AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1997
REGISTRATION NO. 333-22207
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
HAGLER BAILLY, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8742 54-1759180
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1530 WILSON BOULEVARD
SUITE 900
ARLINGTON, VA 22209
(703) 351-0300
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
------------------------
HENRI-CLAUDE A. BAILLY
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
HAGLER BAILLY, INC.
1530 WILSON BOULEVARD
SUITE 900
ARLINGTON, VA 22209
(703) 351-0300
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------
Copies to:
BARRY M. ABELSON, ESQUIRE JOHN J. SCHUSTER, ESQUIRE
MICHAEL P. GALLAGHER, ESQUIRE CAHILL GORDON & REINDEL
BRIAN M. KATZ, ESQUIRE EIGHTY PINE STREET
PEPPER, HAMILTON & SCHEETZ LLP NEW YORK, NY 10005-1702
3000 TWO LOGAN SQUARE (212) 701-3000
EIGHTEENTH AND ARCH STREETS
PHILADELPHIA, PA 19103-2799
(215) 981-4000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION 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 SECTION 8(A), MAY
DETERMINE.
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<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 MAY 20, 1997
PROSPECTUS
, 1997
3,150,000 SHARES
[LOGO] HAGLER BAILLY, INC.
COMMON STOCK
Of the 3,150,000 shares of Common Stock being offered hereby, 2,500,000
shares are being sold by the Company and 650,000 shares are being sold by the
Selling Stockholders. The Company will not receive any part of the proceeds from
the sale of shares by the Selling Stockholders. See "Principal and Selling
Stockholders."
Prior to this Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $_____ and $_____ per share. See "Underwriting" for information relating
to the factors to be considered in determining the initial public offering
price.
The Company has applied for the Common Stock to be listed on the Nasdaq
National Market under the symbol "HBIX."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
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.
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PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS
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Per Share.... $ $ $ $
Total (3).... $ $ $ $
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
(2) Before deducting expenses estimated at $_______, which will be paid by the
Company.
(3) The Selling Stockholders have granted to the Underwriters a 30-day option to
purchase up to 472,500 additional shares of Common Stock at the Price to the
Public less Underwriting Discounts and Commissions for the purpose of
covering over-allotments, if any. If the Underwriters exercise such option
in full, the total Price to the Public, Underwriting Discounts and
Commissions, Proceeds to the Company and Proceeds to the Selling
Stockholders will be $_____, $_____, $_____ and $_____, respectively. The
Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders pursuant to the Underwriters'
over-allotment, if exercised. See "Underwriting " and "Principal and Selling
Stockholders."
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to various prior conditions, including their right to
reject orders in whole or in part. It is expected that delivery of the share
certificates will be made in New York, New York, on or about __________, 1997.
DONALDSON, LUFKIN & JENRETTE MONTGOMERY SECURITIES
SECURITIES CORPORATION
<PAGE>
1. Map With Location of Company's Headquarters, Principal Offices and Branch and
Project Offices
This Prospectus contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, the words
"anticipate," "believe," "estimate," "expect" and similar expressions as they
relate to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed in "Risk Factors."
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING SYNDICATE SHORT COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
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The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
data appearing elsewhere in this Prospectus. Except as otherwise specified, all
information in this Prospectus assumes (i) an adjustment to reflect a 6.915081
for-one stock split effected on April 14, 1997 (the "Recapitalization"); and
(ii) no exercise of the Underwriters' over-allotment option. See "Underwriting."
Unless otherwise indicated, all references to "Hagler Bailly" or the "Company"
include the Company and its subsidiaries.
THE COMPANY
Hagler Bailly is a leading worldwide provider of a broad array of
management consulting and other advisory services to the private and public
sectors of the energy, utility and environmental industries. The Company offers
a wide range of management consulting, litigation support and specialized
financial advisory services to corporations, primarily electric and gas
utilities and independent power producers, worldwide. The Company also advises
government institutions in the United States and abroad on a broad range of
energy, utility and environmental infrastructure and public policy issues. Since
its inception in 1980, Hagler Bailly has performed in excess of 1,900 consulting
assignments for more than 750 clients in over 100 countries. In 1996, the
Company performed over 220 assignments for more than 125 clients in over 30
countries. Revenues from the Company's ten most significant clients accounted
for approximately 67.3%, 73.1%, 68.9% and 70.9% of its total revenues in the
first three months of 1997, and in 1996, 1995 and 1994, respectively. In the
past 16 years, the Company has grown from a single office to a worldwide network
of operations with principal offices in six cities in the United States and five
other countries. Over the past three fiscal years, the Company's total revenues
and consulting revenues have grown at a compound annual rate of 30.8% and 31.2%,
respectively, and have grown 25.2% and 32.9%, respectively, from 1995 to 1996.
Hagler Bailly offers its clients a comprehensive array of consulting
services, from assisting the client to shape its vision to strategic planning,
selection of appropriate solutions, implementation, financing and on-going
management. These services are offered in five practice areas: corporate
strategy and management; economic analysis and litigation support;
infrastructure planning and development; financial advisory; and environmental
management. These practices work together synergistically to provide clients
with the full range of services and capabilities of the Company. The Company's
services are designed to provide tangible value to clients. This implies relying
less on formulaic approaches and concepts, and more on custom-tailored solutions
based on an assessment of the client's unique situation and needs. In
particular, the Company believes that in order to create tangible value for its
clients in the future, it must be equipped to package traditional consulting
capabilities such as functional expertise (e.g., in marketing, energy supply and
logistics), industry insight and information with management, technology and
capital resources. In this respect, the Company may, from time to time, invest
its own capital (either directly or through third parties) and other resources
in technologies or projects that are becoming critical components for clients
implementing market-based strategies.
As a result of powerful regulatory, economic and technological forces, the
Company believes the energy, utility and environmental industries, in particular
the electric and gas utility sector, are undergoing rapid and profound changes.
Hagler Bailly believes that both in the private and public sectors, the trends
toward globalization, restructuring and digitalization (i.e., developments in
information systems and related technologies) are creating an increasing demand
for the traditional management consulting and related services offered by the
Company, such as planning, cost control, business process re-engineering,
organizational development and public policy analysis. In the private sector,
the Company has developed, is currently offering and will market aggressively,
six integrated consulting solutions for clients trying to adapt to this evolving
market: (i) growing the revenue stream; (ii) reforming and restructuring
contracts; (iii) building the technological spine; (iv) responding to
globalization; (v) identifying and closing enabling transactions; and
(vi) managing environmental constraints. In the public sector, the Company will
continue to focus on selective opportunities both in the United States and
abroad, including the restructuring and
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3
<PAGE>
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privatization of electric, gas and water utilities, energy and water efficiency,
global climate change management and environmental management.
Hagler Bailly believes that several factors distinguish it from its
competitors and position it to capitalize on this growing demand for consulting
services in the energy, utility and environmental markets worldwide,
including: (i) industry focus in these target markets; (ii) full service
capabilities; (iii) global infrastructure; (iv) established client
relationships; (v) public sector insight; (vi) knowledge base; (vii) experienced
team of management and consultants; and (viii) established global visibility.
Hagler Bailly's overall growth strategy includes the following elements:
(i) retaining its focus on the energy, utility and environmental markets;
(ii) leveraging its existing global infrastructure and consulting platforms;
(iii) focusing on solving mission-critical problems for clients; (iv) attracting
and retaining world-class intellectual capital; (v) pursuing strategic
acquisitions; (vi) using creative compensation agreements with clients; and
(vii) utilizing existing relationships to combine capital and consulting
services.
Over the past year, the Company's practice has increasingly focused on
providing management consulting services to private sector clients.
THE OFFERING
Common Stock offered by the Company.... 2,500,000 shares
Common Stock offered by the Selling
Stockholders........................... 650,000 shares
Common Stock to be outstanding after
the Offering........................... 7,982,516 shares(1)
Use of proceeds........................ To repay all outstanding debt and fund
general corporate purposes, including
working capital and possible
acquisitions of complementary
businesses. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol. HBIX
- ------------------
(1) Excludes 1,026,565 shares of Common Stock issuable upon the exercise of
outstanding options currently outstanding under the Company's Employee
Incentive and Non-Qualified Stock Option and Restricted Stock Plan (the
"Stock Plan"). See Note 10 to Consolidated Financial Statements and
"Management -- Long-Term Incentive Plan."
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4
<PAGE>
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SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
THE PREDECESSOR(1) THE COMPANY (1)
-------------------------------------------- ------------------------------------------------
THREE
MONTHS
YEARS ENDED YEARS ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
------------------------------- ------------------------ ---------
JAN. 1, MAY 26,
1995 TO 1995 TO PRO FORMA, AS
MAY 25, DEC. 31, ADJUSTED
1992 1993 1994 1995 1995 1996 1996(2) 1996
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUES:
Consulting revenues........ $ 15,082 $ 18,053 $ 22,531 $ 10,978 $ 18,194 $ 38,762 $ 38,762 $ 9,378
Subcontractor and other
revenues................. 7,869 8,796 13,437 8,897 11,119 22,821 22,821 5,635
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenues......... 22,951 26,849 35,968 19,875 29,313 61,583 61,583 15,013
Cost of services............. 18,460 21,653 29,122 16,529 23,811 48,786 48,236 11,802
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit................. 4,491 5,196 6,846 3,346 5,502 12,797 13,347 3,211
Selling, general and
administrative............. 3,167 3,679 4,836 2,452 3,230 8,583 8,583 1,986
Stock and stock option
compensation(3)............ -- -- -- -- -- 6,172 -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from
operations................. 1,324 1,517 2,010 894 2,272 (1,958) 4,764 1,225
Other income (expense),
net........................ (56) (9) 12 (20) (637) (904) 117 (253)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before income
tax expense................ 1,268 1,508 2,022 874 1,635 (2,862) 4,881 972
Income tax expense........... 453 620 843 362 725 797 1,952 391
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)............ $ 815 $ 888 $ 1,179 $ 512 $ 910 $ (3,659) $ 2,929 $ 581
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) per
share...................... * * * * $ $ $ $
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares
outstanding (4)............ * * * *
<CAPTION>
<S> <C> <C>
PRO FORMA, AS
ADJUSTED
1997 1997(2)
--------- ---------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUES:
Consulting revenues........ $ 10,779 $ 10,779
Subcontractor and other
revenues................. 5,833 5,833
--------- ---------
Total revenues......... 16,612 16,612
Cost of services............. 13,028 13,028
--------- ---------
Gross profit................. 3,584 3,584
Selling, general and
administrative............. 1,984 1,984
Stock and stock option
compensation(3)............ 65 65
--------- ---------
Income (loss) from
operations................. 1,535 1,535
Other income (expense),
net........................ (241) 18
--------- ---------
Income (loss) before income
tax expense................ 1,294 1,553
Income tax expense........... 529 621
--------- ---------
Net income (loss)............ $ 765 $ 932
--------- ---------
--------- ---------
Net income (loss) per
share...................... $ $
--------- ---------
--------- ---------
Weighted average shares
outstanding (4)............
</TABLE>
- ------------------
* Due to the acquisition of the Predecessor on May 25, 1995, and the change in
capital structure, earnings per share information for these periods are not
meaningful and accordingly are not presented.
<TABLE>
<CAPTION>
THE PREDECESSOR(1) THE COMPANY(1)
------------------------------- ----------------------------------------------
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, MARCH 31,
------------------------------- -------------------- ------------------------
AS ADJUSTED
1992 1993 1994 1995 1996 1997 1997(5)
--------- --------- --------- --------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 1,240 $ 950 $ 566 $ 671 $ 1,433 $ 752
Working capital................................. 1,278 1,798 2,992 2,538 3,821 3,924
Total assets.................................... 11,144 11,707 14,801 24,500 27,747 32,780
Total debt...................................... -- -- -- 12,050 10,312 12,540
Total stockholders' equity...................... 3,362 4,250 5,429 3,978 7,238 8,202
Common stock and cash dividends declared........ -- -- -- -- -- -- --
</TABLE>
- ------------------
(1) Effective May 25, 1995, the management of RCG/Hagler Bailly, Inc. ("RCG/HB"
or the "Predecessor"), a wholly-owned subsidiary of RCG International, Inc.
("RCG"), acquired all of the voting stock of RCG/HB. See "The Company" and
"Certain Transactions."
(2) The pro forma, as adjusted, statement of operations data have been computed
by (a) eliminating from cost of services that portion of officer
compensation that exceeded the compensation that would have been paid had
the compensation plan adopted in January, 1997 been in effect for all of
1996; (b) eliminating interest expense of approximately $259,000 for the
period ended March 31, 1997 and $1.0 million for 1996 related to the
Company's outstanding debt that would have been repaid with proceeds from
the Offering; and (c) eliminating the non-recurring, non-cash compensation
expense of $6.2 million in 1996 described in footnote 3 below. The pro
forma, as adjusted, income tax provision is calculated at a combined federal
and state income tax rate of 40.0%. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Management-Executive Compensation."
(3) In connection with an amendment to the Stock Plan and a reclassification of
its Common Stock, each effective December 31, 1996, the Company incurred
non-recurring, non-cash charges to operations amounting to $4.6 million for
options and $1.6 million for stock, respectively, in 1996. In connection
with a stock bonus to an employee, the Company incurred a non-cash
compensation charge to operations in the first quarter of 1997 of $65,000.
See Note 10 to Consolidated Financial Statements and "Certain Transactions."
(4) The pro forma, as adjusted, weighted average shares outstanding have been
adjusted for the dilutive effect of Common Stock equivalents and reflect the
sale by the Company of 2,500,000 shares of Common Stock offered hereby as if
the shares were outstanding for the entire period.
(5) Adjusted to give effect to the sale by the Company of 2,500,000 shares of
Common Stock offered hereby (at an assumed initial public offering price of
$____ per share) and the application of the net proceeds as set forth in
"Use of Proceeds."
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5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered by this Prospectus.
DEPENDENCE ON KEY EMPLOYEES
The success of Hagler Bailly is highly dependent upon the efforts,
abilities, business generation capabilities and project execution of its
Executive Officers and Managing Directors, in particular those of Henri-Claude
A. Bailly, the Company's President, Chief Executive Officer and Chairman of the
Board. The Company does not have an employment agreement with any of these
individuals, with the exception of Mr. Bailly. The loss of the services of any
of these individuals for any reason, in particular Mr. Bailly, could have a
material adverse effect upon the Company's business, operating results and
financial condition, including its ability to secure and complete engagements.
The Company maintains a key-man life insurance policy on Mr. Bailly in the
amount of $2.0 million. The Company has entered into a non-competition agreement
with each of its Executive Officers, Managing Directors and directors which
provides that each will not compete with the Company for a two-year period
following the closing of the Offering. See "Management."
ATTRACTION, RETENTION AND MANAGEMENT OF PROFESSIONAL AND ADMINISTRATIVE STAFF
Hagler Bailly's business involves the delivery of professional services and
is labor-intensive. The Company's future performance depends in large part upon
its ability to attract, develop, motivate and retain highly-skilled consultants,
research associates and administrative staff, particularly senior professionals
with business development skills. Qualified consultants are in great demand and
there is significant competition for employees with these skills from other
consulting and investment banking firms, research firms, energy companies and
many other related enterprises. Many of these firms have substantially greater
financial resources than the Company which they may use to attract and
compensate qualified personnel. There can be no assurance that the Company will
be able to attract and retain sufficient numbers of highly skilled consultants
in the future. The loss of the services of a significant number of consultants,
research associates or administrative personnel could have a material adverse
effect on the Company's business, operating results and financial condition,
including its ability to secure and complete engagements. In addition, if
existing or new employees are unable to achieve anticipated engagement quality
or schedule requirements, utilization levels, billing rates, or other
performance measures to meet such growth, the Company's business, operating
results and financial condition could be materially and adversely affected. See
"Business -- Human Resources."
CONCENTRATION OF REVENUES
Substantially all of the revenues of Hagler Bailly are derived from private
and public clients involved in the energy, utility and environmental industries.
As a result of the Company's focus on energy, utility and environmental
consulting, its business, financial condition and results of operations are
influenced by factors affecting these industries, including changing political,
economic and regulatory influences that may affect the procurement practices and
operation of energy, utility and environmental service providers. In particular,
many electric and gas utilities are consolidating to create larger organizations
or strategic alliances. These consolidations and alliances will reduce the
number of potential customers for the Company's services and may also create
conflicts of interest between clients. In addition, these consolidations and
alliances may result in the acquisition of certain of the Company's key clients,
and such clients may scale back or terminate their relationship with the Company
following their acquisition. Similarly, cutbacks in the energy and/or
environmental budgets of the United States and other governments could result in
the scale back or termination of some of the Company's public sector contracts.
The impact of these developments in the energy, utility and environmental
industries is difficult to predict and could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Principal Clients and Representative Engagements."
6
<PAGE>
CLIENT CONCENTRATION
Hagler Bailly derives a significant portion of its revenues from a
relatively limited number of clients. For example, revenues from the Company's
ten most significant clients accounted for approximately 67.3%, 73.1%, 68.9% and
70.9% of its total revenues in the first three months of 1997, and 1996, 1995
and 1994, respectively. The United States Agency for International Development
("USAID") is the Company's single largest client, accounting for approximately
36.8%, 42.2%, 53.1% and 52.2% of the Company's total revenues in the first three
months of 1997, and 1996, 1995 and 1994, respectively (approximately 24.3%,
26.9%, 39.4% and 40.5% of consulting revenues in the first three months of 1997,
and 1996, 1995 and 1994, respectively). As of March 31, 1997, the Company has
seven separate contracts with four separate offices of this agency. In addition,
revenues from engagements with three separate business units of Central Illinois
Light Company accounted for approximately 12.3% of the Company's total revenues
in 1996 (approximately 17.1% of consulting revenues) and 7.4% for the first
three months of 1997 (approximately 9.9% of consulting revenues). Clients
typically retain the Company as needed on an engagement basis rather than
pursuant to long-term contracts, and a client can usually terminate an
engagement at any time without a significant penalty. Moreover, there can be no
assurance that the Company's existing clients will continue to engage the
Company for additional assignments or do so at the same revenue levels. The loss
of any significant client could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the level
of the Company's consulting services required by an individual client can
diminish over the life of its relationship with the Company, and there can be no
assurance that the Company will be successful in establishing relationships with
new clients as this occurs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Principal Clients
and Representative Engagements" and "Business -- Commercial and Public Sector
Contracts."
PARTNERING ARRANGEMENTS
Historically, Hagler Bailly's revenues have been generated either on a
standard daily rates basis or a cost plus fixed-fee basis. In the future, the
Company anticipates an increasing portion of its management consulting services
will be billed pursuant to alternative pricing arrangements which may include
incentive and success-based fees (i.e., fees that are based on meeting specific
performance milestones). In addition, the Company anticipates that it will
pursue, in certain select instances, opportunities to invest its own capital and
other resources in partnering arrangements involving early stage energy-related
technologies and projects in the energy, utilities and environmental industries.
The Company has limited prior experience investing its own funds in external
ventures. Since the Company has not yet identified any prospective investment
opportunities, there is no basis to evaluate the possible merits or risks of any
such investments. Such compensation arrangements and investments may result in
significant time delays between the incurrence of costs in delivering services
and the receipt of the related fee or return on invested capital, as the case
may be. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Growth Strategy."
PUBLIC SECTOR MARKET AND CONTRACTING RISKS
Approximately 52.3% and 64.8% of Hagler Bailly's total revenues in 1996 and
1995, respectively (approximately 37.2% and 53.2% of consulting revenues in 1996
and 1995, respectively), were derived from contracts or subcontracts with public
sector clients. Consulting to public sector customers is subject to detailed
regulatory requirements and public policies as well as to funding priorities.
Contracts with public sector customers may be conditioned upon the continuing
availability of public funds, which in turn depends upon lengthy and complex
budgetary procedures, and may be subject to certain pricing constraints.
Moreover, public sector contracts may generally be terminated for a variety of
factors, including when it is in the best interests of the respective
government. There can be no assurance that these factors or others unique to
contracts with governmental entities will not have a material adverse effect on
the Company's future results of operations and financial condition. See
7
<PAGE>
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Commercial and Public Sector Contracts."
INTERNATIONAL OPERATIONS
Hagler Bailly operates either permanent or project offices in a total of 17
foreign countries. The Company expects to continue to expand its international
operations and offices. Expansion into new geographic regions requires
considerable management and financial resources and may negatively impact the
Company's near-term results of operations. The Company's international
operations are subject to numerous potential challenges and risks, including
war, civil disturbances, other political and economic conditions in various
jurisdictions such as tariffs and other trade barriers, longer accounts
receivable collection cycles, fluctuations in currency and potentially adverse
tax consequences. There can be no assurance that such international factors will
not have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Financial Instruments and
Risk Management" and "Business -- Principal Clients and Representative
Engagements."
INTENSE COMPETITION
The market for consulting services in the energy, utility and environmental
industries is intensely competitive, highly fragmented and subject to rapid
change, and such competition is likely to increase in the future. Many of the
Company's competitors have greater personnel, financial, technical and marketing
resources than the Company. The Company also competes with its clients' internal
resources, particularly where such resources represent a fixed cost to the
client. This source of competition may heighten as consolidation of electric and
gas utility and other energy industry companies creates larger organizations. In
the private sector, the Company believes the key competitive factors are quality
and service, followed by price, while in the public sector the Company believes
the key competitive factors are price and service. There can be no assurance
that the Company will be able to compete successfully with its existing
competitors or with any new competitors. See "Business -- Competition."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Variations in Hagler Bailly's revenues and operating results occur from
quarter to quarter as a result of a number of factors, such as the number and
significance of client engagements commenced and completed during a quarter,
delays incurred in connection with an engagement, the number of business days in
a quarter, employee hiring and utilization rates, the ability of clients to
terminate engagements without penalties, the size and scope of engagements, the
nature of the fee arrangement, the seasonality of the spending cycle of public
sector clients (especially that of the United States government), the timing of
new office openings, return on investment capital and general economic and
political conditions. Variation in any of these factors can cause significant
variations in operating results from quarter to quarter and could result in
losses to the Company. To the extent that increases in the number of
professional personnel are not followed by corresponding increases in revenues,
the Company's operating results could be materially and adversely affected.
Results of any one quarter are not necessarily indicative of any succeeding
quarter or of the year in question. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Unaudited Quarterly Results."
RISKS RELATED TO POSSIBLE ACQUISITIONS
An element of Hagler Bailly's strategy is to expand its operations through
the acquisition of complementary businesses. Although the Company has
successfully acquired firms in the past, it does not have any binding agreement
to acquire any businesses at this time. There can be no assurance that the
Company will be able to identify, acquire, profitably manage or successfully
integrate any acquired businesses into the Company without substantial expenses,
delays or other operational or financial problems. Moreover, competitors of the
Company are also soliciting acquisition candidates, which
8
<PAGE>
could result in an increase in the price of acquisition targets and a decrease
in the number of attractive companies available for acquisition. Further,
acquisitions may involve a number of special risks, including diversion of
management's attention, failure to retain key acquired personnel, increased
costs to improve managerial, operational, financial and administrative systems,
unanticipated events or circumstances, legal liabilities, increased interest
expense and amortization of acquired intangible assets, some or all of which
could have a materially adverse impact on the Company's business, operating
results and financial condition. Client satisfaction or performance problems at
a single acquired firm could have a materially adverse impact on the reputation
of the Company as a whole. In addition, there can be no assurance that acquired
businesses, if any, will achieve anticipated revenues and earnings. The failure
of the Company to manage its acquisition strategy successfully could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Growth Strategy."
LIMITED PROTECTION OF PROPRIETARY SYSTEMS AND PROCEDURES
Hagler Bailly's performance is in part dependent upon its internal
information and communication systems, data bases, tools, and the methods and
procedures that it has developed specifically to serve its clients. The Company
relies on a combination of nondisclosure and other contractual arrangements and
copyright, trademark and trade secret laws to protect its proprietary systems,
information and procedures. There can be no assurance that the steps taken by
the Company to protect its proprietary rights will be adequate to prevent
misappropriation of such rights or that the Company will be able to detect
unauthorized use and take appropriate steps to enforce its proprietary rights.
The Company believes that its systems and procedures and other proprietary
rights do not infringe upon the rights of third parties. There can be no
assurance, however, that third parties will not assert infringement claims
against the Company in the future or that any such claims will not require the
Company to enter into costly litigation or materially adverse settlements to
litigation, regardless of the merits of such claims. See "Business --
Competitive Strengths."
PROFESSIONAL AND OTHER LIABILITY
Hagler Bailly's services involve risks of professional and other liability.
If the Company were found to have been negligent or to have breached its
obligations to its clients, the Company could be exposed to significant
liabilities and its reputation could be adversely affected. In connection with
many of its public sector engagements, the Company employs the services of local
staff and consultants who are treated as independent contractors. Negligent or
illegal acts or ethical violations by these independent contractors could
adversely affect the Company. The Company maintains professional liability
insurance to an aggregate maximum of $10.0 million. See "Business -- Human
Resources."
SIGNIFICANT UNALLOCATED NET PROCEEDS
A substantial portion of the anticipated net proceeds of this Offering have
not been designated for specific uses. Therefore, the Board of Directors of the
Company will have broad discretion with respect to the use of the net proceeds
of the Offering. See "Use of Proceeds."
BENEFITS OF OFFERING TO SELLING STOCKHOLDERS
In connection with the Offering, the Selling Stockholders, some of whom are
officers or directors of the Company, will receive substantial benefits. The
Selling Stockholders will receive substantial proceeds from the Offering and
certain other benefits in connection with the Offering. The Offering will
establish a public market for the Common Stock and provide increased liquidity
to the Selling Stockholders for the shares of Common Stock they will own after
the Offering. At an assumed initial public price of $_____ per share, after
deduction of underwriting discounts and commissions, the aggregate realized gain
as a result of the Offering by the Selling Stockholders will be approximately
$____ million ($____ million if the Underwriters' over-allotment option is
exercised in full). See "Use of Proceeds," "Dilution," "Principal and Selling
Stockholders" and "Certain Transactions."
9
<PAGE>
CONTROL BY PRINCIPAL STOCKHOLDERS
After completion of the Offering, the Selling Stockholders will
beneficially own approximately 60.5% of the Company's outstanding shares of
Common Stock (approximately 54.6% if the Underwriters' over-allotment option is
exercised in full), not including outstanding options to purchase Common Stock.
As a result, these stockholders will continue to be able to control the outcome
of matters requiring a stockholder vote, including the election of the members
of the Board of Directors, thereby controlling the affairs and management of the
Company. Such control could adversely affect the market price of the Common
Stock or delay or prevent a change of control of the Company at a price which
might represent a premium over the market price of the Common Stock. See
"Principal and Selling Stockholders."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price per share of the Common
Stock was determined by negotiations among management of the Company, the
Selling Stockholders and the representatives of the Underwriters. See
"Underwriting" for the factors considered in determining the initial public
offering price per share. Although the Common Stock is expected to be approved
for quotation on the Nasdaq National Market, there can be no assurance that an
active trading market will develop or be sustained after the Offering. The
market price of the Common Stock may fluctuate substantially due to a variety of
factors, including quarterly fluctuations in results of operations,
announcements or terminations of new services, offices, contracts, acquisitions
or strategic alliances by the Company or its competitors, as well as changes in
the market conditions in the energy, utilities and environmental industries,
changes in earnings estimates by analysts, changes in accounting principles,
sales of Common Stock by existing holders, loss of key personnel and other
factors. In addition, the stock market experiences volatility which affects the
market price of securities of many companies and which has sometimes been
unrelated to the operating performance of such companies. In the past, following
periods of significant volatility in the market price of a company's securities,
securities class action litigation has often been instituted against such a
company. Any such litigation instigated against the Company could result in
substantial costs and a diversion of management's attention and resources. Any
of these results could have a material adverse effect on the Company's business,
operating results and financial condition.
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price per share of Common Stock is
substantially higher than the net tangible book value per share of the Common
Stock. Purchasers of shares of Common Stock in the Offering will experience
immediate and substantial dilution of $_____ in the pro forma net tangible book
value per share of Common Stock. To the extent outstanding options to purchase
the Company's Common Stock are exercised, there will be further dilution. See
"Dilution."
DIVIDEND POLICY
Hagler Bailly has never paid cash dividends on its capital stock and does
not anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain all earnings for the development of its business.
See "Dividend Policy."
CERTAIN ANTI-TAKEOVER EFFECTS
Hagler Bailly's Amended and Restated Certificate of Incorporation and
By-Laws and the Delaware General Corporation Law include provisions that may be
deemed to have anti-takeover effects and may delay, defer or prevent a takeover
attempt that stockholders might consider in their best interests. These include
a board of directors which is divided into three classes, each of which is
elected to serve staggered three-year terms, and By-Law provisions under which
only the Chairman of the Board, a majority of the Board of Directors or
stockholders owning at least 50.0% of the Company's capital stock may call
meetings of the stockholders and which require certain advance
10
<PAGE>
notice procedures for nominating candidates for election to the Board of
Directors. Also, the Board of Directors of the Company is authorized to issue up
to 5,000,000 shares of preferred stock and to determine the price, rights,
preferences and privileges of such shares, without any further stockholder
action. The existence of this "blank-check" preferred stock could render more
difficult or discourage an attempt to obtain control of the Company by means of
a tender offer, merger, proxy contest or otherwise. Furthermore, the Company is
subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law that prohibits the Company from engaging in a "business
combination" with an "interested stockholder" unless the business combination is
approved in a prescribed manner. These provisions could also have the effect of
delaying or preventing a change of control of the Company, which could adversely
affect the market price of the Common Stock. See "Management -- Executive
Officers and Directors" and "Description of Capital Stock -- Anti-takeover
Effects of Provisions of the Amended and Restated Certificate of Incorporation,
By-Laws and Delaware Law."
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after completion of the Offering, the Company will have
7,982,516 shares of Common Stock outstanding, of which the 3,150,000 shares
(3,622,500 shares if the over-allotment option is exercised in full) sold
pursuant to the Offering will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless such shares are acquired by "affiliates" of the Company as that
term is defined in Rule 144 of the Securities Act ("Rule 144"). Holders of the
remaining shares will be eligible to sell such shares pursuant to Rule 144 at
prescribed times and subject to the manner of sale, volume, notice and
information restrictions of Rule 144. In addition, 1,026,565 shares of Common
Stock are issuable upon the exercise of outstanding stock options (of which
options to acquire 478,802 shares are currently exercisable), which shares may
be registered by the Company under the Securities Act and become freely
tradeable without restriction. The Company, together with each of its
stockholders (holding in the aggregate 4,832,516 shares of Common Stock upon
consummation of the Offering or 4,360,016 shares if the over-allotment option is
exercised in full), have agreed not to offer, pledge, sell, contract to sell,
grant any option to purchase, grant any right or warrant for the sale of, or
otherwise dispose of, directly or indirectly, any common stock, or any
securities convertible into or exchangeable or exercisable for Common Stock,
until 180 days after the date of this Prospectus, without the prior consent of
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). Sales of
substantial amounts of such shares in the public market or the availability of
such shares for future sale could adversely affect the market price of the
shares of Common Stock and the Company's ability to raise additional capital at
a price favorable to the Company. See "Shares Eligible for Future Sale" and
"Underwriting."
11
<PAGE>
THE COMPANY
The Company was founded in 1980 as Hagler Bailly & Company, Inc. In 1984,
it was acquired by RCG, an indirect subsidiary of Reliance Group Holdings, Inc.
and in 1987 was renamed RCG/Hagler Bailly, Inc. In May 1995, the management of
RCG/HB completed the purchase of the Company from RCG (the "Management
Buy-Out"). The Management Buy-Out was structured as a stock purchase of the
outstanding capital stock of RCG/HB and was principally financed by a secured
senior term bank loan from State Street Bank and Trust Company ("Secured Senior
Bank Loan") and a subordinated loan from RCG ("Subordinated Loan"). The
remainder of the Management Buy-Out was financed by the proceeds of the sale of
Hagler Bailly's common stock to certain employees and directors, all of whom are
Selling Stockholders. The Company currently operates through its three primary
wholly-owned subsidiaries, Hagler Bailly Services, Inc. ("Hagler Bailly
Services"), Hagler Bailly Consulting, Inc. ("Hagler Bailly Consulting") and HB
Capital, Inc. ("HB Capital"), in addition to several foreign wholly-owned
subsidiaries through which its foreign operations are conducted.
The Company was incorporated in Delaware in May 1995. The Company's
headquarters are located at 1530 Wilson Boulevard, Suite 900, Arlington, VA
22209, and its telephone number is (703) 351-0300.
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered by the Company
hereby, after deducting estimated underwriting discounts and commissions and
other estimated offering expenses are estimated to be $__ million, all of which
are payable by the Company. The Company will not receive any of the net proceeds
from the shares of Common Stock sold by the Selling Stockholders.
The Company will use approximately $4.6 million of the net proceeds from
the Offering to repay all amounts outstanding under the Subordinated Loan, which
bears interest at a fixed rate of 9.5% per annum and has a balloon payment due
in May 2001 which is accelerated in the event the Company completes this
Offering, and approximately $3.6 million to repay all amounts outstanding under
the Secured Senior Bank Loan, which bears interest at the London Inter-Bank
Offering Rate ("LIBOR") plus 2.0% (7.6% at March 31, 1997) and matures in May
1999. See Notes 8 and 14 to Consolidated Financial Statements. The Company will
also use a portion of the net proceeds to repay all amounts outstanding under
the Company's bank line of credit with State Street Bank and Trust Company
(approximately $4.3 million at March 31, 1997), which bears interest at a rate
of 0.875% above the lender's prime rate (9.4% at March 31, 1997). In the event
the Company is unable to obtain a release of RCG for remaining a guarantor on
the lease for the Company's headquarters upon consummation of the Offering, the
Company may use up to $3.1 million of the net proceeds to fund an increase in an
escrow balance required to secure its indemnity of RCG for remaining a guarantor
on such lease. Hagler Bailly intends to use the remainder of the net proceeds
for general corporate purposes, which may include working capital, future
acquisitions of complementary businesses and investment activities. The Company
currently has no agreements, understandings or commitments regarding any future
acquisitions or investment activities. Pending such uses, the net proceeds of
the Offering will be invested in short-term, investment grade, interest-bearing
securities. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and Notes 6 and 14 to
Consolidated Financial Statements.
In addition to the foregoing, the principal purposes of the Offering are to
increase the Company's equity capital and financial flexibility, create a public
market for the Common Stock, facilitate future access by the Company to the
public equity markets, create a currency for potential acquisitions, enhance the
Company's ability to use the Common Stock as a means of attracting, retaining
and providing incentives to senior managers and consultants and provide working
capital to fund the Company's growth strategy. See "Business -- Growth
Strategy."
DIVIDEND POLICY
The Company currently anticipates that it will retain all of its earnings
for development of its business, and does not anticipate paying any cash
dividends in the foreseeable future. Future cash dividends, if any, will be at
the discretion of the Board of Directors and will depend upon, among other
things, the Company's future operations and earnings, capital requirements and
surplus, general financial condition, contractual restrictions and such other
factors as the Board of Directors may deem relevant.
12
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1997, and as adjusted to
reflect the capitalization of the Company after giving effect to the sale of
2,500,000 shares of Common Stock offered by the Company hereby (at an assumed
initial public offering price of $_____ per share) and the application of the
estimated net proceeds therefrom. The information set forth below should be read
in conjunction with the Consolidated Financial Statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
---------------------------
AS ADJUSTED
ACTUAL (1)
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................................... $ 752 $
----------- ------------
----------- ------------
Bank line of credit................................................................. $ 4,300 --
Current portion of long-term debt................................................... 1,319 --
----------- ------------
Total short-term borrowings......................................................... $ 5,619 --
----------- ------------
----------- ------------
Long-term debt, net of current portion.............................................. $ 6,921 --
Stockholders' equity:
Preferred Stock:
Preferred Stock, $0.01 par value, 5,000,000 shares authorized,
as adjusted only; none issued and outstanding.................................. -- --
Common Stock:
Common Stock, $0.01 par value, 6,915,081 shares authorized,
5,482,516 shares issued and outstanding, actual; and
20,000,000 shares authorized and 7,982,516 shares
issued and outstanding, as adjusted (2)..................................... 55
Additional paid-in capital........................................................ 10,131
Retained deficit.................................................................. (1,984)
----------- ------------
Total stockholders' equity..................................................... 8,202
Total capitalization..................................................... $ 15,123 $
----------- ------------
----------- ------------
</TABLE>
- ------------------
(1) Adjusted to give effect to the sale by the Company of 2,500,000 shares of
Common Stock offered hereby (at an assumed initial public offering price of
$_______ per share, net of underwriting discounts, commissions and offering
expenses) and the application of the net proceeds as set forth in "Use of
Proceeds."
(2) Excludes 1,026,565 shares of Common Stock issuable upon the exercise of
outstanding options. In addition, at the date of this Prospectus, there were
1,683,204 shares of Common Stock reserved for future issuance under the
Company's Stock Plan. See "Management -- Long-Term Incentive Plan."
13
<PAGE>
DILUTION
As of March 31, 1997, the net tangible book value of the Company was
$725,123 or $0.13 per share. Net tangible book value per share represents the
amount of tangible net assets of the Company, less total liabilities, divided by
the number of shares of Common Stock outstanding. After giving effect to the
sale by the Company of 2,500,000 shares of Common Stock and the application of
the net proceeds therefrom, the pro forma net tangible adjusted book value of
the Company at March 31, 1997 would have been approximately $_______ million, or
$____ per share. This amount represents an immediate increase in pro forma net
tangible book value of $____ per share to existing owners of the Company and an
immediate dilution in pro forma net tangible book value of $____ per share to
purchasers of Common Stock in this Offering. The following table illustrates
this per share dilution, without giving effect to any exercise of the
Underwriters' over-allotment option:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................................... $
---------
Net tangible book value per share before the Offering......................... $ 0.13
Pro forma increase in net tangible book value per share attributable to new
stockholders................................................................
---------
Pro forma net tangible book value per share after the Offering.....................
---------
Pro forma dilution in net tangible book value per share to new stockholders........ $
---------
---------
</TABLE>
The following table summarizes, as of March 31, 1997, the number of shares
of Common Stock purchased from the Company, the total consideration paid to the
Company and the average price per share paid by existing stockholders and by new
investors purchasing shares of Common Stock from the Company in the Offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ------------------------ AVERAGE PRICE
NUMBER % AMOUNT % PER SHARE
----------- --------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1).................... 5,482,516 69% $ 3,957,206 % $ 0.72
New investors (1)............................ 2,500,000 31% %
----------- --------- ------------- --------- ---------
Total................................... 7,982,516 100% $ 100% $
----------- --------- ------------- --------- ---------
----------- --------- ------------- --------- ---------
</TABLE>
- ------------------
(1) Assumes no exercise of options outstanding as of March 31, 1997 to purchase
1,026,565 shares of Common Stock at exercise prices ranging from $0.16 to
$10.00 per share and a weighted average exercise price of $5.85 per share.
If any of these options are exercised, there will be further dilution to new
investors. Does not reflect the sale of 650,000 shares by Selling
Stockholders in the Offering. Sales by Selling Stockholders in the Offering
will reduce the number of shares held by existing stockholders of the
Company to 4,832,516, or approximately 60.5% of the total shares of Common
Stock outstanding after the Offering (4,360,016 shares, or approximately
54.6%, of the total shares if the Underwriters' over-allotment option is
exercised in full).
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data as of December 31, 1993, 1994 and for
the period from January 1, 1995 to May 25, 1995 have been derived from the
audited Financial Statements of the Predecessor included elsewhere herein. The
selected consolidated financial data as of December 31, 1995, 1996 and for the
period from May 26, 1995 to December 31, 1995 and for the year ended 1996 have
been derived from the audited Consolidated Financial Statements of the Company
included elsewhere herein. The selected financial data as of December 31, 1992
and for the year then ended, are derived from the unaudited financial statements
of the Predecessor, and the selected consolidated financial data as of March 31,
1996 and 1997 and for the three months then ended are derived from the unaudited
consolidated financial statements of the Company which in each case includes all
adjustments, consisting of only normal recurring items which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. The results of operations for prior
periods are not necessarily indicative of the results that may be expected for
future years. The information set forth below should be read in conjunction with
the Company's Consolidated Financial Statements and the Notes thereto, the
Predecessor Financial Statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THE PREDECESSOR(1) THE COMPANY (1)
-------------------------------------------- -----------------------------------------------------------
YEARS ENDED YEARS ENDED THREE MONTHS
DECEMBER 31, DECEMBER 31, ENDED MARCH 31,
------------------------------- ------------------------ --------------------
JAN. 1, MAY 26,
1995 TO 1995 TO PRO FORMA, AS
MAY 25, DEC. 31, ADJUSTED
1992 1993 1994 1995 1995 1996 1996(2) 1996 1997
--------- --------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Consulting
revenues........... $ 15,082 $ 18,053 $ 22,531 $ 10,978 $ 18,194 $ 38,762 $ 38,762 $ 9,378 $ 10,779
Subcontractor and
other revenues..... 7,869 8,796 13,437 8,897 11,119 22,821 22,821 5,635 5,833
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total revenues... 22,951 26,849 35,968 19,875 29,313 61,583 61,583 15,013 16,612
Cost of services....... 18,460 21,653 29,122 16,529 23,811 48,786 48,236 11,802 13,028
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Gross profit........... 4,491 5,196 6,846 3,346 5,502 12,797 13,347 3,211 3,584
Selling, general and
administrative
expenses............. 3,167 3,679 4,836 2,452 3,230 8,583 8,583 1,986 1,984
Stock and stock option
compensation (3)..... -- -- -- -- -- 6,172 -- -- 65
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from
operations........... 1,324 1,517 2,010 894 2,272 (1,958) 4,764 1,225 1,535
Other income (expense),
net.................. (56) (9) 12 (20) (637) (904) 117 (253) (241)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
income tax expense... 1,268 1,508 2,022 874 1,635 (2,862) 4,881 972 1,294
Income tax expense..... 453 620 843 362 725 797 1,952 391 529
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)...... $ 815 $ 888 $ 1,179 $ 512 $ 910 $ (3,659) $ 2,929 $ 581 $ 765
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) per
share................ * * * * $ $ $ $ $
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares
outstanding (4)...... * * * *
<CAPTION>
PRO FORMA, AS
ADJUSTED
1997(2)
---------
<S> <C>
Statement of Operations
Data:
Revenues:
Consulting
revenues........... $ 10,779
Subcontractor and
other revenues..... 5,833
---------
Total revenues... 16,612
Cost of services....... 13,028
---------
Gross profit........... 3,584
Selling, general and
administrative
expenses............. 1,984
Stock and stock option
compensation (3)..... 65
---------
Income (loss) from
operations........... 1,535
Other income (expense),
net.................. 18
---------
Income (loss) before
income tax expense... 1,553
Income tax expense..... 621
---------
Net income (loss)...... $ 932
---------
---------
Net income (loss) per
share................ $
---------
---------
Weighted average shares
outstanding (4)......
</TABLE>
- ------------------
* Due to the acquisition of the Predecessor on May 25, 1995, and the change in
capital structure, earnings per share information for these periods are not
meaningful and accordingly are not presented.
15
<PAGE>
<TABLE>
<CAPTION>
THE PREDECESSOR(1) THE COMPANY(1)
------------------------------- --------------------------------------------
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, MARCH 31,
------------------------------- -------------------- ----------------------
AS ADJUSTED
1992 1993 1994 1995 1996 1997 1997(5)
--------- --------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 1,240 $ 950 $ 566 $ 671 $ 1,433 $ 752
Working capital...................... 1,278 1,798 2,992 2,538 3,821 3,924
Total assets......................... 11,144 11,707 14,801 24,500 27,747 32,780
Total debt........................... -- -- -- 12,050 10,312 12,540
Total stockholders' equity........... 3,362 4,250 5,429 3,978 7,238 8,202
Common stock and cash dividends
declared........................... -- -- -- -- -- -- --
</TABLE>
- ------------------
(1) Effective May 25, 1995, the management of RCG/HB, a wholly-owned subsidiary
of RCG, acquired all of the voting stock of RCG/HB. See "The Company" and
"Certain Transactions."
(2) The pro forma, as adjusted, statement of operations data have been computed
by (a) eliminating from cost of services that portion of officer
compensation that exceeded the compensation that would have been paid had
the compensation plan adopted in January, 1997 been in effect for all of
1996; (b) eliminating interest expense of approximately $259,000 for the
period ended March 31, 1997 and $1.0 million for 1996 related to the
Company's outstanding debt that would have been repaid with proceeds from
the Offering; and (c) eliminating the non-recurring, non-cash compensation
expense of $6.2 million in 1996 described in footnote 3 below. The pro
forma, as adjusted, income tax provision is calculated at a combined federal
and state income tax rate of 40.0%. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Management
-- Executive Compensation."
(3) In connection with an amendment to the Stock Plan and a reclassification of
its Common Stock, each effective December 31, 1996, the Company incurred
non-recurring, non-cash charges to operations amounting to $4.6 million for
options and $1.6 million for stock, respectively, in 1996. In connection
with a stock bonus to an employee, the Company incurred a non-cash
compensation charge to operations in the first quarter of 1997 of $65,000.
See Note 10 to Consolidated Financial Statements and "Certain Transactions."
(4) The pro forma, as adjusted, weighted average shares outstanding have been
adjusted for the dilutive effect of Common Stock equivalents and reflect the
sale of 2,500,000 shares of Common Stock offered hereby as if the shares
were outstanding for the entire period.
(5) Adjusted to give effect to the sale by the Company of 2,500,000 shares of
Common Stock offered hereby (at an assumed initial public offering price of
$____ per share and application of the net proceeds as set forth in "Use of
Proceeds."
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following section of the Prospectus, Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains certain
forward-looking statements that involve substantial risks and uncertainties.
When used in this section, the words "anticipate," "believe," "estimate," and
"expect" and similar expressions as they relate to the Company or its management
are intended to identify such forward-looking statements. The Company's actual
results, performance or achievements could differ materially from the results
expressed in, or implied by, these forward-looking statements. Factors that
could cause or contribute to such differences include those discussed in "Risk
Factors."
OVERVIEW
Hagler Bailly is a leading worldwide provider of a broad array of
management consulting and other advisory services to the private and public
sectors of the energy, utility and environmental industries. The Company offers
a wide range of management consulting, litigation support and specialized
financial advisory services to corporations, primarily electric and gas
utilities and independent power producers, worldwide. The Company also advises
government institutions in the United States and abroad on a broad range of
energy, utility and environmental infrastructure and public policy issues.
Total revenues represent the total of all revenues related to contracts,
including revenues associated with professional staff, subcontractors and
independent consultants. Consulting revenues represent the amount of contract
revenue associated with billings by the Company's professional staff.
Subcontractor and other revenues represent revenues associated with
subcontractors and independent consultants, as well as travel and per diem
reimbursements from clients. Consulting revenues are considered by management to
be the most significant measure of revenues and revenue growth because they
represent the specific income that is generated by the Company's professional
staff. The expenses incurred in connection with subcontractor and other revenues
are generally passed through to the client. Cost of services is comprised of all
direct labor costs and associated benefits (including bonuses), directly
associated subcontractor expenses and other direct costs. Selling, general and
administrative expenses include salaries and benefits of management and support
personnel, facility costs, training, marketing, bid and proposal costs, outside
professional fees related to corporate matters and all other corporate costs.
Other income (expense) is comprised primarily of interest income or expense.
The Company derives substantially all of its revenues from fees for
professional services. The majority of revenues are billed at standard daily
rates or cost-plus fixed-fees. A small percentage of revenues are billed on a
fixed-bid basis. Clients are typically invoiced on a monthly basis. Revenues
from cost-plus fixed-fee contracts are recognized as costs are incurred on the
basis of direct costs plus allowable indirect costs and a pro-rata portion of
the estimated fee. Revenues from fixed-bid type contracts are recognized on the
percentage-of-completion method of accounting with costs and estimated profits
included in contract revenues based on the relationship that contract costs
incurred bear to management's estimate of total contract costs. Losses, if any,
are accrued when they become known and the amount of the loss is reasonably
determinable. Revenues from standard daily rate contracts are recognized at
amounts represented by the agreed-upon billing amounts and costs are recognized
as incurred. For the fiscal years ended 1994, 1995, 1996 and the three months
ended March 31, 1997, revenues from standard daily rate engagements comprised
approximately 64.6%, 74.6%, 79.4% and 75.3% of the Company's total revenues,
respectively (62.3%, 71.2%, 73.3% and 74.7% of consulting revenues,
respectively). Although currently only a nominal amount, the Company anticipates
an increasing amount of its revenues will be success or performance based in the
future. See "Business -- Growth Strategy."
The Company's most significant expenses are project personnel costs, which
consist of consultant salaries and benefits (including bonuses), and
travel-related direct project expenses. Project personnel
17
<PAGE>
are typically full-time professionals employed by the Company, although the
Company often supplements its professional project staff through the use of
subcontractors and independent consultants, predominantly for public sector
work. The Company retains such subcontractors and independent consultants for
specific client engagements on a task-specific, per diem basis during the period
their expertise or skills are required. The Company believes that retaining
subcontractors and independent consultants on a per-engagement basis provides it
with greater flexibility and reduced risk in adjusting professional staff levels
in response to changes in demand for its services.
Management Buy-Out
From 1984 to May 1995, the Company was a wholly-owned subsidiary of RCG.
The results of operations since May 25, 1995 have been affected by an increase
in overhead as a result of becoming an independent corporation and an increase
in interest expense relating to indebtedness incurred in connection with the
Management Buy-Out. In addition, results of operations of the Company subsequent
thereto have been affected by the amortization of approximately $9.0 million of
certain intangibles, including goodwill, which were recorded in connection with
the Management Buy-Out. Accordingly, the Company's results of operations for the
period prior to May 25, 1995, are not necessarily indicative of what such
results would have been had the Company been unaffiliated with RCG and may not
necessarily be indicative of future results. See Note 5 to the Company's
Consolidated Financial Statements. The data for 1995 in the period to period
discussions below reflects the results of operations of the Company for the
period May 26, 1995 through December 31, 1995, combined with the results of
operations of the Predecessor for the period January 1, 1995 through May 25,
1995. See "Certain Transactions."
Compensation Charges
Prior to December 31, 1996, the Company's Stock Plan was formula based,
pursuant to which the exercise price of options granted were based upon the book
value per share as of May 26, 1995, adjusted for accretion of formula value
during any interim period up to the grant date.
Effective at December 31, 1996, the Company: (a) adopted an amendment to
its Stock Plan which changed the exercise price of future options to be granted
thereunder to the market value of the underlying Common Stock; and (b) in
connection with a reclassification of its Common Stock, substituted 0.9 of a
share of Class A Common Stock for each share of Class B Common Stock underlying
the 971,963 options vesting on January 1, 1997. In addition, the remaining total
of 971,963 options to purchase Class B shares vesting on January 1, 1998, were
canceled. As a result, the Company recorded a non-recurring, non-cash charge to
operations of $6.2 million in December 1996 of which $4.6 million was for
options to purchase Common Stock and $1.6 million was for 394,160 shares of
Common Stock sold to employees during 1996. These charges represent the
aggregate difference between the exercise price of such outstanding options or
the issuance price of Common Stock sold to employees during 1996, as the case
may be, and the appraised market value of the underlying Common Stock at
December 31, 1996. See Note 10 to Consolidated Financial Statements.
On January 17, 1997, the Company awarded a one-time stock bonus of 8,194
shares of Common Stock to an employee which resulted in a non-cash compensation
charge to operations in the first quarter of 1997 of $65,000.
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the relative
composition of revenues and selected statements of operations data as a
percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, (1) MARCH 31,
---------------------------------------------------------------------- --------------------
PRO FORMA,
AS ADJUSTED
1992 1993 1994 1995(2) 1996 1996(3) 1996 1997
--------- --------- --------- ----------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Consulting revenues...... 65.7% 67.2% 62.6% 59.3% 62.9% 62.9% 62.5% 64.9%
Subcontractor and other
revenues............... 34.3 32.8 37.4 40.7 37.1 37.1 37.5 35.1
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of services............. 80.4 80.6 81.0 82.0 79.2 78.3 78.6 78.4
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit................. 19.6 19.4 19.0 18.0 20.8 21.7 21.4 21.6
Selling, general, and
administrative expenses.... 13.8 13.7 13.4 11.6 13.9 13.9 13.2 11.9
Stock and stock option
compensation(4)............ -- -- -- -- 10.0 -- -- 0.4
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from
operations................. 5.8 5.7 5.6 6.4 (3.2) 7.7 8.2 9.2
Other income (expense),
net........................ (0.2) * * (1.3) (1.5) 0.2 (1.7) (1.5)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before income
tax expense................ 5.5 5.6 5.6 5.1 (4.6) 7.9 6.5 7.8
Income tax expense........... 2.0 2.3 2.3 2.2 1.3 3.2 2.6 3.2
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) as % of
total revenues............. 3.6 3.3 3.3 2.9 (5.9) 4.8 3.9 4.6
Net income (loss) as % of
consulting revenues........ 5.4 4.9 5.2 4.9 (9.4) 7.6 6.2 7.1
<CAPTION>
PRO FORMA,
AS ADJUSTED
1997(3)
-------------
<S> <C>
Revenues:
Consulting revenues...... 64.9%
Subcontractor and other
revenues............... 35.1
---------
Total revenues......... 100.0
Cost of services............. 78.4
---------
Gross profit................. 21.6
Selling, general, and
administrative expenses.... 11.9
Stock and stock option
compensation(4)............ 0.4
---------
Income (loss) from
operations................. 9.2
Other income (expense),
net........................ -- *
---------
Income (loss) before income
tax expense................ 9.3
Income tax expense........... 3.7
---------
Net income (loss) as % of
total revenues............. 5.6
Net income (loss) as % of
consulting revenues........ 8.6
</TABLE>
- ------------------
* Less than 0.1%.
(1) All items are stated as a percent of total revenues, unless as otherwise
stated. Some percentages do not total exactly due to rounding.
(2) The data for 1995 in the table and the following period-to-period
discussions reflect the results of operations of the Company for the period
May 26, 1995 through December 31, 1995, combined with the results of
operations of RCG/HB for the period from January 1, 1995 through May 25,
1995. The results of operations for periods prior to May 25, 1995, are not
necessarily indicative of what such results would have been had the Company
been unaffiliated with RCG primarily due to interest expense, amortization
and certain intangibles, including goodwill, and other expenses associated
with being an independent corporation.
(3) The pro forma, as adjusted, statement of operations data have been computed
by (a) eliminating from cost of services that portion of officer
compensation that exceeded the compensation that would have been paid had
the compensation plan adopted in January, 1997 been in effect for all of
1996; (b) eliminating interest expense of approximately $259,000 for the
period ended March 31, 1997 and $1.0 million for 1996 related to the
Company's outstanding debt that would have been repaid with proceeds from
the Offering; and (c) eliminating the non-recurring, non-cash compensation
expense of $6.2 million in 1996 described in footnote 4 below. The pro
forma, as adjusted, income tax provision is calculated at a combined federal
and state income tax rate of 40.0%. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Management
-- Executive Compensation."
(4) In connection with an amendment to the Stock Plan effective December 31,
1996, the Company incurred non-recurring, non-cash charges to operations
amounting to $4.6 million for options and $1.6 million for stock,
respectively, in 1996. In connection with a stock bonus to an employee, the
Company incurred a non-cash compensation charge to operations in the first
quarter of 1997 of $65,000. See Note 10 to Consolidated Financial
Statements and "Certain Transactions."
19
<PAGE>
Three Months Ended March 31, 1997 (Unaudited) Compared to Three Months Ended
March 31, 1996 (Unaudited)
Revenues. Revenues increased 10.7% to $16.6 million in the three months
ended March 31, 1997 from $15.0 million in the three months ended March 31,
1996. Consulting revenues increased 14.9% to $10.8 million in the first quarter
of 1997 compared to $9.4 million in the comparable period in 1996. These
increases are the result of the Company's continued focus on the higher margin
private sector engagements particularly in the Company's economic analysis and
litigation support practice area. The Company also realized increases in the
average size of private sector client projects as well as the number of client
projects.
Cost of Services. Cost of services increased 10.4% to $13.0 million for
the three months ended March 31, 1997 from $11.8 million for the three months
ended March 31, 1996. Cost of services as a percentage of revenues was 78.4% in
1997 compared to 78.6% in 1996. The decrease in cost of services as a percentage
of revenue is also attributable to the growth in the Company's higher margin
client mix.
Gross Profit. Gross profit increased 11.6% to $3.6 million in the first
quarter of 1997 compared to $3.2 million in the same period in 1996. The
increase in gross profit is the result of increased revenues and lower costs of
services as a percentage of revenues discussed above. Gross profit as a
percentage of revenues increased slightly to 21.6% in 1997 from 21.4% in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses remained constant at $2.0 million in the three months
ended March 31, 1997 and 1996. As a percentage of total revenues, selling,
general and administrative expenses decreased to 11.9% in 1997 from 13.2% in
1996 as a result of the increase in revenues discussed above.
Income From Operations. Income from operations was $1.5 million for the
three months ended March 31, 1997 compared to $1.2 million for the three months
ended March 31, 1996, an increase of 25.3%.
Other Income (Expense). Other income (expense) was ($0.2) million for the
period ended March 31, 1997 compared to ($0.3) million for the same period in
1996.
Income Tax Expense. Income tax expense was $0.5 million for the three
months ended March 31, 1997 and $0.4 million for the three months ended March
31, 1996. Income tax expense as a percentage of income before income tax expense
was 40.9% in 1997 compared to 40.2% in 1996.
Net Income As a result of the preceding, net income for the first quarter
of 1997 was $0.8 million compared to $0.6 million in the first quarter of 1996.
As a percentage of revenues net income was 4.6% in 1997 compared to 3.9% in
1996. Net income as a percentage of consulting revenues increased to 7.1% in the
first quarter of 1997 from 6.2% in the first quarter of 1996.
1996 Compared to 1995
Revenues. Total revenues increased 25.2% to $61.6 million in 1996 from
$49.2 million in 1995. Consulting revenues increased 32.9% to $38.8 million in
1996 from $29.2 million in 1995. These revenue increases can be attributed
principally to an increase in revenues in the Company's corporate strategy and
management and the economic analysis and litigation support practice areas.
These practice areas experienced the most significant growth with a greater than
123.5% increase over their respective 1995 consulting revenues on an annualized
basis. This trend results from the Company's growth strategy to place greater
emphasis on the generation of higher margin private sector client engagements in
the U.S. utility sector and the impact of a full year's contribution of revenues
from several new corporate strategy consulting services introduced in mid 1995.
See "Business -- Growth Strategy" and "Business -- Major Practice Areas." The
Company also realized increases in the average size of private sector client
projects as well as the number of client projects. The increased growth in
consulting revenues also reflects the increased utilization of full-time
professional staff.
20
<PAGE>
Cost of Services. Cost of services increased by $8.4 million in 1996
compared with 1995 but decreased in relation to total revenues from 82.0% of
total revenues in 1995 to 79.2% of total revenues in 1996. This decrease can be
primarily attributed to the increase in the business mix of higher profit margin
private sector engagements resulting from a full year's contribution to revenues
of the corporate strategy consulting services introduced in 1995. (See "Gross
Profit" below).
Gross Profit. Gross profit increased 44.6% to $12.8 million in 1996 from
$8.8 million in 1995. Gross profit as a percentage of total revenues increased
to 20.8% in 1996 from 18.0% in 1995. This can be principally attributed to the
increase in the business mix of higher gross margin private sector engagements
discussed above and secondarily to increased utilization rates resulting from
productivity gains, in part, associated with technology improvements.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 51.1% to $8.6 million in 1996 from $5.7
million in the prior year period. As a percentage of total revenues, selling,
general and administrative expenses increased to 13.9% in 1996 from 11.6% in
1995. This increase was due primarily to increases in certain overhead costs
associated with the Management Buy-Out (including legal, training,
administrative staff, corporate governance, corporate insurance, audit costs,
one-time bank fees and taxes and license fees), increases in the allowance for
possible losses due to the shift in the business mix towards private sector
clients and the overall growth in the Company's operations, as well as a
significant increase in proposal development expenses in the environmental
management practice.
Income (Loss) From Operations. Loss from operations was ($2.0) million in
1996 compared to income from operations of $3.2 million for the same period in
1995. The loss from operations in 1996 is primarily attributable to the
approximately $6.2 million non-recurring, non-cash stock and stock option
compensation charge. See "-- Compensation Charges" above and Note 10 to
Consolidated Financial Statements Income from operations on a pro forma basis in
1996 (computed by (a) eliminating from cost of services that portion of officer
compensation that exceeded the compensation that would have been paid had the
compensation plan adopted on January 17, 1997 been in effect for all of 1996 and
(b) eliminating the non-recurring, non-cash stock and stock option compensation
charge) would have been $4.8 million in 1996, an increase of 50.5% over income
from operations in 1995 of $3.2 million. In addition, pro forma income from
operations in 1996 as a percentage of total revenues would have been 7.7%,
compared to 6.4% in 1995. The improvement is primarily attributable to increased
revenues and business mix, as previously discussed, and the decrease in the cost
of services (as a percentage of total revenues) which was partially offset by
the increased selling, general and administrative expenses.
Other Income (Expense). Other income (expense) was ($0.9) million in 1996
compared to ($0.7) million for 1995. This increase is attributable to a full
year of interest expense related to debt incurred in connection with the
Management Buy-Out in 1996 versus seven months of interest expense in 1995.
Income Tax Expense. The Management Buy-Out in 1995 provided the Company
with an opportunity to make a tax election to be treated as a cash basis
taxpayer. For financial reporting purposes, the Company recognizes income tax
expense on an accrual basis. The difference between cash basis and accrual basis
created a deferred income tax liability which represents a temporary difference.
Income tax expense was $0.8 million for 1996 compared to $1.1 million for 1995.
The Company incurred income tax expense in 1996 even with an operating loss
because a portion of the stock and stock option compensation charge was not
deductible for tax purposes.
Net Income (Loss). As a result of the foregoing, the net loss was ($3.7)
million in 1996 as compared to net income of $1.4 million in 1995, primarily as
a result of the non-recurring stock and stock option compensation charge
discussed above. Net income (loss) as a percentage of total revenues was (5.9%)
in 1996 as compared to 2.9% in 1995. Net income (loss) on a pro forma basis in
1996 (computed by: (a) eliminating from cost of services that portion of officer
compensation that exceeded the compensation that would have been paid had the
compensation plan adopted on January 17, 1997 been in effect for all of 1996;
(b) eliminating interest expense of approximately $1.0 million related to the
Company's outstanding debt that would have been repaid with proceeds from the
Offering;
21
<PAGE>
(c) eliminating the non-recurring, non-cash compensation charge described in "--
Income (Loss) From Operations" above; and (d) using a combined federal and state
income tax rate of 40.0% to calculate the pro forma income tax provision) would
have been $2.9 million, an increase of 106.0% compared to net income of $1.4
million in 1995. Pro forma 1996 net income as a percentage of total revenues
would have been 4.8% as compared to 2.9% in 1995, and as a percentage of
consulting revenues would have been 7.6% as compared to 4.9% in 1995.
1995 Compared to 1994
Revenues. Total revenues increased 36.8% to $49.2 million in 1995 from
$36.0 million in 1994. Consulting revenues increased 29.5% to $29.2 million in
1995 from $22.5 million in 1994. The overall increase in revenues and consulting
revenues was primarily attributable to the Company's increased focus on the
corporate strategy and management practice and the introduction of several new
corporate strategy consulting services in mid-1995 which resulted in $2.9
million in additional revenues over a period of approximately six months in
1995. The opening of an office in Madison, Wisconsin and the development of the
Company's survey center therein during April 1995 added $2.1 million to revenues
from consulting and survey center activities. In addition the Company realized a
full year's revenue in 1995 from a public sector contract which represented an
increase in total revenues of $2.0 million ($0.8 million in consulting revenues)
or a 71.4% increase in total revenues (75.3% in consulting revenues) over the
prior year.
Cost of Services. Costs of services increased 38.5% to $40.3 million in
1995 from $29.1 million in 1994. Cost of services as a percent of total revenues
increased from 81.0% of total revenue in 1994 to 82.0% in 1995. This is
primarily attributable to the more significant use of in-house personnel at
standard daily rates.
Gross Profit. Gross profit increased 29.2% to $8.8 million in 1995 from
$6.8 million in 1994. However, gross profit as a percentage of revenues
decreased to 18.0% in 1995 from 19.0% in 1994. This decrease is primarily
attributable to the increased use of in-house personnel discussed above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 17.5% to $5.7 million in 1995 from $4.8
million in 1994. However, selling, general and administrative expenses,
expressed as a percentage of total revenues, decreased to 11.6% in 1995 from
13.4% in 1994. This decrease was due principally to higher average productivity
and staff utilization levels and a decrease in overall proposal development
costs, partially offset by an increase in administrative costs associated with
the Management Buy-Out.
Income From Operations. Income from operations increased 57.5% to $3.2
million in 1995 from $2.0 million in 1994. This increase can primarily be
attributed to increased revenues and gross profits attributable to the increased
focus and new consulting services in the corporate strategy sector, and lower
relative selling, general and administrative expenses (as a percentage of total
revenues) which were partially offset by increased cost of services. Income from
operations as a percentage of total revenues improved to 6.4% in 1995 as
compared to 5.6% in 1994.
Other Income (Expense). Other income (expense) decreased to ($0.7) million
in 1995 from $12,000 in 1994 as a result of interest expense on the long-term
debt incurred in connection with the Management Buy-Out.
Income Tax Expense. Income tax expense was $1.1 million in 1995 compared
to $0.8 million in 1994. Income tax expense as a percentage of income before
income tax expense was 43.3% in 1995 compared to 41.7% in 1994.
Net Income. As a result of the foregoing, net income increased 20.6% to
$1.4 million in 1995 as compared to $1.2 million in 1994. Net income as a
percentage of total revenues was 2.9% in 1995 compared to 3.3% in 1994.
22
<PAGE>
Unaudited Quarterly Results
The following table sets forth certain unaudited quarterly operating
information for each of the eight quarters ending March 31, 1997. The
information has been prepared by the Company consistent with the audited
consolidated financial statements contained elsewhere in this Prospectus and
include, in management's opinion, all normal recurring adjustments necessary for
the fair presentation of the information for the periods presented, when read in
conjunction with the Company's Consolidated Financial Statements and related
Notes thereto. The Company's operating results for any quarter are not
necessarily indicative of results for any full year or for any subsequent
period.
<TABLE>
<CAPTION>
QUARTERS ENDED(1)
----------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT 30, DEC. 31, MARCH 31,
1995 1995 1995 1996 1996 1996 1996 1997
--------- ----------- --------- ----------- --------- ----------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Consulting revenues............... $ 6,879 $ 7,089 $ 8,424 $ 9,378 $ 9,730 $ 10,090 $ 9,564 $ 10,779
Subcontractor and other
revenues...................... 5,065 4,798 5,145 5,635 5,569 5,514 6,103 5,833
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenues................ 11,944 11,887 13,569 15,013 15,299 15,604 15,667 16,612
Cost of services.................... 9,960 9,340 11,216 11,802 11,907 12,240 12,837 13,028
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit........................ 1,984 2,547 2,353 3,211 3,392 3,364 2,830 3,584
Selling, general and administrative
expenses.......................... 1,366 1,400 1,506 1,986 2,309 2,016 2,272 1,984
Stock & stock option
compensation (2).................. -- -- -- -- -- -- 6,172 65
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations....... 618 1,147 847 1,225 1,083 1,348 (5,614) 1,535
Other income (expense), net......... (122) (282) (256) (253) (198) (228) (225) (241)
Income tax expense.................. 215 374 256 391 356 450 (400) 529
--------- --------- --------- --------- --------- --------- --------- ---------
Net Income (loss)................... $ 281 $ 491 $ 335 $ 581 $ 529 $ 670 ($ 5,439) $ 765
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------
(1) The data for 1995 in this table reflect the results of operations of the
Company for the period May 26, 1995 through December 31, 1995, combined with
the results of operations of RCG/HB for the period from January 1, 1995
through May 25, 1995. The results of operations for periods prior to May 25,
1995, are not necessarily indications of what such results would have been
had the Company been unaffiliated with RCG primarily due to interest
expense, amortization of certain intangibles, including goodwill, and other
expenses associated with being an independent corporation.
(2) In connection with an amendment to the Stock Plan and a reclassification
of its Common Stock, each effective December 31, 1996, the Company incurred
non-recurring, non-cash charges to operations amounting to $4.6 million for
options and $1.6 million for stock, respectively, in 1996. In connection
with a stock bonus to an employee, the Company incurred a non-cash
compensation charge to operations in the first quarter of 1997 of $65,000.
See Note 10 to Consolidated Financial Statements and "Certain Transactions."
Revenues and operating results fluctuate from quarter to quarter as a
result of a number of factors, such as the number and significance of client
engagements commenced and completed during a quarter, delays incurred in
connection with an engagement, the number of business days in a quarter,
employee hiring and utilization rates, the ability of clients to terminate
engagements without penalties, the size and scope of engagements, the nature of
the fee arrangement, the seasonality of the spending cycle of public sector
clients (especially that of the United States government), the timing of new
office openings, the timing and size of the return on investment capital and
general economic and political conditions. Variations in any of these factors
can cause significant variations in operating results from quarter to quarter
and could result in losses to the Company. In December 1996, the Company
recorded a non-recurring, non-cash compensation charge of $6.2 million related
to stock and stock options. See "Certain Transactions."
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity has been cash flows from
operations, periodically supplemented by borrowings under a bank line of credit.
At March 31, 1997, the Company's outstanding indebtedness consisted of (i) $3.6
million outstanding under the Secured Senior Term Loan with remaining scheduled
principal payments of $1.0, $1.4 and $1.2 million for the years 1997, 1998 and
1999, respectively, (ii) $4.6 million outstanding under the Subordinated Loan
due May 2001 which balloon payment is accelerated in the event the Company
completes this Offering and
23
<PAGE>
(iii) approximately $4.3 million outstanding under a $4.5 million line of credit
bearing interest at the lender's prime rate plus 0.875%. See Notes 7, 8 and 14
to Consolidated Financial Statements. The Company will repay the Subordinated
Loan and intends to repay all such other debt from a portion of the net proceeds
of the Offering. As a result of these repayments, the Company anticipates that
its annualized interest expense will be reduced substantially during 1997. See
"Use of Proceeds." The Company anticipates increasing its short-term borrowing
capacity during 1997.
As part of the Management Buy-Out, the Company was required to place a
deposit in escrow to secure its indemnity of RCG for remaining a guarantor on a
lease for the Company's headquarters. At March 31, 1997 the Company had an
escrow balance of $350,000. The Company was required to use its best efforts to
effect the release of RCG from such guarantee by April 30, 1997. To date, the
Company has not obtained such release. As a result, RCG has required the Company
to increase the escrow described above to $550,000. The Company believes such
requirement to increase the escrow amount will not have a material adverse
effect on the Company's operations or financial condition. In the event this
Offering is consummated and the Company is unable to obtain such release, RCG
has the right to require the Company to increase the escrow described above to
an amount equal to the present value of all remaining payments under such lease
(approximately $3.6 million at March 31, 1997). See Notes 6 and 14 to
Consolidated Financial Statements.
Net cash provided by or used in operations consisted primarily of net
income (loss) plus elements of cash flows related to accounts receivable and
related billings, accounts payable and accrued compensation adjusted for
non-cash items including depreciation, provision for possible losses, deferred
income taxes, and stock and stock option compensation. The use of funds by
operations of $2.9 million for the three months ended March 31, 1997 and $1.2
million for the three months ended March 31, 1996 can be attributed primarily to
the growth in accounts receivable and the payment of annual bonuses for both
periods, which was partially offset by an increase in accounts payable in 1997.
Additionally, in the period ended March 31, 1997 operations used funds due to
the capitalization of approximately $622,000 in Offering costs. The Company
provided cash from operations of $2.9, $2.5 and $0.5 million, for the year ended
December 31, 1996, the period from May 26, 1995 to December 31, 1995 and the
period from January 1, 1995 through May 25, 1995, respectively. Cash flows
provided by (used in) operations for the years ended December 31, 1994 and 1993
were ($35,000) and $1.5 million, respectively.
Investing activities used funds of $0.2 million for the three months ended
March 31, 1997 and 1996. The Company used cash in investing activities of $1.1,
$12.3, and $0.7 million for the year ended December 31, 1996, the period from
May 26, 1995 to December 31, 1995 and the period from January 1, 1995 through
May 25, 1995, respectively. Cash flows used in investing activities were $0.8
million and $1.2 million for the years ended December 31, 1994 and 1993,
respectively. Other than the Management Buy-Out, which utilized $11.8 million in
1995, investing activities have primarily been capital expenditures for
information technology and other resources necessary for the growth of the
Company.
Financing activities provided funds of $2.4 million and $1.4 million for
the periods ended March 31, 1997 and 1996, respectively, principally due to line
of credit borrowings. Cash flows provided by (used in) financing activities were
($1.0), $10.5 and $0.7 million for the year ended December 31, 1996, for the
period from May 26, 1995 to December 31, 1995 and the period from January 1,
1995 through May 25, 1995, respectively. Cash flows provided by (used in)
financing activities amounted to $0.5 million and ($0.6) million for the years
ended December 31, 1994 and 1993, respectively. During 1995, cash provided by
financing activities was primarily attributable to the issuance of stock and the
debt incurred in conjunction with the Management Buy-Out. Cash used in financing
activities during 1996 was primarily related to the reduction of long term debt.
The Company realized a cash flow benefit from deferred federal and state
income taxes of $0.5 million and $0.4 million for the three months ended March
31, 1997 and 1996, respectively. This benefit amounted to $0.8 and $0.7 million
in the year ended December 31, 1996 and the period from May 26, 1995 to December
31, 1995, respectively. Upon consummation of the Offering, the Company
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<PAGE>
will be required to change from the cash method of income tax reporting to the
accrual method which is expected to result in a reclassification of income tax
liabilities from deferred to current.
The Company's contract backlog was approximately $102.0 million on December
31, 1996, compared to approximately $73.0 million on December 31, 1995. Nearly
$96.0 million of the Company's contract backlog at December 31, 1996 (including
amounts relating to option periods) was for public sector clients, primarily the
U.S. government. Many U.S. government contracts, while extending for more than
one year, are funded by the procuring agency from fiscal year to year, resulting
in a variance between contract backlog and funded backlog. Contract backlog
represents the maximum amount authorized by the contracts. Funded backlog is the
portion of the contract backlog for which current year funding has been
allocated by the procuring agencies. Funded backlog generally varies over the
course of a year depending upon procurement and funding cycles. Of the Company's
contract backlog on December 31, 1996 and 1995, 31.7% and 7.6%, respectively,
were funded. The Company expects approximately $24.5 million of the contract
backlog at December 31, 1996 to be completed in fiscal 1997. Due to the
decreased percentage of the Company's revenues resulting from public sector
clients the Company expects that backlog will be less meaningful in the future.
The Company believes the net proceeds from the sale of Common Stock offered
hereby, together with funds generated by operations, will provide adequate cash
to fund its anticipated cash needs, which may include future acquisitions of
complementary businesses, for at least the next twelve months. The Company
currently has no agreements or commitments regarding future acquisitions.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Although the Company has performed engagements in over 100 countries since
1980, a substantial portion of the Company's foreign projects are contracted by
U.S. agencies and, therefore, paid in U.S. dollars. Nevertheless, the Company
reduces its exposure to fluctuations in foreign exchange rates by creating
offsetting (hedge) positions through the use of derivative financial
instruments. The Company does not use derivative financial instruments for
trading or speculative purposes, nor is the Company a party to leveraged
derivatives. The Company regularly monitors its foreign currency exposures to
ensure that hedge contract amounts do not exceed the amounts of the underlying
exposure. The Company had no hedge positions as of March 31, 1997. To date, the
Company has not had more than $100,000 at risk at any one time in such hedge
positions. See Note 13 to Consolidated Financial Statements.
RECENTLY ISSUED FINANCIAL STANDARDS
In October 1995 the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" which is effective for the
Company's 1996 financial statements. SFAS No. 123 allows companies to either
account for stock based compensation under the new provisions of SFAS No. 123 or
under the provisions of Accounting Principles Board APB No. 25, "Accounting for
Stock Issued to Employees", but requires pro forma disclosures in the footnotes
to the financial statements as if the measurement provisions of SFAS No. 123 had
been adopted. The Company intends to continue accounting for its stock-based
compensation in accordance with APB No. 25. The pro forma disclosures required
under SFAS No. 123 are not materially different than the amounts recorded in the
Company's consolidated financial statements pursuant to APB No. 25. See Note 10
to Consolidated Financial Statements.
EFFECTS OF INFLATION
The Company has not been adversely affected by inflation. However, there
can be no assurance that the Company's business will not be affected by
inflation in the future.
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BUSINESS
Hagler Bailly is a leading worldwide provider of a broad array of
management consulting and other advisory services to the private and public
sectors of the energy, utility and environmental industries. The Company offers
a wide range of management consulting, litigation support and specialized
financial advisory services to corporations, primarily electric and gas
utilities and independent power producers, worldwide. The Company also advises
government institutions in the United States and abroad on a broad range of
energy, utility and environmental infrastructure and public policy issues. Since
its inception in 1980, Hagler Bailly has performed in excess of 1,900 consulting
engagements for more than 750 clients in over 100 countries. In 1996, the
Company performed over 220 assignments for more than 125 clients in over 30
countries. Revenues from the Company's ten most significant clients accounted
for approximately 67.3%, 73.1%, 68.9% and 70.9% of its total revenues in the
first three months of 1997, and 1996, 1995 and 1994, respectively. In the past
16 years, the Company has grown from a single office to a worldwide network of
operations with principal offices in six cities in the United States and five
other countries. Over the past three fiscal years, the Company's total revenues
and consulting revenues have grown at a compound annual rate of 30.8% and 31.2%,
respectively, and have grown 25.2% and 32.9% from 1995 to 1996, respectively.
As a result of powerful regulatory, economic and technological forces, the
Company believes the energy, utility and environmental industries, in particular
the electric and gas utility sector, are undergoing rapid and profound changes.
These changes have created a sharp increase in the demand for specialized
consulting services in both the private and public sectors. The Company believes
its industry focus, full service capabilities, global infrastructure,
established client relationships, public sector insight, knowledge base,
experienced team of management and consultants and established global presence
have positioned the Company to capitalize on this rapidly growing demand for
consulting services in the energy, utility and environmental markets worldwide.
BUSINESS ENVIRONMENT
Market Trends
According to industry data, the energy industry is one of the largest in
the world with annual sales of approximately $2.0 trillion. At this juncture,
the Company believes a powerful array of forces is converging globally to
profoundly change the structure of this industry. This is especially true in the
electric and gas utility market, one of the largest segments of the energy
industry. The Company believes three industry trends to be most important:
globalization, restructuring and digitalization.
Globalization. Although the United States remains the single largest
energy market, many international markets are growing more rapidly. For example,
industry sources project that 88.0% of all new power generation facilities
through the year 2020 will be constructed outside of North America. In addition,
the electric power and gas industries are being globalized as utilities and
independent power producers move outside their traditional markets. The Company
believes that nearly 100 electric companies are active outside their home
country markets as over 100 countries are now open to non-utility ownership and
operation in the power sector. The Company believes this globalization of the
electric power and gas industries will continue to accelerate.
Restructuring. Worldwide, the Company believes the utility sector is
undergoing a fundamental restructuring driven primarily by an overabundance of
energy in the developed world and a scarcity of energy in the developing world.
In the United States, for example, the Company believes pressure to deregulate
and create "open access" in the electric sector similar to that in the gas and
telecommunications industries is mounting. Already several large energy consumer
states, such as California, Illinois, Massachusetts, Michigan, New York, Ohio
and Pennsylvania, are moving to bring competition to the electric industry and
to permit entry by unregulated wholesalers and retailers. Outside the United
States, a comprehensive reorganization of the electric utility sector is also
underway as many countries move to restructure, corporatize and privatize
traditional public or quasi-public functions and operations. Beginning in Europe
with the privatization of the non-nuclear portion of the United Kingdom's
electric utility sector, this trend has spread to Eastern Europe, the former
Soviet Union and Latin America, and is now expanding throughout Asia.
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<PAGE>
Digitalization. The Company believes that industry restructuring, combined
with more competitive markets and new regulations, such as continuous emission
monitoring in the United States and the new international environmental standard
ISO 14000, requires new efficiencies in the energy, utilities and environmental
industries for companies to stay competitive. The Company believes that the
application of new and more sophisticated information systems will be the
cornerstone of the efficiencies necessary to succeed in these industries. In
addition, the Company believes that the advances in computing and communication
technologies, as well as the convergence of industries such as
telecommunications with electric utilities, will have profound impacts on the
marketing and operations of energy, utility and environmental companies. The
Company refers to these developments as digitalization.
Consulting Opportunities.
According to industry sources, approximately 100,000 people worldwide work
full-time in management consulting, an industry which generates more than $60.0
billion in annual revenue and is growing by more than 12.0% per annum. The
Company believes that one of the largest and fastest growing segments of the
expanding management consulting industry is the energy, utility (especially the
gas and electric utility sectors) and environmental industries. The Company
estimates that these three industries comprise approximately $5.0 billion of the
aggregate management consulting industry annual revenues.
Hagler Bailly believes that both in the private and public sectors, these
trends toward globalization, restructuring and digitalization are creating an
increasing demand for related services offered by the Company, such as planning,
cost control, business process re-engineering, organizational development and
public policy analysis. In the public sector, the Company will continue to focus
on selective opportunities both in the United States and abroad, including the
restructuring and privatization of electric, gas and water utilities, energy and
water efficiency, global climate change management and environmental management.
In the private sector, the Company has developed, is currently offering and will
market aggressively, six integrated consulting solutions for clients trying to
adapt to this evolving market:
Growing the Revenue Stream. A major challenge for most utilities will
be to grow their revenue streams as competition moves into their
traditional service territories. This requires a complete repositioning of
the corporation, a radical transformation of the organization and the
development of new competencies, for example, in consumer marketing,
product development, state-of-the-art billing and customer care systems. To
accomplish this objective, the Company believes its broad-based
capabilities and proven track record in this area position it to advise
clients through the strategy definition and implementation process.
Globalizing the Enterprise. More and more utilities and independent
power companies are acquiring assets beyond their home country borders in
search for growth, economies of scale, and higher returns. According to
industry sources, from January 1, 1995 to February 17, 1997, there were
approximately 120 cross-border transactions completed between U.S. electric
utilities and independent power companies and non-U.S. electric utilities
and independent power companies, with an aggregate value of approximately
$32.4 billion, with approximately 55 transactions with an aggregate value
of approximately $5.3 billion which have been announced but have not been
completed. The Company believes globalization, together with cross-border
consolidations and alliances, will accelerate in the coming years. The
Company believes its international track record and ability to work
effectively on a global scale enable it to assist clients in responding to
these challenges.
Meeting Environmental Challenges. The Company believes utilities must
carefully evaluate the financial consequences of different compliance
options and integrate environmental management into their overall business
strategies. Investments in new technologies must be weighed against the
opportunities presented by allowance trading schemes, power purchase
arrangements with independent power producers, and other cost saving
measures. The Company believes its environmental, science and economic
experience and capabilities allow it to assist
27
<PAGE>
clients in analyzing various compliance options and making decisions that
are both financially and environmentally sound.
Building the Technological Spine. Hagler Bailly believes, in general,
that gas and electric utilities have been slow to adopt the latest
technological advances particularly in information systems. However, the
Company believes that current and future technological innovations will
transform the retailing of energy and utility services, particularly in how
utilities interface with their customers. The Company believes its
knowledge base and full service capabilities position it to help clients
define and evaluate their options and to give them access to the Company's
computing platforms.
Reforming and Restructuring Contracts. Deregulation of the U.S.
electric utility sector and the concomitant corporate repositioning,
including mergers, acquisitions and functional unbundling at all levels of
the industry (generation, transmission and distribution), necessitate the
restructuring of existing arrangements. The Company believes its
substantial experience, analytical capabilities and knowledge base enable
it to assist clients and their legal advisors in contract renegotiations
and litigation.
Identifying and Closing Strategic Transactions. The execution of a
client's business strategy often requires identifying and completing
enabling transactions. Enabling Transactions involve acquisitions,
alliances or blocking investments in third parties. The Company believes
its consulting and financial advisory capabilities and resources enable it
to advise clients in many areas, including: refining an approach to
acquisitions; identifying a set of suitable transactions; performing due
diligence; providing general assistance with evaluation and structuring;
and assisting with closings.
COMPETITIVE STRENGTHS
Hagler Bailly believes that it is in a strong position to take advantage of
these consulting opportunities. Several factors differentiate it from many of
its potential competitors in the consulting industry.
Industry Focus. Since its inception in 1980, the Company has maintained
its focus on providing a broad range of consulting services to the energy,
utility and the environmental industries. This focus differentiates it from both
general management consulting firms that serve multiple industries and firms
with limited skill sets and capabilities. The Company believes that this focus
and the insights gained by working worldwide, allow it to customize leading-edge
consulting concepts and tools to specific situations and thus provide tangible
value, rather than just theories, to its clients.
Full Service Capabilities. Hagler Bailly's strategy is to partner with its
clients in conceptualizing and implementing solutions which significantly
increase enterprise value. To do so, the Company has built a broad range of
consulting platforms enabling it to meet its clients' consulting needs. These
include corporate strategy, marketing and sales, product development, energy
supply and logistics, operations management, information systems and technology,
economic analysis, environmental management and finance. In addition, the
Company conducts its own market research using a state-of-the-art survey center
equipped with 26 CATI (Computer-Assisted Telephone Interview) stations.
Global Infrastructure. The Company operates from six principal offices in
the United States (Arlington, Virginia; Boston, Massachusetts; Boulder,
Colorado; Houston, Texas; Madison, Wisconsin; and San Francisco, California) and
five principal offices abroad (Buenos Aires, Argentina; Dublin, Ireland;
Islamabad, Pakistan; Jakarta, Indonesia; and Paris, France). The Company also
operates several branch and project offices, including Philadelphia,
Pennsylvania; Cairo, Egypt; Kiev, Ukraine; and Moscow, Russia. On April 1, 1997,
the Company had a staff of 254 full-time employees, of which 115 were
consultants, and 53 part-time employees. The Company also utilizes subcontractor
consultants as needed. The Company believes each of these operations are
adequate, at this time, to meet its needs.
Established Client Relationships. In each of the last two fiscal years,
the Company received repeat business from approximately 50% of the clients who
had engaged the Company in the prior
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<PAGE>
year. Further, in each of the last two fiscal years, revenues from clients
served in the previous year were approximately 74% of the Company's total
revenues, of which 54.5% was derived from work performed for USAID and Central
Illinois Light Company. See "Business -- Principal Clients and Representative
Engagements." Over the past three years, the clients of the Company have
included over 100 electric or gas utilities located throughout the world and
five international development banks. Business relationships with the Company's
clients, many of which date back over a decade, span various levels within
client organizations, ranging from corporate boards, chief executive officers
and other senior management to functional managers.
Public Sector Insight. Hagler Bailly believes that working with a number
of public sector organizations, including the USAID, the European Union ("EU"),
the Asian Development Bank ("ADB") and the World Bank over a period of many
years, gives it unique insights into the energy, utility and environmental
industries and positions the Company for future public and private sector growth
abroad. Over the past three fiscal years, the Company has provided consulting
services to the governments or government agencies of over 25 countries.
Knowledge Base. Over the past 16 years, the Company has developed an
extensive knowledge and information base which is utilized in providing
consulting services to its clients. The Company owns several proprietary
databases and software packages -- OPEC and NPE, two nuclear power plant
operations databases, and IPP, a worldwide information base on independent power
producers. The Company has recently developed a new proprietary database,
Ramp-up(Trademark), to provide clients with unprecedented information on U.S.
utility operations and cost structure. Finally, through the Company's
proprietary Business Information and Knowledge Exchange Intranet
("BIKEnet(Trademark)"), Company personnel have direct access to the Company's
proprietary knowledge and warehouse of information. This system is accessible
from all of the Company's offices.
Experienced Team of Management and Consultants. Hagler Bailly's management
and senior consultants have a wide range of energy, utility and environmental
consulting expertise and experience. In addition, many of the senior management
and consultants have worked extensively with one another. Management's average
tenure with the Company is ten years. This consistency of leadership and
teamwork, combined with training provided by the Company, has fostered a strong
company culture and employee loyalty.
Established Global Visibility. In 1996, the Company's staff published over
15 articles and made invited presentations at over 70 industry gatherings and
conferences. Company staff are also active in several industry groups and
professional associations including elected or appointed positions to the United
States Energy Association (member of the Board of Directors), the National Coal
Council (member), the United States Environmental Protection Agency ("USEPA")
Science Advisory Board Committees (consultant) and the Association of Energy
Services Professionals (member of the Board of Directors).
As a result of these competitive strengths, the Company believes it has
emerged as one of the leading management consulting firms focused on the energy,
utility and environmental industries. Since its founding, the Company has
advised over 750 clients and conducted more than 1,900 engagements in over 100
countries. In 1996 alone, the Company performed over 220 assignments for more
than 125 clients in over 30 countries. In the last three fiscal years, the
Company's total revenues and consulting revenues have grown at a compound annual
rate of 30.8% and 31.2%, respectively, and have grown 25.2% and 32.9% from 1995
to 1996, respectively.
GROWTH STRATEGY
The Company's goal is to maintain and enhance its international reputation
for excellence in creating value for its clients. To achieve this goal, Hagler
Bailly is pursuing a growth strategy built on seven principles:
Retain the Focus on Energy, Utility and Environmental Industries. The
Company intends to maintain its industry focus and, thus, its reputation as
a leading management consulting firm in this sector. The demand for
management consulting services in the energy, utility and environmental
industries is growing rapidly, and the Company believes this demand will
provide ample opportunity for the Company to grow both in the United States
and abroad.
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Leverage the Existing Global Infrastructure and Consulting
Platforms. Hagler Bailly has developed a network of strategically located
offices and subsidiaries in four key regions of the world -- North America,
Asia, Europe and South America. The Company has also made substantial
investments in the development of several unique capabilities such as its
state-of-the-art survey center and proprietary data bases, including IPP
and Ramp-up. In addition, the Company has developed several core consulting
tools including Omnibus Corporate Repositioning and Strategic Resource
Allocation. These core tools permit it to standardize its approach to
research, analysis, performance metrics and the systematic assimilation of
results while still customizing and differentiating strategies for
different clients. This combination of facilities, consulting platforms and
tools provides leverage for the Company's senior talent with respect to
both client acquisition and engagement management.
Focus on Solving Mission-Critical Problems. The Company will continue
to focus on solving problems which are of most critical importance to its
clients and, thus, provide opportunities to provide higher value services.
Some of the key problems confronting the industry today, and which the
Company intends to pursue and is well positioned to address, are: industry
consolidation; corporate repositioning; stranded cost recovery (i.e., costs
incurred by electric utilities in the past which may not be recoverable in
the future); global expansion; global climate change; and information
technology.
Attract and Retain World-Class Intellectual Capital. Hagler Bailly
will continue to seek the best and brightest individuals. It will continue
to recruit both graduates from the leading universities in the world who
have had some level of industry or consulting experience and executives
from industry who bring expertise, insight and client relationships. The
Company will continue to cultivate an environment which fosters creativity,
innovation and excellence. As part of this strategy, the Company will
continue to provide competitive compensation packages for its employees.
The Company also believes that operating as a public company will aid
greatly in recruiting, retaining and providing incentives to current and
future employees.
Pursue Strategic Acquisitions. The Company has successfully acquired
and intends to continue to pursue and complete acquisitions of compatible
organizations. The Company's philosophy, which it has successfully
implemented in the past, is to fully integrate any acquired companies to
maintain its "one-firm" concept. The Company routinely evaluates and from
time to time meets with potential acquisition candidates that have the
potential to increase capacity or add complementary or synergistic
capabilities. At the date of this Prospectus, the Company has no binding
commitments.
Use Creative Compensation Agreements with Clients. The substantial
majority of the Company's revenues have been generated under rates billed
on either a standard daily rates basis or a cost-plus fixed-fee basis. The
Company believes that, as a result of client preferences, success fee and
other performance based compensation models are emerging rapidly.
Management consulting firms that adapt the pricing of their services to
these preferences could be well positioned for success. The Company intends
to use creative compensation agreements to develop lasting "partnerships"
with its clients.
Utilize Existing Relationships to Combine Capital and Consulting
Services. Hagler Bailly will continue to assist certain clients in
implementing mergers and acquisitions, strategic alliances, and asset
acquisition strategies and in raising capital. Further, the Company
increasingly will consider investing its own management resources in
"partnership" with clients to develop niche markets that a client is unable
to explore on its own. The Company, from time to time, may make investments
of its own capital in technologies or projects that are becoming critical
components for clients as they implement market-based strategies. The
Company believes that this will further enhance its position as a leading
provider of consulting services in the energy, utilities and environmental
industries. In connection with these activities, the Company may provide
interim management to clients and assist select energy, utility and
environmental companies in raising equity and debt capital.
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MAJOR PRACTICE AREAS
Hagler Bailly offers its clients a comprehensive array of consulting
services, from assisting the client to shape its vision to strategic planning,
selection of appropriate solutions, implementation, financing and on-going
management. The Company's services are designed to provide tangible value to
clients. This strategy entails less reliance on formulaic approaches and
concepts, and more on custom-tailored solutions based on an assessment of the
client's unique situation and needs.
The Company offers services in five practice areas: corporate strategy and
management; economic analysis and litigation support; infrastructure planning
and development; financial advisory; and environmental management. These
practice areas work together synergistically to provide clients the full range
of services and capabilities of the Company as shown on the table set forth
below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
LINES OF SERVICES SERVICES
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Corporate Strategy and / / Omnibus Corporate Repositioning
Management / / Strategic Resource Allocation
/ / Omnibus strategy implementation
/ / Value chain definition
/ / Strategic Marketing System
/ / Product design, testing and prototyping
/ / Market research
/ / Supply and logistics and trading
/ / Trading, support systems and back office operations
/ / Business process enhancement and redesign
/ / Customer service improvements
/ / Organizational development
/ / Computing, information and communication
/ / Information technology planning and acquisition
- -------------------------------------------------------------------------------------------------------
Economic Analysis and / / Antitrust and market power economics
Litigation Support / / Stranded cost recovery
/ / Incentive regulation
/ / Transmission pricing
/ / Independent system operation
/ / Merger policy
/ / Bankruptcy workouts
- -------------------------------------------------------------------------------------------------------
Infrastructure Planning and / / Electric power system restructuring
Development / / Corporatization and privatization
/ / Regulatory policy development
/ / Independent power development
/ / Infrastructure financing
/ / System planning
- -------------------------------------------------------------------------------------------------------
Financial Advisory / / Mergers and acquisitions
/ / Project and corporate finance
/ / Joint ventures
/ / Investment analysis and structuring
- -------------------------------------------------------------------------------------------------------
Environmental Management / / Environment and resource economics
/ / Climate change management
/ / Environmental sciences
/ / Natural resource damage assessments
/ / Institutional strengthening
/ / Policy development and analysis
/ / Implementation support
/ / Pollution prevention
- -------------------------------------------------------------------------------------------------------
</TABLE>
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The Company currently conducts these services through three main
subsidiaries, Hagler Bailly Consulting, Hagler Bailly Services, and HB Capital.
Further, the execution of a client's business strategy often requires completing
enabling transactions that involve acquisitions, alliances or blocking
investments in third parties or raising capital. The Company believes that in
order to succeed as a consulting firm in the future, the Company must be
equipped to package functional expertise and industry insight and information
with management, technology and capital resources to create significant value.
Each of the Company's engagements is led by one of its consulting directors
(the senior members of the Company's consulting staff). Engagements vary in
duration from a few months to several years and may be performed on-site or
off-site. The Company has developed systems and procedures to deliver its
services in a consistent manner regardless of the practice or office serving the
client.
CLIENT DEVELOPMENT
Hagler Bailly's client development activities are a mixture of marketing
efforts, client acquisition techniques and development of repeat business. The
Company is very selective in its client development targets. The pursuit of
client development activities are the responsibility of each consulting practice
and are closely monitored firmwide. The pursuit of specific markets and clients
and bids on specific requests for proposals are carefully considered and are
always led by consulting directors. As part of this process, a conflict check is
performed against an up to date internal client database and verified by senior
management prior to accepting an engagement, in order to avoid conflicts of
interest.
Marketing efforts are accomplished through brand development and brand
management. The Company maintains and enhances its name and reputation through
speeches, presentations, articles in industry, business, economic, legal and
scientific journals, and through other publications and press releases. The
Company also maintains a Web Page.
The Company develops a client development plan for each of its consulting
directors and principals and systematically reviews individual and group
performance against these goals. The Company's compensation system, particularly
in the award of bonuses and stock options, is highly weighted towards success in
meeting these client development goals. Further, promotion to higher levels of
responsibility is largely determined by success in client development
activities.
Private Sector. In the private sector, client acquisition techniques
include referrals and focused presentations to boards of directors, chief
executive and operating officers and other executives of prospective client
companies. These presentations generally focus on opportunities in the market
segments most relevant to the prospective clients, examples of the Company's
previous work in related industries and detailing of the Company's international
capabilities.
Public Sector. In the public sector, contracts are awarded primarily on
the basis of competitive solicitation. The Company has developed strong
capabilities to prepare proposals that respond to complex requests and often
require the integration and coordination of the services of several
subcontractors and independent consultants. The Company has also developed a
detailed understanding of government and other institutional procurement
regulations in the United States and internationally. In addition, in order to
obtain government contracts, consultants must adhere to stringent cost,
accounting and regulatory controls. In order to comply with such requirements,
the Company regularly holds training seminars to ensure compliance with
applicable government regulations and utilizes a sophisticated computer-based
accounting system that allows it to track costs in adherence to government
standards. The Company also meets public sector clients' cost guidelines through
competitive pricing.
In each of the last two fiscal years, the Company received repeat business
from approximately 50.0% of the clients who had engaged the Company in the prior
year and approximately 74.0% of the Company's total revenues originated from
prior clients served in the previous year (of which approximately 54.5% were
derived from USAID and Central Illinois Light Company). Repeat business is
generated through client satisfaction on initial engagements. The Company's
abilities in delivering high quality performance, and extensive auditing of
client satisfaction, generally result in strong client relationships. As
additional issues are identified by the client, the Company's consulting
directors,
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principals and managers are trained to recognize these opportunities and respond
with a carefully constructed approach and work plan within the client's needs
and budget.
PRINCIPAL CLIENTS AND REPRESENTATIVE ENGAGEMENTS
Since its inception in 1980, Hagler Bailly has advised over 750 clients and
conducted more than 1,900 engagements in over 100 countries. In 1996, the
Company performed over 220 assignments for more than 125 clients in over 30
countries. These clients included leading organizations in the public and
private sectors. Nearly all of the Company's total revenues are derived from
private and public clients involved in the energy, utilities and environmental
industries and two-thirds of the Company's total revenues in 1996 were derived
from clients in the gas and electric utility sectors. In 1996, the Company's
private sector clients accounted for approximately 47.7% of total revenues and
approximately 62.8% of consulting revenues.
In the private sector, U.S. and foreign electric and gas utilities are the
largest group of clients of the Company. The Company's clients also include oil
and gas producers, independent power producers, technology suppliers,
telecommunication companies, and law firms. In the public sector, U.S.
governmental agencies are the largest client of the Company. Other public sector
clients of the Company include state and local governments, regulatory
commissions, foreign governments as well as five major international development
banks: the World Bank, ADB, InterAmerican Development Bank, the African
Development Bank and European Bank for Reconstruction and Development ("EBRD").
Hagler Bailly has a number of large-scale contracts and thus derives a
significant portion of its revenues from a relatively limited number of clients.
For example, revenues from the Company's ten most significant clients accounted
for approximately 67.3%, 73.1%, 68.9% and 70.9% of its total revenues in the
first three months of 1997, and in 1996, 1995 and 1994, respectively. Several
offices of the USAID collectively form the Company's single largest client,
accounting for approximately 36.8%, 42.2%, 53.1% and 52.2% of the Company's
total revenues in the first three months of 1997, and in 1996, 1995 and 1994,
respectively (approximately 24.3%, 26.9%, 39.4% and 40.5% of consulting revenues
in the first three months of 1997, and in 1996, 1995 and 1994, respectively). As
of March 31, 1997, the Company has seven separate contracts with four separate
offices at USAID. In addition, revenues from engagements with three separate
business units of Central Illinois Light Company accounted for approximately
12.3% of the Company's total revenues in 1996 (approximately 17.1% of consulting
revenues) and 7.4% for the first three months of 1997 (approximately 9.9% of
consulting revenues). See Note 13 to Consolidated Financial Statements.
33
<PAGE>
Over the past three years, the clients of the Company have included over
100 electric or gas utilities located throughout the world and five
international development banks. A representative list of clients to which the
Company has provided services over this period include:
<TABLE>
<CAPTION>
UTILITIES (U.S.) UTILITIES (FOREIGN)
- -------------------------------------------------- --------------------------------------------------
<S> <C>
Bell Atlantic Corporation Electricite de France
Central Illinois Light Company Elyo (France)
Duke Power Company Jamaica Public Service Company Ltd.
Houston Industries Energy P.T. Perusaahan Listrik Negara (Indonesia)
New England Electric Services (NEES) Imatran Vioma Oy (Finland)
Pacific Gas & Electric Co.
<CAPTION>
INDUSTRY ASSOCIATIONS GOVERNMENTAL
- -------------------------------------------------- --------------------------------------------------
<S> <C>
American Waterworks Association European Commission Energy Technology
(AWWA) Directorate
Edison Electric Institute (EEI) State of Wisconsin, Energy Center of
Electric Power Research Institute (EPRI) Wisconsin
Gas Research Institute (GRI) State of Florida, Department of
INGAA (Interstate Natural Gas Association Environmental Protection
of America) Foundation USAID
United States Fish and Wildlife Service
United States Environmental Protection
Agency
<CAPTION>
OTHERS INTERNATIONAL PUBLIC ORGANIZATIONS
- -------------------------------------------------- --------------------------------------------------
<S> <C>
Ansaldo AST (Italy) African Development Bank
Asea Brown Boveri Sulsa Asian Development Bank
Chem-Nuclear Systems Inc. European Bank for Reconstruction and
Mitsubishi International (Japan) Development
Westinghouse Electric International Energy Agency
The World Bank
<CAPTION>
INDEPENDENT POWER PRODUCERS
- --------------------------------------------------
<S> <C>
Air Products and Chemicals Inc.
BHP Power
NRG Generating U.S. Inc.
Mobil Independent Power Inc.
U.S. Generating Company
</TABLE>
Five of the Company's ten largest engagements in 1996, each of which is
representative of the nature of the Company's services and client relationships
are set forth below:
Omnibus Corporate Repositioning. Since May 1995, the Company has been
helping a U.S. electric utility company: (a) articulate a comprehensive
strategic architecture for corporate transformation using consulting
experience, industry insight, regulatory knowledge and proprietary core
tools; (b) reorganize the company and implement a new management structure;
(c) design and implement a plan to increase the asset productivity and cash
flow of the rate base while improving quality of service and positioning it
to function in competitive retail markets for energy; (d) redesign business
processes and embed technology into these business processes; (e) undertake
strategic marketing and product design at the enterprise-wide level to
drive the development of a new business model; (f) launch a new major
non-regulated first-level subsidiary to house two start-ups (one in energy
and one in telecommunications) and a restructured engineering services
company; and (g) rapidly expand the customer base, revenues and operating
margins of the newly created non-regulated subsidiary.
Lead Economic Advisor in Power Cooperative Bankruptcy Case. The
Company is currently conducting evaluations of the restructuring plans of a
major electric power cooperative for the trustee in the bankruptcy
proceedings. The expert testimony includes detailed financial and
production cost modeling of each of the plans, and analyses of the impact
of creditor recovery and
34
<PAGE>
bulk power market competition on the financial feasibility of the plans and
the future rates for the member cooperatives.
Restructuring of the Electric Power Sector of the Ukraine. As part of
a multinational task force of 15 teams from 8 donor countries, the Company
is the lead management consultant assigned to the restructuring of the
Ukrainian power system, one of the largest in the world with over 50,000
megawatts of installed capacity. With a team of 25 full-time local and
foreign consultants, the Company is assisting with the establishment and
development of the National Electricity Regulatory Commission and the four
fossil-fueled generating companies and the corporatization of 12
distribution companies.
Evaluation of Environmental Impacts: A Workbook. The Company prepared
a workbook and conducted training workshops for the Asian Development
Bank's staff and consultants on methods to guide the identification,
quantification and monetization of the environmental impacts of projects
within the ADB's investment portfolio. The project included some of the
world's leading environmental economists, whose input was coordinated into
a format accessible to practitioners and financial analysts. The workbook
was reviewed at other multilateral lending institutions, including the
World Bank, OECD, and EBRD and published by the ADB in 1996.
International Joint Venture Development. Over a four-year period, the
Company has assisted a U.S. based coal products company to define its
international strategy and to select particular countries for market entry.
In the case of Indonesia, the Company's HB Capital subsidiary partnered
with the client and other participants to determine the feasibility of the
first commercial coal beneficiation plant in Sumatra. The feasibility study
having been completed, a joint venture between a large international
resource company and the client have purchased HB Capital's interest in the
project.
COMMERCIAL AND PUBLIC SECTOR CONTRACTS
Hagler Bailly has a diversified client base in both the private and public
sectors. The contractual relationships with the Company's clients vary greatly
from one sector to another as well as within each sector. There are no standard
commercial contracts and clients have different contracting policies. In many
cases, the only contract between the Company and its commercial client is an
engagement letter which specifies the broad scope of work, duration and billing
rates.
The Company's public sector contracts are typically the result of
competitive solicitations conducted under well defined acquisition regulations
specific to each contracting entity, for example, the United States Government,
European Union or World Bank. Many of the Company's public sector procurement
contracts contain base periods of one or more years, as well as one or more
option periods that in many cases cover more than half of the potential contract
duration. Public sector contracts, by their terms, generally can be terminated
at any time by the client, without cause, for the convenience of the client. If
a public sector contract is so terminated, the Company generally would be
entitled to receive compensation for the services provided or costs incurred at
the time of termination and a negotiated amount of the profit on the contract to
the date of termination. In addition, all public sector contracts require
compliance with various contracts provisions and procurement regulations. The
addition of new or modified procurement regulations could adversely affect the
Company or increase its costs of competing for or performing public sector
contracts. Any violation (intentional or otherwise) of these regulations could
result in the termination of the contracts, imposition of fines, and/or
debarment from award of additional public sector contracts. Most public sector
contracts are also subject to modification in the event of changes in funding
and the Company's contractual costs and revenue are subject to adjustment as a
result of government audits. Further, public sector contract awards are also
subject to protest by competitors. The termination or substantial modification
of any of the Company's significant contracts or the imposition of fines,
damages or suspension from bidding on additional contracts could have a
materially adverse effect on the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
35
<PAGE>
HUMAN RESOURCES
On April 1, 1997, the Company's personnel consisted of 254 full-time
employees, including 115 consultants, 47 technical and research personnel and 92
administrative personnel, and 53 part-time employees. The two largest offices of
the Company are Arlington, Virginia and Boulder, Colorado with 116 and 70
full-time employees, respectively. Twelve full-time employees are stationed
outside the United States. This number excludes the personnel of the Company's
non-wholly owned subsidiaries in Argentina, Indonesia and Pakistan which have,
respectively, six, 11, and 28 full-time employees. It also excludes locally
hired independent contractors.
Approximately 83% of the Company's full-time consulting staff have advanced
degrees. Much of the Company's success has been based on its ability to
integrate these different disciplines into effective consulting teams. The
Company's 16 consulting directors average 15 years of management consulting
experience, most of which has been in the energy, utility and environmental
industries. Several of its most experienced consultants have worked together for
over 15 years. Hagler Bailly believes that this long-term experience of working
together as a team enables the Company to respond quickly to changing market
conditions and consistently deliver high quality consulting services in response
to the complex demands of its clients.
Hagler Bailly believes its success depends in large part on attracting,
retaining and motivating talented, creative and professional employees at all
levels. The Company de-emphasizes hiring directly from graduate schools,
instead, seeking graduates from top schools with prior relevant consulting
experience and strong project management, analytic and communications skills in
competitive and regulated industries, especially those with meaningful
international experience. The Company also hires professionals with senior
executive experience directly from industry. The Company supplements its
full-time staff with outside consultants with proven experience in their
respective fields. Several of these outside consultants are well-known
professors at leading universities. In addition, the Company employs part-time
researchers at its survey center in Madison, Wisconsin. Recruiting is
coordinated firmwide.
Training and mentoring are integral parts of the Company's staff
development program. The aim of the program is to ensure excellence and
consistency throughout the entire organization while increasing individual and
team productivity. Training consists of a core and practice-based program. The
core program includes a CD-ROM based general orientation to the Company and
training on firmwide standards. Practice-based programs, which include mentoring
and career counseling, are aimed at developing specific proficiencies in the use
of consulting tools, industry segments or areas of expertise. The Company
conducts a number of training sessions and planning retreats each year that
emphasize its consulting core values, development of consulting products and
business development techniques. The Company maintains professional liability
insurance to an aggregate maximum of $10.0 million.
The Company believes it has developed an environment that encourages open
communication across practice areas and offices that is fostered by a worldwide
electronic network and BIKEnet, continuous learning and intellectual innovation.
Consultants are encouraged to work across practices and geographic regions. The
Company's culture is characterized by team play, ethical conduct, professional
growth and professional integrity.
Hagler Bailly attracts and motivates its professional and administrative
staff by offering competitive packages of base and incentive compensation and
benefits. All full-time and part-time staff members are eligible for bonuses. A
significant percentage of the Company's income before bonuses and taxes is
distributed as bonuses to its staff, the majority of which is targeted towards
the Company's top performers -- usually its consulting directors, principals,
and managers. The bonus awards are the result of measurement of performance
against predetermined target compensation goals that balance individual and team
performance. This structure gives senior staff members a vested interest in the
Company's overall success and performance while still promoting individual
initiative and excellence. The Company appreciates the importance of recognition
and a promotion track for its administrative staff and fully integrates this
staff into the conduct of its business. The performance of all employees is
reviewed annually for compensation and promotion purposes. The Company's
environment has
36
<PAGE>
resulted in the Company experiencing voluntary consultant attrition of less than
12.0% over each of the past three years, predominantly at the junior and
mid-level associate levels.
Further, all of the Company's consulting directors own Common Stock and the
Company's key employees are eligible to receive stock options. See "Management
- -- Long-Term Incentive Plan." As of the date hereof, there were options to
purchase 1,026,565 shares of Common Stock outstanding. In addition, the Company
maintains deferred compensation and 401(k) profit sharing plans.
COMPETITION
The market for consulting services in the fields of energy and the
environment is intensely competitive, highly fragmented and subject to rapid
change. The market includes a large number of participants from a variety of
consulting market segments, both in the United States and internationally,
including general management consulting firms, the consulting practices of the
"Big Six" accounting firms, consulting engineering firms, technical and economic
advisory firms and market research firms. Many information technology consulting
firms also maintain significant energy practices and others may enter the field
in the future. Many of these companies are national and international in scope
and have greater financial, technical and marketing resources than the Company.
In the private sector, the Company believes the key competitive factors are
quality and service, followed by price, while in the public sector the Company
believes the key competitive factors are price and service. The Company believes
that its experience, reputation, industry focus, and broad range of services
have and will continue to enable it to compete effectively in the private and
public sector both in the United States and internationally.
FACILITIES
In aggregate, the Company leases approximately 115,000 square feet of
office space in the following 12 locations: Arlington, Virginia (headquarters);
Boston, Massachusetts; Boulder, Colorado; Buenos Aires, Argentina; Dublin,
Ireland; Houston, Texas; Islamabad, Pakistan; Jakarta, Indonesia; Madison,
Wisconsin; Paris, France; Philadelphia, Pennsylvania; and San Francisco,
California. In addition, the Company leases, from time to time, office space for
specific international projects which is paid for directly by the projects. The
Company has project offices in eight foreign locations totaling approximately
12,000 square feet. The Company believes that its facilities are adequate for
its current needs and that additional facilities can be leased to meet future
needs. See Note 11 to Consolidated Financial Statements.
LEGAL PROCEEDINGS
The Company is from time to time a party to litigation arising in the
ordinary course of its business. The Company is not subject to any pending
material litigation.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's executive officers and directors and their respective ages
and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- ---- ---------
<S> <C> <C>
Henri-Claude A. Bailly (1)....... 50 President, Chief Executive Officer and Chairman of the
Board; Chief Executive Officer of Hagler Bailly
Consulting
Daniel M. Rouse 46 Vice President, Chief Financial Officer and Treasurer
Kathleen J. Murphy 50 Vice President - Corporate Infrastructure
Vinod K. Dar 45 Director and Managing Director of Hagler Bailly Consulting
Alain M. Streicher 48 Director and Chief Executive Officer and Managing Director
of Hagler Bailly Services
Michael D. Yokell 50 Director and Managing Director of Hagler Bailly Consulting
Fred M. Schriever (1)(2)(3)...... 66 Director
Robert W. Fri (1)(2)(3) 61 Director
</TABLE>
- ------------------
(1) Member of the Executive Compensation Committee of the Board of Directors
(2) Member of the Audit Committee of the Board of Directors
(3) Member of the Stock Option Committee of the Board of Directors
Henri-Claude A. Bailly has served as the Company's Chief Executive Officer
since the Company was founded in 1980, and as President of the Company from 1984
to 1987 and from May 1995 to date, and as Chairman of the Board from 1984 to
date. From September 1984 to May 1995, Mr. Bailly was also employed by RCG in a
series of management positions, and ended his tenure there as Senior Vice
President and director of RCG and Chairman of the Board and Chief Executive
Officer of RCG/HB. From 1972 to 1980, Mr. Bailly was employed in successive
positions from Associate to Managing Director of Resource Planning Associates,
an international energy, utilities and environmental management consulting firm.
Mr. Bailly holds a Master of Business Administration degree from Harvard
University and Bachelor and Master of Architecture degrees from the University
of Washington. Mr. Bailly serves on the Board of Directors of the United States
Energy Association and was appointed as a member of the National Coal Council.
