and the voluntary act and deed of said corporation.
Notary Public
STATE OF __________ )
)
COUNTY OF ________ )
On this _____ day of September, 1997, before me a Notary Public in
and for said county and state, personally appeared ___________________________,
known to me to be the identical person who subscribed (his/her) name to the
foregoing as ________________ of ACI TELECENTRICS, INCORPORATED, a
_______________ corporation, and acknowledged the execution thereof to be
(his/her) voluntary act and deed and the voluntary act and deed of said
corporation.
Notary Public
Exhibit 10.34
MEMORANDUM OF UNDERSTANDING (MOU)
PROJECT DESCRIPTION
ACI Telecentrics, Inc., a national outbound telemarketing firm, has chosen two
(2) communities in Nebraska for their next major expansion, and plans to choose
a third community in Nebraska. The two (2) communities selected are Chadron and
Ogallala, Nebraska. ACI started about ten years ago by two close friends, Gary
Cohen and Rick Diamond. ACI currently has 5 telemarketing call centers located
in Minnesota, North Dakota and South Dakota. ACI has successfully opened and
operated these call centers using various forms of economic development grants
offered by the local communities and states. ACI is a public company traded on
the NASDAQ exchange under the symbol ACIT. ACI's project involves the creation
of 3 telemarketing call centers: one in Chadron with 48 seats, one in Ogallala
with 48 seats and one in the third community to be determined (herein called
"TBD") with 48 seats. In general, it plans to keep these call centers available
for Monday through Saturday 8:30 a m. to 4:30 p.m. day shifts and Monday through
Friday 5:00 p.m. to 9:00 p.m. night shifts for such sixty (60) months (except
holidays).
Business: ACI Telecentrics, Inc., 3100 West Lake Street, Suite 300
Minneapolis, MN 55416-4510 ("ACI")
DED: Nebraska Department of Economic Development.
Primary Lender: ACI themselves or a conventional lease company to be determined.
Cities: Chadron, Ogallala, and TBD Nebraska.
Other: Keith County Economic Development Corporation and Nebraska
Northwest Development Corporation, TBD Development Corporation
TERMS AND CONDITIONS (LOAN)
AMOUNT OF CDBG LOAN PROCEEDS: The amount to be loaned to ACI will be:
Chadron: $300,000 Performance based. Chadron's 50% portion will be coming from
their current reuse funds.
<PAGE>
TBD: $300,000 (or whatever negotiated) Performance based. TBD's 50% portion will
be coming from their current reuse funds or other local sources.
Ogallala: $200,000 Performance based. Ogallala's 50% portion will be coming from
other sources.
The other 50% portion for all communities will come from the State.
An additional $15,000 ($5,000 per community) is reserved for the audit and
administration costs. The total state award will be $100,000 Ogallala, $150,000
Chadron, $15,000 Audit and Administrative costs, and whatever negotiated with
TBD community.
USE OF LOAN PROCEEDS: All proceeds will be used for either new equipment
purchases or working capital.
INTEREST RATE AND LOAN TERMS. The loan will be Performance based.
LEASE: ACI will negotiate triple net leases (all Cities) with an initial term of
no less than ten (10) years.
OGALLALA will provide the following facility for lease as follows:
(i) Keith County Economic Development Corporation (KCEDC) will construct
a commercial building upon the Keith County Industrial Site which
will contain approximately 12,000 square feet.
(ii) ACI agrees to lease 7,000 sq.. feet of office space in said
commercial building. The building and such office space will be in
accordance with the specifications set forth in a separate letter
between ACI and KCEDC. Such space will be completed and made
available for occupancy by ACI by April 30, 1998.
(iii) ACI will pay a monthly rental of $4,200, triple net, for a period of
10 years.
(iv) ACI may terminate the lease prior to the expiration of such 10
years, in which case no further rent will accrue, but if ACI
terminates the lease prior to the expiration of 10 years, ACI shall
pay KCEDC damages in the amounts set forth below:
(a) $100,000 if the lease is terminated during the first 5
years of the lease;
(b) $90,000 if the lease is terminated during the sixth year
of the lease;
(c) $80,000 if the lease is terminated during the seventh
year of the lease;
(d) $70,000 if the lease is terminated during the eighth
year of the lease;
(e) $60,000 if the lease is terminated during the ninth year
of the lease;
(f) $50,000 if the lease is terminated during the tenth year
of the lease.
<PAGE>
However, no such damages will be due or payable if ACI terminates
the lease because the Ogallala community could not provide adequate
FTEs as described in paragraph 4 below.
CHADRON will provide the following facility for lease as follows:
(i) Mr. and Mrs. Bill Barth will lease (pursuant to a lease agreement to
be executed) to ACI the land and building they own that is located
at 300 W. 2nd St. in Chadron.
(ii) The Barths will remodel such building in accordance with the
specifications set forth in an agreement to be signed by ACI and the
Barths.
(iii) ACI will lease such land and remodeled building from the Barths for
a monthly rental of $3,500, triple net, for a period of 10 years.
(iv) ACI may terminate the lease only as specifically provided for in
lease agreement.
(v) Such remodeled facility shall be completed and available for
occupancy by ACI by July 1, 1997.
TBD will provide the following facility for lease as follows:
(i) TBD's Development Corporation (DC) will acquire that certain land
and building as designated by ACI having at least 6,000 useable
square feet of office building space and parking access for at least
40 cars immediately adjacent to the site.
(ii) DC will remodel such building in accordance with the specifications
set forth in a letter to be signed by ACI and DC. DC will pay for
$200,000 of such remodel costs. ACI will pay for any remodel costs
in excess of this.
(iii) ACI will lease such land and remodeled building from DC for a
monthly rental not to exceed $4,200, triple net, for a period of 10
years.
(iv) ACI may terminate the lease at any time after 5 years without
penalty or further rent accrual if the TDB community cannot provide
adequate FTEs as described in paragraph 4 below.
(v) Such remodeled facility shall be completed and available for
occupancy by ACI by April 30, 1998.
As to all 3 of the above facilities, ACI can select the general contractor and
the bidding process, with the intent to use local labor if competitively
available.
<PAGE>
COLLATERAL SECURITY: The loan will be secured by the equipment purchased with
the Loan Proceeds.
TBD: ACI shall continue to use its reasonable best efforts to identify a city to
become the TBD, provided, however, that if DED and ACI cannot identify, and
agree to and with, by February 28, 1998, a city in Nebraska to become the TBD,
then TBD will drop out of the mutual obligations and requirements of this MOU
and the MOU shall continue to apply for the other two cities as if there had
only been an agreement for the two cities. In such a case, no funding for TBD
will be due from DED or any other source and no default or non-performance will
be considered to have occurred by ACI. TBD will be considered identified if, and
only if, a city meeting at least as favorable labor market, facilities
availability, facility rental, and economic incentive package as Chadron or
Ogallala can be identified and agreed to.
PERFORMANCE BASE CONDITION: ACI will meet the following performance based
requirements:
1. Assuming approval of the incentives under this MOU by May 20, 1997,
and that the facilities are available on time, ACI will establish
and open by April 30, 1998 three (3) telemarketing call centers: one
in Chadron with 48 seats, one in Ogallala with 48 seats and one in
TBD with 48 seats. The parties will use their best efforts to open
all 3 call centers no later than April 30, 1998.
2. It will keep these 3 call centers staffed with its usual facility
manager and supervisory staff for a minimum of sixty (60) months
from the date each opens.
3. It will make available sufficient employment positions to fully
staff such call centers for such period of time, however, it does
not guarantee that such call centers will attain or remain fully
staffed, because the availability of labor and change in business
conditions and demand for services could adversely affect ACI's
ability to establish or to maintain fully staffed call centers.
Therefore, the failure to actually achieve or maintain such
employment to fully staff such call centers will not constitute a
failure to meet the performance based criteria.
4. It will guarantee that for such sixty (60) month period of time that
it will attain and maintain the call centers to at least fifty
percent (50%) capacity. This guarantee shall exist notwithstanding a
change in regular business conditions or demand for services. This
guarantee shall not exist to the extent that a force majeure
prevents it from meeting or maintaining such positions. This
guarantee shall not exist to the extent the employment positions are
not attained or maintained due to the unavailability of sufficient
qualified personnel at the prevailing wage. The determination of
whether this guarantee has been met shall be done in the following
manner:
(a) ACI will attain and maintain for such sixty (60) months
24 FTE's in Chadron, 24 FTE's in Ogallala and 24 FTE's
in TBD.
<PAGE>
(b) An FTE shall mean 2,080 hours of paid employment over
365 days. For example, 2 persons working 1,040 hours
each over 365 days is one (1) FTE. One (1) person
working 2,600 hours over 365 days is 1.25 FTE's.
(c) The determination of FTE's shall be made at the end of
such sixty (60) months and shall be based on whether
over such entire period ACI provided such minimums. For
example, if at the end of such sixty (60) months, ACI
paid for 249,600 hours of work in Chadron (24 x 2,080 x
5 years), 249,600 hours of work in Ogallala, and 249,600
hours of work in TBD (24 x 2,080 x 5 years), then ACI
will have met the guarantee, regardless of when during
such sixty (60) months the hours were worked. Paid
vacation or other paid times off will be included as
hours worked in the FTE calculations ACI will report to
DED the employment numbers quarterly.
(d) If the guarantee is met as to any call center, then the
performance based condition shall be considered met for
that City and for purposes of the Loan Proceeds that
relate to that City (whether the Loan Proceeds were from
State or local sources). The failure to meet the
guarantee in one or two Cities shall not affect whether
it is met in one or two other Cities.
(e) ACI will pay a beginning hourly wage of no less than
$6.00 per hour and an average hourly wage of no less
than $7.25 per hour (including commissions) for
employees who have completed at least 2,080 paid hours
of service with ACI.
(f) ACI will provide quality employment benefits in
Nebraska, as determined by ACI, with a probationary
period of no more than 90 days. The employment benefits
will include at least group health insurance 80% paid
by ACI for all full-time employees. The employment
benefits for salaried employees will contain additional
benefits. All employees will be eligible for the stock
purchase plan.
(g) At least fifty-one percent (51%) of the positions will
be made available to the LMI (low to moderate income)
category of individuals (as defined below). ACI shall
not be considered to be in breach of this condition if
insufficient qualified LMI personnel are available.
5. If ACI meets the performance based requirements, the Loan Proceeds
will be forgiven pro rata annually based on DED verification of
ACI's performance to such time. No interest will be paid during such
time and no interest will be due if the performance based
requirement is met. If the performance based requirements are not
met, then up to the entire Loan Proceeds will be due and payable at
the end of such sixty (60) month period, with interest accrued at
eight percent (8%) per annum on the due and payable portion from the
date the Loan Proceeds were first disbursed to or for ACI. The
portion of the Loan Proceeds to be forgiven will be zero if either
of requirements 1 through 3 above are not met. The portion of the
Loan Proceeds to be forgiven if requirement 4
<PAGE>
above is not fully met will be that percentage that the requirement
was met as to each such City. For example, if the requirement is
fully met in Chadron and Ogallala, but in TBD only 149,760 hours
were paid for, then all of the Chadron and Ogallala portion of the
Loan Proceeds shall be forgiven, but only 60% (149,760 - 249,600 of
the TBD portion shall be forgiven.
GUARANTORS: ACI will be the obligor on the loan.
SOURCES AND USES OF FUNDS:
<TABLE>
<CAPTION>
Uses of ACI and/or Chadron
Funds CDBG Lender City Reuse Ogallala TBD Total
----- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Equipment $200,000 $200,000 $ 75,000 $ 50,000 $ $525,000
Equipment or
Working Cap 150,000 150,000
Working Cap 200,000 200,000 75,000 50,000 525,000
CDBG Admin 15,000 15,000
-------- -------- -------- -------- -------- ----------
TOTAL $415,000 $400,000 $150,000 $100,000 $150,000 $l,215,000
</TABLE>
SUPPORT FUNDING: DED reserves the option to provide additional funds to any city
if their matching funds source is depleted. These funds will be repaid directly
to DED by respective city. The source of repayment would normally come from
local CDBG (ED) program income. The only acceptable cause of this depletion
shall be the city's local funding of eligible CDBG (ED) projects prior to
disbursement or drawdown of ACI's funds.
CITY REUSE: The Cities reuse funds are being committed to this project, and
being disbursed primarily as Performance based loans.
LENDER CONDITIONS:
TITLE INSURANCE: As needed per ACI's requirements, if any.
FLOOD INSURANCE: As needed per Cities requirements, if any.
LIABILITY INSURANCE: The Cities and DED will be listed as co-loss payees and
additional insurers under ACI's casualty insurance policy on the equipment
purchased with the Loan Proceeds.
PERFORMANCE LMI TARGETS: ACI shall use the Nebraska Job Service for their
recruiting of new employees to assist in the documentation of first
consideration being given to low and moderate income persons.
LMI individuals are defined as multi or single person families having incomes
equal to or less than income limits for their resident county(s). Income limits
are published in the CDBG
<PAGE>
Project #97-ED- 008
Application Guidelines as well as other statewide and federal guidelines. These
income limits are based on the HUD estimates of median family income for Fiscal
Year 1996. As required by statute, the definition of low income family is based
on 80% of the median income for the area, with adjustments for smaller and
larger families, and the very low-income family income limits are based on 50%
of the median with adjustments for family size. The 1987 HUD Act provision
established minimum income limit standards based on the State non-metropolitan
median family income level. This provision increases income limits for many
non-metropolitan counties.
CONDITIONS PRECEDENT TO DRAWDOWN OF CDBG LOAN FUNDS:
The Cities must submit the following prior to drawdown of CDBG funds:
1. The CDBG funds shall not be disbursed prior to Primary
Lender's or ACI's, but may be drawn simultaneously.
2. The Cities must submit documentation that all program
income from all previously awarded CDBG Awards, (if
any), has been disbursed for this project. No new CDBG
funds will be drawn by the Cities from DED until the
expenditure of these funds is documented by the Cities
and confirmed by DED.
3. Compliance with environmental checklist.
4. Notification that no CDBG funds will be used during the
remodeling or construction phase. The CDBG funds can
only be used as indicated.
5. Copies of Cities executed loan closing documents.
6. Signing of the ED Contract between the Cities and DED.
GENERAL CONDITIONS
FINANCIAL REPORTING: ACI will furnish to the Cities and DED annual audited
financial statements including a balance sheet and income statement, within 120
days after the close of each fiscal year end (or within 30 days after such
statements are available, if later).
NO MATERIAL CHANGE: The CDBG Loan, the financial information of ACI and all
other features of the transaction will be represented in the application without
material adverse change.
DUE ON SALE: The total award(s) will be due and payable upon the sale and
transfer of the assets acquired with CDBG funds or upon the sale or transfer of
ACI from the present owners to others, unless otherwise approved in writing by
DED and the City. Said approval will not be unreasonably withheld.
<PAGE>
LOCATION OF PROJECT: ACI will agree to keep such call centers in Chadron,
Ogallala, and TBD, Nebraska for such sixty (60) months and shall further agree
to not move or relocate these 3 call 'centers to any other Nebraska community or
out of state for such sixty (60) months without obtaining the prior written
approval and consent of the Cities and DED. If a move is transacted DED or the
Cities have the option to make full demand on all awarded CDBG funds. The DED
will use its best efforts to find ACI within the next 24 months another suitable
location for a fourth call center so as to enable ACI to meet the employment and
investment levels of LB775, Nebraska's Employment and Investment Growth Act.
This fourth call center is not a requirement that ACI must meet under this MOU.
WARRANTY OF REPRESENTATION: The Cities and ACI shall warrant that the CDBG
proceeds will be used as set forth in the MOU and that the information and
warranties contained in the application including the above LMI commitment,
listing by job-title of those to be created; a justification for the number of
jobs to be created, a commitment that training will be provided for jobs created
requiring special skills or education and a description of the first
consideration process is accurate and will be, or has been, fulfilled by ACI.
PERFORMANCE REVIEW: The Cities are required to periodically review ACI's
performance in obtaining job creation goals. ACI is required to have each new
employee complete an Employee Certification Form. This form establishes the LMI
status, race, gender and handicap status of each employee. From this form ACI
and the Cities must complete Quarterly Job Creation forms. These reports must be
forwarded to the City and DED for review on a quarterly basis.
LOAN DOCUMENTATION & COSTS: ACI will be required to prepare all loan closing
documents, subject to the Cities and DED's approval, which all parties will use
their best efforts to complete within 15 days prior to scheduled loan closing
date. All documents submitted to DED by ACI or the Cities must be certified by
the Cities Attorney as copies of the original. Each party will pay their own
costs, expenses and legal fees. The loan closing documents shall include: Loan
Agreement, Promissory Note, General Security Agreement, UCC Financing Statement,
Lease, Assignment of Lease, and any other agreed upon necessary document.
