<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 3, 1997
REGISTRATION NO. 333-14103
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------
PREFERRED EMPLOYERS HOLDINGS, INC.
(Name of small business issuer in its charter)
------
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 6411 65-0698779
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------
10800 Biscayne Blvd., Penthouse
Miami, FL 33161
(Address, including zip code, and telephone number, including area code, of
principal executive offices)
------
Mel Harris, Chairman and Chief Executive Officer
10800 Biscayne Blvd., Penthouse
Miami, FL 33161
(305) 893-4040
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
------
Copies to:
Donald J. Bezahler, Esq. Stephen J. Gulotta, Jr., Esq.
Baer Marks & Upham LLP Squadron, Ellenoff, Plesent &
805 Third Avenue Sheinfeld, LLP
New York, New York 10022 551 Fifth Avenue
Tel: (212) 702-5700 New York, New York 10176
Fax: (212) 702-5941 Tel: (212) 661-6500
Fax: (212) 697-6686
------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
If any securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act,
please check the following box. [X]
------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Securities Amount to be Offering Price Aggregate Offering Amount of
to be Registered Registered Per Share(1) Price(1) Registration Fee
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock, par value
$.01(2) 1,725,000 $8.00 $13,800,000 $4,312.50
- ----------------------------------------------------------------------------------------------------------
Representative's Warrants ....... 150,000 $.001 $150 $ .05
- ----------------------------------------------------------------------------------------------------------
Shares of Common Stock, par value
$.01(3)(4) ..................... 150,000 $9.60 $1,440,000 $ 450.00
- ----------------------------------------------------------------------------------------------------------
Total ........................... -- -- $15,240,150 $4,762.55(5)
===========================================================================================================
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457 under the Securities Act.
(2) Includes 225,000 shares of Common Stock which may be issued upon exercise
of the Underwriter's over-allotment option. See "UNDERWRITING."
(3) Shares of Common Stock issuable upon exercise of the Warrants to be sold
to the Representative of the several underwriters at an exercise price of
120% of the initial public offering price.
(4) Pursuant to Rule 416, this Registration Statement also covers such
indeterminable additional shares as may become issuable as a result of
anti-dilution adjustment in accordance with the terms of the Warrants to
be sold to the Representative of the several underwriters.
(5) $4,379.34 of this amount was previously paid.
------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
=============================================================================
<PAGE>
PREFERRED EMPLOYERS HOLDINGS, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NO. CAPTION IN FORM SB-2 LOCATION IN PROSPECTUS
------------ ------------------------------------------------------ ----------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Front Outside Front Cover Page.
Cover Page of Prospectus.
2. Inside Front and Outside Back Cover Pages of Prospectus. Inside Front and Outside Back Cover Pages.
3. Summary Information, Risk Factors and Ratio of Earnings Prospectus Summary; Risk Factors.
To Fixed Charges
4. Use of Proceeds. Use of Proceeds.
5. Determination of Offering Price. Underwriting.
6. Dilution. Dilution.
7. Selling Security Holders. *
8. Plan of Distribution. Underwriting.
9. Description of Securities to be Registered. Description of Securities.
10. Interest of Named Experts and Counsel. Legal Matters; Experts.
11. Information with Respect to the Registrant. Prospectus Summary; Business; Selected Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Management;
Management -- Executive Compensation; Principal
Stockholders; Certain Transactions; Financial
Statements.
12. Disclosure of Commission Position on Indemnification for Management -- Indemnification.
Securities Act Liabilities.
</TABLE>
- ------
*NOT APPLICABLE
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION DATED JANUARY 3, 1997
PROSPECTUS
PREFERRED EMPLOYERS HOLDINGS, INC.
1,500,000 SHARES OF COMMON STOCK
Preferred Employers Holdings, Inc. (together with Preferred Employers
Group, Inc., which will become its wholly-owned subsidiary as a result of the
Exchange (as defined in "Recapitalization"), and P.E.G. Reinsurance Company,
Ltd., its wholly-owned subsidiary, the "Company") is hereby offering
1,500,000 shares (the "Shares") of common stock, par value $.01 per share
(the "Common Stock").
Prior to this offering (the "Offering"), no public market existed for the
Common Stock. The Company has applied for the inclusion of the Common Stock
on the Nasdaq SmallCap Market ("Nasdaq") under the symbol "PEGI" and on the
Boston Stock Exchange (the "BSE") under the symbol "PEG". The initial public
offering price will be determined by negotiations between the Company and
Commonwealth Associates, as representative (the "Representative") of the
several underwriters in this Offering (the "Underwriters"). It is currently
anticipated that the initial public offering price per Share will be between
$7.00 and $8.00. See "Underwriting" for a discussion of the factors
considered in determining the public offering price of the Shares.
THESE SECURITIES ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 8
AND "DILUTION" COMMENCING ON PAGE 16.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
Underwriting
Discount and Proceeds to
Price to Public Commissions(1) Company(2)
- ------------------------------------------------------------------------------
Per Share $ $ $
- ------------------------------------------------------------------------------
Total(3) ..... $ $ $
===============================================================================
<PAGE>
(1) Does not include additional compensation to be received by the
Representative consisting of (i) a non-accountable expense allowance
equal to 2% of the gross proceeds of this Offering or $_________
($_________ if the Underwriters' over-allotment option, is exercised in
full), of which $20,000 has been paid to date, (ii) warrants to purchase
up to 150,000 Shares (the "Representative's Warrants"), exercisable
during the four years commencing one year after the date of this
Prospectus, at an exercise price equal to 120% of the initial public
offering price per Share, and (iii) a one-year financial advisory
agreement pursuant to which the Representative will receive an aggregate
of 2% of the gross proceeds of this Offering payable at closing. In
addition, the Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933. See "UNDERWRITING."
(2) Before deducting expenses of this Offering payable by the Company,
estimated to be $_______, including the Representative's non-accountable
expense allowance ($_______ if the Underwriters' over-allotment option is
exercised in full).
(3) The Company has granted to the Underwriters a 45-day option to purchase
up to an additional 225,000 Shares to cover over-allotments, if any. If
the over-allotment option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to the
Company will be $_________, $__________ and $________, respectively. See
"UNDERWRITING."
------
The shares of Common Stock are being offered, subject to prior sale, when,
as and if delivered to and accepted by the Underwriters and subject to the
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters reserve the right to withdraw, cancel or modify this
Offering and to reject any order in whole or in part. It is expected that
delivery of the certificates representing the securities offered hereby will
be made against payment therefor at the offices of Commonwealth Associates at
733 Third Avenue, New York, New York, on or about_________, 1997.
------
COMMONWEALTH ASSOCIATES
The date of this Prospectus is ___________, 1997
<PAGE>
[PICTURE]*
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET, ON
THE BOSTON STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus constitute "forward-looking
statements" within the meaning of the Securities Act of 1933. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements
of the Company, or industry results, to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other factors
include, among others, those discussed under the caption "Risk Factors."
<PAGE>
Except as otherwise indicated, all information in this Prospectus (i)
assumes the Underwriter's over-allotment option is not exercised, and (ii)
gives effect to the consummation immediately prior to this Offering of the
exchange by the stockholders of the Company of their shares of common stock
in Preferred Employers Group, Inc. ("PEGI"), the corporation that now
conducts certain of the Company's business, for shares of the Common Stock.
See "Recapitalization." Except as otherwise specified or when the context
otherwise requires, references to the Company in this Prospectus, include
Preferred Employers Holdings, Inc., PEGI, which will become its wholly-owned
subsidiary as a result of the Exchange (as such term is defined in
"Recapitalization") and through which the Company conducts certain of its
business, and the Reinsurance Subsidiary (as defined below).
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements and notes thereto,
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed
in the forward-looking statements. Factors that might cause such differences
include, but are not limited to, those discussed in "Risk Factors."
THE COMPANY
The Company is primarily engaged in providing workers' compensation and
business insurance products and risk management services designed for
American franchise businesses, particularly fast food and family style
restaurants and convenience stores. The Company's risk management services
are designed to assist clients in lowering claims costs. The Company believes
that through its innovative approach to cost containment and the expertise of
its management team, it has succeeded in helping its clients achieve claims
costs which are among the lowest in the industry to which it provides
service. The average cost per claim to the Company's clients for the years
1991 to 1995 was $1,584 (this figure includes medical, indemnity and loss
adjustment expenses). In comparison, although no data is available for the
years 1994 and 1995, the latest data available from the National Council on
Compensation Insurance, Inc. on restaurant workers' compensation claims
reflects an average cost per claim of $2,515 (this figure only includes medical
and indemnity expenses) for the years 1991 to 1993.
The Company believes that annual premiums paid for workers' compensation
insurance by the franchise industry exceed $2.5 billion, with annual premiums
paid by the fast food and family style restaurant and convenience store
segment alone representing approximately $1 billion of this amount. Although
the Company believes that such franchise businesses are potentially among the
safest insurance risks, they generally pay the same workers' compensation
rates as non-franchise businesses which may not have formal risk or safety
awareness programs. Consequently, such businesses rarely realize any price
advantages from their favorable safety attributes and generally suffer
premium "redundancy" or an "overcharge" in their workers' compensation
insurance rates. The Company offers products and services designed to enable
its clients to realize substantial savings in their workers' compensation
costs while reducing the time required to manage this element of their
business. Specifically, the Company provides clients such savings by offering
competitive rates and dividends and risk management services, including cost
containment and claims management programs, which assist clients in managing
their workers' compensation costs. As a result of these measures, the Company
has enabled its clients to achieve an average reduction of approximately 11%
over the four year period 1990 through 1994 in their premium experience
modification factors (which are a significant component in determining a
client's premium).
Since its inception, the Company has been tracking and recording loss data
related to franchise businesses and has accumulated and developed what it
believes to be the nation's largest database of fast food franchise
restaurant policy loss results. Such information is crucial to writing
effective and competitive policies and attaining overall profitability. The
Company has developed other proprietary information and
3
<PAGE>
claim analyses systems and custom designed loss reports which explain the
claims procedure and motivate client management to promote safety and control
claims expense. The Company's goal is to exploit its policy loss database to
become the leading "risk insurance manager" for fast food and family style
franchise restaurants and convenience stores throughout North America and to
expand into other franchise businesses. The Company believes that, as one of
the only national providers specializing in workers' compensation insurance
for franchise businesses in the United States, it is uniquely positioned to
accomplish this goal.
Historically, the Company has acted as a general agent ("GA") representing
various major international and domestic insurance carriers. In this
capacity, the Company produces both workers' compensation and other forms of
property and liability insurance (such other forms of insurance being
hereinafter referred to as "Package") for franchise businesses through its
own sales staff as well as through the use of outside broker/agents. As a GA,
the Company assumes none of the risks associated with the insurance business
it produces. To date, the Company's principal source of revenue has been from
commissions based on insurance premiums collected on the insurance policies
it sells. Upon consummation of this Offering, the Company will continue
writing business as a GA, but will significantly expand its focus to include
operating as a reinsurer with the expectation of increasing its overall
profitability.
The Company currently writes a Guaranteed Cost Workers' Compensation
Safety Group Dividend Program (the "Safety Group Program" or "Program") on
behalf of The American International Group of companies ("AIG"), a U.S.
holding company for global providers of insurance. As the insurance carrier,
AIG assumes 100% of the risks associated with the Program and receives, as
compensation for such assumption, all of the premiums less the commissions
paid to the Company from the Program. Through a subsidiary of the Company
formed under the laws of Bermuda (the "Reinsurance Subsidiary"), the Company
will enter into a reinsurance agreement (the "Reinsurance Agreement") with
The Insurance Company of the State of Pennsylvania an affiliate of AIG and
other affiliated companies of AIG (the "AIG Affiliates"), pursuant to which
the Reinsurance Subsidiary will act as the reinsurer with respect to certain
workers' compensation and employer's liability insurance policies in force as
of the date of the Reinsurance Agreement with policy inception dates as of
January 1, 1996 through the date of the Reinsurance Agreement (the "Book of
Business"), or attaching during the term thereof, which are written by the
Company on behalf of the AIG Affiliates. Upon entering into the Reinsurance
Agreement, the AIG Affiliates will pay the Reinsurance Subsidiary the related
net written premium less certain Program expenses and commissions and the
losses paid associated with the Book of Business (the "Ceded Premium"). It is
anticipated that a substantial portion of the Ceded Premium will be used as
security for the payment of losses for the benefit of AIG. See "Business --
Reinsurance -- Reinsurance Agreement."
Pursuant to the Reinsurance Agreement, the Reinsurance Subsidiary will
retain the Ceded Premium together with the risks and potential for
profitability associated therewith. See "Business -- Strategy." The Company
intends to use a significant portion of the proceeds of this Offering to fund
the operations of the Reinsurance Subsidiary. See "Use of Proceeds."
Although the Reinsurance Subsidiary will assume the risks associated with
being a reinsurer, the Reinsurance Agreement will limit the liability of the
Reinsurance Subsidiary for losses and certain defined expenses to the first
$300,000 per occurrence. In addition, the Reinsurance Agreement limits the
aggregate liability of the Reinsurance Subsidiary for all coverage to an
amount not to exceed 70% of the gross written premium for each individual
underwriting year. The AIG Affiliates will retain all liabilities in excess
of this amount. The AIG Affiliates will be paid 5% of the gross written
premiums under the Program with which to purchase excess and aggregate
reinsurance.
In September 1996, an AIG Affiliate made available to the Company a new
workers' compensation program (the "Small Business Workers' Compensation
Program" or "SBP") designed to provide coverage to certain smaller businesses
located in 23 states which pay annual premiums of between $5,000 and $50,000
and which are represented by over 500 separate workers' compensation class
codes. The underwriting process under the SBP has been simplified enabling
the Company to respond promptly with com-
4
<PAGE>
petitively priced quotes. The Company believes that many broker/agents,
regardless of size, have accounts that would be eligible to participate in
the SBP and therefore could be a potential broker/agent to promote this
program. If successful, the SBP could substantially increase the Company's
revenues. The SBP will not be subject to the Reinsurance Agreement.
Preferred Employers Holdings, Inc. was organized in Delaware on September
20, 1996. Preferred Employers Group, Inc., which will become a wholly-owned
subsidiary of Preferred Employers Holdings, Inc. as a result of the Exchange,
was organized in Florida on November 17, 1988. The Company's executive
offices are located at 10800 Biscayne Blvd., Miami, Florida 33161, and its
telephone number is (305) 893-4040.
THE OFFERING
Common Stock offered by the
Company: .................... 1,500,000 shares of Common Stock.
Common Stock to be outstanding
after the Offering:............ 4,500,000 (1)
Use of Proceeds:............... To capitalize the reinsurance operations of
the Reinsurance Subsidiary and for working
capital and general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq Symbol(2):..... PEGI
Proposed Boston Stock Exchange
Symbol(2):................... PEG
- ------
(1) Does not include (i) 300,000 shares of Common Stock reserved for issuance
upon exercise of stock options which may be granted under the Company's
Employee Stock Option Plan (the "Option Plan"), and (ii) 150,000 shares
of Common Stock reserved for issuance upon exercise of the
Representative's Warrants.
(2) There is currently no market for the Common Stock and there can be no
assurances that a liquid or active market will develop or be sustained
for the Common Stock after this Offering. The Company has applied for
inclusion of the Common Stock on Nasdaq and on the BSE. However, there
can be no assurance that such applications will be approved, or if
approved, that such listings will be maintained. See "Risk Factors --
Absence of Public Market."
5
<PAGE>
SUMMARY AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Pro Forma
Nine months Pro Forma
ended Year ended
Nine Months Ended September 30, Years Ended December 31, September 30, December 31,
---------------------------- ------------------------------- ---------------- --------------
1996 1995 1995 1994 1996(4) 1995(4)
------------ ------------ ------------ --------------- ---------------- --------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Total revenue ...... $1,909,272 $1,652,339 $2,269,920 $2,783,072 $13,308,000(1) $18,534,000(1)
Claims and claim
settlement expenses . $0 $0 $0 $0 $6,269,000(5) $8,945,000(5)
Amortization of
deferred policy
acquisition costs . -- -- -- -- 4,217,000(6) 6,018,000(6)
Total operating
expenses .......... $2,170,450 $1,648,161 $2,287,438 $1,509,398 $2,170,000 $2,288,000
Operating income
(loss) ............ ($261,178) $4,178 ($17,518) $1,273,674 $652,000 $1,283,000
Nonoperating income $
(loss) ............ $190,000 0 ($69,269) $5,857,749(7) $190,000 ($69,000)
Income (loss) before
income taxes ...... ($71,178) $4,178 ($86,787) $7,131,423 $842,000 $1,214,000
Income taxes (2)
Net income (loss) . ($71,178) $4,178 ($86,787) $7,131,423 $842,000 $1,214,000
Net income (loss) per
share ............. ($.01) $.00 ($0.03) $2.38 $.28 $.40
As Adjusted Statement
of Operations
Data(3):
Historical income
(loss) before income
taxes (benefit) ..... ($71,178) $4,178 ($86,787) $7,131,423 $842,000 $1,214,000
Pro forma provision for
income taxes
(benefit) ......... ($26,549) $1,558 ($32,372) $2,660,021 $314,000 $453,000
Pro forma net income
(loss) ............ ($44,629) $2,620 ($54,415) $4,471,402 $528,000 $761,000
Pro forma net income
(loss) per share .. ($ 0.01) $ .00 ($ 0.02) $ 1.49 $ .18 $ .25
Weighted average
shares outstanding . 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000
Combined Ratio(5)(6) . -- -- -- -- 92% 92%
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30, 1996
---------------------------- -----------------------------
As
Balance Sheet Data: 1995 1994 Actual Adjusted(8)
------------ ------------ ------------ -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Total assets ............. $3,765,150 $4,985,650 $6,067,499 $15,671,764
Total liabilities ........ $3,474,747 $3,502,903 $5,848,274 $ 5,848,274
Total stockholders' equity . $ 290,403 $1,482,747 $ 219,225 $ 9,823,490
</TABLE>
- ------
(1) Net income does not include expected income from investment of available
cash. Based upon the average flow of funds for the periods presented and
assuming a rate of return of 5%, investment income for the year ended
December 31, 1995 and the nine months ended September 30, 1996 would have
been $163,000 and $364,000, respectively, and net income would have been
$864,000 and $755,000, respectively. Actual results from investment may
have been greater than or less than this amount.
6
<PAGE>
(2) For all periods presented, the Company was treated as an S Corporation
for federal and state income tax purposes. As a result, income taxes have
not been provided for herein. The Company's status as an S Corporation
will be terminated upon consummation of this Offering. See "Dividend
Policy."
(3) Represents adjustments for U.S. federal and state income taxes as if the
Company had been taxed as a C Corporation rather than an S Corporation
for all periods presented. The pro forma financial information includes
income earned by the Reinsurance Subsidiary, on which the Company will be
subject to tax in the United States. See "Risk Factors -- United States
Federal Income Tax Risks -- Controlled Foreign Corporation Rules."
(4) The pro forma financial information contained in this Prospectus assumes
that the Reinsurance Subsidiary was operational effective January 1,
1995. In this regard the pro forma financial information assumes that the
average annualized workers' compensation premiums in force for the
periods presented were reinsured by the Reinsurance Subsidiary and, as a
reinsurance entity, the Reinsurance Subsidiary recorded and invested
premiums received, paid claims and established reserves on losses
incurred, and conducted business consistent with such business typically
conducted by a reinsurer. See "Discussion and Analysis of Pro Forma
Consolidated Financial Information."
(5) Claims and claim settlement expenses incurred of $8,945,475 and
$6,268,956 for the year ended December 31, 1995 and the nine month period
ended September 30, 1996, respectively, are based on an assumed 55% loss
ratio (premiums earned x 55%). The actual average loss ratio experienced
by the insurance carrier in prior years, based on underwriting analyses
prepared by the Company, was 51.5% which ratio compares favorably with
the loss ratios experienced by other similarly situated companies in the
industry. The Company has engaged an outside independent firm of
consulting actuaries which annually reviews the Company's underwriting
analysis for reasonableness.
(6) Amortization of deferred policy acquisition costs of $6,018,000 and
$4,217,000 for the year ended December 31, 1995 and the nine month period
ended September 30, 1996, respectively, represents amortization of
contractually agreed upon Program expenses equal to 37% of premiums
earned and include the following:
a) Ceding commission payable to the insurance carrier 28.83%
b) Specific and excess reinsurance premiums payable 5.00%
c) Acquisition expenses incurred by the Reinsurance Subsidiary 3.17%
-----
Total Program expenses 37.00%
=====
See "Prospectus Summary," "Risk Factors -- Reinsurance Liability,"
"Discussion and Analysis of Pro Forma Consolidated Financial
Information," and "Business -- Strategy -- Reinsurance."
(7) The Company received $5,858,000 in 1994, net of expenses, with respect to
litigation regarding a breach of contract. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(8) Adjusted to give effect to the sale of the 1,500,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $7.50 per Share and the application of the net proceeds
therefrom. See "Use of Proceeds."
7
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to other information contained in this Prospectus,
in evaluating an investment in the shares offered hereby.
Reinsurance Liability
The Company currently writes the Safety Group Program on behalf of AIG. As
the insurance carrier, AIG assumes 100% of the risks associated with the
Program and receives, as compensation for such assumption, all of the
premiums less the commissions paid to the Company from the Program. Upon
consummation of the Offering and pursuant to the Reinsurance Agreement, the
Reinsurance Subsidiary will act as the reinsurer with respect to certain
workers' compensation and employer's liability insurance policies in force as
of the date of the Reinsurance Agreement with policy inception dates as of
January 1, 1996 and later (the "Book of Business"), or attaching during the
term thereof, which are written by the Company on behalf of the AIG
Affiliates and, as a result, will assume all of the risks associated with
being a reinsurer. Upon entering into the Reinsurance Agreement, the AIG
Affiliates will pay the Reinsurance Subsidiary the related net written
premium less certain Program expenses and commissions and the losses paid
associated with the Book of Business (the "Ceded Premium"). It is anticipated
that a substantial portion of the Ceded Premium will be used as security for
the benefit of AIG. (See "Business -- Reinsurance Agreement")
Although the Reinsurance Subsidiary will assume the risks associated with
being a reinsurer, the Reinsurance Agreement will limit the liability of the
Reinsurance Subsidiary for losses and certain defined expenses to the first
$300,000 per occurrence. In addition, the Reinsurance Agreement limits the
aggregate liability of the Reinsurance Subsidiary for all coverage to an
amount not to exceed 70% of the gross written premium for each individual
underwriting year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General" and "Business --
Reinsurance."
New Lines of Business
Late in 1995, the Company began writing other forms of property and
casualty insurance in addition to workers' compensation insurance on behalf
of the insurance carriers it represents. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General" and
"Business -- Reinsurance." The success of the Company's strategy of entering
into these new lines of business, as well as the Small Business Workers'
Compensation Program and the business of reinsurance through the Reinsurance
Subsidiary, will depend on various factors, including the unpredictable
nature of the insurance industry generally, the ability of the Company to
manage its anticipated growth, the availability of adequate capital and
general economic and business conditions. Not all of the foregoing factors
are in the Company's control. There can be no assurances that the Company
will successfully implement its strategy or that its strategy will result in
profitability.
Recent Operating Losses
For the years ended December 31, 1995 and December 31, 1994, the Company
generated total revenues of approximately $2,270,000 and $2,783,000,
respectively, and incurred a net operating loss of approximately $18,000 in
1995 and net operating income of approximately $1,274,000 in 1994. For the
nine month period ended September 30, 1996, the Company generated total
revenues of approximately $1,909,000 and sustained a net operating loss of
approximately $261,000. For at least the current fiscal year, the Company may
incur a net operating loss as a result of, among other things, its expansion
strategy. There can be no assurance that the Company's operations will
achieve profitability at any time in the future or, if achieved, sustain such
profitability. See "Managements' Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Strategy."
8
<PAGE>
Regulation
As a general agent ("GA"), the Company is subject to regulation in the
various states in which it sells insurance. These regulations vary from state
to state, and may include such matters as licensing requirements, bonding
requirements, requirements regarding the Company's agreements with the
insurance carriers for which it acts as a GA, and certain other requirements.
Penalties may be imposed for violations of such regulations. Any change in
such regulation may have a material adverse effect on the Company's business
and operations.
Workers' compensation coverage is a creation of state law, subject to
change by the state legislature, and influenced by the political processes in
each state. Several states have mandated that employers receive coverage only
from funds operated by the state. As a result, the Company's financial
performance could be materially adversely affected by mandatory assessments
from such funds over which the Company has no control. Certain smaller
states, such as Hawaii and Maine, have promulgated regulations that place
onerous assessments on commercial insurers to subsidize state assigned risk
programs. These assessments generally preclude commercial insurers from
offering their workers' compensation programs in such states because of
excessive costs and necessitate insureds to either participate in state
assigned risk programs or to self-insure. The Company would be precluded from
offering workers' compensation insurance in such states and such restrictions
could have a material adverse effect on the Company's business. In addition,
there can be no assurance that other states will not also pass similar
regulations which could have a material adverse effect on the business of the
Company.
The Reinsurance Subsidiary will be a registered Bermuda insurance company
and will be subject to regulation and supervision in Bermuda. The applicable
Bermudian statutes and regulations generally are designed to protect insureds
and ceding insurance companies rather than stockholders. Among other things,
such statutes and regulations require the Reinsurance Subsidiary to maintain
minimum levels of capital and surplus, impose restrictions on the amount and
type of investments it may hold, prescribe solvency standards that it must
meet, limit transfers of ownership of its capital shares, and provide for the
performance of certain periodic examinations of the Reinsurance Subsidiary
and its financial condition. These statutes and regulations may, in effect,
restrict the ability of the Reinsurance Subsidiary to write new business or
distribute funds to the Company. Moreover, if Bermuda were to alter its
capital reserve requirements to require additional reserves for the
Reinsurance Subsidiary, the Reinsurance Subsidiary may require additional
infusions of capital from the Company.
The Reinsurance Subsidiary is neither registered nor licensed as an
insurance company in any jurisdiction in the United States. The Reinsurance
Subsidiary will conduct its business through offices in Bermuda and will not
maintain an office, and its personnel will not solicit, advertise, settle
claims or conduct other insurance activities, in the United States.
Accordingly, the Reinsurance Subsidiary does not believe it will be subject
to the insurance laws of any jurisdiction in the United States, except as
provided below with respect to its status as a foreign insurer. There can be
no assurance, however, that inquiries or challenges to the Reinsurance
Subsidiary's insurance activities will not be raised in the future or that
the Reinsurance Subsidiary's location, regulatory status or restrictions on
its activities resulting therefrom will not materially adversely affect its
ability to conduct its business in the future. See "Business -- Regulation."
Although it conducts its operations from Bermuda, the Reinsurance Subsidiary
is not authorized to underwrite local risks in Bermuda.
All of the Reinsurance Subsidiary's premiums are expected to come from
ceding insurers in the United States. The insurance laws of each state in the
United States generally impose specific requirements on insurers which seek
to place reinsurance with a foreign insurer such as the Reinsurance
Subsidiary. Such requirements include requiring the foreign insurer to submit
to jurisdiction in the United States and to meet certain capital
requirements. The Reinsurance Subsidiary generally will be required to comply
with these conditions in order to receive reinsurance business from United
States insurers. Failure to comply with such requirements may result in the
Reinsurance Subsidiary being prohibited from reinsuring within the respective
states.
Recently, the insurance and reinsurance regulatory framework has been
subject to increased scrutiny in many jurisdictions, including the United
States and various states within the United States. Many states have recently
created employee class codes that distinguish fast food restaurants from
other types of restaurants. As of the date hereof, the Company believes that
workers' compensation insurance rates with respect to such class codes have
not been similarly distinguished. However, there can be no assurance that
certain states will not, in
9
<PAGE>
the future, distinguish workers' compensation insurance rates based upon such
class codes, which could have a material adverse effect on the Company's
business. It is not possible to predict the future impact of changing law or
regulation on the operations of the Company. Such changes could, however,
have a material adverse effect on the Company. See "Business -- Regulation."
Dependence on Independent Insurance Broker/Agents; Product and Service
The Company's programs are predicated upon the successful marketing of its
products and services through independent insurance broker/agents. Although
the programs have been structured to increase revenues for the independent
broker/agents, there can be no assurance that independent broker/agents will
utilize the Company's products or services. These broker/agents are not
obligated to promote the Company's products and services and may sell
competitors' insurance products. Therefore, the Company's growth depends in
part on the marketing efforts of broker/agents and on the Company's ability
to continue to offer workers' compensation products and services that meet
the requirements of these broker/agents and their customers. Failure of these
independent insurance broker/agents to market the Company's products and
services successfully could have a material adverse effect on the Company's
financial condition and results of operations.
The Company custom designs its workers' compensation insurance programs
with nationally recognized carriers rated A or better by A.M. Best and
assists these carriers in establishing competitive rates for American
franchise businesses. The Company believes by offering superior products and
services to this segment of the business community, which tends to be among
the safest insurance risks, it can offer its clients substantial savings in
their workers' compensation programs and reduce the time devoted to managing
such programs. There can be no assurances that these programs will continue
or that the rates offered for these products will remain competitive.
Dependence on Limited Number of Clients
The Company's business largely depends upon its relationships with owners
of multiple franchises in the United States such as Burger King, McDonald's,
Wendy's and Pizza Hut. Although for the year ended December 31, 1995, the
Company provided services and products to approximately 750 separate
accounts, none of which accounted for more than 3% of annual revenues,
approximately 32% of the Company's income was derived from owners of Burger
King franchises. In as much as the Company's clients tend to own between
three and 140 franchises, the non-renewal of even a limited number of
programs or policies by brand name franchisees could have a material adverse
effect on the business of the Company. Similarly, endorsements from
franchisors to franchisees dictating the manner in which franchisees obtain
workers' compensation could have a material adverse effect on the business of
the Company.
Dependence on Limited Number of Carriers
The Company currently writes all of its workers' compensation and Package
insurance through AIG and General Accident Insurance Company of America
("GAIC"). The Company has been a GA with AIG since 1993. The Company has been
a GA with GAIC since 1995, offering Package insurance for family style and
fast food restaurants, the commissions from which accounted for 15% of the
Company's net revenues in 1995. GAIC has recently advised the Company that it
will no longer accept Package insurance risks for fast food restaurants, but
will continue to do so for family style restaurants. The Company is currently
pursuing other carriers through which it can write such business. The Company
believes that there are many national insurance carriers through which it may
write business and that termination of the Company's relationship with its
current insurance carriers would not have a material adverse effect on the
business of the Company.
Investment Income Necessary to Preserve Capital
The Company's income will depend, in part, on the income derived from the
investment of premiums by the Reinsurance Subsidiary. The Company believes
that the risks inherent in the business of the Reinsurance Subsidiary should
not be augmented by a speculative investment policy and, therefore, its
investment strategy will be partially defined by the need to preserve its
capital. Because of the unpredictable nature of losses that may arise under
insurance policies, the Reinsurance Subsidiary's liquidity needs may be
substantial. The Company's investment policy will be established by the
Company's Investment Committee, and will be subject to, among other factors,
the Company's liquidity requirements. The Company intends that its
investments will con-
10
<PAGE>
sist primarily of cash or fixed-income securities (none of which will have a
rating of less than AA), the market value of which is subject to fluctuation
depending on changes in prevailing interest rates. Additionally, the Company
reserves the right to invest a limited percentage of its portfolio, to be
determined by the Investment Committee, in common stock of companies listed
on national securities exchanges. The stock of such companies may fluctuate
as a result of specific events affecting such companies as well as general
market conditions. Increases in interest rates or fluctuations in the market
price of such companies' stocks may result in losses, both realized and
unrealized, on the Company's investments. See "Business -- Investments."
Competition
The workers' compensation industry is highly competitive. The Company
competes with other GA's, numerous large insurance companies, managed health
care companies, state sponsored insurance pools, risk management consultants
and non-Company affiliated broker/agents, many of which have significantly
larger operations and greater financial, marketing, human and other resources
than the Company. Competitive factors include product lines, premium rates,
personalized service and effective cost containment measures. Additionally,
the Company does not offer the full line of insurance products which is
offered by some of its competitors. Such competitors may have material
advantages over the Company as a result of additional types of insurance and
services they offer. There can be no assurance that the Company will be able
to maintain its competitive position or that any increased competition will
not have a material adverse effect on the Company's financial condition and
results of operations. See "Business -- Competition."
After a period of absence from the market, traditional national insurance
companies have recently re-entered the workers' compensation insurance market
thereby increasing competition in the Company's major market segment.
Although the Company believes that, as one of the only national providers
specializing in workers' compensation insurance for franchise businesses in
the United States, it is uniquely positioned in the industry, no assurance
can be given that other companies will not develop similar national programs
or that the Company will be able to compete effectively in the future.
Reliance Upon Key Personnel
The Company's success depends to a substantial extent upon the continuing
efforts and abilities of Mel Harris, the Company's Chairman and Chief
Executive Officer, Howard Odzer, the Company's President, and upon the
efforts and abilities of certain other key management personnel. The Company
has entered into employment agreements with Messrs. Harris and Odzer. The
loss of the services of Mr. Harris, Mr. Odzer or other key management
personnel, for any reason could have a material adverse effect on the
Company's ability to conduct its operations. The Company maintains key man
insurance on the lives of Mr. Harris and Mr. Odzer in the amount of
$4,000,000 and $3,000,000, respectively. See "Management."
United States Federal Income Tax Risks
Taxation of Reinsurance Subsidiary
As a Bermuda domiciled corporation, the Reinsurance Subsidiary will not
file United States tax returns. The Company anticipates that the Reinsurance
Subsidiary will operate in such a manner that it will not directly be subject
to U.S. tax (other than U.S. excise tax on reinsurance premiums where the
risks covered thereby are reinsured with another foreign insurer which is
neither a resident of Bermuda nor a resident of a third country with a United
States tax treaty which entitles the foreign insurer to exemption from excise
tax, and withholding tax on certain investment income from U.S. sources)
because it will not engage in business or have a permanent establishment in
the United States. However, because definitive identification of activities
which constitute being engaged in a trade or business in the United States is
not provided by the Internal Revenue Code of 1986, as amended (the "Code"),
or regulations or court decisions, there can be no assurance that the
Internal Revenue Service (the "IRS") will not contend in the future that the
Reinsurance Subsidiary is engaged in a trade or business in the United
States. If the Reinsurance Subsidiary were engaged in business in the United
States (and, if it were to qualify for benefits under the income tax treaty
between the United States and Bermuda, such business were attributable to a
"permanent establishment" in the United States), the Reinsurance Subsidiary
would be subject to U.S. tax at regular corporate rates on its income that is
effectively connected with its U.S. business plus an additional 30% "branch
profits" tax on such income remaining after the regular tax, in which case
the Company's earnings and stockholders' equity could be materially adversely
affected.
11
<PAGE>
Controlled Foreign Corporation Rules
The Reinsurance Subsidiary will constitute a "controlled foreign
corporation" ("CFC") for United States federal income tax purposes. As a
result the Company must include in its gross income for United States federal
income tax purposes its pro rata share of the CFC's "subpart F income," even
if such subpart F income is not distributed. The Company anticipates that
substantially all of the Reinsurance Subsidiary's income will be subpart F
income. If the Company does not receive distributions of the subpart F income
from the Reinsurance Subsidiary, the Company will be required to utilize
other funds to satisfy the United States federal income taxes due on the
subpart F income and as a result the Company's earnings and shareholder's
equity could be materially adversely affected.
Control by Existing Stockholders
Following completion of this Offering, Mel Harris, members of his family,
and Howard Odzer and members of his family, who together currently
beneficially own 100% of the Company's Common Stock, will own approximately
66.67% of the Company's outstanding Common Stock. Accordingly, these
stockholders will have the ability to control the outcome of stockholder
votes, which will include the ability to elect all of the Company's
directors, control the adoption or amendment of provisions in the Company's
Certificate of Incorporation and Bylaws, and approve certain mergers and
other significant corporate transactions. See "Principal Stockholders" and
"Description of Securities."
Broad Discretion as to Use of Proceeds
Approximately 64% of the net proceeds of this Offering has been allocated
to working capital and general corporate purposes and will be used for such
purposes as management may determine. Accordingly, management will have broad
discretion with respect to the expenditure of that portion of the net
proceeds of this Offering. In addition, the Company's estimate of its
allocation of the use of proceeds of this Offering is subject to a
reapportionment of proceeds among the categories set forth herein or to new
categories. The amount and timing of expenditures will vary depending upon a
number of factors, including changing competitive conditions and general
economic conditions. See "Use of Proceeds."
Possible Nasdaq and BSE Delisting; Low Priced Stocks
The trading of the Common Stock Securities on Nasdaq and the BSE will be
conditioned upon the Company meeting certain asset, capital and surplus,
earnings and stock price tests set forth by Nasdaq and the BSE. For example,
to maintain eligibility for trading on Nasdaq, the Company will be required
to maintain total assets in excess of $2,000,000, capital and surplus in
excess of $1,000,000 and (subject to certain exceptions) a bid price of $1.00
per share. Nasdaq has proposed new listing requirements, which, if adopted
may impose more stringent maintenance criteria. To maintain eligibility for
trading on the BSE, the Company will be required, among other things, to
maintain total net tangible assets in excess of $1,000,000. Upon completion
of this Offering and the receipt of the proceeds therefrom, the Company
believes that it will meet the respective asset, capital and surplus earnings
tests set forth by Nasdaq and the BSE. If the Company fails any of the tests,
the Common Stock may be delisted from trading on Nasdaq and the BSE. The
effects of delisting include the limited release of the market prices of the
Common Stock and limited news coverage of the Company. Delisting may restrict
investors' interest in the Common Stock and materially adversely affect the
trading market and prices for such securities and the Company's ability to
issue additional securities or to secure additional financing. In addition to
the risk of volatile stock prices and possible delisting, low price stocks
are subject to the additional risks of federal and state regulatory
requirements and the potential loss of effective trading markets. In
particular, if the Common Stock were delisted from trading on such exchanges
and the trading price of the Common Stock was less than $5 per share, the
Common Stock could be subject to Rule 15g-9 under the Exchange Act, which,
among other things, requires that broker/dealers satisfy special sales
practice requirements, including making individualized written suitability
determinations and receiving purchasers' written consent, prior to any
transaction. If the Common Stock could also be deemed to be penny stock under
the Securities Enforcement and Penny Stock Reform Act of 1990, this would
require additional disclosure in connection with any trading of the Common
Stock, including the delivery of a disclosure schedule explaining the nature
and risks of the penny stock market. Such requirements could severely limit
the liquidity of the Common Stock and the ability of purchasers in this
Offering to sell their securities in the secondary market.
12
<PAGE>
Common Stock Prices May Be Highly Volatile
The market prices of equity securities of many companies have experienced
extreme price volatility in recent years for reasons not necessarily related
to the individual performance of specific companies. Accordingly, the market
price of the Common Stock following this Offering may be highly volatile.
Factors such as announcements by the Company or its competitors concerning
products, governmental regulatory actions, other events affecting insurance
companies generally as well as general market conditions may have a
significant impact on the market price of the Common Stock and could cause it
to fluctuate substantially.
Absence of Public Market; Negotiated Offering Price
Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that any trading market therefor will
develop or, if any such market develops, that it will be sustained.
Accordingly, purchasers of the Common Stock may experience difficulty selling
or otherwise disposing of such Common Stock. The public offering price of the
Common Stock has been established by negotiation between the Company and the
Representative and does not bear any relationship to the Company's book
value, assets, past operating results, financial condition or other
established criteria of value.
Dilution
The assumed initial public offering price per share of Common Stock
exceeds the book value per share of the Common Stock. Investors in this
Offering will therefore incur immediate and substantial dilution of $5.32 or
70.89% per share from the initial public offering price. See "Dilution."
Shares Eligible for Future Sale
Upon completion of the Offering, the Company will have 4,500,000 shares of
Common Stock outstanding (4,725,000 shares if the Underwriters'
over-allotment option is exercised in full). The 1,500,000 shares of Common
Stock sold in the Offering will be freely tradeable without restriction or
further registration under the Securities Act, except for any shares
purchased by an "affiliate" of the Company within the meaning of Rule 144
under the Securities Act ("Rule 144"). The remaining 3,000,000 shares of
Common Stock are "restricted securities," as that term is defined under Rule
144, and may not be sold in the absence of registration under the Securities
Act unless an exemption from registration is available, including the
exemption provided by Rule 144. The sale of a substantial number of shares of
Common Stock or the availability of Common Stock for sale could adversely
affect the market price of the Common Stock prevailing from time to time. The
Company's existing stockholders have agreed that they will not, without the
consent of the Representative, sell or otherwise dispose of any equity
securities of the Company for a period of one year following the closing date
of this Offering. See "Principal Stockholders," "Shares Eligible for Future
Sale" and "Underwriting."
Possible Issuances of Preferred Stock; Anti-Takeover Provisions
The Company's Certificate of Incorporation authorizes the Board of
Directors to issue up to 1,000,000 shares of preferred stock, par value $.01
per share. The preferred stock may be issued in one or more series, the terms
of which may be determined by the Board of Directors at the time of issuance
without further action by stockholders, and may include voting rights
(including the right to vote as a series on particular matters), preferences
as to dividends and liquidation, conversion and redemption rights and sinking
fund provisions. No preferred stock is currently outstanding and the Company
currently has no intention of issuing any preferred stock. However, the
issuance of any such preferred stock could materially adversely affect the
rights of holders of Common Stock and, therefore, could reduce the value of
the Common Stock. In addition, specific rights granted to future holders of
preferred stock could be used to restrict the Company's ability to merge
with, or sell its assets to, a third party, thereby preserving control of the
Company by present stockholders. The ability of the Board of Directors to
issue preferred stock could have the effect of delaying, deferring or
preventing a change in control of the Company. Certain provisions of Delaware
law may also discourage third party attempts to acquire control of the
Company. See "Description of Securities."
Representative's Warrants
The Company will sell to the Representative and/or its designees, for
nominal consideration, the Representative's Warrants to purchase an aggregate
of up to 150,000 shares of Common Stock. The Representative's
13
<PAGE>
Warrants are exercisable for a four-year period commencing one year from the
date of this Prospectus, at an exercise price per share equal to 120% of the
initial public offering price of the Common Stock. For the life of the
Representative's Warrants, the holders are given, at nominal cost, the
opportunity to profit from a rise in the market price of the Common Stock
without assuming the risk of ownership, with a resulting dilution in the
interest of other security holders. As long as the Representative's Warrants
remain unexercised, the terms under which the Company could obtain additional
capital may be adversely affected. Moreover, the holders of the
Representative's Warrants may be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital
through a new offering of its securities on terms more favorable than those
provided by the Representative's Warrants. Additionally, if the holders of
the Representative's Warrants were to effect a distribution of the
Representative's Warrants or the underlying securities, the Representative,
prior to and during such distribution, may be unable to make a market in the
Company's securities and may be required to comply with other limitations on
trading set forth in Rules 10b-2, 10b-6 and 10b-7 promulgated under the
Exchange Act. Such rules restrict the solicitation of purchasers of a
security when a person is interested in the distribution of such security and
also limit market making activities by an interested person until the
completion of the distribution. If the Representative were required to cease
making a market, the market and market price for such securities may be
adversely affected and holders of such securities may be unable to sell such
securities. See "Underwriting."
Lack of Dividends
The payment of cash dividends, if any, will be within the discretion of
the Board of Directors and will depend upon the Company's earnings, if any,
capital requirements and financial condition and other relevant factors. The
Board of Directors does not intend to declare any cash or other dividends in
the foreseeable future, but rather intends to retain future earnings, if any,
to provide for the operation and expansion of the Company's business. See
"Dividend Policy" and "Description of Securities."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares offered hereby
(after deducting underwriting discounts and commissions and other expenses of
the Offering), are estimated to be approximately $9,600,000 ($11,100,000 if
the over-allotment option is exercised in full). The Company expects to use
the net proceeds in approximately the manner set forth in the following
table:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage of
Application of Proceeds Dollar Amount Net Proceeds
- ------------------------ --------------- ---------------
<S> <C> <C>
Capitalize Reinsurance Subsidiary ............ $3,500,000 36.46%
Working Capital and General Corporate
Purposes ..................................... 6,100,000 63.54%
--------------- ---------------
Total ........................................ $9,600,000 100.00%
=============== ===============
</TABLE>
The Company intends to capitalize the Reinsurance Subsidiary initially at
$3,500,000. Such capitalization is based on the current capital requirements
for Class 3 insurers in Bermuda.
The balance of the net proceeds will be used for working capital and other
general corporate purposes including, but not limited to, the expansion of
the Company's marketing and distribution systems and the upgrading and
expansion of its data processing capabilities and facilities and other
corporate systems. Although as of the date of this Prospectus no specific
acquisition is being contemplated by the Company, such general corporate
purposes could include future acquisitions.
If the Underwriters exercise the over-allotment option in full, the
Company will realize additional net proceeds of approximately $1,500,000,
which will be added to the Company's working capital.
The foregoing uses of proceeds represent the Company's best estimates of
the allocation of the estimated net proceeds of this Offering and there could
be significant variations in the anticipated or actual use of the proceeds
due to changes in business or economic circumstances. Accordingly, the
Company reserves the right to reallocate the foregoing uses of proceeds
depending upon any such change of circumstances.
Pending utilization of the net proceeds of the Offering, the Company may
make temporary investments in, among other things, bank certificates of
deposit, interest-bearing investments, prime commercial paper, United States
government obligations, or money-market funds.
RECAPITALIZATION
Immediately prior to this Offering, the Company and the stockholders of
PEGI at such date (the "Exchanging Stockholders") will effect a
recapitalization whereby the Company will exchange 17,647.06 shares of Common
Stock for each share of common stock of PEGI held by the Exchanging
Stockholders (the "Exchange"). As a result of the Exchange, PEGI will become
a wholly-owned subsidiary of the Company.
DIVIDEND POLICY
Prior to this Offering, the Company was treated as an S Corporation for
federal income tax purposes. Pursuant to an Amended and Restated Shareholders
Agreement made as of May 15, 1995 (the "Shareholders Agreement") by and
between the Company, Mel Harris and Howard Odzer, the Company was required,
as an S Corporation, to make annual pro rata distributions of cash to
stockholders of not less than 45% of the prior year's net income of the
Company. Immediately prior to the consummation of this Offering, the
Company's status as an S Corporation shall terminate. The payment of future
cash dividends, if any, will be within the discretion of the Board of
Directors and will depend upon the Company's earnings, if any, capital
requirements and financial condition and other relevant factors. The Board
does not intend to declare any cash or other dividends in the foreseeable
future, but rather intends to retain future earnings, if any, to provide for
the operation and expansion of the Company's business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
15
<PAGE>
DILUTION
At September 30, 1996, the net tangible book value (total tangible assets
less total liabilities) of the Company was $219,225, or $.07 per share.
Without giving effect to any other changes in the pro forma net tangible book
value of the Company after September 30, 1996, other than to give effect to
the sale of the 1,500,000 shares of Common Stock offered hereby at an
estimated price per share of $7.50 (less underwriting discounts and estimated
expenses of the Offering and the application of the estimated net proceeds
therefrom), the pro forma net tangible book value of the Company at September
30, 1996 would have been $9,823,490, or $2.18 per share, representing an
immediate increase in net tangible book value of $2.11 per share to existing
stockholders and an immediate dilution of $5.32 per share (70.89%) to the
purchasers of Common Stock in this Offering. The following table illustrates
this per share dilution:
<TABLE>
<CAPTION>
<S> <C>
Assumed initial public offering price .......................... $7.50
Pro forma net tangible book value before this Offering ......... $ .07
Increase attributable to new investors ......................... $2.11
Pro forma as adjusted net tangible book value after this
Offering ...................................................... $2.18
Dilution to new investors ...................................... $5.32
</TABLE>
The following table summarizes, as of September 30, 1996, the total
consideration paid and the average price per share of Common Stock paid by
existing stockholders and by purchasers of Common Stock in this Offering
(before deduction of underwriting discounts and commissions and estimated
offering expenses):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
--------------------------- -----------------------------
Amount Percentage Amount Percentage Per Share
----------- ------------ ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders 3,000,000 66.377% $ 30,000 .27% $ .01
New Investors 1,500,000 33.337% $11,250,000 99.73% $7.50
----------- ------------ -------------
Total 4,500,000 100.0 % $11,280,000 100.0 %
=========== ============ ============= ============
</TABLE>
The foregoing table does not include (i) 300,000 shares of Common Stock
reserved for issuance upon exercise of stock options which may be granted
under the Option Plan, and (ii) 150,000 shares reserved for issuance pursuant
to the Representative's Warrants. To the extent that any of these options or
warrants are exercised, there may be further dilution to new investors. See
"Capitalization," "Management -- Stock Option Plan" and "Underwriting."
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996, and as adjusted to reflect the issuance and sale of the
shares of Common Stock offered hereby at an assumed initial offering price of
$7.50 per share and the application of the estimated net proceeds therefrom.
This table should be read in conjunction with the consolidated financial
statements and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
September 30, 1996
----------------------------
(unaudited)
Actual As Adjusted
----------- -------------
<S> <C> <C>
Total debt .................................... $ 349,563 $ 349,563
----------- -------------
Stockholders' equity
Common Stock, $.01 par value; 10,000,000
shares authorized; 3,529,412 shares
issued; 5,029,412, as adjusted (1) ....... 35,294 50,294
Additional paid-in capital .................. 0 9,589,265
Retained earnings ........................... 689,488 689,488
----------- -------------
Total stockholders' equity .................... 724,782 10,329,047
Treasury stock at cost; 529,412 shares ........ (505,557) (505,557)
----------- -------------
Net stockholders' equity ...................... 219,225 9,823,490
----------- -------------
Total capitalization .......................... $ 568,788 $10,173,053
=========== =============
</TABLE>
- ------
(1) Does not include (i) 300,000 shares of Common Stock reserved for issuance
upon exercise of stock options which may be granted under the Option Plan,
and (ii) 150,000 shares reserved for issuance pursuant to the
Representative's Warrants.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and the related Notes contained elsewhere in this
Prospectus.
GENERAL
The Company is primarily engaged in the property and casualty insurance
business as a general agent ("GA") for The Insurance Company of the State of
Pennsylvania, an affiliate of AIG, and other affiliated companies of AIG and
GAIC. Pursuant to its agreements with these carriers, the Company is
authorized to solicit and bind insurance contracts on behalf of the insurers,
collect and account for premiums on business it writes, and request
cancellation or nonrenewal of any policy placed by the Company. The Company
receives, as compensation pursuant to the terms of these agreements, gross
commissions on its business at rates which range from 5% to 20%. The Company
has written workers' compensation insurance since its inception and in late
1995 began writing other forms of property and casualty insurance (such other
forms of insurance being hereinafter referred to as "Package") for family
style and fast food restaurants as a GA for GAIC. GAIC has recently advised
the Company that it will no longer accept Package insurance risks for fast
food restaurants, but will continue to do so for family style restaurants.
The Company is currently pursuing other carriers through which it can write
such business. The Company believes that there are many national insurance
carriers through which it may write business and that termination of the
Company's relationship with its current insurance carriers would not have a
material adverse effect on the business of the Company. See "Risk Factors --
Dependence on Limited Number of Carriers."
The Company collects workers' compensation premiums from insureds and
remits the same to the insurance carrier net of its commission. Commission
income on workers' compensation business is recognized as income when
premiums are collected. Package insurance premiums are principally collected
by the insurance carrier. The Package insurance carrier remits commissions on
Package premiums it collects to the Company monthly. Commission income on
Package business is recognized as income when premiums are due. In 1995, the
Company wrote approximately $3,800,000 of Package insurance premiums,
commissions from which accounted for approximately 15% of its net revenues.
RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995:
TOTAL REVENUES
Total revenues for the nine months ended September 30, 1996 were
$1,910,000 compared to $1,652,000 for the nine months ended September 30,
1995, representing a net increase of $258,000, or 15.5%. The following table
provides a comparison of revenue for the nine month periods ended September
30, 1996 and 1995 by category:
<TABLE>
<CAPTION>
1996 1995 Net Change
------------ ------------ ------------
<S> <C> <C> <C>
Net commission income:
Workers' compensation .... $1,275,000 $1,396,000 ($121,000)
Package .................. $ 524,000 $ 107,000 $417,000
Other, net ............... $ 31,000 $ 82,000 ($ 51,000)
------------ ------------ ------------
Total net commission income $1,830,000 $1,585,000 $245,000
Interest income .......... $ 80,000 $ 67,000 $ 13,000
------------ ------------ ------------
Total revenues ........... $1,910,000 $1,652,000 $258,000
============ ============ ============
</TABLE>
Workers' compensation:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Premiums collected ............................. $12,487,000 $13,753,000 ($1,266,000)
============= ============= ==============
Ratio of net commission income/premiums
collected ................................... 10.2% 10.2%
============= =============
</TABLE>
18
<PAGE>
Workers' compensation commission income declined $121,000, or 8.7%, as a
result of the reduction in premiums collected of $1,266,000. The reduction in
premiums collected was the result of the breach of a broker contract and the
non-renewal by a broker of a significant portion of business related to a
single restaurant group. The breached contract was unilaterally cancelled by
a broker after two years of a three year term. The Company filed a lawsuit
against the broker for breach of contract during 1995 and received $190,000
in 1996 in settlement of such lawsuit. In addition, a broker elected to place
the premiums of a single restaurant group in a rent-a-captive (an entity
conceptually similar to a self-insurance fund) rather than renew such
business with the Company. As of the date hereof, no broker accounts for more
than 5.8% of the Company's annual revenues.
Package commission income increased $417,000, or 389.7%, as a result of
the entry into the Package business (as discussed above) and the execution of
a new GA contract with GAIC for this line of business.
TOTAL EXPENSES:
Total expenses for the nine months ended September 30, 1996 were
$2,170,000 compared to $1,648,000 for the comparative period ended September
30, 1995, representing an increase of $522,000, or 31.7%. The following table
provides a comparison of total expenses for the nine month periods ended
September 30, 1996 and 1995 by category:
<TABLE>
<CAPTION>
1996 1995 Net Change
------------ ------------ ------------
<S> <C> <C> <C>
Personnel expenses ...... $1,491,000 $1,049,000 $442,000
Professional fees ....... $ 80,000 $ 104,000 ($ 24,000)
Occupancy expense ....... $ 165,000 $ 104,000 $ 61,000
Interest expense ........ $ 33,000 $ 36,000 ($ 3,000)
Other operating expenses . $ 401,000 $ 355,000 $ 46,000
------------ ------------ ------------
Total expenses ..... $2,170,000 $1,648,000 $522,000
============ ============ ============
</TABLE>
Personnel expenses increased $442,000 as a result of the hiring of new
employees with aggregate annual compensation of $627,000 (including
salespersons with an aggregate annual draw of $175,000) consistent with the
entry into new lines of business, and adding the Chairman and Chief Executive
Officer to the Company's payroll at an annual salary of $250,000.
Professional fees decreased $24,000, principally as a result of a
reduction in legal fees.
Occupancy expense increased $61,000 as a result of the Company's
relocation to larger quarters to accommodate the Company's expansion.
Interest expense decreased $3,000 as a result of a decrease in the
principal balance of a loan from a stockholder.
Other operating expenses increased $46,000, primarily related to
employment fees and employee relocation expenses associated with the increase
in staffing discussed above.
<PAGE>
NONOPERATING INCOME:
Nonoperating income increased $190,000 as a result of the settlement of a
lawsuit related to the cancellation of a broker contract discussed above.
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
TOTAL REVENUES:
Total revenues for the year ended December 31, 1995 were $2,270,000 as
compared to $2,783,000 for the prior year, representing a decrease of
$513,000, or 18.4%. The following table provides a comparison of revenue for
the years ended December 31, 1995 and 1994 by category:
<TABLE>
<CAPTION>
1995 1994 Net Change
------------- ------------- ---------------
<S> <C> <C> <C>
Net commission income:
Workers' compensation ........................ $ 1,758,000 $ 2,661,000 ($ 903,000)
$
Package ...................................... $ 343,000 0 $ 343,000
$
Other, net ................................... $ 81,000 0 $ 81,000
------------- ------------- ---------------
Total net commission income .................. $ 2,182,000 $ 2,661,000 ($ 479,000)
============= ============= ===============
Interest income ................................ $ 88,000 $ 122,000 ($ 34,000)
------------- ------------- ---------------
Total revenues ................................. $ 2,270,000 $ 2,783,000 ($ 513,000)
============= ============= ===============
Workers' compensation:
Premiums collected ........................... $17,112,000 $32,458,000 ($15,346,000)
Ratio of net commission income/premiums collected 10.3% 8.2%
============= =============
</TABLE>
19
<PAGE>
Workers' compensation commission income declined $903,000, or 44.2%, as a
result of the reduction in premiums collected of $15,346,000. The reduction
in premiums collected was the result of the breach of a broker contract and
the non-renewal by a broker of a significant portion of business related to a
single restaurant group. The breached contract was unilaterally cancelled by
a broker after two years of a three year term. The Company filed a lawsuit
against the broker for breach of contract during 1995 and received $190,000
in 1996 in settlement of such lawsuit. In addition, a broker elected to place
the premiums of a single restaurant group in a rent-a-captive (an entity
conceptually similar to a self-insurance fund) rather than renew such
business with the Company. The ratio of net commission income to premiums
collected increased from 8.2% in 1994 to 10.3% in 1995 as a result of a 2.0%
increase in the Company's gross commission rate.
Package commission income increased $343,000 as a result of the entry into
this new line of business and the execution of a new GA contract with GAIC
for this line of business. The Company has been a GA with GAIC since 1995,
offering Package insurance for family style and fast food restaurants, the
commission from which accounted for 15% of the Company's net revenues in
1995. GAIC has recently advised the Company that it will no longer accept
Package insurance risks for fast food restaurants, but will continue to do so
for family style restaurants. The Company is currently pursuing other
carriers through which it can write such business. The Company believes that
there are many national insurance carriers through which it may write
business and that termination of the Company's relationship with its current
insurance carriers would not have a material adverse effect on the business
of the Company.
Other commission income increased $81,000 representing revenue from the
provision of marketing and management services to insureds participating in
self insurance funds.