Daniel M. Rouse has been employed as the Company's Chief Financial Officer
and Treasurer since he joined the Company in 1991. From 1987 to 1991, Mr. Rouse
was employed by Strategic Solutions, Inc. as Chief Financial Officer. From 1984
to 1987, Mr. Rouse was a principal at Loeb and Cohen, P.C. From 1979 to 1984,
Mr. Rouse was employed by Jarrell Oil Company, Inc. as Vice President Finance
and Controller. Mr. Rouse holds a Bachelor of Science degree in Finance and
Accounting from York University (Canada). Mr. Rouse is a Certified Public
Accountant.
Kathleen J. Murphy has been employed as the Company's Vice President -
Corporate Infrastructure since March 11, 1997. From 1989 to March 1997, Ms.
Murphy was employed by Andersen Consulting. From 1987 to 1989, Ms. Murphy was
co-owner of Tsombikos Contractors/Builders. From 1983 to 1986, Ms. Murphy worked
as an independent consultant. From 1973 to 1982, Ms. Murphy was an employee with
McKinsey & Company, Inc. Ms. Murphy holds a Bachelor of Arts degree from
Marymount Manhattan College and a Master of Arts degree from New York
University.
Vinod K. Dar, one of the original founders of the Company, rejoined the
Company in 1995 and leads its corporate strategy and management consulting
practice. After leaving the Company in 1984, Mr. Dar was employed in various
senior executive positions in the energy industry. From 1984 to 1989, Mr. Dar
was Executive Vice President and a director of Hadson Corporation and Chief
Executive Officer of Hadson Gas Systems. In 1990, Mr. Dar was Senior Vice
President of American Exploration Company. From mid 1990 to 1992, Mr. Dar was a
Managing Director of Dar & Company.
38
<PAGE>
From 1992 to 1994, Mr. Dar was the Chairman of Sunrise Energy Services. From
1994 to 1995, Mr. Dar was Senior Advisor to the Company. From 1978 to 1980, Mr.
Dar was a Senior Associate with Resource Planning Associates. Mr. Dar holds a
Bachelor of Science degree in Engineering and a Master of Science degree in
Management and Finance from the Massachusetts Institute of Technology. Mr. Dar
serves as a director and chairman of the Compensation Committee of HarCor
Energy, an independent oil and gas company traded on the Nasdaq Stock Market.
Alain M. Streicher has been employed by the Company in various management
positions since it was founded in 1980. Since January 1997, Mr. Streicher has
served as the Chief Executive Officer of Hagler Bailly Services and leads the
Company's energy and infrastructure planning and development practice. Mr.
Streicher has served as a member of the Board of Directors of the Company since
May 1995. From 1976 to 1980, Mr. Streicher was Chief Energy Analyst at the CEREN
in Paris. Mr. Streicher holds a Bachelor of Science degree in Physics and
Chemistry from the University of Orleans (France) and a Masters degree in
Physics from the University of Grenoble (France) and a Masters degree in
Industrial Management from the Ecole des Mines in Paris (France).
Michael D. Yokell has been employed by the Company in various positions
since 1987, and currently leads the Company's economic analysis and litigation
support practice. Mr. Yokell has served as a member of the Board of Directors of
the Company since May 1995 and as President of Predecessor from 1988 to 1995.
Mr. Yokell was the President of Energy and Resource Consultants ("ERC"), a
corporation acquired by the Company in 1987. Before entering management
consulting, Mr. Yokell taught Economics at the University of California,
Berkeley and Washington State University and was a Senior Economist at the
United States Department of Energy. Mr. Yokell holds a Ph.D. and Masters degree
in Economics from the University of Colorado and a Bachelor of Science degree in
Physics from the Massachusetts Institute of Technology. Mr. Yokell serves on the
Board of Directors of the Keystone Energy Center.
Fred M. Schriever has served as a member of the Board of Directors of the
Company since May 1995. Mr. Schriever retired in April 1996 from RCG. Mr.
Schriever was employed by RCG in various positions since 1971, most recently as
its Chairman and Chief Executive Officer. Prior to joining RCG, Mr. Schriever
was a partner of BoozoAllen & Hamilton. Since 1996, Mr. Schriever has been a
consultant to various industry groups. Mr. Schriever is a Fellow of both the
Institute of Directors and the Institute of Management Consultants in the United
Kingdom, and a member of the United States Institute of Management Consultants.
Robert W. Fri has served as a member of the Board of Directors of the
Company since May 1995. Mr. Fri is currently director of the National Museum of
Natural History at the Smithsonian Institution, and Senior Fellow Emeritus at
Resources for the Future, where he served as President from 1986 to 1995. Mr.
Fri is a director of American Electric Power Company, a member of the University
of Chicago Board of Governors for the Argonne National Laboratory, and a trustee
of Science Service, Inc., publisher of Science News and organizer of the
Westinghouse Science Talent Search. In 1971, Mr. Fri became the First Deputy
Administrator of the United States Environmental Protection Agency. In 1975,
President Ford appointed Mr. Fri as the Deputy Administrator of the United
States Energy Research and Development Administration. Mr. Fri served as acting
administrator of both agencies for extended periods. From 1978 to 1986, Mr. Fri
operated his own company, Energy Transition Corporation. Mr. Fri began his
career with McKinsey & Company, where he was elected a Principal.
The Company's Chief Executive Officer, Chief Financial Officer and
Vice-President - Corporate Infrastructure (the "Executive Officers") are
appointed annually by, and serve at the discretion of, the Board of Directors.
Each Executive Officer is a full-time employee of the Company. The Board of
Directors currently consists of six members. The Company expects to add a third
independent director to its Board of Directors within 90 days following the
consummation of this Offering. The Board of Director is divided into three
classes, each of whose members serve a staggered three-year term. The Board of
Directors is comprised of two Class I Directors (Messrs. Dar and Schriever), two
Class II Directors (Messrs. Fri and Yokell) and three Class III Directors
(Messrs. Bailly and Streicher and the third independent director expected to be
appointed). At each annual meeting of stockholders the appropriate number of
directors will be elected for a three-year term to succeed the directors of the
same class whose terms are then expiring. The initial terms of the Class I
Directors, Class II Directors and Class III Directors will expire upon the
election and qualification of successor directors at the
39
<PAGE>
annual meetings of stockholders held in calendar years 1998, 1999 and 2000,
respectively. There is no family relationship between any director or executive
officer of the Company.
OTHER MANAGING DIRECTORS
In addition to the above executive officers, the Company depends on two
other key employees.
Robert D. Rowe has been employed by the Company in various positions since
1987, most recently as the Managing Director of the Company's environmental
management consulting practice. From 1982 to 1987, Mr. Rowe was a Senior Vice
President of ERC. From 1979 to 1982, Mr. Rowe was a senior economist with Abt
Associates, Inc., an economic and environmental consulting firm. From 1974 to
1979, Mr. Rowe taught Economics at the University of Wyoming. Mr. Rowe holds a
Bachelor degree in Computer Science from Michigan State University and a Ph.D.
in Economics and Statistics from Texas A&M University. Mr. Rowe is a consultant
to the United States Environmental Protection Science Advisory Board.
Alex M. Steinbergh has been employed by the Company in various management
positions since 1992 and currently serves as the Chief Executive Officer and
Managing Director of HB Capital. Mr. Steinbergh is the co-founder and currently
a general partner of Resource Capital Group, a holding company for real estate
investment, management and development companies in Cambridge, MA. From 1972 to
1980, Mr. Steinbergh was a colleague of Mr. Bailly at Resource Planning
Associates where he held successive positions from Associate to Managing
Director. From 1969 to 1972, Mr. Steinbergh was an Associate of McKinsey and
Company. Mr. Steinbergh holds a Master of Business Administration degree from
Harvard University, a Masters degree in Economics from Case Western Reserve
University and a Bachelor degree in Economics from Cornell University.
BOARD COMMITTEES
On April 26, 1996, the Board of Directors established an Audit Committee
and an Executive Compensation Committee. The Audit Committee reviews the
qualifications of the Company's independent auditors, makes recommendations to
the Board of Directors regarding the selection of independent auditors, reviews
the scope, fees and results of any audit and reviews non-audit services and
related fees provided by the independent auditors.
The Executive Compensation Committee is responsible for the administration
of all salary and incentive compensation plans for the executive officers and
directors who are employees of Hagler Bailly, Inc., including bonuses, and also
reviews and approves the compensation, including bonus awards, for the Managing
Directors of the Company's three operating subsidiaries.
The Stock Option Committee was established in January 1997. The Stock
Option Committee administers the Hagler Bailly, Inc. Employee Incentive and
Non-Qualified Stock Option and Restricted Stock Plan (the "Stock Plan") on
behalf of the Board of Directors.
The Board of Directors does not have a nominating committee. The selection
of nominees for the Board of Directors is made by the entire Board of Directors.
DIRECTOR COMPENSATION
Directors who are not employees of the Company are paid a fee of $1,000 for
each meeting attended in person and all directors are reimbursed for travel
expenses incurred in connection with attending board and committee meetings.
Directors are not entitled to additional fees for serving on committees of the
Board of Directors. Pursuant to the terms of the Company's Stock Plan, each
director of the Company who is not otherwise employed by the Company
automatically will be granted an option to purchase 3,000 shares of Common Stock
for each year of the term to be served upon his or her initial election or
re-election to the Board of Directors. The options will have an exercise price
equal to the fair market value of the Common Stock on the date of grant, and
will be exercisable in equal annual installments over the term to be served
beginning on the first anniversary of the date
of grant.
40
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation paid to the Company's Chief Executive Officer
and the four most highly compensated executive officers of the Company for the
year ended December 31, 1996 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------ -----------------
SALARY BONUS OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION ($) ($) SARs (#) COMPENSATION (1)
- --------------------------- ----------- ----------- ----------------- ----------------
<S> <C> <C> <C> <C>
Henri-Claude A. Bailly................................ $ 325,000 $ 606,954 51,863 $ 107,126(2)
President, Chief Executive Officer and Chairman of
the Board
Daniel M. Rouse....................................... 134,335 110,683 -- 13,931
Vice President, Chief Financial Officer and
Treasurer
Vinod K. Dar.......................................... 308,753 -- -- 467,931(3)
Managing Director of Hagler Bailly Consulting
Alain M. Streicher.................................... 176,357 270,245 -- 13,931
Chief Executive Officer and Managing Director of
Hagler Bailly Services
Michael D. Yokell..................................... 176,357 377,076 -- 13,931
Managing Director of Hagler Bailly Consulting
</TABLE>
- ------------------
(1) Represents deferred compensation and matching payments and profit sharing
under the Company's 401(k) Profit Sharing Plan.
(2) Represents $93,195 paid pursuant to Mr. Bailly's employment agreement and
$13,931 in matching payments and profit sharing under the Company's 401(k)
Profit Sharing Plan. See "--Employment Related Agreement."
(3) Represents $454,000 paid to the Hagler Bailly, Inc. Deferred Compensation
Plan Trust for Vinod K. Dar and $13,931 in matching payments and profit
sharing under the Company's 401(k) Profit Sharing Plan. See "-- Deferred
Compensation Plan for Vinod K. Dar."
Effective January 1, 1997, the Executive Compensation Committee of the
Board of Directors approved new base salaries for the Named Executive Officers.
The new annual base salaries will range from $175,000 to $375,000. In addition
to the base salaries, the Named Executive Officers may also be awarded bonuses
based on the attainment of certain financial and non-financial performance
criteria. Bonus awards for Executive Officers of the Company, under the Hagler
Bailly Annual Bonus Plan, are determined by the Executive Compensation Committee
of the Board of Directors. In the future, the Executive Compensation Committee
of the Board of Directors will determine the terms of employment for Executive
Officers of the Company on an annual basis. Compensation, including bonus
awards, for the Managing Directors of the Company's three operating subsidiaries
will be determined by the Chief Executive Officer of the Company, and reviewed
and approved by the Executive Compensation Committee.
41
<PAGE>
The following table presents information with respect to grants of stock
options to purchase the Company's Common Stock during the year ended December
31, 1996, to the Named Executive Officers.
OPTION/SAR GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------- ANNUAL RATES OF STOCK
% OF TOTAL PRICE APPRECIATION FOR
OPTIONS GRANTED EXERCISE OR OPTION TERMS(3)
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
- ---- --------- ------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Henri-Claude A. Bailly.............. 34,575(1) 22% $ 1.06 6/30/01 $ 10,126 $ 22,375
17,288(2) 11% $ 1.16 6/30/01 3,334 9,459
Daniel M. Rouse..................... -- -- -- -- -- --
Vinod K. Dar........................ -- -- -- -- -- --
Alain M. Streicher.................. -- -- -- -- -- --
Michael D. Yokell................... -- -- -- -- -- --
</TABLE>
- ------------------
(1) Non-qualified options granted pursuant to the Company's Stock Plan, all of
which are immediately vested on the date of grant, with an exercise price
equal to the fair market value of the Common Stock on the date of grant as
determined by the Board of Directors.
(2) Incentive stock options granted pursuant to the Company's Stock Plan, all of
which are immediately vested on the date of grant, with an exercise price
equal to 110% of the fair market value of the Common Stock on the date of
grant as determined by the Board of Directors.
(3) The potential realizable value is calculated based on the five-year term of
the option at the time of its grant. It is calculated by assuming that the
stock price on the date of grant appreciates from the exercise price at the
indicated annual rate, compounded annually for the entire term of the
option. The actual realizable value of the options based on the price to
public in the Offering will substantially exceed the potential realizable
value shown in the table.
The following table sets forth the number of shares covered by exercisable
and unexercisable options held by the Named Executive Officers on December 31,
1996 and the aggregate gains that would have been realized had these options
been exercised on December 31, 1996, even though the options were not exercised,
and the unexercisable options could not have been exercised on December 31,
1996. No stock options were exercised by the Named Executive Officers during the
fiscal year ended December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS
END(#) AT FISCAL YEAR END($)(1)
------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Henri-Claude A. Bailly............................ 34,575 251,542 $142,449 $ 1,001,137
17,288 -- 6,947 --
Daniel M. Rouse................................... -- 12,087 -- 48,348
Vinod K. Dar...................................... -- -- -- --
Alain M. Streicher................................ -- 120,930 -- 483,720
Michael D. Yokell................................. -- 193,490 -- 773,960
</TABLE>
- ------------------
(1) Options are in-the-money if the market value of the shares covered thereby
is greater than the option exercise price. Value is calculated based on the
fair market value of the Common Stock at December 31, 1996 of $5.18 (as
determined by an independent third party appraisal), less the exercise
price. Such fair market value at December 31, 1996 is lower than the price
to public in the Offering.
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<PAGE>
1997 OPTION GRANTS
On January 17, 1997, the Company granted options under the Stock Plan at
exercise prices ranging from $6.10 to $6.71 per share to certain individuals,
including directors and executive officers of the Company in the amounts set
forth in the table below. Other than options granted to Messrs. Bailly,
Schriever and Fri, such options vest in equal proportions over four years
commencing on July 1, 1998 and continuing on each July 1 thereafter until fully
vested. Of the options granted to Mr. Bailly, options to purchase 34,575 shares
of Common Stock are currently vested and the remaining options vest in equal
amounts over the next four years commencing January 1, 1998. The options granted
to Messrs. Schriever and Fri are immediately exercisable. All options expire on
the tenth anniversary of the date of grant. The following table sets forth
certain information with respect to such grants to directors and officers:
<TABLE>
<CAPTION>
NUMBER
NAME AND POSITION OF OPTIONS
----------------- -----------
<S> <C>
Henri-Claude A. Bailly, President, Chief Executive Officer and Chairman of the Board....... 172,876
Daniel M. Rouse, Vice President Finance, Chief Financial Officer and Treasurer............. 20,745
Fred M. Schriever, Director................................................................ 5,186
Robert W. Fri, Director.................................................................... 5,186
</TABLE>
On March 11, 1997, the Company granted options to purchase 15,000 shares of
Common Stock to Kathleen J. Murphy -- Vice President - Corporate Infrastructure,
at an exercise price of $10.00 per share which vest ratably over four years
commencing July 1, 1998.
ANNUAL BONUS PLAN
Each year the Company sets aside a percentage of its consolidated income
before bonuses and taxes ("IBBT") to fund a Company-wide bonus pool. All
full-time and part-time regular employees who have at least one year of service
are eligible for a bonus.
Annual cash bonuses are funded from a pool whose size depends on the
overall financial performance of the Company, and management reserves the right
not to award any bonuses in any year. In 1996, the Company contributed
approximately $3.8 million, which is approximately 49.0% of its consolidated
IBBT (excluding the non-recurring, non-cash compensation expense of $6.2
million), to the bonus pool. Starting January 1, 1997, the Board of Directors
has determined that a maximum of 40.0% of IBBT will be set aside for bonuses.
Except as noted above for Executive Officers and Managing Directors of the
Company, management determines the extent of any award made to an employee based
on certain performance criteria.
EMPLOYMENT RELATED AGREEMENT
Hagler Bailly and Hagler Bailly Services entered into an employment
agreement with Mr. Bailly on May 25, 1995 in connection with the management
repurchase of the Company from RCG and such agreement was amended and restated
effective upon consummation of the Offering (the "Bailly Agreement"). Mr. Bailly
will serve as Chairman of the Board, President and Chief Executive Officer of
the Company, and Chairman of the Board, President and Chief Executive Officer of
Hagler Bailly Consulting for a term of three (3) years and will receive for his
services an initial base salary of $375,000 per year, subject to increase each
January 1 by an amount that is no less than the greater of 5.0% over the annual
rate of base salary in effect the preceding year, and the increase in the
Consumer Price Index National Index for the year. Mr. Bailly is entitled to a
bonus for each calendar year equal to an amount determined by the Executive
Compensation Committee of the Board of Directors. Mr. Bailly is also entitled to
receive, from time to time, options to purchase common stock pursuant to the
Stock Plan as determined by the Stock Option Committee of the Board of
Directors. Mr. Bailly is entitled to participate in all of the benefit programs
which are presently or may in the future be provided by the Company. In
addition, Mr. Bailly is also entitled to a bonus equal to the average bonus
43
<PAGE>
percentage received during the term of the Bailly Agreement multiplied by the
then current base salary if his employment is terminated without cause or upon a
change in control (as defined in the Bailly Agreement).
The Company has no written employment contracts with any of its other
executive officers.
LONG-TERM INCENTIVE PLAN
The Board of Directors adopted the Hagler Bailly, Inc. Employee Incentive
and Non-Qualified Stock Option and Restricted Stock Plan (the "Stock Plan") on
May 17, 1995 and adopted a restated version of the Stock Plan on December 31,
1996. The Stock Plan is designed to enhance the long-term profitability and
stockholder value of the Company by offering Common Stock to those individuals
who are key to the growth and success of the Company, to attract and retain
executives with experience and ability on a basis competitive with industry
practice and to encourage executives to acquire and maintain stock ownership in
the Company.
The Stock Plan is administered by the Stock Option Committee of the Board
of Directors. The Stock Option Committee has exclusive authority (i) to grant
Awards (as defined below) under the Stock Plan; (ii) to make all interpretations
and determinations affecting the Stock Plan; and (iii) to determine the
individuals to whom Awards are granted, the amount of such Award, any applicable
vesting schedule, and any other terms of an Award.
Participation in the Stock Plan is limited to employees, consultants, and
independent consultants of the Company who are selected from time to time by the
Board of Directors or the Stock Option Committee. Awards under the Stock Plan
may be in the form of incentive stock options that meet the requirements of
Section 422 of the Internal Revenue Code, "nonqualified" stock options, and
restricted stock grants (collectively, "Awards"). Any Award issued under the
Stock Plan that is forfeited, expired, canceled or terminated prior to vesting
or exercise will again become available for grant under the Stock Plan.
The maximum number of shares of Common Stock that may be issued and sold
under the Stock Plan is 3,200,000 shares. In the event of any stock dividend,
stock split, recapitalization, merger, other change in the capitalization of the
Company or similar corporate transaction or event affecting the Common Stock,
the Board or Directors or the Executive Compensation Committee may make
appropriate adjustments to Awards.
As of March 31, 1997, Awards under the Stock Plan to employees and
consultants to purchase an aggregate of 1,026,565 shares of the Company's Common
Stock were outstanding at exercise prices per share ranging from $0.16 to
$10.00.
401(K) SAVINGS PLAN
The Company maintains a tax-qualified defined contribution employee profit
sharing and 401(k) plan (the "Plan"). All employees are eligible to participate
in the Plan once they complete an hour of service with the Company. The Plan
consists of three components: employee pre-tax contributions, Company matching
contributions and Company supplemental contributions. The Plan contains
provisions which are intended to satisfy the tax qualification requirements of
Section 401(k) of the Internal Revenue Code of 1986. Each employee may elect to
defer up to 16.0% of his or her compensation, subject to a maximum, in 1997, of
$9,500. Employee contributions are fully vested and nonforfeitable at all times
and are invested according to the direction of the employee. The Company may,
but has no obligation to, make matching contributions determined, in the
discretion of the Company, prior to the beginning of the plan year for which the
match is to be made. The Company may, in its discretion, make a supplemental
contribution to the Plan for any plan year. Supplemental contributions are
allocated to participants' accounts in proportion to their pay. Matching and
supplemental contributions vest over a four-year period. Plan participants are
entitled to receive a distribution of the vested interest in their accounts upon
retirement, death, permanent disability or termination of employment. See Note
12 to Consolidated Financial Statements.
44
<PAGE>
DEFERRED COMPENSATION PLAN FOR VINOD K. DAR
In September 1996, the Company adopted the Hagler Bailly, Inc. Deferred
Compensation Plan Trust for Vinod K. Dar, an individual deferred compensation
plan for Vinod K. Dar, a Managing Director of Hagler Bailly Consulting. Pursuant
to this plan, the Company contributed $454,000 of Mr. Dar's compensation payable
for services performed to a trust created for his benefit. The trust used such
deferred compensation to purchase 345,754 shares of Common Stock from the
Company at a price of $1.31 per share. Subject to the terms of the trust,
including, upon Mr. Dar's termination of employment or in the event of a change
of control, Mr. Dar will receive a distribution of 345,754 shares of Common
Stock from the trust. See Note 10 to Consolidated Financial Statements.
45
<PAGE>
CERTAIN TRANSACTIONS
MANAGEMENT BUY-OUT
The Company was founded in 1980 as Hagler Bailly & Company, Inc. In 1984,
it was acquired by RCG, an indirect subsidiary of Reliance Group Holdings, Inc.
and in 1985 renamed RCG/HB. In May 1995, the management of RCG/HB completed the
Management Buy-Out. The Management Buy-Out was structured as a stock purchase of
the outstanding capital stock of RCG/HB and was financed by a $7.0 million
secured senior term bank loan and a $4.65 million subordinated loan from RCG.
The remainder of the Management Buy-Out was financed by the proceeds of the sale
of Hagler Bailly's common stock to employees and directors, all of whom are
Selling Stockholders.
CLASS B OPTION CANCELLATION AND CONVERSION
Effective December 31, 1996, the Board of Directors approved (i) the
cancellation of all of the options to purchase shares of the Company's Class B
Common Stock vesting January 1, 1998 and (ii) the amendment of all options to
purchase shares of the Company's Class B Common Stock vesting January 1, 1997 to
substitute 0.9 of a share of Class A Common Stock for each share of Class B
Common Stock underlying such option. The holders of such options each consented
to the cancellation and acknowledged the amendment of such options. See Note 10
to Consolidated Financial Statements.
RECAPITALIZATION
Effective December 31, 1996, the Company effected a recapitalization
pursuant to which each outstanding share of Class B Common Stock was exchanged
for 0.9 of a share of Class A Common Stock.
DEFERRED COMPENSATION PLAN FOR VINOD K. DAR
In September 1996, the Company adopted the Hagler Bailly, Inc. Deferred
Compensation Plan Trust for Vinod K. Dar. Pursuant to this plan, the Company
contributed $454,000 of Mr. Dar's compensation payable for services performed to
a trust created for his benefit. The trust used such deferred compensation to
purchase 345,754 shares of Common Stock from the Company at a price of $1.31 per
share. Subject to the terms of the trust, including, upon Mr. Dar's termination
of employment or in the event of a change of control, Mr. Dar will receive a
distribution of 345,754 shares of Common Stock from the trust. See Note 10 to
Consolidated Financial Statements.
FUTURE TRANSACTIONS
The Company considers that all transactions with affiliates have been made
on terms at least as favorable to the Company as could have been made for
similar transactions with unrelated third parties. In the future, the Company
will not enter into any transactions with officers, directors or other
affiliates unless the terms are as favorable to the Company as those generally
available from unaffiliated third parties and the transactions are approved by a
majority of disinterested directors.
46
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock at March 31, 1997, by: (i) each director and the Named
Executive Officers; (ii) each person known by the Company to beneficially own
more than 5.0% of the outstanding shares of the Common Stock; (iii) all
executive officers and directors as a group and (iv) the Selling Stockholders,
both before and after giving effect to the sale of 3,150,000 shares of Common
Stock in the Offering. Each person named below has an address in care of the
Company's principal executive offices.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BEING SHARES BENEFICIALLY
OFFERING (1) OFFERED OWNED AFTER OFFERING
---------------------- ------------ ----------------------
NUMBER NUMBER NUMBER
NAMES OF SHARES % OF SHARES OF SHARES %
----- ----------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Henri-Claude A. Bailly (2) 1,029,489 17.85 122,940 906,549 10.96
Daniel M. Rouse (3) 115,813 2.11 14,376 101,437 1.27
Kathleen J. Murphy (4) -- -- -- -- --
Vinod K. Dar (5) 518,631 9.46 54,599 464,032 5.81
Michael D. Yokell (6) 884,998 16.14 93,168 791,830 9.92
Alain M. Streicher (7) 604,985 10.80 63,690 541,295 6.68
Fred M. Schriever (8) 88,166 1.61 9,282 78,884 *
Robert W. Fri (9) 8,643 * 1,638 7,005 *
Robert E. Ciliano (10) 279,243 5.09 29,397 249,846 3.13
Niels O. de Terra (11) 119,672 2.18 12,598 107,074 1.34
David A. Keith (12) 159,564 2.90 18,618 140,946 1.76
Jean-Louis Poirier (13) 359,030 6.55 37,797 321,233 4.02
John R. Armstrong (14) 279,243 5.09 29,397 249,846 3.13
Steven A. Mitnick (15) 115,813 2.11 12,192 103,621 1.30
Robert D. Rowe (16) 456,111 8.32 48,017 408,094 5.11
Elizabeth S. Marcotte 70,851 1.29 7,459 63,392 *
Alex M. Steinbergh (17) 170,698 3.11 17,970 152,728 1.91
Robin C. Calhoun (18) 159,564 2.91 16,798 142,766 1.79
Joshua Lipton (19) 115,813 2.11 13,503 102,310 1.28
Robert S. Raucher (20) 119,672 2.18 12,598 107,074 1.34
Kent D. Van Liere (21) 92,765 1.69 11,586 81,179 1.02
Dan M. Violette (22) 141,703 2.58 14,918 126,785 1.59
Carlos A. Yermoli (23) 70,851 1.29 7,459 63,392 *
All executive officers and directors as a
group (8 persons) (24) 3,250,725 54.92 359,693 2,891,032 34.34
</TABLE>
- ------------------
* Represents less than 1.0% of the outstanding shares of Common Stock.
(1) Includes 478,802 shares of Common Stock issuable upon the exercise of stock
options granted under the Company's Stock Plan which are exercisable within
60 days of March 31, 1997. As used in this table, "beneficial ownership"
means the sole or shared power to vote or direct the voting of a security,
or the sole or shared investment power with respect to a security (i.e.,
the power to dispose, or direct the disposition, of a security). A person
is deemed as of any date to have "beneficial ownership" of any security
that such person has the right to acquire within 60 days after such date.
(2) Excludes 138,301 shares of Common Stock issuable upon exercise of stock
options granted by the Company which are not exercisable within 60 days of
March 31, 1997. Includes 650,086 shares of Common Stock held in two IRA
accounts on Mr. Bailly's behalf and 93,284 shares of Common Stock held in
two trusts for the benefit of his children. Also includes exercisable
options to purchase 286,117 shares of Common Stock.
(3) Excludes 20,745 shares of Common Stock issuable upon exercise of stock
options granted by the Company which are not exercisable within 60 days of
March 31, 1997. Includes 23,573 shares of
47
<PAGE>
Common Stock held in an IRA account on Mr. Rouse's behalf and exercisable
options to purchase 12,087 shares of Common Stock.
(4) Excludes 15,000 shares of Common Stock issuable upon exercise of stock
options granted by the Company which are not exercisable within 60 days of
March 31, 1997.
(5) Includes 345,754 shares of Common Stock held in the Hagler Bailly, Inc.
Deferred Compensation Plan Trust for Mr. Dar's benefit.
(6) Includes 29,389 shares of Common Stock held in a trust for the benefit of
his children.
(7) Includes 297,425 shares of Common Stock held in IRA accounts on Mr.
Streicher's behalf. Also includes exercisable options to purchase 120,930
shares of Common Stock.
(8) Includes exercisable options to purchase 5,186 shares of Common Stock.
(9) Includes exercisable options to purchase 5,186 shares of Common Stock.
Excludes 6,915 shares of Common Stock issuable upon exercise of stock
options granted by the Company which are not exercisable within 60 days of
March 31, 1997.
(10) Includes 174,004 shares of Common Stock held in an IRA account on Mr.
Ciliano's behalf.
(11) Includes 71,204 shares of Common Stock held in an IRA account on Mr. de
Terra's behalf and exercisable options to purchase 15,946 shares of Common
Stock.
(12) Excludes 17,287 shares of Common Stock issuable upon exercise of stock
options granted by the Company which are not exercisable within 60 days of
March 31, 1997. Includes 97,973 shares of Common Stock held in IRA accounts
on Mr. Keith's behalf and exercisable options to purchase 21,263 shares of
Common Stock.
(13) Includes 246,854 shares of Common Stock held in an IRA account on Mr.
Poirier's behalf.
(14) Includes 217,742 shares of Common Stock held in IRA accounts on Mr.
Armstrong's behalf.
(15) Includes 72,615 shares of Common Stock held in an IRA account on Mr.
Mitnick's behalf and exercisable options to purchase 12,087 shares of
Common Stock.
(16) Includes 255,665 shares of Common Stock held in IRA accounts on Mr. Rowe's
behalf.
(17) Includes 61,945 shares of Common Stock held in the Shauna E. Steinbergh
Educational Trust, 93,353 shares of Common Stock held in the Laura Rachel
Bedell Steinbergh Education Trust and 7,206 shares of Common Stock held in
an IRA account on Mr. Steinbergh's behalf.
(18) Includes 138,301 shares of Common Stock held in IRA accounts on Mr.
Calhoun's behalf.
(19) Excludes 12,447 shares of Common Stock issuable upon exercise of stock
options granted by the Company which are not exercisable within 60 days of
March 31, 1997. Includes 83,099 shares of Common Stock held in an IRA
account on Mr. Lipton's behalf.
(20) Includes 103,726 shares of Common Stock held in an IRA account on Mr.
Raucher's behalf.
(21) Excludes 17,287 shares of Common Stock issuable upon exercise of stock
options granted by the Company which are not exercisable within 60 days of
March 31, 1997. Includes 69,151 shares of Common Stock held in an IRA
account on Mr. Van Liere's behalf.
(22) Includes 141,703 shares of Common Stock held in an IRA account on Mr.
Violette's behalf.
(23) Includes 45,460 shares of Common Stock held in an IRA account on Mr.
Yermoli's behalf.
(24) Excludes 165,961 shares of Common Stock issuable upon exercise of stock
options granted by the Company which are not exercisable within 60 days of
March 31, 1997. Includes exercisable options to purchase 429,506 shares of
Common Stock.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred
Stock, par value $.01 per share (the "Preferred Stock"). Prior to the
consummation of the Offering, the Company will have outstanding 5,482,516 shares
of Common Stock and no shares of Preferred Stock. Upon completion of the
Offering, the Company will have outstanding 7,982,516 shares of Common Stock and
no shares of Preferred Stock. As of March 31, 1997, there were 22 record holders
of Common Stock.
48
<PAGE>
COMMON STOCK
Holders of Common Stock are entitled to one vote per share for the election
of directors and all other matters submitted for stockholder vote, except
matters submitted to the vote of another class or series of shares. Holders of
Common Stock are not entitled to cumulative voting rights. Therefore, the
holders of a majority of the shares voting for the election of directors can
elect all of the directors if they choose to do so. The holders of Common Stock
are entitled to dividends in such amounts and at such times, if any, as may be
declared by the Board of Directors out of funds legally available therefor. The
Company has not paid any dividends on its Common Stock and does not anticipate
paying any cash dividends on such stock in the foreseeable future. See "Dividend
Policy." Upon liquidation, dissolution or winding up of the Company, the holders
of Common Stock are entitled to share ratably in all net assets available for
distribution to stockholders after payments to creditors. The Common Stock is
not redeemable and has no preemptive or conversion rights.
The rights of the holders of Common Stock are subject to the rights of the
holders of any Preferred Stock which may, in the future, be issued. All
outstanding shares of Common Stock are, and the shares of Common Stock to be
sold by the Company in this offering when issued will be, duly authorized,
validly issued, fully paid and nonassessable.
PREFERRED STOCK
Upon or after the closing of the Offering, the Company will have the
authority to issue up to 5,000,000 shares of Preferred Stock in one or more
series and to fix and determine the relative rights, preferences and limitations
of each class or series so authorized without any further vote or action by the
stockholders. The Board of Directors may issue Preferred Stock with voting and
conversion rights which could adversely affect the voting power of the holders
of Common Stock and have the effect of delaying or preventing a change in the
control of the Company. As of the date of this Prospectus, no shares of
Preferred Stock are outstanding. The Company has no current intention to issue
any shares of Preferred Stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION, BY-LAWS AND DELAWARE LAW
Certificate of Incorporation and By-Laws. The Company's Amended and
Restated Certificate of Incorporation provides that the Board of Directors will
be divided into three classes of directors, each class constituting
approximately one-third of the total number of directors and with the classes
serving staggered three-year terms. The By-Laws provide that the Company's
stockholders may call a special meeting of stockholders only upon a request of
stockholders owning at least 50.0% of the Company's capital stock. These
provisions of the Certificate of Incorporation and By-Laws could discourage
potential acquisition proposals and could delay, defer or prevent a change in
control of the Company. These provisions are intended to enhance the likelihood
of continuity and stability in the composition of the Board of Directors and in
the policies formulated by the Board of Directors and to discourage certain
types of transactions that may involve an actual or threatened change of control
of the Company. These provisions are designed to reduce the vulnerability of the
Company to an unsolicited acquisition proposal. The provisions also are intended
to discourage certain tactics that may be used in proxy fights. However, such
provisions could have the effect of discouraging others from making tender
offers for the Company's shares and, as a consequence, they also may inhibit
fluctuations in the market price of the Company's shares that could result from
actual or rumored takeover attempts. Such provisions also may have the effect of
preventing changes in the management of the Company. See "Risk Factors --
Certain Anti-takeover Effects."
Delaware Takeover Statute. The Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"), which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the board of directors of the corporation
approved either the business combination or the
49
<PAGE>
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85.0% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to such
plans will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of the stockholders, and not by
written consent, by the affirmative vote of at least 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10.0% or more of the assets of
the corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15.0% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Limitation of Liability. As permitted by the Delaware General Corporation
Law, the Company's Amended and Restated Certificate of Incorporation provides
that directors of the Company shall not be personally liable for monetary
damages to the Company for certain breaches of their fiduciary duty as
directors, unless they violated their duty of loyalty to the Company or its
stockholders, acted in bad faith, knowingly or intentionally violated the law,
authorized illegal dividends or redemptions, or derived an improper personal
benefit from their action as directors. This provision would have no effect on
the availability of equitable remedies or nonmonetary relief, such as an
injunction or rescission for breach of the duty of care. In addition, the
provision applies only to claims against a director arising out of his or her
role as a director and not in any other capacity (such as an officer or employee
of the Company). Further, liability of a director for violations of the federal
securities laws will not be limited by this provision. Directors will, however,
no longer be liable for monetary damages arising from decisions involving
violations of the duty of care which could be deemed grossly negligent.
Indemnification. The Amended and Restated Certificate of Incorporation
provides that directors and officers of the Company shall be indemnified by the
Company to the fullest extent authorized by Delaware law, as it now exists or
may in the future be amended, against all expenses and liabilities reasonably
incurred in connection with service for or on behalf of the Company. The Amended
and Restated Certificate of Incorporation also authorizes the Company to enter
into one or more agreements with any person that provide for indemnification
greater or different from that provided in the Amended and Restated Certificate
of Incorporation. The Company believes that these provisions and agreements are
desirable to attract and retain qualified directors and officers. 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.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is State Street Bank
and Trust Company.
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 7,982,516 shares of
Common Stock outstanding. Of these shares, the 3,150,000 shares sold in the
Offering will be freely tradable without restriction or further registration
under the Securities Act, except that any shares purchased by "affiliates" of
the Company, as that term is defined under the Securities Act ("Affiliates"),
may generally only be sold in compliance with the limitations of Rule 144
described below.
The remaining 4,832,516 shares of Common Stock are deemed "Restricted
Shares" under Rule 144. The number of shares of Common Stock available for sale
in the public market is limited by restrictions under the Securities Act and
lock-up agreements under which the holders of such shares have agreed not to
sell or otherwise dispose of any of their shares for a period of 180 days after
the effective date of this Offering (the "Lock-Up Period") without the prior
written consent of DLJ. Because of these restrictions, on the date of this
Prospectus, no shares other than the 3,150,000 shares offered hereby will be
eligible for sale. Until ________ 1997, no Restricted Shares may become
available for sale in the public market subject to Rule 144 and Rule 701 of the
Securities Act.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this Offering, a person (or persons whose shares are
aggregated) who has beneficially owned "restricted" shares for at least one
year, including a person who may be deemed an Affiliate of the Company, is
entitled to sell within any three-month period a number of shares of Common
Stock that does not exceed the greater of 1.0% of the then-outstanding shares of
Common Stock (79,825 shares after giving effect to this Offering) or the average
weekly trading volume of the Common Stock as reported through the Nasdaq
National Market during the four calendar weeks preceding such sale. Sales under
Rule 144 of the Securities Act are subject to certain restrictions relating to
manner of sale, notice and the availability of current public information about
the Company. In addition, under Rule 144(k) of the Securities Act, a person who
is not an Affiliate of the Company at any time 90 days preceding a sale, and who
has beneficially owned shares for at least two years, would be entitled to sell
such shares immediately following this Offering without regard to the volume
limitations, manner of sale provisions or notice or other requirements of Rule
144 of the Securities Act.
Rule 701 under the Securities Act provides that shares of Common Stock
acquired on the exercise of outstanding options may be resold by persons other
than Affiliates, beginning 90 days after the date of this Prospectus, subject
only to the manner of sale provisions of Rule 144, and by Affiliates, beginning
90 days after the date of this Prospectus, subject to all provisions of Rule 144
except its two-year minimum holding period. The Company intends to register on a
registration statement on Form S-8, shortly after the date of this Prospectus, a
total of 3,200,000 shares of Common Stock reserved for issuance under the
Company's Stock Plan.
51
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting
Agreement, the underwriters named below (the "Underwriters"), for whom DLJ and
Montgomery Securities are acting as representatives (the "Representatives"),
have severally agreed to purchase from the Company and the Selling Stockholders
an aggregate of 3,150,000 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:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ -------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation................................................
Montgomery Securities..............................................................................
-------------
Total...................................................................................... 3,150,000
-------------
-------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept shares of Common Stock are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than in connection with the over-allotment option
described below), if any are taken.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the shares of Common Stock to the public
initially at the price to the public set forth on the cover page of this
Prospectus and to certain dealers (who may include the Underwriters) at such
price less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, discounts not in excess of $ per share
to any other Underwriter and certain other dealers.
Pursuant to the Underwriting Agreement, the Selling Stockholders have
granted to the Underwriters an option to purchase up to an aggregate of 472,500
additional shares of Common Stock at the initial public offering price less
underwriting discounts and commissions solely to cover over-allotments. Such
option may be exercised at any time until 30 days after the date of this
Prospectus. To the extent that the Representatives exercise such option, each of
the Underwriters will be committed, subject to certain conditions, to purchase a
number of option shares proportionate to such Underwriter's initial commitment
as indicated in the preceding table.
The Company, the Selling Stockholders, the executive officers and the
directors of the Company have agreed, subject to certain exceptions, with the
Underwriters not to, directly or indirectly, offer, pledge, sell, contract to
sell, grant any option to purchase, sell any option or contract to purchase,
grant any right or warrant for the sale of or otherwise dispose of, without the
prior written consent of DLJ, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for, or warrants, options or
rights to purchase or acquire, Common Stock or in any other manner transfer all
or a portion of the economic consequences associated with the ownership of any
Common Stock, or enter into any agreement to do any of the foregoing, for a
period of 180 days after the date of this Prospectus. See "Shares Eligible for
Future Sale."
In connection with this Offering, the Underwriters have advised the Company
that, pursuant to Regulation M under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), certain persons participating in this Offering may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Common Stock. Specifically, the Underwriters may overallot this Offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase shares of Common Stock in the open market to cover syndicate short
positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members in
this offering, if the syndicate repurchases previously distributed Common Stock
in syndicate covering transactions, in stabilization transactions
52
<PAGE>
or otherwise. Any of these activities may stabilize or maintain the market price
of the Common Stock above independent market levels. The Underwriters have
advised the Company that such transactions may be effected on the Nasdaq Stock
Market or otherwise and, if commenced, may be discontinued at any time.
The Representatives have informed the Company that the Underwriters do not
expect sales to discretionary accounts to exceed 5.0% of the total number of
shares of Common Stock offered by them and the sales to discretionary accounts
by the Representatives will be less than 1.0% of the total number of shares of
Common Stock offered by them.
Prior to the Offering, there has been no established public trading market
for the shares of Common Stock. The initial public offering price for the Common
Stock offered hereby will be determined by negotiation among the Company,
representatives of the Selling Stockholders and the Representatives. Among the
factors to be considered in such negotiations will be the history of and the
prospects for the industry in which the Company competes, the ability of the
Company's management, the past and present operations of the Company, the
historical results of operations of the Company, the prospects for future
earnings of the Company, the general condition of the securities markets at the
time of the Offering, and the recent market prices of securities of generally
comparable companies.
The Company's Common Stock has been approved for quotation and trading on
the Nasdaq National Market under the symbol "HBIX", subject to official notice
of issuance.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Pepper, Hamilton & Scheetz LLP, Philadelphia,
Pennsylvania. Certain legal matters will be passed upon for the Underwriters by
Cahill Gordon & Reindel (a partnership including a professional corporation),
New York, New York.
EXPERTS
The consolidated financial statements of Hagler Bailly, Inc. at December
31, 1995 and 1996, and for the period from May 26, 1995 to December 31, 1995,
and for the year ended December 31, 1996, and the financial statements of
RCG/Hagler Bailly, Inc. (the Predecessor to Hagler Bailly, Inc.) at December 31,
1994, and for the years ended December 31, 1993, 1994 and for the period January
1, through May 25, 1995, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
53
<PAGE>
ADDITIONAL INFORMATION
The Company is not currently subject to the information requirements of the
Exchange Act. As a result of the Offering, the Company will be required to file
reports and other information with the Commission pursuant to the informational
requirements of the Exchange Act.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act, with respect to the Common Stock offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus,
which is part of the Registration Statement, omits certain information,
exhibits, schedules and undertakings set forth in the Registration Statement.
For further information pertaining to the Company and the Common Stock,
reference is made to such Registration Statement and the exhibits and schedules
thereto. Although statements contained in this Prospectus as to the contents or
provisions of any documents referred to herein contain all material terms of
such documents, such statements are not necessarily complete, and in each
instance, reference is made to the copy of the document filed as an exhibit to
the Registration Statement. The Registration Statement may be inspected without
charge at the office of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of the Registration Statement may be obtained from the
Commission at prescribed rates from the Public Reference Section of the
Commission at such address, and at the Commission's regional offices located at
7 World Trade Center, 13th Floor, New York, New York 10048, and at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In
addition, registration statements and certain other filings made with the
Commission through its Electronic Data Gathering, Analysis and Retrieval
("EDGAR") system are publicly available through the Commission's site on the
Internet's World Wide Web, located at http://www.sec.gov. The Registration
Statement, including all exhibits thereto and amendments thereof, has been filed
with the Commission through EDGAR.
In addition, the Company intends to furnish its stockholders with annual
reports containing audited financial statements examined by an independent
public accounting firm.
54
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
HAGLER BAILLY, INC.
Independent Auditors Report............................................................................. F-2
Consolidated Balance Sheets............................................................................. F-3
Consolidated Statement of Operations.................................................................... F-4
Consolidated Statement of Stockholders' Equity.......................................................... F-5
Consolidated Statement of Cash Flows.................................................................... F-6
Notes to Consolidated Financial Statements.............................................................. F-7
RCG/HAGLER BAILLY, INC. (PREDECESSOR TO HAGLER BAILLY, INC.)
Independent Auditors Report............................................................................. F-18
Balance Sheet........................................................................................... F-19
Statements of Income.................................................................................... F-20
Statements of Stockholder's Equity...................................................................... F-21
Statements of Cash Flows................................................................................ F-22
Notes to Financial Statements........................................................................... F-23
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Hagler Bailly, Inc.
We have audited the accompanying consolidated balance sheets of Hagler Bailly,
Inc., and its subsidiaries, as of December 31, 1995 and 1996 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period May 26, 1995 to December 31, 1995 and for the year ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Hagler
Bailly, Inc., and its subsidiaries at December 31, 1995 and 1996 and the results
of their operations and their cash flows for the period May 26, 1995 to December
31, 1995 and for the year ended December 31, 1996 in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Washington, D.C.
March 25, 1997
- --------------------------------------------------------------------------------
The foregoing report is in the form
that will be signed upon a
determination of the proposed price
range to be included in the filing
of the offered common stock of
Hagler Bailly, Inc.
/s/ Ernst & Young LLP
Washington, D.C.
May 19, 1997
F-2
<PAGE>
HAGLER BAILLY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31
------------------------------ --------------
1995 1996 1997
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents..................................... $ 671,281 $ 1,432,882 $ 751,835
Accounts receivable, net (Note 3)............................. 12,733,590 15,038,797 19,341,262
Prepaid expenses.............................................. 175,905 368,282 438,811
Other current assets.......................................... 417,552 216,922 1,048,487
-------------- -------------- --------------
Total current assets............................................ 13,998,328 17,056,883 21,580,395
Property and equipment, net (Note 4)............................ 2,049,439 2,414,449 2,386,429
Intangible assets, net (Note 5)................................. 8,177,406 7,661,092 7,477,309
Other assets (Note 6)........................................... 274,926 614,694 1,336,340
-------------- -------------- --------------
Total assets.................................................... $ 24,500,099 $ 27,747,118 $ 32,780,473
-------------- -------------- --------------
-------------- -------------- --------------
Liabilities and stockholders' equity
Current liabilities:
Bank line of credit (Note 7).................................. $ 900,000 $ 1,750,000 $ 4,300,000
Accounts payable and accrued expenses......................... 2,967,843 2,417,510 4,367,088
Accrued compensation and benefits............................. 3,461,800 4,227,524 3,647,583
Billings in excess of cost.................................... 1,317,675 2,029,636 1,972,287
Current portion of long-term debt (Note 8).................... 2,088,000 1,289,000 1,318,750
Deferred income taxes (Note 9)................................ 725,000 1,522,000 2,051,000
-------------- -------------- --------------
Total current liabilities....................................... 11,460,318 13,235,670 17,656,708
Long-term debt, net of current portion (Note 8)................. 9,062,000 7,273,333 6,921,333
-------------- -------------- --------------
Total liabilities............................................... 20,522,318 20,509,003 24,578,041
Commitments and contingencies (Notes 11 and 13)
Stockholders' equity (Note 10):
Preferred stock, par value $.01; 5,000,000 shares authorized;
no shares issued or outstanding............................ -- -- --
Common stock:
Class A par value $.01, 6,915,081 shares authorized,
4,321,926, 4,978,160 and 5,482,516 issued and
outstanding, at 1995, 1996 and March 31, 1997........... 43,219 49,781 54,825
Class B par value $.01, 2,074,524 shares authorized,
103,726 issued and outstanding, at 1995, none
outstanding at 1996 and March 31, 1997.................. 1,037 -- --
Additional paid-in capital................................. 3,023,297 9,937,565 10,131,521
Retained earnings (deficit)................................ 910,228 (2,749,231) (1,983,914)
-------------- -------------- --------------
Total stockholders' equity...................................... 3,977,781 7,238,115 8,202,432
-------------- -------------- --------------
Total liabilities and stockholders' equity...................... $ 24,500,099 $ 27,747,118 $ 32,780,473
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
HAGLER BAILLY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM FOR THE THREE MONTHS
MAY 26, 1995 YEAR ENDED ENDED MARCH 31,
TO DECEMBER 31, DECEMBER 31, (UNAUDITED)
-------------- -------------- ------------------------------
1995 1996 1996 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Consulting revenues.......................... $ 18,194,121 $ 38,762,508 $ 9,378,229 $ 10,778,652
Subcontractor and other revenues............. 11,119,479 22,820,829 5,635,150 5,833,633
-------------- -------------- -------------- --------------
Total revenues................................. 29,313,600 61,583,337 15,013,379 16,612,285
Cost of services............................... 23,811,123 48,785,854 11,802,567 13,027,865
-------------- -------------- -------------- --------------
Gross profit................................... 5,502,477 12,797,483 3,210,812 3,584,420
-------------- -------------- -------------- --------------
Selling, general and administrative expenses... 3,230,227 8,583,896 1,985,955 1,984,432
Stock and stock option compensation............ -- 6,172,000 -- 64,869
-------------- -------------- -------------- --------------
Income (loss) from operations.................. 2,272,250 (1,958,413) 1,224,857 1,535,119
-------------- -------------- -------------- --------------
Other income (expense):
Interest income.............................. 21,681 117,200 5,463 18,567
Interest expense............................. (658,703) (1,021,246) (258,297) (259,369)
-------------- -------------- -------------- --------------
(637,022) (904,046) (252,834) (240,802)
-------------- -------------- -------------- --------------
Income (loss) before income tax expense........ 1,635,228 (2,862,459) 972,023 1,294,317
Income tax expense (Note 9).................... 725,000 797,000 391,000 529,000
-------------- -------------- -------------- --------------
Net income (loss).............................. $ 910,228 $ (3,659,459) $ 581,023 $ 765,317
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Net income (loss) per share (Note 2)........... $ $ $ $
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Weighted average shares outstanding............
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
HAGLER BAILLY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM MAY 26, 1995 TO DECEMBER 31, 1995,
FOR THE YEAR ENDED DECEMBER 31, 1996,
AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------
SHARES ADDITIONAL RETAINED TOTAL
-------------------- PAID-IN- EARNINGS STOCKHOLERS'
CLASS A CLASS B AMOUNT CAPITAL (DEFICIT) EQUITY
--------- --------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock at inception
(Note 10)........................... 4,149,049 -- $ 41,490 $ 2,958,510 $ -- $3,000,000
Less: Notes receivable for Common
Stock............................... -- -- -- (97,447) -- (97,447)
Issuance of Common Stock.............. 172,877 103,726 2,766 162,234 -- 165,000
Net income............................ -- -- -- -- 910,228 910,228
--------- --------- --------- ------------ ----------- ----------
Balance, December 31, 1995............ 4,321,926 103,726 44,256 3,023,297 910,228 3,977,781
Repayment of Notes receivable for
Common Stock........................ -- -- 97,447 -- 97,447
Issuance of Common Stock.............. 748,425 -- 7,484 856,516 -- 864,000
Repurchase of Common Stock............ (185,545) -- (1,855) (212,070) -- (213,925)
Substitution and issuance of
compensatory stock and options
(Note 10)........................... 93,354 (103,726) (104) 6,172,375 -- 6,172,271
Net loss.............................. -- -- -- -- (3,659,459) (3,659,459)
--------- --------- --------- ------------ ----------- ----------
Balance, December 31, 1996............ 4,978,160 -- 49,781 9,937,565 (2,749,231) 7,238,115
Net income (unaudited)................ -- -- -- -- 765,317 765,317
Issuance of Common Stock
(unaudited)......................... 504,356 -- 5,044 129,087 -- 134,131
Compensatory stock and options, net
(unaudited)......................... -- -- -- 64,869 -- 64,869
--------- --------- --------- ------------ ----------- ----------
Balance, March 31, 1997 (unaudited)... 5,482,516 -- $ 54,825 $ 10,131,521 $(1,983,914) $8,202,432
--------- --------- --------- ------------ ----------- ----------
--------- --------- --------- ------------ ----------- ----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
HAGLER BAILLY, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM FOR THE THREE MONTHS ENDED
MAY 26, 1995 YEAR ENDED MARCH 31,
TO DECEMBER 31, DECEMBER 31, (UNAUDITED)
------------ ----------- -------------------------
1995 1996 1996 1997
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Operating activities
Net income (loss)......................................... $ 910,228 $(3,659,459) $ 581,023 $ 765,317
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization....................... 734,494 1,265,606 282,457 403,292
Provision for possible losses....................... 129,484 1,092,713 172,114 98,693
Provision for deferred income taxes................. 725,000 797,000 391,000 529,000
Stock and stock option compensation................. -- 6,172,000 -- 64,869
Changes in operating assets and liabilities:
Accounts receivable.............................. (1,651,314) (3,397,920) (1,661,419) (4,401,158)
Prepaid expenses................................. 59,664 (192,377) (290,834) (70,529)
Other current assets............................. (138,634) 200,630 (120,573) (831,565)
Other assets..................................... (204,235) (339,768) (168,864) (721,646)
Accounts payable and accrued expenses............ (1,705,848) (550,333) (51,645) 1,949,578
Accrued compensation and benefits................ 2,499,276 765,724 (402,550) (579,941)
Billings in excess of cost....................... 1,148,455 711,961 114,620 (57,349)
---------- ----------- ------------ -----------
Net cash provided by (used in) operating activities....... 2,506,570 2,865,777 (1,154,671) (2,851,439)
---------- ----------- ------------ -----------
Investing activities
Purchase of RCG/Hagler Bailly, Inc. (net of $1,126,873
cash received).......................................... (11,802,250) -- -- --
Acquisition of property and equipment..................... (501,039) (1,114,031) (245,395) (191,489)
---------- ----------- ------------ -----------
Net cash used by investing activities..................... (12,303,289) (1,114,031) (245,395) (191,489)
---------- ----------- ------------ -----------
Financing activities
Issuance of Common Stock.................................. 3,068,000 864,000 410,000 134,131
Repurchase of Common Stock................................ -- (213,925) -- --
Repayment of notes receivable for Common Stock............ -- 97,447 -- --
Net borrowings from bank line of credit................... 900,000 850,000 1,325,000 2,550,000
Proceeds from long-term debt financing.................... 7,000,000 -- -- --
Principal payments on long-term debt...................... (500,000) (2,587,667) (295,000) (322,250)
---------- ----------- ------------ -----------
Net cash provided by (used in) financing activities....... 10,468,000 (990,145) 1,440,000 2,361,881
---------- ----------- ------------ -----------
Net increase (decrease) in cash and cash equivalents...... 671,281 761,601 39,934 (681,047)
Cash and cash equivalents, beginning of period............ -- 671,281 671,281 1,432,882
---------- ----------- ------------ -----------
Cash and cash equivalents, end of period.................. $ 671,281 $ 1,432,882 $ 711,215 $ 751,835
---------- ----------- ------------ -----------
---------- ----------- ------------ -----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996, AND MARCH 31, 1997
1. ORGANIZATION
Hagler Bailly, Inc. ("Hagler Bailly" or the "Company") is a leading
worldwide provider of a broad array of management consulting and other advisory
services to the private and public sectors of the energy, utility, and
environmental industries. The Company operates in principally one business
segment. The firm is headquartered in the Washington, D.C. metropolitan area and
has offices in the United States, Asia, Europe, and Latin America.
Hagler Bailly was organized under the laws of the state of Delaware and
formed for the primary purpose of facilitating the acquisition of RCG/Hagler
Bailly, Inc. ("Predecessor") by its management. The Predecessor was a
wholly-owned subsidiary of RCG International, Inc. ("RCG"). The date of
inception of the Company was May 5, 1995. The Company had no operations from May
5, 1995 to May 25, 1995. Effective on the close of business on May 25, 1995, the
Company, through a wholly-owned subsidiary, acquired all of the voting stock of
the Predecessor and the Company began operations on May 26, 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED FINANCIAL INFORMATION
The financial information presented as of any date other than December 31
has been prepared from the books and records of the Company without audit. In
the opinion of management, the accompanying unaudited financial statements
contain all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the Company's consolidated financial position as of
March 31, 1997, the results of its operations and its cash flows for the periods
ended March 31, 1997 and 1996, and the changes in stockholders' equity for the
period ended March 31, 1997. The results of operations presented are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes, in particular, estimates of revenues and
contract costs used in the earnings recognition process. Actual results could
differ from those estimates.
F-7
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid investments which have an
original maturity when acquired of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at original cost and depreciated using
primarily declining balance methods over their estimated useful lives of three
to seven years. Leasehold improvements are recorded at cost and amortized over
the shorter of their useful lives or the term of the related leases by use of
the straight-line method.
REVENUE RECOGNITION
Consulting revenue represents revenue generated by professional staff of
the Company. Subcontractor and other revenue represents revenue principally
generated through the use of subcontractors and independent consultants.
Revenue from cost-plus fixed-fee contracts is recognized as costs are
incurred on the basis of direct costs plus allowable indirect costs and a pro
rata portion of estimated fee.
Revenue from fixed-bid type contracts is recognized on the
percentage-of-completion method of accounting with costs and estimated profits
included in revenue based on the relationship that contract costs incurred bear
to management's estimate of total contract costs. Losses, if any, are accrued
when they become known and the amount of the loss is reasonably determinable.
Revenue from standard daily rate contracts is recognized at amounts
represented by the agreed-upon billing amounts and costs are recognized as
incurred.
Amounts billed or received in excess of revenue recognized in accordance
with the Company's revenue recognition policy are classified as billings in
excess of cost in the accompanying balance sheets.
INCOME TAXES
The Company provides for income taxes in accordance with the liability
method. Under this method, deferred tax assets and liabilities are determined
based on temporary differences between financial and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
EARNINGS PER SHARE
Net income (loss) per share is calculated using the weighted average number
of common shares outstanding during each period. Net income per share is
adjusted for the dilutive effect of common stock equivalents, however, net loss
per share is not adjusted for common stock equivalents because they are
antidilutive. Pursuant to the requirements of the Securities and Exchange
Commission Staff Accounting Bulletin No. 83, common stock and options to
purchase common stock issued at prices below the estimated initial public
offering ("IPO") of the Company's Common Stock price during the twelve months
immediately preceding the contemplated initial filing of the registration
statement relating to the IPO, have been included in the computation of net
income (loss) per share as if they were outstanding for all periods presented
(using the treasury method assuming repurchase of common stock at the estimated
IPO price, even if antidilutive).
F-8
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
RECENT PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" which is effective for the
Company's 1996 consolidated financial statements. SFAS No. 123 allows companies
to either account for stock based compensation under the new provisions of SFAS
No. 123 or under the provisions of Accounting Principles Board APB No. 25,
"Accounting for Stock Issued to Employees", but requires pro forma disclosures
in the footnotes to the financial statements as if the measurement provisions of
SFAS No. 123 had been adopted. The Company intends to continue accounting for
its stock-based compensation in accordance with APB No. 25. The pro forma
disclosures required under SFAS No. 123 are not materially different than the
amounts recorded in the Company's consolidated financial statements pursuant to
APB No. 25 (See Note 10).
3. ACCOUNTS RECEIVABLE
The components of accounts receivable are:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ MARCH 31, 1997
1995 1996 (UNAUDITED)
-------------- -------------- --------------
<S> <C> <C> <C>
Billed amounts....................................... $ 8,665,372 $ 10,794,670 $ 10,275,582
Unbilled amounts currently billable.................. 4,148,455 4,914,425 9,767,497
Retention not currently billable..................... 278,547 214,492 367,638
Allowance for possible losses........................ (358,784) (884,790) (1,069,455)
-------------- -------------- --------------
Total................................................ $ 12,733,590 $ 15,038,797 $ 19,341,262
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The activity in the allowance for possible losses is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD ENDED YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, --------------------------
1995 1996 1996 1997
------------ ------------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning of period.......................... $ 314,025 $ 358,784 $ 358,784 $ 884,790
Provision for losses charged to expense...... 129,484 1,092,713 172,114 98,693
Charge-offs, net of recoveries............... (84,725) (566,707) (44,400) 85,972
---------- ------------- ----------- -------------
Balance at December 31....................... $ 358,784 $ 884,790 $ 486,498 $ 1,069,455
---------- ------------- ----------- -------------
---------- ------------- ----------- -------------
</TABLE>
All billed and unbilled receivable amounts are expected to be collected
during the next fiscal year. Management has provided an allowance for amounts
which it believes are doubtful as to their ultimate realization. Substantially
all the retention relates to contracts for which a final invoice is submitted
upon completion of indirect cost audits and contract close-outs; therefore it is
anticipated that the retention amounts will not all be collected within the next
fiscal year.
F-9
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
Components of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------- 1997
1995 1996 (UNAUDITED)
------------- ------------- -------------
<S> <C> <C> <C>
Office equipment and furniture........................... $ 2,339,208 $ 3,361,916 $ 3,553,405
Leasehold improvements................................... 84,995 176,318 176,318
------------- ------------- -------------
2,424,203 3,538,234 3,729,723
Accumulated depreciation and amortization................ (374,764) (1,123,785) (1,343,294)
------------- ------------- -------------
$ 2,049,439 $ 2,414,449 $ 2,386,429
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Depreciation expense for the period ended December 31, 1995, the year ended
December 31, 1996 and for the three month periods ended March 31, 1996 and 1997
was $375,000, $749,000, $139,000 and $220,000, respectively. Costs of repairs
and maintenance of property and equipment are charged to expense as incurred.
5. MANAGEMENT BUY-OUT
Effective at the close of business on May 25, 1995, the Company purchased
all of the outstanding shares of RCG/Hagler Bailly, Inc. from RCG in an
acquisition accounted for as a purchase. The consolidated financial statements
include the results of operations from the date of acquisition. Under the terms
of the Management Buy-Out, the Company agreed to pay approximately $15,587,000
and assume certain tax obligations of the seller. Acquisition related costs of
approximately $491,000 were incurred. The purchase was funded by capital
contributions, bank debt, and subordinated debt from RCG.
The purchase price was allocated to the assets acquired and the liabilities
assumed based upon their fair values as of the acquisition date. The excess of
the purchase price over the fair value of assets acquired in the purchase was
recorded as intangible assets, including goodwill, and are being amortized over
5 to 20 years on a straight-line basis. Intangible assets at December 31, 1995
and 1996 and March 31, 1997 is net of accumulated amortization of $334,000,
$1,017,000 and $1,201,000 respectively. Amortization expense for the period
ended December 31, 1995 and the year ended December 31, 1996 was $334,000 and
$683,000, respectively, and for the periods ended March 31, 1996 and 1997 was
$143,000 and $184,000, respectively.
The Company periodically reviews the value of its net intangible assets to
determine if an impairment has occurred. Based on its review, the Company does
not believe that an impairment of net intangible assets has occurred at December
31, 1996.
Pro forma unaudited consolidated operating results of the Company for the
year ended December 31, 1995 assuming the acquisition had been made as of
January 1, 1995 are summarized below:
<TABLE>
<S> <C>
Pro forma Revenue........................................................... $49,188,958
Pro forma Net Income........................................................ $1,016,000
Pro forma Earnings per Share
</TABLE>
These pro forma results have been prepared for comparative purposes only
and include adjustments such as additional amortization expenses as a result of
goodwill and other intangible assets and increased interest expense related to
debt used to finance the Management Buy-Out. They do not purport to be
indicative of the results of operations which actually would have resulted had
the
F-10
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. MANAGEMENT BUY-OUT -- (CONTINUED)
combination been in effect on January 1, 1995, or of the future results of
operations of the consolidated entities.
6. OTHER ASSETS
As a part of the Management Buy-Out (Note 5), the Company was required to
place a deposit in escrow to secure its indemnification of RCG for remaining a
guarantor on a lease. At December 31, 1996 and March 31, 1997, the Company has
an escrow balance of $350,000. The Company is required to increase the balance
unless RCG is released from the lease guarantee (see Note 14).
7. BANK LINE OF CREDIT
At December 31, 1996, the Company had a line of credit arrangement with a
bank which provides funds up to $4,500,000 subject to sufficient collateral. The
line is secured primarily by the Company's accounts receivable and contract
rights. Under the terms of the line of credit, interest is payable monthly at
the bank's prime rate plus 7/8%. There is an annual fee of 3/8% for the unused
portion of the available line of credit. The line of credit agreement contains
certain covenants which among other things restrict future borrowings and
require the Company to maintain certain financial ratios.
8. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------- 1997
1995 1996 (UNAUDITED)
-------------- ------------- -------------
<S> <C> <C> <C>
Senior term loan from a bank, in the original, amount of
$7,000,000, interest payable at the banks prime rate plus 7/8%;
Subject to certain limitations the Company may fix the interest
rate on portions or all of the note, at LIBOR plus 2% for periods
ranging from 30-360 days. The interest rate was 7.6% at December
31, 1996. Principal is due in quarterly installments ranging from
$250,000 to $384,500, plus interest, over the term of the note,
secured by the assets of the Company............................. $ 6,500,000 $ 3,912,333 $ 3,590,083
Subordinated note payable to RCG in the amount of $4,650,000;
interest at 9.5% payable semiannually; balloon payment due May
2001............................................................. 4,650,000 4,650,000 4,650,000
-------------- ------------- -------------
Total long-term debt............................................... 11,150,000 8,562,333 8,240,083
Less: current portion.............................................. 2,088,000 1,289,000 1,318,750
-------------- ------------- -------------
Long-term debt, net of current portion............................. $ 9,062,000 $ 7,273,333 $ 6,921,333
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
The senior term loan also provides that if, at the end of the fiscal year,
the Company has cash flow in excess of certain levels, as defined by the credit
agreement, such cash must be applied to scheduled principal installments on the
note. At December 31, 1995, approximately $908,000 was payable in addition to
the scheduled maturities under the note provisions. This excess cash flow
payment was made in 1996. At the Company's discretion, an additional $500,000
was paid in relation to the senior term loan in 1996.
F-11
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT -- (CONTINUED)
The senior term loan and the subordinated note payable to RCG contain,
among other things, certain financial covenant requirements and restrictions on
future borrowing and investment, and requires the Company to maintain certain
financial ratios. Management believes the carrying amount of the Company's
financial instruments approximates their respective fair value.
The following is a schedule of future principal maturities of long-term
debt at December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- ----------------------
<S> <C>
1997................................................................. $1,289,000
1998................................................................. 1,408,000
1999................................................................. 1,215,333
2000................................................................. --
2001................................................................. 4,650,000
-------------
Total................................................................ $8,562,333
-------------
-------------
</TABLE>
Cash paid for interest for the period ended December 31, 1995 and the year
ended December 31, 1996 was approximately $468,000 and $1,020,000, respectively,
and for the periods ended March 31, 1996 and 1997 was approximately $219,000 and
$249,000, respectively.
9. INCOME TAXES
The Company has historically filed its consolidated federal income tax
return on the cash basis, whereby for tax purposes, revenue is recognized when
received and expenses are recognized when paid. The timing of certain
transactions, primarily the collections of accounts receivable and the payments
of accounts payable and accrued expenses will be applied to different periods
for financial statement and income tax reporting purposes. Deferred federal and
state income taxes are provided for these temporary differences. Upon
consummation of the contemplated IPO of the Company's Common Stock, the Company
would be required to change to the accrual method for income tax reporting.
Components of income tax expense consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD ENDED YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ------------------------
1995 1996 1996 1997
------------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Deferred
Federal........................................ $ 580,000 $ 639,000 $ 313,000 $ 424,000
State.......................................... 145,000 158,000 78,000 105,000
----------- ---------- ----------- -----------
Income tax expense............................. $ 725,000 $ 797,000 $ 391,000 $ 529,000
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
F-12
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES -- (CONTINUED)
The Company has paid no income taxes since inception. Income tax expense
for the period ended December 31, 1995 and the year ended December 31, 1996,
varies from the amount which would have been computed using statutory rates as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD ENDED YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ------------------------
1995 1996 1996 1997
------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Tax computed at the Federal statutory rate..... $ 572,000 $ (999,000) $ 340,000 $ 453,000
State income taxes, net of Federal income tax
benefit...................................... 85,000 107,000 50,000 67,000
Non-deductible charge for stock option
compensation................................. -- 1,661,000 -- --
Other.......................................... 68,000 28,000 1,000 9,000
---------- ---------- ----------- -----------
Income tax expense............................. $ 725,000 $ 797,000 $ 391,000 $ 529,000
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
The components of temporary differences including available net operating
loss carry-forwards are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------- 1997
1995 1996 (UNAUDITED)
------------- ------------- -------------
<S> <C> <C> <C>
Deferred tax liabilities:
Accounts receivable...................................... $ 5,118,000 $ 6,015,000 $ 7,736,000
Other.................................................... 237,000 146,000 254,000
------------- ------------- -------------
Total.................................................... 5,355,000 6,161,000 7,990,000
------------- ------------- -------------
Deferred tax assets:
Accounts payable and accrued expenses.................. 1,187,000 967,000 1,747,000
Accrued compensation and benefits...................... 1,385,000 1,617,000 1,459,000
Billings in excess of cost............................. 530,000 811,000 789,000
Deferred compensation.................................. -- 762,000 788,000
Net operating loss carryforwards available for income
tax purposes........................................ 1,528,000 482,000 1,156,000
------------- ------------- -------------
Total.................................................... 4,630,000 4,639,000 5,939,000
------------- ------------- -------------
Valuation allowance...................................... -- -- --
Net deferred tax liability............................... $ 725,000 $ 1,522,000 $ 2,051,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
10. STOCKHOLDERS' EQUITY
The Company was authorized at inception to issue 6,915,081 shares of $.01
par value Class A common stock and 2,074,524 shares of $.01 par value Class B
common stock. Pursuant to a stockholders' agreement, all of the Company's common
stock and options have certain restrictions on ownership and are subject to a
repurchase provision. Class B shares were not eligible for dividends and had no
voting privileges.
The Company may grant qualified and non-qualified stock options to
employees to purchase common stock under the Employee Incentive and
Non-Qualified Stock Option and Restricted Stock
F-13
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. STOCKHOLDERS' EQUITY -- (CONTINUED)
Plan (the "Stock Plan"). Prior to December 31, 1996, the Company's Stock Plan
was a formula basedplan and was authorized to grant options to purchase Class A
and B shares. The exercise price of options granted were based upon the book
value per share at May 26, 1995, adjusted for accretion of formula value during
any interim period up to the grant date. Under the Stock Plan, options to
purchase Class B shares granted did not accrue value to the option holder until
date of exercise. Options to purchase Class A shares accrued value to the option
holder from the date of grant.
Effective at December 31, 1996, the Company (a) adopted an amendment to its
Stock Plan which changed the exercise price of future options to be granted
thereunder to the fair value of the underlying Common Stock; and (b) in
connection with a reclassification of its Common Stock amended all outstanding
options to purchase 971,963 Class B shares vesting on January 1, 1997 to
substitute 0.9 of a Class A share for each Class B share underlying such
options. In addition, a remaining total of 971,963 options to purchase Class B
shares vesting on January 1, 1998, were canceled. As a result, the Company
recorded a non-recurring, non-cash charge to operations of $6,172,000 of which
$4,618,000 was for options to purchase Common Stock and $1,554,000 was for
394,160 shares of Common Stock sold to employees during 1996. These charges
represent the aggregate difference between the exercise price of such
outstanding options or the issuance price of Common Stock sold to employees
during 1996, as the case may be, and the appraised market value of the
underlying Common Stock at December 31, 1996.
Options granted in 1996 vest over periods ranging from immediately to three
years and are exercisable for five years. Options issued prior to 1996 generally
vest 50% after eighteen months and fully after an additional year. Once vested,
the options are exercisable for ten years.
The following summarizes option activity:
<TABLE>
<CAPTION>
CLASS A CLASS B OPTION PRICE
OPTIONS OPTIONS PER SHARE
----------- ----------- ----------------
<S> <C> <C> <C>
Granted............................................................. -- 2,074,524 $ 0.16
Exercised........................................................... -- (103,726)
----------- ----------- ----------------
Outstanding at December 31, 1995.................................... -- 1,970,798 0.16
1996
Granted............................................................. 62,236 -- 0.87 - 1.16
Canceled............................................................ -- (971,963) 0.16
Forfeited........................................................... -- (26,872) 0.16
Substituted......................................................... 874,707 (971,963) 0.16
----------- ----------- ----------------
Outstanding at December 31, 1996.................................... 936,943 -- 0.87 - 1.16
----------- ----------- ----------------
Exercisable at December 31, 1996.................................... 930,028 -- 0.87 - 1.16
----------- ----------- ----------------
1997 (Unaudited)
Granted............................................................. 591,715 -- 6.10 - 10.00
Forfeited........................................................... (5,931) -- 6.10
Exercised........................................................... (496,162) -- 0.16 - 1.16
----------- ----------- ----------------
Outstanding at March 31, 1997....................................... 1,026,565 -- $ 0.16 - 10.00
----------- ----------- ----------------
----------- ----------- ----------------
Exercisable at March 31, 1997....................................... 478,802 -- $ 0.16 - 6.71
----------- ----------- ----------------
----------- ----------- ----------------
</TABLE>
F-14
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. OPERATING LEASES
The Company leases office space and equipment located throughout the United
States and worldwide, all of which are under operating leases which expire over
the next seven years. Substantially all office space leases provide for the
Company to pay a pro rata share of annual increases above a stated base amount
of the landlords' related real estate taxes and operating expenses. Management
expects that in the normal course of business, operating leases will be renewed
or replaced by other operating leases. RCG is a guarantor of the office lease
(Note 6) for the Company's headquarters location.
The following is a schedule by years of the future minimum rental payments
required under the operating leases that have an initial or remaining
noncancellable lease term in excess of one year as of December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
<S> <C>
1997................................................................. $1,953,000
1998................................................................. 1,696,000
1999................................................................. 1,591,000
2000................................................................. 1,432,000
2001................................................................. 1,355,000
Thereafter................................................................. 1,185,000
-------------
Total minimum rental payments................................................ $9,212,000
-------------
-------------
</TABLE>
Total rental expense for the period ended December 31, 1995 and the year
ended December 31, 1996 was approximately $1,065,000 and $1,899,000,
respectively and for the periods ended March 31, 1996 and 1997 was approximately
$528,000 and $637,000, respectively.
12. RETIREMENT PLAN
The Company maintains a tax-deferred savings plan under Section 401(k) of the
Internal Revenue Code to provide retirement benefits for all eligible employees.
Employees may voluntarily contribute up to 16% of their annual compensation to
the Plan, subject to Internal Revenue Service limitations. The Company may, but
has no obligation to, make matching contributions. In addition, the Company may,
but has no obligation to, make a discretionary contribution to the Plan.
Discretionary contributions are allocated to participants' accounts in
proportion to their compensation. The Company's discretionary matching and other
contributions for 1995 and 1996 were $1,011,000 and $1,371,000, respectively,
and for the periods ended March 31, 1996 and 1997 was $508,000 and $716,000,
respectively. Rights to benefits provided by the Company's discretionary
contributions vest as follows: 40% after two years, 70% after three years and
100% after four years of service. Participants are fully vested in their
voluntary contributions.
13. COMMITMENTS AND CONTINGENCIES
COST SUBJECT TO AUDIT
Under its United States government contracts, the Company is subject to
audit by the Defense Contract Audit Agency which could result in adjustments of
amounts previously billed. Management believes that the results of such audits
will not have a material adverse effect on the Company's financial position or
results of operations.
F-15
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company operates around the world principally in United States
currency. The Company may reduce any periodic exposures to fluctuations in
foreign exchange rates by creating offsetting ("hedge") positions through the
use of derivative financial instruments. The Company currently does not use
derivative financial instruments for trading or speculative purposes, nor is the
Company a party to leverage derivatives. The Company regularly monitors any
foreign currency exposures and ensures that hedge contract amounts do not exceed
the amounts of the underlying exposures.
The Company had no open hedge positions at December 31, 1996 or March 31,
1997.
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and trade accounts receivable.
The Company maintains cash and cash equivalents with various financial
institutions. These financial institutions are located in many different
countries throughout the world, and the Company's policy is designed to limit
exposure with any one institution. As part of its cash management process, the
Company performs periodic evaluations of the relative credit standing of these
financial institutions.
At December 31, 1995, 1996 and March 31, 1997, respectively, cash of
approximately $465,000, $1,004,000, and $718,000 was located in foreign bank
accounts.
MAJOR CUSTOMERS
At December 31, 1995, 1996 and March 31, 1997, included in accounts
receivable was $7,654,726, $6,823,898 and $5,087,180, respectively due from
agencies of the United States government. Credit risk with respect to the
remaining trade accounts receivable is generally diversified due to the large
number of entities comprising the Company's customer base and their dispersion
across different industries and countries. The Company performs ongoing credit
evaluations of its customers financial condition.
The Company generates revenues from contracts with governmental agencies
and private companies within the United States and worldwide. During 1996, the
Company recognized approximately, $25,997,000 and $7,555,000 of its revenue from
the United States Agency for International Development ("USAID"), a U.S.
government agency, and a major public utility, respectively. In 1995 revenues
from USAID were approximately $12,313,000. For the periods ended March 31, 1996
and 1997 the Company recognized aggregate revenue of approximately $8,391,000
and $7,360,000, respectively, from USAID and a major public utility. Revenues
earned from foreign customers, both commercial and governmental, were
approximately $713,000 and $1,314,000 for the period ended December 31, 1995 and
the year ended December 31, 1996, respectively and for the periods ended March
31, 1996 and 1997 were approximately $277,000 and $272,000, respectively.
14. SUBSEQUENT EVENTS
On January 17, 1997, the Board of Directors, in consideration of an
authorization to file a Registration Statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock to the
public, approved resolutions to increase the number of authorized shares of
common stock from 6,915,081 to 20,000,000 and authorize for issuance up to
5,000,000 shares of preferred stock, par value $0.01. Also on January 17, 1997,
the Board of Directors authorized a 6.915081 for 1 split of the Company's Class
A $0.01 par value Common Stock, which will become effective at or prior to the
IPO. All references in the accompanying consolidated financial statements
F-16
<PAGE>
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUBSEQUENT EVENTS -- (CONTINUED)
have been restated to reflect the authorization of preferred stock and the split
of the Company's Common Stock.
On January 17, 1997, the Company granted options for the purchase of
576,715 shares of Common Stock to employees pursuant to the Stock Plan at an
exercise price ranging from $6.10 to $6.71 per share.
On February 21, 1997, the Company entered into an agreement to repay the
$4,650,000 Subordinated Note payable to RCG immediately upon the closing of the
IPO. In addition the Company agreed to use its best efforts to effect the
release of RCG from the guarantee described in Note 6 by April 30, 1997. To
date, the Company has not obtained such release. As a result, RCG has required
the Company to increase the escrow described above to $550,000. In the event
the IPO is consummated and the Company is unable to obtain such release, RCG has
the right to require the Company to increase the escrow described above to an
amount equal to the present value of all remaining payments under such lease
(approximately $3.6 million at March 31, 1997).
On March 11, 1997, the Company granted options for the purchase of 15,000
shares of Common Stock to an employee at an exercise price of $10.00 per share.
F-17
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Hagler Bailly, Inc.
We have audited the accompanying balance sheet of RCG/Hagler Bailly, Inc.
(predecessor to Hagler Bailly, Inc.) as of December 31, 1994, and the related
statements of income, stockholder's equity, and cash flows for the years ended
December 31, 1993 and 1994 and for the period from January 1, 1995 to May 25,
1995. These financial statements are the responsibility of RCG/Hagler Bailly,
Inc. management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RCG/Hagler Bailly, Inc. at
December 31, 1994 and the results of its operations and its cash flows for the
years ended December 31, 1993 and 1994, and for the period from January 1, 1995
to May 25, 1995, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Washington, D.C.
February 10, 1997
F-18
<PAGE>
RCG/HAGLER BAILLY, INC.
(PREDECESSOR TO HAGLER BAILLY, INC.)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1994
--------------
<S> <C>
Assets
Current assets:
Cash and cash equivalents....................................................................... $ 565,719
Short-term investments.......................................................................... 81,875
Accounts receivable, net (Note 3)............................................................... 11,328,321
Other current assets............................................................................ 387,457
--------------
Total current assets.............................................................................. 12,363,372
Property and equipment, net (Note 4).............................................................. 1,582,874
Goodwill, net (Note 5)............................................................................ 596,225
Other assets...................................................................................... 258,389
--------------
Total assets...................................................................................... $ 14,800,860
--------------
--------------
Liabilities and stockholder's equity
Current liabilities:
Amounts due to parent company................................................................... $ 3,365,574
Accounts payable and accrued expenses........................................................... 2,362,284
Accrued compensation and benefits............................................................... 2,765,426
Billings in excess of cost...................................................................... 878,477
--------------
Total current liabilities......................................................................... 9,371,761
--------------
Commitments and contingencies (Note 8)
Stockholder's equity:
Common stock, $.10 par value, 13,650 issued and outstanding..................................... 1,365
Additional paid-in capital...................................................................... 258,189
Retained earnings............................................................................... 5,169,545
--------------
Total stockholder's equity........................................................................ 5,429,099
--------------
Total liabilities and stockholder's equity........................................................ $ 14,800,860
--------------
--------------
</TABLE>
See accompanying notes.
F-19
<PAGE>
RCG/HAGLER BAILLY, INC.
(PREDECESSOR TO HAGLER BAILLY, INC.)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1
------------------------------ TO MAY 25,
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Consulting revenues........................................... $ 18,053,000 $ 22,531,263 $ 10,978,000
Subcontractor and other revenues.............................. 8,796,239 13,436,809 8,897,358
-------------- -------------- --------------
Total revenues.................................................. 26,849,239 35,968,072 19,875,358
Cost of services................................................ 21,653,025 29,122,153 16,529,564
-------------- -------------- --------------
Gross profit.................................................... 5,196,214 6,845,919 3,345,794
Selling, general and administrative expenses.................... 3,678,895 4,835,802 2,451,773
-------------- -------------- --------------
Income from operations.......................................... 1,517,319 2,010,117 894,021
Other income (expense):
Interest income............................................... 6,095 17,100 3,244
Interest expense.............................................. (15,335) (5,474) (23,503)
-------------- -------------- --------------
(9,240) 11,626 (20,259)
-------------- -------------- --------------
Income before income taxes...................................... 1,508,079 2,021,743 873,762
Income tax expense (Note 7)..................................... 620,000 843,000 362,000
-------------- -------------- --------------
Net income...................................................... $ 888,079 $ 1,178,743 $ 511,762
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes.
F-20
<PAGE>
RCG/HAGLER BAILLY, INC.
(PREDECESSOR TO HAGLER BAILLY, INC.)
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1992........................ 13,650 $ 1,365 $ 258,189 $ 3,102,723 $ 3,362,277
Net income....................................... -- -- -- 888,079 888,079
--------- --------- ----------- ------------- -------------
Balance December 31, 1993........................ 13,650 1,365 258,189 3,990,802 4,250,356
Net income....................................... -- -- -- 1,178,743 1,178,743
--------- --------- ----------- ------------- -------------
Balance December 31, 1994........................ 13,650 1,365 258,189 5,169,545 5,429,099
Net income....................................... -- -- -- 511,762 511,762
--------- --------- ----------- ------------- -------------
Balance May 25, 1995............................. 13,650 $ 1,365 $ 258,189 $ 5,681,307 $ 5,940,861
--------- --------- ----------- ------------- -------------
--------- --------- ----------- ------------- -------------
</TABLE>
See accompanying notes.
F-21
<PAGE>
RCG/HAGLER BAILLY, INC.
(PREDECESSOR TO HAGLER BAILLY, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1
------------------------------ TO MAY 25,
1993 1994 1995
-------------- -------------- -------------
<S> <C> <C> <C>
Operating activities
Net income........................................................ $ 888,079 $ 1,178,743 $ 511,762
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization................................ 811,927 779,063 485,719
Provision for possible losses................................ 46,728 163,134 31,120
Changes in operating assets and liabilities:
Accounts receivable....................................... (400,612) (3,455,893) (385,966)
Other assets.............................................. (118,670) (152,472) (472,384)
Accounts payable and accrued expenses..................... (123,592) 678,924 1,028,214
Accrued compensation and benefits......................... 421,888 907,395 (573,824)
Billings in excess of cost................................ (51,495) (133,587) (106,832)
-------------- -------------- -------------
Net cash provided by (used in) operating activities............... 1,474,253 (34,693) 517,809
-------------- -------------- -------------
Investing activities
Purchase of short-term investments................................ (56,394) (28,731) (3,250)
Sale of short-term investments.................................... -- 3,250 --
Acquisition of property and equipment............................. (1,136,596) (785,473) (649,531)
-------------- -------------- -------------
Net cash used in investing activities............................. (1,192,990) (810,954) (652,781)
-------------- -------------- -------------
Financing activities
Net borrowings (payments) of amounts due to parent................ (571,787) 461,844 696,126
-------------- -------------- -------------
Net cash provided by (used in) financing activities............... (571,787) 461,844 696,126
-------------- -------------- -------------
Net increase (decrease) in cash and cash equivalents.............. (290,524) (383,803) 561,154
Cash and cash equivalents, beginning of period.................... 1,240,046 949,522 565,719
-------------- -------------- -------------
Cash and cash equivalents, end of period.......................... $ 949,522 $ 565,719 $ 1,126,873
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
See accompanying notes.
F-22
<PAGE>
RCG/HAGLER BAILLY, INC.
(PREDECESSOR TO HAGLER BAILLY, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND FOR
THE PERIOD FROM JANUARY 1, 1995 TO MAY 25, 1995
1. ORGANIZATION AND BASIS OF PRESENTATION
RCG/Hagler Bailly, Inc. is a leading worldwide provider of a broad array of
management consulting and other advisory services to the private and public
sectors of the energy, utility, and the environmental industries. The Company
operates in principally one business segment. The firm is headquartered in the
Washington, D.C. metropolitan area and has offices in the United States, Asia,
Europe, and Latin America.
RCG/Hagler Bailly, Inc. was originally founded in 1980 as Hagler Bailly
Consulting, Inc. In 1984, Hagler Bailly Consulting, Inc. was acquired by RCG
International, Inc. ("RCG"), an indirect subsidiary of Reliance Group Holdings,
Inc. ("Reliance") and renamed RCG/Hagler Bailly Inc. RCG/Hagler Bailly, Inc. is
the predecessor to Hagler Bailly, Inc. Hagler Bailly, Inc. acquired all of the
voting stock of RCG/Hagler Bailly, Inc. effective at the close of business on
May 25, 1995.
The statements of income include allocations of certain corporate expenses
(see note 6) from RCG. Management believes the allocations are reasonable;
however, these allocated expenses are not necessarily indicative of expenses
that would have been incurred by the Company on a stand-alone basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes, in particular, estimates of revenues and contract cost used
in the earnings recognition process. Actual results could differ from those
estimates.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents are short-term, highly liquid investments which have an
original maturity when acquired of three months or less. Short-term investments
are recorded at the lower of cost or market and are classified based on the
Company's intent to liquidate those investments within one year. Included on the
Company's balance sheet at December 31, 1994 is $257,666 in cash in foreign bank
accounts.
PROPERTY AND EQUIPMENT
Purchases of property and equipment are recorded at original cost and
depreciated using primarily the straight-line method over their estimated useful
lives of five to seven years.
REVENUE RECOGNITION
Consulting revenue represents revenue generated by professional staff of
the Company. Subcontractor and other revenue represents revenue principally
generated through the use of subcontractors and independent consultants.
Revenue from fixed-bid type contracts is recognized on the
percentage-of-completion method of accounting with costs and estimated profits
included in revenue based on the relationship that contract costs incurred bear
to management's estimate of total contract costs. Losses, if any, are accrued
when they become known and the amount of the loss is reasonably determinable.
F-23
<PAGE>
RCG/HAGLER BAILLY, INC.
(PREDECESSOR TO HAGLER BAILLY, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND FOR
THE PERIOD FROM JANUARY 1, 1995 TO MAY 25, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Revenue from standard daily rate contracts is recognized at amounts
represented by the agreed-upon billing amounts and costs are recognized as
incurred.
Amounts billed or received in excess of revenue recognized in accordance
with the Company's revenue recognition policy are classified as billings in
excess of cost in the accompanying balance sheet.
EARNINGS PER SHARE
The Company is a wholly-owned subsidiary and, accordingly, earnings per
share information for the Company is not relevant and is therefore not
presented.
3. ACCOUNTS RECEIVABLE
At December 31, 1994, the components of accounts receivable are as follows:
<TABLE>
<CAPTION>
1994
--------------
<S> <C>
Billed amounts.............................................................. $ 7,213,471
Unbilled amounts currently billable......................................... 4,251,175
Retention not currently billable............................................ 177,700
Allowance for possible losses............................................... (314,025)
--------------
Total....................................................................... $ 11,328,321
--------------
--------------
</TABLE>
The activity in the allowance for possible losses for the year ended
December 31, 1994 is as follows:
<TABLE>
<CAPTION>
1994
-----------
<S> <C>
Balance at January 1, 1994..................................................... $ 205,294
Provision for losses charged to expense........................................ 163,134
Charge-offs, net of recoveries................................................. (54,403)
-----------
Balance at December 31, 1994................................................... $ 314,025
-----------
-----------
</TABLE>
All billed and unbilled receivable amounts are expected to be collected
during the next fiscal year. Management has provided an allowance for amounts
which it believes are doubtful as to their ultimate realization. Substantially
all the retention relates to contracts for which a final invoice is submitted
upon completion of indirect cost audits and contract close-outs; therefore, it
is anticipated that the retention amounts will not all be collected within the
next fiscal year.
4. PROPERTY AND EQUIPMENT
Components of property and equipment at December 31, 1994 are as follows:
<TABLE>
<S> <C>
Office equipment and furniture.............................................. $ 3,157,257
Leasehold improvements...................................................... 123,578
--------------
3,280,835
Accumulated depreciation and amortization................................... (1,697,961)
--------------
$ 1,582,874
--------------
--------------
</TABLE>
F-24
<PAGE>
RCG/HAGLER BAILLY, INC.
(PREDECESSOR TO HAGLER BAILLY, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND FOR
THE PERIOD FROM JANUARY 1, 1995 TO MAY 25, 1995
4. PROPERTY AND EQUIPMENT -- (CONTINUED)
Depreciation expense for the years ended December 31, 1993 and 1994, and
the period January 1, 1995 through May 25, 1995 was $706,692, $600,291 and
$271,025, respectively. Costs of repairs and maintenance of property and
equipment are charged to expense as incurred.
5. GOODWILL
The Company recorded as goodwill the amount in excess of the net assets
acquired related to several asset purchases consummated from 1986 to 1989.
Goodwill is amortized over 15 years and is presented net of accumulated
amortization of $375,395 at December 31, 1994. Amounts charged to amortization
expense were $64,788, $64,788 and $26,995 for the years ended December 31, 1993
and 1994, and for the period from January 1, 1995 to May 25, 1995.
The Company periodically reviews the value of its goodwill to determine if
an impairment has occurred. Based on its review, the Company does not believe
that an impairment of goodwill has occurred at December 31, 1994.
6. RELATED PARTIES
RCG allocated a management fee of $250,000 for both the years ended
December 31, 1993 and 1994. No management fee allocation was made to the Company
for the period from January 1 to May 25, 1995. The management fee charge was
intended to cover corporate support functions performed by RCG such as but not
limited to account maintenance, treasury and cash management functions, benefits
administration and other general corporate support functions.
7. INCOME TAXES
The results of the Company's operations were included in the consolidated
U.S. federal income tax return of Reliance. Such income taxes were settled by
the Company with Reliance through its intercompany account. Included in the
amounts due to Parent Company at December 31, 1994 was approximately $161,000
related to income taxes.
The components of income tax expense consisted of the following:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1
------------------------ TO MAY 25,
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current
Federal....................................................... $ 497,000 $ 675,000 $ 290,000
State......................................................... 123,000 168,000 72,000
----------- ----------- -----------
$ 620,000 $ 843,000 $ 362,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Income tax expense for the years ended December 31, 1993 and 1994 and for
the period from January 1 to May 25, 1995 reflected in the accompanying
financial statements varies from the amount which would have been computed using
statutory rates as follows:
F-25
<PAGE>
RCG/HAGLER BAILLY, INC.
(PREDECESSOR TO HAGLER BAILLY, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND FOR
THE PERIOD FROM JANUARY 1, 1995 TO MAY 25, 1995
7. INCOME TAXES -- (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1
------------------------ TO MAY 25,
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Tax computed at the Federal statutory rate...................... $ 513,000 $ 687,000 $ 297,000
State income taxes, net of Federal income tax benefit........... 75,000 101,000 44,000
Other-primarily nondeductible expenses.......................... 32,000 55,000 21,000
----------- ----------- -----------
Income tax expense.............................................. $ 620,000 $ 843,000 $ 362,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Deferred taxes were maintained at the parent company level for temporary
differences between book and tax income. The amounts related to RCG/Hagler
Bailly, Inc. for such temporary differences at December 31, 1994 were not
significant.
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space and equipment at principal locations, all
of which are under operating leases which expire over the next ten years.
Substantially all leases provide for the Company to pay a pro rata share of
annual increases above a stated base amount of the landlords' related real
estate taxes and operating expenses.
The Company expects that in the normal course of business, operating leases
will be renewed or replaced by other operating leases.
The following is a schedule by years of the future minimum rental payments
required under the operating leases that have an initial or remaining
noncancellable lease term in excess of one year at December 31, 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- ----------------------
<S> <C>
1995................................................................ $ 1,855,000
1996................................................................ 2,069,000
1997................................................................ 1,953,000
1998................................................................ 1,696,000
1999................................................................ 1,591,000
Thereafter................................................................ 3,972,000
--------------
Total future minimum rental payments........................................ $13,136,000
--------------
--------------
</TABLE>
Total rental expense for the years ended December 31, 1993 and 1994 and the
period from January 1 to May 25, 1995 was $1,064,000, $1,267,000 and $745,000,
respectively.
RCG is a guarantor of the lease agreement for the Company's headquarters
location.
F-26
<PAGE>
RCG/HAGLER BAILLY, INC.
(PREDECESSOR TO HAGLER BAILLY, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND FOR
THE PERIOD FROM JANUARY 1, 1995 TO MAY 25, 1995
8. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
COSTS SUBJECT TO AUDIT
Under its United States government contracts, the Company is subject to
audit by the Defense Contract Audit Agency which could result in adjustments of
amounts previously billed. Management believes that the results of such audits
will not have a material effect on the Company's financial position or results
of operations.
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and trade
accounts receivable.
Cash balances in excess of short-term operating requirements are swept into
the Parent Company accounts. The Company maintains cash and cash equivalents and
short term investments with various financial institutions. As part of its cash
management process, the Company performs periodic evaluations of relative credit
standing of these financial institutions.
At December 31, 1994, included in accounts receivable was $8,678,735 due
from agencies of the United States government. Credit risk with respect to the
remaining trade accounts receivable is generally diversified due to the large
number of entities comprising the Company's customer base and their dispersion
across different industries and countries. The Company performs ongoing credit
evaluations of its customers' financial condition.
The Company generates revenues from contracts with governmental agencies
and private companies within the United States and worldwide. During the years
ended December 31, 1993, 1994, and for the period January 1 to May 25, 1995 the
Company recognized approximately $9,348,000, $18,763,000, and $13,799,000,
respectively, in revenue from the United States Agency for International
Development ("USAID"). USAID revenues are earned under both foreign and domestic
programs. Revenues earned from foreign customers, both commercial and
governmental, were approximately $1,248,000, $1,278,000, and $629,000 for the
years ended December 31, 1993 and 1994, and for the period January 1 to May 25,
1995, respectively.
9. RETIREMENT PLAN
Employees of RCG/Hagler Bailly, Inc. may participate in the Reliance
retirement plan which is a tax-deferred savings plan under Section 401k of the
Internal Revenue Code. Employees may voluntarily contribute up to 16% of their
annual salaries to the Plan. The Company also sponsors a qualified profit
sharing plan to which the Company may elect to make discretionary contributions.
The Company's discretionary contributions for the year ended December 31, 1993
and 1994, and for the period January 1 to May 25, 1995 were $627,521, $745,573
and $500,801 respectively. Rights to benefits provided by the Company's
discretionary contributions vest as follows: 40% after two years and 70% after
three years until full vesting is achieved after four years of service.
Participants are fully vested in their voluntary contributions.
F-27
<PAGE>
1. Picture of a mountain scene with the following text overlay:
Hagler Bailly
A World Ahead
Serving energy, utility and environmental clients -- private and public --
throughout the world . . .
Creating tangible value . . .
o Growing the revenue stream
o Globalizing the enterprise
o Meeting environmental challenges
o Building the technological spine
o Reforming and restructuring contracts
o Identifying and closing strategic transactions
[The Company's address, phone number and Web address]
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR 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 OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary............................... 3
Risk Factors..................................... 6
The Company...................................... 12
Use of Proceeds.................................. 12
Dividend Policy.................................. 12
Capitalization................................... 13
Dilution......................................... 14
Selected Consolidated Financial Data............. 15
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 17
Business......................................... 26
Management....................................... 38
Certain Transactions............................. 46
Principal and Selling Shareholders............... 47
Description of Capital Stock..................... 48
Shares Eligible for Future Sale.................. 51
Underwriting..................................... 52
Legal Matters.................................... 53
Experts.......................................... 53
Additional Information........................... 54
Index to Financial Statements.................... F-1
------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
3,150,000 SHARES
[LOGO]
HAGLER BAILLY, INC.
COMMON STOCK
-------------------
PROSPECTUS
--------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MONTGOMERY SECURITIES
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemized statement of all estimated
expenses, all of which will be paid by the Company, in connection with the
issuance and distribution of the securities being registered:
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- ---------
<S> <C>
SEC Registration Fee........................................................................ $ 17,564
Nasdaq National Market Listing Fee.......................................................... 36,355
NASD Filing Fee............................................................................. 6,300
Printing and engraving fees................................................................. **
Registrant's counsel fees and expenses...................................................... **
Accounting fees and expenses................................................................ **
Blue Sky filing fees and expenses and counsel fees.......................................... **
Transfer agent and registrar fees........................................................... **
[Director & Officer Liability Insurance].................................................... **
Miscellaneous............................................................................... **
---------
TOTAL..................................................................................... $ **
---------
---------
</TABLE>
- ------------------
* Estimated, subject to change.
** To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation, subject to the applicable
indemnification provisions of the General Corporation Law of the State of
Delaware (the "DGCL"). Section 145 of the DGCL empowers a Delaware corporation
to indemnify, subject to the standards therein prescribed, any person in
connection with any action, suit or proceeding brought or threatened because
such person is or was a director, officer, employee or agent of the corporation
or was serving as such with respect to another corporation or other entity at
the request of such corporation.
In accordance with Section 102(b)(7) of the DGCL, Article XIII of the
Company's Amended and Restated Certificate of Incorporation provides that no
director of the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
notwithstanding any provision of law imposing such liability except for
liability: (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the DGCL, as the same exists or hereafter may be amended; or (iv)
for any transaction from which the director derived an improper personal
benefit. If the DGCL is amended to authorize the further elimination or
limitation of liability of directors, then the liability of a director of the
Corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by a amended DGCL. Any
repeal or modification of this Article XIII by the stockholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
The Company's Amended and Restated Certificate of Incorporation contains
provisions that require the Company to indemnify its directors and officers to
the fullest extent permitted by Delaware law.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the underwriters of the Company and its directors and
executive officers in the offering of the Common Stock registered hereby, and
each person, if any, who controls the Company, for certain liabilities,
including liabilities arising under the Securities Act.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since inception in May 1995, the registrant has made sales of the following
unregistered securities (all shares are on a post-split basis, unless otherwise
indicated):
(i) In May 1995, in connection with its initial capitalization, the
Company issued an aggregate of 4,149,049 shares of Common Stock to 21
persons. The shares were issued for an aggregate of $3,000,000 of
consideration. No underwriters were involved and no commissions were paid.
The shares of Common Stock were issued in reliance on the exemption from
registration contained in Section 4(2) of the Securities Act.
(ii) In May 1995, the Company granted 14 of its employees options to
purchase an aggregate of 300,000 (pre-split) shares of Class B Common Stock
under the Stock Plan, 15,000 (post-split) of which were subsequently
exercised (see paragraph (iii) below) and 3,886 (post-split) of which were
subsequently forfeited. One half of these options were terminated effective
December 31, 1996. Effective December 31, 1996, the Company amended the
other half of such options to substitute 0.90 (pre-split) shares of Class A
Common Stocks share for each share of Class B Common Stock thereunder.
(iii) In October 1995, the Company issued 15,000 shares of Class B
Common Stock, which were subsequently exchanged for 13,500 (pre-split)
shares of Common Stock pursuant to the Company's plan of recapitalization
effective December 31, 1996, to one person upon the exercise of an option
granted to him in May 1995. The shares were issued for $15,000 of
consideration. No underwriters were involved and no commissions were paid.
The shares of Common Stock were issued in reliance on the exemption from
registration contained in Section 4(2) of the Securities Act.
(iv) In July 1995, the Company issued 172,877 shares of Common Stock
to one person. The shares were issued for an aggregate of $150,000 of
consideration. No underwriters were involved and no commissions were paid.
The shares of Common Stock were issued in reliance on the exemption from
registration contained in Section 4(2) of the Securities Act.
(v) In January 1996, the Company issued an aggregate of 212,562 shares
of Common Stock to four persons. The shares were issued for an aggregate of
$225,000 of consideration. No underwriters were involved and no commissions
were paid. The shares of Common Stock were issued in reliance on the
exemption from registration contained in Section 4(2) of the Securities
Act.
(vi) In March 1996, the Company issued 141,703 shares of Common Stock
to one person. The shares were issued for $150,000 of consideration. No
underwriters were involved and no commissions were paid. The shares of
Common Stock were issued in reliance on the exemption from registration
contained in Section 4(2) of the Securities Act.
(vii) In June 1996, the Company granted its President an option to
purchase 5,000 (pre-split) shares of Class A Common Stock at an exercise
price of $7.32 per (pre-split) share and an option to purchase 2,500
pre-split shares of Class A Common Stock at an exercise price of $8.05 per
(pre-split) share. As of January 24, 1997, all of these options had been
exercised. In addition, in July 1996, the Company granted a non-employee
director an option to purchase 1,500 (pre-split) shares of Class A Common
Stock at an exercise price of $6.00 per (pre-split) share. As of January
24, 1997, an option to purchase 500 of these (pre-split) shares had been
exercised.
(viii) In October 1996, the Company issued 345,754 shares of Common
Stock to a trust. The shares were issued for $454,000 of consideration. In
addition, the Company issued 48,406 shares of Common Stock to one person
for $35,000 of consideration. No underwriters were involved and no
commissions were paid. The shares of Common Stock were issued in reliance
on the exemption from registration contained in Section 4(2) of the
Securities Act.
(ix) In January 1997, the Company granted options to purchase an
aggregate of 576,715 shares of Common Stock which have not yet been
exercised (the "January 1997 Options") at exercise prices of $6.10 and
$6.71. The Company intends to grant certain of its employees and directors
options to purchase an aggregate of 3,200,000 (including the January 1997
Options) shares of Common Stock under the Stock Plan, and intends to file a
registration statement on Form S-8 to register the shares underlying
options granted under the Stock Plan.
II-2
<PAGE>
(x) In January 1997, the Company awarded an employee a stock bonus of
8,194 shares of Common Stock.
(xi) In January 1997, options for 496,162 shares of Common Stock were
exercised. The shares of Common Stock were issued in reliance on the
exemption from Registration contained in Section 4(2) of the Securities
Act.
(xii) In March 1997, the Company granted an employee options to
purchase an aggregate of 15,000 shares of Common Stock under the Stock
Plan.
The Company believes that the foregoing described issuances of securities,
if they constitute sales, are exempt from registration under the Securities Act
by virtue of the exemption provided by Section 4(2) thereof for transactions not
involving a public offering.
ITEM 16. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement by and between the Company and the Underwriters*
2.1 -- Sale Agreement between RCG International, Inc. and Hagler Bailly Consulting, Inc.
3.1 -- Amended and Restated Certificate of Incorporation of the Company
3.2 -- By-Laws of the Company
4.1 -- Specimen Stock Certificate*
5.1 -- Opinion of Pepper, Hamilton & Scheetz LLP*
10.1 -- Hagler Bailly, Inc. Amended and Restated 1996 Employee Incentive and Non-Qualified Stock Option and
Restricted Stock Plan (including forms of option agreements)
10.2 -- Form of Non-Compete, Confidentiality and Registration Rights Agreement between the Company and each
stockholder
10.3 -- Form of Employment Agreement between the Company and each employee
10.4 -- Amended and Restated Employment Agreement between the Company and Henri-Claude A. Bailly*
10.5 -- Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc. dated October 25, 1991.
10.6 -- First Amendment to Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc. dated
February 1993.
10.7 -- Second Amendment to Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc. dated
December 12, 1994.
10.8 -- Lease by and between Bresta Futura V.B.V. and Hagler Bailly Consulting, Inc. dated May 8, 1996.
10.9 -- Lease by and between L.C. Fulenwider, Inc. and RCG/Hagler Bailly, Inc. dated December 14, 1994.*
10.10 -- Lease by and between University Research Park Facilities Corp. and RCG/Hagler Bailly, Inc. dated
April 1, 1995.
10.11 -- Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust
Company, dated May 17, 1995
10.12 -- Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank
and Trust Company, dated as of June 20, 1996.
10.13 -- Extension Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust
Company, dated as of August 1, 1996.
10.14 -- Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank
and Trust Company, dated as of November 12, 1996.
10.15 -- Term Note by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust Company,
dated May 26, 1995.
10.16 -- Revolving Credit Note by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust
Company, dated May 26, 1995.
10.17 -- 9.5% Subordinated Note by and between Hagler Bailly Consulting, Inc. and RCG International, Inc.,
dated May 25, 1995.
11.1 -- Earnings Per Share Calculation*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<S> <C> <C>
21 -- Subsidiaries (1)
23.1 -- Consents of Ernst & Young LLP, independent auditors (included on pages II-6 and II-7 of the
Registration Statement)
23.2 -- Consent of Pepper, Hamilton & Scheetz LLP (included in Exhibit 5.1)*
24 -- Powers of Attorney (included on Signature Pages)
27.1 -- Financial Data Schedule for December 31, 1996
27.2 -- Financial Data Schedule for March 31, 1997
</TABLE>
- ------------------
(1) Included with the Company's Registration Statement on Form S-1 (No.
333-22207)
* To be filed by Amendment.
(B) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
Schedule No. Description
- --------------------------------------------------------------------------------
All other schedules have been omitted because they are not applicable, not
required, or the required information is included in the Financial Statements or
the notes thereto.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the Closing specified in the underwriting agreement,
certificates in such denomination and registered in such names or required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" and to
the use of our report on the consolidated financial statements of Hagler Bailly,
Inc., dated March 25, 1997, in Amendment No. 1 to the Registration Statement
(Form S-1 No. 333-22207) and related Prospectus of Hagler Bailly, Inc. for the
registration of shares of its common stock.
Ernst & Young LLP
Washington, D.C.
May 19, 1997
- --------------------------------------------------------------------------------
The foregoing report is in the form
that will be signed upon a
determination of the proposed price
range to be included in the filing
of the offered common stock of
Hagler Bailly, Inc.
/s/ Ernst & Young LLP
Washington, D.C.
May 19, 1997
II-5
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" and to
the use of our report on the financial statements of RCG/Hagler Bailly, Inc.
(Predecessor to Hagler Bailly, Inc.), dated February 10, 1997, in Amendment No.
1 to the Registration Statement (Form S-1 No. 333-22207) and related Prospectus
of Hagler Bailly, Inc. for the registration of shares of its common stock.
/s/ Ernst & Young LLP
Washington, D.C.
May 19, 1997
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Arlington, Virginia, on the 19th day of May, 1997.
HAGLER BAILLY, INC.
By: /s/ Henri-Claude A. Bailly
-----------------------------------
Henri-Claude A. Bailly
President, Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Henri-Claude A. Bailly Chief Executive Officer and President; Director May 19, 1997
- ---------------------------- (principal executive officer)
Henri-Claude A. Bailly
/s/ Daniel M. Rouse Vice President, Chief Financial Officer and May 19, 1997
- ---------------------------- Treasurer (principal financial officer and
Daniel M. Rouse principal accounting officer)
* Director May __, 1997
- ----------------------------
Vinod K. Dar
* Director May __, 1997
- ----------------------------
Alain M. Streicher
* Director May __, 1997
- ----------------------------
Michael D. Yokell
* Director May __, 1997
- ----------------------------
Fred M. Schriever
* Director May __, 1997
- ----------------------------
Robert W. Fri
*By: /s/ Henri-Claude A. Bailly
--------------------------
Henri-Claude A. Bailly
Attorney-in-fact
/s/ Daniel M. Rouse
-------------------------
Daniel M. Rouse
Attorney-in-fact
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- --------- ----------- ----
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement by and between the Company and the Underwriters*
2.1 -- Sale Agreement between RCG International, Inc. and Hagler Bailly Consulting, Inc
3.1 -- Amended and Restated Certificate of Incorporation of the Company
3.2 -- By-Laws of the Company
4.1 -- Specimen Stock Certificate*
5.1 -- Opinion of Pepper, Hamilton & Scheetz LLP*
10.1 -- Hagler Bailly, Inc. Amended and Restated 1996 Employee Incentive and Non-Qualified Stock
Option and Restricted Stock Plan (including forms of option agreements)
10.2 -- Form of Non-Compete, Confidentiality and Registration Rights Agreement between the Company
and each stockholder
10.3 -- Form of Employment Agreement between the Company and each employee
10.4 -- Amended and Restated Employment Agreement between the Company and Henri-Claude A. Bailly*
10.5 -- Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc. dated October 25,
1991.
10.6 -- First Amendment to Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc.
dated February, 1993.
10.7 -- Second Amendment to Lease by and between Wilson Boulevard Venture and RCG/Hagler Bailly, Inc.
dated December 12, 1994.
10.8 -- Lease by and between Bresta Futura V.B.V. and Hagler Bailly Consulting, Inc. dated May 8,
1996.
10.9 -- Lease by and between L.C. Fulenwider, Inc. and RCG/Hagler Bailly, Inc. dated December 14,
1994.*
10.10 -- Lease by and between University Research Park Facilities Corp. and RCG/Hagler Bailly, Inc.
dated April 1, 1995.
10.11 -- Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and
Trust Company, dated May 17, 1995
10.12 -- Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street
Bank and Trust Company, dated as of June 20, 1996.
10.13 -- Extension Agreement by and between Hagler Bailly Consulting, Inc. and State Street Bank and
Trust Company, dated as of August 1, 1996.
10.14 -- Amendment to Credit Agreement by and between Hagler Bailly Consulting, Inc. and State Street
Bank and Trust Company, dated as of November 12, 1996.
10.15 -- Term Note by and between Hagler Bailly Consulting, Inc. and State Street Bank and Trust
Company, dated May 26, 1995.
10.16 -- Revolving Credit Note by and between Hagler Bailly Consulting, Inc. and State Street Bank and
Trust Company, dated May 26, 1995.
10.17 -- 9.5% Subordinated Note by and between Hagler Bailly Consulting, Inc. and RCG International,
Inc., dated May 25, 1995.
11.1 -- Earnings Per Share Calculation*
21 -- Subsidiaries (1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- --------- ----------- -----
<S> <C> <C> <C>
23.1 -- Consents of Ernst & Young LLP, independent auditors (included on pages II-6 and II-7 of the
Registration Statement)
23.2 -- Consent of Pepper, Hamilton & Scheetz LLP (included in Exhibit 5.1)*
24 -- Powers of Attorney (included on Signature Pages)
27.1 -- Financial Data Schedule for December 31, 1996
27.2 -- Financial Data Schedule for March 31, 1997
</TABLE>
- ------------------
(1) Included with the Company's Registration Statement on Form S-1 (No.
333-22207)
* To be filed by Amendment.
SALE AGREEMENT
Agreement, dated as of May 25, 1995, between RCG International,
Inc., a Delaware corporation with its principal place of business at 111 West
40th Street, New York, New York 10018 (herein called "RCG"), and Hagler Bailly
Consulting, Inc., a Delaware corporation with its principal place of business at
1530 Wilson Boulevard, Suite 900, Arlington, Virginia 22209-2406 (herein called
"Consulting").
WHEREAS, RCG desires to sell to Consulting and Consulting desires to
purchase from RCG all of the outstanding Common Stock of RCG/Hagler, Bailly,
Inc. (the "Company") in exchange for (a) $9,318,720 in cash (by wire transfer of
immediately available funds) or certified or bank check, payable to RCG on the
Closing Date, (b) a senior note due June 29, 1995 in the principal amount of
$431,280 to be issued by Consulting to RCG on the Closing Date, and (c) a 9.5%
subordinated note in the principal amount of $4,650,000 to be issued by
Consulting to RCG on the Closing Date; and
WHEREAS, the terms of the notes to be issued hereunder, various
further banking and financial arrangements and other contractual provisions for
the conduct of business by Consulting are more fully set forth herein;
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements herein contained, the parties hereto, intending to be
legally bound hereby, agree as follows:
1. Definitions.
(a) "Common Stock", as used herein, shall mean 13,651 shares of Class A
Common Stock of the Company, $.10 par value.
(b) "Bridge Note", as used herein, shall mean a senior note due June 29, 1995
in the principal amount of $431,280 issued by Consulting to RCG, the form
of which note is attached hereto and made a part hereof as Exhibit A.
(c) "Closing Date", as used herein, shall mean May 25, 1995.