PUBLIC ANNOUNCEMENTS: Any public announcement of this project will first be
coordinated with all parties to this MOU and NPPD and will be subject to ACI's
prior approval.
OTHER STIPULATIONS
CONTINGENT APPROVAL: All the terms and conditions herein contained are
contingent following factors:
1. The signing of this MOU prior to DED's Project Review
Team favorable recommendation.
2. ACI cannot pay for the equipment to be acquired with the
funds covered under this MOU prior to receipt of the
Notice of Approval letter.
<PAGE>
IN WITNESS WHEREOF, the parties to this MOU have affixed their signatures on the
date specified below.
____________________________________________ ________________________________
Chadron's Chief Elected Official or Designee Business Official or Designee
____________________________________________ ________________________________
Title Title
____________________________________________ ________________________________
Date Date
____________________________________________ ________________________________
TBD Chief Elected Official or Ogallala's Chief Elected
Designee Official or Designee
____________________________________________ ________________________________
Title Title
____________________________________________ ________________________________
Date Date
____________________________________________ ________________________________
DED Official or Designee Lender Official or Designee
____________________________________________ ________________________________
Title Title
____________________________________________ ________________________________
Date Date
____________________________________________ ________________________________
Dawes County Reuse Fund Keith County Economic
Official or Designee Development Corporation
Official or Designee
____________________________________________ ________________________________
Title Title
____________________________________________ ________________________________
Date Date
TBD Development Corporation Official or Designee
____________________________________________
Title
____________________________________________
Date
Exhibit 10.35
MEMORANDUM OF UNDERSTANDING (MOU)
OGALLALA
PROJECT DESCRIPTION
ACI Telecentrics, Inc., a national outbound telemarketing firm, has chosen three
(3) communities in Nebraska for their next major expansion. The three (3)
communities selected are Chadron, Ogallala and Valentine, Nebraska. ACI started
about ten years ago by two close friends, Gary Cohen and Rick Diamond. ACI
currently has 5 telemarketing call centers located in Minnesota, North Dakota
and South Dakota. ACI has successfully opened and operated these call centers
using various forms of economic development grants offered by the local
communities and states. ACI is a public company traded on the NASDAQ exchange
under the symbol ACIT. ACI's project involves the creation of 3 telemarketing
call centers: one in Chadron with 48 seats, one in Ogallala with 48 seats and
one in Valentine with 48 seats. In general, it plans to keep these call centers
available for Monday through Saturday 8:30 a.m. to 4:30 p.m. day shifts and
Monday through Friday 5:00 p.m. to 9:00 p.m. night shifts for such sixty (60)
months (except holidays).
BUSINESS: ACI Telecentrics, Inc., 3100 West Lake Street,
Suite 300
Minneapolis, MN 55416-4510 ("ACI")
DED: Nebraska Department of Economic Development.
PRIMARY LENDER: ACI themselves or a conventional lease company to
be determined.
CITIES: Chadron, Ogallala, and Valentine Nebraska.
OTHER: Keith County Economic Development Corporation and
Nebraska Northwest Development Corporation,
Valentine's Development Corporation
TERMS AND CONDITIONS (LOAN)
AMOUNT OF CDBG LOAN PROCEEDS: The amount to be loaned to ACI will be:
Chadron: $300,000 Performance based. Chadron's 50% portion will be coming from
their current reuse funds.
<PAGE>
Valentine: $200,000 Performance based. Valentine's 50% portion will be coming
from their current reuse funds or other local sources.
Ogallala: $200,000 Performance based. Ogallala's 50% portion will be coming from
other sources.
The other 50% portion for all communities will come from the State.
An additional $15,000 ($5,000 per community) is reserved for the audit and
administration costs. The total state award will be $100,000 Ogallala, $100,000
Valentine, $150,000 Chadron, and $15,000 Audit and Administrative costs.
USE OF LOAN PROCEEDS: All proceeds will be used for either new equipment
purchases or working capital.
INTEREST RATE AND LOAN TERMS: The loan will be Performance based.
LEASE: ACI will negotiate triple net leases (all Cities) with an initial term of
no less than ten (10) years.
OGALLALA will provide the following facility for lease as follows:
(i) Keith County Economic Development Corporation (KCEDC) will construct
a commercial building upon the Keith County Industrial Site which
will contain approximately 12,000 square feet.
(ii) ACI agrees to lease 7,000 sq. feet of office space in said
commercial building. The building and such office space will be in
accordance with the specifications set forth in a separate letter
between ACI and KCEDC. Such space will be completed and made
available for occupancy by ACI by April 30, 1998.
(iii) ACI will pay a monthly rental of $4,200, triple net, for a period of
10 years.
(iv) ACI may terminate the lease prior to the expiration of such 10
years, in which case no further rent will accrue, but if ACI
terminates the lease prior to the expiration of 10 years, ACI shall
pay KCEDC damages in the amounts set forth below:
(a) $100,000 if the lease is terminated during the first 5 years
of the lease;
(b) $90,000 if the lease is terminated during the sixth year of
the lease;
(c) $80,000 if the lease is terminated during the seventh year of
the lease;
(d) $70,000 if the lease is terminated during the eighth year of
the lease;
(e) $60,000 if the lease is terminated during the ninth year of
the lease;
(f) $50,000 if the lease is terminated during the tenth year of
the lease.
<PAGE>
However, no such damages will be due or payable if ACI terminates
the lease because the Ogallala community could not provide adequate
FTEs as described in paragraph 4 below.
As to facilities to be leased by ACI, ACI can select the general contractor and
the bidding process, with the intent to use local labor if competitively
available.
COLLATERAL SECURITY: The loan will be secured by the equipment purchased with
the Loan Proceeds.
PERFORMANCE BASE CONDITION: ACI will meet the following performance based
requirements:
1. Assuming approval of the incentives under this MOU by May 20, 1997,
and that the facilities are available on time, ACI will establish
and open by April 30, 1998 three (3) telemarketing call centers: one
in Chadron with 48 seats, one in Ogallala with 48 seats and one in
Valentine with 48 seats. The parties will use their best efforts to
open all 3 call centers no later than April 30, 1998.
2. It will keep these 3 call centers staffed with its usual facility
manager and supervisory staff for a minimum of sixty (60) months
from the date each opens.
3. It will make available sufficient employment positions to fully
staff such call centers for such period of time, however, it does
not guarantee that such call centers will attain or remain fully
staffed, because the availability of labor and change in business
conditions and demand for services could adversely affect ACI's
ability to establish or to maintain fully staffed call centers.
Therefore, the failure to actually achieve or maintain such
employment to fully staff such call centers will not constitute a
failure to meet the performance based criteria.
4. It will guarantee that for such sixty (60) month period of time that
it will attain and maintain the call centers to at least fifty
percent (50%) capacity. This guarantee shall exist notwithstanding a
change in regular business conditions or demand for services. This
guarantee shall not exist if ACI's inability to perform or default
shall have been caused by an event or events beyond the control and
without the fault of ACI, including (without limitation) acts of
Government, embargoes, fire, flood, explosions, acts of God or a
public enemy, strikes, labor disputes, vandalism, civil riots or
commotions, or the inability to procure necessary raw materials,
supplies or equipment. This guarantee shall not exist to the extent
the employment positions are not attained or maintained due to the
unavailability of sufficient qualified personnel at the prevailing
wage. The determination of whether this guarantee has been met shall
be done in the following manner:
(a) ACI will attain and maintain for such sixty (60) months
24 FTE's in Chadron, 24 FTE's in Ogallala and 24 FTE's
in Valentine.
<PAGE>
(b) An FTE shall mean 2,080 hours of paid employment over
365 days. For example, 2 persons working 1,040 hours
each over 365 days is one (1) FTE. One (1) person
working 2,600 hours over 365 days is 1.25 FTE's.
(c) The amount of FTEs may be measured and reviewed at least
annually. The final determination of FTE's shall be made
at the end of such sixty (60) months and shall be based
on whether over such entire period ACI provided such
minimums. For example, if at the end of such sixty (60)
months, ACI paid for 249,600 hours of work in Chadron
(24 x 2,080 x 5 years), 249,600 hours of work in
Ogallala, and 249,600 hours of work in Valentine (24 x
2,080 x 5 years), then ACI will have met the guarantee,
regardless of when during such sixty (60) months the
hours were worked. Paid vacation or other paid times off
will be included as hours worked in the FTE
calculations. ACI will report to DED the employment
numbers quarterly.
(d) If the guarantee is met as to any call center, then the
performance based condition shall be considered met for
that City and for purposes of the Loan Proceeds that
relate to that City (whether the Loan Proceeds were from
State or local sources). The failure to meet the
guarantee in one or two Cities shall not affect whether
it is met in one or two other Cities.
(e) ACI will pay a beginning hourly wage of no less than
$6.00 per hour and an average hourly wage of no less
than $7.25 per hour (including commissions) for
employees who have completed at least 2,080 paid hours
of service with ACI.
(f) ACI will provide quality employment benefits in
Nebraska, as determined by ACI, with a probationary
period of no more than 90 days. The employment benefits
will include at least group health insurance 80% paid by
ACI for all full-time employees. The employment benefits
for salaried employees will contain additional benefits.
All employees will be eligible for the stock purchase
plan.
(g) At least fifty-one percent (51%) of the positions will
be made available to the LMI (low to moderate income)
category of individuals (as defined below). ACI shall
not be considered to be in breach of this condition if
insufficient qualified LMI personnel are available.
5. If ACI meets the performance based requirements, the Loan Proceeds
will be forgiven pro rata at least annually based on DED
verification of ACI's performance to such time. No interest will be
paid during such time and no interest will be due if the performance
based requirement is met. If the performance based requirements are
not met, then up to the entire Loan Proceeds will be due and payable
at the end of such sixty (60) month period, with interest accrued at
eight percent (8%) per annum on the due and payable portion from the
date the Loan Proceeds were first disbursed to or for ACI. The
portion of the Loan Proceeds to be forgiven will be zero if either
of requirements 1 through 3
<PAGE>
above are not met. The portion of the Loan Proceeds to be forgiven
if requirement 4 above is not fully met will be that percentage that
the requirement was met as to each such City. For example, if the
requirement is fully met in Chadron and Ogallala, but in Valentine
only 149,760 hours were paid for, then all of the Chadron and
Ogallala portion of the Loan Proceeds shall be forgiven, but only
60% (149,760 / 249,600) of the Valentine portion shall be forgiven.
GUARANTORS: ACI will be the obligor on the loan.
SOURCES AND USES OF FUNDS:
<TABLE>
<CAPTION>
Uses of ACI and/or Chadron
Funds CDBG Lender City Reuse Ogallala Valentine Total
--------- ----------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Equipment $125,000 $200,000 $ 75,000 $ 50,000 $ $ 450,000
Equipment or
Working Cap 100,000 100,000 200,000
Working Cap 125,000 200,000 75,000 50,000 450,000
CDBG Admin 15,000 15,000
--------- ----------- ------------- ----------- ------------ -----------
TOTAL $365,000 $400,000 $150,000 $100,000 $100,000 $1,115,000
</TABLE>
SUPPORT FUNDING: DED reserves the option to provide additional funds to any city
if their matching funds source is depleted. These funds will be repaid directly
to DED by respective city. The source of repayment would normally come from
local CDBG (ED) program income. The only acceptable cause of this depletion
shall be the city's local funding of eligible CDBG (ED) projects prior to
disbursement or drawdown of ACI's funds.
CITY REUSE: The Cities reuse funds are being committed to this project, and
being disbursed primarily as Performance based loans.
LENDER CONDITIONS:
TITLE INSURANCE: As needed per ACI's requirements, if any.
FLOOD INSURANCE: As needed per Cities requirements, if any.
LIABILITY INSURANCE: The Cities and DED will be listed as co-loss payees and
additional insurers under ACI's casualty insurance policy on the equipment
purchased with the Loan Proceeds.
PERFORMANCE LMI TARGETS: ACI shall use the Nebraska Job Service for their
recruiting of new employees to assist in the documentation of first
consideration being given to low and moderate income persons.
<PAGE>
LMI individuals are defined as multi or single person families having incomes
equal to or less than income limits for their resident county(s). Income limits
are published in the CDBG Application Guidelines as well as other statewide and
federal guidelines. These income limits are based on the HUD estimates of median
family income for Fiscal Year 1996. As required by statute, the definition of
low income family is based on 80% of the median income for the area, with
adjustments for smaller and larger families, and the very low-income family
income limits are based on 50% of the median with adjustments for family size.
The 1987 HUD Act provision established minimum income limit standards based on
the State non-metropolitan median family income level. This provision increases
income limits for many non-metropolitan counties.
CONDITIONS PRECEDENT TO DRAWDOWN OF CDBG LOAN FUNDS:
The Cities must submit the following prior to drawdown of CDBG funds:
1. The CDBG funds shall not be disbursed prior to Primary Lender's
or ACI's, but may be drawn simultaneously.
2. The Cities must submit documentation that all program income from
all previously awarded CDBG Awards, (if any), has been disbursed for
this project. No new CDBG funds will be drawn by the Cities from DED
until the expenditure of these funds is documented by the Cities and
confirmed by DED.
3. Compliance with environmental checklist.
4. Notification that no CDBG funds will be used during the
remodeling or construction phase. The CDBG funds can only be used as
indicated.
5. Copies of Cities executed loan closing documents.
6. Signing of the ED Contract between the Cities and DED.
GENERAL CONDITIONS
FINANCIAL REPORTING: ACI will furnish to the Cities and DED annual audited
financial statements including a balance sheet and income statement, within 120
days after the close of each fiscal year end (or within 30 days after such
statements are available, if later).
NO MATERIAL CHANGE: The CDBG Loan, the financial information of ACI and all
other features of the transaction will be represented in the application without
material adverse change.
DUE ON SALE: The total award(s) will be due and payable upon the sale and
transfer of the assets acquired with CDBG funds or upon the sale or transfer of
ACI from the present owners to
<PAGE>
others, unless otherwise approved in writing by DED and the City. Said approval
will not be unreasonably withheld.
LOCATION OF PROJECT: ACI will agree to keep such call centers in Chadron,
Ogallala, and Valentine, Nebraska for such sixty (60) months and shall further
agree to not move or relocate these 3 call centers to any other Nebraska
community or out of state for such sixty (60) months without obtaining the prior
written approval and consent of the Cities and DED. If a move is transacted, DED
or the Cities have the option to make full demand on all awarded CDBG funds. The
DED will use its best efforts to find ACI within the next 24 months another
suitable location for a fourth call center so as to enable ACI to meet the
employment and investment levels of LB775, Nebraska's Employment and Investment
Growth Act. This fourth call center is not a requirement that ACI must meet
under this MOU.
WARRANTY OF REPRESENTATION: The Cities and ACI shall warrant that the CDBG
proceeds will be used as set forth in the MOU and that the information and
warranties contained in the application including the above LMI commitment,
listing by job title of those to be created; a justification for the number of
jobs to be created, a commitment that training will be provided for jobs created
requiring special skills or education and a description of the first
consideration process is accurate and will be, or has been, fulfilled by ACI.
PERFORMANCE REVIEW: The Cities are required to periodically review ACI's
performance in obtaining job creation goals. ACI is required to have each new
employee complete an Employee Certification Form. This form establishes the LMI
status, race, gender and handicap status of each employee. From this form ACI
and the Cities must complete Quarterly Job Creation forms. These reports must be
forwarded to the City and DED for review on a quarterly basis.
LOAN DOCUMENTATION & COSTS: ACI will be required to prepare all loan closing
documents, subject to the Cities and DED's approval, which all parties will use
their best efforts to complete within 15 days prior to scheduled loan closing
date. All documents submitted to DED by ACI or the Cities must be certified by
the Cities Attorney as copies of the original. Each party will pay their own
costs, expenses and legal fees. The loan closing documents shall include: LOAN
AGREEMENT, PROMISSORY NOTE, GENERAL SECURITY AGREEMENT, UCC FINANCING STATEMENT,
LEASE, ASSIGNMENT OF LEASE, and any other agreed upon necessary document.
PUBLIC ANNOUNCEMENTS: Any public announcement of this project will first be
coordinated with all parties to this MOU and NPPD and will be subject to ACI's
prior approval.
OTHER STIPULATIONS
CONTINGENT APPROVAL: All the terms and conditions herein contained are
contingent upon the following factors:
1. The signing of this MOU prior to DED's Project Review
Team favorable recommendation.
<PAGE>
2. ACI cannot pay for the equipment to be acquired with the
funds covered under this MOU prior to receipt of the
Notice of Approval letter.
IN WITNESS WHEREOF, the parties to this MOU have affixed their signatures on the
date specified below.