TOTAL EXPENSES:
Total expenses for the year ended December 31, 1995 were $2,288,000
compared to $1,509,000 for the year ended December 31, 1994, representing an
increase of $779,000, or 51.5%. The following table provides a comparison of
total expenses for the years ended December 31, 1995 and 1994 by category:
<TABLE>
<CAPTION>
1995 1994 Net Change
------------ ------------ ------------
<S> <C> <C> <C>
Personnel expenses ...... $1,472,000 $ 933,000 $539,000
Professional fees ....... $ 93,000 $ 111,000 ($ 18,000)
Occupancy expense ....... $ 145,000 $ 89,000 $ 56,000
Interest expense ........ $ 36,000 $ 8,000 $ 28,000
Other operating expenses $ 542,000 $ 368,000 $174,000
------------ ------------ ------------
Total expenses ..... $2,288,000 $1,509,000 $779,000
============ ============ ============
</TABLE>
Personnel expenses increased $539,000 as a result of the hiring of 14 new
employees with aggregate annual compensation of $519,000 (including two
salespersons with an aggregate annual draw of $95,000) consistent with the
Company's expansion into new lines of business.
Professional fees decreased $18,000, principally as a result of reduced
legal fees.
Occupancy expense increased $56,000 as a result of the cost of the
Company's relocation to larger quarters of $35,000 and increased telephone
expenses of $21,000 to accommodate the Company's expansion. Interest expense
increased $28,000 due to an increase in stockholder loans.
Other operating expenses increased $174,000, primarily related to the
Company's increase in staff described above and increased depreciation
expense of $74,000 resulting from the Company's purchase of additional
property and equipment associated with its increase in staff and quarters.
NONOPERATING INCOME:
Nonoperating income decreased $5,927,000. The Company received $5,858,000
in 1994, net of expenses associated with the litigation, in settlement of a
lawsuit for breach of contract. The Company incurred legal fees of $69,000 in
1995 related to a separate lawsuit which it settled and with respect to which
it received $190,000 in 1996, as discussed previously.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's principal source of cash has been from the
collection of workers' compensation insurance premiums from its insureds.
During the past two years, commission income has been supplemented by
proceeds received in settlement of various litigation described above.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Net cash and cash equivalents were $565,000 at September 30, 1996 (net of
premiums payable of $4,455,000). Net cash provided by operating activities
increased to $2,495,000 in 1996 from ($1,221,000) in 1995, an increase of
$3,716,000. This increase resulted primarily from an increase in the proceeds
from litigation of $190,000 and an increase in net premiums collected of
$3,959,000, offset in part by an increase in expenses paid of $318,000 from
1995 to 1996. The increase in litigation proceeds is a result of the
settlement of a lawsuit in 1996 in which the Company received $190,000. The
increase in net premiums collected is the result of an increase in the
Company's workers' compensation book of business together with additional net
premiums generated from the Company's writing of Package insurance.
Cash flows used in investing activities, which relate solely to the
investment and purchase of property and equipment, decreased by $341,000 to
$95,000 in the nine months ended September 30, 1996 compared to $436,000 in
the nine months ended September 30, 1995. The decrease is the result of
purchases made in 1995 associated with the relocation of the Company's
offices and is consistent with the expansion of the Company's business during
1995 discussed above.
Net cash used in financing activities decreased to ($200,000) in the nine
months ended September 30, 1996 from ($625,000) in the nine months ended
September 30,1995, a decrease of $425,000. This decrease resulted primarily
from a reduction in stockholders distributions of $600,000 and an increase in
payments of $175,000 in connection with a stock repurchase. See "Certain
Transactions."
The Company believes that existing cash balances, proceeds from this
offering and cash flows from activities will be sufficient to meet its
financing needs for at least the next twelve months, including expected
capital expenditures and working capital to fund operations.
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Net cash and cash equivalents were $466,000 at December 31, 1995 compared
to $1,375,000, at December 31, 1994 (net of premiums payable of $2,354,000
and $3,415,000 in 1995 and 1994, respectively). Net cash provided by
operating activities decreased to ($878,000) in 1995 from $6,726,000 in 1994,
a decrease of $7,604,000. This decrease resulted primarily from a decrease in
the proceeds from litigation of $5,927,000 and a decrease in net premiums
collected of $1,201,000. The decrease in litigation proceeds was a result of
the settlement of a lawsuit in 1994 in which the Company received $5,858,000,
net of expenses, for breach of contract. The Company paid legal fees
totalling $69,000 in 1995 related to a separate lawsuit in which the Company,
as plaintiff, sought damages for the unilateral termination of a broker
agreement. The termination of this broker agreement was also responsible for
the decrease in net premiums collected.
Cash flows used in investing activities which relate solely to the
investment and purchase of property and equipment, increased by $315,000 to
$467,000 in 1995 compared to $152,000 in 1994. This increase is consistent
with the expansion of the Company's business as discussed above.
Net cash used in financing activities increased to ($625,000) in 1995 from
($5,596,000) in 1994, an increase of $4,971,000. This increase resulted
primarily from reductions in stockholder distributions and principal payments
on stockholders loans of $4,294,000 and $677,000, respectively.
21
<PAGE>
DISCUSSION AND ANALYSIS OF
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following discussion and analysis of the pro forma financial condition
and analysis of operations should be read in conjunction with the Financial
Statements and the related Notes contained elsewhere in this Prospectus.
GENERAL
The pro forma financial information contained in this Prospectus assumes
that the Company's proposed Reinsurance Subsidiary was operational effective
January 1, 1995. In this regard the pro forma financial information assumes
that the average annualized workers' compensation premiums in force for the
periods presented were reinsured by the Reinsurance Subsidiary and, as a
reinsurance entity, the Reinsurance Subsidiary recorded and invested premiums
received, paid claims and established reserves on losses incurred, and
conducted business consistent with such business typically conducted by a
reinsurer. The financial information identified as "Actual" represents the
actual results of operations for the Company. The financial information
identified as "Total" represents the total results of the combined entities
as if the Reinsurance Subsidiary were operational for all periods presented.
RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Total revenue, claims and claim settlement expenses, amortization of
deferred policy acquisition costs and total operating expenses for the nine
months ended September 30, 1996 would have been $13,308,000, $6,269,000,
$4,217,000 and $2,170,000, respectively, and consist of the following:
<TABLE>
<CAPTION>
Actual Pro forma Total
------------ ------------- -------------
$
<S> <C> <C> <C>
Net commission income ................................ $1,830,000 0 $ 1,830,000
$
Premiums earned ...................................... 0 $11,398,000 $11,398,000
$
Interest income ...................................... $ 80,000 0 $ 80,000
$
$ 0 $
Net investment income ................................ 0 (1) 0
------------ ------------- -------------
Total revenue ...................................... $1,910,000 $11,398,000 $13,308,000
------------ ------------- -------------
$
Claims and claim settlement expenses ................. 0 $ 6,269,000 $ 6,269,000
------------ ------------- -------------
$
Amortization of deferred policy acquisition costs .... 0 $ 4,217,000 $ 4,217,000
$
Personnel expenses ................................... $1,491,000 0 $ 1,491,000
$
Professional expenses ................................ $ 80,000 0 $ 80,000
$
Occupancy expenses ................................... $ 165,000 0 $ 165,000
$
Interest expense ..................................... $ 33,000 0 $ 33,000
$
Other operating expenses ............................. $ 401,000 0 $ 401,000
------------ ------------- -------------
$
Total operating expenses ........................... $2,170,000 0 $ 2,170,000
------------ ------------- -------------
Operating income (loss) before net investment income
(1) ................................................ ($ 260,000) $ 912,000 $ 652,000
$
Non-operating income ................................. $ 190,000 0 $ 190,000
------------ ------------- -------------
Income (loss) before net investment income and income
taxes (1) .......................................... ($ 70,000) $ 912,000 $ 842,000
Income taxes (benefit) ............................... ($ 26,000) $ 340,000 $ 314,000
------------ ------------- -------------
Net income (loss) before net investment income (1) ... ($ 44,000) $ 572,000 $ 528,000
============ ============= =============
</TABLE>
<PAGE>
- ------
(1) Net income does not include income from investment of available cash.
Based upon the average flow of funds for the period presented and
assuming a rate of return of 5%, for the nine months ended September 30,
1996 investment income would have been $364,000 and net income would have
been $755,000. Actual results from investment may have been greater than
or less than this amount.
Premiums earned of $11,398,000 represent the Company's average annualized
workers' compensation premiums in force adjusted to reflect nine months pro
rata earnings. Such amount represents premiums which relate to business
previously written on behalf of AIG and which would have been covered under
the Reinsurance Agreement had it been in effect for the entire period
presented.
22
<PAGE>
Claims and claim settlement expenses incurred of $6,269,000 are based on
an assumed 55% loss ratio (premiums earned x 55%). Under the Reinsurance
Agreement the Company's maximum liability for losses is limited to an amount
not to exceed 70% of premiums written with respect to each year. The actual
average loss ratio experienced by the insurance carrier in prior years, based
on underwriting analyses prepared by the Company, was 51.5% which ratio
compares favorably with the loss ratios experienced by other similarly
situated companies in the industry. In this regard, the Company has engaged
an outside independent firm of consulting actuaries which annually reviews
the Company's underwriting analysis for reasonableness.
Acquisition expenses are deferred and amortized over the period in which
the related premiums are earned. Amortization of deferred policy acquisition
costs of $4,217,000 represents the amortization of contractually agreed upon
Program expenses equal to 37% of the premiums earned, all of which are fixed
for the term of the contract, and includes the following:
<TABLE>
<CAPTION>
<S> <C>
a) Ceding commission payable to the insurance carrier ... 28.83%
b) Specific and excess reinsurance premiums payable ..... 5.00%
c) Acquisition expenses incurred by the Reinsurance
Subsidiary ............................................ 3.17%
--------
Total Program expenses .................................. 37.00%
========
</TABLE>
<PAGE>
FOR THE YEAR ENDED DECEMBER 31, 1995
Total revenue, claims and claim settlement expenses, amortization of
deferred policy acquisition costs and total operating expenses for the year
ended December 31, 1995 would have been $18,534,000, $8,945,000, $6,018,000
and $2,288,000, respectively, and consist of the following:
<TABLE>
<CAPTION>
Actual Pro forma Total
------------ ------------- -------------
<S> <C> <C> <C>
Net commission income ..................... $2,182,000 $ 0 $ 2,182,000
Premiums earned ........................... $ 0 $16,264,000 $16,264,000
Interest income ........................... $ 88,000 $ 0 $ 88,000
Net investment income ..................... $ 0 $ 0 (1) $ 0
------------ ------------- -------------
Total revenue ........................... $2,270,000 $16,264,000 $18,534,000
------------ ------------- -------------
Claims and claim settlement expenses ...... $ 0 $ 8,945,000 $ 8,945,000
------------ ------------- -------------
Amortization of deferred policy acquisition
costs .................................... $ 0 $ 6,018,000 $ 6,018,000
Personnel expenses ........................ $1,472,000 $ 0 $ 1,472,000
Professional expenses ..................... $ 93,000 $ 0 $ 93,000
Occupancy expenses ........................ $ 145,000 $ 0 $ 145,000
Interest expense .......................... $ 36,000 $ 0 $ 36,000
Other operating expenses .................. $ 542,000 $ 0 $ 542,000
------------ ------------- -------------
Total operating expenses ................ $2,288,000 $ 0 $ 2,288,000
------------ ------------- -------------
Operating income (loss) before net
investment income (1) .................... ($ 18,000) $ 1,301,000 $ 1,283,000
Nonoperating expenses ..................... ($ 69,000) $ 0 ($ 69,000)
------------ ------------- -------------
Income (loss) before net investment income
and income taxes (1) ..................... ($ 87,000) $ 1,301,000 $ 1,214,000
Income taxes (benefit) .................... ($ 32,000) $ 485,000 $ 453,000
------------ ------------- -------------
Net income (loss) before net investment
income (1) ............................... ($ 55,000) $ 816,000 $ 761,000
============ ============= =============
</TABLE>
(1) Net income does not include income from investment of available cash.
Based upon the average flow of funds for the period presented and
assuming a rate of return of 5%, for the year ended December 31, 1995
investment income would have been $163,000 and net income would have been
$864,000. Actual results from investment may have been greater than or
less than this amount.
23
<PAGE>
Premiums earned of $16,264,000, represent the Company's average annualized
workers' compensation premiums in force adjusted to reflect twelve months pro
rata earnings. Such amount represents premiums which relate to business
previously written on behalf of AIG and which would have been covered under
the Reinsurance Agreement had it been in effect for the entire period
presented.
Claims and claim settlement expenses incurred of $8,945,000 for the twelve
months ended December 31, 1996 are based on an assumed 55% loss ratio
(premiums earned x 55%). The actual average loss ratio experienced by the
insurance carrier in prior years, based on underwriting analyses prepared by
the Company, was 51.5% which ratio compares favorably with the loss ratios
experienced by other similarly situated companies in the industry. In this
regard, the Company has engaged an outside independent firm of consulting
actuaries which annually reviews the Company's underwriting analysis for
reasonableness.
Acquisition expenses are deferred and amortized over the period in which
the related premiums are earned. Amortization of deferred policy acquisition
costs of $6,018,000 represents the amortization of contractually agreed upon
Program expenses, equal to 37% of the premiums earned, all of which are fixed
for the term of the contract, and includes the following:
<TABLE>
<CAPTION>
<S> <C>
a) Ceding commission payable to the insurance carrier ..... 28.83%
b) Specific and excess reinsurance premiums payable ....... 5.00%
c) Acquisition expenses incurred by the Reinsurance
Subsidiary ............................................. 3.17%
--------
Total Program expenses .................................... 37.00%
========
</TABLE>
24
<PAGE>
BUSINESS
GENERAL
The Company is primarily engaged in providing workers' compensation and
business insurance products and risk management services designed for
American franchise businesses, particularly fast food and family style
restaurants and convenience stores. The Company believes that annual premiums
paid for workers' compensation insurance by the franchise industry exceed
$2.5 billion, with annual premiums paid by the fast food and family style
restaurant and convenience store segment alone representing approximately $1
billion of this amount. Although the Company believes that such franchise
businesses are potentially among the safest insurance risks, they generally
pay the same workers' compensation rates as non-franchise businesses which
may not have formal risk or safety awareness programs. Consequently, such
businesses rarely realize any price advantages from their favorable safety
attributes and generally suffer premium "redundancy" or an "overcharge" in
their workers' compensation insurance rates. The Company offers products and
services designed to enable its clients to realize substantial savings in
their workers' compensation costs while reducing the time required to manage
this element of their business. The Company believes that through its
innovative approach to cost containment and the expertise of its management
team, it has succeeded in helping its clients achieve claims costs which are
among the lowest in the industry to which it provides service. The average cost
per claim to the Company's clients for the years 1991 to 1995 was $1,584
(this figure includes medical, indemnity and loss adjustment expenses). In
comparison, although no data is available for the years 1994 and 1995, the
latest data available from the National Council on Compensation Insurance, Inc.
on restaurant workers' compensation claims reflects an average cost per claim
of $2,515 (this figure only includes medical and indemnity expenses) for the
years 1991 to 1993.
Historically, the Company has acted as a general agent ("GA") representing
various major international and domestic insurance carriers. In this capacity,
the Company produces both workers' compensation and other forms of
property and liability insurance (such other forms of insurance being
hereinafter referred to as "Package") for franchise businesses through its
own sales staff as well as through the use of outside broker/agents. The
Company currently offers Package insurance for family style and fast food
restaurants in its capacity as a GA for GAIC. GAIC has recently advised the
Company that it will no longer accept Package insurance risks for fast food
restaurants, but will continue to do so for family style restaurants. The
Company is currently pursuing other carriers to write such business. See
"Risk Factors -- Dependence on Limited Number of Carriers." As a GA, the
Company assumes none of the risks associated with the insurance business it
produces. To date, the Company's principal source of revenue has been from
commissions based on insurance premiums collected on the insurance policies
it sells. Upon consummation of this Offering, the Company will continue
writing business as a GA, but will significantly expand its focus to include
operating as a reinsurer with the expectation of increasing its overall
profitability.
The Company currently writes the Safety Group Program on behalf of AIG. As
the insurance carrier, AIG assumes 100% of the risks associated with the
Program and receives, as compensation for such assumption, all of the
premiums less the commissions paid to the Company from the Program. Through
the Reinsurance Subsidiary, the Company will enter into the Reinsurance
Agreement with the AIG Affiliates, pursuant to which the Reinsurance
Subsidiary will act as the reinsurer with respect to certain workers'
compensation and employer's liability insurance policies in force as of the
date of the Reinsurance Agreement with policy inception dates as of January
1, 1996 through the date of the Reinsurance Agreement (the "Book of
Business"), or attaching during the term thereof, which are written by the
Company on behalf of the AIG Affiliates. Upon entering into the Reinsurance
Agreement, the AIG Affiliates will pay the Reinsurance Subsidiary the related
net written premium less certain Program expenses and commissions associated
with the Book of Business (the "Ceded Premium"). It is anticipated that a
substantial portion of the Ceded Premium will be used as security for the
payment of losses for the benefit of AIG. See "Risk Factors -- Reinsurance"
and "Business -- Reinsurance -- Reinsurance Agreement."
Although the Reinsurance Subsidiary will assume the risks associated with
being a reinsurer, the Reinsurance Agreement will limit the liability of the
Reinsurance Subsidiary for losses and certain defined expenses to the first
$300,000 per occurrence. In addition, the Reinsurance Agreement limits the
aggregate liability of the Reinsurance Subsidiary for all coverage to an
amount not to exceed 70% of the gross written premium for each individual
underwriting year. The AIG Affiliates will retain all liabilities in excess
of this amount. The AIG Affiliates will be paid 5% of the gross written
premiums under the Program with which to purchase excess and
25
<PAGE>
aggregate reinsurance. The Company has never received notice of a claim in
excess of $300,000 in the seven and one-half years that the Company and AIG
have written the Program; however, there can be no assurance that future
claims, with respect to the Program or under the Reinsurance Agreement, will
not exceed this threshold. See "Business -- Strategy." The Company intends to
use a portion of the proceeds of this Offering to fund the operations of the
Reinsurance Subsidiary. See "Use of Proceeds."
In September 1996, an AIG Affiliate made available to the Company a new
workers' compensation program (the "Small Business Workers' Compensation
Program" or "SBP") designed to provide coverage to certain smaller businesses
located in 23 states which pay annual premiums of between $5,000 and $50,000
and which are represented by over 500 separate workers' compensation class
codes. The underwriting process under the SBP has been simplified enabling
the Company to respond promptly with competitively priced quotes. The Company
believes that many broker/agents, regardless of size, have accounts that
would be eligible to participate in the SBP and therefore could be a
potential broker/agent to promote this program. If successful, the SBP could
substantially increase the Company's revenues. The SBP will not be subject to
the Reinsurance Agreement.
INDUSTRY OVERVIEW
All fifty States and the District of Columbia have promulgated statutes,
rules and regulations that require employers to provide wage replacement and
medical benefits to work accident victims regardless of fault. As a result of
these mandates, virtually all employers must either (i) purchase workers'
compensation insurance from a private insurance carrier, (ii) obtain coverage
from a state managed fund, or (iii) be self-insured if permitted by the state
in which business is conducted.
Workers' compensation is a major risk management issue of the '90's. In a
poll of risk managers published in the July 1996 issue of Risk Management
Magazine, workers' compensation insurance was the second most frequent
concern. Nationwide, employers workers' compensation costs increased
significantly over the last decade. Workers' compensation costs increased an
average of 9.6% per annum between 1984 and 1990. From 1990 through 1995,
costs have increased by about 2.9% per year. Certain additional intangible
losses also directly relate to increased workers' compensation costs such as
higher incidents of employee turnover, the cost of retraining new employees
and litigation expenses. Many employers are looking for techniques to better
control their mounting costs.
The Company believes that franchises often are the safest segment of a
particular industry. Most franchises are standardized operations based upon
successful models with demonstrated profitability. These businesses typically
have standard operating procedures and standard plant and equipment with
standardized safety programs. The design and construction of most franchises
take into account safety engineering of the workplace. For example, in a fast
food restaurant, chairs and tables are set a certain distance apart to allow
for adequate walking space, and the cooking equipment used must conform to
certain safety standards. The franchisor and the franchisee have a shared
interest to maintain safe, clean and uniform environments for their customers
and employees. Consequently, the Company believes that, in general, workers'
compensation cost of claims of franchise businesses are significantly lower
than non-franchise operations.
Franchises are often subject to the same workers' compensation rating
system that the insurance industry uses for any comparable business. As a
result, fast food franchise restaurants pay the same rates as bars and
taverns which may be open all night, as fine dining restaurants where staff
often carry heavy trays, or as "mom and pop" restaurants without safety
engineered facilities or a formal safety program. Although these businesses
are charged the same workers' compensation rates, their claims experience is
significantly higher. Consequently, most franchise companies generally suffer
premium "redundancy" or an "overcharge" in their insurance premiums in many
industries. In effect, franchise businesses subsidize the higher workers'
compensation claims costs of non-franchise operations.
Workers' Compensation premium rates are generally based upon a formula
which considers the following:
o whether the loss experience qualifies the risk for any available
schedule rating plan discounts;
26
<PAGE>
o the class codes of each employee and such employee's compensation;
o the class code of the employer and the carrier's rate in such class
code;
o the employer's experience modification factor, as determined by each
state's rating organization; and
o whether the employer's total premium qualifies for a state approved
premium volume discount.
With the implementation of the Company's loss control techniques, many of the
Company's customers have experienced a reduction in workers' compensation
premiums as a result of experience modification factor reductions which
provide for scheduling rating credit.
Many states have recently created employee class codes that distinguish
fast food restaurants from other types of restaurants. For example, class
code 9079 entitled "Restaurant-NOC" has historically included family style,
fine dining and fast food restaurants as well as bars and taverns. In 1995,
the National Council on Compensation and Insurance (NCCI) recommended to
their members that they divide the class code into three separate codes: (i)
9082 encompassing Restaurant Employees; (ii) 9083 encompassing Fast Food
Restaurant Employees; and (iii) 9084 encompassing Bar, Tavern and similar
employees. Approximately 34 states adopted the new class code designations
during 1996. However, as of the date hereof, the Company believes that
workers' compensation insurance rates with respect to such class codes have
not been similarly distinguished. See "Risk Factors -- Regulation." By 1998,
it is anticipated that the actuaries who determine loss costs in this
industry will be able to separately develop a loss cost in each category.
During the initial three year period, it is expected that the rates for all
three codes will remain equal. Thereafter, the Company believes that the
franchise industry will continue to yield a more favorable loss result than
the non-franchise industry within the Fast Food Restaurant code. As a result,
the Company believes that, relative to its competition, changes in employee
class codes will not have a material adverse effect on its business.
THE COMPANY'S SOLUTION
The Company has developed insurance programs designed specifically to
reduce the impact of redundancy on American franchise businesses while also
emphasizing loss containment. By taking advantage of this business segment's
good safety records and providing risk management services, including loss
control and claims management, the Company provides its clients the
opportunity to effectively lower their cost of claims. The Company has
developed proprietary information and claim analyses systems and custom
designed loss reports which explain the claims procedure and motivate client
management to promote safety and control claims expense. Additionally, the
Company, through early intervention, seeks to limit the number of disputes
with injured employees. The Company believes in the prompt settlement of
meritorious claims, but it will aggressively defend against non-meritorious
claims. The Company attempts to resolve cases prior to litigation and, if
litigation ensues, aggressively seeks to settle reasonable claims.
Through a third-party administrator (a "TPA"), the Company provides its
clients with access to national 800 telephone numbers to ensure that their
claims can be reported quickly, 24 hours-a-day, seven days-a-week. The TPA
has made available a trained medical staff to initiate a four party contact
among the claimant, the employer, the adjuster and the treating physician.
This process helps ensure prompt and competent medical care for the employee
and management of the claim which achieves a lower cost. The Company monitors
high loss claims on a weekly basis and interacts with the professional,
medical, and adjusting staff to close out claims cost effectively.
27
<PAGE>
In addition to these cost containing activities, the Company's client
services staff maintains constant communication with clients. Its loss
control department conducts safety seminars and provides periodic newsletters
to clients on how to control the frequency and severity of claims. The
Company believes it has succeeded in persuading clients that safety is not
just an issue of good management but can have a significant impact on the
financial success of their businesses. Since workers' compensation cost has
become one of the most expensive components of non-productive overhead, the
Company seeks to demonstrate to its clients that, by reducing the cost of
their claims, they are improving their overall profitability.
STRATEGY
GENERAL
The Company's goal is to strengthen its position as one of the leading
providers of its products and services to fast food and family style
franchise restaurants and convenience stores throughout North America and to
expand into other franchise businesses. It believes this goal can be
accomplished by devising and implementing programs on a state-by-state basis
to:
o accumulate the latest approved rate information;
o obtain approved carrier rate filings;
o maintain up to date information on legislative changes affecting the
industry;
o ascertain current factors affecting pricing in the voluntary market;
o interact with insurance carriers to encourage competitive pricing,
while respecting the carriers need for profitability and to remain
viable in the marketplace;
o target quality risks;
o present insured clients with effective methods of monitoring, reducing
and containing claims costs;
o monitor claims handling procedures of claims administrators and
interact with them to produce cost effective results;
o market programs designed to reward preferred risks with incentives to
purchase and renew insurance coverage; and
o become a "one-stop" provider of commercial insurance to its selected
franchise industries.
The carriers providing workers' compensation insurance have generally
entered and withdrawn from regional or local markets with some frequency.
Often, the reason for movement is attributed to (i) a change of corporate
policy, (ii) the general conditions in the insurance industry at that time,
and (iii) the carrier's experience with loss ratios. Even where cost
containment programs exist, often they are not adequately managed and are not
particularly effective.
The Company is committed to its insured clients as well as its carriers.
To achieve its goals, the Company's staff has been trained to offer a level
of service not otherwise present in a generally complacent industry. By
combining the talents of specialists drawn from diverse backgrounds, the
Company has created a unique environment where sales, marketing, and risk
management experts produce quality products and results. The Company's
clients have been able to achieve an average reduction of approximately 11%
over the four year period 1990 through 1994 in their premium experience
modification factors (which are a significant component in determining a
client's premium).
REINSURANCE
GENERAL
Historically, the Company has acted as a GA and, as such, assumes none of
the risks associated with the insurance business it produces. To date, the
Company's principal source of revenue has been from commissions based on
premiums collected on the business it produces. Upon consummation of this
Offering, the Company will continue writing business as a GA, but will expand
its focus to include operating as a reinsurer.
28
<PAGE>
The Company currently writes the Safety Group Program on behalf of AIG. As
the insurance carrier, AIG assumes 100% of the risks associated with the
Program and receives, as compensation for such assumption, all of the
premiums less the commissions paid to the Company from the Program.
REINSURANCE AGREEMENT
Upon consummation of this Offering, the Reinsurance Subsidiary will enter
into the Reinsurance Agreement which provides that the Reinsurance Subsidiary
will reimburse the ceding insurer for the first $300,000 of losses paid to
claimants and certain specified loss expenses incurred in connection with
such payments pursuant to various coverages assumed under worker's
compensation and employer's liability insurance policies issued on behalf of
the AIG Affiliates by the Company as part of the Book of Business. The
Reinsurance Subsidiary's aggregate liability for such amounts for all
coverages under the Reinsurance Agreement shall be limited to an amount not
to exceed 70% of the gross written premium for each individual underwriting
year. The AIG Affiliates shall retain all liabilities in excess of this
amount. The AIG Affiliates will be paid 5% of the gross written premiums
under the Program with which to purchase excess and aggregate reinsurance.
The purchase of excess and aggregate reinsurance by the AIG Affiliates and
the stated aggregate limit of liability in the Reinsurance Agreement will cap
the Reinsurance Subsidiary's liability for loss and loss expenses and will
permit the Reinsurance Subsidiary to quantify its aggregate maximum loss
exposure. By contrast, maximum liability under pro-rata or quota share
reinsurance contracts can be more difficult to quantify precisely.
Quantification of loss exposure will be fundamental to the Reinsurance
Subsidiary's ability to manage its losses.
The AIG Affiliates will pay the Reinsurance Subsidiary 100% of the Ceded
Premium derived from business written by the Company on behalf of the AIG
Affiliates. The AIG Affiliates shall retain a commission allowance of 28.83%
based on the net premiums. Pursuant to the Reinsurance Agreement, the
Reinsurance Subsidiary will retain the Ceded Premium together with the risks
and potential for profitability associated therewith. Accordingly, the
Company believes that the Reinsurance Subsidiary's operations will provide
the opportunity to retain the underwriting profitability that is presently
being retained by AIG, while creating a relatively limited risk exposure
under the Reinsurance Agreement. See, however, "Risk Factors -- Reinsurance."
The Reinsurance Subsidiary will provide the AIG Affiliates, as security
for the payment of losses any combination of cash, United States government
securities and/or an irrevocable letter of credit in an aggregate amount
equal to 70% of the gross Ceded Premium less the amount of losses paid for
the expiring underwriting year as of December 30, 1996 and each December 30
thereafter.
PRODUCTS AND SERVICES
The Company custom designs its insurance programs to be offered only
through nationally recognized carriers with the highest industry ratings. It
works with these carriers to establish competitive rates, while being mindful
of a carrier's need to maintain profitability and remain viable in the
marketplace. Additionally, the Company offers products and services designed
to enable its clients to realize substantial savings in their workers'
compensation costs while reducing the time required to manage this element of
their business. Specifically, the Company provides clients such savings by
offering competitive rates and dividends and cost containment programs which
assist its clients in managing their workers' compensation costs. As a result
of these measures, the Company has enabled its clients to achieve an average
reduction of approximately 11% over the four year period 1990 through 1994 in
their premium experience modification factors (which are a significant
component in determining a client's premium). For larger clients, "loss
sensitive" programs (also known as "retro" programs) can be established.
The Company has created a new, innovative, comprehensive and aggressive
approach to safety/loss control. The Company blends old and new prevention
techniques to develop safety programs specific to each industry it serves.
While the primary thrust of the Company's programs is safety for employees
and customers, emphasis is also placed on motivating client management to
implement safety programs as a means of improving profitability. The Company
conducts workshops to demonstrate the benefits of using the Company's loss
control safety programs at no additional cost to its clients. Proprietary,
custom designed loss management information is communicated by mail and phone
to the Company's clients at no additional cost.
29
<PAGE>
The Company believes its safety programs help reduce workers' compensation
claims costs. The basic elements of its safety programs, as recommended to
its clients, are:
o a written safety policy;
o specific written safety rules;
o regularly scheduled safety meetings;
o new employee hiring practices;
o training of all new and transferred employees;
o supervisor responsibility and accountability;
o a regular self-inspection program administered by identified
supervisors;
o defensive driving courses;
o first aid and CPR programs;
o an incentive program that rewards safety awareness;
o a team safety committee program;
o a timely accident reporting and investigation program;
o a monitored record keeping system for all accidents;
o a policy to implement corrective action for unsafe conditions and acts;
and
o a monthly review by top management of the program and its
implementation.
Many states have allowed a reduction in workers' compensation insurance
premiums when an employer implements an approved safety program. The
Company's safety programs meet the requirements of most states that do so.
Such workers' compensation safety program discounts are authorized on a state
by state basis and, therefore, guidelines are state specific. The Company
deals only with those state programs applicable to the voluntary market, not
the assigned risk market. Certain states make safety program discounts
available to all insureds, while others make them available only to those
insureds with high experience modification factors or based on the size of
the premium. Some states require state certification of the safety program on
a risk by risk basis. The employer, not the provider of the safety program,
qualifies for the program. The Company evaluates the requirements in the
states where such discounts are available and provides employers with
manuals, record keeping tools and recommendations which assist the employer
in obtaining certification.
CUSTOMERS, SALES AND MARKETING
The Company markets its products primarily to the franchise industry
through broker/agents. Its customers typically are sophisticated owners of
multiple unit franchises who understand the importance of cost containment
and safety features. While the Company focuses its efforts on large, national
franchisees operating multiple outlets, it also serves smaller, regional
franchise operators. For the year ended December 31, 1995, the Company
provided services and products to approximately 750 separate insureds, none
of which accounted for more than 3% of annual revenues. As of the date
hereof, no broker/agent accounted for more than 5.8% of annual revenues.
Consumers of insurance products have traditionally focused on price rather
than cost containment. They have come to expect little or no customer
service. The Company capitalizes on these insurance industry deficiencies by
tailoring its products for each niche market, providing exceptional customer
service and, most importantly, providing loss control and cost containment
services.
30
<PAGE>
The Company conducts regional safety seminars showing how to contain costs
and reduce losses. Although not a sales effort, it is one of the ways the
Company generates new business while continuing to educate its existing
clients.
Each franchisee is provided with its own personalized client service
representative who is knowledgeable and available throughout the work day. An
800 "hot line" is also available to reach the manager of client services
should any issue need immediate resolution. The Company believes that, over a
continuing period of time, these client support services will distinguish it
from its competition.
The Company has created a central database to keep it abreast of market
trends, current premium rates, rate filings, renewal dates and information on
its competition.
The Company's sales and marketing programs are varied. The Company engages
in multiple direct mail programs each year and carefully monitors the
responses to determine the effectiveness of each of these programs. The
Company also utilizes its database of franchisees to contact and generate
potential clients through an extensive telemarketing effort. Identified
prospective clients are then quoted prices by a Company representative.
Periodic telephone calls and quarterly newsletters nurture and cultivate the
Company's name recognition and update its database. The Company has also
designed marketing programs tailored for the specific needs of the high
revenue broker/agents (those whose client bases that produce workers'
compensation annual premiums ranging between $2 million and $15 million) as
well as smaller broker/agents who operate in small towns, and their
respective clients. The Company's programs relieve the broker/agent of
administrative and claims tasks in that the Company bills and collects
premiums directly from the insured, remits the commission earned to the
broker/agent, deals directly with the insured in connection with any problems
experienced by the insured and serves as a clearinghouse, together with the
TPA, with respect to the reporting, processing, reviewing and evaluating of
claims. As a result of the foregoing, the broker/agent can earn more revenue
by focusing its efforts on selling Company products. Other benefits provided
to these broker/agents include (i) increasing the geographical area in which
the broker/agent generates business, (ii) a lower likelihood of the
broker/agent losing larger multiple store and multiple state franchisees
because the broker/agents will have many more states in which they are able
to write business, (iii) being able, through the Company, to also offer the
Company's other property and casualty products to their clients, and (iv)
providing to the broker/agent's clients the benefit of the Company's loss
control and cost containment programs to reduce the clients losses, thus
enabling the client potentially to receive a dividend through low losses.
POLICY RENEWALS
Client policy renewals are critical to the Company's prosperity. The
Company believes it can achieve its goal of maintaining favorable renewal
rates by (i) providing its clients superior service, (ii) ensuring that all
insurance policy, endorsement and audit documents are distributed to each
client on a timely basis, and (iii) ensuring that all documents distributed
to clients are complete and accurate. The Company communicates with each
client at least four times per year in order to maintain close relationships
and to learn of any real or perceived problems and concerns on a timely
basis. The Company responds quickly to all written and telephone
communications initiated by the client. The Company believes that its
superior service is a major factor in its client retention rate.
The Company's underwriting department reviews prospect applications to
identify risks that appear undesirable from a historical viewpoint and to
recognize those prospects dedicated to significant improvement in their loss
history which thereby makes them a valuable addition to the Company's
customer base and to a carrier's portfolio. The Company's underwriting
department re-evaluates each client for renewal purposes. This evaluation
determines whether the particular client is eligible to receive a decrease or
other form of modification to its renewal premium. If the client has
responded to loss control recommendations and its loss history reflects
improvement, a reduction in its renewal premium rate may be implemented. The
department will also identify clients whose experience has deteriorated and
who have not responded to loss control guidance and recommendations. If the
deterioration is significant enough and the client has not demonstrated a
sincere commitment to improvement in loss experience, the underwriting
department may make a recommendation not to renew the policy.
31
<PAGE>
DATA MANAGEMENT
The Company has dedicated significant resources and capital in developing
its current management information systems which constitute an integral part
of the Company's business operations. The Company utilizes such systems to
process insurance applications, control the issuance of policies and
endorsements, audit medical fees, pay broker/agent commissions, manage
claims, provide reports to its clients, provide accounting statements and
financial reports, and analyze claims data, all of which give the Company the
ability to write more effective and competitive policies and result in a
higher rate of policy renewals. In order to ensure proper coordination, the
Company's data processing policies encompass the following features:
o maintaining the highest degree of compatibility within the Company in
the design, implementation and operation of management information
systems;
o conducting periodic meetings with department managers to review current
system developments and enhancements;
o maintaining procedures to insure that proper management approval and
review are obtained prior to the initiation of any systems development,
software or hardware procurement;
o ensuring effective utilization of software and hardware;
o maintaining guidelines for systems documentation, project control,
security and system operations; and
o maintaining inventory records of hardware and software.
COMPETITION
The workers' compensation industry is highly competitive. The Company
competes with other GA's, numerous large insurance companies, managed health
care companies, state sponsored insurance pools, risk management consultants
and non-Company affiliated broker/agents, many of which have significantly
larger operations and greater financial, marketing, human, and other
resources than the Company. Such competitors may have material advantages
over the Company as a result of additional forms of insurance and services
they offer in addition to workers' compensation products and services.
Competitive factors include product lines, premium rates, personalized
service and effective cost containment measures.
Although the Company believes that, as one of the only national providers
specializing in workers' compensation insurance for franchise businesses in
the United States, it is uniquely positioned in the industry, no assurance
can be given that other companies will not develop similar national programs.
See "Risk Factors Competition."
REGULATION
GENERAL
As a GA, the Company is subject to regulation in the various states in
which it sells insurance. These regulations vary from state to state, and may
include such matters as licensing requirements, bonding requirements,
requirements regarding the Company's agreements with the insurance carriers
for which it acts as a GA, and certain other requirements. Penalties may be
imposed for violations of such regulations. Changes in such regulation, if
any, may have a material adverse effect on the Company's business and
operations.
Under the workers' compensation system, employer insurance or self-funded
coverage is governed by individual laws in each of the fifty states and by
certain federal laws. Changes in individual state regulation of workers'
compensation or managed health care may create a greater or lesser demand for
some or all of the Company's services, or require the Company to develop new
or modified services in order to meet the needs of the marketplace and
compete effectively in that marketplace.
REINSURANCE SUBSIDIARY
It is anticipated that the Reinsurance Subsidiary will be registered as a
Class 3 insurer in Bermuda and, accordingly, will be subject to the
provisions of the Bermuda Insurance Act 1978, as amended, and the regulations
promulgated thereunder (collectively, the "Insurance Act"). The Insurance Act
provides that no person shall
32
<PAGE>
carry on insurance business in or from within Bermuda unless registered as an
insurer under the Insurance Act by the Minister of Finance (the "Minister").
The Minister, in determining whether to grant registration, has broad
discretion to act as he thinks fit in the public interest. The Minister is
required by the Insurance Act to ascertain whether the applicant is a fit and
proper body to be engaged in the insurance business and, in particular,
whether it has, or has available to it, adequate knowledge and expertise. In
connection with registration, the Minister may impose conditions relating to
the writing of certain types of insurance business.
The Insurance Act imposes on Bermuda insurance companies such as the
Reinsurance Subsidiary solvency and liquidity standards and auditing and
reporting requirements and grants to the Minister powers to supervise,
investigate and intervene in the affairs of insurance companies. Significant
aspects of the Bermuda insurance regulatory framework are set forth below.
o The Reinsurance Subsidiary will be required to maintain a principal
office in Bermuda and appoint and maintain a principal representative
in Bermuda. The Insurance Act places a duty on the principal
representative to report to the Minister the occurrence of certain
events, including, but not limited to, the failure by the insurer for
which he or she acts to comply with a condition imposed by the Minister
relating to a solvency margin or a liquidity or other ratio with
respect to any other such condition not so relating. Without a reason
acceptable to the Minister, the Reinsurance Subsidiary may not
terminate the appointment of its principal representative, and the
principal representative may not cease to act as such, unless 30 day's
advance notice in writing to the Minister is given of the intention to
do so.
o The Reinsurance Subsidiary will be required to appoint an independent
auditor to conduct the annual audit of the statutory-basis financial
statements.
o The Reinsurance Subsidiary will be required to maintain share capital
(the aggregate par value of issued shares) of at least $120,000.
o The Reinsurance Subsidiary must maintain statutory capital and surplus
exceeding the greater of the following three criteria:
o $1,000,000
o 20% of the net premiums where the net premiums in the current
financial year do not exceed $6,000,000, or, where the net premiums
exceed $6,000,000, $1,200,000 plus 15% of the net premiums which
exceed $6,000,000. The net premium is the gross premium after
deduction for any premium ceded for reinsurance.
o 15% of reserves for losses and loss expenses.
o The Reinsurance Subsidiary will be required to maintain liquid assets
(referred to in the Insurance Act as "relevant assets") at a level
equal to or greater than 75% of its net relevant (insurance)
liabilities. For this purpose, liquid assets include cash and time
deposits, quoted (publicly traded) investments, unquoted bonds and
debentures, mortgage loans backed by first liens on real estate,
accrued investment income, accounts and premiums receivable,
reinsurance balances receivable and funds held by ceding companies.
o The Reinsurance Subsidiary will be required to have a copy of its
Statutory Financial Statements available at its principal office for
production to the Registrar of Companies ("Registrar") and to file
these Statutory Financial Statements and a Statutory Financial Return
within four months after the end of the financial year (or such longer
period, not exceeding seven months, as the Registrar, on application,
may allow).
o The Reinsurance Subsidiary will be required to include in its annual
Statutory Financial Return the opinion of a loss reserve specialist in
respect of its loss and loss expense reserves.
o The Minister may appoint an inspector with extensive powers to
investigate the affairs of an insurer or reinsurer if the Minister
believes that an investigation is required in the interest of the
insurer's or reinsurer's policyholders or persons who may become
policyholders. To verify or supplement information otherwise provided
to him, the Minister may direct an insurer or reinsurer to produce
documents or information relating to matters connected with the
insurer's or reinsurer's business.
33
<PAGE>
Under current Bermuda law, there is no Bermuda income, corporation or
profits tax, withholding tax, capital gains tax, capital transfer tax, estate
duty or inheritance tax payable by stockholders of the Company other than
stockholders ordinarily resident in Bermuda for exchange purposes. The
Company is not subject to stamp or other similar duty on the issue, transfer
or redemption of its shares of Common Stock.
It is expected that the Company will obtain an assurance from the Minister
under the Exempted Undertakings Tax Protection Act 1966 that, in the event of
there being enacted in Bermuda any legislation imposing tax computed on
profits or income or computed on any capital assets, gain or appreciation or
any tax in the nature of estate duty or inheritance tax, such tax shall not,
until March 28, 2016, be applicable to the Company or to its operations, or
to the shares, debentures or other obligations of the Company except in so
far as such tax applies to persons ordinarily resident in Bermuda and holding
such shares, debentures or other obligations of the Company or any real
property or leasehold interests in Bermuda owned by the Company. As an
exempted company, the Company is liable to pay a registration fee in Bermuda
based upon its authorized capital and the premium on its issued shares of
Common Stock at a rate not exceeding $25,000 per annum.
PREMIUM RATE RESTRICTIONS
State regulations governing the workers' compensation system impose
restrictions and limitations on the Reinsurance Subsidiary's business
operations. State laws regulate what workers' compensation benefits must be
paid to injured workers. Additionally, most states must approve the workers'
compensation premium rates that may be charged. As a consequence, the
Reinsurance Subsidiary's ability to pay insured workers' compensation claims
out of the premium revenue generated from the Reinsurance Subsidiary's
assumption of such insurance is dependent on the level of benefits and
premium rates approved by the various states. In this regard it is
significant that the state regulatory agency that regulates workers'
compensation benefits is often not the same agency that regulates workers'
compensation insurance premium rates.
POSSIBLE FUTURE REGULATIONS
Several state legislatures and the federal government have considered and
are considering a number of cost containment and health care reform
proposals. The Company believes it may benefit from some proposals that favor
the growth of managed care. However, no assurance can be given that the state
or federal government will not adopt future health care reforms that would
have a material adverse effect on the Company.
INVESTMENT INCOME
The Company's income will depend, in part, on the income derived from the
investment of premiums by the Reinsurance Subsidiary. The Company believes
that the risks inherent in the business of the Reinsurance Subsidiary should
not be augmented by a speculative investment policy and therefore its
investment strategy will be partially defined by the need to safeguard its
capital. Because of the unpredictable nature of losses that may arise under
insurance policies, the Reinsurance Subsidiary's liquidity needs may be
substantial. The Company's investment policy will be established by the
Company's Investment Committee, and will be subject to, among other factors,
the Company's liquidity requirements. The Company intends that its
investments will consist primarily of cash or fixed-income securities (none
of which will have a rating of less than AA), the market value of which is
subject to fluctuation depending on changes in prevailing interest rates.
Additionally, the Company reserves the right to invest a limited percentage
of its portfolio, to be determined by the Investment Committee, in common
stock of companies listed on national securities exchanges. The stock of such
companies may fluctuate as a result of specific events affecting such
companies as well as general market conditions. Increases in interest rates
or fluctuations in the market price of such companies' stocks may result in
losses, both realized and unrealized, on the Company's investments. See "Risk
Factors -- Investment Income Necessary to Preserve Capital."
EMPLOYEES
The Company currently has approximately 35 full-time employees, of whom
five are officers, four are managers, three are sales personnel and the
balance are accounting, clerical, loss control and underwriting staff. None
of the Company's employees is subject to collective bargaining agreements.
The Company believes that its relationships with its employees are good.
34
<PAGE>
FACILITIES
The Company leases approximately 12,600 square feet of office space in
Miami, Florida for use as its corporate headquarters. The lease agreement has
an initial seven year term, which expires in 2002, with two five-year
renewal options. The Company believes that its present facilities are well
maintained, in good condition and are suitable for its needs for the
foreseeable future.
LEGAL PROCEEDINGS
The Company is a party to various claims and lawsuits arising in the
ordinary course of business. At present, management does not anticipate that
the resolution of any of these claims and lawsuits will have a material
adverse affect on the financial condition or operations of the Company.
35
<PAGE>
MANAGEMENT
Directors and Executive Officers
The names, ages and positions of the executive officers and Directors of
the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
------------------- ----- ---------------------------------------------
<S> <C> <C>
Mel Harris 56 Chairman, Chief Executive Officer and Director
Howard Odzer 61 President and Director
William R. Dresback 49 Chief Financial Officer and Secretary
John Rearer 38 Vice President
Nancy Ryan 40 Vice President and Assistant Secretary
Stuart J. Gordon 66 Director
Jack D. Burstein 51 Director*
Maxwell M. Rabb 86 Director*
</TABLE>
Mel Harris has been a Director of the Company since its inception in 1988
and has been Chairman and Chief Executive Officer of the Company since April
1993. Mr. Harris served as Vice Chairman of Jardine Insurance Brokers New
York, Inc. from February 1992 until January 1994. From 1988 until February
1992, Mr. Harris served as Vice Chairman of Alexander & Alexander of New
York, Inc. (a wholly-owned subsidiary of A&A Services, Inc.), a global
insurance brokerage organization. In addition, Mr. Harris serves as President
of International Insurance Group, Inc., an insurance brokerage company
located in Miami and New York and has been a director of Koo Koo Roo, Inc., a
casual dining chain, since September 1996. Mr. Harris has agreed to devote
such time as is necessary and in any event, no less than 80% of his business
time, to the affairs of the Company.
Howard Odzer has been President and a Director of the Company since its
inception in 1988. Between 1976 and 1988, Mr. Odzer carried on business
principally as a private investor. Mr. Odzer co-founded MarkeTiming, a
company that became an affiliate of Jesup and Lamont, members of the NYSE,
and which was a provider of research to major financial institutions
throughout the United States and pioneered the use of computer analysis for
investment and program trading. He served as President of MarkeTiming from
its inception until 1976. Prior to founding MarkeTiming, Mr. Odzer worked as
a stock market analyst with Moore and Schley, members of the NYSE, where he
became a Vice President of Institutional Research. Mr. Odzer participates in
the National Restaurant Association Risk and Safety Managers Group, and is a
member of the Advisory Council of GAB Robins, one of the largest claims
administrators in the country. Mr. Odzer is a graduate of Princeton
University.
William R. Dresback has been Chief Financial Officer and Secretary since
May 1993. From 1986 to 1992, he served as Chief Financial Officer of Cobb
Partners Financial, Inc. (previously a wholly-owned subsidiary of The Walt
Disney Company), a national financial services company primarily involved in
the mortgage banking, construction and real estate development businesses.
From 1981 to 1986, Mr. Dresback served as Senior Vice President and Chief
Financial Officer of International Financial Services, Inc. (a subsidiary of
The Torchmark Corporation), an international financial services company
primarily involved in the financial planning, life insurance and securities
brokerage businesses. From 1969 to 1981, he was employed by KPMG Peat Marwick
where he was responsible for managing the firm's South Florida Insurance
Practice.
John Rearer has been a Vice President of the Company since February 1994.
Mr. Rearer has over ten years of commercial insurance experience. From 1989
to 1994, Mr. Rearer was Executive Vice President of the Food Service Division
of The Garlington Group, a large retail insurance agency specializing in fast
food franchisee insurance programs. From 1986 to 1989, Mr. Rearer
concentrated on the development and marketing of workers' compensation and
property and liability insurance and overall agency management for Coastal
Plains Insurance. From 1984 to 1986, Mr. Rearer was employed by Arthur Young
& Company as a Certified Public Accountant in their Tax Department.
Nancy Ryan has been a Vice President and Assistant Secretary of the
Company since July 1992. Ms. Ryan has over 12 years commercial insurance
experience. Ms. Ryan served as a Vice President of Jardine Insurance ------
*These individuals will be elected directors prior to this Offering.
36
<PAGE>
Brokers New York, Inc. from February 1992 until January 1994. From 1988 until
February 1992, she served as a Vice President of Alexander & Alexander of New
York, Inc. (a wholly-owned subsidiary of A&A Services, Inc.), a global
insurance brokerage organization. In addition, since 1984, Ms. Ryan has
served as Vice President of International Insurance Group, Inc. Ms. Ryan
devotes approximately 50% of her business time to the affairs of the Company.
Stuart J. Gordon has been a director of the Company since 1995. Mr. Gordon
has been a partner at the law firm of Metzger, Hollis, Gordon & Alprin since
1989. Mr. Gordon has served as Chief Counsel of Special Enforcement with the
Securities and Exchange Commission, Special Assistant to the Comptroller of
the Currency, Deputy Chairman and Treasurer of the United States Senate
campaign of Daniel Patrick Moynihan, the first Administrative Assistant and
Chief of Staff to Senator Moynihan in Washington, D.C., and Deputy Finance
Chairman of the Presidential campaign of Senator John Glenn. Mr. Gordon was
appointed by the Governor of the State of Maryland to the Foster Care Review
Board and served as a member of the Board of Governors of Daytop Village. Mr.
Gordon is also a member of the Board of Advisors of the Independent College
Fund of New York.
Jack D. Burstein will be elected a director of the Company prior to this
Offering. Mr. Burstein has been the Chairman and President of each of
Strategica Group, Inc., a merchant bank ("Strategica Group"), and Strategica
Capital Corp., an affiliate of Strategica Group and a merchant bank
("Strategica Capital"), since 1992. From 1984 to present, Mr. Burstein has
served as Chief Executive Officer and President of American Capital Corp., a
savings and loan holding corporation, and as Chief Executive Officer of
TransCapital Financial Corporation, a savings and loan holding corporation.
Prior to such time, Mr. Burstein was a senior partner in the accounting firms
of Schecter Beame Burstein Price & Co. and Seidman & Seidman, respectively.
Maxwell M. Rabb will be elected a director of the Company prior to this
Offering. Mr. Rabb has been of Counsel to the law firm of Kramer, Levin,
Naftalis, Nessen, Kamin & Frankel since 1991 and was a partner in the law
firm of Stroock & Stroock & Lavan from 1958 to 1981 and from 1989 to 1991.
Mr. Raab served as the United States Ambassador to Italy from 1981 to 1989.
In addition, Mr. Raab serves as a director of the Sterling National Bank, MIC
Industries, Inc., Liberty Cable Company, Inc., Black Hole Technologies, Inc.,
Data Software and Systems, Inc., and CompuTower.
The Company is currently in negotiations with a candidate to serve as
Senior Vice President of Marketing to the Company. In this regard the Company
anticipates entering into an employment agreement upon the terms and
conditions described in "Management -- Employment Arrangements."
All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Directors currently
receive no cash compensation for serving on the Board of Directors. Officers
are elected by and serve at the discretion of the Board of Directors.
Effective upon the consummation of this Offering, the Board of Directors
intends to establish an Audit Committee, an Investment Committee, an
Executive Committee and a Compensation Committee.
The Audit Committee will review and evaluate the results and scope of the
audit and other services provided by the Company's independent accountants,
as well as the Company's accounting principles and system of internal
accounting controls. The members of the Audit Committee will be Messrs.
Burstein, Gordon and Rabb.
The Investment Committee will establish the Company's investment policy
and will have complete discretion in investing the Company's portfolio,
including the investment of premiums assumed by the Reinsurance Subsidiary.
The members of the Investment Committee will be Messrs. Harris, Burstein and
Gordon.
The Executive Committee will exercise all power and authority of the Board
of Directors in the management and affairs of the Company between meetings of
the Board of Directors, to the extent permitted by law. The members of the
Executive Committee will be Messrs. Harris, Burstein and Gordon.
The Compensation Committee will make recommendations to the Board of
Directors concerning the compensation, including incentive arrangements, of
the Company's officers, key employees and others and will administer the
Option Plan and will determine the officers, key employees and others to be
granted options under the Option Plan and the Additional Option Agreement and
the number of shares subject to such options. The members of the Compensation
Committee will be Messrs. Harris, Burstein and Gordon.
Executive Compensation
The following table sets forth all compensation awarded to, earned by, or
paid for all services rendered to the Company during the years ended 1995,
1994 and 1993 by the Chief Executive Officer and each of the Company's other
executive officers (collectively, the "Named Officers") who received
compensation in excess of $100,000 during any such year.
37
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and
Principal Position
(1) Year Annual Competition Long-Term Compensation
------------------- ------ ------------------------------------ ----------------------------------------------------------
Awards Payouts
------------------------------ --------------------------
Other
Annual Restricted Securities LTIP All Other
Salary Bonus Compen- Stock Underlying Pay-outs Compen-
sation ($) Award(s) Options/SARs sation
($) ($) (3) ($) (#) ($) ($) (2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mel Harris 1995 0 0 0 0 0 0 $ 270,000
----------------------------------------------------------------------------------------------------------
Chairman and Chief
Executive Officer 1994 0 0 0 0 0 0 $1,977,468
---------------------------------------------------------------------------------------------------------
1993 0 0 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Howard Odzer 1995 $100,000 0 0 0 0 0 $ 270,000
---------------------------------------------------------------------------------------------------------
President 1994 $100,000 0 0 0 0 0 $1,977,468
---------------------------------------------------------------------------------------------------------
1993 $100,641 0 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
William R. Dresback 1995 $100,000 0 $8,400 0 0 0 0
---------------------------------------------------------------------------------------------------------
Chief Financial
Officer and
Secretary 1994 $100,000 0 $8,400 0 0 0 0
---------------------------------------------------------------------------------------------------------
1993 $ 66,231 0 $5,600 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
John Rearer 1995 $106,250 0 0 0 0 0 0
---------------------------------------------------------------------------------------------------------
Vice President 1994 $ 87,692 0 0 0 0 0 0
---------------------------------------------------------------------------------------------------------
1993 0 0 0 0 0 0 0
---------------------------------------------------------------------------------------------------------
</TABLE>
- ------
(1) Mel Harris serves as Chairman and Chief Executive Officer of the Company
pursuant to an employment agreement. Howard Odzer serves as President of
the Company pursuant to an employment agreement. See "Employment
Arrangements."
(2) Dividends paid pursuant to the Shareholders Agreement. See "Dividend
Policy."
(3) Automobile allowance.
<PAGE>
Employment Arrangements
The Company has entered into a one-year employment agreement with Mr.
Harris, dated as of the date hereof, pursuant to which Mr. Harris serves as
Chairman and Chief Executive Officer. The agreement will automatically renew
for successive one-year periods, unless either party gives not less than
90-days notice to the other party of its desire to terminate the Agreement at
the end of such period. Mr. Harris will receive an annual salary of $150,000
and is also entitled to receive perquisites similar to perquisites made
available to other senior executives of the Company. Mr. Harris has agreed to
devote such time as is necessary and in any event, no less than 80% of his
business time, to the affairs of the Company. Mr. Harris has agreed that at
all times while he is employed by the Company in any capacity, and for a
period of three years after the date of the termination of his employment
with the Company, irrespective of the manner of such termination, Mr. Harris
will not (i) be employed or retained by, seek employment with, or serve as a
employee, agent, officer, director or partner of, or as a consultant to, or
directly or indirectly acquire or own in any manner an interest in (whether
as owner, operator, stockholder, director, financial backer, creditor,
consultant, partner, agent or otherwise), any person, firm, partnership,
corporation, association, sole proprietorship or other entity which engages
in competition with the Company in any and all states in which the Company
and/or any of its subsidiaries conduct their respective businesses, (ii)
solicit any current or previously solicited potential customer of the
Company, or (iii) solicit or induce any person to leave the employ of the
Company to engage in activities competitive with any business of the Company.
The Company has entered into a three-year employment agreement with Mr.