(d) "Consulting Note", as used herein, shall mean a 9.5% subordinated note in
the principal amount of $4,650,000 issued by Consulting to RCG, the form
of which note is attached hereto and made a part hereof as Exhibit B.
(e) "Key Employees", as used herein, shall mean Henri-Claude Bailly, Michael
D. Yokell, John Armstrong, Robert Ciliano, Jean-Louis Poirier, Daniel
Rouse, Robert D. Rowe, Alex Steinbergh and Alain Streicher.
(f) "Tax Note", as used herein shall have the meaning assigned to it in
Section 8(g)(iii).
<PAGE>
2. Transfer of Stock.
Subject to the terms and conditions herein set forth:
(a) RCG shall, on the Closing Date, sell and deliver to Consulting the Common
Stock, free and clear of all liens, claims, charges and encumbrances
whatsoever, and Consulting shall so acquire the same.
(b) RCG shall make such sale and delivery of the Common Stock by delivering
to Consulting certificates evidencing the Common Stock duly endorsed in
blank or accompanied by appropriate of instruments of transfer
satisfactory in form and substance to Consulting. Consulting shall pay all
documentary, stamp and transfer taxes required, if any, in respect of the
transfer of the Common Stock unless such taxes are paid by the Company.
(c) In exchange for the Common Stock on the Closing Date, Consulting shall
deliver to RCG (i) $9,318,720 in cash (by wire transfer of immediately
available funds to an account designated by RCG) or certified or bank
check in same day funds made payable to the order of RCG; (ii) the Bridge
Note duly executed by Consulting and (iii) the Consulting Note duly
executed by Consulting.
(d) On and as of the Closing Date, the Company, on one hand, and RCG and its
affiliates (other than the Company), on the other, shall settle in cash
all intercompany receivables and payables (including, without limitation,
payment by the Company of $1,500,000 in intercompany advances and payment
by the Company of federal income tax accruals in an amount equal to
$347,801 in respect of taxes on the earnings of the Company from January
1, 1995 through April 30, 1995 and certain other taxes, plus 35% of the
product of $6,000 and the number of days elapsed from and including May 1,
1995 and through and including the Actual Closing Date (the "Estimated Tax
Payment")). Immediately prior to the Closing, RCG shall contribute to the
equity of the Company $2,500,000 of intercompany receivables owed to it by
the Company.
3. Closing.
The Closing of this Agreement shall take place in at the offices of RCG's
parent, Reliance Group Holdings, Inc., Park Avenue Plaza, New York, New York,
10055, at 11:00 A.M., New York City time, on the Closing Date.
4. Representations and Warranties of RCG.
-2-
<PAGE>
RCG represents and warrants to Consulting as of the Closing Date as follows:
(a) Title to the Common Stock. RCG is the legal and beneficial owner of the
Common Stock, free and clear of all pledges, liens, claims, options,
charges, security interests and encumbrances. Other than pursuant to this
Agreement, RCG has not created any transfer restriction, trust,
irrevocable proxy, voting arrangement, commitment, understanding or
agreement relating to the transfer of any of the Common Stock. The Common
Stock constitutes all the outstanding shares of Class A Common Stock of
the Company and since July 1, 1984 (the "Original Acquisition Date"), the
Company has not issued any shares of any other class of capital stock.
(b) Financial Statements. Based solely on information provided to RCG by the
Company and without any independent investigation thereof, RCG believes
the balance sheet of the Company as at December 31, 1994 fairly presents
the assets and liabilities of the Company as a going concern as at such
date.
(c) No Conflicts. The execution and delivery of this Agreement by RCG does
not, and the consummation of the transactions contemplated hereby and
compliance with the terms hereof will not, conflict with or result in the
creation of any lien, claim, encumbrance, security interest, option,
charge or restriction of any kind upon any of the Common Stock under, or
require any consent, authorization or approval under (i) any provision of
the certificate of incorporation or by-laws of RCG or (ii) any material
judgment, order or decree applicable to RCG.
(d) Insurance Company Regulations. To the knowledge of RCG, after due
inquiry, the fact that its parent, Reliance Insurance Company, is an
insurance company, will have no effect on the consummation of the sale of
the Common Stock pursuant to this Agreement.
(e) Incorporation; Authority. RCG is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware. All
corporate acts and other proceedings required to be taken by RCG to
authorize the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby have been duly
and properly taken.
(f) Due Execution. This Agreement has been duly executed and delivered by RCG
and constitutes a valid and binding obligation of RCG, enforceable against
RCG in accordance with its terms except (i) that such enforceability may
be subject to bankruptcy, insolvency, reorganization, moratorium or other
laws, decisions or equitable principles now or hereafter in effect
relating to or affecting the enforcement of creditors' rights or debtors'
obligations generally, and (ii) that the remedy of specific performance
and injunctive and other forms of equitable relief may be
-3-
<PAGE>
subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(g) As-is. Except as specifically set forth in Section 4 of this Agreement,
RCG makes no representation or warranty regarding the Company or its
business or balance sheet, and the assets of the Company being acquired by
Consulting as a result of its purchase of the Common Stock are being
acquired "as-is". Except as set forth in this Agreement, RCG will not be
responsible for any liabilities or obligations of the Company, known or
unknown, absolute or contingent arising before or after the Closing Date.
(h) Litigation. Except as set forth on Schedule 4(h), there are no lawsuits
or claims pending against RCG as of the date of this Agreement and
relating to the Company with respect to which RCG has knowledge and which
would have a material adverse affect on RCG's ability to consummate the
transactions contemplated hereby.
(i) Related Party Transactions. Except as set forth on Schedule 4(i) hereto,
there are no written agreements, contracts or other agreements, known to
RCG and not known by any Key Employee, which are material to the Company
and pursuant to which (i) RCG pays money, guarantees any obligation, or
provides goods, services or property to the Company or (ii) the Company
pays money, guarantees any obligation, or provides goods, services or
property to RCG.
5. Representations and Warranties of Consulting.
Consulting represents and warrants to RCG as of the Closing Date as follows:
(a) Incorporation and Authority. Consulting is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware. All corporate acts and other proceedings required to be
taken by Consulting to authorize the execution, delivery and performance
of this Agreement, the Bridge Note, the Consulting Note and the Tax Note
and the consummation of the transactions contemplated hereby and thereby
have been duly and properly taken.
(b) Due Execution. This Agreement has been duly executed and delivered by
Consulting and constitutes, and the Bridge Note, Consulting Note and the
Tax Note, when executed and delivered by Consulting, will each constitute
a valid and binding obligation of Consulting, enforceable against
Consulting in accordance with its terms, except (i) that such
enforceability may be subject to bankruptcy, insolvency, reorganization,
moratorium or other laws, decisions or equitable principles now or
hereafter in effect relating to or affecting the enforcement of creditors'
rights or debtors' obligations generally, and (ii) that the remedy of
specific performance and
-4-
<PAGE>
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought.
(c) No Conflicts. The execution and delivery of this Agreement by Consulting
does not, and the consummation of the transactions contemplated hereby and
compliance with the terms hereof will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under, or,
except under the terms of the Credit Agreement and Security Documents
(each as defined in the Consulting Note) and the Bridge Note, result in
the creation of any lien, claim, encumbrance, security interest, option,
charge or restriction of any kind upon any of the properties or assets of
Consulting under any provision of (i) the certificate of incorporation or
bylaws of Consulting, (ii) any contract, agreement, instrument or other
document to which Consulting is a party or by which any of its properties
or assets are bound, or (iii) any material judgment, order or decree or
any material statute, law, ordinance, rule or regulation applicable to
Consulting or its assets.
(d) Actions and Proceedings. There are no (i) outstanding judgments, orders,
writs, injunctions or decrees of any court, governmental agency or
arbitration tribunal against Consulting or, to the knowledge of
Consulting, the Company which would have a material adverse effect on the
ability of Consulting to consummate the transactions contemplated hereby
or (ii) actions, suits, claims or legal, administrative or arbitration
proceedings or investigations pending or, to the knowledge of Consulting,
threatened against Consulting or, to the knowledge of Consulting, the
Company, which have or could have a materially adverse effect on the
ability of Consulting to consummate the transactions contemplated hereby,
including without limitation, the ability of Consulting to meet its
obligations under the Bridge Note, the Consulting Note or the Tax Note.
(e) Disclosure. As of the date hereof, Consulting has furnished RCG with the
financial statements and other reports listed in Schedule 5(e) attached
hereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis and
fairly present the financial position and results of operations of the
persons to which they purport to relate as of the dates and for the
periods indicated, with the exception of year-end adjustments and
footnotes. Between the end of the most recent fiscal period shown in such
financial statements and the date hereof, except as set forth m Schedule
5(e) hereto, there has not been any material adverse change in the
business, operations, properties or financial position of Consulting (or
of the persons to which such financial statements purport to relate).
Neither this Agreement nor any financial statements, reports or other
documents or
-5-
<PAGE>
certificates furnished to RCG by Consulting in connection with the
transactions contemplated hereby contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements herein or therein contained not misleading. Neither the loans
made to the Company pursuant to the Subordinated Note, the Bridge Note or
the senior bank facility or all such loans in the aggregate will render
the Company unable to pay its debts as they become due; Consulting is not
contemplating either the filing of a petition by it under any state or
federal bankruptcy or insolvency laws or the liquidation of all or a major
portion of its property; and Consulting has no knowledge of any person
contemplating the filing of any such petition against it.
(f) Securities Laws. Consulting is acquiring the Common Stock to be purchased
pursuant to this Agreement for its own account and with no present
intention of distribution or reselling the Common Stock being purchased by
it in any transaction which would be in violation of the securities laws
of the United States of America or any state thereof. The capital stock of
Hagler Bailly, Inc., the parent of Consulting ("Hagler"), has been issued
in compliance with all applicable federal and state securities laws.
(g) Compliance with Lease Terms. The Company is in material compliance with
each covenant, agreement and condition contained in the Lease (as defined
in Section 6(f) below) other than its monetary obligations thereunder.
With respect to monetary obligations under the Lease, the Company is in
complete compliance therewith. Neither the Company nor Consulting knows of
any event or condition that could give rise to a default under the Lease.
6. Covenants.
(a) Consulting shall obtain all required governmental consents (including any
necessary filings under the Hart-Scott-Rodino Antitrust Improvements Act),
permissions, assignments of contracts, security clearances, and any other
agreements required by it or the Company to acquire and own the Common
Stock, except, in the case of the Company, such consents as may be
required to be obtained by the Company or filings made by the Company
solely by virtue of the Company's affiliation with RCG or Reliance
Insurance Company (the "Consents").
(b) RCG shall be responsible for any obligation or liability of the Company,
absolute or contingent, arising with respect to the period prior to the
Closing Date but after the Original Acquisition Date and
(A)known to RCG but not known to the Company or any Key Employee on or before
the Closing Date; or
-6-
<PAGE>
(B)not known to any of RCG, the Company or any Key Employee on or before the
Closing Date;
and which, in the case of clause (B), arises principally from the failure
by RCG or any person (other than an officer, director or employee of the
Company) acting for, at the direction of, or for the benefit of RCG or its
affiliates (other than the Company or its subsidiaries) to perform
properly any obligation described on Schedule 6(b) hereof.
(c) Consulting shall be responsible for any obligation or liability of the
Company, absolute or contingent, arising before, on or after the Closing
Date and
(A)known to the Company (even if also known to RCG) (on or prior to the Closing
Date, with respect to those liabilities arising with respect to the period on or
prior to the Closing Date) or;
(B)not known to either RCG or the Company (on or prior to the Closing Date, with
respect to those liabilities arising with respect to the period on or prior to
the Closing Date) and which, in the case of this clause (B), arises from any
cause other than the failure by RCG or any person (other than an officer,
director or employee of the Company) acting for, at the direction of, or for the
benefit of RCG or its affiliates (other than the Company or its subsidiaries) to
perform any obligation described on Schedule 6(b) hereof.
(d) Consulting agrees that, immediately after the Closing Date, it will, and
will cause the Company to delete all references to "RCG" or Reliance Group
Holdings, Inc., from its name and from any letters, documents, or
instruments relating to the Company or Consulting.
(e) RCG or its affiliates will provide payroll services to the Company, at a
cost, for the periods and on terms and conditions set forth on Exhibit D.
(f) (i) Consulting agrees that it will endeavor to obtain for RCG a release
(in form and substance satisfactory to RCG) (the "RCG Release") of all of
RCG's obligations under all guarantees relating to the lease dated as of
October 25, 1991 between the Company and Wilson Boulevard Venture
(together with its successors and assigns, the "Landlord"), as amended by
the First and Second Amendments thereto dated as of February__, 1993 and
December 12, 1994, respectively (the "Lease). On the Closing Date,
Consulting agrees to establish a reserve fund (the "Fund") at Chemical
Bank, which shall have on deposit therein (A) at all times at least
$180,000, prior to such date as the Revolving Commitment (as defined in
the Credit Agreement) is raised to $4,500,000 and the cash collateral is
released pursuant to Section 6.12(c) of the Credit Agreement (the "Initial
Deposit End Date"), (B) at all times at least $350,000 from the Initial
Deposit End Date through December 31, 1997, (C) at all
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times at least $450,000 from January 1, 1998 through December 31, 1998
(provided that the Initial Deposit End Date has occurred), and (D) at all
times at least $550,000 after December 31, 1998 (provided that the Initial
Deposit End Date has occurred); provided that the Fund may be discontinued
and closed-out by Consulting on such date as the RCG Release is
effectuated or during any period in which there is in full force and
effect a surety bond from an insurance company, in an amount and
containing such terms as are reasonably satisfactory to RCG (a "Surety
Bond"). Any money in the Fund shall be immediately disbursed to RCG at
such time as any monetary obligations under the Lease are due and unpaid
(after giving effect to applicable grace periods in the Lease). In the
event that the RCG Release is not effectuated by June 30, 1996, Consulting
shall endeavor to obtain and keep in full force and effect, until such RCG
Release is obtained, a Surety Bond; provided that the obligation to obtain
and keep in full force and effect a Surety Bond shall be solely in the
good faith business discretion of Consulting. RCG agrees to pay the first
$50,000 in premium payments for the Surety Bond for each of any two full
twelve-month periods ending prior to June 30, 1998 covered thereby (which
premiums shall be paid by RCG to the insurance company issuing the Surety
Bond). Any amount in excess of $50,000 for each of such two twelve-month
periods and all amounts thereafter with respect to the Surety Bond, if
obtained, shall be the responsibility of Consulting.
(ii) Notwithstanding anything contained in this Section 6(f) to the
contrary, in the event that the RCG Release is obtained prior to
June 30, 1998 and a condition thereto is the payment of money to the
Landlord, RCG agrees to pay to the Landlord an amount equal to the
lesser of (i) the excess of $100,000 ($50,000 after June 30, 1996)
over the amount previously paid or payable by RCG in respect of a
Surety Bond and (ii) the amount of the required payment to the
Landlord.
(iii) Consulting shall deliver to RCG, no later than 10 days after
the end of each fiscal quarter, a statement showing the amount on
deposit in the Fund (or, a statement from its chief financial
officer that no Fund is required pursuant to this paragraph (f)
because a Surety Bond is in full force and effect) and a certificate
from its chief financial officer to the effect that all of the
monetary obligations of Consulting under the Lease for the three
months included in such quarter were timely paid and that no other
default exists under the Lease.
(g) On or before June 29, 1995, Consulting shall provide to RCG a balance
sheet as at the Closing Date and an income statement for the period
beginning on May 1, 1995 and ending on the Closing Date, each of which
shall be certified by the chief financial officer of Consulting and must
be satisfactory in scope and form to RCG and be prepared on a basis
consistent with past practices. Consulting agrees to pay to RCG an amount
equal to the excess, if any, of the product of 35% times the earnings of
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the Company reflected on such income statement (the "Actual Tax Payment")
over the Estimated Tax Payment. RCG agrees to pay to Consulting the
amount, if any, by which the Estimated Tax Payment exceeds the Actual Tax
Payment. Any payments to be made by RCG or Consulting under this
subparagraph (g) shall be made in immediately available funds no later
than July 5, 1995.
(h) RCG agrees that each of the Key Employees who is also an officer or
director of RCG shall be entitled, in their capacities as such, to such
indemnification as is provided to officers and directors of RCG pursuant
to Article VIII of RCG's Bylaws, as in effect on the date hereof.
7. Indemnification.
(a) Indemnification by RCG.
RCG shall indemnify Consulting, its affiliates and each of their
respective officers, directors, employees and agents against and hold them
harmless from any loss, liability, claim, damage or expense (including
reasonable legal fees and expenses) suffered or incurred by any such
indemnified party to the extent arising from (i) any breach of any
representation, warranty or covenant of RCG contained in this Agreement or
(ii) any matter for which RCG is responsible as provided in Section 6(b)
above.
(b) Indemnification by Consulting.
Consulting shall and shall cause the Company to, indemnify RCG, its
affiliates and each of their respective officers, directors, employees and
agents against and hold them harmless from any loss, liability, claim,
damage or expense (including reasonable legal fees and expenses) suffered
or incurred by any such indemnified party to the extent arising from (i)
any breach of any representation, warranty or covenant of Consulting
contained in this Agreement or (ii) any claim made by any landlord or
employee of the Company against RCG or any of its affiliates (other than
the Company and its subsidiaries) in respect of any of the items listed on
Exhibit C hereto or (iii) any matter for which Consulting is responsible
as provided in Section 6(c) above.
(c) Procedures Relating to Indemnification.
(i) Notice. In order for a party to be entitled to any indemnification
provided for under this Agreement in respect of, arising out of or
involving a claim or demand made by any person, firm, governmental
authority or corporation against the indemnified party (a "Third
Party Claim"), such indemnified party
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must notify the indemnifying party in writing, and in reasonable
detail, of the Third Party Claim as promptly as reasonably possible
after receipt by such indemnified party of written notice of the
Third Party Claim. Thereafter, if the indemnifying has assumed the
defense of such Third Party Claim, the indemnified party shall
deliver to the indemnifying party, within three business days after
the indemnified party's receipt thereof, copies of all notices and
documents (including court papers) received by the indemnified party
relating to the Third Party Claim. Notwithstanding anything
contained in this subparagraph (c) to the contrary, the failure to
deliver any notices or documents required to be delivered pursuant
to this subparagraph (c) shall not affect the indemnification
provided hereunder except to the extent the indemnifying party shall
have been actually prejudiced as a result of such failure.
(ii) Defense. If a Third Party Claim is made against an indemnified
party, the indemnifying party will be entitled to participate
in the defense thereof and, if it so chooses, to assume the
defense thereof with counsel selected by the indemnifying
party and reasonably satisfactory to the indemnified party.
Should the indemnifying party so elect to assume the defense
of a Third Party Claim, the indemnifying party will not be
liable to the indemnified party for legal expenses
subsequently incurred by the indemnified party in connection
with the defense thereof. If the indemnifying party assumes
such defense, the indemnified party shall have the right to
participate in the defense thereof and to employ counsel, at
its own expense, separate from the counsel employed by the
indemnifying party, it being understood that the indemnifying
party shall control such defense. The indemnifying party shall
be liable for the fees and expenses of counsel employed by the
indemnified party for any period during which the indemnifying
party has not assumed the defense thereof; provided, however,
that if the indemnified party's counsel determines that the
indemnified party has or may have defenses to the Third Party
Claim apart from or conflicting with the defenses of the
indemnifying party, then the indemnified party shall be
entitled to retain its own separate counsel and the
indemnifying party shall be liable for legal expenses incurred
by the indemnified party in the defense of such Third Party
Claim. If the indemnifying party chooses to defend any Third
Party Claim, all the parties thereto shall cooperate in the
defense or prosecution thereof. Such cooperation shall include
the retention and (upon the indemnifying party's request)
access to the indemnifying party of records and information
which are reasonably relevant to such Third Party Claim, and
making employees available on a mutually convenient basis to
provide additional information and explanation of any material
provided hereunder. Whether or not the indemnifying party
shall have assumed the defense of a Third Party Claim,
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the indemnified party shall not admit any liability with
respect to, or settle, compromise or discharge such Third
Party Claim without the indemnifying party's prior written
consent (which consent shall not be unreasonably
withheld). If the indemnifying party shall have assumed
the defense of a Third Party Claim, the indemnifying party
shall not settle such Third Party Claim without the
indemnified party's prior written consent (which consent
shall not be unreasonably withheld).
Notwithstanding the foregoing, if there is a reasonable
probability that the indemnifying party will not be able to
satisfy its indemnification obligations under this Section 7,
the indemnified party will have the right to defend and, after
reasonable consultation with the indemnifying party, to
compromise or settle the Third Party Claim.
(d) In no event shall Consulting have any right to set-off against the
Bridge Note or the Consulting Note any amount due from RCG to
Consulting under this Section 7, but RCG shall be entitled to credit,
dollar for dollar, the Consulting Note for any amount due from RCG
under this Section 7.
8. Tax Matters.
(a) Tax Definitions.
(i) Adjustment means, with respect to Taxes, a change in the
amount or character of any item of income, gain, loss,
deduction or credit of the Company, including but not limited
to changes thereto attributable to:
(w) amendment of returns;
(x) deficiencies asserted by any taxing authority; or
(y) claims for refund
irrespective of whether such change arises out of a voluntary act,
or any audit, examination, proceeding or litigation resulting from
any of the foregoing events.
(ii) Affiliated Group means the affiliated group of corporations
(within the meaning of Section 1504(a) of the Code) of which
Reliance Group Holdings, Inc. is the common parent, and of
which the Company is and has been (since acquired by any
member thereof) a member.
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(iii) Affiliation Year means each taxable year or period applicable
to the Company ending on or before the Closing Date during
which the Company was a member of the Affiliated Group.
(iv) City of Philadelphia BPT Return means the City of Philadelphia
Business Privilege Tax Regular Return filed by RCG on behalf
of the Company.
(v) Consolidated Return(s) means the consolidated United States
Federal income return(s) of the Affiliated Group.
(vi) Code means the Internal Revenue Code of 1986, as amended, or
any successor thereto.
(vii) Incremental Federal Income Tax means the product of (x) the
amount by which (A) the federal taxable income of the Company
for the period January 1, 1995 through the Closing Date
reflecting the Code Section 338(h)(10) Election provided for
in paragraph (g) below exceeds (B) the sum of (i) the federal
taxable income RCG would have realized on the gain on the sale
of the Common Stock if the Code Section 338(h)(10) Election
had not been made and (ii) the federal taxable income of the
Company for the period January 1, 1995 through the Closing
Date without reflecting the Code Section 338(h)(10) Election
and (y) 35%.
(viii) IRS means the Internal Revenue Service.
(ix) Post-Affiliation Year means any taxable year or period of the
Company beginning after the Closing Date.
(x) Regulations means the U.S. Treasury Department Income Tax
Regulations in effect under the Code, as amended from time to
time.
(xi) Tax or Taxes means all taxes, charges, fees, levies, duties or
other assessments whether federal, state, local or foreign,
based upon or measured by income, capital or gain and all
other taxes including, without limitation, recapture, gross
receipts, profits, sales, use, occupancy, value added, ad
valorem, customs, transfer, franchise, withholding, social
security, unemployment, disability, payroll, employment,
excise, or real or personal property taxes and alternative or
add-on minimum or environmental taxes together with any
interest, fines, penalties and additions to such tax as may be
imposed with respect thereto.
(b) Tax Returns and Payments.
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(i) 1994 Federal Return. Based upon the information previously
provided to it by Consulting or the Company, RCG or its parent
entity shall prepare the pro forma federal income tax return
of the Company for the taxable period ended on December 31,
1994, and shall include the taxable income or loss reflected
in such pro forma return in the Consolidated Return.
(ii) 1995 Short Year Federal Return. Based upon the information
provided to it by Consulting or the Company pursuant to this
subparagraph (ii), RCG or its parent entity shall prepare the
pro forma federal income tax return of the Company for the
short taxable period ending on the Closing Date, and shall
include the taxable income or loss reflected in such pro forma
return in the Consolidated Return. Based upon the information
so provided, such return shall be true and complete in all
material respects and shall be prepared in accordance with
Section 1.1502-76(b)(4) of the Regulations. If a Code Section
338(h)(10) Election is made pursuant to paragraph (g) below,
such 1995 pro forma federal income tax return will be prepared
based on the allocation of the payment referred to in Section
2(c) among the assets of the Company pursuant to subparagraph
(g)(ii) below. No later than July 15, 1995, Consulting or the
Company shall prepare and deliver to RCG or its parent entity,
a domestic tax package including such information and prepared
in a manner and in such form consistent with those delivered
to RCG by the Company in prior years.
(iii) 1994 State and City of Philadelphia BPT Returns. Based upon
the information previously provided to it by Consulting or the
Company, RCG or its parent entity shall prepare all state
income tax returns of the Company that are required to be
filed for the taxable period ended December 31, 1994 and shall
also prepare the City of Philadelphia BPT Return for such
period. Consulting shall provide RCG a Power of Attorney
solely for the purposes of obtaining such extension of time as
may be needed for such returns. RCG shall provide Consulting
with such returns in proper form for filing no later than 30
days before such returns are due. Such returns shall be signed
and timely filed by or caused to be timely filed by
Consulting.
(iv) 1995 Short Year State and City of Philadelphia BPT Tax
Returns. RCG or its parent entity shall prepare all state
income tax returns of the Company that are required to be
filed for the short taxable period ended on the Closing Date
and shall also prepare the City of Philadelphia BPT Tax Return
for such period, if required. Consulting shall provide RCG a
Power of Attorney solely for the purposes of obtaining such
extension of time as may be needed for such returns. RCG shall
provide Consulting with such return in proper form
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for filing no later than 30 days before such returns are due.
RCG shall consult with Consulting with respect to the
modifications to federal taxable income made by RCG or its
parent entity in such state income tax returns. Such returns
shall be signed and timely filed by or caused to be timely
filed by Consulting.
(v) Post Closing Returns. Consulting shall prepare, sign and file
all tax returns, for any type of Tax, which returns are
required to be filed for all periods ending after the Closing
Date, including state income tax returns which include the
period January 1, 1995 through the Closing Date ("straddle
returns"). Consulting shall also prepare, sign and file all
local tax returns (whether for periods ending before or after
the Closing Date).
(vi) Tax Liability of Consulting and the Company. As between the
parties, Consulting and the Company shall have the sole
liability to timely pay to the relevant taxing authority all
Taxes which arise from:
(x) any tax period which ends after the Closing Date; and
(y) any tax returns which Consulting is required to file
under subparagraphs (b)(iii), (iv) or (v).
(c) Adjustments.
(i) Adjustments to Post-Affiliation Year Returns. If with respect
to Consolidated Returns:
(x) there is an Adjustment to any item reported on a return
filed with respect to the Company for a Post-Affiliation
Year that results in an increase in Taxes payable by
Consulting or the Company; and
(y) such Adjustment results in a corresponding Adjustment to
items reported on a return filed with respect to RCG or
any affiliate of RCG (including the Company) for an
Affiliation Year; and
(z) the Taxes payable by or on behalf of RCG (or such
affiliate) with respect to the Company for such period
are reduced by such Adjustment (the "RCG Decrease"),
then RCG shall pay to Consulting or the Company, an
amount equal to such increase in Taxes of Consulting or
the Company. The amount payable by RCG under this
paragraph shall be limited to the RCG Decrease, plus
interest calculated as under Code Section 6621, or
comparable interest from
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state and local authorities, with respect to such RCG
Decrease. Payment under this paragraph shall be made no
later than five business days after the RCG Decrease is
refunded to RCG or such affiliate or is otherwise
actually realized.
(ii) Adjustments to Affiliation Year Returns. If, with respect to
Consolidated Returns:
(x) there is an Adjustment to any item reported on a return
filed with respect to RCG or any affiliate of RCG
(including the Company) for an Affiliation Year that
results in an increase in the Taxes payable by RCG or an
affiliate of RCG; and
(y) such Adjustment results in a corresponding Adjustment to
items reported on a tax return filed with respect to
Consulting or any affiliate of Consulting (including the
Company) for a Post-Affiliation Year; and
(z) the Taxes payable by or on behalf of Consulting (or such
affiliate) with respect to such Post-Affiliation period
are reduced by such Adjustment (the "Consulting
Decrease"), then Consulting shall pay to RCG an amount
equal to such increase in Taxes of RCG or such
affiliate. The amount payable by Consulting under this
paragraph shall be limited to the Consulting Decrease,
plus interest calculated as under pursuant to Code
Section 6621, or comparable interest from state or local
authorities, with respect to such Consulting Decrease.
Payment under this paragraph shall be made no later than
five business days after the Consulting Decrease is
refunded to Consulting or such affiliate, or is
otherwise actually realized.
(iii) Other Changes in Taxable Income. If with respect to a
Consolidated Return for an Affiliation Year:
(x) the Company's taxable income is determined (by
Consulting or RCG with the agreement of the other that
the change is appropriate, or by the IRS) to be greater
than its taxable income as originally reported on such
Consolidated Return (other than as a result of an
Adjustment described in subparagraph (c)(i) or (c)(ii)
above), the Company shall pay to RCG an amount equal to
the product of the increase in taxable income times the
maximum federal Tax rate for the applicable year (plus
penalties and interest);
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(y) the Company's taxable income is determined (by
Consulting or RCG with the agreement of the other that
the change is appropriate, or by the IRS) to be less
than its taxable income as originally reported on such
Consolidated Return (other than as a result of an
Adjustment described in subparagraph (c)(i) or (c)(ii)
above, RCG shall pay to Consulting an amount equal to
the product of the reduction in taxable income and the
maximum federal Tax rate for the applicable year (plus
interest);
(z) Payment pursuant to this subparagraph (iii) shall be
made no later than five (5) business days after RCG
receives or otherwise actually realizes a refund of or
is assessed the additional tax.
(iv) Notice of Adjustments by RCG. RCG shall promptly notify
Consulting of any IRS notice or revenue agent's report or
equivalent state or local tax authority notice received by RCG
which could result in an Adjustment giving rise to a liability
of Consulting or the Company under this Agreement. However,
the failure to give such notice shall not relieve Consulting
or the Company from any liability that it may have hereunder,
except to the extent that such failure results in increased
liability to Consulting or the Company arising out of its
obligations to pay RCG as provided in this Section 8. RCG
shall keep Consulting informed of developments regarding such
notice or report and shall consult with the Company or
Consulting concerning the appropriate actions or positions to
be taken in such proceedings to the extent such developments:
(x) relate to any liability of Consulting or the Company to
RCG under this Agreement, or
(y) could affect the liability of Consulting or the Company
for Taxes in a Post-Affiliation Year.
(v) Notice of Adjustments by Consulting and the Company.
Consulting shall promptly notify RCG of any IRS notice or
revenue agent's report or equivalent state or local tax
authority notice received by Consulting or the Company which
could result in an Adjustment giving rise to a liability of
RCG under this Agreement. However, the failure to give such
notice shall not relieve RCG from any liability that it may
have hereunder, except to the extent that such failure results
in increased liability to RCG arising out of its obligations
to pay Consulting. Consulting shall keep RCG informed of
developments regarding such report or notice to the extent
such developments relate to any liability of RCG to Consulting
or the Company under this Agreement.
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(d) Indemnification. RCG agrees to pay and shall indemnify and hold
harmless the Company and Consulting from and against all Taxes, and
RCG shall be entitled to receive and retain all refunds of Taxes, in
each case, only to the extent attributable to the operations or
assets of any member of the Affiliated Group other than the Company
and its subsidiaries.
(e) Cooperation; Furnishing of Information. The parties agree to provide
each other with such cooperation and information as may be
reasonably requested in connection with:
(i) the preparation or filing of any Tax return, report, amended
return or claim for refund with respect to Taxes;
(ii) the conduct of any audit; or
(iii) making any other computation or determination required
hereunder.
(f) Record Retention. RCG and the Company shall retain all relevant tax
returns, schedules and workpapers, and all related material records
or other documents until the expiration of the statute of
limitations (including extensions) of the taxable years to which
such returns and other documents relate, but in any event for a
period of not less than seven (7) years, provided, however, that RCG
is not required to retain any documents which have been furnished to
the Company or Consulting.
(g) Code Section 338(h)(10) Election.
(i) Subject to subparagraph (g)(iii) below, Consulting agrees to,
and RCG agrees to have its parent entity, join in a Code
Section 338(h)(10) Election with respect to the acquisition by
Consulting of the Common Stock. RCG agrees to execute Form
8023-A (or any replacement form), to comply with all the
requirements of Code Section 338(h)(10) and Regulations
promulgated thereunder, and to take any other action
reasonably requested by Consulting in order to make and
effectuate this election. Other than as set forth in this
paragraph (g), all Taxes arising as a result of the Code
Section 338(h)(10) Election are the responsibility of the
Company or Consulting.
(ii) Notwithstanding the provisions of subparagraph (g)(i) above,
in the event of a failure to make a Code Section 338(h)(10)
Election, other than a failure resulting from a breach by RCG
or its parent entity of the provisions of this paragraph (g),
RCG shall have no liability for any such Taxes resulting from
any other election made by Consulting pursuant to Code Section
338. RCG and Consulting agree to use their best efforts to
agree on an allocation of the purchase price among the assets
of the Company as of the Closing that is
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acceptable to both parties. In the event that such agreement
has not been reached by June 29, 1995, Consulting shall obtain
and deliver to RCG an appraisal of such assets performed by an
appraiser selected and paid by Consulting. Such appraisal
shall be obtained by Consulting and delivered to RCG by August
15, 1995 and shall be used by Consulting and RCG in allocating
and reporting the fair market values of the assets of the
Company for purposes of Code Section 338. Prior to June 29,
1995, Consulting shall prepare and deliver to RCG a schedule
showing state apportionments of payroll, property and sales
for the period January 1, 1995 through the Closing Date in a
form consistent with those schedules delivered to RCG by the
Company in prior years.
(iii) Notwithstanding anything contained in this subparagraph
(g)(iii) to the contrary, RCG's parent entity shall have no
obligation to join in, and Consulting shall not file a Code
Section 338(h)(10) Election unless (A) Consulting has paid to
each appropriate state taxing authority, at such time as the
extension for such state return is filed pursuant to
subparagraph (b)(iv) of this Section 8, an amount equal to the
state Taxes to be paid as a result of the Code Section
338(h)(10) Election, based on the allocations agreed to by RCG
and Consulting pursuant to subparagraph (g)(ii) above, (B)
prior to such filing, Consulting has executed and delivered to
RCG (i) a promissory note (pari passu with the Credit
Agreement) in a principal amount equal to the Incremental
Federal Income Taxes and on such terms as are contained in,
and in the form attached hereto as Exhibit E (the "Tax Note"),
(ii) a guaranty of the Tax Note by Hagler (pari passu with the
guaranty by Hagler granted to the Bank under the Credit
Agreement) in the form attached hereto as Exhibit E-1 and
(iii) evidence that the Bank (as defined in the Credit
Agreement) has consented to the Tax Note and the Hagler
guaranty thereof, and (C) the Bridge Note has been repaid in
full.
9. Termination.
The agreement of RCG to sell and of Consulting to purchase the Common Stock
shall terminate on the close of business on May 26, 1995 (unless extended by
written agreement among the parties) if the Closing shall not have occurred
prior to said time and date. Unless terminated in writing by mutual agreement
among the parties, the parties shall have such rights and remedies, each against
the other, as shall exist at law or in equity.
10. Expenses.
All expenses incident to the sale and purchase of the Common Stock incurred by
RCG shall be borne by RCG, and those by the Company (other than any allocation
by RCG of its personnel costs to the
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Company for work on this transaction) and/or Consulting (including the formation
of Consulting and the costs of obtaining the necessary financing) shall be borne
by Consulting.
11. Survival of Warranties.
All representations, warranties, covenants and agreements herein contained shall
survive the Closing hereunder.
12. Broker.
RCG and Consulting each represent and warrant to the other that all negotiations
relative to this Agreement and to the transactions contemplated hereby have been
carried on by each directly with the other without the intervention of any
brokers or finders and that no broker or finder is entitled to a fee in
connection with the sale of the Common Stock. RCG and Consulting each agree to
indemnify and hold the other harmless from and against any and all loss, cost,
damage, claim, and expense which the other may sustain or which may be asserted
against the other by reason of any claim for compensation by any person, firm or
corporation, introduced by or arising from any relationship with the
indemnifying party in connection with the transactions contemplated by this
Agreement.
13. Notices.
Any notice sent hereunder shall be in writing, sent by certified mail, return
receipt requested, facsimile transmission between the hours of 9:00 A.M. and
5:30 P.M., New York City time, or delivered in person, addressed as follows, or
to such other address as either party may notify the other in accordance with
the provisions hereof:
(a) to RCG, at Park Avenue Plaza, New York, New York, 10055 Attention:
Lowell C. Freiberg, fax number (212) 909-1864.
(b) to Consulting, at the address on page 1 hereof, Attention:
Henri-Claude Bailly, fax number (703) 351-0344.
14. Knowledge.
For purposes of this Agreement, information shall not be deemed within the
"knowledge of", "known to" or "known by" (a) the Company, if the only persons at
the Company who know such information are Joseph P. Lucas and/or Frederick M.
Schriever (and the references in the first parenthetical phrases in Sections
6(b) and 6(c)(B) to any officer, director or employee of the Company shall
exclude Messrs. Lucas and Schriever) or (b) RCG, if the only persons at RCG who
know such information are persons (other than Messrs. Lucas and Schriever) who
are also officers, directors or employees of the Company.
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15. Entire Agreement, Governing Law, Counterparts, Assignment.
(a) This Agreement (including the Schedules and Exhibits annexed hereto)
constitutes the entire Agreement between the parties hereto and
there are no terms other than those contained herein. No variation
hereof shall be deemed valid unless in writing and signed by the
parties hereto.
(b) This Agreement shall be governed by the laws of the State of New
York, without giving effect to the principles of conflicts of law,
including but not limited to matters of construction, validity and
performance.
(c) This Agreement may be executed in one or more counterparts each of
which shall be an original, but all of which shall be deemed to be
one and the same instrument. Each counterpart may be delivered by
facsimile transmission, which transmission shall be deemed delivery
of an originally executed document.
(d) This Agreement shall not be assignable by either party hereto except
as herein specifically provided. Consulting shall be permitted to
assign its rights hereunder to any corporation controlled by Hagler,
provided that notwithstanding any such assignment Consulting shall
remain liable to perform all obligations required to be preformed
hereunder and such assignee shall specifically agree to be similarly
bound. Nothing in this Agreement is intended to confer upon any
person, other than the parties hereto, and their successors and
assigns any rights or remedies under or by reason of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
RCG INTERNATIONAL, INC. HAGLER BAILLY CONSULTING, INC.
By: /s/ Dennis J. O'Leary By: /s/ Daniel M. Rouse
--------------------- ---------------------------------
NAME: Dennis J. O'Leary NAME: Daniel M. Rouse
TITLE: Vice President TITLE: Chief Financial Officer
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EXHIBITS
A. Bridge Note
B. Consulting Note
C. List of Guaranties
D. Payroll Services
E. Tax Note
F. Tax Note Guaranty
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EXHIBIT A
HAGLER BAILLY CONSULTING, INC.
Senior Note due June 29, 1995
$431,280 New York, New York
May 25, 1995
FOR VALUE RECEIVED, Hagler Bailly Consulting, Inc., ("Consulting"), a Delaware
corporation, promises to pay on June 29, 1995, RCG International, Inc.
("Holder") or order, the principal sum of FOUR HUNDRED THIRTY-ONE THOUSAND TWO
HUNDRED EIGHTY DOLLARS ($431,280), with interest thereon payable from June 5,
1995 until paid at a rate of 10% per annum. All interest shall be computed for
the actual number of days elapsed on the basis of a year consisting of 360 days.
All indebtedness outstanding following maturity shall bear interest at the rate
of 13% per annum. Payments of principal and interest shall be made in lawful
money of the United States of America at the principal office of Holder at 111
West 40th Street, New York, New York 1001 8 or at such other address as Holder
may have from time to time furnished Consulting in writing. Consulting shall
have the right to prepay this Note in whole or in part at any time.
Following the failure of Consulting to make payment hereunder, Holder may
proceed to protect and enforce its rights either by suit in equity and/or by
action at law, or by other appropriate proceedings, and Consulting shall pay and
reimburse Holder for all reasonable costs and expenses (including, without
limitation, reasonable attorneys' fees) incurred by Holder in connection with
its exercise of any of its rights and remedies hereunder or under the Assignment
of Subscription Agreements referred to below. Consulting hereby waives
presentment, demand, notice of protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note. Neither the exercise of, nor the failure to exercise, any right
hereunder or under the Assignment of Subscription Agreements referred to below,
shall waive the right to exercise any such right thereafter.
This Note has been delivered in New York, New York, and shall be governed by and
construed in accordance with the laws of the State of New York. Wherever
possible each provision of this Note shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this Note
shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note.
This Note is entitled to the benefits of the Assignment of Subscription
Agreement Rights dated as of May 25, 1995 between Consulting and Holder.
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IN WITNESS WHEREOF, Consulting has executed this Note as of the day and year
first above written.
HAGLER BAILLY CONSULTING, INC.
By:________________________________
Name:
Title:
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EXHIBIT B
This instrument is subject to an lntercreditor and Subordination Agreement
dated as of May 25, 1995, as the same may be amended from time to time,
among Hagler Bailly Consulting, Inc., RCG International, Inc. and State
Street Bank and Trust Company, which, among other things, subordinates the
maker's obligations to the payee to the maker's obligations to the holder
of Senior indebtedness as defined in said Agreement.
HAGLER BAILLY CONSULTING, INC.
9.5% SUBORDINATED NOTE DUE MAY 15, 2001
$4,650,000 New York, New York
May 25, 1995
FOR VALUE RECEIVED, Hagler Bailly Consulting, Inc. (the "Company"), a
Delaware corporation, promises to pay on May 15, 2001, RCG International, Inc.
("Holder") or order, the principal amount of FOUR MILLION SIX HUNDRED FIFTY
THOUSAND DOLLARS ($4,650,000), or, if less, the aggregate unpaid principal
amount then outstanding under this Note. The Company promises to pay interest
(computed on a 360-day year, 30-day month basis) on the unpaid balance of such
principal amount from May 25, 1995, payable in semi-annual installments on each
May 15, and November 15, after the date of this Note, at the rate of 9.5% per
annum until such principal amount shall become due and payable (whether at
stated maturity or by prepayment or declaration or otherwise), and to pay
interest on any overdue principal and (to the extent permitted by applicable
law) on any overdue interest at the rate of 12.5% per annum until paid. Payments
of principal and interest shall be made in lawful money of the United States of
America at the principal office of Holder at 111 West 40th Street, New York, New
York 10018 or at such other address as Holder may have from time to time
furnished the Company in writing.
1.Prepayment of Notes. The Company may, at its option, upon notice as provided
in the succeeding sentence, prepay at any time all or from time to time any part
of the Note, at the principal amount so prepaid, together with interest thereon
accrued to date of such prepayment. The Company will give written notice of each
prepayment to the Holder not less than five (5) days prior to the date fixed for
such prepayment, specifying (a) the date of prepayment, (b) the aggregate
principal amount to be prepaid on such date and (c) the aggregate amount of
accrued interest payable on such prepayment.
2.Taxes. All payments by the Company of principal of, and interest on, this Note
and all other amounts payable hereunder shall be made free and clear of and
without deduction for any present or future income, excise, stamp or franchise
taxes and other taxes, duties, fees, withholdings or other charges of any nature
whatsoever imposed by any taxing authority.
3.Accounting; Financial Statements and Other Information. The Company will
maintain and cause each of its Subsidiaries to maintain a uniform system of
accounting established and
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administered in accordance with generally accepted accounting principles
("GAAP"). The Company will deliver to Holder:
(a) as soon as practicable after the end of each of the
first three quarterly fiscal periods of each fiscal year
of Hagler, and in any event within 45 days thereafter,
consolidating and consolidated balance sheets of Hagler
and its Subsidiaries as at the end of such period and
consolidating and consolidated statements of income and
of cash flows of the Company and its Subsidiaries for
such period and (in the case of the second and third
quarterly periods) for the portion of the current fiscal
year to the end of such period, all in reasonable detail
and certified by the principal financial officer of the
Company as being complete and as fairly presenting, in
accordance with GAAP, the financial position of Hagler
and its Subsidiaries and results of their operations for
the period then ended, subject only to changes resulting
from year-end audit adjustments;
(b) as soon as practicable after the end of each fiscal year
of Hagler, and in any event within 90 days thereafter,
consolidating and consolidated balance sheets of Hagler
and its Subsidiaries as at the end of such year and
consolidating and consolidated statements of income and
of cash flows of Hagler and its Subsidiaries for such
year, setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable
detail and, in the case of such consolidated statements,
accompanied by the report and opinion thereon of
independent public accountants of recognized national
standing selected by Hagler and reasonably acceptable to
Holder, which opinion shall be prepared in accordance
with generally accepted auditing standards and shall be
based upon an examination by such accountants of the
accounts of Hagler and all of its Subsidiaries;
(c) together with each delivery of financial statements
referred to in subdivisions (a) and (b) above, an
Officer's Certificate of the Company (i) stating that
each of the signers has reviewed the relevant terms of
this Note and has made, or caused to be made under his
supervision, an adequate review of the transactions and
condition of Hagler and its Subsidiaries during the
fiscal period covered by such financial statements, (ii)
stating that such review has not disclosed the existence
during such period nor does such signer have knowledge
of the existence, as at the date of such certificate, of
any Default, or, if any Default existed or exists,
specifying the nature and period of existence thereof
and the action the Company has taken or is taking or
proposes to take with respect thereto, and (iii) setting
forth and demonstrating in reasonable detail
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compliance during and at the end of such period with the
financial and restricted payment covenants contained in
this Note;
(d) together with each delivery of financial statements
referred to in subdivision (b) above, a certificate by
the independent public accountants reporting on such
financial statements (provided that such accountants
shall not be required to go beyond normal auditing
procedures to make such statement) (i) briefly setting
forth the scope of their examination (which shall have
been made in accordance with generally accepted auditing
standards) and stating that in their judgment such
examination is sufficient to enable them to render such
certificate, (ii) stating whether or not their
examination has disclosed the existence of any Default
and, if so, specifying the nature and period of
existence thereof, and (iii) covering the matters
referred to in clause (iii) of subdivision (c) above
with respect to the fiscal year covered by such
financial statements;
(e) promptly upon receipt thereof, copies of all reports, if
any, submitted to the Company by independent accountants
in connection with each annual or interim audit of the
books of the Company or any of its Subsidiaries made by
such accountants;
(f) prompt written notice of (i) any litigation involving a
claim of more than $200,000 against the Company or any
of its Subsidiaries, or (ii) any matter which, in the
opinion of the Company, might have a materially adverse
effect on the operations, business condition (financial
or otherwise), affairs or prospects of the Company or
any of its Subsidiaries (a "Material Adverse Effect");
(g) forthwith upon any officer of the Company obtaining
knowledge of any Default or any Event of Default, a
certificate of such officer specifying the nature and
period of existence thereof and what action the Company
has taken, is taking or proposes to take with respect
thereto;
(h) concurrently with the transmittal thereof, copies of all
information provided under Section 5.1 of the Credit
Agreement; and
(i) as soon as practicable, all such other information and
data with respect to the business, affairs or condition
of the Company or any of its Subsidiaries as from time
to time may reasonably be requested by Holder.
4.Inspection. The Company will permit any authorized representative designated
by Holder to visit and inspect, at the Company's expense (provided that not more
than two such inspections
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shall be paid for in any year unless there has occurred a Default), any of the
properties of the Company or any of its Subsidiaries, including its and their
books (and to make copies thereof or extracts therefrom), and to discuss its and
their affairs, finances and accounts with its and their officers, all at such
reasonable times and as often as may reasonably be requested by Holder.
5.Maintenance of Corporate Existence, etc. The Company will preserve its
corporate existence, franchises, privileges and right to do business, and those
of each of its Subsidiaries.
6.Payment of Impositions, etc. The Company will and will cause each Subsidiary
to promptly pay or cause to be paid all Impositions before the same become
delinquent, except where contested in good faith, by proper proceedings pursuant
to which collection from the Company of such Imposition is suspended, if
adequate reserves therefor have been established on the books of the Company or
such Subsidiary, as the case may be, in accordance with and to the extent
required by GAAP, and where non-payment will not have, individually or in the
aggregate, a Material Adverse Effect.
7.Compliance with Legal and Insurance Requirements, etc. The Company at its
expense will, and will cause each of its Subsidiaries to, promptly (a) comply
with all Legal Requirements and Insurance Requirements and (b) procure, maintain
and comply with all permits, licenses and other authorizations material to the
proper operation of their respective properties and businesses.
8.Insurance of Properties and Business. The Company will maintain or cause to be
maintained, with financially sound and reputable insurers, insurance with
respect to the properties and business of the Company and its Subsidiaries
against loss or damage of the kinds customarily insured against by corporations
of established reputation engaged in the same or a similar business and
similarly situated, in such amounts and by such methods as shall be deemed
adequate by the Board of Directors of the Company and acceptable to Holder. All
insurance shall provide that no cancellation, reduction in amount or change in
coverage shall be effective until thirty (30) days after receipt by Holder of
written notice thereof.
9.Insurance on Life of Principal Officer. So long as Henri-Claude Bailly shall
be an officer of the Company, the Company will maintain (with Chubb LifeAmerica
Insurance Company or other insurers satisfactory to Holder) life insurance on
his life with the Company named as beneficiary, in the amount of $2,000,000.
10.Conduct of Business. The Company will carry on its business and will cause
the business of its Subsidiaries to be carried on in an efficient manner and
will not engage or permit any of its Subsidiaries to engage in any business
other than businesses engaged in by the Company on the date of this Note, and in
activities substantially similar or related thereto.
11.Employment Agreement. The Company will not (a) materially amend, modify,
waive any provision of, or consent to any action under, such of the terms and
conditions of the Employment Agreement as relate to compensation, duties,
non-competition and non-interference or (b) terminate the Employment Agreement
without the prior written consent of Holder.
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12.Mortgages, Liens, etc. The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or permit to
exist any mortgage, lien, charge or encumbrance on or security interest in or
pledge of or conditional sale or other title retention agreement with respect to
any property or asset now owned or hereafter acquired by the Company or such
Subsidiary, or any Indebtedness or liability of the Company or any of its
Subsidiaries, provided that the foregoing restrictions shall not prohibit:
(a) liens for Impositions the payment of which is not at the
time required by Section 6;
(b) liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation,
unemployment insurance and other types of social
security, or to secure the performance of bids, tenders,
statutory obligations, surety and appeal bonds, payment
and performance bonds, completion bonds, return-of-
money bonds and other similar obligations (not incurred
in connection with the borrowing of money or the
obtaining of advances or credit);
(c) liens on assets of the Company and/or its Subsidiaries
created under the Credit Agreement or the Security
Documents referred to therein;
(d) in the case of the issued and outstanding capital stock
of any Subsidiary owned by the Company, the pledge
thereof pursuant to the Credit Agreement; and
(e) in the case of any equipment or other similar personal
property acquired by the Company or any Subsidiary and
having an unpaid purchase price of no more than $500,000
($700,000, if and to the extent of the Contingent
Obligation under the HBRS Transaction), individually or
in the aggregate, liens (such term to include security
interests and conditional sale and other title retention
agreements) created to finance the acquisition of such
personal property, provided that each such lien shall at
all times be confined solely to the items of personal
property so acquired and shall at no time confer on the
holder of such lien any right in respect of any other
property of the Company or any Subsidiary.
13. Investments.
(a) Except as provided in paragraphs (b) and (c) below, the Company
will not, and will not permit any Subsidiary to, directly or indirectly make or
own any Investment, except that the Company or any Subsidiary may make and own
Investments consisting of (i) marketable direct obligations of the United States
of America, (ii) certificates of deposit or other obligations of banks organized
and existing under the laws of the United States of America and having capital
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and surplus and undivided profits of at least $500,000,000, and (iii) commercial
paper issued by a corporation organized under the laws of any state of the
United States or of the District of Columbia and rated at least A-1 by S&P or
P-1 by Moody's, provided that all such investments shall mature within a period
of nine (9) months from the date when made and, provided further that the
Company may make aggregate Investments in the Common Stock of direct
Wholly-Owned Subsidiaries of the Company not to exceed $100,000.
(b) The Company shall be permitted to make and own Investments in HB
Capital, Inc. so long as the aggregate amount of such investments shall not
exceed $600,000 and HB Capital, Inc. shall have unconditionally guaranteed the
payment of this Note pursuant to a guaranty agreement satisfactory in form and
substance to Holder (such guaranty shall be permitted to terminate if there is
no Default and the Company no longer makes or owns any investment in HB Capital,
Inc.).
(c) The Company shall be permitted to make and own Investments in
the form of loans or advances to officers or employees of the Company made in
the ordinary course of business and consistent with past practice so long as the
aggregate outstanding amount of all such investments does not exceed $200,000.
The Company shall also be permitted to make advances in the ordinary course of
business and consistent with past practices to officers and employees for travel
and similar reimbursable business expenses to be incurred by such officer or
employee.
14. Indebtedness and Contingent Obligations, etc. The Company will
not, and will not permit any Subsidiary to, directly or indirectly create or
suffer to exist any Indebtedness; provided that nothing contained in this
Section 14 shall prohibit the Company from incurring the Indebtedness created by
this Note, the Bridge Note (as defined and issued pursuant to the Purchase
Agreement), the Virginia Lease (as defined below) or the Credit Agreement or
Indebtedness incurred in connection with the purchase of personal property or
equipment in an aggregate outstanding amount not to exceed $500,000, which
Indebtedness is non-recourse except as to such property or equipment or the
Contingent Obligation of the Company in an aggregate amount not to exceed
$200,000 arising from the purchase of assets from HBRS, Inc. pursuant to an
asset purchase agreement, executed effective as of April 1, 1995 (the "HBRS"
Transaction"). The Company will not amend, modify, waive any provision of,
consent to any action under, or extend the Company's lease (the "Virginia
Lease") on its Arlington, Virginia headquarters without the prior written
consent of Holder.
15. Restricted Payments. The Company will not directly or indirectly
declare, order, pay or make or set apart any sum or property for any Restricted
Payment, except for (a) the declaration and payment on or before May 31, 1995,
of a dividend in-kind consisting of the capital stock of HB Capital, Inc., the
value of which does not exceed $100 and (b) payments in any fiscal year of the
Company in an aggregate amount necessary to enable Hagler to make its then
required payments under the Stockholders Agreement, provided that such payments
do not exceed amounts allowed to be paid under Section 8 of the Stockholders
Agreement and at the time of payment thereof and after giving effect thereto, no
Default shall exist.
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16. Transactions with Affiliates. The Company will not, and will not
permit any Subsidiary to, directly or indirectly, enter into any transaction
with any Affiliate except for: (a) transactions (other than transactions
constituting Investments in HB Capital, Inc. or loans or advances permitted by
Section 13(c) above) in the ordinary course of business on terms that are no
less favorable to the Company or such Subsidiary, as the case may be, than those
which might be obtained at the time from Persons who are not Affiliates and (b)
salaries and other employee compensation, provided that if the Company fails to
pay when due any amounts owed under this Note, the Credit Agreement or the
Virginia Lease, then, so long as such failure to pay continues, salaries and
other compensation of officers and d i rectors of the Company or any Subsidiary
shall not increase in the aggregate without the written consent of Holder;
provided that increases required pursuant to the Employment Agreement shall be
permitted but shall be included in determining amounts available hereunder.
17. Disposal of Indebtedness of Securities or Subsidiaries, etc. The
Company will not
(a) directly or indirectly sell, assign, pledge or otherwise
transfer any Indebtedness or claim against or any stock
or other securities of (or options to acquire stock or
other securities of) any Subsidiary except as required
by the Credit Agreement; or
(b) permit any Subsidiary directly or indirectly to own or
hold any Indebtedness of or claim against the Company or
any other Subsidiary, or any stock or other securities
of (or options to acquire stock or other securities) of
any other Subsidiary; or
(c) permit any Subsidiary directly or indirectly to issue or
sell any shares of its stock or any other securities
except to the Company.
18. Sale, Consolidation, Merger, etc. The Company will not, and will
not permit any Subsidiary to (other than as contemplated by the Purchase
Agreement), directly or indirectly,
(a) sell, lease or otherwise dispose of all or substantially
all of its properties or assets; or
(b) consolidate with or merge into any other Person or
permit any other Person to consolidate with or merge
into it, except that a Subsidiary may be consolidated
with or merged into the Company or a Wholly-Owned
Subsidiary, if the Company or such Wholly-Owned
Subsidiary, as the case may be, shall be the surviving
corporation; or
(c) sell, lease or otherwise dispose of any of its
properties or assets otherwise than in the ordinary
course of business.
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19. Financial Covenants. The Company shall comply with the financial
covenants contained in Section 7 of the Credit Agreement, notwithstanding
termination of the Credit Agreement, provided that in the event that any
provision of Section 7 of the Credit Agreement is waived (or amended in a manner
which has the effect of being a waiver, i.e., such amendment is not modifying
future compliance with the Credit Agreement) and the Company has certified to
Holder that no consideration has been offered or given by the Company or Hagler
to the person consenting to such waiver or amendment in order to obtain such
waiver or amendment and has requested Holder to consent in writing to such
waiver (or such amendment) under this Section 19, then Holder will not
unreasonably withhold its consent to such request.
20. Replacement of Notes. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Note and, in the case of any such mutilation, upon surrender of such Note
to the Company for cancellation, and in the case of loss, an agreement of
indemnity by Holder, the Company at its expense will execute and deliver, in
lieu thereof, a new Note of like tenor, dated the date to which interest on such
lost, stolen, destroyed or mutilated Note has been paid.
21. Events of Default; Declaration of Note Due. If one or more of
the following events ("Events of Default") shall occur:
(a) if any principal of this Note shall not be paid when due,
whether at stated maturity or by prepayment or otherwise; or
(b) if any interest on this Note shall not be paid for more
than 5 days after such interest shall have become due; or
(c) if the Company shall fail to perform or comply with any
term of Sections 11 to 19, inclusive, of this Note for a period of
15 days; or
(d) if, without the written consent of Holder, which consent
shall not be unreasonably withheld, the Company shall (i) amend, or
receive under the Credit Agreement any waiver or modification of,
the amortization schedule contained in the Credit Agreement, or (ii)
fail to make such amortization payments when due (or within 90 days
of the date provided for in the Credit Agreement, provided that
acceptance of such late payment by State Street Bank and Trust
Company shall not be deemed a waiver under clause (i) above); or
(e) if the Company shall fail to perform or comply with (i)
any term of this Note required to be performed or complied with by
it (other than those referred to above in this Section 21) or (ii)
any covenant contained in the Purchase Agreement and such failure
shall continue for more than 15 days after written notice thereof
shall have been given to the Company by Holder; or
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(f) if any representation or warranty of the Company contained
in this Note or made in the Purchase Agreement shall prove to have
been incorrect in any material respect as of the date on which made;
or
(g) if, other than as provided in clause (d) above, (i) the
Company or any Subsidiary shall default (as principal or guarantor
or other surety) in the payment of any principal of or premium, if
any, or interest on the Indebtedness evidenced by the Credit
Agreement or any other Indebtedness; or the Company or any
Subsidiary shall default with respect to any term of any evidence of
any such Indebtedness or of any mortgage, indenture or other
agreement relating thereto, and (ii) such default shall continue for
more than the period of grace, if any, provided with respect thereto
and, except with respect to payment, shall not have been effectively
waived; or
(h) if Hagler, the Company or any Subsidiary shall make an
assignment for the benefit of creditors, or shall admit in writing
its inability to pay its debts as they become due, or shall not
generally be paying its debts as they become due, or shall file a
petition in bankruptcy, or shall be adjudicated a bankrupt or
insolvent, or shall file a petition or answer seeking for itself, or
consenting to, or acquiescing in, any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, or
shall file an answer admitting or not contesting the material
allegations of a petition filed against it in any such proceeding,
or shall seek or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of Hagler, the Company or such
Subsidiary or any material part of its properties; or
(i) if, within 30 days after the commencement of any
proceeding against the Company or any Subsidiary seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute,
law or regulation, such proceeding shall not have been dismissed, or
if, within 30 days after the appointment without the consent or
acquiescence of Hagler, the Company or any Subsidiary, of any
trustee, receiver or liquidator of Hagler, the Company or such
Subsidiary or of any substantial part of its properties, such
appointment shall not have been vacated; or
(j) if Hagler, the Company or their respective directors or
stockholders shall take any action looking to the dissolution or
liquidation of Hagler or the Company; or
(k) if a final judgment which, with other then outstanding
final judgments against the Company and its Subsidiaries, exceeds an
aggregate of $200,000 shall be rendered against the Company or any
Subsidiary, and if, within 15 days after the entry thereof, such
judgment shall not have been discharged or execution thereof stayed
pending appeal or if, within 15 days after the expiration of any
such stay, such judgment shall not have been discharged; or
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(l) a Change in Control shall have occurred; or
(m) Mr. Henri-Claude Bailly shall fail to own 75% of the
number of shares of Common Stock of Hagler owned by him on the date
of this Note (without giving effect to any stock split or other
corporate event pursuant to which such number is increased or
decreased) or shall cease to be the chief executive officer of the
Company (other than by death or disability, so long as a successor
acceptable to Holder shall serve in his stead); or
(n) if Hagler shall fail to perform any of its obligations
under the Lease Guaranty;
then, and in any such event, Holder may at any time at its option, by written
notice to the Company, declare this Note to be due and payable, whereupon the
same shall forthwith become due and payable, together with interest accrued
hereon, without presentment, demand, protest or notice, all of which are hereby
waived; provided that upon the occurrence of any of the events described in
clause (h), (i) or (j) of this Section 21, this Note shall automatically be and
become due and payable, together with interest accrued hereon, without
presentment, demand, protest or notice, all of which are hereby waived.
22. Remedies on Default, etc. In case any one or more Events of
Default shall have occurred and shall be continuing, the Holder may proceed to
protect and enforce its rights by a suit in equity, action at law or other
appropriate proceeding, whether for the specific performance of any agreement
contained in this Note, or for an injunction against a violation of any of the
terms hereof, or in aid of the exercise of any right, power or remedy granted
thereby or by law, equity, statute or otherwise. In the case of a Default in the
payment of any principal of or interest on the Note, the Company will pay to the
Holder such further amount as shall be sufficient to cover the cost and expense
of collection, including, without limitation, reasonable attorneys' fees. No
course of dealing and no delay on the part of the Holder in exercising any
right, power or remedy shall operate as a waiver thereof or otherwise prejudice
the Holder's rights, powers or remedies. No right, power or remedy conferred
hereby shall be exclusive of any other right, power or remedy referred to herein
or now or hereafter available at law, in equity, by statute or otherwise.
23. Subordination. The indebtedness evidenced by this Note is
subordinate and junior in right of payment to the extent set forth in the
Intercreditor and Subordination Agreement referred to in the legend at the top
hereof.
24. Definitions. As used herein the following terms have the
following respective meanings:
Affiliate: (a) Messrs. Bailly and Yokell (b) any Person owning or
controlling 5% or more of any class of stock or similar interests of Hagler or
any Subsidiary, (c) any spouse of any such Person, (d) any relative (within the
third degree) of any such Person or spouse, (e) any corporation, association,
partnership or other business entity in which any such Person or spouse or
relative has a substantial interest (including in the case of a partnership, any
general partnership
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interest), direct or indirect, and (f) any corporation, association, partnership
or other business entity, other than a Subsidiary, 5% or more of any class of
stock or similar interests, or in the case of a partnership, the general
partnership interest, of which is owned or controlled by Hagler or any
Subsidiary.
Change in Control: (a) after an initial public offering of stock of
Hagler, any person (as such term is used in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than
the Management Group, is or becomes "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to
have "beneficial ownership" of all shares that any such person has the right to
acquire whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of 25% or more of the common stock of Hagler
on a fully diluted basis; or
(b) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of Hagler or the
Company (together with any new or replacement directors whose election by such
Board or whose nomination for election by the shareholders of Hagler or the
Company was approved by a vote of two-thirds of the directors of the Company
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of Hagler or
the Company then in office.
Common Stock: stock of any class or classes (however designated) the
holders of which are ordinarily entitled to vote for the election of a majority
of the directors (or persons performing similar functions) of the corporation,
association or other entity in question.
Contingent Obligation: means, relative to any Person, any agreement,
undertaking or arrangement by which such Person guarantees, endorses or
otherwise becomes or is contingently liable upon (by direct or indirect
agreement, contingent or otherwise, to provide funds for payment, to supply
funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor
against loss) the Indebtedness, obligation or any other liability of any other
Person (other than by endorsements of instruments in the course of collection),
or guarantees the payment of dividends or other distributions upon the shares of
any other Person. The amount of any Person's obligation under any Contingent
Obligation shall (subject to any limitation set forth therein) be deemed to be
the outstanding principal amount (or maximum principal amount, if larger) of the
Indebtedness, obligation of other liability guaranteed thereby.
Credit Agreement: means the Credit Agreement, dated May 17, 1995,
between Consulting and State Street Bank and Trust Company, as in effect on the
Closing Date (as such term is defined in the Purchase Agreement) except that,
solely for purposes of Section 17(a) above, it shall mean as amended from time
to time.
Default: any condition or event which constitutes or which, after
notice or lapse of time or both, would constitute an Event of Default and which
has not been fully cured or duly waived.
-11-
<PAGE>
Employment Agreement: means the agreement, dated as of May 25, 1995,
between the Company and Henri-Claude Bailly as in effect on the Closing Date (as
such term is defined in the Purchase Agreement), except the term "Employment
Agreement" shall also include any amendments thereafter made in accordance with
Section 11 hereof.
Event of Default: the meaning specified in Section 21 of this Note.
GAAP: the meaning specified in Section 3 of this Note.
Hagler: Hagler Bailly, Inc. and any successor thereto.
Impositions: all taxes, fees, duties, withholdings, assessments
(including, without limitation, all assessments for public improvements or
benefits), levies, and other charges, in each case whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character
(including all penalties or interest thereon), which at any time may be
assessed, levied, confirmed or imposed on or in respect of or be a lien upon the
Company or any of its Subsidiaries or any of its or their respective properties,
assets, income or profits.
Indebtedness: as applied to any Person, (a) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services, (b) all obligations of such Person for the payment of money evidenced
by notes, bonds, debentures or similar instruments, (c) all obligations,
contingent or otherwise, relative to the face amount of all letters of credit,
whether or not drawn, and banker's acceptances issued for the account of such
Person, (d) all indebtedness secured by any mortgage, pledge, security interest,
lien or conditional sale or other title retention agreement existing on any
property or asset owned or acquired by such Person subject thereto, whether or
not such indebtedness shall have been assumed and whether or not the remedies of
the Persons entitled to payment of such indebtedness are limited upon default to
repossession of such property, and (e) all Contingent Obligations of such
Person. The term "Indebtedness" shall not include leases which under generally
accepted accounting principles are not required to be capitalized, but shall
include the Virginia Lease.
Insurance Requirements: all terms of each insurance policy and
requirements of the issuers of all such policies applicable to or affecting the
Company or any Subsidiary or any properties of the Company or any Subsidiary, or
any business conducted by the Company or any Subsidiary.
Investment: any direct or indirect purchase or other acquisition of
stock or other securities of any Person, any direct or indirect loan, advance or
capital contribution to any Person, and any direct or indirect purchase or other
acquisition of any property or asset other than those acquired by such Person in
the ordinary course of its business.
Legal Requirements: all laws, statutes, codes, acts, ordinances,
orders, judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, directions and requirements of all governments, departments,
commissions, boards, courts, authorities, agencies, officials and officers,
foreseen or unforeseen, ordinary or extraordinary, which now or at any time
-12-
<PAGE>
hereafter may be applicable to the Company or any Subsidiary or any properties
of the Company or any Subsidiary.
Lease Guaranty: the Lease Guaranty, dated as of May 25, 1995, by
Hagler for the benefit of Holder, as such Lease Guaranty may from time to time
be amended or modified.
Management Group: Messrs. Bailly, Yokell, Armstrong, Ciliano,
Poirier, Rouse, Rowe, Steinbergh and Streicher.
Material Adverse Effect: the meaning specified in Section 3(f).
Officer's Certificate: as applied to any Person, a certificate
executed on behalf of such Person by its President or one of its Vice Presidents
or its Controller.
Person: a corporation, an association, a partnership, an
organization, a business, an individual or a government or political subdivision
thereof or any governmental agency.
Purchase Agreement: the sale agreement, dated as of May 25, 1995,
between RCG International, Inc. and the Company.
Restricted Payment: (a) any dividend or other distribution, direct
or indirect, on account of any shares of any class of stock of the Company now
or hereafter outstanding, or (b) any redemption, retirement, purchase or other
acquisition, direct or indirect, of any shares of any class of stock of the
Company now or hereafter outstanding (or any warrants, rights or options to
purchase any such stock) or (c) any payment by the Company on behalf of Hagler,
or any payment to Hagler or any member of the Management Group for services
rendered to the Company or any Subsidiary other than, in the case of members of
the Management Group, payment permitted under Section 16 (b) above.
Stockholder Agreement: the Stockholders Agreement, dated as of May
15, 1995, among Hagler and its Stockholders as in effect on the Closing Date (as
such term is defined in the Purchase Agreement).
Subsidiary: any corporation, association or other business entity a
majority (by number of votes) of the voting stock or Common Stock of which is at
the time owned or controlled, directly or indirectly, by the Company.
Wholly-Owned Subsidiary: any Subsidiary all of the outstanding
shares of each class of stock of which are at the time owned directly by the
Company.
25. Indemnification. The Company hereby indemnifies, exonerates and
holds the Holder and its officers, directors and employees (collectively, the
"Indemnified Parties") free and harmless from and against any and all actions,
causes of action, suits, losses, costs, liabilities and damages, and expenses
incurred in connection therewith (irrespective of whether any such Indemnified
Party is a party to the action for which indemnification hereunder is sought),
including
-13-
<PAGE>
reasonable attorneys' fees and disbursements (collectively, the "Indemnified
Liabilities"), incurred by the Indemnified Parties or any of them (except as a.
result of such person's gross negligence or willful misconduct as determined by
a final, unappealable decision of a court of competent jurisdiction) as a result
of, or arising out of, or relating to
(a) the transaction contemplated by the Purchase
Agreement,
(b) the entering into and performance of this Note by
the Holder, or
(c) enforcement of the Holder's rights or remedies
under this Note or the collection of any amounts
payable hereunder.
26. Notices, etc. All notices and other communications hereunder
shall be in writing and shall be delivered faxed or mailed by first class mail,
postage prepaid, addressed If to the Holder, at 111 West 40th Street, New York,
New York 10018 Attention: President, fax number (212) 768-7811 with a copy to
Reliance Group Holdings, Inc., Park Avenue Plaza, New York, New York 10055,
Attention: Lowell C. Freiberg, fax number (212) 909-1864, and if the Company at
1530 Wilson Boulevard, Suite 900 Arlington, Virginia 22209-2406 or to such other
address as Holder or the Company may notify the other in accordance with the
provisions hereof.
27. Amendment. No amendment or waiver of any provision of this Note,
nor consent to any departure by the Company herefrom, shall in any event be
effective unless the same shall be in writing and signed by the Company and the
Holder, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
28. Miscellaneous. This Note shall be binding upon the Company and
its successors and assigns and shall inure to the benefit of and be enforceable
by the Holder. This Note shall be construed and enforced in accordance with and
governed by the laws of the State of New York (without giving effects to the
conflicts of law principles thereof). The headings in this Note are for purposes
of reference only and shall not limit or define the meaning hereof.
HAGLER BAILLY CONSULTING, INC.
By: ______________________________
Title:
-14-
<PAGE>
EXHIBIT C
All Welfare Benefit Plans of the Company
Profit-Sharing Plan of the Company
401 (K) Plan of the Company
Virginia Lease
Automobile Insurance
General Liability Insurance
Workers Compensation
-15-
<PAGE>
EXHIBIT D
Payroll Services
Services Provided
Preparation of input based on Consulting submissions, reconciliation of
the output, mailing quarterly payroll, tax processing and annual payroll
tax processing.
Term
RCG will provide to Consulting the services described above for the
fifteen pay periods remaining in 1995
Cost
The cost to Consulting for the payroll services to be provided by RCG to
Consulting hereunder shall be $18,000 plus the actual costs for ADP,
postage and other expenses incurred by RCG.
D-1
<PAGE>
EXHIBIT E
HAGLER BAILLY CONSULTING, INC.
Floating Rate Senior Note
$[ ] New York, New York
January 1, 1996
FOR VALUE RECEIVED, Hagler Bailly Consulting, Inc., ("Consulting"), a Delaware
corporation, promises to pay on December 31, 1996, RCG International, Inc.
("Holder") or order, the principal sum of [to be determined pursuant to Section
8(g)(iii) of the Sale Agreement dated as of May 25, 1995, between Consulting and
Holder] ($____________) or, if less than such amount, the aggregate unpaid
principal amount outstanding under this Note on such date. Interest shall be
payable on the principal amount outstanding from time to time, from the date
hereof until paid at a rate of Prime + 2% per annum on the last business day of
each month during the term hereof and on the final day when the principal amount
hereof becomes due or is paid. Principal payments shall be made in equal monthly
installments on the last business day of each month. All interest shall be
computed for the actual number of days elapsed on the basis of a year consisting
of 360 days. All indebtedness outstanding following maturity shall bear interest
at the rate of Prime + 5% per annum. Payments of principal and interest shall be
made in lawful money of the United States of America at the principal office of
Holder at 111 West 40th Street, New York, New York 10018 or at such other
address as Holder may have from time to time furnished Consulting in writing.
Consulting shall have the right to prepay this Note in whole or in part at any
time.
For purposes hereof, "Prime" shall mean, at any time, the rate per annum then
announced by Chemical Bank, New York, New York as its reference rate.
Following the failure of Consulting to make payment hereunder, Holder may
proceed to protect and enforce its rights either by suit in equity and/or by
action at law, or by other appropriate proceedings, and Consulting shall pay and
reimburse Holder for all reasonable costs and expenses (including, without
limitation, reasonable attorneys' fees) incurred by Holder in connection with
its exercise of any of its rights and remedies hereunder. Consulting hereby
waives presentment, demand, notice of protest and all other demands and notices
in connection with the delivery, acceptance, performance, default or enforcement
of this Note. Neither the exercise of, nor the failure to exercise, any right
hereunder shall waive the right to exercise any such right thereafter.
This Note has been delivered in New York, New York, and shall be governed by and
construed in accordance with the laws of the State of New York. Wherever
possible each provision of this Note shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this Note
shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note.
D-2
<PAGE>
IN WITNESS WHEREOF, Consulting has executed this Note as of the day and year
first above written.
HAGLER, BAILLY CONSULTING, INC.
By:________________________________
Name:
Title:
D-3
<PAGE>
EXHIBIT E-1
GUARANTY
The undersigned (the "Guarantor"), for value received hereby, irrevocably and
unconditionally guarantees to the holder of this Note the due and punctual
payment of the principal of and interest on this Note, when the same shall
become due and payable. Such guaranty is an absolute, unconditional, present and
continuing guaranty of payment and not of collectibility and is in no way
conditioned or contingent upon any attempt to collect from Hagler Bailly
Consulting, Inc. or upon any other condition or contingency.
The Guarantor hereby waives acceptance of this guaranty. The Guarantor further
waives any presentment, demand, protest or notice (including, without
limitation, all notices required by statute, rule of law or otherwise to
preserve rights against the Guarantor hereunder) of any kind.
The Guarantor hereby agrees that its obligations hereunder shall not be subject
to any counterclaims, set-off, deduction or defense based upon any claim that
the Guarantor may have against the holder of this Note (except the defense that
the Note has been previously repaid in full in cash by Consulting).
This guaranty shall be binding upon the successors, assigns, heirs and
representatives of the Guarantor and shall be governed by and construed and
enforced in accordance with the laws of New York, and no defense given or
allowed by the laws of any other state or country shall be interposed in any
action thereon unless such defense is also given or allowed by the laws of New
York.
Dated: January 1, 1996
HAGLER BAILLY, INC.
By:______________________________
Name:
Title:
E-1
<PAGE>
SCHEDULE 4(h)1
Litigation
1. RCG/Hagler, Bailly, Inc. vs. Calderon Energy Company and Albert
Calderon/Calderon Energy Company vs. RCG/ Hagler, Bailly, Inc. & Michael
Yokell
2. Rosen-Wood vs. RCG/Hagler, Bailly, Inc.
3. Richard Voegtle v. RCG/Hagler, Bailly, Inc.
4. Narvin Gray-state EEOC action.
- -------------
1 Inclusion of litigation on the Schedule 4(h) is not an admission that it
is material.
<PAGE>
SCHEDULE 4(i)1
Related Party Transactions
1. Virginia Lease
2. Accounting, Legal, Financial Reporting, Payroll and Tax Advice or Services
- --------------
1 Inclusion of litigation on the Schedule 4(h) is not an admission that it
is material.
<PAGE>
SCHEDULE 5(e)
Disclosure
See attached materials marked Schedule 5(e)-1.
<PAGE>
SCHEDULE (e)-l
FINANCIAL STATEMENTS AND FINANCIAL REPORTS
BALANCE SHEETS AND INCOME STATEMENTS PAST THREE CALENDAR YEARS AND FOUR MONTHS
ENDED APRIL 30, 1995
FORECASTS (DIFFERING SCENARIOS) THROUGH THE YEAR (CALENDAR) 2001
SCHEDULES OF INVESTOR CONTRIBUTIONS, SOURCES OF EQUITY AND INITIAL SHARES
BACKLOGS, BY MONTH, FROM AUGUST, 1994 THROUGH MARCH 31, 1995
PIPELINE ANALYSES (INCLUDING BIDS/PROPOSALS), AS OF MARCH, 1995 AND APRIL, 1995
SUMMARY OF CONTRACT COSTS AND REVENUE (CSR) REPORTS DETAILED GENERAL LEDGERS,
CUMULATIVE, FOR PAST 3 CALENDAR YEARS AND FOR THE FOUR MONTHS ENDED APRIL 30,
1995
SUB-LEDGER SUMMARY OF FIXED ASSETS AND RESERVES
SCHEDULES OF ACCOUNTS RECEIVABLE, PERIODIC, OVER THE PAST THREE YEARS AND
SEMI-MONTHLY FROM DECEMBER 31, 1994
ANALYSIS OF TRENDS IN A/R AND BORROWING BASE COMPUTATIONS (PRO FORMA)
FINANCIAL TRENDS, HIGHLIGHTS AND OTHER STATISTICAL DATA FOR THE PAST TEN YEARS
HISTORICAL PURCHASE, ACQUISITION DATA AND ROI CALCULATIONS
ALL WORKPAPERS, AND ANALYSIS FOR THE PAST THREE CALENDAR YEARS AND THE THREE
MONTHS ENDED MARCH 31, 1995, AS A PART OF THE NORMAL RECORDS AND WORKPAPERS
MAINTAINED BY THE COMPANY
CASH FLOW FORECASTS BY MONTH THROUGH 2001
HBRS ACQUISITION DOCUMENTS INCLUDING FINANCIALS AND LISTED ASSUMED ASSETS AND
LIABILITIES
<PAGE>
SCHEDULE 5(e)
Material Adverse Change
See attached materials marked Schedule 5(e)-2.
<PAGE>
SCHEDULE 5(e)-2
- --------------------------------------------------------------------------------
RCG/Hagler, Bailly, Inc.
- --------------------------------------------------------------------------------
1530 Wilson Boulevard Suite 900 Henri-Claude Bailly
Arlington, VA 22209-2406 Chairman of the Board
(703) 351-0300
Telex: 710-522-1150; Fax: 703-351-0342
May 11, 1995
VIA TELECOPY
Ms. Linda A. Moulton
Vice President
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110-2804
Mr. Lowell C. Freiberg
Senior Vice President
and Chief Financial Officer
Reliance Group Holdings, Inc.
55 East 52nd Street
New York, NY 10055
Dear Linda and Lowell:
In the spirit of the covenants that are likely to be included in the final
Credit Agreement and Subordinated Note we have been negotiating with you, the
purpose of this letter is to inform you of some recent developments concerning
the U.S. Agency for International Development (USAID) which could adversely
affect Hagler Bailly's financial performance in the coming months. As you know,
USAID is the single largest client of the firm. Over the first four months of
this year, it accounted for approximately 62% of our gross revenues, 44% of our
net revenues and 40% of our gross profits.
First, on May 9, we received a copy of a memorandum for USAID (dated April 24,
1995) informing us to start clearing all major expenses with our cognizant
contracting officer. A copy of this memorandum is enclosed. Second, last night,
the House Budget Committee voted to abolish USAID, fold USAID's functions into
the State Department and substantially cut the U.S. foreign assistance budget.
Specifically, the House proposed a 25% cut in assistance to Russia which has
been a major source of revenue for us.
<PAGE>
Ms. Linda A. Moulton
Mr. Lowell C. Freilberg
May 11, 1995
Page 2
Needless to say we are following these developments very closely to ensure they
do not materially affect the overall financial performance of the company.
Despite these uncertainties, management is still committed to the repurchase of
the firm from RCG International. If you have any questions or need additional
information please call me.
Sincerely yours,
/s/ Henri-Claude Bailly
- -----------------------
Henri-Claude Bailly
Chairman
Enclosure
cc: Prospective Stockholders of Hagler Bailly
Pepper, Hamilton & Scheetz (Levinson/Lawlor)
Reliance Group Holdings (Benchimol)
<PAGE>
U.S. AGENCY FOR
INTERNATIONAL
DEVELOPMENT
MEMORANDUM FOR ALL USAID CONTRACTORS, GRANTEES AND RECIPIENTS
FROM: Michael D. Sherwin, Procurement Executive
SUBJECT: Possible USAID Budget Reductions
As you may be aware, there are currently very serious discussions underway in
the U.S. Congress regarding possible rescissions of the approved Fiscal Year
1995 U.S. Agency for International Development (USAID) budget. Concurrently, the
Congress is also discussing very significant reductions in the proposed Fiscal
Year 1996 budget request for USAID.
As a result of the aforementioned deliberations, we must take precautions
regarding upcoming incurrence of expenses under all USAID procurement and
assistance instruments currently in effect. Cuts of the magnitude being
discussed could cause significant changes or, in some cases, outright
termination of procurement and "assistance" instruments.
Therefore, effective this date, you are hereby notified to contact your
cognizant Contracting, Grant or Agreement Officer of record before any major
expenses are incurred, until further advised. Examples would include major
subcontractors, major equipment procurements, mobilization of long-term overseas
personnel, etc.
Further information may be obtained from our cognizant official in the USAID
Office of Procurement.
<PAGE>
SCHEDULE 6(b)
RCG Obligations
Each of the following shall constitute an obligation of RCG only to the extent
that the information supplied to RCG by the Company for inclusion therein was
true, complete and correct and responsive to the requests for information made
by RCG or its affiliates (other than the Company or its subsidiaries).
1. All filings made with the Securities and Exchange Commission by RCG or its
affiliates (other than the Company or its subsidiaries) pursuant to the
Securities Exchange Act of 1934, as amended or the Securities Act of 1933,
as amended.
2. All reports prepared by RCG and filed with the Census Bureau.
3. All federal and state tax returns that included or by statute were
required to include the Company prepared by RCG or its affiliates (other
than the Company or its subsidiaries), subject to Section 8 of the
Agreement.
4. All EEO reports prepared by RCG or its affiliates (other than the Company
or its subsidiaries).
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HAGLER BAILLY, INC.
1. The name of the corporation is Hagler Bailly, Inc.
2. The address of its registered office in the State of Delaware is
1013 Centre Road in the City of Wilmington and the County of New Castle. The
name of its registered agent at such address is Corporation Service Company.
3. The nature of the business or purposes to be conducted or
promoted is:
To engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
4. Capital Stock. The total number of shares of stock which the
corporation shall have authority to issue is:
20,000,000 shares, par value one cent ($.01) per share of Common
Stock
5,000,000 shares, par value one cent ($.01) per share of "Blank
Check Preferred"
5. Blank Check Preferred. Preferred Stock may be issued from time to
time in one or more series. The Board of Directors is hereby authorized to
provide for the issuance of shares of Preferred Stock in series and, by filing a
certificate pursuant to the applicable law of the Sate of Delaware (hereinafter
referred to as a "Preferred Stock Designation"), to establish from time to time
the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations and restrictions thereof. The authority of
the Board of Directors with respect to each series shall include, but not be
limited to, determination of the following:
(a) the designation of the series, which may be by
distinguishing number, letter or title;
(b) the number of shares of the series, which number the
Board of Directors may thereafter (except where
otherwise provided in the Preferred Stock Designation)
increase or decrease (but not below the number of shares
thereof then outstanding);
<PAGE>
(c) whether dividends, if any, shall be cumulative or
noncumulative and the dividend rate of the series;
(d) the dates at which dividends, if any, shall be payable;
(e) the redemption rights and price or prices, if any, for
shares of the series;
(f) the terms and amount of any sinking fund provided for
the purchase or redemption of shares of the series;
(g) the amounts payable on shares of the series in the event
of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the corporation;
(h) whether the shares of the series shall be convertible
into shares of any other class or series, or any other
security, of the corporation or any other corporation,
and, if so, the specification of such other class or
series or such other security, the conversion price or
prices or rate or rates, any adjustments thereof, the
date or dates as of which such shares shall be
convertible and all other terms and conditions upon
which such conversion may be made;
(i) restrictions on the issuance of shares of the same
series or of any other class or series; and
(j) the voting rights, if any, of the holders of shares of
the series.
6. Directors.
a. The number of Directors of the corporation shall be fixed
exclusively by resolution duly adopted from time to time by the affirmative vote
of at least two-thirds of the Board of Directors which shall initially be seven
(7). The Directors shall be divided into three classes, as nearly equal in
number as possible. One class of directors shall be initially elected for a term
expiring at the annual meeting of shareholders to be held in 1998, another class
shall be initially elected for a term expiring at the annual meeting of
shareholders to be held in 1999, and another class shall be initially elected
for a term expiring at the annual meeting of shareholders to be held in 2000.
Members of each class shall hold office until their successors are elected and
shall have qualified. At each annual meeting of the shareholders of the
corporation, commencing with the 1998 annual meeting, the successors of the
class of directors whose term expires at that meeting shall be elected by a
plurality vote of all votes cast at such meeting to hold office for a term
expiring at the annual meeting of shareholders held in the third year following
the year of their election.
2
<PAGE>
Subject to the rights of the holders of any series of
Preferred stock, and unless the Board of Directors otherwise determines, newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies on the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
may be filled only by a majority vote of the directors then in office, though
less than a quorum, and directors so chosen shall hold office for a term
expiring at the annual meeting of shareholders at which the term of office of
the class to which they have been elected expires and until such director's
successor shall have been duly elected and qualified. No decrease in the number
of authorized directors constituting the whole Board of Directors shall shorten
the term of any incumbent director.
Any vacancy occurring in the Board of Directors, including any
vacancy created by reason of a newly created directorship resulting in an
increase in the number of directors or any vacancy resulting from death,
resignation, disqualification, removal or other cause, shall be filled solely by
the affirmative vote of a majority of the remaining Directors then in office, if
a quorum is present. Notwithstanding anything contained herein to the contrary,
any Director that voluntarily leaves office may vote on his or her replacement.
Any Director appointed in accordance with the preceding sentence shall hold
office for the remainder of the full term of the class of Directors in which the
new directorship was created or the vacancy occurred and until such Director's
successor shall have been duly elected and qualified. When the number of
Directors is increased or decreased, the Board of Directors shall determine the
class or classes to which the increased or decreased number of Directors shall
be apportioned. In the event of a vacancy in the Board of Directors, the
remaining Directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until the vacancy is filled.
Any Director (including persons elected by Directors to fill
vacancies in the Board of Directors) may be removed from office only with cause
and by the affirmative vote of at least two-thirds of the total votes which
would be eligible to be cast by stockholders in the election of such Director at
a duly constituted meeting of shareholders called expressly for such purpose. A
Director may not be removed from office without cause. At least 30 days prior to
any meting of stockholders at which it is proposed that any Director be removed
from office, written notice shall be sent to the Director whose removal will be
considered at the meeting.
7. In furtherance of and not in limitation of the powers conferred
by statute, the board of directors is expressly authorized to make, alter or
repeal the by-laws of the corporation.
8. No director of the corporation shall be personally liable to the
corporation or to any stockholder of the corporation for monetary damages for
breach of fiduciary duty as a director, provided that this provision shall not
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit.
3
<PAGE>
9. Elections of directors need not be by written ballot unless the
by-laws of the corporation shall so provide.
10. The books of the corporation may be kept (subject to any
provision contained in the statutes) outside the State of Delaware at such place
or places as may be designated from time to time by the board of directors or in
the by-laws of the corporation.
11. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
HAGLER BAILLY, INC.
BYLAWS
ARTICLE I OFFICES
1.1 Registered Office: The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
1.2 Other Offices: The corporation may also have offices at such other
places both within and without the State of Delaware as the board of directors
may from time to time determine or the business of the corporation may require.
ARTICLE II MEETINGS OF STOCKHOLDERS
2.1 Place of Meetings: All meetings of the stockholders for the election
of directors shall be held at such place either within or without the State of
Delaware as shall be designated from time to time by the board of directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
2.2 Date of Annual Meeting: Annual meetings of stockholders, commencing
with the year 1996, shall be held on the first Wednesday of May, if not a legal
holiday, and if a legal holiday, then on the next secular day following, at
10:00 o'clock A.M., or at such other date and time as shall be designated from
time to time by the board of directors and stated in the notice of the meeting,
at which they shall elect by a plurality vote a board of directors, and transact
such other business as may properly be brought before the meeting.
2.3 Notice of Annual Meeting: Written notice of the annual meeting stating
the place, date and hour of the meeting shall be given to each stockholder
entitled to vote at such meeting not less than ten nor more than sixty days
before the date of the meeting.
2.4 Stockholders List: The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten 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.
Such list shall be open to the examination of any stockholders, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city 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
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be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
2.5 Special Meetings: Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the president and shall be called
by the president or secretary at the request in writing of a majority of the
board of directors, or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
2.6 Notice of Special Meetings: Written notice of a special meeting
stating the place, date and hour of the meeting and the purpose or purposes for
which the meeting is called, shall be given not less than ten nor more than
sixty days before the date of the meeting, to each stockholder entitled to vote
at such meeting.
2.7 Business Transacted at Special Meeting: Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
2.8 Quorum: The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such 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
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
2.9 Vote Required: When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
2.10 Voting: Unless otherwise provided in the certificate of incorporation
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three years
from its date, unless the proxy provides for a longer period.
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At all elections of the directors of the corporation each
stockholder having voting power shall be entitled to exercise the right to
cumulative voting, but only if so provided in the certificate of incorporation.
2.11 Action Without Meeting: Unless otherwise provided in the certificate
of incorporation, any action required to be taken at any annual or special
meeting of stockholders of the corporation, or any action which may be taken at
any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, 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.
ARTICLE III DIRECTORS
3.1 Number of Directors: The first board shall consist of a minimum of one
(1) director. Thereafter, the number of directors shall be determined by
resolution of the board of directors or by the stockholders at the annual
meeting. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 3.2 of these ByLaws, and each
director elected shall hold office until his successor is elected and qualified.
Directors need not be stockholders.
3.2 Vacancies: 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, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual election and until their successors are duly elected and shall qualify,
unless sooner displaced. If there are no directors in office, then an election
of directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
3.3 Powers of Directors: The business of the corporation shall be managed
by or under the direction of its board of directors which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these bylaws directed or
required to be exercised or done by the stockholders.
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3.4 Place of Meetings: The board of directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
3.5 First Meeting: The first meeting of each newly elected board of
directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
board of directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors or as shall be specified in a written
waiver signed by all of the directors.
3.6 Regular Meetings: Regular meetings of the board of directors may be
held without notice at such time and at such place as shall from time to time be
determined by the board.
3.7 Special Meetings: Special meetings of the board may be called by the
president without notice to each director; special meetings shall be called by
the president or secretary in like manner and on like notice on the written
request of two directors unless the board consists of only one director; in
which case special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of the sole director.
3.8 Quorum; Vote Necessary: At all meetings of the board, a majority of
the directors shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
3.9 Action Without Meeting: Unless otherwise restricted by the certificate
of incorporation or these bylaws, 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.
3.10 Telephonic Communications: Unless otherwise restricted by the
certificate of incorporation or these bylaws, members of the board of directors,
or any committee designated by the board of directors, may participate in a
meeting of the board of directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
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3.11 Committees of Directors: The board of directors may, by resolution
passed by a majority of the whole board, designate one or more committees,
including a Management Committee, each committee to consist of one or more of
the directors of the corporation. The board may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the board of directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
board of directors, 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
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors.
3.12 Minute of Committees: Each committee shall keep regular minutes of
its meetings and report the same to the board of directors when required.
3.13 Compensation of Directors: Unless otherwise restricted by the
certificate of incorporation or these bylaws, the board of directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the board of directors
and may be paid a fixed sum for attendance at each meeting of the board of
directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
3.14 Removal of Directors: Unless otherwise restricted by the certificate
of incorporation or by law, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV NOTICES
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4.1 Form: Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
4.2 Waiver: Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V OFFICERS
5.1 Officers Required: The officers of the corporation shall be chosen by
the board of directors and shall be a president, a chief financial
officer/treasurer and a secretary. The board of directors may also choose one or
more vice-presidents, and one or more assistant secretaries and assistant
treasurers. The president will be known as the "managing director." Each other
officer of the corporation shall be known as a "director." (Unless otherwise
indicated herein in connection with an officer of the corporation, all
references to the term director in these bylaws shall mean a member of the board
of directors of the corporation). Any number of offices may be held by the same
person, unless the certificate of incorporation or these bylaws otherwise
provide.
5.2 Election by Directors: The board of directors at its first meeting
after each annual meeting of stockholders shall choose a president (also known
as "managing director"), chief financial officer/treasurer (also known as
"director") and a secretary (also known as "director").
5.3 Other Officers: The board of directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board. All officers other than the president
shall be called "directors."
5.4 Salaries: The salaries of all officers and agents of the corporation
shall be fixed by the board of directors.
5.5 Term; Removal; Vacancy: The officers of the corporation shall hold
office until their successors are chosen and qualify. Any officer elected or
appointed by the board of directors may be removed at any time by the
affirmative vote of a majority of the board of directors. Any vacancy occurring
in any office of the corporation shall be filled by the board of directors.
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5.6 President: The president (also know as "managing director") shall be
the chief executive officer of the corporation, shall preside at all meetings of
the stockholders and the board of directors, shall have general and active
management of the business of the corporation and shall see that all orders and
resolutions of the board of directors are carried into effect.
5.7 President's Execution of Contracts: He shall execute bonds, mortgages
and other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the board of directors to some other officer or agent of the corporation.
5.8 Vice-President's Duties: In the absence of the president or in the
event of his inability or refusal to act, the vice-president (or in the event
there be more than one vice-president, the vice-presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election)(each vice president also known as "director") shall
perform the duties of the president, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the president. The
vice-presidents shall perform such other duties and have such other powers as
the board of directors may from time to time prescribe.
5.9 Secretary's Duties: The secretary (also known as "director") shall
attend all meetings of the board of directors and all meetings of the
stockholders and record all the proceedings of the meetings of the corporation
and of the board of directors in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. He shall give, or
cause to be given, notice of all meetings of the stockholders and special
meetings of the board of directors, and shall perform such other duties as may
be prescribed by the board of directors or president, under whose supervision he
shall be. He shall have custody of the corporate seal of the corporation and he,
or an assistant secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by his signature
or by the signature of such assistant secretary. The board of directors may give
general authority to any other officer to affix the seal of the corporation and
to attest the affixing by his signature.
5.10 Assistant Secretary's Duties: The assistant secretary, or if there be
more than one, the assistant secretaries (each, also known as "director") in the
order determined by the board of directors (or if there be no such
determination, then in the order of their election) shall, in the absence of the
secretary or inn the event of his inability or refusal to act, perform the
duties and exercise the powers of the secretary and shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe.
5.11 Chief Financial Officer/Treasurer's General Duties: The chief
financial officer/treasurer (also known as "director") shall have the 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
deposit all monies and other valuable effects in the name
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and to the credit of the corporation in such depositories as may be designated
by the board of directors.
5.12 Chief Financial Officer/Treasurer to Disburse Funds: 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 the board of directors, at its regular meetings, or when the
board of directors so requires, an account of all his transactions as chief
financial officer and of the financial condition of the corporation.
5.13 Chief Financial Officer/Treasurer's Bond: If required by the board of
directors, he shall give the corporation a bond (which shall be renewed every
six years) in such sum and with such surety or sureties as shall be satisfactory
to the board of directors for the faithful performance of the duties of his
office and for the restoration to the corporation, in case of his death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his possession or under his control
belonging to the corporation.
5.14 Assistant Treasurer's Duties: The assistant treasurer, or if there
shall be more than one, the assistant treasurers (each, known as "director") in
the order determined by the board of directors (or if there be no such
determination, then in the order of their election), shall, in the absence of
the chief financial officer/treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the chief
financial officer/treasurer and shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
ARTICLE VI
6.1 Certificate of Stock: Every holder of stock in the corporation shall
be entitled to have a certificate, signed by, or in the name of the corporation
by, the chairman or vice-chairman of the board of directors, or the president or
a vice-president and the treasurer or an assistant treasurer, or the secretary
or an assistant secretary of the corporation, certifying the number of shares
owned by him in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class
of stock, or more than one series of any class, 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 shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent
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such class or series of stock, provided that, except as otherwise provided in
Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock, a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights or each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
6.2 Signatures: Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
6.3 Lost Certificates: The board of directors may direct a new certificate
or certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
6.4 Transfer of Stock: Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
6.5 Fixing Record Date: 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 to express consent to corporate action in writing
without a meeting, 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 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 nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. 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.
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6.6 Registered Stockholders: The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VII GENERAL PROVISIONS
7.1 Dividends: Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
7.2 Reserves: Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
7.3 Annual Statement: The board of directors shall present at each annual
meeting, and at any special meeting of the stockholders when called for by vote
of the stockholders, a full and clear statement of the business and condition of
the corporation.
7.4 Checks: All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
7.5 Fiscal Year: The fiscal year of the corporation shall be determined by
the Board of Directors.
7.6 Seal: The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII INDEMNIFICATION
8.1 Actions By Third Parties: The corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or
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in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
8.2 Actions By or In the Right of the Corporation: The corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only to
the extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
8.3 Expenses of Successful Defense: To the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections
8.l and 8.2 of these bylaws, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
8.4 Determination That Indemnification Is Proper: Any indemnification
under Sections 8.1 and 8.2 of these bylaws, (unless ordered by a court) shall be
made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in Sections 8.1 and 8.2 of these bylaws. Such determination
shall be made (l) by the board of directors by a majority vote of a quorum
consisting of directors who
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were not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
8.5 Advances: Expenses incurred in defending a civil or criminal action,
suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the board of
directors in the specific case upon receipt of an undertaking by or on behalf of
the director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this section.
8.6 Provisions Not Exclusive: The indemnification provided by this Article
VIII shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
8.7 Insurance: The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article VIII.
8.8 Constituent Corporation: For purposes of this Article VIII, references
to "the corporation" shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify the directors,
officers, and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was serving
at the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article VIII with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
8.9 Other Enterprises; Fines; Services: For purposes of this Article VIII,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of the corporation" shall include any service as a director, officer, employee
or agent of the corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an employee benefit
plan, its participants or
-12-
<PAGE>
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interest of the corporation" as referred to in this Article
VIII.
8.10 Continuation of Indemnification and Advancement of Expenses: The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Article VIII shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
ARTICLE IX AMENDMENTS
9.1 Amendments by Stockholders or Directors: These bylaws may be altered,
amended or repealed or new bylaws may be adopted by the stockholders or by the
board of directors, when such power is conferred upon the board of directors by
the certificate of incorporation at any regular meeting of the stockholders or
of the board of directors or at any special meeting of the stockholders or of
the board of directors if notice of such alteration, amendment, repeal or
adoption of new bylaws be contained in the notice of such special meeting. If
the power to adopt, amend or repeal bylaws is conferred upon the board of
directors by the certificate of incorporation it shall not divest or limit the
power of the stockholders to adopt, amend or repeal bylaws.
-13-
HAGLER BAILLY, INC.
EMPLOYEE INCENTIVE AND NON-QUALIFIED STOCK
OPTION AND RESTRICTED STOCK PLAN
Originally Adopted May 17, 1995
Amended and Restated, Effective as of December 31, 1996
<PAGE>
TABLE OF CONTENTS
HAGLER BAILLY, INC.
EMPLOYEE INCENTIVE AND NON-QUALIFIED STOCK
OPTION AND RESTRICTED STOCK PLAN
Page
----
Section 1. Purposes....................................................... 1
Section 2. Definitions.................................................... 1
Section 3. Participation. ................................................ 4
Section 4. Administration. ............................................... 5
Section 5. Eligibility. ................................................. 6
Section 6. Stock Subject to the Plan...................................... 6
Section 7. Terms and Conditions of Options................................ 6
Section 8. Restricted Stock............................................... 10
Section 9. Determination of Fair Market Value Per Share of Common Stock... 11
Section 10. Adjustments................................................... 11
Section 11. Rights as a Stockholder....................................... 12
Section 12. Time of Awarding Options...................................... 12
Section 13. Modification, Extension and Renewal of Option.................. 12
Section 14. Purchase for Investment and Other Restrictions................ 13
Section 15. Transferability............................................... 14
Section 16. Other Provisions.............................................. 14
Section 17. Power of Board in Case of Change of Control................... 14
Section 18. Amendment of the Plan......................................... 14
<PAGE>
Section 19. Application of Funds.......................................... 15
Section 20. No Obligation to Exercise Option.............................. 15
Section 21. Approval of Stockholders...................................... 15
Section 22. Conditions Upon Issuance of Shares............................ 15
Section 23. Reservation of Shares......................................... 15
Section 24. Stock Option and Stock Purchase Agreements.................... 16
Section 25. Taxes, Fees, Expenses and Withholding of Taxes................ 16
Section 26. Notices....................................................... 16
Section 27. No Enlargement of Awardee Rights.............................. 17
Section 28. Information to Awardees....................................... 17
Section 29. Availability of Plan.......................................... 17
Section 30. Invalid Provisions............................................ 17
Section 31. Applicable Law................................................ 17
Section 32. Board Action.................................................. 18
EXHIBIT A-1 - INCENTIVE STOCK OPTION AGREEMENT.......................... Tab 2
EXHIBIT A-2 - NON-QUALIFIED STOCK OPTION AGREEMENT...................... Tab 3
EXHIBIT B - STOCK PURCHASE AGREEMENT.................................... Tab 4
FORM OF GRANT LETTERS .................................................. Tab 5
<PAGE>
HAGLER BAILLY, INC.
EMPLOYEE INCENTIVE AND NON-QUALIFIED STOCK
OPTION AND RESTRICTED STOCK PLAN
Section 1. Purposes.
The Hagler Bailly, Inc. Employee Incentive and Non-Qualified Stock
Option and Restricted Stock Plan (the "Plan") was originally adopted on May 17,
1995. The Plan was amended and restated, effective December 31, 1996. The
purposes of the Plan are (a) to recognize and compensate selected key Employees
of Hagler Bailly, Inc. ("the Company") and its Subsidiaries who contribute to
the development and success of the Company and its Subsidiaries; (b) to maintain
the competitive position of the Company and its Subsidiaries by attracting and
retaining key Employees; and (c) to provide incentive compensation to such key
Employees based upon the Company's performance, as measured by the appreciation
in Common Stock. The Options granted pursuant to the Plan are intended to
constitute either Incentive Stock Options within the meaning of section 422 of
the Code, or non-qualified stock options, as determined by the Committee, or the
Board if no Committee has been appointed, at the time of Award. The type of
Options awarded will be specified in the Option Agreement between the Company
and the Optionee. The terms of this Plan shall be incorporated in the Option
Agreement to be executed by the Optionee.
Section 2. Definitions.
(a) "Affiliate" shall mean, with respect to a Person, a Person that
directly or indirectly controls, or is controlled by, or is under common control
with such Person.
(b) "Award" shall mean a grant of an Option or Options or an award
of Restricted Stock to an Employee pursuant to the provisions of this Plan. Each
separate grant of an Option or Options to an Employee, and each separate award
of Restricted Stock, and each group of Options which matures on a separate date,
is treated as a separate Award.
(c) "Awardee" shall mean an Employee to whom an Award is made.
(d) "Board" shall mean the Board of Directors of the Company, as
constituted from time to time.
(e) "Change of Control" shall mean a change in the control of the
Company which shall be deemed to have occurred upon the earliest to occur of the
following: (i) the date the stockholders of the Company (or the Board, if
stockholder action is not required) approve a plan or other arrangement pursuant
to which the Company will be dissolved or liquidated, or (ii) the date the
stockholders of the Company approve a definitive agreement to sell or otherwise
dispose of all or substantially all of the assets of the Company, or (iii) the
date the stockholders
<PAGE>
of the Company and the stockholders of the other constituent corporations (or
their respective boards of directors, if and to the extent that stockholder
action is not required) have approved a definitive agreement to merge or
consolidate the Company with or into another corporation, other than, in either
case, a merger or consolidation of the Company in which the Company is the
surviving entity, and in which shares of the Company's voting capital stock
outstanding immediately before such merger or consolidation are exchanged or
converted into shares which represent more than 50% of the Company's voting
capital stock after such merger or consolidation, as such holders' ownership of
voting capital stock of the Company immediately before the merger or
consolidation, or (iv) the date any Person, other than (A) the Company, or (B)
any of its Subsidiaries, or (C) any of the holders of the capital stock of the
Company, as determined on the date that this Plan is adopted by the Board, or
(D) any employee benefit plan (or related trust) sponsored or maintained by the
Company or any of its Subsidiaries or (E) any Affiliate of any of the foregoing,
shall have acquired beneficial ownership of, or shall have acquired voting
control over more than 50% of the outstanding shares of the Company's voting
capital stock (on a fully diluted basis), unless the transaction pursuant to
which such Person acquired such beneficial ownership or control resulted from
the original issuance by the Company of shares of its voting capital stock and
was approved by at least a majority of the directors then in office.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Committee" shall mean the Committee appointed by the Board in
accordance with Section 4(a) of the Plan, if one is appointed, in which event in
connection with this Plan, the Committee shall possess all of the power and
authority of, and shall be authorized to take any and all actions required to be
taken hereunder by, and make any and all determinations required taken hereunder
by, the Board.
(h) "Common Stock" shall mean Class A common stock of the Company,
$.01 par value per Share.
(i) "Company" shall mean Hagler Bailly, Inc., a Delaware
corporation.
(j) "Covenant Not to Compete" shall mean the noncompetition covenant
set forth in Section 10 of the Stockholders Agreement or (if an Awardee is not a
party thereto) otherwise applicable to the Awardee and the Company or its
Subsidiaries.
(k) "Disability" shall mean a disability of an employee, officer or
a director which renders such employee, officer or director unable to perform
the full extent of his duties and responsibilities by reason of his illness or
incapacity which would entitle that employee, officer or director to receive
Social Security Disability Income under the Social Security Act, as amended, and
the regulations promulgated thereunder. "Disabled" shall mean having a
Disability. The determination of whether an Optionee is Disabled shall be made
by the Board, whose determination shall be conclusive; provided that, (i) if an
Optionee is bound by the terms of an Employment Agreement between the Optionee
and the Company, whether the Optionee is
2
<PAGE>
"Disabled" for purposes of the Plan shall be determined in accordance with the
procedures set forth in said Employment Agreement, if such procedures are
therein provided; and (ii) an Optionee bound by such an Employment Agreement
shall not be determined to be Disabled under the Plan any earlier than he would
be determined to be disabled under his Employment Agreement.
(l) "Employee" shall mean any person employed by the Company or any
of its Subsidiaries on whose behalf wages are reported on IRS Form W-2.
Additionally, solely for purposes of determining those persons eligible under
the Plan to be recipients of Awards of Options, which Options shall be limited
to non-qualified stock options or Restricted Stock, and not for the purpose of
affecting the status of the relationship between such person and the Company,
the term "Employee" shall include independent contractors of and consultants to
the Company, as well as members of the Board or of the board of directors of a
Subsidiary.
(m) "Exchange Act" shall mean The Securities Exchange Act of 1934,
as amended.
(n) "Fair Market Value Per Share" shall mean the fair market value
of a share of Common Stock, as determined pursuant to Section 9 hereof.
(o) "Grant Date" means (i) the effective date of registration under
Section 12 of the Exchange Act of a class of equity securities of the Company
and (ii) each date thereafter prescribed under the Company's Articles of
Incorporation and By-laws for the election of directors which falls before the
earlier of (A) the date six months after the termination of such registration,
or (B) the tenth anniversary of the date on which this Plan is adopted by the
Board.
(p) "Incentive Stock Option" shall mean an Option which is an
incentive stock option as described in Section 422 of the Code.
(q) "Non-Employee Director" shall have the meaning set forth in Rule
16b-3(b)(3)(i) promulgated by the Securities and Exchange Commission under the
Exchange Act, or any successor definition adopted by the Securities and Exchange
Commission.
(r) "Option(s)" shall mean an Incentive Stock Option or a
non-qualified stock option to purchase Shares that is Awarded pursuant to the
Plan.
(s) "Option Agreement" shall mean a written agreement substantially
in the form of Exhibit A-1 and A-2, or such other form or forms as the Board or
Committee (subject to the terms and conditions of this Plan) may from time to
time approve evidencing and reflecting the terms of an Option.
(t) "Optionee" shall mean an Employee to whom an Option is awarded.
3
<PAGE>
(u) "Participant" shall mean each Employee of the Company or a
Subsidiary to whom an Award is granted pursuant to the Plan.
(v) "Person" shall mean an individual, partnership, corporation,
limited liability company, trust, joint venture, unincorporated association, or
other entity or association.
(w) "Plan" shall mean the Hagler Bailly, Inc. Employee Incentive and
Non- Qualified Stock Option and Restricted Stock Plan, as amended from time to
time.
(x) "Pool" shall mean the pool of Shares of Common Stock subject to
the Plan, as described in Section 6 hereof.
(y) "Restricted Stock" shall mean an Award of Shares of Common Stock
that is subject to restrictions pursuant to Section 8 hereof.
(z) "Securities Act" shall mean The Securities Act of 1933, as
amended.
(aa) "Shares" shall mean shares of Common Stock contained in the
Pool, as adjusted in accordance with Section 10 of the Plan.
(bb) "Stock Purchase Agreement" shall mean an agreement
substantially in the form attached hereto as Exhibit B, or such other form as
the Board or Committee (subject to the terms and conditions of this Plan) may
from time to time approve, which an Optionee shall be required to execute as a
condition of purchasing Shares upon the exercise of an Option.
(cc) "Stockholders Agreement" shall mean the Stockholders Agreement
dated as of May 15, 1995 by and among the Company and its stockholders, as
amended from time to time.
(dd) "Subsidiary" shall mean a subsidiary corporation, whether now
or hereafter existing, as defined in sections 424(f) and (g) of the Code.
Section 3. Participation.
(a) In General. Participants in the Plan shall be selected by the
Board from the Employees. The Board may make Awards at any time and from time to
time to Employees. Any Award may include or exclude any Employee, as the Board
shall determine in its sole discretion.
(b) Non-Employee Directors. In the event the Company has a class of
equity securities registered under Section 12 of the Exchange Act, from the
effective date of such registration until six months after the termination of
such registration, no Awards of Options shall be made under the Plan to any
director of the Company who is a Non-Employee Director except pursuant to this
Section 3(b).
4
<PAGE>
(i) Automatic Awards. Awards of Options to directors of the
Company who are Non-Employee Directors shall be granted, without any further
action by the Board or Committee, as follows. Upon the effective date of the
Company's registration of a class of equity securities under Section 12 of the
Exchange Act, and on each Grant Date thereafter, each director of the Company
who is a Non-Employee Director shall receive an Award of a non-qualified stock
Option to purchase 3,000 Shares.
(ii) Option Price. The price per Share payable upon the
exercise of any Option granted under this Section 3(b) shall be 100% of the Fair
Market Value of such Share on the Grant Date.
Section 4. Administration.
(a) Procedure. The Plan shall be administered by the Board. The
Board may at any time by a unanimous vote, with each Member voting, appoint a
Committee consisting of not less than two persons, each of whom is a
Non-Employee Director, to administer the Plan on behalf of the Board, subject to
such terms and conditions as the Board may prescribe. Members of the Committee
shall serve for such period of time as the Board may determine. Members of the
Board or the Committee who are eligible for Options or have been Awarded Options
may vote on any matters affecting the administration of the Plan or the Award of
any Options pursuant to the Plan, except that no such member shall act upon the
Award of an Option to himself or herself, but any such member may be counted in
determining the existence of a quorum at any meeting of the Board or Committee
during which action is taken with respect to the Award of Options to himself or
herself.
From time to time the Board may increase the size of the Committee
and appoint additional members thereto, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies however caused,
or remove all members of the Committee and thereafter directly administer the
Plan.
(b) Powers of the Board and the Committee. Subject to the provisions
of the Plan, the Board or its Committee shall have the authority, in its
discretion: (i) to make Awards; (ii) to determine the Fair Market Value Per
Share; (iii) to determine the exercise price of the Options to be Awarded in
accordance with Sections 7 and 8 of the Plan; (iv) to determine the Employees to
whom, and the time or times at which, Awards shall be made, and the number of
Shares to be subject to each Award; (v) to prescribe, amend and rescind rules
and regulations relating to the Plan; (vi) to determine the terms and provisions
of each Award under the Plan, each Option Agreement and each Stock Purchase
Agreement (which need not be identical with the terms of other Awards, Option
Agreements and Stock Purchase Agreements) and, with the consent of the Optionee,
to modify or amend an outstanding Option, Option Agreement or Stock Purchase
Agreement; (vii) to accelerate the vesting or exercise date of any Award; (viii)
to interpret the Plan or any agreement entered into with respect to an Award or
exercise of Options; (ix) to authorize any person to execute on behalf of the
Company any instrument required to effectuate an Award or to take such other
actions as may be necessary or appropriate with respect
5
<PAGE>
to the Company's rights pursuant to Awards or agreements relating to the Award
or exercise thereof; and (x) to make such other determinations and establish
such other procedures as it deems necessary or advisable for the administration
of the Plan.