____________________________________________ ________________________________
Business Official or Designee Ogallala's Chief Elected
Official or Designee
____________________________________________ ________________________________
Title Title
____________________________________________ ________________________________
Date Date
____________________________________________ ________________________________
DED Official or Designee Lender Official or Designee
____________________________________________ ________________________________
Title Title
____________________________________________ ________________________________
Date Date
____________________________________________
Keith County Economic Development Corporation Official or Designee
____________________________________________
Title
____________________________________________
Exhibit 10.36
MEMORANDUM OF UNDERSTANDING (MOU)
VALENTINE
PROJECT DESCRIPTION
ACI Telecentrics, Inc., a national outbound telemarketing firm, has chosen three
(3) communities in Nebraska for their next major expansion. The three (3)
communities selected are Chadron, Ogallala and Valentine, Nebraska. ACI started
about ten years ago by two close friends, Gary Cohen and Rick Diamond. ACI
currently has 5 telemarketing call centers located in Minnesota, North Dakota
and South Dakota. ACI has successfully opened and operated these call centers
using various forms of economic development grants offered by the local
communities and states. ACI is a public company traded on the NASDAQ exchange
under the symbol ACIT. ACI's project involves the creation of 3 telemarketing
call centers: one in Chadron with 48 seats, one in Ogallala with 48 seats and
one in Valentine with 48 seats. In general, it plans to keep these call centers
available for Monday through Saturday 8:30 a.m. to 4:30 p.m. day shifts and
Monday through Friday 5:00 p.m. to 9:00 p.m. night shifts for such sixty (60)
months (except holidays).
BUSINESS: ACI Telecentrics, Inc., 3100 West Lake Street,
Suite 300
Minneapolis, MN 55416-4510 ("ACI")
DED: Nebraska Department of Economic Development.
PRIMARY LENDER: ACI themselves or a conventional lease company to
be determined.
CITIES: Chadron, Ogallala, and Valentine Nebraska.
OTHER: Keith County Economic Development Corporation and
Nebraska Northwest Development Corporation,
Valentine's Development Corporation
TERMS AND CONDITIONS (LOAN)
AMOUNT OF CDBG LOAN PROCEEDS: The amount to be loaned to ACI will be:
Chadron: $300,000 Performance based. Chadron's 50% portion will be coming from
their current reuse funds.
<PAGE>
Valentine: $200,000 Performance based. Valentine's 50% portion will be coming
from their current reuse funds or other local sources.
Ogallala: $200,000 Performance based. Ogallala's 50% portion will be coming from
other sources.
The other 50% portion for all communities will come from the State.
An additional $15,000 ($5,000 per community) is reserved for the audit and
administration costs. The total state award will be $100,000 Ogallala, $100,000
Valentine, $150,000 Chadron, and $15,000 Audit and Administrative costs.
USE OF LOAN PROCEEDS: All proceeds will be used for either new equipment
purchases or working capital.
INTEREST RATE AND LOAN TERMS: The loan will be Performance based.
LEASE: ACI will negotiate triple net leases (all Cities) with an initial term of
no less than ten (10) years.
VALENTINE will provide the following facility for lease as follows:
(i) The owner of the following property will lease (pursuant to a lease
agreement to be executed) to ACI the land and building they own that
is located at __________________
________________________________________ in Valentine.
(ii) The owner of such property will remodel such building in accordance
with the specifications set forth in an agreement to be signed by
ACI and such owner.
(iii) ACI will lease such land and remodeled building from such owner for
a monthly rental of $3,500, triple net, for a period of 10 years.
(iv) ACI may terminate the lease only as specifically provided for in
lease agreement.
(v) Such remodeled facility shall be completed and available for
occupancy by ACI by _______________, 1997.
As to facilities to be leased by ACI, ACI can select the general contractor and
the bidding process, with the intent to use local labor if competitively
available.
COLLATERAL SECURITY: The loan will be secured by the equipment purchased with
the Loan Proceeds.
<PAGE>
PERFORMANCE BASE CONDITION: ACI will meet the following performance based
requirements:
1. Assuming approval of the incentives under this MOU by May 20, 1997,
and that the facilities are available on time, ACI will establish
and open by April 30, 1998 three (3) telemarketing call centers: one
in Chadron with 48 seats, one in Ogallala with 48 seats and one in
Valentine with 48 seats. The parties will use their best efforts to
open all 3 call centers no later than April 30, 1998.
2. It will keep these 3 call centers staffed with its usual facility
manager and supervisory staff for a minimum of sixty (60) months
from the date each opens.
3. It will make available sufficient employment positions to fully
staff such call centers for such period of time, however, it does
not guarantee that such call centers will attain or remain fully
staffed, because the availability of labor and change in business
conditions and demand for services could adversely affect ACI's
ability to establish or to maintain fully staffed call centers.
Therefore, the failure to actually achieve or maintain such
employment to fully staff such call centers will not constitute a
failure to meet the performance based criteria.
4. It will guarantee that for such sixty (60) month period of time that
it will attain and maintain the call centers to at least fifty
percent (50%) capacity. This guarantee shall exist notwithstanding a
change in regular business conditions or demand for services. This
guarantee shall not exist if ACI's inability to perform or default
shall have been caused by an event or events beyond the control and
without the fault of ACI, including (without limitation) acts of
Government, embargoes, fire, flood, explosions, acts of God or a
public enemy, strikes, labor disputes, vandalism, civil riots or
commotions, or the inability to procure necessary raw materials,
supplies or equipment. This guarantee shall not exist to the extent
the employment positions are not attained or maintained due to the
unavailability of sufficient qualified personnel at the prevailing
wage. The determination of whether this guarantee has been met shall
be done in the following manner:
(a) ACI will attain and maintain for such sixty (60) months
24 FTE's in Chadron, 24 FTE's in Ogallala and 24 FTE's
in Valentine.
(b) An FTE shall mean 2,080 hours of paid employment over
365 days. For example, 2 persons working 1,040 hours
each over 365 days is one (1) FTE. One (1) person
working 2,600 hours over 365 days is 1.25 FTE's.
(c) The amount of FTEs may be measured and reviewed at least
annually. The final determination of FTE's shall be made
at the end of such sixty (60) months and shall be based
on whether over such entire period ACI provided such
minimums. For example, if at the end of such sixty (60)
months, ACI paid for 249,600 hours of work in Chadron
(24 x 2,080 x 5 years), 249,600 hours of work in
Ogallala, and 249,600 hours of work in Valentine (24 x
2,080 x 5 years), then ACI will
<PAGE>
have met the guarantee, regardless of when during such
sixty (60) months the hours were worked. Paid vacation
or other paid times off will be included as hours worked
in the FTE calculations. ACI will report to DED the
employment numbers quarterly.
(d) If the guarantee is met as to any call center, then the
performance based condition shall be considered met for
that City and for purposes of the Loan Proceeds that
relate to that City (whether the Loan Proceeds were from
State or local sources). The failure to meet the
guarantee in one or two Cities shall not affect whether
it is met in one or two other Cities.
(e) ACI will pay a beginning hourly wage of no less than
$6.00 per hour and an average hourly wage of no less
than $7.25 per hour (including commissions) for
employees who have completed at least 2,080 paid hours
of service with ACI.
(f) ACI will provide quality employment benefits in
Nebraska, as determined by ACI, with a probationary
period of no more than 90 days. The employment benefits
will include at least group health insurance 80% paid by
ACI for all full-time employees. The employment benefits
for salaried employees will contain additional benefits.
All employees will be eligible for the stock purchase
plan.
(g) At least fifty-one percent (51%) of the positions will
be made available to the LMI (low to moderate income)
category of individuals (as defined below). ACI shall
not be considered to be in breach of this condition if
insufficient qualified LMI personnel are available.
5. If ACI meets the performance based requirements, the Loan Proceeds
will be forgiven pro rata at least annually based on DED
verification of ACI's performance to such time. No interest will be
paid during such time and no interest will be due if the performance
based requirement is met. If the performance based requirements are
not met, then up to the entire Loan Proceeds will be due and payable
at the end of such sixty (60) month period, with interest accrued at
eight percent (8%) per annum on the due and payable portion from the
date the Loan Proceeds were first disbursed to or for ACI. The
portion of the Loan Proceeds to be forgiven will be zero if either
of requirements 1 through 3 above are not met. The portion of the
Loan Proceeds to be forgiven if requirement 4 above is not fully met
will be that percentage that the requirement was met as to each such
City. For example, if the requirement is fully met in Chadron and
Ogallala, but in Valentine only 149,760 hours were paid for, then
all of the Chadron and Ogallala portion of the Loan Proceeds shall
be forgiven, but only 60% (149,760 / 249,600) of the Valentine
portion shall be forgiven.
GUARANTORS: ACI will be the obligor on the loan.
<PAGE>
SOURCES AND USES OF FUNDS:
<TABLE>
<CAPTION>
Uses of ACI and/or Chadron
Funds CDBG Lender City Reuse Ogallala Valentine Total
----- --------- ----------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Equipment $125,000 $200,000 $ 75,000 $ 50,000 $ $ 450,000
Equipment or
Working Cap 100,000 100,000 200,000
Working Cap 125,000 200,000 75,000 50,000 450,000
CDBG Admin 15,000 15,000
--------- ----------- ------------- ----------- ------------ -----------
TOTAL $365,000 $400,000 $150,000 $100,000 $100,000 $1,115,000
</TABLE>
SUPPORT FUNDING: DED reserves the option to provide additional funds to any city
if their matching funds source is depleted. These funds will be repaid directly
to DED by respective city. The source of repayment would normally come from
local CDBG (ED) program income. The only acceptable cause of this depletion
shall be the city's local funding of eligible CDBG (ED) projects prior to
disbursement or drawdown of ACI's funds.
CITY REUSE: The Cities reuse funds are being committed to this project, and
being disbursed primarily as Performance based loans.
LENDER CONDITIONS:
TITLE INSURANCE: As needed per ACI's requirements, if any.
FLOOD INSURANCE: As needed per Cities requirements, if any.
LIABILITY INSURANCE: The Cities and DED will be listed as co-loss payees and
additional insurers under ACI's casualty insurance policy on the equipment
purchased with the Loan Proceeds.
PERFORMANCE LMI TARGETS: ACI shall use the Nebraska Job Service for their
recruiting of new employees to assist in the documentation of first
consideration being given to low and moderate income persons.
LMI individuals are defined as multi or single person families having incomes
equal to or less than income limits for their resident county(s). Income limits
are published in the CDBG Application Guidelines as well as other statewide and
federal guidelines. These income limits are based on the HUD estimates of median
family income for Fiscal Year 1996. As required by statute, the definition of
low income family is based on 80% of the median income for the area, with
adjustments for smaller and larger families, and the very low-income family
income limits are based on 50% of the median with adjustments for family size.
The 1987 HUD Act provision established minimum income limit standards based on
the State non-metropolitan median family income level. This provision increases
income limits for many non-metropolitan counties.
<PAGE>
CONDITIONS PRECEDENT TO DRAWDOWN OF CDBG LOAN FUNDS:
The Cities must submit the following prior to drawdown of CDBG funds:
1. The CDBG funds shall not be disbursed prior to Primary Lender's
or ACI's, but may be drawn simultaneously.
2. The Cities must submit documentation that all program income from
all previously awarded CDBG Awards, (if any), has been disbursed for
this project. No new CDBG funds will be drawn by the Cities from DED
until the expenditure of these funds is documented by the Cities and
confirmed by DED.
3. Compliance with environmental checklist.
4. Notification that no CDBG funds will be used during the
remodeling or construction phase. The CDBG funds can only be used as
indicated.
5. Copies of Cities executed loan closing documents.
6. Signing of the ED Contract between the Cities and DED.
GENERAL CONDITIONS
FINANCIAL REPORTING: ACI will furnish to the Cities and DED annual audited
financial statements including a balance sheet and income statement, within 120
days after the close of each fiscal year end (or within 30 days after such
statements are available, if later).
NO MATERIAL CHANGE: The CDBG Loan, the financial information of ACI and all
other features of the transaction will be represented in the application without
material adverse change.
DUE ON SALE: The total award(s) will be due and payable upon the sale and
transfer of the assets acquired with CDBG funds or upon the sale or transfer of
ACI from the present owners to others, unless otherwise approved in writing by
DED and the City. Said approval will not be unreasonably withheld.
LOCATION OF PROJECT: ACI will agree to keep such call centers in Chadron,
Ogallala, and Valentine, Nebraska for such sixty (60) months and shall further
agree to not move or relocate these 3 call centers to any other Nebraska
community or out of state for such sixty (60) months without obtaining the prior
written approval and consent of the Cities and DED. If a move is transacted, DED
or the Cities have the option to make full demand on all awarded CDBG funds. The
DED will use its best efforts to find ACI within the next 24 months another
suitable location for a fourth call center so as to enable ACI to meet the
employment and investment levels of LB775, Nebraska's Employment and Investment
Growth Act. This fourth call center is not a requirement that ACI must meet
under this MOU.
<PAGE>
WARRANTY OF REPRESENTATION: The Cities and ACI shall warrant that the CDBG
proceeds will be used as set forth in the MOU and that the information and
warranties contained in the application including the above LMI commitment,
listing by job title of those to be created; a justification for the number of
jobs to be created, a commitment that training will be provided for jobs created
requiring special skills or education and a description of the first
consideration process is accurate and will be, or has been, fulfilled by ACI.
PERFORMANCE REVIEW: The Cities are required to periodically review ACI's
performance in obtaining job creation goals. ACI is required to have each new
employee complete an Employee Certification Form. This form establishes the LMI
status, race, gender and handicap status of each employee. From this form ACI
and the Cities must complete Quarterly Job Creation forms. These reports must be
forwarded to the City and DED for review on a quarterly basis.
LOAN DOCUMENTATION & COSTS: ACI will be required to prepare all loan closing
documents, subject to the Cities and DED's approval, which all parties will use
their best efforts to complete within 15 days prior to scheduled loan closing
date. All documents submitted to DED by ACI or the Cities must be certified by
the Cities Attorney as copies of the original. Each party will pay their own
costs, expenses and legal fees. The loan closing documents shall include: LOAN
AGREEMENT, PROMISSORY NOTE, GENERAL SECURITY AGREEMENT, UCC FINANCING STATEMENT,
LEASE, ASSIGNMENT OF LEASE, and any other agreed upon necessary document.
PUBLIC ANNOUNCEMENTS: Any public announcement of this project will first be
coordinated with all parties to this MOU and NPPD and will be subject to ACI's
prior approval.
OTHER STIPULATIONS
CONTINGENT APPROVAL: All the terms and conditions herein contained are
contingent upon the following factors:
1. The signing of this MOU prior to DED's Project Review
Team favorable recommendation.
2. ACI cannot pay for the equipment to be acquired with the
funds covered under this MOU prior to receipt of the
Notice of Approval letter.
<PAGE>
IN WITNESS WHEREOF, the parties to this MOU have affixed their signatures on the
date specified below.
____________________________________________ ________________________________
Business Official or Designee Valentine Chief Elected Official
or Designee
____________________________________________ ________________________________
Title Title
____________________________________________ ________________________________
Date Date
____________________________________________ ________________________________
DED Official or Designee Lender Official or Designee
____________________________________________ ________________________________
Title Title
____________________________________________ ________________________________
Date Date
____________________________________________
Valentine Development Corporation
Official or Designee
____________________________________________
Title
____________________________________________
Date
Exhibit 10.37 LEASE AGREEMENT
This lease agreement is made and executed on March 5, 1998 by and
between Pierre Economic Development Corporation (PEDCO) , a non-profit
corporation organized and existing under the laws of the State of South Dakota,
with its principal office at 800 West Dakota, City of Pierre, County of Hughes,
State of South Dakota 57501, referred to as lessor, and ACI Telecentrics,
Incorporated, a Minnesota corporation of 3100 West Lake Street, Suite 300, City
of Minneapolis, County of Hennepin, State of Minnesota 55416-4510, referred to
as lessee.
SECTION ONE
PREMISES
Lessor agrees to lease to lessee a portion of the premises described in
Exhibit A, which Exhibit is attached to and incorporated by reference into this
lease agreement.
SECTION TWO
TERM
The term of this lease agreement shall commence on or about March 5, 1998,
and expire April 30, 2002 unless sooner terminated in accordance with the terms
of this lease agreement.
SECTION THREE
RENT
A. Lessee shall pay to lessor as basic monthly rent, without deduction,
set off, prior notice, or demand, the sum as provided below (subject to
adjustments as provided later in this lease agreement) in advance on the first
day of each calendar month during the term of this lease agreement.
B. In addition to the basic monthly rent, lessee agrees to pay as
additional rent the amount of the rental adjustments and other charges as
required by this lease agreement.
C. All rent shall be paid to lessor, in lawful money of the United
States, at the address of lessor designated at the beginning of this lease
agreement, or to such other person or at such other place as lessor may from
time to time designate in writing.
D. The basic monthly rent for any partial month shall be prorated.
E . The basic monthly rent payable by lessee shall be Two-Thousand Five
Hundred Dollars ($2,500.00) per month as of the commencement date of this lease
agreement, and continuing through April 30, 1999. For the remainder of the
lease, the basic monthly rent payable shall be Three Thousand Dollars ($3,000.