Odzer pursuant to which Mr. Odzer serves as President and as a Director
commencing May 15, 1995, with automatic renewals for successive one-year
periods, unless either party gives not less than 90-days notice to the other
party of its desire to terminate the Agreement at the end of such period (the
"Term"). Mr. Odzer is to remain a director for so long as he is an employee
and stockholder of the Company, unless an investment banker or other acquiror
of securities requires his removal in writing. Upon the consummation of the
Offering and during the remainder of the Term,
38
<PAGE>
Mr. Odzer will receive an annual salary of $200,000. Mr. Odzer is also
entitled to receive perquisites similar to perquisites made available to
other senior executives of the Company. In the event that Mr. Odzer's
employment is terminated by the Company other than for "Cause" (as such term
is defined in the agreement), he shall be entitled to receive all payments
and benefits to which he was entitled under the agreement. For a period of
one year after the Term, Mr. Odzer has agreed not to, directly or indirectly,
compete with or be engaged in the same business as the Company, or be
employed by, or act as consultant or lender to, or be a director, officer,
employee, owner or partner of, any business organization which, directly or
indirectly, competes with or is engaged in the same business in which the
Company is engaged at the end of the Term; provided, however, that Mr. Odzer
is permitted to own no more than 5% of the outstanding common stock of any
company, the stock of which is traded on a national securities exchange or on
an over-the-counter market.
The Company is currently in negotiations to employ an individual as a
Senior Vice President of Marketing who will receive an annual salary of
$150,000 plus commissions (at a rate which will guaranty him at least $25,000
annually). Such individual executive officer will be entitled to receive
reimbursement for certain expenses (including medical, moving and automobile
expenses) as well as options to purchase up to 40,000 shares of Common Stock.
In the event of termination, he will be entitled to between six months and
one year of severance pay.
STOCK OPTION PLAN
In September 1996, the Board of Directors adopted and the stockholders of
the Company approved the Option Plan. The Option Plan provides for the grant
to qualified employees (including officers and directors) of the Company of
options to purchase shares of Common Stock. A total of 300,000 shares of
Common Stock will be reserved by the Company for issuance upon exercise of
stock options granted or which may be granted under the Option Plan. The
Company anticipates that it will grant options under the Option Plan prior to
this Offering.
The Option Plan is administered by the Compensation Committee whose
members are not entitled to receive options under the Plan (excluding options
granted exclusively for directors' fees). The Compensation Committee has
complete discretion to select the optionee and to establish the terms and
conditions of each option, subject to the provisions of the Plan. Options
granted under the Plan may or may not be "incentive stock options" as defined
in Section 422 of the Code ("Incentive Options") depending upon the terms
established by the Compensation Committee at the time of grant, but the
exercise price of options granted may not be less than 100% of the fair
market value of the Common Stock as of the date of grant (110% of the fair
market value if the grant is an Incentive Option to an employee who owns more
than 10% of the outstanding voting power of the Company). Options may not be
exercised more than 10 years after the grant (five years if the grant is an
Incentive Option to any employee who owns more than 10% of the outstanding
voting power of the Company). Options granted under the Plan are not
transferable and may be exercised only by the respective grantees during
their lifetimes or by their heirs, executors or administrators in the event
of death. Under the Option Plan, shares subject to canceled or terminated
options are reserved for subsequently granted options. The number of options
outstanding and the exercise price thereof are subject to adjustment in the
case of certain transactions such as mergers, recapitalizations, stock splits
or stock dividends.
Pursuant to a Share Escrow Agreement to be entered into prior to this
Offering by and between Howard Odzer, Baer Marks & Upham LLP, as Escrow
Agent, and the Company (the "Additional Option Agreement"), Mr. Odzer has
agreed to place 300,000 shares of Common Stock beneficially owned by him in
escrow for issuance upon exercise of stock options which will be granted by
him to certain executives, officers and directors designated by the
Compensation Committee, in its sole discretion (the "Additional Options"). The
exercise price of the Additional Options will be no less than the initial public
offering price of the Common Stock as set forth on the cover of this Prospectus.
Mr. Odzer will receive all proceeds from any exercise of the Additional Options.
In addition, any exercise of Additional Options must occur, if at all, within
five years from the date of this Prospectus. After such date the balance of the
shares of Common Stock held in escrow pursuant to the Option Agreement, if any,
shall revert to Mr. Odzer. See "Certain Transactions."
Prior to the consummation of the Offering, the Company intends to grant
options to purchase an aggregate of 320,000 shares of Common Stock under the
Option Plan and the Additional Option Agreement to certain executive officers
and directors of the Company. See "Management -- Principal Stockholders."
39
<PAGE>
Indemnification
Section 145 of the General Corporation Law of the State of Delaware
permits indemnification by a corporation of its officers and directors.
Consistent therewith the Company's Certificate of Incorporation requires that
the Company indemnify all persons whom it may indemnify pursuant thereto to
the fullest extent permitted by Section 145.
In addition, the Company's Certificate of Incorporation provides that
directors of the Company shall not be liable for monetary damages to the
Company or its stockholders for a breach of fiduciary duty as a director,
except for liability as a result of (i) a breach of the director's duty of
loyalty to the Company or its stockholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) an act related to certain unlawful dividend payments or stock
redemptions or purchases, or (iv) any transaction from which the director
derived an improper benefit. The effect of these provisions is to eliminate
the right of the Company and its stockholders (through stockholders'
derivative suits on behalf of the Company) to recover monetary damages
against any director for breach of fiduciary duty as a director (including
breaches resulting from negligent or grossly negligent behavior) except for
situations described in clauses (i)-(iv) of the preceding sentence. These
provisions will not affect the availability of injunctive relief for breach
of fiduciary duty or alter the liability of directors under federal
securities laws.
The Underwriting Agreement between the Company and each of the
Underwriters (the "Underwriting Agreement") provides for a reciprocal
indemnification among the Company and the Underwriters against certain civil
liabilities in connection with the Registration Statement of which this
Prospectus is a part, including liabilities under the Securities Act. See
"Underwriting."
Pursuant to the Shareholders Agreement, the Company has agreed to
indemnify each of Mr. Odzer and Mr. Harris for all fines, liabilities,
settlements, costs and expenses, including attorneys' fees, asserted against
him or incurred by him in his capacity as officer, director, trustee,
partner, agent or employee. Although the Shareholders Agreement terminates by
its own terms upon the consummation of the Offering, such indemnification
provisions, among others, are to be incorporated in a new agreement to be
entered into with the Company within 30 days of such termination.
The Company intends to procure and maintain a policy of insurance under
which the directors and officers of the Company will be insured, subject to
the limits of the policy, against certain losses arising from claims made
against such directors and officers by reason of any acts or omissions
covered under such policy in their respective capacities as directors or
officers, including liabilities under the Securities Act. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus and as
adjusted to reflect the sale of 1,500,000 shares of Common Stock offered
hereby, certain information with respect to the beneficial ownership of
Common Stock by (i) each person known by the Company to be the owner of more
than 5% of the outstanding Common Stock, (ii) each director, (iii) each Named
Officer, and (iv) all directors and executive officers as a group:
<TABLE>
<CAPTION>
Percentage of Outstanding
Shares Owned (3)
-----------------------------------
Amount and Nature
Name and Address of Beneficial
Before Offering After Offering
of Beneficial Owner (1) Ownership (2) (4) (5)
------------------------------------ ----------------- ---------------- ---------------
<S> <C> <C> <C>
Mel Harris(6) 3,000,000 100 % 66.67 %
Howard Odzer(7) 1,111,765 37.06% 24.706%
William R. Dresback -- -- --
John Rearer -- -- --
Stuart Gordon -- -- --
All directors and executive officers 3,000,000 100 % 66.67 %
as a group (6 persons)
</TABLE>
40
<PAGE>
- ------
(1) The address of each beneficial owner is Preferred Employers Holdings,
Inc., 10800 Biscayne Boulevard, Penthouse, Miami, Florida 33161.
(2) Unless otherwise noted, the Company believes that all persons named in
the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them. In accordance with
Rule 13d-3 under the Exchange Act, a person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from the date hereof upon the exercise of warrants or options.
Each beneficial owner's percentage ownership is determined by assuming
that options or warrants that are held by such person (but not those held
by any other person) and which are exercisable within 60 days from the
date hereof have been exercised. See "Certain Transactions."
(3) Does not include options to purchase an aggregate of 320,000 shares of
Common Stock under the Option Plan and the Additional Option Agreement to
certain executive officers and directors of the Company (including
options to purchase 50,000 shares to Mr. Dresback, 40,000 to Mr. Rearer,
20,000 to Ms. Ryan and 25,000 shares to each of Messrs. Rabb, Burstein
and Gordon) to be granted prior to the consummation of the Offering. See
"Management -- Stock Option Plan."
(4) Based on 3,000,000 shares outstanding.
(5) Based on 4,500,000 shares outstanding, including the 1,500,000 shares of
Common Stock offered hereby.
(6) Includes (i) 88,235 shares held of record by Francine Harris, wife of Mr.
Harris, (ii) 88,235 shares held of record by Francine Harris, wife of Mr.
Harris, as custodian for Jamie Jo Harris, daughter of Mr. and Mrs.
Harris, (iii) 44,118 shares held of record by Ginger Harris, daughter of
Mrs. Harris, (iv) 44,118 shares held of record by Nicole Tannenbaum
Kramer, daughter of Mrs. Harris, (v) 25,000 shares held of record by Alan
Harris, brother of Mr. Harris, (vi) 25,000 shares held of record by Nancy
Ryan, (vii) 1,111,765 shares held of record by Howard Odzer, and (viii)
123,529 shares held of record by Ronald Rothstein, step-brother of Mr.
Odzer, over all of which Mr. Harris has voting control and of which Mr.
Harris may be deemed to be the beneficial owner. All shares deemed to be
beneficially owned by each of Mr. Harris and Mr. Odzer are subject to a
right of first refusal by the other whereby each shall have the right to
purchase the other's shares on the same terms as any bona fide offer
therefor. See "Certain Transactions."
(7) Mr. Harris has voting control over the 1,111,765 shares held of record by
Mr. Odzer and, therefore, such shares have been included in the 3,000,000
shares beneficially owned by Mr. Harris. See footnote 6 above.
41
<PAGE>
CERTAIN TRANSACTIONS
Immediately prior to this Offering, the Company and the Exchanging
Stockholders will effect a recapitalization whereby the Company will exchange
17,647.06 shares of Common Stock for each share of common stock of PEGI held
by the Exchanging Stockholders (the "Exchange"). As a result of the Exchange,
PEGI will become a wholly-owned subsidiary of the Company.
Pursuant to the Share Escrow Agreement, Mr. Odzer has agreed to place
300,000 shares of Common Stock beneficially owned by him in escrow for
issuance upon exercise of stock options which will be granted by him to
certain executives and officers designated by the Compensation Committee, in
its sole discretion (the "Additional Options"). The exercise price of the
Additional Options will be no less than the initial public offering price of
the Common Stock as set forth on the cover of this Prospectus. Mr. Odzer will
receive all proceeds from any exercise of the Additional Options. The Company
has agreed to pay to Mr. Odzer an amount equal to the additional income tax to
which Mr. Odzer will be subject over and above the rate that would have been
applicable if the gain recognized by Mr. Odzer from the exercise of such options
had been taxable as a "capital gain" rather than "ordinary income." In addition,
any exercise of Additional Options must occur, if at all, within five years from
the date of this Prospectus. After such date the balance of the shares of Common
Stock held in escrow pursuant to the Option Agreement, if any, shall revert to
Mr. Odzer. The Company has agreed to indemnify Mr. Odzer and hold him harmless,
against all claims and liabilities to which Mr. Odzer may become subject under
any federal or securities laws insofar as such claims arise out of or are based
upon this Share Escrow Agreement. See "Management -- Stock Option Plan."
Messrs. Harris and Odzer entered into the Shareholders Agreement with the
Company which provides for certain agreements regarding restrictions on the
transferability of shares and other issues relating to corporate governance.
Pursuant to the Shareholders Agreement Mr. Harris has voting control over the
shares held by Mr. Odzer. See "Principal Stockholders." Upon the consummation
of the offering, the Shareholders Agreement shall terminate by its own terms.
The Company has agreed to enter into a new agreement with Mr. Harris and Mr.
Odzer within 30 days after such termination which shall incorporate certain
provisions of the Shareholders Agreement, including the right of first
refusal of Mr. Harris and Mr. Odzer with respect to the disposition of shares
of stock by the other, certain tag-along rights and registration rights of
Mr. Odzer, the right to seek arbitration to settle disputes arising out of
the Shareholders Agreement and the indemnification provisions with respect to
Mr. Harris and Mr. Odzer. See "Management -- Indemnification."
The Company entered into a Stock Repurchase Agreement, dated as of May 15,
1995 (the "Repurchase Agreement"), with Mr. Odzer and Mr. Rothstein, a
step-brother of Mr. Odzer, pursuant to which the Company agreed to repurchase
from them an aggregate of 30 shares (529,412 shares, as adjusted) of common
stock of the Company. The purchase price for such shares was $600,000
(including interest) to be paid to Mr. Odzer and Mr. Rothstein in 24
installments of $25,000 each. The closing of the Repurchase Agreement was
subject to the Company's completion of a $600,000 distribution to the
existing stockholders of the Company, pro rata based on the number of shares
of common stock of the Company outstanding, and paid to the stockholders of
record on the date of the Repurchase Agreement, without giving effect to the
repurchase. The $600,000 distribution was made by the Company on May 26,
1995. The Company agreed, pursuant to a subsequent agreement made with Mr.
Harris and Mr. Odzer, to repay the balance of the purchase price at December
31, 1995 in 23 monthly installments of $25,000 (including interest)
commencing in February 1996. As of September 30, 1996, the total amount of
payments made by the Company was $225,000 and the balance of the purchase
price outstanding was $375,000.
The Company has agreed to pay to Strategica Group a fee of $50,000 as
compensation for its services provided in connection with this Offering. Mr.
Harris is a director and investor in Strategica Capital, an affiliate of
Strategica Group. Mr. Burstein, who will be elected a director of the Company
prior to the Offering, is the Chairman and President of Strategica Group and
Strategica Capital. See "Management -- Directors and Executive Officers."
The Company has provided office space, equipment and other administrative
services to International Insurance Group, Inc. ("IIG"), an insurance
brokerage company wholly-owned by Mr. Harris. Under this arrangement, the
Company currently receives approximately $2,400 per month for rendering such
services. The contractual arrangement between the Company and IIG commenced
in January 1996, and the aggregate amount billed by the Company for the nine
months ended September 30, 1996 was $19,450. Prior to January, 1996, the
Company provided these services without reimbursement. IIG has agreed that it
will not solicit any employee, any customer or any entity which was a
customer of the Company within the past two years with respect to any
business then being written by the Company. IIG has agreed to pay the Company
any commission received by IIG with respect to any business written by the
Company.
42
<PAGE>
Except as set forth above, the Company does not presently intend to enter
into any other business transactions with affiliated parties. In the event,
however, that any such business transaction is entered into, it will be on
terms no less favorable to the Company than those it could obtain through
arms-length negotiation.
For information concerning employment agreements with, and compensation
of, the Company's executive officers and directors, see "Management --
Executive Compensation; Employment Arrangements; and Stock Option Plan."
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock, par
value $.01 per share, of which 3,000,000 shares are currently outstanding and
held of record by six record holders. Holders of shares of Common Stock are
entitled to one vote for each share held of record on all matters to be voted
on by stockholders. There are no preemptive, subscription, conversion or
redemption rights pertaining to the shares of Common Stock. Holders of shares
of Common Stock are entitled to receive dividends when, as and if declared by
the Board of Directors from funds legally available therefor and to share
ratably in the assets of the Company available upon liquidation, dissolution
or winding up. The holders of shares of Common Stock do not have cumulative
voting rights for the election of directors and, accordingly, the holders of
more than 50% of the shares of Common Stock are able to elect all directors.
See "Risk Factors -- Control by Existing Stockholders." All of the
outstanding shares of Common Stock are, and the Common Stock offered hereby,
upon issuance and when paid for, will be, duly authorized, validly issued,
fully paid and non-assessable.
PREFERRED STOCK
The Company is authorized to issue up to 1,500,000 shares of preferred
stock, par value $.01 per share. The preferred stock may be issued in one or
more series, the terms of which may be determined by the Board of Directors
at the time of issuance without further action by stockholders, and may
include voting rights (including the right to vote as a series on particular
matters), preferences as to dividends and liquidation, conversion and
redemption rights and sinking fund provisions. The issuance of any such
preferred stock could materially adversely affect the rights of holders of
Common Stock and, therefore, could reduce the value of the Common Stock. The
ability of the Board of Directors to issue preferred stock could have the
effect of delaying, deferring or preventing a change in control of the
Company. See "Risk Factors -- Possible Issuances of Preferred Stock;
Anti-Takeover Provisions."
LIMITATIONS UPON TRANSACTIONS WITH "INTERESTED STOCKHOLDERS"
Section 203 of the Delaware General Corporation Law prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder unless (i)
prior to the date of the business combination, the transaction is approved by
the board of directors of the corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (iii) on or after such date, the business combination is
approved by the board of directors and by the affirmative vote of at least
66-2/3 % of the outstanding voting stock which is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock. The restrictions of Section 203 do not apply,
among other things, if a corporation, by action of its stockholders, adopts
an amendment to its certificate of incorporation or by-laws expressly
electing not to be governed by Section 203, provided that, in addition to any
other vote required by law, such amendment to the certificate of
incorporation or by-laws must be approved by the affirmative vote of a
majority of the shares entitled to vote. Moreover, an amendment so adopted is
not effective until twelve months after its adoption and does not apply to
any business combination between the corporation and any person who became an
43
<PAGE>
interested stockholder of such corporation on or prior to such adoption. The
Company's Certificate of Incorporation and By-laws do not currently contain
any provisions electing not to be governed by Section 203 of the Delaware
General Corporation Law. The provisions of Section 203 of the Delaware
General Corporation Law may have a depressive effect on the market price of
the Common Stock because they could impede any merger, consolidation,
takeover or other business combination involving the Company or discourage a
potential acquiror from making a tender offer or otherwise attempting to
obtain control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is the American
Stock Transfer and Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 4,500,000 shares of
Common Stock outstanding (4,725,000 shares if the Underwriters'
over-allotment option is exercised in full). The 1,500,000 Shares sold in
this Offering will be freely tradeable without restriction or further
registration under the Securities Act, except for any shares purchased by an
"affiliate" of the Company within the meaning of Rule 144 under the
Securities Act ("Rule 144"). The remaining 3,000,000 shares of Common Stock
are "restricted securities," as that term is defined under Rule 144, and may
not be sold in the absence of registration under the Securities Act unless an
exemption from registration is available, including the exemption provided by
Rule 144. 40,000 of such shares will be eligible for sale under Rule 144
commencing 90 days after the consummation of the Offering. However, each
officer, director and stockholder of the Company has agreed to refrain from
making any public sale or distribution of any of his or her Common Stock, or
warrants or options to purchase Common Stock, or securities of the Company
convertible into such Common Stock (pursuant to Rule 144 or otherwise), owned
by him or her on the closing date of this Offering for a period of 12 months
from such date without the prior written consent of the Representative. Such
persons may make private transfers, provided that the transferees agree to be
bound by the same restrictions. An appropriate legend will be marked on the
face of certificates representing all such securities.
In general, under Rule 144, as currently in effect, a person, including an
"affiliate" of the Company as defined under the Securities Act (or persons
whose shares are aggregated) who for at least two years has beneficially
owned restricted securities acquired directly or indirectly from the Company
or an affiliate of the Company in a private transaction, is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of 1% of the total number of outstanding shares of the same class or
the average weekly trading volume during the four calendar weeks preceding
the day notice is given to the Securities and Exchange Commission with
respect to such sale. A person (or persons whose shares are aggregated) who
is not an affiliate and has not been an affiliate of the Company at any time
during the three months immediately preceding the sale and who has
beneficially owned shares of Common Stock for at least three years is
entitled to sell such shares pursuant to subparagraph (k) of Rule 144 without
regard to the volume limitations described above.
Prior to this Offering, there has been no public trading market for the
Common Stock, and there can be no assurance that a regular trading market
will develop after this Offering, or that if developed it will be sustained.
In addition, no prediction can be made as to the effect, if any, that market
sales of Common Stock or the availability of such shares for sale will have
on the market prices prevailing from time to time. Nevertheless, the
possibility that substantial amounts of shares of Common Stock may be sold in
the public market may adversely affect prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities.
Rule 701 under the Securities Act provides that, beginning 90 days after
the date of this Prospectus, shares of Common Stock acquired on the exercise
of outstanding options may be resold by persons other than affiliates subject
only to the manner of sale provisions of Rule 144, and by affiliates subject
to all provisions of Rule 144 except its two-year minimum holding period. The
Company intends to file a registration statement under the Securities Act (on
Form S-8 or any successor form) to register the shares of Common Stock issued
and reserved for issuance under the Option Plan. Registration would permit
the resale of such shares by non-affiliates in the public market without
restriction under the Securities Act, subject to the lock-up arrangements
discussed above.
44
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain material federal income tax
consequences expected to apply to a holder with respect to the purchase,
ownership and disposition of Shares. This discussion is based on the
provisions of the Code, final, temporary and proposed United States Treasury
regulations promulgated thereunder, and the administrative and judicial
interpretations thereof, all as in effect as of the date of this Prospectus.
The consequences to any particular holder may differ from those described
below by reason of that holder's particular circumstances. This summary does
not address the considerations that may be applicable to particular classes
of holders, including financial institutions, broker-dealers, tax-exempt
organizations, banks, insurance companies and persons who are not citizens or
residents of the United States, or who, as to the United States, are foreign
corporations, foreign partnerships or foreign estates or trusts. In addition,
this summary is limited to persons that will hold Shares as "capital assets"
within the meaning of Section 1221 of the Code.
The following discussion does not constitute, and should not be considered
as, legal or tax advice to prospective holders. Each potential holder should
consult with its own tax adviser before determining whether to purchase
Shares, including the effects of applicable state, local, foreign or other
tax laws and possible changes in the tax laws.
DIVIDENDS
Dividends paid on the Shares will be taxable as ordinary income to the
extent paid out of the Company's current or accumulated earnings and profits
(as defined for United States federal income tax purposes). Dividends
received by corporations out of such earnings and profits will generally
qualify for the 70 percent dividends-received deduction, so long as the
holder has held its Shares for a sufficient time (generally more than 45
days) and certain other conditions are met. The 70 percent dividends-received
deduction may be reduced for holders who borrow funds directly attributable
to the purchase of its Shares. Where the dividends-received deduction is
available, a portion of the amount deducted may have to be included by a
corporation in computing its possible liability for alternative minimum tax.
The amount of any distribution in excess of the Company's current and
accumulated earnings and profits will first be applied to reduce the holder's
tax basis in the Shares, and any amount in excess of tax basis will be
treated as gain from the sale or exchange of the Shares.
DISPOSITIONS OF SHARES
Subject to the discussion below relating to the potential application of
Code Section 1248, a U.S. stockholder will, upon the sale or exchange of any
Shares, recognize a gain or loss for federal income tax purposes equal to the
difference between the amount realized upon such sale or exchange and the
stockholder's basis in the Shares. If the stockholder's holding period for
such Shares is more than one year, such gain will be taxed as long-term
capital gain.
Code Section 1248 provides that if a U.S. person disposes of stock in a
foreign corporation and such person owned directly, indirectly or
constructively 10% or more of the voting shares of the corporation at any
time during the five-year period ending on the date of disposition when the
corporation was a "controlled foreign corporation" ("CFC"), any gain from the
sale or exchange of the shares may be treated as ordinary income to the
extent of the CFC's earnings and profits during the period that the
stockholder held the shares (with certain adjustments). Holders who acquire
Shares in this Offering will own stock in a U.S. corporation. However, the
Reinsurance Subsidiary will qualify as a CFC and will be a wholly-owned
subsidiary of the Company. Code Section 1248(e) provides that if a United
States person, who owns 10% or more of the stock of a U.S. corporation, sells
or exchanges stock of such U.S. corporation and such U.S. corporation was
formed or availed of principally for the holding, directly or indirectly, of
stock of one or more foreign corporations, then all or part of the United
States person's gain from the sale of the stock of the U.S. corporation could
be subject to Section 1248. The determination of whether such U.S.
corporation was formed principally for such purpose is a facts and
circumstances analysis. The Company believes that because of the Company's
dispersion of the ownership of Shares being offered in this Offering, no
stockholder who acquires Shares in this Offering will own 10% or more of the
voting shares of the Company and therefore Section 1248(e) should not apply
to such stockholders. Even if such a stockholder owns, directly or through
attribution, 10% or more of the voting shares of the Company, Code Section
1248(e) should not apply to such stockholder since, in the Company's view, it
was not formed nor
45
<PAGE>
will be availed of principally for the holding, directly or indirectly, of
stock of the Reinsurance Subsidiary. However, U.S. persons who might,
directly or through attribution, acquire 10% or more of the voting Shares of
the Company should consider the possible application of Code Section 1248(e).
In all events, a corporate stockholder is not currently subject to Code
Section 1248(e) since the federal income tax rate at which capital gain and
ordinary income are taxed is the same.
BACKUP WITHHOLDING
Certain noncorporate holders may be subject to backup withholding at a
rate of 31 percent on dividends. Generally, backup withholding applies only
when the taxpayer fails to furnish or certify a proper Taxpayer
Identification Number or when the taxpayer is notified by the IRS that the
taxpayer has failed to report payments of interest and dividends properly.
Holders should consult their tax advisers regarding their qualification for
exemption for backup withholding and the procedure for obtaining any
applicable exemption.
UNDERWRITING
The Underwriters named below, for which Commonwealth Associates is acting
as representative (the "Representative"), have agreed, severally and not
jointly, subject to the terms and conditions contained in the Underwriting
Agreement, to purchase from the Company, and the Company has agreed to sell
to the several Underwriters, an aggregate of 1,500,000 shares of Common
Stock. The number of shares of Common Stock that each Underwriter has agreed
to purchase is set forth opposite its name below. The Underwriters have
advised the Company that they do not intend to confirm sales of Common Stock
to any account over which they exercise any discretionary authority.
<TABLE>
<CAPTION>
Number of Shares
Underwriters to be Purchased
- ------------- --------------------
<S> <C> <C>
Commonwealth Associates ............................
</TABLE>
The Underwriters are committed on a firm commitment basis to purchase and
pay for all of the Common Stock offered hereby (other than shares offered
pursuant to the over-allotment option) if any shares are purchased. The
shares are being offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters and subject to approval
of certain legal matters by counsel and to certain other conditions.
<PAGE>
The Underwriters have advised the Company that the Underwriters propose to
offer the Shares to the public at the public offering price set forth on the
cover page of this Prospectus. The Underwriters may allow to certain dealers
who are members of the National Association of Securities Dealers, Inc. (the
"NASD") concessions, not in excess of $ per share, of which not in excess
of $ per share may be reallowed to other dealers who are members of the
NASD. After the commencement of the offering, the public offering price, the
concessions and re-allowance may be changed by the Underwriters.
The Company has granted to the Representative, exercisable for 45 days
from the date of this Prospectus, an option to purchase up to an additional
225,000 shares of Common Stock at the public offering price set forth on the
cover page of the Prospectus, less the underwriting discounts and
commissions. The Representative may exercise this option in whole or, from
time to time, in part, solely for the purpose of covering over-allotments, if
any, made in connection with the sale of the shares of Common Stock offered
hereby.
The Company has agreed to pay the Representative, individually and not as
the representative of the Underwriters, a nonaccountable expense allowance of
2% of the gross proceeds of the Common Stock offered hereby (including any
Common Stock purchased pursuant to the Underwriters' over-allotment option)
of which $20,000 has been paid to date.
The Company has agreed to sell to the Representative and/or its designees
warrants (the "Representative's Warrants") to purchase up to 150,000 shares
of Common Stock at an exercise price per share equal to 120% of the initial
public offering price (the "Strike Price"). Both the number of shares
issuable upon exercise of the Representative's Warrant and the exercise price
per share thereunder are subject to adjustment under certain circumstances.
The Representative's Warrants may not be sold, transferred, assigned or
hypothecated for a period of one year from the effective date of this
Prospectus, except to the officers, directors, employees or partners of the
Representative, and are exercisable during the four-year period commencing
one year from the date of this Prospectus (the "Warrant Exercise Term").
46
<PAGE>
The Representative's Warrants will contain antidilution provisions
providing for appropriate adjustments of the Strike Price and number of
shares which may be purchased upon exercise upon the occurrence of certain
events. The antidilution provisions of the Representative's Warrants
generally are triggered by the issuance of Common Stock (or securities
exchangeable for or convertible into Common Stock) by the Company at a price
below the Strike Price (subject to certain exceptions) for a period of five
years from the date of this Prospectus, as well as by stock splits, stock
dividends and other similar dilutive events in which the Company increases
its outstanding stock without receiving additional consideration.
The Company has agreed that it will, on any two occasions during the
Warrant Exercise Term, register the Representative's Warrants and the
underlying securities, at the request of holders of at least 51% of the
Representative's Warrants, at the expense of the Company on one occasion and
at the expense of the selling holders on the other occasion. The Company has
also agreed, during the four-year period commencing one year from the date of
this Prospectus, to register on a "piggy-back" basis, on an unlimited number
of occasions, the Representative's Warrants and the underlying securities
whenever the Company files a registration statement.
For the life of the Representative's Warrants, the holders are given, at
nominal cost, the opportunity to profit from a rise in the market price for
the Common Stock of the Company without assuming the risk of ownership, with
a resulting dilution in the interest of other security holders. As long as
the Representative's Warrants remain unexercised, the terms under which the
Company could obtain additional capital may be adversely affected. Moreover,
the holders of the Representative's Warrants might be expected to exercise
them at a time when the Company would, in all likelihood, be able to obtain
any needed capital by a new offering of its securities on terms more
favorable than those provided by the Representative's Warrants. See "Risk
Factors -- Representative's Warrants."
The Company has also agreed, for a period of three years from the date of
this Prospectus, if so requested by the Representative, to allow the
Representative to have an observer at all meetings of the Board of Directors.
The Underwriting Agreement provides for a reciprocal indemnification among
the Company and the Underwriters against certain civil liabilities in
connection with the Registration Statement of which this Prospectus is a
part, including liabilities under the Securities Act.
The Company has agreed to pay the Representative, upon the consummation of
this Offering, a fee equal to 2% of the gross proceeds of this Offering as
compensation for its advisory services in connection with this Offering. The
Company has also agreed to pay the representative a fee with respect to all
funds invested in, or certain other transactions with, the Company by any
party introduced to the Company by the Representative during the two year
period ending August 11, 1998.
Each of the officers, directors or stockholders owning any of the Common
Stock or warrants, or options to purchase Common Stock, or securities
convertible into such Common Stock, has agreed to refrain from making any
public sale or distribution of his Common Stock, or such warrants, options,
or convertible securities (pursuant to Rule 144 or otherwise), owned by him
or her on the closing date of this Offering for a period of 12 months from
such date without the prior written consent of the Representative. Such
persons may make private transfers, provided that the transferees agree to be
bound by the same restrictions.
The Company has agreed to pay to Strategica Group a fee of $50,000 as
compensation for its services provided in connection with this Offering. Mr.
Harris is a director and investor in Strategica Capital, an affiliate of
Strategica Group. Mr. Burstein, who will be elected a director of the Company
prior to this Offering, is the Chairman and President of Strategica Group and
Strategica Capital. See "Management -- Directors and Executive Officers."
The foregoing discussion of the material terms and provisions of the
Underwriting Agreement and related documents is qualified in its entirety by
reference to the detailed provisions of such documents, the forms of which
have been filed as exhibits to the Registration Statement on Form SB-2 of
which this Prospectus forms a part.
Prior to this offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price has been
determined by arms-length negotiations between the Company and the
Representative and does not necessarily bear any relationship to the
Company's book value, assets, past operating results or other established
criteria of value. Among the factors considered in determining the offering
price were the Company's current financial condition and prospects, recent
financial results, financing required by the
47
<PAGE>
Company, management, market prices of similar securities of comparable
publicly traded companies, certain financial and operating information of
companies engaged in activities similar to those of the Company, the general
condition of the securities markets and other relevant factors.
LEGAL MATTERS
The legality of the securities offered by this Prospectus will be passed
upon for the Company by Baer Marks & Upham LLP, New York, New York. Certain
legal matters will be passed upon for the Underwriters by Squadron, Ellenoff,
Plesent & Sheinfeld, LLP, New York, New York.
EXPERTS
The consolidated financial statements of the Company for the years ended
December 31, 1995, 1994 and 1993 included in the Registration Statement of
which this Prospectus is a part, have been included in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
and upon the authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the securities offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits filed
therewith, certain items of which are omitted from this Prospectus as
permitted by the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any contract, agreement or other
document referred to herein are not necessarily complete. With respect to
each such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement,
including the exhibits thereto, may be inspected without charge at the
principal office of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 or at the Regional Offices of the Commission, Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of
such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Registration Statement has been filed electronically with the
Commission. The Commission maintains a Web site that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission, at http://www.sec.gov.
Following this Offering, the Company will be subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith, will file reports, proxy and information statements and
other information with the Commission. The Company intends to furnish to its
stockholders annual reports containing audited financial statements and such
other periodic reports as the Company may determine to be appropriate or as
may be required by law.
48
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Independent Auditors' Report ................................ F-2
Consolidated Balance Sheets ................................. F-3
Consolidated Statements of Operations ....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) ... F-5
Consolidated Statements of Cash Flows ....................... F-6
Notes to Consolidated Financial Statements .................. F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Preferred Employers Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Preferred
Employers Holdings, Inc. and subsidiary as of December 31, 1995, 1994 and
1993, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for each of the years in the three-year
period ended December 31, 1995. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on the consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Preferred
Employers Holdings, Inc. and subsidiary at December 31, 1995, 1994 and 1993,
and the results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
May 3, 1996, except as to note 2
and note 9, which are as
of November 11, 1996
F-2
<PAGE>
PREFERRED EMPLOYERS HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 (UNAUDITED), DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
December 31,
September 30, ----------------------------------------
1996 1995 1994 1993
-------------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Assets
------------
Cash and cash equivalents ................... $5,019,551 2,819,829 4,789,703 3,811,825
Commissions and premiums receivable ......... 381,160 345,614 1,118 10,509
Security deposits ........................... 22,736 23,586 35,899 3,589
Property and equipment, net ................. 530,904 518,613 158,930 38,136
Other assets ................................ 113,148 57,508 -- --
-------------- ----------- ----------- -----------
$6,067,499 3,765,150 4,985,650 3,864,059
============== =========== =========== ===========
Liabilities and Stockholders' Equity (Deficit)
- ----------------------------------------------
Liabilities:
Premiums payable .......................... 4,455,309 2,353,914 3,415,005 3,551,252
Accounts payable .......................... 187,792 5,475 24,874 300,027
Stockholder loan .......................... 349,563 516,494 -- 701,734
Commissions payable ....................... 648,039 296,588 48,715 --
Other liabilities ......................... 207,571 302,276 14,309 65,348
-------------- ----------- ----------- -----------
Total liabilities ....................... 5,848,274 3,474,747 3,502,903 4,618,361
-------------- ----------- ----------- -----------
Stockholders' equity (deficit):
Common stock, $.01 par value.
Authorized 10,000,000 shares; 3,529,412
issued shares in 1995, 1994 and 1993 ... 35,294 35,294 35,294 35,294
Retained earnings (accumulated deficit) ... 689,488 760,666 1,447,453 (789,596)
-------------- ----------- ----------- -----------
Total stockholders' equity (deficit) .... 724,782 795,960 1,482,747 (754,302)
Treasury stock, at cost -- 529,412 shares ... (505,557) (505,557) -- --
-------------- ----------- ----------- -----------
Net stockholders' equity (deficit) ... 219,225 290,403 1,482,747 (754,302)
-------------- ----------- ----------- -----------
Commitments and contingencies
$6,067,499 3,765,150 4,985,650 3,864,059
============== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PREFERRED EMPLOYERS HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND FOR THE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Nine Months Ended
September 30, December 31,
--------------------------- ----------------------------------------
1996 1995 1995 1994 1993
------------ ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Commission income, net .................. $1,829,667 1,585,181 2,181,868 2,661,424 1,892,875
Interest income ......................... 79,605 67,158 88,052 121,648 61,644
------------ ----------- ----------- ----------- -----------
Total revenue ......................... 1,909,272 1,652,339 2,269,920 2,783,072 1,954,519
------------ ----------- ----------- ----------- -----------
Expenses:
Personnel expense ..................... 1,490,947 1,049,420 1,471,409 933,033 585,632
Occupancy expense ..................... 164,750 104,206 145,421 89,337 75,574
Professional fees ..................... 80,160 103,781 92,758 110,620 56,943
Interest expense ...................... 33,069 35,937 35,937 8,357 63,968
Other operating expenses .............. 401,524 354,817 541,913 368,051 291,513
------------ ----------- ----------- ----------- -----------
Total expenses ....................... 2,170,450 1,648,161 2,287,438 1,509,398 1,073,630
------------ ----------- ----------- ----------- -----------
Operating (loss) income .............. (261,178) 4,178 (17,518) 1,273,674 880,889
Nonoperating (loss) income .............. 190,000 -- (69,269) 5,857,749 (830,151)
------------ ----------- ----------- ----------- -----------
Net (loss) income ..................... $ (71,178) 4,178 (86,787) 7,131,423 50,738
============ =========== =========== =========== ===========
Unaudited pro forma information (note
1k):
Historical income before income taxes . $ (71,178) 4,178 (86,787) 7,131,423 50,738
Pro forma income tax provision
(benefit) .......................... (26,550) 1,558 (32,372) 2,660,021 18,925
Pro forma net (loss) income ........... (44,628) 2,620 (54,415) 4,471,402 31,813
Pro forma (loss) income per share ..... (.01) .00 (.02) 1.49 .01
Weighted average shares outstanding ... 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PREFERRED EMPLOYERS HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND FOR THE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Common Retained Total
stock Common earnings Treasury Treasury stockholders'
shares stock Paid-in (accumulated stock stock equity
issued amount capital deficit) shares amount (deficit)
----------- --------- --------- ------------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 200 $ 2 198 (805,240) -- $ -- (805,040)
Net income ................ -- -- -- 50,738 -- -- 50,738
Stock exchange ............ 3,529,212 35,292 (198) (35,094) -- -- --
----------- --------- --------- ------------- ---------- ------------ --------------
Balance at December 31, 1993 3,529,412 35,294 -- (789,596) -- -- (754,302)
Net income ................ -- -- -- 7,131,423 -- -- 7,131,423
Distribution to
stockholders ........... -- -- -- (4,894,374) -- -- (4,894,374)
----------- --------- --------- ------------- ---------- ------------ --------------
Balance at December 31, 1994 3,529,412 35,294 -- 1,447,453 -- -- 1,482,747
Net loss .................. -- -- -- (86,787) -- -- (86,787)
Distribution to
stockholders ........... -- -- -- (600,000) -- -- (600,000)
Purchase of treasury stock -- -- -- -- 529,412 (505,557) (505,557)
----------- --------- --------- ------------- ---------- ------------ -------------
Balance at December 31, 1995 3,529,412 35,294 -- 760,666 529,412 (505,557) 290,403
----------- --------- --------- ------------- ---------- ------------ -------------
Net loss (unaudited) ...... -- -- -- (71,178) -- -- (71,178)
----------- --------- --------- ------------- ---------- ------------ -------------
Balance at September 30, 1996
(unaudited) ............... 3,529,412 $35,294 -- $ 689,488 529,412 $(505,557) $ 219,225
=========== ========= ========= ============= ========== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PREFERRED EMPLOYERS HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND FOR THE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Nine Months Ended
September 30, December 31,
-------------------------------- -------------------------------------------------
1996 1995 1995 1994 1993
-------------- -------------- -------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Premiums collected .................. $ 16,800,971 14,080,501 18,371,077 32,458,172 22,794,923
Nonoperating (expense) income ....... 190,000 -- (69,269) 5,857,749 (830,151)
Interest received ................... 79,605 67,158 88,052 121,648 61,644
Premiums paid ....................... (12,807,698) (14,047,023) (17,042,483) (29,928,502) (17,886,573)
Expenses paid ....................... (1,721,462) (1,402,915) (2,144,646) (1,784,551) (614,163)
Other, net .......................... (46,521) 81,027 (81,067) 1,301 (70,306)
-------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
operating activities ........ 2,494,895 (1,221,252) (878,336) 6,725,817 3,455,374
-------------- -------------- -------------- -------------- --------------
Cash flows used in investing
activities-purchases of property and
equipment ........................... (95,173) (436,090) (466,538) (151,831) (36,304)
-------------- -------------- -------------- -------------- --------------
Cash flows from financing activities:
Repayment of stockholder loan ....... (200,000) (25,000) (25,000) (701,734) (235,000)
Stockholders' distributions ......... -- (600,000) (600,000) (4,894,374) --
-------------- -------------- -------------- -------------- --------------
Net cash used in financing
activities .................. (200,000) (625,000) (625,000) (5,596,108) (235,000)
-------------- -------------- -------------- -------------- --------------
Net increase (decrease) in cash and
cash equivalents .................... 2,199,722 (2,282,342) (1,969,874) 977,878 3,184,070
Cash and cash equivalents, beginning of
period .............................. 2,819,829 4,789,703 4,789,703 3,811,825 627,755
-------------- -------------- -------------- -------------- --------------
Cash and cash equivalents, end of
period .............................. $ 5,019,551 2,507,361 2,819,829 4,789,703 3,811,825
============== ============== ============== ============== ==============
</TABLE>
F-6
<PAGE>
PREFERRED EMPLOYERS HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUTED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, December 31,
------------------------------ ------------------------------------------
1996 1995 1995 1994 1993
------------ -------------- ------------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Reconciliation of net (loss) income to
net cash (used in) provided by
operating activities:
Net (loss) income ................... $ (71,178) 4,178 (86,787) 7,131,423 50,738
Adjustments to reconcile net (loss)
income to net cash provided by
(used in) operating activities:
Depreciation and amortization .. 82,882 37,994 106,855 31,037 19,855
Amortization of discount on
stockholder loan ............ 33,069 35,937 35,937 -- --
Changes in assets and
liabilities:
(Increase) decrease in
commissions and premiums
receivable .................. (35,546) (42,233) (344,496) 9,391 (10,509)
Decrease (increase) in security
deposits .................... 850 11,513 12,313 (32,310) (405)
Increase in other assets ....... (55,640) (29,941) (57,508) -- --
Increase (decrease) in premiums
payable ..................... 2,101,395 (1,319,787) (1,065,584) (131,754) 2,983,346
Increase (decrease) in accounts
payable ..................... 182,317 (24,874) (19,399) (275,153) 300,027
Increase (decrease) in
commissions payable ......... 351,451 (23,121) 296,588 -- 63,968
Increase (decrease) in other
liabilities ................. (94,705) 129,082 243,745 (6,817) 48,354
------------ -------------- ------------- ----------- -----------
Total adjustments ............. 2,566,073 (1,225,430) (791,549) (405,606) 3,404,636
------------ -------------- ------------- ----------- -----------
Net cash (used in) provided by
operating activities ........ $2,494,895 $(1,221,252) $ (878,336) 6,725,817 3,455,374
============ ============== ============= =========== ===========
Supplemental disclosure of noncash
activities:
Stock exchange ....................... $ -- $ -- $ -- -- (35,094)
============ ============== ============= =========== ===========
Issuance of note payable to stockholder
in exchange for treasury stock ...... $ -- $ -- $ 505,557 -- --
============ ============== ============= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
PREFERRED EMPLOYERS HOLDINGS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1996 (unaudited) and December 31, 1995, 1994 and 1993
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(a) Organization
Preferred Employers Holdings, Inc. (the "Company") is the successor
company to Preferred Employers Group, Inc. ("PEGI"). Immediately prior
to the Company's initial public offering, the Company and the
stockholders of PEGI at such date (the "Exchanging Stockholders") will
effect a recapitalization whereby the Company will exchange 17,647.06
shares of Common Stock for each share of common stock of PEGI held by
the Exchanging Stockholders (the "Exchange"). As a result of the
Exchange, PEGI will become a wholly-owned subsidiary of the Company.
Except as otherwise specified or when the context otherwise requires,
references to the Company herein, include Preferred Employers
Holdings, Inc. and PEGI, through which the Company conducts certain of
its business.
The Company was appointed as a general agent ("GA") by The American
International Group of companies ("AIG"), a major international
insurance carrier, on January 1, 1993. In this regard, the Company is
authorized to write workers' compensation as well as other forms of
"property and casualty" business (such other forms of insurance being
hereinafter referred to as "Package") on behalf of AIG. In addition,
the Company was appointed as a GA by General Accident Insurance
Company of America ("GAIC") on September 1, 1994, with the authority
to write all forms of commercial property and casualty business for
family style and fast food restaurants. GAIC has recently advised the
Company that it will no longer write Package insurance for fast food
restaurants and the Company is currently pursuing other carriers
through which it can write such business.
The Company writes business by direct solicitation and through brokers
and subproducers, and in turn is compensated via a commission based on
a percentage of the premiums it writes.
(b) Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles in the United States.
All intercompany balances and transactions have been eliminated in
consolidation.
(c) Cash and Cash Equivalents
The Company considers cash in banks and money market accounts as cash
and cash equivalents.
(d) Property and Equipment, Net
Property and equipment is stated at cost less accumulated
depreciation. Depreciation is computed using an accelerated method of
depreciation over the estimated useful lives of the related assets,
which range from five to seven years. Leasehold improvements are
carried at cost less accumulated amortization provided on the
straight-line basis over the shorter of the lease term or the
estimated useful lives of the improvements.
(e) Premiums Payable
Premiums which are collected from insureds are reported as assets of
the Company and as corresponding liabilities to the insurance
carriers. Premiums received from insureds but not yet remitted to the
carriers are held as invested cash in a fiduciary capacity.
(f) Revenue Recognition
Commissions are recognized when premiums are received. Any subsequent
commission adjustments, including policy cancellations, are recognized
upon notification from the insurance carrier or broker.
F-8
<PAGE>
PREFERRED EMPLOYERS HOLDINGS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(g) Income Taxes
Prior to the formation of the Company, PEGI had elected to be taxed as
an S Corporation under the provisions of the Internal Revenue Code.
PEGI's stockholders included in their tax returns the Company's income
or loss. No provision for income taxes is provided in the consolidated
financial statements.
(h) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
(i) Reclassification
Certain amounts in the 1994 and 1993 consolidated financial statements
have been reclassified to conform with the presentation of the 1995
consolidated financial statements.
(j) Accounting for Stock-Based Compensation
Statement of Financing Accounting Standard ("SFAS") Number 123,
"Accounting for Stock-Based Compensation" was recently issued and is
effective for the Company beginning January 1, 1996. SFAS Number 123
requires expanded disclosures of equity-based compensation
arrangements with employees and does not require, but encourages
compensation cost to be measured based on fair value of the equity
instrument when awarded. The Company, as allowed, intends to measure
equity-based compensation using the method of accounting prescribed by
Accounting Principles Board Opinion Number 25 that recognized
compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will be required to disclose certain
additional information related to its stock-based compensation;
however, management believes the impact to the financial statements,
as a whole, will not be material.
(k) Proforma net income (loss) represents the results of operations for
the nine months ended September 30, 1996 (unaudited) and for the years
ended December 31, 1995, 1994 and 1993, adjusted to reflect a
provision for income tax (benefit) on historical income (loss) before
provision for income taxes (benefit), which gives effect to the change
in the Company's income tax status to a C corporation.
(2) CONSOLIDATED FINANCIAL STATEMENT RESTATEMENT
The 1993, 1994 and 1995 consolidated financial statements have been
restated to give retroactive effect to the stock exchange on December 31,
1993 and the 17,647.06 for 1 stock exchange to be effected immediately
prior to the Company's initial public offering. See note 9 for more
details.
(3) PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following at September 30,
1996 (unaudited) and December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
December 31,
September 30, --------------------------------------
1996 1995 1994 1993
-------------- ----------- ---------- ----------
Unaudited
<S> <C> <C> <C> <C>
Computer equipment .............. $ 272,592 $ 221,529 164,108 53,472
Office equipment ................ 108,675 105,055 50,408 23,845
Furniture and fixtures .......... 257,097 231,301 19,732 18,100
Leasehold improvements .......... 170,595 155,901 13,000 --
-------------- ----------- ---------- ----------
808,959 713,786 247,248 95,417
Less accumulated depreciation and
amortization ................... (278,055) (195,173) (88,318) (57,281)
-------------- ----------- ---------- ----------
$ 530,904 $ 518,613 $158,930 $ 38,136
============== =========== ========== ==========
</TABLE>
F-9
<PAGE>
PREFERRED EMPLOYERS HOLDINGS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(4) STOCKHOLDER LOAN
Stockholder loan at December 31, 1993, consists of an 11.5 percent demand
note which includes accrued interest of $280,734. On March 4, 1994, the
Company paid off the balance of the note's principal and accrued interest.
In May 1995, the Company entered into a stock repurchase agreement (the
"Agreement") with Mr. Odzer and Mr. Rothstein whereby the Company agreed to
repurchase from them an aggregate of 30 shares (529,412 shares, as adjusted)
of common stock (the "Shares") of the Company. The purchase price for the
Shares was $600,000 (including interest) to be paid to Mr. Odzer and Mr.
Rothstein in 24 installments of $25,000. The closing of this Agreement was
subject to the Company's completion of a $600,000 distribution to the
stockholders of the Company, pro rata based on the number of shares of common
stock of the Company outstanding and paid to the stockholders of record on
the Agreement date, without giving effect to the repurchase. The $600,000
distribution was made by the Company on May 26, 1995.
At September 30, 1996 (unaudited) and December 31, 1995, the outstanding
balance of above referenced stockholder loan consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------------- --------------
(Unaudited)
<S> <C> <C>
Principal ................ $375,000 575,000
Unamortized discount (10%) (25,437) (58,506)
-------------- --------------
$349,563 516,494
============== ==============
</TABLE>
Per a subsequent agreement made with the stockholders, the outstanding
loan balance at December 31, 1995 will be repaid in 23 monthly installments
of $25,000 (including interest) commencing in February 1996.
(5) NONOPERATING EXPENSE
During the year ended December 31, 1993, nonoperating expense includes
legal expenses incurred related to litigation to which the Company, as
plaintiff, was involved. In January 1994, the U.S. District Court in
Baltimore, Maryland awarded the Company $9.9 million in damages it sustained
as a result of the first of three separate lawsuits for breach of contract by
Alexander & Alexander Services, Inc. ("A&A"), a global organization of
advisers providing risk management, insurance brokerage and human resource
management consulting services.
On February 28, 1994, the Company entered into a settlement agreement with
A&A, whereby A&A agreed to pay the Company $9.9 million and the Company
agreed to dismiss the remaining untried lawsuits. On March 3, 1994, the
Company received $5,857,749, net of expenses associated with the litigation,
of which $4,894,374 was distributed to stockholders of the Company.
During 1995, the Company incurred expenses amounting to $69,269 for legal
fees associated with the settlement of a lawsuit.
F-10
<PAGE>
PREFERRED EMPLOYERS HOLDINGS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
(6) LEASES
In August 1994, the Company entered into an office lease agreement which
became effective on April 1, 1995. The lease agreement provides for an
initial seven-year term with two five-year renewal options. The following is
a schedule of the approximate future minimum lease payments as of December
31, 1995.
<TABLE>
<CAPTION>
Year ending
December 31, Total
-------------- -------------
<S> <C>
1996 $ 141,000
1997 183,000
1998 191,000
1999 199,000
2000 211,000
Thereafter 268,000
-------------
$1,193,000
=============
</TABLE>
Rent expense for the years ended December 31, 1995, 1994 and 1993 was
$80,078, $38,570 and $34,365, respectively.
(7) MAJOR SUPPLIERS AND INDUSTRY CONCENTRATION
Substantially all of the Company's customers are fast-food and family
style restaurant franchises and convenience stores. In addition,
substantially all insurance policies written by the Company are underwritten
by two insurance carriers.
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. These elements are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect
the estimates.
At December 31, 1995, the carrying amounts of the following instruments
approximate fair value because of the short maturity of these instruments:
cash and cash equivalents, premiums receivable, premiums payable, accounts
payable, commissions payable and other liabilities.
The fair value of the stockholder loan is based on quoted market prices at
the reporting date for similar instruments. The carrying value and fair value
of the stockholder loan at December 31, 1995 were both $516,494.
(9) SUBSEQUENT EVENT
In 1996, the Company settled a lawsuit with a major international
brokerage firm that had unilaterally cancelled an insurance brokerage
agreement. The Company received $190,000 in settlement of the lawsuit.
The Company is in process of offering 1,500,000 shares of common stock in
an initial public offering at a price of between $7 and $8 per share. The
final offering price will be set immediately prior to the signing of an
underwriting agreement with the underwriters.
F-11
<PAGE>
=============================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company or any
Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the securities
offered by this Prospectus, or an offer to sell or a solicitation of an offer
to buy any security by any person in any jurisdiction in which such offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, imply that the
information in this Prospectus is correct as of any time subsequent to its
date.
------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
Prospectus Summary .............................. 3
The Offering .................................... 5
Summary and Pro Forma Consolidated
Financial Information .......................... 6
Risk Factors .................................... 8
Use of Proceeds ................................. 15
Recapitalization ................................ 15
Dividend Policy ................................. 15
Dilution ........................................ 16
Capitalization .................................. 17
Management's Discussion and Analysis
of Financial Condition and Results of
Operations ..................................... 18
Discussion and Analysis of Pro Forma Consolidated
Financial Information .......................... 22
Business ........................................ 25
Management ...................................... 36
Principal Stockholders .......................... 40
Certain Transactions ............................ 42
Description of Securities ....................... 43
Shares Eligible for Future Sale ................. 44
Certain Federal Income Tax Considerations ....... 45
Underwriting .................................... 46
Legal Matters ................................... 48
Experts ......................................... 48
Available Information ........................... 48
Index to Consolidated Financial Statements ...... F-1
</TABLE>
Until ------, 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the securities offered hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
=============================================================================
<PAGE>
=============================================================================
1,500,000 SHARES OF
COMMON STOCK
PREFERRED EMPLOYERS
HOLDINGS, INC.
------
PROSPECTUS
------
Commonwealth Associates
, 1997
==============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Except to the extent hereinafter set forth, there is no statute, charter
provision, by-law, contract or other arrangement under which any controlling
person, director, or officer of the Company is insured or indemnified in any
manner against liability which he may incur in his capacity as such.
Section 145 of the General Corporation Law of the State of Delaware
permits indemnification by a corporation of its officers and directors.
Consistent therewith the Company's Certificate of Incorporation requires that
the Company indemnify all persons whom it may indemnify pursuant thereto to
the fullest extent permitted by Section 145.
In addition, the Company's Certificate of Incorporation provides that
directors of the Company shall not be liable for monetary damages to the
Company or its stockholders for a breach of fiduciary duty as a director,
except for liability as a result of (i) a breach of the director's duty of
loyalty to the Company or its stockholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) an act related to certain unlawful dividend payments or stock
redemptions or purchases, or (iv) any transaction from which the director
derived an improper benefit. The effect of these provisions is to eliminate
the right of the Company and its stockholders (through stockholders'
derivative suits on behalf of the Company) to recover monetary damages
against any director for breach of fiduciary duty as director (including
breaches resulting from negligent or grossly negligent behavior) except for
situations described in clauses (i)-(iv) of the preceding sentence. These
provisions will not affect the availability of injunctive relief for breach
of fiduciary duty or alter the liability of directors under federal
securities laws.
The Underwriting Agreement between the Company and each of the
Underwriters (the "Underwriting Agreement") provides for a reciprocal
indemnification among the Company and the Underwriters against certain civil
liabilities in connection with this Registration Statement, including
liabilities under the Securities Act. See "Underwriting."
Pursuant to an Amended and Restated Shareholders Agreement made as of May
15, 1995 (the "Shareholders Agreement") by and between the Company, Mel
Harris and Howard Odzer, the Company has agreed to indemnify each of Mr.
Odzer and Mr. Harris for all fines, liabilities, settlements, costs and
expenses, including attorneys' fees, asserted against him or incurred by him
in his capacity as officer, director, trustee, partner, agent or employee.
Although the Shareholders Agreement terminates by its own terms upon the
consummation of the Offering, such indemnification provisions, among others,
are to be incorporated in a new agreement to be entered into with the Company
within 30 days of such termination.
The Company intends to procure and maintain a policy of insurance under
which the directors and officers of the Company will be insured, subject to
the limits of the policy, against certain losses arising from claims made
against such directors and officers by reason of any acts or omissions
covered under such policy in their respective capacities as directors or
officers, including liabilities under the Securities Act.
II-1
<PAGE>
PREFERRED EMPLOYERS HOLDINGS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses payable by the Company in connection with the issuance and
distribution of the securities being registered (other than underwriting
discounts) are estimated as follows:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee ............................... $ 4,763
National Association of Securities Dealers, Inc. Fee 2,230
Nasdaq Fee and the Boston Stock Exchange Fee ....... 13,750
Transfer Agent's Fee ............................... 3,500
Printing and Engraving Expenses .................... 100,000
Legal Fees and Expenses ............................ 150,000
Underwriters' non-accountable expense allowance .... 225,000*
State Securities Qualification Fees and Expenses ... 45,000
Accounting and Auditing Fees and Expenses .......... 50,000
Miscellaneous ...................................... 4,036
---------
Total ............................................ $598,279
=========
</TABLE>
- ------
*$258,750 if the over-allotment option is exercised in full.
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES
Immediately prior to the Company's initial public offering, the Company
and the stockholders of Preferred Employers Group, Inc. ("PEGI") at such date
(the "Exchanging Stockholders") will effect a recapitalization whereby the
Company will exchange 17,647.06 shares of Common Stock for each share of
common stock of PEGI held by the Exchanging Stockholders (the "Exchange").
No underwriter was involved in the Exchange and the Company believes that
the securities issued therein did not involve a public offering and were
issued in reliance upon an exemption from registration provided by Section
4(2) of the Securities Act of 1933, as amended.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
*1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company.
*3.2 By-Laws of the Company.
*4.1 Form of Representative Warrants.
*4.2 Specimen Common Stock Certificate.
*5.1 Opinion of Baer Marks & Upham LLP.
*10.1 The Company's 1996 Employee Stock Option Plan.
**10.2 Form of Share Escrow Agreement between the Company, Baer Marks & Upham LLP and Howard Odzer.
10.3 Employment Agreement, dated May 15, 1995, between the Company and Howard Odzer.
*10.4 Employment Agreement between the Company and Mel Harris.