(c) Effect of the Board's or Committee's Decision. All decisions,
determinations and interpretations of the Board or the Committee shall be final
and binding with respect to all Awards under the Plan.
(d) Limitation of Liability. Notwithstanding anything herein to the
contrary (with the exception of Section 32 hereof), no member of the Board or of
the Committee shall be liable for any good faith determination, act or failure
to act in connection with the Plan or any Award hereunder.
Section 5. Eligibility.
Awards may be made only to Employees. An Employee who has received
an Award, if he or she is otherwise eligible, may receive additional Awards.
Section 6. Stock Subject to the Plan.
Subject to the provisions of this Section 6 and the provisions of
Section 10 of the Plan, the maximum aggregate number of Shares which may be
Awarded and sold under the Plan is 462,767.6 Shares of Common Stock
(collectively, the "Pool"). Options Awarded from the Pool may be either
Incentive Stock Options or non-qualified stock options, as determined by the
Board. If an Option should expire or become unexercisable for any reason without
having been exercised in full, or if a Restricted Stock Award shall fail to
become vested, or if Shares are subsequently repurchased by the Company, the
unpurchased or repurchased Shares which were subject thereto shall, unless the
Plan shall have been terminated, be returned to the Plan and become available
for future Award under the Plan.
Section 7. Terms and Conditions of Options.
Each Option Awarded pursuant to the Plan shall be authorized by the
Board and shall be evidenced by an Option Agreement in such form as the Board
may from time to time determine. Each Option Agreement shall incorporate by
reference all other terms and conditions of the Plan, including the following
terms and conditions:
(a) Number of Shares. The number of Shares subject to the Option,
which may include fractional Shares.
(b) Option Price. The price per Share payable on the exercise of any
Option which is an Incentive Stock Option shall be stated in the Option
Agreement and shall be no less than the Fair Market Value Per Share of the
Common Stock on the date such Option is Awarded, without regard to any
restriction other than a restriction which will never lapse. Notwithstanding
6
<PAGE>
the foregoing, if an Option which is an Incentive Stock Option shall be Awarded
under this Plan to any person who, at the time of the Award of such Option, owns
stock possessing more than 10% of the total combined voting power of all classes
of the Company's stock, the price per Share payable upon exercise of such
Incentive Stock Option shall be no less than 110 percent (110%) of the Fair
Market Value Per Share of the Common Stock on the date such Option is Awarded.
The price per Share payable on the exercise of an Option which is a
non-qualified stock option shall be at least $.01 per Share and shall be stated
in the Option Agreement.
(c) Consideration. The consideration to be paid for the Shares to be
issued upon the exercise of an Option, including the method of payment, shall be
determined by the Board and may consist entirely of cash, check, promissory
notes or Shares of Common Stock having an aggregate Fair Market Value Per Share
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised, or any combination of such methods of
payment, or such other consideration and method of payment permitted under any
laws to which the Company is subject and which is approved by the Board. In
making its determination as to the type of consideration to accept, the Board
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
(i) If the consideration for the exercise of an Option is a
promissory note, it may, in the discretion of the Board, be either full recourse
or nonrecourse and shall bear interest at a per annum rate which is not less
than the applicable federal rate determined in accordance with section 1274(d)
of the Code as of the date of exercise. In such an instance the Company may, in
its sole discretion, retain the Shares purchased upon exercise of the Option in
escrow as security for payment of the promissory note.
(ii) If the consideration for the exercise of an Option is the
surrender of previously acquired and owned shares of Common Stock, the Optionee
will be required to make representations and warranties satisfactory to the
Company regarding his title to the shares of Common Stock used to effect the
purchase (the "Payment Shares"), including without limitation, representations
and warranties that the Optionee has good and marketable title to such Payment
Shares free and clear of any and all liens, encumbrances, charges, equities,
claims, security interests, options or restrictions, and has full power to
deliver such Payment Shares without obtaining the consent or approval of any
person or governmental authority other than those which have already given
consent or approval in a manner satisfactory to the Company. The per Share value
of the Payment Shares shall be the Fair Market Value Per Share of such Payment
Shares on the date of exercise as determined by the Board in its sole
discretion, exercised in good faith. If such Payment Shares were acquired upon
previous exercise of Incentive Stock Options granted within two years prior to
the exercise of the Option or acquired by the Optionee within one year prior to
the exercise of the Option, such Optionee shall be required, as a condition to
using the Payment Shares in payment of the exercise price of the Option, to
acknowledge the tax consequences of doing so, in that such previously exercised
Incentive Stock Options may have, by such action, lost their status as Incentive
Stock Options, and the Optionee may have to recognize ordinary income for tax
purposes as a result.
7
<PAGE>
(d) Form of Option. The Option Agreement will state whether the
Option Awarded is an Incentive Stock Option or a non-qualified stock option, and
will constitute a binding determination as to the form of Option Awarded.
(e) Exercise of Options. Any Option Awarded hereunder shall be
exercisable at such times and under such conditions as shall be set forth in the
Option Agreement (as may be determined by the Board and as shall be permissible
under the terms of the Plan), which may include performance criteria with
respect to the Company and/or the Optionee, and as shall be permissible under
the terms of the Plan. Notwithstanding the foregoing, any Option awarded under
Section 3(b) hereunder shall be immediately exercisable in full.
An Option may be exercised in accordance with the provisions
of this Plan as to all or any portion of the Shares then exercisable under an
Option from time to time during the term of the Option. An Option may not be
exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company at its principal executive office
in accordance with the terms of the Option Agreement by the person entitled to
exercise the Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company, accompanied by any
agreements required by the terms of the Plan and/or Option Agreement, including
an executed Stock Purchase Agreement. Full payment may consist of such
consideration and method of payment allowable under Section 7 of the Plan. No
adjustment shall be made for a dividend or other right for which the record date
is prior to the date the Option is exercised, except as provided in Section 10
of the Plan.
As soon as practicable after any proper exercise of an Option
in accordance with the provisions of the Plan, the Company shall, without
transfer or issue tax to the Optionee, deliver to the Optionee at the principal
executive office of the Company or such other place as shall be mutually agreed
upon between the Company and the Optionee, a certificate or certificates
representing the Shares for which the Option shall have been exercised.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(f) Term and Vesting of Options.
(i) Notwithstanding any other provision of this Plan, no
Option shall be (A) Awarded under this Plan after ten (10) years from the date
on which this Plan is adopted by the Board, or (B) exercisable more than ten
(10) years from the date of Award; provided, however, that if an Option that is
intended to be an Incentive Stock Option shall be Awarded under this Plan to any
person who, at the time of the Award of such Option, owns stock possessing more
than 10% of the total combined voting power for all classes of the Company's
8
<PAGE>
stock, the foregoing clause (B) shall be deemed modified by substituting "five
(5) years" for the term "ten (10) years" that appears therein.
(ii) No Option Awarded to any Optionee shall be treated as an
Incentive Stock Option, to the extent such Option would cause the aggregate Fair
Market Value Per Share (determined as of the date of Award of each such Option)
of the Shares with respect to which Incentive Stock Options are exercisable by
such Optionee for the first time during any calendar year to exceed $100,000.
For purposes of determining whether an Incentive Stock Option would cause such
aggregate Fair Market Value Per Share to exceed the $100,000 limitation, such
Incentive Stock Options shall be taken into account in the order Awarded. For
purposes of this subsection, Incentive Stock Options include all Incentive Stock
Options under all plans of the Company that are Incentive Stock Option plans
within the meaning of section 422 of the Code.
Except as provided in Section 7(g)(iv), Options Awarded hereunder
shall mature and become exercisable in whole or in part, in accordance with such
vesting schedule as the Board shall determine, which schedule shall be stated in
the Option Agreement. Notwithstanding the preceding sentence, Options awarded
pursuant to Section 3(b) hereunder shall be fully vested at grant. Options may
be exercised in any order elected by the Optionee whether or not the Optionee
holds any unexercised Options under this Plan or any other plan of the Company.
(g) Termination of Options.
(i) Unless sooner terminated as provided in this Plan, each
Option shall be exercisable for such period of time as shall be determined by
the Board and set forth in the Option Agreement, and shall be void and
unexercisable thereafter.
(ii) Except as otherwise provided herein or by the terms of
any Award, no Option shall be exercisable after termination of the Optionee's
employment with or other engagement by the Company for any reason.
(iii) Except as otherwise provided herein of by the terms of
any Award, upon the Disability or death of an Optionee while in the employ of
the Company, Options held by such Optionee which are exercisable on the date of
Disability or death shall be exercisable for a period of twelve (12) months
commencing on the date of the Optionee's Disability or death, by the Optionee or
his legal guardian or representative or, in the case of death, by his
executor(s) or administrator(s).
(iv) Options may be terminated at any time by agreement
between the Company and the Optionee.
(h) Forfeiture. Notwithstanding any other provision of this Plan, if
an Optionee shall engage in any activity in breach of the Covenant Not to
Compete, all Options held
9
<PAGE>
by such Optionee which have not yet been exercised shall terminate immediately
upon the commencement thereof. Notwithstanding any other provision of this Plan,
if the Optionee's employment or engagement is terminated for "cause" (as such
term is defined in the Optionee's employment agreement or non-disclosure
agreement with the Company, if any) or if the Board makes a determination that
the Optionee:
(i) has engaged in any type of disloyalty to the Company,
including without limitation, fraud, embezzlement, theft, or dishonesty in the
course of his employment or engagement, or has otherwise breached any fiduciary
duty owed to the Company;
(ii) has been convicted of a felony;
(iii) has disclosed trade secrets or confidential information
of the Company;
(iv) has breached any agreement with or duty to the Company in
respect of confidentiality, non-disclosure, non-competition or otherwise, all
unexercised Options shall terminate upon the date of such a finding, or, if
earlier, the date of termination of employment or engagement for "cause."
In the event of such a finding, in addition to immediate termination
of all unexercised Options, the Optionee shall forfeit all Shares for which the
Company has not yet delivered share certificates to the Optionee and the Company
shall refund to the Optionee the Option purchase price paid to it, if any, in
the same form as it was paid (or in cash at the Company's discretion).
Notwithstanding anything herein to the contrary, the Company may withhold
delivery of share certificates pending the resolution of any inquiry that could
lead to a finding resulting in forfeiture.
Section 8. Restricted Stock.
(a) Administration. Shares of Restricted Stock may be issued either
alone or in addition to other Awards granted under the Plan. The Board shall
determine the persons to whom, and the time or times at which, grants of
Restricted Stock will be made, the number of Shares to be Awarded, the price (if
any) to be paid by the recipient of Restricted Stock, the time or times within
which such Awards may be subject to forfeiture, and all other conditions of the
Awards.
The Board may condition the vesting of Restricted Stock upon the
attainment of specified performance goals or such other factors as the Board may
determine, in its sole discretion, at the time of the Award.
The provisions of Restricted Stock Awards need not be the same with
respect to each recipient.
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(b) Awards. The prospective recipient of a Restricted Stock Award
shall not have any rights with respect to such Award, unless and until such
recipient has executed an agreement evidencing the Award and has delivered a
fully executed copy thereof to the Company, and has otherwise complied with the
applicable terms and conditions of such Award. The purchase price for shares of
Restricted Stock may be zero.
Each Employee receiving a Restricted Stock Award shall be required,
as a condition precedent to receipt of such Award, to execute a joinder or other
counterpart to the Stockholders Agreement.
(c) Restrictions and Conditions. Except as provided in this Section
8(c), the Employee shall have, with respect to the Shares of Restricted Stock,
all of the rights of a shareholder of the Company, including the right to vote
the shares, and the right to receive any cash dividends. The Board, in its sole
discretion, as determined at the time of Award, may permit or require the
payment of cash dividends in respect of Shares of Restricted Stock Awarded under
the Plan to be deferred and, if the Board so determines, reinvested in
additional Shares of Restricted Stock to the extent Shares are available under
Section 6 of the Plan.
Section 9. Determination of Fair Market Value Per Share of Common
Stock.
(a) Except to the extent otherwise provided in this Section 9, the
Fair Market Value Per Share of Common Stock shall be determined by the Board in
its sole discretion.
(b) Notwithstanding the provisions of Section 9(a), in the event
that shares of Common Stock are traded in the over-the-counter market, the Fair
Market Value Per Share of Common Stock shall be the mean of the bid and asked
prices for a share of Common Stock on the relevant valuation date as reported in
The Wall Street Journal (or, if not so reported, as otherwise reported by the
National Association of Securities Dealers Automated Quotations ("NASDAQ")
System), as applicable or, if there is no trading on such date, on the next
trading date. In the event shares of Common Stock are listed on a national or
regional securities exchange or traded through the NASDAQ National Market, the
Fair Market Value of a share of Common Stock shall be the closing price for a
share of Common Stock on the exchange or on the NASDAQ National Market, as
reported in The Wall Street Journal on the relevant valuation date, or if there
is no trading on that date, on the next trading date.
Section 10. Adjustments.
(a) Subject to required action by the stockholders, if any, the
number of Shares as to which Awards may be made under this Plan and the number
of Shares subject to outstanding Options and the Option prices thereof shall be
adjusted proportionately for any increase or decrease in the number of
outstanding Shares of Common Stock of the Company resulting from stock splits,
reverse stock splits, stock dividends, reclassifications and recapitalizations,
merger, consolidation, exchange of shares, or rights offered to purchase shares
11
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of Common Stock at a price substantially below Fair Market Value Per Share or
any similar change affecting Common Stock.
(b) No fractional Shares shall be issuable on account of any action
mentioned in Section 10(a), and the aggregate number of Shares into which Shares
then covered by the Award, when changed as the result of such action, shall be
reduced to the number of whole Shares resulting from such action, unless the
Board, in its sole discretion, shall determine to issue scrip certificates with
respect to any fractional Shares, which scrip certificates, in such event, shall
be in a form and have such terms and conditions as the Board in its discretion
shall prescribe.
Section 11. Rights as a Stockholder.
A recipient of an Option Award shall have no rights as a stockholder
of the Company and shall neither have the right to vote nor receive dividends
with respect to any Shares subject to an Option until such Option has been
exercised and a certificate with respect to the Shares purchased upon such
exercise has been issued to him. A recipient of a Restricted Stock Award shall
have all rights as a stockholder with respect to the Shares of Restricted Stock
Awarded from and after the later to occur of (i) the date of the Award (as
determined under Section 12 hereof) or (ii) the date the Awardee makes payment
of the purchase price, if any, designated by the Board as a condition of such
Award.
Section 12. Time of Awarding Options.
The date of an Award shall, for all purposes, be the date which the
Board specifies when the Board makes its determination that an Award is made or
if none is specified, then the date of the Board's determination. Notice of the
determination shall be given to each Employee to whom an Award is made within a
reasonable time after the date of such Award.
Section 13. Modification, Extension and Renewal of Option.
Subject to the terms and conditions of the Plan, the Board may
modify, extend or renew an Award, or accept the surrender of an Award (to the
extent not theretofore exercised). Notwithstanding the foregoing, (a) no
modification of an Award which adversely affects the Awardee shall be made
without the consent of the Awardee, and (b) no Incentive Stock Option may be
modified, extended or renewed if such action would cause it to cease to be an
"Incentive Stock Option" within the meaning of section 422 of the Code, unless
the Optionee specifically acknowledges and consents to the tax consequences of
such action.
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Section 14. Purchase for Investment and Other Restrictions.
(a) The obligation of the Company to issue Shares to an Awardee upon
the exercise of an Option or as part of a Restricted Stock Award granted under
the Plan is conditioned upon (i) the Company obtaining any required permit or
order from appropriate governmental agencies, authorizing the Company to issue
such Shares, and (ii) such issuance complying with all relevant provisions of
the law, including, without limitation, the Securities Act, the Exchange Act,
the rules and regulations promulgated thereunder.
(b) At the option of the Board, the obligation of the Company to
issue Shares to an Awardee upon the exercise of an Option granted, or upon a
Restricted Stock Award made, under the Plan may be conditioned upon obtaining
appropriate representations, warranties, restrictions and agreements of the
Awardee as set forth in the applicable Stock Purchase Agreement. Among other
representations, warranties, restrictions and agreements, the Awardee may be
required to represent and agree that the purchase of Shares shall be for
investment, and not with a view to the public resale or distribution thereof,
unless the Shares are registered under the Securities Act and the issuance and
sale of the Shares complies with all other laws, rules and regulations
applicable thereto. Unless the issuance of such Shares is registered under the
Securities Act, the Awardee shall acknowledge that the Shares purchased are not
registered under the Securities Act and may not be sold or otherwise transferred
unless the Shares have been registered under the Securities Act in connection
with the sale or other transfer thereof, or that counsel satisfactory to the
Company has issued an opinion satisfactory to the Company that the sale or other
transfer of such Shares is exempt from registration under the Securities Act,
and unless said sale or transfer is in compliance with all other applicable
laws, rules and regulations, including all applicable federal and state
securities laws, rules and regulations. Additionally, the Shares, when issued,
shall be subject to other transfer restrictions, rights of first refusal and
rights of repurchase as set forth in Stockholders Agreement. Unless the Shares
subject to an Award are registered under the Securities Act, the certificates
representing such Shares issued shall contain the following legend in
substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SHARES HAVE NOT BEEN ACQUIRED WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR
DISPOSED OF, BY GIFT OR OTHERWISE, OR IN ANY WAY ENCUMBERED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE
SECURITIES LAWS, OR A SATISFACTORY OPINION OF COUNSEL SATISFACTORY
TO HAGLER BAILLY, INC. THAT REGISTRATION IS NOT REQUIRED UNDER SUCH
ACT AND UNDER APPLICABLE STATE SECURITIES LAWS.
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Section 15. Transferability.
No Option shall be assignable or transferable otherwise than by will
or by the laws of descent and distribution. During the lifetime of the Optionee,
his Options shall be exercisable only by such Optionee, or, in the event of his
or her legal incapacity or Disability, then by the Optionee's legal guardian or
representative.
Section 16. Other Provisions.
The Option Agreement and Stock Purchase Agreement may contain such
other provisions as the Board in its discretion deems advisable and which are
not inconsistent with the provisions of this Plan, including, without
limitation, restrictions upon or conditions precedent to the exercise of the
Option.
Section 17. Power of Board in Case of Change of Control.
Notwithstanding anything to the contrary set forth in this Plan
(with the exception of Section 32 hereof), in the event of a Change of Control,
the Board shall have the right to accelerate the vesting of all unmatured
Options or Restricted Stock Awards. In addition, in the event of a Change of
Control of the Company by reason of a merger, consolidation or tax free
reorganization or sale of all or substantially all of the assets of the Company,
the Board shall have the right to terminate this Plan and to (a) exchange all
Options or Restricted Stock Awards for options to purchase common stock in the
successor corporation or (b) distribute to each Awardee cash and/or other
property in an amount equal to and in the same form as the Optionee would have
received from the successor corporation if the Optionee had owned the Shares
subject to the Option rather than the Option at the time of the Change of
Control. The form of payment or distribution to the Optionee pursuant to this
Section shall be determined by the Board.
Section 18. Amendment of the Plan.
Insofar as permitted by law and the Plan, the Board may from time to
time suspend, terminate or discontinue the Plan or revise or amend it in any
respect whatsoever with respect to any Shares at the time not subject to an
Option; provided, however, that without approval of the stockholders, no such
revision or amendment may change the aggregate number of Shares for which
Options may be awarded hereunder, change the designation of the class of
Employees eligible to receive Options or decrease the price at which Options may
be awarded.
Any other provision of this Section 18 notwithstanding, the Board
specifically is authorized to adopt any amendment to this Plan deemed by the
Board to be necessary or advisable to assure that the Incentive Stock Options or
the non-qualified stock options available under the Plan continue to be treated
as such, respectively, under all applicable laws.
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Section 19. Application of Funds.
The proceeds received by the Company from the sale of Shares
pursuant to the exercise of Options or the purchase of Restricted Stock shall be
used for general corporate purposes or such other purpose as may be determined
by the Board.
Section 20. No Obligation to Exercise Option.
The Awarding of an Option shall impose no obligation upon the
Optionee to exercise such Option.
Section 21. Approval of Stockholders.
This Plan shall become effective on the date that it is adopted by
the Board; provided, however, that it shall become limited to a non-qualified
stock option plan if it is not approved by the holders of a majority of the
Company's outstanding voting stock within one year (365 days) of its adoption by
the Board. The Board may make Awards hereunder prior to approval of the Plan or
any material amendments thereto by the holders of a majority of the Company's
outstanding voting stock; provided, however, that any and all Options so Awarded
automatically shall be converted into non-qualified stock options if the Plan is
not approved by such stockholders within 365 days of its adoption or material
amendment.
Section 22. Conditions Upon Issuance of Shares.
Shares shall not be issued pursuant to the exercise of an Option or
Award of Restricted Stock unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto or the issuance of Restricted Stock
shall comply with all relevant provisions of law, including, without limitation,
the Securities Act, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
Section 23. Reservation of Shares.
The Company, during the term of this Plan, shall at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
The Company, during the term of this Plan, shall use its best
efforts to seek to obtain from appropriate regulatory agencies any requisite
authorization in order to issue and sell such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain from any such regulatory agency having jurisdiction the requisite
authorization(s) deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any Shares hereunder, or the inability of the Company to
confirm to its satisfaction that any issuance and sale of any Shares hereunder
will meet applicable legal requirements, shall
15
<PAGE>
relieve the Company of any liability in respect to the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
Section 24. Stock Option and Stock Purchase Agreements.
Options shall be evidenced by an Option Agreement in such form or
forms as the Board shall approve from time to time. Upon the exercise of an
Option, the Optionee shall sign and deliver to the Company a Stock Purchase
Agreement in such form or forms as the Board shall approve from time to time.
Section 25. Taxes, Fees, Expenses and Withholding of Taxes.
(a) The Company shall pay all original issue and transfer taxes (but
not income taxes, if any) with respect to the Award of Options and/or the issue
and transfer of Shares pursuant to the exercise thereof, and all other fees and
expenses necessarily incurred by the Company in connection therewith, and will
from time to time use its best efforts to comply with all laws and regulations
which, in the opinion of counsel for the Company, shall be applicable thereto.
(b) The Award of Options or Restricted Stock hereunder and the
issuance of Shares pursuant to the exercise of Options is conditioned upon the
Company's reservation of the right to withhold in accordance with any applicable
law, from any compensation or other amounts payable to the Awardee, any taxes
required to be withheld under federal, state or local law as a result of the
Award or exercise of such Option or the sale of the Shares issued upon exercise
thereof. To the extent that compensation or other amounts, if any, payable to
the Awardee is insufficient to pay any taxes required to be so withheld, the
Company may, in its sole discretion, require the Awardee (or such other person
entitled herein to exercise the Option), as a condition of the exercise of an
Option, to pay in cash to the Company an amount sufficient to cover such tax
liability or otherwise to make adequate provision for the Company's satisfaction
of its withholding obligations under federal, state and local law.
Section 26. Notices.
Any notice to be given to the Company pursuant to the provisions of
this Plan shall be addressed to the Company in care of its Secretary (or such
other person as the Company may designate from time to time) at its principal
executive office, and any notice to be given to an Awardee shall be delivered
personally or addressed to him or her at the address given beneath his or her
signature on his or her Option Agreement, or at such other address as such
Awardee or his or her permitted transferee (upon the transfer of the Shares) may
hereafter designate in writing to the Company. Any such notice shall be deemed
duly given on the date and at the time delivered via personal, courier or
recognized overnight delivery service or, if sent via telecopier, on the date
and at the time telecopied with confirmation of delivery or, if mailed, on the
date five (5) days after the date of the mailing (which shall be by regular,
registered or certified mail). Delivery of a notice by telecopy (with
confirmation) shall be permitted and shall be considered
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<PAGE>
delivery of a notice notwithstanding that it is not an original that is
received. It shall be the obligation of each Optionee and each permitted
transferee holding Shares purchased upon exercise of an Option to provide the
Secretary of the Company, by letter mailed as provided herein, with written
notice of his or her direct mailing address.
Section 27. No Enlargement of Awardee Rights.
This Plan is purely voluntary on the part of the Company, and the
continuance of the Plan shall not be deemed to constitute a contract between the
Company and any Awardee, or to be consideration for or a condition of the
employment or service of any Awardee. Nothing contained in this Plan shall be
deemed to give any Awardee the right to be retained in the employ or service of
the Company or any Subsidiary, or to interfere with the right of the Company or
any such corporation to discharge or retire any Awardee thereof at any time
subject to applicable law. No Awardee shall have any right to or interest in
Awards authorized hereunder prior to the Award thereof to such Awardee, and upon
such Award he shall have only such rights and interests as are expressly
provided herein, subject, however, to all applicable provisions of the Company's
Certificate of Incorporation, as the same may be amended from time to time.
Section 28. Information to Awardees.
The Company, upon request, shall provide without charge to each
Awardee copies of such annual and periodic reports as are provided by the
Company to its stockholders generally.
Section 29. Availability of Plan.
A copy of this Plan shall be delivered to the Secretary of the
Company and shall be shown by him to any eligible person making reasonable
inquiry concerning it.
Section 30. Invalid Provisions.
In the event that any provision of this Plan is found to be invalid
or otherwise unenforceable under any applicable law, such invalidity or
unenforceability shall not be construed as rendering any other provisions
contained herein as invalid or unenforceable, and all such other provisions
shall be given full force and effect to the same extent as though the invalid or
unenforceable provision was not contained herein.
Section 31. Applicable Law.
This Plan shall be governed by and construed in accordance with the
laws of the State of Delaware.
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Section 32. Board Action.
Notwithstanding anything to the contrary set forth in this Plan, any
and all actions of the Board or Committee, as the case may be, taken under or in
connection with this Plan and any agreements, instruments, documents,
certificates or other writings entered into, executed, granted, issued and/or
delivered pursuant to the terms hereof, shall be subject to and limited by any
and all votes, consents, approvals, waivers or other actions of all or certain
stockholders of the Company or other persons required pursuant to (i) the
Company's Certificate of Incorporation (as the same may be amended and/or
restated from time to time), (ii) the Company's Bylaws (as the same may be
amended and/or restated from time to time), and (iii) any other agreement,
instrument, document or writing now or hereafter existing, between or among the
Company and its stockholders or other persons (as the same may be amended from
time to time).
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EXHIBIT A-1
HAGLER BAILLY, INC. EMPLOYEE INCENTIVE AND
NON-QUALIFIED STOCK OPTION AND RESTRICTED STOCK PLAN
INCENTIVE STOCK OPTION AGREEMENT
Hagler Bailly, Inc., a Delaware corporation (the "Company"), hereby
grants to ____________________________ (the "Optionee") an option to purchase a
total of __________ shares of Common Stock of the Company, at the price and on
the terms set forth herein, and in all respects subject to the terms,
definitions and provisions of the Hagler Bailly, Inc. Employee Incentive and
Non-Qualified Stock Option and Restricted Stock Plan (the "Plan") applicable to
Incentive Stock Options, which terms and provisions are hereby incorporated by
reference herein. Unless the context herein otherwise requires, the terms
defined in the Plan shall have the same meanings when used herein.
1. Nature of the Option. This Option is intended to be an Incentive
Stock Option within the meaning of section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
2. Date of Grant; Term of Option. This Option is granted this ____
day of ______________, 199_, and it may not be exercised later than
___________________________, subject to earlier termination, as provided in the
Plan.
3. Option Exercise Price. The Option exercise price is ________
($____) per Share.
4. Exercise of Option. This Option shall be exercisable during its
term only in accordance with the terms and provisions of the Plan and this
Option Agreement as follows:
(a) Right to Exercise. This Option shall vest and be
exercisable as follows: ________________________________________________________
_______________________________________________________________________________.
(b) Method of Exercise. This Option shall be exercisable
during its term by written notice which shall state the election to exercise
this Option, the number of full Shares in respect to which this Option is being
exercised and which shall contain or be accompanied by such other
representations and agreements as to the Optionee's investment intent with
respect to such Shares as may be reasonably required by the Company as
contemplated by the Plan. Such written notice shall be signed by the Optionee
and shall be delivered in person or
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by certified mail to the Secretary of the Company or such other person as may be
designated by the Company. The written notice shall be accompanied by payment of
the purchase price and an executed Stock Purchase Agreement in the form attached
hereto. Payment of the purchase price shall be by check or such other
consideration and other method of payment as may be authorized by the Board
pursuant to the Plan. The certificate or certificates for the Shares as to which
the Option shall be exercised shall be registered in the name of the Optionee
and shall be legended as required under the Plan, the Stock Purchase Agreement,
and/or applicable law.
(c) Restrictions on Exercise. This Option may not be exercised
if the issuance of the Shares upon such exercise or the method of payment of
consideration for such Shares would constitute a violation of any applicable
federal or state securities laws or other laws or regulations. As a condition to
the exercise of this Option, the Company may require the Optionee to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.
5. Investment Representations. Unless the Shares have been
registered under the Securities Act of 1933, in connection with the acquisition
of this Option, the Optionee represents and warrants as follows:
(a) The Optionee is acquiring this Option, and upon exercise
of this Option, he will be acquiring the Shares for investment for his own
account, not as a nominee or agent, and not with a view to, or for resale in
connection with, any distribution thereof.
(b) The Optionee has a preexisting business or personal
relationship with the Company or one of its directors, officers or controlling
persons and by reason of his business or financial experience, has, and could be
reasonably assumed to have, the capacity to protect his interests in connection
with the acquisition of this Option and the Shares.
6. Termination of Status as an Employee. Subject to the provisions
of Section 7 hereof, if the Optionee ceases to serve the Company or its
Subsidiaries for any reason other than death or Disability and thereby
terminates his status as an Employee, the Optionee shall have the right to
exercise this Option at any time within the three (3) month period after the
date of such termination to the extent that the Optionee was entitled to
exercise the Option at the date of such termination. If the Optionee ceases to
serve the Company due to death or Disability, this Option may be exercised at
any time within one (1) year after the date of death or termination of service
due to Disability, in the case of death, by the Optionee's estate or by a person
who acquired the right to exercise this Option by bequest or inheritance, or, in
the case of Disability, by the Optionee or his legal guardian or representative,
but in any case only to the extent the Optionee was entitled to exercise this
Option at the date of such termination. To the extent that the Optionee was not
entitled to exercise the Option at the date of termination, or to the extent the
Option is not exercised within the time specified herein, this Option shall
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<PAGE>
terminate. Notwithstanding the foregoing, this Option shall not be exercisable
after the expiration of the term set forth in Section 2 hereof.
7. Forfeiture of Option. Notwithstanding any other provision of this
Option, if an Optionee shall engage in any activity in breach of the Covenant
Not to Compete, all Options held by such Optionee which have not yet been
exercised shall terminate immediately upon the commencement thereof. If an
Optionee's employment is terminated for "Cause" (as defined in the Stockholders
Agreement), all unexercised Options shall terminate upon the date of termination
of employment for Cause.
8. Non-transferability of Option. This Option may not be sold,
pledged, assigned, hypothecated, gifted, transferred or disposed of in any
manner either voluntarily or involuntarily by operation of law, other than by
will or by the laws of descent or distribution, and may be exercised during the
lifetime of the Optionee only by such Optionee (or by such Optionee's
representation pursuant to Section 6). Subject to the foregoing and the terms of
the Plan, the terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
9. Continuation of Employment. Neither the Plan nor this Option
shall confer upon any Optionee any right to continue in the employment of the
Company or limit in any respect the right of the Company to discharge the
Optionee at any time, with or without cause and with or without notice.
10. Withholding. The Company reserves the right to withhold, in
accordance with any applicable laws, from any consideration payable to Optionee
any taxes required to be withheld by federal, state or local law as a result of
the grant or exercise of this Option or the sale or other disposition of the
Shares issued upon exercise of this Option. If the amount of any consideration
payable to the Optionee is insufficient to pay such taxes or if no consideration
is payable to the Optionee, upon the request of the Company, the Optionee (or
such other person entitled to exercise the Option pursuant to Section 6 hereof)
shall pay to the Company an amount sufficient for the Company to satisfy any
federal, state or local tax withholding requirements it may incur, as a result
of the grant or exercise of this Option or the sale or other disposition of the
Shares issued upon the exercise of this Option.
11. The Plan. This Option is subject to, and the Company and the
Optionee agree to be bound by, all of the terms and conditions of the Plan as
such Plan may be amended from time to time in accordance with the terms thereof.
Pursuant to the Plan, the Board of Directors of the Company is authorized to
adopt rules and regulations not inconsistent with the Plan as it shall deem
appropriate and proper. A copy of the Plan in its present form is available for
inspection during business hours by the Optionee or the persons entitled to
exercise this Option at the Company's principal office.
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12. Conversion to Non-Qualified Option. Notwithstanding anything to
the contrary set forth herein, this Option is being granted subject to the
condition that in the event the Plan is not approved by the stockholders of the
Company within 365 days of the date that the Plan was adopted by the Board of
Directors of the Company, this Option shall automatically be converted into a
non-qualified stock option.
13. Early Disposition of Stock. Subject to the fulfillment by
Optionee of any conditions upon the disposition of Shares received under this
Option, Optionee hereby agrees that if he disposes of any Shares received under
this Option within one (1) year after such Shares were transferred to him, or
within two (2) years after the Option was awarded to him, he will notify the
Company in writing within thirty (30) days after the date of such disposition.
Optionee acknowledges that disposition by him within such one (1) year or two
(2) year period would disqualify him from capital gain treatment for any gain
realized upon such disposition.
14. Entire Agreement. This Agreement, together with the Plan and the
other exhibits attached thereto or hereto, represents the entire agreement
between the parties.
15. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Delaware.
16. Amendment. Subject to the provisions of the Plan, this Agreement
may only be amended by a writing signed by each of the parties hereto.
IN WITNESS WHEREOF, the Company has caused its duly authorized
officers to execute and attest this instrument, this _____ day of __________,
199_.
By: _________________________
Name: _________________________
Title:_________________________
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ACKNOWLEDGEMENT
The Optionee acknowledges receipt of a copy of the Hagler Bailly,
Inc. Employee Incentive and Non-Qualified Stock Option and Restricted Stock Plan
(the "Plan"), a copy of which is attached hereto, and represents that he or she
has read and is familiar with the terms and provisions thereof, and hereby
accepts this Option subject to all of the terms and provisions thereof. The
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Board of Directors or the Committee upon any questions
arising under the Plan.
Date: ____________________ _________________________
Signature of Optionee
_________________________
Name of Optionee
_________________________
Address
_________________________
City, State, Zip Code
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE
OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE, TRANSFER OR DISTRIBUTION THEREOF. NO SUCH SALE,
TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO OR A SATISFACTORY OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAY
BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE AGREEMENT
TO BE ENTERED INTO BETWEEN THE HOLDER OF THIS OPTION AND THE COMPANY UPON
EXERCISE OF THIS OPTION, A COPY OF WHICH AGREEMENT IS ON FILE WITH THE SECRETARY
OF THE COMPANY.
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EXHIBIT A-2
HAGLER BAILLY, INC. EMPLOYEE INCENTIVE AND
NON-QUALIFIED STOCK OPTION AND RESTRICTED STOCK PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
Hagler Bailly, Inc., a Delaware corporation (the "Company"), hereby
grants to ____________________________ (the "Optionee") an option to purchase a
total of __________ shares of Common Stock of the Company, at the price and on
the terms set forth herein, and in all respects subject to the terms,
definitions and provisions of the Hagler Bailly, Inc. Employee Incentive and
Non-Qualified Stock Option and Restricted Stock Plan (the "Plan") applicable to
non-qualified stock options, which terms and provisions are hereby incorporated
by reference herein. Unless the context herein otherwise requires, the terms
defined in the Plan shall have the same meanings when used herein.
1. Nature of the Option. This Option is intended to be a
nonstatutory stock option and is not intended to be an Incentive Stock Option
within the meaning of section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or to otherwise qualify for any special tax benefits to
the Optionee.
2. Date of Grant; Term of Option. This Option is granted this _____
day of ________________, 199_, and it may not be exercised later than
_______________________, subject to earlier termination, as provided in the
Plan.
3. Option Exercise Price. The Option exercise price is ______
($_____) per Share.
4. Exercise of Option. This Option shall be exercisable during its
term only in accordance with the terms and provisions of the Plan and this
Option Agreement as follows:
(a) Right to Exercise. This Option shall vest and be
exercisable as follows: ________________________________________________________
_______________________________________________________________________________.
(b) Method of Exercise. This Option shall be exercisable
during its term by written notice which shall state the election to exercise
this Option, the number of full Shares in respect to which this Option is being
exercised and which shall contain or be accompanied by such other
representations and agreements as to the Optionee's investment intent
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with respect to such Shares as may be reasonably required by the Company as
contemplated by the Plan. Such written notice shall be signed by the Optionee
and shall be delivered in person or by certified mail to the Secretary of the
Company or such other person as may be designated by the Company. The written
notice shall be accompanied by payment of the purchase price and an executed
Stock Purchase Agreement in the form attached hereto. Payment of the purchase
price shall be by check or such consideration and method of payment authorized
by the Board pursuant to the Plan. The certificate or certificates for the
Shares as to which the Option shall be exercised shall be registered in the name
of the Optionee and shall be legended as required under the Plan, the Stock
Purchase Agreement, and/or applicable law.
(c) Restrictions on Exercise. This Option may not be exercised
if the issuance of the Shares upon such exercise would constitute a violation of
any applicable federal or state securities laws or other laws or regulations. As
a condition to the exercise of this Option, the Company may require the Optionee
to make any representation and warranty to the Company as may be required by any
applicable law or regulation.
5. Investment Representations. Unless the Shares have been
registered under the Securities Act of 1933, in connection with the acquisition
of this Option, the Optionee represents and warrants as follows:
(a) The Optionee is acquiring this Option, and upon exercise
of this Option, he will be acquiring the Shares for investment for his own
account, not as a nominee or agent, and not with a view to, or for resale in
connection with, any distribution thereof.
(b) The Optionee has a preexisting business or personal
relationship with the Company or one of its directors, officers or controlling
persons and by reason of his business or financial experience, has, and could be
reasonably assumed to have, the capacity to protect his interests in connection
with the acquisition of this Option and the Shares.
6. Termination of Status as an Employee. Subject to the provisions
of Section 7 hereof, if the Optionee ceases to serve the Company or its
Subsidiaries for any reason other than death or Disability and thereby
terminates his status as an Employee, the Optionee shall have the right to
exercise this Option at any time within the three (3) month period after the
date of such termination to the extent that the Optionee was entitled to
exercise the Option at the date of such termination. If the Optionee ceases to
serve the Company due to death or Disability, this Option may be exercised at
any time within one (1) year after the date of death or termination of service
due to Disability, in the case of death, by the Optionee's estate or by a person
who acquired the right to exercise this Option by bequest or inheritance, or, in
the case of Disability, by the Optionee or his legal guardian or representative,
but in any case only to the extent the Optionee was entitled to exercise this
Option at the date of such termination. To the extent that the Optionee was not
entitled to exercise the Option at the date of termination, or to
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<PAGE>
the extent the Option is not exercised within the time specified herein, this
Option shall terminate. Notwithstanding the foregoing, this Option shall not be
exercisable after the expiration of the term set forth in Section 2 hereof.
7. Forfeiture of Option. Notwithstanding any other provision of this
Option, if an Optionee shall engage in any activity in breach of the Covenant
Not to Compete, all Options held by such Optionee which have not yet been
exercised shall terminate immediately upon the commencement thereof. If an
Optionee's employment is terminated for "Cause" (as defined in the Stockholders
Agreement), all unexercised Options shall terminate upon the date of termination
of employment for Cause.
8. Non-transferability of Option. This Option may not be sold,
pledged, assigned, hypothecated, gifted, transferred or disposed of in any
manner either voluntarily or involuntarily by operation of law, other than by
will or by the laws of descent or distribution, and may be exercised during the
lifetime of the Optionee only by such Optionee (or by such Optionee's
representative pursuant to Section 6). Subject to the foregoing and the terms of
the Plan, the terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
9. Continuation of Employment or Engagement. Neither the Plan nor
this Option shall confer upon any Optionee any right to continue in the service
of the Company or any of its Subsidiaries or limit, in any respect, the right of
the Company to discharge the Optionee at any time, with or without cause and
with or without notice.
10. Withholding. The Company reserves the right to withhold, in
accordance with any applicable laws, from any consideration payable to Optionee
any taxes required to be withheld by federal, state or local law as a result of
the grant or exercise of this Option or the sale or other disposition of the
Shares issued upon exercise of this Option. If the amount of any consideration
payable to the Optionee is insufficient to pay such taxes or if no consideration
is payable to the Optionee, upon the request of the Company, the Optionee (or
such other person entitled to exercise the Option pursuant to Section 6 hereof)
shall pay to the Company an amount sufficient for the Company to satisfy any
federal, state or local tax withholding requirements it may incur, as a result
of the grant or exercise of this Option or the sale or other disposition of the
Shares issued upon the exercise of this Option.
11. The Plan. This Option is subject to, and the Company and the
Optionee agree to be bound by, all of the terms and conditions of the Plan as
such Plan may be amended from time to time in accordance with the terms thereof.
Pursuant to the Plan, the Board of Directors of the Company is authorized to
adopt rules and regulations not inconsistent with the Plan as it shall deem
appropriate and proper. A copy of the Plan in its present form is available
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for inspection during business hours by the Optionee or the persons entitled to
exercise this Option at the Company's principal office.
12. Entire Agreement. This Agreement, together with the Plan and the
other exhibits attached thereto or hereto, represents the entire agreement
between the parties.
13. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Delaware.
14. Amendment. Subject to the provisions of the Plan, this Agreement
may only be amended by a writing signed by each of the parties hereto.
IN WITNESS WHEREOF, the Company has caused its duly authorized
officers to execute and attest this instrument this _____ day of __________,
199_.
By: _________________________
Name: _________________________
Title:_________________________
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ACKNOWLEDGEMENT
The Optionee acknowledges receipt of a copy of the Hagler Bailly,
Inc. Employee Incentive and Non-Qualified Stock Option and Restricted Stock Plan
(the "Plan"), a copy of which is attached hereto, and represents that he or she
has read and is familiar with the terms and provisions thereof, and hereby
accepts this Option subject to all of the terms and provisions thereof. The
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Board of Directors or the Committee upon any questions
arising under the Plan.
Date: ____________________ _________________________
Signature of Optionee
_________________________
Name of Optionee
_________________________
Address
_________________________
City, State, Zip Code
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE
OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE, TRANSFER OR DISTRIBUTION THEREOF. NO SUCH SALE,
TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO OR A SATISFACTORY OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAY
BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE AGREEMENT
TO BE ENTERED INTO BETWEEN THE HOLDER OF THIS OPTION AND THE COMPANY UPON
EXERCISE OF THIS OPTION, A COPY OF WHICH AGREEMENT IS ON FILE WITH THE SECRETARY
OF THE COMPANY.
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EXHIBIT B
HAGLER BAILLY, INC. EMPLOYEE INCENTIVE AND
NON-QUALIFIED STOCK OPTION AND RESTRICTED STOCK PLAN
STOCK PURCHASE AGREEMENT
This Agreement is made this _____ day of ____________, 199_, by and
between Hagler Bailly, Inc., a Delaware corporation (the "Company"), and
___________________________ (the "Optionee").
R E C I T A L S:
1. Optionee was granted a Stock Option (the "Option") on
________________, 19___ pursuant to the Hagler Bailly, Inc. Employee Incentive
and NonQualified Stock Option and Restricted Stock Plan (the "Plan"), the terms
and conditions of which are incorporated herein by reference.
2. Pursuant to said Option, Optionee was granted the right to
purchase _________ shares of the Company's Common Stock, as adjusted in
accordance with the Plan (the "Optioned Shares").
3. Optionee has elected to exercise the Option to purchase
______________ of such Optioned Shares (herein referred to as the "Shares")
under the Stock Option Agreement evidencing said Option (the "Option
Agreement").
4. As required by the Option Agreement, as a condition to Optionee's
exercise of the Option, Optionee must execute this Agreement which gives the
Company certain rights, including, but not limited to, transfer restrictions
with respect to the Shares, rights of first refusal upon a proposed sale or
transfer of the Shares and other rights to repurchase the Shares being issued
pursuant to the terms hereof.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Definitions. Unless the context herein otherwise requires, or a
definition is otherwise provided below in this Section 1 or elsewhere in the
Agreement, the defined terms in the Plan shall have the same meaning herein.
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As used in this Agreement, the following terms shall have the following
respective meanings:
"Termination of Employment" shall mean the termination or cessation
of the Employee's employment with or engagement by the Company (or any
subsidiary thereof).
"Transfer" shall include any direct or indirect sale, assignment,
transfer, pledge, hypothecation or other disposition of any Shares or of any
legal or beneficial interest therein.
2. Exercise of Option. Subject to the terms and conditions hereof,
Optionee hereby agrees to exercise his Option or a portion thereof to purchase
______________ Shares of Common Stock at $________ per Share, payable in
accordance with the terms and provisions of the Option Agreement.
3. Transfer Restrictions.
(a) In General. Optionee hereby agrees to be bound by the
terms, conditions and restrictions set forth in the Stockholders Agreement.
Optionee hereby agrees to become a signatory and party to the Stockholders
Agreement and to execute any and all necessary or appropriate documents or
instruments to effect the foregoing. The terms of the Stockholders Agreement are
incorporated herein by reference.
(b) No Transfers During Employment or Other Engagement. In
addition to the restrictions imposed by Section 3(a) herein, Optionee hereby
agrees that he shall not Transfer any of his Shares except as otherwise
specifically provided for herein. Anything to the contrary herein
notwithstanding, the Stockholder shall not at any time Transfer any Shares for
so long as he shall be employed by the Company and such Shares remain subject to
the Company's repurchase option under this Agreement, except pursuant to Section
3(c) herein.
(c) Permitted Transfers. Notwithstanding anything to the
contrary contained herein, the Stockholder may Transfer all or any of his Shares
to the spouse, parents, siblings or lineal descendants of the Stockholder or to
any trust for the exclusive benefit of any of the foregoing or of the
Stockholder; provided that any such transferee shall agree in writing with the
Company, prior to and as a condition precedent to such transfer, to be bound by
all of the provisions of this Agreement to the same extent as if such transferee
was the Stockholder (including, but not limited to, being affected hereunder by
all subsequent occurrences giving rise to repurchase rights of the Company to
purchase the Shares of the original Stockholder/transferor then held by the
permitted transferee) and provided, further, that the interests in such trusts
shall be non-transferable.
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(d) Public Offering. If requested in writing by the managing
underwriters, if any, of any public offering of the Company's Common Stock, the
Stockholder agrees not to offer, sell, contract to sell or otherwise dispose of
any Shares, except to the extent such Shares are being registered for sale in
such public offering, within thirty (30) days before and up to three hundred and
sixty-five (365) days after the effective date of the registration statement
filed with respect to said public offering.
4. Right of First Refusal on Dispositions.
(a) To the extent permitted by applicable securities laws, if
at any time the Stockholder receives a bona fide, arm's length offer from a
credit worthy third party which such Stockholder desires to accept (the
"Proposed Transferee"), the Stockholder shall submit a written offer (the
"Offer") to sell such Shares (the "Offered Shares") to the Company, on terms and
conditions, including price, not less favorable to the Company than those on
which the Stockholder proposes to sell the Offered Shares to the Proposed
Transferee. The Offer shall disclose the identity of the Proposed Transferee,
the number of Offered Shares proposed to be sold, the total number of Shares
owned by the Stockholder, the terms and conditions, including price, of the
proposed sale, the address of the Stockholder and any other material facts
relating to the proposed sale.
(b) If the Company desires to purchase all of the Offered
Shares, the Company shall communicate in writing its election to purchase (an
"Acceptance") to the Stockholder, which Acceptance shall be delivered in person
or mailed to the Stockholder within twenty (20) days after the date the Offer
was made.
(c) If the Company accepts the Offer as to all of the Offered
Shares, the sale of the Offered Shares to be sold to the Company pursuant to
this Section 4(c) shall be made at the offices of the Company on or before the
thirtieth (30th) day following the expiration of the aforementioned 20-day
period, after the Offer is made (or if such thirtieth (30th) day is not a
business day, then on the next succeeding business day). Such sales shall be
effected by the Stockholder's delivery to the Company of a certificate or
certificates evidencing the Offered Shares to be purchased by it or him, duly
endorsed for transfer to the Company, which Shares shall be delivered free and
clear of all liens, charges, claims and encumbrances of any nature whatsoever,
against payment to the Stockholder of the purchase price therefor by the
Company. Payment for the Offered Shares shall be made as provided in the Offer
or by wire transfer or certified check.
(d) If the Company does not agree to purchase all of the
Offered Shares, then the Offered Shares may be sold by the Stockholder at any
time within ninety (90) days after the date the Offer was made. Any such sale
shall be to the Proposed Transferee, at not less than the price and upon other
terms and conditions, if any, not more favorable to the
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Proposed Transferee than those specified in the Offer. Any Offered Shares not
sold within such 90-day period shall continue to be subject to the requirements
of a prior offer pursuant to this Section 4(d).
(e) Nothing herein shall exempt Stockholder from complying
with the terms and conditions of the Stockholders Agreement in the event of a
sale to the Proposed Transferee.
5. Failure to Deliver Shares. If the Stockholder becomes obligated
to sell any Shares to the Company under this Agreement and fails to deliver such
Shares in accordance with the terms of this Agreement (a "Defaulting
Stockholder"), the Company, at its option, in addition to all other remedies
available at law or in equity, may send to the Stockholder the purchase price
for such Shares as is herein specified. Thereupon, the Company, upon written
notice to the Stockholder, shall cancel on its books the certificate or
certificates representing the Shares to be sold.
6. Escrow. As security for his faithful performance of the terms of
this Agreement and to insure the availability for delivery of Stockholder's
Shares upon exercise, under this Agreement, of the rights of the Company and the
rights of the other beneficiaries to this Agreement, Stockholder agrees, if
requested in writing by the Company, to deliver to and deposit with the
Secretary of the Company or his nominee ("the Escrow Holder"), as escrow holder
in this transaction, five Stock Assignments duly endorsed (with date and number
of shares blank) in the form attached hereto as Attachment A, together with the
certificate or certificates evidencing the Shares; said documents are to be held
by the Escrow Holder and delivered to said Escrow Holder pursuant to the Joint
Escrow Instructions of the Company and Stockholder set forth in Attachment B
attached hereto and incorporated herein by this reference, which instructions
shall also be delivered to the Escrow Holder at the closing hereunder.
7. Assignment. The Company may assign its rights under paragraph 4
hereof to one or more persons, who shall have the right to so exercise such
rights in his own name and for his own account. If the exercise of any such
right requires the consent of any state or other regulatory authority, the
parties agree to cooperate in requesting such consent.
8. Adjustment. If, from time to time during the term of the
Stockholders Agreement:
(a) There is any stock dividend or liquidating dividend of
cash and/or property, stock split or other change in the character or amount of
any of the outstanding securities of the Company; or
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(b) There is any consolidation, merger or sale of all or
substantially all of the assets of the Company;
then, in such event, any and all new, substituted or additional securities or
other property to which Optionee is entitled by reason of his ownership of
Shares shall be immediately subject to the terms of the Stockholders Agreement,
and be included in the term "Stock" (as defined therein) for all purposes with
the same force and effect as the Stock presently subject to such rights and
restrictions (provided, however, that if such consolidation, merger or sale of
all, or substantially all, of the assets of the Company causes a termination of
the rights and restrictions set forth in the Stockholders Agreement, then such
new, substituted or additional securities or other property shall not be
included in the word "Stock" for the purposes of this paragraph).
9. Legends. All certificates representing any Shares of the Company
subject to the provisions of this Agreement shall have endorsed thereon the
following legend in substantially the following form unless in the opinion of
counsel such legend is no longer necessary:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SHARES HAVE NOT BEEN ACQUIRED WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR
DISPOSED OF, BY GIFT OR OTHERWISE, OR IN ANY WAY ENCUMBERED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE
SECURITIES LAWS, OR A SATISFACTORY OPINION OF COUNSEL SATISFACTORY
TO HAGLER BAILLY, INC. THAT REGISTRATION IS NOT REQUIRED UNDER SUCH
ACT AND UNDER APPLICABLE STATE SECURITIES LAWS. MOREOVER, THE SHARES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AND RESTRICTED BY THE
PROVISIONS OF A CERTAIN STOCK PURCHASE AGREEMENT BETWEEN HAGLER
BAILLY, INC. AND THE STOCKHOLDER AND THE TERMS OF A CERTAIN
STOCKHOLDERS AGREEMENT, A COPY OF WHICH AGREEMENT WILL BE FURNISHED
BY HAGLER BAILLY, INC. UPON WRITTEN REQUEST AND WITHOUT CHARGE,
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AND ALL OF THE PROVISIONS OF SUCH AGREEMENTS ARE INCORPORATED BY
REFERENCE IN THIS CERTIFICATE.
10. Investment Representations. Unless the Shares have been
registered under the Securities Act of 1933, as amended (the "Act"), in which
event the Company will so advise Optionee in writing, Optionee agrees,
represents and warrants, in connection with the proposed purchase of the Shares,
that:
(a) he is purchasing the Shares solely for his own account for
investment and not with a view to, or for resale in connection with any
distribution thereof within the meaning of the Act. Optionee further represents
that he does not have any present intention of selling, offering to sell or
otherwise disposing of or distributing the Shares or any portion thereof; and
that the entire legal and beneficial interest of the Shares he is purchasing is
being purchased for, and will be held for the account of, Optionee only and
neither in whole nor in part for any other person;
(b) he is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Optionee
further represents that he has a preexisting personal or business relationship
with the officers and directors of the Company and that he has such knowledge
and experience in business and financial matters to enable him to evaluate the
risks of the prospective investment and to make an informed investment decision
with respect thereto and that he has the capacity to protect his own interests
in connection with the purchase of the Shares. Optionee further represents and
warrants that he has discussed the Company and its plans, operations and
financial condition with its officers, has received all such information as he
deems necessary and appropriate to enable him to evaluate the financial risk
inherent in making an investment in the Shares and has received satisfactory and
complete information concerning the business and financial condition of the
Company in response to all inquiries in respect thereof;
(c) he realizes that his purchase of the Shares will be a
speculative investment and that he is able, without impairing his financial
condition, to hold the Shares for an indefinite period of time and to suffer a
complete loss on his investment;
(d) the Company has disclosed to him in writing that (i) the
sale of the Shares has not been registered under the Act, and the Shares must be
held indefinitely unless a transfer of them is subsequently registered under the
Act or an exemption from such registration is available, and that the Company is
under no obligation to register the Shares; and (ii) the Company shall make a
notation in its records of the aforementioned restrictions on transfer and
legends.
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11. Miscellaneous.
(a) Subject to the provisions of this Agreement, Optionee
shall, during the term of this Agreement, exercise all rights and privileges of
a stockholder of the Company with respect to the purchased Shares.
(b) The parties agree to execute such further instruments and
to take such further action as may reasonably be necessary to carry out the
intent of this Agreement.
(c) Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to the other party hereto at his address
hereinafter shown below his signature or at such other address as such party may
designate by ten (10) days' advance written notice to the other party hereto.
(d) This Agreement shall inure to the benefit of the
successors and assigns of the Company and, subject to all compliance with the
restrictions on transfer herein set forth, be binding upon Optionee, his heirs,
executors, administrators, and permitted successors and assigns.
(e) This Agreement shall be construed under the laws of the
State of Delaware and constitutes the entire Agreement of the parties with
respect to the subject matter hereof superseding all prior written or oral
agreements, and no amendment or addition hereto shall be deemed effective unless
agreed to in writing by the parties hereto.
(f) If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way and shall be construed in accordance with the
purposes and tenor and effect of this Agreement.
(g) Nothing in this Agreement shall be deemed to create any
term of employment or affect in any manner whatsoever the right or power of the
Company to terminate Optionee's employment.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above-written.
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HAGLER BAILLY, INC.
By: _____________________________
Title:_____________________________
___________________________________
(Optionee's Signature)
Address: __________________________
__________________________
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CONSENT OF SPOUSE
Name of Optionee:__________________________
The undersigned spouse of Optionee agrees that his or her interest,
if any, in the Shares subject to the foregoing Stock Purchase Agreement shall be
irrevocably bound by this Stock Purchase Agreement and further understands and
agrees that any community property interest, if any, shall be similarly bound by
this Stock Purchase Agreement.
Date: ________________ _______________________
Spouse of Optionee
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ATTACHMENT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfers unto _________________________________________________________________
(_________) shares of the Common Stock (the "Shares") of Hagler Bailly, Inc., a
Delaware corporation (the "Company"), standing in the undersigned's name on the
books of the Company represented by Certificate No. __________ herewith, and
does hereby irrevocably constitute and appoint __________________________
attorney to transfer the said shares on the books of the Company with full power
of substitution in the premises.
Dated: ________________ Signature: ________________________
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JOINT ESCROW INSTRUCTIONS
__________, 19__
__________________________
Secretary,
Hagler Bailly, Inc.
[address & phone number]
Dear _____________________:
As Escrow Agent for both Hagler Bailly, Inc., a Delaware corporation
(the "Company"), and the undersigned grantee of an option to purchase stock of
the Company (the "Optionee"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Stock Purchase
Agreement dated _______________, 19__, to which a copy of these Joint Escrow
Instructions is attached as Attachment B (the "Agreement"), in accordance with
the following instructions:
1. In the event the Company and/or any assignee or designee of the
Company (referred to collectively for convenience herein as the "Company")
and/or any other signatory to or beneficiary of rights set forth in the
Agreement shall elect to exercise any rights of first refusal, other rights of
repurchase and/or other rights (collectively, "Rights") set forth in the
Agreement, the Company shall give to Optionee and you a written notice
specifying the number of shares of stock to be purchased, the purchase price,
and the time for a closing hereunder at the principal executive office of the
Company. The Optionee and the Company hereby irrevocably authorize and direct
you to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock
assignments necessary for the transfer in question, (b) to fill in the number of
shares being transferred, (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or other
applicable purchaser against the simultaneous delivery to you of the purchase
price (by check, delivery of shares of common stock of the Company having a fair
market value equal to the purchase price, or some combination thereof) for the
number of shares of stock being purchased pursuant to the exercise of the
Rights, and (d) to take any and all other actions deemed by you to be necessary,
appropriate or desirable to effect the terms of or contemplated by the
Agreement.
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3. Optionee irrevocably authorizes the Company to deposit with you
any certificates evidencing shares of stock (and stock assignments) to be held
by you hereunder and any additions and substitutions to said stock as defined in
the Agreement. Optionee does hereby irrevocably constitute and appoint you as
his attorney-in-fact and agent for the term of this escrow to execute with
respect to such securities all stock certificates, stock assignments, or other
documents necessary or appropriate to make such securities negotiable and
complete any transaction contemplated herein or in the Agreement or the
Company's Incentive and NonQualified Stock Option and Restricted Stock Plan.
4. This escrow shall terminate at such time as there are no longer
any shares of stock subject to the Rights.
5. The Employee shall have the right to vote the shares of stock
deposited hereunder (the "Shares"). Subject to the next succeeding sentence, all
dividends and other distributions of cash or property, other than securities
(which are addressed below), paid or made with respect to the Shares held in
escrow shall be accumulated and held in escrow by the Company for the benefit of
the Optionee and will, upon termination of the escrow, be paid over to the
Optionee, together with interest actually earned thereon from the date of
payment of such dividends or distributions through the date as of which such
dividends or distributions are paid over. If and to the extent any Shares are
repurchased by the Company, all undistributed dividends and other distributions
attributable to the Shares so repurchased, as well as the interest actually
earned thereon, shall become the sole property of the Company, free and clear of
any claim by the Optionee. If, from time to time during the term of the escrow
arrangement, there is (i) any stock dividend, stock split or other change in the
Shares, or (ii) any merger or sale of all or substantially all of the assets or
other acquisition of the company, any and all new, substituted or additional
securities to which the Optionee is entitled by reason of his ownership of the
Shares shall be immediately subject to this escrow, deposited with the Escrow
Agent and included thereafter as Shares subject to repurchase for purposes of
the Agreement.
6. If at the time of termination of this escrow you should have in
your possession any documents, securities, or other property belonging to
Optionee, you shall deliver all of same to Optionee and shall be discharged of
all further obligations hereunder.
7. Your duties hereunder may be altered, amended, modified or
revoked only by a writing signed by all of the parties hereto, provided,
however, that the Company may, at any time, elect to terminate this escrow by
notice to the Optionee and you.
8. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Optionee while acting in good faith and
in the exercise of your own good judgment, and any act done or omitted by you
2
<PAGE>
pursuant to the advice of your own attorneys, who may be counsel to the Company,
shall be conclusive evidence of such good faith.
9. You are hereby expressly authorized to disregard any and all
directions, notices and/or warnings given by any of the parties hereto or by any
other person or corporation, excepting only orders or process of courts of law,
and are hereby expressly authorized to comply with and obey orders, judgments or
decrees of any court. In case you obey or comply with any such order, judgment
or decree of any court, you shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
10. You shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
11. You shall not be liable for the unenforceability or outlawing of
any rights with respect to these Joint Escrow Instructions, the Agreement or any
documents deposited with you nor shall you be liable for the running of any
statute of limitations with respect to any such rights.
12. You may, but need not, submit a memorandum to the Optionee and
to the Company setting forth action you intend to take with respect to the
escrow of the Shares and requesting the parties to acknowledge the propriety of
the intended action. If, in any such case, either party fails or refuses to
acknowledge the propriety of the intended action, you may engage and seek the
advice of counsel, who may be counsel to the Company, and other experts (and may
pay such counsel and experts reasonable compensation and expenses), and any
action taken in accordance with the written advice of such counsel and/or
experts shall be full protection to you in respect thereto against any person.
It is agreed that in any event you shall not be liable for any action or failure
to act taken in good faith, and that your liability shall be limited to actions
or inaction constituting gross negligence or willful misconduct.
13. All reasonable costs, fees and disbursements incurred by the
Escrow Holder in connection with the performance of his duties hereunder shall
be borne by the Company.
14. Your responsibilities as Escrow Agent hereunder shall terminate
if you shall cease to be Secretary of the Company or if you shall resign by
written notice to each party. In the event of any such termination or
resignation, the Company shall have the right to appoint any officer of the
company as successor Escrow Agent.
15. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
3
<PAGE>
16. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right to possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such dispute shall have been settled either by a mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
17. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post office, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties thereunto
entitled at the following addresses, or at such other address as a party may
designate by ten (10) days' advance written notice to each of the other parties
hereto.
COMPANY: Hagler Bailly, Inc.
1530 Wilson Boulevard
Suite 900
Arlington, VA 22209-2406
OPTIONEE: ______________________________
______________________________
______________________________
ESCROW AGENT: Secretary
Hagler Bailly, Inc.
1530 Wilson Boulevard
Suite 900
Arlington, VA 22209-2406
18. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
19. The parties hereto understand that in the event that the Escrow
Agent is legal counsel to the Company, said counsel may continue to act as such
in the event of any dispute in connection with these Joint Escrow Instructions
or any other transaction contemplated herein or affected hereby.
20. This instrument shall be binding upon and inure to the benefit
of the parties hereto, and their respective successors and permitted assigns.
4
<PAGE>
Very truly yours,
HAGLER BAILLY, INC.
By: ________________________________
Title: _____________________________
Optionee:
____________________________________
(signature)
Name: ______________________________
Address: ___________________________
___________________________
5
<PAGE>
Agreed to and accepted as of the date set forth
above.
Escrow Agent
By: _________________________________
Secretary of
Hagler Bailly, Inc.
Name: ________________________________
<PAGE>
HAGLER BAILLY, INC.
1530 Wilson Boulevard
Suite 900
Arlington, VA 22209-2406
____________ __, 199_
[Name of Grantee]
_____________________
_____________________
_____________________
RE: Grant of Non-Qualified Stock Option
Dear ______________:
I am pleased to inform you that effective ___________ __, 199_,
Hagler Bailly, Inc., a Delaware corporation (the "Company"), has granted to you
an option to purchase _______ shares of the Company's Common Stock at an
exercise price of $_______ per share (the "Option"). This Option constitutes a
non-qualified stock option and is governed by the Hagler Bailly, Inc. Employee
Incentive and Non-Qualified Stock Option and Restricted Stock Plan (the "Plan"),
a copy of which is attached to this letter.
This grant is conditioned upon your execution of (1) an
Acknowledgement, attached to the Non-Qualified Stock Option Agreement which
describes the terms of your Option and (2) a joinder or counterpart to the
Stockholders Agreement with the Company which will apply to all shares of the
Company's Common Stock issued to you upon exercise of your Option. You will find
a copy of the Non-Qualified Stock Option Agreement and accompanying
Acknowledgement, as well as the Stockholders Agreement, enclosed herein. Please
sign the Acknowledgement and Stockholders Agreement as indicated and return them
with this letter.
Please indicate your acceptance of this Option by signing this
letter in the space provided below and returning it to the attention of the
Options Committee at the above-listed address, along with the executed
Acknowledgement and Stockholders Agreement.
1
<PAGE>
If you have any questions, please do not hesitate to contact me.
HAGLER BAILLY, INC.
BY:____________________________
ACCEPTED AND ACKNOWLEDGED:
___________________________
Grantee
Dated: ____________________
<PAGE>
HAGLER BAILLY, INC.
1530 Wilson Boulevard
Suite 900
Arlington, VA 22209-2406
____________ __, 199_
[Name of Grantee]
_____________________
_____________________
_____________________
RE: Grant of Incentive Stock Option
Dear ______________:
I am pleased to inform you that effective ___________ __, 199_,
Hagler Bailly, Inc., a Delaware corporation (the "Company"), has granted to you
an option to purchase _______ shares of the Company's Common Stock at an
exercise price of $_______ per share (the "Option"). This Option constitutes an
incentive stock option within the meaning of section 422 of the Internal Revenue
Code of 1986, as amended, and is governed by the Hagler Bailly, Inc. Employee
Incentive and Non-Qualified Stock Option and Restricted Stock Plan (the "Plan"),
a copy of which is attached to this letter.
This grant is conditioned upon your execution of (1) an
Acknowledgement, attached to the Incentive Stock Option Agreement which
describes the terms of your Option and (2) a joinder or counterpart to the
Stockholders Agreement with the Company which will apply to all shares of the
Company's Common Stock issued to you upon exercise of your Option. You will find
a copy of the Incentive Stock Option Agreement and accompanying Acknowledgement,
as well as the Stockholders Agreement, enclosed herein. Please sign the
Acknowledgement and Stockholders Agreement as indicated and return them with
this letter.
Please indicate your acceptance of this Option by signing this
letter in the space provided below and returning it to the attention of the
Options Committee at the above-listed address, along with the executed
Acknowledgement and Stockholders Agreement.
3
<PAGE>
If you have any questions, please do not hesitate to contact me.
HAGLER BAILLY, INC.
BY:____________________________
ACCEPTED AND ACKNOWLEDGED:
___________________________
___________________________
Grantee
Dated: ____________________
FORM OF
NON-COMPETE, CONFIDENTIALITY
AND REGISTRATION RIGHTS AGREEMENT
TO BE EXECUTED BY EACH STOCKHOLDER
THIS NON-COMPETE, CONFIDENTIALITY AND REGISTRATION RIGHTS AGREEMENT
("Agreement") is executed and delivered this ____ day of February, 1997 between
___________________, a resident of __________________ ("Stockholder") and Hagler
Bailly, Inc., a Delaware corporation ("Company"), and its subsidiaries.
BACKGROUND
Whereas, the undersigned is a stockholder of the Company and an
[employee][director] of [the Company][a subsidiary of the Company, [Hagler
Bailly Services, Inc.][Hagler Bailly Consulting, Inc.][HB Capital, Inc.]]; and
Whereas, this Agreement is delivered to the Company in connection
with the contemplated initial public offering (the "Initial Offering") by the
Company of shares of its Common Stock (as defined below). In consideration for
the undersigned Stockholder's agreement to be bound by the confidentiality,
non-compete and non-solicitation provisions herein, the Company has agreed (i)
to invite the undersigned Stockholder to request registration of certain of such
Stockholder's shares of stock in connection with the Initial Offering and (ii)
subject to Section 4.4 herein, to pay the reasonable attorney's fees of
Stockholder and certain other costs and expenses related to Stockholder's
participation in the Initial Offering pursuant to this Agreement.
NOW, THEREFORE, for good and valuable consideration, the sufficiency
of which is hereby acknowledged and intending to be legally bound hereby,
Stockholder and the Company covenant and agree as follows:
1. Confidentiality.
1.1. From and after the date hereof, Stockholder shall not, without the
prior written consent of the Chief Executive Officer of the Company, for any
reason either directly or indirectly divulge to any third-party or use for his
or her own benefit, or for any purpose other than the exclusive benefit of the
Company, any confidential, proprietary, business and technical information or
trade secrets (the "Proprietary Information") of Company or any of its
subsidiaries whether learned prior to or after the date hereof. Proprietary
Information shall include, but shall not be limited to any information relating
to computer codes or instructions, (including source and object code listings,
logic algorithms, subroutines, modules or other subparts of computer programs
and related documentation, including program notation); computer processing
systems
<PAGE>
and techniques; concepts; layouts; flowcharts; specifications; know-how; any
associated programmer, user or other manuals or other like textual materials;
all computer inputs and outputs (regardless of the media on which it is stored
or located); hardware and software configurations; designs; interfaces;
research; processes; inventions; products; methods; marketing sales and
distribution data, plans and efforts; relationships with actual and prospective
customers and suppliers; and any other materials prepared by Stockholder in the
course of Stockholder's [employment with][directorship with] the Company or
prepared by any other employee or contractor of the Company or any of its
subsidiaries for their customers, and any other materials that have not been
made available to the general public. Furthermore, nothing contained herein
shall restrict Stockholder from divulging or using for his or her own benefit or
for any other purpose any Proprietary Information that is readily available to
the general public so long as such information did not become available to the
general public as a direct or indirect result of Stockholder's breach of this
Agreement.
1.2. All right, title and interest in and to Proprietary Information shall
be and remain the sole and exclusive property of the Company. Stockholder will
not remove from the Company's offices or premises any documents, records,
notebooks, files, correspondence, reports, memoranda or similar materials of or
containing Proprietary Information, or other materials or property of any kind
belonging to the Company unless necessary or appropriate in connection with the
ongoing business of the Company or its subsidiaries and, in the event that such
materials or property are removed, all of the foregoing shall be returned to
their proper files or places of safekeeping as promptly as possible after the
removal shall serve its specific purpose. Stockholder shall not make, retain,
remove and/or distribute any copies of any of the foregoing for any reason
whatsoever except as may be necessary in the performance of Stockholder's
obligations as an officer or employee of the Company or any of its subsidiaries,
and Stockholder shall not divulge to any third person the nature of and/or
contents of any of the foregoing or of any other oral or written information to
which Stockholder may have access or with which for any reason Stockholder
became familiar, except as disclosure shall be necessary for the purposes of
conducting the ongoing business of the Company; and upon Stockholder's
termination as an employee, officer or director of the Company or any of its
subsidiaries, Stockholder shall return to the Company all originals and copies
of the foregoing then in Stockholder's possession.
1.3. Nothing contained herein shall restrict Stockholder's ability to make
any disclosures as may be required by law; provided, however, that Stockholder
shall deliver to Company reasonably prompt prior written notice of the nature
and justifications of such disclosures; and provided, further, that prior to any
such disclosure which may be made, Stockholder reasonably shall cooperate with
the Company, in connection with any actions which the Company shall seek to take
in order to obtain a protective order or similar relief with respect to any
Proprietary Information sought to be disclosed.
[1.4. The covenants relating to Confidentiality set forth in this Section
1 replace the confidentiality provisions set forth in Section 6 of the
Employment Agreement between the
<PAGE>
Stockholder and the Company's subsidiary, Hagler Bailly Services, Inc. (formerly
Hagler Bailly Consulting, Inc.), dated May 25, 1995 (the "Employment
Agreement").]
2. Non-Compete and Non-Solicitation Covenants.
2.1. Except (i) in furtherance of the Company's business or otherwise on
behalf of the Company; (ii) after the Company's termination of Stockholder's
[employment][directorship] with [the Company][subsidiary of the Company] without
Cause (as defined below) or (iii) upon the occurrence of a Material Adverse
Event (as defined below), Stockholder will not do any of the following directly
or indirectly without the prior written consent of the Chief Executive Officer
of the Company (which consent shall not be unreasonably withheld):
2.1.1. During the Covenant Period (as defined below), engage or
participate, directly or indirectly, in any business activity competitive with
the business conducted by the Company or any of its subsidiaries at any time
prior to the closing of the Initial Offering (the "Effective Time") or any other
business of the Company conducted at any time during Stockholder's term as an
employee and/or director of the Company or one of its subsidiaries
(collectively, the "Business");
2.1.2. During the Covenant Period, become interested (as owner,
stockholder, lender, partner, co-venturer, director, officer, employee, agent,
consultant or otherwise) in any person, firm, corporation, association or other
entity engaged in any business that is competitive with the Business, or become
interested in (as owner, stockholder, lender, partner, co-venturer, director,
officer, employee, agent, consultant or otherwise) any portion of the business
of any person, firm, corporation, association or other entity where such portion
of such business is competitive with the Business (notwithstanding the
foregoing, Stockholder may hold not more than one percent (1%) of the
outstanding securities of any class of any publicly-traded securities of a
company that is engaged in activities competitive with the Business);
2.2. Except in furtherance of the Company's business or otherwise on
behalf of the Company, Stockholder will not do any of the following directly or
indirectly without the prior written consent of the Chief Executive Officer of
the Company (which consent shall not be unreasonably withheld):
2.2.1. During the Covenant Period, solicit or call on, either
directly or indirectly, any customer or supplier with whom the Company or any of
its subsidiaries shall have dealt with (x) in the two (2) year period preceding
the Effective Time or (y) anytime after the Effective Time;
2.2.2. During the Covenant Period, influence or attempt to influence
any supplier, customer or potential customer of the Company to terminate or
modify any written or oral agreement or course of dealing with the Company or
any of its subsidiaries; or
<PAGE>
2.2.3. During the Covenant Period, influence or attempt to influence
any person either (i) to terminate or modify the employment, consulting, agency,
distributorship or other arrangement with the Company or any of its
subsidiaries, or (ii) to employ or retain, or arrange to have any other person
or entity employ or retain, any person who has been employed or retained by the
Company or any of its subsidiaries as an employee, consultant, agent or
distributor of the Company or any of its subsidiaries at any time during (x) the
one (1) year period immediately preceding the Effective Time or (y) any time
after the Effective Time.
2.3. Defined Terms.
2.3.1. The term "Covenant Period" as used herein means the two (2)
year period following the Effective Time. The parties hereto expressly agree
that the Covenant Period applicable to Sections 2.1.1, 2.1.2, 2.2.1, 2.2.2 and
2.2.3 of this Agreement shall not begin until the Effective Time.
2.3.2. The term "Cause" as used herein means: (i) a material failure
by Stockholder to meet annual performance targets determined by the Board of
Directors of the Company or, if no performance targets have been set for
Stockholder, the material failure of Stockholder to perform satisfactorily the
duties required by or appropriate for his or her position as [an employee][a
director] of [the Company][indicate subsidiary], as determined by the Board of
Directors of the Company in its reasonable discretion, (ii) conduct of
Stockholder involving any type of disloyalty to the Company or its subsidiaries
or willful misconduct with respect to the Company or its subsidiaries, including
without limitation fraud, embezzlement, theft or proven dishonesty, (iii)
chronic alcoholism or drug addiction, (iv) a material breach by the Stockholder
of the terms of this Agreement, or (v) the conviction of the Stockholder of any
felony or other serious crime.
2.3.3. The term "Material Adverse Event" shall mean (i) a bankruptcy
petition filed under and pursuant to Chapter 7 of the United States Bankruptcy
Code; (ii) the dissolution of the Company; (iii) the assignment of Stockholder
without his or her consent, to responsibilities or duties of a materially lesser
status or degree of responsibility than Stockholder's responsibilities or duties
as of the date of this Agreement; or (iv) the requirement by the Company that
the Stockholder, without his or her consent, be based anywhere other than in the
country where Stockholder is based as of the date of this Agreement.
2.4. Stockholder acknowledges that (i) he or she has carefully read and
considered the provisions of this Section 2, and (ii) has obtained legal counsel
in determining whether to enter into this Agreement. Stockholder acknowledges
that the foregoing restrictions may limit his or her ability to earn a
livelihood in a business similar to the Business, but Stockholder nevertheless
believes that he or she has received and will receive sufficient consideration
and other benefits in connection with the Initial Offering to justify such
restrictions, which restrictions Stockholder does not believe would prevent him
or her from earning a living in businesses that are not competitive with the
Business and without otherwise violating the restrictions set forth herein.
<PAGE>
2.5. The terms of the covenants contained in this Section 2 shall be
construed as separable and shall be independent and shall be interpreted and
applied consistently with the requirements of reasonableness and equity.
3. Specific Enforcement; Extension of Period.
3.1. Stockholder acknowledges that the restrictions contained in Sections
1 and 2 hereof are reasonable and necessary to protect the legitimate interests
of the Company. Stockholder also acknowledges that any breach by him or her of
Sections 1 or 2 hereof will cause continuing and irreparable injury to the
Company for which monetary damages would not be an adequate remedy. Stockholder
agrees that he or she shall not, in any action or proceeding to enforce any of
the provisions of this Agreement, assert the claim or defense that an adequate
remedy at law exists. In the event of such breach by Stockholder, the Company
shall have the right to enforce the provisions of Sections 1 and 2 of this
Agreement by seeking injunctive or other relief in any court and this Agreement
shall not in any way limit remedies of law or in equity otherwise available to
the Company.
3.2. The Covenant Period set forth in Section 2 hereof shall not include,
and shall be deemed extended by, any time required for litigation to enforce the
relevant covenants; provided, that the Company is successful on the merits in
any such litigation. The "time required for litigation" is herein defined to
mean the period of time from service of process upon Stockholder through the
expiration of all appeals related to such litigation.
4. Registration
4.1. Agreement to Register. In consideration for the covenants of
Stockholder set forth herein, the Company agrees that at the time of filing a
registration statement on Form S-1 under the Securities Act (the "Registration
Statement") to register shares of the Company's common stock, $.01 par value
("Common Stock") in connection with the Initial Offering, it will give written
notice to Stockholder of its intention to do so, and upon the written request of
Stockholder to include his or her Registrable Securities (as defined below) in
such registration, given within five (5) days after the mailing of any such
notice by the Company (a "Holder Request"), the Company will cause those
Registrable Securities held by Stockholder which it requests to be included in
the Registration Statement, to be so included, subject to the provisions of
Section 4.3 below.
Nothing in this Section 4 shall be deemed to require the Company to
proceed with the registration of its securities after giving the notice herein
provided.
4.2. Permitted Delay or Termination of Registration. The Company may
indefinitely delay or terminate the registration or qualification of Registrable
Securities required pursuant to this Section 4.
<PAGE>
4.3. Required Reduction or Elimination of Offered Shares. The Company
and/or the Managing Underwriter (as defined below) may, in its or their sole
discretion, round the number of securities to be registered or qualified in
accordance with Section 4 to the nearest 100 shares. In addition, in executing
this document, the undersigned acknowledges that inclusion of any or all of the
Registrable Securities in the Initial Offering is subject, in all respects, to
the discretion of the Company and of Donaldson, Lufkin & Jenrette and Montgomery
Securities (collectively, the "Managing Underwriters") and further that the
Company and the Managing Underwriters may exclude such Registrable Securities
from the Initial Offering, limit the amount of such shares sold in the Initial
Offering, determine if and to what extent such shares will be included in either
the firm offering or in the underwriters' over-allotment option and otherwise
determine whether, to what extent and under what terms and conditions, such
shares and all other outstanding shares (including certain officers and
directors) will be included in the Initial Offering; provided, however, that in
the event that the Company or the Managing Underwriters increase or decrease the
percentage of Registrable Securities referenced in Section 4.5 below with
respect to any stockholder of the Company, the percentage of the Registrable
Securities of the other stockholders of the Company shall be adjusted
accordingly on the same proportionate basis. You acknowledge that based on the
foregoing, you may be limited to selling a smaller percentage of your shares in
the firm offering than in the over-allotment offering. The undersigned further
acknowledges that Registrable Securities included in the over-allotment option
will be eligible for sale only if the Initial Offering is oversubscribed and the
underwriters exercise their over-allotment option. As a result, depending on the
responses from other stockholders, market conditions and whether the Managing
Underwriters exercise their over-allotment option, the undersigned may not be
able to sell all or any of the Registrable Securities in the Initial Offering.
4.4. Expenses.
4.4.1. The Company shall pay all fees and expenses incurred by it in
connection with a registration effected pursuant to this Section 4.
Notwithstanding the foregoing, the stockholders of the Company shall be required
to pay the underwriters' fees, discounts or commissions relating to Registrable
Securities sold by them.
4.4.2. As additional consideration for the covenants set forth in
Sections 1 and 2 of this Agreement, the Company agrees to pay reasonable
attorney's fees of Stockholder in connection with the Stockholder's
participation in the Initial Offering pursuant to this Agreement, so long as
Stockholder is represented by either Smart & Thevenet P.C. or Zuckerman,
Spaeder, Goldstein, Taylor & Kolker, L.L.P.
4.5. Registrable Securities. For purposes of this Agreement, the term
"Registrable Securities" shall mean ten (10%) percent of the shares of Common
Stock of the Company held by Stockholder and each of the other stockholders of
the Company on the date hereof on a fully diluted basis. For purposes of this
Section 4.5, shares of Common Stock of the Company held by
<PAGE>
the Stockholder and other stockholders of the Company shall include all shares
underlying outstanding options to purchase shares of Common Stock.
4.6. Obligations of Stockholder. As a condition to including any
Registrable Securities in the Registration Statement pursuant to this Section 4,
Stockholder shall be required to execute and comply with such agreements and
documents as may be reasonably requested by the Company or the underwriters in
connection with the Initial Offering.
5. Termination of Agreement. This Agreement shall automatically terminate
if the Effective Time does not occur on or prior to December 31, 1997.
6. Miscellaneous
6.1. Successors and Assigns. This Agreement shall inure to the benefit of
the Company and its successors and assigns.
6.2. Waiver. The waiver by the Company of the breach of any term or
provision of this Agreement shall not operate as or be construed to be a waiver
of any other provision or subsequent breach of this Agreement.
6.3. Governing Law; Consent to Jurisdiction. This Agreement shall be
construed and enforced in accordance with the substantive laws of the State of
Delaware, without regard to the principles of conflicts of laws of any
jurisdiction. Stockholder irrevocably consents to the exclusive jurisdiction and
venue (and waives any inconvenient forum objection), and submits to the personal
jurisdiction, of the state and federal courts located within the State of
Delaware, and agrees that service of process may be effected by US certified
mail, return receipt requested.
6.4. Invalidity. If any provision of this Agreement shall be determined to
be void, invalid, unenforceable or illegal for any reason, the validity and
enforceability of all of the remaining provisions hereof shall not be affected
thereby. If any particular provision of this Agreement shall be adjudicated to
be invalid or unenforceable, such provision shall be deemed amended to delete
therefrom the portion thus adjudicated to be invalid or unenforceable, such
amendment to apply only to the operation of such provision in the particular
jurisdiction in which such adjudication is made; provided that, if any provision
contained in this Agreement shall be adjudicated to be invalid or unenforceable
because such provision is held to be excessively broad as to duration,
geographic scope, activity or subject, such provision shall be deemed amended by
limiting and reducing it so as to be valid and enforceable to the maximum extent
compatible with the applicable laws of such jurisdiction, such amendment only to
apply with respect to the operation of such provision in the applicable
jurisdiction in which the adjudication is made.
<PAGE>
6.5. Section Headings. The section headings in this Agreement are for
convenience only; they form no part of this Agreement and shall not affect its
interpretation.
IN WITNESS WHEREOF, the undersigned has executed this Agreement on
the day first above written.
___________________________________
[Name of Stockholder]
HAGLER BAILLY, INC.
By:________________________________
Name:
Title:
EMPLOYMENT AGREEMENT
THIS AGREEMENT made this XXX day of XXX 1996, between Hagler Bailly Consulting
Inc., having its principal office at 1530 Wilson Boulevard, Suite 900,
Arlington, VA, hereinafter called the "Corporation", and XXXX, an individual,
hereinafter called the "Employee".
W I T N E S S E T H T H A T:
WHEREAS, the Corporation has adopted policies and procedures regarding
personnel and office administration as incorporated, and amended from time to
time, in the Corporation's "Employee Handbook".
WHEREAS, the Corporation desires to employ the Employee and Employee
desires to accept such employment on the terms and conditions set forth
hereinafter and subject to the further requirements outlined in the Employee
Handbook;
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the Corporation and the Employee agree with each other as follows:
1. Duties. The Corporation hereby employs the Employee with the title and
duties of XXXXXXX and Employee hereby accepts such employment and agrees to
serve in such capacity during the term of this Agreement. In such capacity, the
Employee shall have and exercise the duties and powers customary to such
employees of corporations similar to the Corporation and, more specifically,
shall exercise the duties and powers as may be assigned by the President and/or
the Board of Directors of the Corporation from time to time, consistent with the
best interests of the Corporation's business. The Employee agrees to devote his
full time, attention and effort to the performance of his duties hereunder and
shall serve the Corporation faithfully and diligently.
2. Compensation. The Corporation shall pay to the Employee, as
consideration for his services hereunder, a basic salary of $XX,XXX per year, in
bimonthly installments. The salary shall be subject to periodic review and
adjustment by the Corporation's Board of Directors or such officer of the
Corporation that the Board of Directors may designate.
3. Term. The term of employment hereunder shall commence as of XXXXXX,
1996, and shall continue in full force and effect from time to time unless and
until the Employee resigns or the Employee's employment is terminated by the
Corporation.
In the event of such resignation or termination, the Employee authorizes
the Corporation to use any funds owed to Employee from unpaid payroll,
contingent compensation, the proceeds of insurance policies, and the holdings of
employee benefit plans for the discharge of any obligation owed by the Employee
to the Corporation, and Employee agrees to execute any further authorization,
assignment, or other document which may be required for this purpose.
<PAGE>
4. Reimbursement for Expenses. The Corporation shall reimburse the
Employee for all ordinary and necessary expenses incurred on behalf of the
Corporation and its business pursuits, but payments shall be made only against
an itemized list of such expenses, which list shall be subject to examination
and approval by the Board of Directors or an officer designated by the Board of
Directors.
5. Employee's Benefits. The Employee shall be entitled to participate in
any employee benefit plans maintained by the Corporation for the benefit of its
employees of a class in which the Employee shall qualify. By way of illustration
and not limitation, the Employee shall be entitled to participate in any
profit-sharing plans; group health, life or accident insurance plans; medical
reimbursement plans and wage contribution plans.
6. Confidentiality. The Employee shall not, at any time during the term of
this Agreement or thereafter, whether or not in the employ of the Corporation,
communicate or divulge to, or use for the benefit of, any person, firm,
corporation or association, any of the trade secrets, confidential business
information, written memoranda, client or third party reports, laboratory
notebooks or other data used by Corporation in its business and communicated to
or acquired by Employee while in the employment of the Corporation. Employee
also agrees to abide by the provisions of any confidentiality agreements
executed between the Corporation and its clients or between the Corporation and
third parties. The Employee agrees that any and all files, working papers,
tapes, computer disks, documents, memoranda or other materials used or prepared
by him in the course of his employment shall be and remain the sole property of
the Corporation. Upon termination of employment, the Employee shall not, without
written consent of the Board of Directors, remove any originals or copies of
such files, working papers, tapes, documents, memoranda or other materials; and
shall turn over to the Corporation all such materials which are in his
possession, custody or control.
7. Inventions, Patents, Copyrights. Employee agrees to communicate and
assign, without compensation, to the Corporation all inventions, patentable
ideas, trade secrets, discoveries, or improvements (whether or not patentable
and whether or not reduced in writing or to practice) which Employee may make
during the term of employment, whether conceived during or outside of the
Corporation's normal working hours.
If requested to do so by the Corporation, Employee agrees to do whatever
is necessary to take out patents in any country and to assign all patents and
applications, whether U.S. or foreign, relating to them to the Corporation,
before leaving its employment. It is understood that the cost of making such
assignments and procuring patents shall be paid by the Corporation or its
clients. Employee further agrees that rights to all royalties resulting from
such patents will be the property of the Corporation or its clients.
If requested, but not otherwise, Employee agrees to take out copyrights on
work resulting from specific Corporation or clients assignments and to assign
such copyrights to the Corporation or its clients. It is understood that the
cost of making such assignments and procuring copyrights
-2-
<PAGE>
shall be paid by the Corporation or its clients. Employee further agrees that
the rights to royalties resulting from such copyrights will be the property of
the Corporation or its clients. It is understood, however, that copyrights
resulting from professional activities of a general nature not resulting from a
specific Corporation or client assignment are the property of Employee.
8. Prior Commitments. Employee certifies that to the best of Employee's
knowledge, he has no commitments to any present or former employer, or to any
other parties, which could create a conflict of interest on behalf of the
Corporation or its clients, and that Employee is free to disclose and make use
of nonconfidential information, except as noted in Attachment A.
Employee further certifies that he has no commitments or restrictions on
his service as a result of past or present consulting agreements, directorships,
ownership or other position or in connection with any other organization, and
will not enter into such commitments without prior discussions with the
Corporation, except as noted in Attachment A.
Employee further certifies that he is not committed to publish any work of
Employee, or have his name used in connection with any publication or
promotional material which may appear subsequent to his employment, except as
noted in Attachment A.
Employee further certifies that he claims no rights in any invention or
other intellectual property developed prior to his employment which could cause
a conflict between the Company and the Employee, except as noted in Attachment
A.
9. Arbitration. Any controversy or claim arising out of, or relating to,
this Agreement or the breach thereof, shall be settled by arbitration in the
Commonwealth of Virginia in accordance with the commercial arbitration rules
then obtaining of the American Arbitration Association. Judgment upon the award
rendered may be entered in any Court having jurisdiction thereof. Any award
rendered hereunder shall be final and binding on all parties thereto.
10. Gender. Whenever the context so indicates, the masculine gender
includes the feminine and/or the neuter and the singular includes the plural.
11. Construction. This Agreement shall be construed, interpreted and
applied under and in accordance with the laws of the Commonwealth of Virginia.
12. Non-Waiver. The failure of the Corporation in any instance to insist
upon a strict performance of the terms of this Agreement or to exercise any
option hereunder, shall not be construed as a waiver or a relinquishment for the
future of such term or option.
13. Parties Bound. The terms and provisions of this Agreement shall be
binding upon the parties hereto, their legal representatives, successors and
assigns.
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<PAGE>
14. Entire Agreement. This instrument contains the entire agreement
between the parties. No statement, promises or inducements made by any party
hereto, or agent of either party hereto, which is not contained in this written
contract, shall be valid or binding; and this contract may not be enlarged,
modified or altered except in writing and signed by all the parties.
IN WITNESS WHEREOF, the Employee has signed and the Corporation has caused to be
properly executed on its behalf, this Employment Agreement as of the day and
year first hereinabove written.
Employee
_________________________________
Hagler Bailly Consulting, Inc.
By:
_________________________________ Title: ________________________________
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<PAGE>
ATTACHMENT A: BUSINESS ETHICS AND CONFLICTS OF INTEREST
Hagler Bailly, Inc. believes that its directors, officers, and employees and the
directors, officers and employees of its subsidiaries must follow the highest
standards of legal and ethical conduct in the pursuit of their duties. Company
transactions must be conducted on an "arms-length" basis. Directors, officers,
and employees must ensure that their personal interests do not conflict with the
interests of the company. Even the appearance of a conflict of interest can be
detrimental to the company's business interests. Employees must be sensitive to,
and avoid, situations that would interfere, or appear to interfere, with the
proper performance of their corporate responsibilities. All employees have an
obligation to identify and disclose any interests that conflict or might
reasonably be expected to conflict with their duties as employees of the
company.
To provide continuing guidance in this area, the Board of Directors of Hagler
Bailly Consulting, Inc. has adopted the following resolution:
WHEREAS, it has been the long-standing policy that the Company's directors,
officers and employees should avoid positions or interests which would, or might
reasonably appear to, conflict with the proper performance of the duties which
such persons owe to the Company; and
WHEREAS the Board of Directors deems it desirable to reaffirm this traditional
policy and to establish a procedure for disclosure to the Board of any material
interest or affiliation which is in conflict or is likely to conflict with the
duties of such person;
NOW, THEREFORE, BE IT RESOLVED, that it is the policy of this Company that
no director, officer, or employee shall have any position with or
substantial interest in any other business enterprise operated for profit,
the existence of which conflicts or might reasonably be expected to
conflict with the proper performance of such person's duties and
responsibilities to the Company, or which tend to affect such person's
independence of judgment with respect to transactions between the Company
and such other business enterprise, without full and complete disclosure
thereof to the Chairman of the Board or the General Counsel; and
RESOLVED FURTHER, that the Chairman of the Board and/or the President are
each authorized and directed to establish and, from the time to time,
amend such program as either of them deems reasonable and proper for the
implementation and supervision of this Company policy. For these purposes,
either of them may delegate this authority, or such parts thereof as may
seem to either of them to be appropriate, to such officers of the Company
as either of them may designate.
This Statement should not be construed as prohibiting participation in
activities such as civic or professional association affairs as long as the time
devoted to those activities does not unreasonably interfere with the ability of
such person to perform his or her Company duties.
<PAGE>
In accepting public office or participating in political activity, officers,
directors, and employees may not hold themselves out as acting as
representatives of the Company rather than as individual citizens. An
individual's position with the Company may not be used to infringe upon the
right of an employee to decide whether, to whom, and in what amount a personal
political contribution will be made.
Gifts and Gratuities
It is the duty of each director, officer, and employee to refrain from giving
and to avoid receiving, either for themselves or for close members of their
families, gifts, gratuities, entertainment, discounts, loans or other benefits
which are given or may appear to be given for the purpose, or which might have
the effect, of improperly influencing their own judgment in the performance of
Company duties or the judgments of others with whom they are transacting Company
business.
This policy is not intended to prohibit (1)gifts or other benefits (not in
excess of $100) given merely as tokens of respect or friendship on occasions
such as Christmas, birthdays, and the like, not related in any way to any
particular transaction or series of transactions, (2) entertainment which is
within normal business practices, or (3)loans by any financial institution made
in the ordinary course of its business at normal rates of interest.
Company funds and property are, of course, to be used only for legitimate
Company purposes and are to be disbursed only in accordance with standard
Company requisition, recording, and approval procedures.
Business Dealings
Each director, officer, and employee should avoid having a financial interest in
any transaction which might be detrimental to the Company or adversely affect
the exercise of his or her official judgment. If the Company is engaged in a
business transaction with a third party with whom an officer or an employee, or
a member of such person's immediate family is affiliated or in which such person
has an interest, such person should make his or her position known to both
organizations and he or she should refrain from participation in negotiations or
decisions with respect to that transaction. In the case of a director who may
have diversified business interests, the director should disqualify himself in
any voting by the Board of Directors with respect to such a transaction.
This policy is intended to prohibit rebates, kick-backs, profit sharing
arrangements, and compensation in any form from any third party who is dealing
with the Company.
An officer may not serve as an employee, officer or director nor may he or she
receive any compensation from an outside corporation or business organization
without the prior approval of the Chairman of the Board.
List of Potential Conflict of Interest Situations
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<PAGE>
Set forth below is a list of circumstances in which a conflict of interest on
the part of an officer or employee would or might arise, and which should be
reported to the General Counsel.
1. Involvement with Suppliers, Contractors or Customers.
(a) Ownership of a material interest in any supplier, contractor,
subcontractor, customer or other entity with which the Company does
business.
(b) Acting in any capacity - including director, officer, partner,
consultant, employee, distributor, agent or the like - for
suppliers, contractors, subcontractors, customers or other entities
with which the Company does business.
(c) Acceptance, directly or indirectly, of payments, services or loans
from a supplier, contractor, subcontractor, customer or other entity
with which the Company does business, other than gifts or other
benefits expressly permitted by this Statement.
(d) Leasing office space to suppliers, contractors or customers of the
Company, or leasing office space directly to the Company.
2. Misuse of Information or Facilities to which an Officer or Employee has
Access Through the Company.
(a) Use of such information or facilities in a manner which will be
detrimental to the Company's interest, or utilization for one's own
benefit of information developed through the Company.
(b) Disclosure or other misuse of confidential or unpublished
information of any kind obtained through an individual's connection
with the Company.
3. Ownership of Property Affected by Company or Acquired as a Result of
Company Information.
(a) Ownership or acquisition of property or interests, the value of
which has been or is likely to be affected by an action of the
Company influenced by or resulting from a decision or recommendation
of the officer or employee owning such property.
(b) Ownership or acquisition of any property or interest where
confidential or unpublished information obtained through the Company
has in any way been involved in such ownership or acquisition.
4. Appropriation or Diversion of Corporate Opportunity.
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<PAGE>
The appropriation to oneself or the diversion to others, directly or
indirectly, of any business opportunity in which it is known or could
reasonably be anticipated that the Company would be interested, e.g.,
opportunity for purchase or lease of real estate, or the acquisition of an
entity which the Company may wish to acquire.
5. Interest in or position with Competitor.
(a) Ownership, directly or indirectly, by an officer or employee of a
material interest in an enterprise in competition with the Company
or any of its subsidiaries.
(b) Acting as director, officer, partner, consultant, employee or agent
of any enterprise which is in competition with the Company or any of
its subsidiaries.
For the Purposes of this Policy Statement:
Ownership, acting, acceptance or acquisition shall be deemed to include
ownership, acting, acceptance or acquisition by the spouse of an officer or
employee, by members of his or her immediate family or by close relatives and
shall be reported by such officer or employee if the facts with respect thereto
are known to him or her. No officer or employee is required to make any
investigation as to the action or interest of those who are not residing in his
or her home.
An interest is "material" within the meaning of this Statement when it is
significant either in reference to the officer's or employee's financial
position or in reference to the size of the entity involved. It is not possible
to define "material" in such a way as to assist each employee in identifying all
of the activities and practices which can cause difficulties under various laws
or policies. A familiarity with this Statement should help employees to
recognize the kinds of situations that are likely to raise questions. In case of
any question or doubt, materially should be presumed and the conflict of
interest should be disclosed to the Company.
Certification
I certify that I have reviewed the Statement of Policy Concerning Business
Ethics and Conflicts of Interest and fully understand my responsibility to
comply with the policies contained in the Statement. I am aware that my failure
to comply with such policies will subject me to appropriate disciplinary
measures which may include dismissal. I will perform my duties and
responsibilities in a manner consistent with its spirit and intent.
I have considered the application of this Statement of Policy to my personal
situation and business affiliations, and report as follows:
1. I represent that I have no interest which might be deemed to be a conflict
of interest with the interests of the Company, except as follows:
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<PAGE>
2. If there arises after the date of this report any possible conflicts of
interest, I will immediately report them to the Company.
-5-
102391/FFHA
L3560-21844
1530 WILSON BOULEVARD
ARLINGTON, VIRGINIA
OFFICE LEASE
Tenant:
RCG/HAGLER, BAILLY, INC.
<PAGE>
TABLE OF CONTENTS
LEASE ....................................................................1
SCHEDULE....................................................................1
1. Leased Premises........................................................1
2. Term...................................................................1
3. Projected Commencement Date............................................1
4. Annual Base Rent.......................................................2
5. Monthly Installment of Annual Base Rent................................2
6. Tenant's Share.........................................................2
7. Operating Expense Stop.................................................2
8. Tenant's Type of Business..............................................2
9. Security Deposit.......................................................2
10. Broker.................................................................2
11. Plan Date..............................................................2
12. Tenant's Parking Permits in the Parking Garage of Building.............2
13. Address for Notices....................................................3
14. Tenant's Architect.....................................................4
15. Building Standard......................................................4
16. Exhibits to this Lease.................................................4
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<PAGE>
TERMS AND CONDITIONS........................................................5
1. LEASE OF PREMISES......................................................5
2. TERM...................................................................5
3. RENT...................................................................5
4. ADDITIONAL RENT........................................................7
A. DEFINITIONS....................................................17
(i) "Affiliate" ..............................................
(ii) "Lease Year" .............................................
(iii) "Taxes" .................................................
(iv) "Operating Expenses" .....................................
B. EXPENSE ADJUSTMENT.............................................12
C. ADJUSTMENT TO EXPENSE CALCULATIONS.............................13
5. USE OF LEASED PREMISES................................................13
6. CONDITION OF LEASED PREMISES..........................................14
7. SERVICES..............................................................14
A. LIST OF SERVICES...............................................14
B. EXCESS CONSUMPTION.............................................16
C. INTERRUPTION OF SERVICES.......................................17
D. CHARGES FOR SERVICES...........................................17
E. ENERGY AND WATER CONSERVATION..................................18
8. REPAIRS...............................................................18
9. ADDITIONS AND ALTERATIONS.............................................20
10. COVENANT AGAINST LIENS................................................21
11. INSURANCE.............................................................22
A. WAIVER OF SUBROGATION..........................................22
B. TENANT'S INSURANCE.............................................22
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<PAGE>
C. AVOID ACTION INCREASING RATES..................................24
D. LANDLORD'S INSURANCE...........................................24
12. FIRE OR CASUALTY......................................................25
13. WAIVER OF CLAIMS - INDEMNIFICATION....................................29
14. NONWAIVER.............................................................29
15. CONDEMNATION..........................................................30
16. ASSIGNMENT AND SUBLETTING.............................................31
17. SURRENDER OF POSSESSION...............................................34
18. HOLDING OVER..........................................................34
19. ESTOPPEL CERTIFICATE..................................................35
20. MORTGAGE OR GROUND LEASE BY LANDLORD..................................35
21. CERTAIN RIGHTS RESERVED BY LANDLORD...................................37
22. RULES AND REGULATIONS.................................................40
23. LANDLORD'S REMEDIES...................................................40
24. TENANT'S REMEDIES.....................................................43
25. EXPENSES OF ENFORCEMENT...............................................43
26. COVENANT OF QUIET ENJOYMENT...........................................43
27. SECURITY DEPOSIT AND SECURITY AGREEMENT...............................44
28. REAL ESTATE BROKER....................................................45
29. MISCELLANEOUS.........................................................45
A. RIGHTS CUMULATIVE..............................................45
B. TERMS..........................................................46
C. BINDING EFFECT.................................................46
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<PAGE>
D. LEASE CONTAINS ALL TERMS.......................................46
E. DELIVERY FOR EXAMINATION.......................................46
F. NO AIR RIGHTS..................................................46
G. MODIFICATION OF LEASE..........................................46
H. INTENTIONALLY OMITTED..........................................46
I. TRANSFER OF LANDLORD'S INTEREST................................46
J. LANDLORD'S TITLE...............................................47
K. PROHIBITION AGAINST RECORDING..................................47
L. CAPTIONS.......................................................47
M. COVENANTS AND CONDITIONS.......................................47
N. ONLY LANDLORD/TENANT RELATIONSHIP..............................47
O. APPLICATION OF PAYMENTS........................................47
P. FURTHER DEFINITION OF LANDLORD.................................47
Q. TIME OF ESSENCE................................................48
R. GOVERNING LAW..................................................48
S. PARTIAL INVALIDITY.............................................48
T. INTEREST.......................................................48
U. PROHIBITED MACHINES............................................48
V. CERTIFICATES...................................................48
W. ASSURANCE OF PERFORMANCE.......................................48
X. COUNTERPARTS...................................................49
Y. SURVIVAL PROVISION.............................................49
Z. COMMON AREAS PROVISION.........................................49
AA. WAIVER OF JURY TRIAL...........................................49
BB. PROCESS........................................................49
CC. SUBMISSION OF LEASE............................................49
DD. TAXES..........................................................49
30. NOTICES...............................................................50
31. LIMITATION OF LANDLORD'S LIABILITY AND ON COUNTERCLAIMS...............50
32. PARKING...............................................................50
33. AUTHORITY OF TENANT...................................................51
34. AUTHORITY OF LANDLORD.................................................51
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<PAGE>
LEASE
-----
This Lease is made as of the 25th day of October, 1991, between
WILSON BOULEVARD VENTURE, a Virginia general partnership, hereinafter referred
to as "Landlord", and RCG/HAGLER, BAILLY, INC., a District of Columbia
corporation, hereinafter referred to as "Tenant". The term "Building" as used
herein refers to the building at 1530 Wilson Boulevard, Arlington,, Virginia,
and containing approximately 167,511 rentable square feet. The land on which the
Building is located, as it may be replatted from time to time, currently
comprises approximately 1 acre, is described on Exhibit A attached hereto and is
hereinafter referred to as the "Land". The Building and the Land, together with
any other improvements now or hereafter located on the Land, are hereinafter
collectively referred to as the "Property". The following Schedule is an
integral part of this Lease.
SCHEDULE
1.Leased Premises: Suite 900, consisting of approximately and hereby deemed to
include 16,803 rentable square feet (determined in accordance with the
Washington, D.C. Association of Realtors Standard Method of Measurement), more
or less, located on the ninth (9th) floor of the Building. Subject to any terms
and provisions of this Lease to the contrary, the Leased Premises shall include
the right to use, in common with Landlord and other tenants of the Building, and
their respective invitees, customers and employees, the halls, toilet and
sanitary facilities on the ninth (9th) floor, first (1st) floor and lower level
of the Building, as well as the sidewalks and delivery areas on the Property.
[See Paragraph l]*
2.Term: The period from the Commencement Date until the day that is the tenth
(10th), anniversary of the Commencement Date.
[See Paragraph 2A]
Projected Commencement Date: January 2, 1992
[See Paragraph 2D]
4.Annual Base Rent: $28 per rentable square foot in the Leased Premises,
increased and abated pursuant to the terms of this Lease, including, without
limitation, Paragraphs 4 and 5 of Exhibit C attached hereto.
- ----------
* For convenience, this Schedule sets forth in [brackets] cross references
showing where the terms defined in the Schedule are first used in the
Terms and Conditions or Exhibits of this Lease. These cross references
are not intended to modify or affect in any way the provisions of this
Lease.
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<PAGE>
[See Paragraph 3A and Exhibit C, Paragraphs 4 and 5]
5.Monthly Installment of Annual Base Rent: The quotient that results from
dividing Annual Base Rent by twelve (12). [See Paragraph 3A]
6.Tenant's Share: The quotient that results from dividing the number of rentable
square feet in the Leased Premises by 167,511.
[See Paragraph 4]
7.Operating Expense Stop: The product that results from multiplying the total
amount of operating Expenses (as hereafter defined) of the Property during the
1992 calendar year, as adjusted to provide for, among other things, a
ninety-five percent (95%) occupied and fully assessed and completed Building and
Property pursuant to Paragraph 4 of this Lease, by the Tenant's Share.
[See Paragraph 4]
8.Tenant's Type of Business: General office use compatible with a first-class
office building in Arlington County, Virginia.
[See Paragraph 5]
9.Security Deposit: $39,207
10.Broker: Julien J. Studley, Inc.
[See Paragraph 28]
11.Plan Date: October 18, 1991
[See Exhibit B, Paragraph 1A]
12.Tenant's Parking Permits in the Parking Garage of Building: A total of 24
Parking Permits, consisting of Parking Permits for six (6) reserved and eighteen
(18) unreserved parking spaces.
[See Paragraph 32 and Exhibit C, Paragraph 8]
13.Address for Notices: [See Paragraph 30]
If to Landlord:
Lincoln Property Company
1530 Wilson Boulevard
Suite 200
Arlington, Virginia 22209
Attention: Mr. William M. Hickey
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<PAGE>
with a copy to each of the following:
Winstead Sechrest & Minick, P.C.
1025 Thomas Jefferson Street, N.W.
Suite 305W
Washington, D.C. 20007
Attention: Mr. Charles T. Clark
Spitzer & Feldman, P.C.
405 Park Avenue, 6th Floor
New York, New York 10022
Attention:, Mr. Edwin Weinberg
If to Tenant before Tenant's occupancy of the Leased Premises:
RCG/Hagler, Bailly, Inc.
370 L'Enfant Plaza, SW
Suite 700
Washington, D.C. 20024
Attention: Mr. Henri-Claude Bailly
but, after Tenant's occupancy of the Leased Premises:
RCG/Hagler, Bailly, Inc.
1530 Wilson Boulevard
Suite 900
Arlington, VA 22209
Attention: Mr. Henri-Claude Bailly
and in either case, with a copy to:
RCG International, Inc.
Park Avenue Plaza
New York, New York 10055
Attention: Howard Steinberg, Esquire
Tenant's Architect: Smith, Blackburn, Stauffer
[See Exhibit B, Paragraph 1A]
15.Building Standard: The standard tenant improvements for the Building to be
installed in the Leased Premises, as described in Addendum II to Exhibit B
attached hereto.
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<PAGE>
16.Exhibits to this Lease: The following are all of the Exhibits attached to
this Lease, each of which is incorporated herein by reference for all purposes:
Exhibit A - Legal Description of Land
Exhibit B - Work Letter
Exhibit C - Additional Terms and Provisions of this Lease
Exhibit D - Outline of Leased Premises
Exhibit E - Cleaning Specifications
Exhibit F - Guaranty of Monetary Obligations
This Lease is subject to the Terms and Conditions and the provisions of
any Exhibits attached hereto, which Terms and Conditions and Exhibits are hereby
made a part of this Lease.
LANDLORD: TENANT:
WILSON BOULEVARD VENTURE, RCG/HAGLER, BAILLY, INC.,
a Virginia general partnership a District of Columbia
corporation
By: Lincoln Property Company By: /s/ Henri-Claude Bailly
--------------------------------
No. 2057 Limited, a Name: Henri-Claude Bailly
Virginia limited partnership Title: Chairman of the
as General Partner Board and Chief
Executive Officer
By: /s/ William C. Duvall
---------------------
William C. Duvall, as
General Partner
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<PAGE>
TERMS AND CONDITIONS
1.LEASE OF PREMISES
Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord,
the Leased Premises described in the Schedule (herein so called) appearing in
pages 1 through 4 of this Lease and designated on the Outline of Leased Premises
attached hereto as Exhibit D, subject to the covenants, terms, and provisions of
this Lease. Subject to any terms and provisions of this Lease to the contrary,
Tenant shall have access to the Leased Premises at all times during the Term.
2.TERM
A. The Term described in the Schedule shall commence on the Commencement
Date, as determined pursuant to Paragraph 2B hereof, and shall continue until
the last day of the Term set forth in the Schedule, unless the Term is renewed
or terminated earlier in accordance with the provisions of this Lease.
B. The "Commencement Date" shall be the date that is earlier of the date
that is thirteen (13) days after the date on which the Leased Premises are
Substantially Completed (as defined in Exhibit B attached hereto) or the date
that Tenant commences beneficial use of the Leased Premises. Tenant shall be
deemed to have commenced beneficial use of the Leased Premises on the date
Tenant takes possession, uses or occupies any of the Leased Premises.
C. On or promptly after the Commencement Date, Landlord and Tenant agree
to execute a written declaration setting forth the Commencement Date, the date
upon which the Term will expire, and the following agreements: (i) except for
any uncompleted Punch List Items (as defined in Exhibit B), Landlord has fully
completed the Tenant Work under the terms of this Lease; and (ii) the Leased
Premises are tenantable, Landlord has no further obligation for construction
(except with respect to any uncompleted Punch List Items), and Tenant
acknowledges that the Building, the Leased Premises and the Tenant Work are
satisfactory in all respects, except for Latent Defects (as hereinafter defined)
and any uncompleted Punch List Items, and are suitable for Tenant's type of
business, as set forth in the Schedule.
D. It is presently anticipated that the Tenant Work will be, and Landlord
shall use reasonably diligent efforts to cause the Tenant Work to be,
Substantially Completed, except for any uncompleted Punch List Items, on or
before the Projected Commencement Date; provided, however, the failure of the
Tenant Work to be Substantially Completed, except for any Latent Defects and
uncompleted Punch List Items, on or before the Projected Commencement Date,
shall not be a breach or default by Landlord under this Lease and Landlord shall
not have any liability whatsoever to Tenant on account thereof and this Lease
shall not be rendered void or voidable as a result thereof; provided further,
however, if the Tenant Work is not Substantially Completed, except for any
Latent
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<PAGE>
Defects and uncompleted Punch List Items, on or before January 3, 1992, Landlord
shall pay to Tenant, for each day [not to exceed fourteen (14) days] after
January 3, 1992, that the Tenant Work has not been Substantially Completed,
except for any Latent Defects and uncompleted Punch List Items, the per them sum
of $1,188.71, as Tenant's sole and exclusive remedy therefor, except that Tenant
shall have the option to terminate this Lease by giving Landlord written notice
of such termination: (a) on or before April 12, 1992, in the event the Tenant
Work is not Substantially Completed, except for any Latent Defects and
uncompleted Punch List Items, on or before April 2, 1992, and such failure is
due to no cause, event or matter beyond Landlord's control; or (b) on or before
July 12, 1992, in the event the Tenant Work is not Substantially Completed,
except for any Latent Defects and uncompleted Punch List Items, on or before
July 2, 1992, for any reason whatsoever.
3.RENT
All payments due hereunder from Tenant shall be made to Landlord's agent
at the office of the Building, or to such other persons or at such other place
as Landlord may from time to time designate in writing, in coin or currency
which, at the time of payment, is legal tender for private or public debts in
the United States of America. All payments due hereunder shall be made without
demand or notice except as expressly required under this Lease, and without any
abatement, set-off, offset or deduction whatsoever, except as expressly provided
for under this Lease or in any other agreement expressly referred to herein.
Tenant agrees to pay the aggregate amount of the following, any and all of which
are hereby declared to be "Rent":
A. The Annual Base Rent set forth in the Schedule is payable monthly in
the amount of the Monthly installment of Annual Base Rent set forth in the
Schedule, in advance, on or before the first day of each and every month during
the Term, without demand or notice, except as expressly required under this
Lease, and, except as expressly provided for under this Lease, without any
abatement, set-off, offset or deduction whatsoever; except that (i) Tenant shall
pay an amount equal to one full Monthly Installment of Annual Base Rent at the
time of execution of this Lease, which amount shall be credited to the first
Rent payable hereunder: and (ii) if the Term commences other than on the first
day of a month or ends other than on the last day of a month, the Monthly
Installment of Annual Base Rent for such month shall be prorated based on the
number of days in such month.