00) per month.
<PAGE>
SECTION FOUR
USE
A. Lessee shall use the demised premises for general office, sales,
storage, research and development, and incidental uses, and hereby agrees that
it has determined to its satisfaction that the demised premises can be used for
those purposes.
B . Lessor represents and warrants that the above-specified uses are
permitted under current applicable zoning laws, rules, and regulations existing
as of the date of occupancy.
C. The demised premises may not be used for any other purpose without
lessor, s prior, express, and written consent, which consent shall not be
unreasonably withheld, conditioned, or delayed.
D . Lessee acknowledges that neither lessor nor lessor's agents has
made any representations or warranties as to the suitability of the demised
premises for the conduct of lessee's business, except as set forth herein.
E. Lessee shall comply with any direction of any governmental authority
having jurisdiction that shall, by reason of the specific nature of lessee's use
or occupancy of the demised premises, impose any duty upon lessee or lessor with
respect to the demised premises or with respect to the use or occupation of the
demised premises.
F . Lessee shall not use or occupy the demised premises in violation of
law, or the certificate of occupancy, or conditional certificate of occupancy,
if any, issued for the demised premises, and shall, upon written notice from
lessor, discontinue any use of the demised premises that is declared by any
governmental authority having jurisdiction to be a violation of law or of the
certificate of occupancy, or conditional certificate of occupancy, if any.
G. Lessee shall not do or permit to be done anything on the demised
premises that will invalidate or increase the cost of any fire, extended
coverage, or any other insurance policy covering the building in which the
demised premises are located. Within thirty (30) days of demand by lessor,
lessee shall reimburse lessor for any additional premium charged for such policy
by reason of lessee's failure to comply with the provisions of this paragraph.
H. Lessee shall not do or permit anything to be done in or about the
demised premises that will obstruct or interfere with the rights of other
tenants or occupants of the building in which the demised premises are located,
or injure or annoy them or interfere with their use or allow the demised
premises to be used for any immoral or unlawful purpose, nor shall lessee cause,
maintain, or permit any nuisance in, on, or about the demised premises or common
areas.
<PAGE>
I . Lessee shall not commit or suffer to be committed any waste in or
upon the demised premises or common areas.
J. Lessee shall not place upon or install in windows or other openings
or on the exterior of the demised premises or in any common areas any signs,
symbols, drapes, or other materials without the prior, express, and written
consent of lessor, which consent shall not be unreasonably withheld, delayed or
conditioned.
SECTION FIVE
MAINTENANCE AND MANAGEMENT OF COMMON AREAS
A. Except for damage caused by any negligent or intentional act or
negligent omission of lessee, lessee' s agents, employees, or invitees, which is
not covered by lessor, s insurance, lessor shall maintain the common areas in
good condition at all times. Lessor shall be required to maintain all structural
elements of the building and all mechanical systems in good condition and
repair.
Lessor shall have the right to:
(1) Establish and enforce reasonable rules and regulations applicable
to all tenants concerning the maintenance, management, use, and operation of the
common areas;
(2) Make changes to the common areas including, but not limited to,
changes in the location of driveways, entrances, exits, vehicular parking
spaces, parking area, or the direction of the flow of traffic. Lessor shall not
be permitted to make such changes if such changes will result in fewer parking
spaces being available for lessee, or otherwise adversely affect lessee's use of
the leased premises.
Lessor shall have no obligation to make repairs under this section
until a reasonable time after receipt of written notice of the need for such
repairs.
B . Common areas, as referred to in this lease agreement, shall mean
all parts of the project, in which the building of which the demised premises
are a part, is located, the building in which the demised premises are located,
and related land uses and facilities outside the demised premises and available
to be used in common by all tenants in the project. Common areas include, but
are not limited to:
(1) The land upon which the project is located, pedestrian walkways and
patios, landscaped areas, sidewalks, loading areas, parking areas, and roads;
(2) The unexposed electrical, plumbing, and sewage systems laying
outside the demised premises;
<PAGE>
(3) Window frames, gutters, and down spouts on the building in which
the demised premises are located;
(4) Exterior surfaces, roof, and exterior window surfaces; and
(5) Lobbies, corridors, restrooms, mechanical rooms, and telephone
booths in the building.
SECTION SIX
REPAIRS
A. Lessor warrants that the demised premises are in good and sanitary
order, condition, and repair and in compliance with all applicable laws, codes
and ordinances. Lessee shall keep, maintain, and preserve the demised premises
and appurtenances, including, but not limited to, signs, windows, doors,
skylights, and trade fixtures, in good condition and repair, reasonable wear and
tear and casualty damage excepted, and shall, when and if needed, at lessee's
sole cost and expense, make all repairs to the demised premises and every part
of the demised premises unless such damage is caused by the negligent acts or
omissions of lessor, its agents or employees.
B. Lessee shall, upon the expiration or sooner termination of the term
of this lease agreement, surrender the demised premises to lessor in the same
condition as when received, reasonable wear and tear, and casualty damage
excepted.
C . Except for the initial improvements provided by lessor, lessor
shall have no obligation to alter, remodel, improve, repair, decorate, or paint
the demised premises or any part of the demised premises, except as provided
herein.
D. The parties affirm that lessor has made no representations to
lessee respecting the condition of the demised premises or the building of which
the demised premises are a part, except as specifically set forth in this lease
agreement.
E . In spite of anything to the contrary contained in this section,
lessor shall at its sole cost and expense repair and maintain all building
system services and all the structural portions of the building in which the
demised premises are located, unless such maintenance and repairs are
necessitated in part or in whole by the negligent act or omission of lessee,
lessee's agents, employees, or invitees, in which case lessee shall pay to
lessor, as additional rent, the reasonable cost of such maintenance and repairs,
to the extent not covered by the insurance maintained or required to be
maintained hereunder.
F. For purposes of this lease agreement, structural portions of the
building of which the demised premises are a part shall mean:
<PAGE>
(1) The foundation,
(2) The floor,
(3) The exterior and load-bearing walls, and
(4) The roof.
G. Unless damage is caused by lessor's negligent acts or omissions,
lessor shall not be liable for any failure to make such repairs or to per-Form
any maintenance unless such failure shall persist for an unreasonable length of
time after written notice of the need for repair or maintenance has been given
to lessor by lessee.
SECTION SEVEN
IMPROVEMENTS AND ALTERATIONS
A. So long as lessee's operations are not adversely affected lessor
shall have the right at any time to change the arrangement and/or location of
entrances or passageways, doors and doorways, and corridors, elevators, stairs,
toilets, or other public parts of the building in which the demised premises are
located. on giving lessee reasonable notice thereof, lessor shall have the right
to change the name, number, or designation by which the building in which the
demised premises are located or the project is commonly known, excepting
lessee's demised premises.
B. Lessee shall make no alterations, additions, or improvements in or
to the demised premises without lessor's prior, express, and written consent,
which will not be unreasonably withheld, conditioned, or delayed. If consent is
given, any alterations, additions, or improvements in or to the demised premises
shall be performed only by contractors or mechanics approved in advance of any
such work by lessor.
C . Lessee agrees that there shall be no construction of partitions or
other obstruction that might materially interfere with lessor's free access to
mechanical installations or service facilities of the building, or materially
interfere with the moving of lessor's equipment to or from the enclosures
containing such installations or facilities, or materially interfere with free
access by or rights of other tenants of the building to their leased premises.
D. Lessee covenants and agrees that all work done by lessee shall be
performed in full compliance with all laws, rules, order, ordinances,
regulations, and requirements of all governmental agencies, offices, and boards
having jurisdiction. Lessee further covenants and agrees that any mechanic's
lien filed against the demised premises or against the building in which the
demised premises are located for work claimed to have been done for, or
materials claimed to have been furnished to, lessee, will be discharged by
lessee, by bond or otherwise within ninety (90) days after the filing thereof,
at the sole cost and expense of lessee. All work performed shall be done in a
skillful manner and with materials (where not specifically described in the
specifications) of the quality and appearance customary in the trade, and of a
quality at least equal to and style consistent with the existing building, and
shall become the property of lessor.
<PAGE>
SECTION EIGHT
PERSONAL PROPERTY
A. Furnishings, trade fixtures, and equipment installed by lessee shall
be the property of lessee and may be removed by lessee at any time during the
term of this lease agreement, provided that any equipment or furnishings subject
to the terms of other agreements, if any, is maintained, moved or disposed of
according to the terms of those agreements. On termination of this lease
agreement, lessee shall remove any such property that is not permanently affixed
to the premises. Lessee shall repair any damage to the demised premises
resulting from the installation or removal of such property.
B. Any repairs undertaken by lessee in accordance with the requirements
of this section shall be subject to all terms and conditions for improvements
and alterations as are set forth in Section Eight, above.
C. If lessee shall fail to remove all of its effects from the demised
premises upon termination of this lease agreement for any reason whatsoever,
lessor may, at its option, remove such effects without liability to lessee for
the loss of such items. In such event, lessee agrees to pay lessor upon demand
for any and all reasonable expenses incurred in removal, including court costs
and reasonable attorney fees and storage charges on such effects for any length
of time that may be in lessor's possession.
SECTION NINE
ADDITIONAL RENT
A. In addition to the basic monthly rent required by Section
Three,above,lessee shall pay as additional rent its pro rata share of all real
property taxes or other assessments and insurance premiums assessed against the
building in which the demised premises are located, common areas charges, and
property management fees incurred by lessor as set forth below.
B. Operating expenses shall not include any expenses relating to
mortgages, ground leases, or for capital repairs or improvements to the building
in which the demised premises are located, expenses incurred as a result of the
negligence of lessor, its agents or employees, or legal or other fees incurred
in connection with leasing all or any portion of the building in which the
demised premises are located or in enforcing the terms of any lease agreements
or any of the following costs or expenses: removal of hazardous substances,
costs of delivery of disproportionate services to other lessees, special
assessments related to initial construction.
<PAGE>
C. In the event of non-payment of all or any portion of such charges,
costs, and expenses, lessor shall have the same rights and remedies as provided
in this lease agreement for the failure of lessee to pay rent.
D. For purposes of this lease agreement, lessee's pro rata share shall
be equal to the ratio of the total number of leasable square feet in the demised
premises to the total number of leasable square feet in the building in which
the demised premises are located.
E. Any costs or charges that cover a period not within the term of this
lease agreement shall be prorated.
F. Lessee shall have the right to audit operating expenses.
If the audit reveals that lessee has been overcharged, after the annual
application of Section Fifteen below, then in addition to refunding the
overpayment, lessor shall pay the costs of the audit, in the event that the
overpayment exceeds the cost of the audit.
SECTION TEN
COMMON AREA AND MAINTENANCE CHARGES
A. Lessee shall pay to lessor upon demand, as additional rent, its pro
rata share of any and all common area costs and charges as defined herein.
B. Common area costs shall mean all sums expended by lessor for the
maintenance and operation of the common areas and reasonable property management
fees incurred by lessor and all increases in any such costs and expenses,
subject to the exclusions described herein.
C. Costs for maintenance, management, and operation of the common areas
shall include, but not be limited to, the following: cleaning, sweeping,
cleaning exterior window surfaces, repainting, ice and snow removal, lighting,
water, and other utilities, and other costs necessary in lessor's judgment for
the maintenance and operation of the common areas, (and any other charges,
costs, and expenses that arise during the term of this lease agreement) relating
to the maintenance of the common areas, subject to the exclusions described
herein. Lessee shall pay its own janitorial expenses for the demised premises.
SECTION ELEVEN
REAL PROPERTY TAXES
Lessee shall during the term of this lease pay its pro rata share of
all real property taxes and general and special assessments levied and assessed
against the building, and shall not include transfer or recordation taxes.
Lessee specifically acknowledges that the property has in the past enjoyed a
beneficial tax status due to the nature of the lessor/co-tenant and that Lessor
<PAGE>
will pay all real property taxes on the property, until such time as the
property may lose its current favorable tax status which will occur at the time
of signing of this lease. Thereafter Lessee shall be responsible for its pro
rata share of the real estate taxes from the date this lease commences
throughout the term of the lease. Such taxes shall commence by Lessee paying its
pro rata share of the 1998 real estate taxes which become a lien on the premises
on January 1, 1999 for the taxes for the approximate ten (10) months of the
lease in 1998 which shall be paid as part of the 1998 lease payment.
SECTION TWELVE
INSURANCE
Lessee shall pay its pro rata share of all fire and extended coverage
insurance that lessor is required to maintain on the building in which the
demised premises are located.
SECTION THIRTEEN
HEATING AND AIR CONDITIONING
Lessor may engage a maintenance firm to repair and maintain the
heating, ventilating, and air conditioning system servicing the building in
which the demised premises are located. Lessee shall pay to lessor, or at
lessor's election directly to the maintenance firm, Lessee's pro rata share of
the reasonable cost of such work.
SECTION FOURTEEN
UTILITIES
Lessee shall pay for heat, light, water, and other utility services
supplied to the demised premises which lessee consumes and which is separately
metered, if any. In addition, lessee shall pay its pro rata share of water,
sewer, and other utility charges for which separate billings are not available.
Separate charges may be made by lessor to lessee to reflect unusual or excessive
utility system demands, by lessee, where not separately metered.
SECTION FIFTEEN
PAYMENT OF ADDITIONAL RENT
A. Lessor shall provide lessee with written notice of the estimated
operating expenses and additional rent to be paid by lessee for each calendar
year during the term of this lease agreement prior to the start of each such
year, except that the notice for the calendar year for which the commencement
date of this lease agreement occurs shall be provided no later than thirty (30)
days after commencement date. Lessor may, at lessor's option, revise the
additional rent estimate once during any calendar year, on at least thirty (30)
days, written notice to lessee, and lessee's monthly payments under this lease
agreement shall be adjusted accordingly for the balance of such calendar year.
B. Within thirty (30) days after the end of every calendar year during
the term of this
<PAGE>
lease agreement, lessor shall provide lessee with a written statement of the
actual operating expenses incurred by lessor and additional rent paid by lessee
for that year. If the actual additional rent should exceed the estimated
additional rent for such year, then lessee shall pay to lessor the additional
amount due to lessor within thirty (30)days. If the actual additional rent shall
be less than the estimated additional rent for such year, then lessor shall
credit against future additional rent due under this lease agreement the amount
of overpayment by lessee, or pay such amount in cash.
C. Lessee shall have the right to review lessor's statements at any
time within sixty (60) days after lessor has provided statements to lessee, and
shall be permitted to inspect lessor's books and records to determine whether
there have been any errors. If errors are discovered, appropriate credits of
payments will be made. Any overpayment of additional rent for the final year of
the term of this lease agreement shall be refunded to lessee at the expiration
of the term of this lease agreement.
SECTION SIXTEEN
LESSEE'S INSURANCE
A. Lessee shall, during the term of this lease agreement and any other
period of occupancy, at Lessee's sole cost and expense, maintain a reasonable
amount of insurance to cover the following:
(1) Standard form property insurance insuring against the perils of
fire, extended coverage, vandalism, malicious mischief, special extended
coverage ("all risk") , and sprinkler coverage. This insurance policy shall be
upon all property owned by lessee, for which lessee is legally liable, or that
was installed at lessee's expense and which is located on or in the demised
premises, including, but not limited to, furniture, fittings, fixtures (other
than lessee improvements installed by lessor) , and any other personal property
in the amount of the full replacement value of such property. This insurance
policy shall also be upon direct or indirect loss to lessee's earnings
attributable to the demised premises or to the building in which the demised
premises are located in an amount that will properly reimburse lessee. Lessor
and any named mortgagee shall be furnished with a copy of the certificate of
insurance. The insurance policy shall contain endorsements requiring thirty (30)
days' written notice to lessor and any named mortgagee prior to any cancellation
or reduction in the amount of coverage.
(2) Comprehensive general liability insurance insuring lessee against
any liability arising out of this lease agreement, or the use, occupancy, or
maintenance of the demised premises and all areas appurtenant to the demised
premises. Such insurance shall be in the amount of not less than One Million
Dollars ($1, 000, 000) combined single limit for injury to and/or death of one
or more persons in an occurrence, and for damage to tangible property (including
loss of use) in an occurrence. The insurance policy shall insure against hazards
arising from the demised premises and operations conducted in and on the demised
premises, claims or actions by or against or involving independent contractors,
and contractual liability under this lease agreement (including the duty to
indemnify lessor) , and shall name lessor and any mortgagee of lessor as
<PAGE>
insured parties, as their respective interests may appear. Lessor and any named
mortgagee shall be furnished with a copy of the certificate of insurance. Such
insurance shall be primary and non-contributing with any insurance carried by
lessor. The liability insurance policy shall contain endorsements requiring
thirty (30) days, written notice to lessor and any named mortgagee prior to any
cancellation or reduction in the amount of coverage.
(3) Worker's compensation and employer's liability insurance as
required by the State of South Dakota.