**10.5 Letter regarding Agreement between the Reinsurance Subsidiary and The Insurance Company of the State
of Pennsylvania and other AIG Affiliates.
*10.6 Office Space Lease Agreement, dated August 1, 1994 between the Company and K/B Opportunity Fund I,
LP and PEGI.
*10.7 Advisory Services Letter Agreement between the Company and the Representative.
10.8 Stock Repurchase Agreement, dated as of May 15, 1995, among the Company, Howard Odzer and Ronald Rothstein.
**10.9 Cost Sharing Agreement, among the Company and International Insurance Group, Inc.
*10.10 Form of Share Exchange Agreement among the Company and certain stockholders of PEGI listed therein.
10.11 Amended and Restated Shareholders Agreement, dated as of May 15, 1995 among the Company, Howard Odzer
and Mel Harris.
**21.1 Subsidiaries of the Company.
II-2
<PAGE>
*23.1 The consent of Baer Marks & Upham LLP (included in Exhibit 5.1).
*23.2 The consent of KPMG Peat Marwick LLP, certified public accountants.
*24.1 Powers of Attorney (included on the signature page of this Registration Statement).
</TABLE>
- ------
* Filed herewith.
** To be filed by Amendment.
ITEM 28. UNDERTAKINGS
The Company hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement;
(iii) Include any additional or changed material information on the plan
of distribution.
(2) For determining liability under the Act, to treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
(5) Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a Director, officer
or controlling person of the small business issuer in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(6) For determining any liability under the Securities Act, to treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h) under the Act as part of this registration statement as of the time
the Commission declared it effective.
(7) For determining any liability under the Securities Act, to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-3
<PAGE>
PREFERRED EMPLOYERS HOLDINGS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements - (Continued)
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Village of City of New York, State of New
York, on the 3rd day of January 1997.
PREFERRED EMPLOYERS HOLDINGS, INC.
By: /s/ Mel Harris
--------------------------------
Mel Harris
Chairman and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below, hereby constitutes and appoints
Mel Harris and William R. Dresback and any agent for service named in this
Registration Statement, and each of them, his, her or its true and lawful
attorney-in-fact and agents, with full power of substitution and
resubstitution for him, her or it and in his, her, or its name, place and
stead, in any and all capacities, to sign and file (i) any and all amendments
(including post-effective amendments) to this Registration Statement, with
all exhibits thereto, and all other documents in connection therewith, and
(ii) any registration statement, and any and all amendments thereto, relating
to the offering covered hereby filed pursuant to Rule 462(b) under the
Securities Act of 1933, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he, she, or it might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agrees or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated:
<TABLE>
<CAPTION>
Signature Title Date
------------------------ --------------------------------------------- -------------------
<S> <C> <C>
/s/ Mel Harris Chairman of the Board and Chief Executive Officer January 3, 1997
----------------------- (Principal Executive Officer)
Mel Harris
/s/ William Dresback Chief Financial Officer January 3, 1997
----------------------- (Principal Accounting Officer)
William Dresback
/s/ Howard Odzer President; Director January 3, 1997
-----------------------
Howard Odzer
/s/ Stuart J. Gordon Director January 3, 1997
-----------------------
Stuart J. Gordon
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
1.1 Form of Underwriting Agreement.
3.2 By-Laws of the Company.
4.1 Form of Representative Warrants.
4.2 Specimen Common Stock Certificate.
5.1 Opinion of Baer Marks & Upham LLP.
10.1 The Company's 1996 Employee Stock Option Plan.
10.4 Form of Employment Agreement between the Company and Mel Harris.
10.6 Office Space Lease Agreement, dated August 1, 1994 between the Company and K/B Opportunity Fund
I, LP and PEGI.
10.7 Advisory Services Letter Agreement between the Company and the Representative.
10.10 Form of Share Exchange Agreement among the Company and certain stockholders of PEGI listed therein.
23.1 The consent of Baer Marks & Upham LLP (included in Exhibit 5.1).
23.2 The consent of KPMG Peat Marwick LLP, certified public accountants.
24.1 Powers of Attorney (included on the signature page of this Registration Statement).
</TABLE>
<PAGE>
Exhibit 1.1
PREFERRED EMPLOYERS HOLDINGS, INC.
______ Shares of Common Stock
UNDERWRITING AGREEMENT
_____________, 1997
Commonwealth Associates
As Representative of the
several Underwriters named
in Schedule I attached hereto
733 Third Avenue
New York, New York 10017
Dear Sirs:
The undersigned, Preferred Employers Holdings, Inc., a
Delaware corporation (the "Company"), hereby confirms its agreement with the
several underwriters named in Schedule I hereto (collectively, the
"Underwriters") for whom you have been authorized to act as representative (in
such capacity, the "Representative"), as set forth below.
1. Introduction. The Company proposes to issue and sell to the
Underwriters ______ shares (the "Stock") of the Company's Common Stock, par
value $.01 per share (the "Common Stock"). In addition, solely for the purpose
of covering over-allotments, the Company proposes to grant the Underwriters the
option to purchase from it up to an additional 150,000 shares (the "Additional
Stock") of Common Stock. The Common Stock is more fully described in the
Prospectus (as hereinafter defined).
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the several Underwriters
that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), a registration statement, and may have filed one
or more amendments thereto, on Form SB-2 (File No. 333-14103)(the
"Original Registration Statement"), including in such registration
statement and each such amendment a related Preliminary Prospectus (as
hereinafter defined), for the registration of (i) the Stock, (ii) the
Additional Stock, (iii) the common stock purchase warrants referred to
in Section 5(q) hereof (the "Representative Warrants"), and the (iv)
the shares of Common Stock underlying the
<PAGE>
Representative Warrants (the "Warrant Stock") (the Stock, the
Additional Stock, the Representative Warrants and the Warrant Stock are
collectively referred to as the "Securities"). After the execution of
this Agreement, the Company will file with the Commission either (i) if
the Original Registration Statement, as it may have been amended, has
been declared by the Commission to be effective under the Act, either
(A) if the Company relies on Rule 434 under the Act, a Term Sheet (as
hereinafter defined) relating to the Securities, that shall identify
the Preliminary Prospectus that it supplements containing such
information as is required or permitted by Rules 434, 430A and 424(b)
under the Act or (B) if the Company does not rely on Rule 434 under the
Act, a prospectus in the form most recently included in an amendment to
the Original Registration Statement (or, if no such amendment shall
have been filed, in the Original Registration Statement), with such
changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act, and in the case of either
clause (i)(A) or (i)(B) of this sentence as shall have been provided to
and approved by the Representative prior to the execution of this
Agreement, or (ii) if the Original Registration Statement, as it may
have been amended, has not been declared by the Commission to be
effective under the Act, an amendment to the Original Registration
Statement, including a form of prospectus, a copy of which amendment
shall have been furnished to and approved by the Representative prior
to the execution of this Agreement, which approval shall not be
unreasonably withheld. The Company, with the prior consent of the
Representative, may have also filed a related registration statement
with the Commission pursuant to Rule 462(b) under the Act for the
purpose of registering a portion of the Securities (a "Rule 462(b)
Registration Statement"), which shall become effective upon filing. As
used in this Agreement, the term "Registration Statement" means
collectively, the Original Registration Statement, as amended at the
time when it was or is declared effective, including all financial
schedules and exhibits thereto and including any information omitted
therefrom pursuant to Rule 430A under the Act and included in the
Prospectus, and (ii) any related Rule 462(b) Registration Statement
which may have been filed with the Commission pursuant to the Rule
462(b) under the Act (including the Original Registration Statement and
any Preliminary Prospectus or Prospectus incorporated therein at the
time such Rule 462(b) Registration Statement becomes effective); the
term "Preliminary Prospectus" means each prospectus subject to
completion filed with the Commission with such registration statement
or any amendment thereto (including the prospectus subject to
completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); the
term "Prospectus" means:
(A) if the Company relies on Rule 434 under the Act, the
Term Sheet relating to the Securities that is first
filed with the Commission pursuant to Rule 424(b)(7)
under the Act, together with the Preliminary
Prospectus identified therein that such Term Sheet
supplements;
- 2 -
<PAGE>
(B) if the Company does not rely on Rule 434 under the
Act, the prospectus first filed with the Commission
pursuant to Rule 424(b) under the Act; or
(C) if the Company does not rely on Rule 434 under the
Act and if no prospectus is required to be filed
pursuant to Rule 424(b) under the Act, the prospectus
included in the Registration Statement;
and the term "Term Sheet" means any term sheet that satisfies the requirements
of Rule 434 under the Act. Any reference herein to the "date" of a Prospectus
that includes a Term Sheet shall mean the date of such Term Sheet.
(b) When any Preliminary Prospectus was filed with the
Commission it (i) contained all statements required to be stated
therein in accordance with, and complied in all material respects with
the requirements of, the Act and the rules and regulations of the
Commission thereunder, and (ii) did not include any untrue statement of
a material fact or omit to state any material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading. When the Registration Statement
or any amendment thereto was or is declared effective, as the case may
be, it (i) contained or will contain all statements required to be
stated therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act and the rules and
regulations of the Commission thereunder, and (ii) did not or will not
include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
When the Prospectus or any Term Sheet that is a part thereof or any
amendment or supplement to the Prospectus is filed with the Commission
pursuant to Rule 424(b) (or, if the Prospectus or any part thereof or
such amendment or supplement is not required to be so filed, when the
Registration Statement or the amendment thereto containing such
amendment or supplement to the Prospectus was or is declared effective)
and on the Closing Date and any Additional Closing Date (both as
hereinafter defined in Section 3), the Prospectus, as amended or
supplemented at any such time, (i) contained or will contain all
statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements
of, the Act and the rules and regulations of the Commission thereunder,
and (ii) did not or will not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. The foregoing provisions of this paragraph
(b) do not apply to statements or omissions made in any Preliminary
Prospectus, the Registration Statement or any amendment thereto or the
Prospectus or any amendment or supplement thereto in reliance upon and
in conformity with written information furnished to the Company as
stated in Section 8(b) with respect to any Underwriter through the
Representative specifically for use therein.
- 3-
<PAGE>
(c) If the Company has elected to rely on Rule 462(b), then
(i) the Company has filed a Rule 462(b) Registration Statement in
compliance with and that is effective upon filing with the Commission
pursuant to Rule 462(b) and has received confirmation of its receipt,
and (ii) the Company has given irrevocable instructions for
transmission of the applicable filing fee in connection with the filing
of the Rule 462(b) Registration Statement, in compliance with Rule 111
promulgated under the Act or the Commission has received payment of
such filing fee.
(d) Neither the Commission nor the "blue sky" or securities
authority of any jurisdiction have issued an order (a "Stop Order")
suspending the effectiveness of the Registration Statement, preventing
or suspending the use of any Preliminary Prospectus, the Prospectus,
the Registration Statement, or any amendment or supplement thereto,
refusing to permit the effectiveness of the Registration Statement, or
suspending the registration or qualification of any of the Securities,
nor has any of such authorities instituted or threatened to institute
any proceedings with respect to a Stop Order.
(e) Any contract, agreement, instrument, lease, or license
required to be described in the Registration Statement and the
Prospectus (or if the Prospectus is not in existence, the most recent
Preliminary Prospectus) has been properly described therein. Any
contract, agreement, instrument, lease, or license required to be filed
as an exhibit to the Registration Statement has been filed with the
Commission as an exhibit to or has been incorporated as an exhibit by
reference into the Registration Statement.
(f) The only subsidiaries (as defined in the general rules and
regulations promulgated under the Act (the "Regulations")) of the
Company are set forth on Exhibit 21 to the Registration Statement
(collectively, the "Subsidiaries"). Each of the Company and each of the
Subsidiaries is a corporation duly organized, validly existing, and in
good standing under the laws of its jurisdiction of incorporation, with
full power and authority, and all necessary consents, authorizations,
approvals, orders, licenses, certificates, and permits of and from, and
declarations and filings with, all federal, state, local, and other
governmental authorities and all courts and other tribunals, to own,
lease, license, and use its properties and assets and to carry on the
business in the manner described in the Registration Statement and
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). Each of the Company and each of the
Subsidiaries is duly qualified to do business and is in good standing
in every jurisdiction in which its ownership, leasing, licensing, or
use of property and assets or the conduct of its business makes such
qualification necessary. Except for the capital stock of the
Subsidiaries and as otherwise disclosed in the Registration Statement,
the Company does not own, and at the Closing Date and any Additional
Closing Date will not own, directly or indirectly, any shares of stock
or any other equity or long-term debt securities of any corporation or
have any equity interest in any firm, partnership, joint venture,
association or other entity.
- 4 -
<PAGE>
(g) The authorized capital stock of the Company consists of
(i) 10,000,000 shares of Common Stock, of which 3,000,000 shares are
outstanding, and (ii) 1,000,000 shares of preferred stock, par value
$.01 per share (the "Preferred Stock"), of which no shares are
outstanding. Each outstanding share of the Company's capital stock and
each outstanding share of capital stock of each Subsidiary has been
validly authorized, issued, fully paid, and nonassessable, without any
personal liability attaching to the ownership thereof, has not been
issued and is not owned or held in violation of any preemptive rights
of stockholders, and in the case of the Subsidiaries is owned of record
and beneficially by the Company free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholders' agreements and
voting trusts. There is no commitment, plan, or arrangement to issue,
and no outstanding option, warrant, or other right calling for the
issuance of, any share of capital stock of the Company or of any
Subsidiary or any security or other instrument which by its terms is
convertible into, exercisable for, or exchangeable for capital stock of
the Company, except as may be set forth in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus). Except as set forth in the Prospectus, there is
outstanding no security or other instrument which by its terms is
convertible into or exchangeable for capital stock of the Company or of
any Subsidiary.
(h) The consolidated financial statements of the Company and
its consolidated subsidiaries included in the Registration Statement
and the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) fairly present the financial position,
the results of operations, and the other information purported to be
shown therein at the respective dates and for the respective periods to
which they apply. Such financial statements have been prepared in
accordance with generally accepted accounting principles (except to the
extent that certain footnote disclosures regarding any stub period may
have been omitted in accordance with the applicable rules of the
Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) consistently applied throughout the periods involved,
are correct and complete, and are in accordance with the books and
records of the Company and its consolidated subsidiaries. The
accountants whose report on the audited financial statements is filed
with the Commission as a part of the Registration Statement are, and
during the periods covered by their report(s) included in the
Registration Statement and the Prospectus [(or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus)] were,
independent certified public accountants within the meaning of the Act
and the Regulations. No other financial statements are required by Form
SB-2 or otherwise to be included in the Registration Statement or the
Prospectus [(or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus)]. There has at no time been a material adverse
change in the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of the Company or
any Subsidiary from the latest information set forth in the
Registration Statement or the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus), except as may be
properly described in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
- 5 -
<PAGE>
(i) There is no litigation, arbitration, claim, governmental
or other proceeding (formal or informal), or investigation pending, or,
to the best of the Company's knowledge, threatened, or in prospect (or
any basis therefor) with respect to the Company, any Subsidiary or any
of their respective operations, business, properties, or assets except
as may be properly described in the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) or such as
individually or in the aggregate do not now have and will not in the
future have a material adverse effect upon the operations, business,
properties, or assets of the Company and the Subsidiaries taken as a
whole. Neither the Company nor any Subsidiary is in violation of, or in
default with respect to, any law, rule, regulation, order, judgment, or
decree except as may be properly described in the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary
Prospectus) or such as in the aggregate do not now have and will not in
the future have a material adverse effect upon the operations,
business, properties, or assets of the Company and the Subsidiaries
taken as a whole; nor is the Company or any Subsidiary required to take
any action in order to avoid any such violation or default.
(j) Each of the Company and each Subsidiary has good and
marketable title in fee simple absolute to all real properties and good
title to all other properties and assets which the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary
Prospectus) indicates are owned by it, free and clear of all liens,
security interests, pledges, charges, encumbrances, and mortgages
(except as may be properly described in the Prospectus, or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus)
or such as do not materially affect the value of such property and do
not interfere with the use made of such property by the Company and
such Subsidiary. No real property owned, leased, licensed, or used by
the Company or by a Subsidiary lies in an area which is, or to the
knowledge of the Company or any Subsidiary will be, subject to zoning,
use, or building code restrictions which would prohibit, and no state
of facts relating to the actions or inaction of another person or
entity or his or its ownership, leasing, licensing, or use of any real
or personal property exists or will exist which would prevent, the
continued effective ownership, leasing, licensing, or use of such real
property in the business of the Company or such Subsidiary as presently
conducted or as the Prospectus indicates it contemplates conducting
(except as may be properly described in the Prospectus, or if the
Prospectus is not in existence, the most recent Preliminary
Prospectus).
(k) Neither the Company nor any Subsidiary, nor to the
knowledge of the Company or any Subsidiary, any other party, is now or
is expected by the Company or any Subsidiary to be in violation or
breach of, or in default with respect to, complying with any material
provision of any contract, agreement, instrument, lease, license,
arrangement, or understanding which is material to the Company and the
Subsidiaries taken as a whole, and each such contract, agreement,
instrument, lease, license, arrangement, and understanding is in full
force and is the legal, valid, and binding obligation of the parties
thereto and is enforceable as to them in accordance with its terms
(subject to applicable bankruptcy, insolvency and other laws affecting
the
- 6 -
<PAGE>
enforceability of creditors' rights generally). Each of the Company and
each Subsidiary enjoys peaceful and undisturbed possession under all
leases and licenses under which it is operating. Except as may be
properly described in the Prospectus (or if the Prospectus is not in
existence, the most recent Preliminary Prospectus), neither the Company
nor any Subsidiary is a party to or bound by any contract, agreement,
instrument, lease, license, arrangement, or understanding, or subject
to any charter or other restriction, which has had or may in the future
have a material adverse effect on the financial condition, results of
operations, business, properties, assets, liabilities, or future
prospects of the Company and the Subsidiaries taken as a whole. Neither
the Company nor any Subsidiary is in violation or breach of, or in
default with respect to, any term of its certificate of incorporation
(or other charter document) or by-laws.
(l) All patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, franchises, and
other intangible properties and assets (all of the foregoing being
herein called "Intangibles") that the Company owns or has pending, or
under which it is licensed, are in good standing and uncontested. There
is no right under any Intangible necessary to the business of the
Company or of any Subsidiary as presently conducted or as the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) indicates it contemplates conducting (except as
may be so designated in the Prospectus, or, if the Prospectus if not in
existence, the most recent Preliminary Prospectus). Neither the Company
nor any Subsidiary has infringed, is infringing, or has received notice
of infringement with respect to, asserted Intangibles of others. To the
knowledge of the Company or any Subsidiary, there is no infringement by
others of Intangibles of the Company or any Subsidiary. To the
knowledge of the Company or any Subsidiary, there is no Intangible of
others which has had or may in the future have a materially adverse
effect on the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of the Company and
the Subsidiaries taken as a whole.
(m) Neither the Company, any Subsidiary, nor any director,
officer, agent, employee, or other person associated with or acting on
behalf of the Company has, directly or indirectly (i) used any
corporate funds for unlawful contributions, gifts, entertainment, or
other unlawful expenses relating to political activity, (ii) made any
unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
Company funds, (iii) violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended, or (iv) made any bribe, rebate,
payoff, influence payment, kickback, or other unlawful payment.
(n) The Company has all requisite power and authority to
execute deliver, and perform each of this Agreement, the certificate
evidencing the Representative Warrants (the "Representative Warrant
Agreement") and the proposed financial advisory services letter
agreement to be entered into between the Company and the Representative
in connection with the consummation of the offering contemplated hereby
(the "Advisory Services Letter Agreement," and together with this
Agreement and the Representative Warrant Agreement, the "Company
Documents"). All necessary
- 7 -
<PAGE>
corporate proceedings of the Company or any Subsidiary have been duly
taken to authorize the execution, delivery, and performance of each of
the Company Documents by the Company. Each of this Agreement and the
Advisory Services Letter Agreement has been duly authorized, executed,
and delivered by the Company, is the legal, valid, and binding
obligation of the Company, and is enforceable as to the Company in
accordance with its terms. The Representative Warrant Agreement has
been duly authorized by the Company and when executed and delivered by
the Company, will be the legal, valid, and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
No consent, authorization, approval, order, license, certificate, or
permit of or from, or declaration or filing with, any federal, state,
local, or other governmental authority or any court or other tribunal
is required by the Company or any Subsidiary for the execution,
delivery, or performance by the Company of any of the Company Documents
(except filings under the Act which have been or will be made before
the Closing Date and such consents consisting only of consents under
"blue sky" or securities laws which have been obtained at or prior to
the date of this Agreement). No consent of any party to any contract,
agreement, instrument, lease, license, arrangement, or understanding to
which the Company or any Subsidiary is a party, or to which any of
their respective properties or assets are subject, is required for the
execution, delivery, or performance of the Company Documents; and the
execution, delivery, and performance of any of the Company Documents
will not violate, result in a breach of, conflict with, or (with or
without the giving of notice or the passage of time or both) entitle
any party to terminate or call a default under any such contract,
agreement, instrument, lease, license, arrangement, or understanding,
or violate or result in a breach of any term of the certificate of
incorporation (or other charter document) or by-laws of the Company or
any Subsidiary or violate, result in a breach of, or conflict with any
law, rule, regulation, order, judgment, or decree binding on the
Company or any Subsidiary or to which any of their respective
operations, businesses, properties, or assets are subject.
(o) The Stock and the Additional Stock are validly authorized
and, when issued and delivered in accordance with this Agreement, will
be validly issued, fully paid, and nonassessable, without any personal
liability attaching to the ownership thereof, and will not be issued in
violation of any preemptive rights of stockholders. The Underwriters
will receive good title to the Stock and Additional Stock purchased by
them, respectively, free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements, and voting
trusts.
(p) The Warrant Stock is validly authorized and reserved for
issuance and, when issued and delivered upon exercise of the
Representative Warrants in accordance with the Representative Warrant
Agreement, will be validly issued, fully paid and non-assessable,
without any personal liability attaching to the ownership thereof, and
will not be issued in violation of any preemptive rights of
stockholders; and the holders of the Representative Warrants will
receive good title to the securities purchased by them, respectively,
free and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, and voting trusts.
- 8 -
<PAGE>
(q) The Common Stock, the Securities, and the Representative
Warrant Agreement conform in all material respects with all statements
relating thereto contained in the Registration Statement or the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(r) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus)
and except as may otherwise be properly described in the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), neither the Company nor any Subsidiary has (i) issued any
securities or incurred any liability or obligation, primary or
contingent, for borrowed money, (ii) entered into any transaction not
in the ordinary course of business, or (iii) declared or paid any
dividend on its capital stock otherwise than by a wholly owned
Subsidiary to the Company.
(s) Neither the Company nor any of its officers, directors, or
affiliates (as defined in the Regulations), has taken or will take,
directly or indirectly, prior to the termination of the underwriting
syndicate contemplated by this Agreement, any action designed to
stabilize or manipulate the price of any security of the Company, or
which has caused or resulted in, or which might in the future
reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company, to facilitate
the sale or resale of any of the Stock or the Additional Stock.
(t) The Company has obtained from each of its directors and
officers, such director's and officer's enforceable written agreement,
in form and substance satisfactory to counsel for the Underwriters,
that for a period of 12 months from the Closing Date such individual
will not, without the prior written consent of the Representative,
offer, pledge, sell, contract to sell, grant any option for the sale
of, or otherwise dispose of, directly or indirectly, any shares of
Common Stock or any security or other instrument which by its terms is
convertible into, exercisable for, or exchangeable for shares of Common
Stock or other securities of the Company, including, without
limitation, any shares of Common Stock issuable under any outstanding
stock options or warrants.
(u) No person or entity has the right to require registration
of shares of Common Stock or other securities of the Company because of
the filing or effectiveness of the Registration Statement.
(v) Except as may be set forth in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus), the Company has not incurred any liability for a fee,
commission, or other compensation on account of the employment of a
broker or finder in connection with the transactions contemplated by
this Agreement.
- 9 -
<PAGE>
(w) The Company has complied with all provisions of Section
517.075, Florida Statutes (Chapter 92-198, Laws of Florida), and will
continue to do so at all times subsequent to the date the Registration
Statement is declared effective with the Commission or with the Florida
Department of Banking and Finance.
(x) The Company is not, and does not intend to conduct its
business in a manner in which it would become, an "investment company"
as defined in Section 3(a) of the Investment Company Act of 1940, as
amended (the "Investment Company Act").
(y) No officer, director, or 5% or, to the knowledge of the
Company, greater stockholder of the Company has any direct or indirect
affiliation or association with the National Association of Securities
Dealers, Inc. (the "NASD") or any member thereof.
(z) To the knowledge of the Company, no beneficial owner of
the Company's securities has any direct or indirect affiliation or
association with any NASD member.
3. Purchase, Sale, and Delivery of the Stock and the Additional Stock.
On the basis of the representations, warranties, covenants, and agreements of
the Company, but subject to the terms and conditions herein set forth, the
Company agrees to sell to the several Underwriters, and the Underwriters,
severally and not jointly, agree to purchase from the Company, the numbers of
shares of Stock set opposite the respective names of the Underwriters in
Schedule I attached hereto.
The purchase price per share of the Stock to be paid by the several
Underwriters shall be $_____. The public offering price per share of the Stock
shall be $______.
Payment for the Stock by the Underwriters shall be made by certified or
official bank check or checks drawn upon or by a New York Clearing House bank,
or by wire transfer, and payable in next-day funds to the order of the Company
at the offices of Commonwealth Associates, 733 Third Avenue, New York, New York
10017, or at such other place in the New York City metropolitan area as you
shall determine and advise the Company by at least two full days' notice in
writing, upon delivery of the Stock to you for the respective accounts of the
Underwriters. Such delivery and payment shall be made at 10:00 a.m., New York
City time, on _____________, 1997 (unless such time and date is postponed in
accordance with the provisions of Section 9(c) hereof), or at such other time as
shall be agreed upon between you and the Company. The time and date of such
delivery and payment are herein called the "Closing Date."
Certificates for the Stock shall be registered in such name or names
and in such authorized denominations as you may request in writing at least two
full business days' prior to the Closing Date. The Company shall permit you to
examine and package such certificates for delivery at least one full business
day prior to the Closing Date.
- 10-
<PAGE>
In addition, the Company hereby grants to the several Underwriters the
option to purchase all or a portion of the Additional Stock as may be necessary
to cover over-allotments, at the same purchase price per share to be paid by the
several Underwriters to the Company for the Stock as provided for in this
Section 3. The Additional Stock shall be purchased by the several Underwriters
from the Company as provided herein, pro rata in accordance with the ratio which
the number of shares of Stock set forth opposite such Underwriter's name on
Schedule I bears to the total number of shares of Stock, subject to adjustment
to avoid fractional shares. This option may be exercised only to cover
over-allotments in the sale of shares by the several Underwriters. This option
may be exercised by you on the basis of the representations, warranties,
covenants, and agreements of the Company herein contained, but subject to the
terms and conditions herein set forth, at any time and from time to time on or
before the forty-fifth day following the effective date of the Registration
Statement, by written notice by you to the Company. Such notice shall set forth
the aggregate number of shares of Additional Stock as to which the option is
being exercised and the time and date, as determined by you, when such
Additional Stock is to be delivered (such time and date are herein called an
"Additional Closing Date"); provided, however, that no Additional Closing Date
shall be earlier than the Closing Date nor earlier than the second business day
after the date on which the notice of the exercise of the option shall have been
given nor later than the third business day after the date on which such notice
shall have been given.
Payment for the shares of Additional Stock by the Underwriters shall be
made by certified or official bank check or checks drawn upon or by a New York
Clearing House bank, or by wire transfer, and payable in next-day funds to the
order of the Company at the offices of Commonwealth Associates, 733 Third
Avenue, New York, New York 10017, or at such other place in the New York City
Metropolitan Area as you shall determine and advise the Company by at least two
full days' notice in writing, upon delivery of the shares of Additional Stock to
you for the respective accounts of the Underwriters.
Certificates for the Additional Stock shall be registered in such name
or names and in such authorized denominations as you may request in writing at
least two full business days' prior to the Additional Closing Date with respect
thereto. The Company shall permit you to examine and package such certificates
for delivery at least one full business day prior to the Additional Closing Date
with respect thereto.
4. Offering. The Underwriters are to make a public offering of the
Stock as soon, on or after the effective date of the Registration Statement, as
you deem it advisable so to do. The Stock is to be initially offered to the
public at the initial public offering price as provided for in Section 3 hereof
(such price being herein called the "public offering price") and upon the terms
and subject to the conditions set forth in the Prospectus. After the public
offering, you may from time to time increase or decrease the public offering
price, in your sole discretion, by reason of changes in general market
conditions or otherwise.
5. Covenants of the Company. The Company covenants that it will:
- 11 -
<PAGE>
(a) Use its best efforts to cause the Registration Statement,
if not effective at the time of execution of this Agreement, and any
amendments thereto, to become effective as promptly as possible. If
required, the Company will file the Prospectus or any Term Sheet that
constitutes a part thereof and any amendments or supplements thereto
with the Commission in the manner and within the time period required
by Rules 434 and 424(b) under the Act. During any time when a
prospectus relating to the Stock and the Additional Stock is required
to be delivered under the Act, the Company (i) will comply with all
requirements imposed upon it by the Act and the Regulations to the
extent necessary to permit the continuance of sales of or dealings in
the Stock and the Additional Stock, in accordance with the provisions
hereof and of the Prospectus, as then amended or supplemented, and (ii)
will not file with the Commission the Prospectus, Term Sheet or the
amendment referred to in the second sentence of Section 2(a) hereof,
any amendment or supplement to such Prospectus or Term Sheet, or any
amendment to the Registration Statement of which the Representative
shall not have given its reasonable consent. The Company will prepare
and file with the Commission, in accordance with the Regulations,
promptly upon request by the Representative or counsel for the
Underwriters, any amendments to the Registration Statement or
amendments or supplements to the Prospectus that may be necessary or
advisable in connection with the distribution of the Stock and
Additional Stock by the several Underwriters, and will use its best
efforts to cause any such amendment to the Registration Statement to be
declared effective by the Commission as promptly as possible.
(b) Notify you immediately, and confirm such notice in
writing, (i) when the Registration Statement and any post-effective
amendment thereto becomes effective, (ii) of the receipt of any
comments from the Commission or the "blue sky" or securities authority
of any jurisdiction regarding the Registration Statement, any
post-effective amendment thereto, the Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, and (iii) of the
receipt of any notification with respect to a Stop Order or the
initiation or threatening of any proceeding with respect to a Stop
Order. The Company will use its best efforts to prevent the issuance of
any Stop Order and, if any Stop Order is issued, to obtain the lifting
thereof as promptly as possible.
(c) If, at any time prior to the later of (i) the final date
when a prospectus relating to the Stock or the Additional Stock, is
required to be delivered under the Act or the Regulations, or (ii) the
Additional Closing Date, any event occurs as a result of which the
Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if for any
other reason it is necessary at any time to amend or supplement the
Prospectus to comply with the Act or the Regulations, the Company will
promptly notify the Representative thereof and, subject to Section 5(a)
hereof, will prepare and file with the Commission, at the Company's
expense, an amendment to the Registration Statement or an amendment or
supplement to the Prospectus that corrects such statement or omission
or effects such compliance.
- 12 -
<PAGE>
(d) The Company will, without charge, provide (i) to the
Representative and to counsel for the Underwriters a signed copy of the
Original Registration Statement filed with the Commission with respect
to the Securities and each amendment thereto (in each case including
exhibits thereto) or any Rule 462(b) Registration Statement, (ii) to
each other Underwriter, a conformed copy of the Original Registration
Statement, any Rule 462(b) Registration Statement, and each amendment
thereto (in each case without exhibits thereto), and (iii) so long as a
prospectus relating to the Stock and Additional Stock is required to be
delivered under the Act and the Regulations, as many copies of each
Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto, as the Representative may reasonably request;
without limiting the application of clause (iii) of this sentence, the
Company, no later than (A) 6:00 p.m., New York City time, on the date
of determination of the public offering price, if such determination
occurred at or prior to 12:00 Noon, New York City time, on such date,
or (B) 6:00 p.m., New York City time, on the business day following the
date of determination of the public offering price, if such
determination occurred after 12:00 Noon, New York City time, on such
date, will deliver to the Representative, without charge, as many
copies of the Prospectus, and any amendment or supplement thereto, as
the Representative may reasonably request for purposes of confirming
orders that are expected to settle on the Closing Date.
(e) Endeavor in good faith, in cooperation with you, at or
prior to the time the Registration Statement becomes effective, to
qualify the Stock and the Additional Stock for offering and sale under
the "blue sky" or securities laws of such jurisdictions as you may
designate; provided, however, that no such qualification shall be
required in any jurisdiction where, as a result thereof, the Company
would be subject to service of general process or to taxation as a
foreign corporation doing business in such jurisdiction to which it is
not then subject. In each jurisdiction where such qualification shall
be effected, the Company will, unless you agree in writing that such
action is not at the time necessary or advisable, file and make such
statements or reports at such times as are or may be required by the
laws of such jurisdiction.
(f) Make generally available (within the meaning of Section
11(a) of the Act and the Regulations) to its security holders as soon
as practicable, but not later than May 15, 1998, an earnings statement
(which need not be certified by independent certified public
accountants unless required by the Act or the Regulations, but which
shall satisfy the provisions of Section 11(a) of the Act and the
Regulations) covering a period of at least twelve months beginning
after the effective date of the Registration Statement.
(g) For a period of twelve months after the Closing Date, not,
without the prior written consent of the Representative, offer, issue,
sell, contract to sell, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, any shares of Common Stock or other
securities of the Company (or any security or other instrument which by
its terms is convertible into, exercisable for, or exchangeable for
shares of Common Stock or other securities of the Company) except for
(i) the issuance of the
- 13 -
<PAGE>
Securities and (ii) the issuance of stock options which may be granted
pursuant to the Company's Stock Option Plan (as such term is defined in
the Prospectus) and the Common Stock issuable upon the exercise
thereof, as set forth in the Prospectus.
(h) For a period of five years after the effective date of the
Registration Statement, furnish to the Representative, without charge,
the following:
(i) within 90 days after the end of each fiscal year,
three copies of financial statements certified by independent
certified public accountants, including a balance sheet,
statement of income, and statement of cash flows of the
Company and its then existing subsidiaries, with supporting
schedules, prepared in accordance with generally accepted
accounting principles, as at the end of such fiscal year and
for the 12 months then ended, which may be on a consolidated
basis;
(ii) as soon as practicable after they have been sent
to stockholders of the Company or filed with the Commission,
three copies of each annual and interim financial and other
report or communication sent by the Company to its
stockholders or filed with the Commission;
(iii) as soon as practicable, two copies of every
press release and every material news item and article in
respect of the Company or its affairs which was released by
the Company; and
(iv) such additional documents and information with
respect to the Company and its affairs and the affairs of any
of its subsidiaries as you may from time to time reasonably
request.
(i) Apply the net proceeds received by it from the offering in
substantially the manner set forth under "Use of Proceeds" in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(j) Furnish to you as early as practicable prior to the
Closing Date and any Additional Closing Date, as the case may be, but
no less than two full business days prior thereto, a copy of the latest
available unaudited interim consolidated financial statements of the
Company and its consolidated subsidiaries which have been read by the
Company's independent certified public accountants, as stated in their
letters to be furnished pursuant to Section 7(g).
(k) Comply in all material respects with all registration,
filing, and reporting requirements of the Exchange Act which may from
time to time be applicable to the Company.
(l) Comply in all material respects with all provisions of all
undertakings contained in the Registration Statement.
- 14 -
<PAGE>
(m) Prior to the Closing Date or any Additional Closing Date,
as the case may be, issue no press release or other communication
directly or indirectly, and hold no press conference with respect to
the Company or any Subsidiary, the financial condition, results of
operations, business, properties, assets, liabilities of the Company or
any Subsidiary, or this offering, without your prior written consent,
which consent shall not be unreasonably withheld.
(n) File no amendment or supplement to the Registration
Statement or Prospectus at any time, whether before or after the
effective date of the Registration Statement, unless such filing shall
comply with the Act and the Regulations and unless the Representative
shall previously have been advised of such filing and furnished with a
copy thereof, and the Representative and counsel for the Underwriters
shall have approved such filing in writing.
(o) If the principal stockholders, officers, or directors of
the Company are required by the "blue sky" or securities authority of
any jurisdiction selected by you pursuant to Section 5(e) hereof to
escrow or agree to restrict the sale of any security of the Company
owned by them for the Company to qualify or register the Common Stock
for sale under the "blue sky" or securities laws of such jurisdiction,
cause each such person to escrow or restrict the sale of such security
on the terms and conditions and in the form specified by the securities
administrator of such jurisdiction.
(p) Use its best efforts to cause (i) the application for
quotation of the Common Stock on the Nasdaq Stock Market's SmallCap
Market to be approved as soon as possible, and (ii) the application for
listing of the Securities on the Boston Stock Exchange to be approved
as soon as possible.
(q) On or prior to the Closing Date, sell to the
Representative (or its designees), individually and not as
representative of the Underwriters, the Representative Warrants to
purchase an aggregate of 150,000 shares of Warrant Stock, which
Representative Warrants shall be evidenced by the Representative
Warrant Agreement in the form set forth as an exhibit to the
Registration Statement.
(r) Until expiration of the Representative Warrants, keep
reserved sufficient shares of Common Stock for issuance upon exercise
thereof.
(s) Deliver to you, without charge, within a reasonable period
after the last Additional Closing Date or the expiration of the period
in which the Underwriters may exercise the over-allotment option, four
bound volumes of the Registration Statement and all related materials.
(t) For a period of five years after the Closing Date, supply
to the appropriate parties such information as may be necessary or
desirable, and otherwise use its best efforts, so that during such
five-year period the Company will be listed in
- 15 -
<PAGE>
one or more of the securities manuals published by Standard & Poor's
Corporation and Moody's Investors Service, Inc. and that at all times
during such period such listing will, at a minimum, contain the names
of the Company's officers and directors, a balance sheet as of a date
not more than 18 months prior to such time, and a statement of
operations for either the fiscal year preceding such date or the most
recent fiscal year of operations.
(u) On or prior to the Closing Date, enter into the Advisory
Services Letter Agreement with the Representative, individually and not
as Representative of the Underwriters, in the form set forth as an
exhibit to the Registration Agreement.
(v) Until the expiration of three years from the Closing Date,
permit you, individually and not as Representative of the Underwriters,
to send an observer to all meetings of the Company's Board of
Directors.
(w) If the Company elects to rely on Rule 462(b), the Company
shall both file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) and pay the applicable fees
in accordance with Rule 111 promulgated under the Act by the earlier of
(i) 10:00 p.m. eastern time on the date of this Agreement, and (ii) the
time confirmations are sent or given, as specified by Rule 462(b)(2).
6. Payment of Expenses. The Company hereby agrees to pay all expenses
(other than fees of counsel for the Underwriters, except as provided in Section
6(c)) in connection with (a) the preparation, printing, filing, distribution,
and mailing of the Registration Statement, any Preliminary Prospectus, the
Prospectus and the printing, filing, distribution, and mailing of this
Agreement, any Agreement Among Underwriters, any selected dealers agreement, and
all other documents related to the offering, purchase, sale and delivery of the
Securities, including the cost of all copies thereof and of the Preliminary
Prospectuses and of the Prospectus and any amendments or supplements thereto
supplied to the Underwriters in quantities as hereinabove stated, (b) the
issuance, sale, transfer, and delivery of the Stock and the Additional Stock,
including any transfer or other taxes payable thereon, (c) the qualification of
the Stock and the Additional Stock under state or foreign "blue sky" or
securities laws, including the costs of printing and mailing the preliminary and
final "Blue Sky Survey" and the fees of counsel for the Underwriters (in an
amount not to exceed $35,000) and their disbursements in connection therewith,
(d) the filing fees payable to the Commission, the NASD, and the jurisdictions
in which such qualification is sought, (e) the quotation of the Common Stock on
the Nasdaq Stock Market's SmallCap Market and the Boston Stock Exchange,
respectively, (f) the fees and expenses of the Company's transfer agent and
registrar, (g) the fees and expenses of the Company's legal counsel and
accountants, and (h) the costs of placing a "tombstone" advertisement in such
publications as the Representative shall determine. In addition, the Company
hereby agrees to pay to the Representative a non-accountable expense allowance
equal to 2% of the aggregate gross proceeds received by the Company from the
sale of the Stock and the Additional Stock, which amounts (less the [$_________]
previously paid to you in respect of such non-accountable expense allowance)
shall be paid to you on the Closing Date
- 16 -
<PAGE>
(with respect to Stock sold by the Company on the Closing Date) and, if
applicable, on the Closing Date and any Additional Closing Date (with respect to
Additional Stock sold by the Company on the Closing Date or such Additional
Closing Date).
7. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Stock and the Additional Stock,
as provided herein, shall be subject, in their discretion, to the continuing
accuracy of the representations and warranties of the Company contained herein
and in each certificate and document contemplated under this Agreement to be
delivered to you, as of the date hereof and as of the Closing Date (or the
Additional Closing Date, as the case may be), to the performance by the Company
of its obligations hereunder, and to the following conditions:
(a) If the Registration Statement or any amendment thereto
filed prior to the Closing Date has not been declared effective as of
the time of execution hereof, the Registration Statement or such
amendment shall have been declared effective not later than 11:00 a.m.,
New York City time, on the date on which the amendment to the
registration statement originally filed with respect to the Securities
or the Registration Statement, as the case may be, containing
information regarding the public offering price of the Stock and the
Additional Stock has been filed with the Commission, or such later time
and date as shall have been consented to by the Representative; if
required, the Prospectus or any Term Sheet that constitutes part
thereof, and any amendment or supplement thereto, shall have been filed
with the Commission in the manner and within the time period required
by Rules 434, 462(b)(2) and 424(b) under the Act; no Stop Order
suspending the effectiveness of the Registration Statement or any
amendment thereto shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge
of the Company or the Representative, shall be contemplated by the
Commission; and the Company shall have complied with any request of the
Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise).
(b) At the Closing Date and any Additional Closing Date, as
the case may be, the Representative shall have received the favorable
opinion of Baer Marks & Upham LLP, counsel for the Company, dated the
date of delivery, addressed to the Underwriters, and in form and scope
reasonably satisfactory to counsel for the Underwriters, with
reproduced copies or signed counterparts thereof for each of the
Underwriters, to the effect that:
(i) each of the Company and each of the Subsidiaries
is a corporation, duly organized, validly existing, and in
good standing under the laws of its jurisdiction of
incorporation with full corporate power and authority, and all
necessary consents, authorizations, approvals, orders,
certificates, and permits of and from, and declarations and
filings with, all federal, state, local, and other
governmental authorities and all courts and other tribunals,
to own, lease, license, and use its properties and assets and
to conduct its business in the manner described in the
Prospectus. Each of the Company and each of the
- 17 -
<PAGE>
Subsidiaries is duly qualified to do business and is in good
standing in every jurisdiction in which its ownership,
leasing, licensing, or use of property and assets or the
conduct of its business makes such qualification necessary;
(ii) the authorized capital stock of the Company is
as set forth in the Prospectus. Each outstanding share of
capital stock of the Company and each outstanding share of
capital stock of each Subsidiary, has been validly authorized
and issued, and is fully paid, and nonassessable, without any
personal liability attaching to the ownership thereof, has not
been issued and is not owned or held in violation of any
preemptive rights of stockholders and in the case of the
Subsidiaries is owned of record and beneficially by the
Company free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements and
voting trusts. To the knowledge of such counsel, there is no
commitment, plan, or arrangement to issue, and no outstanding
option, warrant, or other right calling for the issuance of,
any share of capital stock of the Company or of any
Subsidiary, or any security or other instrument which by its
terms is convertible into, exercisable for, or exchangeable
for capital stock of the Company or of any Subsidiary, except
as set forth in the Prospectus. Except as may be properly
described in the Prospectus, there is outstanding no security
or other instrument which by its terms is convertible into or
exchangeable for capital stock of the Company or of any
Subsidiary;
(iii) to the knowledge of such counsel and other than
as set forth or contemplated by the Prospectus, there is no
litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending,
threatened, or in prospect (or any basis therefor) with
respect to the Company, any Subsidiary, or any of their
respective operations, businesses, properties, or assets
except as may be properly described in the Prospectus or as
individually or in the aggregate do not now have and cannot
reasonably be expected in the future to have a material
adverse effect upon the operations, business, properties, or
assets of the Company and the Subsidiaries taken as a whole.
To the knowledge of such counsel, neither the Company nor any
Subsidiary is in violation of, or in default with respect to,
any law, rule, regulation, order, judgment, or decree, except
as may be properly described in the Prospectus or such as in
the aggregate do not now have and will not in the future have
a material adverse effect upon the operations, business,
properties, or assets of the Company and the Subsidiaries
taken as a whole; nor is the Company or any Subsidiary
required to take any action in order to avoid any such
violation or default;
(iv) to the knowledge of such counsel, neither the
Company, any Subsidiary nor any other party is now in
violation or breach of, or in default with respect to,
complying with any material provision of any contract,
agreement, instrument, lease, license, arrangement, or
understanding known to
- 18 -
<PAGE>
such counsel except such violation which will not reasonably
be expected to have a material adverse effect on the Company
and the Subsidiaries taken as a whole;
(v) neither the Company nor any Subsidiary is in
violation or breach of, or in default with respect to, any
term of its certificate of incorporation (or other charter
document) or by-laws;
(vi) the Company has all requisite corporate power
and authority to execute, deliver, and perform each of the
Company Documents. All necessary corporate proceedings of the
Company or any Subsidiary have been taken to authorize the
execution, delivery, and performance by the Company of the
Company Documents. Each Company Document has been duly
authorized by the Company. Each Company Document has been duly
executed and delivered by the Company. Each Company Document
is the legal, valid, and binding obligation of the Company,
and (subject to applicable bankruptcy, insolvency, and other
laws affecting the enforceability of creditors' rights
generally) is enforceable as to the Company in accordance with
its terms. No consent, authorization, approval, order,
license, certificate, or permit of or from, or declaration or
filing with, any federal, state, local, or other governmental
authority or any court or other tribunal is required by the
Company or any Subsidiary for the execution, delivery, or
performance by the Company of any of the Company Documents
(except filings under the Act which have been made prior to
the Closing Date and consents consisting only of consents
under "blue sky" or securities laws). No consent of any party
to any contract, agreement, instrument, lease, license,
arrangement, or understanding known to such counsel to which
the Company or any Subsidiary is a party, or to which any of
their respective properties or assets are subject, is required
for the execution, delivery, or performance of any of the
Company Documents; and the execution, delivery, and
performance of the Company Documents will not violate, result
in a breach of, conflict with, or (with or without the giving
of notice or the passage of time or both) entitle any party to
terminate or call a default under any such contract,
agreement, instrument, lease, license, arrangement, or
understanding known to such counsel, or violate or result in a
breach of any term of the certificate of incorporation (or
other charter document) or by-laws of the Company, or any
Subsidiary or violate, result in a breach of, or conflict with
any law, rule, regulation, order, judgment, or decree binding
on the Company or any Subsidiary or to which any of their
respective operations, business, properties, or assets are
subject;
(vii) the Stock, the Additional Stock and the Warrant
Stock have been validly authorized. Such opinion delivered at
the Closing Date or any Additional Closing Date shall state
that each share of Stock or Additional Stock, as the case may
be, to be delivered on that date is validly issued, fully
paid, and nonassessable, with no personal liability attaching
to the ownership thereof, and is not issued in violation of
any preemptive rights of stockholders, and the
- 19 -
<PAGE>
Underwriters have received good title to the Stock and
Additional Stock purchased by them, respectively, from the
Company, free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements, and
voting trusts;
(viii) the Warrant Stock has been duly and validly
reserved for issuance. Such opinion delivered at the Closing
Date shall state that the Representative Warrants have been
duly and validly issued and delivered. The Warrant Stock, when
issued and delivered in accordance with the Representative
Warrant Agreement, will be validly authorized and issued,
fully paid and nonassessable, with no personal liability
attaching to the ownership thereof, and will not have been
issued in violation of any preemptive rights of stockholders;
and the holders of the Representative Warrants will receive
good title to the securities purchased by them, respectively,
free and clear of all liens, security interests, pledges,
charges, encumbrances, stockholders' agreements, and voting
trusts;
(ix) the Common Stock, the Securities, and the
Representative Warrant Agreement conform to all statements
relating thereto contained in the Registration Statement and
the Prospectus;
(x) to the knowledge of such counsel, any contract,
agreement, instrument, lease, or license required to be
described in the Registration Statement or the Prospectus has
been properly described therein. To the knowledge of such
counsel, any contract, agreement, instrument, lease, or
license required to be filed as an exhibit to the Registration
Statement has been filed with the Commission as an exhibit to
or has been incorporated as an exhibit by reference into the
Registration Statement;
(xi) insofar as statements in the Prospectus purport
to summarize the status of litigation or the provisions of
laws, rules, regulations, orders, judgments, decrees,
contracts, agreements, instruments, leases, or licenses, such
statements have been prepared or reviewed by such counsel and
accurately reflect the status of such litigation and
provisions purported to be summarized and are correct in all
material respects;
(xii) to such counsel's knowledge, the conditions for
use of Form SB-2 have been satisfied with respect to the
Registration Statement;
(xiii) the Common Stock has been approved for
quotation on the Nasdaq SmallCap Market and the Boston Stock
Exchange, subject to official notice of issuance;
(xiv) to the knowledge of such counsel, no person or
entity has the right to require registration of shares of
Common Stock or other securities of the Company because of the
filing or effectiveness of the Registration Statement;
- 20 -
<PAGE>
(xv) the Registration Statement has become effective
under the Act; any required filing of the Prospectus, or any
Term Sheet that constitutes a part thereof, pursuant to Rules
434 and 424(b) has been made in the manner and within the time
period required by Rules 434 and 424(b). To the knowledge of
such counsel, no Stop Order has been issued and no proceedings
for that purpose have been instituted or threatened;
(xvi) the Registration Statement and the Prospectus,
and any amendment or supplement thereto (other than
statistical data, financial statements and other financial
data and schedules which are or should be contained in any
thereof, as to which such counsel need express no opinion),
comply as to form in all material respects with the
requirements of the Act and the Regulations;
(xvii) such counsel has no reason to believe that the
Registration Statement or the Prospectus, or any amendment or
supplement thereto (other than financial statements and other
statistical and financial data and schedules which are or
should be contained in any thereof, as to which such counsel
need express no opinion), contains any untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading;
(xviii) to the knowledge of such counsel, since the
effective date of the Registration Statement, no event has
occurred which should have been set forth in an amendment or
supplement to the Registration Statement or the Prospectus
which has not been set forth in such an amendment or
supplement; and
In rendering such opinion, counsel for the Company may rely
(A) as to matters involving the application of laws other than the laws
of the United States, the laws of the State of New York, and the
General Corporation Law of the State of Delaware, to the extent counsel
for the Company deems proper and to the extent specified in such
opinion, upon an opinion or opinions (in form and substance
satisfactory to counsel for the Underwriters) of other counsel,
acceptable to counsel for the Underwriters, familiar with the
applicable laws, in which case the opinion of counsel for the Company
shall state that the opinion or opinions of such other counsel are
satisfactory in scope, form, and substance to counsel for the Company
and that reliance thereon by counsel for the Company and the
Underwriters is reasonable; (B) as to matters of fact, to the extent
they deem proper, on certificates of responsible officers of the
Company; and (C) to the extent they deem proper, upon written
statements or certificates of officers of departments of various
jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company, provided that copies of any
such statements or certificates shall be delivered to counsel for the
Underwriters.
(c) On or prior to the Closing Date and any Additional Closing
Date, as the case may be, the Underwriters shall have been furnished
such information, documents, certificates, and opinions as they may
reasonably require for the purpose of enabling
- 21 -
<PAGE>
them to review the matters referred to in Section 7(b), and in order to
evidence the accuracy, completeness, or satisfaction of any of the
representations, warranties, covenants, agreements, or conditions
herein contained, or as you may reasonably request.
(d) At the Closing Date and any Additional Closing Date, as
the case may be, the Representative shall have received a favorable
opinion of ___________________, counsel for the Company with respect to
insurance regulatory matters, dated the date of delivery, addressed to
the Underwriters, in form, substance and scope satisfactory to counsel
for the Underwriters.
(e) At the Closing Date and any Additional Closing Date, as
the case may be, the Representative shall have received a favorable
opinion of ___________________, counsel for the Company with respect to
matters of Bermuda law, dated the date of delivery, addressed to the
Underwriters, in form, substance and scope satisfactory to counsel for
the Underwriters.
(f) At the Closing Date and any Additional Closing Date, as
the case may be, you shall have received a certificate of the chief
executive officer and of the chief financial officer of the Company,
dated the Closing Date or such Additional Closing Date, as the case may
be, to the effect (i) that the conditions set forth in Section 7(a)
have been satisfied, (ii) that as of the date of this Agreement and as
of the Closing Date or such Additional Closing Date, as the case may
be, the representations and warranties of the Company contained herein
were and are accurate, and (iii) that as of the Closing Date or such
Additional Closing Date, as the case may be, the obligations to be
performed by the Company hereunder on or prior thereto have been fully
performed.
(g) At the time this Agreement is executed and at the Closing
Date and any Additional Closing Date, as the case may be, you shall
have received a letter from KPMG Peat Marwick LLP, certified public
accountants, dated the date of delivery and addressed to the
Underwriters, in form and substance satisfactory to you, with
reproduced copies or signed counterparts thereof for each of the
Underwriters.
(h) All proceedings taken in connection with the issuance,
sale, transfer, and delivery of the Stock and the Additional Stock
shall be reasonably satisfactory in form and substance to you and to
counsel for the Underwriters, and the Underwriters shall have received
from such counsel for the Underwriters a favorable opinion, dated as of
the Closing Date and the Additional Closing Date, as the case may be,
with respect to such of the matters set forth under Section 7(b), and
with respect to such other related matters, as you may reasonably
request.
(i) The NASD, upon review of the terms of the public offering
of the Stock and the Additional Stock, shall not have objected to the
Underwriters' participation in such offering.
- 22 -
<PAGE>
(j) Prior to or on the Closing Date, the Company shall have
entered into the Representative Warrant Agreement with the
Representative.
(k) Prior to or on the Closing Date, the Company shall have
provided to you a copy of the agreements referred to in Sections 2(t)
and (x) hereof.
(l) Prior to or on the Closing Date, the Company shall have
entered into the Advisory Services Letter Agreement with the
Representative.
Any certificate or other document signed by any officer of the Company
and delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company hereunder to the Underwriters as to
the statements made therein. If any condition to the Underwriters' obligations
hereunder to be fulfilled prior to or at the Closing Date or any Additional
Closing Date, as the case may be, is not so fulfilled, you may on behalf of the
several Underwriters elect to terminate this Agreement or, if you so elect, in
writing waive any such conditions which have not been fulfilled or extend the
time for their fulfillment.
8. Indemnification and Contribution. (a) Subject to the conditions set
forth below, the Company agrees to indemnify and hold harmless each Underwriter,
its officers, directors, partners, employees, agents, and counsel, and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, against any and all loss,
liability, claim, damage, and expense whatsoever (which shall include, for all
purposes of this Section 8, but not be limited to, reasonable attorneys' fees
and any and all expense whatsoever incurred in investigating, preparing, or
defending against any litigation, commenced or threatened, or any claim
whatsoever and any and all amounts paid in settlement of any claim or
litigation) as and when incurred arising out of, based upon, or in connection
with (i) any untrue statement or alleged untrue statement of a material fact
contained (A) in any Preliminary Prospectus, any Term Sheet, the Registration
Statement or the Prospectus (as from time to time amended and supplemented), or
any amendment or supplement thereto, or (B) in any application or other document
or communication (in this Section 8 collectively called an "application")
executed by or on behalf of the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify any of the Securities under the "blue sky" or securities laws thereof or
filed with the Commission or any securities exchange; or any omission or alleged
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, unless such statement or omission
was made in reliance upon and in conformity with written information furnished
to the Company as stated in Section 8(b) with respect to any Underwriter by or
on behalf of such Underwriter through the Representative expressly for inclusion
in any Preliminary Prospectus, any Term Sheet, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or in any application, as
the case may be, or (ii) any material breach of any representation, warranty,
covenant, or agreement of the Company contained in this Agreement. The foregoing
agreement to indemnify shall be in addition to any liability the Company may
otherwise have, including liabilities arising under this Agreement.