B. Additional Rent (hereinafter defined), including, without limitation,
all estimated monthly installments thereof.
C. All other and further sums payable or to become payable by Tenant to
Landlord pursuant to the provisions of this Lease.
D. Interest from the date that is seven (7) days after the due date of
each payment becoming due under this Lease until paid at the rate per annum (the
"Interest Rate") equal to the
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lesser of either (i) the rate which is equal to two percentage points plus the
rate announced from time to time by The Riggs National Bank of Washington, D.C.
as its base or prime rate of interest whether or not such rate is actually the
lowest rate charged by such bank to corporate or other customers, or if such
rate is unavailable such other similar rate or standard chosen by Landlord in
the exercise of its reasonable discretion, or (ii) the maximum rate allowed
under applicable law; but neither the pay ment of such interest nor the payment
of the late fee described below shall excuse or cure any default by Tenant under
this Lease.
E. A late fee equal to five percent (5%) of any payment, or portion
thereof, becoming due under this Lease which payment is not paid by the seventh
(7th) day following its due date; pro vided, however, that regardless of whether
such late fee constitutes or is deemed to be interest under applicable law, the
sum of all interest contracted for, charged or received hereunder shall not
exceed the maximum amount of interest allowed under applicable law.
Without limiting any of the other obligations of Tenant which survive the
expiration or earlier termination of this Lease, Tenant's obligation to pay all
Rent due under this Lease shall survive the expiration or earlier termination of
this Lease.
4. ADDITIONAL RENT
In addition to paying the Annual Base Rent specified in Paragraph 3A
hereof, Tenant shall pay as "Additional Rent" the amounts determined pursuant to
the succeeding provisions of this Paragraph 4. Any delay in the computation,
notice or charge of any item of Additional Rent shall not be deemed a default
hereunder by Landlord or a waiver of Landlord's right to collect such item of
Additional Rent. If Landlord has not notified Tenant of the amount of each
monthly installment of Additional Rent payable during a particular Lease Year as
described below by the commencement of such Lease Year, Tenant shall continue to
make each monthly installment payment of Additional Rent thereafter in the
amount set f orth in the latest notice or notices f rom Landlord. Thereafter,
when the notice from Landlord for the current Lease Year is given, an
appropriate adjustment in the monthly installment amounts previously paid by
Tenant may be required by Landlord.
A. DEFINITIONS. As used in this Paragraph 4, the following terms shall
have the following meanings:
(i) "Affiliate" shall mean, with respect to any Person (as
hereinafter defined) (a) any other Person that directly or indirectly Controls
(as hereinafter defined), is Controlled by or is under common Control with the
same, (b) any officer, director or partner of the same or of such other Person,
and (c) any member of the immediate family of the same, any such other Person or
any such officer, director or partner. A Person shall be deemed to have
"Control" of: (I) a trust, if such Person is a trustee or Controls a trustee
thereof; or (II) any other Person (excluding any such trust), if the Person to
be deemed to have Control directly or indirectly or acting in concert with one
or more other Persons, owns, Controls or holds with power to vote, or holds
proxies representing, more
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than fifty percent (50%) of the voting shares or rights of such other Person, or
Controls in any manner the election or appointment of a majority of the
directors or trustees of such other Person, or is a general partner in or has
contributed more than fifty percent (50%) of the capital of such other Person.
For purposes of this paragraph, the term "Person" means any individual,
corporation, partnership, joint venture, association, joint stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof, or any other form of entity.
(ii) "Lease Year" shall mean the period during the Term from the
Commencement Date until the last day of the calendar year in which the
Commencement Date occurs, and each twelve (12) month period thereafter during
the Term. Any portion of the Term in the calendar year in which the Term ends
shall be a Lease Year even if it comprises fewer than twelve (12) months.
(iii) "Taxes" shall mean all real estate taxes and assessments,
special or otherwise, and gross receipts taxes, levied or assessed upon or with
respect to the Property, but excluding penalties or other charges caused by any
negligent failure by Landlord to pay any such taxes or assessments prior to the
date they become delinquent. All references to Taxes "for" a particular year
shall be deemed to refer to Taxes payable during such year without regard to
when such Taxes are assessed or levied. "Taxes" shall also include, in the year
paid, all reasonable fees and costs incurred by Landlord in seeking to obtain a
reduction of, or a limit on the increase in, any Taxes, and any refund of Taxes
for the year in which such refund is received but only to the extent such refund
relates to Taxes paid within the Term. Notwithstanding anything in this
paragraph to the contrary, should the Commonwealth of Virginia, or any political
subdivision thereof, or any other governmental authority having jurisdiction
over the Property, (a) impose a tax, assessment, charge or fee, which Landlord
shall be required to pay, by way of substitution for or supplementation to such
real estate taxes, or (b) impose an income or franchise tax or a tax on rents in
substitution for or as a supplement to a tax levied against the Property or the
personal property used in connection therewith, all such taxes, assessments,
fees or charges (hereinafter collectively referred to as "in lieu of taxes")
shall be deemed to constitute Taxes hereunder. Except as hereinabove provided
with regard to "in lieu of taxes", Taxes shall not include any corporate,
franchise, internal revenue, inheritance, estate, succession, gift, net income
or capital stock tax. The amount of special taxes or special assessments to be
included in Taxes shall be limited to the amount of the installments of special
taxes or special assessments required to be paid for a particular year; however,
to the extent it is commercially reasonable under the circumstances to do so, in
Landlord's reasonable determination, Landlord shall elect the longest period of
time allowed by the authority imposing a special tax or special assessment in
which to pay installments of such special tax or special assessment. Taxes shall
include all special assessments for capital improvements which are incorporated
into the Property to the extent the cost of such capital improvements are paid
by a third party, including, without limitation, a governmental authority, or
are Operating Expenses. To the extent any tax or assessment is caused by
improvements, additions or alterations made by Tenant in the Leased Premises the
amount of such tax or assessment shall be paid by Tenant. Taxes shall not
include taxes caused by any major structural change in the Property, such as
adding or deleting floors, unless the costs of such change are Operating
Expenses.
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(iv) "Operating Expenses" shall mean all Taxes and all expenses,
costs and disbursements of every kind and nature (determined for each calendar
year under sound accounting principles, consistently applied) paid or incurred
by Landlord or any Affiliate of Landlord in connection with the ownership,
management, operation, repair, replacement, maintenance, insuring and servicing
of the Property, except the following:
(a) Depreciation, principal or interest payments, points or
fees on loans secured by mortgages or trust deeds on the Property and ground
rent payments, if any, except that payments of Taxes, insurance premiums and
other amounts intended to be applied to the cost of owning, managing, operating,
repairing, replacing, maintaining, insuring or servicing the Property shall be
included in Operating Expenses even if they are paid to a lender or ground
lessor or its designee.
(b) Costs of capital improvements, alterations, equipment and
tools, and replacements of capital improvements, equipment and tools, except
that Operating Expenses shall include such costs during the Term, as reasonably
amortized by Landlord in accordance with sound accounting principles,
consistently applied, with interest on the unamortized amount, at the Interest
Rate, of (I) the costs of any capital improvement, repair, alteration or
replacement completed after the date of this Lease which is reasonably intended
in good faith by Landlord to reduce any component cost included within Operating
Expenses, (II) the costs (not to exceed $25,000 per Lease Year) of any capital
improvement or replacement completed after the date of this Lease which Land
lord reasonably determines is necessary to keep the Property in compliance with
governmental rules and regulations applicable from time to time thereto and
(III) the costs of reasonably necessary equipment not affixed to the Building
which is used in providing janitorial or similar services; provided, however,
except for those costs related to the Americans With Disabilities Act (which
shall not exceed $15,000 per Lease Year of such $25,000 per Lease Year amount)
any costs included under clause (II) above shall be limited to those costs
arising only as a result of a change in any governmental rule or regulation;
(c) Any damage or loss to property insured by Landlord
pursuant to this Lease resulting from a fire or other casualty, except for any
such damage or loss in the amount of Landlord's insurance deductibles paid by
Landlord per incident, which shall be limited to $.15 per rentable square foot
in the Building;
(d) Costs of repairs, alterations or replacements caused by an
exercise of any right of eminent domain to the extent net condemnation proceeds
received by Landlord cover such costs;
(e) Costs incurred by Landlord with respect to goods and
services (including,,without limitation, utility sold and supplied to Tenants
and occupants of the Building) to the extent that Landlord receives
reimbursement for such costs;
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(f) Costs, including, without limitation, permit, license and
inspection costs, incurred with respect to the installation of tenant
improvements, additions or alterations made for other tenants in the Building or
incurred in renovating or otherwise improving, decorating, painting or
redecorating any space for any such other tenants or other occupants of the
Building;
(g) Depreciation and amortization, except as provided herein
and except on materials, tools, supplies and vendor-type equipment purchased by
Landlord to enable Landlord to supply services Landlord might otherwise contract
for with a third party where such depreciation and amortization would otherwise
have been included in the charge for such third parties' services, all as
determined in accordance with sound accounting principles, consistently applied;
(h) Leasing commissions, attorneys and other professional or
consulting fees, design or engineering fees and other costs and expenses
incurred in connection with negotiations or disputes with present or prospective
tenants or other occupants of the Building and any consideration paid, given or
delivered to other tenants as an inducement to lease space in the Building;
(i) Costs incurred by Landlord due to the negligence of
Landlord, or its agents, servants or employees, or any Affiliate of Landlord, or
any such Affiliate's agents, servants or employees, or to the violation by
Landlord, or its agents, servants or employees, or any Affiliate of Landlord, or
any such Affiliate's agents, servants, or employees, or, any tenants, of the
terms and conditions of any lease of space in the Building or any applicable
laws, statutes or codes;
(j) The cost increment paid for services in the Building,
including, without limitation, management of the Building, to the extent the
costs of such services exceed the costs of the same quality of such services
rendered on a competitive basis by third parties who are not Affiliates of
Landlord;
(k) Any compensation paid to clerks, attendants or other
persons in, and any costs attributable solely to, commercial concessions
operated by Landlord or in the parking garage of the Building;
(l) All items and services for which Tenant or any other
tenant in the Building reimburses Landlord or which Landlord provides
selectively to one or more tenants (other than Tenant) without reimbursement;
(m) Advertising and promotional expenditures, and costs of
signs in or on the Building identifying the owner of the Building or any tenant
of the Building;
(n) Costs incurred in connection with all operations of the
parking garage of the Building, except maintenance costs;
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(o) Costs of salaries and related benefits of employees of
Landlord above the level of the Building's property manager and costs of
salaries and related benefits of employees of Landlord at and below the level of
the Building's property manager who are not on-site employees at the Property to
the extent such employees devote time to property other than the Property;
(p) Costs incurred in connection with the original
construction of the base Building shell;
(q) Costs incurred in connection with, or expenses relating
to, any major structural change in the Building, such as adding or deleting
floors, unless such change is designed to improve the operating efficiency of
the Building;
(r) Costs of correcting defects in, or inadequacy of, the
initial design or construction of the Building;
(s) Any bad debt or rent loss, and any reserve for bad debt or
rent loss;
(t) Costs associated with the operation of the business of the
partnership or entity which constitutes Landlord or any Affiliate of Landlord,
as such costs may be distinguished from the costs of operation of the Building,
including the costs of accounting and legal organizational matters, costs of
defending any law suits with any mortgagee (except as the actions of Tenant may
be an issue), costs of selling, syndicating, financing, mortgaging or
hypothecating any of Landlord's interest in the Building, costs of any disputes
between Landlord and its employees, if any, not engaged in Building operations,
or disputes of Landlord with the Building's property manager;
(u) Fines, penalties and interest arising due to the
delinquency or negligence of Landlord or any Affiliate of Landlord; and
(v) Any expense in connection with the ground floor and
mezzanine levels which is payable exclusively in connection with a restaurant,
bank or other exclusively retail oper ation, except for expenses that cannot
reasonably be apportioned.
The Operating Expense Stop shall be increased by the product that results from
multiplying the sum of the following, to the extent they were not included in
Operating Expenses of the Property during the 1992 calendar year: (i) amounts
that ordinarily would be included in Operating Expenses for the 1992 calendar
year that were not included therein due to warranties or guarantees, and (ii)
the cost of a full and normal management and maintenance staff for the Property
during the 1992 calendar year. Landlord represents and warrants to Tenant that
Landlord currently provides to tenants of the Building all services ordinarily
and customarily provided by a Landlord of a first-class office building in
Arlington County, Virginia. It is understood that Operating Expenses shall be
reduced by all cash discounts, trade discounts or quantity discounts received by
Landlord or any Affiliate of
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Landlord or the manager of the Property in the purchase of any goods, utilities
or services in connection with the operation of the Building or the Property.
Landlord shall use reasonable efforts to make payments for goods, utilities and
services in a timely manner and to obtain the maximum possible discount, to the
extent it is commercially reasonable under the circumstances to do so, in
Landlord's reasonable determination. Landlord agrees that, in the calculation of
any costs or expenses to be included in Operating Expenses, no cost or expense
shall be included more than once. Landlord shall use reasonable efforts to
affect an equitable pro-ration of bills for services rendered to the Building
and to any other Property owned by Landlord. Landlord shall use reasonable
efforts to establish accurate estimates of the Operating Expenses for each Lease
Year so as to be reasonably close to the actual Operating Expenses for such
Lease Year.
B. EXPENSE ADJUSTMENT. Tenant shall pay, as Additional Rent, an amount
(hereinafter referred to as the "Expense Adjustment Amount") equal to Tenant's
Share of the amount by which the Operating Expenses (subject to adjustment
pursuant to Paragraph 4C hereof) incurred with respect to each Lease Year after
the first Lease Year exceed the Operating Expense Stop set forth in the
Schedule. If less than ninety-five percent (95%) of the Building's total
rentable area shall have been occupied by tenants at any time during any Lease
Year, then the Expense Adjustment Amount shall be increased to an amount which
Landlord in good faith and in accordance with sound accounting principles,
consistently applied, determines the Expense Adjustment Amount would have been
for such Lease Year had occupancy of the Building been ninety-five percent (95%)
throughout such Lease Year. If the Lease Year in which the last day of the Term
occurs is shorter than twelve (12) months, the Operating Expense Stop shall be
prorated based on the number of days in such Lease Year. The Expense Adjustment
Amount with respect to each Lease Year shall be paid in monthly installments in
advance on the first day of each and every calendar month during such Lease
Year, in an amount estimated from time to time by Landlord and communicated by
written notice to Tenant. Landlord shall cause to be kept books and records
showing Operating Expenses in accordance with sound accounting principles,
consistently applied. Landlord shall deliver to Tenant a reasonably detailed
statement setting forth (a) the actual Operating Expenses and Expense Adjustment
Amount for such Lease Year; (b) the total of the estimated monthly installments
of the Operating Expense Adjustment Amount paid to Landlord for such Lease Year;
and (c) the amount of any excess or deficiency of Expense Adjustment Amount
previously paid with respect to such Lease Year. Tenant shall pay any deficiency
to Landlord as shown by such statement within thirty (30) days after receipt of
such statement. Upon Tenant's written request, Landlord shall furnish Tenant
with copies of all relevant tax bills with such statement. If the total of the
estimated monthly installments paid by Tenant during any Lease Year exceeds the
actual Expense Adjustment Amount due from Tenant for such Lease Year, such
excess shall be refunded by Landlord within thirty (30) days after delivery to
Tenant of such statement, provided Tenant is not then in default hereunder. In
lieu of receiving such overpayment, provided Tenant is not then in default
hereunder, Tenant, upon Landlord's prior written approval, may deduct the amount
of such overpayment from the succeeding installment of Annual Base Rent or
Additional Rent coming due hereunder. Tenant shall have no right to audit or
inspect the records of Landlord or the Property, except as expressly provided in
Exhibit C attached hereto.
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C. ADJUSTMENT TO EXPENSE CALCULATIONS. If less than ninety-five percent
(95%) of the Building's total rentable area shall have been occupied by tenants
at any time during any Lease Year, then Operating Expenses for such Lease Year
shall be an amount which Landlord in good faith determines is the amount
Operating Expenses would have been for such Lease Year had occupancy of the
Building been ninety-five percent (95%) throughout such Lease Year. Tenant
acknowledges that the method of computing the amount of Operating Expenses,
prior to any adjustment, as stated in Paragraph 4B hereof, is based upon the
assumption that Landlord will be providing identical services to all tenants in
the Building.
5. USE OF LEASED PREMISES
Tenant shall use and occupy the Leased Premises as an office for the type
of business set forth in the Schedule and no other purpose. Tenant shall not use
or occupy the Leased Premises for any unlawful purpose or in any manner that
will constitute waste, nuisance or unreasonable annoyance to Landlord or other
tenants of the Property. Tenant shall comply with all present and future laws,
ordinances, regulations, and orders of the United States of America, state and
county governments, and any other public or quasi-public authority having
jurisdiction over the Property, concerning the use, occupancy and condition of
the Leased Premises and all machinery, equipment and furnishings therein. It is
expressly understood that if any present or future law, ordinance, regulation
order requires a certificate of occupancy or use permit for the Leased Premises,
except as otherwise provided in Exhibit B, Tenant will obtain such certificate
or permit at Tenant's own expense and will deliver a copy thereof to Landlord
promptly when it is obtained. The cost of such compliance by Tenant shall be
borne by Tenant under all circumstances, except as expressly provided to the
contrary in Paragraph 8 of this Lease or unless such compliance is required as a
result of Landlord's negligence or willful misconduct or by a breach by Landlord
of any of Landlord's obligations hereunder.
6. CONDITION OF LEASED PREMISES
The improvement of the Leased Premises by Landlord shall be accomplished
in accordance with Exhibit B attached hereto. In no event shall Tenant be
entitled to any credit against, or abatement of, Rent due to the existence of
any Punch List Items as described in Exhibit B. No promise of Landlord to alter,
remodel or improve the Leased Premises or the Property and no representation by
Landlord or its agents respecting the condition of the Leased Premises or the
Property has been made to Tenant or relied upon by Tenant other than as may be
contained in Exhibit B attached to this Lease. By taking possession of the
Leased Premises, the Tenant accepts the Leased Premises in the Building in its
"As Is" condition, and the taking of the possession of the Leased Premises by
the Tenant shall be conclusive evidence that the Leased Premises and the
Building are in good and satisfactory condition, except for Latent Defects (as
defined in Exhibit C) and uncompleted Punch List Items (as defined in Exhibit
B). Landlord shall complete the Punch List Items within forty-five (45) days
following Landlord's approval, which approval shall not be
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unreasonably withheld, delayed or conditioned, of a list of the Punch List Items
submitted to Landlord by Tenant after the Commencement Date. Such forty-five
(45) day period shall be extended to the extent Landlord's completion of the
Punch List Items is delayed by any act of God, strike, lock out, labor
difficulty, explosion, sabotage, accident, riot, civil commotion, act of war,
result of any warfare or warlike condition in this or any foreign country, fire
or other casualty, legal requirement, energy shortage or cause beyond the
reasonable control of Landlord and Landlord has nevertheless used reasonably
diligent efforts to complete any uncompleted Punch List Items. Landlord shall
have access to the Leased Premises at all reasonable times in order to complete
the Punch List Items. Tenant acknowledges that Landlord's completion of the
Punch List Items may cause interference with the conduct of Tenant's business in
the Leased Premises and Tenant waives any and all rights and remedies it has
with respect to such interference; however, Landlord agrees to use reasonable
efforts to minimize such interference.
7. SERVICES
A. LIST OF SERVICES. Landlord shall provide the following services on all
days during the Term, except Sundays and legal Federal holidays, unless
otherwise stated:
(i) Heating, ventilation and air conditioning service ("HVAC
Service") when necessary for normal comfort in the Leased Premises, from Monday
through Friday, during the period from 7:00 a.m. to 6:00 p.m. and on Saturday
during the period from 9:00 a.m. to 1:00 p.m. (such periods are hereinafter
referred to as "Standard Building Hours"). Subject to the terms and provisions
of this Lease, Landlord shall furnish HVAC Service to the Leased Premises during
any period of time other than Standard Building Hours upon Tenant's written
request on Landlord's tenant work order form; provided, however, any such
request shall be made during, and at least six (6) hours prior to the expiration
of, Standard Building Hours on a weekday, other than a Federal holiday. The
minimum period of HVAC Service that may be so requested is four (4) consecutive
hours. Tenant will pay for all such HVAC Service so requested and furnished at
Landlord's actual and direct costs therefor, with no markup by Landlord. To the
extent another tenant, on the same floor in the Building as the floor to which
Tenant has requested such HVAC Service for a period of time, has requested that
such HVAC Service be provided during all or part of the same period, Landlord
shall prorate the cost of such simultaneous HVAC Service between Tenant and such
other tenant based on the proportionate sizes of Tenant's space and such other
tenant's space to which simultaneous HVAC Service was furnished. Notwithstanding
the foregoing, Landlord reserves the right to increase the hours and/or days
during which the Standard Building Hours of the Building shall occur. The HVAC
Service furnished by Landlord to the Leased Premises has been designed to
produce indoor conditions noted below when the outdoor conditions are as stated
below based upon the average consumption of 5 watts per usable square foot and
occupancy averaging not more than one person per 200 usable square feet:
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Summer:
Indoor Conditions (maximum):
73 degrees Fahrenheit, dry bulb
Outdoor Conditions:
93 degrees Fahrenheit, dry bulb
75 degrees Fahrenheit, wet bulb (coincidental)
Winter:
Indoor Conditions (maximum):
72 degrees Fahrenheit, dry bulb
Outdoor Conditions:
14 degrees Fahrenheit, dry bulb
These specifications define the quality, character and amount of HVAC Service
that Landlord is required to supply at the points at which the systems providing
HVAC Service in the Building meet the distribution systems for HVAC Service in
the Leased Premises. The actual temperature and humidity in the Leased Premises
may be varied by, among other things, equipment used by Tenant, alterations made
to the Leased Premises and the imposition of different temperature maintenance
standards by governmental and quasi-governmental authorities. Landlord shall
have no liability or responsibility for any such variation.
(ii) Electricity services; provided that (a) the connected
electrical load of the lighting and other receptacle equipment in the Leased
Premises shall not exceed an average con sumption of 5 watts per usable square
foot of' the Leased Premises; (b) the electricity so furnished will be at a
normal 120 volts and no electrical circuit for the supply of the Leased Premises
will have a current capacity exceeding 20 amperes; (c) no individual piece of
electrically operated machinery or equipment shall draw in excess of 2
kilowatts; and (d) such electricity will be used only for equipment and
accessories normal to office usage. Tenant shall not install or operate in the
Leased Premises any electrically operated equipment or machinery that may exceed
the requirements set forth in the preceding sentence without first obtaining the
prior written consent of Landlord, which consent shall not be unreasonably
withheld, conditioned or delayed; provided, however, Landlord may condition such
consent upon the payment by Tenant of Additional Rent in compensation for the
excess consumption of electricity or other utilities and compliance by Tenant
with the terms and provisions of this Lease relating to improvements,
alterations and additions with respect to any additional wiring or apparatus
that may be occasioned by the operation of such equipment or machinery. Tenant
shall bear the cost of replacement of all lamps, tubes, ballasts and starters
for lighting fixtures that are not Building Standard (as hereinafter defined)
lighting fixtures.
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(iii) Potable water for drinking in accordance with governmental
requirements, hot and cold water from the regular Building lavatory outlets and
water from the regular Building toilet outlets.
(iv) Cleaning services in accordance with the specifications set
forth in Exhibit E.
(v) Automatic passenger elevator service.
(vi) Elevator service for freight subject to scheduling by Landlord.
Landlord agrees to use reasonable efforts to accommodate scheduling requests by
Tenant. Tenant's use of elevator service for freight shall not occur during
Standard Building Hours or on legal Federal holidays. Tenant shall reimburse
Landlord for Landlord's costs incurred in such use. If Tenant, in using an
elevator for freight, is vacating the Leased Premises (whether or not such
vacation is in violation of the terms of this Lease), Tenant shall pay such cost
to Landlord in advance of such vacation.
(vii) Security, including, without limitation, a "Kastle Key" access
system, or a reasonably equivalent system, for building access after, and a
lobby attendant during, Standard Building Hours, as well as a building security
system a fire safety system and an elevator floor "lock out" system.
(viii) Structural repairs to the base Building shell and Base
Construction.
B. EXCESS CONSUMPTION. Subject to the provisions of Paragraph 7A(ii)
above, at the option and cost of Landlord, Landlord may install check meters to
electrical circuits serving Tenant's equipment to determine whether Tenant is
consuming excessive electricity as compared to typical office tenants in
Arlington County, Virginia. If Landlord determines pursuant thereto that
Tenant's electricity consumption is excessive, Landlord may install submeters,
at Tenant's sole cost and expense (which shall be Additional Rent), to ascertain
Tenant's actual electricity consumption, and Tenant will thereafter pay for
Tenant's excess consumption of electricity, at the then current price per
kilowatt hour for the commercial service classification charged Landlord by the
utility, as Additional Rent.
C. INTERRUPTION OF SERVICES. Tenant agrees that Landlord shall not be
liable in damages, by abatement of Rent or otherwise, for failure to furnish or
delay in furnishing any service or for any diminution in the quality or quantity
thereof, when such failure, delay or diminution is occasioned, in whole or in
part, by maintenance, repairs, replacements, additions, alterations or
improvements, by any strike, lockout or other labor trouble, by inability to
secure water or electricity, gas (if any) or other fuel at the Building after
reasonable effort so to do, by any accident, fire or casualty whatsoever, by act
or default of Tenant or any other person or entity, by the exercise of
Landlord's rights under Paragraph 7E or by any act or failure to act by any
person or
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entity if it is beyond Landlord's reasonable control and not caused by the
negligence or willful misconduct of Landlord, and no such failure, delay or
diminution shall ever be deemed to constitute an actual or constructive eviction
or disturbance of Tenant's use and possession of the Leased Pre mises or relieve
Tenant from paying Rent or performing any of its obligations under this Lease;
provided, however, to the extent any such failure, delay or diminution is caused
by any circumstance described above, other than a fire or casualty covered by
Paragraph 12 hereof, and Tenant's does not use the Leased Premises as a result
thereof for a period of at least five (5) consecutive business days after Tenant
has given written notice to Landlord of such interruption, then Tenant, as its
sole remedy, shall be entitled to full abatement of Rent payable during the
period of time following such five (5) consecutive business day period that such
failure, delay or diminution continues as long as Tenant does not use the Leased
Premises; provided, further, that in the event such failure, delay or diminution
continues uninterrupted for a period of at least sixty (60) consecutive days
following Tenant's written notice thereof to Landlord, then if Tenant has not
used the Leased Premises during such sixty (60) consecutive day period Tenant
shall be entitled to terminate this Lease as an additional remedy by giving to
Landlord written notice of such termination prior to the seventieth (70th)
consecutive business day of such uninterrupted failure, delay or diminution that
Tenant does not use the Leased Premises, and this Lease shall terminate thirty
(30) days after Landlord's receipt of such notice from Tenant unless Tenant uses
the Leased Premises or such interruption has ceased prior to the expiration of
such thirty (30) day period. Upon such termination neither such party shall have
any further right or obligation under this Lease, except that each party shall
fulfill all obligations of such party which survive the termination of this
Lease.
D. CHARGES FOR SERVICES. Except as expressly provided herein to the
contrary, charges for any service for which Tenant is required to pay from time
to time hereunder, including, but not limited to, HVAC Service during any period
of time other than Building Standard Hours, shall be due and payable within
thirty (30) days after they are billed. If Tenant shall fail to make payment for
any such service within such thirty (30) day period, Landlord may, after giving
Tenant any ten (10) days notice of such failure and opportunity to cure required
under Paragraph 18 of Exhibit C, discontinue any or all of such services until
such payment, together with the payment of interest and any late charge due
hereunder in connection therewith, is made by Tenant, and such discontinuance
shall not be deemed to constitute an actual or constructive eviction or
disturbance of Tenant's use and possession of the Leased Premises or relieve
Tenant from paying Rent or performing any of its other obligations under this
Lease.
E. ENERGY AND WATER CONSERVATION. Notwithstanding anything to the contrary
in this Paragraph 7 or elsewhere in this Lease, Landlord, in its reasonable
discretion, shall have the right to institute such policies, programs and
measures as may be necessary or desirable for the conservation and preservation
of water, energy or energy related services, or as may be required to comply
with any applicable codes, rules and regulations, whether mandatory or
voluntary; provided, however, that Landlord agrees that any such policies,
programs and measures which are not mandatory shall be made in a manner
reasonably intended to minimize inconvenience to Tenant and shall not materially
violate the terms of Paragraph 26 of this Lease.
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8.REPAIRS
Tenant shall use its best efforts to promptly and adequately notify
Landlord in writing of any repairs and/or replacements to the Leased Premises or
the Tenant Work (as defined in Exhibit B) that are necessary or appropriate.
Upon Landlord obtaining knowledge of any repair and/or replacement to the Leased
Premises or the Tenant Work (but not any alterations, additions or improvements
made thereto) that is necessary or appropriate, Landlord will make such repair
and/or replacement, except Landlord shall not be obligated to make any repair or
replacement that is a result of ordinary wear or tear, or is a repair and/or
replacement which Tenant is obligated to make pursuant to this Lease. Provided
that Tenant has fulfilled its obligation in the first (1st) sentence of this
Paragraph 8, any repair or replacement which Landlord is obligated to make
pursuant to this Lease shall be made at Landlord's expense, except as expressly
provided to the contrary in this Lease. Tenant shall be liable to Landlord for
the cost of any repair or replacement which Landlord is obligated to make under
this Paragraph 8 to the extent Tenant's failure to fulfill its obligation in the
first (1st) sentence of this Paragraph 8 caused such cost to exceed the cost of
such repair or replacement if Tenant had fulfilled such obligation.
If Landlord fails to commence efforts to make any repair and/or
replacement that Landlord is obligated to make under this Lease, other than a
repair and/or restoration covered by Paragraph 12 hereof, within thirty (30)
days from the date that Tenant gives Landlord such written notice of Landlord's
obligation hereunder to perform any such repair and/or replacement, or within a
shorter, reasonable period of time in the event of an emergency, and thereafter
continue such efforts until such repair and/or replacement is completed, Tenant
then, if such failure continues after Tenant has given Landlord a ten (10) day,
or a shorter, reasonable period in the event of a emergency, written notice of
Tenant's intent to make such repair and/or replacement, Tenant shall have the
right, at its option, to perform such repair and/or replacement if Landlord has
not made such repair and/or replacement during such ten (10) day period, subject
to the other terms and provisions of this Lease, and Landlord shall reimburse
Tenant the reasonable cost thereof approved in advance by Landlord in writing,
and such approval shall not be unreasonably withheld, delayed or conditioned.
Except in an emergency, prior to performing any repair and/or replacement
allowed under this Lease, Tenant shall obtained Landlord's prior written
approval, which approval shall not be unreasonably withheld, delayed or
conditioned, of the contractor and each subcontractor which shall perform any
part of such repair and/or replacement.
Anything in this Lease to the contrary, notwithstanding, Tenant shall be
obligated to perform and pay the cost of any repair and/or replacement to the
Leased Premises, the improvements provided in connection with the Tenant Work
and any alterations, additions or improvements made to the Tenant Work, the
Building or the Property necessitated by the negligence or willful misconduct of
Tenant, or any of its Affiliates, agents, employees, contractors,
subcontractors, suppliers, invitees or guests. If Tenant fails to commence
efforts to make any repair and/or replacement Tenant is obligated to perform
under this Lease within thirty (30) days from the date
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that Landlord gives Tenant written notice of Tenant's obligation hereunder to
perform any such repair and/or replacement, or within a shorter, reasonable
period of time in the event of an emergency, and thereafter continue such
efforts until such repair and/or replacement is completed, Landlord and its
designee shall have the right, at Landlord's option, to enter the Leased
Premises and perform such repair and/or replacement, and Tenant shall pay
Landlord the reasonable costs thereof, including, without limitation, a
percentage of the costs thereof [such percentage to be established by Landlord
from time to time on a uniform basis for the Building, but such percentage shall
not exceed ten percent (10%)] sufficient to reimburse Landlord for all overhead,
general conditions, fees and other costs and expenses arising from the
supervision of such repair and/or replacement by Landlord or Landlord's
designee, promptly upon being billed for same.
Notwithstanding the foregoing in this Paragraph 8, Landlord may, but shall
not be required to, enter the Leased Premises at all reasonable times to make,
at Landlord's cost and expense, such repairs, replacements, alterations,
additions or improvements to the Leased Premises or to the Building or to any
equipment located in the Building as shall be necessary or as Landlord may be
required to do by contract, governmental authority or court order or decree. No
such entry or repairs, replacements, alterations, additions or improvements by
Landlord shall be deemed or construed to be a disturbance of Tenant's quiet and
peaceable possession of the Leased Premises or a violation of any rights of
Tenant or of any covenants or other obligations of Landlord under this Lease;
provided, however, Landlord will use reasonable efforts to minimize interference
with Tenant's rights under Paragraph 26 hereof. Repairs, replacements,
alterations, additions and improvements to the Leased Premises required to be
made by any governmental authority or court order or decree, or board of fire
underwriters, shall be made by Landlord, at Landlord's expense, except to the
extent such expense is included in Operating Expenses.
9. ADDITIONS AND ALTERATIONS
A. Except for the Tenant Work to be constructed in accordance with Exhibit
B attached hereto, Tenant shall not make any alterations, improvements or
additions to the Leased Premises without the prior written consent of Landlord,
which consent as to nonstructural, nonmechanical or nonelectrical alterations,
improvements or additions shall not be unreasonably withheld, conditioned or
delayed. Notwithstanding the preceding sentence, Landlord's consent shall not be
required for nonstructural, nonmechanical and nonelectrical alterations,
improvements or additions, the total, aggregate cost of which is less than
$2,500. If Landlord consents to said alterations, improvements or additions, it
may impose such conditions with respect thereto as Landlord deems appropriate,
in its reasonable discretion, including, without limitation, requiring Tenant to
furnish Landlord with security for the performance of the work and payment of
all costs to be incurred in connection with such work; insurance against
liabilities which may arise out of such work; plans and specifications; and all
permits necessary for such work. The work necessary to make any alterations,
improvements or additions to the Leased Premises other than the Tenant Work,
whether prior to or subsequent to the Commencement Date, shall be done at
Tenant's expense and shall be performed by employees of Landlord or contractors
hired by Landlord except to the extent Landlord gives its prior written
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consent to Tenant's hiring its own contractors. Landlord may condition its
consent to Tenant hiring its own contractors, on Tenant delivering to Landlord,
prior to commencement of such work, copies of all contracts entered into with
respect thereto and all other documents and information reasonably requested by
Landlord. It is understood and agreed that, in the event Landlord shall give its
written consent to the making of any alterations, improvements or additions to
the Leased Premises, such written consent shall not be deemed to be an agreement
or consent by Landlord to subject its interest in the Property to any mechanics,
or materialmen's liens which may be filed in connection therewith. Tenant shall
promptly pay to Landlord or Tenant's contractors, as the case may be, when due,
the cost of all such work. If Landlord or Landlord's designee performs such
work, Tenant shall also pay to Landlord a percentage of the cost of such work
[such percentage to be established by Landlord from time to time on a uniform
basis for the Building, but such percentage shall not exceed ten percent (10%)]
sufficient to reimburse Landlord for all overhead, general conditions, fees and
other costs and expenses arising from the supervision of such work by Landlord
or Landlord's designee with such work promptly upon being billed for same.
Upon completion of any repair, replacement, alteration, improvement or
addition performed by Tenant, or its contractors and subcontractors, Tenant
shall deliver to Landlord, if payment is made by Tenant directly to its
contractors, evidence of payment and contractors' and subcontractors' affidavits
and full and final waivers of all liens for labor, services or materials, all in
form and substance satisfactory to Landlord, from each contractor,
subcontractor, supplier and other person or entity that may be entitled to a
lien due to such repair, replacement, alteration, improvement or addition. To
the extent Landlord or a contractor engaged by Landlord does not perform the
work, Tenant shall indemnify, defend and hold Landlord and the Property harmless
from, and shall pay, all liabilities, claims, judgments, costs, damages, liens
and expenses related to any repair, replacement, alteration, addition or
improvement performed by Tenant, or its contractors and subcontractors,
including all reasonable attorneys' fees and legal costs, and Tenant shall
require each of its contractors in each of its contracts to so defend and
indemnify Landlord; provided, however, Tenant shall not indemnify, defend and
hold Landlord harmless from the reasonable cost of any repairs and/or
replacements which Landlord is obligated to make under Paragraph 8 hereof. All
work done by Tenant or its contractors pursuant to Paragraphs 8 or 9 hereof
shall be done in a first-class workmanlike manner using only the highest grades
of materials, which shall be at least comparable in quality to Building Standard
materials at the time of such work, and shall comply with all insurance
requirements and all applicable laws, ordinances, rules, regulations and orders
of all courts and other tribunals, governmental and quasi-governmental.
departments and agencies. Any work undertaken by Tenant shall be performed by
labor which is not incompatible with the labor employed in the Building by
Landlord.
B. Unless Tenant notifies Landlord prior to the construction of any
alteration, improvement or addition (other than Tenant Work) that Tenant shall
remove the same upon termination of this Lease and provides adequate assurance
(including a reasonable amount of security) to Landlord, in Landlord's
reasonable discretion, that any damage to the Leased Premises upon such removal
shall be promptly repaired or restored by Tenant, at its sole cost, all
alterations,
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improvements and additions to the Leased Premises, whether temporary or
permanent in character, made or paid for by Landlord or Tenant, shall without
compensation to Tenant become Landlord's property at the termination of this
Lease by lapse of time or otherwise and shall, unless Landlord requests their
removal (in which case Tenant shall remove the same as provided in Paragraph 17
hereof), be relinquished to Landlord in good order, repair and condition, except
for ordinary wear and tear and repairs and/or replacements which Tenant is not
obligated to make pursuant to this Lease. At the time Tenant requests in writing
that Landlord consent to any alterations, improvements or additions, Tenant may
request in writing that Landlord elect whether or not it will request their
removal. If such election is so requested by Tenant, Landlord agrees to make
such election in writing at the time it gives any written consent to such
alterations, improvements or additions. Landlord's election with respect to any
particular items shall not bind Landlord as to any other items that are not
expressly covered by such election.
10. COVENANT AGAINST LIENS
Tenant has no authority or power to, and shall not, cause or permit any
lien or encumbrance of any kind whatsoever, whether created by act of Tenant,
operation of law or otherwise, to attach to or be placed upon Landlord's and/or
Tenant's title or interest in the Property or the Leased Premises. Tenant
covenants and agrees not to suffer or permit any lien of mechanics or
materialmen or others to be placed against the Property or the Leased Premises
with respect to work or services performed or claimed to have been performed
for, or materials furnished or claimed to have been furnished to, Tenant or the
Leased Premises, and, in case of any such lien attaching or claim thereof being
asserted, Tenant covenants and agrees to immediately notify Landlord of such
lien and cause it to be immediately released and removed of record. In the event
that such lien is not released and removed within ten (10) days after Landlord
gives Tenant a written demand for the release and removal of such lien, or
within any shorter period of time (with or without any such demand) if
Landlord's interest in the Property, the Building or the Leased Premises might
be jeopardized if Landlord were required to wait any such ten (10) day period,
Landlord, at its sole option, may take all action necessary to release and
remove such lien (without any duty to investigate the validity thereof) and
Tenant shall promptly upon notice, either before or after such release or
removal, pay or reimburse Landlord for all sums, costs and expenses (including
reasonable attorneys' fees) incurred by Landlord in connection with such lien,
together with interest thereon at the Interest Rate. The preceding two sentences
shall not apply to liens filed by reason of Landlord's failure to pay any sums
it has contracted to pay to mechanics, materialmen or others except to the
extent Tenant had agreed to pay or reimburse Landlord for such sums and has not
done so. Notwithstanding the foregoing in this Paragraph 10, if Tenant is
diligently contesting any such lien, as determined in the reasonable discretion
of Landlord, and Tenant, at its sole cost, has obtained a bond approved by
Landlord, in its reasonable discretion, that prevents the foreclosure of such
lien during such contest, Landlord shall not be entitled to obtain a release or
removal of such lien by any payment which is reimbursable by Tenant. Tenant
shall promptly provide to Landlord all information reasonably requested by
Landlord to assist Landlord in determining whether Tenant is diligently
contesting any such lien and whether such bond exists.
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11. INSURANCE
A. WAIVER OF SUBROGATION. Each party hereby waives any and every claim for
recovery from such other party for any and all insurable perils, to the extent
that such loss or damage is actually recovered under insurance policies, or
would have been recoverable under insurance policies, if Landlord and Tenant
continuously maintained the insurance coverage required under this Paragraph 11
during the Term. Inasmuch as this mutual waiver will preclude the assignment of
any such claim by subrogation or otherwise to an insurance company (or any other
person), Landlord and Tenant each agrees to give written notice of the terms of
this mutual waiver to each insurance company which has issued, or in the future
may issue, policies of physical damage insurance to it, and to have said
insurance policies properly endorsed, if necessary, to prevent the invalidation
of said insurance coverage by reason of said waiver.
B. TENANT'S INSURANCE. Tenant shall purchase and, during the entire Term
of the Lease, maintain insurance with terms, coverages and in companies
reasonably satisfactory (but in no event with a Best's Rating of less than A- or
a Best's Financial Size Category of less than Class X) to Landlord. Tenant
agrees to secure such reasonable increases in limits as Landlord may from time
to time reasonably request. Tenant shall maintain the following coverages in the
following amounts:
(i) Comprehensive General Liability Insurance, naming Landlord, the
Building's property manager and all mortgagees as additional insureds, and
covering, on an occurrence basis, claims of bodily injury, personal injury and
property damage arising out of Tenant's operations, assumed liabilities or use
of the Leased Premises, for limits of liability not less than:
Personal and Advertising $1,000,000 each occurrence
Injury Liability $2,000,000 annual aggregate
Property Damage Liability $1,000,000 each occurrence
$2,000,000 annual aggregate
General Annual Aggregate $2,000,000
Products-Comp/OPS Aggregate $1,000,000
Umbrella Liability $15,000,000
Insured Participation 0%
(ii) Property Damage Insurance covering, on an occurrence basis, (A)
all additions, improvements and alterations to the Leased Premises paid for by
Landlord, directly or indirectly, including, without limitation, all floor
coverings, wall coverings, window coverings and
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ceiling tile (whether or not such floor coverings, wall coverings, window
coverings and ceiling tile are Building Standard) and all Tenant Work that is
not Building Standard, and excluding the base Building shell, the Base
Construction (as defined in Exhibit B attached hereto) and the Tenant Work, to
the extent the Tenant Work is Building Standard (except for Building Standard
floor coverings, wall coverings, window coverings and ceiling tile, as
specifically provided above) and (B) all office furniture, trade fixtures,
office equipment, merchandise and all other items of Tenant's property in the
Leased Premises, including, without limitation, the System Furniture (as defined
in Exhibit B). Such insurance shall be written on an "all risks" of physical
loss or damage basis and will have limits sufficient to cover the full
replacement cost value of the covered items and name Landlord as additional
insured and all mortgagees as loss payees (as their interests may appear). If
requested by the holder of any mortgage now or hereafter placed against the
Property, said insurance also shall include a standard mortgage clause for the
benefit of such holder. The coinsurance clause of such insurance shall be waived
and a replacement cost endorsement shall be included, which endorsement provides
that in the event of loss, Tenant is fully reimbursed when replacing old with
new without deduction for physical depreciation.
(iii) Business interruption insurance in the amount of at least
$500,000, sufficient to reimburse Tenant for direct and indirect loss of
earnings attributable to all perils commonly insured against by prudent tenants
or attributable to prevention of, or access to the Leased Premises as a result
of such perils.
(iv) During such time as Tenant shall be constructing or contracting
for the construction of any alterations, improvements or additions in the Leased
Premises, Tenant shall carry builder's risk insurance, completed value form,
covering all physical loss in an amount reasonably satisfactory to Landlord,
naming as additional insureds Landlord, the Building's property manager and all
mortgagees.
Tenant shall, prior to the commencement of the Term, furnish to Landlord
certificates evidencing such coverage, which certificates shall state that such
insurance coverage may not be changed or cancelled without at least thirty (30)
days' prior written notice to Landlord and Tenant. Such coverage shall apply or
relate solely to the Property and not be diluted by claims against Tenant
related to activities not applicable or related to the Property.
C. AVOID ACTION INCREASING RATES. Tenant shall comply with all applicable
laws and ordinances, all orders and decrees of courts and all requirements of
other governmental authorities, and shall not, directly or indirectly, make or
allow to be made any use of the Leased Premises which may thereby be prohibited
or be dangerous or cause injury to person or property or which may jeopardize
any insurance coverage or may increase the cost of insurance or require
additional insurance coverage. If by reason of the failure of Tenant to comply
with the provisions of this Paragraph 11C, any insurance coverage is jeopardized
or insurance premiums are increased, Landlord may exercise the option either to
require Tenant to cease each activity which has jeopardized or increased the
cost of the insurance coverage or make immediate payment of the
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increased insurance premium. If Landlord elects to require Tenant to cease each
such activity Landlord shall give Tenant written notice that Tenant must cease
such activity. Such notice from Landlord shall provide a cure period to Tenant
of at least thirty (30) days, unless Landlord's insurance will be cancelled on a
date earlier than the end of such thirty (30) day cure period if such activity
has not ceased by such earlier date, in which event a shorter cure period may be
given which allows Landlord a reasonable time to terminate this Lease and cause
the cessation of such activity prior to such earlier date. If Tenant fails to
cease each such activity within such cure period provided by Landlord, Landlord
may terminate this Lease without any further notice or demand whatsoever by
giving written notice of termination to Tenant and Tenant, without any further
demand or notice whatsoever, shall be deemed to be automatically in default
under this Lease.
D. LANDLORD'S INSURANCE. Tenant acknowledges that Landlord is not
obligated to carry insurance on any floor coverings, wall coverings, window
coverings or ceiling tile in or about the Leased Premises (whether or not such
floor coverings, wall coverings, window coverings or ceiling tile are Building
Standard), or any other additions, improvements or alterations in or about the
Leased Premises that are not Building Standard or on Tenant's furniture,
furnishings, fixtures, equipment and/or improvements in or about the Leased
Premises, including, without limitation, the Systems Furniture. Anything in this
Lease to the contrary notwithstanding, Tenant agrees that Tenant shall look to
the insurance policies it carries, and not to Landlord, for reimbursement for
any insurable perils that affect such property. Landlord, however, during the
Term of this Lease, will maintain the following insurance with a company or
companies having a Best's Rating of no less than A- and a Best's Financial Size
Category of no less than Class X:
(i) Property Damage Insurance covering, on an occurrence basis, the
base Building Shell, Base Construction and the Tenant Work, to the extent the
Tenant Work is Building Standard (except for Building Standard floor coverings,
wall coverings, window coverings and ceiling tile, which Tenant shall insure as
provided above). Such insurance shall be written on an "all risk" of physical
loss or damage basis and will have limits sufficient to cover the full
replacement cost value of the covered items. The coinsurance clause of such
insurance shall be waived and will include a replacement cost endorsement, which
endorsement provides that in the event of loss, Landlord is fully reimbursed
when replacing old with new without deduction for physical depreciation.
(ii) Comprehensive General Liability Coverage in the amount of at
least $1,000,000 per occurrence and $2,000,000 in the aggregate.
(iii) Umbrella Liability Coverage of at least $25,000,000.
Such insurance shall provide that it may not be changed or cancelled without at
least thirty (30) days prior written notice to Landlord.
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12. FIRE OR CASUALTY
A. If less than a substantial portion (determined in accordance with
Paragraph 12D below) of the Leased Premises or the Property shall be damaged by
fire or other casualty, then Landlord shall repair and restore such damage, with
reasonable promptness, subject to delays caused by insurance adjustments and
matters beyond Landlord's reasonable control and to the provisions of Paragraphs
12B and 12C below. If all or at least a substantial portion of the Leased
Premises or the Property shall be damaged by fire or other casualty Landlord
shall repair and restore such damage as provided herein with reasonable
promptness, except when Landlord estimates that the amount of time required to
obtain insurance proceeds, obtain permits and substantially complete the repair
and restoration of such damage will exceed one hundred eighty (180) days from
the date of the fire or other casualty, Landlord shall give Tenant written
notice of such estimate within forty (40) days of the date of such fire or other
casualty and thereafter, Landlord and, subject to the terms and provisions of
Paragraph 12E below, Tenant shall have the right to terminate this Lease as of
the date of such fire or other casualty upon giving written notice to the other
party at any time within sixty (60) days after the date of such fire or other
casualty. Landlord shall have no liability to Tenant, and Tenant shall not be
entitled to terminate this Lease, by virtue of any delays in completion of such
repair and restoration, except that if Landlord does not give Tenant such forty
(40) day notice, the repair and restoration of the Leased Premises, if any, is
not substantially completed by Landlord or Tenant does not have reasonable
access to the Leased Premises, on or before the date that is one hundred eighty
(180) days following the date of such fire or casualty and the failure of such
repair and restoration to be substantially completed on or before such date is
not due to matters beyond Landlord's reasonable control, Tenant may terminate
this Lease by giving Landlord written notice of such termination on or before
the day that is one hundred ninety (190) days following the date of such fire or
other casualty. If Landlord does not give Tenant such forty (40) day notice and
the repair and restoration of the Leased Premises, if any, is not substantially
completed by Landlord or Tenant does not have reasonable access to the Leased
Premises, on or before the date that is two hundred seventy (270) days following
the date of such fire or casualty for any reason whatsoever, Tenant may
terminate this Lease by giving written notice to Landlord of such termination on
or before the two hundred eightieth (280th) day following such fire or casualty.
In addition, if Landlord does not give Tenant such forty (40) day notice and the
failure of Landlord to substantially complete any repair or restoration of the
Leased Premises, or provide to Tenant reasonable access to the Leased Premises
by the date that is two hundred seventy (270) days following such fire or
casualty is caused, in whole or in part, by matters beyond Landlord's reasonable
control, Landlord shall have the option to terminate this Lease by giving
written notice to Tenant of such termination on or before such two hundred
eightieth (280th) day. Rent, however, shall abate on those portions of the
Leased Premises as are, from time to time, untenantable and not used or occupied
by Tenant as a result of such fire or other casualty , except as otherwise
provided in this Paragraph 12.
B. Anything in this Lease to the contrary notwithstanding, in no event
shall Landlord be obligated to make any expenditure for the repair or
restoration of damage caused by a fire or other casualty in excess of the sum of
the insurance proceeds actually received by Landlord on account of
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such fire or other casualty. In addition, Landlord shall have the right to
terminate this Lease in the event (a) Landlord's insurance is insufficient to
pay the full cost of such repair and restoration and such fire or other casualty
was caused by the negligence or willful misconduct of Tenant, or any of its
Affiliates, agents, employees, contractors, subcontractors, suppliers, invitees
or guests, (b) any mortgagee fails or refuses to make such insurance proceeds
available for repair and restoration, (c) zoning or other applicable laws or
regulations do not permit such repair or restoration, or (d) at least twenty
percent (20%) of the rentable square feet in the Building is damaged by such
fire or other casualty. In the event Landlord terminates this Lease due to the
occurrence of a fire or other casualty, to the extent such fire or casualty was
not caused by the negligence or willful misconduct of Tenant and the Leased
Premises were untenantable during such period and Tenant did not use occupy such
untenantable portions of the Leased Premises, Tenant's Rent payable under this
Lease shall be abated during the period beginning on the date of such fire or
casualty and ending on the date of termination of this Lease. Notwithstanding
anything to the contrary in this Lease, in the event the Leased Premises or the
Property is damaged by fire or other casualty resulting from the negligence or
willful misconduct of Tenant, or any of its Affiliates, agents, employees,
contractors, subcontractors, suppliers, invitees or guests, and this Lease is
not terminated by Landlord, Tenant shall not be released from its obligations
hereunder, including, without limitation, its duty to pay Rent, which Rent shall
not be abated. Except as expressly provided herein to the contrary, upon any
termination of this Lease by Landlord or Tenant under this Paragraph 12 neither
Landlord nor Tenant shall have any obligations to the other under this Lease,
other than those obligations which survive the expiration or earlier termination
of this Lease.
C. Notwithstanding anything in this Lease to the contrary, Landlord shall
have no duty under this Lease to repair or restore (i) any trade fixtures,
furnishings, furniture, including, without limitation, the Systems Furniture,
equipment or personal property belonging to Tenant, or any of its Affiliates,
agents, employees, contractors, subcontractors, suppliers, invitees or guests,
or (ii) any portion of the alterations, additions or improvements in the Leased
Premises or the decorations thereto; provided that, subject to the other
provisions in this Paragraph 12, Landlord shall be obligated to repair such
alterations, additions, improvements and decorations to the extent, and only the
extent, they are part of the base Building shell, the Base Construction or the
Tenant Work that is Building Standard (excluding specifically, however, all
Building Standard floor coverings, wall coverings, window coverings and ceiling
tile). If, after a fire or other casualty, Tenant desires any repairs or
restoration that Landlord is not obligated to perform under this Lease, and if
Landlord consents thereto, the same shall be done at Tenant's sole cost and
expense subject to all of the provisions of Paragraph 9 hereof. Tenant
acknowledges that Landlord shall be entitled to the full proceeds of any
insurance coverage carried by Tenant for damage to alterations, additions,
improvements, decorations and other property paid for by Landlord either
directly or indirectly or through an allowance to Tenant or which otherwise
would become the property of Landlord at the end of the Term under the
provisions of this Lease, including, without limitation, insurance proceeds
relating to the Systems Furniture, Tenant Work that is not Building Standard and
floor coverings, wall coverings, window coverings and ceiling tile; provided,
however, if Landlord is obligated or has elected to repair or restore the Leased
Premises, Landlord shall place such insurance proceeds
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in escrow upon receipt thereof, and thereafter, if no default under this Lease
exists and is continuing beyond any applicable notice or cure period, disburse
to Tenant the insurance proceeds for the Systems Furniture, Tenant Work that is
not Building Standard and floor coverings, wall coverings, window coverings and
ceiling tile to replace the Systems Furniture, Tenant Work that is not Building
Standard and floor coverings, wall coverings, window coverings and ceiling tile
for which such proceeds were paid to Landlord in a manner mutually agreed to by
Landlord and Tenant. Tenant acknowledges that Tenant shall have no right to
insurance proceeds payable or paid to Landlord under any insurance Landlord
maintains.
D. For purposes of Paragraphs 12 and 15 hereof, damage or condemnation of a
"substantial portion" of the Leased Premises or the Property shall have occurred
only if, as a result of any damage, more than 50% of the rentable area of the
Leased Premises is untenantable, Tenant has not used or occupied any of the
untenantable portions of the Leased Premises, Tenant has used its best efforts
to consolidate its offices and work space, and to take all other actions
necessary for the conduct of Tenant's business, in the tenantable areas of the
Leased Premises, but the conduct of Tenant's business, as it existed on the day
prior to the date of such fire or other casualty, in the tenantable areas of the
Leased Premises thereafter remains unfeasible, and Landlord fails to give Tenant
notice, within fifty (50) days following the date of such fire or other
casualty, that Landlord will provide Temporary Leased Premises (as defined in
Paragraph 12E below) to Tenant or if the Property or a smaller part of the
Leased Premises has been damaged or condemned and Landlord determines that it is
not economically prudent to repair and restore the undamaged or uncondemned part
of the Property to its condition and use prior to the damage or condemnation.
E. In the event the Leased Premises shall be damaged by fire or other
casualty and such fire or other casualty renders all or at least a substantial
portion of the Leased Premises untenantable by Tenant and Landlord estimates
that the amount of time required to obtain insurance proceeds, obtain permits
and substantially complete such repair and restoration will exceed one hundred
eighty (180) days from the date of the fire or other casualty, and gives Tenant
written notice of such estimate within forty (40) days of the date of such fire
or other casualty, Landlord may substitute for the Leased Premises, or any
untenantable portion of the Leased Premises which Tenant has not used or
occupied, other premises in the Property (herein referred to as the "Temporary
Leased Premises"); and if Tenant is already in occupancy of the Leased Premises,
then in addition, Landlord shall pay the expenses of Tenant's moving to the
Temporary Leased Premises and for improving the Temporary Leased Premises so
that they are adequate for Tenant to conduct its business therein during the
repair and restoration of such damage. Upon Tenant's request, any move by Tenant
pursuant to this Paragraph 12E shall be made during evenings, weekends or
otherwise so as to incur the least inconvenience to Tenant. In the event
Landlord elects to provide Temporary Leased Premises to Tenant, Landlord shall
give Tenant notice of such election within fifty (50) days after the date of
such fire or other casualty. If Landlord gives such notice to Tenant, Tenant
shall have no right to terminate this Lease pursuant to Paragraph 12A; provided,
however, if the Temporary Leased Premises are not and available for Tenant's
possession on or before the date that is ninety (90) days following the date of
such fire or other casualty and the failure of such Temporary Leased
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Premises to be so improved and available is not due to events beyond Landlord's
reasonable control, Tenant may terminate this Lease by giving Landlord written
notice of such termination on or before the day that is one hundred (100) days
following the date of such fire or other casualty; provided, fur ther, however,
that if the Temporary Leased Premises are not available for Tenant's possession
on or before the date that is one hundred fifty (150) days following the date of
such fire or other casualty for any reason whatsoever, Tenant may terminate this
Lease by giving Landlord written notice of such termination on or before the day
that is one hundred sixty (160) days following the date of such fire or other
casualty.
13. WAIVER OF CLAIMS - INDEMNIFICATION
Subject to the terms and provisions of Paragraph 8 hereof requiring
Landlord to make certain repairs and/or replacements, Landlord shall not be
liable to Tenant or its employees, agents, servants or other invitees or guests
or to any third party for any damage either to person or property, whether
resulting from the loss of use thereof or otherwise, sustained by Tenant or by
other persons due in whole or in part to the Property or any part thereof or any
appurtenances thereof becoming out of repair, or due to the occurrence of any
act, neglect, accident or event on the Property or any part thereof, including,
without limitation the Leased Premises, or due to any act or neglect of any
tenant or occupant of the Property or of any other person. This provision shall
apply particularly, but not exclusively, to damage caused by or from gas,
electricity, snow, frost, ice, rain, steam, sewage, sewer gas or odors, fire,
water or by the bursting or leaking of pipes, faucets, sprinklers, plumbing
fixtures and windows, and shall apply without distinction as to the person whose
act or neglect was responsible for the damage and whether the damage was due to
any of the causes specifically enumerated above or to some other cause of an
entirely different kind. Tenant further agrees that all personal property stored
or placed upon the Leased Premises, or being delivered to or from the Leased
Premises, and upon loading docks, receiving and holding areas, freight
elevators, or other areas of the Property, shall be at the risk of Tenant only,
and the Landlord shall not be liable for any loss or damage thereto or theft
thereto. Without limitation of any other provisions hereof, Tenant agrees to
defend, protect, indemnify and save harmless Landlord, and its Affiliates,
partners, and partners of such partners, officers and directors, agents and
employees from and against all loss, damage or liability incurred by Tenant, or
any of its Affiliates, agents, employees, contractors, subcontractors,
suppliers, invitees or guests, or by any other persons or entities, in
connection with the Leased Premises and, to the extent, and only the extent,
such loss, damage or liability is caused by the negligence or willful misconduct
of Tenant, or any of its Affiliates, agents, employees, contractors,
subcontractors, suppliers, invitees or guests, in any way related to the
Property. Tenant also recognizes it will not be entitled to any abatement or
diminution of any Rent as a result of any of the foregoing occurrences, except
as otherwise expressly provided herein to the contrary, nor shall the same
release Tenant from its obligations hereunder or constitute an eviction.
Notwithstanding the foregoing in this Paragraph 13, Landlord agrees to defend,
protect, indemnify and save harmless Tenant from and against liability incurred
by Tenant and its officers, directors, Affiliates, agents and employees of
Tenant) to the extent, and only the extent, the damage to person or property
described in the first sentence of this Paragraph 13, or any loss, damage or
theft described in the third sentence
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of this Paragraph 13, is caused by the negligence or willful misconduct of
Landlord, or any of its Affiliates, agents, employees, contractors,
subcontractors, suppliers, invitees or guests.
14. NONWAIVER
No waiver of any provision of this Lease shall be implied by any failure
of either party hereto to enforce any remedy on account of the violation of such
provision, even if such viola tion be continued or repeated subsequently, and no
express waiver shall effect any provision other than the one specified in such
waiver and that one only for the time and in the manner specifically stated. No
receipt of monies by Landlord from Tenant after the termination of this Lease
shall in any way alter the length of the Term or of Tenant's right of possession
hereunder or after the giving of any notice shall reinstate, continue or extend
the Term hereof or create a new tenancy or affect any notice given Tenant prior
to the receipt of such monies, it being agreed that after the service of notice
of the commencement of a suit for possession of the Leased Premises or after
final judgment for possession of the Leased Premises Landlord may receive and
collect any Rent due, and the payment of said Rent shall not waive, affect or
nullify said notice, suit or judgment. Neither the payment by Tenant of a lesser
amount than the monthly installment of Annual 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.
15.CONDEMNATION
A. If the whole or any substantial portion of the Building or of the
Leased Premises shall be taken in, or transferred in lieu of, condemnation or
any like proceedings (all of which are sometimes referred to herein as
"condemnation"), the Term, at the option of Landlord or, subject to Landlord's
rights under Paragraph 12E hereof, Tenant, shall end upon the date when the part
so taken or transferred shall become vested in the condemning authority and Rent
shall be apportioned as of the date of such termination. Landlord shall be
entitled to receive the entire award from any condemnation without any payment
to Tenant. Nothing contained herein shall prevent Tenant from pursuing a
separate claim against the condemning authority of the value of furnishings,
equipment and trade fixtures installed in the Leased Premises at Tenant's sole
expense and for relocation expenses, provided that such claim shall in no way
diminish the award or compensation payable to or recoverable by Landlord in
connection with such taking or condemnation. If Landlord or Tenant does not so
end the Term as a result of the taking or transfer, this Lease shall remain in
effect and the Rent payable hereunder shall be equitably adjusted based on the
square footage of the Leased Premises taken or transferred.
B. Notwithstanding anything to the contrary contained herein, in the event
of a condemnation of only the right to possession of all or any part of the
Leased Premises for a fixed
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period of time or other temporary condition no longer than ninety (90)
consecutive days or for the duration of an emergency no longer than ninety (90)
consecutive days, then this Lease shall continue in full force and effect
without any abatement of Rent, but the amounts payable by the condemning
authority with respect to any period of time prior to the expiration or sooner
termination of this Lease shall be paid by the condemning authority to Landlord.
Landlord shall apply the amount of condemnation proceeds toward the amount of
Rent or any other sums due from Tenant for the period, and Tenant shall pay to
Landlord any deficiency between the amount thus paid by the condemning authority
and the amount due from Tenant. Any excess of such condemnation proceeds over
the amounts payable by Tenant shall be retained by Landlord.
16. ASSIGNMENT AND SUBLETTING
A. Tenant shall not (i) assign, sublet, convey or mortgage this Lease or
any interest hereunder; (ii) permit to occur or permit to exist any assignment,
of this Lease, or any lien upon Tenant's interest, voluntarily or by operation
of law, (iii) subject the Leased Premises or any part thereof to any
encumbrance; or (iv) permit the use or occupancy of the Leased Premises by any
parties other than Tenant and its employees. The actions described under clauses
(i), (ii), (iii) and (iv) in the preceding sentence are sometimes referred to
below collectively as "assignment or subletting". Any such action on the part of
Tenant shall constitute a breach of this Lease and such action shall
automatically be deemed void and of no effect. Landlord's consent to any
assignment or subletting shall not constitute a waiver of Landlord's right to
withhold its consent to any future assignment or subletting.
B. Except as expressly hereafter set forth below in this Paragraph 16B, no
such assignment or subletting and no consent by Landlord to any assignment or
subletting or election by Landlord to accept any absolute assignee or subtenant
shall release Tenant or any subsequent Tenant from any covenant or obligation
under this Lease and Tenant shall continue to be liable as a principal, and not
as a guarantor or surety, to the same extent as if no such assignment or
subletting had been made; provided, however, Landlord agrees to release Tenant
from its obligations under this Lease if a permitted assignee of it has a
consolidated net worth equal to or greater than Two Million Eight Hundred Fifty
Thousand and No/100 Dollars ($2,850,000.00).
C. If Tenant is a corporation, any transaction or series of transactions
(including, without limitation, any dissolution, merger, consolidation or other
reorganization of Tenant, or any issuance, sale, gift, transfer or redemption of
all or a substantial portion of the capital stock of Tenant, whether voluntary,
involuntary or by operation of law, any sale or transfer of all or any
substantial portion of the assets of Tenant, or any combination of any of the
foregoing transactions), shall be deemed to be a voluntary assignment of this
Lease by Tenant subject to the provisions of Paragraphs 16A and 16B.
Notwithstanding any of the foregoing in this Paragraph 16C, however, Landlord's
consent shall not be required for any merger (under which the surviving
corporation owns at least all of the assets of Tenant and is obligated to
perform all of Tenant's obligations to Landlord under this Lease or otherwise
and to any mortgagee of the Property, or any part thereof) or either of the
following,
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provided that Landlord receives written notice thereof within thirty (30) days
of the effective date thereof and all documents reasonable requested by
Landlord: (a) any consolidation or reorganization of Tenant, or any sale, gift,
redemption or transfer of all of the assets of Tenant, if immediately and
continually thereafter all of such assets, which assets shall include, without
limitation, this Lease, are owned by an entity and such entity has expressly, in
a written document delivered to Landlord, or is clearly deemed by law to have
assumed all obligations (then existing and future) of Tenant under this Lease;
or (b) any one (1) time consolidation or reorganization of Tenant, or any one
(1) time sale, gift, redemption or transfer of substantially all of the assets
of Tenant, if immediately thereafter at least substantially all of the assets of
Tenant, which assets shall include, without limitation, this Lease, are owned by
an entity and such entity has expressly, in a written document delivered to
Landlord, or is clearly deemed by law to have, assumed all obligations of Tenant
under this Lease. If Tenant is a partnership, any transaction or series of
transactions (including without limitation any withdrawal or admittance of a
partner or any change in any partner's interest in Tenant, whether voluntary,
involuntary or by operation of law, or any combination of any of the foregoing
transactions) resulting in the transfer of control of Tenant, other than by
reason of death, shall be deemed to be a voluntary assignment of this Lease by
Tenant subject to the provisions of this Paragraph 16C.
D. In the event Landlord consents to an assignment, as consideration for
Landlord's consent, Tenant shall pay to Landlord as and when received by Tenant,
as Additional Rent, an amount equal to 50% of the Assignment Profit (hereinafter
defined). For purposes of this Paragraph 16, the term "Assignment Profit" shall
mean an amount equal to all sums and other consideration, including, without
limitation, any and all non-cash consideration, paid or otherwise provided to
Tenant by the assignee for or by reason of any such assignment (including, but
not limited to, sums paid for the sale or rental of Tenant's fixtures, leasehold
improvements, equipment, furniture, furnishings or other personal property,
less, in the case of a sale thereof, the then net unamortized or undepreciated
cost thereof, or in the case of rental thereof, less the lease cost of such
items, all determined on the basis of sound accounting principles, consistently
applied) less the total amount of the following, as and when paid or otherwise
provided by Tenant to the assignee or independent third parties in connection
with such assignment: reasonable brokerage, advertising and attorneys fees,
tenant finish costs and concessions, including, without limitation, any and all
non-cash consideration (such as the provision of furniture).
In the event Landlord consents to a sublease, as consideration for
Landlord's consent, Tenant shall pay to Landlord, as Additional Rent, an amount
(the "Excess Sublease Profit") equal to 50% of the difference that results from
subtracting (a) the product that results from multiplying the weighted average
Sublease Profit for the Leased Premises on a per rentable square foot basis by
5,601 from (b) the product that results from multiplying the weighted average
Sublease Profit for the Leased Premises on a per rentable square foot basis by
the number of rentable square feet of the Leased Premises subleased. Such
Additional Rent shall be paid to Landlord in monthly installments on the first
(lst) day of each month during each period, if any, of the Term when more than
5,601 rentable square feet of the Leased Premises have been simultaneously
subleased. The amount of the
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monthly installment payable during each such period shall be the Excess Sublease
Profit during such period divided by the number of months during such period, as
the amounts of such monthly installment and Excess Sublease Profit, and as such
number of months during such period, shall be adjusted from time to time to
reflect changes thereto resulting from new subleases and expiration and early
termination of subleases. For purposes of this Paragraph 16, the term "Sublease
Profit" shall mean in any year of the Term of this Lease (i) any rents,
additional charges and other consideration, including, without limitation, any
and all non-cash consideration, paid or provided to Tenant under or in
connection with any such sublease, which is in excess of the Rent accruing
during such year of the Term of this Lease in respect of the subleased space,
plus (ii) all sums paid f or the sale or rental of Tenant's fixtures, leasehold
improvements, equipment, furniture, or other personal property (less, in the
case of the sale thereof, the then net unamortized or undepreciated cost
thereof, or in the case of rental thereof, less the lease cost of such items,
all determined on the basis of sound accounting principles, consistently
applied, which net unamortized or undepreciated cost or lease cost, as the case
may be, shall be deducted from the consideration paid or otherwise provided in
connection with such sale in equal monthly installments over the balance of the
term of the sublease, each such monthly deduction to be in an amount equal to
the quotient of the net unamortized or undepreciated cost or lease cost, as the
case may be, divided by the number of months remaining in the term of such
sublease), less, from the foregoing, the total amount of the following, as and
when paid or otherwise provided by Tenant to the sublessee or independent third
parties in connection with such sublease and the reasonable costs incurred by
Tenant to segregate the subleased space from the Leased Premises, prorated in
equal monthly amounts over the term of the sublease: the actual cost of services
provided by Tenant to the sublessee or assignee (not to exceed $500 per sublease
or assignment), reasonable brokerage, advertising and attorneys fees, tenant
finish costs and concessions, including, without limitation, any and all
non-cash consideration (such as the provision of furniture).
Tenant shall furnish Landlord with a sworn statement, certified by an
officer of Tenant, setting forth in detail the computation of any Assignment
Profit or Sublease Profit and Excess Sublease Profit, and Landlord, or its
representatives, shall have access, at all times during regular business hours
to the books, records and papers of Tenant in relation thereto, and may make
copies thereof. If a part of the consideration for such sublease or assignment
shall be payable other than in cash, the payment of any Assignment Profit or
Excess Sublease Profit to Landlord shall be payable based on the cash and the
cash equivalent of all non-cash consideration. In no event shall any such
sublease create or be construed to create a landlord/tenant relationship between
Landlord and such sublessee.
E. Tenant shall pay to Landlord upon demand by Landlord, notwithstanding
that Landlord may have withheld its consent to any assignment or sublease
contemplated by this Paragraph 16, an amount sufficient to reimburse Landlord
for all direct costs and expenses that may be evidenced by invoice or receipt in
relation to any request for Landlord's consent to an assignment or sublease (not
to exceed $500 per such request), including, without limitation, reasonable
attorney's fees and costs relating thereto, but excluding salaries, wages and
fringe benefits of Landlord's
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employees, in determining whether to grant or withhold any consent contemplated
by this Paragraph 16 or otherwise in connection with any assignment or
subletting hereunder.
17. SURRENDER OF POSSESSION
Upon the expiration of the Term or upon the earlier termination of this
Lease, or Tenant's tenancy or right of possession, whether by lapse of time or
at the option of Landlord or Tenant as herein provided, or as otherwise provided
by law, Tenant shall forthwith surrender the Leased Premises, together with all
fixtures and appurtenances thereto, and the Above-Standard Allowance Systems
Furniture (as described in Exhibit C), all in good order, condition and repair,
ordinary wear and tear excepted and, with respect to the real property, also
excepting any repairs and/or replacements which Tenant is not obligated to make
pursuant to this Lease, and shall, subject to the terms of Paragraph 9B and if
Landlord so requires, restore the Leased Premises to the condition existing at
the beginning of the Term, ordinary wear and tear, and repairs and/or
replacements that Tenant is not obligated to make under this Lease, excepted.
Any interest of Tenant in the alterations, improvements and additions to the
Leased Premises made or paid for by Tenant or any person or entity other than
Landlord shall, without compensation to Tenant or any such other person or
entity, become Landlord's property at the termination, cancellation or
expiration of this Lease by lapse of time or otherwise and such alterations,
improvements and additions shall be relinquished, subject to the terms of
Paragraph 9B, to Landlord at such time in good condition, ordinary wear and
tear, and repairs and/or replacements that Tenant is not obligated to make under
this Lease excepted. Prior to the expiration of the Term or the earlier
termination of this Lease, or of Tenant's tenancy or right of possession, Tenant
shall remove (a) its office furniture, trade fixtures and office equipment,
except for the Above-Standard Allowance Systems Furniture described above in
this Paragraph 17, which shall be left in the Leased Premises and become
Landlord's property, and (b) all other items of property on the Leased Premises
not belonging to Landlord except property leased by or through Landlord. Any
property of Tenant remaining in the Leased Premises after the Term may be seized
by Landlord and disposed of in any manner Landlord desires, and Tenant shall not
be entitled to any such seized property or to any proceeds or other property
resulting from any such disposition.
18. HOLDING OVER
Tenant acknowledges that it is extremely important that Landlord
have substantial advance notice of the date on which Tenant will vacate the
Leased Premises, both because Landlord will require an extensive period to
locate a replacement tenant and because Landlord will plan its entire leasing
and renovation program for the Building in reliance on the expiration dates for
leases of space in the Building. Tenant also acknowledges that if Tenant fails
to surrender the Leased Premises at the expiration or termination of the Term,
it will be conclusively presumed that the value to Tenant of remaining in
possession, and the loss that will be suffered by Landlord as a result thereof,
far exceed the amount of Annual Base Rent and Additional Rent that would have
been payable had the Term continued during such holdover period. Therefore,
Tenant shall pay to
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Landlord an amount equal to the greater of (a) fair market rent for the Leased
Premises, as reasonably determined by Landlord, or (b) one hundred fifty percent
(150%) of the monthly installment of Annual Base Rent and one hundred fifty
percent (150%) of one-twelfth (1/12) of the Additional Rent paid by Tenant
during the previous calendar year. Such amount shall be paid on the first day of
each month or portion thereof for which Tenant shall retain possession of the
Leased Premises or any part thereof after the expiration of the Term or the
earlier termination of this Lease, whether by lapse of time or otherwise. Tenant
also shall pay all costs incurred and damages sustained by Landlord, whether
direct or consequential, on account of such holding over. Landlord agrees to use
reasonable efforts to minimize any such consequential damages, but in no event
shall Landlord be obligated to expend any sum or incur any cost in connection
with such efforts. The provisions of this Paragraph 18 shall not be deemed to
limit or constitute a waiver or any other rights or remedies of Landlord
provided herein or at law.
19. ESTOPPEL CERTIFICATE
Tenant agrees that from time to time upon written request of
Landlord, Tenant will deliver to Landlord within ten (10) days after Landlord's
aforesaid request therefor, a statement in writing by Tenant or Tenant's duly
authorized representative having knowledge of the following facts, certifying
(i) that this Lease is unmodified and in full force and effect or, if there have
been modifications, a description of each such modification, and that the Lease
as modified is in full force and effect; (ii) the dates to which Rent and other
charges have been paid; (iii) that Landlord is not in default under any
provisions of this Lease, or, if in default, the nature thereof in reasonable
detail; and (iv) such further matters as may be reasonably requested by
Landlord, it being intended that any such statement may be relied upon by any
mortgagees or prospective mortgagees or any prospective or subsequent purchaser
or transferee of all or a part of Landlord's interest in the Property. Tenant
shall execute and deliver to Landlord whatever instrument may be reasonably
required by Landlord for such purposes, and in the event Tenant fails so to do
within such ten (10) day period after Landlord's written request therefor,
Tenant, without any demand a further notice of any kind whatsoever, except for a
written notice from Landlord to Tenant that Tenant shall automatically be in
default under this Lease if such instrument is not executed and delivered by
Tenant to Landlord within five (5) business days from the date of such notice,
automatically shall be in default under this Lease.
20. MORTGAGE OR GROUND LEASE BY LANDLORD
A. Tenant hereby agrees that, except as expressly provided in that
certain Subordination, Non-Disturbance and Attornment Agreement (the
"Subordination") dated of even date with this Lease and executed and
acknowledged by Landlord, Tenant and VIB, N.V., a Netherlands corporation, this
Lease shall be subject and subordinate to (i) any mortgage that has been or may
hereafter be placed upon the Property and to all amounts secured thereby and
(ii) to any ground lease of the Land, the Building, or both, that has been or
may hereafter be entered into and to all renewals, modifications, consolidations
and extensions of any of the foregoing, except to the extent that any
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such mortgage or ground lease provides otherwise, and in the event of a
foreclosure of any such mortgage or of a conveyance in lieu thereof or of a
termination of any such ground lease, at the request of the mortgagee, or
purchaser at foreclosure, or the ground lessor, Tenant will attorn to the
mortgagee or to the purchaser at any foreclosure sale or to the ground lessor,
as the case may be; provided that Tenant's quiet enjoyment of the Leased
Premises, as provided for under Paragraph 26 hereof, shall not be disturbed by
such mortgagee or purchaser unless Tenant is in default hereunder. This
provision is acknowledged by Tenant to be self-operative and no further
instrument shall be required to effect such subordination of the Lease. However,
notwithstanding the foregoing provi sions of this Paragraph 20A, Tenant agrees
that, upon written notice to Tenant, a mortgagee or ground lessor shall have the
right at any time to subordinate any such mortgage or ground lease,
respectively, to this Lease on such terms and subject to such conditions as such
mortgagee or ground lessor may deem appropriate in its discretion. Upon such
mortgagee or ground lessor giving Tenant the written notice referred to in the
preceding sentence, the subordination of such mortgage or ground lease to this
Lease shall be self-operative and no further instrument shall be required to
effectuate such subordination of such mortgage or ground lease to this Lease.
Tenant, within ten (10) days of Landlord's written request, shall execute,
acknowledge and deliver such further instruments as any mortgagee or ground
lessor may reasonably request from Tenant to evidence any subordination and
attornment described in this Paragraph 20A, which instrument shall not be less,
and shall be as favorable to such mortgagee or ground lessor as the
Subordination is to VIB, N.V. In the event Tenant fails to execute, acknowledge
and deliver to Landlord any such instrument within such ten (10) day period,
Tenant, without any demand or further notice of any kind whatsoever, except for
a written notice from Landlord to Tenant that Tenant shall automatically be in
default under this Lease if such instrument is not executed, acknowledged and
delivered by Tenant to Landlord within five (5) business days from the date of
such notice, automatically shall be in default under this Lease.
B. In no event shall any mortgagee, any purchaser at a foreclosure sale
or any ground lessor have any personal liability whatsoever for any warranties
or representations of Landlord hereunder or in connection herewith or any
liability for any security deposit or other sums deposited with Landlord or for
any previous prepayment of Rent for a period greater than one (1) month unless
such amounts have been delivered to such mortgagee, purchaser or ground lessor,
as the case may be.
C. Provided Tenant receives written notice of the name and address of a
mortgagee or ground lessor having an interest in the Property, Tenant agrees
that in the event of any act or omission by Landlord hereunder which could give
Tenant the right to terminate this Lease or to claim a partial or a total
eviction (without implying that any such right exists), Tenant shall not exer
cise any such right until it has notified in writing such mortgagee or ground
lessor and such mortgagee or ground lessor shall have failed to commence the
curing of such act or omission within thirty (30) days of such notice and to
diligently pursue the cure thereof until completed.
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D. Tenant hereby agrees that it will not pay any monthly installment of
Annual Base Rent or any monthly estimated payment of Additional Rent for more
than one month in advance, except as required by Paragraph 3A or with the
consent of the mortgagee or ground lessor.
E. As used in this Lease, the term "mortgage" shall mean and include any
deed of trust, mortgage or trust deed or any other similar security instrument;
the term "mortgagee" shall mean and include any mortgagee under a mortgage or
trustee under a deed of trust or any beneficiary or other party secured by a
mortgage; the term "ground lease" shall mean and include any ground lease or
master lease of the Land or the Building, or both; the term "ground lessor"
shall mean and include any lessor under a ground lease or master lease or any
other party in the nature of a ground lessor; and the term "foreclosure" shall
mean and include the foreclosure, sale under a power of sale, or similar
enforcement of a mortgage or deed in lieu thereof.
F. Tenant hereby agrees that the provisions of this Paragraph 20 shall
apply in the event of a foreclosure or a termination of any such ground lease,
notwithstanding the fact that the mortgagee or ground lessor thereunder,
directly or indirectly, owns or has an interest in Landlord or an interest in
the Property in addition to its interest under such mortgage or ground lease.
G. Tenant acknowledges that, although Landlord has obtained the
execution and acknowledgment of the Subordination by VIB, N.V., a current
mortgagee of the Property and partner in Landlord, Landlord in no manner
whatsoever represents or warrants to Tenant that any other mortgagee or ground
lessor will execute and acknowledge the same agreement. Furthermore, Tenant
acknowledges that the Subordination shall not necessarily be evidence of what a
reasonable subordination, non-disturbance or attornment agreement would be in
the event a mortgagee or ground lessor hereafter requests any such agreement.
21. CERTAIN RIGHTS RESERVED BY LANDLORD
Landlord shall have the following rights, each of which Landlord may
exercise without notice to Tenant and without liability to Tenant for damage or
injury to property, person or business on account of the damage or injury to
property, person or business on account of the exercise thereof, and the
exercise of any such rights shall not be deemed to constitute an eviction or
disturbance of Tenant's use or possession of the Leased Premises and shall not
give rise to any claim for set-off or abatement of Rent or any other claim:
A. To change the name or street address of the Building.
B. To install, affix and maintain any and all signs on the exterior and
on the interior of the Building and elsewhere on the Property in accordance with
then-current sign ordinances and safety codes. No sign, advertisement or notice
referring to Tenant shall be inscribed, painted, affixed or otherwise displayed
on any part of the exterior or the interior of the Buildings except on the
directories and the doors of offices and such other areas as are designated by
Landlord, and then only
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in such place, number, size, color and style as are approved by Landlord. All of
Tenant's signs that are approved by Landlord shall be installed by Landlord at
Tenant's cost and expense except as may be provided in the work letter attached
hereto as Exhibit B. If any sign, advertisement or notice that has not been
approved by Landlord is exhibited or installed by Tenant, Landlord shall have
the right to remove the same at Tenant's expense.
C. To decorate and also to make repairs, alterations, additions, or
improvements, whether structural or otherwise, in and about the Property, or any
part thereof, and for such purposes to enter upon the Leased Premises, upon
prior written or verbal notice to Tenant (unless Landlord, in its reasonable
discretion, deems an emergency), and during the continuance of any said work, to
temporarily close doors, entryways, public space and corridors in the Building,
all without affecting any of Tenant's obligations hereunder, so long as the
Leased Premises are reasonably accessible and usable.
D. To furnish door keys for the entry door(s) in the Leased Premises at
the commencement of the Term and to retain at all times, and to use in
appropriate instances, keys to all doors within and into the Leased Premises,
subject to any applicable governmental regulations. Tenant agrees to purchase
only from Landlord additional duplicate keys as required and change no locks
and, without the prior written consent of Landlord, which consent shall not be
unreasonably withheld, conditioned or delayed, to affix no locks on doors of or
in the Leased Premises. Upon the expiration of the Term or Tenant's right to
possession, Tenant shall return all keys to Landlord and shall disclose to
Landlord the combination of any safes, cabinets or vaults left in the Lease
Premises, unless such disclosure is in violation of governmental regulations.
E. To designate and approve all blinds, curtains, drapes, shades,
screens, lights, and ceilings such that when viewed from the exterior or public
lobbies of the Building, the Building pre sents a uniform, attractive
appearance. Tenant shall comply with all such reasonable standards prescribed by
Landlord.
F. To reasonably approve, reasonably disapprove, and otherwise restrict
and regulate the weight, size and location of safes, vaults and other heavy
equipment and articles in and about the Leased Premises and the Building so as
not to exceed the legal live load per square foot designated by the structural
engineers for the Building, and to require all such items and furniture and
similar items to be moved into or out of the Building and Leased Premises only
at such times and in such manner and using facilities in and about the Building
as Landlord shall direct in writing; provided, however, that any such approval
concerning safes and vaults in the Leased Premises shall not be unreasonably
withheld, delayed or conditioned. Tenant shall not install or operate machinery
or any mechanical devices of a nature not directly related to Tenant's ordinary
use of the Leased Premises without the prior written consent of Landlord. 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 Lease Premises or the Building, without first obtaining
the prior written consent of Landlord.
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Machines and equipment belonging to Tenant which cause noise or vibration that
may be transmitted to the structure of the Building or to any space therein to
such a degree as to be objectionable to Landlord or to any tenant in the
Building shall be installed and maintained by Tenant, at Tenant's expense, upon
Landlord's prior written approval, on vibration eliminators or other devices
sufficient to reduce such noise and vibration to a level satisfactory to
Landlord, in Landlord's reasonable discretion. Movement of Tenant's property
into or out of the Building or Leased Premises and within the Building is
entirely at the risk and responsibility of Tenant, except that Landlord shall be
liable for damage or loss caused by the negligence or willful misconduct of
Landlord, any Affiliate of Landlord, or any agent, employee, contractor,
subcontractor or servant of Landlord or any such Affiliate, and Landlord
reserves the right to require permits satisfactory to Landlord before allowing
any property to be moved into or out of the Building or Leased Premises.
G. To establish controls and rules for the purpose of regulating all
property and packages, both personal and otherwise, to be moved into or out of
the Building and Leased Premises and all person using the Building after normal
office hours, unless such controls or rules violate governmental regulations.
H. To regulate delivery and service of supplies and the usage of the
loading docks, receiving areas and freight elevators unless such regulation
violates governmental regulations.
I. To show the Leased Premises to all prospective tenants within the
last six (6) months of the Term, and to purchasers or lenders at all reasonable
times and, if the Leased Premises are vacated or abandoned, to show the Leased
Premises to all prospective tenants at all reasonable times.
J. To erect, use and maintain pipes, ducts, wiring and conduits, and
appurtenances thereto, in and through the Leased Premises at reasonable
locations provided that the same does not make the Leased Premises untenantable
or interfere unreasonably with the Tenant's rights under Paragraph 26 of this
Lease.
K. Upon prior verbal or written notice to Tenant (unless Landlord, in
its reasonable discretion deems an emergency), to enter the Lease Premises at
any reasonable time to inspect the Leased Premises and to perform Landlord's
obligations hereunder or under any lease to a tenant of the Building (except
janitorial services, which services shall be performed without prior notice and,
unless otherwise requested by Tenant, will be performed after hours). After the
completion of the initial improvements to the Leased Premises, Landlord shall
give Tenant at least one day's prior oral or written notice of each entry except
in an emergency.
L. To grant to any person or to reserve unto itself the exclusive right
to conduct any business or render any service in the Building. If in connection
with the maintenance of the Building or Landlord's providing services required
of it hereunder, any services or supplies are made available by Landlord or an
Affiliate thereof, or Landlord arranges a master contract therefor, Tenant
agrees to obtain its requirements therefor, if any, from Landlord or from the
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tractor under any such con tract, provided that the charges therefor are
comparable to the charges customarily charged by third parties in the market.
M. To control access to parking areas on the Property by means of "key
cards" or otherwise, to reconfigure the parking areas, to close off parking
areas and to designate certain on-site parking spaces as reserved parking
spaces, as long as there is adequate parking to satisfy the requirements of all
applicable laws, ordinances, codes, rules and regulations of any governmental
agency having jurisdiction of the Property.
N. To retain, or to grant to any person, exclusive right to use and/or
lease the roof and the sidewalks, parking areas (except as otherwise provided
herein) and other exterior areas of the Property.
O. To alter the boundaries of the Land, grant easements or dedications
regarding the Land, resubdivide the Land or to combine the Land with other
lands.
P. To subject the Property to covenants, conditions and restrictions
which are intended to ensure the harmonious and orderly use of the Building and
to provide for the maintenance and upkeep of common areas, and this Lease shall
be subject and subordinate to all such covenants and conditions now or hereafter
imposed provided that they do not unreasonably interfere with Tenant's rights
under Paragraph 26. Tenant agrees to observe and be bound by each and every
covenant and restriction to which the Land is now subject or is hereinafter
subjected, insofar as any such covenant or restriction affects the Leased
Premises or Tenant's use thereof provided that they do not unreasonably
interfere with Tenant's rights under Paragraph 26. Landlord agrees to enforce
the provisions of this Paragraph 21 in a nondiscriminating manner.
22. RULES AND REGULATIONS
Landlord shall have the right from time to time to prescribe rules and
regulations which, in its reasonable judgment, may be desirable for the use,
entry, operation and management of the Leased Premises and Building, each of
which rules and regulations and all amendments thereto shall become a part of
this Lease at such time as they are prescribed or issued by Landlord. Tenant
shall comply with all such rules and regulations; provided, however, that such
rules and regulations shall not contradict or abrogate any right or privilege
herein expressly granted to Tenant hereunder. Landlord shall not promulgate a
new rule or regulation, nor change an existing rule or regulation, when such new
rule or regulation or change is prejudicial only to Tenant in comparison with
other tenants of the Building.
23. LANDLORD'S REMEDIES
If Tenant shall fail to pay all or any portion of the Rent or any
installment thereof when due, or shall fail to pay any other sum required to be
paid by Tenant under this Lease or under the terms
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of any other agreement between Landlord and Tenant, or if Tenant shall violate
or fail to perform any of the other covenants or conditions in this Lease which
Tenant is required to observe and perform and such violation or failure to
perform shall continue for thirty (30) days after written notice to Tenant, or
if any violation or failure of Tenant involves a hazardous condition and is not
cured by Tenant immediately upon notice to Tenant, or if the interest of Tenant
in this Lease shall be levied on under execution or other legal process, or if
any voluntary petition in bankruptcy or for corporate reorganization or any
similar relief shall be filed by Tenant or any guarantor of this Lease, or if
any involuntary petition in bankruptcy shall be filed against Tenant or any such
guarantor under any federal or state bankruptcy or insolvency act and shall not
have been dismissed within thirty (30) days from the filing thereof, or if a
receiver or person acting as a receiver shall be appointed for Tenant or any
such guarantor or any of the property of Tenant or such guarantor by any court
and such receiver or person acting as a receiver shall not have been dismissed
within thirty (30) days from the date of his appointment, or if Tenant or any
such guarantor shall make an assignment for the benefit of creditors, or if
Tenant or any such guarantor shall admit in writing its inability to meet its
debts as they mature, or if the Leased Premises are vacated or abandoned during
the Term (unless such vacating or abandoning of the Leased Premises is limited
to no more than ninety (90) days during the Term or for the purpose of
subletting the Leased Premises, or a portion thereof, to an approved sublessee
or assigning the Leased Premises to an approved assignee), or if Tenant breaches
or defaults under the Subordination, then, subject to the terms of Paragraph 18
of Exhibit C attached hereto, Landlord may treat the occurrence of any one or
more of the events as a breach of and default under this Lease, and thereupon at
its option may, without notice or demand of any kind to Tenant or any other
person, have any one or more of the following described remedies in addition to
all other rights and remedies provided at law or in equity or elsewhere herein:
A. Landlord may terminate this Lease and the Term created hereby. With
or without terminating this Lease, Landlord may forthwith repossess the Leased
Premises. Further, unless expressly prohibited by applicable law, if Tenant
shall be in default under this Lease, Landlord shall have all self-help remedies
and shall have the right upon any termination of this Lease to cease supplying
services and utilities for the benefit of Tenant and the Leased Premises. If
necessary, Landlord may proceed to recover possession of the Leased Premises
under and by virtue of applicable laws, or by such other proceedings, including
re-entry and possession, as may be applicable. If Landlord elects to terminate
this Lease, everything contained in this Lease on the part of Landlord to be
done and performed shall cease without prejudice, however, to the right of
Landlord to recover from Tenant all rent and other sums accrued up to the time
of termination or recovery of possession by Landlord, whichever is later.
Whether or not this Lease is terminated, at Landlord's option, any renewal or
expansion right that may be contained in this Lease shall terminate, and any
consent or approval to be given by Landlord hereunder may be given or withheld
in Landlord's sole and absolute discretion.
B. With or without terminating this Lease, Landlord may, but shall be
under no obligation to, relet part or all of the Leased Premises, for the
account of Tenant, for such rent and upon such terms as shall be satisfactory to
Landlord (which may include concessions, free rent and
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alterations of the Leased Premises) as Landlord, in its sole discretion, may
determine, but Landlord shall not be liable for, nor shall Tenant's obligations
hereunder be diminished by reason of, any failure by Landlord to relet the
Leased Premises or any failure by Landlord to collect any rent due upon such
reletting. For the purpose of such reletting, Landlord is authorized to
decorate, repair (to the extent Tenant is or was obligated under this Lease to
make any such repair), reasonably remodel or alter the Leased Premises at
Tenant's expense.
C. If Landlord shall fail to relet the Leased Premises, Tenant shall pay
to Landlord as damages a sum equal to the amount of the Rent reserved in this
Lease for the balance of the Term. If the Leased Premises are relet and a
sufficient sum shall not be realized from such reletting after paying all of the
costs and expenses of all decoration, repairs, remodeling, alterations and
additions and the expenses of such reletting and of the collection of the rent
accruing therefrom to satisfy the Rent provided for in this Lease, Tenant shall
satisfy and pay the same to Landlord upon demand therefor from time to time.
Tenant shall not be entitled to any rents received by Landlord which happen to
exceed the amount of the Rent provided for in this Lease. Tenant agrees that
Landlord may file suit to recover any sums falling due under the terms of this
Paragraph 23 from time to time and that no suit or recovery of any portion due
Landlord hereunder shall be any defense to any subsequent action brought for any
amount not therefore reduced to judgment in favor of Landlord.
D. At any time, with or without having relet the Leased Premises, in
lieu of further damages pursuant to Paragraph 23C, Landlord may elect to recover
damages from Tenant pursuant to this Paragraph 23D for the period following such
election. Upon such election, Landlord shall be entitled to recover forthwith,
as damages from Tenant, and Tenant shall thereupon be liable to Landlord for (in
addition to any other sums or damages for which Tenant may be liable to
Landlord), a sum of money equal to the excess, if any, of the value of the Rent
provided to be paid by Tenant for the period that would have constituted the
balance of the Term over the difference that results from subtracting from the
fair market rental value of the Leased Premises for said period all anticipated
expenses of reletting, which sum shall be immediately due and payable from
Tenant to Landlord upon demand. Should the fair market rental value of the
Leased Premises, or any part thereof, after subtraction therefrom of all
anticipated expenses of reletting, for the balance of the Term exceed the value
of the Rent provided to be paid by Tenant for the balance of the Term, upon
Landlord reletting the Leased Premises, or any part thereof, Landlord shall have
no obligation to pay to Tenant the excess or any part thereof or to credit such
excess or any part thereof against any other sums or damages for which Tenant
may be liable to Landlord.
E. Anything in this Lease to the contrary notwithstanding, the actual
damages recoverable by Landlord for a breach of, or default under, this Lease by
Tenant shall not exceed the amount which Landlord would have received if Tenant
fulfilled all of its obligations under this Lease, plus all costs of Landlord in
enforcing this Lease, including, without limitation, reasonable attorneys' fees,
and reletting the Leased Premises, or any part thereof. Under no circumstances
whatsoever shall the preceding sentence be deemed or construed to limit in any
way any special, consequential or punitive damages recoverable by Landlord due
to any such breach or default nor
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limit the other rights and remedies of Landlord provided herein and allowed at
law or equity. Nothing in this Lease will be construed to give Landlord the
right to possession of any of Tenant's records, files, business records or
customer names or records. It is expressly understood and agreed by Landlord and
Tenant that the liabilities and remedies specified in this Paragraph 23 shall
survive the expiration or earlier termination of the Lease.
24. TENANT'S REMEDIES
There shall be default under and breach of this Lease by Landlord if
Landlord shall fail to perform or observe any term, condition, covenant, or
obligation required to be performed or observed by Landlord under this Lease for
a period of thirty (30) days after notice thereof from Tenant; provided,
however, that if the term, condition, covenant, or obligation to perform by
Landlord is of such a nature that the same cannot reasonably be performed within
such 30-day period, such default shall be deemed to have been cured if Landlord
commences such performance within said 30-day period and thereafter diligently
undertakes to complete the same and completed the required acts within a
reasonable time. Upon the occurrence of any such default, as Tenant's sole and
exclusive remedy, Tenant may sue for injunctive relief or to recover damages for
any loss resulting from the breach, including, without limitation, reasonable
attorney's fees and reasonable court costs, but Tenant shall not be entitled to
terminate this Lease or withhold or abate any rent due hereunder, except as
expressly provided to the contrary in this Lease.
25. EXPENSES OF ENFORCEMENT
A. 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, without any
notice to Tenant (unless other wise required by the other provisions of this
Lease), 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 Interest Rate, from the date
incurred by Landlord to the date of payment thereof by Tenant, shall constitute
Additional Rent due hereunder.
B. If any action or proceeding is brought to enforce any term, covenant
or condition of this Lease, the prevailing party in such action or proceeding
shall be entitled to reasonable attorneys fees (including expenses and
disbursements).
26. COVENANT OF QUIET ENJOYMENT
Landlord covenants that Tenant, on paying the Rent, charges for services
and other payments herein reserved and on keeping, observing and performing all
the other terms, covenants, conditions, provisions and agreements herein
contained on the part of Tenant to be kept, observed and performed, during the
Term, shall peaceably and quietly have, hold and enjoy the Leased Premises
subject to the terms, covenants, conditions, provisions and agreements hereof,
without molestation or hindrance by Landlord or any party claiming throughor
under Landlord. Tenant acknowledges
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and agrees that all rights of Tenant to use and occupy the Leased Premises and
all rights, terms and conditions of this Lease are in all respects subject to
all applicable zoning and land use restrictions, and to all covenants,
conditions, and restrictions or record.
27. SECURITY DEPOSIT AND SECURITY AGREEMENT
A. Tenant hereby deposits with Landlord the sum designated in the
Schedule as "Security Deposit" (hereinafter referred to as "Collateral"), as
security for the prompt, full and faithful performance by Tenant of each and
every provision of this Lease and of all obligations of Tenant arising
hereunder. Landlord may, but shall not be obligated to, use, apply or retain the
whole or any part of the Collateral for the payment of (i) any Rent or other
sums of money which Tenant may not have paid when due, (ii) any sum expended by
Landlord on Tenant's behalf in accordance with the provisions of this Lease, and
(iii) any sum which Landlord may expend or be required to expend by reason of
Tenant's default, including, without limitation, any damage or deficiency in or
from the reletting of the Leased Premises as provided in Paragraph 23. The use,
application or retention of the collateral, or any portion thereof, by Landlord
shall not prevent Landlord from exercising any other right or remedy provided by
this Lease or by law (it being intended that Landlord shall not first be
required to proceed against the Collateral) and shall not operate as a
limitation on any recovery to which Landlord may otherwise be entitled. If any
portion of the Collateral is used, applied or retained by Landlord for the
purposes set forth above, Tenant agrees, within ten (10) days after written
demand therefor is made by Landlord, to deposit cash with Landlord in an amount
sufficient to restore the Collateral to its original amount.
B. If Tenant shall fully and faithfully comply with all the provisions
of this Lease, the Collateral, or any balance thereof, shall be returned to
Tenant after the expiration of the Term or upon any later date after which
Tenant has vacated the Leased Premises. In the absence of receipt by Landlord of
evidence satisfactory to Landlord of any permitted assignment of the right to
receive the Collateral, or of the remaining balance thereof, Landlord may return
the same to the original Tenant, regardless of one or more assignments of
Tenant's interest in this Lease or the Collateral. In such event, upon the
return of the Collateral, or the remaining balance thereof to the original
Tenant, Landlord shall be completely relieved of and released from all liability
under this Paragraph 27 or otherwise with respect to the Collateral.
C. Tenant acknowledges that Landlord has the right to transfer or
mortgage its interest in the Property and in this Lease and Tenant agrees that
in the event of any such transfer or mortgage, Landlord shall have the right to
transfer or assign the Collateral to the transferee or mortgage. Upon such
transfer or assignment, Landlord shall thereby be released by Tenant from all
liability or obligation for the return of such Collateral and Tenant shall look
solely to such transferee or mortgagee for the return of the Collateral.
D. In addition to, and not in derogation of, any other rights or
remedies accorded Landlord hereunder or by law in the Commonwealth of Virginia,
Landlord shall have a lien upon,
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and Tenant hereby grants to Landlord a security interest in, (i) all of the
Systems Furniture (as defined in Exhibit C), including, without limitation, the
Above-Standard Allowance Systems Furniture, Tenant now or hereafter located in
the Leased Premises, and (ii) notwithstanding anything to the contrary in
Paragraph 16 of this Lease, all rent and other consideration payable to Tenant
from sublessees of the Leased Premises or assignees of this Lease, as security
for the payment of all Rent and the performance of all other obligations of
Tenant required by this Lease, and in addition to all rights of distraint
available to Landlord under applicable law. Tenant hereby agrees, upon
Landlord's request, to deliver to Landlord a duly executed financing statement
and any other document with respect thereto which may reasonably be requested by
Landlord. Tenant hereby acknowledges that such power of attorney is coupled with
an interest and is irrevocable. During any period when Tenant is in breach of
this Lease, Tenant shall not sell, encumber or remove from the Leased Premises
any of the property covered by this Paragraph. The assignment of any of the sums
described above in this Paragraph 27D to a mortgagee shall not relieve Landlord
from any obligations it ay have in connection therewith. Tenant hereby
specifically waives any and all exemptions allowed by law, and such lien may be
enforced on the non-payment of any installment of rent by the taking and selling
of Tenant's property in the same manner as in the case of a default on chattel
mortgages. Such sale shall be made upon not less than ten (10) days prior
written notice served upon Tenant by posting upon the Leased Premises or such
lien may be enforced in any other lawful manner at the option of Landlord. This
lease shall for purposes of this Paragraph 27D constitute a security agreement.
28. REAL ESTATE BROKER
Each party hereto represents that it has dealt with (and only with) the
Broker named in the Schedule as "Broker" in connection with this Lease (which
Broker shall be compensated only in accordance with a written agreement between
such broker and Landlord), and that insofar as it knows, no other broker
negotiated this Lease or is entitled to any commission in connection herewith.
Each party (an "Indemnifying Party") hereto agrees to indemnify, defend and hold
the other party and its partners, if any, employees, agents, and officers, if
any, harmless from and against all claims of any broker or finder (other than
Broker) made by, through or under such Indemnifying Party.
29. MISCELLANEOUS
A. RIGHTS CUMULATIVE. All rights and remedies of Landlord under this Lease
shall be cumulative and none shall exclude any other rights and remedies allowed
by law.
B. TERMS. The necessary grammatical changes required to make the
provisions hereof apply either to corporations, partnerships or individuals, men
or women,and singular or plural, as the case may require, shall in all cases be
assumed as though in each case fully expressed.
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C. BINDING EFFECT. Each of the provisions of this Lease shall extend to
and shall, as the case may require, bind or inure to the benefit not only of the
Landlord and of Tenant, but also of their respective successors and assigns,
provided this clause shall not permit any assignment or subleasing by Tenant
contrary to the provisions of Paragraph 16 hereof. If more than one party
constitutes Tenant or Landlord, subject to the terms of Paragraph 31 of this
Lease, the liability of each such party shall be joint and several.
D. LEASE CONTAINS ALL TERMS. All of the representations and obligations of
Landlord are contained herein, including the Schedule attached hereto and the
Exhibits attached hereto, and no modification or amendment of this Lease or of
any of its conditions or provisions shall be binding upon either party hereto
unless in writing signed by such party or be a duly authorized agent of such
party.
E. DELIVERY FOR EXAMINATION. Submission of an unsigned copy of this Lease
to Tenant for examination shall not bind Landlord in any manner, and no Lease or
obligations of Landlord shall arise until this instrument is signed by both
Landlord and Tenant and delivery is made to each.
F. NO AIR RIGHTS. No rights to any view or to light or air over any
property, whether belonging to Landlord or any other person, are granted to
Tenant by this Lease or shall arise herefrom.
G. MODIFICATION OF LEASE. If any lender requires, as a condition to its
lending funds the repayment of which is to be secured by a mortgage on the Land
and Building or either, that certain modifications be made to this Lease, which
modifications will not require Tenant to pay any additional amounts or otherwise
change materially and adversely the rights or obligations of Tenant hereunder,
Tenant shall, within thirty (30) days of Landlord's request, which request has
been approved by such lender in writing, execute appropriate instruments
effecting such modifications.
H. INTENTIONALLY OMITTED.
I. TRANSFER OF LANDLORD'S INTEREST. Tenant acknowledges that Landlord has
the right to transfer its interest in the Property and in this Lease, and Tenant
agrees that in the event of any such transfer, Landlord shall automatically be
released from all liability under this Lease and Tenant agrees to look solely to
the transferee for the performance of Landlord's obligations hereunder, subject
to Paragraph 31 hereof. Tenant further acknowledges that Landlord may assign its
interest in this lease to a mortgagee as additional security and agrees that
such an assignment shall not release Landlord from its obligations hereunder and
the Tenant shall continue to look to Landlord for the performance of its
obligation hereunder, subject to Paragraph 31 hereof.
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J. LANDLORD'S TITLE. Landlord's title is and always shall be paramount to
the title of Tenant. Nothing herein contained herein shall empower Tenant to
commit or engage in any act which can, shall or may encumber the title of
Landlord.
K. PROHIBITION AGAINST RECORDING. Neither this Lease, nor any memorandum,
affidavit or other writing with respect thereto, shall be recorded by Tenant or
by anyone acting through, under or on behalf of Tenant, and the recording
thereof in violation of this Provision shall make this Lease null and void at
Landlord's election.
L. CAPTIONS. The captions of Paragraph and subparagraphs, and the Table of
Contents, are for convenience only and shall not be deemed to limit, construe,
affect or alter the meaning of such Paragraphs or subparagraphs.
M. COVENANTS AND CONDITIONS. All of the covenants of Tenant hereunder
shall be deemed and construed to be "conditions", if Landlord so elects, as well
as "covenants", as though the words specifically expressing or importing
covenants and conditions were used in each separate instance.
N. ONLY LANDLORD/TENANT RELATIONSHIP. Nothing contained in this Lease
shall be deemed or construed by the parties hereto or by any third party to
create the relationship of principal and agent, partner, joint venturer or any
association between Landlord and Tenant, it being expressly understood and
agreed that neither the method of computation of Rent nor any act of the parties
hereunder shall be deemed to create any relationship between Landlord and Tenant
other than the relationship of landlord and tenant.
O. APPLICATION OF PAYMENTS. As long as a breach or default by Tenant
exists and is continuing, Landlord shall have the right to apply payments
received from Tenant pursuant to this Lease (regardless of Tenant's designation
of such payments) to satisfy any obligations of Tenant hereunder, in such order
and amounts as Landlord in its sole discretion may elect.
P. FURTHER DEFINITION OF LANDLORD. All indemnities, covenants and
agreements of Tenant contained herein which inure to the benefit of Landlord,
and the limitation on Landlord's liability contained in Paragraph 31 hereof,
shall be construed to also inure to the benefit of the partners in Landlord, and
any partners in such partners and Landlord's officers, agents and employees and
if the Landlord is a trust, its beneficiaries and the partners in the
beneficiaries and the beneficiaries' officers, agents and employees.
Q. TIME OF ESSENCE. Time is of the essence of this Lease and each of its
provisions.
R. GOVERNING LAW. Interpretation of this Lease shall be governed by the
laws of the Commonwealth of Virginia.
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S. PARTIAL INVALIDITY. If any term, provision or condition contained in
this Lease shall, to any extent, be invalid or unenforceable, the remainder of
this Lease (or the application of such term, provision or condition to persons
or circumstances other than those in respect of which it is invalid or
unenforceable) shall not be affected thereby, and each and every other term,
provision and condition of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
T. INTEREST. If, for any circumstances whatsoever, fulfillment of any
provision hereof at the time performance of such provision shall be due, shall
involve exceeding the highest lawful rate of interest permissible under
applicable law, then the obligation to be fulfilled shall be reduced to the
highest lawful rate of interest permissible under applicable law; and, if for
any reason whatsoever, Landlord shall ever receive as interest an amount which
would be deemed unlawful under such applicable law, at Landlord's option such
excess shall be either credited against payments next due hereunder or refunded
by Landlord, provided Tenant is not then in default hereunder.
U. PROHIBITED MACHINES. Tenant shall permit no vending machines, game
machines, video game machines, or other amusement devices in the Leased
Premises, except those machines or devices used solely by Tenant's employees.
V. CERTIFICATES. Any certificates or instruments to be delivered by Tenant
hereunder for which no deadline is set forth herein shall be delivered within
thirty (30) days of written request from Landlord therefor.
W. ASSURANCE OF PERFORMANCE. Landlord and Tenant hereby agree in advance
that, in the event Tenant becomes the subject debtor in a proceeding under the
United States Bankruptcy Code, adequate assurance of future performance, as used
in such Bankruptcy Code, shall mean that all of the following minimum criteria
must be met: (i) Tenant's gross receipts in the ordinary course of business
during the thirty (30) day period immediately preceding the initiation of the
case under such Bankruptcy Code must be at least two (2) times greater than the
next monthly installment of Annual Base Rent and Additional Rent due under this
Lease; (ii) both the mean and median of Tenant's monthly gross receipts in the
ordinary course of business during the six (6) month period immediately
preceding the initiation of the case under such Bankruptcy Code must be at least
two (2) times greater than the next monthly installment of Annual Base Rent and
Additional Rent due under this Lease; (iii) Tenant must pay its estimated
portion of the cost of all services provided by Landlord, to the extent Tenant
is responsible for such costs pursuant to this Lease, in advance of the
performance or provision of such services; (iv) Tenant or the other party
serving as trustee in bankruptcy ("Trustee") must agree that Tenant's business
shall be conducted, in a first class manner, and that no liquidating sales,
auctions, or other non-first class business operations shall be conducted on the
Leased Premises; (v) Trustee must agree that the use of the Leased Premises as
stated in this Lease will remain unchanged and that no prohibited use shall be
permitted; (vi) Trustee must agree that the assumption or assignment of this
Lease will not violate or affect the rights of other tenants in the Building;
(vii) Trustee must pay to Landlord at the time the next monthly installment of
Rent is due under this Lease, in addition to such installment, an amount equal
to the monthly installments
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of Annual Base Rent and Additional Rent due under this Lease for the next six
months under this Lease, said amount to be held by Landlord in escrow until
either Trustee or Tenant defaults in its payment of Rent or other obligations
under this Lease (whereupon Landlord shall have the right to draw on such
escrowed funds) or until the expiration of this Lease (whereupon the funds shall
be returned to Trustee or Tenant except to the extent the funds have been drawn
and not replaced); and (viii) Tenant or Trustee must agree to pay to Landlord at
any time Landlord is authorized to and does draw on the escrow account the
amount necessary to restore such escrow account to the original level required
by clause (vii).
X. COUNTERPARTS. 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.
Y. SURVIVAL PROVISION. The provisions of this Lease survive the expiration
or earlier termination of this Lease.
Z. COMMON AREAS PROVISION. Common areas are provided for the general/non-
exclusive use of all tenants, and Landlord reserves the right to change the
arrangement thereof, etc., subject to the provisions of Paragraph 26 hereof.
AA. WAIVER OF JURY TRIAL. Each party waives trial by jury.
AB. PROCESS. Tenant elects domicile at the premises for the purpose of
receiving service of all notices, etc.
AC. SUBMISSION OF LEASE. Submission of the Lease to Tenant by Landlord or
its agent for examination does not constitute a reservation of or option for the
Leased Premises.
AD. TAXES. Tenant agrees to pay all taxes upon its personal property
situated in the Leased Premises as and when such taxes become due and payable.
30. NOTICES
All notices or other communications required or permitted to be given
pursuant to this Lease shall be in writing and shall be deemed served, delivered
and given and effective at the time of (i) three (3) business days following
deposit in a depository receptacle under the care and custody of the United
States Postal Service, properly addressed to the designated address of the
addressee as set forth in the Schedule, postage prepaid, registered or certified
mail with return receipt requested or (ii) one (1) day following delivery to a
third party commercial overnight delivery service, including, without
limitation, Federal Express or U.S. Express Mail, for next-day delivery to the
designated address of the addressee set forth in the Schedule. Nothing given in
any other manner shall be served, delivered or given and effective only if and
when actually received by the addressee.
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31. LIMITATION OF LANDLORD'S LIABILITY AND ON COUNTERCLAIMS
A. It is expressly understood and agreed by Tenant that none of
Landlord's covenants, undertakings or agreements are made or intended as
personal covenants, undertakings or agreements by Landlord and, notwithstanding
anything in this Lease to the contrary, any liability for damage or breach or
nonperformance by Landlord shall be collectible only out of Landlord's interest
in the Property and no personal liability is assumed by, nor at anytime may be
asserted against, Landlord, its partners, partners of such partners, its
Affiliates or its successors or assigns, all such liability, if any, being
expressly waived and released by Tenant.
B. Except as otherwise expressly provided herein, in the event that at
any time during the Lease Term Tenant shall have a claim against Landlord,
Tenant shall not have the right to set off 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 action against Landlord; provided, however, if such claim is not
instituted in an independent action against Landlord, Tenant shall not be
entitled to cease paying Rent due hereunder during the pendency of such action.
32. PARKING
The Building's parking garage is to be operated by Landlord or an
independent contractor pursuant to a contract with Landlord. Such contract (if
any) will allow Landlord to designate a certain number of permits for use by
particular tenants. Landlord agrees to instruct the parking garage operator to
provide, and Tenant shall lease (either from Landlord or from such operator) the
Tenant's Parking Permits in the Parking Garage of the Building as set forth in
the Schedule for use by Tenant's employees. None of the Parking Permits shall
entitle the holder to a particular space. Tenant shall pay Landlord or such
contractor the prevailing rate for such parking, which shall be the same rate
generally charged by Landlord or such contractor to its other customers paying
for parking in the Building. Tenant and its employees shall comply with the
regulations of the operator of the parking garage.