B. All insurance policies shall be written in a form reasonably
satisfactory to lessor and to any named mortgagee. If lessor or the named
mortgagee obtains any insurance that is the responsibility of lessee under this
lease agreement, lessor or such mortgagee shall deliver to lessee a written
statement setting forth the cost of any such insurance and showing in reasonable
detail the manner in which it has been computed. Payment of such insurance on
lessee's behalf shall be charged to lessee as additional rent and lessee shall
be responsible to lessor or the procuring party for the full cost of such
insurance.
SECTION SEVENTEEN
WAIVER OF SUBROGATION
A. Lessee and lessor each releases and relieves the other and waives
its entire right of recovery against the other for loss or damage arising out of
or incident to the perils covered by fire and extended coverage, and liability
insurance endorsements approved of or use in the State of South Dakota that
occur in, on, or about the demised premises, whether caused by the negligence of
either party, their agents, employees or otherwise.
B. Each party shall obtain from its insurer or insurers provisions
permitting waiver of any claim against the other party for loss or damage within
the scope of the above-specified insurance.
SECTION EIGHTEEN
INDEMNIFICATION
A. Lessee shall indemnify, defend, and hold lessor harmless from any
and all claims and damages (including reasonable attorney fees and costs)
arising from lessee's use of the demised premises or the conduct of its business
or from any activity, work, or thing done, permitted, or suffered by lessee, in
or about the demised premises and/or the building in which the demised premises
are located, unless caused by lessor or lessor's agents or employees.
B. Lessee shall further indemnify, defend, and hold lessor harmless
from any and all claims and damages (including reasonable attorney fees and
costs) arising from any breach or default in the terms of this lease agreement,
or arising from any act, negligence, fault, or omission of lessee or lessee's
agents, employees, or invitees, and from and against any and all costs,
reasonable attorney fees, expenses, and liabilities incurred in or about such
claim or any
<PAGE>
action or proceeding brought on such claim.
C. In case any action or proceeding shall be brought against lessor by
reason of any such claim, lessee upon notice from lessor, shall defend it at
lessee's expense by counsel approved in writing by lessor.
D. Lessor shall indemnify, defend, and hold lessee harmless from any
and all claims and damages (including reasonable attorney fees and costs)
arising from lessor's use of the demised premises or the conduct of its business
or from any activity, work, or thing done, permitted, or suffered by lessor, in
or about the demised premises and/or the building in which the demised premises
are located, unless caused by lessee or lessee's agents or employees.
E. Lessor shall further indemnify, defend, and hold lessee harmless
from any and all claims and damages (including reasonable attorney fees and
costs) arising from any breach or default in the terms of this lease agreement,
or arising from any act, negligence, fault, or omission of lessor or lessor's
agents, employees, or invitees, and from and against any and all costs,
reasonable attorney fees, expenses, and liabilities incurred in or about such
claim or any action or proceeding brought on such claim.
F. In case any action or proceeding shall be brought against lessee by
reason of any such claim, lessor upon notice from lessee, shall defend it at
lessor's expense by counsel approved in writing by lessee.
SECTION NINETEEN
DAMAGE TO LESSEE'S PROPERTY
A. Lessee shall give prompt notice to lessor in case of fire or
accident in or on the demised premises or the building in which the demised
premises are located.
SECTION TWENTY
LESSEE'S RIGHT TO USE COMMON AREAS
A. Lessor gives to lessee and lessee's employees, authorized
representatives, and business invitees a non-exclusive right to reasonable use
and enjoyment of the common areas, subject to lessor's rights set forth in
Section Seven of this lease agreement.
B. Lessee shall be entitled to parking spaces in the adjoining parking
lot in the same ratio which the demised premises are to the whole building.
SECTION TWENTY-ONE
ACCESS BY LESSOR
A. Lessee shall allow lessor access to the demised premises at
reasonable times on reasonable notice for the purpose of inspecting, altering,
and repairing the demised premises;
<PAGE>
provided however, that lessee's use of the premises shall not be disrupted.
B. Lessor may also show the demised premises to prospective tenants or
renters at reasonable times and on reasonable notice.
C. Lessor shall at all times have and retain a key with which to unlock
all doors in and on the demised premises, excluding lessee's vaults and safes.
D. Lessor shall have the right to use any and all reasonable means that
lessor may deem proper to open doors in an emergency to obtain entry to the
demised premises.
E. Any entry to the demised premises obtained by lessor for any of the
above-stated purposes and by any of such means, or otherwise, shall not be
construed or deemed to be a forcible or unlawful entry onto the demised
premises, or an eviction of lessee from the demised premises or any part of the
demised premises.
F. Lessee waives any claim for damages for any injury or inconvenience
to or interference with lessee's business, any loss of occupancy or quiet
enjoyment of the demise premises, and any other loss in, upon, or arising from
lessor's entry onto the demised premises in an emergency, except to the extent
caused by lessor's negligence.
SECTION TWENTY-TWO
DAMAGE OR DESTRUCTION
A. In the event the demised premises are damaged by fire or other
cause, lessor, at lessor's sole cost and expense, shall, as soon as reasonably
possible thereafter, commence repair, restoration, and reconstruction of the
demised premises and prosecute it diligently until completion. In the event the
damage to the demised premises or the building in which the demised premises are
located is of a nature that cannot be repaired, restored, or reconstructed
within ninety (90) days of the date of damage, or such longer period as may be
mutually agreed by the parties, and subject in any event to force majeure,
either party may cancel and terminate this lease agreement by giving the other
party notice in writing of its intention to cancel this lease agreement no later
than ten (10) days after the determination that the repair will require more
than 90 days to complete, whereupon the term of this lease agreement shall
terminate upon the 30th day after such notice is given. No rent shall be
required to be paid from the date of the damage.
B. In the event of repair, reconstruction, and restoration by lessor as
provided in this section, the rental payable under this lease agreement shall be
abated proportionately with the degree to which lessee's use of the demised
premises is impaired during the period of such repair, reconstruction, or
restoration, unless the damage or destruction was caused by the negligent act or
omission of lessee or lessee's agents, employees, or invitees, in which event
the provisions of this sentence shall not apply.
Lessee shall not be entitled to any compensation or damages for loss of
the use of the
<PAGE>
whole or any part of the demised premises or any injury or interference with
lessee's business and/or any inconvenience or annoyance occasioned by such
damage, repair, reconstruction, or restoration to the demised premises, or the
building in which the demised premises are located, unless the damage or
destruction was caused by lessor's negligence.
C. Lessee shall not be released from any of its obligations under this
lease agreement except to the extent and under the conditions expressly stated
in this section. In spite of anything to the contrary contained in this section,
if lessor is delayed or prevented from repairing or restoring the demised
premises for six (6) months after the occurrence of the damage or destruction by
reason of an act of God, war, governmental restrictions, inability to procure
the necessary labor or material, or other cause beyond the control of lessor,
lessor shall be relieved of its obligation to make such repairs or restoration
and lessee shall be released from its obligations under this lease agreement at
the end of such six (6) month period, and this lease agreement shall be deemed
to be terminated.
D. If lessor is obligated to or elects to repair or restore as provided
in this lease agreement, lessor shall be obligated to make repair or restoration
only of those portions of the demised premises that were originally provided at
lessor, s expense, and the repair and restoration of items not provided at
lessor's expense shall be the obligation of lessee. If lessor receives proceeds
in excess of the current cost to replace those original lessee improvements,
then the excess proceeds will be applied to the replacement of additional
improvements provided by lessee in excess of lessor's original improvements.
E. In spite of anything to the contrary contained in this section,
lessor shall not have any obligation whatsoever to repair, reconstruct, or
restore the demised premises when the damage resulting from any casualty covered
under this section occurs during the last six (6) months of the current term of
this lease agreement or if any mortgagee fails to make insurance proceeds or any
portion of insurance proceeds available to lessor for such repair,
reconstruction, or restoration.
F. Upon any termination of this lease agreement under any of the
provisions of this section, the parties shall be released without further
obligation to the other as of the termination date, provided lessee shall remain
liable to lessor for items that have accrued as of the termination date and are
then unpaid.
SECTION TWENTY-THREE
CONDEMNATION
A. In case all of the demised premises, the building in which the
demised premises are located, or the common areas or such part thereof as shall
substantially interfere with lessee's use and occupancy thereof, shall be taken
for any public or quasi-public purpose by any lawful power or authority by
exercise of the right of appropriation, condemnation, or eminent domain, or sold
to prevent such taking, either party shall have the right to terminate this
lease agreement effective as of the date possession is required to be
surrendered to the taking authority.
<PAGE>
B. Lessee shall not assert any claim against lessor or the taking
authority for any compensation because of such taking and lessor shall be
entitled to receive the entire amount of any award with deduction for any estate
or interest of lessee, except as provided herein.
C. In the event the amount of property and the type of estate taken
shall not substantially interfere with the conduct of lessee's business, and
lessor determines lessor is economically able to restore- the demised premises,
the building in which the demised premises are located, or the common areas to
an operating condition comparable to that which existed prior to the taking,
lessor shall be entitled to the entire amount of the award without deduction for
any estate or interest of lessee. In that event, lessor shall restore the
demised premises to substantially their same condition prior to the taking, and
a proportionate allowance shall be made to lessee for the rent corresponding to
the time during which and to the part of the demised premises of which lessee
shall be so deprived on account of the taking and restoration.
D. Nothing contained in this section shall be deemed to give lessor any
interest in an award made to lessee for the taking of personal property and
fixtures belonging to lessee or for relocation expenses or any other award made
separately to lessee.
SECTION TWENTY-FOUR
LESSEE'S DEFAULTS AND REMEDIES
A. The occurrence of any one or more of the following events shall
constitute a material default in breach of this lease agreement by lessee:
(1) Vacation or abandonment of the demised premises. Vacation and
abandonment includes, but is not limited to, any absence of lessee from the
demised premises for thirty (30) business days or longer.
(2) Failure by lessee to make any payment required under this lease
agreement as when due, where such failure shall continue for a period of ten
(10) days after written notice from lessor.
(3) Failure by lessee to observe or to perform any of the covenants,
conditions, or provisions of this lease agreement, other than the making of any
payment, where such failure shall continue for a period of ten (10) days after
notice of such failure from lessor or such additional period of time as is
reasonably necessary to cure such failure, provided lessee diligently prosecutes
such cure.
B. In the event of any default by lessee, in addition to any other
remedies available to lessor at law or in equity, lessor shall have the
immediate option to terminate this lease agreement and all rights of lessee
under this lease agreement. In the event that lessor shall so elect to terminate
this lease agreement, then lessor may recover from lessee:
(1) The worth at the time of the award of any unpaid rent that was due
and owing at the
<PAGE>
time of termination;
(2) The worth at the time of the award of the amount of the unpaid rent
that would have been earned from the date of termination until the time of the
award, less the amount of such rental loss that lessee proves could reasonably
have been avoided; and
(3) The worth at the time of the award of the amount of the unpaid rent
due for the balance of the term of this lease agreement after the time of the
award, less the amount of such rental loss that lessee proves could reasonably
have been avoided.
C. In the event of any such default by lessee, lessor shall also have
the right, adhering to applicable legal processes, with or without terminating
this lease agreement, to reenter the demised premises and remove all persons and
property from the demised premises. Such property may be removed and stored in a
public warehouse or elsewhere at the cost of or on the account of lessee. No
reentry or taking of the demised premises by lessor pursuant to this section
shall be construed as an election to terminate this lease agreement unless
lessor gives lessee written notice of such intention or unless the termination
of this lease agreement is decreed by a court of competent jurisdiction.
D. In the event of any such default by lessee, lessor shall also have
the right, adhering to applicable legal processes, with or without terminating
this lease agreement, to reenter the demised premises and to relet them, and
lessee agrees to pay lessor the cost of recovering possession of the demised
premises, the reasonable expenses of reletting, and any other costs or damages
arising out of lessee's default. Lessee further covenants and agrees to make
good to lessor any deficiency arising from the reletting of the demised premises
at a lesser rental than agreed to in this lease agreement. Lessee shall pay to
lessor such deficiency each month as the amount of the deficiency is ascertained
by lessor and billed to lessee. Lessor is obligated to use good faith efforts to
mitigate its damages.
SECTION TWENTY-FIVE
REMEDIES CUMULATIVE
All rights, options and remedies of lessor and lessee contained in this
lease agreement shall be construed and held to be cumulative, and no one of them
shall be exclusive of the other. Either party shall have the right to pursue any
one or all of such remedies or any other remedy or relief that may be provided
by law, whether or not stated in this lease agreement.
SECTION TWENTY-SIX
NO WAIVER
No waiver of any default of lessee under this lease agreement shall be
implied from any acceptance by lessor of any rent or other payments due under
this lease agreement or any omission by lessor to take any action on account of
such default if such default persists or is repeated, and no express waiver
shall effect a default other than as specified in the waiver. The
<PAGE>
consent or approval of either party to an act by the other party shall not be
deemed to waive or render unnecessary either party's consent or approval of any
subsequent similar act by the other party.
SECTION TWENTY-SEVEN
CURE BY LESSOR
A. Lessor or any mortgagee, at any time after lessee commits a default,
may cure the default at the cost of lessee.
B. If lessor or any mortgagee at any time, by reason of lessee's
default, pays any sum or does any act that requires the payment of any sum, the
sum paid by lessor or any mortgagee at the time the sum is paid shall be due
immediately from lessee to lessor or the mortgagee, and if paid at a date later
than thirty (30) days shall bear interest at the rate of eighteen percent
(18'-.) per annum from the date the sum is paid by lessor or the mortgagee until
lessor or the mortgagee is reimbursed by lessee. The sum, together with
interest, shall be deemed to be additional rent.
SECTION TWENTY-EIGHT
LESSOR'S DEFAULT
A. Lessee shall notify lessor promptly of any default not by its nature
necessarily known to lessor.
B. Lessor shall not be in default under this lease agreement unless
lessor fails to perform its obligation within ten (10) days after notice by
lessee specifying where lessor has failed to perform, or immediately in the
event of an emergency. If the nature of lessor's obligation is such that more
than ten (10) days are required to perform, lessor shall not be in default if
lessor commences performance within ten (10) days of lessee's notice and
thereafter pursues performance with due diligence.
C. If there are any repairs that are the obligation of lessor, and
lessor exceeds the time period allowed in Paragraph B. of this section, then
lessee may, if it chooses, elect to perform the repair, then bill the reasonable
cost of such repair to lessor, including reasonable interest.
SECTION TWENTY-NINE
MORTGAGE PROTECTION
In the event of any default on the part of lessor, and within ten (10)
days of such event of default, lessee will give notice by registered or
certified mail to any mortgagee or contractor for deed whose address shall have
been furnished to lessee, and shall offer the mortgagee or contractor for deed
an opportunity to cure or commence to cure the default within ten (10) days
after notice from lessee.
<PAGE>
SECTION THIRTY
ASSIGNMENT BY LESSEE AND SUCCESSION
A. Lessee shall not assign, let, or sublet this lease agreement or the
demised premises, or any part of the demised premises, or in any way transfer or
hypothecate any of its interest in this lease agreement or the demised premises
without first obtaining the written consent of lessor, which will not be
unreasonably withheld, conditioned, or delayed. Lessor's consent shall be
conditioned upon lessor's approval of the economic viability of the proposed
assignee or sublessee, lessor's determination that the proposed use of the
demised premises by the assignee or sublessee is consistent with the tenant mix
and uses in the building in which the demised premises are located, and such
other conditions as lessor deems appropriate.
B. If lessee is a corporation, any transfer of this lease agreement
from lessee by merger, consolidation, or liquidation or any change in the
ownership or power to vote the majority of the outstanding voting stock of
lessee shall constitute an assignment for the purposes of this section, subject
to the test of reasonableness.
C. Subject to the provisions above, this lease agreement shall be
binding upon and inure to the benefit of the parties, and successors and
assigns. However, lessee shall be released from all responsibility for any and
all obligations, liabilities, and responsibilities of lessee under this lease
agreement after any assignment, subletting, or hypothecation by lessee as
allowed hereunder.
D. Lessee agrees to reimburse lessor for lessor's reasonable attorney
fees and related costs incurred in connection with the processing, review, an/or
documentation of any requested transfer, assignment, subletting, or
hypothecation of this lease agreement or of lessee's interest in and to the
demised premises.
SECTION THIRTY-ONE
LATE CHARGES
Lessee acknowledges that late payment by lessee to lessor of rent or
other sums due under this lease agreement will cause lessor to incur costs not
contemplated by this lease agreement, the exact amount of which would be
extremely difficult and impractical to ascertain. Such costs include, but are
not limited to, processing and accounting charges, and late charges that may be
imposed on lessor by the terms of any mortgage or deed of trust covering the
demised premises. In the event lessee should fail to pay any installment of rent
or any other sum due under this lease agreement within seven (7) days after
receipt of written notice that such sum is due, lessee shall pay to lessor, as
additional rent, a late charge equal to six percent (6%) of each installment or
sum. Waiver of the six percent (6%) late charge with respect to any, installment
or sum shall not be deemed to constitute a waiver with respect to any subsequent
installment or sum so due. In the event any amount so due is delinquent for a
period in excess of ten (10) days after written notice, an additional late
charge at the rate of one and one half percent (1 1/2 per month on the amount so
overdue shall be paid to lessor for the period of delinquency in
<PAGE>
excess of ten (10) days. A charge of Thirty Dollars ($30) will be paid by lessee
to lessor for each returned check.