- 23 -
<PAGE>
If any action is brought against an Underwriter or any of its officers,
directors, partners, employees, agents, or counsel, or any controlling persons
of an Underwriter (an "indemnified party") in respect of which indemnity may be
sought against the Company pursuant to the foregoing paragraph, such indemnified
party or parties shall promptly notify the Company in writing of the institution
of such action (but the failure so to notify shall not relieve the Company from
any liability it may have pursuant to this Section 8(a) or otherwise) and the
Company shall promptly assume the defense of such action, including the
employment of counsel (satisfactory to such indemnified party or parties) and
payment of expenses. Such indemnified party or parties shall have the right to
employ its or their own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified party or parties unless
the employment of such counsel shall have been authorized in writing by the
Company in connection with the defense of such action or the Company shall not
have promptly employed counsel satisfactory to such indemnified party or parties
to have charge of the defense of such action or such indemnified party or
parties shall have reasonably concluded that there may be one or more legal
defenses available to it or them or to other indemnified parties which are
different from or additional to those available to the Company, in any of which
events such fees and expenses shall be borne by the Company and the Company
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties. Anything in this paragraph to the contrary
notwithstanding, the Company shall not be liable for any settlement of any such
claim or action effected without its written consent, which shall not be
unreasonably withheld. The Company shall not, without the prior written consent
of each indemnified party that is not released as described in this sentence,
settle or compromise any action, or permit a default or consent to the entry of
judgment in or otherwise seek to terminate any pending or threatened action, in
respect of which indemnity may be sought hereunder (whether or not any
indemnified party is a party thereto), unless such settlement, compromise,
consent, or termination includes an unconditional release of each indemnified
party from all liability in respect of such action. The Company agrees promptly
to notify the Underwriters of the commencement of any litigation or proceedings
against the Company or any of its officers or directors in connection with the
sale of the Stock or the Additional Stock, any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or any application.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each director of the Company, each officer of the Company who shall
have signed the Registration Statement, and each other person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, to the same extent as the foregoing indemnity from
the Company to the several Underwriters, but only with respect to statements or
omissions, if any, made in any Preliminary Prospectus, the Registration
Statement, or the Prospectus (as from time to time amended and supplemented), or
any amendment or supplement thereto, or in any application in reliance upon and
in conformity with written information furnished to the Company as stated in
this Section 8(b) with respect to any Underwriter by or on behalf of such
Underwriter through the Representative expressly for inclusion in the
Registration Statement, or the Prospectus, or any amendment or supplement
thereto, or in any application, as the case may be; provided, however, that the
obligation of each Underwriter to provide indemnity under the provisions of this
Section 8(b) shall be limited
- 24 -
<PAGE>
to the amount which represents the product of the number of shares of Stock and
Additional Stock underwritten by such Underwriter hereunder and the public
offering price per share set forth on the cover page of the Prospectus. For all
purposes of this Agreement, the amounts of the selling concession and
reallowance set forth in the Prospectus constitute the only information
furnished in writing by or on behalf of any Underwriter expressly for inclusion
in any Preliminary Prospectus, the Registration Statement or the Prospectus (as
from time to time amended or supplemented), or any amendment or supplement
thereto, or in any application, as the case may be. If any action shall be
brought against the Company or any other person so indemnified based on any
Preliminary Prospectus, the Registration Statement, or the Prospectus, or any
amendment or supplement thereto, or in any application, and in respect of which
indemnity may be sought against any Underwriter pursuant to this Section 8(b),
such Underwriter shall have the rights and duties given to the Company, and the
Company and each other person so indemnified shall have the rights and duties
given to the indemnified parties, by the provisions of Section 8(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 8(a) or
8(b) (subject to the limitations thereof), but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act, or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed the Registration
Statement, and any controlling person of the Company), on the one hand, and the
Underwriters, in the aggregate (including for this purpose any contribution by
or on behalf of an indemnified party), on the other hand, shall contribute to
the losses, liabilities, claims, damages, and expenses whatsoever to which any
of them may be subject, so that the Underwriters are responsible for the
proportion thereof equal to the percentage which the underwriting discount per
share set forth on the cover page of the Prospectus represents of the initial
public offering price per share set forth on the cover page of the Prospectus
and the Company is responsible for the remaining portion; provided, however,
that if applicable law does not permit such allocation, then other relevant
equitable considerations such as the relative fault of the Company and the
Underwriters in the aggregate in connection with the facts which resulted in
such losses, liabilities, claims, damages, and expenses shall also be
considered. The relative fault, in the case of an untrue statement, alleged
untrue statement, omission, or alleged omission, shall be determined by, among
other things, whether such statement, alleged statement, omission, or alleged
omission relates to information supplied by the Company or by the Underwriters,
and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement, alleged statement, omission,
or alleged omission. The Company and the Underwriters agree that it would be
unjust and inequitable if the respective obligations of the Company and the
Underwriters for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages, and expenses
(even if the Underwriters and the other indemnified parties were treated as one
entity for such purpose) or by any other method of allocation that does not
reflect the equitable considerations referred to in this Section 8(c).
In no case shall any Underwriter be responsible for a portion of the
contribution obligation
- 25 -
<PAGE>
imposed on all Underwriters in excess of its pro rata share based on the number
of shares of Stock underwritten by it as compared to the number of shares of
Stock underwritten by all Underwriters who do not default in their obligations
under this Section 8(c). No person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 8(c), each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act and each officer, director, partner, employee, agent,
and counsel of an Underwriter shall have the same rights to contribution as such
Underwriter and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, each officer of
the Company who shall have signed the Registration Statement, and each director
of the Company shall have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 8(c). Anything in this
Section 8(c) to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 8(c) is intended to supersede any
right to contribution under the Act, the Exchange Act, or otherwise.
9. Default by an Underwriter. (a) If any Underwriter or Underwriters
shall default in its or their obligation to purchase Stock or Additional Stock
hereunder, and if the number of shares of Stock or Additional Stock to which the
defaults of all Underwriters in the aggregate relate does not exceed 10% of the
number of shares of Stock or Additional Stock, as the case may be, which all
Underwriters have agreed to purchase hereunder, then such shares of Stock or
Additional Stock to which such defaults relate shall be purchased by the
non-defaulting Underwriters in proportion to their respective commitments
hereunder.
(b) If such defaults exceed in the aggregate 10% of the number of
shares of Stock or Additional Stock, as the case may be, which all Underwriters
have agreed to purchase hereunder, you may in your discretion arrange for
yourself or for another party or parties to purchase such shares of Stock or
Additional Stock, as the case may be, to which such default relates on the terms
contained herein. If you do not arrange for the purchase of such shares of Stock
or Additional Stock, as the case may be, within one business day after the
occurrence of defaults relating to in excess of 10% of the Stock or the
Additional Stock, as the case may be, then the Company shall be entitled to a
further period of one business day within which to procure another party or
parties satisfactory to you to purchase such shares of Stock or Additional
Stock, as the case may be, on such terms. If you or the Company do not arrange
for the purchase of the Stock or Additional Stock, as the case may be, to which
such defaults relate as provided in this Section 9(b), this Agreement may be
terminated by you or by the Company without liability on the part of the Company
(except that the provisions of Sections 6, 8, 10, and 13 shall survive such
termination) or the several Underwriters, but nothing in this Agreement shall
relieve a defaulting Underwriter of its liability, if any, to the other several
Underwriters and to the Company for any damages occasioned by its default
hereunder.
(c) If the shares of Stock or Additional Stock to which such defaults
relate are to be purchased by the non-defaulting Underwriters, or are to be
purchased by another party or parties as aforesaid, you or the Company shall
have the right to postpone the Closing Date or
- 26 -
<PAGE>
the Additional Closing Date, as the case may be, for a reasonable period but not
in any event more than seven days in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus or in
any other documents and arrangements with respect to the Stock or the Additional
Stock, and the Company agrees to prepare and file promptly any amendment or
supplement to the Registration Statement or the Prospectus which in the opinion
of counsel for the Underwriters may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 9 as if such party had originally been a party to this
Agreement and had been allocated the number of shares of Stock and Additional
Stock actually purchased by it as a result of its original commitment to
purchase Stock and Additional Stock and its purchase of shares of Stock or
Additional Stock pursuant to this Section 9.
10. Representations and Agreements to Survive Delivery. All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and any Additional Closing Date, and such
representations, warranties, covenants, and agreements of the Underwriters and
the Company, including the indemnity and contribution agreements contained in
Section 8, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any indemnified person,
or by or on behalf of the Company or any person or entity which is entitled to
be indemnified under Section 8(b), and shall survive termination of this
Agreement or the delivery and the payment of the Stock and the Additional Stock
to the several Underwriters. In addition, the provisions of Sections 6, 8, 10,
11, and 13 shall survive termination of this Agreement, whether such termination
occurs before or after the Closing Date or any Additional Closing Date.
11. Effective Date of This Agreement and Termination Thereof. (a) This
Agreement shall become effective at 9:30 a.m., New York City time, on the first
full business day following the day on which the Registration Statement becomes
effective or at the time of the initial public offering by the Underwriters of
the Stock, whichever is earlier. The time of the initial public offering shall
mean the time, after the Registration Statement becomes effective, of the
release by you for publication of the first newspaper advertisement which is
subsequently published relating to the Stock or the time, after the Registration
Statement becomes effective, when the Stock is first released by you for
offering by the Underwriters or dealers by letter or telegram, whichever shall
first occur. The Representative or the Company may prevent this Agreement from
becoming effective without liability of any party to any other party, except as
noted below in this Section 11, by giving the notice indicated in Section 11(c)
before the time this Agreement becomes effective.
(b) In addition to the right to terminate this Agreement pursuant to
Sections 7 and 9 hereof, you shall have the right to terminate this Agreement at
any time prior to the Closing Date or any Additional Closing Date, as the case
may be, by giving notice to the Company if any domestic or international event,
act, or occurrence has materially disrupted, or in your opinion will in the
immediate future materially disrupt, the securities markets; or if there shall
have been a general suspension of, or a general limitation on prices for,
trading in securities on the New York Stock Exchange, the Nasdaq Stock Market's
National Market, the Nasdaq
- 27 -
<PAGE>
Stock Market's SmallCap Market, the Boston Stock Exchange or in the
over-the-counter market; or if there shall have been an outbreak of major
hostilities or other national or international calamity; or if a banking
moratorium has been declared by a state or federal authority; or if a moratorium
in foreign exchange trading by major international banks or persons has been
declared; or if there shall have been a material interruption in the mail
service or other means of communication within the United States; or if the
Company shall have sustained a material loss by fire, flood, accident,
hurricane, earthquake, theft, sabotage, labor dispute, legal or governmental
proceeding or other calamity or malicious act which, whether or not such loss
shall have been insured, will, in your opinion, make it inadvisable to proceed
with the offering, sale, or delivery of the Stock or the Additional Stock, as
the case may be; or if there shall have been such material adverse change in the
condition of the Company, or such change in the market for securities in general
or in political, financial, or economic conditions as in your judgment makes it
inadvisable to proceed with the offering, sale, and delivery of the Stock or the
Additional Stock, as the case may be, on the terms contemplated by the
Prospectus.
(c) If you elect to prevent this Agreement from becoming effective, as
provided in this Section 11, or to terminate this Agreement pursuant to Section
7, 9, or this Section 11, you shall notify the Company promptly by telephone,
facsimile transmission, telex, or telegram, confirmed by letter. If the Company
elects to prevent this Agreement from becoming effective, as provided in this
Section 11, or if the Company elects to terminate this Agreement pursuant to
Section 9 of this Agreement, the Company shall notify you promptly by telephone,
facsimile transmission, telex, or telegram, confirmed by letter.
(d) Notwithstanding anything in this Agreement to the contrary other
than Section 11(e) hereof, if this Agreement shall not become effective by
reason of an election pursuant to this Section 11 or if this Agreement shall
terminate or shall otherwise not be carried out within the time specified herein
by reason of any failure on the part of the Company to perform any convent or
agreement or satisfy any condition of the Agreement by it to be performed or
satisfied, the sole liability of the Company to the several Underwriters, in
addition to the obligation the Company assumed pursuant to Section 6, will be to
(i) reimburse the several Underwriters for (x) all of their out-of-pocket
expenses, including the reasonable fees and disbursements of their counsel, as
shall have been incurred by them in connection with this Agreement and the
proposed offer, sale and delivery of the Stock and the Additional Stock, up to
$50,000; (y) for one-half of such expenses, on a dollar-for-dollar basis, in
excess of $50,000 up to $100,000, provided that the reimbursement under this
subclause (y) shall not exceed $25,000; and (z) for all such expenses in excess
of $100,000 and upon demand the Company agrees to pay promptly such amounts to
you for the respective accounts of the Underwriters, and (ii) if the Company has
elected to prevent this Agreement from becoming effective or if you terminate
this Agreement pursuant to Section 7, the Company and the Representative shall
enter into the Advisory Services Letter Agreement, substantially in the form set
forth as an exhibit to the Registration Statement.
- 28 -
<PAGE>
(e) Notwithstanding any election hereunder or any termination of this
Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Sections 6, 8, 10, and 13 shall not be in any way affected by such
election or termination or failure to carry out the terms of this Agreement or
any part hereof.
12. Notices. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered or transmitted via facsimile
transmission, telex or telegraph and confirmed by letter, to such Underwriter,
to Commonwealth Associates, 733 Third Avenue, New York, New York 10017, Fax
(212) 297-5695, Attention: Corporate Finance Department; and if sent to the
Company, shall be mailed, delivered or transmitted via facsimile transmission,
telex or telegraph and confirmed by letter, Preferred Employers Holdings, Inc.,
10800 Biscayne Boulevard, Penthouse, Miami, Florida 33161, Fax (305) 891-5390,
Attention: Mel Harris. All notices hereunder shall be effective upon receipt by
the party to which it is addressed.
13. Parties. You represent that you are authorized to act on behalf of
the several Underwriters named in Schedule I hereto and the Company shall be
entitled to act and rely on any request, notice, consent, waiver, or agreement
purportedly given on behalf of the Underwriters when the same shall have been
given by you on such behalf. This Agreement shall inure solely to the benefit
of, and shall be binding upon, the several Underwriters and the Company and the
persons and entities referred to in Section 8 who are entitled to
indemnification or contribution, and their respective successors, legal
representatives, and assigns (which shall not include any buyer, as such, of the
Stock or the Additional Stock), and no other person shall have or be construed
to have any legal or equitable right, remedy, or claim under or in respect of or
by virtue of this Agreement or any provision herein contained. Notwithstanding
anything contained in this Agreement to the contrary, all of the obligations of
the Underwriters hereunder are several and not joint.
14. Construction. This Agreement shall be construed in accordance with
the laws of the State of New York, without giving effect to conflict of laws.
TIME IS OF THE ESSENCE IN THIS AGREEMENT.
15. Consent to Jurisdiction. The Company irrevocably consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in such State in connection with any action or proceeding arising out of
or relating to this Agreement, any document or instrument delivered pursuant to,
in connection with or simultaneously with this Agreement, or a breach of this
Agreement or any such document or instrument. In any such action or proceeding,
the Company waives personal service or any summons, complaint or other process
and agrees that service thereof may be made in accordance with Section 12.
Within 30 days after such service, or such other time as may be mutually agreed
upon in writing by the attorneys for the parties to such action or proceeding,
the Company shall appear or answer such summons, complaint or other process.
Should the Company fail to appear or answer within such 30 day period or such
extended period, as the case may be, the Company shall be deemed in default and
judgement may be entered against the Company for the amount as demanded in any
summons, complaint or other process so served.
- 29 -
<PAGE>
If the foregoing correctly sets forth the understanding between you and
the Company, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
PREFERRED EMPLOYERS HOLDINGS, INC.
By:________________________________
Mel Harris, Chairman and
Chief Executive Officer
Accepted as of the date first above written.
New York, New York
COMMONWEALTH ASSOCIATES
By: COMMONWEALTH ASSOCIATES MANAGEMENT COMPANY, INC.,
General Partner
By: _____________________________
Name:
Title:
On behalf of itself and the other several
Underwriters named in Schedule I hereto.
- 30 -
<PAGE>
SCHEDULE I
Number of Shares of
Stock to be Purchased
Underwriter from the Company
----------- -------------------------
COMMONWEALTH ASSOCIATES
TOTAL =============
- 31 -
BY-LAWS OF
PREFERRED EMPLOYERS HOLDINGS, INC.
(A Delaware Corporation)
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I - OFFICES..........................................................1
Section 1.1 Registered Office....................................1
Section 1.2 Other Offices........................................1
ARTICLE II - SEAL............................................................1
ARTICLE III - MEETINGS OF STOCKHOLDERS.......................................1
Section 3.1 Place of Meetings....................................1
Section 3.2 Annual Meeting.......................................1
Section 3.3 Election of Directors................................2
Section 3.4 Special Meetings.....................................2
Section 3.5 Notice of Meetings...................................2
Section 3.6 Quorum...............................................2
Section 3.7 Proxies..............................................3
Section 3.8 Organization.........................................3
Section 3.9 Order of Business....................................4
Section 3.10 Consent in Lieu of Meetings..........................4
Section 3.11 List of Stockholders.................................4
Section 3.12 Notice of Stockholder Proposals and Nomination.......5
ARTICLE IV - BOARD OF DIRECTORS..............................................7
Section 4.1 General Powers, Number, Election, Term of Office and
Vacancies............................................7
Section 4.2 Regular Meetings.....................................7
Section 4.3 Special Meetings.....................................7
Section 4.4 Quorum, Voting.......................................8
Section 4.5 Consent in Lieu of Meeting...........................8
Section 4.6 Telephonic Meeting...................................9
Section 4.7 Compensation.........................................9
Section 4.8 Removal.............................................9
Section 4.9 Executive and Other Committees.......................9
ARTICLE V - OFFICERS........................................................11
Section 5.1 Number and Qualifications...........................11
Section 5.2 Term of Office......................................11
Section 5.3 Resignations........................................11
Section 5.4 Removal.............................................12
Section 5.5 Salaries............................................12
Section 5.6 Chairman of the Board...............................12
Section 5.7 Chief Executive Officer.............................12
Section 5.8 President...........................................12
(-i-)
<PAGE>
Section 5.9 Secretary...........................................13
Section 5.10 Treasurer...........................................13
ARTICLE VI - VACANCIES AND RESIGNATIONS.....................................13
Section 6.1 Vacancies...........................................13
Section 6.2 Resignations........................................14
Section 6.3 Resignations Effective at Future Date...............14
ARTICLE VII - STOCK CERTIFICATES, DIVIDENDS, ETC............................14
Section 7.1 Stock Certificates..................................14
Section 7.2 Record Holders......................................15
Section 7.3 Transfers of Stock..................................15
Section 7.4 Lost Certificate....................................15
Section 7.5 Record Date.........................................16
Section 7.6 Dividends...........................................18
ARTICLE VIII - MISCELLANEOUS PROVISIONS.....................................19
Section 8.1 Checks..............................................19
Section 8.2 Fiscal Year.........................................19
Section 8.3 Notice..............................................19
Section 8.4 Waiver of Notice....................................19
Section 8.5 Corporate Records...................................20
ARTICLE IX - AMENDMENTS.....................................................20
(-ii-)
<PAGE>
BY-LAWS OF
PREFERRED EMPLOYERS HOLDINGS, INC.
(A Delaware Corporation)
ARTICLE I - OFFICES
Section 1.1 Registered Office. The registered office of the Corporation in
the state of Delaware shall be at 1013 Centre Road, City of Wilmington, County
of New Castle. The registered agent in charge thereof shall be Corporation
Service Company.
Section 1.2 Other Offices. The Corporation may also have offices at such
other places as the Board of Directors may from time to time appoint or the
business of the Corporation may require.
ARTICLE II - SEAL
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware"
ARTICLE III - MEETINGS OF STOCKHOLDERS
Section 3.1 Place of Meetings. Meetings of the stockholders shall be held
at any place within or without the State of Delaware, as may be selected from
time to time by the Board of Directors, or as may be specified in the Notice of
the Meeting.
Section 3.2 Annual Meeting. The annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly be brought
<PAGE>
before the meeting shall be held each year at such date and time as the Board of
Directors shall determine.
Section 3.3 Election of Directors. Elections of the directors of the
Corporation need not be by written ballot.
Section 3.4 Special Meetings. Except as provided by Section 6.1 of these
By-Laws, special meetings of the stockholders may be called at any time only by
the Chief Executive Officer or the Board of Directors. At any time, upon written
request of any person or persons who have called a special meeting, it shall be
the duty of the Secretary to fix the date of such meeting, to be held not more
than sixty (60) days after receipt of such request, and to give due notice
thereof as provided herein. If the Secretary shall neglect or refuse to fix the
date of such meeting and give notice thereof, the person or persons calling such
meeting may do so.
Business transacted at any special meeting shall be confined to the objects
stated in the notice, and matters germane thereto, as determined by the
presiding officer of the meeting in his sole discretion.
Section 3.5 Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
Unless otherwise provided by law, written notice of any meeting shall be
given not less than ten (10) nor more than sixty (60) days prior to the date of
the meeting to each stockholder entitled to vote at such meeting.
-2-
<PAGE>
Section 3.6 Quorum. Except as otherwise provided by law or the Certificate
of Incorporation, a majority of the outstanding shares of the Corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a majority of the outstanding shares
entitled to vote is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
any adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The stockholders present at a duly organized meeting may
continue to transact business until adjournment notwithstanding the withdrawal
of sufficient stockholders to reduce the remaining number below that which
constitutes a quorum.
Section 3.7 Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three (3) years from
its date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation generally. All
proxies shall be filed with the Secretary of the meeting before being voted
upon.
Section 3.8 Organization. At each meeting of stockholders, the Chairman of
the Board or, in his absence or if one shall not have been elected, the
President, shall act as the
-3-
<PAGE>
presiding officer of the meeting. The Secretary or, in his absence or inability
to act, the person whom the presiding officer of the meeting shall appoint shall
act as secretary of the meeting and keep the minutes.
Section 3.9 Order of Business. The order of business at all meetings of the
stockholders shall be determined by the presiding officer of the meeting.
Section 3.10 Consent in Lieu of Meetings. Any action required to be taken
at any annual or special meeting of stockholders of a Corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting and without a vote, in accordance with Section 7.5(b) of
these By-Laws, if a consent in writing, setting forth the action so taken, shall
be signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
Section 3.11 List of Stockholders. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. No share of stock upon which any installment is due and unpaid
shall be voted at any meeting. The list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of not less than ten (10) days prior to the meeting, either
at a place within the city
-4-
<PAGE>
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the entire duration of the meeting, and may be inspected by any
stockholder who is present thereat.
Section 3.12 Notice of Stockholder Proposals and Nomination. (a) At an
annual meeting, only such business shall be conducted, and only such proposals
shall be acted upon, including, without limitation, the nomination of persons
for election to the Board of Directors of the Corporation, as shall have been
brought before the annual meeting (i) by, or at the direction of, the Board of
Directors or (ii) by any stockholder of the Corporation who properly complies
with the notice procedures set forth in paragraph (b) of this Section 3.12.
(b) For a nomination or proposal to be properly brought before an annual
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, such stockholder's
notice must be delivered to, or mailed to and received at, the principal
executive offices of the Corporation not less than sixty (60) days and not more
than ninety (90) days prior to the scheduled annual meeting, regardless of any
postponements, deferrals or adjournments of that meeting to a later date;
provided, however, that if less than seventy (70) days' notice or prior public
disclosure of the date of the scheduled annual meeting is given or made, notice
by the stockholder, to be timely, must be so delivered or received not later
than the close of business on the tenth (10th) day following the earlier of the
day on which such notice of the date of the scheduled annual meeting was mailed
or the day on which such public disclosure was made. A stockholder's notice to
the Secretary shall set forth (i) as to each person whom the stockholder
proposes to
-5-
<PAGE>
nominate for election to the Board of Directors all information relating to such
person that is required to be disclosed in solicitations of proxies for election
of Directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and Rule 14a-11 thereunder, including, without limitation,
such person's written consent to being designated in the proxy statement as a
nominee and to serving as a Director if elected and (ii) as to any other matter
the stockholder proposes to bring before the annual meeting (A) a brief
description of the proposal desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (B) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business and any other stockholders known by such stockholder to be
supporting such proposal, (C) the class and number of shares of the
Corporation's stock which are beneficially owned by the stockholder on the date
of such stockholder's notice and by any other stockholders known by such
stockholder to be supporting such proposal on the date of such stockholder's
notice, and (D) any financial interest of the stockholder in such proposal.
(c) The presiding officer of the annual meeting shall have the power and
duty to determine whether a stockholder proposal or nomination, as the case may
be, was made in accordance with the terms of this Section 3.12 and, if a
stockholder proposal or nomination was not made in accordance with such terms,
to declare that such proposal or nomination shall be disregarded.
(d) Nothing in this Section 3.12 shall prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors
and committees
-6-
<PAGE>
of the Board of Directors; but, in connection with such reports, no business
shall be acted upon at such annual meeting unless stated, filed and received as
herein provided.
ARTICLE IV - BOARD OF DIRECTORS
Section 4.1 General Powers, Number, Election, Term of Office and Vacancies.
The business and affairs of the Corporation shall be managed by or under the
direction of a Board of Directors consisting of not less than three (3) nor more
than fifteen (15) directors, the exact number of which shall be determined from
time to time by resolution adopted by affirmative vote of a majority of the
entire Board of Directors. A director shall hold office until the annual meeting
for the year in which his term expires and until his successor shall be elected
and shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any vacancy on the Board of Directors
that results from an increase in the number of directors may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. Any director elected to fill a vacancy not resulting
from an increase in the number of directors shall have the same remaining term
as that of his predecessor.
Section 4.2 Regular Meetings. Regular meetings of the Board shall be held
without notice on a quarterly basis at the registered office of the Corporation,
or at such other time and place as shall be determined by the Board.
Section 4.3 Special Meetings. Special meetings of the Board may be called
by the Chief Executive Officer on three (3) days notice to each director, either
personally, by mail, by facsimile, or by telegram. Special meetings shall be
called by the Chief Executive
-7-
<PAGE>
Officer, the Chairman of the Board or the Secretary in like manner and on like
notice on the written request of any three directors in office.
Section 4.4 Quorum, Voting. A majority of the total number of directors
shall constitute a quorum for the transaction of business, but in the absence of
a quorum a majority of those present (or if only one be present, then that one)
may adjourn the meeting, without notice other than announcement at the meeting,
until such time as a quorum is present. Except as otherwise required by law, the
Certificate of Incorporation or the By-Laws, the vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors and the vote of a majority of the members of any
committee of the Board of Directors shall be the act of such committee. With
respect to matters described in Sections 4.9 hereof requiring an approval,
consent or recommendation from the Executive Committee, Audit Committee,
Investment Committee or Compensation Committee, the Board of Directors shall not
act with respect to such matter until after any necessary approval, consent or
recommendation of such committee is obtained.
Section 4.5 Consent in Lieu of Meeting. Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee, as appropriate. The
Board of Directors may hold its meetings, and have an office or offices outside
of this state.
Section 4.6 Telephonic Meeting. Any one or more directors may participate
in a meeting of the Board, or of a committee of the Board, by means of
conference telephone or
-8-
<PAGE>
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in this manner shall
constitute presence in person at such meeting.
Section 4.7 Compensation. The Board of Directors may determine the
compensation of Directors who are not also officers or employees of the
Corporation. In addition, as determined by the Board, Directors may be
reimbursed by the Corporation for travel expenses if any, incurred by them in
attending any meetings of the Board or committee thereof. No such compensation
or reimbursement shall preclude any Director from serving the Corporation in any
other capacity and receiving compensation therefor.
Section 4.8 Removal. Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except that when cumulative voting
is permitted, if less than the entire Board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors, or, if there be classes of directors, at an election of the class of
directors of which he is a part.
Section 4.9 Executive and Other Committees. The Board of Directors shall
have four (4) committees, an Executive Committee, an Audit Committee, a
Compensation Committee, and an Investment Committee and may designate other
committees by resolution passed by a majority of the whole Board of Directors.
The Executive Committee shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the
-9-
<PAGE>
Corporation between meetings of the Board, and may authorize the seal of the
corporation to be affixed to all papers which may require it. The Executive
Committee will require prior approval of the Audit Committee, Investment
Committee and Compensation Committee to act on those matters which are included
within those committees' areas of responsibility as set forth herein.
The Compensation Committee shall review and recommend to the Board of
Directors compensation, including incentive arrangements, for senior management
of the Corporation and employee compensation programs and shall administer the
Corporation's stock option plans and any other option plans as the Board may
designate. The Corporation's Board of Directors shall determine the compensation
of all of the Corporation's executive officers based on recommendations from the
Compensation Committee. The Compensation Committee shall consist of no fewer
than three (3) directors of which a majority shall be Independent Directors.
"Independent Directors" for purposes of these By-Laws shall mean directors
independent of management and free from any relationship that, in the opinion of
the Board of Directors, would interfere with the exercise of independent
judgment and shall not include directors who are affiliates of the Corporation
or its subsidiaries.
The Audit Committee shall review and evaluate the results and scope of the
audit and other services provided by the Company's independent accountants, as
well as the Corporation's accounting principles and system of internal
accounting controls. The Audit Committee shall consist of no fewer than three
(3) directors of which a majority shall be Independent Directors.
-10-
<PAGE>
The Investment Committee shall establish the Company's investment policy
and shall have complete discretion in investing the Company's portfolio. The
Investment Committee shall consist of no fewer than three (3) directors of which
a majority shall be Independent Directors.
ARTICLE V - OFFICERS
Section 5.1 Number and Qualifications. The executive officers of the
Corporation shall be chosen by the Board of Directors and shall consist of a
Chief Executive Officer, a President, a Secretary and a Treasurer. The Board of
Directors, in its discretion, may also choose a Chairman of the Board of
Directors (who must be a Director), one or more Vice-Presidents and such other
officers as it shall deem advisable and in the interests of the Corporation. Any
two or more offices may be held by the same person, and no officer except the
Chairman of the Board need be a Director.
Section 5.2 Term of Office. Each officer of the Corporation shall hold
office for one year and until his successor shall have been duly chosen and
shall have qualified, or until his death, or until he shall have resigned or
have been removed or disqualified, as hereinafter provided in these By-Laws.
Section 5.3 Resignations. Any officer of the Corporation may resign at any
time by giving written notice of his resignation to the Corporation. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon
receipt by the Corporation.
-11-
<PAGE>
Section 5.4 Removal. Any officer of the Corporation may be removed, with or
without cause, at any time, by the Board of Directors.
Section 5.5 Salaries. The salaries of all officers of the Corporation shall
be fixed by the Board of Directors; provided, however, that compensation of all
executive officers of the Corporation shall be fixed by the Board of Directors
based upon the recommendations of the Compensation Committee of the Board of
Directors.
Section 5.6 Chairman of the Board. The Chairman of the Board shall have the
overall general power and duties of supervision and management usually vested in
the office of Chairman of a Corporation.
Section 5.7 Chief Executive Officer. The Chief Executive Officer shall have
the overall general power and duties of supervision and management of the
Corporation including responsibility for the establishment and supervision of
all policies of the Corporation subject to the control of the Board of
Directors.
Section 5.8 President. The President shall have responsibility for the
day-to-day management of the business of the Corporation subject to the control
of the Board of Directors, and shall ensure that all orders and resolutions of
the Board are carried into effect, subject, owever, to the right of the Board to
delegate any specific powers to any other officer or officers of the
Corporation. The President shall be directly answerable to the Chief Executive
Officer.
Section 5.9 Secretary. The Secretary shall attend all sessions of the Board
of Directors and all meetings of the stockholders and act as clerk thereof, and
record all the votes of the Corporation and the minutes of all of its
transactions in a book to be kept for that
-12-
<PAGE>
purpose, and shall perform like duties for all committees of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or Chief Executive Officer, under each of whose supervision he
shall be. The Secretary shall keep in safe custody the corporate seal of the
Corporation, and when authorized by the Board, shall affix the same to any
instrument requiring it.
Section 5.10 Treasurer. The Treasurer shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation, and shall keep the moneys
of the Corporation in a separate account to the credit of the Corporation. He
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and Directors, at the regular meetings of the Board of Directors,
or whenever they may require it, an account of all his transactions as Treasurer
and of the financial condition of the Corporation.
ARTICLE VI - VACANCIES AND RESIGNATIONS
Section 6.1 Vacancies. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise, shall be filled by the
Board of Directors. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the Directors then in office, although less than a quorum, or by a sole
remaining Director. If at any time, by reasons of death or resignation or other
cause, the Corporation should have no directors in office, then any officer or
any stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other
-13-
<PAGE>
fiduciary entrusted with like responsibility for the person or estate of a
stockholder, may call a special meeting of stockholders in accordance with the
provisions of these By-Laws.
Section 6.2 Resignations. Any Director or other officer of the Corporation
may resign at any time, such resignation to be in writing, and to take effect
from the time of its receipt by the Corporation, unless some time be fixed in
the resignation and then from that date. The acceptance of a resignation shall
not be required to make it effective.
Section 6.3 Resignations Effective at Future Date. When one or more
Directors shall resign from the Board effective at a future date, a majority of
the Directors then in office, including those who have resigned from the Board
effective at a future date, shall have the power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effective.
ARTICLE VII - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 7.1 Stock Certificates. Shares of stock of the Corporation shall be
represented by certificates. The stock certificates of the Corporation shall be
numbered and registered in the share ledger and transfer books of the
Corporation as they are issued. They shall bear the corporate seal and shall be
signed by the Chairman of the Board, the President or Vice President and by the
Treasurer, Assistant Treasurer, Secretary or Assistant Secretary of the
Corporation.
Section 7.2 Record Holders. The Corporation shall be entitled for all
purposes to treat a person registered on its books as the owner of shares, as
the owner of those shares, with the exclusive right, among other things, to
receive dividends and to vote with regard to
-14-
<PAGE>
those shares. The Corporation shall be entitled to hold a person registered on
its books as the owner of shares liable for calls and assessments, if any may
legally be made, and shall not be bound to recognize any equitable or other
claim to, or interest in, shares of its stock on the part of any other person,
whether or not the Corporation shall have express or other notice of the claim
or interest of the other person, except as otherwise provided by the laws of
Delaware.
Section 7.3 Transfers of Stock. Shares of stock of the Corporation shall be
transferable on the books of the Corporation by the holder of record thereof or
by his attorney, pursuant to applicable law and such rules and regulations as
the Board of Directors shall from time to time prescribe. Any shares represented
by a certificate shall be transferable only upon surrender of the certificate
therefor with an assignment endorsed thereon or attached thereto and duly
executed and with such proof of authenticity of signatures as the Corporation
may reasonably require.
Section 7.4 Lost Certificate. The Corporation may issue a new certificate
of stock in the place of any certificate theretofore signed by it alleged to
have been lost, stolen, mutilated or destroyed, and the Corporation may require
the owner of the lost, stolen or destroyed certificate or his legal
representative to give the Corporation a bond sufficient to indemnify it against
any claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
Section 7.5 Record Date. (a) In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of
-15-
<PAGE>
stock or for the purpose of any other lawful action, the Board of Directors may
fix, in advance, a record date, which shall not be more than sixty (60) nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action.
If no record date is fixed:
(i) The record date for determining stockholders entitled to notice
of, or to vote at, a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the
day on which the meeting is held.
(ii) Except as provided in Section 7.5(b) below with respect to
stockholders' written consents, the record date for determining
stockholders for any other purpose shall be at the close of business on the
day on which the Board of Directors adopts the resolution relating thereto.
(iii) A determination of stockholders of record entitled to notice of,
or to vote at, a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the stockholders authorize
or
-16-
<PAGE>
take corporate action by written consent shall, by written notice to the
Secretary, request the Board of Directors to fix a record date. Such notice
shall specify the action proposed to be consented to by stockholders. The Board
of Directors shall promptly, but in all events within ten (10) days after the
date on which such a request is received, adopt a resolution fixing the record
date. If no record date has been fixed by the Board of Directors within ten (10)
days after the date on which such a request is received, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation. Such delivery to the Corporation shall be made to its registered
office in the State of Delaware, its principal place of business, or any officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded, to the attention of the Secretary of the
Corporation. Such delivery shall be by hand or by certified or registered mail,
return receipt requested. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by applicable
law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the date on which the Board of Directors adopts the resolution taking such
prior action.
In the event of delivery of a written consent or written consents
purporting to authorize or take corporate action, and/or related revocations
(each such written consent and related revocation, individually and
collectively, a "Consent"), the Secretary shall provide for the safekeeping of
such Consent and shall immediately appoint duly qualified and objective
-17-
<PAGE>
inspectors to conduct as promptly as practical, such reasonable ministerial
review as they deem necessary or appropriate for the purpose of ascertaining the
sufficiency and validity of such Consent and all matters incident thereto,
including, without limitation, whether holders of a requisite number of shares
having the requisite voting power to authorize or take the action specified in
the Consent have given consent. If after such investigation the Secretary shall
determine that the Consent is sufficient and valid, that fact shall be certified
on the records of the Corporation kept for the purpose of recording the
proceedings of meetings of the stockholders, and the Consent shall be filed in
such records, at which time the Consent shall become effective as stockholder
action.
Section 7.6 Dividends. The Board of Directors may declare and pay dividends
upon the outstanding shares of the Corporation, from time to time and to such
extent as they deem advisable, in the manner and upon the terms and conditions
provided by statute and the Certificate of Incorporation.
ARTICLE VIII - MISCELLANEOUS PROVISIONS
Section 8.1 Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 8.2 Fiscal Year. The fiscal year of the Corporation shall end on
December 31.
Section 8.3 Notice. Whenever written notice is required to be given to any
person, it may be given to such person, either personally or by sending a copy
thereof through
-18-
<PAGE>
the mail, by telegram, or by facsimile transmission, charges prepaid, to his
address appearing on the books of the Corporation, or supplied by him to the
Corporation for the purpose of notice. If the notice is sent by mail or by
telegraph, it shall be deemed to have been given to the person entitled thereto
when deposited in the United States mail or with a telegraph office for
transmission to such person designated. If the notice is sent by facsimile
transmission, it shall be deemed to have been given to the person entitled
thereto when transmitted with confirmation postmarked on the same day. Such
notice shall specify the place, day and hour of the meeting and, in the case of
a special meeting of stockholders, the nature of the business to be transacted.
Section 8.4 Waiver of Notice. Whenever any written notice is required by
statute, or by the Certificate of Incorporation or the By-Laws of this
Corporation, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice. Except in the case of a
special meeting of stockholders, neither the business to be transacted at nor
the purpose of the meeting need be specified in the waiver of notice of such
meeting. Attendance of a person, either in person or by proxy, at any meeting
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting was not lawfully called or convened.
Section 8.5 Corporate Records. Any stockholder of record, in person or by
attorney or other agent, shall, upon written demand under oath stating the
purpose thereof, have the right during the usual hours for business to inspect
for any proper purpose the Corporation's stock ledger, a list of its
stockholders and its other books and records, and to
-19-
<PAGE>
make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to such person's interest as a stockholder. In every instance
where an attorney or other agent shall be the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing which authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office in the state of Delaware or at its
principal place of business.
ARTICLE IX - AMENDMENTS
These By-Laws may be amended or repealed or new By-Laws may be adopted at
an annual or special meeting of the stockholders at which a quorum is present or
represented, by the vote of the holders of a majority of the outstanding shares
of capital stock entitled to vote thereon, provided that notice of the proposed
amendment or repeal or adoption of the new By-Laws is contained in the notice of
such meeting. These By-Laws may also be amended or repealed or new By-Laws may
be adopted by the Board of Directors at any regular or special meeting of the
Board of Directors.
-20-
<PAGE>
Exhibit 4.1
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE
UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, PURSUANT TO A REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. HOWEVER, NEITHER THE WARRANTS NOR
SUCH SHARES MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) A
POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION STATEMENT, (ii) A
SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT, OR (iii) AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT.
THE TRANSFER OF THIS WARRANT IS
RESTRICTED AS DESCRIBED HEREIN.
PREFERRED EMPLOYERS HOLDINGS, INC.
Warrant for the Purchase of Shares of Common Stock,
par value $.01 per Share
No. 1 150,000 Shares
THIS CERTIFIES that, for receipt in hand of $100.00 and other
value received, COMMONWEALTH ASSOCIATES, 733 Third Avenue, New York, New York
10017 (the "Holder"), is entitled to subscribe for and purchase from PREFERRED
EMPLOYERS HOLDINGS, INC., a Delaware corporation (the "Company"), upon the terms
and conditions set forth herein, at any time or from time to time after [**one
year after effective date**] and before 5:00 P.M. on [**five years after
effective date**], New York time (the "Exercise Period"), 150,000 shares of the
Company's Common Stock, par value $.01 per share ("Common Stock"), at a price of
$_____ per Share (the "Exercise Price"). This Warrant is the warrant or one of
the warrants (collectively, including any warrants issued upon the exercise or
transfer of any such warrants in whole or in part, the "Warrants") issued
pursuant to the Underwriting Agreement, dated ________, 1996, between the
Company and Commonwealth Associates, as representative of the several
Underwriters named therein (the "Underwriting Agreement"). As used herein the
term "this Warrant" shall mean and include this Warrant and any Warrant or
Warrants hereafter issued as a consequence of the exercise or transfer of this
Warrant in whole or in part. This Warrant may not be sold, transferred, assigned
or hypothecated until [**one year after effective date**] except that it may be
transferred, in whole or in part, to (i) one or more officers or partners of the
Holder (or the officers or partners of any such partner); (ii) any other
underwriting firm or member of the selling group which participated
<PAGE>
in the public offering of Common Stock which commenced on [**effective date**]
(or the officers or partners of any such firm); (iii) a successor to the Holder,
or the officers or partners of such successor; (iv) a purchaser of substantially
all of the assets of the Holder; or (v) by operation of law; and the term the
"Holder" as used herein shall include any transferee to whom this Warrant has
been transferred in accordance with the above.
The number of shares of Common Stock issuable upon exercise of
the Warrants (the "Warrant Shares") and the Exercise Price may be adjusted from
time to time as hereinafter set forth.
1. This Warrant may be exercised during the Exercise Period,
as to the whole or any lesser number of whole Warrant Shares, by the surrender
of this Warrant (with the election at the end hereof duly executed) to the
Company at its office at 10800 Biscayne Boulevard, Penthouse, Miami, Florida
33161, or at such other place as is designated in writing by the Company,
together with a certified or bank cashier's check payable to the order of the
Company in an amount equal to the Exercise Price multiplied by the number of
Warrant Shares for which this Warrant is being exercised (the "Stock Purchase
Price").
2. (a) In lieu of the payment of the Stock Purchase Price, the
Holder shall have the right (but not the obligation), to require the Company to
convert this Warrant, in whole or in part, into shares of Common Stock (the
"Conversion Right") as provided for in this Section 2. Upon exercise of the
Conversion Right, the Company shall deliver to the Holder (without payment by
the Holder of any of the Stock Purchase Price) that number of shares of Common
Stock (the "Conversion Shares") equal to the quotient obtained by dividing (x)
the value of this Warrant (or portion thereof as to which the Conversion Right
is being exercised if the Conversion Right is being exercised in part) at the
time the Conversion Right is exercised (determined by subtracting the aggregate
Stock Purchase Price of the shares of Common Stock as to which the Conversion
Right is being exercised in effect immediately prior to the exercise of the
Conversion Right from the aggregate Current Market Price (as defined in Section
6(e) hereof) of the shares of Common Stock as to which the Conversion Right is
being exercised) by (y) the Current Market Price of one share of Common Stock
immediately prior to the exercise of the Conversion Right.
(b) The Conversion Right provided under this Section
2 may be exercised in whole or in part and at any time and from time to time
while any Warrants remain outstanding. In order to exercise the Conversion
Right, the Holder shall surrender to the Company, at its offices, this Warrant
with the Notice of Conversion at the end hereof duly executed. The presentation
and surrender shall be deemed a waiver of the Holder's obligation to pay all or
any portion of the aggregate purchase price payable for the shares of Common
Stock
- 2-
<PAGE>
as to which such Conversion Right is being exercised. This Warrant (or so much
thereof as shall have been surrendered for conversion) shall be deemed to have
been converted immediately prior to the close of business on the day of
surrender of such Warrant for conversion in accordance with the foregoing
provisions.
3. Upon each exercise of the Holder's rights to purchase
Warrant Shares or Conversion Shares, the Holder shall be deemed to be the holder
of record of the Warrant Shares or Conversion Shares issuable upon such exercise
or conversion, notwithstanding that the transfer books of the Company shall then
be closed or certificates representing such Warrant Shares or Conversion Shares
shall not then have been actually delivered to the Holder. As soon as
practicable after each such exercise or conversion of this Warrant, the Company
shall issue and deliver to the Holder a certificate or certificates for the
Warrant Shares or Conversion Shares issuable upon such exercise or conversion,
registered in the name of the Holder or its designee. If this Warrant should be
exercised or converted in part only, the Company shall, upon surrender of this
Warrant for cancellation, execute and deliver a new Warrant evidencing the right
of the Holder to purchase the balance of the Warrant Shares (or portions
thereof) subject to purchase hereunder.
4. Any Warrants issued upon the transfer or exercise or
conversion in part of this Warrant shall be numbered and shall be registered in
a Warrant Register as they are issued. The Company shall be entitled to treat
the registered holder of any Warrant on the Warrant Register as the owner in
fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Warrant on the part of any other person,
and shall not be liable for any registration or transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with the knowledge of such facts that its participation therein amounts to bad
faith. This Warrant shall be transferable only on the books of the Company upon
delivery thereof duly endorsed by the Holder or by his duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment,
or authority to transfer. In all cases of transfer by an attorney, executor,
administrator, guardian, or other legal representative, duly authenticated
evidence of his or its authority shall be produced. Upon any registration of
transfer, the Company shall deliver a new Warrant or Warrants to the person
entitled thereto. This Warrant may be exchanged, at the option of the Holder
thereof, for another Warrant, or other Warrants of different denominations, of
like tenor and representing in the aggregate the right to purchase a like number
of Warrant Shares (or portions thereof), upon surrender to the Company or its
duly authorized agent. Notwithstanding the foregoing, the Company shall have
- 3 -
<PAGE>
no obligation to cause Warrants to be transferred on its books to any person if,
in the opinion of counsel to the Company, such transfer does not comply with the
provisions of the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations thereunder.
5. The Company shall at all times reserve and keep available
out of its authorized and unissued Common Stock, solely for the purpose of
providing for the exercise of the rights to purchase all Warrant Shares and/or
Conversion Shares granted pursuant to the Warrants, such number of shares of
Common Stock as shall, from time to time, be sufficient therefor. The Company
covenants that all shares of Common Stock issuable upon exercise of this
Warrant, upon receipt by the Company of the full Exercise Price therefor, and
all shares of Common Stock issuable upon conversion of this Warrant, shall be
validly issued, fully paid, nonassessable, and free of preemptive rights.
6. (a) In case the Company shall at any time after the date
the Warrants were first issued (i) declare a dividend on the outstanding Common
Stock payable in shares of its capital stock, (ii) subdivide the outstanding
Common Stock, (iii) combine the outstanding Common Stock into a smaller number
of shares, or (iv) issue any shares of its capital stock by reclassification of
the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
then, in each case, the Exercise Price, and the number and kind of securities
issuable upon exercise or conversion of this Warrant, in effect at the time of
the record date for such dividend or of the effective date of such subdivision,
combination, or reclassification, shall be proportionately adjusted so that the
Holder after such time shall be entitled to receive the aggregate number and
kind of shares which, if such Warrant had been exercised or converted
immediately prior to such time, he would have owned upon such exercise or
conversion and been entitled to receive by virtue of such dividend, subdivision,
combination, or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) In case the Company shall issue or fix a record date for
the issuance to all holders of Common Stock of rights, options, or warrants to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion or
exchange price per share, if a security convertible into or exchangeable for
Common Stock) less than the Current Market Price on such record date, then, in
each case, the Exercise Price shall be adjusted by multiplying the Exercise
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding on
such record date plus the number of shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock so to be offered
- 4 -
<PAGE>
(or the aggregate initial conversion or exchange price of the convertible or
exchangeable securities so to be offered) would purchase at such Current Market
Price and the denominator of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock to be offered for subscription or purchase (or into which the convertible
or exchangeable securities so to be offered are initially convertible or
exchangeable). Such adjustment shall become effective at the close of business
on such record date; provided, however, that, to the extent the shares of Common
Stock (or securities convertible into or exchangeable for shares of Common
Stock) are not delivered, the Exercise Price shall be readjusted after the
expiration of such rights, options, or warrants (but only with respect to
Warrants exercised after such expiration), to the Exercise Price which would
then be in effect had the adjustments made upon the issuance of such rights,
options, or warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into or exchangeable for
shares of Common Stock) actually issued. In case any subscription price may be
paid in a consideration part or all of which shall be in a form other than cash,
the value of such consideration shall be as determined in good faith by the
board of directors of the Company, whose determination shall be conclusive
absent manifest error. Shares of Common Stock owned by or held for the account
of the Company or any majority-owned subsidiary shall not be deemed outstanding
for the purpose of any such computation.
(c) In case the Company shall distribute to all holders of
Common Stock (including any such distribution made to the stockholders of the
Company in connection with a consolidation or merger in which the Company is the
con tinuing corporation) evidences of its indebtedness, cash (other than any
cash dividend which, together with any cash dividends paid within the 12 months
prior to the record date for such distribution, does not exceed 5% of the
Current Market Price at the record date for such distribution) or assets (other
than distributions and dividends payable in shares of Common Stock), or rights,
options, or warrants to subscribe for or purchase Common Stock, or securities
convertible into or exchangeable for shares of Common Stock (excluding those
with respect to the issuance of which an adjustment of the Exercise Price is
provided pursuant to Section 6(b) hereof), then, in each case, the Exercise
Price shall be adjusted by multiplying the Exercise Price in effect immediately
prior to the record date for the determination of stockholders entitled to
receive such distribution by a fraction, the numerator of which shall be the
Current Market Price per share of Common Stock on such record date, less the
fair market value (as determined in good faith by the board of directors of the
Company, whose determination shall be conclusive absent manifest error) of the
portion of the evidences of indebtedness or assets so to be distributed, or of
such rights, options, or warrants or convertible or exchangeable securities, or
the amount of such cash, applicable to one share, and the denominator of
- 5 -
<PAGE>
which shall be such Current Market Price per share of Common Stock. Such
adjustment shall be made whenever any such distribution is made, and shall
become effective on the record date for the determination of stockholders
entitled to receive such distribution.
(d) In case the Company shall issue shares of Common Stock or
rights, options, or warrants to subscribe for or purchase Common Stock, or
securities convertible into or exchangeable for Common Stock (excluding shares,
rights, options, warrants, or convertible or exchangeable securities, issued or
issuable (i) in any of the transactions with respect to which an adjustment of
the Exercise Price is provided pursuant to Sections 6(a), 6(b), or 6(c) above,
(ii) upon exercise of the Warrants, (iii) pursuant to any stock option plan in
effect as of the date hereof or that may hereafter be adopted by the Company,
(iv) upon exercise of stock options that are outstanding as of the date hereof,
or (v) to the Representative pursuant to the terms of the Advisory Services
Letter Agreement dated __________, 1997 between the Company and the
Representative), at a price per share (determined, in the case of such rights,
options, warrants, or convertible or exchangeable securities, by dividing (x)
the total amount received or receivable by the Company in consideration of the
sale and issuance of such rights, options, warrants, or convertible or
exchangeable securities, plus the minimum aggregate consideration payable to the
Company upon exercise, conversion, or exchange thereof, by (y) the maximum
number of shares covered by such rights, options, warrants, or convertible or
exchangeable securities) lower than the Current Market Price per share of Common
Stock in effect immediately prior to such issuance, then the Exercise Price
shall be reduced on the date of such issuance to a price (calculated to the
nearest cent) determined by multiplying the Exercise Price in effect immediately
prior to such issuance by a fraction, (iii) the numerator of which shall be an
amount equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issuance plus (B) the quotient obtained by dividing
the consideration received by the Company upon such issuance by such Current
Market Price, and (iv) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such issuance. For the
purposes of such adjustments, the maximum number of shares which the holders of
any such rights, options, warrants, or convertible or exchangeable securities,
shall be entitled to initially subscribe for or purchase or convert or exchange
such securities into shall be deemed to be issued and outstanding as of the date
of such issuance, and the consideration received by the Company therefor shall
be deemed to be the consideration received by the Company for such rights,
options, warrants, or convertible or exchangeable securities, plus the minimum
aggregate consideration or premiums stated in such rights, options, warrants, or
convertible or exchangeable securities, to be paid for the shares covered
thereby. No further adjustment of the Exercise Price shall be made as a result
of the actual issuance of shares of Common Stock on exercise of such rights,
- 6 -
<PAGE>
options, or warrants, or on conversion or exchange of such convertible or
exchangeable securities. On the expiration or the termination of such rights,
options, or warrants, or the termination of such right to convert or exchange,
the Exercise Price shall forthwith be readjusted (but only with respect to
Warrants exercised or converted after such expiration or termination) to such
Exercise Price as would have obtained had the adjustments made upon the issuance
of such rights, options, warrants, or convertible or exchangeable securities,
been made upon the basis of the delivery of only the number of shares of Common
Stock actually delivered upon the exercise of such rights, options, or warrants,
or upon the conversion or exchange of any such securities; and on any change of
the number of shares of Common Stock deliverable upon the exercise of any such
rights, options, or warrants or conversion, or exchange of such convertible or
exchangeable securities, or any change in the consideration to be received by
the Company upon such exercise, conversion, or exchange, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Exercise Price, as then in effect, shall forthwith be readjusted (but only with
respect to Warrants exercised or converted after such change) to such Exercise
Price as would have been obtained had an adjustment been made upon the issuance
of such rights, options, or warrants not exercised prior to such change, or
securities not converted or exchanged prior to such change, on the basis of such
change. In case the Company shall issue shares of Common Stock or any such
rights, options, warrants, or convertible or exchangeable securities, for a
consideration consisting, in whole or in part, of property other than cash or
its equivalent, then the "price per share" and the "consideration received by
the Company" for purposes of the first sentence of this Section 6(d) shall be as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error. Shares of Common Stock
owned by or held for the account of the Company or any majority-owned subsidiary
shall not be deemed outstanding for the purpose of any such computation.
(e) For the purpose of any computation under this Section 6,
the Current Market Price per share of Common Stock on any date shall be deemed
to be the average of the daily closing prices for the 15 consecutive trading
days immediately preceding the date in question. The closing price for each day
shall be the last reported sales price regular way on the principal securities
exchange or market system (including, for purposes hereof, the National
Association of Securities Dealers, Inc.'s Automated Quotation System ("NASDAQ")
National Market System or the NASDAQ SmallCap System) on which the Common Stock
is listed or admitted to trading or, in case no such reported sale takes place
on such day, if the principal market for the Common Stock is a securities
exchange, the closing bid price regular way on such exchange on such day, or if
the principal market for the Common Stock is the NASDAQ National Market System
on NASDAQ SmallCap System, the highest reported bid price regular way on such
system on such day or if the Common Stock is not listed or admitted to trading
- 7 -
<PAGE>
on any national securities exchange or the NASDAQ National Market System or the
NASDAQ SmallCap System, the highest reported bid price for the Common Stock as
furnished by the National Association of Securities Dealers, Inc. through NASDAQ
or a similar organization if NASDAQ is no longer reporting such information. If
on any such date the Common Stock is not listed or admitted to trading on any
national securities exchange or the NASDAQ National Market System or the NASDAQ
SmallCap System, and is not otherwise quoted by NASDAQ or any similar
organization, the fair value of a share of Common Stock on such date, as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error, shall be used.
(f) No adjustment in the Exercise Price shall be required if
such adjustment is less than $.05; provided, however, that any adjustments which
by reason of this Section 6 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 6 shall be made to the nearest cent or to the nearest one-thousandth of
a share, as the case may be.
(g) In any case in which this Section 6 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the Holder, if the Holder exercised or converted this Warrant
after such record date, the shares of Common Stock, if any, issuable upon such
exercise or conversion over and above the shares of Common Stock, if any,
issuable upon such exercise or conversion on the basis of the Exercise Price in
effect prior to such adjustment; provided, however, that the Company shall
deliver to the Holder a due bill or other appropriate instrument evidencing the
Holder's right to receive such additional shares upon the occurrence of the
event requiring such adjustment.
(h) Upon each adjustment of the Exercise Price as a result of
the calculations made in Sections 6(b), 6(c), or 6(d) hereof, this Warrant shall
thereafter evidence the right to purchase, at the adjusted Exercise Price, that
number of shares (calculated to the nearest thousandth) obtained by dividing (i)
the product obtained by multiplying the number of shares purchasable upon
exercise of this Warrant prior to adjustment of the number of shares by the
Exercise Price in effect prior to adjustment of the Exercise Price, by (ii) the
Exercise Price in effect after such adjustment of the Exercise Price.
(i) Whenever there shall be an adjustment as provided in this
Section 6, the Company shall promptly cause written notice thereof to be sent by
registered mail, postage prepaid, to the Holder, at its address as it shall
appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares purchasable
upon the exercise of this Warrant and the Exercise Price after such adjustment
- 8 -
<PAGE>
and setting forth a brief statement of the facts requiring such adjustment and
the computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.
(j) The Company shall not be required to issue fractions of
shares of Common Stock or other capital stock of the Company upon the exercise
or conversion of this Warrant. If any fraction of a share would be issuable on
the exercise or conversion of this Warrant (or specified portions thereof), the
Company shall purchase such fraction for an amount in cash equal to the same
fraction of the Current Market Price of such share of Common Stock on the date
of exercise or conversion of this Warrant.
7. (a) In case of any consolidation with or merger of the
Company with or into another corporation (other than a merger or consolidation
in which the Company is the surviving or continuing corporation), or in case of
any sale, lease, or conveyance to another corporation of the property and assets
of any nature of the Company as an entirety or substantially as an entirety,
such successor, leasing, or purchasing corporation, as the case may be, shall
(i) execute with the Holder an agreement providing that the Holder shall have
the right thereafter to receive upon exercise or conversion of this Warrant
solely the kind and amount of shares of stock and other securities, property,
cash, or any combination thereof receivable upon such consolidation, merger,
sale, lease, or conveyance by a holder of the number of shares of Common Stock
for which this Warrant might have been exercised or converted immediately prior
to such consolidation, merger, sale, lease, or conveyance, and (ii) make
effective provision in its certificate of incorporation or otherwise, if
necessary, to effect such agreement. Such agreement shall provide for
adjustments which shall be as nearly equivalent as practicable to the
adjustments in Section 6.
(b) In case of any reclassification or change of the shares of
Common Stock issuable upon exercise or conversion of this Warrant (other than a
change in par value or from no par value to a specified par value, or as a
result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), or in case of any consolidation
or merger of another corporation into the Company in which the Company is the
continuing corporation and in which there is a reclassification or change
(including a change to the right to receive cash or other property) of the
shares of Common Stock (other than a change in par value, or from no par value
to a specified par value, or as a result of a subdivision or combination, but
including any change in the shares into two or more classes or series of
shares), the Holder shall have the right thereafter to receive upon exercise or
conversion of this Warrant solely the kind and amount of shares of stock and
other securities, property, cash, or any combination thereof receivable upon
such reclassification, change, consolidation, or merger by a holder of the
number of shares of Common Stock for which this Warrant might have been
- 9 -
<PAGE>
exercised or converted immediately prior to such reclassification, change,
consolidation, or merger. Thereafter, appropriate provision shall be made for
adjustments which shall be as nearly equivalent as practicable to the
adjustments in Section 6.