33. AUTHORITY OF TENANT
Tenant represents to Landlord that it is a corporation duly organized,
validly existing and in good standing under the laws of the District of
Columbia, the Tenant is authorized to do business in the Commonwealth of
Virginia, Tenant is authorized to enter into this Lease and perform its
obligations hereunder, all action has been properly taken by the Board of
Directors of Tenant to authorize the execution and performance of this Lease and
this Lease is a valid Lease and binding and enforceable against Tenant in
accordance with its terms.
34. AUTHORITY OF LANDLORD
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Landlord represents to Tenant that it is a general partnership organized
and validly existing under the laws of the Commonwealth of Virginia, Landlord is
authorized to enter into this Lease and perform its obligations hereunder, all
action has been properly taken by the partners of Landlord to authorize the
execution and performance of this Lease and this Lease is a valid Lease and
binding and enforceable against Landlord in accordance with its terms.
END OF TERMS AND CONDITIONS
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LANDLORD: TENANT:
WILSON BOULEVARD VENTURE, RCG/HAGLER, BAILLY, INC.,
a Virginia general partnership a District of Columbia corporation
By: Lincoln Property Company By: /s/ Henri-Claude Baiily
No. 2057 Limited, a Virginia Name: Henri-Claude Bailly
limited partnership, as Title: Chairman of the
General Partner Board and Chief
Executive Officer
By: /s/ William C. Duvall
---------------------
William C. Duvall, as
General Partner
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EXHIBIT A
LEGAL DESCRIPTION OF LAND
Being the land acquired by Wilson Boulevard venture and recorded in Deed Book
2376 at Pages 1156 and 1158 and being shown on a plat as Parcels A & B, LPC
Rosslyn and recorded in Deed Book 2412 at Page 779 all among the Land Records of
Arlington County, Virginia and being more particularly described as follows:
Beginning at a point on the southerly right-of-way line of Wilson Boulevard
(variable width) said point being the northeasterly corner of 1550 Wilson
Boulevard Limited Partnership (Deed Book 2054 Page 708), thence running with
said Wilson Boulevard the following three (3) courses and distances:
1. North 82(degree) 30' 00" East 100.14 feet to a point, thence
2. 34.46 feet along the arc of a curve deflecting to the right having a
radius of 337.55 feet and a chord bearing North 85(degree) 25' 30" East
34.45 feet to a point, thence
3. North 88(degree) 21' 00" East 66.52 feet to a point being the
northwesterly corner of Rosslyn AM Associates (Deed Book 1948 Page 181),
thence running with their westerly line
4. South 10(degree) 29' 00" East 252.87 feet to a point on the northerly
right-of-way line of Clarendon Boulevard (60' wide), thence running with
said Clarendon Boulevard
5. South 79(degree) 31' 00" West 200.00 feet to a point being the
southeasterly corner of New Orleans Marriott Hotel Venture Limited
Partnership (Deed Book 2377 Page 1196), thence running with their easterly
line and continuing with the easterly line of aforementioned 1550 Wilson
Boulevard Limited Partnership
6. North 10(degree) 29' 00" West 271.84 feet to the point of beginning
contained 52,967 square feet or 1.21595 acres of land.
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EXHIBIT B
WORK LETTER
This Work Letter governs the design and construction of the tenant
improvements agreed between Landlord and Tenant to be installed in the Leased
Premises (the "Tenant Work").
1. DESIGN.
A. The plans, specifications and drawings for the Tenant Work (the
"Final Plans"), prepared by Tenant's Architect and approved in writing by Tenant
and Landlord, sufficient for governmental approval and construction thereof
shall be delivered by Tenant to Landlord by the Plan Date (as defined in the
Schedule). The Final Plans shall include a construction plan, reflected ceiling
plan, telephone and electrical outlet layout, finish plan, heating, ventilation
and cooling plan and all other architectural, engineering and other details and
information necessary to obtain all required governmental approvals for, and to
thereafter construct, the Tenant Work. Any changes to the Final Plans initially
approved in writing by Tenant and Landlord shall be subject to Landlord's prior
written approval, such approval not to be unreasonably withheld, conditioned or
delayed.
B. Tenant may request changes to the Final Plans. All such requests
shall be submitted to Landlord in writing. Within three (3) business days
following Landlord's receipt of each such request, Landlord shall submit to
Tenant a proposed change order which shall include an estimate of the cost, and
any anticipated delays, that will be incurred as a result of the change. Within
three (3) business days following Tenant's receipt of any such proposed change
order, Tenant shall deliver to Landlord a written approval or disapproval of the
proposed change order, cost estimate and anticipated delays.
C. Tenant acknowledges that it is vital that it meet all of the
foregoing deadlines in order to allow Landlord sufficient time to review plans
and drawings and estimate costs, and discuss with Tenant any modifications
Landlord believes to be necessary or desirable, and to cause the Tenant Work to
be Substantially Completed by the Projected Commencement Date. Landlord likewise
acknowledges that it is vital that Landlord comply with all of the requirements
set forth below.
2. COSTS.
A. Landlord and its contractors and subcontractors shall perform the
Tenant work. Landlord shall obtain with such bids specifying unit prices for all
materials, from at least three (3) contractors selected by Landlord and approved
by Tenant in writing, such approval to not be unreasonably withheld, delayed or
conditioned. Landlord shall enter into a construction
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contract for the performance of the Tenant Work with the bidding contractor
that, in Landlord's reasonable judgment, has submitted the most competitive bid,
considering pricing, schedule and quality of previous work.
If the contract entered into by Landlord contains an Above-Allowance Cost
(as defined below), prior to Landlord's execution of such contract, Landlord
shall submit to Tenant a written estimate of such Above-Allowance Cost. Within
seven (7) days following Tenant's receipt of such submission, Tenant shall pay
such Above-Allowance Cost to Landlord and thereafter Landlord shall execute such
contract and cause the Tenant Work to be constructed as provided below. Landlord
agrees to provide, at Landlord's sole cost and expense, Building Standard Tenant
Work (the "Standard Allowance") in the Leased Premises in accordance with
Addendum II to this Exhibit B in quantities necessary to complete the Tenant
Work in accordance with the Final Plans.
Landlord also agrees to reimburse Tenant for up to Three Hundred
Eighty-Six Thousand One Hundred Four and 31/100 Dollars ($386,104.31) (the
"Above-Standard Allowance") of the costs of the design and the construction of
Tenant Work in addition to Building Standard in accordance with the Final Plans
approved by Landlord and Tenant, as they may be changed from time to time in
accordance herewith. This Above-Standard Allowance includes, among other things,
all of Landlord's expense in relocating sprinkler heads and a $12,938.31 amount
which Landlord and Tenant have agreed is the total credit Tenant shall be
entitled to for unused design and engineering costs ordinarily provided by
Landlord as part of Building Standard tenant improvements. The amount of the
Above-Standard Allowance shall be increased by the cost of Building Standard
materials ordinarily and customarily included in Building Standard tenant
improvements in the Building but not included in the Tenant Work for the Leased
Premises. The balance of the Above-Standard Allowance not used for construction
of the Tenant Work may be used by Tenant only to pay for the cost of Tenant's
Architect's design and engineering fees and expenses, ordinary and reasonable
moving related expenses, equipment installation (but not equipment purchase),
the purchase of Above-Standard Allowance Systems Furniture (as defined in
Exhibit C), which Above-Standard Allowance Systems Furniture shall be purchased
or ordered by Tenant prior to the Commencement Date and used by Tenant, and
remain in the Leased Premises, during the Term, and abatement of Annual Base
Rent. Any portion of the Above-Standard Allowance applied to abatement of Annual
Base Rent shall be applied to Annual Base Rent in pro rata monthly installments
during the thirteenth (13th) through the seventy-second (72nd) calendar months
of the Term. Reimbursements from the Above-Standard Allowance shall be made in
monthly disbursements made within a reasonable period of time after the
contractor has submitted a disbursement request with such back-up information as
Landlord shall reasonably request. Tenant agrees to use no more than $134,424.00
of the Above-Standard Allowance towards abatement of Annual Base Rent, Tenant's
Architect's design and engineering fees and expenses, ordinary and reasonable
moving related expenses and equipment installation (but not equipment purchase)
expenses.
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B. The term "Above-Allowance Cost" shall mean all costs of the
Tenant Work in accordance with the Final Plans approved by Tenant, as they may
be changed f rom time to time in accordance herewith, in excess of the
difference between (i) the sum total of the Standard Allowance and the
Above-Standard Allowance (not including, however, the cost of the Base
Construction), less (ii) the total amount of the Above-Standard Allowance
reimbursed to Tenant for expenses for items not included in the Tenant Work.
After the Punch List Items (as defined below) are completed and Tenant has
accepted such completion, Landlord shall make a final determination of the total
Above-Allowance Cost and deliver a reconciliation statement to Tenant whereupon
Tenant shall pay Landlord any deficiency due Landlord or Landlord shall repay to
Tenant any overpayment within ten (10) business days of the rendering of such
statement. In lieu of repaying to Tenant such overpayment, Landlord, at its
option, may authorize Tenant in writing to deduct the amount of such overpayment
from the succeeding Monthly Installments of Annual Base Rent coming due under
this Lease.
C. Tenant shall pay all design and engineering fees and expenses and
other costs, including, without limitation, the fees and expenses, of Tenant's
Architect, resulting from any request by Tenant for a change to the Final Plans
initially approved by Tenant and Landlord, as they may have been changed from
time to time pursuant hereto. If any change order requested by Tenant results in
any Above-Allowance Cost, Tenant shall pay such additional Above-Allowance Cost
to Landlord within ten (10) days following Tenant's approval of such change
order, cost estimate and anticipated delays and Landlord shall have no
obligation to continue construction of the Tenant Work until such deposit is
made by Tenant.
D. Landlord has delegated all of its obligations and duties under
this Exhibit B to LPC Commercial Services, Inc. ("LPC"). Such duties and
obligations shall be performed by LPC at Landlord's expense. Notwithstanding the
preceding sentence, however, there shall be a $10,000 debit by Landlord against
the Above-Standard Allowance for such expense. Landlord agrees to be bound by
all actions taken by LPC with regard to the space plan, working drawings and
Tenant Work, and hereby ratifies all actions and decisions with regard to the
space plan, working drawings and Tenant Work that LPC may have taken or made
prior to the execution of this Lease.
E. All amounts payable by Tenant pursuant to this Exhibit B shall be
deemed Rent for purpose of the Lease and shall be subject to the late fees and
other remedies of Landlord set forth in the Lease.
2. COMPLETION.
A. Landlord, at its sole expense, shall cause the construction of
the items set forth in Addendum I attached to Exhibit B and incorporated herein
by reference for all purposes (the "Base Construction"), in a manner that is
reasonably satisfactory to Tenant, prior to the commencement of the Tenant Work.
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B. As more particularly set forth in the Lease, the Commencement
Date of the Term may be based on the date the Tenant Work is Substantially
Completed. The Tenant Work shall be Substantially Completed" when the earlier of
the following occurs: (i) Landlord's Architect determines in its reasonable
professional judgment, and gives notice to Tenant that the Tenant Work (other
than Punch List Items) is Substantially Completed or would be Substantially
Completed but for Excused Delays; or (ii) a certificate of occupancy, including,
without limitation, any temporary certificate of occupancy, has been obtained
for the Leased Premises. Any such notice provided to Tenant by Landlord pursuant
to Paragraph 3B(i) of this Exhibit B shall be conclusive and binding upon Tenant
unless, within ten (10) days after receipt thereof, Tenant in good faith
notifies Landlord of the specific respects in which such notice by Landlord is
claimed by Tenant to be incorrect. Unless otherwise mutually agreed, any such
dispute shall be resolved by arbitration in the jurisdiction in which the Leased
Premises are located in accordance with the then current Commercial Rules of the
American Arbitration Association. The costs of the arbitration, including,
without limitation, legal fees, shall be borne by the losing party.
Notwithstanding any such arbitration, upon the giving of such notice under
Paragraph 3B(i) by Landlord to Tenant, the Tenant Work (other than Punch List
Items) shall be deemed to be, and Tenant shall occupy the Leased Premises and
fulfill its other obligations hereunder as if the Tenant Work is, Substantially
Completed on such date so determined by Landlord and this Lease shall continue
in full force and effect.
C. The "Punch List Items" are items of work, long lead items and
adjustment of equipment and fixtures that can be completed after the Leased
Premises are occupied without causing substantial interference with Tenant's use
of the Leased Premises.
D. The "Excused Delays" are the actual delays in the Tenant Work,
both directly and consequentially resulting from:
(1) Tenant's failure to meet any deadline herein; or
(2) Tenant's request for any change to the Final Plans, as
they may have been changed from time to time pursuant hereto; or
(3) Tenant's failure to pay timely the amounts required
pursuant to this Work Letter; or
(4) Any inability to obtain, or delay in obtaining or
installing, non- Building Standard materials, finishes or installations or
long-lead items requested by Tenant or required by the Final Plans; or
(5) Any interference by Tenant, or any of its agents,
employees or representatives with work being done by Landlord or its contractors
or subcontractors; or
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(6) Any other action or omission by Tenant or any person
acting on behalf of Tenant which is a proximate cause of any delay in the
Substantial Completion of the Tenant Work; or
(7) Any act of God, strike, lock out, labor difficulty,
explosion, sabotage, accident, riots, civil commotion, act of war, result of any
warfare or warlike conditions in this or any foreign country, fire or other
casualty, legal requirements, energy shortage, or cause beyond the reasonable
control of Landlord.
E. The taking of possession of the Leased Premises (or any
particular part thereof) by Tenant shall constitute an acknowledgment by Tenant
that the Leased Premises (or such part) are in good condition and that all work
and materials provided by Landlord are satisfactory, except as to any Latent
Defects and uncompleted Punch List Items.
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ADDENDUM I
TO
EXHIBIT B
BASE CONSTRUCTION
"Base Construction" shall mean the condition of the Building with the following
improvements completed substantially in accordance with the base Building shell
plans:
A. Complete Building and site including main Building lobbies, parking garage
and elevators;
B. Central heating, ventilation and air-conditioning systems for vertical and
horizontal distribution shall be sized for normal office occupancy;
C. Heating, ventilating and air-conditioning main duct completed to the
mixing boxes with low pressure rigid duct ready for distribution
connections. Spin taps, flex duct and linear diffusers for the perimeter
distribution only are stocked on the floor but not installed;
D. Men's and ladies' bathroom facilities, with doors, lighting, fixtures and
finishes located on each floor;
E. Two (2) drinking fountains per floor installed and operational;
F. Fire hose stand pipes installed in stairways as required by Arlington
County codes for an open floor plan;
G. Building fire stairs installed in stairwell walls taped and float
finished;
H. Building core installed, with walls taped and float finished. Elevator
shaft doors and frames completed;
I. Electrical services provided by a bus duct riser with a junction box grid
system on each floor. A telephone riser is provided with 150 pair phone
lines terminated at each floor;
J. Unfinished interior perimeter walls (ready to be taped and float finished)
with glass windows and frames installed;
K. Broom-cleaned unfinished concrete floors;
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L. Sprinkler risers, main loop and fully recessed sprinkler head drops
installed on each floor (pointed down) with flush mount cover plates
furnished but not installed; provided, however, Tenant shall be
responsible for any costs associated with alterations to the mechanical,
electrical and sprinkler systems (as they exist on the date of this Lease)
in completing the Tenant Work, although the Above-Standard Allowance
reflects a $2,500 contribution of Landlord toward the relocation of
sprinkler heads. Capacity based on an open floor plan per the Arlington
County Building Department approved shop drawings;
M. Fire alarm pull stations, speakers, smoke detectors, horn and visual
devices installed at. the elevator lobby and at each stairwell as required
by Arlington County codes for an open floor plan;
N. Wet stack above ceiling on core wall near column G-2 with 4' sanitary, 3"
vent and 1/4" cold water supply and wet stack near column E-5 with 4"
sanitary and 3" vent;
O. 1" Levolor narrow slant horizontal blinds installed on perimeter base
building windows; and
P. Floors shall be true when checked with a straight edge in any direction,
with tolerances not exceeding 1/4" in 10".
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ADDENDUM II
TO
EXHIBIT B
BUILDING STANDARD TENANT IMPROVEMENTS
The Landlord will provide, at its expense, the following Building Standard
improvements for office space in quantities necessary to complete the Tenant
Work in accordance with the initial Final Plans approved by Landlord and Tenant
(but excluding any changes to such initial Final Plans approved by Landlord and
Tenant):
PARTITIONS
Landlord will provide one (1) linear foot of partitioning for each ten (10)
square feet of net rentable area leased. Interior partitions will be constructed
of 2 1/2" metal studs with 1/2" gypsum wallboard on each side, extended up to
the finished ceiling height. Partitions that separate other Tenant's suites will
be slab-to-slab with sound insulation. One-half Tenant demising partitions and
all public corridor partitions will be charged against the tenant allowance. All
partitions include a rubber base.
PAINTING
A color chart will be available for Tenant's selection with a limit of one color
per room.
CEILING
A 2' x 2' lay-in acoustical tile, USG Auratone #5530 White in a Donn Fine Line
Grid System will be provided. Ceiling height is 8' 6".
ENTRANCE DOOR
A full-height (3'0" x 8'4 1/2"), solid core, wood veneer mahogany door by Buell
Door with Brushed Brass Finish hardware and Schlage lockset will be provided.
Two entrance door is provided for suites less than 5,000 square feet.
INTERIOR DOORS
One 3'0" x 8" 4 1/2", solid core, wood veneer mahogany door with Brushed Brass
Finish hardware and Schlage latchset will be provided for each two hundred fifty
(250) square feet (NRA) of space leased.
DOOR FRAMES
A full height (3'0" x 8'6") Altura II Series 3350, pre-finished aluminum door
frame, prepped to receive building standard hardware and door will be provided.
Color to be Altura Standard Grey #Gry-SL.
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LIGHTING
Lighting fixtures will be fully recessed Lithonia 2' x 4" fixtures with return
air troffer and parabolic diffusers. The allowance is one fixture for each
eighty (80) square feet (NRA) leased.
LIGHT SWITCHES One silent, single pole rocker.
ELECTRICAL OUTLETS
One 120-volt duplex electrical wall outlet will be provided for each one hundred
and fifty (150) square feet (NRA) leased.
TELEPHONE PULL
One wall-mounted telephone pull with plaster ring is provided for each two
hundred and fifty (250) square feet (NRA) leased. Floor outlets and outlets on
exterior walls will be provided at additional expense to Tenant.
FLOOR LOADS
Typical office floors are designed for 80 pounds per square foot live load plus
20 pounds partition load for a total of 100 pounds per square foot.
FLOOR COVERING
A 30-ounce carpet by L.D. Brinkman, Telstar II, in a color selected by the
Tenant for each square foot (NRA) of space leased.
WINDOW COVERING
Narrow slat, Levolor Contract mini-blinds will be provided for all exterior
windows and will be uniform in color throughout the building.
HEATING AND COOLING SYSTEM
Landlord will provide building standard heating and cooling for normal office
use, utilizing a variable air volume (VAV) system through the ceiling supply and
return grills. Each floor has approximately nine (9) perimeter zones and four
(4) interior zones which are each thermostatically controlled. Any excess
capacity, special controls, exhaust, or other special requirements are at
Tenant's expense.
SPRINKLER SYSTEM
Sprinkler heads will be provided on a standard grid in accordance with
applicable codes for building standard construction. Fully recessed heads (flush
mounted) with a white cover plate will be provided. Tenant shall bear the cost
of relocating sprinkler heads as they exist on the date of this Lease, but the
Above-Standard Allowance reflects a $2,500 contribution of Landlord toward such
cost.
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FIRE ALARM SPEAKER, SMOKE DETECTOR, EXTINGUISHERS, EXIT LIGHTS Landlord will
provide fire safety systems in accordance with applicable codes for building
standard construction. Fire safety systems required for special construction are
not included.
SUITE IDENTIFICATION
Graphics will be provided tor the suite entrance door.
ARCHITECTURAL SERVICES
Landlord's architects and engineers are available to Tenant for the preparation
of the initial Final Plans approved by Landlord and Tenant, exclusive of
revisions thereto. The Above-Standard Allowance reflects a $12,938.31
contribution by Landlord, which Landlord and Tenant have agreed is the value of
unused Building Standard Architectural Services in the preparation of the
initial Final Plans approved by Landlord and Tenant. Design costs, including,
without limitation, architect's and engineer's fees, for items other than or
above Building Standard will be provided at additional expense to Tenant, and
such expense may be paid by Tenant from the Above-Standard Allowance.
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ADDITIONAL TERMS AND PROVISIONS OF THIS LEASE
1. FIRST EXTENSION OPTION.
1.1(a) Tenant shall have the right to extend the Term of this Lease for
an additional term of five (5) years commencing on the day following the
expiration of the initial Term of this Lease (hereinafter referred to as the
"Commencement Date of the First Extension Term") and ending on the day preceding
the fifth anniversary of the Commencement Date of the First Extension Term (such
additional term is hereinafter called the "First Extension Term") provided that:
A. Tenant shall give Landlord notice (hereinafter called the
"First Extension Notice") of its election to extend the term of this Lease,
which notice shall be given at least eleven (11) months, but not more than
twelve (12) months, prior to the expiration date of the initial Term of this
Lease; and
B. Tenant (w) has obtained and delivered to Landlord prior to the
giving of the First Extension Notice by Tenant, in form and substance reasonably
satisfactory to Landlord, the prior written consent, of all persons or entities
(collectively, the "Guaranty Obligors") obligated to fulfill the obligations of
"Guarantor" under the Guaranty (as hereinafter defined), to Tenant's exercise of
its rights, and Tenant's undertaking of obligations to Landlord, pursuant to
this Paragraph 1 of this Exhibit C, such consent to also contain a ratification
of the Guaranty by the Guaranty Obligors and a confirmation by the Guaranty
Obligors of the continuation of their liability under the Guaranty during the
First Extension Term, (x) is the Tenant, or a subsidiary, parent or Affiliate of
the Tenant, originally named herein, (y) actually occupies all of the Leased
Premises initially demised under this Lease and all space added to the Leased
Premises pursuant to Paragraph 3 of this Exhibit C, and (z) is not in default
under the Lease as of the time of the giving of the First Extension Notice and
the Commencement Date of the First Extension Term.
(b) The Annual Base Rent payable by Tenant to Landlord during the First
Extension Term shall be the greater of (i) the product that results from
multiplying ninety-five percent (95%) by the fair market rent for the Leased
Premises or (ii) the product that results from multiplying the Annual Base Rent
payable during the twelve (12) month period preceding the First Extension Term
by 102%, such product to be escalated by 2% on each anniversary of the
Commencement Date of the First Extension Term. Fair market rent shall be
determined by Landlord, subject to the right of Tenant to arbitrate the amount
of fair market rent as hereinafter provided. At least fifteen (15) months prior
to the expiration of the initial Term, but in no event more than sixteen (16)
months prior to the expiration of the initial Term, Tenant may give Landlord
notice of its desire to determine Landlord's good faith determination of the
fair market rent for the Leased Premises (and the Expansion Space, in the event
Tenant desires and is entitled
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to lease the Expansion Space described in Paragraph 3 of this Exhibit C)
applicable to the First Extension Term. After Landlord receives such notice and
at least fourteen (14) months prior to the expiration of the initial Term,
Landlord shall give Tenant notice of such determination. The determination of
fair market rent shall take into consideration fair market concessions available
to a renewal tenant for comparable office space in Arlington County, Virginia.
1.2 (a) In the event Tenant gives the First Extension Notice in
accordance with the provisions of Paragraph 1.1, the Annual Base Rent determined
under clause (i) of Paragraph 1.1(b) is the greater than the Annual Base Rent
determined under clause (ii) of Paragraph 1.1(b) and Tenant thereafter disputes
the fair market rent as determined by Landlord pursuant to Paragraph 1.1(b),
then at any time on or before the date occurring ten (10) business days after
Tenant has been notified by Landlord of the fair market rent, Tenant may
initiate the arbitration provided for herein by giving notice to that effect to
Landlord, and if Tenant so initiates the arbitration such notice shall specify
the name and address of the person designated to act as an arbitrator on
Tenant's behalf. Within ten (10) business days after Landlord receives such
notice from Tenant, Landlord shall give notice to Tenant specifying the name and
address of the person designated to act as an arbitrator on its behalf. If
Landlord fails to notify Tenant of the appointment of its arbitrator within such
ten (10) business day period, then Tenant may request the appointment of the
second arbitrator in the same manner as hereinafter provided under this
Paragraph 1.2(a) for the appointment of a third arbitrator in a case where
neither the two arbitrators appointed hereunder nor the parties are able to
agree upon such appointment. The two arbitrators so chosen shall meet within ten
(10) business days after the second arbitrator is appointed, and if, within ten
(10) business days after the second arbitrator is appointed the two arbitrators
do not agree upon the fair market rent, they shall together appoint a third
arbitrator. In the event of their being unable to agree upon such appointment
within fifteen (15) business days after the appointment of the second
arbitrator, the third arbitrator shall be selected by the parties themselves if
they can agree thereon within a further period of five (5) business days. If the
parties do not so agree, then Tenant, on behalf of itself and Landlord and on
prior notice to Landlord. within twenty-five (25) business days after the
appointment of the second arbitrator, may request such appointment by the
American Arbitration Association (or any organization successor thereto) in
accordance with its rules then prevailing or if the American Arbitration
Association (or such successor organization) shall fail to appoint said third
arbitrator within ten (10) business days after such request is made, then Tenant
may apply within five (5) business days after such ten (10) business day period,
on notice to Landlord, to the District Court, Arlington County, Virginia (or any
other court having jurisdiction and exercising functions similar to those now
exercised by said Court) for the appointment of such third arbitrator.
(b) Each party shall pay the fees and expenses of the original
arbitrator appointed by or for such party, and all other expenses (not including
the attorneys fees and similar expenses of the parties which shall be borne
separately by each of the parties) of the arbitration shall be borne by the
parties equally, unless a third arbitrator is selected or appointed in which
event all expenses of the parties, regardless of the nature of such expenses,
and the fees
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and expenses of the third arbitrator shall be borne by the party by or for whom
the arbitrator was appointed, which arbitrator's determination of fair market
rent is not selected by the third arbitrator in accordance with Paragraph 1.2(c)
below.
(c) If a third arbitrator is chosen as provided in Paragraph
1.2(a) above, then such third arbitrator shall select either the fair market
rent determined by the arbitrator appointed by or for Landlord or the fair
market rent determined by the arbitrator selected by Tenant; the third
arbitrator may not select any other amount, and may not "split the difference"
between the determinations of the arbitrators selected or appointed by or for
the parties. The third arbitrator shall so determine the fair market rent of the
Leased Premises and render a written certified report of his determination to
both Landlord and Tenant within ten (10) business days after appointment of the
third arbitrator.
(d) Each of the arbitrators selected as herein provided shall
have at least ten (10) years experience in the leasing and renting of office
space in first class buildings in Arlington County, Virginia. In addition, the
third arbitrator (if any) shall be an independent party not affiliated in any
way with either Landlord or Tenant.
(e) In the event Tenant initiates the aforesaid arbitration
process and as of the date of expiration of the initial Term of this Lease the
amount of fair market rent for the First Extension Term has not been determined,
Tenant shall pay the amount determined by Landlord to be the fair market rent
under Paragraph 1.1(b) above and when the determination has actually been made,
an appropriate retroactive adjustment shall be made as of the Commencement Date
of the First Extension Term.
(f) If Tenant fails to timely initiate the arbitration process or
fails to timely request the appointment of an arbitrator by the American
Arbitration Association (or such successor organization) or by such District
Court or other court, time being of the essence, the Landlord's determination of
the fair market rent under Paragraph 1.1(b) above shall be conclusive.
(g) If Tenant gives the First Extension Notice, Tenant shall be
irrevocably bound to lease the Leased Premises during the First Extension Term
on the terms and conditions provided in this Paragraph 1, including, without
limitation, at the Annual Base Rent determined in accordance herewith.
1.3 Except as provided in this Paragraph 1, Tenant's occupancy of the
Leased Premises during the First Extension Term shall be on the same terms and
conditions as are in effect immediately prior to the expiration of the initial
Term of this Lease, provided, however, Tenant shall have no further right to
extend the Term of this Lease beyond the First Extension Term, except as
expressly provided below in this Exhibit C.
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1.4 If Tenant does not send the First Extension Notice pursuant to
Paragraph 1.1 hereof, this Paragraph I and Paragraph 2 of this Exhibit C shall
have no force or effect and shall be deemed deleted from this Lease.
1.5 If this Lease is renewed for the First Extension Term, then Landlord
or Tenant can request the other party hereto to execute an instrument setting
forth the exercise of Tenant's right to so extend the initial Term of this Lease
and the terms of such extension, including, without limitation, the last day of
the First Extension Term.
1.6 If Tenant exercises its right to extend the Term of this Lease for
the First Extension Term pursuant to this Paragraph I of this Exhibit C, then
the word "Term", and the phrases "the Term of this Lease" or "the Term hereof",
as used in this Lease, shall be construed to include, when practicable, the
First Extension Term.
2. SECOND EXTENSION OPTION.
2.1 (a) Tenant shall have the right to extend the First Extension Term
of this Lease for an additional term of five (5) years commencing on the day
following the expiration of the First Extension Term of this Lease (hereinafter
referred to as the "Commencement Date of the Second Extension Term") and ending
on the day preceding the fifth anniversary of the Commencement Date of the
Second Extension Term (such additional term is hereinafter called the "Second
Extension Term") provided that:
A. Tenant shall give Landlord notice (hereinafter called the
"Second Extension Notice") of its election to extend the term of this Lease,
which notice shall be given at least eleven (11) months, but not more than
twelve (12) months, prior to the expiration date of the First Extension Term of
this Lease; and
B. Tenant (w) has obtained and delivered to Landlord prior to
the giving of the Second Extension Notice by Tenant, in form and substance
reasonably satisfactory to Landlord, the prior written consent of all Guaranty
Obligors to Tenant's exercise of its rights, and Tenant's undertaking of
obligations to Landlord, pursuant to this Paragraph 2 of this Exhibit C, such
consent to also contain a ratification of the Guaranty by the Guaranty Obligors
and a confirmation by the Guaranty Obligors of the continuation of their
liability under the Guaranty during the Second Extension Term, (x) is the
Tenant, or a subsidiary, parent or Affiliate of the Tenant, originally named
herein, (y) actually occupies all of the Leased Premises initially demised under
this Lease and any space added to the Leased Premises pursuant to Paragraph 3 of
this Exhibit C, and (z) is not in default under the Lease as of the time of the
giving of the Second Extension Notice and the Commencement Date of the Second
Extension Term.
(b) The Annual Base Rent payable by Tenant to Landlord during the
Second Extension Term shall be the greater of (i) the product that results from
multiplying ninety-five
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percent (95%) by the fair market rent for the Leased Premises or (ii) the
product that results from multiplying the Annual Base Rent payable during the
twelve (12) month period preceding the Second Extension Term by 102%, such
product to be escalated by 2% on each anniversary of the Commencement Date of
the Second Extension Term. Fair market rent shall be determined by Landlord,
subject to the right of Tenant to arbitrate the amount of fair market rent as
hereinafter provided. At least fifteen (15) months prior to the expiration of
the First Extension Term, but in no event more than sixteen (16) months prior to
the expiration of the First Extension Term, Tenant shall give Landlord notice of
its desire to determine Landlord's good faith determination of the fair market
rent for the Leased Premises (and the Expansion Space, in the event Tenant has
leased the Expansion Space) applicable to the Second Extension Term. After
Landlord receives such notice and at least fourteen (14) months prior to the
expiration of the First Extension Term, Landlord shall give Tenant notice of
such determination. The determination of fair market rent shall take into
consideration fair market concessions available to a renewal tenant for
comparable office space in Arlington County, Virginia.
2.2 (a) In the event Tenant gives the Second Extension Notice in
accordance with the provisions of Paragraph 2.1, the Annual Base Rent determined
under clause (i) of Paragraph 2.1(b) is greater than the Annual Base Rent
determined under clause (ii) of Paragraph 2.1(b) and Tenant thereafter disputes
the fair market rent as determined by Landlord pursuant to Paragraph 2.1(b),
then at any time on or before the date occurring ten (10) business days after
Tenant has been notified by Landlord of the fair market rent, Tenant may
initiate the arbitration provided for herein by giving notice to that effect to
Landlord, and if Tenant so initiates the arbitration such notice shall specify
the name and address of the person designated to act as an arbitrator on
Tenant's behalf. Within ten (10) business days after Landlord receives such
notice from Tenant, Landlord shall give notice to Tenant specifying the name and
address of the person designated to act as an arbitrator on its behalf. If
Landlord fails to notify Tenant of the appointment of its arbitrator within such
ten (10) business day period, then Tenant may request the appointment of the
second arbitrator in the same manner as hereinafter provided under this
Paragraph 2.2(a) for the appointment of a third arbitrator in a case where
neither the two arbitrators appointed hereunder nor the parties are able to
agree upon such appointment. The two arbitrators so chosen shall meet within ten
(10) business days after the second arbitrator is appointed, and if, within ten
(10) business days after the second arbitrator is appointed the two arbitrators
do not agree upon the fair market rent, they shall together appoint a third
arbitrator. In the event of their being unable to agree upon such appointment
within fifteen (15) business days after the appointment of the second
arbitrator, the third arbitrator shall be selected by the parties themselves if
they can agree thereon within a further period of five (5) business days. If the
parties do not so agree, then Tenant, on behalf of itself and Landlord and on
prior notice to Landlord, within twenty-five (25) business days after the
appointment of the second arbitrator, may request such appointment by the
American Arbitration Association (or any organization successor thereto) in
accordance with its rules then prevailing or if the American Arbitration
Association (or such successor organization) shall fail to appoint said third
arbitrator within ten (10) business days after such request is made, then Tenant
may apply within five (5) business days after such ten (10) business
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day period, on notice to Landlord, to the District Court, Arlington County,
Virginia (or any other court having jurisdiction and exercising functions
similar to those now exercised by said Court) for the appointment of such third
arbitrator.
(b) Each party shall pay the fees and expenses of the original
arbitrator appointed by or for such party, and all other expenses (not including
the attorneys fees and similar expenses of the parties which shall be borne
separately by each of the parties) of the arbitration shall be borne by the
parties equally, unless a third arbitrator is selected or appointed in which
event all expenses of the parties, regardless of the nature of such expenses,
and the fees and expenses of the third arbitrator shall be borne by the party by
or for whom the arbitrator was appointed, which arbitrator's determination of
fair market rent is not selected by the third arbitrator in accordance with
Paragraph 2.2(c) below.
(c) If a third arbitrator is chosen as provided in Paragraph
2.2(a) above, then such third arbitrator shall select either the fair market
rent determined by the arbitrator appointed by or for Landlord or the fair
market rent determined by the arbitrator selected by Tenant; the third
arbitrator may not select any other amount, and may not "split the difference",
between the determinations of the arbitrators selected or appointed by or for
the parties. The third arbitrator shall so determine the fair market rent of the
Leased Premises and render a written certified report of his determination to
both Landlord and Tenant within ten (10) business days after appointment of the
third arbitrator.
(d) Each of the arbitrators selected as herein provided shall
have at least ten (10) years experience in the leasing and renting of office
space in first class buildings in Arlington County, Virginia. In addition, the
third arbitrator (if any) shall be an independent party not affiliated in any
way with either Landlord or Tenant.
(e) In the event Tenant initiates the aforesaid arbitration
process and as of the date of expiration of the initial Term of this Lease the
amount of fair market rent for the Second Extension Term has not been
determined, Tenant shall pay the amount determined by Landlord to be the fair
market rent under Paragraph 2.1(b) above and when the determination has actually
been made, an appropriate retroactive adjustment shall be made as of the
Commencement Date of the Second Extension Term.
(f) If Tenant fails to timely initiate the arbitration process or
fails to timely request the appointment of an arbitrator by the American
Arbitration Association (or such successor organization) or by such District
Court or other court, time being of the essence, the Landlord's determination of
the fair market rent under Paragraph 2.1(b) above shall be conclusive.
(g) If Tenant gives the Second Extension Notice, Tenant shall be
irrevocably bound to lease the Leased Premises during the Second Extension Term
on the terms and
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conditions provided in this Paragraph 2, including, without limitation, at the
Annual Base Rent determined in accordance herewith.
2.3 Except as provided in this Paragraph 2, Tenant's occupancy of the
Leased Premises during the Second Extension Term shall be on the same terms and
conditions as are in effect immediately prior to the expiration of the Second
Extension Term, provided, however, Tenant shall have no further right to extend
the Term of this Lease beyond the Second Extension Term.
2.4 If Tenant does not send the Second Extension Notice pursuant to
Paragraph 2.1 hereof, this Paragraph 2 shall have no force or effect and shall
be deemed deleted from this Lease.
2.5 If this Lease is renewed for the Second Extension Term, then
Landlord or Tenant can request the other party hereto to execute an instrument
setting forth the exercise of Tenant's right to so extend the Term of this Lease
and the terms of such extension, including, without limitation, the last day of
the Second Extension Term.
2.6 If Tenant exercises its right to extend the Term of this Lease for
the Second Extension Term pursuant to this Paragraph 2 of this Exhibit C, then
the word "Term", and the phrases "the Term of this Lease" or "the Term hereof",
as used in this Lease, shall be construed to include, when practicable, the
Second Extension Term.
3. EXPANSION OPTION.
3.1 (a) For purposes of this Lease, the term "Expansion Space" shall
mean approximately 3,500 rentable square feet in any office locations in the
Building not included in the Leased Premises on the date of this Lease, selected
by Landlord.
(b) Provided (i) Tenant has obtained and delivered to Landlord
prior to the giving of Tenant's Expansion Notice by Tenant, in form and
substance reasonably satisfactory to Landlord, the prior written consent of all
Guaranty Obligors to Tenant's exercise of its rights, and Tenant's undertaking
of obligations to Landlord, pursuant to this Paragraph 3 of this Exhibit C, such
consent to also contain a ratification of the Guaranty by the Guaranty Obligors
and a confirmation by the Guaranty Obligors of the continuation of their
liability under the Guaranty after Tenant has exercised such rights and
undertaken such obligations, (ii) Tenant is the Tenant, or a subsidiary, parent
or Affiliate of the Tenant, originally named herein, (iii) Tenant actually
occupies all of the Leased Premises originally demised under this Lease, and
(iv) Tenant is not in default under the terms and conditions of this Lease
either as of the date of the giving of "Tenant's Expansion Notice" or the
"Expansion Space Inclusion Date" (as such terms are hereinafter defined), Tenant
shall have the right to include all of the Expansion Space within the
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Leased Premises upon the same terms and conditions as this Lease, subject to the
terms and provisions of this Paragraph 3 of this Exhibit C.
3.2 (a) On or after the date that is forty-eight (48) full calendar months
following the month in which the Commencement Date occurred, but in no event
after the last day of the eightieth (80) full calendar month following the month
in which the Commencement Date occurred, Landlord shall give Tenant written
notice of the availability and location of the Expansion Space. Within ten (10)
business days following Tenant's receipt of such notice from Landlord, Tenant
may exercise its right under Paragraph 3.1(b) hereof only by delivering to
Landlord an unconditional written offer to lease the Expansion Space on the
terms provided herein (hereinafter called "Tenant's Offer Notice"). The
Expansion Space in such Tenant's Offer Notice shall be added to and included in
the Leased Premises, and the payment of rent in connection therewith, shall
commence on the date (herein called the "Expansion Space Inclusion Date"), after
the delivery by Tenant to Landlord of the Tenant's Offer Notice, that (i) is
forty-five (45) days following the date such space shall become available for
Tenant's possession if such space has been improved previously or (ii) the
construction by Landlord, at Landlord's expense, of Building Standard
improvements is Substantially Completed if such space has not been improved
previously. Time shall be of the essence with respect to the delivery of
Tenant's Offer Notice.
(b) If Tenant timely delivers the Tenant's Offer Notice to Landlord
pursuant to Paragraph 3.2(a) above, Tenant shall be irrevocably bound to lease
the Expansion Space on the terms hereof. If Tenant does not timely deliver the
Tenant's Offer Notice to Landlord pursuant to Paragraph 3.2(a) above, Landlord
shall be under no further obligation under this Paragraph 3.
3.3 Tenant agrees to accept the Expansion in its condition and the state
of repair existing as of the Expansion Space Inclusion Date and understands and
agrees that Landlord shall not be required to perform any work, supply any
materials or incur any expense to prepare such space for Tenant's occupancy. If,
however, such space has not been improved previously, Landlord shall reimburse
up to $5.00 per rentable square foot in such space for tenant improvements to
such space to be performed on terms acceptable to Landlord. Tenant shall be
entitled to no reserved and only 1 unreserved parking space in the parking
garage for the Building for every 700 rentable square feet in the Expansion
Space leased by Tenant.
4. ESCALATIONS OF ANNUAL BASE RENT. Annual Base Rent shall be increased by two
percent (2%) after each twelve (12) month period during the Term, effective on
each anniversary of the Commencement Date. In addition to such annual increases
of Annual Base Rent, Annual Base Rent shall be increased by an amount equal to
$2.00 per rentable square foot in the Leased Premises, effective on the sixth
(6th) anniversary of the Commencement Date.
5. ABATEMENT OF ANNUAL BASE RENT. Annual Base Rent payable during the first
(lst) through the twelfth (12th) calendar months of the Term shall be abated to
the extent of
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$13,583.33 per each such calendar month. In addition, Annual Base Rent payable
during the thirteenth (13th) through the seventy-second (72nd) calendar months
of the Term shall be abated to the extent of $14,129.93 per each such calendar
month.
6. LANDLORD'S CONSENT TO ASSIGNMENT OR SUBLETTING. Landlord shall not
unreasonably withhold, condition or delay its prior written consent to any
voluntary, written assignment to an assignee (not by operation of law) or any
sublease to a sublessee requested by Tenant in writing.
7. ELEVATOR SERVICE. At least one (1) passenger elevator in the Building shall
be in operation at all times.
8. RESERVED PARKING SPACES. Included in the number of Tenant's Parking Permits
in the Parking Garage of Building are six (6) Parking Permits for reserved
spaces, each of which entitles the holder thereof to a particular parking space.
9. ASSIGNMENT OR SUBLETTING TO AN AFFILIATE. Anything in Paragraphs 16A or 16C
of this Lease to the contrary notwithstanding, but subject to the terms of
Paragraph 16B of this Lease, Landlord's consent shall not be required for an
assignment or subletting by Tenant to any Affiliate thereof; provided, however,
Tenant shall give Landlord written notice within thirty (30) days of such
assignment or subletting and provide to Landlord all information relating
thereto reasonably requested by Landlord.
10. LANDLORD'S TIMELY ACQUISITION AND INSTALLATION OF BUILDING STANDARD
MATERIALS. Landlord shall use reasonably diligent efforts to obtain and install
Building Standard materials on a timely basis in order to attempt to cause the
Tenant Work to be Substantially Completed on or before the Projected
Commencement Date.
11. INTEREST ON COLLATERAL. The Collateral shall be held by Landlord in an
interest-bearing account at a financial institution selected by Landlord. The
interest that accrues on the Collateral shall become part of, and be disposed of
or used with, the Collateral in accordance with the terms and provisions of this
Lease.
12. CURRENT RATE FOR HVAC. The current rate for after-hours HVAC service in the
Building is approximately $40.00 per hour per floor. This rate is subject to
change.
13. LIMITATION ON LATE FEE CHARGES. Anything in Paragraph 3E of this Lease to
the contrary notwithstanding, Landlord shall not charge a late fee for any late
payment by Tenant hereunder, unless, during the twelve (12) month period
preceding such late payment (or any shorter period if twelve (12) months of the
Term have not elapsed), Tenant already has, on at least two (2) occasions, made
a late payment.
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14. TENANT'S LIMITED AUDITING RIGHTS. Landlord agrees that it will maintain
reasonably complete and accurate records of all costs, expenses and
disbursements which shall be paid or incurred by Landlord with respect to the
operating Expenses, and Tenant, at its sole cost and expense, and/or its
authorized representative, shall have the right, at all times (but no more than
once during any calendar year), to inspect and/or audit (and make copies of,
subject to the terms of this Paragraph 14 of this Exhibit C) Landlord's books
and records relating to this Lease for any year or years for which Additional
Rent shall become or became due, any such inspection and/or audit to be
conducted at Landlord's office during normal business hours; provided, however,
Landlord agrees to reimburse Tenant for the reasonable costs of any such
inspection and/or audit conducted by or for it in the event said inspection
and/or audit shall prove that the Operating Expenses for the period of time
covered by such inspection and/or audit shall have been overstated by seven
percent (7%) or more. Any overpayment or underpayment of Operating Expenses by
Tenant shall ] be adjusted between Landlord and Tenant by payment within thirty
(30) days following the date such overpayment or underpayment is proven by such
inspection and/or audit or otherwise determined in accordance herewith.
Landlord, at any time, shall be entitled to obtain a copy of such inspection
and/or audit, any report issued in connection therewith and any work papers of
Tenant and/or its representative prepared in connection therewith, certified by
Tenant to Landlord to be true, correct and complete. Landlord shall have no
obligation to make any payment to Tenant pursuant to this Paragraph 14 of this
Exhibit C until Tenant has furnished to Landlord any such certified materials
requested by Landlord. If, during any such inspection and/or audit, the time of
any employee of Landlord and/or the Building's property manager is required by
Tenant and/or its representative, Tenant shall be charged $30.00 per hour for
any such employee's time. If the photocopying equipment of Landlord and/or the
Building's property manager is used during any such inspection and/or audit,
Tenant shall be charged $.10 for each page photocopied. Such charges are deemed
to be Addi tional Rent payable by Tenant under this Lease. If, as a result of
any such inspection and/or audit, Landlord and Tenant dispute the existence or
the amount of any overpayment or underpayment of Operating Expenses by Tenant,
unless otherwise mutually agreed, any such dispute shall be resolved by
arbitration in the jurisdiction in which the Leased Premises are located in
accordance with the then Commercial Rules of the American Arbitration
Association. The cost of the arbitration, including, without limitation,
reasonable attorneys' fees, of each party shall be borne by such party, unless
the subject of the dispute is whether an overpayment equals or exceeds seven
percent (7%) and/or Landlord is obligated to pay the cost of such inspection
and/or audit, in which event the losing party in such dispute shall bear the
other party's costs of the arbitration. Tenant shall be considered to be the
losing party for the purposes of this Paragraph 14 of this Exhibit C if such
arbitration results in a determination that Landlord's statement delivered to
Tenant pursuant to Paragraph 4B of this Lease contained an aggregate discrepancy
of less than seven percent (7%) in Landlord's favor. Landlord shall be
considered to be the losing party for the purposes of this Paragraph 14 of this
Exhibit C if such aggregate discrepancy is equal to or greater than seven
percent (7%) in Landlord's favor.
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15. DEFINITION OF LATENT DEFECT. The term "Latent Defect" shall mean any defect
in the base Building shell, Base Construction or Tenant Work created by a person
or entity other than Tenant, Tenant's Architect, any contractor engaged by
Tenant, any subcontractor engaged by any such contractor or any subcontractor
engaged by such subcontractor, of which defect neither Tenant nor any
representative of Tenant had actual knowledge, and of which defect neither
Tenant nor any such representative could have known through a reasonable
investigation, either during construction of the Tenant Work or at the time
Tenant took possession of the Leased Premises.
16. NAME OF BUILDING. Anything in this Lease to the contrary notwithstanding,
Landlord shall not allow the name of the Building to be the name or associated
with the name of any of the following eight (8) entities: Energy and
Environmental Analysis (EEA), ICF International, Science Applications
International Corporation (SAIC), Putnam, Hayes and Bartlett, Inc., Resource
Dynamics, Chemonics, Charles River Associates or Foster Associates. The eight
(8) names listed in the preceding sentence may be changed by Tenant from time to
time during the Term upon at least ninety (90) days prior written notice from
Tenant to Landlord provided that Landlord has not already agreed to name the
Building after a name of which Tenant gives such notice to Landlord. Landlord
shall have no obligation to change the name of the Building as a result of
Tenant's rights under this Paragraph 16 of this Exhibit C.
17. ADDITIONAL COVENANTS AND REPRESENTATIONS. Landlord represents and warrants
to the best of its current, actual knowledge and belief, without any
investigation whatsoever, that the Building and Leased Premises are in
compliance with all laws, ordinances, codes and regulations at the commencement
of this Lease and that the Building contains no asbestos or electric components
which contain PCB's in violation of any applicable law. Landlord further
represents and warrants that Landlord has good title to the Building and Leased
Premises, subject to existing encumbrances. Tenant shall not release into the
environment, deposit, discharge, place or dispose of at, on, under or near the
Property, or any part thereof, in violation of any law, rule or regulation, any
"hazardous materials", "hazardous material contamination", "hazardous waste",
"hazardous substance" or any other similar items as regulated by any applicable
laws, rules or regulations pertaining to the Property, or any part thereof, or
its use.
18. NOTICE OF FAILURE TO PAY. Landlord agrees to give Tenant at least ten (10)
days prior written notice of any failure by Tenant to pay all or any portion of
the Rent or any installment thereof when due, or any failure to pay any other
sum required to be paid by Tenant under this Lease, before such failure shall
constitute a breach of or default under this Lease, unless, during the twelve
(12) month period preceding such failure (or any shorter period if twelve (12)
months of the Term have not elapsed), Landlord already has, on at least two (2)
occasions, given Tenant such a notice with respect to any other such failure.
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19. EXECUTION OF LEASE. On or before October 28, 1991: (a) Tenant shall deliver
to Landlord (i) two (2) original counterparts of this Lease duly executed by
Tenant, (ii) one (1) original counterpart of the Guaranty duly executed by RCG
International, Inc., a Delaware corporation, in accordance with Paragraph 23 of
this Exhibit C, and (iii) two (2) original counterparts of the Subordination
duly executed and acknowledged by Tenant; and (b) Landlord shall deliver to
Tenent (i) two (2) original counterparts of this Lease duly executed by
Landlord, (ii) one (1) original counterpart of the Subordination duly executed
and acknowledged by Landlord, and (iii) one (1) original counterpart of the
Subordination duly executed and acknowledged by Landlord and VIB, N.V., a
Netherlands corporation. If any of the events described in the preceding
sentence are not fully performed on or before October 28, 1991, this Lease shall
be deemed null and void, and neither party hereto shall have any rights or
remedies therefor or any further obligation to the other for performance
hereunder.
20. SYSTEMS FURNITURE. Prior to the Commencement Date, Tenant shall, by written
notice delivered to Landlord, irrevocably designate and identify by detailed
descriptions, including, without limitation, serial numbers, all furniture
ordered or purchased by Tenant prior to the Commencement Date for its use in the
Leased Premises (the "Systems Furniture"). All Systems Furniture for which
Tenant has or will seek reimbursement from the Above-Standard Allowance provided
by Landlord (the "Above-Standard Allowance Systems Furniture") shall be clearly
designated and separated from any other Systems Furniture in such notice.
Anything in this Lease to the contrary notwithstanding, the Above-Standard
Allowance Systems Furniture shall become Landlord's property upon the expiration
or earlier termination of this Lease.
21. $87,782 PAYMENT. Landlord shall give Tenant at least seventeen (17) days
advanced written notice of the date (the "Estimated Substantial Completion
Date") on which Landlord esti mates the Tenant Work will be Substantially
Completed, except for any Latent Defects and uncompleted Punch List Items;
provided, however, no such Estimated Substantial Completion Date shall be prior
to January 2, 1992. If the Tenant Work is not Substantially Completed, except
for any Latent Defects and uncompleted Punch List Items, on or before the
Estimated Substantial Completion Date, such event shall not be a breach or
default by Landlord under this Lease and Landlord shall not have any liability
whatsoever to Tenant on account thereof and this Lease shall not be rendered
void or voidable as a result of. In addition, Landlord shall use reasonably
diligent efforts to give written notice to Tenant that the Tenant Work has been
Substantially Completed, except for any Latent Defects and uncompleted Punch
List Items, promptly after the Substantial Completion of Tenant Work, except for
any Latent Defects and uncompleted Punch List Items. In consideration of this
Lease, and other good and value consideration, the receipt and sufficiency of
which is hereby acknowledged and confessed, subject to the other terms of this
Paragraph, Landlord shall be obligated to pay Eighty Seven Thousand Seven
Hundred Eighty-Two and No/100 Dollars ($87,782) (the "$87,782 Payment") to
Tenant when the latest of the following has occurred: (a) the Commencement Date;
(b) the full and complete possession and occupancy of the Leased Premises by
Tenant; and (c) the commencement of operation and conducting of business in the
Leased Premises by Tenant.
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Notwithstanding anything in this Lease to the contrary, in the event Tenant
exercises its option to terminate this Lease in accordance with Paragraph 2 of
this Lease because the Tenant Work is not Substantially Completed, except for
any Latent Defects and uncompleted Punch List Items, due to no cause, event or
matter beyond Landlord's control, subject to the terms of the last sentence of
this Paragraph, Landlord shall be obligated to pay to Tenant the $87,782
Payment. Landlord and Tenant agree Landlord shall not be liable to Tenant for
the $87,782 Payment in the event Tenant exercises its option to terminate this
Lease in accordance with Paragraph 2 of this Lease if the Tenant Work is not
Substantially Completed, except for any Latent Defects and uncompleted Punch
List Items, due to any other reason whatsoever. Any payment by Landlord to
Tenant of the $87,782 Payment shall be made by wire transfer to Manufacturers
Hanover Trust, 270 Park Avenue, Attention: Shari Stern, Account Number
134-0-70-362, Account Title: RCG/Hagler, Bailly, ABA Routing Number 021000306,
within three (3) business days following the later of the following dates: (a)
the date Landlord has received from Tenant written evidence of Tenant's
non-refundable payment of $87,782 to the Aerospace Center, Joint Venture; and
(b) the date Landlord is obligated to pay the $87,782 Payment to Tenant.
22. SOLE SET-OFF AND OFFSET RIGHTS OF TENANT. In the event Landlord fails to
timely make the $87,782 Payment to Tenant, as Tenant's sole right and remedy
thereof under this Lease and any other document relating hereto or thereto,
shall be to offset the amount of the $87,782 Payment, or any portion thereof,
not paid to Tenant, together with interest thereon at the Interest Rate from the
date of any such failure through the date of offset. Landlord shall be released
of any obligation under this Lease to make the $87,782 Payment to Tenant to the
extent Tenant has exercised its offset right under this Paragraph.
23. GUARANTY OF MONETARY OBLIGATIONS. Tenant shall cause RCG International,
Inc., a Delaware corporation, to execute and deliver to Landlord a guaranty of
the monetary obligations of Tenant under this Lease (the "Guaranty"),
contemporaneously with the execution and delivery of this Lease by Tenant to
Landlord, in the form of the Guaranty of Monetary Obligations attached hereto as
Exhibit F. Anything in this Lease to the contrary notwithstanding, Landlord
shall have no obligation to modify, amend, change or rearrange the terms of this
Lease, or renew or extend the initial ten (10) year Term of the Lease, or expand
the rentable square feet of the Leased Premises beyond the 16,803 rentable
square feet initially demised pursuant to this Lease, or settle, compromise,
adjust or release any obligation of Tenant under this Lease until Tenant has
obtained and delivered to Landlord the prior written consent of all Guaranty
Obligors to the same, such consent to be in form and substance reasonably accept
able to Landlord and to also contain a ratification of the Guaranty by the
Guaranty Obligors and a confirmation by the Guaranty Obligors of the
continuation of their liability under the Guaranty following the same.
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EXHIBIT "D"
[EDGAR Note: Please see Appendix for description of omitted graphics]
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EXHIBIT E
CLEANING SPECIFICATIONS
I. OFFICE AREAS:
A. Services performed nightly.
1. Empty, clean and damp dust all waste receptacles and remove
waste paper and rubbish from the Leased Premises nightly; wash
receptacles as necessary.
2. Empty and damp wipe all ash trays; screen all sand urns
nightly and supply and replace sand as necessary.
3. Vacuum all rugs and carpeted areas of offices, lobbies and
corridors nightly.
4. Hand dust and wipe clean with damp or treated cloth all office
furniture, files, fixtures, window sills and all other
horizontal surfaces nightly; wash window sills when necessary.
5. Damp wipe and polish all glass furniture tops nightly.
6. Remove finger marks and smudges from all vertical surfaces,
including doors, door frames, around light switches, private
entrance glass and partitions.
7. Wash all water coolers.
8. Sweep private stairways nightly and vacuum if carpeted.
9. Sweep all uncarpeted floors employing dust controlled
techniques.
10. Keep all stairways, sidewalks, parking areas and loading
facilities throughout the entire Building in clean condition
daily.
11. Damp mop spillage in office and public areas as required.
B. Services performed as necessary.
1. Wash waste receptacles.
2. Wash window sills.
3. Damp mop floors where spillage occurred.
<PAGE>
4. Damp dust all telephones.
5. Dress and buff floors to maintain scuff-free high gloss.
6. Damp dust all telephones as necessary.
7. Dust all miniblinds as necessary.
C. Services performed when reasonably requested by Property Manager.
1. Spot clean all rugs in carpeted areas.
D. Services performed monthly.
1. Tile floors waxed and buffed.
E. Services performed quarterly.
1. Strip and reseal floors.
2. Dust lights.
II. RESTROOMS:
A. Services performed nightly.
1. Sweep, mop, rinse, and dry floor.
2. Clean all mirrors, bright work and enameled surfaces.
3. Wash and disinfect all basins, urinals and bowls using
nonabrasive cleaners to remove stains and clean undersides of
rim of urinals and bowls.
4. Scrub all fixtures using a cleaner to remove all stains.
5. Wash both sides of all toilet seats with soap and water to
disinfect.
6. Damp wipe and wash with disinfectant when necessary all
partitions, tile walls, and outside surfaces of all
dispensers, including soap dishes and receptacles.
7. Empty and sanitize all receptacles and sanitary disposals;
thoroughly clean and wash at least once a week.
8. Fill toilet tissue, soap, and sanitary napkin dispensers
properly.
<PAGE>
9. Clean and polish flushometers, piping, toilet seat hinges and
other metal.
B. Services performed weekly.
1. Scrub floors.
2. Thoroughly wash all partitions, tile walls, dispensers, and
receptacles.
C. Services performed monthly.
1. Wash and polish all walls, partitions, tile walls, and enamel
surfaces from trim to floor.
2. Vacuum all louvers, ventilating grills and dust light
fixtures.
D. Keep the restrooms thoroughly cleaned and refrain from using
disinfectant or deodorant to kill odor. If a disinfectant is
necessary, an odorless product should be used.
III. PUBLIC AREAS:
A. Brick or stone floors (Corridor and Lobby)
1. Nightly
a. Sweep, wet mop.
b. Buff, apply sealer coat.
B. Tile Floors
1. Floors in office areas will be waxed and buffed as needed but
at least once monthly. Floors will be stripped and re-waxed as
necessary.
C. Carpeted area/rugs
1. Services performed nightly.
a. Vacuum.
b. Spot remove stains.
2. Services performed as necessary.
a. Shampooing done as necessary upon authorization of
building management.
<PAGE>
D. Brick or stone floors
1. Services performed nightly.
a. Sweep, wash and buff.
2. Services performed quarterly.
a. Strip and reseal.
E. Walls
1. Services performed as necessary.
a. Dust.
b. Spot wash.
c. Wash thoroughly.
F. Ceilings
1. Services performed as necessary.
a. Dust.
G. Bright Work
1. Services performed nightly.
a. Dust and polish.
H. Lights
1. Services performed as necessary.
a. Dust.
b. Wash.
I. Entrance/Patio/Courtyard
1. Services performed nightly.
a. Sweep.
b. Police as necessary.
J. Elevators
1. Services performed nightly.
a. Dust all surfaces, clean and polish all metal.
b. If carpet, vacuum and clean.
c. If tile, sweep, wash, dress and buff.
d. Vacuum, clean, and polish elevator tracks.
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2. Services performed as necessary.
a. Dust/wash light fixtures.
b. Dust ceiling.
c. Shampoo carpet.
d. If tile, scrub and wax.
3. Services performed quarterly.
a. If tile, strip and reseal.
K. Ash urns
1. Services performed nightly.
a. Clean and polish.
b. Sift out all foreign articles.
2. Services performed as necessary.
a. Replace sand frequently.
L. Water Coolers
1. Services performed nightly.
a. Wash, disinfect and dry polish.
M. Stairways and landings.
1. Services performed nightly.
a. Sweep risers.
b. If carpet, police and vacuum.
2. Services performed weekly.
a. If carpet, spot stain removal.
3. Services performed monthly.
a. Wet mop risers.
4. Services performed as necessary.
a. If carpet, shampoo.
N. Fire Extinguisher
1. Services performed nightly.
a. Dust.
2. Services performed as necessary.
a. Wash.
<PAGE>
0. Doors
1. Services performed as necessary.
a. Wooden doors, dust, wash, and polish.
P. Glass
1. Services performed nightly.
a. Clean glass entrance doors and adjacent glass panels.
2. Services performed quarterly.
a. Clean partition glass and interior glass doors.
Q. General
1. Services performed nightly.
a. Sweep and/or vacuum entrance mats.
b. Thoroughly wash transoms, high and low.
c. Wipe down mail depository and keep glass and metal clean
at all times.
d. Sweep outside plaza and sidewalk areas; curbs should be
broom swept.
e. Police outside plaza, sidewalk, and parking garage.
f. Wipe and clean all metal hardware fixtures and other
bright work.
g. Keep supply rooms in a clean, neat, and orderly
condition.
h. Dust and/or wash all directory boards as required.
Remove finger prints and smudges nightly.
i. Maintain building lobby corridors and other public areas
in a clean condition.
2. Services performed as necessary.
a. Wash and/or shampoo mats and/or blotters.
b. Hose and/or steam, plaza and sidewalk areas.
3. Services performed as requested by Property Manager.
a. Wipe all interior metal window frames, mullions, and
other unpainted interior metal surfaces of the perimeter
of the building each time the interior of the windows is
washed.
4. Services performed quarterly.
a. Dust and wipe clean all closet shelving when empty and
carpet sweep or dry mop all floors in closets if such
are empty.
b. Dust all picture frames, charts, graphs, and similar
wall hangings.
c. Dust clean all vertical surfaces such as walls,
partitions, doors, door bucks and other surfaces above
shoulder height.
<PAGE>
d. Damp dust all ceiling air conditioning diffusers, wall grids,
reenters, and other ventilating louvers. If this is not
frequent enough, will be done monthly.
e. Dust the exterior surfaces of lighting fixtures, including
glass and plastic enclosures.
R. Day Services
1. At least once, but no more than twice during the day, check men's
washrooms for toilet tissue replacement.
2. At least once, but no more than twice during the day, check ladies'
washroom for toilet tissue and sanitary napkin replacements. Remove
money once a week.
3. Supply toilet tissue, soap, and towels in men's and ladies'
washrooms.
4. As needed, vacuuming of elevator cabs will be performed. Wipe down
smudges.
5. There will be a constant surveillance of public areas to insure
cleanliness.
6. Perform special cleaning needs of individual tenants as authorized
by the Property Manager.
7. All public area ash urns will be kept clean, sand sifted, and free
from excess debris.
8. Public area glass doors will be kept free of smudges and
fingerprints.
9. Sweep and wash sidewalks and exterior stairwells as needed.
10. Set out foul weather mats and carpets.
11. Police parking garage for trash.
12. Shovel snow and apply de-icer to sidewalks as needed.
S. Window Cleaning
1. Semi-annual cleaning of interior and exterior windows, frames and
mullions.
<PAGE>
EXHIBIT F
GUARANTY OF MONETARY OBLIGATIONS
This GUARANTY OF MONETARY OBLIGATIONS (this "Guaranty") is given by RCG
INTERNATIONAL, INC., a Delaware corporation (hereinafter referred to as
"Guarantor"), to WILSON BOULEVARD VENTURE, a Virginia general partnership
(hereinafter referred to as "Landlord").
In order to induce Landlord to demise to RCG/Hagler, Bailly, Inc., a
District of Columbia corporation (hereinafter, together with its successors and
assigns, referred to as "Tenant"), certain premises (hereinafter referred to as
the "Leased Premises") described in and pursuant to a certain Office Lease
(hereinafter, together with all modifications, renewals and extensions thereof,
collectively referred to as the "Lease") dated of even date herewith, executed
by and between Landlord and Tenant, the Guarantor agrees as follows:
1. Guarantor does hereby absolutely, irrevocably and unconditionally
guarantee to Landlord and its successors and assigns (hereinafter Landlord and
its successors and assigns are collectively referred to as "Owner"), the full,
prompt and complete payment by Tenant of the Rent (as defined in the Lease) and
all other sums (such Rent and other sums are hereafter collectively referred to
as the "Monetary Obligations") which are payable by Tenant to Owner under or in
connection with the Lease.
2. This is an absolute, irrevocable and unconditional guaranty of
payment, and not a guaranty of collection. In the event of default, breach or
failure of payment in any respect by Tenant under the Lease, Owner may proceed
and have a right of action against either Guarantor or Tenant or jointly against
Guarantor and Tenant.
3. None of the terms, covenants or conditions of the Lease shall be
modified, amended, changed, rearranged, renewed or extended by Tenant or Owner
(the foregoing phrase shall not be deemed or construed to imply that either
Tenant or Landlord shall be entitled to unilaterally make any modification,
amendment, change, rearrangement, renewal or extension of the terms, covenants
or conditions of the Lease without the written agreement thereto of the other),
without the prior written consent of Guarantor, and no settlement, compromise,
adjustment or release by Owner of any the Monetary Obligations shall occur
without the prior written consent of Guarantor. Guarantor shall not be entitled
to make any defenses against any claim asserted by Owner in any suit or action
instituted by Owner to enforce this Guaranty, nor to be excused from any
liability hereunder, except that, if Tenant has the right to withhold payment of
any of the Monetary Obligations, then Guarantor may withhold payment of such
Monetary Obligations (except as provided in Paragraph 4 hereof), it being the
intent hereof that the liability of Guarantor hereunder is primary and
unconditional. Anything in this Guaranty to the contrary notwithstanding (except
as provided in Paragraph 4 hereof), (a) any modification, amendment, change,
rearrangement, renewal or extension of any of the terms, covenants or conditions
of the Lease consented to by Guarantor in writing, any settlement, compromise,
adjustment, release, confession or surrender of any of the Monetary Obligations
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consented to by Guarantor in writing, any waiver, indulgence, forbearance,
omission, delay, neglect, refusal or failure on the part of Owner in enforcing
any of the Monetary Obligations, any failure of Owner to perfect or continue any
security interest or lien securing any or all of the Monetary Obligations, any
failure of Owner to preserve, maintain or insure any collateral securing any or
all of the Monetary Obligations, or any failure of owner to sell any such
collateral in a commercially reasonable manner or as otherwise required by law,
shall not in any way affect, impair or discharge Guarantor's unconditional
liability hereunder; (b) Guarantor hereby irrevocably waives any rights arising
from Section 49-29 of the Code of Virginia; (c) this Guaranty will not be
impaired because the Lease is unenforceable or invalid or is ultra vires, or any
person acting on behalf of Tenant in negotiating or executing the Lease acted
beyond his or her authority, and Guarantor will be liable under this Guaranty,
notwithstanding that Tenant may not be liable under the Lease, to the same
extent that Guarantor would be liable if the Lease were enforceable against
Tenant in accordance with their respective terms, unless the Lease is
unenforceable against Tenant as a result of a default by Owner, beyond any
applicable notice or cure period, under the Lease; (d) except as expressly
provided in the Lease to the contrary, Guarantor hereby irrevocably waives
notice of acceptance hereof, notice of the existence or creation of the Monetary
Obligations, presentment and demand for payment of any of the Monetary
Obligations, protest and notice of dishonor and protest with regard to the
Monetary Obligations and any and all other notices which by law or under the
terms and provisions of the Lease are required to be given to Tenant, and also,
except as expressly provided in the Lease to the contrary, Guarantor irrevocably
waives any demand for or notice of breach or default of the payment of the
Monetary Obligations; and (e) Guarantor hereby irrevocably waives any right to
require Owner, and any legal obligation, duty or necessity of Owner, to proceed
first against Tenant or to exhaust any remedy Owner may have against Tenant or
any other person or entity or to exercise diligence in preserving the liability
of Tenant or any such other person or entity with respect to the Monetary
Obligations, including, without limitation, any rights arising from Section
49-25 or Section 49-26 of the Code of Virginia.
4. Anything in this Guaranty to the contrary notwithstanding, in the
event Tenant shall become insolvent, shall be adjudicated a bankrupt, or shall
file a petition for reorganization, arrangement or similar relief under any
present or future provision of the Bankruptcy Reform Act of 1978, as amended
(the "Code"), or similar law, or if a petition filed by creditors of Tenant
under the Code or any such similar law shall be approved by a court, or if
Tenant shall seek a judicial readjustment of the rights of its creditors under
any present or future federal or state law or if a receiver of all or part of
its property and assets is appointed by any state or federal court, and in any
such proceeding the Lease shall be terminated or rejected or the obligations of
Tenant thereunder shall be modified, except to the extent, and only the extent,
such termination, rejection or modi fication is a result of a default by Owner,
beyond any applicable notice or cure period, under the Lease, Guarantor shall
immediately pay to Owner (a) an amount equal to all Rent (as defined in the
Lease) accrued to the date of such termination, rejection or modification, plus
(b) all other sums, if any, payable by Tenant to Owner under or in connection
with the Lease, plus (c) an amount equal to the then cash value of the Rent
which would have been payable under the Lease for the unexpired portion of the
Term (as defined in the Lease) thereby demised discounted at the Interest Rate
(as defined in the Lease) to the then present value, less the then cash rental
value of the Leased Premises for such unexpired portion of the Term similarly
discounted, together with interest on the amounts designated under (a), (b) and
(c) in this paragraph at the highest lawful rate per annum from the date
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of demand of such payment to the date of payment [unless there is no maximum
rate of interest provided by law with respect to such amounts, in which event
such amounts shall bear interest at the Interest Rate (as defined in the
Lease)]. Guarantor's obligation to make payment in accordance with the terms of
this Guaranty shall not be impaired, modified, changed, released or limited in
any manner whatsoever by an impairment, modification, change, release or
limitation of the liability of Tenant or its estate in bankruptcy resulting from
the operation of any present or future provision of the Code or other similar
statute.
5. The payment by Guarantor of any amount pursuant to this Guaranty
shall not in any way entitle Guarantor to any right, title or interest in and to
any of the Monetary Obligations or any proceeds thereof. As long as there are
any outstanding Monetary Obligations payable under the Lease, Guarantor hereby
irrevocably waives any and all rights it may now or hereafter have under any
agreement or at law or in equity (including, without limitation, any law
subrogating Guarantor to the rights of Landlord) to assert any claim against or
seek contribution, indemnification or any other form of reimbursement from
Tenant or any other person or entity liable for payment of any or all of the
Monetary Obligations for any payment made by Guarantor under or in connection
with this Guaranty or otherwise, including, without limitation, any rights
arising from Section 49-27 or Section 49-29 of the Code of Virginia. Guarantor
expressly subordinates its rights to payment of any indebtedness owing from
Tenant to Guarantor, whether now existing or arising at any time in the future,
to the prior right of Owner to receive or require payment in full of the
Monetary Obligations (including Rent and other sums accruing under or in
connection with the Lease after any petition under the Code, which post-petition
Rent and other sums Guarantor agrees shall remain a claim that is prior and
superior to any claim of Guarantor notwithstanding any contrary practice, custom
or ruling in proceedings under the Code generally). If a default by Tenant has
occurred under the Lease and is continuing and Guarantor receives any payment,
satisfaction or security for any indebtedness of Tenant to Guarantor, until the
Monetary Obligations are fully satisfied, Guarantor agrees forthwith to deliver
such payment, satisfaction or security to Owner in the form received, endorsed
or assigned as may be appropriate, for application on account of, or as security
for, the Monetary Obligations, and until so delivered, Guarantor agrees to hold
the same in trust for Owner.
6. Guarantor represents and covenants that it is and shall remain
informed of the financial condition of the Tenant and all of the circumstances
which bear on the risk of non-payment of the Monetary Obligations. Guarantor
waives any right to require Owner to disclose to Guarantor any information Owner
has or may have in the future concerning such condition or circumstances.
7. In the event Owner or Tenant requests the written consent of
Guarantor to any matter, Guarantor shall not unreasonably withhold, condition or
delay such consent, provided that such matter does not materially increase the
liability of Guarantor under this Guaranty.
8. Guarantor shall be entitled to be released by Owner from Guarantor's
obligations under this Guaranty, if the Lease is assigned by Tenant, Owner has
Consented in writing specifically to such assignment or such assignment is
otherwise permitted under the Lease and the assignee has, or causes the
assumption of all of Guarantor's then existing and future obligations under this
Guaranty by a person or entity that has, a consolidated net worth equal to or
greater than Fourteen Million and No/100 Dollars ($14,000,000.00).
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<PAGE>
9. This Guaranty shall be construed under and in accordance with the
laws of the Commonwealth of Virginia and applicable federal law, and all
monetary obligations of Guarantor hereunder are performable at the place where
Rent is payable under the Lease. Guarantor irrevocably (a) submits to the
jurisdiction of any Virginia state court or federal court sitting in the Com
monwealth of Virginia with respect to any suit, action or proceeding relating to
this Guaranty, (b) waives any objection which Guarantor may now or hereafter
have to the laying of venue of any such suit, action or proceeding brought in
any such court and any claim that any such suit, action or proceeding brought in
any such court has been brought in an inconvenient forum, (c) waives the right
to object that any such court does not have jurisdiction over Guarantor, and (d)
consents to the service of process in any such suit, action or proceeding by the
mailing of a copy of such process to Guarantor by postage prepaid, certified
mail, return receipt requested, addressed to Guarantor at the following mailing
address or at such other address of which Owner shall have received notice: RCG
International, Inc., Park Avenue Plaza, New York, New York 10055. Nothing in
this paragraph shall affect Owner's right to service process in any other manner
permitted by law or to bring any proceeding against Guarantor in any other court
having jurisdiction.
10. Guarantor represents and warrants to Owner as follows:
(a) Guarantor is a corporation duly organized, validly
existing and in good standing under the laws of the state of its
incorporation.
(b) Guarantor has the corporate power and authority and legal
right to execute, deliver, and perform its obligations under this
Guaranty and this Guaranty constitutes the legal, valid, and binding
obligation of Guarantor, enforceable against Guarantor in accordance
with its terms, except as limited by bankruptcy and insolvency laws,
or other laws of general application relating to the enforcement of
creditor's rights.
(c) The execution, delivery and performance by Guarantor of
this Guaranty have been duly authorized by all requisite action on
the part of Guarantor and do not and will not violate or conflict
with the articles of incorporation or bylaws of Guarantor or any
law, rule or regulation, or any order, writ, injunction or decree of
any court, governmental authority or agency, or arbitrator known to
Guarantor, and do not and will not conflict with, result in a breach
of, or constitute a default under, or result in the imposition of
any lien upon any assets of Guarantor pursuant to the provisions of
any indenture, mortgage, deed of trust, security agreement,
franchise, permit, license or other instrument or agreement known to
Guarantor to which Guarantor or any property or asset of Guarantor
is bound.
(d) No authorization, approval or consent of, and no filing or
registration with, any court, governmental authority or third party
is necessary for the execution, delivery or performance by Guarantor
of this Guaranty or the validity or enforceability thereof against
Guarantor.
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<PAGE>
(e) The value of the consideration received and to be received
by Guarantor as a result of Landlord demising the Leased Premises to
Tenant is reasonably worth at least as much as the liability and
obligation of Guarantor hereunder, and such liability and obligation
have benefitted and may reasonably be expected to benefit Guarantor
directly or indirectly.
11. Guarantor shall pay to owner on demand all costs incurred by Owner,
and Owner's reasonable attorneys' fees, in the collection or enforcement of this
Guaranty, whether or not suit is brought.
12. The exercise by Owner of any right or remedy hereunder or under any
other instrument, or at law or in equity, shall not preclude the concurrent or
subsequent exercise of any other right or remedy.
13. Any acknowledgment or new promise, whether by payment or otherwise
and whether by Tenant or others (including Guarantor), with respect to any of
the Monetary Obligations shall, if the statute of limitations in favor of
Guarantor against Owner shall have commenced to run, toll the running of such
statute of limitations and, if the period of such statute of limitations shall
have expired, prevent the operation of such statute of limitations.
14. This Guaranty shall be binding upon the successors and assigns of
Guarantor, and shall inure to the benefit of the heirs, legal representatives,
successors and assigns of Owner.
15. This Guaranty can only be modified, waived, altered or amended by a
written instrument or instruments executed by Owner and Guarantor. Any alleged
modification, waiver, alteration or amendment which is not so documented shall
not be effective as to either Owner or Guarantor.
16. Guarantor recognizes that Landlord is relying upon this Guaranty and
the undertakings of Guarantor hereunder in demising the Leased Premises to
Tenant and further recognizes that the execution and delivery of this Guaranty
is a material inducement to Landlord in demising the Leased Premises to Tenant.
Guarantor hereby acknowledges that there are no conditions to the full
effectiveness of this Guaranty, except as expressly provided herein.
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<PAGE>
EXECUTED as of the 25th day of October, 1991.
GUARANTOR:
RCG INTERNATIONAL, INC.
By:______________________________
Name:_______________________
Title:______________________
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<PAGE>
EDGAR APPENDIX
Exhibit D: Diagram of floorplan of ninth floor of 1530 Wislon Boulevard,
indicating that there is 16,803 square feet of rentable space
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FIRST AMENDMENT TO OFFICE LEASE
THIS FIRST AMENDMENT TO OFFICE LEASE (this "First Amendment") is
made as of this ____ day of February, 1993, by and between WILSON BOULEVARD
VENTURE, a Virginia general partnership ("Landlord"), and RCG/HAGLER, BAILLY,
INC., a District of Colum bia corporation ("Tenant").
R E C I T A L S:
A. Landlord and Tenant are parties to a certain office lease (the "Lease")
dated as of October 25, 1991, for the Leased Premises more particularly
described therein.
B. Landlord and Tenant have agreed to add to the Leased Premises certain
space consisting of approximately 2,696 square feet of rentable area located on
the first floor, as indicated on Exhibit A-I attached hereto and made a part
hereof, all on the terms and conditions set forth in this First Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the following
mutual covenants and agreements and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant
agree as follows:
AMENDMENT SCHEDULE
1. First Amendment Space: Approximately 2,696 rentable square
feet (determined in accordance with the Washington, D.C.
Association of Realtors Standard Method of Measurement), more
or less, located on the first (lst) floor of the Building.
Subject to any terms and provisions of the Lease and this
First Amendment to the contrary, the First Amendment Space
shall include the right to use, in common with Landlord and
other tenants of the Building, and their respective invitees,
customers and employees, the halls, toilet and sanitary
facilities on the first (1st) floor, first (1st) floor and
lower level of the Building, as well as the sidewalks and
delivery areas on the Property. [See Paragraph 1](1)
----------
(1) For convenience, this Amendment Schedule sets forth in [brackets]
cross references showing where the terms defined in the Schedule are
first used in the Terms and Conditions or Exhibits of the Lease or
this First Amendment. These cross references are not intended to
modify or affect in any way the pro visions of the Lease or this
First Amendment.
<PAGE>
2. First Amendment Space Term: The period from the First
Amendment Commencement Date until January 11, 2002. [See
Paragraph 2A]
3. Projected First Amendment Commencement Date: May 10, 1993 [See
Paragraph 2D]
4. First Amendment Space Annual Base Rent: For Lease Years one
(1) through four (4), $26.50 per rentable square foot in the
First Amendment Space and for each Lease Year thereafter,
$28.00 per rentable square foot in the First Amendment Space,
increased and abated pursuant to the terms, of the Lease and
First Amendment. [See Paragraph 3A]
5. Monthly Installment of First Amendment Space Annual Base Rent:
The quotient that results from dividing First Amendment Space
Annual Base Rent by twelve (12). [See Paragraph 3A]
6. Tenant's First Amendment Space Share: The quotient that
results from dividing the number of rentable square feet in
the First Amendment Space by 167,511. [See Paragraph 4]
7. First Amendment Space Operating Expense Stop: The product that
results from multiplying the total amount of Operating
Expenses (as defined in Paragraph 4 of the Lease) of the
Property during the 1993 calendar year, as adjusted to provide
for, among other things, a ninety-five percent (95%) occupied
and fully assessed and completed Building and Property
pursuant to Paragraph 4 of the Lease, by the Tenant's First
Amendment Space Share. [See Paragraph 4]
8. Additional Security Deposit: $5,953.67
9. Broker: Julien J. Studley, Inc. [See Paragraph 6]
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<PAGE>
10. First Amendment Plan Date: February 26, 1993 [See Exhibit B-I,
Paragraph 1A]
11. Tenant's First Amendment Parking Permits: A total of up to 4
parking permits for unreserved parking spaces. [See Paragraph
8]
12. Tenant's Architect: Smith, Blackburn, Stauffer [See Exhibit
B-I, Paragraph 1A]
13. Exhibits to this Lease: The following are all of the Exhibits
attached to this First Amendment, each of which is
incorporated herein by reference for all purposes:
Exhibit A-I Outline of First Amendment Space
Exhibit B-I First Amendment Work Letter
Exhibit C-I Outline of Additional Expansion Space
Exhibit D-I Consent of Guarantors and Ratification of
Guaranty of Monetary Obligations
This First Amendment is subject to the Terms and Conditions of the
Lease, as amended, supplemented and modified by the Terms and Conditions of this
First Amendment and to the provisions of any Exhibits attached hereto or to the
Lease, which Terms and Conditions and Exhibits are hereby made a part of this
First Amendment.
Any capitalized terms used herein and not otherwise defined shall
have the meanings given in the Lease.
LANDLORD: TENANT:
WILSON BOULEVARD VENTURE, a RCG/HAGLER, BAILLY, INC., a District
Virginia general partnership of Columbia corporation
By: Bresta Futura VI B.V.,
its managing general By:/s/ Henri-Claude A. Bailly
partner ---------------------------------
Henri-Claude Bailly
Chairman of the Board and Chief
By: Jacques & Kurdziel, Ltd. Executive Officer
as Agent
By: /s/ Donald M. Kurdziel
----------------------
Donald M. Kurdziel
President
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<PAGE>
TERMS AND CONDITIONS
1. Paragraph 1 of the Terms and Conditions of the Lease is amended
by inserting the following at the end of said paragraph:
"Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, the First Amendment Space described in the Amendment
Schedule appearing in pages 1 through 3 of the First Amendment dated
February __, 1993 and designated on the Outline of First Amendment
Space attached hereto as Exhibit A-I, subject to the covenants,
terms, and provisions of the Lease and the First Amendment."
2. Paragraph 2 of the Terms and Conditions of the Lease is amended
by inserting the following at the end of said paragraph:
"E. The Term described in the Amendment Schedule shall
commence on the First Amendment Commencement Date, as determined
pursuant to Paragraph 2F hereof, and shall continue until the date
set forth in the Amendment Schedule, unless the Term is renewed or
terminated earlier in accordance with the provisions of the Lease or
the First Amendment.
"F. The "First Amendment Commencement Date" shall be the date
that is earlier of the date on which the First Amendment Tenant Work
(as hereinafter defined) is Substantially Completed or the date that
Tenant commences beneficial use of the First Amendment Space. Tenant
shall be deemed to have commenced beneficial use of the First
Amendment Space on the date Tenant takes possession, uses or
occupies any of the First Amendment Space.
"G. On or promptly after the First Amendment Commencement
Date, Landlord and Tenant agree to execute a written declaration
setting forth the First Amendment Commencement Date and the
following agreements: (i) except for any uncompleted Punch List
Items related to the First Amendment Space, Landlord has fully
completed the First Amendment Tenant Work under the terms of the
First Amendment; and (ii) the First Amendment Space is tenantable,
Landlord has no further obligation for construction (except with
respect to any uncompleted Punch List Items related to the First
Amendment Space), and (iii) Tenant acknowledges that the Building,
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<PAGE>
the First Amendment Space and the First Amendment Tenant Work are
satisfactory in all respects, except for Latent Defects and any
uncompleted Punch List Items related to the First Amendment Space,
and are suitable for Tenant's type of business, as set forth in the
Schedule to the Lease.
"H. It is presently anticipated that the First Amendment
Tenant Work will be, and Landlord shall use reasonably diligent
efforts to cause the First Amendment Tenant Work to be,
Substantially Completed, except for any uncompleted Punch List Items
related to the First Amendment Space, on or before the Projected
First Amendment Commencement Date; provided, however, the failure of
the First Amendment Tenant Work to be Sub stantially Completed,
except for any Latent Defects and any such uncompleted Punch List
Items related to the First Amendment Space, on or before the
Projected First Amendment Commencement Date, shall not be a breach
or default by Landlord under this First Amendment or the Lease and
Landlord shall not have any liability whatsoever to Tenant on
account thereof and this First Amendment shall not be rendered void
or voidable as a result thereof; provided, further, however, if the
First Amendment Tenant Work is not Substantially Completed, except
for any Latent Defects and uncompleted Punch List Items related to
the First Amendment Space, on or before July 15, 1993, Tenant shall
have, as Tenant's sole and exclusive remedy therefore, the option to
terminate this First Amendment by giving Landlord written notice of
such termination: (a) on or before July 26, 1993, in the event the
First Amendment Tenant Work is not Substantially Completed, except
for any Latent Defects and uncompleted Punch List Items related to
the First Amendment Space, on or before July 15, 1993, and such
failure is due to no cause, event or matter beyond Landlord's
control; or (b) on October 25, 1993, in the event the First
Amendment Tenant Work is not Substantially Completed, except for any
Latent Defects and uncompleted Punch List Items related to the First
Amendment Space, on or before October 15, 1993, for any reason
whatsoever."
3. Paragraph 3 of the Terms and Conditions of the Lease is amended
by inserting the following at the end of said paragraph:
"F. The First Amendment Space Annual Base Rent set
forth in the Amendment Schedule is payable monthly in the amount
of the Monthly Installment of First Amendment Space Annual Base
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<PAGE>
Rent set forth in the Amendment Schedule, in advance, on or before
the first day of each and every month during the First Amendment
Term, without demand or notice, except as expressly required under
the Lease, and, except as expressly provided for under the Lease,
without any abatement, set-off, offset or deduction whatsoever;
except that (i) Tenant shall pay an amount equal to one full Monthly
Installment of First Amendment Space Annual Base Rent at the time of
execution of the First Amendment, which amount shall be credited to
the first Rent payable under the First Amendment for the First
Amendment Space; and (ii) if the First Amendment Term commences
other than on the first day of a month or ends other than on the
last day of a month, the Monthly Installment of First Amendment
Space Annual Base Rent for such month shall be prorated based on the
number of days in such month. First Amendment Space Annual Base Rent
shall be increased by two percent (2%) on each anniversary of the
Commencement Date under the Lease.
"G. First Amendment Space Annual Base Rent payable during the
first (lst) through the sixtieth (60th) full calendar months of the
First Amendment Term shall be abated to the extent of $1,389.19 per
each such calendar month. Alternatively, Tenant may elect to use up
to $41,675.00 of rental abatement towards the cost of the First
Amendment Tenant Work (as defined in Exhibit B-I) in which event
First Amendment Space Annual Base Rent payable during the first
(1st) through sixtieth (60th) months of the Term shall be abated to
the extent of $694.60 per each such calendar month. Tenant shall
make its election of how the abatement shall be applied by written
notice to Landlord given not later than forty-five (45) days after
the First Amendment Commencement Date. If such written notice is not
received by Landlord on or before such date, Tenant shall be deemed
to have elected to abate First Amendment Space Annual Base Rent
pursuant to the first sentence of this Paragraph 3F, and Landlord
shall abate First Amendment Space Annual Base Rent and Tenant shall
remain fully responsible in accordance with Exhibit B-I for all
First Amendment Above-Allowance Costs (as defined in Exhibit B-I)."
4. Paragraph 4 of the Terms and Conditions of the Lease is amended
by inserting the following at the end of said paragraph:
"In addition to paying the First Amendment Space Annual Base
Rent as specified in Paragraph 3F hereof, Tenant shall pay as
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<PAGE>
Additional Rent with respect to the First Amendment Space an amount
(the "First Amendment Expense Adjustment Amount") equal to Tenant's
First Amendment Space Share of the amount by which the Operating
Expenses (defined in Paragraph 4A of the Lease and subject to
adjustment pursuant to Paragraph 4C of the Lease) incurred with
respect to each Lease Year after the first Lease Year exceed the
First Amendment Space Operating Expense Stop set forth in the
Amendment Schedule."
5. Paragraph 6 of the Terms and Conditions of the Lease is amended
by inserting the following at the end of said paragraph:
"The improvement of the First Amendment Space by Landlord
shall be accomplished in accordance with Exhibit B-I attached to the
First Amendment. In no event shall Tenant be entitled to any credit
against, or abatement of, Rent due to the existence of any Punch
List Items related to the First Amendment Space. No promise of
Landlord to alter, remodel or improve the First Amendment Space, the
Leased Premises or the Property and no representation by Landlord or
its agents respecting the condition of the First Amendment Space,
the Leased Premises or the Property has been made to Tenant or
relied upon by Tenant other than as may be contained in Exhibit B-I
attached to the First Amendment. By taking possession of the First
Amendment Space, the Tenant accepts the First Amendment Space and
the Building in their "As Is" condition, and the taking of the
possession of the First Amendment Space by Tenant shall be
conclusive evidence that the First Amendment Space and the Building
are in good and satisfactory condition, except for Latent Defects
and uncompleted Punch List Items related to the First Amendment
Space. Landlord shall complete such Punch List Items related to the
First Amendment Space within forty-five (45) days following
Landlord's approval, which approval shall not be unreasonably
withheld, delayed or conditioned, of a list of such Punch List Items
submitted to Landlord by Tenant after the First Amendment
Commencement Date. Such forty-five (45) day period shall be extended
to the extent Landlord's completion of such Punch List Items is
delayed by any act of God, strike, lock out, labor difficulty,
explosion, sabotage, accident, riot, civil commotion, act of war,
result of any warfare or warlike condition in this or any foreign
country, fire or other casualty, legal requirement, energy shortage
or cause beyond the reasonable control of Landlord and Landlord has
nevertheless used reasonably diligent efforts to complete any such
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<PAGE>
uncompleted Punch List Items. Landlord shall have access to the
First Amendment Space at all reasonable times in order to complete
such Punch List Items. Tenant acknowledges that Landlord's
completion of such Punch List Items may cause interference with the
conduct of Tenant's business in the First Amendment Space and Tenant
waives any and all rights and remedies it has with respect to such
interference; however, Landlord agrees to use reasonable efforts to
minimize such interference."
6. Paragraph 27 of the Terms and Conditions of the Lease is amended
by inserting the following at the end of said paragraph:
"E. Tenant hereby deposits with Landlord the sum designated in
the Amendment Schedule as the "Additional Security Deposit." The
Additional Security Deposit shall be added to the Security Deposit
delivered by Tenant in connection with the Lease to be held or
applied by Landlord in accordance with this Paragraph 27 as security
for the prompt, full and faithful performance by Tenant of each and
every provision of the Lease and First Amendment and of all
obligations of Tenant arising thereunder. The Additional Security
Deposit and Security Deposit together are the "Collateral" for
purposes of this Paragraph 27."
7. Paragraph 28 of the Terms and Conditions of the Lease is amended
by inserting the following at the end of said paragraph:
"Each party hereto represents that it has dealt with (and only
with) the Broker named in the Amendment Schedule as "Broker" in
connection with the First Amendment (which Broker shall be
compensated only in accordance with a written agreement between such
broker and Landlord), and that insofar as it knows, no other broker
negotiated the First Amendment or is entitled to any commission in
connection herewith. Each party (an "Indemnifying Party") hereto
agrees to indemnify, defend and hold the other party and its
partners, if any, employees, agents, and officers, if any, harmless
from and against all claims of any broker or finder (other than
Broker) made by, through or under such Indemnifying Party."
8. Paragraph 32 of the Terms and Conditions of the Lease is amended
by inserting the following at the end of said paragraph:
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<PAGE>
"Landlord agrees to instruct the parking garage operator to
provide, and Tenant may lease (either from Landlord or from such
operator) the Tenant's First Amendment Parking Permits in the
Parking Garage of the Building as set forth in the Amendment
Schedule for use by Tenant's employees on the terms set forth in
this Paragraph 32."
9. Paragraph 33 of the Terms and Conditions of the Lease is amended
by inserting the following at the end of said paragraph:
"Tenant represents to Landlord that it is a corporation duly
organized, validly existing and in good standing under the laws of
the District of Columbia, the Tenant is authorized to do business in
the Commonwealth of Virginia, Tenant is authorized to enter into the
First Amendment and perform its obligations thereunder, all action
has been properly taken by the Board of Directors of Tenant to
authorize the execution and performance of the First Amendment and
the First Amendment is a valid agreement and binding and enforceable
against Tenant in accordance with its terms."
10. Paragraph 34 of the Terms and Conditions of the Lease is amended
by inserting the following at the end of said paragraph:
"Landlord represents to Tenant that it is a general
partnership organized and validly existing under the laws of the
Commonwealth of Virginia, Landlord is authorized to enter into the
First Amendment and perform its obligations hereunder, all action
has been properly taken by the partners of Landlord to authorize the
execution and performance of the First Amendment and the First
Amendment is a valid First Amendment and binding and enforceable
against Landlord in accordance with its terms."
11. Paragraph 3 of Exhibit C of the Lease is deleted in its entirety
and Tenant has no further rights related thereto. The following is inserted as
Paragraph 3 of Exhibit C in lieu thereof:
"A. For purposes of the Lease and this First Amendment, the
term "Expansion Space" shall mean approximately 1,091 rentable
square feet of office space contiguous to the Expansion Space,
(currently occupied by Morris/McNair) on the first (lst) floor, as
shown on Exhibit C-I to the First Amendment.
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<PAGE>
"B. Provided (i) Tenant has obtained and delivered to
Landlord prior to the giving of Tenant's Expansion Notice
(hereinafter defined) by Tenant, in form and substance reasonably
satisfactory to Landlord, the prior written consent of all Guaranty
Obligors to Tenant's exercise of its rights, and Tenant's
undertaking of obligations to Landlord, pursuant to this Paragraph 3
of Exhibit C, such consent to also contain a ratification of the
Guaranty by the Guaranty Obligors and a confirmation by the Guaranty
Obligors of the continuation of their liability under the Guaranty
after Tenant has exercised such rights and undertaken such
obligations, (ii) Tenant is the Tenant, or a subsidiary, parent or
Affiliate of the Tenant, originally named herein, (iii) Tenant
actually occupies all of the Leased Premises as demised under the
Lease and all of the First Amendment Space demised under the First
Amendment, and (iv) Tenant is not in default under the terms and
conditions of the Lease as amended by the First Amendment either as
of the date of the giving of "Tenant's Expansion Notice" or the
"Expansion Space Inclusion Date" (as such terms are hereinafter
defined), Tenant shall have the right to include all of the
Expansion Space within the Leased Premises upon the same terms and
conditions as the Lease, subject to the terms and provisions of this
Paragraph 3 of Exhibit C.
"C. On or after the date that is thirty-six (36) full calendar
months following the month in which the Commencement Date of the
Lease occurred, but in no event after the last day of the sixtieth
(60) full calendar month following the month in which the
Commencement Date of the Lease occurred, Landlord shall give Tenant
written notice of the availability of the Expansion Space. Within
ten (10) business days following Tenant's receipt of such notice
from Landlord, Tenant may exercise its right under this Paragraph 3
of Exhibit C hereof only by delivering to Landlord an unconditional
written offer to lease the Expansion Space on the terms provided
herein (hereinafter called "Tenant's Offer Notice"). The Expansion
Space in such Tenant's Offer Notice shall be added to and included
in the Leased Premises, and the payment of rent in connec tion
therewith shall commence on the date (herein called the "Expansion
Space Inclusion Date") that such space shall become available for
Tenant's possession. Time shall be of the essence with respect to
the delivery of Tenant's Offer Notice.
"D. If Tenant timely delivers the Tenant's Offer Notice to
Landlord pursuant to Paragraph 3C above, Tenant shall be irrevocably
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bound to lease the Expansion Space on the terms hereof. If Tenant
does not timely deliver the Tenant's Offer Notice to Landlord
pursuant to Paragraph 3C above, Landlord shall be under no further
obligation under this Paragraph 3 of Exhibit C.
"E. Tenant agrees to accept the Expansion Space in its
condition and the state of repair existing as of the Expansion Space
Inclusion Date except that Landlord shall provide, at Landlord's
cost and expense, two (2) coats of Building Standard wall and trim
paint and new Building Standard carpet throughout the Expansion
Space. Tenant understands and agrees that except as provided by the
preceding sentence, Landlord shall not be required to perform any
work, supply any materials or incur any expense to prepare such
space for Tenant's occupancy. Tenant shall be entitled to no
reserved and only 1 unreserved parking space in the parking garage
for the Building for every 700 rentable square feet in the Expansion
Space leased by Tenant."
"F. Tenant's right to lease the Expansion Space shall be
subject and subordinate in all respects to the existing right of
Xerox Corporation ("Xerox") to lease the Expansion Space pursuant to
the right of first offering contained in the lease between Landlord
and Xerox dated December 1, 1991. In the event Xerox elects to lease
the Expansion Space pursuant to its right of first offering,
Landlord shall offer Tenant alternative expansion space (the "Allied
Expansion Space") consisting of approximately 1,000 square feet of
space located on the tenth (10th) floor of the Building and
currently occupied by Advanced Computer Concepts. Tenant's right to
lease the Allied Expansion Space shall be contingent upon the
occupancy by Allied Signal, Inc. ("Allied") of a portion of the
tenth (10th) floor and shall be subject and subordinate in all
respects to Allied's existing right to lease the Allied Expansion
Space pursuant to the expansion option and continuing right of first
offering in favor of Allied for all tenth floor space as contained
in the lease between Landlord and Allied dated January 21, 1991. In
the event Allied elects to lease the Allied Expansion Space pursuant
to its expansion option or right of first offering or in the event
Allied or its successor in interest shall not then occupy a portion
of the tenth (10th) floor, Landlord shall use its good faith efforts
to locate and offer to Tenant at least 1,000 square feet of space in
a location in the Building to be determined by Landlord in its sole
discretion ("Alternative Expansion Space"). Landlord shall have no
obligation to offer as Alternative Expansion
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<PAGE>
Space any space in the Building that is then occupied by any tenant
or is subject to expansion options, rights of first offering, rights
of first refusal, extension options or similar rights in favor of
other tenants in the Building existing as of the date of the First
Amendment. The terms and conditions of Paragraphs 3B, C, D and E
above shall apply to the lease of the Allied Expansion Space or any
Alternative Expansion Space by Tenant, if any such space is offered
to Tenant and available for lease pursuant to this Paragraph 3F."
12. The following provision is hereby inserted at the end of
Paragraph 20 of Exhibit C to the Lease:
"Prior to the First Amendment Commencement Date, Tenant shall,
by written notice delivered to Landlord, irrevocably designate and
identify by detailed descriptions, including, without limitation,
serial numbers, all Systems Furniture ordered or purchased by Tenant
prior to the First Amendment Commencement Date for its use in the
Leased Premises or the First Amendment Space. All Systems Furniture
for which Tenant has or will seek reimbursement from the First
Amendment Allowance provided by Landlord shall be clearly designated
and separated from any other Systems Furniture in such notice and
shall be deemed Above- Standard Allowance Systems Furniture.
Anything in the Lease to the contrary notwithstanding, the
Above-Standard Allowance Systems Furniture shall remain upon the
Leased Premises or First Amendment Space throughout the term and
shall become Landlord's property upon the expiration or earlier
termination of the Lease, unless Landlord shall elect that Tenant
remove such Above-Standard Allowance Systems Furniture in which case
Tenant shall remove the same upon expiration or earlier termination
of the Lease. If Landlord shall have elected to require the removal
of such Above-Standard Allowance Systems Furniture and Tenant shall
fail to remove the same, all cost and expense incurred by Landlord
in removing, storing or disposing of such Above-Standard Allowance
Systems Furniture shall be paid by Tenant upon demand."
13. MISCELLANEOUS
A. Delivery for Examination. Submission of an unsigned copy of this
First Amendment to Tenant for examination shall not bind Landlord in any manner,
and no lease or obligations of Landlord shall arise until this instrument is
signed by both Landlord and Tenant and delivery is made to each.
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<PAGE>
B. Counterparts. This First Amendment may be executed in multiple
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same document.
C. First Amendment and Lease Contain All Terms. All of the
representations and obligations of Landlord are contained herein and in the
Lease, including the schedules and the Exhibits attached hereto and thereto, and
no modification or further amendment f the Lease or of any of its conditions or
provisions shall be binding upon either party hereto unless in writing signed by
such party or be a duly authorized agent of such party.
D. Incorporation by Reference. The Terms and Conditions of this
First Amendment amend, supplement and modify the Terms and Conditions of the
Lease with respect to Tenant's demise of the First Amendment Space and with
respect to Tenant's expansion rights. All of the Terms and Conditions of the
Lease not specifically amended, supplemented or modified by this First Amendment
shall apply fully to the First Amendment Space and the same are incorporated
herein by this reference. From and after the date hereof, all references to the
Lease herein and in the Lease shall mean the Lease as amended, supplemented and
modified by this First Amendment. Except for the Schedule, First Amendment
Schedule and Paragraphs 1, 2, and 6 of the Lease, Exhibit B to the Lease, and
Paragraphs 3, 4 and 20 of Exhibit C to the Lease, from and after the date
hereof, all references in the Lease to the Leased Premises shall mean the Leased
Premises and the First Amendment Space together. The Lease, as amended,
supplemented and modified by this First Amendment, is in all respects ratified
by Landlord and Tenant.
LANDLORD: TENANT:
WILSON BOULEVARD VENTURE, a RCG/HAGLER, BAILLY, INC., a District
Virginia general partnership of Columbia corporation
By: Bresta Futura VI B.V.,
its managing general By:/s/ Henri-Claude Bailly
partner -----------------------
Henri-Claude Bailly
Chairman of the Board and Chief
Executive Officer
By: Jacques + Kurdziel, Ltd.
as Agent
By: /s/ Donald M. Kurdziel
---------------------
Donald M. Kurdziel
President
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<PAGE>
EXHIBIT A-I
OUTLINE OF FIRST AMENDMENT SPACE
[EDGAR Note: Please see Appendix for description of omitted graphics]
AI-1
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EXHIBIT B-I
FIRST AMENDMENT WORK LETTER
This First Amendment Work Letter governs the design and construction
of the tenant improvements agreed between Landlord and Tenant to be installed in
the First Amendment Space (the "First Amendment Tenant Work ").
1. DESIGN.
A. The plans, specifications and drawings for the First
Amendment Tenant Work (the "First Amendment Final Plans"), prepared by Tenant's
Architect and approved in writing by Tenant and Landlord, sufficient for
governmental approval and construction thereof shall be delivered by Tenant to
Landlord by the First Amendment Plan Date (as defined in the First Amendment
Schedule). The First Amendment Final Plans shall include a construction plan,
reflected ceiling plan, telephone and electrical outlet layout, finish plan,
heating, ventilation and cooling plan and all other architectural, engineering
and other details and information necessary to obtain all required governmental
approvals for, and to thereafter construct, the First Amendment Tenant Work and
shall incorporate the Building Standard ceiling, doors, door frames and door
hardware set forth in Addendum II to Exhibit B of the Lease. Any changes to the
First Amendment Final Plans initially approved in writing by Tenant and Landlord
shall be subject to Landlord's prior written approval, such approval not to be
unreasonably withheld, conditioned or delayed.
B. Tenant may request changes to the First Amendment Final
Plans. All such requests shall be submitted to Landlord in writing. Within three
(3) business days following Landlord's receipt of each such request, Landlord
shall submit to Tenant a proposed change order which shall include an estimate
of the cost, and any anticipated delays, that will be incurred as a result of
the change. Within three (3) business days following Tenant's receipt of any
such proposed change order, Tenant shall deliver to Landlord a written approval
or disapproval of the proposed change order, cost estimate and anticipated
delays.
C. Tenant acknowledges that it is vital that it meet all of
the foregoing deadlines in order to allow Landlord sufficient time to review
plans and drawings and estimate costs, and discuss with Tenant any modifications
Landlord believes to be necessary or desirable, and to cause the First Amendment
Tenant Work to be Substantially Completed by the Projected First Amendment
Commencement Date. Landlord likewise acknowledges that it is vital that Landlord
comply with all of the requirements set forth below.
BI-1
<PAGE>
2. COSTS.
A. Landlord and its contractors and subcontractors shall
perform the First Amendment Tenant Work. Landlord shall obtain bids with such
bids specifying unit prices for all materials, from at least three (3)
contractors selected by Landlord and approved by Tenant, in writing, such
approval not to be unreasonably withheld, conditioned or delayed. Landlord shall
enter into a construction contract for the performance of the First Amendment
Tenant Work with the bidding contractor that, in Landlord's reasonable judgment,
has submitted the most competitive bid, considering pricing, schedule and
quality of previous work. If the contract entered into by Landlord contains a
First Amendment Above-Allowance Cost (as defined below), prior to Landlord's
execution of such contract, Landlord shall submit to Tenant a written estimate
of such First Amendment Above-Allowance Cost. Within seven (7) days following
Tenant's receipt of such submission, Tenant shall pay such First Amendment
Above-Allowance Cost to Landlord and thereafter Landlord shall execute such
contract and cause the First Amendment Tenant work to be constructed as provided
below.
B. All cost of the design and the construction of the First
Amendment Tenant Work in accordance with the First Amendment Final Plans
approved by Landlord and Tenant, as they may be changed from time to time in
accordance herewith shall be paid by Tenant, provided, however, that Landlord
agrees to reimburse Tenant for up to One Hundred Nine Thousand One Hundred
Eighty-Eight Dollars ($109,188.00) (the "First Amendment Allowance") of such
cost. Any balance of the First Amendment Allowance not used for construction of
the First Amendment Tenant Work may be used by Tenant only to pay for the cost
of Tenant's Architect's design and engineering fees and expenses, ordinary and
reasonable moving related expenses, equipment installation (but not equipment
purchase), wiring, cabling, the purchase of Above-Standard Allowance Systems
Furniture (as defined in Exhibit C to the Lease) (which Above-Standard Allowance
Systems Furniture shall be purchased or ordered by Tenant prior to the First
Amendment Commencement Date and used by Tenant, and remain in the First
Amendment Space, during the Term) and abatement of First Amendment Space Annual
Base Rent. Any portion of the First Amendment Allowance applied to abatement of
First Amendment Space Annual Base Rent shall be applied in pro rata monthly
installments during the sixty-first (61st) through the seventy-second (72nd)
full calendar months of the First Amendment Term. Reimbursements from the First
Amendment Allowance shall be made in monthly disbursements made within a
reasonable period of time after the contractor has submitted a disbursement
request with such back-up information as Landlord shall reasonably request.
Tenant may apply no more than $16,176.00 of the First Amendment Allowance
towards abatement of First Amendment Space Annual Base Rent, Tenant's
Architect's design and engineering fees and expenses, ordinary and reasonable
moving related expenses and equipment installation expenses and may apply no
more than $15,000.00 of the First Amendment Allowance toward the purchase of
Above-Standard Allowance Systems Furniture.
C. The term "First Amendment Above-Allowance Cost" shall mean
all costs of the First Amendment Tenant Work in accordance with the First
Amendment Final Plans
BI-2
<PAGE>
approved by Tenant, as they may be changed from time to time in accordance
herewith, in excess of the First Amendment Allowance. After the Punch List Items
related to the First Amendment Space are completed and Tenant has accepted such
completion, Landlord shall make a final determination of the total First
Amendment Above-Allowance Cost and deliver a reconciliation statement to Tenant
whereupon Tenant shall pay Landlord any deficiency due Landlord, or Landlord
shall repay to Tenant any overpayment within ten (10) business days of the
rendering of such statement. In lieu of repaying to Tenant such overpayment,
Landlord, at its option, may authorize Tenant in writing to deduct the amount of
such overpayment from the succeeding Monthly Installments of First Amendment
Space Annual Base Rent coming due under the Lease or the First Amendment.
D. Tenant shall pay all design and engineering fees and
expenses and other costs, including, without limitation, the fees and expenses,
of Tenant's Architect, resulting from any request by Tenant for a change to the
First Amendment Final Plans initially approved by Tenant and Landlord, as they
may have been changed from time to time pursuant hereto. If any change order
requested by Tenant results in any First Amendment Above-Allowance Cost, Tenant
shall pay such additional First Amendment Above-Allowance Cost to Landlord
within ten (10) days following Tenant's approval of such change order, cost
estimate and anticipated delays and Landlord shall have no obligation to
continue construction of the First Amendment Tenant Work until such deposit is
made by Tenant.
E. Landlord has delegated all of its obligations and duties
under this Exhibit B-I to LPC Commercial Services, Inc. ("LPC"). Such duties and
obligations shall be performed by LPC at Landlord's expense. Notwithstanding the
preceding sentence, however, there shall be a $2,000.00 debit by Landlord
against the First Amendment Allowance for such expense. Landlord agrees to be
bound by all actions taken by LPC with regard to the space plan, working
drawings and First Amendment Tenant Work, and hereby ratifies all actions and
decisions with regard to the space plan, working drawings and First Amendment
Tenant Work that LPC may have taken or made prior to the execution of this First
Amendment.
F. All amounts payable by Tenant pursuant to this Exhibit B-I
shall be deemed Rent for purpose of the Lease and shall be subject to the late
fees and other remedies of Landlord set forth in the Lease.
3. COMPLETION.
A. Landlord, at its sole expense, shall cause the construction
of the Base Construction (as defined in Exhibit B to the Lease) in the First
Amendment Space in a manner that is reasonably satisfactory to Tenant, prior to
the commencement of the First Amendment Tenant Work.
BI-3
<PAGE>
B. The taking of possession of the First Amendment Space (or
any particular part thereof) by Tenant shall constitute an acknowledgment by
Tenant that the First Amendment Space (or such part) are in good condition and
that all work and materials provided by Landlord are satisfactory, except as to
any Latent Defects and uncompleted Punch List Items related to the First
Amendment Space.
BI-4
<PAGE>
EXHIBIT C-I
OUTLINE OF ADDITIONAL EXPANSION SPACE
[EDGAR Note: Please see Appendix for description of omitted graphics]
<PAGE>
EXHIBIT D-I
CONSENT OF GUARANTORS AND RATIFICATION OF
GUARANTY OF MONETARY OBLIGATIONS
This CONSENT OF GUARANTORS AND RATIFICATION OF GUARANTY OF MONETARY
OBLIGATIONS (this "Consent and Ratification") is given by RCG INTERNATIONAL,
INC., a Delaware corporation (hereinafter referred to as "Guarantor"), to WILSON
BOULEVARD VENTURE, a Virginia general partnership (hereinafter referred to as
"Landlord").
In order to induce Landlord to demise to RCG/Hagler, Bailly, Inc., a
District of Columbia corporation ("Tenant"), certain premises (the "Leased
Premises") described in and pursuant to a certain Office Lease (the 'Lease')
dated as of October 25, 1991, Guarantor executed and delivered to and for the
benefit of Landlord, its Guaranty of Monetary Obligations (the "Guaranty") dated
as of even date with the Lease, under which Guarantor absolutely, irrevocably
and unconditionally guaranteed to Landlord and its successors and assigns (the
"Owner") the full, prompt and complete payment by Tenant of the Rent (as defined
in the Lease) and all other sums (such Rent and other sums are hereafter
collectively referred to as the "Monetary Obligations") which are payable by
Tenant to Owner under or in connection with the Lease.
Landlord and Tenant have proposed a certain First Amendment to Lease
(the "First Amendment") demising to Tenant certain additional space (the "First
Amendment Space") on the terms and conditions and for the Rent and other
Monetary Obligations more particularly described therein. In order to induce
Landlord to execute such First Amendment, Guarantor has agreed to extend the
Guaranty to the Rent and other Monetary Obligations of Tenant under the First
Amendment.
Guarantor acknowledges receipt of a full, complete and correct copy
of the First Amendment. Guarantor hereby consents to the execution of the First
Amendment by Tenant and to the addition of the First Amendment Space to the
Leased Premises, on the terms and conditions and for the Rent and other Monetary
Obligations set forth in the First Amendment and the Lease and agrees that
Guarantor's absolute, unconditional and irrevocable Guaranty of all Monetary
Obligations of Tenant pursuant to the Guaranty shall extend to the Monetary
Obligations of Tenant as set forth in the First Amendment as if the First
Amendment Space were included in the Leased Premises as of the date of the
Guaranty. All references in the Guaranty to the Lease shall mean from and after
the date hereof, the Lease as amended by the First Amendment. The Guaranty, as
modified by this Consent and Ratification, is hereby ratified and confirmed in
all respects.
<PAGE>
EXECUTED as of the 17 February, 1993.
RCG INTERNATIONAL, INC., a
Delaware corporation
By: /s/ Joseph P. Lucas
--------------------
Name: Joseph P. Lucas
---------------------
Title: SVP
---------------------
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<PAGE>
SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the ____ day of
February, 1993, by and among VIB, N.V., a Netherlands corporation (the
"Mortgagee"); RCG/HAGLER, BAILLY, INC., a District of Columbia corporation (the
"Lessee"); and WILSON BOULEVARD VENTURE, a Virginia general partnership (the
"Lessor").