SECTION THIRTY-TWO
SUBORDINATION
A. This lease agreement, at lessor's option, shall be subordinate to
any mortgage, deed of trust, contract for deed, or other hypothecation for
security now or hereafter placed upon the real property of which the demised
premises are a part, and to any and all advances made on the security thereof,
and to all renewals, modifications, consolidations, replacements, and extensions
thereof. In spite of such subordination, lessee's right to quiet possession of
the demised premises pursuant to the terms of this lease shall not be disturbed
if lessee is not in default and so long as lessee shall pay the rent and observe
and perform all of the provisions of this lease agreement, unless this lease
agreement is otherwise terminated pursuant to its terms. If any holder of such
mortgage, deed of trust, contract for deed, or other hypothecation for security
shall elect to have this lease agreement prior to its lien and shall give
written notice to that effect to lessee, this lease agreement shall be deemed
prior to such mortgage, deed of trust, contract for deed, or other hypothecation
for security, whether this lease agreement is dated prior or subsequent to such
mortgage, deed of trust, contract for deed, or other hypothecation for security,
or the date of recording such instrument. Lessor shall be obligated to obtain a
non-disturbance agreement from any present or future mortgagee in favor of
lessee.
B. Lessee also agrees to execute any reasonable documents required to
effectuate such subordination or to make this lease agreement prior to the lien
of any mortgage, deed of trust, contract for deed, or other hypothecation for
security, as the case may be.
C. Upon a foreclosure of any deed of trust, contract for deed or
mortgage or execution of any deed in lieu of foreclosure, or declaration of
lessor's default under any hypothecation for security and demand by lessor's
successor, lessee shall attorn to and recognize such successor as lessor under
this lease agreement.
SECTION THIRTY-THREE
NOTICES
All notices under this lease agreement shall be in writing and shall be
effective when mailed by certified mail, return receipt requested, or when
delivered personally to lessor and lessee at their addresses set forth above, or
to such other addresses as may be designated by notice.
SECTION THIRTY-FOUR
ENTIRE AGREEMENT
This lease agreement shall constitute the entire agreement between the
parties. Any prior understanding or representation of any kind preceding the
date of this lease agreement shall not
<PAGE>
be binding upon either party except to the extent incorporated in this lease
agreement.
SECTION THIRTY-FIVE
MODIFICATION OF AGREEMENT
Any modification of this lease agreement or additional obligation
assumed by either party in connection with this agreement shall be binding only
if evidenced in a writing signed by each party or an authorized representative
of each party.
SECTION THIRTY-SIX
ATTORNEY FEES
In the event that any action is filed in relation to this lease
agreement, the unsuccessful party in the action shall pay to the successful
party, in addition to all the sums that either party may be called on to pay, a
reasonable sum for the successful party's attorney fees.
SECTION THIRTY-SEVEN
HOLD-OVER TENANCY
If (without execution of a new lease agreement or written extension)
lessee shall hold over after the expiration of the term of this lease agreement,
lessee shall be deemed to be occupying the demised premises as a tenant from
month-to-month, which tenancy may be terminated as provided by law. During such
tenancy, lessee agrees to be bound by all of the terms, covenants, and
conditions specified in this lease agreement, insofar as applicable.
SECTION THIRTY-EIGHT
RULES AND REGULATIONS
Lessee shall faithfully observe and comply with the "Rules and
Regulations" that apply to all tenants, and all reasonable and
non-discriminatory modifications to such rules and regulations from time to time
put into effect by lessor. These rules and regulations are imposed for the
cleanliness, good appearance, proper maintenance, and good order and reasonable
use of the demised premises and the building in which the demised premises are
located by all tenants and their clients, customers, employees, and business
invitees. Lessor shall not be responsible or liable to lessee for violation or
non-performance of any of the rules and regulations by any other tenant or
occupant of the building in which the demised premises are located so long as
lessor uses reasonable efforts to enforce such rules.
SECTION THIRTY-NINE
GOVERNING LAW
It is agreed that this lease agreement shall be governed by, construed,
and enforced in accordance with the laws of the State of South Dakota.
<PAGE>
SECTION FORTY
DEFINITION OF LESSOR
A. The term "lessor, 11 as used in this lease agreement, so far as
covenants or obligations on the part of lessor are concerned, shall be limited
to mean and include only the owner or owners, at the time in question, of fee
title, or holders of a contract for deed granting fee title of the building in
which the demised premises are located.
B. In the event of any transfer, assignment, or other conveyance of
any such fee title, lessor named in this lease agreement (and in the case of any
subsequent transfers or conveyances, the then grantor) shall be automatically
freed and relieved from and after the date of such transfer, assignment, or
conveyance of all liability as respects the performance of any covenants or
obligations on the part of lessor contained in this lease agreement thereafter
to be performed. Without further agreement, the transferee of such title shall
be deemed to have assumed and agreed to observe and perform any and all
obligations of lessor under this lease agreement, during its ownership of the
demised premises.
C. Lessor may transfer its interest in the demised premises without
the consent of lessee. Such transfer shall not be deemed a violation on lessor's
part of any of the terms and conditions of this lease agreement. In spite of the
preceding, if the transferee is the mortgagee who acquires title to the demised
premises by foreclosure or deed in lieu of foreclosure, lessor shall remain
liable for the performance of all covenants, conditions, and obligations and for
any default of lessor under this lease agreement occurring or arising prior to
the date the mortgagee acquired title to the demised premises.
SECTION FORTY-ONE
PARAGRAPH HEADINGS
The titles to the paragraphs of this lease agreement are solely for the
convenience of the parties and shall not be used to explain, modify, simplify,
or aid in the interpretation of the provisions of this lease agreement.
SECTION FORTY-TWO
TIME OF THE ESSENCE
It is specifically declared and agreed that time is of the essence of
this lease agreement.
SECTION FORTY-THREE
EFFECT OF PARTIAL INVALIDITY
The invalidity of any part of this agreement will not and shall not be
deemed to affect the validity of any other part. In the event that any provision
of this agreement is held to be invalid,
<PAGE>
the parties agree that the remaining provisions shall be deemed to be in full
force and effect as if they had been executed by both parties subsequent to the
expungement of the invalid provision.
SECTION FORTY-FOUR
RECORDING
Neither lessor nor lessee shall record this lease agreement nor a short
form memorandum of this lease agreement without the written consent of the
other.
SECTION FORTY-FIVE
RIDERS
Clauses, plats, and riders, if any, signed by lessor or lessee, and
affixed to this instrument, are a part of this lease agreement.
SECTION FORTY-SIX
NAME
Lessee shall not, without the written consent of lessor, use the name
of the building in which the demised premises are located of or any purpose
other than as the address of the business to be conducted by lessee in the
demised premises, and in no event shall lessee acquire any rights in or to such
name or names.
SECTION FORTY-SEVEN
CORPORATE AUTHORITY
If lessee executes this lease agreement as a corporation, each of the
persons executing this lease agreement on behalf of lessee covenants and
warrants that lessee is a duly-authorized and existing corporation; lessee has
and is qualified to do business in the State of South Dakota, the corporation
has full right and authority to enter into this lease agreement; and each person
signing on behalf of the corporation was authorized to do so.
SECTION FORTY-EIGHT
FIRST RIGHT OF OPPORTUNITY
A. During the term of this lease agreement, including all renewal
terms, lessee shall have the first right of opportunity to lease any remaining
square footage directly adjacent to the demised premises, as described in
Exhibit C, as additional premises, in the event that any such space is vacated.
B. At such time as lessor wishes to lease the additional premises and
has received a written lease proposal from a third party, lessor will give
lessee written notice of its intention to
<PAGE>
lease the additional premises.
C. The terms and rental rates shall be those set forth in lessor's
written lease proposal with a third party described above, or upon such other
terms as may be agreed upon by both lessor and lessee with the exception that
the term shall be coterminous with the term of this lease. Lessor and lessee
agree to negotiate in good faith concerning such terms and rates.
D. In the event that lessor and lessee have not entered into a written
letter of agreement specifying the general terms of the lease agreement of the
additional premises by lessee within thirty (30) business days after lessor's
notice of its intention to lease the additional premises, then lessor shall have
the right to lease the additional premises to any third party.
SECTION FORTY-NINE
OPTION TO RENEW
Provided that lessee is not in default under this lease agreement
during the original term or any extension of this lease agreement, lessee shall
have the option to extend this lease agreement for one additional term of sixty
(60) months by providing lessor with one-hundred-eighty (180) days' prior
written notice. The extended term shall be on the same terms and conditions of
this lease agreement except for the provisions regarding basic monthly rent.
Basic monthly rent applicable to the extended term shall be at the then
established market rate for similar facilities in the area.
SECTION FIFTY
MARKET RENT; APPRAISAL
A. At any time not more than one hundred eighty (180) days prior to the
expiration of the first or any subsequent extended term of this lease agreement,
lessee may notify lessor by written notice of its desire to determine the fair
market rental value ("market rent") of the demised premises. "Market rent," as
used in this lease agreement, is intended to be a flat market rate per square
foot for space of similar quality and tenant improvements in the Pierre area
taking into account market rental concessions.
Lessor and lessee shall negotiate in good faith in an effort to
determine the market rent.
B. If the parties are unable to agree within thirty (30) days following
receipt by lessor of written notice, each party, at its own cost and by giving
notice to the other party, shall appoint a real estate appraiser with commercial
experience in the Pierre area to appraise and set the market rent. If either
party does not appoint an appraiser within ten (10) days after the other party
has given notice of the name of its appraiser, the single appraiser appointed
shall be the sole appraiser and shall set the market rent. If the two appraisers
are appointed by the parties as stated in this section, they shall meet promptly
and attempt to set the market rent. If they are unable to agree within thirty
(30) days after the second appraiser has been appointed, they shall attempt to
select a third appraiser meeting the qualifications stated in this section. If a
third appraiser
<PAGE>
has not been so selected within ten (10) days, written notice to the other,
either party can apply to the Circuit Court of Hughes County for the selection
of a third appraiser who meets the qualifications stated in this section. Each
of the parties shall bear one-half of the cost of appointing the third appraiser
and of paying the third appraiser's fee. The third appraiser, however selected,
shall be a person who has not previously acted in any capacity for either party.
Within thirty (30) days after the selection of the third appraiser, a majority
of the appraisers may, by agreement, determine the market rent. If a majority of
the appraisers are unable to determine the market rent within the stipulated
period of time, the market rent set separately by the three appraisers shall be
added together, and the total divided by three. The resulting quotient shall be
the market rent. If either the low market rent or the high market rent is,
respectively, more than ten percent (l0%) lower or higher than the middle market
rent, then the middle market rent shall be the market rent. After the market
rent has been set, the appraisers shall immediately notify the parties.
C. In no case shall the market rent be set less than Three Thousand Dollars
($3000) per month.
SECTION FIFTY-ONE
COUNTERPARTS
This lease agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute but one and the same instrument.
In witness whereof, each party to this lease agreement has caused it to
be executed at on the date indicated below.
/s/3-5-98 /s/PAUL KNECHT
DATE PEDCO
Paul Knecht, its Executive Director
/s/3-4-98
DATE ACI Telecentrics, Incorporated, by
/s/STEVEN A. KAHN,
its Vice President
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
ACI provides telephone-based sales and marketing services primarily to the
telecommunications, insurance, publishing and financial services industries. The
Company operates eight call centers in six Midwest states, which, as of December
31, 1997, had 361 outbound and 27 inbound stations. The Company had 689 full and
part-time employees as of December 31, 1997.
On August 1, 1997 the Company acquired all of the outstanding common stock of
Encyclopaedia Britannica Communications Corporation (EBCC), which had call
centers in Lombard, Ill. and Merrillville, Ind. Operations of EBCC are included
from August 1, 1997.
Revenue from telemarketing services is recognized as these services are
performed and are generally based on an hourly rate. Certain telemarketing
service revenues are performance-based. Cost of services includes compensation
and commissions for telephone sales representatives, payroll taxes and other
benefits associated with such personnel, telephone expenses and other direct
costs associated with providing services to customers. Selling, general and
administrative expenses include administrative, sales, marketing, occupancy,
depreciation and other indirect costs.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Revenue for the year was $15,253,893, an increase of $5,262,466 or 52.7% over
1996 and represented the seventh consecutive year of record revenue for the
Company. The acquisition of EBCC clients contributed $1,824,901 to the increase.
Client revenues for the year were heavily weighted to the telecommunications
industry, which represented 65.2% of total revenues in 1997 compared with 42.6%
in 1996. One telecommunications client represented 60.8% of the total revenue.
Other industry groups such as publishing, insurance and financial services
accounted for 18.8%, 7.9% and 5.8% of revenue respectively in 1997.
Billable telemarketing service representative hours increased 58.7% in 1997.
During 1997, the Company opened call centers in Pierre, S.D. and Chadron, Neb.,
acquired centers through the acquisition of EBCC in Lombard, Ill. and
Merrillville, Ind. and closed a call center in Minneapolis, Minn. As of December
31, 1997, the Company operated 361 outbound and 27 inbound call center
workstations compared with 289 outbound at December 31, 1996.
Cost of services increased 58% to $8,388,921 in 1997 from $5,309,753 in 1996.
Cost of services was 55% in 1997 compared to 53% in 1996. The increase in the
cost of services percentage is primarily attributable to the call centers
acquired from EBCC, which had higher labor and operating costs than existing ACI
call centers. A decline of 3.8% in the average hourly billing rate from 1996 to
1997 also contributed to the cost of the services percentage increase.
Selling, general and administrative expenses were $7,211,288, which is a
$3,362,558 or 87.4% increase over 1996. As a percentage of revenue, selling,
general and administrative expenses increased to 47.3% in 1997 compared with
38.5% in 1996. The full-year effect of personnel and facilities added in 1996
and the personnel and facilities added in 1997 were primarily responsible for
this increase.
In December 1997, in connection with management's plans to reduce costs and
improve operating efficiencies, the Company transferred the outbound calling
services performed at its Lombard call center to other call centers. As a
result, the Company recorded a restructuring charge of $388,563. The principal
actions in the plan involve the consolidation of the outbound call center
operation in Lombard, Ill. into existing ACI call centers in Merrillville, Ind.
and Pierre, S.D. The major components of the restructuring charges are occupancy
costs of $178,700, write-down of furniture and equipment costs of $128,200,
severance and related costs of $41,700 and other costs of $39,963.
As a result of the factors discussed above, the Company experienced an
operating loss of $734,879 compared with operating income of $832,944 in 1996.
Other income and expenses were $167,834 in 1997 compared with $21,121 in
1996. Interest was a net income amount of $167,834 in 1997 compared with an
expense of $88,841 in 1996. Interest income was the result of the earnings from
excess cash raised in the Company's initial public offering (IPO) in October
1996. In addition, 1996 included income of approximately $101,000 related to the
settlement of a contract dispute.
The Company recorded an income tax benefit of $215,500 compared with a pro
forma expense in 1996 of $354,300. The 1997 benefit was recorded at 38%, which
is estimated to be the effective rate for federal and state taxes versus 40% in
1996.
As a result, the net loss was $351,545 or $.06 per share compared with pro
forma net income of $504,665 or $.11 per share in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
ACI revenue increased by 71% from 1995. The revenue increase was attributable
in its entirety to new clients ACI developed in 1996. Revenue, which
approximated $10 million in 1996, was $4,141,577 higher than in 1995. In 1995,
ACI's revenue base had been evenly split between clients in the financial
services and publishing industries. The Company made a strategic decision to
seek clients in the telecommunications industry in
<PAGE>
1996 and, as a result, 42.6% of its revenue was derived from these customers,
while publishing, financial services and other industry groups accounted for
28.4%, 24% and 5% of revenue, respectively. One new telecommunications client
accounted for 39.2% of 1996 revenue.
In 1996, billable telemarketing service representative hours increased 70%.
The Company opened two new telemarketing centers in Devils Lake, N.D. and
Redfield, S.D. during 1996, which doubled the number of telemarketing
workstations from 145 to 289.
Cost of services increased 75% to $5,309,753 in 1996 from $3,042,001 in 1995.