(c) The above provisions of this Section 7 shall similarly
apply to successive reclassifications and changes of shares of Common Stock and
to successive consolidations, mergers, sales, leases, or conveyances.
8. In case at any time the Company shall propose
(a) to pay any dividend or make any distribution on
shares of Common Stock in shares of Common Stock or make any other
distribution (other than regularly scheduled cash dividends which are
not in a greater amount per share than the most recent such cash
dividend) to all holders of Common Stock; or
(b) to issue any rights, warrants, or other
securities to all holders of Common Stock entitling them to purchase
any additional shares of Common Stock or any other rights, warrants, or
other securities; or
(c) to effect any reclassification or change of
outstanding shares of Common Stock, or any consolidation, merger, sale,
lease, or conveyance of property, described in Section 7; or
(d) to effect any liquidation, dissolution, or
winding-up of the Company; or
(e) to take any other action which would cause an
adjustment to the Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
- 10 -
<PAGE>
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (iii) the date of such action which would require
an adjustment to the Exercise Price.
9. The issuance of any shares or other securities upon the
exercise or conversion of this Warrant, and the delivery of certificates or
other instruments representing such shares or other securities, shall be made
without charge to the Holder for any tax or other charge in respect of such
issuance. The Company shall not, however, be required to pay any tax which may
be payable in respect of any transfer involved in the issue and delivery of any
certificate in a name other than that of the Holder and the Company shall not be
required to issue or deliver any such certificate unless and until the person or
persons requesting the issue thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company that
such tax has been paid.
10. (a) If, at any time during the four-year period commencing
[**one year after effective date**], the Company shall file a registration
statement (other than on Form S-4, Form S-8, or any successor form) with the
Securities and Exchange Commission (the "Commission") while any Underwriters'
Securities (as hereinafter defined) are outstanding, the Company shall give all
the then holders of any Underwriters' Securities (the "Eligible Holders") at
least 45 days prior written notice of the filing of such registration statement.
If requested by any Eligible Holder in writing within 30 days after receipt of
any such notice, the Company shall, at the Company's sole expense (other than
the fees and disbursements of counsel for the Eligible Holders and the
underwriting discounts, if any, payable in respect of the Underwriters'
Securities sold by any Eligible Holder), register or qualify all or, at each
Eligible Holder's option, any portion of the Underwriters' Securities of any
Eligible Holders who shall have made such request, concurrently with the
registration of such other securities, all to the extent requisite to permit the
public offering and sale of the Underwriters' Securities through the facilities
of all appropriate securities exchanges and the over-the-counter market, and
will use its best efforts through its officers, directors, auditors, and counsel
to cause such registration statement to become effective as promptly as
practicable. Notwithstanding the foregoing, if the managing underwriter of any
such offering shall advise the Company in writing that, in its opinion, the
distribution of all or a portion of the Underwriters' Securities requested to be
included in the registration concurrently with the securities being registered
by the Company would materially adversely affect the distribution of such
securities by the Company for its own account, then any Eligible Holder who
shall have requested registration of his or its Underwriters' Securities shall
delay the offering and sale of such Underwriters' Securities (or the portions
thereof so designated by such managing underwriter) for such period, not to
exceed 90 days (the "Delay
- 11 -
<PAGE>
Period"), as the managing underwriter shall request, provided that no such delay
shall be required as to any Underwriters' Securities if any securities of the
Company are included in such registration statement and eligible for sale during
the Delay Period for the account of any person other than the Company and any
Eligible Holder unless the securities included in such registration statement
and eligible for sale during the Delay Period for such other person shall have
been reduced pro rata to the reduction of the Underwriters' Securities which
were requested to be included and eligible for sale during the Delay Period in
such registration. As used herein, "Underwriters' Securities" shall mean the
Warrant Shares and the Conversion Shares which, in each case, have not been
previously sold pursuant to a registration statement or Rule 144 promulgated
under the Act.
(b) If, at any time during the four-year period commencing
[**one year after effective date**], the Company shall receive a written
request, from Eligible Holders who in the aggregate own (or upon exercise of all
Warrants then outstanding would own) a majority of the total number of shares of
Common Stock then included (or upon such exercise would be included) in the
Underwriters' Securities (the "Majority Holders"), to register the sale of all
or any portion representing a majority of the Underwriters' Securities which
have not previously been sold pursuant to a Registration Statement in accordance
with this Section 10, the Company shall, as promptly as practicable, prepare and
file with the Commission a registration statement sufficient to permit the
public offering and sale of the Underwriters' Securities through the facilities
of all appropriate securities exchanges and the over-the-counter market, and
will use its best efforts through its officers, directors, auditors, and counsel
to cause such registration statement to become effective as promptly as
practicable; provided, however, that the Company shall only be obligated to file
one such registration statement for which all expenses incurred in connection
with such registration (other than the fees and disbursements of counsel for the
Eligible Holders and underwriting discounts, if any, payable in respect of the
Underwriters' Securities sold by the Eligible Holders) shall be borne by the
Company and one additional such registration statement for which all such
expenses shall be paid by the Eligible Holders. Within three business days after
receiving any request contemplated by this Section 10(b), the Company shall give
written notice to all the other Eligible Holders, advising each of them that the
Company is proceeding with such registration and offering to include therein all
or any portion of any such other Eligible Holder's Underwriters' Securities,
provided that the Company receives a written request to do so from such Eligible
Holder within 30 days after receipt by him or it of the Company's notice.
- 12 -
<PAGE>
(c) In the event of a registration pursuant to the provisions
of this Section 10, the Company shall use its best efforts to cause the
Underwriters' Securities so registered to be registered or qualified for sale
under the securities or blue sky laws of such jurisdictions as the Holder or
such holders may reasonably request; provided, however, that the Company shall
not be required to qualify to do business in any state by reason of this Section
10(c) in which it is not otherwise required to qualify to do business.
(d) The Company shall keep effective any registration or
qualification contemplated by this Section 10 and shall from time to time amend
or supplement each applicable registration statement, preliminary prospectus,
final prospectus, application, document, and communication for such period of
time as shall be required to permit the Eligible Holders to complete the offer
and sale of the Underwriters' Securities covered thereby. The Company shall in
no event be required to keep any such registration or qualification in effect
for a period in excess of nine months from the date on which the Eligible
Holders are first free to sell such Underwriters' Securities; provided, however,
that, if the Company is required to keep any such registration or qualification
in effect with respect to securities other than the Underwriters' Securities
beyond such period, the Company shall keep such registration or qualification in
effect as it relates to the Underwriters' Securities for so long as such
registration or qualification remains or is required to remain in effect in
respect of such other securities.
(e) In the event of a registration pursuant to the provisions
of this Section 10, the Company shall furnish to each Eligible Holder such
number of copies of the registration statement and of each amendment and
supplement thereto (in each case, including all exhibits), such reasonable
number of copies of each prospectus contained in such registration statement and
each supplement or amendment thereto (including each preliminary prospectus),
all of which shall conform to the requirements of the Act and the rules and
regulations thereunder, and such other documents, as any Eligible Holder may
reasonably request to facilitate the disposition of the Underwriters' Securities
included in such registration.
(f) The Company's obligation with respect to registration
pursuant to the provisions of this Section 10 shall be conditioned upon its
receipt of such information as it shall reasonably request from all selling
Eligible Holders for use in the registration statement.
(g) In the event of a registration pursuant to the provision
of this Section 10, the Company shall enter into a cross-indemnity agreement and
a contribution agreement, each in customary form, with each underwriter, if any,
and, if requested, enter into an underwriting agreement containing conventional
- 13 -
<PAGE>
representations, warranties, allocation of expenses, and customary closing
conditions, including, but not limited to, opinions of counsel and accountants'
cold comfort letters, with any underwriter who acquires any Underwriters'
Securities.
(h) The Company agrees that until all the Underwriters'
Securities have been sold under a registration statement or pursuant to Rule 144
under the Act, it shall keep current in filing all reports, statements and other
materials required to be filed with the Commission to permit holders of the
Underwriters' Securities to sell such securities under Rule 144.
(i) The Company will not, without the written consent of the
Majority Holders, grant to any persons the right to request the Company to
register any securities of the Company, provided that the Company may grant such
registration rights to other persons so long as such rights are subordinate to
or pari passu with the rights of the Eligible Holders.
11. (a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless each Eligible Holder, its officers,
directors, partners, employees, agents, and counsel, and each person, if any,
who controls any such person within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all loss, liability, charge, claim, damage, and
expense whatsoever (which shall include, for all purposes of this Section 11,
but not be limited to, reasonable attorneys' fees and any and all expense
whatsoever incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), as and when incurred,
arising out of, based upon, or in connection with (i) any untrue statement or
alleged untrue statement of a material fact contained (A) in any registration
statement, preliminary prospectus, or final prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto, relating to
the sale of any of the Underwriters' Securities, or (B) in any application or
other document or communication (in this Section 11 collectively called an
"application") executed by or on behalf of the Company or based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to register or qualify any of the Underwriters' Securities under the
securities or blue sky laws thereof or filed with the Commission or any
securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, unless such statement or omission was made in reliance upon and
in conformity with written information furnished to the Company with respect to
such Eligible Holder by or on behalf of such person expressly for inclusion in
any registration statement, preliminary prospectus, or final prospectus, or any
- 14 -
<PAGE>
amendment or supplement thereto, or in any application, as the case may be, or
(ii) any breach in any material respect of any representation, warranty,
covenant, or agreement of the Company contained in this Warrant. The foregoing
agreement to indemnify shall be in addition to any liability the Company may
otherwise have, including liabilities arising under this Warrant.
If any action is brought against any Eligible Holder or any of
its officers, directors, partners, employees, agents, or counsel, or any
controlling persons of such person (an "indemnified party") in respect of which
indemnity may be sought against the Company pursuant to the foregoing paragraph,
such indemnified party or parties shall promptly notify the Company in writing
of the institution of such action (but the failure so to notify shall not
relieve the Company from any liability pursuant to this Section 11(a), except to
the extent it may have been prejudiced in any material respect by such failure)
and the Company shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such indemnified party or
parties) and payment of expenses. Such indemnified party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless the employment of such counsel shall have been authorized in
writing by the Company in connection with the defense of such action or the
Company shall not have promptly employed counsel reasonably satisfactory to such
indemnified party or parties to have charge of the defense of such action or
such indemnified party or parties shall have reasonably concluded that there may
be one or more legal defenses available to it or them or to other indemnified
parties which are different from or additional to those available to the
Company, in any of which events such fees and expenses shall be borne by the
Company and the Company shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties. Anything in this Section
11 to the contrary notwithstanding, the Company shall not be liable for any
settlement of any such claim or action effected without its written consent,
which shall not be unreasonably withheld. The Company shall not, without the
prior written consent of each indemnified party that is not released as
described in this sentence, settle or compromise any action, or permit a default
or consent to the entry of judgment in or otherwise seek to terminate any
pending or threatened action, in respect of which indemnity may be sought
hereunder (whether or not any indemnified party is a party thereto), unless such
settlement, compromise, consent, or termination includes an unconditional
release of each indemnified party from all liability in respect of such action.
The Company agrees promptly to notify the Eligible Holders of the commencement
of any litigation or proceedings against the Company or any of its officers or
directors in connection with the sale of any Underwriters' Securities or any
preliminary prospectus, prospectus, registration statement, or amendment or
- 15 -
<PAGE>
supplement thereto, or any application relating to any sale of any Underwriters'
Securities.
(b) The Holder agrees to indemnify and hold harmless the
Company, its directors officers, partners, employees, agents, and counsel, and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, to the same extent as the
foregoing indemnity from the Company to the Holder in Section 11(a), but only
with respect to statements or omissions, if any, made in any registration
statement, preliminary prospectus, or final prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto, or in any
application, in reliance upon and in conformity with written information
furnished to the Company with respect to the Holder by or on behalf of the
Holder expressly for inclusion in any such registration statement, preliminary
prospectus, or final prospectus, or any amendment or supplement thereto, or in
any application, as the case may be. If any action shall be brought against the
Company or any other person so indemnified based on any such registration
statement, preliminary prospectus, or final prospectus, or any amendment or
supplement thereto, or in any application, in respect of which indemnity may be
sought against the Holder pursuant to this Section 11(b), the Holder shall have
the rights and duties given to the Company, and the Company and each other
person so indemnified shall have the rights and duties given to the indemnified
parties, by the provisions of Section 11(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 11(a)
or 11(b) (subject to the limitations thereof) but it is found in a final
judicial determination, not subject to further appeal, that such indemnification
may not be enforced in such case, even though this Warrant expressly provides
for indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed any such
registration statement, any controlling person of the Company, and its or their
respective counsel), as one entity, and the Eligible Holders of the
Underwriters' Securities included in such registration in the aggregate
(including for this purpose any contribution by or on behalf of an indemnified
party), as a second entity, shall contribute to the losses, liabilities, claims,
damages, and expenses whatsoever to which any of them may be subject, on the
basis of relevant equitable considerations such as the relative fault of the
Company and such Eligible Holders in connection with the facts which resulted in
such losses, liabilities, claims, damages, and expenses. The relative fault, in
the case of an untrue statement, alleged untrue statement, omission, or alleged
omission, shall be determined by, among other things, whether such
- 16 -
<PAGE>
statement, alleged statement, omission, or alleged omission relates to
information supplied by the Company or by such Eligible Holders, and the
parties' relative intent, knowledge, access to information, and opportunity to
correct or prevent such statement, alleged statement, omission, or alleged
omission. The Company and the Holder agree that it would be unjust and
inequitable if the respective obligations of the Company and the Eligible
Holders for contribution were determined by pro rata or per capita allocation of
the aggregate losses, liabilities, claims, damages, and expenses (even if the
Holder and the other indemnified parties were treated as one entity for such
purpose) or by any other method of allocation that does not reflect the
equitable considerations referred to in this Section 11(c). In no case shall any
Eligible Holder be responsible for a portion of the contribution obligation
imposed on all Eligible Holders in excess of its pro rata share based on the
number of shares of Common Stock owned (or which would be owned upon exercise of
all Underwriters' Securities) by it and included in such registration as
compared to the number of shares of Common Stock owned (or which would be owned
upon exercise of all Underwriters' Securities) by all Eligible Holders and
included in such registration. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 11(c), each person, if any, who
controls any Eligible Holder within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and each officer, director, partner, employee,
agent, and counsel of each such Eligible Holder or control person shall have the
same rights to contribution as such Eligible Holder or control person and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, each officer of the Company who shall
have signed any such registration statement, each director of the Company, and
its or their respective counsel shall have the same rights to contribution as
the Company, subject in each case to the provisions of this Section 11(c).
Anything in this Section 11(c) to the contrary notwithstanding, no party shall
be liable for contribution with respect to the settlement of any claim or action
effected without its written consent. This Section 11(c) is intended to
supersede any right to contribution under the Act, the Exchange Act or
otherwise.
12. Unless registered pursuant to the provisions of Section 10
hereof, the Warrant Shares or Conversion Shares issued upon exercise or
conversion of the Warrants shall be subject to a stop transfer order and the
certificate or certificates evidencing such Warrant Shares shall bear the
following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
- 17 -
<PAGE>
COMMISSION. HOWEVER, SUCH SHARES MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION
STATEMENT, (ii) A SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT, OR
(iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
13. Upon receipt of evidence satisfactory to the Company of
the loss, theft, destruction, or mutilation of any Warrant (and upon surrender
of any Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, and, in the case of a lost or stolen Warrant, if requested
by the Company, reasonable indemnity against any losses that may be suffered by
the Company as a result of the issuance of a replacement Warrant, the Company
shall execute and deliver to the Holder thereof a new Warrant of like date,
tenor, and denomination.
14. The Holder of any Warrant shall not have, solely on
account of such status, any rights of a stockholder of the Company, either at
law or in equity, or to any notice of meetings of stockholders or of any other
proceedings of the Company, except as provided in this Warrant.
15. This Warrant shall be construed in accordance with the
laws of the State of New York applicable to contracts made and performed within
such State, without regard to principles of conflicts of law.
16. The Company irrevocably consents to the jurisdiction of
the courts of the State of New York and of any federal court located in such
State in connection with any action or proceeding arising out of or relating to
this Warrant, any document or instrument delivered pursuant to, in connection
with or simultaneously with this Warrant, or a breach of this Warrant or any
such document or instrument. In any such action or proceeding, the Company
waives personal service of any summons, complaint or other process and agrees
that service thereof may be made in accordance with Section 12 of the
Underwriting Agreement. Within 30 days after such service, or such other time as
may be mutually agreed upon in writing by the attorneys for the parties to such
action or proceeding, the Company shall appear or answer such summons, complaint
or other process. Should the Company so served fail to appear or answer within
such 30-day period or such extended period, as the case may be, the Company
- 18 -
<PAGE>
shall be deemed in default and judgment may be entered against the Company for
the amount as demanded in any summons, complaint or other process so served.
Dated: ________, 1997
PREFERRED EMPLOYERS HOLDINGS, INC.
By: _______________________________
Mel Harris, Chairman and
Chief Executive Officer
[Seal]
- ------------------------------
Secretary
- 19-
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, _____________________________________
hereby sells, assigns, and transfers unto __________________ a Warrant to
purchase __________ shares of Common Stock, par value $.01 per share, of
Preferred Employers Holdings, Inc. (the "Company"), together with all right,
title, and interest therein, and does hereby irrevocably constitute and appoint
___________________________________________________ attorney to transfer such
Warrant on the books of the Company, with full power of substitution.
Dated:_______________________________
Signature____________________________
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Warrant in every particular, without alteration
or enlargement or any change whatsoever.
- 20-
<PAGE>
To: Preferred Employers Holdings, Inc.
10800 Biscayne Blvd., Penthouse
Miami, Florida 33161
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase _______
Warrant Shares covered by the within Warrant and tenders payment herewith in the
amount of $_________ in accordance with the terms thereof, and requests that
certificates for such securities be issued in the name of, and delivered to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Dated:________ Name:_________________________________
(Print)
Address:________________________________________________________________
_________________________________
(Signature)
- 21 -
<PAGE>
To: Preferred Employers Holdings, Inc.
10800 Biscayne Blvd., Penthouse
Miami, Florida 33161
CASHLESS EXERCISE FORM
(To be executed upon conversion of the attached Warrant)
The undersigned hereby irrevocably elects to surrender the within
Warrant for the number of shares of Common Stock as shall be issuable pursuant
to the cashless exercise provisions of the within Warrant, in respect of _____
shares of Common Stock underlying the within Warrant, and requests that
certificates for such securities be issued in the name of and delivered to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of shares shall not be all the shares exchangeable or
purchasable under the within Warrant, that a new Warrant for the balance of the
Warrant Shares covered by the within Warrant be registered in the name of, and
delivered to, the undersigned at the addressed stated below.
Dated: ______________ Name _____________________________
(Print)
Address: _____________________________________________________________
__________________________________
(Signature)
-22 -
COMMON STOCK
NUMBER PREFERRED EMPLOYERS HOLDINGS, INC. SHARES
C
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERESE FOR CERTAIN DEFINITIONS
CUSIP 739908 10 1
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES PAR VALUE OF $.01 EACH, OF THE
COMMON STOCK OF
------------PREFERRED EMPLOYERS HOLDINGS, INC.------------
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
DATED:
[CORPORATE SEAL]
WILLIAM DRESBACK, SECRETARY MEL HARRIS, PRESIDENT
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
- --------------------------------------------------
AMERICAN BANK NOTE COMPANY NOV. 5, 1996 dw
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 046875fc-C
(310) 989-2333
(FAX) (310) 426-7450 400-19X proof /s/ REV 1
- --------------------------------------------------
<PAGE>
The corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entirety ------ ------
JT TEN - as joint tenants and not as tenents (Cust) (Minor)
in common under Uniform Gifts to Minors
Act
---------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, _____________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-----------------------
----------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRTITEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
----------------------------------------
SIGNATURE(S)GARANTEED:THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM, PURSUANT TO
S.E.C. RULE 17 Ad-15.
- --------------------------------------------------
AMERICAN BANK NOTE COMPANY OCT. 9, 1996 dw
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 046875bk-C
(310) 989-2333
(FAX) (310) 426-7450 proof /s/ NEW 1
- --------------------------------------------------
5700
January 3, 1997
Preferred Employers Holdings, Inc.
10800 Biscayne Blvd., Penthouse
Miami, FL 33161
RE: Registration Statement on Form SB-2
------------------------------------
Gentlemen:
We have acted as counsel to Preferred Employers Holdings, Inc., a Delaware
corporation (the "Company"), in connection with (a) the proposed public offering
by the Company of up to 1,500,000 shares of Common Stock, $.01 par value (the
"Common Stock"), including up to 225,000 shares of Common Stock solely to cover
over-allotments; and (b) the issuance by the Company to Commonwealth Associates
(the "Representative") of warrants (the "Representative's Warrants") to purchase
up to 150,000 shares of Common Stock, pursuant to a registration statement on
Form SB-2 (the "Registration Statement"), originally filed by the Company with
the Securities and Exchange Commission on October 15, 1996, pursuant to the
Securities Act of 1933, as amended.
The shares of Common Stock issuable pursuant to the above proposed public
offerings are hereinafter referred to as the "Offered Shares." The shares of
Common Stock issuable upon exercise of the Representative's Warrants are
hereinafter referred to as the "Representative's Warrant Shares." The Offered
Shares and the Representative's Warrant Shares are hereinafter referred to as
the "Securities."
In connection with the foregoing, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the Certificate of
Incorporation of the Company, the By-laws of the Company, the form of
Underwriting Agreement, and the form of Representative's Warrant filed as
exhibits to the Registration Statement, your records of corporate proceedings,
and such other documents as we have deemed necessary or appropriate as a basis
for the opinions set forth below. In such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the accuracy and completeness of all documents submitted to us as
copies and the authenticity of the originals of such latter documents. As to any
facts material to such opinions which we did not independently establish or
verify, we have relied upon statements or representations of officers and other
representatives of the
<PAGE>
Preferred Employers Holdings, Inc.
January 3, 1997
Page 2
Company, public officials or others.
Based upon the foregoing, we are of the opinion that:
1. The Company has been duly organized and is validly existing and in good
standing under the laws of the State of Delaware.
2. The sale and issuance of the Securities have been duly authorized by the
Board of Directors of the Company, and the Offered Shares, and the
Representative's Warrant Shares when issued and paid for, as contemplated by the
Registration Statement and as provided for in the Representative's Warrants, as
the case may be, will be validly issued, fully paid and non-assessable, and no
personal liability will attach to the ownership thereof.
We hereby consent to the reference to our name in the Registration
Statement under the caption "Legal Matters" and further consent to the inclusion
of this opinion as Exhibit 5.1 to the Registration Statement. In giving such
consent, we do not thereby concede that we are in the category of persons whose
consent is required under Section 7 of the Securities Act, or the rules and
regulations thereunder, or that we are "experts" within the meaning of the
Securities Act or such rules and regulations.
Very truly yours,
/s/ BAER MARKS & UPHAM LLP
PREFERRED EMPLOYERS HOLDINGS, INC.
FORM OF STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), dated as of January ___, 1997,
between PREFERRED EMPLOYERS HOLDINGS, INC., a Delaware corporation (the
"Company"), having an address at 10800 Biscayne Boulevard, Penthouse, Miami,
Florida 33161 and [ ], having an address at ___________________________________
(the "Grantee").
In accordance with the Preferred Employers Holdings, Inc. 1996 Stock Option
Plan (the "Plan"), the Company hereby grants to the Grantee an incentive stock
option (the "Option") to purchase all or any part of an aggregate of [ ] shares
of the Company's common shares, $.01 par value per share (the "Shares").
To evidence the Option and to set forth its terms, the Company and the
Grantee agree as follows:
1. Confirmation of Grant. The Company hereby evidences and confirms its
grant of the Option to the Grantee on the date of this Agreement.
2. Number of Shares. This Option shall be for an aggregate of [ ] Shares.
3. Exercise Price. The exercise price shall be [$ ] per share for
a total of [$ ].
4. Medium and Time of Payment. The exercise price of the Option shall be
paid in cash or by check payable to the order of the Company at the time of
exercise. In addition, the Company shall accept full or partial payment in
Shares having a fair market value on the date of exercise equal to the portion
of the exercise price being so paid.
Payment in full shall be required before the issuance of any Shares
pursuant to this Option. In addition, before or concurrently with delivery to
the Grantee of a Certificate representing such Shares, the Grantee shall pay any
amount necessary to satisfy applicable federal, state, or local tax
requirements.
5. Term and Exercise of the Option. The Option shall expire five years from
the date of this Agreement and may be exercised at the times and for the number
of Shares as follows:
<PAGE>
(a) on or after the date hereof, up to ___% (ignoring fractional
shares) of the total number of Shares subject to this Option;
(b) on or after the date which is one year after the date hereof, up
to ___% (ignoring fractional Shares) of the total number of Shares subject
to this Option;
(c) on or after the date which is two years after the date hereof, up
to ___% (ignoring fractional Shares) of the total number of Shares subject
to this Option; and
(d) on or after the date which is three years after the date of the
grant, the remaining Shares subject to this Option.
This Option may be exercised only by written notice to the Company
indicating the number of Shares which are being purchased. Such notice must be
signed by the Grantee and be accompanied by full payment of the exercise price.
6. Nontransferability. The Option may be transferred only by will or the
laws of descent and distribution, and the Option may be exercised during the
Grantee's lifetime only by the Grantee or by the Grantee's legal representative.
7. Rights in the Event of the Grantee's Disability. If the Grantee's
employment with the Company or any parent or subsidiary corporation (within the
meaning of Section 424(e) and (f) of the Internal Revenue Code of 1986, as
amended (the "Code"), ("Affiliates")) is terminated on account of permanent and
total disability (as defined in Code Section 22(e)(3)), the Grantee or the
Grantee's legal representative (or the Grantee's estate if the Grantee dies
after termination of employment) may exercise the Option, to the extent
exercisable on the date of the Grantee's termination of employment, at any time
within one year after termination of employment but in no event after the
expiration of the term of the Option. The Grantee's "estate" means the Grantee's
legal representative or any person who acquires the right to exercise the Option
by reason of the Grantee's death.
8. Rights in the Event of the Grantee's Death. If the Grantee dies while an
employee of the Company or any Affiliate (or within three months after the
Grantee ceases to be such an employee) but while he still has the right to
exercise this Option, his estate may exercise the Option, to the extent
exercisable at the date of the Grantee's death, any time within one year after
the Grantee's death, but in no event after the expiration of the term of the
Option.
9. Rights in the Event of Termination of Employment. If Grantee's
employment with the Company or any Affiliate is terminated involuntarily for
"Cause" the Grantee's Option shall expire as of the date of termination of
employment. "Cause" under this Agreement shall mean (i) material misconduct by
the Grantee, (ii) any act by the Grantee that is materially adverse to the
Company or any Affiliate, or (iii) breach by the Grantee of any employment or
confidentiality or nondisclosure agreement with the Company or any Affiliate.
-2-
<PAGE>
"Cause" also shall have the meaning given to that term, or any similar term,
under any employment agreement with the Company or any Affiliate. If the
Grantee's employment is terminated for any reason other than death, disability,
or as described in the preceding sentences of this Section, the Grantee (or the
Grantee's estate, if the Grantee dies after the termination) may exercise the
Option, to the extent exercisable before the termination, within three months
after the termination, but in no event after the expiration of the term of the
Option.
10. Adjustment in the Shares. If the Shares, as presently constituted,
shall be changed into or exchanged for a different number or kind of shares or
other securities of the Company or of another corporation (whether by reason of
merger, consolidation, recapitalization, reclassification, split, reverse split,
combination of shares, or otherwise) or if the number of Shares shall be
increased through the payment of a share dividend, the Grantee shall receive
upon exercise of the Option the number and kind of shares or other securities
into which each outstanding Share shall be so changed, or for which each such
Share shall be exchanged, or to which each such Share shall be entitled, as the
case may be. The exercise price and other terms of the Option shall be
appropriately amended to reflect the foregoing events. If there shall be any
other change in the number or kind of the outstanding Shares, or of any shares
or other securities into which the Shares shall have been changed, or for which
the Shares shall have been exchanged, then, if the Board of Directors shall, in
its sole discretion, determine that such change equitably requires an adjustment
in the Option, such adjustment shall be made in accordance with that
determination. Notice of any adjustment shall be given by the Company to the
Grantee.
11. Effect of Termination or Amendment of Plan. No suspension, termination,
modification, or amendment of the Plan may, without the express written consent
of the Grantee, adversely affect the rights of the Grantee under this Option.
12. No Limitation on Rights of the Company. The grant of this Option shall
not in any way affect the right or power of the Company to make adjustments,
reclassifications, or changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate, sell, or transfer all or any part of its
business or assets.
13. Rights as a Shareholder. The Grantee shall have the rights of a
shareholder with respect to the Shares covered by the Option only upon becoming
the holder of record of those Shares.
14. Compliance with Applicable Law. Notwithstanding anything herein to the
contrary, the Company shall not be obligated to cause to be issued or delivered
any certificates for Shares pursuant to the exercise of the Option, unless and
until the Company is advised by its counsel that the issuance and delivery of
such certificates is in compliance with all applicable laws, regulations of
governmental authority, and the requirements of any exchange upon which Shares
are traded. The Company shall in no event be obligated to register any
securities pursuant to the Securities Act of 1933 (as now in effect or as
hereafter amended) or to take any other action in order to cause the issuance
and delivery of such certificates to comply with any such law, regulation or
requirement. The Board of Directors may require, as a condition of the issuance
and delivery of such certificates and in order to ensure compliance with such
laws, regulations, and
-3-
<PAGE>
requirements, that the Grantee make such covenants, agreements, and
representations as the Board of Directors, in its sole discretion, considers
necessary or desirable.
15. No Obligation to Exercise Option. The granting of the Option shall
impose no obligation upon the Grantee to exercise the Option.
16. Agreement Not a Contract of Employment. This Agreement is not a
contract of employment, and the terms of employment of the Grantee or the
relationship of the Grantee with the Company or any Affiliate shall not be
affected in any way by this Agreement except as specifically provided herein.
The execution of this Agreement shall not be construed as conferring any legal
rights upon the Grantee for a continuation of employment or relationship with
the Company or any Affiliate, nor shall it interfere with the right of the
Company or any subsidiary thereof to discharge the Grantee and to treat him
without regard to the effect which that treatment might have upon him as a
Grantee.
17. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally or sent by
certified, registered, or express mail, postage prepaid. Any such notice shall
be deemed given when so delivered personally or, if mailed, four days after the
date of deposit in the United States mails, to each party at its address set
forth above or to such other address as may be designated in a notice given in
accordance with this Section.
18. Governing Law. Except to the extent preempted by Federal law, this
Agreement shall be construed and enforced in accordance with, and governed by,
Delaware law.
19. Receipt of Plan. Grantee acknowledges receipt of a copy of the Plan,
and represents that he is familiar with the terms and provisions thereof, and
hereby accepts this Option subject to all the terms and provisions of this
Option and of the Plan. Grantee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board of Directors of the
Company or the Committee, as defined in the Plan, upon any questions rising
under the Plan.
IN WITNESS WHEREOF, the Company and the Grantee have duly executed this
Agreement as of the date first written above.
PREFERRED EMPLOYERS
HOLDINGS, INC.
__________________________ By:___________________________
Witness Its:
- -------------------------- ------------------------------
Witness [GRANTEE]
-4-
Optionee:_____________________
Address:______________________
PREFERRED EMPLOYERS HOLDINGS, INC.
FORM OF STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of ___________, 19__ (the
"Agreement"), by and among PREFERRED EMPLOYERS HOLDINGS, INC., a Delaware
corporation (the "Company"), ________________ ("Optionee") and HOWARD ODZER
("Grantor"), is entered into pursuant to the Share Escrow Agreement, dated as of
November ___, 1997, by and among the Company, Grantor and Baer Marks & Upham
LLP, a New York limited liability partnership, as Escrow Agent (the "Escrow
Agreement").
PURSUANT TO THE ESCROW AGREEMENT, it is agreed as follows:
1. Grant of Option. Grantor hereby grants to the Optionee on the date
hereof the right and option (the "Option") to purchase an aggregate of ______
shares of Common Stock, $.01 par value per share, of the Company (the "Shares"),
which are currently held in escrow by the Company on behalf of Grantor pursuant
to the terms of the Escrow Agreement.
2. Payment; Term. (a) The exercise price of the Option is $______ per Share
which shall be paid in cash or by certified or bank cashier's check payable to
the order of the Grantor at the time of exercise. Payment in full shall be
required before the issuance of any Shares pursuant to this Option. In addition,
before or concurrently with delivery to the Optionee of a Certificate
representing such Shares, the Optionee shall pay to the Company any amount
necessary to satisfy applicable federal, state, or local tax requirements.
(b) The Option granted herein shall expire on ________ __, 2001. [the fifth
anniversary of the date of the prospectus filed with the Securities and Exchange
Commission on behalf of the Company in connection with the Company's initial
public offering].
3. Exercise of Option. (a) Subject to Section 2(b) above, the Optionee may
exercise, on a cumulative basis, the Option granted hereby in accordance with
the following:
(i) on or after the date hereof, up to ___% (ignoring fractional Shares) of
the total number of Shares subject to this Option;
<PAGE>
(ii) on or after the date which is one year after the date hereof, up to
___% (ignoring fractional Shares) of the total number of Shares subject to
this Option;
(iii) on or after the date which is two years after the date of the grant,
up to ___% (ignoring fractional Shares) of the total number of Shares
subject to this Option; and
(iv) on or after the date which is three years after the date of the grant,
the remaining Shares subject to this Option.
(b) The Optionee may exercise the Option (to the extent it is then
exercisable) by delivering to the Company a written notice duly signed by the
Optionee stating the number of Shares that the Optionee has elected to purchase
and accompanied by payment (by certified check or bank cashier's check) of an
amount equal to the full purchase price for the Shares to be purchased. Within
twenty days after receipt by the Company of such notice and payment, the Company
shall (subject to Section 12 of this Agreement) issue from escrow the Shares in
the name of the Optionee or assignee and deliver the certificate therefor to the
Optionee. No Shares shall be issued until full payment therefor has been made.
4. Non-Transferability of Option. The Option may be transferred only by
will or the laws of descent and distribution, and the Option may be exercised
during the Optionee's lifetime only by the Optionee or by the Optionee's legal
representative.
5. Tax Status. It is not intended that this option qualify as an incentive
stock option within the meaning of Section 422A of the Internal Revenue Code of
1986, as amended. In addition, the Optionee hereby agrees that no representation
has been made to him by the Company or the Grantor with respect to the tax
consequences of (i) the Option granted hereby, (ii) any transfer of the Option
granted hereby, (iii) the exercise of the Option granted hereby or (iv) any
transfer of the Shares.
6. Rights in the Event of the Optionee's Disability. If the Optionee's
employment with the Company or any parent or subsidiary corporation (within the
meaning of Section 424(e) and (f) of the Internal Revenue Code of 1986, as
amended (the "Code"), ("Affiliates")) is terminated on account of permanent and
total disability (as defined in Code Section 22(e)(3)), the Optionee or the
Optionee's legal representative (or the Optionee's estate if the Optionee dies
after termination of employment) may exercise the Option, to the extent
exercisable on the date of the Optionee's termination of employment, at any time
within one year after termination of employment but in no event after the
expiration of the term of the Option as provided in Sections 2(b). The
Optionee's "estate" means the Optionee's legal representative or any person who
acquires the right to exercise the Option by reason of the Optionee's death.
7. Rights in the Event of the Optionee's Death. If the Optionee dies while
an employee of the Company or any Affiliate (or within three months after the
Optionee ceases to be
-2-
<PAGE>
such an employee) but while he still has the right to exercise this Option, his
estate may exercise the Option, to the extent exercisable at the date of the
Optionee's death, any time within one year after the Optionee's death, but in no
event after the expiration of the term of the Option as provided in Section
2(b).
8. Rights in the Event of Termination of Employment. If Optionee's
employment with the Company or any Affiliate is terminated involuntarily for
"Cause" the Optionee's Option shall expire as of the date of termination of
employment. "Cause" under this Agreement shall mean (i) material misconduct by
the Optionee, (ii) any act by the Optionee that is materially adverse to the
Company or any Affiliate, or (iii) breach by the Optionee of any employment or
confidentiality or nondisclosure agreement with the Company or any Affiliate.
"Cause" also shall have the meaning given to that term, or any similar term,
under any employment agreement with the Company or any Affiliate. If the
Optionee's employment is terminated for any reason other than death, disability,
or as described in the preceding sentences of this Section, the Optionee (or the
Optionee's estate, if the Optionee dies after the termination) may exercise the
Option, to the extent exercisable before the termination, within three months
after the termination, but in no event after the expiration of the term of the
Option as provided in Section 2(b).
9. Adjustment in the Shares. If the Shares, as presently constituted, shall
be changed into or exchanged for a different number or kind of shares or other
securities of the Company or of another corporation (whether by reason of
merger, consolidation, recapitalization, reclassification, split, reverse split,
combination of shares, or otherwise) or if the number of Shares shall be
increased through the payment of a share dividend, the Optionee shall receive
upon exercise of the Option the number and kind of shares or other securities
into which each outstanding Share shall be so changed, or for which each such
Share shall be exchanged, or to which each such Share shall be entitled, as the
case may be. The exercise price and other terms of the Option shall be
appropriately amended to reflect the foregoing events. If there shall be any
other change in the number or kind of the outstanding Shares, or of any shares
or other securities into which the Shares shall have been changed, or for which
the Shares shall have been exchanged, then, if the Board of Directors (or the
Compensation Committee thereof (the "Compensation Committee")) shall, in its
sole discretion, determine that such change equitably requires an adjustment in
the Option, such adjustment shall be made in accordance with that determination;
provided, however, that, without the consent of Odzer, which consent will not be
unreasonably withheld, no adjustment, modification or other change made pursuant
to this Section 9 shall be inconsistent with the intent of the Escrow Agreement
or have a material adverse effect on Odzer. Notice of any adjustment shall be
given by the Company to the Optionee.
10. No Limitation on Rights of the Company. The grant of this Option shall
not in any way affect the right or power of the Company to make adjustments,
reclassifications, or changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate, sell, or transfer all or any part of its
business or assets.
-3-
<PAGE>
11. Rights as a Shareholder. The Optionee shall have the rights of a
shareholder with respect to the Shares covered by the Option only upon becoming
the holder of record of those Shares. Until the Optionee becomes the holder of
record of his respective Shares, Odzer shall retain all rights as a shareholder
with respect to such Shares, including, but not limited to, the right to receive
any dividends and other distributions with respect to the Shares, and to vote
such Shares for all purposes and all permissible methods, and nothing herein
shall be deemed or construed to limit such rights.
12. Compliance with Applicable Law. Notwithstanding anything herein to the
contrary, neither the Company nor the Grantor shall be obligated to cause to be
issued or delivered from escrow any certificates for Shares pursuant to the
exercise of the Option, unless and until the Company is advised by its counsel
that the issuance and delivery of such certificates is in compliance with all
applicable laws, regulations of governmental authority, and the requirements of
any exchange upon which Shares are traded. Neither the Company nor the Grantor
shall in any event be obligated to register any securities pursuant to the
Securities Act of 1933 (as now in effect or as hereafter amended) or to take any
other action in order to cause the issuance and delivery of such certificates to
comply with any such law, regulation or requirement. The Board of Directors (or
the Compensation Committee) may require, as a condition of the issuance and
delivery of such certificates and in order to ensure compliance with such laws,
regulations, and requirements, that the Optionee make such covenants,
agreements, and representations as the Board of Directors (or the Compensation
Committee, as the case may be), in its sole discretion, considers necessary or
desirable.
13. No Obligation to Exercise Option. The granting of the Option shall
impose no obligation upon the Optionee to exercise the Option.
14. Agreement Not a Contract of Employment. This Agreement is not a
contract of employment, and the terms of employment of the Optionee or the
relationship of the Optionee with the Company or any Affiliate shall not be
affected in any way by this Agreement except as specifically provided herein.
The execution of this Agreement shall not be construed as conferring any legal
rights upon the Optionee for a continuation of employment or relationship with
the Company, the Grantor or any Affiliate, nor shall it interfere with the right
of the Company or any subsidiary thereof to discharge the Optionee and to treat
him without regard to the effect which that treatment might have upon him as a
Optionee.
15. Withholding. Whenever Shares are to be delivered upon exercise of this
Agreement, the Company shall be entitled to require as a condition of delivery
that the Optionee remit to the Company an amount sufficient to satisfy the
Company's federal, state and local withholding tax obligations with respect to
the exercise of the Option granted hereby.
16. Notices. All notices, claims, certificates, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given or made as of the date delivered, mailed or transmitted, and shall be
effective upon receipt, if delivered personally, mailed by registered or
certified mail (postage prepaid, return receipt
-4-
<PAGE>
requested) to the parties at the following addresses or sent by electronic
transmission to the telecopier number specified below:
(a) If to Grantor, to:
Howard Odzer
c/o Preferred Employers Holdings, Inc.
10800 Biscayne Blvd., Penthouse
Miami, FL 33161
Telephone: (305) 893-4040
Telecopy: (305)
with copies to:
Steel Hector & Davis LLP
200 South Biscayne Blvd.
Miami, FL 33131
Attn: Thomas R. McGuigan P.A.
Telephone: (305) 577-2850
Telecopy: (305) 577-7001
(b) If to the Company, to:
Preferred Employers Holdings, Inc.
10800 Biscayne Blvd., Penthouse
Miami, FL 33161
Telephone: (305) 893-4040
Telecopy: (305)
with copies to:
Baer Marks & Upham LLP
805 Third Avenue
New York, NY 10022
Attn: Donald J. Bezahler, Esq.
Telephone: (212) 702-5700
Telecopy: (212) 702-5941
(c) If to Optionee, to address set forth above.
17. Governing Law. Except to the extent preempted by Federal law, this
Agreement shall be construed and enforced in accordance with, and governed by,
Delaware law.
18. Receipt of Escrow Agreement. Optionee acknowledges receipt of a copy of
the Escrow Agreement, and represents that he is familiar with the terms and
provisions thereof,
-5-
<PAGE>
and hereby accepts this Option subject to all the terms and provisions of this
Option and of the Escrow Agreement. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board of Directors
of the Company or the Compensation Committee, upon any questions rising under
the Escrow Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
PREFERRED EMPLOYERS
HOLDINGS, INC.
__________________________ By:___________________________
Witness Its:
- -------------------------- -------------------------------
Witness HOWARD ODZER, Grantor
- -------------------------- -------------------------------
Witness , Optionee
-6-
<PAGE>
EXHIBIT 10.4
[Preferred Employers Holdings, Inc. Letterhead]
__________________, 1997 [date of Prospectus]
Mr. Mel Harris
10800 Biscayne Blvd., Penthouse
Miami, FL 33161
Dear Mel:
This letter sets forth the terms of your employment as Chairman of the Board of
Directors and Chief Executive Officer of Preferred Employers Holdings, Inc. (the
"Company"), commencing as of the date hereof and continuing for a period of one
year thereafter (the "Term"):
1. Your salary shall be $150,000 per year throughout the Term. In
addition, you will receive reimbursement for all business expenses
related to the Company and medical insurance and will be entitled to
receive perquisites similar to perquisites made available to other
senior executives of the Company.
2. Your employment will automatically renew for successive one-year
periods, unless either party gives notice to the other party of its
desire to terminate such employment at least 90 days before the
commencement of any renewal period.
3. You hereby agree to devote such time as is necessary and, in any event,
no less than 80% of your total business time, to the affairs of the
Company.
4. You hereby agree that at all times while you are employed by the
Company, in any capacity, and for a period of three (3) years after the
date of the termination of your employment with the Company,
irrespective of the manner of such termination, you will not (i) be
employed or retained by, seek employment with, or serve as an employee,
agent, officer, director or partner of, or as as consultant to, or
directly or indirectly acquire or own in any manner an interest in
(whether as owner, operator, stockholder, director, financial backer,
creditor, consultant, partner, agent or otherwise), any person, firm,
partnership, corporation, association, sole proprietorship or other
entity which engages in competition with the Company in any and all
states in which the Company and/or any of its subsidiaries conduct
their respective businesses, (ii) solicit any current or previously
solicited potential customer of the Company, or (iii) solicit or induce
any person to leave the employ of the
<PAGE>
Company to engage in activities competitive with any business of the
Company.
We look forward to continuing our long and pleasant relationship. Please sign
and return the original of this letter, retaining the copy for your files.
Sincerely,
Howard Odzer
President
Agreed and Acknowledged:
- -----------------------
Mel Harris
<PAGE>
Exhibit 10.6
OFFICE SPACE LEASE AGREEMENT
Between
K/B Opportunity Fund I, L.P.,
a Delaware Limited Partnership
as Landlord,
and
PREFERRED EMPLOYERS GROUP, INC.
as Tenant,
Dated
August 1, 1994
<PAGE>
OFFICE SPACE LEASE AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I THE PREMISES.........................................................1
SECTION 1.1 Demise..................................................1
SECTION 1.2 Premises................................................1
SECTION 1.3 Nonexclusive Rights.....................................1
SECTION 1.4 Landlord's Reserved Rights..............................1
ARTICLE II TERM................................................................2
SECTION 2.1 Term....................................................2
SECTION 2.2 Lease Commencement Date.................................2
SECTION 2.3 Amendment to Lease......................................2
SECTION 2.4 Anticipated Completion Date.............................2
SECTION 2.5 Lease Year..............................................2
SECTION 2.6 Acceptance of Possession by Tenant......................2
ARTICLE III RENT...............................................................2
SECTION 3.1 Rent....................................................2
SECTION 3.2 Base Rent...............................................3
SECTION 3.3 Increase in Operating Costs.............................3
SECTION 3.4 Additional Rent.........................................4
SECTION 3.5 Sales Tax...............................................5
SECTION 3.6 Payment of Rent.........................................5
SECTION 3.7 Past Due Rent...........................................5
ARTICLE IV SECURITY DEPOSIT....................................................5
SECTION 4.1 Security Deposit........................................5
SECTION 4.2 Application of Security Deposit.........................5
SECTION 4.3 Return of Security Deposit..............................6
SECTION 4.4 Transfer of Security Deposit............................6
SECTION 4.5 Mortgagee...............................................6
SECTION 4.6 Third Party Claims on Security Deposit..................6
ARTICLE V USE OF PREMISES......................................................6
SECTION 5.1 Use.....................................................6
SECTION 5.2 Compliance with Laws....................................6
ARTICLE VI ASSIGNMENT AND SUBLETTING...........................................7
SECTION 6.1 Prohibition.............................................7
SECTION 6.2 Assignment in Bankruptcy................................8
SECTION 6.3 Effect of Consent.......................................8
ARTICLE VII TENANT'S MAINTENANCE AND REPAIRS...................................9
SECTION 7.1 Maintenance.............................................9
SECTION 7.2 Repairs.................................................9
ARTICLE VIII TENANT ALTERATIONS................................................9
SECTION 8.1 Prohibition.............................................9
SECTION 8.2 Indemnification, Removal................................9
ARTICLE IX LANDLORD'S INTEREST NOT SUBJECT TO LIENS...........................10
SECTION 9.1 Liens, Generally.......................................10
SECTION 9.2 Mechanics Liens........................................10
SECTION 9.3 Notices of Commencement................................10
(i)
<PAGE>
ARTICLE X KEYS, SIGNS, FURNISHINGS AND EQUIPMENT..............................11
SECTION 10.1 Keys...................................................11
SECTION 10.2 Signs..................................................11
SECTION 10.3 Landlord's Signage Rights..............................11
SECTION 10.4 Removal of Signage.....................................11
SECTION 10.5 Furnishings............................................11
SECTION 10.6 Equipment..............................................11
ARTICLE XI INSPECTION BY LANDLORD.............................................12
ARTICLE XII INSURANCE.........................................................12
SECTION 12.1 Liability Insurance....................................12
SECTION 12.2 Property Insurance.....................................12
SECTION 12.3 Other Insurance........................................12
SECTION 12.4 Requirements...........................................12
SECTION 12.5 Failure to Procure Insurance...........................12
SECTION 12.6 Waiver of Subrogation..................................13
SECTION 12.7 Insurance by Landlord..................................13
SECTION 12.8 Increase in Landlord's Insurance Premium...............13
ARTICLE XIII SERVICES AND UTILITIES...........................................13
SECTION 13.1 Services and Utilities.................................13
SECTION 13.2 Normal Hours...........................................13
SECTION 13.3 Interruptions..........................................14
SECTION 13.4 Energy Conservation Control............................14
SECTION 13.5 Landlord's Responsibilities............................14
ARTICLE XIV LIABILITY OF LANDLORD, INDEMNIFICATION
BY TENANT.........................................................14
SECTION 14.1 Liability of Landlord..................................14
SECTION 14.2 Indemnification of Landlord............................15
SECTION 14.3 Notice of Claim or Suit................................16
SECTION 14.4 Transfer of Office Complex.............................16
SECTION 14.5 No Offset Against Rent.................................16
SECTION 14.6 Limitation on Liability of Landlord....................16
ARTICLE XV RULES AND REGULATIONS..............................................17
ARTICLE XVI DAMAGES OR DESTRUCTION............................................17
SECTION 16.1 Damage of Destruction..................................17
SECTION 16.2 Limitation of Landlord's Obligation....................17
SECTION 16.3 Landlord's Termination Option..........................18
ARTICLE XVII CONDEMNATION.....................................................18
SECTION 17.1 Condemnation...........................................18
SECTION 17.2 Award..................................................18
ARTICLE XVIII DEFAULT BY TENANT...............................................19
SECTION 18.1 Events of Default......................................19
SECTION 18.2 Remedies on Default....................................20
SECTION 18.3 Additional Remedies....................................21
SECTION 18.4 No Waiver..............................................22
SECTION 18.5 Landlord May Cure Tenant's Defaults....................22
ARTICLE XIX ATTORNMENT AND NONDISTURBANCE.....................................22
SECTION 19.1 Nondisturbance.........................................22
SECTION 19.2 Attornment and Waiver..................................23
SECTION 19.3 Quiet Enjoyment........................................23
(ii)
<PAGE>
ARTICLE XX END OF TERM........................................................24
SECTION 20.1 Surrender of Premises..................................24
SECTION 20.2 Holding Over...........................................24
ARTICLE XXI PARKING...........................................................24
SECTION 21.1 Parking, Generally.....................................24
SECTION 21.2 No Specified Spaces....................................24
SECTION 21.3 Parking Garage Rules...................................25
SECTION 21.4 Parking Garage Hours...................................25
SECTION 21.5 No Liability of Landlord...............................25
ARTICLE XXII RELOCATION OF TENANT.............................................25
SECTION 22.1 Entire Agreement; Modification.........................25
SECTION 22.2 No Partnership.........................................25
SECTION 22.3 Determination of Rentable Area.........................25
SECTION 22.4 Brokers................................................25
SECTION 22.5 Estoppel Certificates..................................25
SECTION 22.6 Waiver of Jury Trial...................................26
SECTION 22.7 Waiver of Right of Redemption..........................26
SECTION 22.8 Venue..................................................26
SECTION 22.9 Notices................................................27
SECTION 22.10 Rules of Construction..................................27
SECTION 22.11 Successors and Assigns.................................27
SECTION 22.12 Waiver.................................................27
SECTION 22.13 Costs and Attorneys' Fees..............................27
SECTION 22.14 Time of the Essence....................................27
SECTION 22.15 Governing Law..........................................27
SECTION 22.16 No Recording...........................................27
SECTION 22.17 Radon Gas Notification.................................27
(iii)
<PAGE>
OFFICE SPACE LEASE AGREEMENT
THIS OFFICE SPACE LEASE AGREEMENT (this "Lease") is made as of this
day of , 19 , by and between K/B Opportunity Fund I, L.P.,
a Delaware Limited Partnership (hereinafter referred to as "Landlord"), and
Preferred Employers Group, Inc. (hereinafter referred to as "Tenant").
RECITALS:
WHEREAS, Landlord is the record owner of fee simple title to that
certain improved parcel of real property located in the City of Miami, Dade
County, Florida, more particularly and legally described on Exhibit A attached
hereto (the "Land"), upon which Landlord has developed an office complex known
as Bayshore Executive Office Building (the "Office Complex"); and
WHEREAS, Tenant desires to lease space in the Office Complex and
Landlord is willing to rent space in the Office Complex to Tenant, upon and
subject to the terms, conditions, covenants and agreements set forth
hereinbelow.
NOW, THEREFORE, for and in consideration of the premises hereof, the
parties hereto, intending legally to be bound, hereby covenant, stipulate and
agree as follows:
ARTICLE I
THE PREMISES
1.1 Demise. Landlord does hereby demise, let and lease unto Tenant, and
Tenant does hereby hire, lease and take as Tenant from Landlord, for the term,
for the use and on those terms and conditions hereinafter specified in this
Lease the premises hereinafter defined and described in Section 1.2 of this
Lease.
1.2 Premises. The Premises shall consist of and include approximately
8,500 square feet of the said total rentable area of approximately 11,600 square
feet on the Penthouse (PH) floor of the Building of the Office Complex (the
"Premises"). The location and configuration of the Premises are outlined on the
floor plan attached hereto as Exhibit B and made a part hereof. As such time as
the exact number of square feet of rentable area included in the Premises is
ascertained in accordance with Section of this Lease, Landlord and Tenant
shall execute an amendment to this Lease more particularly described in Section
2.3 of this Lease, stating, among other things, the exact number of square feet
of rentable area included in the Premises.
1.3 Nonexclusive Rights. The lease of the Premises includes the
nonexclusive right, together with the other tenants of the Office Complex and
members of the public, to use the common and public areas of the Office Complex
for purposes of ingress and egress, but includes no other rights not
specifically set forth herein.
1.4 Landlord's Reserved Rights. Landlord hereby reserves to itself and
its successors and assigns the right (i) to change from time to time the street
address and/or name of the Office Complex an/or the arrangement and/or location
of entrances, passageways, doors, doorways, corridors, elevators, stairs,
toilets, or other public portions, of the Office Complex; (ii) to own, install,
erect, use, maintain and repair and replace pipes and conduits in and through
the Premises; and (iii) to grant to any other person or entity the exclusive
right to conduct any particular business or undertaking in the Office Complex.
Tenant hereby consents and agrees to the foregoing and further agrees and
acknowledges that Landlord may exercise any or all of the foregoing rights
without being deemed guilty of an eviction, actual or constructive, or a
disturbance or interruption of the business of Tenant or of Tenant's use of
occupancy of the Premises.
<PAGE>
ARTICLE II
TERM
2.1 Term. The term of this Lease ("Lease Term") shall commence at 12.01
a.m. on the Lease Commencement Date, as determined pursuant to Section 2.2
hereof, and shall continue unless earlier terminated in accordance with the
provisions of this Lease, for the balance of the calendar month in which the
Lease Commencement Date occurs and for a period of seven (7) years thereafter
and shall cease, terminate and expire at 11:59 p.m. on the day which is the
seventh (7th) annual anniversary of the last day of the calendar month in which
the Lease Commencement Date occurs (the "Lease Expiration Date"). The Lease
Expiration Date may be extended as provided in the Addendum of this Lease.
2.2 Lease Commencement Date. The Lease Commencement Date shall be the
date on which the Landlord substantially completes, or is deemed to have
substantially completed, construction of the tenant improvements to be installed
in the Premises, as determined pursuant to Paragraph 9 of Exhibit C attached
hereto and made a part hereof. Notwithstanding that the Lease Commencement Date
shall be established in the manner and on the date provided in this Section,
Tenant and Landlord acknowledge and agree that this Lease is binding upon them
as of the date of its execution by Tenant and Landlord.
2.3 Amendment to Lease. Promptly after the Lease Commencement Date is
ascertained, Landlord and Tenant shall execute a written amendment to the Lease
in the form attached here to as Exhibit D and made a part hereof by reference
thereto, setting forth the Lease Commencement Date and the Lease Expiration
Date, and stating the exact number of square feet of rentable area included in
the Premises.
2.4 Anticipated Completion Date. Landlord presently anticipates that
the Premises will be substantially completed and ready for occupancy by Tenant
on or about September 1, 1994. In the event that Landlord's substantial
completion of construction of the Premises or the delivery of possession of the
Premises to Tenant is delayed, regardless of the reasons or causes of such
delay, this Lease shall not be rendered void or voidable as a result of such
delay, and the term of this Lease shall commence on the Lease Commencement Date
as determined pursuant to Section 2.2 hereof. Furthermore, Landlord shall not
have any liability whatsoever to Tenant on account of such delay.
2.5 Lease Year. For purposes of this Lease, the term "Lease Year" shall
mean each consecutive period of twelve (12) calendar months, commencing on the
first day of the calendar month immediately following the month in which the
Lease Commencement Date occurs and each anniversary of such day, except that the
first Lease Year ("First Lease Year") shall also include the period from the
Lease Commencement Date until the first day of the following month.
2.6 Acceptance of Possession by Tenant. The taking of possession of the
Premises by Tenant shall constitute an acknowledgment by Tenant that the
Premises are in good condition and that all work and materials provided by
Landlord are satisfactory, except as to any defects or incomplete work that are
described in a written notice given by Tenant to Landlord no later than fifteen
(15) days after Tenant commences occupancy of the Premises. Landlord shall be
obligated to correct and complete only those defects and incomplete items
described in such notice which Landlord's architect or engineer confirms are, in
fact, defective or incomplete items pursuant to the terms of Exhibit C, if any.
ARTICLE III
RENT
3.1 Rent. Tenant shall pay as rent for the Premises the amounts set
forth in this Article III (each of which shall be considered rent and all of
which are, unless specifically stated otherwise, collectively referred to herein
as "rent").
-2-
<PAGE>
3.2 Base Rent. Tenant shall pay as base rent ("Base Rent") the sum set
forth in the Addendum hereto annually, payable in equal monthly installments, in
advance, as set forth in the Addendum hereto together with all applicable sales
taxes thereon. The first payment of Base Rent shall be made upon the Lease
Commencement Date, and the second and subsequent monthly payments shall be made
on the first day of each and every calendar month (beginning with the second
calendar month) during the Lease Term. If the Lease Commencement Date is a date
other than the first day of a month, the first monthly installment of Base Rent
shall be prorated for the period from such date until the first day of the
following month at the rate of one thirtieth (1/30th) of the monthly installment
for each day, payable in advance.