W I T N E S S E T H:
WHEREAS, Mortgagee has made a loan (the "Loan") to Lessor for the
purpose of acquiring approximately one (1) acre of land in Arlington County,
Virginia described in Exhibit A attached hereto and incorporated herein by
reference (the "Land") and developing, constructing and financing the ownership
of an office building containing approximately 167,511 rentable square feet on
the Land; and
WHEREAS, the Loan is evidenced by a promissory note ("Note") in the
principal sum of THIRTY-THREE MILLION ONE HUNDRED THOUSAND AND NO/100 DOLLARS
($33,100,000.00), which is secured by a first priority deed of trust (the
"Mortgage") constituting a lien and an encumbrance on the Land and improvements,
located or to be constructed thereon (hereafter collectively referred to as the
"Property"); and
WHEREAS, Lessee is the lessee of certain premises in the Property
(the "Original Leased Premises ") pursuant to the terms of that certain office
lease (the "Original Lease") dated as of October 25, 1991; and
WHEREAS, Lessor and Lessee have executed a certain first amendment
to office lease dated as of even date herewith (the "First Amendment") pursuant
to which Lessee leased certain additional space (the "First Amendment Space") in
the Property (the Original Lease as amended by the First Amendment is
hereinafter referred to as the "Lease" and the Original Leased Premises together
with the First Amendment Space and any other space added thereto pursuant to a
validly exercised option to expand are collectively hereinafter referred to as
the "Leased Premises"); and
WHEREAS, Lessee, Mortgagee and Lessor desire to confirm their
understandings with respect to the Lease and the Mortgage.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, the parties hereto agree and covenant
as follows:
1. Subordination. Subject to the terms of this Agreement, the Lease
and all rights of Lessee thereunder are hereby made, and shall at all times
continue to be, subject and subordinate in each and every respect to the
Mortgage and all other instruments of security for the
<PAGE>
Loan which do now or may hereafter cover the Property or any interest of Lessor
therein, and to any and all advances made on the security thereof and to any and
all increases, renewals, modifications, extensions and/or consolidations thereof
(collectively called the "Prior Encumbrances"). This provision is acknowledged
by Lessee to be self-operative and no further instrument shall be required to
effect such subordination of the Lease. Lessee shall, however, within ten (10)
days of written demand at any time or times execute, acknowledge and deliver to
Mortgagee any and all instruments and certificates that in Mortgagee's
reasonable judgment may be necessary or proper to confirm or evidence such
subordination. However, notwithstanding the generality of the foregoing
provisions of this paragraph, Lessee agrees that, upon written notice to Lessee,
Mortgagee shall have the right at any time to subordinate any such Prior
Encumbrances to the Lease on such terms and subject to such conditions as such
Mortgagee may deem appropriate in its discretion. Upon Mortgagee giving Lessee
the written notice referred to in the preceding sentence, the subordination of
such Prior Encumbrances to the Lease shall be self-operative and no further
instrument shall be required to effectuate such subordination of such Prior
Encumbrances to the Lease. The Lessee shall, however, within ten (10) days of
written demand, at any time or times, execute, acknowledge and deliver to
Mortgagee any and all instruments and certificates that in Mortgagee's
reasonable judgment may be necessary or proper to confirm or further evidence
such subordination.
This Agreement shall not be deemed or construed as limiting or
restricting the enforcement by Mortgagee of any of the terms, covenants,
provisions or remedies of any of the Prior Encumbrances, including, without
limitation, the Mortgage, whether or not consistent with the Lease; provided,
however, that the subordination of the Lease in this Paragraph 1 shall not
affect in any manner any rights of Lessee under this Agreement.
2. Non-Disturbance. Notwithstanding anything herein to the contrary,
Mortgagee agrees (a) that it will not terminate the Lease nor in any way disturb
the quiet enjoyment of Lessee (to the extent such quiet enjoyment is provided
under the Lease) upon any foreclosure of any of the Prior Encumbrances,
including, without limitation, the Mortgage or upon acquiring title to the
Property by deed-in-lieu of foreclosure (or otherwise), if the Lease is in full
force and effect and Lessee is not then in default under the Lease, (b) that
Mortgagee will accept the attornment of Lessee thereafter so long as Lessee is
not in default under the Lease, (c) that Mortgagee, so long as Lessee is not in
default under the Lease, will abide by the terms of the Lease, including, but
not limited to, honoring any renewal and expansion rights set forth in the
Lease, and (d) that the protections afforded by this agreement will extend to
any additional space added to the Leased Premises pursuant to any validly
exercised option to expand.
3. Attornment. Subject to the provisions of Paragraph 2 herein, if
the interests of Lessor in and to the Leased Premises are owned by Mortgagee by
reason of any deed-in-lieu of foreclosure, foreclosure or other proceedings
brought by it or by any other manner, including (but not limited to) Mortgagee's
exercise of its rights under any security interest covering, or any assignment
of, leases and rents, and Mortgagee succeeds to the interest of Lessor under the
Lease, Lessee shall be bound to Mortgagee under all of the terms, covenants and
conditions of the Lease
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<PAGE>
for the balance of the term thereof remaining and any extension or renewal
thereof duly exercised by Lessee with the same force and effect as if Mortgagee
were the Lessor under the Lease, provided, however, Mortgagee abides by all of
the terms of the Lease, including Tenant's right to quiet enjoyment (to the
extent such quiet enjoyment is provided under the Lease) ; and Lessee does
hereby attorn to Mortgagee, as its lessor, said attornment to be effective and
self-operative, without the execution of any further instruments on the part of
any of the parties hereto, immediately upon Mortgagee's succeeding to the
interest of Lessor under the Lease; provided, however, that Lessee shall be
under no obligation to pay rent to Mortgagee until Lessee receives written
notice from Mortgagee that Mortgagee has succeeded to the interest of the Lessor
under the Lease or otherwise has the right to receive such rents. In the event
Lessor receives written notice from Mortgagee that Mortgagee has succeeded to
the interest of the Lessor under the Lease or otherwise has the right to receive
such rents, Lessor hereby consents to the payment of such rents to Mortgagee
thereafter and releases Lessee from any liability to Lessor for any such rents
so paid to Mortgagee, and Mortgagee agrees to indemnify, defend and hold Lessee
harmless from any claim, including, without limitation, all reasonable expenses
incurred by Tenant in connection therewith, asserted by Lessor for any such
rents so paid to Mortgagee. The respective rights and obligations of Lessee and
Mortgagee upon such attornment, to the extent of the then remaining balance of
the term of the Lease and any such extension or renewal, shall be and are the
same as now set forth therein, it being the intention of the parties hereto for
this purpose to incorporate the Lease in this Agreement by reference, with the
same force and effect as if set forth at length herein.
4. Mortgagee's Obligations. Notwithstanding anything in this
Agreement to the contrary, if Mortgagee shall succeed to the interest of Lessor
under the Lease, then Mortgagee shall be bound (subject to the last paragraph of
this Paragraph 4) to Lessee under all of the terms, covenants and conditions of
the Lease and; provided, however, that Mortgagee shall not be:
A. Liable for any act or omission of any prior lessor
(including Lessor); or
B. Subject to the defenses which Lessee might have against any
prior lessor (including Lessor) to the extent that Mortgagee does
not assert against Lessee a claim of any such prior lessor to which
any such defense applies; or
C. Bound by any rent or additional rent or advance rent which
Lessee might have paid for more than the then current month to any
prior lessor (including Lessor) , and all such rent shall remain due
and owing, notwithstanding such advance payment; or
D. Bound by any security or advance rental deposit made by
Lessee which is not delivered or paid over to Mortgagee and with
respect to which Lessee shall look solely to Lessor for refund or
reimbursement; or
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<PAGE>
E. Bound by any amendment or modification of the Lease made
without its consent and written approval.
Neither VIB, N.V., nor any other party who from time to time shall
be included in the definition of Mortgagee hereunder, shall have any liability
or responsibility under or pursuant to the terms of this Agreement after it
ceases to own an interest in or to the Property; provided such Mortgagee advises
any successor in interest in writing of the existence of the Lease prior to any
sale, assignment or other transfer of Mortgagee's ownership in the Property.
Nothing in this Agreement shall be construed to require Mortgagee to see to the
application of the proceeds of the Loan, and Lessee's agreements set forth
herein shall not be impaired on account of any modification of the documents
evidencing and securing the Loan. Lessee acknowledges that Mortgagee is
obligated only to Lessor to make the Loan only upon the terms and subject to the
conditions set forth in the Loan Agreement between Mortgagee and Lessor
pertaining to the Loan. Lessee further acknowledges and agrees that neither
Mortgagee nor any purchaser of the Property at foreclosure sale or any grantee
of the Property named in a deed-in-lieu of foreclosure, nor any heir, legal
representative, successor, or assignee of Mortgagee or any such purchaser or
grantee, has or shall have any personal liability for the obligations of Lessor
under the Lease; provided, however, that the Lessee may exercise any other right
or remedy provided thereby or by law in the event of any failure by Lessor to
perform any such material obligation.
5. New Lease. Within fifteen (15) days of the written request of
either Mortgagee or Lessee to the other given at the time of any foreclosure or
conveyance in lieu thereof, the parties agree to execute a lease of the Leased
Premises which shall be identical in all respects to the Lease, except as the
Lease may be amended in accordance with this Agreement, which lease shall cover
any unexpired term of the Lease existing prior to such foreclosure or conveyance
in lieu of foreclosure.
6. Notice. Lessee agrees to give written notice to Mortgagee of any
default by Lessor under the Lease at the time Lessee gives notice to Lessor
pursuant to the terms of the Lease. Lessee further agrees that it shall not
terminate the Lease or exercise any right or remedy under the Lease or provided
by law if any default by Lessor under the Lease is cured within thirty (30) days
after Lessee gives Mortgagee notice of such default; provided, however, that if
such default cannot by its nature be cured within thirty (30) days, then Lessee
shall not terminate the Lease or exercise any such right or remedy, provided the
curing of such default is commenced within such thirty (30) days and is
diligently prosecuted thereafter (including, but not limited to, commencement of
foreclosure proceedings if necessary to effect such cure). Such notices shall be
personally delivered or delivered by registered or certified mail, return
receipt requested, to Mortgagee at the following address (or at such address as
Mortgagee may designate by written notice to Lessee):
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<PAGE>
VIB, N.V.
c/o Spitzer & Feldman, P.C.
405 Park Avenue
6th Floor
New York, New York 10022
Attention: Edwin Weinberg, Esq.
7. Mortgagee. The term "Mortgagee" shall be deemed to include VIB,
N.V. and any of its successors and assigns, including anyone who shall have
succeeded to Lessor's interest in and to the Lease and the Property by, through
or under foreclosure or other proceedings brought pursuant to the Mortgage, or
deed-in-lieu of such foreclosure or proceedings, or otherwise.
8. Modification and Successors. This Agreement may not be modified
orally or in any manner other than by an agreement, in writing, signed by the
parties hereto and their respective successors in interest. This Agreement shall
inure to the benefit of and be binding upon the parties hereto, their successors
and assigns.
9. Other Documents. Lessee agrees to execute from time to time such
estoppel certificates, ratification agreements and subordination and attornment
agreements as may be reasonably required by Mortgagee and/or any other lender
within ten (10) days of written request.
10. Counterparts. This Agreement may be executed in several
counterparts, and all so executed shall constitute one agreement, binding on all
parties hereto, notwithstanding that all parties are not signatories to the
original or the same counterpart.
11. Payments. Lessee agrees that except for rental payments to be
made to Lessor as provided in the Lease (subject, however, to Paragraph 3
hereof), any other payments made to Lessor in connection with the Leased
Premises, including (without limitation) any amounts payable or reimbursable to
Lessor for "First Amendment Tenant Work" or any other services not described in
the Lease, shall be made in the form of joint payee checks naming both Lessor
and Mortgagee as payees.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
MORTGAGEE:
VIB, N.V.,
a Netherlands corporation
/s/ Edwin Weinberg
By:----------------------------------------
Edwin Weinberg
Its Duly Authorized Agent and
Attorney-in-Fact
LESSEE:
RCG/HAGLER, BAILLY, INC., a
District of Columbia corporation
/s/ Henri-Claude Bailly
By:----------------------------------------
Henri-Claude Bailly
Chairman of the Board and Chief
Executive Officer
LESSOR:
WILSON BOULEVARD VENTURE,
a Virginia general partnership
By: Bresta Futura VI B.V.,
its managing general partner
By: Jacques + Kurdziel, Ltd.
as Agent
/s/ Donald M. Kurdziel
By:----------------------------------------
Donald M. Kurdziel
President
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<PAGE>
STATE OF NEW YORK ss.
ss.
COUNTY OF NEW YORK ss.
This instrument was acknowledged before me this 12th day of March,
1993, by Edwin Weinberg, a duly authorized Agent and Attorney-in-Fact of VIB,
N.V., a Netherlands corporation, on behalf of said corporation.
( S E A L ) /s/ Rona Ingegneri
----------------------------
Notary Public in and for
the State of New York
My Commission Expires: Printed Name of Notary:
______________________________ Rona Ingegneri
----------------------------
Rona Ingegneri
Notary Public, State of New York
No. 41-7036225
Qualified in Queens County
Commission Expires September 30, 1994
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<PAGE>
DISTRICT OF COLUMBIA ss.
This instrument was acknowledged before me this 19th day of
February, 1993, by Henri-Claude Bailly, Chairman of the Board and Chief
Executive Officer of RCG/HAGLER, BAILLY, INC., a District of Columbia
corporation, on behalf of said corporation.
( S E A L ) /s/ Linda E. Rose
---------------------------------
Notary Public in and for
the State of Virginia, Arlington County
My Commission Expires: Printed Name of Notary:
My Commission Expires
September 30, 1995
______________________________ Linda E. Rose
---------------------------------
STATE OF NEW YORK ss.
ss.
COUNTY OF NEW YORK ss.
This instrument was acknowledged before me on this 12th day of
March, 1993, by Donald M. Kurdziel, President of Jacques & Kurdziel, Ltd., Agent
for Bresta Futura VI B.V., Managing General Partner of WILSON BOULEVARD VENTURE,
a Virginia general partnership, on behalf of said partnership.
( S E A L ) /s/ Rona Ingegneri
---------------------------------
Notary Public in and for
the State of Texas
My Commission Expires: Printed Name of Notary:
______________________________ Rona Ingegneri
---------------------------------
RONA INGEGNERI
Notary Public, State of New York
No. 41-7036225
Qualified in Queens County
Commission Expires September 30, 1994
-8-
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF LAND
Being the land acquired by Wilson Boulevard Venture and recorded in Deed Book
2376 at Pages 1156 and 1158 and being shown on a plat as Parcels A & B, LPC
Rosslyn and recorded in Deed Book 2412 at Page 779 all among the Land Records of
Arlington County, Virginia and being more particularly described as follows:
Beginning at a point on the southerly right-of-way line of Wilson Boulevard
(variable width) said point being the northeasterly corner of 1550 Wilson
Boulevard Limited Partnership (Deed Book 2054 Page 708), thence running with
said Wilson Boulevard the following three (3) courses and distances:
1. North 82(0) 30' 00" East 100.14 feet to a point, thence
2. 34.46 feet along the arc of a curve deflecting to the right having a
radius of 337.55 feet and a chord bearing North 85(0) 25' 30" East 34.45
feet to a point, thence
3. North 88(0) 21' 00" East 66.52 feet to a point being the northwesterly
corner of Rosslyn A-M Associates (Deed Book 1948 Page 181), thence running
with their westerly line
4. South 10(0) 29' 00", East 252.87 feet to a point on the northerly
right-of-way line of Clarendon Boulevard (60' wide), thence running with
said Clarendon Boulevard
5. South 79(0) 31' 00" West 200.00 feet to a point being the southeasterly
corner of New Orleans Marriott Hotel Venture Limited Partnership (Deed
Book 2377 Page 1196), thence running with their easterly line and
continuing with the easterly line of aforementioned 1550 Wilson Boulevard
Limited Partnership
6. North 10(0) 29' 00" West 271.84 feet to the point of beginning contained
52,967 square feet or 1.21595 acres of land.
<PAGE>
EDGAR APPENDIX
Exhibit A-1:Floorplan of first floor of 1530 Wilson Boulevard, shading 2696
square feet of rentable space.
Exhibit C-1:Floorplan of first floor of 1530 Wison Boulevard, shading 1091
square feet of rentable space.
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE ("Second Amendment") is entered into
as of December 12, 1994, by and between BRESTA FUTURA V B.V. ("Landlord") and
RCG/HAGLER, BAILLY, INC. ("Tenant").
W I T N E S S E T H:
WHEREAS, Wilson Boulevard Venture (Landlord's
predecessor-in-interest) and Tenant entered into that certain Office Lease,
dated October 25, 1991 ("Original Lease") covering certain premises ("Original
Premises") on the ninth (9th) floor of the building ("Building") located at 1530
Wilson Boulevard, Arlington, Virginia; and
WHEREAS, Wilson Boulevard Venture and Tenant entered into that
certain First Amendment to Office Lease, dated February _, 1993 ("First
Amendment"; the Original Lease and the First Amendment are hereinafter
collectively referred to as the "Lease") pursuant to which Tenant leased certain
additional premises located on the first (lst) floor of the Building ("First
Floor Premises", the Original Premises and the First Floor Premises are
hereinafter collectively referred to as the "Existing Premises");
WHEREAS, Tenant desires to lease from Landlord and Landlord desires
to lease to Tenant an additional 12,975 square feet of rentable floor area on
the tenth (10th) floor of the Building more particularly shown on Exhibit A
attached hereto and made a part hereof (the "New Premises"); and
WHEREAS, Landlord and Tenant desire to amend the terms and
conditions of the Lease to add the New Premises to the Existing Premises (the
Existing Premises and the New
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Premises are hereinafter collectively referred to as the "Leased Premises") for
the remainder of the Term as extended by this Second Amendment.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. Tenant hereby leases from Landlord, and Landlord hereby leases to
Tenant, the New Premises, subject to the terms and conditions of the Lease, as
modified hereby.
2. The commencement date for the New Premises (the "New Premises
Commencement Date") shall be the date hereof. Tenant acknowledges that
possession of the New Premises has been delivered to Tenant on the date hereof.
Tenant agrees that (a) Tenant shall accept possession of the New Premises "as
is" as of the New Premises Commencement Date and (b) Landlord shall have no
obligation to make any improvements or alterations to the New Premises or to
make any payments or contributions to Tenant in respect of any improvements or
alterations made to the New Premises. Landlord represents that, to its best
knowledge, the New Premises does not contain any asbestos containing material
(as such term is defined by applicable Federal law) . In the event any asbestos
containing material was located in the New Premises as of the date hereof,
Landlord shall be responsible, at its sole cost and expense, for promptly
remedying same in compliance with all applicable laws.
3. Leased Premises. Effective as of the New Premises Commencement
Date, Section 1 of the Schedule to the Original Lease entitled "Leased
Premises", shall be amended by adding the New Premises thereto. Effective as of
the New Premises Commencement Date, all
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provisions in the Lease applicable to the Existing Premises shall also be
applicable to the New Premises.
Effective as of April 1, 1995, the provisions of the Lease with
respect to the First Floor Premises shall be deemed terminated and of no further
force and effect, except for any obligations relating to the First Floor
Premises that survive the termination of the Lease with respect to the First
Floor Premises. If, pursuant to the following paragraph, Tenant shall not have
previously vacated the First Floor Premises, then Tenant shall vacate the First
Floor Premises on or before April 1, 1995.
At any time prior to April 1, 1995, upon ten (10) days' prior
written notice from Landlord to Tenant ("Early Vacate Notice") , Tenant shall
vacate and surrender possession of the First Floor Premises to Landlord.
Landlord may only give the Early Vacate Notice to Tenant if Landlord requires
possession of the First Floor Premises in connection with a lease or a proposed
lease of the First Floor Premises (or a portion thereof) to a bona fide tenant
which requires Landlord to either (a) deliver possession of the First Floor
Premises (or a portion thereof) to such bona fide tenant prior to April 1, 1995
or (b) requires Landlord to commence performance of tenant improvement work to
the First Floor Premises (or a portion thereof) prior to April 1, 1995. Tenant
shall remain liable for the payment of all Annual Base Rent and all Additional
Rent owing under the Lease with respect to the First Floor Premises through
March 31, 1995, notwithstanding the fact that Tenant shall have vacated and
surrendered possession of the First Floor Premises to Landlord prior to March
31, 1995.
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4. Annual Base Rent.
Section 4 of the Schedule to the original Lease, entitled
"Annual Base Rent" which relates to the original Premises, shall be amended by
adding thereto the Annual Base Rent for the New Premises which is as follows:
(i) for the period beginning on January 1, 1995 and ending on
December 31, 1995, the sum of Three Hundred Twenty Four Thousand Three Hundred
Seventy Five and No/100 ($324,375.00) Dollars per annum;
(ii) for the period beginning on January 1, 1996 and ending
on December 31, 1996, the sum of Three Hundred Thirty Thousand Eight Hundred
Sixty Three and No/100 ($330,863.00) Dollars per annum;
(iii) for the period beginning on January 1, 1997 and ending
on December 31, 1997, the sum of Three Hundred Thirty Seven Thousand Four
Hundred Eighty and No/100 ($337,480.00) Dollars per annum;
(iv) for the period beginning on January 1, 1998 and ending on
December 31, 1998, the sum of Three Hundred Forty Four Thousand Two Hundred
Thirty and No/100 ($344,230.00) Dollars per annum;
(v) for the period beginning on January 1, 1999 and ending on
December 31, 1999, the sum of Three Hundred Fifty One Thousand One Hundred
Fifteen and No/100 ($351,115.00) Dollars per annum;
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(vi) for the period beginning on January 1, 2000 and ending
on December 31, 2000, the sum of Three Hundred Fifty Eight Thousand One Hundred
Thirty Seven and No/100 ($358,137.00) Dollars per annum;
(vii) for the period beginning on January 1, 2001 and ending
on December 31, 2001, the sum of Three Hundred Sixty Five Thousand Three Hundred
and No/100 ($365,300.00) Dollars per annum;
(viii) for the period beginning on January 1, 2002 and ending
on December 31, 2002, the sum of Three Hundred Seventy Two Thousand Six Hundred
Six and No/100 ($372,606.00) Dollars per annum;
(ix) for the period beginning on January 1, 2003 and ending on
December 31, 2003, the sum of Three Hundred Eighty Thousand Fifty Eight
($380,058.00) Dollars per annum; and
(x) for the period beginning on January 1, 2004 and ending on
December 31, 2004, the sum of Three Hundred Eighty Seven Thousand Six Hundred
Fifty Nine and No/100 ($387,659.00) Dollars per annum. Tenant shall not be
obligated to pay Annual Base Rent with respect to the New Premises for the
period beginning on the New Premises Commencement Date and ending on December
31, 1994. From and after January 1, 1995, "Monthly Installments of Annual Base
Rent" set forth in Section 5 of the Schedule to the Original Lease shall be
based upon the Annual Base Rent for both the original Premises and the New
Premises. Concurrently with the execution and delivery of this Second Amendment,
Tenant shall pay to Landlord the sum of Twenty-Seven Thousand Thirty-One
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and xx/100 ($27,031.25) Dollars representing the Monthly Installment of Annual
Base Rent owing for January, 1995.
5. Adjustment of Rent. Effective as of January 1, 1995 (a) the
provisions of Section 4 of the original Lease (Additional Rent) shall apply to
the New Premises except that for purposes of computing Tenant's payment
obligation with respect to the New Premises (a) all references in Section 4B to
"Leased Premises" shall be deemed to be the "New Premises", (b) "Tenant's Share"
shall be deemed to be seven and seventy-five one hundredths (07.75%) percent,
(c) "Lease Year" shall mean each calendar year and (d) "Operating Stop" shall
mean the product that results from multiplying (y) the total amount of Operating
Expenses of the Property during the 1995 calendar year as adjusted to provide
for, among other things, a ninety-five (95%) percent occupied and fully assessed
and completed Building and Property by (z) Tenant's Share with respect to the
New Premises (i.e., 7.75%). Notwithstanding anything herein to the contrary,
Tenant shall not be obligated to pay any Expense Adjustment Amount in respect of
the New Premises for the period beginning on the New Premises Commencement Date
and ending on December 31, 1995.
6. Term. Section 2 of the Schedule to the original Lease (Term) is
modified to read as follows: The period beginning on January 11, 1992 and ending
on December 31, 2004.
7. Parking. From and after the New Premises Commencement Date and
thereafter for so long as the New Premises shall be part of the Leased Premises,
in Paragraph 12 of the Schedule to the Original Lease the number "24" shall be
changed to the number "47" and the number "18" shall be changed to the number
"41".
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8. Expansion Option. Tenant hereby acknowledges and agrees that
Tenant's expansion right set forth in Paragraph 11 of the First Amendment is
hereby terminated and of no force and effect.
9. Right of First Offer.
(a) If at any time during the initial Term of this Lease or
the First Extension Term the Landlord desires to lease all or any portion of the
space on the tenth (10th) floor of the Building shown on Exhibit B annexed
hereto and made a part hereof ("Offer Space"), then Landlord, before Landlord
may enter into a lease with any potential tenant for such space, shall offer to
Tenant the right to include the Offer Space within the Leased Premises upon all
of the terms and conditions of this Lease, except as provided for in this
Paragraph 9. Tenant's right to lease the Offer Space is subject to the following
conditions: (i) at the time Tenant delivers Tenant's Acceptance Notice (as
hereinafter defined), not more than fifty (50%) percent of the rentable space of
the Leased Premises shall have been subleased to Persons which are not
Affiliates of Tenant, or (ii) at the time Tenant delivers Tenant's Acceptance
Notice or at the time of the Offer Space Commencement Date (as hereinafter
defined), an Event of Default shall not have occurred and be continuing. Any
termination, cancellation or surrender of Tenant's interest in this Lease prior
to the date on which Tenant delivers Tenant's Acceptance Notice or prior to the
Offer Space Commencement Date shall automatically terminate Tenant's right to
lease the Offer Space. The provisions of this Paragraph 9 shall not apply during
the Second Extension Term. In addition, the provisions of this Paragraph shall
not apply during (i) the last two (2) years of the initial Term of the Lease
unless Tenant shall have exercised the option set forth in Section I of Exhibit
C to the Original Lease to extend the initial
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Term of the Lease for the First Extension Term and (ii) the last two (2) years
of the First Extension Term unless Tenant shall have exercised the option set
forth in Section 2 of Exhibit C to the Original Lease to extend the Term for the
Second Extension Term.
(b) In the event Landlord desires to lease the Offer Space and
is obligated under Paragraph 9(a) above to offer same to Tenant, Landlord shall
deliver a written offer to Tenant (hereinafter "Offer Notice"), which shall
provide the following information: (i) the annual base rent for the Offer Space
including any free rent and/or rent concessions, (ii) any workletter being
offered, the economic value of such workletter and the minimum lease term on
which such workletter is based, (iii) the location of and the number of rentable
square feet of space comprising the Offer Space, and (iv) the estimated date on
which Landlord will deliver possession of the Offer Space to Tenant.
(c) Tenant shall have the right to accept the offer set forth
in a Offer Notice by delivering to Landlord an unconditional and irrevocable
written acceptance thereof (hereinafter called "Tenant's Acceptance Notice")
within ten (10) business days after Tenant's receipt of the Offer Notice. If
Tenant does not timely deliver the Tenant's Acceptance Notice to Landlord within
said ten (10) business day period, or if Tenant timely gives written notice of
its intention to decline to exercise the right to lease any Offer Space,
Landlord shall be free to lease the Offer Space to a tenant on terms which are
not more favorable to a tenant than the terms set forth in the Offer Notice. In
the event Landlord desires to lease the Offer Space on terms which are more
favorable than those set forth in the Offer Notice, Landlord agrees to reoffer
the Offer Space to Tenant; provided, however, that no changes in the terms of
the Offer Notice shall be deemed more favorable
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to a tenant unless such changes decrease the net effective rental rate, taking
into account the annual rental rate, any free rent and/or rent concessions and
Landlord's workletter, by more than five (5%) percent.
(d) Tenant's timely delivery of Tenant's Acceptance Notice
shall be deemed an irrevocable and unconditional agreement by Tenant to lease
the Offer Space on the terms and conditions set forth in this Paragraph 9.
Landlord shall deliver possession of the Offer Space, at Tenant's option, either
(i) "AS IS" as of the date on which Landlord shall deliver possession of the
Offer Space to Tenant or (ii) in a condition reflecting improvements made by
Landlord pursuant to a work letter ("Offer Space Delivery Date"). In the event
Tenant elects to have Landlord perform work letter improvements to the Offer
Space, Landlord's work letter obligations shall be limited to the work letter
set forth in the Offer Notice subject to adjustment based on the relationship
that the minimum lease term assumed in Offer Notice bears to the remaining Term
of' the Lease (as amended hereby) excluding any extensions which have not been
exercised by Tenant ("Adjusted Workletter"). The Adjusted Workletter shall
result in a net effective annual base rent on a rentable square foot basis for
the Offer Space that equals the net effective annual base rent on a rentable
square foot basis for the Offer Space set f orth in the Offer Notice using a
nine percent (9%) per annum discount rate for the foregoing calculations.
Landlord shall give Tenant at least thirty (30) days prior written notice of the
estimated Offer Space Delivery Date, which estimate may be revised from time to
time as appropriate, provided that after any such revision Tenant shall receive
at least thirty (30) days prior written notice of the Offer Space Delivery Date.
The "Offer Space Commencement Date" shall be the Offer Space Delivery Date.
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(e) If Landlord will be unable to deliver the Offer Space to
Tenant on the estimated Offer Space Delivery Date due to the holding over or
retention of possession of a tenant or subtenant of such space or due to other
reasons beyond Landlord's reasonable control, the estimated Offer Space Delivery
Date shall be extended by such period of time that Landlord was so delayed. In
such event, Landlord shall not be subject to any liability for its failure to
give possession of such space to Tenant, and the validity of this Lease shall
not be impaired thereby and Tenant shall take possession of the Offer Space when
such space can be delivered to Tenant.
(f) The following terms and conditions shall apply to the
Offer Space:
(i) Except as provided in the following sentence, the
Annual Base Rent with respect to the Offer Space
shall be the annual base rent set forth in the
Offer Notice. In the event that Tenant elects to
accept the Offer Space "AS IS" rather than
accepting the Adjusted Workletter, the annual base
rent set forth in the Offer Notice shall be
adjusted downward to a net effective rent on a
rentable square foot basis that equals the net
effective rent set forth in the Offer Notice using
a discount rate of nine (9%) percent per annum.
(ii) For purposes of calculating Additional Rent
applicable to the Offer Space, "Tenant's Share"
with respect to the Offer Space shall be a
fraction, the numerator of which is the number of
rentable square feet of space in the Offer Space
and the denominator of which is 167,511. The term
"Operating Stop" shall mean the product that
results from multiplying (a) the total amount of
Operating Expenses of the Property for the
calendar year in which the Offer Space
Commencement Date shall occur, as adjusted to
provide for, among other things, a ninety-five
(95%) percent occupied and fully assessed and
completed Building and Property by (b) the
Tenant's Share with respect to the Offer Space.
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(g) Promptly following the Offer Space Commencement Date and
the determination of the Annual Base Rent to be paid by Tenant for the Offer
Space, Landlord and Tenant shall enter into a supplementary agreement expressly
confirming (i) the increase in the number of rentable square feet in the Leased
Premises, (ii) the increase in the Annual Base Rent payable under the Lease,
(iii) Tenant's Share and the Base Year applicable to the Offer Space for
purposes of computing Additional Rent and (iv) the Offer Space Commencement
Date.
(h) The Annual Base Rent and Additional Rent (except as set
forth in subsection F(ii) above) for the Offer Space shall be payable by Tenant
to Landlord commencing on the Offer Space Commencement Date. Commencing as of
the Offer Space Delivery Date, all of the terms, covenants and conditions of the
Lease, as amended by this Second Amendment, shall thereafter be effective and
applicable in all respects to the Offer Space, except as specifically provided
otherwise in this Paragraph 9.
(i) Tenant must lease all Offer Space offered by Landlord at
any one time if it desires to lease any of such space.
(j) Time shall be of the essence with respect to all dates and
time periods set forth in this Paragraph 9.
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10. Lease Takeover.
(a) Reference is made to that certain Lease dated in 1993 but
containing no day and month (hereinafter referred to as the "1525 Lease") by and
between Tenant, as tenant, and John Hancock Mutual Life Insurance Company (the
"1525 Landlord") as landlord. The 1525 Lease covers approximately 4,393 rentable
square feet of space on the seventh (7th) floor ("1525 Premises") in the
building located at 1525 Wilson Boulevard, Rosslyn, Virginia. Tenant represents
to Landlord that it has given Landlord a copy of the Original 1525 Lease
certified by an officer of Tenant to be true and complete.
Except for the Original 1525 Lease, there are no written or
oral agreements relating to the 1525 Lease or the 1525 Premises. As of the date
hereof, Tenant represents and warrants to Landlord that (i) the 1525 Lease is
valid and in full force and effect; (ii) there are no defaults on the part of
Tenant under the 1525 Lease and no event has occurred and no condition exists
which, with the giving of notice or the passage of time, or both, would
constitute a default under the 1525 Lease on the part of the Tenant; and (iii)
to the best of its knowledge, there are no defaults on the part of the 1525
Landlord under the 1525 Lease and no event has occurred and no condition exists
which, with the giving of notice or the passage of time or both, would
constitute a default under the 1525 Lease on the part of the 1525 Landlord.
Between the date hereof and the expiration of the 1525 Lease, Tenant covenants
and agrees that it will not cause a default under the 1525 Lease other than a
default based on Tenant's vacating the 1525 Premises in order to move Tenant's
operations into the Leased Premises demised under the Lease, nor permit or
suffer any employee, agent or contractor of Tenant to cause, a default under the
1525 Lease. It is understood
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that a default under the 1525 Lease resulting from Tenant's vacating the 1525
Premises shall not in and of itself diminish Landlord's obligations under this
Section 10. Tenant shall not amend, modify or terminate the 1525 Lease or
otherwise enter into any agreements or understandings with respect to 1525 Lease
and/or the 1525 Premises without the prior written consent of Landlord. Upon
receipt of any notice, correspondence or other communication from the 1525
Landlord or relating to the 1525 Premises, Tenant shall promptly furnish a copy
thereof to Landlord. Prior to Tenant sending any notice, correspondence or
communication to the 1525 Landlord, Tenant shall furnish a copy thereof to
Landlord for its review and approval together with a notice that Landlord has
five (5) business days to respond. If Landlord fails to approve or disapprove
any such notice, correspondence or communication within five (5) business days
of Landlord's receipt of such notice, correspondence or communication, Landlord
shall be deemed to have granted its approval. If Landlord disapproves any such
notice, correspondence or communication, Landlord's notice of disapproval shall
state the reasons therefor. In addition, Tenant shall keep Landlord fully
informed of all material events and/or information of which Tenant has knowledge
relating to the 1525 Lease and/or the 1525 Premises.
(b) In order to defray overlapping lease rental obligations
under this Second Amendment and the 1525 Lease, provided that no Event of
Default exists under the Lease (as amended by this Second Amendment), from and
after April 1, 1995 Landlord shall pay to Tenant the monthly sums owing to the
1525 Landlord for Annual Base Rent and Additional Rent in respect of Operating
Expenses and Real Estate Taxes (as such terms are defined in the 1525 Lease)
during and in respect of the period from the New Premises Commencement Date to
the expiration (Tenant hereby representing that the term of the 1525 Lease
expires on January 31, 1999) or sooner
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termination of the 1525 Lease, subject to the conditions hereinafter stated. In
the event the 1525 Lease is assigned or the 1525 Premises (or any portion
thereof) shall be subleased, Landlord's payment obligation to Tenant shall be
reduced by the amount of Annual Base Rent and Additional Rent in respect of
Operating Expenses and Real Estate Taxes paid by the assignee to the 1525
Landlord or the amount of any rent, additional rent or other amounts actually
paid to Tenant by any subtenant under any sublease.
(c) Between the date hereof and the expiration or sooner
termination of the 1525 Lease, Landlord shall have (and at Landlord's request,
Tenant shall duly exercise) all of Tenant's assignment, subletting and early
termination rights in respect to the 1525 Lease and the 1525 Premises. In
implementation thereof, Tenant shall execute such assignment(s) of or
termination agreement(s) with respect to the 1525 Lease, and such sublease(s) of
the 1525 Premises, as Landlord shall request. Subject to the provisions of the
following paragraph of this Paragraph 10, Tenant hereby constitutes and appoints
Landlord as Tenant's attorney-in-fact to execute, acknowledge and deliver any
such termination, assignment or sublease if Tenant fails to do so within ten
(10) days after Landlord's request therefor. All costs and expenses (if any) in
connection with any such termination, assignment, or sublease (including,
without limitation, Tenant's reasonable out-of-pocket expenses to third parties)
shall be borne by Landlord. All rent or other proceeds paid in connection with
any such termination and/or assignment(s) shall be paid to Landlord and Tenant
shall have no right to any such proceeds.
Notwithstanding anything to the contrary in the Lease
contained, neither Landlord nor anyone else shall have any right to act as
Tenant's attorney-in-fact hereunder
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unless Landlord or such other party shall, prior to giving Tenant its written
request for the instrument in question, have given Tenant a previous written
notice requesting such instrument, and ten (10) days shall have elapsed since
the initial request therefor. Each such written request for such instrument
shall state that if Tenant fails timely to respond to such request, Landlord, or
such party, may act as Tenant's attorney-in-fact to execute such instrument.
(d) Tenant shall vacate the 1525 Premises on or before December 28,
1994. All "Systems Furniture" currently located in the 1525 Premises other than
the "Bi-Files" shall remain in the 1525 Premises and upon request by Landlord,
Tenant shall execute and deliver to Landlord an instrument conveying title to
such Systems Furniture free of all liens and encumbrances. If Landlord shall be
delayed in effecting an assignment or termination of the 1525 Lease or a
sublease of the 1525 Premises to the 1525 Landlord, an assignee or a subtenant
by reason of the failure of Tenant to perform any of its obligations under the
1525 Lease (other than a default based on Tenant's vacating the 1525 Premises),
or by reason of the delay, fault, or neglect of Tenant, then and in any such
event, (in addition to any other rights and remedies Landlord has for breach of
this Lease by Tenant) the payment obligations of Landlord provided for in
Subsection (b) above shall not apply during the period of such delay. Upon the
expiration or sooner termination of the 1525 Lease, Tenant shall have the right
to remove and retain any Systems Furniture then located in the 1525 Premises.
Tenant shall accept any such Systems Furniture in its then "AS IS" condition.
Tenant also acknowledges that Landlord makes no warranties or representations
with respect to such Systems Furniture and Tenant hereby irrevocably and
unconditionally waives any and all claims against Landlord with respect to such
Systems Furniture.
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(e) Unless and until the 1525 Lease shall have been duly
terminated or assigned and any consents or approvals required from the 1525
Landlord shall have been obtained, Tenant shall continue to perform its
obligations under the 1525 Lease for the entire term thereof. Upon request by
Landlord, Tenant will duly exercise any rights to terminate the 1525 Lease.
(f) Tenant acknowledges and agrees that Landlord shall have
the right to discuss directly with the 1525 Landlord proposed assignments and/or
termination of the 1525 Lease or proposed subleases of the 1525 Premises. In the
event the 1525 Landlord withholds its consent to any proposed assignment or
sublease, Landlord shall have the right to commence legal proceedings in the
name of Tenant against the 1525 Landlord in which event Tenant shall promptly
after receipt of request by Landlord sign such truthful demands, pleadings
and/or the papers that are required for Landlord to prosecute such action in
Tenant's name or that are otherwise reasonably requested by Landlord. Landlord
shall indemnify, defend and hold harmless Tenant from and against all claims,
liabilities, losses, damages and expenses (including, without limitation,
reasonable attorneys' fees) which Tenant may suffer or incur solely by reason of
the prosecution or defense of such proceedings by Landlord. Landlord shall pay
to Tenant any amounts owing to Tenant pursuant to the preceding sentence within
thirty (30) days of written demand accompanied by reasonable evidence supporting
the amount demanded by Tenant. With respect to any such legal proceedings,
Landlord shall be solely responsible for the conduct of same and shall be
entitled to make all decisions with respect hereto, and Tenant shall not
participate in, settle, compromise or terminate such proceedings, except as
shall be requested by Landlord. Unless required by law or court order
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which has not been stayed, Tenant shall not take any action which would
prejudice the interests of Landlord in any legal proceedings or negotiations
with the 1525 Landlord.
(g) Tenant shall cooperate fully with Landlord in its attempt
to (i) identify and conclude an assignment of the 1525 Lease or subleases or
other agreements or arrangements with proposed subtenants of the 1525 Premises
or any part thereof, and (ii) obtain all necessary consents and approvals with
respect thereto, including, but not limited to, the consent of the 1525
Landlord. In no event shall Tenant be required to exercise any option to extend
the term of the 1525 Lease or any other option granted to Tenant under the 1525
Lease which would expand the liability of the Tenant under the 1525 Lease unless
the 1525 Landlord agrees to release Tenant from any obligation and liabilities
under the 1525 Lease first accruing after January 31, 1999. Tenant's obligation
to cooperate shall not require Tenant to incur any expenses, obligations or
liabilities. Tenant shall not enter into, suffer or consent to any assignment,
sublease, termination or other agreement, arrangement or action affecting the
1525 Premises or the 1525 Lease without the prior written approval of Landlord.
(h) In the event Landlord shall f ail to pay to Tenant any
amounts owing to Tenant under this Section 10, Tenant shall have the right to
offset such amount against the next installment(s) of Annual Base Rent owing
under the Lease; provided, however, that if Landlord disputes any amount that
Tenant claims is owing, Tenant shall not have any right of offset until a
non-appealable determination in favor of Tenant has been rendered in an
arbitration proceeding conducted pursuant to the then prevailing rules and
procedures of the American Arbitration Association in Arlington County,
Virginia. In the event a non-appealable determination in Tenant's
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favor shall be rendered in such arbitration, Landlord shall reimburse any
amounts determined to be owed to Tenant together with interest thereon at the
Interest Rate from the date due until paid.
(i) Time shall be of the essence with respect to all dates and
time periods set forth in this Paragraph 10.
11. Security Deposit. Pursuant to the Original Lease, Tenant
deposited with Landlord a Security Deposit in the amount of $39,207. Provided
that an Event of Default shall not have occurred and be continuing, then
beginning on the first anniversary of the New Premises Commencement Date and
thereafter on the second, third, fourth and fifth anniversaries of the New
Premises Commencement Date, Tenant shall receive a credit against the monthly
installment of Annual Base Rent next owing under the Lease (as amended hereby)
equal to twenty (20%) percent of the Security Deposit (i.e., the sum $7,841.40).
12. Real Estate Broker. Each party hereto represents that it has
dealt with Julian J. Studley, Inc. and L.P.C. Commercial Services, Inc.
(collectively, the "Brokers") in connection with this Second Amendment. Landlord
shall compensate the Brokers pursuant to separate written agreements with the
Brokers. Except for the Brokers, neither party has dealt with any broker,
salesperson, finder or similar party in connection with the transactions covered
by this Second Amendment. Each party (an "Indemnitor") hereby agrees to
indemnify and hold the other party and its partners, if any, employees, agents
and officers, if any, harmless from and against all claims of any broker,
salesperson, finder or any similar party (other than the Brokers) resulting f
rom the representations of the Indemnitor in this Paragraph 12 failing to be
accurate.
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13. Governing Law. This Second Amendment shall be construed under
and in accordance with the laws of the State of Virginia.
14. Binding Effect. This Second Amendment shall be binding and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns.
15. Amendments: Entire Agreement. This Second Amendment may not be
amended or modified except by all of the parties hereto. The Lease, as modified
by this Second Amendment, supersedes any prior understandings, whether oral or
written, by the parties with respect to the subject matter thereof. There are no
agreements, understandings, restrictions, representations, or warranties between
the parties other than those set forth or provided in the Lease, as modified by
this Second Amendment. Except as specifically set forth herein, all other terms,
covenants, agreements, conditions, and provisions of the Lease shall continue
and remain in full force and effect, and the Lease is hereby ratified, restated
and confirmed in all respects.
16. Defined Terms. Unless otherwise defined herein, all terms herein
shall have the same meanings set forth in the Lease, and all provisions in the
Lease applicable to those terms shall apply to those terms as they are used
herein.
17. Effect of this Amendment. In the event of any conflict between
this Second Amendment and the Lease, the terms and provisions of this Second
Amendment shall control and be paramount, and the Lease shall be construed
accordingly.
IN WITNESS WHEREOF, this Second Amendment was executed by
Landlord and Tenant on the day and year first written above.
Landlord:
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<PAGE>
BRESTA FUTURA V B.V.
By: Jacques + Kurdziel, Ltd.,
as Agent
By: /s/ Donald M. Kurdziel
-----------------------------
Donald M. Kurdziel,
President
Tenant:
RCG/HAGLER, BAILLY, INC.
By: /s/ Daniel M. Rouse
----------------------------
Name: Daniel M. Rouse
Title:VP and Controller
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<PAGE>
EXHIBIT A
Floor Plan of New Premises
[EDGAR Note: Please see Appendix for description of omitted graphics]
Tenth Floor
1530 Wilson Boulevard
<PAGE>
EXHIBIT B
Floor Plan of Offer Space on Tenth Floor
[EDGAR Note: Please see Appendix for description of omitted graphics]
Tenth Floor
1530 Wilson Boulevard
<PAGE>
EDGAR APPENDIX
Exhibit A: Floorplan diagram
Exhibit B: Floorplan diagram
-23-
1530 WILSON BOULEVARD
ARLINGTON, VIRGINIA
OFFICE LEASE
Tenant:
HAGLER BAILLY CONSULTING, INC.
<PAGE>
TABLE OF CONTENTS
Page
----
LEASE .......................................................................1
SCHEDULE.....................................................................3
1. Leased Premises..................................................3
2. Term.............................................................4
3. INTENTIONALLY OMITTED............................................4
4. Annual Base Rent.................................................4
5. Monthly Installment of Annual Base Rent..........................5
. Tenant's Share...................................................5
7. Operating Expense Stop...........................................5
8. Tenant's Type of Business........................................5
9. INTENTIONALLY OMITTED............................................5
10. Brokers..........................................................5
11. Plan Date .......................................................5
12. Tenant's Parking Permits in the Parking Garage of Building.......5
13. Address for Notices..............................................6
14. Tenant's Architect...............................................6
15. INTENTIONALLY OMITTED............................................6
16. Original Lease...................................................6
17. Original Leased Premises.........................................6
18. Exhibits to this Lease...........................................6
TERMS AND CONDITIONS.........................................................9
1. LEASE OF PREMISES................................................9
2. TERM.............................................................9
3. RENT............................................................10
4. ADDITIONAL RENT.................................................11
A. DEFINITIONS...............................................11
B. EXPENSE ADJUSTMENT........................................16
C. ADJUSTMENT TO EXPENSE CALCULATIONS........................17
5. USE OF LEASED PREMISES..........................................17
6. CONDITION OF LEASED PREMISES....................................18
7. SERVICES........................................................18
A. LIST OF SERVICES..........................................18
B. EXCESS CONSUMPTION........................................20
C. INTERRUPTION OF SERVICES..................................21
D. CHARGES FOR SERVICES......................................21
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<PAGE>
Page
----
E. ENERGY AND WATER CONSERVATION.............................22
8. REPAIRS.........................................................22
9. ADDITIONS AND ALTERATIONS.......................................24
10. COVENANT AGAINST LIENS..........................................25
11. INSURANCE.......................................................26
A. WAIVER OF SUBROGATION.....................................26
B. TENANT'S INSURANCE........................................26
C. AVOID ACTION INCREASING RATES.............................28
D. LANDLORD'S INSURANCE......................................28
12. FIRE OR CASUALTY................................................29
13. WAIVER OF CLAIMS - INDEMNIFICATION..............................32
14. NONWAIVER.......................................................33
15. CONDEMNATION....................................................34
16. ASSIGNMENT AND SUBLETTING.......................................35
17. SURRENDER OF POSSESSION.........................................38
18. HOLDING OVER....................................................38
19. ESTOPPEL CERTIFICATE............................................39
22. RULES AND REGULATIONS...........................................44
23. LANDLORD'S REMEDIES.............................................44
24. TENANT'S REMEDIES...............................................47
25. EXPENSES OF ENFORCEMENT.........................................47
26. COVENANT OF QUIET ENJOYMENT.....................................48
27. SECURITY DEPOSIT................................................48
28. REAL ESTATE BROKER..............................................48
29. MISCELLANEOUS...................................................48
A. RIGHTS CUMULATIVE.........................................48
B. TERMS.....................................................48
C. BINDING EFFECT............................................48
D. LEASE CONTAINS ALL TERMS..................................49
E. DELIVERY FOR EXAMINATION..................................49
F. NO AIR RIGHTS.............................................49
G. MODIFICATION OF LEASE.....................................49
H. INTENTIONALLY OMITTED.....................................49
I. TRANSFER OF LANDLORD'S INTEREST...........................49
J. LANDLORD'S TITLE..........................................49
K. PROHIBITION AGAINST RECORDING.............................50
L. CAPTIONS..................................................50
-ii-
<PAGE>
Page
----
M. COVENANTS AND CONDITIONS..................................50
N. ONLY LANDLORD/TENANT RELATIONSHIP.........................50
O. APPLICATION OF PAYMENTS...................................50
P. FURTHER DEFINITION OF LANDLORD............................50
Q. TIME OF ESSENCE...........................................50
R. GOVERNING LAW.............................................50
S. PARTIAL INVALIDITY........................................50
T. INTEREST..................................................51
U. PROHIBITED MACHINES.......................................51
V. CERTIFICATES..............................................51
W. ASSURANCE OF PERFORMANCE..................................51
X. COUNTERPARTS..............................................52
Y. SURVIVAL PROVISION........................................52
Z. COMMON AREAS PROVISION....................................52
AA. WAIVER OF JURY TRIAL......................................52
AB. PROCESS...................................................52
AC. SUBMISSION OF LEASE.......................................52
AD. TAXES.....................................................52
30. NOTICES.........................................................52
31. LIMITATION OF LANDLORD'S LIABILITY AND ON
COUNTERCLAIMS...................................................53
32. PARKING.........................................................53
33. AUTHORITY OF TENANT.............................................53
34. AUTHORITY OF LANDLORD...........................................54
-iii-
<PAGE>
LEASE
This Lease is made as of the 8th day May, 1996, between BRESTA FUTURA V
B.V., a Netherlands corporation, hereinafter referred to as "Landlord", and
HAGLER BAILLY CONSULTING, INC., a Delaware corporation, hereinafter referred to
as "Tenant". The term "Building" as used herein refers to the building at 1530
Wilson Boulevard, Arlington, Virginia, and containing approximately 167,511
rentable square feet. The land on which the Building is located, as it may be
replatted from time to time, currently comprises approximately 1 acre, is
described on Exhibit A attached hereto and is hereinafter referred to as the
"Land". The Building and the Land, together with any other improvements now or
hereafter located on the Land, are hereinafter collectively referred to as the
"Property". The following Schedule is an integral part of this Lease.
SCHEDULE
1. Leased Premises: Premises consisting of approximately and hereby deemed to
include 4,123 rentable square feet (determined in accordance with the
Washington, D.C. Association of Realtors Standard Method of Measurement),
more or less, located on the ninth (10th) floor of the Building. Subject
to any terms and provisions of this Lease to the contrary, the Leased
Premises shall include the right to use, in common with Landlord and other
tenants of the Building, and their respective invitees, customers and
employees, the halls, toilet and sanitary facilities on the ninth (10th)
floor, first (1st) floor and lower level of the Building, as well as the
sidewalks and delivery areas on the Property. [See Paragraph 1]*
2. Term: The period from the Commencement Date until December 31, 2004. [See
Paragraph 2A]
3. Security Deposit: None
4. Annual Base Rent: The Annual Base Rent shall be as follows:
(a) for the period beginning on the Commencement Date and ending on the
day preceding the first anniversary of the Commencement Date, the sum of One
Hundred Fifteen Thousand Four Hundred Forty-Four and No/100 ($115,444.00)
Dollars per annum;
- ----------
* For convenience, this Schedule sets forth in [brackets] cross references
showing where the terms defined in the Schedule are first used in the
Terms and Conditions or Exhibits of this Lease. These cross references are
not intended to modify or affect in any way the provisions of this Lease.
<PAGE>
(b) for the period beginning on the first anniversary of the Commencement
Date and ending on the day preceding the second anniversary of the Commencement
Date, the sum of One Hundred Eighteen Thousand Nine Hundred Seven and 32/100
($118,907.32) Dollars per annum;
(c) for the period beginning on the second anniversary of the Commencement
Date and ending on the day preceding the third anniversary of the Commencement
Date, the sum of One Hundred Twenty-Two Thousand Four Hundred Seventy-Four and
54/100 ($122,474.54) Dollars per annum;
(d) for the period beginning on the third anniversary of the Commencement
Date and ending on the day preceding the fourth anniversary of the Commencement
Date, the sum of One Hundred Twenty-Six Thousand One Hundred Forty-Eight and
78/100 ($126,148.78) Dollars per annum;
(e) for the period beginning on the fourth anniversary of the Commencement
Date and ending on the day preceding the fifth anniversary of the Commencement
Date, the sum of One Hundred Twenty-Nine Thousand Nine Hundred Thirty-Three and
24/100 ($129,933.24) Dollars per annum;
(f) for the period beginning on the fifth anniversary of the Commencement
Date and ending on the day preceding the sixth anniversary of the Commencement
Date, the sum of One Hundred Thirty-Three Thousand Eight Hundred Thirty-One and
24/100 ($133,831.24) Dollars per annum;
(g) for the period beginning on the sixth anniversary of the Commencement
Date and ending on the day preceding the seventh anniversary of the Commencement
Date, the sum of One Hundred Thirty-Seven Thousand Eight Hundred Forty-Six and
18/100 ($137,846.18) Dollars per annum;
(h) for the period beginning on the seventh anniversary of the
Commencement Date and ending on the day preceding the eighth anniversary of the
Commencement Date, the sum of One Hundred Forty-One Thousand Nine Hundred
Eighty-One and 57/100 ($141,981.57) Dollars per annum; and
(i) for the period beginning on the eighth anniversary of the Commencement
Date and ending on December 31, 2004, the sum of One Hundred Forty-Six Thousand
Two Hundred One and 02/100 ($146,241.02) Dollars per annum.
5. Monthly Installment of Annual Base Rent: The quotient that results from
dividing Annual Base Rent by twelve (12).
[See Paragraph 3A]
-2-
<PAGE>
6. Tenant's Share: The quotient that results from dividing the number of
rentable square feet in the Leased Premises by 167,511.
[See Paragraph 4]
7. Operating Expense Stop: The product that results from multiplying the
total amount of Operating Expenses (as hereafter defined) of the Property
during the 1996 calendar year, as adjusted to provide for, among other
things, a ninety-five percent (95%) occupied and fully assessed and
completed Building and Property pursuant to Paragraph 4 of this Lease, by
the Tenant's Share.
[See Paragraph 4]
8. Tenant's Type of Business: General office use compatible with a
first-class office building in Arlington County, Virginia.
[See Paragraph 5]
9. INTENTIONALLY OMITTED
10. Brokers: Julien J. Studley, Inc. and LPC Commercial Services, Inc.
[See Paragraph 28]
11. INTENTIONALLY OMITTED
12. Tenant's Parking Permits in the Parking Garage of Building: A total of 7
Parking Permits for unreserved parking spaces.
[See Paragraph 32 and Exhibit C, Paragraph 8]
13. Address for Notices: [See Paragraph 30]
If to Landlord:
c/o Lincoln Property Company
1530 Wilson Boulevard
Suite 200
Arlington, Virginia 22209
Attention: Mr. William M. Hickey
with a copy to:
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<PAGE>
Spitzer & Feldman, P.C.
405 Park Avenue, 6th Floor
New York, New York 10022
Attention: Edwin Weinberg, Esq.
If to Tenant:
Hagler, Bailly Consulting, Inc.
1530 Wilson Boulevard
Suite 900
Arlington, Virginia 22209
Attention: Mr. Henri-Claude Bailly
14. Tenant's Architect: Blackburn Architects
(See Exhibit B, Paragraph 1A]
15. INTENTIONALLY OMITTED
16. Original Lease: The Office Lease, dated as of October 25, 1991, between
Wilson Boulevard Venture (Landlord's predecessor-in-interest), as
landlord, and RCG/Hagler, Bailly, Inc. (Tenant's predecessor-in-interest),
covering certain premises located in the Building, as previously amended
or hereafter amended.
17. Original Leased Premises: The premises covered by the Original Lease.
18. Exhibits to this Lease: The following are all of the Exhibits attached to
this Lease, each of which is incorporated herein by reference for all
purposes:
Exhibit A - Legal Description of Land
Exhibit B - Work Letter
Exhibit B-1 - Base Construction
Exhibit C - Additional Terms and Provisions of this Lease
Exhibit D - Outline of Leased Premises
Exhibit E - Cleaning Specifications
-4-
<PAGE>
This Lease is subject to the Terms and Conditions and the provisions of
any Exhibits attached hereto, which Terms and Conditions and Exhibits are hereby
made a part of this Lease.
LANDLORD: TENANT:
BRESTA FUTURA V B.V. HAGLER BAILLY CONSULTING, INC.,
a Netherlands corporation a Delaware corporation
By: VIB MANAGEMENT, INC., By:____________________________
As Agent Daniel M. Rouse
Director and CFO
By:______________________
Donald M. Kurdziel
President
-5-
<PAGE>
TERMS AND CONDITIONS
1. LEASE OF PREMISES
Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord,
the Leased Premises described in the Schedule (herein so called) appearing in
pages 1 through 4 of this Lease and designated on the Outline of Leased Premises
attached hereto as Exhibit D, subject to the covenants, terms, and provisions of
this Lease. Subject to any terms and provisions of this Lease to the contrary,
Tenant shall have access to the Leased Premises at all times during the Term.
2. TERM
A. The Term described in the Schedule shall commence on the Commencement
Date, as determined pursuant to Paragraph 2B hereof, and shall continue until
the last day of the Term set forth in the Schedule, unless the Term is renewed
or terminated earlier in accordance with the provisions of this Lease.
B. The "Commencement Date" shall be the date that is earlier of the date
on which the Landlord's Work (as defined in Exhibit B) is Substantially
Completed (as defined in Exhibit B) or the date that Tenant commences beneficial
use of the Leased Premises. Tenant shall be deemed to have commenced beneficial
use of the Leased Premises on the date Tenant takes possession, uses or occupies
any of the Leased Premises.
If and when Tenant shall take actual possession of the Leased Premises, it
shall be conclusively presumed that the same were in satisfactory condition
(except for Latent Defects (as defined in Exhibit C)) as of the date of such
taking of possession, unless within thirty (30) days after the Commencement
Date, Tenant shall give Landlord written notice specifying in reasonable detail,
the respects in which the Leased Premises were not in satisfactory condition.
The Leased Premises is currently occupied by a tenant ("Existing Tenant")
pursuant to a lease that expires on April 30, 1996. In the event the Existing
Tenant holds over beyond May 31, 1996, Landlord agrees to promptly initiate an
unlawful detainer action against the Existing Tenant and to diligently prosecute
such unlawful detainer action, and to follow up said unlawful detainer action by
filing and pursuing a Writ of Possession as soon as possible after said unlawful
detainer action. Landlord shall not be liable to Tenant nor shall Tenant be
entitled to terminate this Lease or to an abatement or reduction of Rent or
Additional Rent in the event the Existing Tenant holds over beyond April 30,
1996 thereby delaying Landlord in delivering possession of the Leased Premises
to Tenant.
-6-
<PAGE>
C. On or promptly after the Commencement Date, Landlord and Tenant agree
to execute a written declaration setting forth the Commencement Date, the date
upon which the Term will expire, and the following agreements: (i) except for
any uncompleted PunchList Items (as defined in Paragraph 3A of Exhibit A),
Landlord has fully completed the Landlord's Work under the terms of this Lease;
and (ii) the Leased Premises are tenantable, Landlord has no further obligation
for construction (except with respect to any uncompleted PunchList Items), and
Tenant acknowledges that the Building, the Leased Premises and the Landlord's
Work are satisfactory, in all respects, except for latent defects and any
uncompleted PunchList Items, and are suitable for Tenant's type of business, as
set forth in the Schedule.
3. RENT
All payments due hereunder from Tenant shall be made to Landlord's agent
at the office of the Building, or to such other persons or at such other place
as Landlord may from time to time designate in writing, in coin or currency
which, at the time of payment, is legal tender for private or public debts in
the United States of America. All payments due hereunder shall be made without
demand or notice except as expressly required under this Lease, and without any
abatement, set_off offset or deduction whatsoever, except as expressly provided
for under this Lease or in any other agreement expressly referred to herein.
Tenant agrees to pay the aggregate amount of the following, any and all of which
are hereby declared to be "Rent":
A. The Annual Base Rent set forth in the Schedule is payable monthly in
the amount of the Monthly Installment of Annual Base Rent set forth in the
Schedule, in advance, on or before the first day of each and every month during
the Term, without demand or notice, except as expressly required under this
Lease, and, without any abatement, set-off, offset or deduction whatsoever;
except that (i) Tenant shall pay an amount equal to one full Monthly Installment
of Annual Base Rent (i.e.: $9,620.33) at the time of execution of this Lease,
which amount shall be credited to the first Rent payable hereunder; and (ii) if
the Term commences other than on the first day of a month or ends other than on
the last day of a month, the Monthly Installment of Annual Base Rent for such
month shall be prorated based on the number of days in such month.
B. Additional Rent (hereinafter defined), including, without limitation,
all estimated monthly installments thereof.
C. All other and further sums payable or to become payable by Tenant to
Landlord pursuant to the provisions of this Lease.
D. Interest from the date that is seven (7) days after the due date of
each payment becoming due under this Lease until paid at the rate per annum (the
"Interest Rate" equal to the lesser of either (i) the rate which is equal to two
percentage points plus the rate announced from time to time by The Riggs
National Bank of Washington, D.C. as its base or prime rate of interest whether
or not such rate is actually the lowest rate charged by such bank to corporate
or other
-7-
<PAGE>
customers, or if such rate is unavailable such other similar rate or standard
chosen by Landlord in the exercise of its reasonable discretion, or (ii) the
maximum rate allowed under applicable law; but neither the payment of such
interest nor the payment of the late fee described below shall excuse or cure
any default by Tenant under this Lease.
E. A late fee equal to five percent (5%) of any payment, or portion
thereof, becoming due under this Lease which payment is not paid by the seventh
(7th) day following its due date; provided, however, that regardless of whether
such late fee constitutes or is deemed to be interest under applicable law, the
sum of all interest contracted for, charged or received hereunder shall not
exceed the maximum amount of interest allowed under applicable law.
Without limiting any of the other obligations of Tenant which survive the
expiration or earlier termination of this Lease, Tenant's obligation to pay all
Rent due under this Lease shall survive the expiration or earlier termination of
this Lease.
4. ADDITIONAL RENT
In addition to paying the Annual Base Rent specified in Paragraph 3A
hereof, Tenant shall pay as "Additional Rent" the amounts determined pursuant to
the succeeding provisions of this Paragraph 4. Any delay in the computation,
notice or charge of any item of Additional Rent shall not be deemed a default
hereunder by Landlord or a waiver of Landlord's right to collect such item of
Additional Rent. If Landlord has not notified Tenant of the amount of each
monthly installment of Additional Rent payable during a particular Lease Year as
described below by the commencement of such Lease Year, Tenant shall continue to
make each monthly installment payment of Additional Rent thereafter in the
amount set forth in the latest notice or notices from Landlord. Thereafter, when
the notice from Landlord for the current Lease Year is given, an appropriate
adjustment in the monthly installment amounts previously paid by Tenant may be
required by Landlord.
A. DEFINITIONS. As used in this Paragraph 4, the following terms shall
have the following meanings:
(i) "Affiliate" shall mean, with respect to any Person (as
hereinafter defined) (a) any other Person that directly or indirectly Controls
(as hereinafter defined), is Controlled by or is under common Control with the
same, (b) any officer, director or partner of the same or of such other Person,
and (c) any member of the immediate family of the same, any such other Person or
any such officer, director or partner. A Person shall be deemed to have
"Control" of: (I) a trust, if such Person is a trustee or Controls a trustee
thereof, or (II) any other Person (excluding any such trust), if the Person to
be deemed to have Control directly or indirectly or acting in concert with one
or more other Persons, owns, Controls or holds with power to vote, or holds
proxies representing, more than fifty percent (50%) of the voting shares or
-8-
<PAGE>
rights of such other Person, or Controls in any manner the election or
appointment of a majority of the directors or trustees of such other Person, or
is a general partner in or has contributed more than fifty percent (50%) of the
capital of such other Person. For purposes of this paragraph, the term "Person"
means any individual, corporation, partnership, joint venture, association,
joint stock company, trust, unincorporated organization, government or any
agency or political subdivision thereof, or any other form of entity.
(ii) "Lease Year" shall mean the period during the Term from the
Commencement Date until the last day of the calendar year in which the
Commencement Date occurs, and each twelve (12) month period thereafter during
the Term. Any portion of the Term in the calendar year in which the Term ends
shall be a Lease Year even if it comprises fewer than twelve (12) months.
(iii) "Taxes" shall mean all real estate taxes and assessments,
special or otherwise, and gross receipts taxes, levied or assessed upon or with
respect to the Property, but excluding penalties or other charges caused by any
negligent failure by Landlord to pay any such taxes or assessments prior to the
date they become delinquent. All references to Taxes "for" a particular year
shall be deemed to refer to Taxes payable during such year without regard to
when such Taxes are assessed or levied. "Taxes" shall also include, in the year
paid, all reasonable fees and costs incurred by Landlord in seeking to obtain a
reduction of, or a limit on the increase in, any Taxes, and any refund of Taxes
for the year in which such refund is received but only to the extent such refund
relates to Taxes paid within the Term. Notwithstanding anything in this
paragraph to the contrary, should the Commonwealth of Virginia, or any political
subdivision thereof, or any other governmental authority having jurisdiction
over the Property, (a) impose a tax, assessment, charge or fee, which Landlord
shall be required to pay, by way of substitution for or supplementation to such
real estate taxes, or (b) impose an income or franchise tax or a tax on rents in
substitution for or as a supplement to a tax levied against the Property or the
personal property used in connection therewith, all such taxes, assessments,
fees or charges (hereinafter collectively referred to as "in lieu of taxes")
shall be deemed to constitute Taxes hereunder. Except as hereinabove provided
with regard to "in lieu of taxes", Taxes shall not include any corporate,
franchise, internal revenue, inheritance, estate, succession, gift, net income
or capital stock tax. The amount of special taxes or special assessments to be
included in Taxes shall be limited to the amount of the installments of special
taxes or special assessments required to be paid for a particular year; however,
to the extent it is commercially reasonable under the circumstances to do so, in
Landlord's reasonable determination, Landlord shall elect the longest period of
time allowed by the authority imposing a special tax or special assessment in
which to pay installments of such special tax or special assessment. Taxes shall
include all special assessments for capital improvements which are incorporated
into the Property to the extent the cost of such capital improvements are paid
by a third party, including, without limitation, a governmental authority, or
are Operating Expenses. To the extent any tax or assessment is caused by
improvements, additions or alterations made by Tenant in the Leased Premises the
amount of such tax or assessment shall be paid by Tenant. Taxes shall not
include taxes caused
-9-
<PAGE>
by any major structural change in the Property, such as adding or deleting
floors, unless the costs of such change are Operating Expenses.
(iv) "Operating Expenses" shall mean all Taxes and all expenses,
costs and disbursements of every kind and nature (determined for each calendar
year under sound accounting principles, consistently applied) paid or incurred
by Landlord or any Affiliate of Landlord in connection with the ownership,
management, operation, repair, replacement, maintenance, insuring and servicing
of the Property, except the following:
(a) Depreciation, principal or interest payments, points or
fees on loans secured by mortgages or trust deeds on the Property and ground
rent payments, if any, except that payments of Taxes, insurance premiums and
other amounts intended to be applied to the cost of owning, managing, operating,
repairing, replacing, maintaining, insuring or servicing the Property shall be
included in Operating Expenses even if they are paid to a lender or ground
lessor or its designee.
(b) Costs of capital improvements, alterations, equipment and
tools, and replacements of capital improvements, equipment and tools, except
that Operating Expenses shall include such costs during the Term, as reasonably
amortized by Landlord in accordance with sound accounting principles,
consistently applied, with interest on the unamortized amount, at the Interest
Rate, of (I) the costs of any capital improvement, repair, alteration or
replacement completed after the date of this Lease which is reasonably intended
in good faith by Landlord to reduce any replacement cost included within
Operating Expenses, (II) the costs (not to exceed $25,000 per Lease Year) of any
capital improvement or replacement completed after the date of this Lease which
Landlord reasonably determines is necessary to keep the Property in compliance
with governmental rules and regulations applicable, from time to time thereto
and (III) the costs of reasonably necessary equipment not affixed to the
Building which is used in providing janitorial or similar services; provided,
however, except for those costs related to the Americans With Disabilities Act
(which shall not exceed $15,000 per Lease Year of such $25,000 per Lease Year
amount) any costs included under clause (II) above shall be limited to those
costs arising only as a result of a change in any governmental rule or
regulation;
(c) Any damage or loss to property insured by Landlord
pursuant to this Lease resulting from a fire or other casualty, except for any
such damage or loss in the amount of Landlord's insurance deductibles paid by
Landlord per incident, which shall be limited to $.15 per rentable square foot
in the Building;
(d) Costs of repairs, alterations or replacements caused by an
exercise of any right of eminent domain to the extent net condemnation proceeds
received by Landlord cover such costs;
-10-
<PAGE>
(e) Costs incurred by Landlord with respect to goods and
services (including, without limitation, utility sold and supplied to Tenants
and occupants of the Building) to the extent that Landlord receives
reimbursement for such costs;
(f) Costs, including, without limitation, permit, license and
inspection costs, incurred with respect to the installation of tenant
improvements, additions or alterations made for other tenants in the Building or
incurred in renovating or otherwise improving, decorating, painting or
redecorating any space for any such other tenants or other occupants of the
Building;
(g) Depreciation and amortization, except as provided herein
and except on materials, tools, supplies and vendor type equipment purchased by
Landlord to enable Landlord to supply services Landlord might otherwise contract
for with a third party where such depreciation and amortization would otherwise
have been included in the charge for such third parties' services, all as
determined in accordance with sound accounting principles, consistently applied;
(h) Leasing commissions, attorneys and other professional or
consulting fees, design or engineering fees and other costs and expenses
incurred in connection with negotiations or disputes with present or prospective
tenants or other occupants of the Building and any consideration paid, given or
delivered to other tenants as an inducement to lease space in the Building;
(i) Costs incurred by Landlord due to the negligence of
Landlord, or its agents, servants or employees, or any Affiliate of Landlord, or
any such Affiliate's agents, servants or employees, or to the violation by
Landlord, or its agents, servants or employees, or any Affiliate of Landlord, or
any such Affiliate's agents, servants, or employees, or any tenants, of the
terms and conditions of any lease of space in the Building or any applicable
laws, statutes or codes;
(j) The cost increment paid for services in the Building,
including, without limitation, management of the Building, to the extent the
costs of such services exceed the costs of the same quality of such services
rendered on a competitive basis by third parties who are not Affiliates of
Landlord;
(k) Any compensation paid to clerks, attendants or other
persons in, and any costs attributable solely to, commercial concessions
operated by Landlord or in the parking garage of the Building;
(l) All items and services for which Tenant or any other
tenant in the Building reimburses Landlord or which Landlord provides
selectively to one or more tenants (other than Tenant) without reimbursement;
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(m) Advertising and promotional expenditures, and costs of
signs in or on the Building identifying the owner of the Building or any tenant
of the Building;
(n) Costs incurred in connection with all operations of the
parking garage of the Building, except maintenance costs;
(o) Costs of salaries and related benefits of employees of
Landlord above the level of the Building's property manager and costs of
salaries and related benefits of employees of Landlord at and below the level of
the Building's property manager who are not on-site employees at the Property to
the extent such employees devote time to property other than the Property;
(p) Costs incurred in connection with the original
construction of the base Building shell;
(q) Costs incurred in connection with, or expenses relating
to, any major structural change in the Building, such as adding or deleting
floors, unless such change is designed to improve the operating efficiency of
the Building;
(r) Costs of correcting defects in, or inadequacy of, the
initial design or construction of the Building;
(s) Any bad debt or rent loss, and any reserve for bad debt or
rent loss;
(t) Costs associated with the operation of the business of the
partnership or entity which constitutes Landlord or any Affiliate of Landlord,
as such costs may be distinguished from the costs of operation of the Building,
including the costs of accounting and legal organizational matters, costs of
defending any law suits with any mortgagee (except as the actions of Tenant may
be an issue), costs of selling, syndicating, financing, mortgaging or
hypothecating any of Landlord's interest in the Building, costs of any disputes
between Landlord and its employees, if any, not engaged in Building operations,
or disputes of Landlord with the Building's property manager;
(u) Fines, penalties and interest arising due to the
delinquency or negligence of Landlord or any Affiliate of Landlord; and
(v) Any expense in connection with the ground floor and
mezzanine levels which is payable exclusively in connection with a restaurant,
bank or other exclusively retail operation, except for expenses that cannot
reasonably be apportioned.
The Operating Expense Stop shall be increased by the product that results from
multiplying the sum of the following, to the extent they were not included in
Operating Expenses of the Property
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during the 1996 calendar year: (i) amounts that ordinarily would be included in
Operating Expenses for the 1996 calendar year that were not included therein due
to warranties or guarantees, and (ii) the cost of a full and normal management
and maintenance staff for the Property during the 1996 calendar year. Landlord
represents and warrants to Tenant that Landlord currently provides to tenants of
the Building and will, throughout the Term of this Lease provide to Tenant all
services ordinarily and customarily provided by a Landlord of a first-class
office building in Arlington County, Virginia. It is understood that Operating
Expenses shall be reduced by all cash discounts, trade discounts or quantity
discounts received by Landlord or any Affiliate of Landlord or the manager of
the Property in the purchase of any goods, utilities or services in connection
with the operation of the Building or the Property. Landlord shall use
reasonable efforts to make payments for goods, utilities and services in a
timely manner and to obtain the maximum possible discount, to the extent it is
commercially reasonable under the circumstances to do so, in Landlord's
reasonable determination. Landlord agrees that, in the calculation of any costs
or expenses to be included in Operating Expenses, no cost or expense shall be
included more than once. Landlord shall use reasonable efforts to effect an
equitable pro-ration of bills for services rendered to the Building and to any
other Property owned by Landlord. Landlord shall use reasonable efforts to
establish accurate estimates of the Operating Expenses for each Lease Year so as
to be reasonably close to the actual Operating Expenses for such Lease Year.
B. EXPENSE ADJUSTMENT. Tenant shall pay, as Additional Rent, an amount
(hereinafter referred to as the "(Expense Adjustment Amount") equal to Tenant's
Share of the amount by which the Operating Expenses (subject to adjustment
pursuant to Paragraph 4C hereof) incurred with respect to each Lease Year after
the first Lease Year exceed the Operating Expense Stop set forth in the
Schedule. If less than ninety-five percent (95%) of the Building's total
rentable area shall have been occupied by tenants at any time during any Lease
Year, then the Expense Adjustment Amount shall be increased to an amount which
Landlord in good faith and in accordance with sound accounting principles,
consistently applied, determines the Expense Adjustment Amount would have been
for such Lease Year had occupancy of the Building been ninety-five percent (95%)
throughout such Lease Year. if the Lease Year in which the last day of the Term
occurs is shorter than twelve (12) months, the Operating Expense Stop shall be
prorated based on the number of days in such Lease Year. The Expense Adjustment
Amount with respect to each Lease Year shall be paid in monthly installments in
advance on the first day of each and every calendar month during such Lease
Year, in an amount estimated from time to time by Landlord and communicated by
written notice to Tenant. Landlord shall cause to be kept books and records
showing Operating Expenses in accordance with sound accounting principles,
consistently applied. Landlord shall deliver to Tenant a reasonably detailed
statement setting forth (a) the actual Operating Expenses and Expense Adjustment
Amount for such Lease Year; (b) the total of the estimated monthly installments
of the Operating Expense Adjustment Amount paid to Landlord for such Lease Year;
and (c) the amount of any excess or deficiency of Expense Adjustment Amount
previously paid with respect to such Lease Year. Tenant shall pay any deficiency
to Landlord as shown by such statement within thirty (30) days after receipt of
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such statement. Upon Tenant's written request, Landlord shall furnish Tenant
with copies of all relevant tax bills with such statement. If the total of the
estimated monthly installments paid by Tenant during any Lease Year exceeds the
actual Expense Adjustment Amount due from Tenant for such Lease Year, such
excess shall be refunded by Landlord within thirty (30) days after delivery to
Tenant of such statement, provided Tenant is not then in default hereunder. In
lieu of receiving such overpayment, provided Tenant is not then in default
hereunder, Tenant, upon Landlord's prior written approval, may deduct the amount
of such overpayment from the succeeding installment of Annual Base Rent or
Additional Rent coming due hereunder. Tenant shall have no right to audit or
inspect the records of Landlord or the Property, except as expressly provided in
Exhibit C attached hereto.
C. ADJUSTMENT TO EXPENSE CALCULATIONS. If less than ninety-five
percent (95%) of the Building's total rentable area shall have been occupied by
tenants at any time during any Lease Year, then Operating Expenses for such
Lease Year shall be an amount which Landlord in good faith determines is the
amount Operating Expenses would have been for such Lease Year had occupancy of
the Budding been ninety-five percent (95%) throughout such Lease Year. Tenant
acknowledges that the method of computing the amount of Operating Expenses,
prior to any adjustment, as stated in Paragraph 4B hereof, is based upon the
assumption that Landlord will be providing identical services to all tenants in
the Building.
5. USE OF LEASED PREMISES
Tenant shall use and occupy the Leased Premises as an office for the type
of business set forth in the Schedule and no other purpose. Tenant shall not use
or occupy the Leased Premises for any unlawful purpose or in any manner that
will constitute waste, nuisance or unreasonable annoyance to Landlord or other
tenants of the Property. Tenant shall comply with all present and future laws,
ordinances, regulations, and orders of the United States of America, state and
county government, and any other public or quasi-public authority having
jurisdiction over the Property, concerning the use, occupancy and condition of
the Leased Premises and all machinery, equipment and furnishings therein. It is
expressly understood that if any present or future law, ordinance, regulation or
order of any public or quasi-public authority having jurisdiction over the
Property requires a certificate of occupancy or use permit for the Leased
Premises, except for any certificate of occupancy or other evidence that the
Leased Premises may be lawfully occupied upon completing the Landlord's Work,
Tenant will obtain such certificate or permit at Tenant's own expense and will
deliver a copy thereof to Landlord promptly when it is obtained. The cost of
such compliance by Tenant shall be borne by Tenant under all circumstances,
except as expressly provided to the contrary in Paragraph 8 of this Lease or
unless such compliance is required as a result of Landlord's negligence or
willful misconduct or by a breach by Landlord of any of Landlord's obligations
hereunder.
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6. CONDITION OF LEASED PREMISES
The improvement of the Leased Premises by Landlord shall be accomplished
in accordance with Exhibit B attached hereto. In no event shall Tenant be
entitled to any credit against, or abatement of, Rent due to the existence of
any PunchList Items. No promise of Landlord to alter, remodel or improve the
Leased Premises or the Property and no representation by Landlord or its agents
respecting the condition of the Leased Premises or the Property has been made to
Tenant or relied upon by Tenant other than as may be contained in Exhibit B
attached to this Lease. By taking possession of the Leased Premises, the Tenant
accepts the Leased Premises in the Building in its "As Is" condition, and the
taking of the possession of the Leased Premises by the Tenant shall be
conclusive evidence that the Leased Premises and the Building are in good and
satisfactory condition, except for Latent Defects and uncompleted PunchList
Items. Landlord shall complete the PunchList Items within forty-five (45) days
following Landlord's approval, which approval shall not be unreasonably
withheld, delayed or conditioned, of a list of the PunchList Items submitted to
Landlord by Tenant after the Commencement Date. Such forty-five (45) day period
shall be extended to the extent Landlord's completion of the PunchList Items is
delayed by any act of God, strike, lock out, labor difficulty, explosion,
sabotage, accident, riot, civil commotion, act of war, result of any warfare or
warlike condition in this or any foreign country, fire or other casualty, legal
requirement, energy shortage or cause beyond the reasonable control of Landlord
and Landlord has nevertheless used reasonably diligent efforts to complete any
uncompleted PunchList Items. Landlord shall have access to the Leased Premises
at all reasonable times in order to complete the PunchList Items. Tenant
acknowledges that Landlord's completion of the PunchList Items may cause
interference with the conduct of Tenant's business in the Leased Premises and
Tenant waives any and all rights and remedies it has with respect to such
interference; however, Landlord agrees to use reasonable efforts to minimize
such interference.
7. SERVICES
A. LIST OF SERVICES. Landlord shall provide the following services on all
days during the Term, except Sundays and legal Federal holidays, unless
otherwise stated:
(i) Heating, ventilation and air conditioning service ("HVAC
Service") when necessary for normal comfort in the Leased Premises, from Monday
through Friday, during the period from 7:00 a.m. to 6:00 p.m. and on Saturday
during the period from 9:00 a.m. to 1:00 p.m. (such periods are hereinafter
referred to as "Standard Building Hours"). Subject to the terms and provisions
of this Lease, Landlord shall furnish HVAC Service to the Leased Premises during
any period of time other than Standard Building Hours upon Tenant's written
request on Landlord's tenant work order form; provided, however, any such
request shall be made during, and at least six (6) hours prior to the expiration
of, Standard Building Hours on a weekday, other than a Federal holiday. The
minimum period of HVAC Service that may be so requested is four (4) consecutive
hours. Tenant will pay for all such HVAC Service so requested and furnished at
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Landlord's actual and direct costs therefor, with no markup by Landlord. To the
extent another tenant, on the same floor in the Building as the floor to which
Tenant has requested such HVAC Service for a period of time, has requested that
such HVAC Service be provided during all or part of the same period, Landlord
shall prorate the cost of such simultaneous HVAC Service between Tenant and such
other tenant based on the proportionate sizes of Tenant's space and such other
tenant's space to which simultaneous HVAC Service was furnished. Notwithstanding
the foregoing, Landlord reserves the right to increase the hours and/or days
during which the Standard Building Hours of the Building shall occur. The HVAC
Service furnished by Landlord to the Leased Premises has been designed to
produce indoor conditions noted below when the outdoor conditions are as stated
below based upon the average consumption of 5 watts per usable square foot and
occupancy averaging not more than one person per 200 usable square feet:
Summer:
Indoor Conditions (maximum):
73 degrees Fahrenheit, dry bulb
Outdoor Conditions:
93 degrees Fahrenheit, dry bulb
75 degrees Fahrenheit, wet bulb (coincidental)
Winter:
Indoor Conditions (maximum):
72 degrees Fahrenheit, dry bulb
Outdoor Conditions:
14 degrees Fahrenheit, dry bulb
These specifications define the quality, character and amount of HVAC Service
that Landlord is required to supply at the points at which the systems providing
HVAC Service in the Building meet the distribution systems for HVAC Service in
the Leased Premises. The actual temperature and humidity in the Leased Premises
may be varied by, among other things, equipment used by Tenant, alterations made
to the Leased Premises and the imposition of different temperature maintenance
standards by governmental and quasi-governmental authorities. Landlord shall
have no liability or responsibility for any such variation.
(ii) Electricity services; provided that (a) the connected
electrical load of the lighting and other receptacle equipment in the Leased
Premises shall not exceed an average consumption of 5 watts per usable square
foot of the Leased Premises; (b) the electricity so furnished will be at a
normal 120 volts and no electrical circuit for the supply of the Leased Premises
have a current capacity exceeding 20 amperes; (c) no individual piece of
electrically
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operated machinery or equipment shall draw in excess of 2 kilowatts; and (d)
such electricity will be used only for equipment and accessories normal to
office usage. Tenant shall not install or operate in the Leased Premises any
electrically operated equipment or machinery that may exceed the requirements
set forth in the preceding sentence without first obtaining the prior written
consent of Landlord, which consent shall not be unreasonably withheld,
conditioned or delayed; provided, however, Landlord may condition such consent
upon the payment by Tenant of Additional Rent in compensation for the excess
consumption of electricity or other utilities and compliance by Tenant with the
terms and provisions of this Lease relating to improvements, alterations and
additions with respect to any additional wiring or apparatus that may be
occasioned by the operation of such equipment or machinery. Tenant shall bear
the cost of replacement of all lamps, tubes, ballasts and starters for lighting
fixtures that are not building standard lighting fixtures.
(iii) Potable water for drinking in accordance with governmental
requirements, hot and cold water from the regular Building lavatory outlets and
water from the regular Building toilet outlets.
(iv) Cleaning services in accordance with the specifications set
forth in Exhibit E.
(v) Automatic passenger elevator service.
(vi) Elevator service for freight subject to scheduling by Landlord.
Landlord agrees to use reasonable efforts to accommodate scheduling requests by
Tenant. Tenant's use of elevator service for freight shall not occur during
Standard Building Hours or on legal Federal holidays. Tenant shall reimburse
Landlord for Landlord's costs incurred in such use. If Tenant, in using an
elevator for freight, is vacating the Leased Premises (whether or not such
vacation is in violation of the terms of this Lease), Tenant shall pay such cost
to Landlord in advance of such vacation.
(vii) Security, including, without limitation, a "Kastle Key" access
system, or a reasonably equivalent system for building access after, and a lobby
attendant during, Standard Building Hours, as well as a building security
system, a fire safety system and an elevator floor "lock out" system.
(viii) Structural repairs to the base Building shell and Base
Construction.
B. EXCESS CONSUMPTION. Subject to the provisions of Paragraph 7A(ii)
above, at the option and cost of Landlord, Landlord may install checkmeters to
electrical circuits serving Tenant's equipment to determine whether Tenant is
consuming excessive electricity as compared to typical office tenants in
Arlington County, Virginia. If Landlord determines pursuant thereto that
Tenant's electricity consumption is excessive, Landlord may install submeters,
at Tenant's
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sole cost and expense (which shall be Additional Rent), to ascertain Tenant's
actual electricity consumption, and Tenant will thereafter pay for Tenant's
excess consumption of electricity, at the then current price per kilowatt hour
for the commercial service classification charged Landlord by the utility, as
Additional Rent.
C. INTERRUPTION OF SERVICES. Tenant agrees that Landlord shall not be
liable in damages, by abatement of Rent or otherwise, for failure to furnish or
delay in furnishing any service or for any diminution in the quality or quantity
thereof, when such failure, delay or diminution is occasioned, in whole or in
part, by maintenance, repairs, replacements, additions, alterations or
improvements, by any strike, lockout or other labor trouble, by inability to
secure water or electricity, gas (if any) or other fuel at the Building after
reasonable effort so to do, by any accident, fire or casualty whatsoever, by act
or default of Tenant or any other person or entity, by the exercise of
Landlord's rights under Paragraph 7E or by any act or failure to act by any
person or entity if it is beyond Landlord's reasonable control and not caused by
the negligence or willful misconduct of Landlord, and no such failure, delay or
diminution shall ever be deemed to constitute an actual or constructive eviction
or disturbance of Tenant's use and possession of the Leased Premises or relieve
Tenant from paying Rent or performing any of its obligations under this Lease;
provided, however, to the extent any such failure, delay or diminution is caused
by any circumstance described above, other than a fire or casualty covered by
Paragraph 12 hereof, and Tenant's does not use the Leased Premises as a result
thereof for a period of at least five (5) consecutive business days after Tenant
has given written notice to Landlord of such interruption, then Tenant, as its
sole remedy, shall be entitled to full abatement of Rent payable during the
period of time following such five (5) consecutive business day period that such
failure, delay or diminution continues as long as Tenant does not use the Leased
Premises; provided, further, that in the event such failure, delay or diminution
continues uninterrupted for a period of at least sixty (60) consecutive days
following Tenant's written notice thereof to Landlord, then if Tenant has not
used the Leased Premises during such sixty (60) consecutive day period Tenant
shall be entitled to terminate this Lease as an additional remedy by giving to
Landlord written notice of such termination prior to the seventieth (70th)
consecutive business day of such uninterrupted failure, delay or diminution that
Tenant does not use the Leased Premises, and this Lease shall terminate thirty
(30) days after Landlord's receipt of such notice from Tenant unless Tenant uses
the Leased Premises or such interruption has ceased prior to the expiration of
such thirty (30) day period. Upon such termination neither such party shall have
any further right or obligation under this Lease, except that each party shall
fulfill all obligations of such party which survive the termination of this
Lease.
D. CHARGES FOR SERVICES. Except as expressly provided herein to the
contrary, charges for any service for which Tenant is required to pay from time
to time hereunder, including, but not limited to, HVAC Service during any period
of time other than Building Standard Hours, shall be due and payable within
thirty (30) days after they are billed. If Tenant shall fail to make payment for
any such service within such thirty (30) day period, Landlord may, after giving
Tenant any ten (10) days notice of such failure and opportunity to
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cure required under Paragraph 18 of Exhibit C, discontinue any or all of such
services until such payment, together with the payment of interest and any late
charge due hereunder in connection therewith, is made by Tenant, and such
discontinuance shall not be deemed to constitute an actual or constructive
eviction or disturbance of Tenant's use and possession of the Leased Premises or
relieve Tenant from paying Rent or performing any of its other obligations under
this Lease.
E. ENERGY AND WATER CONSERVATION. Notwithstanding anything to the
contrary in this Paragraph 7 or elsewhere in this Lease, Landlord, in its
reasonable discretion, shall have the right to institute such policies, programs
and measures as may be necessary or desirable for the conservation and
preservation of water, energy or energy related services, or as may be required
to comply with any applicable codes, rules and regulations, whether mandatory or
voluntary; provided, however, that Landlord agrees that any such policies,
programs and measures which are not mandatory shall be made in a manner
reasonably intended to minimize inconvenience to Tenant and shall not materially
violate the terms of Paragraph 26 of this Lease.
8. REPAIRS
Tenant shall use its best efforts to promptly and adequately notify
Landlord in writing of any repairs and/or replacements to the Leased Premises or
the Landlord's Work that are necessary or appropriate. Upon Landlord obtaining
knowledge of any repair and/or replacement to the Leased Premises or the
Landlord's Work (but not any alterations, additions or improvements made
thereto) that is necessary or appropriate, Landlord will make such repair and/or
replacement, except Landlord shall not be obligated to make any repair or
replacement that is a result of ordinary wear or tear, or is a repair and/or
replacement which Tenant is obligated to make pursuant to this Lease. Provided
that Tenant has fulfilled its obligation in the first (1st) sentence of this
Paragraph 8, any repair or replacement which Landlord is obligated to make
pursuant to this Lease shall be made at Landlord's expense, except as expressly
provided to the contrary in this Lease. Tenant shall be liable to Landlord for
the cost of any repair or replacement which Landlord is obligated to make under
this Paragraph 8 to the extent Tenant's failure to fulfill its obligation in the
first (1st) sentence of this Paragraph 8 caused such cost to exceed the cost of
such repair or replacement if Tenant had fulfilled such obligation.
If Landlord fails to commence efforts to make any repair and/or
replacement that Landlord is obligated to make under this Lease, other than a
repair and/or restoration covered by Paragraph 12 hereof, within thirty (30)
days from the date that Tenant gives Landlord such written notice of Landlord's
obligation hereunder to perform any such repair and/or replacement, or within a
shorter, reasonable period of time in the event of an emergency, and thereafter
continue such efforts until such repair and/or replacement is completed, Tenant
then, if such failure continues after Tenant has given Landlord a ten (10) day,
or a shorter, reasonable period in the event of a emergency, written notice of
Tenant's intent to make such repair and/or replacement, Tenant shall have the
right, at its option, to perform such repair and/or replacement
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if Landlord has not made such repair and/or replacement during such ten (10) day
period, subject to the other terms and provisions of this Lease, and Landlord
shall reimburse Tenant the reasonable cost thereof approved in advance by
Landlord in writing, and such approval shall not be unreasonably withheld,
delayed or conditioned. Except in an emergency, prior to performing any repair
and/or replacement allowed under this Lease, Tenant shall obtain Landlord's
prior written approval, which approval shall not be unreasonably withheld,
delayed or conditioned, of the contractor and each subcontractor which shall
perform any part of such repair and/or replacement.
Anything in this Lease to the contrary, notwithstanding, Tenant shall be
obligated to perform and pay the cost of any repair and/or replacement to the
Leased Premises, the improvements provided in connection with the Landlord's
Work and any alterations, additions or improvements made to the Landlord's Work,
the Building or the Property necessitated by the negligence or willful
misconduct of Tenant, or any of its Affiliates, agents, employees, contractors,
subcontractors, suppliers, invitees or guests. If Tenant fails to commence
efforts to make any repair and/or replacement Tenant is obligated to perform
under this Lease within thirty (30) days from the date that Landlord gives
Tenant written notice of Tenant's obligation hereunder to perform any such
repair and/or replacement, or within a shorter, reasonable period of time in the
event of an emergency, and thereafter continue such efforts until such repair
and/or replacement is completed, Landlord and its designee shall have the right,
at Landlord's option, to enter the Leased Premises and perform such repair
and/or replacement and Tenant shall pay Landlord the reasonable costs thereof,
including, without limitation, a percentage of the costs thereof [such
percentage to be established by Landlord from time to time on a uniform basis
for the Building, but such percentage shall not exceed ten percent (10%)]
sufficient to reimburse Landlord for all overhead, general conditions, fees and
other costs and expenses arising from the supervision of such repair and/or
replacement by Landlord or Landlord's designee, promptly upon being billed for
same.
Notwithstanding the foregoing in this Paragraph 8, Landlord may, but shall
not be required to, enter the Leased Premises at all reasonable times to make,
at Landlord's cost and expense, such repairs, replacements, alterations,
additions or improvements to the Leased Premises or to the Building or to any
equipment located in the Building as shall be necessary or as Landlord may be
required to do by contract, governmental authority or court order or decree. No
such entry or repairs, replacements, alterations, additions or improvements by
Landlord shall be deemed or contrued to be a disturbance of Tenant's quiet and
peaceable possession of the Leased Premises or a violation of any rights of
Tenant or of any covenants or other obligations of Landlord under this Lease;
provided, however, Landlord will use reasonable efforts to minimize interference
with Tenant's rights under Paragraph 26 hereof. Repairs, replacements,
alterations, additions and improvements to the Leased Premises required to be
made by any governmental authority or court order or decree, or board of fire
underwriters, shall be made by Landlord, at Landlord's expense, except to the
extent such expense is included in Operating Expenses.
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9. ADDITIONS AND ALTERATIONS
A. Except for the Landlord's Work to be constructed in accordance with
Exhibit B attached hereto, Tenant shall not make any alterations, improvements
or additions to the Leased Premises without the prior written consent of
Landlord, which consent as to nonstructural, nonmechanical or nonelectrical
alterations, improvements or additions shall not be unreasonably withheld,
conditioned or delayed. Notwithstanding the preceding sentence, Landlord's
consent shall not be required for nonstructural, nonmechanical and nonelectrical
alterations, improvements or additions, the total, aggregate cost of which is
less than $2,500. If Landlord consents to said alterations, improvements or
additions, it may impose such conditions with respect thereto as Landlord deems
appropriate, in its reasonable discretion, including, without limitation,
requiring Tenant to furnish Landlord with security for the performance of the
work and payment of all costs to be incurred in connection with such work;
insurance against liabilities which may arise out of such work; plans and
specifications, and all permits necessary for such work. The work necessary to
make any alterations, improvements or additions to the Leased Premises other
than the Landlord's Work, whether prior to or subsequent to the Commencement
Date, shall be done at Tenant's expense and shall be performed by employees of
Landlord or contractors hired by Landlord except to the extent Landlord gives
its prior written consent to Tenant's hiring its own contractors. Landlord may
condition its consent to Tenant hiring its own contractors, on Tenant delivering
to Landlord, prior to commencement of such work, copies of all contracts entered
into with respect thereto and all other documents and information reasonably
requested by Landlord. It is understood and agreed that, in the event Landlord
shall give its written consent to the making of any alterations, improvements or
additions to the Leased Premises, such written consent shall not be deemed to be
an agreement or consent by Landlord to subject its interest in the Property to
any mechanics' or materialmen's liens which may be filed in connection
therewith. Tenant shall promptly pay to Landlord or Tenant's contractors, as the
case may be, when due, the cost of all such work. If Landlord or Landlord's
designee performs such work, Tenant shall also pay to Landlord a percentage of
the cost of such work [such percentage to be established by Landlord from time
to time on a uniform basis for the Building, but such percentage shall not
exceed ten percent (10%)] sufficient to reimburse Landlord for all overhead,
general conditions, fees and other costs and expenses arising from the
supervision of such work by Landlord or Landlord's designee with such work
promptly upon being billed for same.
Upon completion of any repair, replacement, alteration, improvement or
addition performed by Tenant, or its contractors and subcontractors, Tenant
shall deliver to Landlord, if payment is made by Tenant directly to its
contractors, evidence of payment and contractors' and subcontractors' affidavits
and full and final waivers of all liens for labor, services or materials, all in
form and substance satisfactory to Landlord, from each contractor,
subcontractor, supplier and other person or entity that may be entitled to a
lien due to such repair, replacement, alteration, improvement or addition. To
the extent Landlord or a contractor engaged by Landlord does not perform the
work, Tenant shall indemnify, defend and hold Landlord and the Property harmless
from, and shall pay, all liabilities, claims, judgments, costs, damages, liens
and expenses related
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to any repair, replacement, alteration, addition or improvement performed by
Tenant, or its contractors and subcontractors, including all reasonable
attorneys' fees and legal costs, and Tenant shall require each of its
contractors in each of its contracts to so defend and indemnify Landlord;
provided, however, Tenant shall not indemnify, defend and hold Landlord harmless
from the reasonable cost of any repairs and/or replacements which Landlord is
obligated to make under Paragraph 8 hereof. All work done by Tenant or its
contractors pursuant to Paragraphs 8 or 9 hereof shall be done in a first-class
workmanlike manner using only the highest grades of materials, which shall be at
least comparable in quality to Building Standard materials at the time of such
work, and shall comply with all insurance requirements and all applicable laws,
ordinances, rules, regulations and orders of all courts and other tribunals,
governmental and quasi-governmental departments and agencies. Any work
undertaken by Tenant shall be performed by labor which is not incompatible with
the labor employed in the Building by Landlord.
B. Unless Tenant notifies Landlord prior to the construction of any
alteration, improvement or addition (other than Landlord's Work) that Tenant
shall remove the same upon termination of this Lease and provides adequate
assurance (including a reasonable amount of security) to Landlord, in Landlord's
reasonable discretion, that any damage to the Leased Premises upon such removal
shall be promptly repaired or restored by Tenant, at its sole cost, all
alterations, improvements and additions to the Leased Premises, whether
temporary or permanent in character, made or paid for by Landlord or Tenant,
shall without compensation to Tenant become Landlord's property at the
termination of this Lease by lapse of time or otherwise and shall, unless
Landlord requests their removal (in which case Tenant shall remove the same as
provided in Paragraph 17 hereof), be relinquished to Landlord in good order,
repair and condition, except for ordinary wear and tear and repairs and/or
replacements which Tenant is not obligated to make pursuant to this Lease. At
the time Tenant requests in writing that Landlord consent to any alterations,
improvements or additions, Tenant may request in writing that Landlord elect
whether or not it will request their removal. if such election is so requested
by Tenant, Landlord agrees to make such election in writing at the time it gives
any written consent to such alterations, improvements or additions. Landlord's
election with respect to any particular items shall not bind Landlord as to any
other items that are not expressly covered by such election.
10. COVENANT AGAINST LIENS
Tenant has no authority or power to, and shall not, cause or permit any
lien or encumbrance of any kind whatsoever, whether created by act of Tenant,
operation of law or otherwise, to attach to or be placed upon Landlord's and/or
Tenant's title or interest in the Property or the Leased Premises. Tenant
covenants and agrees not to suffer or permit any lien of mechanics or
materialmen or others to be placed against the Property or the Leased Premises
with respect to work or services performed or claimed to have been performed
for, or materials furnished or claimed to have been furnished to, Tenant or the
Leased Premises, and, in case of
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any such lien attaching or claim thereof being asserted, Tenant covenants and
agrees to immediately notify Landlord of such lien and cause it to be
immediately released and removed of record. In the event that such lien is not
released and removed within ten (10) days after Landlord gives Tenant a written
demand for the release and removal of such lien, or within any shorter period of
time (with or without any such demand) if Landlord's interest in the Property,
the Building or the Leased Premises might be jeopardized if Landlord were
required to wait any such ten (10) day period, Landlord, at its sole option, may
take all action necessary to release and remove such lien (without any duty to
investigate the validity thereof) and Tenant shall promptly upon notice, either
before or after such release or removal, pay or reimburse Landlord for all sums,
costs and expenses (including reasonable attorneys' fees) incurred by Landlord
in connection with such lien, together with interest thereon at the Interest
Rate. The preceding two sentences shall not apply to liens filed by reason of
Landlord's failure to pay any sums it has contracted to pay to mechanics,
materialmen or others except to the extent Tenant had agreed to pay or reimburse
Landlord for such sums and has not done so. Notwithstanding the foregoing in
this Paragraph 10, if Tenant is diligently contesting any such lien, as
determined in the reasonable discretion of Landlord, and Tenant, at its sole
cost, has obtained a bond approved by Landlord, in its reasonable discretion,
that prevents the foreclosure of such lien during such contest, Landlord shall
not be entitled to obtain a release or removal of such lien by any payment which
is reimbursable by Tenant. Tenant shall promptly provide to Landlord all
information reasonably requested by Landlord to assist Landlord in determining
whether Tenant is diligently contesting any such lien and whether such bond
exists.
11. INSURANCE
A. WAIVER OF SUBROGATION. Each party hereby waives any and every claim for
recovery from such other party for any and all insurable perils, to the extent
that such loss or damage is actually recovered under insurance policies, or
would have been recoverable under insurance policies, if Landlord and Tenant
continuously maintained the insurance coverage required under this Paragraph 11,
during the Term. Inasmuch as this mutual waiver will preclude the assignment of
any such claim by subrogation or otherwise to an insurance company (or any other
person), Landlord and Tenant each agrees to give written notice of the terms of
this mutual waiver to each insurance company which has issued, or in the future
may issue, policies of physical damage insurance to it, and to have said
insurance policies properly endorsed, if necessary, to prevent the invalidation
of said insurance coverage by reason of said waiver.
B. TENANT'S INSURANCE. Tenant shall purchase and, during the entire Term
of the Lease, maintain insurance with terms, coverages and in companies
reasonably satisfactory (but in no event with a Best's Rating of less than A- or
a Best's Financial Size Category of less than Class X) to Landlord. Tenant
agrees to secure such reasonable increases in limits as Landlord may from time
to time reasonably request. Tenant shall maintain the following coverages in the
following amounts:
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(i) Comprehensive General Liability Insurance, naming Landlord, the
Building's property manager and all mortgagees as additional insureds, and
covering, on an occurrence basis, claims of bodily injury, personal injury and
property damage arising out of Tenant's operations, assumed liabilities or use
of the Leased Premises, for limits of liability not less than:
Personal and Advertising $1,000,000 each occurrence
Injury Liability $2,000,000 annual aggregate
Property Damage Liability $1,000,000 each occurrence
$2,000,000 annual aggregate
General Annual Aggregate $2,000,000
Products-Comp/OPS Aggregate $1,000,000
Umbrella Liability $15,000,000
Insured Participation 0%
(ii) Property Damage Insurance covering, on an occurrence basis, (A)
all additions, improvements and alterations to the Leased Premises paid for by
Landlord, directly or indirectly, including, without limitation all floor
coverings, wall coverings, window coverings and ceiling tile (whether or not
such floor coverings, wall coverings, window coverings and ceiling tile are
building standard) and all Landlord's Work that is not Base Construction as set
forth in Exhibit B-1 attached hereto and (B) all office furniture, trade
fixtures, office equipment, merchandise and all other items of Tenant's property
in the Leased Premises. Such insurance shall be written on an "all risks" of
physical loss or damage basis and will have limits sufficient to cover the full
replacement cost value of the covered items and name Landlord as additional
insured and all mortgagees as loss payees (as their interests may appear). If
requested by the holder of any mortgage now or hereafter placed against the
Property, said insurance also shall include a standard mortgage clause for the
benefit of such holder. The coinsurance clause of such insurance shall be waived
and a replacement cost endorsement shall be included, which endorsement provides
that in the event of loss, Tenant is fully reimbursed when replacing old with
new without deduction for physical depreciation.
(iii) Business interruption insurance in the amount of at least
$500,000, sufficient to reimburse Tenant for direct and indirect loss of
earnings attributable to all perils commonly insured against by prudent tenants
or attributable to prevention of, or access to the Leased Premises as a result
of such perils.
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(iv) During such time as Tenant shall be constructing or contracting
for the construction of any alterations, improvements or additions in the Leased
Premises, Tenant shall carry builder's risk insurance, completed value form,
covering all physical loss in an amount reasonably satisfactory to Landlord,
naming as additional insureds Landlord, the Building's property manager and all
mortgagees.
Tenant shall, prior to the commencement of the Term, furnish to Landlord
certificates evidencing such coverage, which certificates shall state that such
insurance coverage may not be changed or cancelled without at least thirty (30)
days' prior written notice to Landlord and Tenant. Such coverage shall apply or
relate solely to the Property and not be diluted by claims against Tenant
related to activities not applicable or related to the Property.
C. AVOID ACTION INCREASING RATES. Tenant shall comply with all applicable
laws and ordinances, all orders and decrees of courts and all requirements of
other governmental authorities, and shall not, directly or indirectly, make or
allow to be made any use of the Leased Premises which may thereby be prohibited
or be dangerous or cause injury to person or property or which may jeopardize
any insurance coverage or may increase the cost of insurance or require
additional insurance coverage. If by reason of the failure of Tenant to comply
with the provisions of this Paragraph 11C, any insurance coverage is jeopardized
or insurance premiums are increased, Landlord may exercise the option either to
require Tenant to cease each activity which has jeopardized or increased the
cost of the insurance coverage or make immediate payment of the increased
insurance premium. If Landlord elects to require Tenant to cease each such
activity Landlord shall give Tenant written notice that Tenant must cease such
activity. Such notice from Landlord shall provide a cure period to Tenant of at
least thirty (30) days, unless Landlord's insurance will be cancelled on a date
earlier than the end of such thirty (30) day cure period if such activity has
not ceased by such earlier date, in which event a shorter cure period may be
given which allows Landlord a reasonable time to terminate this Lease and cause
the cessation of such activity prior to such earlier date. If Tenant fails to
cease each such activity within such cure period provided by Landlord, Landlord
may terminate this Lease without any further notice or demand whatsoever by
giving written notice of termination to Tenant and Tenant, without any further
demand or notice whatsoever, shall be deemed to be automatically in default
under this Lease.
D. LANDLORD'S INSURANCE. Tenant acknowledges that Landlord is not
obligated to carry insurance on any floor coverings, wall coverings, window
coverings or ceiling tile in or about the Leased Premises or any other
additions, improvements or alterations in or about the Leased Premises or on
Tenant's furniture, furnishings, fixtures, equipment and/or improvements in or
about the Leased Premises. Anything in this Lease to the contrary
notwithstanding, Tenant agrees that Tenant shall look to the insurance policies
it carries, and not to Landlord, for reimbursement for any insurable perils that
affect such property. Landlord, however, during the Term of this Lease, will
maintain the following insurance with a company or
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companies having a Best's Rating of no less than A- and a Best's Financial Size
Category of no less than Class X:
(i) Property Damage Insurance covering, on an occurrence basis, the
base Building Shell and Base Construction. Such insurance shall be written on an
"all risk" of physical loss or damage basis and will have limits sufficient to
cover the full replacement cost value of the covered items. The coinsurance
clause of such insurance shall be waived and will include a replacement cost
endorsement, which endorsement provides that in the event of loss, Landlord is
fully reimbursed when replacing old with new without deduction for physical
depreciation.
(ii) Comprehensive General Liability Coverage in the amount of at
least $1,000,000 per occurrence and $2,000,000 in the aggregate.
(iii) Umbrella Liability Coverage of at least $25,000,000.
Such insurance shall provide that it may not be changed or cancelled without at
least thirty (30) days prior written notice to Landlord.
12. FIRE OR CASUALTY
A. If less than a substantial portion (determined in accordance with
Paragraph 12D below) of the Leased Premises or the Property shall be damaged by
fire or other casualty, then Landlord shall repair and restore such damage with
reasonable promptness, subject to delays caused by insurance adjustments and
matters beyond Landlord's reasonable control and to the provisions of Paragraphs
12B and 12C below. If all or at least a substantial portion of the Leased
Premises or the Property shall be damaged by fire or other casualty Landlord
shall repair and restore such damage as provided herein with reasonable
promptness, except when Landlord estimates that the amount of time required to
obtain insurance proceeds, obtain permits and substantially complete the repair
and restoration of such damage will exceed one hundred eighty (180) days from
the date of the fire or other casualty, Landlord shall give Tenant written
notice of such estimate within forty (40) days of the date of such fire or other
casualty and thereafter, Landlord and, subject to the terms and provisions of
Paragraph 12E below, Tenant shall have the right to terminate this Lease as of
the date of such fire or other casualty upon giving written notice to the other
party at any time within sixty (60) days after the date of such fire or other
casualty. Landlord shall have no liability to Tenant, and Tenant shall not be
entitled to terminate this Lease, by virtue of any delays in completion of such
repair and restoration, except that if Landlord does not give Tenant such forty
(40) day notice, the repair and restoration of the Leased Premises, if any, is
not substantially completed by Landlord or Tenant does not have reasonable
access to the Leased Premises, on or before the date that is one hundred eighty
(180) days following the date of such fire or casualty and the failure of such
repair and restoration to be substantially completed on or before such date is
not due to matters beyond Landlord's
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reasonable control, Tenant may terminate this Lease by giving Landlord written
notice of such termination on or before the day that is one hundred ninety (190)
days following the date of such fire or other casualty. If Landlord does not
give Tenant such forty (40) day notice and the repair and restoration of the
Leased Premises, if any, is not substantially completed by Landlord or Tenant
does not have reasonable access to the Leased Premises, on or before the date
that is two hundred seventy (270) days following the date of such fire or
casualty for any reason whatsoever, Tenant may terminate this Lease by giving
written notice to Landlord of such termination on or before the two hundred
eightieth (280th) day following such fire or casualty. In addition, if Landlord
does not give Tenant such forty (40) day notice and the failure of Landlord to
substantially complete any repair or restoration of the Leased Premises, or
provide to Tenant reasonable access to the Leased Premises by the date that is
two hundred seventy (270) days following such fire or casualty is caused, in
whole or in part, by matters beyond Landlord's reasonable control, Landlord
shall have the option to terminate this Lease by giving written notice to Tenant
of such termination on or before such two hundred eightieth (280th) day. Rent,
however, shall abate on those portions of the Leased Premises as are, from time
to time, untenantable and not used or occupied by Tenant as a result of such
fire or other casualty , except as otherwise provided in this Paragraph 12.
Notwithstanding anything herein to the contrary, Tenant shall only have the
right to terminate this Lease hereunder if Tenant also terminates the Original
Lease pursuant to Paragraph 12.A of the Original Lease. Any termination by
Tenant of the Original Lease pursuant to Paragraph 12A thereof shall be deemed
to be a termination of this Lease by Tenant pursuant to this Paragraph 12A.
B. Anything in this Lease to the contrary notwithstanding, in no event
shall Landlord be obligated to make any expenditure for the repair or
restoration of damage caused by a fire or other casualty in excess of the sum of
the insurance proceeds actually received by Landlord on account of such fire or
other casualty. In addition, Landlord shall have the right to terminate this
Lease in the event (a) Landlord's insurance is insufficient to pay the full cost
of such repair and restoration and such fire or other casualty was caused by the
negligence or wilful misconduct of Tenant, or any of its Affiliates, agents,
employees, contractors, subcontractors, suppliers, invitees or guests, (b) any
mortgagee fails or refuses to make such insurance proceeds available for repair
and restoration, (c) zoning or other applicable laws or regulations do not
permit such repair or restoration, or (d) at least twenty percent (20%) of the
rentable square feet in the Building is damaged by such fire or other casualty.
In the event Landlord terminates this Lease due to the occurrence of a fire or
other casualty, to the extent such fire or casualty was not caused by the
negligence or wilful misconduct of Tenant and the Leased Premises were
untenantable during such period and Tenant did not use occupy such untenantable
portions of the Leased Premises, Tenant's Rent payable under this Lease shall be
abated during the period beginning on the date of such fire or casualty and
ending on the date of termination of this Lease. Notwithstanding anything to the
contrary in this Lease, in the event the Leased Premises or the Property is
damaged by fire or other casualty resulting from the negligence or willful
misconduct of Tenant, or any of its Affiliates, agents, employees, contractors,
subcontractors, suppliers, invitees or guests, and this Lease is not terminated
by Landlord, Tenant shall not be released from its
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obligations hereunder, including, without limitation, its duty to pay Rent,
which Rent shall not be abated. Except as expressly provided herein to the
contrary, upon any termination of this Lease by Landlord or Tenant under this
Paragraph 12 neither Landlord nor Tenant shall have any obligations to the other
under this Lease, other than those obligations which survive the expiration or
earlier termination of this Lease.
C. Notwithstanding anything in this Lease to the contrary, Landlord shall
have no duty under this Lease to repair or restore (i) any trade fixtures,
furnishings, furniture, including, without limitation, equipment or personal
property belonging to Tenant, or any of its Affiliates, agents, employees,
contractors, subcontractors, suppliers, invitees or guests, or (ii) any portion
of the alterations, additions or improvements in the Leased Premises or the
decorations thereto; provided that, subject to the other provisions in this
Paragraph 12, Landlord shall be obligated to repair such alterations, additions,
improvements and decorations to the extent, and only the extent, they are part
of the base Building shell and the Base Construction. If, after a fire or other
casualty, Tenant desires any repairs or restoration that Landlord is not
obligated to perform under this Lease, and if Landlord consents thereto, the
same shall be done at Tenant's sole cost and expense subject to all of the
provisions of Paragraph 9 hereof Tenant acknowledges that Landlord shall be
entitled to the full proceeds of any insurance coverage carried by Tenant for
damage to alterations, additions, improvements, decorations and other property
paid for by Landlord either directly or indirectly or through an allowance to
Tenant or which otherwise would become the property of Landlord at the end of
the Term under the provisions of this Lease, including, without limitation,
insurance proceeds relating to the Landlord's Work and floor coverings, wall
coverings, window coverings and ceiling tile; provided, however, if Landlord is
obligated or has elected to repair or restore the Leased Premises, Landlord
shall place such insurance proceeds in escrow upon receipt thereof, and
thereafter, if no default under this Lease exists and is continuing beyond any
applicable notice or cure period, disburse to Tenant the insurance proceeds for
the Landlord's Work, wall coverings, window coverings and ceiling tile to
replace the Landlord's Work and floor coverings, wall coverings, window
coverings and ceiling tile for which such proceeds were paid to Landlord in a
manner mutually agreed to by Landlord and Tenant. Tenant acknowledges that
Tenant shall have no right to insurance proceeds payable or paid to Landlord
under any insurance Landlord maintains.