Cost of services as a percentage of revenue in 1996 was 53% compared with 52% in
1995. In 1996, the Company utilized other telemarketing companies to perform
some of its services. This was primarily for an overabundance of foreign
language calls where the Company did not have qualified telemarketers. These
outsourced calls accounted for approximately $1.2 million in revenue, with a
cost of services of approximately 81%. Cost of services for internally generated
telemarketing services was 49% which compared favorably with the 52% reported in
1995. The labor component of the cost of services, as a percentage of revenue,
was 3.9% less in 1996. This improvement was achieved as the Company more
efficiently utilized its labor force and expanded its base in rural communities
where labor rates are lower than the urban call center. In addition, long
distance telephone rates were lower in 1996, reducing this component of cost of
services, as a percentage of revenue, by 4.7%.
Selling, general and administrative expenses increased 57% to $3,848,730. As
a percentage of revenue, selling, general and administrative expenses declined
3% from 42% to 39%. The dollar increase was the result of adding a management
level infrastructure to the Company in preparation for its anticipated growth
and for the public offering of its common shares. Additionally, these expenses
increased due to revenue and volume related expenses and the costs of the two
new call centers.
As a result of the factors discussed above, operating income increased 133%
to $832,944 versus $357,835.
Other income and expenses improved by $109,312 over 1995. The Company was
favorably impacted by approximately $101,000 related to a mutually agreed upon
contract termination settlement with a former client.
Prior to October 21, 1996, the date of the IPO, the Company was a Sub Chapter
S Corporation. As a result, any income tax liability was the responsibility of
the individual shareholders and no provision for income taxes or income tax
liability was recorded in the financial statements. Effective with the IPO, the
Company terminated its status as an S Corporation and became subject to federal
and state income taxes. Accordingly, for informational purposes, earnings for
the years ended December 31, 1995 and 1996 include pro forma information for
income taxes which would have been recorded if the Company had been a C
Corporation for the entire year, based on the tax laws in effect during those
periods. Pro forma net income includes an estimated federal and state tax
provision of 40%.
Pro forma net income was $504,665, or $.11 per share, compared with $161,753,
or $.04 per share, in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically used operating activities, bank borrowings,
capital leases and public and private sector financing in connection with the
opening of call centers as its primary sources of liquidity. The public and
private sector (grants/ financings) included low interest rate loans, forgivable
loan arrangements and reimbursement for certain expenses and leasehold
improvements. In 1997, the Company financed much of its activities with the
proceeds from the October 1996 IPO, of which $5,005,813 in cash and cash
equivalents remained at December 31, 1996.
Cash utilized in operating activities was $730,130 in 1997. The net loss
accounted for $351,545 of this amount while changes in working capital
components was $1,269,483. These were offset by depreciation and amortization of
$696,937 and other non-cash items of $193,961. Cash flow from operating
activities was $1,108,728 in 1996. Net income of $499,765, non-cash items of
$156,812 and changes in working capital components of $86,247 comprised the
amount. These were offset by depreciation and amortization of $365,904.
Cash utilized in investing activities in 1997 was $3,578,914. Primary
components were expenditures for property and equipment of $1,626,180 related to
new call centers, upgrading the technology in current call centers and the
acquisition of fixed assets in the EBCC acquisition. In addition, the net cost
of the EBCC acquisition was $1,429,845 plus an additional $493,345 escrowed as
restricted cash related to the acquisition. Cash utilized in investing
activities in 1996 was $295,798. Expenditures for property and equipment of
$610,185 were partially offset by proceeds from restricted investments of
$300,000 and a decrease in other assets of $14,387.
Financing activities in 1997 were limited to $53,010 in repayments of
long-term debt partially offset by $15,283 related to the issuance of common
stock in the Employee Stock Purchase Plan. Cash from financing activities in
1996 was $4,125,400. Proceeds from the IPO of $6,378,258 and increases in
long-term
<PAGE>
debt of $200,000 were partially offset by $1,818,422 of various debt instrument
reductions and the payment of $634,436 of dividends in conjunction with the
change from a Sub S to a C Corporation. As a result, net cash and cash
equivalents decreased $4,346,771 in 1997 compared with an increase of $4,938,330
in 1996.
In November 1997, the Company's Board of Directors authorized a $2 million
revolving line of credit which became effective in January 1998.
The Company believes that funds available at December 31, 1997 together with
funds which should be generated from future operations, equipment and financing
leases and revolving line of credit arrangements will be sufficient to finance
its current operations and planned capital expenditures at least through 1998.
OUTLOOK
Certain of the statements contained in the Letter to Shareholders and
repeated in this section are "forward-looking statements" within the meaning of
the federal securities laws. The following forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those expressed or implied by such statements.
Management believes that businesses will continue to increase outsourcing the
telemarketing component of their business, which should result in continued
increases in the Company's calling revenue in 1998. In order to meet this
increased demand, the Company plans to open at least two new outbound call
centers in 1998 and to endeavor to maintain annual revenue in the range of
$40,000 to $50,000 per telemarketing seat. The Company is contemplating
expanding the inbound teleservices business it acquired from EBCC. In addition,
the Company will continue to invest in technology to serve its clients' needs
and to be a standard setter in providing exceptional service. In 1998, the
Company expects to spend approximately $1,300,000, on capital expenditures to
achieve these goals. However, it should be noted that the Company experienced a
weakening in demand for its services in the third and fourth quarter of 1997 and
as a result of attrition, experienced a decline in the telephone sales
representative's work force.
While the Company anticipates an increase in demand for its services in 1998,
there is no assurance that the Company will be able to hire sufficient personnel
to meet client demands. There is no assurance that the Company's marketing
efforts will generate sufficient new business to fully utilize the additional
call center capacity to be created in 1998 or that businesses will continue to
outsource their telemarketing needs. Likewise, there is no assurance that the
Company can continue to grow its revenue in excess of industry growth averages.
In addition, inbound telemarketing is a highly competitive business requiring
techniques of operation and personnel skills that are different from the
Company's experience with outbound telemarketing, and there is no assurance that
the Company will undertake such an expansion in 1998 or that it will be
successful if it does so.
YEAR 2000
The Company recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 software failures. Software failures due to processing
errors potentially arising from calculations using the Year 2000 date are a
known risk. The Company has assessed this risk with respect to its financial and
operational systems and has determined that most systems are Year 2000
compliant. The Company is reviewing its systems as it relates to interfacing
with clients and vendors, but does not anticipate any material costs associated
with systems conversions due to Year 2000 issues.
INFLATION
Inflation has not had a material impact on operating results and the Company
does not expect it to have a significant impact in the future. However, there
can be no assurance that the Company's business will not be affected by
inflation in the future.
QUARTERLY RESULTS
The telemarketing industry tends to be slower in the first and third quarters of
the year because client marketing and customer service programs are typically
slower in the post-holiday and summer months. The Company has experienced and
expects to continue to experience quarterly variations in revenue and operating
income principally as a result of the timing of clients' telemarketing
campaigns, the commencement of new contracts, changes in the Company's revenue
mix, start-up of new call centers and the additional selling, general and
administrative expenses to acquire and support such new business.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
ACI Telecentrics, Inc.
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of ACI
Telecentrics, Inc. and subsidiary as of December 31, 1996 and 1997 and the
related consolidated statements of operations, shareholders' equity and cash
flow for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1996 and 1997 and the results of its operations and its cash
flow for the years then ended, in conformity with generally accepted accounting
principles.
/S/ DELOITTE & TOUCHE LLP
February 12, 1997
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31 1996 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $5,005,813 $ 659,042
Restricted investment (Note 2) -- 493,345
Trade receivables, less allowance for doubtful accounts of
$73,000 and $195,000, respectively 1,130,451 2,369,323
Income tax receivable (Note 9) -- 586,498
Other current assets 149,064 89,152
-------------------------
Total current assets 6,285,328 4,197,360
PROPERTY AND EQUIPMENT (Note 4):
Furniture 515,450 912,062
Equipment 2,264,289 3,787,565
Leasehold improvements 48,726 129,295
-------------------------
2,828,465 4,828,922
Less accumulated depreciation 927,622 1,585,717
-------------------------
Net property and equipment 1,900,843 3,243,205
OTHER ASSETS:
Goodwill, less accumulated amortization of $29,000 (Note 2) -- 1,016,726
Other 9,449 38,993
-------------------------
Total other assets 9,449 1,055,719
-------------------------
$8,195,620 $8,496,284
=========================
LIABILITIES ANDSHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 520,318 $ 811,568
Accrued expenses 176,975 764,463
Income taxes payable (Note 9) 144,200 --
Current portion of long-term debt and capital
lease obligations (Notes 3, 4 and 5) 104,384 138,481
-------------------------
Total current liabilities 945,877 1,714,512
LONG-TERM LIABILITIES:
Long-term debt and capital lease obligations, less
current portion (Notes 3, 4 and 5) 121,757 64,650
Deferred capital lease liabilities, less current
portion (Note 5) 156,000 214,600
Deferred income taxes (Note 9) 206,412 73,210
-------------------------
Total long-term liabilities 484,169 352,460
COMMITMENTS AND CONTINGENCIES (Notes 2, 4 and 7)
SHAREHOLDERS' EQUITY (Note 6):
Common stock, no par value; 15,000,000 shares authorized;
5,705,000 and 5,708,583 shares issued and outstanding,
respectively 6,577,563 6,592,846
Undesignated stock, no par value; 5,000,000 shares
authorized; none issued and outstanding -- --
Retained earnings (deficit) 188,011 (163,534)
-------------------------
Total shareholders' equity 6,765,574 6,429,312
-------------------------
$8,195,620 $8,496,284
=========================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31 1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
TELEMARKETING REVENUES $ 9,991,427 $ 15,253,893
COST OF SERVICES 5,309,753 8,388,921
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,848,730 7,211,288
RESTRUCTURING COSTS (Note 10) -- 388,563
----------- ------------
Total Costs 9,158,483 15,988,772
----------- ------------
OPERATING INCOME (LOSS) 832,944 (734,879)
OTHER INCOME (EXPENSE):
Interest income 62,090 181,604
Interest expense (150,931) (13,770)
Other, net (Note 8) 109,962 --
----------- ------------
Total other income (expense) 21,121 167,834
----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES 854,065 (567,045)
INCOME TAX EXPENSE (BENEFIT):
Income taxes - C Corp 132,600 (215,500)
Income taxes - S Corp to C Corp conversion 221,700 --
----------- ------------
Total income taxes (benefit) 354,300 (215,500)
----------- ------------
NET INCOME (LOSS) $ 499,765 $ (351,545)
=========== ============
1996 PRO FORMA DATA (Note 1):
Historical income before income tax expense $ 854,065 --
Pro forma income tax expense 349,400 --
----------- ------------
PRO FORMA NET INCOME $ 504,665 --
=========== ============
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
(PRO FORMA AMOUNTS FOR 1996) $ .11 $ (.06)
=========== ============
SHARES USED IN COMPUTING
NET INCOME (LOSS) PER SHARE 4,566,600 5,707,500
=========== ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ADDITIONAL RETAINED
COMMON STOCK PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1995 4,200,000 $ 1,000 $ 25,567 $ 495,420 $ 521,987
Recapitalization -- 25,567 (25,567) -- --
Proceeds from sale of common stock,
net of offering costs of $1,146,742 1,505,000 6,378,258 -- -- 6,378,258
Net income prior to conversion to C Corp.,
net of cumulative deferred income
taxes of $221,700 (Note 9) -- -- -- 311,754 311,754
Capitalization of retained earnings in
conjunction with conversion to C Corp -- 172,738 -- (172,738) --
Net income subsequent to conversion to C Corp -- -- -- 188,011 188,011
Dividends paid (Note 6) -- -- -- (634,436) (634,436)
----------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1996 5,705,000 6,577,563 -- 188,011 6,765,574
Issuance of common stock under the
Employee Stock Purchase Plan 3,583 15,283 -- -- 15,283
Net loss -- -- -- (351,545) (351,545)
----------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1997 5,708,583 $6,592,846 -- $ (163,534) $6,429,312
======================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31 1996 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 499,765 $ (351,545)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 365,904 696,937
Amortization of deferred capital lease liabilities (49,600) (61,400)
Deferred income taxes 206,412 (133,202)
Restructuring costs -- 388,563
Changes in operating assets and liabilities:
Trade receivables (157,663) (1,088,872)
Other current assets (74,246) 59,912
Accounts payable and accrued expenses 173,956 490,175
Income taxes 144,200 (730,698)
----------- -----------
Net cash provided by (used in) operating activities 1,108,728 (730,130)
CASH FLOW UTILIZED IN INVESTING ACTIVITIES:
Purchases of property and equipment (610,185) (1,626,180)
Decrease (increase) in other assets 14,387 (29,544)
Proceeds from (purchase of) restricted investments 300,000 (493,345)
Payments for business acquired -- (1,429,845)
----------- -----------
Net cash used in investing activities (295,798) (3,578,914)
CASH FLOW FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 6,378,258 15,283
Payments on revolving line of credit (300,000) --
Proceeds from issuance of long-term debt 200,000 --
Repayments on long-term debt and capital leases (1,218,422) (53,010)
Payments to officers (300,000) --
Dividends (Note 6) (634,436) --
----------- -----------
Net cash provided by (used in) financing activities 4,125,400 (37,727)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,938,330 (4,346,771)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 67,483 5,005,813
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,005,813 $ 659,042
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND
NONCASH TRANSACTION INFORMATION:
Cash paid for interest $ 151,000 $ 13,800
=========== ===========
Income taxes paid $ 3,700 $ 648,400
=========== ===========
Equipment acquired through capital leases $ 546,551 $ --
=========== ===========
Deferred grant $ -- $ 150,000
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1. DESCRIPTION OF BUSINESS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - ACI Telecentrics, Incorporated (ACI) (formerly Automated
Communications, Incorporated and Affiliates) provides telephone-based sales and
marketing services primarily to the telecommunications, publishing, insurance
and financial services industries. ACI was established in 1987 in Minneapolis,
Minn. Since that time, the Company has opened additional call center locations
in Twin Valley, Minn.; Valley City and Devils Lake, N.D.; Redfield and Pierre,
S.D. and Chadron, Neb. Prior to June 1996, all of the call centers were operated
as affiliated corporations through common ownership. Effective June 28, 1996
Automated Communications, Incorporated and its affiliated companies merged to
form ACI Telecentrics, Incorporated. These financial statements include the
results of operations of all companies for all periods presented. As described
in Note 2, on August 1, 1997 the Company acquired all of the outstanding common
stock of Encyclopaedia Britannica Communications Corporation (EBCC), which had
call centers in Lombard, Ill. and Merrillville, Ind. Operations of EBCC are
included from August 1, 1997. The acquisition was accounted for as a purchase.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary, ACI Telecentrics of
Illinois, Inc. (formerly EBCC) after elimination of intercompany transactions.
REVENUE RECOGNITION - Revenue from telemarketing services is recognized as
services are provided, primarily based on hours incurred.
CREDIT CONCENTRATIONS - The Company earned the following percentages of its
total revenue from major customers during the years ended December 31:
1996 1997
- --------------------------------------------------------------------------------
Customer A 39% 61%
Customer B 15 7
Customer C 10 7
At December 31, 1997 amounts receivable from customer A represented 42% of
total accounts receivable while customers B and C were 1% each. The Company does
not require collateral to support customer receivables.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of con tingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.
CASH EQUIVALENTS - Short-term investments which generally have a maturity of
three months or less from the date of purchase and are classified as cash
equivalents.
GOODWILL - Goodwill is amortized on a straight-line basis over 15 years. The
Company periodically assesses the recoverability of the cost of its goodwill
based on a review of projected undiscounted cash flows of the related assets
acquired.
PROPERTY AND EQUIPMENT - Property and equipment are carried at cost.
Depreciation is based on the straight-line method over estimated useful lives of
the assets ranging from three to ten years.
RESTRICTED INVESTMENTS - Restricted investments consist of U.S. Treasury
Bills and are carried at amortized cost. The carrying value approximates its
fair value due to the short-term maturities and the current market rate of
interest. (See Note 2.)
FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS - The estimated fair value of
long-term debt and capital lease obligations approximates its carrying value due
to variable rates of interest or fixed rates which approximate current market
rates. The fair value of all other financial instruments, other than investments
as discussed above, approximates the carrying value due to the short-term nature
of the financial instruments.
EARNINGS (LOSS) PER COMMON SHARE - Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share" was issued in February 1997 and
requires the presentation of earnings per share on a basic and diluted basis.
Basic earnings per share are computed by dividing earnings available to common
shareholders by the weighted average number of shares outstanding during the
year. Diluted earnings per share are computed after giving effect to the
exercise of all dilutive outstanding options and warrants. The Company adopted
SFAS No. 128 in 1997. Both basic and diluted 1996 earnings per share were the
same as there was no material common equivalent shares outstanding at December
31, 1996. Both basic and diluted 1997 earnings per share were the same due to
the net loss, as the impact of the potential common shares outstanding would
have been anti-dilutive.