3.3 Increase in Operating Costs. In addition to each monthly
installment of Base Rent Tenant shall pay to Landlord as Additional Rent nine
percent (9.0%) (being the approximate and agreed upon proportion which the floor
area of the Premises bears to the total rentable office area of the Office
Complex and being herein referred to as the "Tenant's Proportionate Share") of
the excess during each calendar year of the Lease Term of the Basic Cost (as
hereinafter defined). All payments under this Section 3.3 shall be deemed and
considered to be Additional Rent as defined in Section 3.4 hereof.
For the purposes hereof, the term "Basic Cost" as used herein shall
mean all Operating Expenses (as hereinafter defined) of the Office Complex,
which shall be computed on the accrual basis and shall consist of all
expenditures determined by Landlord to be necessary in the ownership,
management, operation and maintenance of the Office Complex. The term "Operating
Expenses" as used herein shall mean all expenses, costs and disbursements (but
not replacement of capital investment items or specific costs especially billed
to and paid by specific tenants) of every kind and nature which Landlord shall
pay or become obligated to pay because of or in connection with the ownership,
management, operation and maintenance of the Office Complex, including, but not
limited, to the following:
(a) All general and special real estate taxes, special
assessment, and other ad valorem taxes, rates, levies and assessments payable in
respect of such year by Landlord upon or with respect to the Office Complex or
the land by any governmental or quasi-governmental authority and all taxes
specifically imposed in lieu of any such taxes.
(b) All wages and salaries of all employees engaged in
operating and maintenance or security of the Office Complex, including taxes,
insurance and benefits relating thereto.
(c) The cost of all supplies and materials used in management,
operation and maintenance of the Office Complex.
(d) All costs (including surcharges) of all utilities for the
Office Complex, including without limitation water, sewer, electric power,
heating, lighting, air conditioning and ventilating.
(e) All costs of all maintenance and service agreements for
the Office Complex and the equipment therein, including without limitation on
security and energy management services, window cleaning, elevator maintenance
and janitorial service.
(f) All costs of all insurance relating to the Office Complex,
including casualty and liability insurance applicable to the Office Complex and
Landlord's personal property used in connection therewith.
(g) All costs of repairs and general maintenance of the Office
Complex (excluding repairs and general maintenance paid by proceeds of insurance
or by Tenant or other third parties, and alterations attributable solely to
tenants of the Office Complex other than Tenant).
-3-
<PAGE>
(h) Management fees and reimbursable costs and expenses for
the manager of the Office Complex.
(i) All costs of professional services or fees involved in any
contest of any taxes or assessments with respect to the Office Complex or the
Land, including legal and accounting services.
(j) All costs of any additional services not provided to the
Office Complex at the Lease Commencement Date but thereafter provided by
Landlord in the prudent management of the Office Complex.
Operating Costs shall not include the replacement of capital investment
items or new capital improvements unless such items or improvements result in
the decrease of the operating costs of the Office Complex, in which case the
costs of said capital investment item or new capital improvement shall be
included by spreading such costs over the period necessary to recover such costs
form the savings accomplished by the decreased Operating Costs of the Office
Complex.
The "Initial Basic Cost" shall be defined as the Basic Cost for the
calendar year which includes the Lease Commencement Date and is stipulated and
agreed to be five dollars and forty five cents ($5.45) per square foot of
rentable area of office space in the Office Complex.
Prior to January 1 of each calendar year during the Lease Term after
the calendar year which includes the Lease Commencement Date, Landlord shall
provide to Tenant a comparison of the Initial Basic Cost and the projected Basic
Cost for such upcoming calendar year, together with a statement of the projected
excess of the Basic Cost over the Initial Basic Cost. During each month of the
following calendar year, Tenant shall pay to Landlord, in advance and
simultaneously with each monthly installment of Base Rent, one twelfth (1/12) of
Tenant's Proportionate Share of any projected excess of the Basic Cost over the
Initial Basic Cost for such calendar year. Landlord shall, within ninety (90)
days (or as soon thereafter as possible) after the close of each calendar year
following the calendar year of the Lease Commencement Date, provide Tenant a
statement of such year's actual Basic Cost showing the actual excess of the
Basic Cost over the Initial Basic Cost. If such statement shows that Tenant's
monthly payments pursuant to this Section exceeded Tenant's share of the actual
increase incurred for the preceding calendar year, then Landlord shall promptly
refund such excess to Tenant. If such statement shows that Tenant's share of the
actual increase in the Basic Cost exceeded the monthly payments from Tenant
pursuant to this Section for the preceding calendar year, then Tenant shall
within thirty (30) days after receipt of such statement pay the total amount of
such deficiency to Landlord.
Should this Lease Agreement commence at any time other than the first
day of a calendar year, the payment of Tenant's Proportionate Share under this
Section shall be prorated and adjusted for such commencement year on a
proportionate daily basis (assuming a 365 day calendar year).
Tenant's obligation to make the payments under this Section as
Additional Rent shall survive any termination of this Lease by lapse of time or
otherwise.
Exclusive of increases in real estate taxes, insurance and utilities,
the Tenant's Proportionate Share of Basic Costs shall not increase by more than
five percent (5%) from any prior year.
3.4 Additional Rent. If Landlord shall make any expenditure for which
Tenant is responsible or liable under this Lease, or if Tenant shall become
obligated to Landlord under this Lease for any sum other than Base Rent,
including without limitation, Tenant's Proportionate Share of increased Basic
Cost, as set forth in Section 3.3 of this Lease, the amount thereof shall be
deemed to constitute additional rent ("Additional Rent") and shall be due and
payable by Tenant to Landlord, together with all applicable sales taxes thereon,
if
-4-
<PAGE>
any, simultaneously with the next succeeding monthly installment of Base Rent or
at such other time as may be expressly provided in this Lease for the payment of
same.
3.5 Sales Tax. In addition to the Base Rent, Additional Rent and any
other sums or amounts required to be paid by Tenant to Landlord pursuant to the
provisions of this Lease, Tenant shall also pay to Landlord, simultaneously with
such payment of such rents or other sums or amounts, the amount of any
applicable sales, use or excise tax on any such rents or other sums or amounts
so paid by Tenant to Landlord, whether the same be levied, imposed or assessed
by the State of Florida or any other federal, state, county or municipal
governmental entity or agency. Any such sales, use or excise taxes shall be paid
by Tenant to Landlord at the same time that each of the Base Rent, Additional
Rent or any other sum or amount with respect to which such taxes are payable are
paid by Tenant to Landlord. In the event that any business, rent or other taxes
that are now or hereafter levied upon Tenant's use or occupancy of the premises
are enacted, changed or altered so that any of such taxes are levied against
Landlord, or the mode of collection of such taxes is changed so that Landlord is
responsible for collection or payment of such taxes, Tenant shall pay any and
all such taxes to Landlord upon written demand from Landlord as Additional Rent.
3.6 Payment of Rent. Each of the foregoing amounts of rent and other
sums shall be paid to Landlord on the first (1st) day of every month during the
Lease Term without demand and without deduction, set-off, claim or counterclaim
of any nature whatsoever which Tenant may have or allege to have against
Landlord, and all such payments shall, upon receipt by Landlord, be and remain
the sole and absolute property of Landlord. All such rents and other sums shall
be paid to Landlord in legal tender of the United States at the address to which
notices to Landlord are to be given or to such other party or to such other
address as Landlord may designate from time to time by written notice to Tenant.
If Landlord shall at any time accept any such rents or other sums after the same
shall become due and payable, such acceptance shall not excuse a delay upon
subsequent occasions, or constitute or be construed as a waiver of any of
Landlord's right hereunder.
3.7 Past Due Rent. If Tenant fails to make any payment of Base Rent,
Additional Rent or any other sums or amounts to be paid by Tenant hereunder
within fifteen (15) days of the due therefor such payment is due and payable,
Tenant shall pay to Landlord an administrative late charge of five percent (5%)
of the amount of such payment. Such late charge shall constitute Additional Rent
due and payable hereunder with the next installment of Base Rent due hereunder.
ARTICLE IV
SECURITY DEPOSIT
4.1 Security Deposit. Simultaneously with the execution of this Lease,
Tenant shall deliver to Landlord the sum of twenty two thousand DOLLARS
($22,000.00), as a security deposit, plus applicable sales taxes, if any, (the
"Security Deposit") as security for the faithful performance by Tenant of all of
Tenant's obligations, covenants, conditions and agreements under this Lease.
Landlord shall not be required to maintain the Security Deposit in a separate
account and, the Security Deposit may be combined with other funds of Landlord
unless otherwise required by law. The Security Deposit shall not earn interest,
unless otherwise required by law.
4.2 Application of Security Deposit. In the event of any default by
Tenant hereunder, Landlord shall have the right, but shall not be obligated to
use, apply or retain all or any portion of the Security Deposit for: (a) the
payment of any Base Rent or Additional Rent or any other sum of money payable by
Tenant to Landlord; (b) the payment of any amounts which Landlord may spend or
become obligated to spend to repair physical damage to the Premises or the
Office Complex or for any restoration pursuant to Articles V, VII, VIII, X and
XVI or elsewhere in this Lease; or (c) the payment of any amount Landlord may
spend or become obligated to spend, or for the compensation of Landlord for any
losses incurred, by reason of any default by Tenant hereunder, including, but
not limited to, any
-5-
<PAGE>
damage or deficiency arising in connection with the reletting of the Premises or
any discharge of any liens against the Premises or any portion thereof. If any
portion of the Security Deposit is so used or applied, then within three (3)
business days after written notice to Tenant of such use or application Tenant
shall deposit with Landlord cash in any amount sufficient to restore the
Security Deposit to its original amount, and Tenant's failure to do so shall
constitute a default under this Lease.
4.3 Return of Security Deposit. Unless otherwise required by law,
within thirty (30) days after the expiration of the Lease Term, and provided
Tenant has vacated the Premises and is not in default hereunder, Landlord shall
return the Security Deposit to Tenant, without interest, less such portion
thereof as Landlord shall have appropriated and applied in accordance with the
provisions of this Article.
4.4 Transfer of Security Deposit. In the event of the sale or transfer
of Landlord's interest in the Premises or the Office Complex, Landlord shall
have the right to transfer the Security Deposit to the purchaser or assignee, in
which event Tenant shall look only to the purchaser or assignee, as the new
landlord, for the return of the Security Deposit, and Landlord hereunder shall
thereupon be released and discharged from all liability to Tenant for the return
of the Security Deposit.
4.5 Mortgagee. Tenant hereby acknowledges that Tenant will not look to
the holder of any mortgage encumbering the Office Complex (or any part thereof
or interest therein) for return of the Security Deposit if such holder, or its
successors or assigns, shall succeed to the ownership of the Office Complex,
whether by foreclosure or deed in lieu thereof, except if and to the extent the
Security Deposit is actually transferred to and accepted by such mortgage
holder.
4.6 Third Party Claims on Security Deposit. In the event of bankruptcy
or other creditor debt proceedings against Tenant which result in a third party
claim on the Security Deposit, the Security Deposit shall be deemed to be first
applied to the payment of rents and other sums due Landlord for all periods
prior to the filing of such proceedings.
ARTICLE V
USE OF PREMISES
5.1 Use. Tenant shall throughout the term of this Lease, use and occupy
the Premises solely for general office purposes and for no other use or purpose
whatsoever without the prior written consent of Landlord. Tenant shall not use
or occupy the Premises for any unlawful purposes or in any manner that will
constitute waste, nuisance or unreasonable annoyance to the Landlord or other
tenants of the Office Complex.
5.2 Compliance with Laws. Tenant shall comply with all applicable laws,
ordinances (including zoning ordinances and land use requirements), rules,
regulations, and orders of all federal, state, county and municipal governments
and any other public or quasi-public authority have jurisdiction over the
Premises or the business activities conducted therein, including particularly
but without limitation, those concerning the use, occupancy and condition of the
Premises and all machinery, equipment and furnishings located therein, and of
any insurance underwriting board or insurance inspection bureau having or
claiming jurisdiction or any other body exercising similar functions and of all
insurance companies from time to time selected by Landlord to write policies of
insurance covering the Office Complex and any business activity conducted
therein or therefrom. It is expressly understood that if any present or future
law, ordinance, regulation or order requires an occupancy permit for the
Premises, Tenant will obtain such permit at Tenant's own expense.
Tenant, its officers, directors, employees, agents and invitees shall
not permit the presence, handling, storage or transportation of hazardous or
toxic materials or medical waste ("hazardous waste") in or about the Premises or
the Office Complex, except in strict compliance with all laws, ordinances,
rules, regulations, orders and guidelines of any
-6-
<PAGE>
government agency having jurisdiction, the applicable board of insurance
underwriters, and the Rules and Regulations of the Office Complex. In no event
shall hazardous waste be disposed of in or about the Premises or the Office
Complex. Tenant shall obtain and maintain throughout the term of this lease all
licenses and permits required in connection with Tenant's activities involving
hazardous waste.
Tenant shall notify Landlord immediately of any discharge or discovery
of any hazardous waste at, upon, under, or within the Premises or the Office
Complex. Tenant shall, at its sole cost and expense, comply with all remedial
measures required by any governmental agency having jurisdiction. Tenant shall
promptly forward to Landlord copies of all orders, notices, permits,
applications, or other communications and reports received by Tenant in
connection with any discharge or the presence of any hazardous waste or any
other matters relating to the toxic waste or any similar laws or regulations, as
they may affect the Premises or the Office Complex (collectively "Notice").
The obligations, liabilities and responsibilities of Tenant, its
officers and directors under this section shall survive the expiration or
termination of this lease and shall include:
(a) The removal of any material deemed at any time to be
hazardous waste on, within or released from the Premises or the Office Complex,
whether such removal is done or completed by Tenant, Landlord, or any other
person or entity and regardless of whether or not such removal is rendered
pursuant to a court order or the order of a Governmental Agency (as defined
below);
(b) Claims asserted by any person or entity (including,
without limitation, any governmental agency or quasi-governmental authority,
board, bureau, commission, department, instrumentality, public body, court, or
administrative tribunal [a "Governmental Agency"], in connection with or in any
way arising out of the presence, storage, use, disposal, generation,
transportation, or treatment of any hazardous waste at, upon, under or within
the Premises or the Office Complex, after the time that Tenant became an
occupant or had control of the Premises;
(c) The preparation of an environmental audit on the Premises
or the Office Complex, whether conducted or authorized by Tenant, Landlord or
any third party, and the implementation of any such environmental audit's
recommendations;
(d) To indemnify, defend and hold Landlord, its agents and
mortgagees harmless from and against any and all claims, liabilities, injuries,
damages, costs and expenses (including attorney's fees and costs through appeal)
arising out of or in connection with any breach of this Article, including any
direct, indirect, or consequential damages suffered by any individuals or
entities related in any way to Tenant's use of hazardous materials at the
Premises.
ARTICLE VI
ASSIGNMENT AND SUBLETTING
6.1 Prohibition. Tenant shall not have the right to assign, transfer,
sublease, mortgage or otherwise encumber this Lease or its interest in the
Premises without first obtaining the prior written consent of Landlord, which
consent may not be unreasonably withheld by Landlord. No such assignment,
transfer, sublease, mortgage or other encumbrance of this Lease, Tenant's
interest in the Premises, or the right of occupancy hereunder may be effectuated
by operation of law or otherwise without the prior written consent of Landlord,
which consent may not be unreasonably withheld by Landlord. If Tenant is a
partnership (whether general or limited) a withdrawal or change, whether
involuntary or by operation of law, of partners owning a controlling interest in
Tenant shall be deemed to be a voluntary assignment of this Lease subject to the
foregoing prohibition. If Tenant is a corporation, any merger, consolidation or
other reorganization of Tenant, or the sale or transfer of a controlling
interest of the capital stock of Tenant, shall not be deemed to
-7-
<PAGE>
be a voluntary assignment of this Lease subject to the foregoing prohibition;
Any attempted assignment, transfer, sublease, mortgage or other encumbrance by
Tenant of this Lease or its interest in the Premises without Landlord's consent
shall, at the option of Landlord, constitute a default by Tenant under this
Lease entitling Landlord to exercise any or all of its rights and remedies under
Article XVIII of this Lease, and Tenant shall remain liable for all rent and
other sums due under this Lease and all damages suffered by Landlord on account
of such default by Tenant.
6.2 Assignment in Bankruptcy. Notwithstanding any of the foregoing
provisions, covenants, and conditions of Section 6.1 above to the contrary, in
the event that this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, 11 U.S.C. 101 et seq. (the "Bankruptcy
Code"), any and all monies or other considerations payable or otherwise to be
delivered in connection with such assignment shall be paid or delivered to
Landlord, shall be and remain the exclusive property of Landlord and shall not
constitute property of Tenant or of the estate of the Tenant within the meaning
of the Bankruptcy Code. Any and all monies or other consideration constituting
Landlord's property under the preceding sentence not paid or delivered to
Landlord shall be held in trust for the benefit of Landlord and be promptly paid
to or turned over to Landlord. If Tenant proposes to assign this Lease pursuant
to the Provisions of the Bankruptcy Code to any person or entity who shall have
made a bona fide offer to accept an assignment of this Lease on terms acceptable
to the Tenant, then notice of such proposed assignment setting forth (i) the
name and address of such person, (ii) all of the terms and conditions of such
offer, and (iii) the adequate assurance to be provided by Tenant to assure such
person's future performance under the Lease, including, without limitation, the
assurances referred to in the Bankruptcy Code, or any such successor or
substitute legislation or rule thereto, shall be given to Landlord by Tenant no
later than twenty (20) days after receipt by Tenant, but in any event no later
than ten (10) days prior to the date that Tenant shall make application to a
court of competent jurisdiction for authority and approval to enter into such
assignment and assumption. Landlord shall thereupon have the prior right and
option, to be exercised by notice to Tenant given at any time prior to the
effective date of such proposed assignment, to accept an assignment of this
Lease upon the same terms and conditions and for the same consideration, if any,
as the bona fide offer made by such person, less any brokerage commissions which
may be payable out of the consideration to be paid by such person for the
assignment of this Lease. Any person or entity to which this Lease is assigned
pursuant to the provisions of the Bankruptcy Code shall be deemed without
further act or deed to have assumed all of the obligations arising under this
Lease on and after the date of such assignment. Any such assignee shall upon
demand execute and deliver to Landlord an instrument confirming such assumption.
6.3 Effect of Consent. The consent by Landlord to any assignment,
transfer, sublease, mortgage or encumbrance shall not be construed as a waiver
or release of Tenant from any and all liability for the performance of all
covenants and obligations to be performed by Tenant under this Lease, nor shall
the collection or acceptance of rent from any assignee, transferee or subtenant
constitute a waiver or release of Tenant from any of its liabilities or
obligations under this Lease. Landlord's consent to any assignment, transfer,
sublease, mortgage or encumbrance shall not be construed as relieving Tenant (or
any such assignee or subtenant) from the obligation of obtaining Landlord's
consent to any further assignment, transfer, sublease, mortgage or encumbrance
in accordance with the provisions of Sections 6.1 or 6.2 hereof, as applicable.
For any period during which Tenant is in default hereunder, Tenant hereby
assigns to Landlord the rents or other sums due from any subtenant or assignee
of Tenant and hereby authorizes each subtenant or assignee to pay said rents or
other sums directly to Landlord. All monies, rents or other consideration paid
or delivered to, or received by, Tenant from any subtenant or assignee shall be
held by Tenant in trust for Landlord and shall be paid to Landlord immediately
upon demand therefor. Tenant further agrees to submit any and all instruments of
assignment, transfer or sublease to Landlord for Landlord's prior written
approval as to form and substance, which may be given or withheld by Landlord in
its sole and absolute discretion, but which instruments shall provide, as an
express condition precedent to Landlord's prior approval, that any assignee,
-8-
<PAGE>
transferee or sublessee agrees to remain jointly and severally liable to
Landlord for all obligations imposed by any such agreement of assignment,
transfer or sublease.
ARTICLE VII
TENANT'S MAINTENANCE AND REPAIRS
7.1 Maintenance. Tenant will keep and maintain the Premises and all
fixtures and equipment located therein in clean, safe and sanitary condition,
will take good care thereof and make all required repairs thereto, and will
suffer no waste or injury thereto. Landlord, at its cost, shall provide and
install Building Standard light fixtures as provided in Exhibit C attached
hereto, if any, and all replacement tubes for such light fixtures. All other
bulbs, tubes and lighting fixtures for the Premises shall be provided and
installed by Tenant at its cost and expense.
7.2 Repairs. Except as otherwise provided in Article XVII hereof, all
injury, breakage and damage to the Premises and to any other part of the Office
Complex caused by any act or omission of Tenant, or of any agent, employee,
subtenant, contractor, customer or invitee of Tenant, shall be repaired by and
at the sole expense of Tenant, except that Landlord shall have the right, at its
option, to make such repairs and to charge Tenant for all costs and expenses
incurred in connection therewith as Additional Rent hereunder, which shall be
due and payable upon demand.
ARTICLE VIII
TENANT ALTERATIONS
8.1 Prohibition. Tenant will not make or permit anyone to make any
alteration, addition, improvements, removal, demolition or other construction or
work of any nature (collectively "Alterations") structural or otherwise, in or
to any portion of the interior or exterior of Premises or the Office Complex,
without the prior written consent of Landlord, which may not be unreasonably
withheld. Landlord may impose any conditions upon its approval as it deems
appropriate, including, without limitation, (a) the review and approval of any
plans and specifications for such work, (b) the review and approval of the
contractor or other persons who will perform the work, and (c) the acquisition
by Tenant of specified additional insurance. All Alterations permitted by
Landlord and constructed or installed by Tenant shall conform to all laws,
ordinances, rules and regulations and requirements as set forth in Section 5.2
of this Lease. As a condition precedent to such written consent of Landlord,
Tenant agrees to obtain and deliver to Landlord written, unconditional waivers
of mechanic's and materialmen's liens against the Office Complex and the Land
from all proposed contractors, subcontractors, laborers and material suppliers
for all work, labor and services to be performed and materials to be furnished
in connection with any such alteration, addition, removal or demolition.
8.2 Indemnification, Removal. Tenant shall indemnify and hold Landlord
harmless from and against any and all expenses, liens, claims, liabilities and
damages based on or arising, directly or indirectly, by reason of any
Alterations within or upon the Premises. If any Alterations are undertaken or
permitted by Tenant without the prior written consent of Landlord, Landlord
shall have the right to remove and correct such Alterations and restore the
Premises to its condition immediately prior thereto, and Tenant shall be liable
for all costs and expenses incurred by Landlord in connection therewith, which
shall be paid by Tenant to Landlord as Additional Rent.
-9-
<PAGE>
ARTICLE IX
LANDLORD'S INTEREST NOT SUBJECT TO LIENS
9.1 Liens, Generally. Tenant shall not create or cause to be imposed,
claimed or filed upon the Premises, the Office Complex or the Land or upon any
portion or portions thereof, or upon the interest of Landlord therein, any lien,
claim of lien, order for the payment of money, charge or other encumbrance
whatsoever. If any such lien, order, charge or other encumbrance shall be
imposed, claimed or filed, Tenant shall, at its sole cost and expense, cause the
same to be fully paid and satisfied or otherwise discharged of record by bonding
or otherwise not later than seven (7) days following the earlier of (a) demand
from Landlord that the same be paid and satisfied or discharged of record or (b)
the filing for record of such lien, order, charge or other encumbrance. Tenant
shall indemnify and save and hold Landlord harmless from and against any and all
costs, liabilities, suits, penalties, claims and demands whatsoever, and from
and against any and all attorneys' fees, at both trial and all appellate levels,
resulting or on account thereof and therefrom. In the event that Tenant shall
fail to comply with the foregoing provisions of this Section, such failure shall
constitute a default hereunder and Landlord shall have, in addition to its other
rights under this Lease, the option of paying, satisfying or otherwise
discharging (by bonding or otherwise) such lien, charge or encumbrance and
Tenant agrees to reimburse Landlord, upon demand and as Additional Rent, for all
sums so paid and for all costs and expenses incurred by Landlord in connection
therewith, together with interest thereon, until paid.
9.2 Mechanics Liens. Landlord's interest in the Premises shall not be
subjected to liens of any nature by reason of Tenant's construction, alteration,
repair, restoration, replacement or reconstruction of any improvements on or in
the Premises, including those arising in connection with or as an incident to
the construction of any tenant improvements or permitted Alterations, or by
reason of any other act or omission of Tenant (or of any person claiming by,
through or under Tenant) including, but not limited to, mechanics' and
materialmen's liens. All persons dealing with Tenant are hereby placed on notice
that such persons shall not look to Landlord or to Landlord's credit or assets
(including Landlord's interest in the Premises or the Office Complex) for
payment or satisfaction of any obligations incurred in connection with the
construction, alteration, repair, restoration, replacement or reconstruction
thereof by or on behalf of Tenant. Tenant has no power, right or authority to
subject Landlord's interest in the Premises, the Office Complex or the Land to
any mechanics' or materialmen's lien or claim of lien or any other encumbrance
whatsoever. If a lien, a claim of lien or an order for the payment of money
shall be imposed against the Premises or any improvement thereon, therein or
thereto, on account of work performed, or alleged to have been performed, for or
on behalf of Tenant, Tenant shall, within seven (7) days after written notice of
the imposition of such lien, claim or order, cause the Premises and such
improvements, to be released therefrom by the payment of the obligation secured
thereby or by furnishing a bond or by any other method prescribed or permitted
by law. If a lien is released, Tenant shall thereupon furnish Landlord with a
written instrument of release in form for recording in the office of the Clerk
of the Circuit Court, Dade County, Florida, and otherwise sufficient to
establish the release as a matter of record.
9.3 Notices of Commencement. Prior to commencement by Tenant of any
Alterations for which a Notice of Commencement is required pursuant to Chapter
713, Florida Statutes (or its successor), Tenant shall record such a notice in
the office of the Clerk of the Circuit Court, Dade County, Florida, identifying
Tenant as the party for whom such work is being performed and requiring the
service of copies of all notices, liens or claims of lien upon Landlord. Any
such Notice of Commencement shall clearly reflect that the interest of Tenant in
the Premises is that of a leasehold estate and shall also clearly reflect that
the interest of Landlord as the fee simple owner of the Premises shall not be
subject to mechanics' materialmen's liens on account of the work which is the
subject of such Notice of Commencement. A copy of any such Notice of
Commencement shall be furnished to and approved by Landlord and its attorneys
prior to the recording thereof, as aforesaid.
-10-
<PAGE>
ARTICLE X
KEYS, SIGNS, FURNISHINGS AND EQUIPMENT
10.1 Keys. Landlord shall provide two (2) keys to the front door of the
office and two (2) keys to the restrooms on the floor. Additional keys will be
provided at the cost of Three DOLLARS ($3.00) per key.
10.2 Signs. No sign, advertisement or notice (collectively "Signs")
shall be inscribed, painted, affixed or otherwise displayed on any part of the
exterior or the interior of the Premises or the Office Complex, except on the
directories and the doors of office and such other areas as are designated by
Landlord, and then only in such place, number, size, color and style as are
approved by Landlord in its sole discretion. All of Tenant's Signs which are
approved by Landlord shall be installed and maintained by Landlord, at Tenant's
sole cost and expense. If any Sign that had not been approved by Landlord is
exhibited, displayed or installed by Tenant, Landlord shall have the right to
remove the same at Tenant's expense.
10.3 Landlord's Signage Rights. Landlord reserves the right to affix,
install and display signs, advertisements and notices on any part of the
exterior or interior of the Office Complex.
10.4 Removal of Signage. At the end of the Lease Term or earlier
termination of this Lease, Tenant shall remove all Signs from the Premises or
Office Complex and, at its expense, repair any damage to the Premises or Office
Complex on account thereof, or at Landlord's option, Landlord may remove such
Signs and repair such damage, if any, at Tenant's expense, which shall be repaid
to Landlord upon demand.
10.5 Furnishings. Landlord shall have the right to prescribe the weight
and position of safes and other heavy equipment and fixtures in the Premises,
which, if permitted by Landlord, shall be installed in such manner so as to
adequately and safely distribute their weight. Any and all damage or injury to
the Premises or the Office Complex caused by moving the same into or upon the
Premises, shall be repaired by Tenant at its sole cost and expense, or, at
Landlord's option, Landlord may repair such damage at Tenant's expense, which
shall be repaid to Landlord upon demand. No furniture, equipment or other bulky
material of any description will be received into the Office Complex or carried
in the elevators except as approved by Landlord, and all such furniture,
equipment and other bulky material shall be delivered only through the
designated delivery entrance of the Office Complex and the designated freight
elevator. Landlord may, but shall not be obligated to, supervise all moving of
furniture, equipment and other materials, but Landlord shall not, however, be
responsible for any damage to or charges for moving the same. Tenant agrees to
remove promptly from the sidewalks adjacent to or the hallways or walkways
within the Office Complex any of Tenant's furniture, equipment or other material
there delivered or deposited.
10.6 Equipment. Tenant will not install or operate in the Premises any
electrically operated equipment or machinery that operates on greater than 110
volt power without first obtaining the prior written consent of the Landlord.
Landlord may condition such consent as it deems appropriate and may require the
payment by Tenant of an amount, as Additional Rent, in compensation for the
excess consumption of electricity or other utilities and for the cost of any
additional wiring or apparatus that may be occasioned by the operation of such
equipment or machinery, together with applicable sales tax, if any. Tenant shall
not install any equipment of any type or nature that will or may necessitate any
changes, replacements or additions to, or in the use of, the water system,
heating system, plumbing system, air conditioning system or electrical system of
the Premises or the Office Complex without first obtaining the prior written
consent of the Landlord, which consent may be withheld in Landlord's sole and
absolute discretion. Tenant shall not permit business machines and mechanical
equipment belonging to Tenant to cause noise or vibration that may be
transmitted to the structure of the Office Complex or to any space therein to
such a degree as to be objectionable to Landlord or to any tenant in the Office
Complex.
-11-
<PAGE>
ARTICLE XI
INSPECTION BY LANDLORD
Landlord and its agents and representatives, shall have the right,
after reasonable advance notice and during normal business hours, to enter the
Premises, without charge therefor to Landlord and without diminution of the rent
payable by Tenant, to examine, inspect and protect the Premises and the Office
Complex, to make such a alterations and/or repairs as in the sole judgment of
Landlord may be deemed necessary, or to exhibit the same to prospective tenants
during the last one hundred eighty (180) days of the Lease Team, provided,
however, that Landlord shall not thereby assume any responsibility for the
performance of any of Tenant's obligations hereunder, nor any liability for the
improper performance thereof. In connection with any such entry, Landlord shall
endeavor to minimize the disruption to Tenant's use of the Premises. In the
event of emergency, Landlord shall have the right to enter the Premises without
notice.
ARTICLE XII
INSURANCE
12.1 Liability Insurance. Throughout the Lease Term, Tenant shall
obtain and maintain, at Tenant's sole cost, comprehensive general public
liability insurance including fire, legal liability and contractual liability
coverage in a company or companies licensed to do business in the State of
Florida, and approved by Landlord. Said insurance shall be in minimum amounts
approved by Landlord from time to time and shall name Landlord as an additional
insured thereunder. Initially, Tenant agrees to maintain general liability
insurance in the minimum amount of $1,000,000 combined single limit for injury
to any number of persons in a single occurrence and for damage to property. The
limit of said insurance shall not, however, limit the liability of the Tenant
hereunder. Tenant shall furnish to Landlord evidence of such insurance together
with evidence of any excess liability insurance which Tenant may carry. In
addition, if requested by the holder of any mortgage against the Office Complex
or the Land, or any portion thereof, said insurance shall also include such
mortgagee as an additional insured as its interest may appear. If requested by
Landlord, receipts evidencing payment of the premium for such insurance shall be
delivered by Tenant at least annually, and each such policy shall contain an
endorsement prohibiting cancellation or reduction of coverages without first
giving Landlord thirty (30) days prior written notice of such proposed action.
12.2 Property Insurance. Tenant shall also maintain insurance upon all
property situated in the premises owned by Tenant or for which Tenant is legally
liable and on fixtures and improvements installed in the Premises by or on
behalf of Tenant. Such policies shall be for an amount equal to not less than
100% of the full replacement cost, with coverage against at least fire, and with
standard extended coverage, vandalism, malicious mischief, sprinkler leakage and
water damage coverage. If there is a dispute as to the replacement cost amount,
the decision of the Landlord shall be conclusive.
12.3 Other Insurance. Worker's compensation insurance for all Tenant's
employees working in or at the Premises in an amount sufficient to comply with
applicable laws or regulations shall be maintained by Tenant. Tenant shall
maintain insurance against such other perils and in such amounts as Landlord and
any mortgagee of Landlord may from time to time reasonably require in writing.
12.4 Requirements. All policies of insurance required of Tenant
hereunder shall contain a severability of interest clause, a cross-liability
clause, shall be primary and shall not call into contribution any other
insurance available to Landlord.
12.5 Failure to Procure Insurance. In the event Tenant shall fail to
procure insurance required under this Article and fail to maintain the same in
full force and effect continuously during the term of this Lease, Landlord shall
be entitled to procure the same
-12-
<PAGE>
and Tenant shall immediately reimburse Landlord upon demand for such premium
expense as Additional Rent.
12.6 Waiver of Subrogation. Each of Landlord and Tenant hereby
releases-the other to the extent of its insurance coverage, from any and all
liability for any loss or damage caused by fire or any of the extended coverage
casualties, even if such fire or other casualty shall be brought about by the
fault or negligence of the other party, or any person under such other party,
provided, however, this release shall be in force and effect only with respect
to loss or damage occurring during such time as the releaser's policies of fire
and extended coverage insurance shall contain a clause to the effect that this
release shall not affect such policies or the right of the releaser to recover
thereunder. Each of Landlord and Tenant agrees that its fire and extended
coverage insurance policies shall include such a clause so long as the same is
obtainable and is includable without extra cost, or if such extra cost is
chargeable therefor, so long as the other party pays such extra cost. If extra
cost is chargeable therefor, each party will advise the other thereof and of the
amount thereof, and the other party, at its election, may pay the same but shall
not be obligated to do so.
12.7 Insurance by Landlord. Landlord shall, as part of Operating
Expenses, obtain any and all insurance coverage in connection with the use and
operation of the Office Complex, which shall include, but not be limited to,
fire and extended coverage at full replacement value; comprehensive general
public liability; difference in conditions; rental interruption insurance for no
less than one (1) year's annual operating income; excess limits of liability
insurance (umbrella coverage); and any and all other insurance, including boiler
and machinery insurance as Landlord may require to adequately protect the
interest of Landlord in the Office Complex and Land against liability afforded
by such insurance coverage.
12.8 Increase in Landlord's Insurance Premium. Tenant shall not conduct
or permit to be conducted any activity, or place any equipment, sign or
furnishing, in or about the Premises or the Office Complex, which will in any
way increase the rate of fire insurance or other insurance on the Office
Complex. If any increase in the rate of fire insurance or other insurance is
stated by any insurance company or by the applicable Insurance Rating Bureau to
be due to any activity or equipment of Tenant in or about the Premises or the
Office Complex, such statement shall be conclusive evidence that the increase in
such rate is due to such activity or equipment and, as a result thereof, Tenant
shall be liable for the amount of such increase. Tenant shall, reimburse
Landlord for such amount upon written demand by Landlord and such sum shall be
considered Additional Rent payable hereunder.
ARTICLE XIII
SERVICES AND UTILITIES
13.1 Services and Utilities. Landlord shall furnish to the Premises
year-round ventilation and air-conditioning and heat during the seasons when
they are required, as determined in Landlord's reasonable judgement. Landlord
shall also provide reasonably adequate electricity, water, exterior
window-cleaning service and janitorial service after 6:00 p.m. on Monday through
Friday only (excluding legal holidays), as determined in Landlord's reasonable
judgement and in accordance with standards customarily provided in first-class
office buildings in the greater metropolitan Miami area. Landlord will also
provide elevator service; provided, however, that Landlord shall have the right
to remove elevators from service from time to time as may be required for moving
freight or for servicing or maintaining the elevators and/or the Office Complex,
or in the event of emergencies. The Office Complex shall be open during normal
business hours. Thereafter, all entrance points to the interior of the Office
Complex shall be locked. Tenant shall have 24 hour access to the Premises via an
electronic cardkey system.
13.2 Normal Hours. The services and utilities required to be furnished
by Landlord, other than electricity and water, will be provided only during the
normal hours of operation of the Office Complex, except as otherwise specified
herein. The normal hours of
-13-
<PAGE>
operation of the Office Complex will be 7:00 a.m. to 7:00 p.m. on Monday through
Friday (except legal holidays) and 8:00 a.m. to 12:00 p.m. on Saturdays. There
will be no normal hours of operation of the Office Complex on Sundays or legal
holidays and Landlord shall not be obligated to maintain or operate the Office
Complex at such times unless special arrangements are made by Tenant. If Tenant
requires air-conditioning or heat beyond the normal hours of operation set forth
herein, Landlord will furnish such air-conditioning or heat, provided Tenant
gives Landlord's agent no less than six (6) hours advance notice of such
requirement, which notice must be given during normal business hours and Tenant
agrees to pay for the cost of such extra service in accordance with Landlord's
then current schedule of costs and assessments for such extra service, which is
currently twenty five DOLLARS ($25.00) per hour per floor.
13.3 Interruptions. Landlord shall have no liability to Tenant
whatsoever as a resulting of Landlord's failure or inability to furnish any of
the utilities or services required to be furnished by Landlord hereunder,
whether resulting from breakdown, removal from service for maintenance or
repairs, strikes, scarcity of labor or materials, acts of God, governmental
requirements or from any other cause whatsoever. No such failure or inability of
Landlord to furnish the utilities or services required hereunder shall be deemed
or considered to be or constitute an eviction, actual or constructive, of the
Tenant from the Premises, nor shall it entitle Tenant to terminate this Lease or
to receive an abatement of any rent payable hereunder.
13.4 Energy Conservation Control. Tenant shall comply with all
mandatory energy conservation controls and requirements applicable to office
buildings that are imposed or instituted by any federal, state or local
governmental body, including, without limitation, controls on the permitted
range of temperature settings in office buildings, and requirements
necessitating curtailment of the volume of energy consumption or the hours of
operation of the Office Complex. Any terms or conditions of this Lease that
conflict or interfere with compliance with such controls or requirements shall
be suspended for the duration of such controls or requirements. Tenant's
compliance with such controls or requirement shall not be deemed or considered
to be or constitute an eviction, actual or constructive, of the Tenant from the
Premises, nor shall such compliance entitle Tenant to terminate this Lease or to
receive an abatement of any rent payable hereunder.
13.5 Landlord's Responsibilities. During the Lease Term, Landlord shall
define, set, and maintain the level of repairs and maintenance for the Office
Complex, including the common area and all other areas serving the Office
Complex, in a manner comparable to office buildings of similar quality to and in
the immediate geographic area of the Office Complex, and such that the common
areas of the Office Complex are in compliance with all relevant government
requirements. Landlord's responsibilities with respect to this Section are as
follows: (1) the structural and roof systems of the Office Complex and parking
garage(s), (2) the standard electrical and mechanical systems serving the Office
Complex and common areas, (3) the primary water and sewer systems, (4) the
common areas and the common area furniture, fixtures, and equipment, (5) the
landscaped areas in and about the Office Complex, (6) the parking lot(s) and
garage(s) of the Office Complex, and (7) replacement of standard light bulbs in
the common areas.
ARTICLE XIV
LIABILITY OF LANDLORD, INDEMNIFICATION BY TENANT
14.1 Liability of Landlord. Landlord shall not be liable to Tenant, its
employees, agents, business invitees, licensees, customers, clients, family
members or guests for any damage, injury, loss, compensation or claim, including
but not limited to claims for the interruption of or loss to Tenant's business,
based on, arising out of or resulting from any cause whatsoever, including, but
not limited to (a) repairs to any portion of the Premises or the Office Complex;
(b) interruption in Tenant's use of the Premises; (c) any accident or damage
resulting from the use or operation (by Landlord, Tenant or any other person or
persons) of elevators, or of heating, cooling, electrical or plumbing equipment
or apparatus;
-14-
<PAGE>
(d) the termination of this Lease by reason of the condemnation or destruction
of the Premises or the Office Complex in accordance with the provisions of this
Lease; (e) any fire, robbery, theft, mysterious disappearance or other casualty;
(f) the actions of any other tenants of the Office Complex or of any other
person or persons; and (g) any leakage in any part or portion of the Premises or
the Office Complex, whether from water, rain or other precipitation that may
leak into, or flow from, any part of the Premises or the Office Complex, or from
drains, pipes or plumbing fixtures in the Office Complex.
Any goods, property or personal effects stored or placed by the Tenant
or its employees in or about the Premises or Office Complex shall be at the sole
risk of the Tenant, and the Landlord shall not in any manner be held responsible
therefor. It is understood that the employees of the Landlord are prohibited
from receiving any packages or other articles delivered to the Office Complex
for Tenant, and if any such employee receives any such package or articles, such
employee shall be acting as the agent of the Tenant for such purposes and not as
the agent of the Landlord. Notwithstanding the foregoing provisions of this
Section, Landlord shall not be released from liability to Tenant for any damage
or injury caused by the willful misconduct of Landlord or its employees;
provided, however, in no event shall Landlord have any liability to Tenant for
any claims based on the interruption of or loss to Tenant's business.
14.2 Indemnification of Landlord. Tenant shall defend, indemnify and
save and hold Landlord harmless from and against any and all liabilities,
obligations, losses, damages, injunctions, suits, actions, fines, penalties,
claims, demands, costs and expenses of every kind or nature, including
reasonable attorneys' fees (but not against any of the same to the extent that a
negligent or willful act or omission of Landlord, its agents, contractors or
employees gave rise thereto), arising directly or indirectly from our out of (a)
any failure by Tenant to perform any of the terms, provisions, covenants or
conditions of this Lease on Tenant's part to be performed including, without
limitations, the failure to comply with the rules and regulations for which
provisions are made in Article XV; (b) any accident, injury, or damage which
shall happen at, in or upon the Premises, however occurring; (c) any matter or
thing growing out of the condition, occupation, maintenance, alteration, repair,
use or operation by any person of the Premises, or the operation of the business
conducted therefrom; (d) any failure of Tenant, and/or its employees, agents,
invitees, customers, licensees, or contractors, to comply with any laws,
ordinances, requirements, orders, directions, rules or regulations of any
governmental authority; (e) any contamination of the Premises or the Office
Complex occasioned by the use, transportation, storage, spillage or discharge
thereon, therein or therefrom of any toxic or hazardous chemicals, compounds,
materials or substances, whether by Tenant or by its employees, agents,
invitees, customers, licensees or contractors; (f) any use, generation,
manufacture, storage, or release of any Hazardous Materials in or about the
Premises, the Office Complex or the Land, or the groundwater thereof, or any
discharge of toxic or hazardous sewage or waste materials from the Premises into
any sanitary sewer system serving the Premises or the Office Complex, whether by
Tenant, its employees, agents, invitees, customers, licensees or contractors;
and (g) any other act or omission of Tenant, its employees, agents, invitees,
customers, licensees, or contractors.
Landlord shall defend, indemnify, save and hold Tenant harmless from
and against any and all liabilities, obligations, losses, damages, injunctions,
suits, actions, fines, penalties, claims, demands, costs and expenses of every
kind or nature, including reasonable attorneys' fees (but not against any of the
same to the extent that a negligent or willful act or omission of Tenant, its
agents, contractors or employees gave rise thereto), arising directly or
indirectly from our out of (a) any failure by Landlord to perform any of the
terms, provisions, covenants or conditions of this Lease on Landlord's part to
be performed; (b) any accident, injury, or damage which shall happen at, in or
upon the Office Complex, but not upon the Premises, however occurring; (c) any
matter or thing growing out of the condition, occupation, maintenance,
alteration, repair, use or operation by any person of the Office Complex other
than the Premises, or the operation of the business conducted therefrom; (d) any
failure of Landlord, any/or its employees, agents, invitees, customers,
licensees, contractors, or other tenants of the Office Complex to comply with
any laws, ordinances,
-15-
<PAGE>
requirements, orders, directors, rules or regulations of any mutual governmental
authority; (e) any contamination of the Premises or the Office Complex
occasioned by the use, transportation, storage, spillage or discharge thereon,
therein or therefrom of any toxic or hazardous chemicals, compounds, materials,
or substances by Landlord, its employees, agents or contractors; (f) any use,
generation, manufacture, storage, or release of any Hazardous Materials in or
about the Premises, the Office Complex or the Land, or the groundwater thereof,
or any discharge of toxic or hazardous sewage or waster materials from the
Premises into any sanitary sewer system serving the Premises or the Office
Complex, by Landlord, its employees, agents or contractors; and (g) any other
act or omission of Landlord, its employees, agents, invitees, customers,
licensees, or contractors or other tenants of the Office Complex.
Each party's indemnity obligations under this Section and elsewhere in
this Lease arising prior to the termination or assignment of this Lease shall
survive any such termination or assignment.
14.3 Notice of Claim or Suit. (a) Tenant shall promptly notify Landlord
of any claim, action, proceeding or suit instituted or threatened against
Landlord of which Tenant received notice or of which Tenant acquires knowledge.
In the event Landlord is made a party to any action for damages or other relief
against which Tenant has indemnified Landlord, as aforesaid, Tenant shall defend
Landlord, pay all costs and shall provide effective counsel to Landlord in such
litigation or, at Landlord's option, shall pay all reasonable and actual
attorney's fees and costs incurred by Landlord's counsel, which counsel shall be
reasonably accepted to Tenant, in connection with its own defense or settlement
of said litigation.
(b) Landlord shall promptly notify Tenant of any claim,
action, proceeding or suit instituted or threatened against Tenant of which
Landlord received notice or of which Landlord acquires knowledge. In the event
Tenant is made a party to any action for damages or other relief against which
Landlord has indemnified Tenant, as aforesaid, Landlord shall defend Tenant, pay
all costs and shall provide effective counsel to Tenant in such litigation or,
at Tenant's option, shall pay all reasonable and actual attorneys' fees and
costs incurred by Tenant's counsel, which counsel shall be reasonably acceptable
to Landlord, in connection with its own defense or settlement of said
litigation.
14.4 Transfer of Office Complex. In the event that at any time Landlord
shall sell or transfer the Office Complex, or that portion thereof which
includes the Premises, provided the purchaser or transferee assumes the
obligations of the Landlord hereunder, the Landlord named herein shall not be
liable to Tenant for any obligations or liabilities based on or arising out of
events or conditions occurring on or after the date of such sale or transfer.
Furthermore, Tenant agrees to attorn to any such purchaser or transferee upon
all terms and conditions of this Lease.
14.5 No Offset Against Rent. In the event that Tenant shall at any time
during the Lease Term have a claim against Landlord, Tenant shall not have the
right to offset or deduct the amount allegedly owed to Tenant from any rent or
other sums payable to Landlord hereunder, it being understood that Tenant's sole
remedy for recovering upon such claim shall be to institute an independent
action against Landlord.
14.6 Limitation on Liability of Landlord. In the event Tenant is
awarded a money judgment against Landlord, Tenant's sole recourse for
satisfaction of such judgment shall be limited to execution against the Office
Complex assets of Landlord. In no event shall any partner of Landlord or any
other person be held to have any personal liability for satisfaction of any
claims or judgments that Tenant may have against Landlord.
-16-
<PAGE>
ARTICLE XV
RULES AND REGULATIONS
Tenant and its agents, employees, invitees, licensees, customer,
client, family members, guests and permitted subtenants shall at all times abide
by and observe the rules and regulations for the Office Complex attached hereto
as Exhibit E and made a part hereof by this reference, Landlord shall have the
right from time to time to amend, modify, delete or add new and additional rules
and regulations with respect to the safety, operation and maintenance of the
Premises and the Office Complex and the comfort, quiet and convenience of the
other tenants in the Office Complex, provided that notice thereof is given to
Tenant and that such new or modified rules and regulations are not inconsistent
with the provisions of this Lease. Nothing contained in this Lease shall be
construed as imposing upon Landlord any duty or obligation to enforce any such
rules and regulations, or the terms conditions or covenants contained in any
other lease, as against any other tenant, and Landlord shall not be liable to
Tenant for the violation of any such rules or regulations by any other tenant or
its employees, agents, business invitees, licensees, contractors, customers,
clients, family member or guests. The failure by Landlord to enforce any such
rules and regulations against Tenant or any other tenant of the Center shall not
constitute a waiver of Landlord's right to do so in the future nor any default
hereunder by Landlord. If there is any inconsistency between this Lease and such
rules and regulations, the provisions of this Lease shall govern.
ARTICLE XVI
DAMAGES OR DESTRUCTION
16.1 Damage of Destruction. If, during the Lease Term, the Premises or
the Office Complex are totally or partially damaged or destroyed from any cause,
so as to render the Premises totally or partially inaccessible or unusable,
Landlord shall diligently (taking into account the time necessary to effectuate
a satisfactory settlement with any insurance company involved) repair and
restore the Premises and the Office Complex to substantially the same condition
they were in prior to such damage; provided, however, if the repairs and
restoration cannot be completed within ninety (90) days after the occurrence of
such damage or destruction, including the time needed for the removal of debris,
preparation of plans for such repair and restoration and issuance of all
required governmental permits for such repair and restoration, Landlord shall
have the right, in its sole discretion, to terminate this Lease by giving
written notice of such termination to Tenant within forty-five (45) days after
the occurrence of such damage or destruction. If this Lease is terminated by
Landlord pursuant to this Section, all rent payable hereunder shall be
apportioned and paid to the date of such termination of Lease, and Tenant shall
have no further rights or remedies as against Landlord pursuant to this Lease,
or otherwise. If this Lease is not terminated pursuant to this Section, then
until the repair and restoration of the Premises is completed Tenant shall be
required to pay Base Rent and Additional Rent only for that part of the Premises
that Tenant is able to use while repairs are being made, based on the ratio that
the amount of usable rentable area bears to the total rentable area in the
Premises; provided, however, that there shall be no such reduction in Base Rent
or Additional Rent if such damage was caused by the act or omission of Tenant or
any of its employees, agents, licensees, subtenants, invitees, customers,
clients, family members or guests. If such repairs and restorations are with
respect to any such damage or destruction which was caused by the act or
omission of Tenant or any of its employees, agents, licensees, subtenants,
contractors, invitees, customers, clients, family members or guests, upon
written demand from Landlord, Tenant shall pay to Landlord the amount by which
such costs and expenses exceed the insurance proceeds, if any, received by
Landlord on account of such damage or destruction together with such other
losses or damages which Landlord may suffer or sustain on account thereof.
16.2 Limitation of Landlord's Obligation. Landlord's obligation of
repair, reconstruction or replacement hereunder shall be limited to the Building
Standard Work described on Exhibit C, if any. In no event shall Landlord be
obligated to expend for such repairs, reconstruction or replacement an amount in
excess of the insurance proceeds recovered or recoverable on account of any such
damage or destruction. Moreover,
-17-
<PAGE>
Landlord shall not be liable for delays occasioned by adjustment or losses with
insurance carriers or by any other cause so long as Landlord shall proceed in
good faith and with due diligence.
In the event either Landlord or Tenant sustain a loss by reason of a
risk insured or insurable under insurance required to be maintained under this
Lease, and such loss is caused, in whole or in part, by acts or omissions of the
other party or his or its agents, employees or representatives,then the party
incurring such loss agrees to look solely to the proceeds, if any, accruing from
its own insurance and such party shall have no right of action against the other
party to this Lease or the agents, employees or representatives of such other
party, and no third party (including any insurance carrier) shall have any such
right by way of assignment, subrogation or otherwise. The foregoing provisions
of this Section 16.3 shall apply only to the extent the same do not result in
the inability to obtain (and maintain) the required insurance coverage. If
either party shall be unable to obtain (and maintain) insurance coverage because
of the foregoing provisions, immediate notice thereof shall be given to the
other party.
16.3 Landlord's Termination Option. Notwithstanding anything to the
contrary contained herein, if the Officer Complex is damaged or destroyed,
whether or not the Premises are damaged or destroyed, from any cause to such an
extent that the costs of repairing and restoring the Office Complex would exceed
fifty percent (50%) of the replacement value of the Office Complex, Landlord
shall have the right to terminate this Lease by written notice to Tenant,
provided the leases with all other tenants in the Office Complex are similarly
terminated. This right of termination shall be in addition to any other right of
termination provided in this Lease.
ARTICLE XVII
CONDEMNATION
17.1 Condemnation. If the whole or a substantial part (as hereinafter
defined) of the Premises, or the use or occupancy of the Premises, shall be
taken or condemned for any public or quasi-public use or purpose (including a
sale thereof under threat of such a taking), then this Lease shall terminate on
the date title thereto vests in the condemning authority, and all rent payable
hereunder shall be apportioned as of such date. If less than a substantial part
of the Premises, or the use or occupancy thereof, is taken or condemned for any
public or quasi-public use or purpose (including a sale thereof under threat of
such a taking), then this Lease shall continue in full force and effect, except
that the rent payable hereunder shall be equitably adjusted (on the basis of the
ratio of the number of square feet of rentable area taken to the total rentable
area in the Premises prior to such condemnation) as of the date title vests in
the condemning authority. For the purposes of this Section, a substantial part
of the Premises shall be considered to have been taken if more than one-third
(1/3) of the Premises is rendered unusable as a result of such condemnation.
17.2 Award. All awards, damages and other compensation paid by the
condemning authority on account of such taking or condemnation (or sale under
threat of such taking) shall belong to Landlord, and Tenant hereby assigns to
Landlord all rights to such awards, damages and compensation. Tenant agrees not
to make any claim against Landlord or the condemning authority for any portion
of such award or compensation attributable to damages to the Premises, the value
of the unexpired term of this Lease, the loss of profits or goodwill, leasehold
improvements or severance damages. Nothing contained herein, however, shall
prevent Tenant from pursuing a separate claim against the condemning authority
for the value of furnishings, equipment and trade fixtures installed in the
Premises at the Tenant's expense and for relocation expenses, provided that such
claim does not in any way diminish the award or compensation payable to or
recoverable by Landlord in connection with such taking or condemnation.
-18-
<PAGE>
ARTICLE XVIII
DEFAULT BY TENANT
18.1 Events of Default. The occurrence of any of the following ("Events
of Default") shall constitute a breach of and default under this Lease:
(a) If Tenant shall fail to pay any installment of Base Rent
or Additional Rent when due, or shall fail to pay when due any other
payment required under this Lease;
(b) If Tenant shall continue to violate or fails to comply
with or perform any other term, condition, covenant or agreement to be
performed or observed by Tenant under this Lease, for a period of
fifteen (15) days after receipt of notice of such failure; provided,
however, that if such violation or failure to comply or perform cannot
reasonably be cured within fifteen (15) days and Tenant is diligently
proceeding to cure same, Tenant shall have such period of time as is
reasonably necessary under such circumstances to cure the same.
(c) If Tenant shall generally not pay its debts as they become
due, or shall admit in writing its inability to pay its debts, or shall
make a general assignment for the benefit of creditors;
(d) If Tenant shall commence any case, proceeding or other
action seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, or seeking
appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property;
(e) If Tenant shall take any corporate action to authorize any
of the actions set forth in paragraphs (c) or (d) above; or
(f) If any case, proceeding or other action against the Tenant
shall be commenced seeking to have an order for relief entered against
it as debtor, or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts under any
law relating to bankruptcy, insolvency, reorganization or relief of
debtors, or seeking appointment of a receiver, trustee, custodian or
other similar official for it or for all or any substantial part of its
property, and such case, proceeding or other action (i) results in the
entry of an order for relief against it which is not fully stayed
within fifteen (15) business days after the entry thereof or (ii)
remains undismissed for a period of sixty (60) days;
(g) If Tenant's leasehold interest in the Premises or property
therein shall be seized under any levy, execution, attachment or other
process of court where the same shall not be vacated or stayed on
appeal or otherwise disposed of within seven (7) days thereafter, or if
Tenant's leasehold interest in the Premises is sold by judicial sale or
otherwise.
(h) If Tenant shall abandon the Premises;
(i) If Tenant removes or attempts to remove, or manifests an
intention to remove Tenant's goods, merchandise or property from or out
of the Premises, other than in the usual and ordinary course of
Tenant's business, without having given prior notice to Landlord of
such planned removal and of the anticipated length of time the Premises
shall be empty.
(j) If the Premises continue to be used or permitted to be
used for any purpose, or for the conduct of any business or activity,
not permitted by this Lease for a period of fifteen (15) days after
receipt of notice of such failure; provided, however, that if such
violation or failure to comply or perform cannot reasonably be
-19-
<PAGE>
cured within fifteen (15) days and Tenant is diligently proceeding to
cure same, Tenant shall have such period of time as is reasonably
necessary under such circumstances to cure the same.
(k) If any assignment, sublease or transfer shall be made or
deemed to be made that is in violation of the provisions of Article VI
of this Lease;
(l) If Tenant shall fail to abide by, comply with or conform
to any of the rules and regulations established and promulgated by
Landlord for and with respect to the Premises and the Office Complex
for a period of fifteen (15) days from Tenant's receipt of notice from
Landlord specifying such failure.
18.2 Remedies on Default. If any of the Events of Default hereinabove
specified in Section 18.1 of this Lease shall occur, Landlord, at any time
thereafter, shall have and may exercise any of the following rights and
remedies:
(a) Landlord may, pursuant to written notice thereof to
Tenant, terminate this Lease and, peaceably or pursuant to appropriate
legal proceedings, re-enter, retake and resume possession of the
Premises for Landlord's own account and, for Tenant's breach of and
default under this Lease, recover immediately from Tenant any and all
rents and other sums and damages due or in existence at the time of
such termination, including, without limitation, (i) all Base Rent and
Additional Rent (ii) all other sums, charges, payments, costs and
expenses agreed and/or required to be paid by Tenant to Landlord
hereunder, (iii) all costs and expenses of Landlord in connection with
the recovery of possession of the Premises, including reasonable
attorneys' fees and court costs, (iv) all free rent credits and rental
abatements, if any, granted to Tenant as concessions in connection with
this Lease, and (v) all costs and expenses of Landlord in connection
with any reletting or attempted reletting of the Premises or any part
or parts thereof, including, without limitation, brokerage fees,
attorneys' fees and the cost of any alterations or repairs which may be
reasonably required to so relet the Premises, or any part or parts
thereof; and
(b) Landlord may, pursuant to any prior notice required by
law, and without terminating this Lease, peaceably or pursuant to
appropriate legal proceedings, re-enter, retake and resume possession
of the Premises for the account of Tenant, make such alterations of and
repairs to the Premises as may be reasonably necessary in order to
relet the same or any part or parts thereof and relet or attempt to
relet the Premises or any part or parts thereof for such term or terms
(which may be for a term or terms extending beyond the term of this
Lease), at such rents and upon such other terms and provisions as
Landlord, in its sole, but reasonable discretion, may deem advisable.
If Landlord relets or attempts to relet the Premises, Landlord shall be
the sole judge as to the terms and provisions of any new lease or
sublease and of whether or not a particular proposed new tenant or
subtenant is acceptable to Landlord. Upon any reletting, all rents,
whether Base Rent or Additional Rent, received by the Landlord from
such reletting shall be applied, (a) first, to the payment of all costs
and expenses of recovering possession of the Premises, (b) second, to
the payment of any costs and expenses of such reletting, including
brokerage fees, attorneys' fees and the cost of any alterations,
restorations and repairs reasonably required for such reletting; (c)
third, to the payment of any indebtedness, other than rent, due
hereunder from Tenant to the Landlord, (d) fourth, to the repayment of
Landlord of all free rent credits and rental abatements, if any,
granted to Tenant as concessions in connection with this lease, (e)
fifth, to the payment of all rents due and unpaid hereunder, and (f)
sixth, the residue, if any shall be held by the Landlord and applied in
payment of future rents the same may become due and payable hereunder.
If the rents received from such reletting during any period shall be
less than that required to be paid during that period by the Tenant
hereunder, Tenant shall pay any such deficiency to the Landlord within
ten (10) days after demand therefor and upon Tenant's failure to do so,
Landlord shall immediately be entitled to institute legal proceedings
for the recovery and collection of the same.
-20-
<PAGE>
Such deficiency shall be calculated and paid at the time each payment
of rent shall otherwise become due under this Lease, or, at the option
of Landlord, at the end of the term of this Lease. Landlord shall, in
addition, be immediately entitled to sue for and otherwise recover from
Tenant any other damages occasioned by or resulting from any
abandonment of the Premises or other breach of or default under this
Lease other than a default in the payment of rent. No such re-entry,
retaking or resumption of possession of the Premises by the Landlord
for the account of Tenant shall be construed as an election on the part
of Landlord to terminate this Lease unless a written notice of such
intention shall be given to the Tenant. Notwithstanding any such
re-entry and reletting or attempted reletting of the Premises or any
part or parts thereof for the account of Tenant without termination,
Landlord may at any time thereafter, upon written notice to Tenant,
elect to terminate this Lease or pursue any other remedy available to
Landlord for Tenant's previous breach of or default under this Lease;
and
(c) Landlord may, without re-entering, retaking or resuming
possession of the Premises, sue for all rents, including Base Rent and
Additional Rent, and all other sums, charges, payments, costs and
expenses due from Tenant to Landlord hereunder, either: (i) as they
become due under this Lease, or (ii) at Landlord' s option, Landlord
may accelerate the maturity and due date of the whole or any part of
Base Rent and Additional Rent for the entire then remaining unexpired
balance of the term of this Lease, together with the amount of all free
rent credits and rental abatements, if any, granted to Tenant as
concessions in connection with this Lease, as well as all other sums,
charges, payments, costs and expenses required to be paid by Tenant to
Landlord hereunder, including, without limitation, damages for breach
or default of Tenant's obligations hereunder in existence at the time
of such acceleration, such that all sums due and payable under this
Lease shall, following such acceleration, be treated as being and, in
fact, be due and payable in advance as of the date of such
acceleration. For purposes of determining the total amount due from
Tenant to Landlord upon any such acceleration, Base Rent and Additional
Rent shall each be treated as being subject to increase in each
remaining Lease Year of the entire then remaining balance of the Lease
Term at the rate of five percent (5%) per year. However, all
accelerated sums due from Tenant to Landlord pursuant to the foregoing
provisions of this subparagraph (c) shall be subject to adjustment to
the then-present value of such accelerated sums at the time of their
actual payment by Tenant to Landlord based upon a twelve percent (12%)
discount rate, which discount rate is agreed upon by, and acceptable
to, each party hereto as evidenced by each party's execution of this
Lease. Landlord may recover and collect all such unpaid rents and other
sums so sued for by Tenant by distress, levy, execution or otherwise.
Regardless of which of the alternative remedies is chosen by Landlord
under the foregoing provisions of this subparagraph (c), Landlord shall
not be required to relet the Premises nor exercise any other right
granted to Landlord pursuant to this Lease, nor shall Landlord be under
any obligation to minimize or mitigate Landlord's damages or Tenant's
loss as a result of Tenant's breach of or default under this Lease.
18.3 Additional Remedies. In addition to the remedies hereinabove
specified and enumerated in Section 18.2 Landlord shall have the right of
injunction and shall have and may exercise the right to invoke any other
remedies allowed at law or in equity as if the remedies or re-entry, unlawful
detainer proceedings and other remedies were not herein provided. Accordingly,
the mention in this Lease of any particular remedy shall not preclude Landlord
from having or exercising any other remedy set forth in this Lease or at law or
in equity. Nothing herein contained shall be construed as precluding the
Landlord from having or exercising such lawful remedies as may be and become
necessary in order to preserve the Landlord's right or the interest of the
Landlord in the Premises and in this Lease, even before the expiration of the
notice periods provided for in this Lease, if under the particular circumstances
then existing the allowance of such notice periods will prejudice or will
endanger the rights and estate of the Landlord in this Lease and in the
Premises.
-21-
<PAGE>
18.4 No Waiver. If the Landlord shall institute proceedings against
Tenant and a compromise or settlement thereof shall be made, the same shall not
constitute a waiver of the same or of any other covenant, condition or agreement
set forth herein, nor of any of Landlord's rights hereunder. Neither the payment
by Tenant of a lesser amount than the installments of Base Rent, Additional Rent
or of any sums due hereunder nor any endorsement or statement on any check or
letter accompanying a check for payment of rent or other sums payable hereunder
shall be deemed an accord and satisfaction, and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance of such
rent or other sums or to pursue any other remedy available to Landlord. No
re-entry by Landlord, and. no acceptance by Landlord of keys from Tenant, shall
be considered an acceptance of a surrender of this Lease.
18.5 Landlord May Cure Tenant's Defaults. If Tenant defaults in the
making of any payment or in the doing of any act herein required to be made or
done by Tenant, then Landlord may, but shall not be required to, make such
payment or do such act. If Landlord elects to make such payment or do such act,
all costs and expenses incurred by Landlord, plus interest thereon at the
highest rate allowable under the laws of the State of Florida from the date paid
by Landlord to the date of payment thereof by Tenant, shall be immediately paid
by Tenant to Landlord; provided however, that nothing contained herein shall be
construed as permitting Landlord to charge or receive interest in excess of the
maximum legal rate then allowed by law. The taking of such action by Landlord
shall not be considered as a cure of such default by Tenant or bar Landlord from
pursuing any remedy to which it is otherwise entitled on account of such
default.
ARTICLE XIX
ATTORNMENT AND NONDISTURBANCE
19.1 Nondisturbance. In its sole and absolute discretion, Landlord
shall have the right to mortgage and encumber all or any part of the Premises
and the Office Complex at any time and from time to time, in such amounts and
with such lenders as Landlord sees fit. This Lease, Tenant's interest hereunder,
and Tenant's leasehold interest in and to the Premises shall not be junior,
inferior, subordinate, or subject to the right, title, interest, lien,
encumbrance or priority of any mortgage, lien or other encumbrance now or
hereafter affecting the Premises or the Office Complex, and no holder of such an
encumbrance shall have the right to name Tenant in any foreclosure or
enforcement action which it may bring against Landlord or the Office Complex.
Landlord agrees that it shall use reasonable efforts to obtain, for the benefit
of Tenant, a written confirmation from any holder of such an encumbrance of its
acceptance of and agreement to the provisions of this Article XIX, which
confirmation shall be in form and content reasonably acceptable to Tenant.
Landlord acknowledges that the provisions of this Article XIX are material
considerations for an inducement of the execution of this Lease by Tenant.
Accordingly, any breach of default by Landlord of its covenants and obligations
under this Article XIX shall be deemed to be and constitute a material and
substantial breach and default of this Lease by Landlord.
Notwithstanding any foreclosure of any such encumbrance or any
conveyance in lieu of foreclosure, neither the holder of such encumbrance nor
any purchaser at a foreclosure sale shall disturb the possession of Tenant
hereunder so long as Tenant pays the rent and no default has occurred and is
continuing hereunder beyond any applicable period of notice and grace.
Tenant agrees that, upon request from Landlord at any time or times
while Landlord is not in default hereunder, Tenant will enter into an agreement
with "Landlord's Lender," as defined and Landlord providing that, should there
be a collateral assignment of Landlord's rights under this Lease to Landlord's
Lender and should a copy of the same be provided to Tenant, Tenant agrees that
none of the following actions shall be taken without the prior written consent
of Landlord's Lender:
(a) This Lease will not be modified, altered or amended in any way;
-22-
<PAGE>
(b) Landlord and Tenant will not agree to a cancellation of this Lease,
nor will Tenant surrender its rights hereunder to Landlord;
(c) Landlord will not convey its estate in the Office Complex to Tenant
in a manner which will result in merger, nor take any other action which would
result in merger, of Landlord's estate in the Office Complex with Tenant's
leasehold estate under this Lease; and
(d) Tenant will not prepay and Landlord will not accept prepayment of
any installment or payment of rent more than thirty (30) days in advance of the
due date thereof.
"Landlord's Lender" means an institutional lender having a first or
second mortgage on the Office Complex.
Landlord and Tenant each acknowledge and agree that the provisions of
this Article XIX are for the benefit of Landlord, Tenant, and Landlord's Lender,
and shall be enforceable by any one or more of such parties.
19.2 Attornment and Waiver. Tenant agrees that, in consideration of the
nondisturbance agreement granted to it in this Article XIX, Tenant shall attorn
to any party which succeeds to Landlord's interest in the Premises, without
change in the terms and provisions of this Lease.
In the event that any holder of a lien on the Premises succeeds to
Landlord's interest in the Premises or in the event another party becomes
Landlord's successor in interest to the Premises as a result of the enforcement
of a lien by its holder, then Tenant agrees that, as to such successor in
interest:
(a) Tenant shall waive any and all claims which it might
otherwise have against such successor in interest for events arising prior to
the date such successor in interest succeeded to Landlord's interest in the
Office Complex, including any claim Tenant may have to any security deposit held
by Landlord; and
(b) Such successor in interest shall not be bound by any
prepayment of rent for more than one month in advance which Tenant may have made
to any prior Landlord; and
(c) Tenant shall, upon the request of any such successor in
interest, confirm in writing the provisions of this Article XIX as to such
successor in interest, and delivery to such successor in interest an estoppel
certificate as provided in Section 22.5 hereof free of any claims based upon
events arising prior to the date such successor in interest succeeded to
Landlord's interest in to the Office Complex.
19.3 Quiet Enjoyment. Tenant, upon paying the minimum rent, additional
rent and other charges herein provided for, and observing and keeping all
covenants, agreements and conditions of this Lease on its part to be kept, shall
quietly have and enjoy the Premises during the Lease Term without hindrance of
molestation by anyone claiming by or through Landlord, subject, however, to the
exceptions, reservations and conditions of this Lease. Landlord hereby reserves
the right to prescribe, at its sole discretion, reasonable rules and regulations
(herein called the "Rules and Regulations" having uniform applicability to all
similarly situated tenants of the Building and governing the use and enjoyment
of the Premises and the remainder of the Property; provided that the Rules and
Regulations shall not materially interfere with Tenant's use and enjoyment of
the Premises in accordance with the provisions of this Lease for the permitted
uses. Tenant shall adhere to the Rules and Regulations and shall cause its
agents, employees, invitees, visitors and guests to do so. A copy of the Rule
and Regulations in affect on the date hereof is attached hereto as Exhibit "F".
-23-
<PAGE>
ARTICLE XX
END OF TERM
20.1 Surrender of Premises. Upon the expiration or other termination of
the Lease Term, Tenant shall surrender the Premises, broom clean, in the same
order and condition in which they are in on the Lease Commencement Date,
ordinary wear and tear excepted. All improvements to the Premises or the Office
Complex made by either party shall remain upon and be surrendered with the
Premises as a part thereof at the end of the Lease Term, except that if Tenant
is not in default under this Lease, Tenant shall have the right to remove, prior
to the expiration of the Lease Term, all movable furniture, furnishings and
equipment installed in the Premises solely at the expense of Tenant. All damage
and injury to the Premises or the Office Complex caused by such removal shall be
repaired by Tenant, at Tenant's sole expense, or, at the Landlord's option,
Landlord may repair such damage at Tenant's expense, which shall be repaid to
Landlord upon demand. If such property of Tenant is not removed by Tenant prior
to the expiration or termination of this Lease, the same shall become the
property of Landlord and shall be surrendered with the Premises as a part
thereof. Notwithstanding any covenant or condition of this Article to the
contrary, however, Landlord may require, in its sole discretion, that any or all
improvements made by or on behalf of Tenant within or upon the Premises be
removed upon the termination of this Lease, or upon any default by Tenant, and
Tenant hereby agrees to cause same to be removed and the Premises to be
restored, at Tenant's sole cost and expense, or, at Landlord's option, Landlord
may remove and restore the same at Tenant's expense, which shall be repaid to
Landlord upon demand, together with any and all damages Landlord may suffer or
sustain by reason of the failure of Tenant to remove the same.
20.2 Holding Over. If Tenant or any other person or party shall remain
in possession of the Premises or any part thereof following the expiration of
the term or earlier termination of this Lease without an agreement in writing
between Landlord and Tenant with respect thereto, the person or party remaining
in possession shall be deemed to be a tenant at sufferance, and during any such
holdover, the rents and other amounts payable under this Lease by such tenant at
sufferance shall be double the rate or rates in effect immediately prior to the
expiration of the term or earlier termination of this Lease. In no event,
however, shall such holding over be deemed or construed to be or constitute a
renewal or extension of this Lease
ARTICLE XXI
PARKING
21.1 Parking, Generally. During the Lease Term and any extensions
thereof, Landlord shall make available to Tenant up to forty (40) monthly
parking permits for the parking of passenger automobiles in those parking areas
designated by Landlord in the Parking Garage for tenants and invitees of the
Office Complex (the "Parking Areas") of which three (3) shall be reserved
parking spaces displaying the Tenant's name in a location chosen by the
Landlord. During the first twelve (12) months of the Lease Term, Landlord shall
make available to Tenant forty (40) free parking spaces. Thereafter during the
Lease Term, Tenant shall be entitled to twenty (20) free parking spaces,
including the three reserved spaces. Tenant may use additional parking spaces on
a month-to-month basis as available, free of charge; provided, however, that
after the first twelve (12) months of the Lease Term, Landlord shall have a
right to charge for spaces in addition to the twenty (20) spaces at the
prevailing rate charged from time to time by Landlord or the operator of the
Parking Areas, as the case may be.
21.2 No Specified Spaces. Except as provided in Section 21.1 above, the
Parking Garage will be operated on a non-exclusive self-parking basis. No
specified parking spaces within the Parking Areas will be allocated for use by
Tenant. Each user of the Parking Areas will have the right to park in any
available stall or space on a first come - first served basis, unless such space
is specifically designated or reserved by Landlord or designated for handicapped
parking.
-24-
<PAGE>
21.3 Parking Garage Rules. Tenant and its employees shall observe
reasonable safety precautions in the use of the Parking Garage and shall at all
times abide by all rules and regulations from time to time promulgated by
Landlord or the Parking Garage operator governing the size of permitted
automobiles in the Parking Garage and the general use of the Parking Garage,
including the requirement that an identification or parking sticker shall be
displayed at all times in all cars parked in the Parking Garage. Any car not
displaying such a sticker, if so required, may be towed away at the car owner's
expense.
21.4 Parking Garage Hours. The Parking Garage will remain open during
the normal hours of operation of the Office Complex.
21.5 No Liability of Landlord. Landlord does not assume any
responsibility for, and shall not be held liable for, any damage or loss to any
automobiles or other vehicles parked in the Parking Garage or to any personal
property located therein, or for any inquiry sustained by any person in or about
the Parking Garage.
ARTICLE XXII
RELOCATION OF TENANT
22.1 Entire Agreement; Modification. This Lease and Exhibits "A" - "G"
attached hereto contain and embody the entire agreement of the parties hereto
and supersede all prior agreements, negotiations and discussions between the
parties hereto. Any representation, inducement or agreement that is not
contained in this Lease shall not be of any force or effect, and no rights,
privileges, easements or licenses are being or shall be acquired by Tenant
except as expressly set forth herein. Tenant hereby waives, as a material part
of the consideration hereof, all claims against Landlord for recision, damages
or any other form or relief by reason of any alleged covenant, warranty,
representation, agreement or understanding not contained in this Lease. This
Lease may not be modified or changed in whole or in part in any manner other
than by an instrument in writing duly signed by both parties hereto. This Lease
is being executed in multiple counterparts, each of which shall be deemed an
original and all of which together shall constitute one and the same document.
22.2 No Partnership. Nothing contained in this Lease shall be construed
as creating a partnership or joint venture of or between Landlord and Tenant, or
to create any other relationship between the parties hereto other than that of
Landlord and Tenant.
22.3 Determination of Rentable Area. The rentable area in the Office
Complex and in the Premises shall be determined in accordance with the Building
Owners and Managers Association ("BOMA") standard method of office space
calculation.
22.4 Brokers. Landlord recognizes Terranova Corporation as the sole
broker procuring this Lease and shall pay said broker a commission pursuant to a
separate agreement between said broker and Landlord. Landlord and Tenant each
represent and warrant to the other that, except as provided above, neither of
them has employed or dealt with any broker, agent or finder in carrying on the
negotiations relating to this Lease. Tenant shall indemnify and hold Landlord
harmless from and against any claim or claims for brokerage or other commissions
asserted by any broker, agent or finder engaged by Tenant or with whom Tenant
has dealt, other than the broker named in the first sentence of this Section.
22.5 Estoppel Certificates. Tenant shall, at any time from time to
time, not less than ten (10) days after written request from Landlord, execute,
acknowledge and deliver to Landlord an estoppel certificate in writing
certifying (a) that this Lease is unmodified and in full force and effect (or if
there have been modifications, that the Lease is in full force and effect as
modified and stating the modifications) ; (b) the dates to which the rent and
any other charges hereunder have been paid by Tenant; (c) that Tenant is not in
default in the payment of rent or any additional charges to Landlord or in the
performance of any of Tenant's obligations hereunder, or, if in default, stating
such default; (d) whether or not, to
-25-
<PAGE>
the best knowledge of Tenant, Landlord is in default in the performance of any
covenant, agreement or condition contained in this Lease, and if so, specifying
the nature of such default; (e) that so far as Tenant knows, no event has
occurred which authorizes, or with the lapse of time will authorize, Landlord or
Tenant to terminate this Lease or, if such event has occurred, stating such
event; (f) that so far as Tenant knows, neither party has any such offsets,
counterclaims or defenses or, if either party has any such offsets,
counterclaims or defenses, stating them; (g) the address to which notices to
Tenant are to be sent, and (h) any other matters which may be reasonably
requested by Landlord.
Landlord shall, at any time and form time to time, not less than then
(10) days after written request from Tenant, execute, acknowledge and deliver to
Tenant an estoppel certificate in writing certifying (a) that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the Lease is in full force and effect as modified and stating the
modifications; (b) the dates to which the rent and any other charges hereunder
have been paid by Tenant; (c) that Tenant is not in default in the payment of
rent or any additional charges to Landlord or in the performance of any of
Tenant's obligations hereunder, or, if in default, stating such default; (d)
whether or not, to the best knowledge of Landlord, Landlord is in default in the
performance of any covenant, agreement or condition contained in this Lease, and
if so, specifying the nature of such default; (e) that so far as Landlord knows,
no event has occurred which authorizes, or with the lapse of time will
authorize, Landlord or Tenant to terminate this Lease or, if such event has
occurred, stating such event; (f) that so far as Landlord knows, neither party
has any such offsets, counterclaims or defenses or, if either party has any such
offsets, counterclaims or defenses, stating them; (g) the address to which
notices to Landlord are to be sent, and (h) any other matters which may be
reasonably requested by Tenant.
Landlord may, at its option, from time to time prepare and submit to
Tenant for its execution an estoppel certificate setting forth those matters
specified in this Section, in substantially the same form as the form of
estoppel certificate attached hereto as Exhibit F (the "Form Estoppel
Certificate") . If Tenant fails to return to Landlord an executed estoppel
certificate within fifteen (15) days after receipt from Landlord of the
completed Form Estoppel Certificate, then Tenant shall be deemed to have
certified, agreed to and accepted the terms and provisions of such completed
Form Estoppel Certificate, and all statements and certifications set forth
therein shall be and become binding upon Tenant as if Tenant had fully and
properly executed and delivered such completed Form Estoppel Certificate within
the time provided therefor.
Any such certificate delivered by Tenant may be relied upon by any
owner of the Office Complex or the Land, any prospective purchaser of the Office
Complex or the Land, any mortgagee or prospective mortgagee of the Office
Complex or the Land, or any prospective assignee of any such mortgagee.
22.6 Waiver of Jury Trial. Landlord and Tenant each hereby waive trial
by jury in any action, proceeding or counterclaim brought by either of them
against the other in connection with any matter arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant hereunder,
Tenant's use or occupancy of the Premises, and/or any claim of injury-or damage.
22.7 Waiver of Right of Redemption. Tenant, for itself and for all
persons claiming by, through or under it, hereby expressly waives any and all
rights which are or may be conferred upon Tenant by any present or future law to
redeem the Premises.
22.8 Venue. The venue of any suit or proceeding brought for the
enforcement of or otherwise with respect to this Lease shall always be lodged in
the State Courts of the Eleventh Judicial Circuit in and for Dade County,
Florida regardless of whether, under any applicable principle of law, venue may
also be properly lodged in the courts of any other Federal, State or County
jurisdiction.
-26-
<PAGE>
22.9 Notices.All notices or other communications required hereunder
shall be in writing and shall be deemed duly given on the date delivered, if in
person (with receipt therefor) , or three (3) days following posting with the
United States Mail, if sent by certified or registered mail, return receipt
requested, postage prepaid, to the following address: (i) If to Landlord: K/B
Opportunity Fund I, L.P., 4800 North Federal Highway, Suite 207, Building E,
Boca Raton, FL 33431, with a copy to: Terranova Corporation, 1200 Brickell Ave.,
Suite 1500, Miami, Fla 33131; (ii) if to Tenant, at the Premises, except that
prior to Lease Commencement Date, notices to Tenant shall be sent to such
address as Tenant shall have designated and informed Landlord. Tenant may
designate an additional, separate notice address upon ten (10) days written
notice to Landlord. Either party may change its address for the giving of
notices by notice given in accordance with this Section. Any notice mailed to
the last designated address of any person of party to which a notice may be or
is required to be delivered pursuant to this Lease shall not be deemed
ineffective if actual delivery cannot be made due to a change of address of the
person or party to which the notice is directed or the failure or refusal of
such person to accept delivery to the notice.
22.10 Rules of Construction. If any provision of this Lease or the
application thereof to any person or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each provision of
this Lease shall be valid and enforced to the fullest extent permitted by law.
Feminine or neuter pronouns shall be substituted for those of the masculine
form, and the plural shall be substituted for the singular number, in any place
or places herein in which the context may require such substitution. Article and
section headings are used herein for the convenience of reference and shall not
be considered when construing or interpreting this Lease.
22.11 Successors and Assigns. The provisions of this Lease shall be
binding upon, and shall inure to the benefit of, the parties hereto and each of
their respective representatives, successors and assigns, subject to the
provisions hereof restricting assignment, transfer or subletting by Tenant.
22.12 Waiver. No release, discharge or waiver of any provision hereof
shall be enforceable against or binding upon Landlord or Tenant unless in
writing and executed by Landlord or Tenant, as the case may be. Neither the
failure of Landlord or Tenant to insist upon a strict performance of any of the
terms, provisions, covenants, agreements and conditions hereof, nor the
acceptance of rent by Landlord with knowledge of a breach of this Lease by
Tenant in the performance of its obligations hereunder, shall be deemed a waiver
of any rights or remedies that Landlord or Tenant may have or a waiver of any
subsequent breach or default in any of such terms, provisions, covenants,
agreements and conditions. .
22.13 Costs and Attorneys' Fees. If either party shall bring an action
to recover any sum due hereunder, or for any breach hereunder, the court may
award to the prevailing party its reasonable costs and reasonable attorneys'
fees, specifically including reasonable attorneys' fees incurred in connection
with any appeals, whether or not taxable as such by law.
22.14 Time of the Essence. Time is of the essence of each provision of
this Lease.
22.15 Governing Law. This Lease shall be governed by and construed in
accordance with the laws of the State of Florida.
22.16 No Recording. This Lease shall not be recorded.
22.17 Radon Gas Notification. In accordance with the requirements of
Florida Statutes Section 404.056(8) the following notice is hereby given:
RADON GAS: Radon is a naturally occurring radioactive gas that, when it
has accumulated in a building in sufficient quantities, may present
health risks to
-27-
<PAGE>
persons who are exposed to it over time. Levels of radon that exceed
federal and state guidelines have been found in buildings in Florida.
Additional information regarding radon and radon testing may be
obtained from your County Public Health Unit.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease under seal on
or as of the day and year first above written.
Signed, sealed and delivered K/B Opportunity Fund I, L.P.,
in the presence of: a Delaware Limited Partnership,
acting through Koll Investment
Management, Owner's Representative
By: (SEAL)
- ---------------------------------- ----------------------
Witness Ed Hogg
Title:
- ---------------------------------- ----------------------------
Witness
Signed, sealed and delivered Preferred Employers Group, Inc.
in the presence of:
By: (SEAL)
- ---------------------------------- ----------------------
Witness
Title:
- ---------------------------------- ----------------------------
Witness
-28-
<PAGE>
EXHIBIT A
TO OFFICE SPACE LEASE AGREEMENT BETWEEN
K/B OPPORTUNITY FUND I, L.P., AS LANDLORD
AND PREFERRED EMPLOYERS GROUP, INC., AS TENANT
LEGAL DESCRIPTION OF LAND
Bayshore:
According to the records at the Dade County Property Records Office, the subject
property is located in Section 32, Township 52 South, Range 42 East, and is
legally described as, "Lots, 8, 9, and 10, Block 2, AMENDED PLAT OF BAY RIDGE,
according to the Plat thereof as recorded in Plat Book 20 at Page 8, together
with; Block 2, less the West 75 feet thereof, REVISED AMENDED AND CORRECTED PLAT
OF BISCAYNE SHORES UNIT #2, according to the plat thereof as recorded in Plat
Book 40 at Page 81, both of the Public Records of Dade County, Florida."
<PAGE>
EXHIBIT B
TO OFFICE SPACE LEASE AGREEMENT BETWEEN
K/B OPPORTUNITY FUND I, L.P., AS LANDLORD
AND PREFERRED EMPLOYERS GROUP, INC., AS TENANT
[DIAGRAM OF FLOOR PLAN]
<PAGE>
EXHIBIT C
TO OFFICE SPACE LEASE AGREEMENT BETWEEN
K/B OPPORTUNITY FUND I, L.P., AS LANDLORD
AND PREFERRED EMPLOYERS GROUP, INC., AS TENANT
<PAGE>
EXHIBIT D
TO OFFICE SPACE LEASE AGREEMENT BETWEEN
K/B OPPORTUNITY FUND I. L.P., AS LANDLORD
AND PREFERRED EMPLOYERS GROUP, INC., AS TENANT
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT, made this day of , 19__ by and
between K/B OPPORTUNITY FUND I, L.P. a Delaware Limited Partnership ("Landlord")
and, Preferred Employers Group, Inc. ("Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant entered into that certain Office Space
Lease Agreement, dated , the ("Lease") with respect to the demise of certain
premises (the "Premises") , as more particularly described in the Lease; and
WHEREAS, all terms defined in the Lease shall have the same meanings
when referred to herein; and
WHEREAS, Landlord and Tenant desire to confirm and acknowledge (i) the
actual Lease Commencement Date, (ii) the commencement of Tenant's obligations
attendant upon such Lease Commencement Date, (iii) the Lease Expiration Date,
and (iv) the actual square footage of the Premises, as described and defined by
the Lease.
NOW, THEREFORE, in consideration of the premises hereof and the mutual
promises and covenants contained herein and in the Lease, Landlord and Tenant
hereby agree as follows:'
1. The Lease Commencement Date shall be and the Lease Expiration Date
shall be . It is understood and agreed by Landlord and Tenant that any and all
of Tenant's covenants and obligations set forth in the Lease shall become
effective as of the said Lease Commencement Date, including, but not limited to,
(i) Tenant's obligation to pay Base Rent and Additional Rent, (ii) Tenant's
obligation to maintain insurance, and (iii) all other monetary or non-monetary
covenants of Tenant set forth in the Lease.
2. The number of square feet comprising the Premises is confirmed to be
square feet, and such number of square feet shall be substituted for the
approximate square footage as set forth in Article I of the Lease, and in each
and every other Article of the Lease wherein reference is made to the
approximate number of square feet comprising the Premises.
EXCEPT as hereby modified and amended, all other terms, provisions,
covenants and conditions of the Lease shall remain unmodified and in full force
and effect.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this First
Amendment to Lease to be executed by their duly authorized representations on or
as of the day and year first above written.
Signed, sealed and delivered K/B Opportunity Fund I, L.P.,
in the presence of: a Delaware Limited Partnership,
acting through Koll Investment
Management, Owner's Representative
By: (SEAL)
- ---------------------------------- -------------------------
Witness Ed Hogg
Title:
- ---------------------------------- ----------------------------
Witness
Signed, sealed and delivered Preferred Employers Group, Inc.
in the presence of:
By: (SEAL)
- ---------------------------------- -------------------------
Witness
Title:
- ---------------------------------- ----------------------------
Witness
-2-
<PAGE>
EXHIBIT E
TO OFFICE SPACE LEASE AGREEMENT BETWEEN
K/B OPPORTUNITY FUND I, L.P., AS LANDLORD
AND PREFERRED EMPLOYERS GROUP, INC., AS TENANT
RULES AND REGULATIONS
The following rules and regulations ("Rules and Regulations") have been
formulated for the safety, comfort and well-being of all tenants of the Office
Complex. Strict adherence to the Rules and Regulations is necessary to guarantee
that each and every tenant will enjoy a sa e and undisturbed occupancy of its
premises in the Office Complex. Any continuing violation of the Rules and
Regulations by any tenant shall constitute a default by such tenant under its
Lease. Unless the context otherwise requires, the terms used in this Exhibit
that are defined in the Lease shall have the same meaning as provided in the
Lease.
1. Landlord's Right to Control, Generally. Landlord shall have the
right to control and.operate the public portions of the Office Complex, and the
facilities furnished for the common use of the tenants of the Office Complex, in
such manner as Landlord deems best for the benefit of the tenants generally.
2. Use. The use of its premises by any tenant shall not be changed
without the prior written approval of Landlord. No space in the Office Complex
shall be used for the manufacture of goods for sale in the ordinary course of
business, or for the sale at auction of merchandise, goods or property of any
kind. The premises shall not, at any time, be used for lodging or sleeping or
for any immoral or illegal purposes.
3. No Obstructions. The sidewalks, entrances, passages, courts,
elevators, vestibules, stairways, corridors, halls and other parts of the Office
Complex not exclusively occupied by any tenant shall not be obstructed or
blocked by any tenant or used for any purpose other than ingress and egress to
and from each tenant's premises. If a tenant's premises are situated on the
ground floor of the Office Complex, the tenant thereof shall, at such tenant's
own expense, keep the sidewalks and curb directly in front of its premises clean
and free from trash and debris. Mats, trash or other objects shall not be placed
in any public corridors of the Office Complex. No tenant shall permit the
congregation of persons in its premises in such numbers or under such conditions
as to interfere with the use and enjoyment of the entrances, corridors,
elevators and other public portions or facilities of the Office Complex by other
tenants. No tenant shall throw anything out of the doors or windows or down the
corridors or stairs of the Office Complex.
4. No Disturbances. No Tenant shall make any unseemly or disturbing
noises or disturb or interfere with the occupants of the Office Complex or
neighboring buildings or premises or those having business with them, whether by
the use of any musical instrument, radio, talking machine, whistling, signing,
or in any other way. No tenant shall construct, maintain, use or operate within
its respective premises any electrical device, wiring or apparatus in connection
with a loudspeaker or other sound system, except as reasonably required as part
of a communication system approved prior to the installation thereof by
Landlord. No such loudspeaker or sound system shall be constructed, maintained,
used or operated outside the premises. Tenant may cook or heat food within the
kitchen area of its premises. Tenant shall not cause or permit any unusual or
objectionable odors to be produced upon or permeate from its premises.
5. No Canvassing. Canvassing, soliciting and peddling in the Office
Complex is prohibited and each tenant shall cooperate to prevent the same.
<PAGE>
6. No Awnings, Etc. No awnings or other projections shall be attached
to the outside walls of the Office Complex or to the exterior of any tenant's
premises without the prior written consent of Landlord. No drapes, blinds,
shades or screens shall be attached to or hung in, or used in connection with,
any window or door of any tenant's premises without the prior written consent of
Landlord. All awnings, projections, curtains, blinds, shades, screens and other
fixtures must be of a quality, type, design and color, and must be attached in
the manner, approved by Landlord. Any drapes in any tenant's premises which are
visible from the exterior of the Office Complex, whether installed by such
tenant or Landlord, must be cleaned by such tenant, at its expense, at least
once per year without notice from Landlord.
7. No Showcases, Markings, Etc. No showcases or other articles shall be
put in front of or affixed to any part of the exterior of the Office Complex,
nor placed in the halls, corridors or vestibules without the prior written
consent of Landlord. There shall be no marking, painting, drilling into or
defacement of the Office Complex or any part of the premises that is visible
from public areas of the Office Complex.
8. Restrooms. The restrooms, water and wash closets and other plumbing
fixtures in the Office Complex shall not be used for any purposes other than
those for which they were constructed, and no debris, rubbish, rags or other
foreign substances of any kind shall be disposed of therein. Any damage
resulting from misuse of the restrooms, water and wash closets and other
plumbing fixtures shall be borne by the tenant who, or whose servants,
employees, agents, visitors or licensees, shall have caused the same.
9. Bicycles, Animals. No bicycles or vehicles and no animals, birds or
pets of any kind shall be brought into or kept in or about the Office Complex or
any tenant's premises, except that this rule shall tot prohibit the parking of
bicycles or vehicles in the garage in the Office Complex.
10. Flammable Materials. No flammable, combustible or explosive fluid,
chemical or substance shall be brought into or kept upon any tenant's premises.
11. Locks. No additional locks or bolts of any kind shall be placed
upon any of the doors or windows by any tenant, nor shall any changes be made in
any existing locks or the locking mechanism therein without prior notice to
Landlord and Tenant providing Landlord copies of the keys to such locks or bolts
at the same time are installed or changed. All doors leading to the corridors or
main halls shall be kept closed during business hours except as they may be used
for ingress or egress. Each tenant shall, upon the termination of its tenancy,
restore to the Landlord all keys of stores, offices, storage and toilet rooms
either furnished, to, or otherwise procured by such tenant, and in the event of
the loss of any keys so furnished, such tenant shall pay to Landlord the
replacement cost thereof.
Tenant, at its expense will have the right to install various security
devices, including, but not limited to: keyless entry on exterior and interior
doors; burglar, sonic and/or smoke detectors/alarms. Tenant to provide codes and
disarming procedure to Landlord who shall keep same confidential.
12. Theft or Loss. Each tenant shall be responsible for the protection
and security of its premises and all property therein from robbery, theft,
vandalism, pilferage or other loss. Each tenant, before closing and leaving the
premises at any time, shall see that all windows and doors are closed and locked
and all lights are turned off. Tenant shall furnish Landlord with "after-hours"
emergency telephone numbers, for the sole use of Landlord at its discretion.
Except for emergency purposes, Landlord will use its best efforts to keep such
telephone numbers confidential.
13. Freight, Hand Trucks. Landlord reserves the right to inspect all
freight to be brought into the Office Complex and to exclude from the Office
Complex all freight which violates any of these Rules and Regulations or the
Lease. There shall not be used in any tenant's premises, or in any halls or
corridors of the Office Complex, either by any tenant or
-2-
<PAGE>
by any other persons in the delivery or receipt of merchandise, any hand trucks,
except those equipped with rubber tires and side guards. Each tenant shall be
responsible to Landlord for any loss or damage resulting from any deliveries
made by or for such tenant to the Office Complex.
14. Maintenance of Nonstandard Finishes. Landlord shall not maintain
any suite finishes which are non-standard, such as kitchens, bathrooms,
wallpaper, special lights, etc. However, should the need arise for repairs of
items not maintained by Landlord, Landlord will arrange for the work to be done
at the expense of the tenant for which the work was performed.
15. Landlord's Employees. Landlord's employees shall not perform any
work or do anything outside of their regular duties, unless under special
instruction from the management of the Office Complex. The requirements of
tenants will be attended to only upon application to Landlord, and any such
special requirements shall be billed to the tenant for which such work is
performed (and paid by such tenant with its next installment of rent) in
accordance with the schedule of charges maintained by Landlord from time to time
or at such charge as is agreed upon in advance by Landlord and such tenant.
16. Landlord's Reserved Rights. Landlord reserves the right to exclude
from the Office Complex at all times any person who is not known or does not
properly identify himself to the Office Complex management or watchman on duty.
Landlord may, at its option, require all persons admitted to or leaving the
Office Complex between the hours of 6:00 p.m. and 7:30 a.m., Monday through
Friday, and at any hour on Saturdays, Sundays and legal holidays, to register.
Each tenant shall be responsible for all persons for whom it authorizes entry
into the Office Complex, and shall be liable to Landlord for all acts or
omissions of such persons.
17. Compliance. Tenant shall be responsible for the compliance by its
employees and agents with the foregoing Rules and Regulations, and, with respect
to Tenant's customers, invitees and guests, Tenant shall exercise due diligence
in the enforcement and observation of these Rules and Regulations.
18. Enforcement by Landlord. If any tenant violates or fails to comply
with any of its obligations as set forth in these Rules and Regulations or the
Lease promptly after written notice from Landlord of such violation or
non-compliance, then Landlord or its duly appointed employees, agents or
contractors shall have the right to undertake such acts as may be reasonably
necessary to cure or eliminate such violation or non-compliance at the sole cost
of such tenant, which cost shall constitute Additional Rent under such tenant's
lease.
19. Waiver. No release or waiver by Landlord of any provisions herein
shall be enforceable by the tenant in whose favor such waiver is granted unless
in writing and executed by Landlord. The failure by Landlord to insist upon the
strict performance of any of the terms or provisions hereof shall not be deemed
a waiver of any rights or remedies of Landlord or a waiver of any subsequent
violation or failure of compliance with these Rules and Regulations as the same
may be amended from time to time.
20. Amendment. Landlord shall have the right to promulgate additional
Rules and Regulations, amend or rescind any of the foregoing Rules and
Regulations from time to time as Landlord, in its sole discretion, deems
suitable for the safety, care and cleanliness of the Office Complex and the
conduct of a first class office building therein. Each tenant shall comply with
all new or amended Rules and Regulations upon receipt of written notice of the
same from Landlord.
21. Consent. Whenever the consent or approval of Landlord is required
pursuant to these Rules and Regulations, such consent shall be in writing, and
may be given or withheld by Landlord in its sole discretion.
-3-
<PAGE>
22. Conflict with Lease. These Rules and Regulations are in addition
to, and shall not be construed to in any way modify or amend the terms,
provisions, agreements, covenants and conditions of the Lease. In the event of
any conflict between the Rules and Regulations and the Lease, the terms and
provisions of the Lease shall prevail.
-4-
<PAGE>
EXHIBIT F
TO OFFICE SPACE LEASE AGREEMENT BETWEEN
K/B OPPORTUNITY FUND I, L.P., AS LANDLORD
AND PREFERRED EMPLOYERS GROUP, INC., AS TENANT
TENANT ESTOPPEL CERTIFICATE
Re: Property Address:___________________________________________________________
Lease Date:_____________________________________________________________________
Between K/B OPPORTUNITY FUND I, L.P., a Delaware Limited Partnership,
Landlord
and PREFERRED EMPLOYERS GROUP, INC., Tenant
Square Footage _____________
Leased: _____________
Suite No. _____________
Floor _____________
The undersigned, Tenant under the above referenced lease ("Lease") , certifies
to K/B Opportunity Fund I L.P. the following:
1. The above-described Lease has not been canceled, modified, assigned, extended
or amended except as follows:___________________________________________________
________________________________________________________________________________
________________________________________________________________________________
2. Rent has been paid to the first day of the current month and all additional
rent"'has been paid and collected in a current manner. There is no prepaid rent,
except $_______________ and the amount of security deposit is $________________.
3. We took possession of the leased premises on ______________ and commenced to
pay rent on ____________ in the amount of $_________________________.
4. The Lease terminates on ___________________________ and we have the following
renewal option(s):_____________________________________________________________.
5. All work to be performed for us under the Lease has been performed as
required and has been accepted by us, except __________________________________.
________________________________________________________________________________
6. The Lease is in full force and effect and free from default thereunder by
Landlord or Tenant, and we have no claims or defenses against the Landlord or
offsets against rents or other sums due under the Lease.
7. No event has occurred which authorizes, or with the passage of time will
authorize, Landlord or Tenant to terminate this Lease.
8. The undersigned has received no notice of prior sale, transfer or assignment,
hypothecation or pledge of the said Lease or of the rents received therein,
except ________________________________________________________________________.
<PAGE>
9. The undersigned has not assigned, or transferred the said Lease or sublet all
or any portion of the demised premises ("Premises") nor does the undersigned
hold the Premises under assignment or sublease, except ________________________.
10. The base year for operating expenses and real estate taxes, as defined in
the said Lease, is ____________________________________________________________.
11. The undersigned has no other interest in any other part of the building of
which the Premises form a part or to any personal property appurtenant thereto
or used in connection therewith except ________________________________________.
12. The undersigned has no right or option pursuant to the said Lease or
otherwise to purchase all or any part of the Premises or the building of which
the Premises are a part.
13. There are no other agreements written or oral between the undersigned and
the Landlord with respect to the Lease and/or the leased premises and building.
14. The statements contained herein may be relied upon by the Landlord under the
said Lease by any prospective purchaser of the fee of the Premises, and by any
prospective mortgagee of Landlord's interest in the Premises.
If we are a corporation, the undersigned is a duly appointed officer of
the corporation signing this certificate and is the incumbent in the office
indicated under his name.
In any event, the undersigned individual is duly authorized to execute this
certificate.
Dated this _________ day of _____________________, 19__.
Tenant: PREFERRED EMPLOYERS GROUP, INC.
By:_____________________________________
-2-
<PAGE>
A D D E N D U M
This Addendum is to and forms a part of the Lease dated August 1, 1994 between
K/B Opportunity Fund I, L.P., a Delaware Limited Partnership ("Landlord") and
Preferred Employers Group Inc. ("Tenant"). To the extent the terms of this
Addendum conflict with those contained in the Lease, the terms of this Addendum
shall control. The terms of the Lease which are not modified by the terms of
this Addendum shall remain the same and in effect.
1. Base Rent: The annual base rent to be paid in accordance with Paragraph
3 of the Lease shall be as follows:
Months: 1-12: $ 7.00 per square foot
13-24: $14.00 per square foot
25-36: $14.70 per square foot
37-48: $15.30 per square foot
49-60: $16.00 per square foot
61-84: $17.00 per square foot
2. Option to Renew: Provided that Tenant is not in default of any of the
terms or conditions of this Lease at the time Tenant gives notice that
it wishes to exercise the renewal option or at the time the option term
is scheduled to commence, then the Tenant shall have the option, to be
exercised by written notice to Landlord at least six (6) months prior
to the expiration of the original term of this Lease, and first renewal
term respectively, to renew this Lease for one (1) additional five year
term ("First Renewal Term"), and then one (1) additional five year term
("Second Renewal Term") upon the terms and conditions provided in the
original Lease. Notwithstanding the foregoing, however, the base rent
payable during the First Renewal Term shall be 95% of the market value
for equivalent space in the Office Complex, as determined by the
average of the latest three leases for office space in the Office
Complex, which leases shall be for space of at least 6,000 contiguous
square feet and on a floor higher that the sixth floor of the Office
Complex, as of the date Tenant exercises the option. However, if there
have not been three leases for such space within the 18 month period
prior to the date Tenant exercises its option for the First Renewal
Term, then the market value for equivalent space in the Office Complex
shall be determined by the average of the latest three leases for
office space in the same class building within a two mile radius of the
Office Complex and which will be for space of at least 6,000 contiguous
square feet and on a floor higher than the sixth floor of such
building, together with any leases written for office space in the
Office Complex for space of at least 6,000 contiguous square feet and
on a floor higher than the sixth floor of the Office complex during the
18 month period prior to the date Tenant exercises its option for the
First Renewal Term. The base rent payable during the Second Renewal
Term shall be 95% of the market value for equivalent space in the
Office Complex, as determined by the average of the latest three leases
for office space in the Office Complex, which leases shall be for space
of at least 6,000 contiguous square feet and on a floor higher than the
sixth floor of the Office Complex, as of the date Tenant exercises its
Option for the Second Renewal Term. However, if there have not been
three leases for such space within the 18 month period prior to the
date Tenant exercises its Option for the Second Renewal Term, then the
market value for equivalent space in the Office Complex shall be
determined by the average of the latest three leases for office space
in the same class building within a two mile radius of the Office
Complex and which will be for space of at least 6,000 contiguous square
feet and on a floor higher than the sixth floor of such building,
together with any leases written for office space in the Office Complex
for space of at least 6,000 contiguous square feet and on a floor
higher than the sixth floor of the Office Complex during the 18 month
period prior to the date Tenant exercises its option for the Second
Renewal Term.
<PAGE>
Notwithstanding the foregoing, if Tenant fails or is unable to exercise
its Option for the First Renewal Term, then Tenant's Option for the
Second Renewal Term, shall become void. There shall be no further right
of renewal.
3. Building Signage: Tenant shall have the right to install a single
channel sign on the exterior of the property displaying the Tenant's
corporate name. Signage type and location shall be at the sole
discretion of the Landlord and in accordance with all zoning
requirements. The construction and installation of the sign shall be at
the Tenant's sole cost and expense.
4. Tenant Improvements. Within seven (7) business days of full execution
of this Lease, Landlord shall commence a formal bid process to obtain
competitive pricing for construction of improvements as set forth
herein. Thereafter, Landlord shall build the premises with building
standard materials and substantially in accordance with the space plan
prepared by Tenant. Said space plan shall be attached as Exhibit "C" no
later than one (1) week after the lease is fully executed. Landlord
shall contribute up to $20.00 per rentable square foot towards the
construction, construction management, architectural and other fees. In
no event shall Landlord's financial obligation towards the construction
exceed this amount. Tenant shall pay all costs in excess of this
amount.
5. Delivery and Acceptance of Premises. Tenant shall accept the Premises
from Landlord "as is". Tenant's taking of possession of the Premises
shall conclusively establish that Tenant has accepted the Premises,
that the Premises are in satisfactory condition, and that the Premises
are acceptable for Tenant's contemplated use.
6. Right of First Refusal. Before entering a Lease for all or a portion of
the space in the area shown in Exhibit B-2 ("Additional Space"),
Landlord shall notify Tenant in writing of the status of the proposed
Lease and the terms of that Lease. Within five (5) business days of
Landlord's written notice, Tenant may provide Landlord a written offer
(which shall be delivered by recognized overnight courier or facsimile
with a confirmation of transmission)to Lease Additional Space that is
the subject of the proposed Lease according to the terms of the
proposed Lease , as evidenced by a signed letter of intent to Landlord
from the proposed Tenant of the additional space. The Lease Term for
the Additional Space shall run concurrently with the Term of this
Lease, including all extensions and renewals, if applicable. Within
thirty (30) days after Tenant has exercised its Right of First Refusal,
Landlord and Tenant shall execute a Lease Modification Agreement
reflecting the modifications of the Lease, with the Lease Term of the
Additional Space commencing upon Tenant's occupancy of the Additional
Space. Notwithstanding the terms of this paragraph to the contrary,
Tenant may not exercise this right of First Refusal at a time when it
is in default under this Lease.
7. Lease Interpretation: The portions of the Lease which are crossed out
shall be omitted form the Lease and those which are shaded shall be
added.
Landlord and Tenant have executed this Addendum on the date stated above.
Signed, sealed and delivered K/B Opportunity Fund I, L.P.,
in the presence of: a Delaware Limited Partnership,
acting through Koll Investment
Management, Owner's Representative
By: (SEAL)
- ---------------------------------- -------------------------
Witness Ed Hogg
Title:
- ---------------------------------- ----------------------------
Witness
-2-
<PAGE>
Signed, sealed and delivered Preferred Employers Group, Inc.
in the presence of:
By: (SEAL)
- ---------------------------------- -------------------------
Witness
Title:
- ---------------------------------- ----------------------------
Witness
-3-
<PAGE>
Exhibit 10.7
COMMONWEALTH ASSOCIATES
733 Third Avenue
New York, New York 10017
(212) 297-5600
, 1997
Preferred Employers Group, Inc.
10800 Biscayne Blvd. Penthouse
Miami, Florida 33161
Attention: Mr. Mel Harris
Gentlemen:
This letter, when executed by the parties hereto, shall set
forth certain of the terms which were previously outlined in the Letter of
Intent, dated August 12, 1996 (the "Letter of Intent") between Preferred
Employers Group, Inc. (the "Company") and Commonwealth Associates
("Commonwealth"), relating to the initial public offering of Common Stock of the
Company (the "Offering"). Except as otherwise defined herein, the terms used
herein shall have the meanings ascribed to them in the Underwriting Agreement,
dated the date hereof between Commonwealth, as Representative of the several
Underwriters named therein, and the Company relating to the Offering (the
"Underwriting Agreement").
Pursuant to the Letter of Intent, the Company retained Commonwealth to
serve as the Company's exclusive financial advisor in connection with the
management of the Offering. As compensation for its services as such, the
Company shall pay to Commonwealth on the Closing Date and, if applicable, any
Additional Closing Date, 2% of the gross proceeds received from the sale of the
Stock and the Additional Stock sold on such date.
1. If during the six month period commencing on August 12,
1996, the Company elects to pursue a merger, acquisition, joint venture or other
similar transaction and the Offering is abandoned or otherwise not consummated
then, unless (i) Commonwealth had terminated its participation in the Offering
prior to learning of the proposed transaction, or (ii)
<PAGE>
Commonwealth determines not to proceed with the Offering other than because, in
its good faith opinion, the proposed transaction materially impairs its ability
to successfully complete the Offering, the Company shall promptly pay to
Commonwealth, as its financial advisor in connection with such proposed
transaction and in lieu of the fees payable to Commonwealth pursuant to Section
1 of this Agreement, a Lehman Formula fee based upon any Consideration (as
hereinafter defined) received or paid by the Company in such merger,
acquisition, joint venture or other similar transaction. Commonwealth shall not
be entitled to a fee under this Section 2 if, upon learning of the proposed
transaction, Commonwealth elects to proceed with the Offering (in which event it
shall continue to be entitled to the compensation set forth above and in the
Underwriting Agreement in connection with the Offering), or if Commonwealth's
decision not to proceed with the Offering is for reasons other than in its good
faith opinion, the proposed transaction materially impairs its ability to
successfully complete the Offering. As used in this Agreement, the term
"Consideration" means all forms consideration paid by the Company or any
subsidiary or affiliate, including, but not limited, cash, stock or evidence of
indebtedness, assumption of liabilities, or any combination thereof. The Lehman
Formula is 5% of the first one million dollars of Consideration, or portion
thereof, 4% of the second one million dollars of Consideration, or portion
thereof, 3% of the next million dollars of Consideration, or portion thereof, 2%
of the next one million dollars of consideration, or portion thereof, and 1% of
all Consideration thereafter.
2. During the two year period following the date of this
Agreement, the Company shall pay to Commonwealth 5% of all funds invested in the
Company by any party introduced to the Company by Commonwealth; and, in the
event that a party introduced by Commonwealth receives stock in exchange for any
services rendered or assets transferred or financing provided to the Company,
the Company will issue to Commonwealth stock in the amount of 5% of the stock
issued to said party. Furthermore, should any party introduced by Commonwealth
acquire the Company during the two year period following the date of this
Agreement, the Company shall pay to Commonwealth an amount equal to 5% of the
gross Consideration paid to the Company and/or its subsidiaries, affiliates or
stockholders. In the event that Commonwealth is entitled to a fee pursuant to
the provisions of Sections 2 and 3
- 2 -
<PAGE>
of this Agreement, it shall be entitled to the greater of such fees.
3. The failure or neglect of the parties hereto to insist, in
any one or more instances, upon the strict performance of any of the terms or
conditions of this Agreement, or their waiver of strict performance of any of
the terms or conditions of this Agreement, shall no be construed as a waiver or
relinquishment in the future of such term or condition, but the same shall
continue in full force and effect.
4. Any notices hereunder shall be sent to the Company and to
Commonwealth at their respective addresses set forth above. Any notice shall be
given by hand delivery, facsimile transmission or overnight delivery or courier
service, against receipt therefor, and shall be deemed to have been given when
received. Either party may designate any other address to which notice shall be
given, by giving written notice to the other of such change of address in the
manner herein provided.
5. This Agreement has been made in the State of New York and
shall be construed and governed in accordance with the laws thereof without
giving effect to principles governing conflicts of law.
6. This Agreement contains the entire agreement between the
parties relating to the subject matter hereof and may not be altered or
modified, except in writing and signed by the party to be charged thereby.
7. This Agreement shall be binding upon the parties hereto and
their respective heirs, administrators, successors and permitted assigns.
- 3 -
<PAGE>
Please execute two copies of this letter in the space provided below
and return them to the undersigned.
Yours truly,
COMMONWEALTH ASSOCIATES
COMMONWEALTH ASSOCIATES MANAGEMENT
COMPANY, INC., General Partner
By: ____________________________
ACCEPTED AND AGREED TO
AS OF THE DATE FIRST
ABOVE WRITTEN:
PREFERRED EMPLOYERS GROUP, INC.
By: ___________________________
Mel Harris, President
- 4 -
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT dated as of _____________, 1997 among
Preferred Employers Holdings, Inc., a Delaware corporation (the "Company"), and
each of the stockholders of Preferred Employers Group, Inc., a Florida
corporation ("PEGI") set forth on Annex A hereto (the "Stockholders"), sets
forth the terms and conditions upon which each Stockholder shall exchange,
assign and transfer to the Company, and the Company shall exchange and acquire
from each Stockholder, all of the shares of common stock, par value $.01 per
share (the "PEGI Shares"), of PEGI owned by such Stockholder.
In consideration of the mutual covenants and agreements contained herein,
and intending to be legally bound hereby, each of the Stockholders and the
Company hereby covenant and agree as follows:
1. Exchange and Purchase of Shares. Subject to the terms and conditions of
this Agreement, each of the Stockholders shall exchange, assign and transfer,
and the Company shall exchange and acquire from each such Stockholder, all of
such Stockholder's right, title and interest, legal or equitable, in and to the
number of PEGI Shares which such Stockholder owns as set forth opposite his name
on Annex A hereto.
2. Purchase Price. In exchange and as consideration for each PEGI Share,
the Company shall issue with respect thereto 17,647.06 duly authorized, fully
paid and non-assessable shares of common stock, par value $.01 per share, of the
Company (the "Company Shares") upon the execution hereof and, concurrently
therewith, each Stockholder shall deliver to the Company a certificate or
certificates representing the number of PEGI Shares held by such Stockholder as
set forth opposite his name on Annex A hereto, duly endorsed for transfer.
3. Representations and Warranties. Each Stockholder represents and warrants
to the Company that such Stockholder is the owner of his PEGI Shares free and
clear of any lien, claim, other encumbrance and has the right to assign and
transfer ownership in such shares to the Company free and clear of any such
lien, claim, other encumbrance or contractual restriction.
4. Miscellaneous. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. This Agreement shall be governed by and
construed in accordance with the internal substantive laws of the State of New
York, without giving effect to any conflict or choice of laws. This Agreement
may be executed in two
<PAGE>
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Share Exchange
Agreement to be duly executed as of the date first above written.
STOCKHOLDERS:
---------------------------
Mel Harris
---------------------------
Howard Odzer
---------------------------
Francine Harris
---------------------------
Francine Harris, as custodian
for Jamie Jo Harris
---------------------------
Alan Harris
---------------------------
Ginger Harris
---------------------------
Nicole Tannenbaum Kramer
---------------------------
Ronald Rothstein
---------------------------
Nancy Ryan
<PAGE>
ANNEX A
STOCKHOLDER NUMBER OF SHARES
- ----------- ----------------
Mel Harris 82.16
Francine Harris 5.0
Francine Harris, as custodian for
Jamie Jo Harris 5.0
Ginger Harris 2.5
Allan Harris 1.42
Nicole Tannenbaum Kramer 2.5
Howard Odzer 63.0
Ronald Rothstein 7.0
Nancy Ryan 1.42
------
Total Shares outstanding 170.0
<PAGE>
{PEAT MARWICK LLP LOGO}
One Biscayne Tower Telephone 305 358 2300 Telefax 305 577 0544
Suite 2900
2 South Biscayne Boluevard
Miami, FL 33131
The Board of Directors
Preferred Employers Holdings, Inc.
We consent to the use of our reports included herein and to
the reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Miami, Florida
December 30, 1996