INCOME TAXES - Prior to October 21, 1996, the effective date of the initial
public offering, the Company was a Subchapter S Corporation. As a result, any
income tax liability was the sole responsibility of the individual stockholders
and no provision for income taxes or income tax liability was recorded in the
financial statements.
PRO FORMA DATA - Effective October 21, 1996, the Company terminated its
status as an S Corporation and was subject to federal and state income taxes
thereafter. Accordingly, for informational purposes, the accompanying
consolidated statements of operations for the year ended December 31, 1996
include unaudited pro forma information for income taxes which would have been
recorded if the Company had been a C Corporation for all of 1996, based on the
tax laws in effect during the respective periods.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2. BRITCOM ACQUISITION
On August 1, 1997 the Company acquired all of the outstanding common stock of
EBCC, a provider of inbound and outbound telemarketing services. The acquisition
was accounted for using the purchase method of accounting, and accordingly, the
consolidated financial statements include results of operations from the date of
acquisition. The purchase price consisted of (i) $1,250,000 cash paid at
closing; and (ii) four quarterly payments (each an "Earn-Out Payment,"
cumulatively the "Total Earn-Out Payment"). The amount of the Total Earn-Out
Payment will depend on the amount of revenue generated by certain EBCC clients
and prospective clients during the period from January 1, 1998 through December
31, 1998 (the "Earn-Out Revenues"). In accordance with the purchase agreement,
the Company has placed in escrow, and provided the seller with a $500,000
security interest in a Treasury Bill owned by the Company as a guaranty of
payment of the remaining installments of the purchase price, if any. The Company
has evaluated the services provided to these customers since August 1, 1997 and
based on this evaluation has determined that revenue from these customers will
not reach the minimum threshold in 1998, and an Earn-Out Payment under the Stock
Purchase Agreement will be unlikely. Thus, the Company has not recorded any
liability in the financial statements for Earn-Out Payments. The aggregate
purchase price and related costs is estimated to be approximately $1,430,000.
The excess of purchase price over net assets acquired is being amortized over 15
years using the straight-line method. However, if the Earn-Out Payment is made,
it will be recorded as an addition to goodwill.
The following unaudited pro forma financial information for the Company gives
effect to the EBCC acquisition as if it had occurred at the beginning of 1996.
This pro forma summary does not necessarily reflect the results of operations
that would have been achieved if the businesses had constituted a single entity
during such periods and is not necessarily indicative of results which may be
obtained in the future. Allocations for certain services performed for EBCC by
its former parent are not included below.
YEAR ENDED DECEMBER 31, 1996 1997
- -------------------------------------------------------------------
Net revenues $ 17,153,427 $ 18,639,272
----------------------------------------
Net income (loss) 482,121 (772,485)
----------------------------------------
Basic and diluted income
(loss) per share $ .11 $ (.14)
----------------------------------------
Shares used in computing
pro forma net income
(loss) per share 4,566,600 5,707,500
========================================
3. LONG-TERM DEBT AND REVOLVING LINE OF CREDIT
Long-term debt consists of the following at December 31:
1996 1997
- ------------------------------------------------------------
Promissory Notes (Note 5) - monthly
payments of $3,345, including interest
at 6%, due June 15, 1999; secured by
assets of the Company and guaranteed
by the two majority stockholders $ 92,958 $57,433
Promissory Note (Note 5) -
monthly payments of $967, including
interest at 6%, due May 1, 2001 44,166 34,987
-------------------
137,124 92,420
Less current maturities 44,679 47,434
-------------------
$ 92,445 $44,986
===================
At December 31, 1997 aggregate maturities of long-term debt are as follows:
YEARS ENDING DECEMBER 31:
- --------------------------------------------------------
1998 $47,434
1999 30,035
2000 10,955
2001 3,996
On January 30, 1998, the Company entered into a $2 million revolving line of
credit agreement, which accrues interest at the prime rate or LIBOR rate plus
2 3/4% on outstanding borrowings and expires in January, 2000. The borrowing
base includes certain accounts receivable and furniture and equipment.
4. LEASES
The Company has operating leases for certain office space and call centers and a
capital lease for certain equipment utilized at the corporate office. Several of
these leases include renewals.
Future payments under the capital lease obligation at December 31, 1997 are
as follows:
- --------------------------------------------------------
YEARS ENDING DECEMBER 31:
- --------------------------------------------------------
1998 $13,416
1999 13,416
2000 8,945
-------
35,777
Less amount representing interest 6,466
-------
29,311
Less current portion 9,647
-------
$19,664
=======
Assets under capital leases had a carrying value of approximately $28,000 and
$18,000 at December 31, 1996 and 1997, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
At December 31, 1997 future minimum obligations under operating leases that have
initial noncancelable lease terms in excess of
one year, not including shared operating costs, are
as follows:
YEARS ENDING DECEMBER 31:
- -------------------------------------------------------
1998 $ 402,000
1999 377,000
2000 313,000
2001 199,000
2002 146,000
Thereafter 659,000
----------
$2,096,000
==========
Rent expense incurred on all operating leases was approximately $280,000 and
$454,000 for the years ended December 31, 1996 and 1997, respectively.
5. GRANT AGREEMENTS
One of the Company's strategies is to locate its call centers in small, rural
communities in the Midwest. These communities often provide advantageous
economic incentives for locating facilities in these areas. These incentives
include grants, low interest loans, favorable facility leases, funds for
employee training and equipment subsidies.
In July 1995, in connection with the opening of the Valley City, N.D.
facility, the Company received assistance from Valley City Development
Corporation, including $25,000 to reimburse start-up costs, approximately
$150,000 in leasehold improvements, and a $107,000 equipment lease for which the
lease payments will be forgiven on a monthly basis over the life of the lease if
the Company continues operating in Valley City.
In April 1996, the Company opened a call center in Devils Lake, N.D. The
Company received assistance from Devils Lake Community Development Corporation,
including $25,000 for reimbursement of start-up costs, $150,000 in equipment
leases which will be forgiven over five years, $150,000 in leasehold
improvements and a 6%, $50,000 loan.
In September 1996, the Company opened a call center in Redfield, S.D. The
Company received a $500,000 assistance grant from the Redfield Industrial
Development Corporation including $200,000 of leasehold improvements and
$300,000 for equipment.
During 1997, the Company executed three Memoranda of Understandings with the
Nebraska Department of Economic Development and three Nebraska communities.
Under the agreements, the Company agreed to open call centers in three
communities in 1997 and 1998. The Company will receive grants from the local
communities and state in connection with the opening of each call center. The
aggregate amount of the grants is $700,000. These grants will be forgivable over
five years from the date of the grant. As of December 31, 1997 the Company had
opened one of the call centers in Chadron, Neb. The amount of the grant related
to Chadron was $300,000 of which the Company received $150,000.
The reimbursement of start-up costs was offset against the corresponding
expense, and the payments for leasehold improvements and the Redfield equipment
reduced the recorded assets. The Devils Lake and Redfield equipment leases and
the $150,000 Nebraska grant are recorded as deferred liabilities in the
consolidated balance sheets, and are being amortized as a reduction of
administrative expense when amounts are forgiven, which is scheduled as follows:
1998 $81,400
1999 81,400
2000 70,700
2001 42,500
2002 20,000
In most cases, the Company is obligated to continue operating the call center
for five years from when it was opened, and certain loans and leases are
guaranteed by the two majority shareholders.
6. STOCKHOLDERS' EQUITY
COMMON STOCK - Effective June 28, 1996 the Company amended its Articles of
Incorporation to increase its authorized common stock to 15,000,000 shares and
authorized 5,000,000 shares of undesignated stock. In addition, all issued
common stock was canceled, 4,200,000 shares of new, no par common stock was
issued and additional paid-in capital was reclassified to common stock.
DIVIDENDS - No dividends were paid in 1997. During 1996, dividends of
$634,436 were paid to the two majority shareholders related to operations of the
Company prior to its conversion to a C Corporation.
INITIAL PUBLIC OFFERING - During 1996, the Company completed an underwritten
public offering of 1,505,000 shares of its common stock (including 105,000
shares of the underwriter's overallotment) at a public offering price of $5.00
per share (the Offering). The net proceeds of the Offering, after related
expenses, were approximately $6,378,000. A portion of the net proceeds from the
offering was used to repay approximately $1,387,000 of outstanding short-term
and long-term indebtedness and capital lease obligations.
EMPLOYEE STOCK PURCHASE PLAN - Effective June 30, 1996 the Company adopted
the 1996 Employee Stock Purchase Plan (the Stock Purchase Plan), which allows
participants to purchase common stock at 85% of the common stock's fair market
value at the commencement or termination of two six-month phases each year.
Employees must have six months of service to be eligible to
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
participate in the Stock Purchase Plan. The Board of Directors has reserved
100,000 shares of common stock for issuance under the Stock Purchase Plan.
During 1997, the Company issued 3,583 shares under the plan. No shares were
issued under the Plan in 1996.
STOCK OPTIONS - Effective June 30, 1996 the Company adopted the 1996 Stock
Option Plan (the Stock Option Plan), which authorized the grant of up to 280,000
shares of the Company's common stock in the form of incentive stock options and
nonqualified stock options to employees and directors. On April 30, 1997 the
shareholders approved an increase to 430,000 shares available for grant under
the Stock Option Plan. The Stock Option Plan requires that the exercise price of
all options granted be the fair market value of the Company's common stock on
the date of grant.
The following table summarizes stock option activity:
SHARES UNDER WEIGHTED AVERAGE
OPTION PRICE PER SHARE
----------------------------
Balance at December 31, 1995 -- --
Options granted 266,000 $4.67
----------------------------
Balance at December 31, 1996 266,000 4.67
Options granted 51,250 5.31
Options canceled (37,375) 5.05
----------------------------
Balance at December 31, 1997 279,875 $4.74
============================
Shares exercisable at
December 31, 1996 123,500 $4.24
============================
Shares exercisable at
December 31, 1997 166,475 $4.46
============================
At December 31, 1997 the range of exercise prices and weighted-average
remaining contractual life of outstanding options were $3.50 to $6.25 per share
and 8.8 years, respectively.
In 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation." The Company has
elected to continue following the accounting guidance of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" for measurement
and recognition of stock-based transactions with employees. No compensation cost
has been recognized for options issued under the Stock Option Plan because the
exercise price of all options granted was at least equal to the fair value of
the common stock on the date of grant. Had compensation cost for the stock
options been determined based on the fair value at the grant date, consistent
with the provisions of SFAS No. 123, the Company's 1996 and 1997 pro forma net
(loss) income and per share amounts would have been as indicated below:
1996 1997
- --------------------------------------------------------------------------------
Basic & Basic &
Diluted Diluted
Earnings (Loss)
Amount Per Share Amount Per Share
- ------------------------------------ --------------------
Net income (loss)
(pro forma
in 1996) $504,665 $.11 $(351,545) $(.06)
================ ==================
Pro forma net
income (loss),
as adjusted $366,107 $.08 $(406,770) $(.07)
================ ==================
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions and results:
1996 1997
- -----------------------------------------------------
Dividend yield 0% 0%
Expected volatility 5% 39%
Risk free interest rate 6% 5.8%
Expected life of options 10 Years 10 Years
Fair value of options on
grant dates $2.06 $3.27
STOCK WARRANTS - On October 21, 1996 warrants to purchase 140,000 shares of
Common Stock (the Underwriter's Warrants) were issued in connection with the
initial public offering. The Underwriter's Warrants may be exercised in whole or
in part from October 21, 1997 through October 20, 2001 at an exercise price of
$6.00 per share. No warrants were exercised in 1996 or 1997.
7. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS - Each of the two majority shareholders has entered into
an employment agreement dated June 30, 1996 with the Company providing for a
minimum annual base salary of $175,000 and for 24 months' continuation of base
salary and health benefits if employment is terminated by either party for any
reason during the initial two-year term of the agreement. The agreements also
require the Company to pay premiums for life insurance intended to fund the
buy/sell agreements to which the two majority shareholders are parties, as
described below. If employment is terminated by either party following the
initial two-year term, the two majority shareholders will receive 12 months'
salary and health benefits. These agreements require each of the two majority
shareholders to vote their shares for election of the other to serve on the
Company's Board of Directors. Each of these agreements include confidentiality
protections and prohibits each of the two majority shareholders from competing
with the Company for a period equal to the period during which the Company is
obligated to make severance payments.
BUY/SELL AGREEMENTS - Each of the two majority shareholders has entered into
a Buy/Sell Agreement (the Agreement) with the Company and each other. Under this
Agreement, the Company may have the option to purchase shares from the two
shareholders.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
8. OTHER INCOME
Included in the other income for the year ended December 31, 1996 is a gain of
approximately $101,000 relating to the settlement of a contract with a former
client.
9. INCOME TAXES
Prior to October 21, 1996, the effective date of the Initial Public Offering
(IPO), the Company had been treated for federal and state income tax purposes as
an S Corporation under Subchapter S of the Internal Revenue Code of 1986, as
amended (the Code), and comparable state tax laws. As a result, earnings of the
Company had been taxed for federal and state income tax purposes directly to the
shareholders of the Company, rather than to the Company. In connection with the
IPO, the Company was converted from an S Corporation to a C Corporation under
the Code. In addition, as a result of the termination of its S Corporation
status, in accordance with SFAS No. 109, "Accounting for Income Taxes," the
Company recorded a net deferred income tax liability and corresponding deferred
income tax expense of $221,700.
The provision (benefit) for income taxes for the years ended December 31,
1996 and 1997 consists of the following:
1996 1997
- ---------------------------------------------------------------
Current:
Federal $116,500 $ (82,298)
State 31,400 --
-----------------------
147,900 (82,298)
Deferred (15,300) (133,202)
-----------------------
Income tax expense (benefit)
C Corporation 132,600 (215,500)
Conversion from S
Corporation to C Corporation 221,700 --
-----------------------
$354,300 $(215,500)
=======================
Differences between the provisions for income taxes at the federal statutory
rate and the recorded provision for the years ended December 31, 1996 and 1997
are summarized as follows:
1996 1997
- ----------------------------------------------------------------
Income tax expense (benefit) at
federal statutory rate $299,000 $(198,500)
State income tax expense (benefit),
net of federal benefit (cost) 43,000 (25,000)
S Corporation taxes (216,800) --
Conversion from S Corporation
to C Corporation 221,700 --
Other, net 7,400 8,000
----------------------
$354,300 $(215,500)
======================
Net deferred tax liabilities at December 31, 1996 and 1997 are comprised of
the following:
1996 1997
- ----------------------------------------------------------------
Excess of tax over book depreciation $179,000 $282,000
Allowance for doubtful accounts (29,200) (59,000)
Cash to accrual accounting 56,612 27,000
Tax credits -- (18,000)
Benefit of NOL carryforwards -- (130,000)
Other, net -- (28,790)
----------------------
$206,412 $ 73,210
======================
Realization of deferred tax assets associated with the net operating loss
carryforwards is dependent upon generating sufficient taxable income prior to
their expiration. Management believes that it is more likely than not that all
of these net operating loss carryforwards will be used, thus no valuation
allowance has been established.
As of December 31, 1997 the Company had federal net operating loss
carryforwards of approximately $290,000, which will expire in 2012.
10. RESTRUCTURING COSTS
In December 1997, in connection with management's plans to reduce costs and
improve operating efficiencies, the Company transferred the outbound calling
services performed at its Lombard call center to other call centers. As a
result, the Company recorded a restructuring charge of $388,563, as detailed
below, all charges of which remained in accrued liabilities at December 31,
1997. The principal actions in the plan involve the consolidation of the
outbound call center operations in Lombard, Ill. into existing ACI call centers
in Merrillville, Ind. and Pierre, S.D.
The major components of the restructuring charges are
as follows:
Occupancy costs $178,700
Write-down of furniture and equipment 128,200
Severance and related costs 41,700
Other 39,963
--------
$388,563
========
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
333-17281, No. 333-17283, and No. 333-44249 of ACI Telecentrics Incorporated on
Form S-8 of our report dated February 12, 1998 incorporated by reference in this
Annual Report on Form 10-KSB of ACI Telecentrics, Incorporated for the year
ended december 31, 1997.
/s/ DELOITTE & TOUCHE
Minneapolis, Minneosta
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 659,042
<SECURITIES> 0
<RECEIVABLES> 2,564,323
<ALLOWANCES> 195,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,197,360
<PP&E> 4,828,922
<DEPRECIATION> 1,585,717
<TOTAL-ASSETS> 8,496,284
<CURRENT-LIABILITIES> 1,714,512
<BONDS> 0
0
0
<COMMON> 6,592,846
<OTHER-SE> (163,534)
<TOTAL-LIABILITY-AND-EQUITY> 8,496,284
<SALES> 0
<TOTAL-REVENUES> 15,253,893
<CGS> 8,388,921
<TOTAL-COSTS> 15,988,772
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (167,834)
<INCOME-PRETAX> (567,045)
<INCOME-TAX> (215,500)
<INCOME-CONTINUING> (351,545)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (351,545)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