D. For purposes of Paragraphs 12 and 15 hereof, damage or condemnation of
a "substantial portion" of the Leased Premises or the Property shall have
occurred only if, as a result of any damage, more than 50% of the rentable area
of the Leased Premises is untenantable, Tenant has not used or occupied any of
the untenantable portions of the Leased Premises, Tenant has used its best
efforts to consolidate its offices and work space, and to take all other actions
necessary for the conduct of Tenant's business, in the tenantable areas of the
Leased Premises, but the conduct of Tenant's business, as it existed on the day
prior to the date of such fire or other casualty, in the tenantable areas of the
Leased Premises thereafter remains unfeasible, and Landlord fails to give Tenant
notice, within fifty (50) days following the date of such fire or other
casualty, that Landlord will provide Temporary Leased Premises (as defined in
Paragraph 12E
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below) to Tenant or if the Property or a smaller part of the Leased Premises has
been damaged or condemned and Landlord determines that it is not economically
prudent to repair and restore the undamaged or uncondemned part of the Property
to its condition and use prior to the damage or condemnation.
E. In the event the Leased Premises shall be damaged by fire or other
casualty and such fire or other casualty renders all or at least a substantial
portion of the Leased Premises untenantable by Tenant and Landlord estimates
that the amount of time required to obtain insurance proceeds, obtain permits
and substantially complete such repair and restoration will exceed one hundred
eighty (180) days from the date of the fire or other casualty, and gives Tenant
written notice of such estimate within forty (40) days of the date of such fire
or other casualty, Landlord may substitute for the Leased Premises, or any
untenantable portion of the Leased Premises which Tenant has not used or
occupied, other premises in the Property (herein referred to as the "Temporary
Leased Premises"); and if Tenant is already in occupancy of the Leased Premises,
then in addition, Landlord shall pay the expenses of Tenant's moving to the
Temporary Leased Premises and for improving the Temporary Leased Premises so
that they are adequate for Tenant to conduct its business therein during the
repair and restoration of such damage. Upon Tenant's request, any move by Tenant
pursuant to this Paragraph 12E, shall be made during evenings, weekends or
otherwise so as to incur the least inconvenience to Tenant. In the event
Landlord elects to provide Temporary Leased Premises to Tenant, Landlord shall
give Tenant notice of such election within fifty (50) days after the date of
such fire or other casualty. If Landlord gives such notice to Tenant, Tenant
shall have no right to terminate this Lease pursuant to Paragraph 12A; provided,
however, if the Temporary Leased Premises are not and available for Tenant's
possession on or before the date that is ninety (90) days following the date of
such fire or other casualty and the failure of such Temporary Leased Premises to
be so improved and available is not due to events beyond Landlord's reasonable
control, Tenant may terminate this Lease by giving Landlord written notice of
such termination on or before the day that is one hundred (100) days following
the date of such fire or other casualty; provided, further, however, that if the
Temporary Leased Premises are not available for Tenant's possession on or before
the date that is one hundred fifty (150) days following the date of such fire or
other casualty for any reason whatsoever, Tenant may terminate this Lease by
giving Landlord written notice of such termination on or before the day that is
one hundred sixty (160) days following the date of such fire or other casualty.
13. WAIVER OF CLAIMS - INDEMNIFICATION
Subject to the terms and Provisions of Paragraph 8 hereof requiring
Landlord to make certain repairs and/or replacements, Landlord shall not be
liable to Tenant or its employees, agents, servants or other invitees or guests
or to any third party for any damage either to person or property, whether
resulting from the loss of use thereof or otherwise, sustained by Tenant or by
other persons due in whole or in part to the Property or any part thereof or any
appurtenances thereof becoming out of repair, or due to the occurrence of any
act, neglect, accident or event on
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the Property or any part thereof, including, without limitation, the Leased
Premises, or due to any act or neglect of any tenant or occupant of the Property
or of any other person. This provision shall apply particularly, but not
exclusively, to damage caused by or from gas, electricity, snow, frost, ice,
rain, steam, sewage, sewer gas or odors, fire, water or by the bursting or
leaking of pipes, faucets, sprinklers, plumbing fixtures and windows, and shall
apply without distinction as to the person whose act or neglect was responsible
for the damage and whether the damage was due to any of the causes specifically
enumerated above or to some other cause of an entirely different kind. Tenant
further agrees that all personal property stored or placed upon the Leased
Premises, or being delivered to or from the Leased Premises, and upon loading
docks, receiving and holding areas, freight elevators, or other areas of the
Property, shall be at the risk of Tenant only, and the Landlord shall not be
liable for any loss or damage thereto or theft thereto. Without limitation of
any other provisions hereof, Tenant agrees to defend, protect, indemnify and
save harmless Landlord,, and its Affiliates, partners, and partners of such
partners, officers and directors, agents and employees from and against all
loss, damage or liability incurred by Tenant, or any of its Affiliates, agents,
employees, contractors, subcontractors, suppliers, invitees or guests, or by any
other persons or entities, in connection with the Leased Premises and, to the
extent, and only the extent, such loss, damage or liability is caused by the
negligence or wilful misconduct of Tenant, or any of its Affiliates, agents,
employees, contractors, subcontractors, suppliers, invitees or guests, in any
way related to the Property. Tenant also recognizes it will not be entitled to
any abatement or diminution of any Rent as a result of any of the foregoing
occurrences, except as otherwise expressly provided herein to the contrary, nor
shall the same release Tenant from its obligations hereunder or constitute an
eviction. Notwithstanding the foregoing in this Paragraph 13, Landlord agrees to
defend, protect, indemnify and save harmless Tenant from and against liability
incurred by Tenant and its officers, directors, Affiliates, agents and employees
of Tenant) to the extent, and only the extent, the damage to person or property
described in the first sentence of this Paragraph 13, or any loss, damage or
theft described in the third sentence of this Paragraph 13, is caused by the
negligence or wilful misconduct of Landlord, or any of its Affiliates, agents,
employees, contractors, subcontractors, suppliers, invitees or guests.
14. NONWAIVER
No waiver of any provision of this Lease shall be implied by any failure
of either party hereto to enforce any remedy on account of the violation of such
provision, even if such violation be continued or repeated subsequently, and no
express waiver shall effect any provision other than the one specified in such
waiver and that one only for the time and in the manner specifically stated. No
receipt of monies by Landlord from Tenant after the termination of this Lease
shall in any way alter the length of the Term or of Tenant's right of possession
hereunder or after the giving of any notice shall reinstate, continue or extend
the Term hereof or create a new tenancy or affect any notice given Tenant prior
to the receipt of such monies, it being agreed that after the service of notice
of the commencement of a suit for possession of the Leased Premises or after
final judgment for possession of the Leased Premises Landlord may receive and
collect
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any Rent due, and the payment of said Rent shall not waive, affect or nullify
said notice, suit or judgment. Neither the payment by Tenant of a lesser amount
than the monthly installment of Annual 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.
15. CONDEMNATION
A. If the whole or any substantial portion of the Building or of the
Leased Premises shall be taken in, or transferred in lieu of, condemnation or
any like proceedings (all of which are sometimes referred to herein as
"condemnation"), the Tenant at the option of Landlord or, subject to Landlord's
rights under Paragraph 12E hereof, Tenant, shall end upon the date when the part
so taken or transferred shall become vested in the condemning authority and Rent
shall be apportioned as of the date of such termination. Landlord shall be
entitled to receive the entire award from any condemnation without any payment
to Tenant. Nothing contained herein shall prevent Tenant from pursuing a
separate claim against the condemning authority of the value of furnishings,
equipment and trade fixtures installed in the Leased Premises at Tenant's sole
expense and for relocation expenses, provided that such claim shall in no way
diminish the award or compensation payable to or recoverable by Landlord in
connection with such taking or condemnation. If Landlord or Tenant does not so
end the Term as a result of the taking or transfer, this Lease shall remain in
effect and the Rent payable hereunder shall be equitably adjusted based on the
square footage of the Leased Premises taken or transferred. Notwithstanding
anything herein to the contrary, Tenant shall only have the right to terminate
this Lease hereunder if Tenant also terminates the Original Lease pursuant to
Paragraph 15A of the Original lease. Any termination by Tenant of the Original
Lease pursuant to Paragraph 15A thereof shall be deemed to be a termination of
this Lease by Tenant pursuant to this Paragraph 15A.
B. Notwithstanding anything to the contrary contained herein, in the event
of a condemnation of only the right to possession of all or any part of the
Leased Premises for a fixed period of time or other temporary condition no
longer than ninety (90) consecutive days or for the duration of an emergency no
longer than ninety (90) consecutive days, then this Lease shall continue in full
force and effect without any abatement of Rent, but the amounts payable by the
condemning authority with respect to any period of time prior to the expiration
or sooner termination of this Lease shall be paid by the condemning authority to
Landlord. Landlord shall apply the amount of condemnation proceeds toward the
amount of Rent or any other sums due from Tenant for the period, and Tenant
shall pay to Landlord any deficiency between the amount thus paid by the
condemning authority and the amount due from Tenant. Any excess of such
condemnation proceeds over the amounts payable by Tenant shall be retained by
Landlord.
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16. ASSIGNMENT AND SUBLETTING
A. Tenant shall not (i) assign, sublet, convey or mortgage this Lease or
any interest hereunder; (ii) permit to occur or permit to exist any assignment
of this Lease, or any Hen upon Tenant's interest, voluntarily or by operation of
law, (iii) subject the Leased Premises or any part thereof to any encumbrance;
or (iv) permit the use or occupancy of the Leased Premises by any parties other
than Tenant and its employees. The actions described under clauses (i), (ii),
(iii) and (iv) in the preceding sentence are sometimes referred to below
collectively as "assignment or subletting". Any such action on the part of
Tenant shall constitute a breach of this Lease and such action shall
automatically be deemed void and of no effect. Landlord's consent to any
assignment or subletting shall not constitute a waiver of Landlord's right to
withhold its consent to any future assignment or subletting.
B. Except as expressly hereafter set forth below in this Paragraph 16B, no
such assignment or subletting and no consent by Landlord to any assignment or
subletting or election by Landlord to accept any absolute assignee or subtenant
shall release Tenant or any subsequent Tenant from any covenant or obligation
under this Lease and Tenant shall continue to be liable as a principal and not
as a guarantor or surety, to the same! extent as if no such assignment or
subletting had been made; provided, however, Landlord agrees to release Tenant
from its obligations under this Lease if a permitted assignee of it has a
consolidated net worth equal to or greater than Two Million Eight Hundred Fifty
Thousand and No/100 Dollars ($2,850,000.00).
C. If Tenant is a corporation, any transaction or series of transactions
(including, without limitation, any dissolution, merger, consolidation or other
reorganization of Tenant, or any issuance, sale, gift, transfer or redemption of
all or a substantial portion of the capital stock of Tenant, whether voluntary,
involuntary or by operation of law, any sale or transfer of all or any
substantial portion of the assets of Tenant, or any combination of any of the
foregoing transactions), shall be deemed to be a voluntary assignment of this
Lease by Tenant subject to the provisions of Paragraphs 16A and 16B.
Notwithstanding any of the foregoing in this Paragraph 16C, however, Landlord's
consent shall not be required for any merger (under which the surviving
corporation owns at least all of the assets of Tenant and is obligated to
perform all of Tenant's obligations to Landlord under this Lease or otherwise
and to any mortgagee of the Property, or any part thereof) or either of the
following, provided that Landlord receives written notice thereof within thirty
(30) days of the effective date thereof and all documents reasonable requested
by Landlord: (a) any consolidation or reorganization of Tenant, or any sale,
gift, redemption or transfer of all of the assets of Tenant, if immediately and
continually thereafter all of such assets, which assets shall include, without
limitation, this Lease, are owned by an entity and such entity has expressly, in
a written document delivered to Landlord, or is clearly deemed by law to have,
assumed all obligations (then existing and future) of Tenant under this Lease;
or (b) any one (1) time consolidation or reorganization of Tenant, or any one
(1) time sale, gift, redemption or transfer of substantially all of the assets
of Tenant, if immediately thereafter at least substantially all of the assets of
Tenant, which assets shall include, without limitation, this
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Lease, are owned by an entity and such entity has expressly, in a written
document delivered to Landlord, or is clearly deemed by law to have, assumed all
obligations of Tenant under this Lease. If Tenant is a partnership, any
transaction or series of transactions (including without limitation any
withdrawal or admittance of a partner or any change in any partner's interest in
Tenant, whether voluntary, involuntary or by operation of law, or any
combination of any of the foregoing transactions) resulting in the transfer of
control of Tenant, other than by reason of death, shall be deemed to be a
voluntary assignment of this Lease by Tenant subject to the provisions of this
Paragraph 16C.
D. In the event Landlord consents to an assignment, as consideration for
Landlord's consent, Tenant shall pay to Landlord as and when received by Tenant,
as Additional Rent, an amount equal to 50% of the Assignment Profit (hereinafter
defined). For purposes of this Paragraph 16, the term "Assignment Profit" shall
mean an amount equal to all sums and other consideration, including, without
limitation, any and all noncash consideration, paid or otherwise provided to
Tenant by the assignee for or by reason of any such assignment (including, but
not limited to, sums paid for the sale or rental of Tenant's fixtures, leasehold
improvements, equipment, furniture, furnishings or other personal property,
less, in the case of a sale thereof, the then net unamortized or undepreciated
cost thereof, or in the case of rental thereof, less the lease cost of such
items, all determined on the basis of sound accounting principles, consistently
applied) less the total amount of the following, as and when paid or otherwise
provided by Tenant to the assignee or independent third parties in connection
with such assignment: reasonable brokerage, advertising and attorneys fees,
tenant finish costs and concessions, including, without limitation, any and all
non-cash consideration (such as the provision of furniture).
In the event Landlord consents to a sublease, as consideration for
Landlord's consent, Tenant shall pay to Landlord, as Additional Rent, an amount
(the "Excess Sublease Profit") equal to 50% of the difference that results from
subtracting (a) the product that results from multiplying the weighted average
Sublease Profit for the Leased Premises and the Original Leased Premises on a
per rentable square foot basis by 5,601 from (b) the product that results from
multiplying the weighted average Sublease Profit for the Leased Premises and the
Original Leased Premises on a per rentable square foot basis by the number of
rentable square feet of the Leased Premises and the Original Leased Premises
subleased. Such Additional Rent shall be paid to Landlord in monthly
installments on the first (1st) day of each month during each period, if any, of
the Term when, in the aggregate, more than 5,601 rentable square feet of the
Leased Premises and/or the Original Leased Premises have been simultaneously
subleased. The amount of the monthly installment payable during each such period
shall be the Excess Sublease Profit during such period divided by the number of
months during such period, as the amounts of such monthly installment and Excess
Sublease Profit, and as such number of months during such period, shall be
adjusted from time to time to reflect changes thereto resulting from new
subleases and expiration and early termination of subleases. For purposes of
this Paragraph 16, the term "Sublease Profit" shall mean in any year of the Term
of this Lease (i) any rents,
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additional charges and other consideration, including, without limitation, any
and all non-cash consideration, paid or provided to Tenant under or in
connection with any such sublease, which is in excess of the Rent accruing
during such year of the Term of this Lease in respect of the subleased space,
plus (ii) all sums paid for the sale or rental of Tenant's fixtures, leasehold
improvements, equipment, furniture, or other personal property (less, in the
case of the sale thereof, the then net unamortized or undepreciated cost
thereof, or in the case of rental thereof, less the lease cost of such items,
all determined on the basis of sound accounting principles, consistently
applied, which net unamortized or undepreciated cost or lease cost, as the case
may be, shall be deducted from the consideration paid or otherwise provided in
connection with such sale in equal monthly installments over the balance of the
term of the sublease, each such monthly deduction to be in amount equal to the
quotient of the net unamortized or undepreciated cost or lease cost, as the case
may be, divided by the number of months remaining in the term of such sublease),
less, from the foregoing, the total amount of the following, as and when paid or
otherwise provided by Tenant to the sublessee or independent third parties in
connection with such sublease and the reasonable costs incurred by Tenant to
segregate the subleased space from the Leased Premises, prorated in equal
monthly amounts over the term of the sublease: the actual cost of services
provided by Tenant to the sublessee or assignee (not to exceed $500 per sublease
or assignment), reasonable brokerage, advertising and attorneys fees, tenant
finish costs and concessions, including, without limitation, any and all
non-cash consideration (such as the provision of furniture).
Tenant shall furnish Landlord with a sworn statement, certified by an
officer of Tenant, setting forth in detail the computation of any Assignment
Profit or Sublease Profit and Excess Sublease Profit, and Landlord, or its
representatives, shall have access, at all times during regular business hours
to the books, records and papers of Tenant in relation thereto, and may make
copies thereof. If a part of the consideration for such sublease or assignment
shall be payable other than in cash, the payment of any Assignment Profit or
Excess Sublease Profit to Landlord shall be payable based on the cash and the
cash equivalent of all non-cash consideration. In no event shall any such
sublease create or be construed to create a landlord/tenant relationship between
Landlord and such sublessee.
E. Tenant shall pay to Landlord upon demand by Landlord, notwithstanding
that Landlord may have withheld its consent to any assignment or sublease
contemplated by this Paragraph 16, an amount sufficient to reimburse Landlord
for all direct costs and expenses that may be evidenced by invoice or receipt in
relation to any request for Landlord's consent to an assignment or sublease (not
to exceed $500 per such request), including, without limitation, reasonable
attorney's fees and costs relating thereto, but excluding salaries, wages and
fringe benefits of Landlord's employees, in determining whether to grant or
withhold any consent contemplated by this Paragraph 16 or otherwise in
connection with any assignment or subletting hereunder.
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F. Notwithstanding anything to the contrary, it is the intention and
agreement of the parties that the tenant under this Lease and the tenant under
the Original Lease shall at all times be the same. The calculations under
Section 16D hereof and Section 16D of the Original Lease shall aggregate both
this Lease and the Original Lease to determine the amount of any Assignment
Profit and Excess Sublease Profit.
17. SURRENDER OF POSSESSION
Upon the expiration of the Term or upon the earlier termination of this
Lease, or Tenant's tenancy or right of possession, whether by lapse of time or
at the option of Landlord or Tenant as herein provided, or as otherwise provided
by law, Tenant shall forthwith surrender the Leased Premises, together with all
fixtures and appurtenances thereto, all in good order, condition and repair,
ordinary wear and tear excepted and, with respect to the real property, also
excepting any repairs and/or replacements which Tenant is not obligated to make
pursuant to this Lease, and shall, subject to the term of Paragraph 9B and if
Landlord so requires, restore the Leased Premises to the condition existing at
the beginning of the Term, ordinary wear and tear, and repairs and/or
replacements that Tenant is not obligated to make under this Lease, excepted.
Any interest of Tenant in the alterations, improvements and additions to the
Leased Premises made or paid for by Tenant or any person or entity other than
Landlord shall, without compensation to Tenant or any such other person or
entity, become Landlord's property at the termination, cancellation or
expiration of this Lease by lapse of time or otherwise and such alterations,
improvements and additions shall be relinquished, subject to the terms of
Paragraph 9B, to Landlord at such time in good condition, ordinary wear and
tear, and repairs and/or replacements that Tenant is not obligated to make under
this Lease excepted. Prior to the expiration of the Term or the earlier
termination of this Lease, or of Tenant's tenancy or right of possession, Tenant
shall remove (a) its office furniture, trade fixtures and office equipment, and
(b) all other items of property on the Leased Premises not belonging to Landlord
except property leased by or through Landlord. Any property of Tenant remaining
in the Leased Premises after the Term may be seized by Landlord and disposed of
in any manner Landlord desires, and Tenant shall not be entitled to any such
seized property or to any proceeds or other property resulting from any such
disposition.
18. HOLDING OVER
Tenant acknowledges that it is extremely important that Landlord have
substantial advance notice of the date on which Tenant will vacate the Leased
Premises, both because Landlord will require an extensive period to locate a
replacement tenant and because Landlord will plan its entire leasing and
renovation program for the Building in reliance on the expiration dates for
leases of space in the Building. Tenant also acknowledges that if Tenant fails
to surrender the Leased Premises at the expiration or termination of the Term,
it will be conclusively presumed that the value to Tenant of remaining in
possession, and the loss that will be suffered by Landlord as a result thereof,
far exceed the amount of Annual Base Rent and
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Additional Rent that would have been payable had the Term continued during such
holdover period. Therefore, Tenant shall pay to Landlord an amount equal to the
greater of (a) fair market rent for the Leased Premises, as reasonably
determined by Landlord, or (b) one hundred fifty percent (150%) of the monthly
installment of Annual Base Rent and one hundred fifty percent (150%) of
one-twelfth (1/12) of the Additional Rent paid by Tenant during the previous
calendar year. Such amount shall be paid on the first day of each month or
portion thereof for which Tenant shall retain possession of the Leased Premises
or any part thereof after the expiration of the Term or the earlier termination
of this Lease, whether by lapse of time or otherwise. Tenant also shall pay all
costs incurred and damages sustained by Landlord, whether direct or
consequential, on account of such holding over. Landlord agrees to use
reasonable efforts to minimize any such consequential damages, but in no event
shall Landlord be obligated to expend any sum or incur any cost in connection
with such efforts. The provisions of this Paragraph 18 shall not be deemed to
limit or constitute a waiver or any other fights or remedies of Landlord
provided herein or at law.
19. ESTOPPEL CERTIFICATE
Tenant agrees that from time to time upon written request of Landlord,
Tenant will deliver to Landlord within ten (10) days after Landlord's aforesaid
request therefor, a statement in writing by Tenant or Tenant's duly authorized
representative having knowledge of the following facts, certifying (i) that this
Lease is unmodified and in full force and effect or, if there have been
modifications, a description of each such modification, and that the Lease as
modified is in full force and effect; (ii) the dates to which Rent and other
charges have been paid; (iii) that Landlord is not in default under any
provisions of this Lease, or, if in default, the nature thereof in reasonable
detail; and (iv) such further matters as may be reasonably requested by
Landlord, it being intended that any such statement may be relied upon by any
mortgagees or prospective mortgagees, or any prospective or subsequent purchaser
or transferee of all or a part of Landlord's interest in the Property. Tenant
shall execute and deliver to Landlord whatever instrument may be reasonably
required by Landlord for such purposes, and in the event Tenant fails so to do
within such ten (10) day period after Landlord's written request therefor,
Tenant, without any demand a further notice of any kind whatsoever, except for a
written notice from Landlord to Tenant that Tenant shall automatically be in
default under this Lease if such instrument is not executed and delivered by
Tenant to Landlord within five (5) business days from the date of such notice,
automatically shall be in default under this Lease.
20. MORTGAGE OR GROUND LEASE BY LANDLORD
A. Tenant hereby agrees that, except as expressly provided in that certain
Subordination, Non-Disturbance and Attornment Agreement (the "Subordination")
dated of even date with this Lease and executed and acknowledged by Landlord,
Tenant and VIB North America B.V., a Netherlands corporation, this Lease shall
be subject and subordinate to (i) any mortgage that has been or may hereafter be
placed upon the Property and to all amounts secured
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thereby and (ii) to any ground lease of the Land, the Building, or both, that
has been or may hereafter be entered into and to all renewals, modifications,
consolidations and extensions of any of the foregoing, except to the extent that
any such mortgage or ground lease provides otherwise, and in the event of a
foreclosure of any such mortgage or of a conveyance in lieu thereof or of a
termination of any such ground lease, at the request of the mortgagee, or
purchaser at foreclosure, or the ground lessor, Tenant will attorn to the
mortgagee or to the purchaser at any foreclosure sale or to the ground lessor,
as the case may be; provided that Tenant's quiet enjoyment of the Leased
Premises, as provided for under Paragraph 26 hereof, shall not be disturbed by
such mortgagee or purchaser unless Tenant is in default hereunder. This
provision is acknowledged by Tenant to be self-operative and no further
instrument shall be required to effect such subordination of the Lease. However,
notwithstanding the foregoing provisions of this Paragraph 20A, Tenant agrees
that, upon written notice to Tenant, a mortgagee or ground lessor shall have the
right at any time to subordinate any such mortgage or ground lease,
respectively, to this Lease on such terms and subject to such conditions as such
mortgagee or ground lessor may deem appropriate in its discretion. Upon such
mortgagee or ground lessor giving Tenant the written notice referred to in the
preceding sentence, the subordination of such mortgage or ground lease to this
Lease shall be self-operative and no further instrument shall be required to
effectuate such subordination of such mortgage or ground lease to this Lease.
Tenant, within ten (10) days of Landlord's written request, shall execute,
acknowledge and deliver such further instruments as any mortgagee or ground
lessor may reasonably request from Tenant to evidence any subordination and
attornment described in this Paragraph 20A which instrument shall not be less,
and shall be as, favorable to such mortgagee or ground lessor as the
Subordination is to VIB North America B.V. In the event Tenant fails to execute,
acknowledge and deliver to Landlord any such instrument within such ten (10) day
period, Tenant, without any demand or further notice of any kind whatsoever,
except for a written notice from Landlord to Tenant that Tenant shall
automatically be in default under this Lease if such instrument is not executed,
acknowledged and delivered by Tenant to Landlord within five (5) business days
from the date of such notice, automatically shall be in default under this
Lease.
B. In no event shall any mortgagee, any purchaser at a foreclosure sale or
any ground lessor have any personal liability whatsoever for any warranties or
representations of Landlord hereunder or in connection herewith or any liability
for any security deposit or other sums deposited with Landlord or for any
previous prepayment of Rent for a period greater than one (1) month unless such
amounts have been delivered to such mortgagee,, purchaser or ground lessor, as
the case may be.
C. Provided Tenant receives written notice of the name and address of a
mortgagee or ground lessor having an interest in the Property, Tenant agrees
that in the event of any act or omission by Landlord hereunder which could give
Tenant the right to terminate this Lease or to claim a partial or a total
eviction (without implying that any such right exists), Tenant shall not
exercise any such right until it has notified in writing such mortgagee or
ground lessor and such
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mortgagee or ground lessor shall have failed to commence, the curing of such act
or omission within thirty (30) days of such notice and to diligently pursue the
cure thereof until completed.
D. Tenant hereby agrees that it will not pay any monthly installment of
Annual Base Rent or any monthly estimated payment of Additional Rent for more
than one month in advance, except with the consent of the mortgagee or ground
lessor.
E. As used in this Lease, the term "mortgage" shall mean and include any
deed of trust, mortgage or trust deed or any other similar security instrument;
the term "mortgagee" shall mean and include any mortgagee under a mortgage or
trustee under a deed of trust or any beneficiary or other party secured by a
mortgage; the term "ground lease" shall mean and include any ground lease or
master lease of the Land or the Building, or both; the term "ground lessor"
shall mean and include any lessor under a ground lease or master lease or any
other party in the nature of a ground lessor; and the term "foreclosure" shall
mean and include the foreclosure, sale under a power of sale, or similar
enforcement of a mortgage or deed in lieu thereof.
F. Tenant hereby agrees that the provisions of this Paragraph 20 shall
apply in the event of a foreclosure or a termination of any such ground lease,
notwithstanding the fact that the mortgagee or ground lessor thereunder,
directly or indirectly, owns or has an interest in Landlord or an interest in
the Property in addition to its interest under such mortgage or ground lease.
G. Tenant acknowledges that, although Landlord has obtained the execution
and acknowledgment of the Subordination by VIB North America B.V., a current
mortgagee of the Property and partner in Landlord, Landlord in no manner
whatsoever represents or warrants to Tenant that any other mortgagee or ground
lessor will execute and acknowledge the same agreement. Furthermore, Tenant
acknowledges that the Subordination shall not necessarily be evidence of what a
reasonable subordination, non-disturbance or attornment agreement would be in
the event a mortgagee or ground lessor hereafter requests any such agreement.
21. CERTAIN RIGHTS RESERVED BY LANDLORD
Landlord shall have the following rights, each of which Landlord may
exercise without notice to Tenant and without liability to Tenant for damage or
injury to property, person or business on account of the damage or injury to
property, person or business on account of the exercise thereof, and the
exercise of any such rights shall not be deemed to constitute an eviction or
disturbance of Tenant's use or possession of the Leased Premises and shall not
give rise to any claim for set-off or abatement of Rent or any other claim:
A. To change the name or street address of the Building.
B. To install, affix and maintain any and all signs on the exterior and on
the interior of the Building and elsewhere on the Property in accordance with
then-current sign ordinances
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and safety codes. No sign, advertisement or notice referring to Tenant shall be
inscribed, painted, affixed or otherwise displayed on any part of the exterior
or the interior of the Buildings except on the directories and the doors of
offices 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. All of
Tenant's signs that are approved by Landlord shall be installed by Landlord at
Tenant's cost and expense except as may be provided in Landlord's Work. If any
sign, advertisement or notice that has not been approved by Landlord is
exhibited or installed by Tenant, Landlord shall have the right to remove the
same at Tenant's expense.
C. To decorate and also to make repairs, alterations, additions, or
improvements, whether structural or otherwise, in and about the Property, or any
part thereof, and for such purposes to enter upon the Leased Premises, upon
prior written or verbal notice to Tenant (unless Landlord, in its reasonable
discretion, deems an emergency), and during the continuance of any said work, to
temporarily close doors, entryways, public space and corridors in the Building,
all without affecting any of Tenant's obligations hereunder, so long as the
Leased Premises are reasonably accessible and usable.
D. To furnish door keys for the entry door(s) in the Leased Premises at
the commencement of the Term and to retain at all times, and to use in
appropriate instances, keys to all doors within and into the Leased Premises,
subject to any applicable governmental regulations. Tenant agrees to purchase
only from Landlord additional duplicate keys as required and change no locks
and, without the prior written consent of Landlord, which consent shall not be
unreasonably withheld, conditioned or delayed, to affix no locks on doors of or
in the Leased Premises. Upon the expiration of the Term or Tenant's right to
possession Tenant shall return all keys to Landlord and shall disclose to
Landlord the combination of any safes, cabinets or vaults left in the Lease
Premises, unless such disclosure is in violation of governmental regulations.
E. To designate and approve all blinds, curtains, drapes, shades, screens,
lights, and ceilings such that when viewed from the exterior or public lobbies
of the Building, the Building presents a uniform, attractive appearance. Tenant
shall comply with all such reasonable standards prescribed by Landlord.
F. To reasonably approve, reasonably disapprove, and otherwise restrict
and regulate the weight, size and location of safes, vaults and other heavy
equipment and articles in and about the Leased Premises and the Building so as
not to exceed the legal live load per square foot designated by the structural
engineers for the Building, and to require all such items and furniture and
similar items to be moved into or out of the Building and Leased Premises only
at such times and in such manner and using facilities in and about the Building
as Landlord shall direct in writing; provided, however, that any such approval
concerning safes and vaults in the Leased Premises shall not be unreasonably
withheld, delayed or conditioned. Tenant shall not install or operate machinery
or any mechanical devices of a nature not directly related to Tenant's ordinary
use of the Leased Premises without the prior written consent of Landlord. Tenant
shall not install
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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
Leased Premises or the Building, without first obtaining the prior written
consent of Landlord. Machines and equipment belonging to Tenant which cause
noise or vibration that may be transmitted to the structure of the Building or
to any space therein to such a degree as to be objectionable to Landlord or to
any tenant in the Building shall be installed and maintained by Tenant, at
Tenant's expense, upon Landlord's prior written approval, on vibration
eliminators or other devices sufficient to reduce such noise and vibration to a
level satisfactory to Landlord, in Landlord's reasonable discretion. Movement of
Tenant's property into or out of the Building or Leased Premises and within the
Building is entirely at the risk and responsibility of Tenant, except that
Landlord shall be liable for damage or loss caused by the negligence or willful
misconduct of Landlord, any Affiliate of Landlord, or any agent, employee,
contractor, subcontractor or servant of Landlord or any such Affiliate, and
Landlord reserves the right to require permits satisfactory to Landlord before
allowing any property to be moved into or out of the Building or Leased
Premises.
G. To establish controls and rules for the purpose of regulating all
property and packages, both personal and otherwise, to be moved into or out of
the Building and Leased Premises and all person using the Building after normal
office hours, unless such controls or rules violate governmental regulations.
H. To regulate delivery and service of supplies and the usage of the
loading docks, receiving areas and freight elevators unless such regulation
violates governmental regulations.
I. To show the Leased Premises to all prospective tenants within the last
six (6) months of the Term, and to purchasers or lenders at all reasonable times
and, if the Leased Premises are vacated or abandoned, to show the Leased
Premises to all prospective tenants at all reasonable times.
J. To erect, use and maintain pipes, ducts, wiring and conduits, and
appurtenances thereto, in and through the Leased Premises at reasonable
locations provided that the same does not make the Leased Premises untenantable
or interfere unreasonably with the Tenant's rights under Paragraph 26 of this
Lease.
K. Upon prior verbal or written notice to Tenant (unless Landlord, in its
reasonable discretion deems an emergency), to enter the Lease Premises at any
reasonable time to inspect the Leased Premises and to perform Landlord's
obligations hereunder or under any lease to a tenant of the Building (except
janitorial services, which services shall be performed without prior notice and,
unless otherwise requested by Tenant, will be performed after hours). After the
completion of the initial improvements to the Leased Premises, Landlord shall
give Tenant at least one day's prior oral or written notice of each entry except
in an emergency.
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L. To grant to any person or to reserve unto itself the exclusive right to
conduct any business or render any service in the Building. If in connection
with the maintenance of the Building or Landlord's providing services required
of it hereunder, any services or supplies are made available by Landlord or an
Affiliate thereof, or Landlord arranges a master contract therefor, Tenant
agrees to obtain its requirements therefor, if any, from Landlord or from the
contractor under any such contract, provided that the charges therefor are
comparable to the charges customarily charged by third parties in the market.
M. To control access to parking areas on the Property by means of "key
cards" or otherwise, to reconfigure the parking areas, to close off parking
areas and to designate certain on-site parking spaces as reserved parking
spaces, as long as there is adequate parking to satisfy the requirements of all
applicable laws, ordinances, codes, rules and regulations of any governmental
agency having jurisdiction of the Property.
N. To retain, or to grant to any person, exclusive right to use and/or
lease the roof and the sidewalks, parking areas (except as otherwise provided
herein) and other exterior areas of the Property.
O. To alter the boundaries of the Land, grant easements or dedications
regarding the Land, resubdivide the Land or to combine the Land with other
lands.
P. To subject the Property to covenants, conditions and restrictions which
are intended to ensure the harmonious and orderly use of the Building and to
provide for the maintenance and upkeep of common areas, and this Lease shall be
subject and subordinate to all such covenants and conditions now or hereafter
imposed provided that they do not unreasonably interfere with Tenant's rights
under Paragraph 26. Tenant agrees to observe and be bound by each and every
covenant and restriction to which the Land is now subject or is hereinafter
subjected, insofar as any such covenant or restriction affects the Leased
Premises or Tenant's use thereof provided that they do not unreasonably
interfere with Tenant's rights under Paragraph 26. Landlord agrees to enforce
the provisions of this Paragraph 21 in a nondiscriminating manner.
22. RULES AND REGULATIONS
Landlord shall have the right from time to time to prescribe rules and
regulations which, in its reasonable judgment, may be desirable for the use,
entry, operation and management of the Leased Premises and Building, each of
which rules and regulations and all amendments thereto shall become a part of
this Lease at such time as they are prescribed or issued by Landlord. Tenant
shall comply with all such rules and regulations; provided, however, that such
rules and regulations shall not contradict or abrogate any right or privilege
herein expressly granted to Tenant hereunder. Landlord shall not promulgate a
new rule or regulation, nor change an existing rule or regulation, when such new
rule or regulation or change is prejudicial only to Tenant in comparison with
other tenants of the Building.
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23. LANDLORD'S REMEDIES
If Tenant shall fall to pay all or any portion of the Rent or any
installment thereof when due, or shall fail to pay any other sum required to be
paid by Tenant under this Lease or under the terms of any other agreement
between Landlord and Tenant, or if Tenant shall violate or fail to perform any
of the other covenants or conditions in this Lease which Tenant is required to
observe and perform and such violation or failure to perform shall continue for
thirty (30) days after written notice to Tenant or if a default shall occur
under the Original Lease and shall not have been cured within any applicable
cure period, or if any violation or failure of Tenant involves a hazardous
condition and is not cured by Tenant immediately upon notice to Tenant, or if
the interest of Tenant in this Lease shall be levied on under execution or other
legal process, or if any voluntary petition in bankruptcy or for corporate
reorganization or any similar relief shall be filed by Tenant or any guarantor
of this Lease, or if any involuntary petition in bankruptcy shall be filed
against Tenant or any such guarantor under any federal or state bankruptcy or
insolvency act and shall not have been dismissed within thirty (30) days from
the filing thereof, or if a receiver or person acting as a receiver shall be
appointed for Tenant or any such guarantor or any of the property of Tenant or
such guarantor by any court and such receiver or person acting as a receiver
shall not have been dismissed within thirty (30) days from the date of his
appointment, or if Tenant or any such guarantor shall make an assignment for the
benefit of creditors, or if Tenant or any such guarantor shall admit in writing
its inability to meet its debts as they mature, or if the Leased Premises are
vacated or abandoned during the Term (unless such vacating or abandoning of the
Leased Premises is limited to no more than ninety (90) days during the Term or
for the purpose of subletting the Leased Premises, or a portion thereof, to an
approved sublessee or assigning the Leased Premises to an approved assignee), or
if Tenant breaches or defaults under the Subordination, then, subject to the
terms of Paragraph 18 of Exhibit C attached hereto, Landlord may treat the
occurrence of any one or more of the foregoing events as a breach of and default
under this Lease, and thereupon at its option may, without notice or demand of
any kind to Tenant or any other person, have any one or more of the following
described remedies in addition to all other rights and remedies provided at law
or in equity or elsewhere herein:
A. Landlord may terminate this Lease and the Term created hereby. With or
without terminating this Lease, Landlord may forthwith repossess the Leased
Premises. Further, unless expressly prohibited by applicable law, if Tenant
shall be in default under this Lease, Landlord shall have all self-help remedies
and shall have the right upon any termination of this Lease to cease supplying
services and utilities for the benefit of Tenant and the Leased Premises. If
necessary, Landlord may proceed to recover possession of the Leased Premises
under and by virtue of applicable laws, or by such other proceedings, including
re-entry and possession, as may be applicable. If Landlord elects to terminate
this Lease, everything contained in this Lease on the part of Landlord to be
done and performed shall cease without prejudice, however, to the right of
Landlord to recover from Tenant all rent and other sums accrued up to the time
of termination or recovery of possession by Landlord, whichever is later.
Whether or not this Lease
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is terminated, at Landlord's option, any renewal or expansion fight that may be
contained in this Lease shall terminate, and any consent or approval to be given
by Landlord hereunder may be given or withheld in Landlord's sole and absolute
discretion.
B. With or without terminating this Lease, Landlord may, but shall be
under no obligation to, relet part or all of the Leased Premises, for the
account of Tenant, for such rent and upon such terms as shall be satisfactory to
Landlord (which may include concessions, free rent and alterations of the Leased
Premises) as Landlord, in its sole discretion, may determine, but Landlord shall
not be liable for, nor shall Tenant's obligations hereunder be diminished by
reason of, any failure by Landlord to relet the Leased Premises or any failure
by Landlord to collect any rent due upon such reletting. For the purpose of such
reletting, Landlord is authorized to decorate, repair (to the extent Tenant is
or was obligated under this Lease to make any such repair), reasonably remodel
or alter the Leased Premises at Tenant's expense.
C. If Landlord shall fail to relet the Leased Premises, Tenant shall pay
to Landlord as damages a sum equal to the amount of the Rent reserved in this
Lease for the balance of the Term. If the Leased Premises are relet and a
sufficient sum shall not be realized from such reletting after paying all of the
costs and expenses of all decoration, repairs, remodeling, alterations and
additions and the expenses of such reletting and of the collection of the rent
accruing therefrom to satisfy the Rent provided for in this Lease, Tenant shall
satisfy and pay the same to Landlord upon demand therefor from time to time.
Tenant shall not be entitled to any rents received by Landlord which happen to
exceed the amount of the Rent provided for in this Lease. Tenant agrees that
Landlord may file suit to recover any sums falling due under the terms of this
Paragraph 23 from time to time and that no suit or recovery of any portion due
Landlord hereunder shall be any defense to any subsequent action brought for any
amount not therefore reduced to judgment in favor of Landlord.
D. At any time, with or without having relet the Leased Premises, in lieu
of further damages pursuant to Paragraph 23C, Landlord may elect to recover
damages from Tenant pursuant to this Paragraph 23D for the period following such
election. Upon such election, Landlord shall be entitled to recover forthwith,
as damages from Tenant, and Tenant shall thereupon be liable to Landlord for (in
addition to any other or damages for which Tenant may be liable to Landlord), a
sum of money equal to the excess, if any, of the value of the Rent provided to
be paid by Tenant for the period that would have constituted the balance of the
Term over the difference that results from subtracting from the fair market
rental value of the Leased Premises for said period all anticipated expenses of
reletting, which sum shall be immediately due and payable from Tenant to
Landlord upon demand. Should the fair market rental value of the Leased
Premises, or any part thereof, after subtraction therefrom of all anticipated
expenses of reletting, for the balance of the Term exceed the value of the Rent
provided to be paid by Tenant for the balance of the Term, upon Landlord
reletting the Leased Premises, or any part thereof, Landlord shall have no
obligation to pay to Tenant the excess or any part thereof or to credit such
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excess or any part thereof against any other sums or damages for which Tenant
may be liable to Landlord.
E. Anything in this Lease to the contrary notwithstanding, the actual
damages recoverable by Landlord for a breach of, or default under, this Lease by
Tenant shall not exceed the amount which Landlord would have received if Tenant
fulfilled all of its obligations under this Lease, plus all costs of Landlord in
enforcing this Lease, including, without limitation, reasonable attorneys' fees,
and reletting the Leased Premises, or any part thereof. Under no circumstances
whatsoever shall the preceding sentence be deemed or construed to limit in any
way any special, consequential or punitive damages recoverable by Landlord due
to any such breach or default nor limit the other rights and remedies of
Landlord provided herein and allowed at law or equity. Nothing in this Lease
will be construed to give Landlord the right to possession of any of Tenant's
records, files, business records or customer names or records. It is expressly
understood and agreed by Landlord and Tenant that the liabilities and remedies
specified in this Paragraph 23 shall survive the expiration or earlier
termination of the Lease.
24. TENANT'S REMEDIES
There shall be default under and breach of this Lease by Landlord if
Landlord shall fail to perform or observe any term, condition, covenant, or
obligation required to be performed or observed by Landlord under this Lease for
a period of thirty (30) days after notice thereof from Tenant; provided,
however, that if the term, condition, covenant, or obligation to perform by
Landlord is of such a nature that the same cannot reasonably be performed within
such 30-day period, such default shall be deemed to have been cured if Landlord
commences such performance within said 30-day period and thereafter diligently
undertakes to complete the same and completed the required acts within a
reasonable time. Upon the occurrence of any such default, as Tenant's sole and
exclusive remedy, Tenant may sue for injunctive relief or to recover damages for
any loss resulting from the breach, including, without limitation, reasonable
attorney's fees and reasonable court costs, but Tenant shall not be entitled to
terminate this Lease or withhold or abate any rent due hereunder, except as
expressly provided to the contrary in this Lease.
25. EXPENSES OF ENFORCEMENT
A. 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, without any
notice to Tenant (unless otherwise required by the other provisions of this
Lease), 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 Interest Rate, from the date
incurred by Landlord to the date of payment thereof by Tenant, shall constitute
Additional Rent due hereunder.
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B. If any action or proceeding is brought to enforce any term, covenant or
condition of this Lease, the prevailing party in such action or proceeding shall
be entitled to reasonable attorneys fees (including expenses and disbursements).
26. COVENANT OF QUIET ENJOYMENT
Landlord covenants that Tenant, on paying the Rent charges for services
and other payments herein reserved and on keeping, observing and performing all
the other terms, covenants, conditions, provisions and agreements herein
contained on the part of Tenant to be kept, observed and performed, during the
Term, shall peaceably and quietly have, hold and enjoy the Leased Premises
subject to the terms, covenants, conditions, provisions and agreements hereof,
without molestation or hindrance by Landlord or any party claiming through or
under Landlord. Tenant acknowledges and agrees that all rights of Tenant to use
and occupy the Leased Premises and all rights, terms and conditions of this
Lease are in all respects subject to all applicable zoning and land use
restrictions, and to all covenants, conditions, and restrictions or record.
27. SECURITY DEPOSIT
Tenant is not required to post a security deposit with Landlord under this
Lease.
28. REAL ESTATE BROKER
Each party hereto represents that it has dealt with (and only with) the
Brokers named in the Schedule as "Brokers" in connection with this Lease (which
Brokers shall be compensated only in accordance with a written agreement between
such Brokers and Landlord), and that insofar as it knows, no other broker
negotiated this Lease or is entitled to any commission in connection herewith.
Each party (an "Indemnifying Party") hereto agrees to indemnify, defend and hold
the other party and its partners, if any, employees, agents, and officers, if
any, harmless from and against all claims of any broker or finder (other than
Brokers) made by, through or under such Indemnifying Party.
29. MISCELLANEOUS
A. RIGHTS CUMULATIVE. All rights and remedies of Landlord under this Lease
shall be cumulative and none shall exclude any other rights and remedies allowed
by law.
B. TERMS. The necessary grammatical changes required to make the
provisions hereof apply either to corporations, partnerships or individuals, men
or women, and singular or plural, as the case may require, shall in all cases be
assumed as though in each case fully expressed.
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C. BINDING EFFECT. Each of the provisions of this Lease shall extend to
and shall, as the case may require, bind or inure to the benefit not only of the
Landlord and of Tenant, but also of their respective successors and assigns,
provided this clause shall not permit any assignment or subleasing by Tenant
contrary to the provisions of Paragraph 16 hereof. If more than one party
constitutes Tenant or Landlord, subject to the terms of Paragraph 31 of this
Lease, the liability of each such party shall be joint and several.
D. LEASE CONTAINS ALL TERMS. All of the representations and obligations of
Landlord are contained herein, including the Schedule attached hereto and the
Exhibits attached hereto, and no modification or amendment of this Lease or of
any of its conditions or provisions shall be binding upon either party hereto
unless in writing signed by such party or be a duly authorized agent of such
party.
E. DELIVERY FOR EXAMINATION. Submission of an unsigned copy of this Lease
to Tenant for examination shall not bind Landlord in any manner, and no Lease or
obligations of Landlord shall arise until this instrument is signed by both
Landlord and Tenant and delivery is made to each.
F. NO AIR RIGHTS. No rights to any view or to light or air over any
property, whether belonging to Landlord or any other person, are granted to
Tenant by this Lease or shall arise herefrom.
G. MODIFICATION OF LEASE. If any lender requires, as a condition to its
lending funds the repayment of which is to be secured by a mortgage on the Land
and Building or either, that certain modifications be made to this Lease, which
modifications will not require Tenant to pay any additional amounts or otherwise
change materially and adversely the rights or obligations of Tenant hereunder,
Tenant shall, within thirty (30) days of Landlord's request, which request has
been approved by such lender in writing, execute appropriate instruments
effecting such modifications.
H. INTENTIONALLY OMITTED.
I. TRANSFER OF LANDLORD'S INTEREST. Tenant acknowledges that Landlord has
the right to transfer its interest in the Property and in this Lease, and Tenant
agrees that in the event of any such transfer, Landlord shall automatically be
released from all liability under this Lease and Tenant agrees to look solely to
the transferee for the performance of Landlord's obligations hereunder, subject
to Paragraph 31 hereof. Tenant further acknowledges that Landlord may assign its
interest in this lease to a mortgagee as additional security and agrees that
such an assignment shall not release Landlord from its obligations hereunder and
the Tenant shall continue to look to Landlord for the performance of its
obligation hereunder, subject to Paragraph 31 hereof.
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J. LANDLORD'S TITLE. Landlord's title is and always shall be paramount to
the title of Tenant. Nothing herein contained herein shall empower Tenant to
commit or engage in any act which, can, shall or may encumber the title of
Landlord.
K. PROHIBITION AGAINST RECORDING. Neither this Lease, nor any memorandum,
affidavit or other writing with respect thereto, shall be recorded by Tenant or
by anyone acting through, under or on behalf of Tenant, and the recording
thereof in violation of this Provision shall make this Lease null and void at
Landlord's election.
L. CAPTIONS. The captions of Paragraph and subparagraphs, and the Table of
Contents, are for convenience only and shall not be deemed to limit, construe,
affect or alter the meaning of such Paragraphs or subparagraphs.
M. COVENANTS AND CONDITIONS. All of the covenants of Tenant hereunder
shall be deemed and construed to be "conditions", if Landlord so elects, as well
as "covenants", as though the words specifically expressing or importing
covenants and conditions were used in each separate instance.
N. ONLY LANDLORD/TENANT RELATIONSHIP. Nothing contained in this Lease
shall be deemed or construed by the parties hereto or by any third party to
create the relationship of principal and agent, partner, joint venturer or any
association between Landlord and Tenant, it being expressly understood and
agreed that neither the method of computation of Rent nor any act of the parties
hereunder shall be deemed to create any relationship between Landlord and Tenant
other than the relationship of landlord and tenant.
O. APPLICATION OF PAYMENTS. As long as a breach or default by Tenant
exists and is continuing, Landlord shall have the right to apply payments
received from Tenant pursuant to this Lease (regardless of Tenant's designation
of such payments) to satisfy any obligations of Tenant hereunder, in such order
and amounts as Landlord in its sole discretion may elect.
P. FURTHER DEFINITION OF LANDLORD. All indemnities, covenants and
agreements of Tenant contained herein which inure to the benefit of Landlord,
and the limitation on Landlord's liability contained in Paragraph 31 hereof,
shall be construed to also inure to the benefit of the partners in Landlord, and
any partners in such partners, and Landlord's officers, agents and employees and
if the Landlord is a trust, its beneficiaries and the partners in the
beneficiaries and the beneficiaries' officers, agents and employees.
Q. TIME OF ESSENCE. Time is of the essence of this Lease and each of its
provisions.
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R. GOVERNING LAW. Interpretation of this Lease shall be governed by the
laws of the Commonwealth of Virginia.
S. PARTIAL INVALIDITY. If any term, provision or condition contained in
this Lease shall, to any extent, be invalid or unenforceable, the remainder of
this Lease (or the application of such term, provision or condition to persons
or circumstances other than those in respect of which it is invalid or
unenforceable) shall not be affected thereby, and each and every other term,
provision and condition of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
T. INTEREST. If, for any circumstances whatsoever, fulfillment of any
provision hereof at the time performance of such provision shall be due, shall
involve exceeding the highest lawful rate of interest permissible under
applicable law, then the obligation to be fulfilled shall be reduced to the
highest lawful rate of interest permissible under applicable law; and, if for
any reason whatsoever, Landlord shall ever receive as interest an amount which
would be deemed unlawful under such applicable law, at Landlord's option such
excess shall be either credited against payments next due hereunder or refunded
by Landlord, provided Tenant is not then in default hereunder.
U. PROHIBITED MACHINES. Tenant shall permit no vending machines, game
machines, video game machines, or other amusement devices in the Leased
Premises, except those machines or devices used solely by Tenant's employees.
V. CERTIFICATES. Any certificates or instruments to be delivered by Tenant
hereunder for which no deadline is set forth herein shall be delivered within
thirty (30) days of written request from Landlord therefor.
W. ASSURANCE OF PERFORMANCE. Landlord and Tenant hereby agree in advance
that, in the event Tenant becomes the subject debtor in a proceeding under the
United States Bankruptcy Code, adequate assurance of future performance, as used
in such Bankruptcy Code, shall mean that all of the following minimum criteria
must be met: (i) Tenant's gross receipts in the ordinary course of business
during the thirty (30) day period immediately preceding the initiation of the
case under such Bankruptcy Code must be at least two (2) times greater than the
next monthly installment of Annual Base Rent and Additional Rent due under this
Lease; (ii) both the mean and median of Tenant's monthly gross receipts in the
ordinary course of business during the six (6) month period immediately
preceding the initiation of the case under such Bankruptcy Code must be at least
two (2) times greater than the next monthly installment of Annual Base Rent and
Additional Rent due under this Lease; (iii) Tenant must pay its estimated
portion of the cost of all services provided by Landlord, to the extent Tenant
is responsible for such costs pursuant to this Lease, in advance of the
performance or provision of such services; (iv) Tenant or the other party
serving as trustee in bankruptcy ("Trustee") must agree that Tenant's business
shall be conducted in a first class manner, and that no liquidating
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sales, auctions, or other non-first class business operations shall be conducted
on the Leased Premises, (v) Trustee must agree that the use of the Leased
Premises as stated in this Lease will remain unchanged and that no prohibited
use shall be permitted; (vi) Trustee must agree that the assumption or
assignment of this Lease will not violate or affect the rights of other tenants
in the Building; (vii) Trustee must pay to Landlord at the time the next monthly
installment of Rent is due under this Lease, in addition to such installment, an
amount equal to the monthly installments of Annual Base Rent and Additional Rent
due under this Lease for the next six months under this Lease, said amount to be
held by Landlord in escrow until either Trustee or Tenant defaults in its
payment of Rent or other obligations under this Lease (whereupon Landlord shall
have the fight to draw on such escrowed funds) or until the expiration of this
Lease (whereupon the funds shall be returned to Trustee or Tenant except to the
extent the funds have been drawn and not replaced); and (viii) Tenant or Trustee
must agree to pay to Landlord at any time Landlord is authorized to and does
draw on the escrow account the amount necessary to restore such escrow account
to the original level required by clause (vii).
X. COUNTERPARTS. 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.
Y. SURVIVAL PROVISION. The provisions of this Lease survive the expiration
or earlier termination of this Lease.
Z. COMMON AREAS PROVISION. Common areas are provided for the general/
non-exclusive use of all tenants, and Landlord reserves the right to change the
arrangement thereof, etc., subject to the provisions of Paragraph 26 hereof.
AA. WAIVER OF JURY TRIAL. Each party waives trial by jury.
AB. PROCESS. Tenant elects domicile at the premises for the purpose of
receiving service of all notices, etc.
AC. SUBMISSION OF LEASE. Submission of the Lease to Tenant by Landlord or
its agent for examination does not constitute a reservation of or option for the
Leased Premises.
AD. TAXES. Tenant agrees to pay all taxes upon its personal property
situated in the Leased Premises as and when such taxes become due and payable.
30. NOTICES
All notices or other communications required or permitted to be given
pursuant to this Lease shall be in writing and shall be deemed served, delivered
and given and effective at the time of (i) three (3) business days following
deposit in a depository receptacle under the care and
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custody of the United States Postal Service, properly addressed to the
designated address of the addressee as set forth in the Schedule, postage
prepaid, registered or certified mail with return receipt requested or (ii) one
(1) day following delivery to a third party commercial overnight delivery
service, including, without limitation, Federal Express or U.S. Express Mail,
for next-day delivery to the designated address of the addressee set forth in
the Schedule. Notice given in any other manner shall be served, delivered or
given and effective only if and when actually received by the addressee.
31. LIMITATION OF LANDLORD'S LIABILITY AND ON COUNTERCLAIMS
A. It is expressly understood and agreed by Tenant that none of Landlord's
covenants, undertakings or agreements are made or intended as personal
covenants, undertakings or agreements by Landlord and, notwithstanding anything
in this Lease to the contrary, any liability for damage or breach or
nonperformance by Landlord shall be collectible only out of Landlord's interest
in the Property and no personal liability is assumed by, nor at anytime may be
asserted against, Landlord, its partners, partners of such partners, its
Affiliates or its successors or assigns, all such liability, if any, being
expressly waived and released by Tenant.
B. Except as otherwise expressly provided herein in the event that at any
time during the Lease Term Tenant shall have a claim against Landlord, Tenant
shall not have the right to set off 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 action against Landlord; provided, however, if such claim is not
instituted in an independent action against Landlord, Tenant shall not be
entitled to cease paying Rent due hereunder during the pendency of such action.
32. PARKING
The Building's parking garage is to be operated by Landlord or an
independent contractor pursuant to a contract with Landlord. Such contract (if
any) will allow Landlord to designate a certain number of permits for use by
particular tenants. Landlord agrees to instruct the parking garage operator to
provide, and Tenant shall lease (either from Landlord or from such operator) the
Tenant's Parking Permits in the Parking Garage of the Building as set forth in
the Schedule for use by Tenant's employees. None of the Parking Permits shall
entitle the holder to a particular space. Tenant shall pay Landlord or such
contractor the prevailing rate for such parking, which shall be the same rate
generally charged by Landlord or such contractor to its other customers paying
for parking in the Building. Tenant and its employees shall comply with the
regulations of the operator of the parking garage.
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33. AUTHORITY OF TENANT
Tenant represents to Landlord that it is a corporation duly organized,
validly existing and in good standing under the laws of Delaware, the Tenant is
authorized to do business in the Commonwealth of Virginia, Tenant is authorized
to enter into this Lease and perform its obligations hereunder, all action has
been properly taken by the Board of Directors of Tenant to authorize the
execution and performance of this Lease and this Lease is a valid Lease and
binding and enforceable against Tenant in accordance with its terms.
34. AUTHORITY OF LANDLORD
Landlord represents to Tenant that it is a corporation organized and
validly existing under the laws of the Netherlands. Landlord is authorized to
enter into this Lease and perform its obligations hereunder, all action has been
properly taken by the Landlord to authorize the execution and performance of
this Lease and this Lease is a valid Lease and binding and enforceable against
Landlord in accordance with its terms.
35. AUTHORITY OF LANDLORD'S AGENT
Landlord's Agent, VIB Management, Inc., hereinafter referred to as Agent,
who signs below on behalf of Landlord, represents to Tenant that it is a
corporation organized and validly existing under the law of New York, that Agent
is duly authorized to sign this Lease on behalf of the Landlord, that all
necessary action has been properly taken by the Landlord to authorize the
execution of this Lease by the Agent and that all necessary action has been
properly taken by the Agent to authorize the execution of this Lease by the
Agent's representative who signs below.
END OF TERMS AND CONDITIONS
LANDLORD: TENANT:
BRESTA FUTURA V B.V., HAGLER BAILLY CONSULTING, INC.,
a Netherlands corporation a Delaware corporation
By: VIB Management, Inc.,
As Agent By: /s/ Daniel M. Rouse
--------------------------------
Daniel M. Rouse
Director and CFO
By: /s/ Donald M. Kurdziel
---------------------------
Donald M. Kurdziel
President
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EXHIBIT A
LEGAL DESCRIPTION OF LAND
Being the land acquired by Wilson Boulevard Venture and recorded in Deed Book
2376 at Pages 1156 and 1158 and being shown on a plat as Parcels A & B, LPC
Rosslyn and recorded in Deed Book 2412 at Page 779 all among the Land Records of
Arlington County, Virginia and being more particularly described as follows:
Beginning at a point on the southerly right-of-way line of Wilson Boulevard
(variable width) said point being the northeasterly corner of 1550 Wilson
Boulevard Limited Partnership (Deed Book 2054 Page 708), thence running with
said Wilson Boulevard the following three (3) courses and distances:
1. North 82 (degrees) 30' 00" East 100.14 feet to a point, thence
2. 34.46 feet along the arc of a curve deflecting to the right having a
radius of 337.55 feet and a chord bearing North 85 (degrees) 25' 30' East
34.45 feet to a point, thence
3. North 88 (degrees) 21' 00" East 66.52 feet to a point being the
northwesterly corner of Rosslyn AM Associates (Deed Book 1948 Page 181),
thence running with their westerly line
4. South 10 (degrees) 29' 00" East 252.87 feet to a point on the northerly
right-of-way line of Clarendon Boulevard (60' wide), thence running with
said Clarendon Boulevard
5. South 79 (degrees) 31' 00" West 200-00 feet to a point being the
southeasterly corner of New Orleans Marriott Hotel Venture Limited
Partnership (Deed Book 2377 Page 1196), thence running with their easterly
line and continuing with the easterly line of aforementioned 1550 Wilson
Boulevard Limited Partnership
6. North 10 (degrees) 29' 00" West 271.84 feet to the point of beginning
contained 52,967 square feet or 1.21595 acres of land.
<PAGE>
EXHIBIT B
WORK LETTER
FOR LEASED PREMISES
This Work Letter shall govern the design and construction of the tenant
improvements agreed between Landlord and Tenant to be installed in the Leased
Premises (herein referred to as the "Landlord's Work").
1. DESIGN.
A. Tenant engaged Blackburn Architects ("Tenant's Architect") to
prepare the architectural plans and specifications for the Landlord's Work. The
plans, specifications and drawings for the Landlord's Work (the "Final Plans")
have been completed, approved by Landlord and Tenant and a set of the Final
Plans have been initialed by representatives of Landlord and Tenant.
The approval of the Final Plans shall not in any way be deemed
to be an agreement by Landlord that the Final Plans and/or the Landlord's Work
comply with any laws, ordinances, rules, regulations or requirements of any
governmental authority having jurisdiction thereof or the insurance requirements
of the Building insurers.
B. Tenant shall not change the Final Plans.
2. COSTS.
A. Landlord shall competitively bid the Landlord's Work with at
least two (2) general contractors. Landlord shall enter into a construction
contract for the performance of the Landlord's Work with a general contractor
selected by Landlord (such firm being hereinafter referred to as the "General
Contractor") provided that in Landlord's reasonable judgment, such General
Contractor has submitted the most competitive bid, considering pricing and
scheduling. If the proposed contract with the General Contractor contains an
Above-Allowance Cost (as hereinafter defined), prior to Landlord's execution of
such construction contract, Landlord shall submit to Tenant a notice setting
forth the amount of such Above-Allowance Cost. Within three (3) business days
following Tenant's receipt of such submission, Tenant shall notify Landlord
whether it approves such Above-Allowance Cost. Within such three (3) business
day period, Tenant shall have the right to meet with the General Contractor and
Landlord in order to reduce the cost of the Landlord's Work by changing or
emitting work set forth in the Final Plans; provided that any such changes shall
not delay the date on which Landlord's Work will be Substantially Completed (as
hereinafter defined). Upon the expiration of said three (3) day period, Landlord
shall have the right to enter into the construction contract at a price equal to
the original price less any price reduction mutually agreed to by the General
Contractor and the Tenant.
<PAGE>
Landlord agrees to pay an amount (not to exceed the Tenant Allowance
(as defined) for the costs of the construction of the Landlord's Work in
accordance with the Final Plans approved by Landlord and Tenant. For purposes of
this Exhibit B, the term "Tenant Allowance" shall mean Forty-Nine Thousand Four
Hundred and Seventy-Six and XX/100 ($49,476.00) Dollars. Payments for such
construction costs shall be made or credited in monthly disbursements made
within a reasonable period of time after the General Contractor has submitted a
disbursement request with such back-up information as Landlord shall reasonably
request. All Above-Allowance Costs shall be the sole liability and
responsibility of Tenant. If the Tenant Allowance exceeds the entire cost of
construction of the Landlord's Work, Tenant may use the excess portion of the
Tenant Allowance to pay Tenant's architectural and engineering fees.
B. The term "Above-Allowance Cost" shall mean all costs and expenses
in connection with the construction of the Landlord's Work (including, without
limitation, all permit and approval fees and the Coordination Fee owing pursuant
to Paragraph C below) in excess of the Tenant Allowance. If the construction
contract for the Landlord's Work contains an Above-Allowance Cost, Tenant shall
pay any such Above-Allowance Cost within ten (10) days of demand by Landlord.
After the Punch List Items are completed and Tenant has accepted such
completion, Landlord shall make a final determination of the total
Above-Allowance Cost and deliver a reconciliation statement to Tenant, whereupon
Tenant shall promptly pay Landlord any additional Above-Allowance Cost then
owing to Landlord. If Tenant overpaid any such Above-Allowance Cost, Landlord
shall pay such amount to Tenant when it delivers such reconciliation statement.
In lieu of repaying to Tenant such saving, Landlord, at its option, may
authorize Tenant in writing to deduct the amount of such saving from the
succeeding Monthly Installments of Annual Base Rent coming due under the Lease
(as amended hereby).
C. Tenant shall pay to L.P.C. Commercial Services, Inc., as a fee
("Coordination Fee") for providing building services to the General Contractor
during the course of construction of the Landlord's Work an amount equal to four
(4%) percent of the cost of the Landlord's Work. The Coordination Fee shall be
paid by Tenant in two (2) equal monthly installments, the first such payment
becoming due upon the date of commencement of the Landlord's Work with the
remaining installment being due on the first day of the following month. At
Landlord's option, the Coordination Fee may be paid from and applied against the
Tenant Allowance.
D. All amounts payable by Tenant pursuant to this Exhibit B shall be
deemed Rent for purpose of the Lease.
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<PAGE>
3. COMPLETION.
A. Landlord shall use its good faith efforts to cause the
construction of the Landlord's Work to be Substantially Completed within sixty
(60) days following the date on which the Existing Tenant shall have vacated the
Leased Premises. Landlord's Work shall be "Substantially Completed" when the
earlier of the following occurs: (i) Tenant's Architect determines in its
reasonable professional judgment that the Landlord's Work (other than Punch List
Items) is Substantially Completed or (ii) the date that Landlord's Work would
have been Substantially Completed but for Tenant's Delays (as hereinafter
defined) or (iii) the date on which a certificate of occupancy (including,
without limitation, any temporary certificate of occupancy) or other
governmental permit or approval required to permit the Leased Premises to be
lawfully occupied has been obtained for the Leased Premises. Within three (3)
business days of request by Landlord to Tenant, Tenant will cause Tenant's
Architect to deliver a written certificate to Landlord certifying whether, in
its reasonable professional judgment, the Landlord's Work has been Substantially
Completed (other than Punch List Items). If Landlord notifies Tenant that it
disputes the determination of Tenant's Architect regarding whether Landlord's
Work has been Substantially Completed, such dispute shall be resolved by
arbitration in the jurisdiction in which the Leased Premises are located in
accordance with the then current Commercial Rules of the American Arbitration
Association. The costs of the arbitration, including, without limitation, legal
fees, shall be borne by the losing party. Notwithstanding any such arbitration,
if Landlord notifies Tenant that in Landlord's good faith judgment the
Landlord's Work is Substantially Completed (other than Punch List Items), then
the Landlord's Work shall be deemed to be Substantially Completed, and Tenant
shall occupy the Leased Premises and fulfill its other obligations hereunder
(including, without limitation, the obligation to pay Rent) as if the Landlord's
Work was Substantially Completed and the Commencement Date occurred on such date
so determined by Landlord and this Lease shall continue in full force and
effect. In the event a final non-appealable decision of the arbitrator(s) shall
determine that the Commencement Date is a date later than the date established
by Landlord, Landlord shall promptly reimburse Tenant the amount of any Rent
paid by Tenant with respect to the period prior to the Commencement Date as
determined by the arbitrator(s) together with interest thereon at the rate set
forth in Section 3D(i) of this Lease.
"Punch List Items" shall mean minor or insubstantial details of
construction, mechanical adjustment, or decoration, the noncompletion of which
does not materially interfere with Tenant's use of the Leased Premises.
Provided that the performance of Landlord's Work is not interrupted
or delayed, Tenant shall have access to the Leased Premises prior to the Leased
Premises Commencement Date for itself and its contractors in order to perform
work to prepare the Leased Premises for Tenant's occupancy. In the event the
presence of Tenant's contractors causes or is likely to cause any labor
difficulty or work stoppage with respect to the performance of Landlord's Work,
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<PAGE>
Tenant shall immediately, upon notice from Landlord, cause its contractors and
materialmen to cease work and vacate the Building.
B. The "Tenant Delays" are any delays in the Landlord's Work as a
direct result of:
(1) Tenant's failure to meet any deadline herein, or
(2) Tenant's request for changes or modifications in the Final
Plans; or
(3) Tenant's failure to pay timely the amounts required
pursuant to this Work Letter; or
(4) Any inability to obtain, or delay in obtaining or
installing, any improvements, fixtures, equipment materials, finishes or
installations requested by Tenant or required by the Final Plans which are in
excess of and/or in addition to the Building Standard; or
(5) Any interference by Tenant, or any of its contractors,
agents, employees or representatives with Landlord's Work being done by the
General Contractor or its contractors or subcontractors; or
(6) Any other action or omission by Tenant or any person
acting on behalf of Tenant which is a proximate cause of any delay in the
substantial completion of the Landlord's Work.
4. TENANT'S REPRESENTATIVE.
Tenant hereby constitutes and appoints Liz Altizer its
representative to deal with Landlord in connection with the Landlord's Work. Any
notices and/or approvals given to or by said representative shall be binding
upon Tenant. Tenant may change such designation by notice in writing to
Landlord.
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<PAGE>
EXHIBIT B-1
BASE CONSTRUCTION
"Base Construction" shall mean the condition of the Building with the following
improvements completed substantially in accordance with the base Building shell
plans:
A. Complete Building and site including main Building lobbies, parking garage
and elevators;
B. Central heating, ventilation and air-conditioning systems for vertical and
horizontal distribution shall be sized for normal office occupancy;
C. Heating, ventilating and air-conditioning main duct completed to the
mixing boxes with low pressure rigid duct ready for distribution
connections. Spin taps, flex duct and linear diffusers for the perimeter
distribution only are stocked on the floor but not installed;
D. Men's and ladies' bathroom facilities, with doors, lighting, fixtures and
finishes located on each floor;
E. Two (2) drinking fountains per floor installed and operational;
F. Fire hose stand pipes installed in stairways as required by Arlington
County codes for an open floor plan;
G. Building fire stairs installed in stairwell walls taped and float
finished;
H. Building core installed, with walls taped and float finished. Elevator
shaft doors and frames completed,
I. Electrical services provided by a bus duct riser with a junction box grid
system on each floor. A telephone riser is provided with 150 pair phone
lines terminated at each floor;
J. Unfinished interior perimeter walls (ready to be taped and float finished)
with glass windows and frames installed;
K. Broom-cleaned unfinished concrete floors;
L. Sprinkler risers, main loop and fully recessed sprinkler head drops
installed on each floor (pointed down) with flush mount cover plates
furnished but not installed; provided, however, Tenant shall be
responsible for any costs associated with alterations to the mechanical,
electrical and sprinkler systems (as they exist on the date of this Lease)
in completing the Landlord's Work. Capacity based on an open floor plan
per the Arlington County Building Department approved shop drawings;
<PAGE>
M. Fire alarm pull stations, speakers, smoke detectors, horn and visual
devices installed at the elevator lobby and at each stairwell as required
by Arlington County codes for an open floor plan;
N. Wet stack above ceiling on core wall near column G-2 with 4" sanitary, 3"
vent and 1/4" cold water supply and wet stack near column E-5 with 4"
sanitary and 3" vent;
0. 1" Levolor narrow slant horizontal blinds installed on perimeter base
building windows; and
P. Floors shall be true when checked with a straight edge in any direction,
with tolerances not exceeding 1/4 " in 10'.
This Exhibit is included in this Lease solely for the purpose of
Article 10 of the Lease which makes reference hereto. Nothing herein shall be
deemed to imply that the cost of any Landlord's Work that may be Base
Construction shall be excluded for purposes of calculating Above-Allowance Costs
under Paragraph 2B of Exhibit B to this Lease.
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<PAGE>
EXHIBIT C
ADDITIONAL TERMS AND PROVISIONS OF THIS LEASE
1. FIRST EXTENSION OPTION.
1.1 (a) Tenant shall have the right to extend the Term of this Lease for
an additional term of five (5) years commencing on the day following the
expiration of the initial Term of this Lease (hereinafter referred to as the
"Commencement Date of the First Extension Term") and ending on the day preceding
the fifth anniversary of the Commencement Date of the First Extension Term (such
additional term is hereinafter called the "First Extension Term") provided that:
A. Tenant shall give Landlord notice (hereinafter called the "First
Extension Notice") of its election to extend the term of this Lease, which
notice shall be given at least eleven (11) months, but not more than twelve (12)
months, prior to the expiration date of the initial Term of this Lease; and
B. Tenant (i) is the Tenant, or a subsidiary, parent or Affiliate of the
Tenant, originally named herein, (ii) actually occupies all of the Leased
Premises initially demised under this Lease, and (iii) is not in default under
this Lease or the Original Lease as of the time of the giving of the First
Extension Notice and the Commencement Date of the First Extension Term and (iv)
Tenant shall have exercised its right to extend the term of the Original Lease
pursuant to Paragraph 1.1 of Exhibit C to the Original Lease.
(b) The Annual Base Rent payable by Tenant to Landlord during the First
Extension Term shall be the greater of (i) the product that results from
multiplying ninety-five percent (95%) by the fair market rent for the Leased
Premises or (ii) the product that results from multiplying the Annual Base Rent
payable during the twelve (12) month period preceding the First Extension Term
by 102%, such product to be escalated by 2% on each anniversary of the
Commencement Date of the First Extension Term. Fair market rent shall be
determined by Landlord, subject to the right of Tenant to arbitrate the amount
of fair market rent as hereinafter provided. At least fifteen (15) months prior
to the expiration of the initial Term, but in no event more than sixteen (16)
months prior to the expiration of the initial Term, Tenant may give Landlord
notice of its desire to determine Landlord's good faith determination of the
fair market rent for the Leased Premises applicable to the First Extension Term.
After Landlord receives such notice and at least fourteen (14) months prior to
the expiration of the initial Term, Landlord shall give Tenant notice of such
determination. The determination of fair market rent shall take into
consideration fair market concessions available to a renewal tenant for
comparable office space in Arlington County, Virginia. Notwithstanding anything
herein to the contrary, the Annual Base Rent during the First Extension Term
under this Lease and under the Original Lease shall be determined together such
that the Annual Base Rent under both leases shall be the same amount on a per
square foot basis.
<PAGE>
1.2 (a) In the event Tenant gives the First Extension Notice in accordance
with the provisions of Paragraph 1.1, the Annual Base Rent determined under
clause (i) of Paragraph 1. I (b) is the greater than the Annual Base Rent
determined under clause (ii) of Paragraph 1.1(b) and Tenant thereafter disputes
the fair market rent as determined by Landlord pursuant to Paragraph 1.1(b),
then at any time on or before the date occurring ten (10) business days after
Tenant has been notified by Landlord of the fair market rent, Tenant may
initiate the arbitration provided for herein by giving notice to that effect to
Landlord, and if Tenant so initiates the arbitration such notice shall specify
the name and address of the person designated to act as an arbitrator on
Tenant's behalf. Within ten (10) business days after Landlord receives such
notice from Tenant, Landlord shall give notice to Tenant specifying the name and
address of the person designated to act as an arbitrator on its behalf. If
Landlord falls to notify Tenant of the appointment of its arbitrator within such
ten (10) business day period, then Tenant may request the appointment of the
second arbitrator in the same manner as hereinafter provided under this
Paragraph 1.2(a) for the appointment of a third arbitrator in a case where
neither the two arbitrators appointed hereunder nor the parties are able to
agree upon such appointment. The two arbitrators so chosen shall meet within ten
(10) business days after the second arbitrator is appointed, and if, within ten
(10) business days after the second arbitrator is appointed the two arbitrators
do not agree upon the fair market rent, they shall together appoint a third
arbitrator. In the event of their being unable to agree upon such appointment
within fifteen (15) business days after the appointment of the second
arbitrator, the third arbitrator shall be selected by the parties themselves if
they can agree thereon within a further period of five (5) business days. If the
parties do not so agree, then Tenant, on behalf of itself and Landlord and on
prior notice to Landlord, within twenty-five (25) business days after the
appointment of the second arbitrator, may request such appointment by the
American Arbitration Association (or any organization successor thereto) in
accordance with its rules then prevailing or if the American Arbitration
Association (or such successor organization) shall fail to appoint said third
arbitrator within ten (10) business days after such request is made, then Tenant
may apply within five (5) business days after such ten (10) business day period,
on notice to Landlord, to the General District Court, Arlington County, Virginia
(or any other court having jurisdiction and exercising functions similar to
those now exercised by said Court) for the appointment of such third arbitrator.
(b) Each party shall pay the fees and expenses of the original
arbitrator appointed by or for such party, and all other expenses (not including
the attorneys fees and similar expenses of the parties which shall be borne
separately by each of the parties) of the arbitration shall be borne by the
parties equally, unless a third arbitrator is selected or appointed in which
event all expenses of the parties, regardless of the nature of such expenses,
and the fees and expenses of the third arbitrator shall be borne by the party by
or for whom the arbitrator was appointed, which arbitrator's determination of
fair market rent is not selected by the third arbitrator in accordance with
Paragraph 1.2(c) below.
(c) If a third arbitrator is chosen as provided in Paragraph 1.2(a)
above, then such third arbitrator shall select either the fair market rent
determined by the arbitrator appointed
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<PAGE>
by or for Landlord or the fair market rent determined by the arbitrator selected
by Tenant; the third arbitrator may not select any other amount, and may not
"split the difference" between the determinations of the arbitrators selected or
appointed by or for the parties. The third arbitrator shall so determine the
fair market rent of the Leased Premises and render a written certified report of
his determination to both Landlord and Tenant within ten (10) business days
after appointment of the third arbitrator.
(d) Each of the arbitrators selected as herein provided shall have
at least ten (10) years experience in the leasing and renting of office space in
first class buildings in Arlington County, Virginia. In addition, the third
arbitrator (if any) shall be an independent party not affiliated in any way with
either Landlord or Tenant.
(e) In the event Tenant initiates the aforesaid arbitration process
and as of the date of expiration of the initial Term of this Lease the amount of
fair market rent for the First Extension Term has not been determined, Tenant
shall pay the amount determined by Landlord to be the fair market rent under
Paragraph 1.1(b) above and when the determination has actually been made, an
appropriate retroactive adjustment shall be made as of the Commencement Date of
the First Extension Term.
(f) If Tenant fails to timely initiate the arbitration process or
fails to timely request the appointment of an arbitrator by the American
Arbitration Association (or such successor organization) or by such General
District Court or other court, time being of the essence, the Landlord's
determination of the fair market rent under Paragraph 1.1(b) above shall be
conclusive.
(g) If Tenant gives the First Extension Notice, Tenant shall be
irrevocably bound to lease the Leased Premises during the First Extension Term
on the terms and conditions provided in this Paragraph 1, including, without
limitation, at the Annual Base Rent determined in accordance herewith.
1.3 Except as provided in this Paragraph 1, Tenant's occupancy of the
Leased Premises during the First Extension Term shall be on the same terms and
conditions as are in effect immediately prior to the expiration of the initial
Term of this Lease, provided, however, Tenant shall have no further right to
extend the Term of this Lease beyond the First Extension Term, except as
expressly provided below in this Exhibit C.
1.4 If Tenant does not send the First Extension Notice pursuant to
Paragraph 1.1 hereof, this Paragraph 1 and Paragraph 2 of this Exhibit C shall
have no force or effect and shall be deemed deleted from this Lease.
1.5 If this Lease is renewed for the First Extension Term, then Landlord
or Tenant can request the other party hereto to execute an instrument setting
forth the exercise of Tenant's right
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<PAGE>
to so extend the initial Term of this Lease and the terms of such extension,
including, without limitation, the last day of the First Extension Term.
1.6 If Tenant exercises its right to extend the Term of this Lease for the
First Extension Term pursuant to this Paragraph 1 of this Exhibit C, then the
word "Term", and the phrases "the Term of this Lease" or "the Term hereof", as
used in this Lease, shall be construed to include, when practicable, the First
Extension Term.
2. SECOND EXTENSION OPTION.
2.1 (a) Tenant shall have the right to extend the First Extension Term of
this Lease for an additional term of five (5) years commencing on the day
following the expiration of the First Extension Term of this Lease (hereinafter
referred to as the "Commencement Date of the Second Extension Term") and ending
on the day preceding the fifth anniversary of the Commencement Date of the
Second Extension Term (such additional term is hereinafter called the "Second
Extension Term") provided that:
A. Tenant shall give Landlord notice (hereinafter called the "Second
Extension Notice") of its election to extend the term of this Lease, which
notice shall be given at least eleven (11) months, but not more than twelve (12)
months, prior to the expiration date of the First Extension Term of this Lease;
and
B. Tenant (w) is the Tenant, or a subsidiary, parent or Affiliate of
the Tenant, originally named herein, (x) actually occupies all of the Leased
Premises initially demised under this Lease and any space added to the Leased
Premises pursuant to Paragraph 3 of this Exhibit C, (y) is not in default under
this Lease or the Original Lease as of the time of the giving of the Second
Extension Notice and the Commencement Date of the Second Extension Term, and (z)
Tenant shall have exercised the right to extend the Term of the Original Lease
pursuant to Paragraph 2.1 of Exhibit C to the Original Lease.
(b) The Annual Base Rent payable by Tenant to Landlord during the Second
Extension Term shall be the greater of (i) the product that results from
multiplying ninety-five percent (95%) by the fair market rent for the Leased
Premises or (ii) the product that results from multiplying the Annual Base Rent
payable during the twelve (12) month period preceding the Second Extension Term
by 102%, such product to be escalated by 2% on each anniversary of the
Commencement Date of the Second Extension Term. Fair market rent shall be
determined by Landlord, subject to the right of Tenant to arbitrate the amount
of fair market rent as hereinafter provided. At least fifteen (15) months prior
to the expiration of the First Extension Term, but in no event more than sixteen
(16) months prior to the expiration of the First Extension Term, Tenant shall
give Landlord notice of its desire to determine Landlord's good faith
determination of the fair market rent for the Leased Premises applicable to the
Second Extension Term. After Landlord receives such notice and at least fourteen
(14) months prior to the expiration of the First
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<PAGE>
Extension Term, Landlord shall give Tenant notice of such determination. The
determination of fair market rent shall take into consideration fair market
concessions available to a renewal tenant for comparable office space in
Arlington County, Virginia. Notwithstanding anything to the contrary, the Annual
Base Rent during the Second Extension Term under this Lease and the Original
Lease shall be determined together such that the Annual Base Rent under both
leases shall be the same amount on a per square foot basis.
2.2 (a) In the event Tenant gives the Second Extension Notice in
accordance with the provisions of Paragraph 2.1, the Annual Base Rent determined
under clause (i) of Paragraph 2.1(b) is greater than the Annual Base Rent
determined under clause (ii) of Paragraph 2.1(b) and Tenant thereafter disputes
the fair market rent as determined by Landlord pursuant to Paragraph 2.1(b),
then at any time on or before the date occurring ten (10) business days after
Tenant has been notified by Landlord of the fair market rent, Tenant may
initiate the arbitration provided for herein by giving notice to that effect to
Landlord, and if Tenant so initiates the arbitration such notice shall specify
the name and address of the person designated to act as an arbitrator on
Tenant's behalf within ten (10) business days after Landlord receives such
notice from Tenant, Landlord shall give notice to Tenant specifying the name and
address of the person designated to act as an arbitrator on its behalf. If
Landlord fails to notify Tenant of the appointment of its arbitrator within such
ten (10) business day period, then Tenant may request the appointment of the
second arbitrator in the same manner as hereinafter provided under this
Paragraph 2.2(a) for the appointment of a third arbitrator in a case where
neither the two arbitrators appointed hereunder nor the parties are able to
agree upon such appointment. The two arbitrators so chosen shall meet within ten
(10) business days after the second arbitrator is appointed, and if, within ten
(10) business days after the second arbitrator is appointed the two arbitrators
do not agree upon the fair market rent, they shall together appoint a third
arbitrator. In the event of their being unable to agree upon such appointment
within fifteen (15) business days after the appointment of the second
arbitrator, the third arbitrator shall be selected by the parties themselves if
they can agree thereon within a further period of five (5) business days. If the
parties do not so agree, then Tenant, on behalf of itself and Landlord and on
prior notice to Landlord, within twenty-five (25) business days after the
appointment of the second arbitrator, may request such appointment by the
American Arbitration Association (or any organization successor thereto) in
accordance with its rules then prevailing or if the American Arbitration
Association (or such successor organization) shall fail to appoint said third
arbitrator within ten (10) business days after such request is made, then Tenant
may apply within five (5) business days after such ten (10) business day period,
on notice to Landlord, to the District Court, Arlington County, Virginia (or any
other court having jurisdiction and exercising functions similar to those now
exercised by said Court) for the appointment of such third arbitrator.
(b) Each party shall pay the fees and expenses of the original arbitrator
appointed by or for such party, and all other expenses (not including the
attorneys fees and similar expenses of the parties which shall be borne
separately by each of the parties) of the arbitration shall be borne by the
parties equally, unless a third arbitrator is selected or appointed in which
event all
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<PAGE>
expenses of the parties, regardless of the nature of such expenses, and the fees
and expenses of the third arbitrator shall be borne by the party by or for whom
the arbitrator was appointed, which arbitrators determination of fair market
rent is not selected by the third arbitrator in accordance with Paragraph 2.2(c)
below.
(c) If a third arbitrator is chosen as provided in Paragraph 2.2(a) above,
then such third arbitrator shall select either the fair market rent determined
by the arbitrator appointed by or for Landlord or the fair market rent
determined by the arbitrator selected by Tenant; the third arbitrator may not
select any other amount, and may not "split the difference" between the
determinations of the arbitrators selected or appointed by or for the parties.
The third arbitrator shall so determine the fair market rent of the Leased
Premises and render a written certified report of his determination to both
Landlord and Tenant within ten (10) business days after appointment of the third
arbitrator.
(d) Each of the arbitrators selected as herein provided shall have at
least ten (10) years experience in the leasing and renting of office space in
first class buildings in Arlington County, Virginia. In addition, the third
arbitrator (if any) shall be an independent party not affiliated in any way with
either Landlord or Tenant.
(e) In the event Tenant initiates the aforesaid arbitration process and as
of the date of expiration of the initial Term of this Lease the amount of fair
market rent for the Second Extension Term has not been determined, Tenant shall
pay the amount determined by Landlord to be the fair market rent under Paragraph
2.1(b) above and when the determination has actually been made, an appropriate
retroactive adjustment shall be made as of the Commencement Date of the Second
Extension Term.
(f) If Tenant fails to timely initiate the arbitration process or fails to
timely request the appointment of an arbitrator by the American Arbitration
Association (or such successor organization) or by such District Court or other
court, time being of the essence, the Landlord's determination of the fair
market rent under Paragraph 2.1(b) above shall be conclusive.
(g) If Tenant gives the Second Extension Notice, Tenant shall be
irrevocably bound to lease the Leased Premises during the Second Extension Term
on the terms and conditions provided in this Paragraph 2, including, without
limitation, at the Annual Base Rent determined in accordance herewith.
2.3 Except as provided in this Paragraph 2, Tenant's occupancy of the
Leased Premises during the Second Extension Term shall be on the same terms and
conditions as are in effect immediately prior to the expiration of the Second
Extension Term, provided, however, Tenant shall have no further right to extend
the Term of this Lease beyond the Second Extension Term.
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<PAGE>
2.4 If Tenant does not send the Second Extension Notice pursuant to
Paragraph 2.1 hereof, this Paragraph 2 shall have no force or effect and shall
be deemed deleted from this Lease.
2.5 If this Lease is renewed for the Second Extension term, then Landlord
or Tenant can request the other party hereto to execute an instrument setting
forth the exercise of Tenant's right to so extend the Term of this Lease and the
terms of such extension, including, without limitation, the last day of the
Second Extension Term.
2.6 If Tenant exercises its right to extend the Term of this Lease for the
Second Extension Term pursuant to this Paragraph 2 of this Exhibit C, then the
word "Term", and the phrases "the Term of this Lease" or "the Term hereof", as
used in this Lease, shall be construed to include, when practicable, the Second
Extension Term.
3. INTENTIONALLY OMITTED
4. INTENTIONALLY OMITTED
5. INTENTIONALLY OMITTED
6. LANDLORD'S CONSENT TO ASSIGNMENT OR SUBLETTING. Landlord shall not
unreasonably withhold, condition or delay its prior written consent to any
voluntary, written assignment to an assignee (not by operation of law) or any
sublease to a sublessee requested by Tenant in writing.
7. ELEVATOR SERVICE. At least one (1) passenger elevator in the Building shall
be in operation at all times.
8. INTENTIONALLY OMITTED
9. ASSIGNMENT OR SUBLETTING TO AN AFFILIATE. Anything in Paragraphs 16A or 16C
of this Lease to the contrary notwithstanding, but subject to the terms of
Paragraph 16B of this Lease, Landlord's consent shall not be required for an
assignment or subletting by Tenant to any Affiliate thereof, provided, however,
Tenant shall give Landlord written notice within thirty (30) days of such
assignment or subletting and provide to Landlord all information relating
thereto reasonably requested by Landlord.
10. INTENTIONALLY OMITTED
11. INTENTIONALLY OMITTED
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<PAGE>
12. CURRENT RATE FOR HVAC. The current rate for after-hours HVAC Service in the
Building is approximately $32.00 per hour per floor. This rate is subject to
change.
13. LIMITATION ON LATE FEE CHARGES. Anything in Paragraph 3E of this Lease to
the contrary notwithstanding, Landlord shall not charge a late fee for any late
payment by Tenant hereunder, unless, during the twelve (12) month period
preceding such late payment (or any shorter period if twelve (12) months of the
Term have not elapsed), Tenant already has, on at least two (2) occasions, made
a late payment.
14. TENANT'S LIMITED AUDITING RIGHTS. Landlord agrees that it will maintain
reasonably complete and accurate records of all costs, expenses and
disbursements which shall be paid or incurred by Landlord with respect to the
Operating Expenses, and Tenant, at its sole cost and expense, and/or its
authorized representative, shall have the right, at all times (but no more than
once during any calendar year), to inspect and/or audit (and make copies of,
subject to the terms of this Paragraph 14 of this Exhibit C) Landlord's books
and records relating to this Lease for any year or years for which Additional
Rent shall become or became due, any such inspection and/or audit to be
conducted at Landlord's office during normal business hours; provided, however,
Landlord agrees to reimburse Tenant for the reasonable costs of any such
inspection and/or audit conducted by or for it in the event said inspection
and/or audit shall prove that the Operating Expenses for the period of time
covered by such inspection and/or audit shall have been overstated by seven
percent (7%) or more. Any overpayment or underpayment of Operating Expenses by
Tenant shall be adjusted between Landlord and Tenant by payment within thirty
(30) days following the date such overpayment or underpayment is proven by such
inspection and/or audit or otherwise determined in accordance herewith.
Landlord, at any time, shall be entitled to obtain a copy of such inspection
and/or audit, any report issued in connection therewith and any work papers of
Tenant and/or its representative prepared in connection therewith, certified by
Tenant to Landlord to be true, correct and complete. Landlord shall have no
obligation to make any payment to Tenant pursuant to this Paragraph 14 of this
Exhibit C until Tenant has furnished to Landlord any such certified materials
requested by Landlord. If, during any such inspection and/or audit, the time of
any employee of Landlord and/or the Building's property manager is required by
Tenant and/or its representative, Tenant shall be charged $30.00 per hour for
any such employee's time. If the photocopying equipment of Landlord and/or the
Building's property manager is used during any such inspection and/or audit,
Tenant shall be charged S.10 for each page photocopied. Such charges are deemed
to be Additional Rent payable by Tenant under this Lease. If, as a result of any
such inspection and/or audit, Landlord and Tenant dispute the existence or the
amount of any overpayment or underpayment of Operating Expenses by Tenant,
unless otherwise mutually agreed, any such dispute shall be resolved by
arbitration in the jurisdiction in which the Leased Premises are located in
accordance with the then Commercial Rules of the American Arbitration
Association. The cost of the arbitration, including, without limitation,
reasonable attorneys, fees, of each party shall be borne by such party, unless
the subject of the dispute is whether an overpayment equals or exceeds seven
percent (7%) and/or Landlord is obligated to pay the cost of such inspection
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<PAGE>
and/or audit, in which event the losing party in such dispute shall bear the
other party's costs of the arbitration. Tenant shall be considered to be the
losing party for the purposes of this Paragraph 14 of this Exhibit C if such
arbitration results in a determination that Landlord's statement delivered to
Tenant pursuant to Paragraph 4B of this Lease contained an aggregate discrepancy
of less than seven percent (7%) in Landlord's favor. Landlord shall be
considered to be the losing party for the purposes of this Paragraph 14 of this
Exhibit C if such aggregate discrepancy is equal to or greater than seven
percent (7%) in Landlord's favor.
15. DEFINITION OF LATENT DEFECT. The term "Latent Defect" shall mean any defect
in the base Building shell, Base Construction or Landlord's Work created by a
person or entity other than Tenant, Tenant's Architect, any contractor engaged
by Tenant, any subcontractor engaged by any such contractor or any subcontractor
engaged by such subcontractor, of which defect neither Tenant nor any
representative of Tenant had actual knowledge, and of which defect neither
Tenant nor any such representative could have known through a reasonable
investigation, either during construction of the Landlord's Work or at the time
Tenant took possession of the Leased Premises.
16. NAME OF BUILDING. Anything in this Lease to the contrary notwithstanding,
Landlord shall not allow the name of the Building to be the name or associated
with the name of any of the following eight (8) entities: Energy and
Environmental Analysis (EEA), ICF International, Science Applications
International Corporation (SAIC), Putnam, Hayes and Bartlett Inc., Resource
Dynamics, Chemonics, Charles River Associates or Foster Associates. The eight
(8) names listed in the preceding sentence may be changed by Tenant from time to
time during the Term upon at least ninety (90) days prior written notice from
Tenant to Landlord provided that Landlord has not already agreed to name the
Building after a name of which Tenant gives such notice to Landlord. landlord
shall have no obligation to change the name of the Building as a result of
Tenant's rights under this Paragraph 16 of this Exhibit C.
17. ADDITIONAL COVENANTS AND REPRESENTATIONS. Landlord represents and warrants
to the best of its current, actual knowledge and belief, without any
investigation whatsoever, that the Building and Leased Premises are in
compliance with all laws, ordinances, codes and regulations at the commencement
of this Lease and that the Building contains no asbestos or electric components
which contain PCB's in violation of any applicable law. Landlord further
represents and warrants that Landlord has good title to the Building and Leased
Premises, subject to existing encumbrances. Tenant shall not release into the
environment, deposit, discharge, place or dispose of at, on, under or near the
Property, or any part thereof, in violation of any law, rule or regulation, any
"hazardous materials", "hazardous material contamination", "hazardous waste",
"hazardous substance" or any other similar items as regulated by any applicable
laws, rules or regulations pertaining to the Property, or any part thereof, or
its use.
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<PAGE>
18. NOTICE OF FAILURE TO PAY. Landlord agrees to give Tenant at least ten (10)
days prior written notice of any failure by Tenant to pay all or any portion of
the Rent or any installment thereof when due, or any failure to pay any other
sum required to be paid by Tenant under this Lease, before such failure shall
constitute a breach of or default under this Lease, unless, during the twelve
(12) month period preceding such failure (or any shorter period if twelve (12)
months of the Term have not elapsed), Landlord already has, on at least two (2)
occasions, given Tenant such a notice with respect to any other such failure.
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<PAGE>
EXHIBIT D
OUTLINE OF LEASED PREMISES
[EDGAR Note: Please see Appendix for description of omitted graphics]
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<PAGE>
EXHIBIT E
CLEANING SPECIFICATIONS
I. OFFICE AREAS:
A. Services performed nightly.
1. Empty, clean and damp dust all waste receptacles and remove
waste paper and rubbish from the Leased Premises nightly; wash
receptacles as necessary.
2. Empty and damp wipe all ash trays; screen all sand urns
nightly and supply and replace sand as necessary.
3. Vacuum all rugs and carpeted areas of offices, lobbies and
corridors nightly.
4. Hand dust and wipe clean with damp or treated cloth all office
furniture, files, fixtures, window sills and all other
horizontal surfaces nightly; wash window sills when necessary.
5. Damp wipe and polish all glass furniture tops nightly.
6. Remove finger marks and smudges from all vertical surfaces,
including doors, door frames, around light switches, private
entrance glass and partitions.
7. Wash all water coolers.
8. Sweep private stairways nightly and vacuum if carpeted.
9. Sweep all uncarpeted floors employing dust controlled
techniques.
10. Keep all stairways, sidewalks, parking areas and loading
facilities throughout the entire Building in clean condition
daily.
11. Damp mop spillage in office and public areas as required.
B. Services performed as necessary.
1. Wash waste receptacles.
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<PAGE>
2. Wash window sills.
3. Damp mop floors where spillage occurred.
4. Damp dust all telephones.
5. Dress and buff floors to maintain scuff-free high gloss.
6. Damp dust all telephones as necessary.
7. Dust all miniblinds as necessary.
C. Services performed when reasonably requested by Property Manager.
1. Spot clean all rugs in carpeted areas.
D. Services performed monthly.
1. Tile floors waxed and buffed.
E. Services performed quarterly.
1. Strip and reseal floors.
2. Dust lights.
II. RESTROOMS:
A. Services performed nightly.
1. Sweep, mop, rinse, and dry floor.
2. Clean all mirrors, bright work and enameled surfaces.
3. Wash and disinfect all basins, urinals and bowls using
nonabrasive cleaners to remove stains and clean undersides of
rim of urinals and bowls.
4. Scrub all fixtures using a cleaner to remove all stains.
5. Wash both sides of all toilet seats with soap and water to
disinfect.
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<PAGE>
6. Damp wipe and wash with disinfectant when necessary all
partitions, tile walls, and outside surfaces of all
dispensers, including soap dishes and receptacles.
7. Empty and sanitize all receptacles and sanitary disposals;
thoroughly clean and wash at least once a week.
8. Fill toilet tissue, soap, and sanitary napkin dispensers
properly.
9. Clean and polish flushometers, piping, toilet seat hinges and
other metal.
B. Services performed weekly.
1. Scrub floors.
2. Thoroughly wash all partitions, tile walls, dispensers, and
receptacles.
C. Services performed monthly.
1. Wash and polish all walls, partitions, tile walls, and enamel
surfaces from trim to floor.
2. Vacuum all louvers, ventilating grills and dust light
fixtures.
D. Keep the restrooms thoroughly cleaned and refrain from using
disinfectant or deodorant to kill odor. If a disinfectant is
necessary, an odorless product should be used.
III. PUBLIC AREAS:
A. Brick or stone floors (Corridor and Lobby)
1. Nightly
a. Sweep, wet mop.
b. Buff, apply sealer coat.
B. Tile Floors
1. Floors in office areas will be waxed and buffed as needed but
at least once monthly. Floors will be stripped and re-waxed as
necessary.
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<PAGE>
C. Carpeted area/rugs
1. Services performed nightly.
a. Vacuum.
b. Spot remove stains.
2. Services performed as necessary.
a. Shampooing done as necessary upon authorization of
building management.
D. Brick or stone floors
1. Services performed nightly.
a. Sweep, wash and buff.
2. Services performed quarterly.
a. Strip and reseal.
E. Walls
1. Services performed as necessary.
a. Dust.
b. Spot wash.
c. Wash thoroughly.
F. Ceilings
1. Services performed as necessary.
a. Dust.
G. Bright Work
1. Services performed nightly.
a. Dust and polish.
H. Lights
1. Services performed as necessary.
a. Dust.
b. Wash.
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<PAGE>
I. Entrance/Patio/Courtyard
1. Services performed nightly.
a. Sweep.
b. Police as necessary.
J. Elevators
1. Services performed nightly.
a. Dust all surfaces, clean and polish all metal.
b. If carpet, vacuum and clean.
c. If tile, sweep, wash, dress and buff.
d. Vacuum, clean, and polish elevator tracks.
2. Services performed as necessary.
a. Dust/wash light fixtures.
b. Dust ceiling.
c. Shampoo carpet.
d. If tile, scrub and wax.
3. Services performed quarterly.
a. If tile, strip and reseal.
K. Ash urns
1. Services performed nightly.
a. Clean and polish.
b. Sift out all foreign articles.
2. Services performed as necessary.
a. Replace sand frequently.
L. Water Coolers
1. Services performed nightly.
a. Wash, disinfect and dry polish.
M. Stairways and landings.
1. Services performed nightly.
a. Sweep risers.
b. If carpet, police and vacuum.
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<PAGE>
2. Services performed weekly.
a. If carpet, spot stain removal.
3. Services performed monthly.
a. Wet mop risers.
4. Services performed as necessary.
a. If carpet, shampoo.
N. Fire Extinguisher
1. Services performed nightly.
a. Dust.
2. Services performed as necessary.
a. Wash.
O. Doors
1. Services performed as necessary.
a. Wooden doors, dust, wash, and polish.
P. Glass
1. Services performed nightly.
a. Clean glass entrance doors and adjacent glass panels.
2. Services performed quarterly.
a. Clean partition glass and interior glass doors.
Q. General
1. Services performed nightly.
a. Sweep and/or vacuum entrance mats.
b. Thoroughly wash transoms, high and low.
c. Wipe down mail depository and keep glass and metal clean
at all times.
d. Sweep outside plaza and sidewalk areas-, curbs should be
broom swept.
e. Police outside plaza, sidewalk and parking garage.
f. Wipe and clean all metal hardware fixtures and other
bright work.
g. Keep supply rooms in a clean, neat, and orderly
condition.
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<PAGE>
h. Dust and/or wash all directory boards as required.
Remove finger prints and smudges nightly.
i. Maintain building lobby corridors and other public areas
in a clean condition.
2. Services performed as necessary.
a. Wash and/or shampoo mats and/or blotters.
b. Hose and/or steam, plaza and sidewalk areas.
3. Services performed as requested by Property Manager.
a. Wipe all interior metal window frames, mullions, and
other unpainted interior metal surfaces of the perimeter
of the building each time the interior of the windows is
washed.
4. Services performed quarterly.
a. Dust and wipe clean all closet shelving when empty and
carpet sweep or dry mop all floors in closets if such
are empty.
b. Dust all picture frames, charts, graphs, and similar
wall hangings.
c. Dust clean all vertical surfaces such as walls,
partitions, doors, door bucks-and other surfaces above
shoulder height.
d. Damp dust all ceiling air conditioning diffusers, wall
grids, registers, and other ventilating louvers. If this
is not frequent enough, will be done monthly.
e. Dust the exterior surfaces of lighting fixtures,
including glass and plastic enclosures.
R. Day Services
1. At least once, but no more than twice during the day, check
men's washrooms for toilet tissue replacement.
2. At least once, but no more than twice during the day, check
ladies' washroom for toilet tissue and sanitary napkin
replacements. Remove money once a week.
3. Supply toilet tissue, soap, and towels in men's and ladies'
washrooms.
4. As needed, vacuuming of elevator cabs will be performed. Wipe
down smudges.
5. There will be a constant surveillance of public areas to
insure cleanliness.
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<PAGE>
6. Perform special cleaning needs of individual tenants as
authorized by the Property Manager.
7. All public area ash urns will be kept clean, sand sifted, and
free from excess debris.
8. Public area glass doors will be kept free of smudges and
fingerprints.
9. Sweep and wash sidewalks and exterior stairwells as needed.
10. Set out foul weather mats and carpets.
11. Police parking garage for trash.
12. Shovel snow and apply de-icer to sidewalks as needed.
S. Window Cleaning
1. Semi-annual cleaning of interior and exterior windows, frames
and mullions.
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<PAGE>
EDGAR APPENDIX
Exhibit D: Floorplan of 10th floor of 1530 Wilson Boulevard.
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LEASE AGREEMENT
LANDLORD: UNIVERSITY RESEARCH PARK FACILITIES CORP.
TENANT: RCG/HAGLER, BAILLY, INC.
PROPERTY: 455 Science Drive, Suites 150 & 300
Madison, Wisconsin
DATE: MARCH 30, 1995
<PAGE>
Page
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LEASE AGREEMENT
TABLE OF CONTENTS
ARTICLE I
PREMISES AND TERM
Section 1.1. Leased Premises...........................................1
Section 1.2. Term of Lease.............................................2
Section 1.3. Right of First Refusal....................................2
ARTICLE 2
RENT
Section 2.1. Base Rent.................................................3
Section 2.2. Additional Rent and Payments..............................4
Section 2.3. Past Due Rent.............................................4
Section 2.4. Real Estate Taxes, Escrow ................................4
ARTICLE 3
INSTALLATIONS, REPAIRS AND MAINTENANCE OF LEASED PREMISES
Section 3.1. Maintenance by Tenant.....................................6
Section 3.2. Maintenance by Landlord...................................7
Section 3.3. Exterior Signs............................................7
Section 3.4. Alterations, Changes and Installations by
Tentant.................................................8
Section 3.5. Fixtures and Equipment....................................8
Section 3.6. Liens and Obligations.....................................9
ARTICLE 4
CONDUCT OF BUSINESS
Section 4.1. Business Use.............................................10
Section 4.2. Utility Charges..........................................10
Section 4.3. Taxes on Leasehold.......................................11
Section 4.4. Assignment or Subletting.................................11
Section 4.5. Rules and Regulations...................................13
Section 4.6. Surrender...............................................14
Section 4.7. Corporate Ownership.....................................16
ARTICLE 5
COMMON USE AREAS AND FACILITIES
Section 5.1. Common Area.............................................18
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<PAGE>
Page
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Section 5.2. Use of Common Area......................................19
Section 5.3. Operation and Maintenance...............................19
Section 5.4. Preventing Public Rights................................19
Section 5.5. Charge for Common Area and Facilities...................19
Section 5.6. Formula For Pro Rata Share..............................20
Section 5.7. Basis For Changes.......................................21
ARTICLE 6
INSURANCE
Section 6.1. Casualty Insurance......................................21
Section 6.2. Public Liability Insurance..............................22
Section 6.3. Tenant's Contents.......................................23
Section 6.4. Increase in Fire Insurance..............................23
Section 6.5. Hold Harmless...........................................24
Section 6.6. Waiver of Subrogation...................................25
ARTICLE 7
DESTRUCTION OF LEASED PREMISES
Section 7.1. Destruction of Leased Premises..........................26
Section 7.2. Rebuilding by Landlord..................................26
Section 7.3. Abatement of Rent Upon Destruction of Premises..........26
ARTICLE 8
EFFECT OF CONDEMNATION
Section 8.l. Total Condemnation......................................27
Section 8.2. Partial Condemnation....................................27
Section 8.3. Landlord's Damages......................................27
Section 8.4. Tenant's Damages........................................28
ARTICLE 9
REMEDIES
Section 9.1. Events of Default by Tenant.............................28
Section 9.2. Re-Entry by Landlord....................................29
Section 9.3. Right to Relet..........................................29
Section 9.4. Parties May Remedy Defaults.............................30
Section 9.5. Landlord's Remedies; Liquidated Damages.................31
Section 9.6. Expenses of Landlord....................................33
Section 9.7. Waiver of Redemption....................................33
Section 9.8. Defaults of Landlord....................................34
Section 9.9. Rights Cumulative.......................................34
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<PAGE>
Page
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ARTICLE 10
MISCELLANEOUS
Section 10.1. Subordination..........................................34
Section 10.2. Sale of Property.......................................35
Section 10.3. Offset Statement.......................................35
Section 10.4. Attornment.............................................36
Section 10.5. Recording..............................................36
Section 10.6. Excavations............................................36
Section 10.7. Access to Premises.....................................37
Section 10.8. Quiet Enjoyment........................................37
Section 10.9. Notices................................................37
Section 10.10. Holding Over...........................................38
Section 10.11. Consents by Landlord...................................38
Section 10.12. Successors and Assigns.................................38
Section 10.13. Governmental Regulations...............................38
Section 10.14. Certain Expenses of Landlord...........................39
Section 10.15. Force Majeure..........................................39
Section 10.16. General................................................40
Section 10.17. Effect of Ground Lease.................................41
ARTICLE 11
ATTACHMENTS
Section 11.1. Attachments............................................42
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<PAGE>
455 SCIENCE DRIVE
LEASE AGREEMENT
This Lease is made as of this 1st day of April, 1995, by and between
University Research Park Facilities Corp., a Wisconsin corporation (hereinafter
referred to as "Landlord") and RCG/Hagler, Bailly, Inc., a District of Columbia
corporation (hereinafter referred to as "Tenant").
WITNESSETH:
IT IS HEREBY AGREED, by and between the parties hereto, in consideration of
the covenants and agreements set forth in thisLease, as follows:
ARTICLE I
PREMISES AND TERM
Section 1.1. Leased Premises. Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord on the terms and provisions and subject to the
conditions hereinafter set forth in this Lease, the following described
premises:
455 Science Drive, Suites 150 and 300, Madison, Dane County, Wisconsin,
(herein referred to as the "Leased Premises") consisting of approximately
12,726 square feet of space and all necessary common areas located in that
certain building (the "Building") situated upon the property described in
Exhibit A attached hereto. (The Property and associated parking and common
areas described in Exhibit A are referred to herein as the "Landlord's
Property"). The location of the Building and the associated parking and
common areas on the Landlord's Property are as shown on the attached
Exhibit B-1. The location of the Leased Premises in the Building is
indicated on the floor plan attached hereto as Exhibit B-2.
It is understood and acknowledged by both parties that Landlord, at the
time of execution of this Lease, holds all or a
<PAGE>
portion of the Leased Premises as a tenant under a ground lease described in
Section 10.17.
Section 1.2. Term of Lease. The term of this Lease ("the term") shall
begin on April 1, 1995 ("the commencement date"). The term shall end at midnight
on March 31, 2002.
Section 1.3. Right of First Refusal. If, during the term of this Lease,
all or any part of the 8224 square feet of space in the Building known as Suite
200 becomes available for rental, Tenant, provided it is not in default with
respect to the performance of any of its obligations under the terms and
provisions of this Lease, shall have a right of first refusal for the leasing of
such space. This right of first refusal shall be exercised as follows:
Landlord, upon determining that any such space has or will become
available for rental during the term of this Lease, shall provide to
Tenant written notice specifying the date on which such space will be
available, the number of square feet of floor space comprising such space,
and Landlord's rental rate therefore. Tenant may elect to rent such space
by written notice delivered to Landlord within fourteen (14) days
following the date of Landlord's notice. Tenant's written notice shall
obligate Tenant to lease such space on the terms proposed in Landlord's
notice and all other terms of such lease shall be identical to those then
in effect under this Lease. If Landlord has not received Tenant's notice
within such fourteen (14) day period, Tenant's right to lease additional
space under this Lease shall end provided Landlord actually
leases such space within 90 days thereafter and further provided that
Tenant shall have a right of first refusal to lease such space upon the
expiration of the term of the lease for such space.
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<PAGE>
ARTICLE 2
RENT
Section 2.1. Base Rent. Tenant shall pay to Landlord at its office in
Madison, Wisconsin, or such other place as Landlord may designate in writing,
and without any deduction or offset whatsoever as base rent the following
amounts on or before the first day of each calendar month:
(a) The sum of Fourteen Dollars per square foot per year (i.e. the sum
of One Hundred Seventy-eight Thousand One Hundred Sixty- four
Dollars($178,164.00) in 12 equal monthly installments of Fourteen
Thousand Eight Hundred Forty-seven Dollars ($14,847.00) in advance
on or before the first day of each calendar month during the first
year of this Lease.
(b) The base rent for each subsequent lease year shall be the base rent
for the prior lease year increased or decreased by a percentage
equal to the "Consumer Price Index Increase or Decrease" as defined
below.
The term "Consumer Price Index Increase or Decrease" shall be the
percentage increase or decrease in the Cost of Living Index (defined
below) between the Cost of Living Index for the month of March
preceding the just completed lease year and the Cost of Living Index
for the month of March immediately preceding the lease year for
which the computation is being made. The term "Cost of Living Index"
as used herein shall be the index number in the above-stated month
in the column of "All Items" in the table entitled "Consumer Price
Index All Urban Consumers - U.S. City Average 1967 = 100" as
published in the Monthly Labor Review by the Bureau of Labor
Statistics of the U.S. Department of Labor. In the event that the
Bureau of Labor Statistics ceases to publish
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<PAGE>
the Cost of Living Index or materially changes the method of its
computations, Landlord and Tenant shall accept comparable statistics
relative to the purchasing power of the dollar as published at the
time of such discontinuation or change by a responsible financial
periodical or recognized authority to be then chosen by Landlord.
The foregoing notwithstanding the increase in base rent for any
lease year shall not exceed 4%.
If the term of this Lease does not commence on the first day of a calendar
month, the base rent for such fractional month shall be computed pro rata on the
basis of thirty (30) days per month and paid to Landlord on the first day of the
next succeeding calendar month along with the rent for such succeeding month.
Section 2.2. Additional Rent and Payments. In addition to base rent,
Tenant shall pay as part of the consideration for this Lease and as additional
rent, hereinafter designated "additional rent," all additional amounts
hereinafter provided for and the same shall be payable upon Landlord's demand
except as otherwise expressly provided.
Section 2.3. Past Due Rent. If Tenant shall fail to pay when due any base
rent or additional rent, such unpaid amounts shall bear interest from the due
date thereof to the date of payment at the rate of ten (10%) percent per annum
or the prime interest rate then charged by the Firstar Bank Madison, N.A. or its
successors or assigns, whichever is greater.
Section 2.4. Real Estate Taxes, Escrow. Landlord shall pay all real estate
taxes on Landlord's Property, including all
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<PAGE>
general real estate taxes, personal property taxes on Landlord's property and
installments for special assessments arising during the term of the Lease.
Tenant agrees to reimburse Landlord for Tenant's pro rata share of such taxes.
Tenant's pro rata share of such taxes shall be a fraction, the numerator of
which is the area of the Leased Premises and the denominator of which is the
leasable area of the Building. Tenant's pro rata share of taxes shall be
adjusted from time to time as Tenant leases more or less space in the Building.
Tenant's obligation for each tax described in this section shall be further
prorated for the first year of this Lease between Landlord and Tenant as of the
commencement date of this Lease. Tenant shall have no obligation for taxes for
any years prior to the commencement date and Landlord represents that Landlord
has no knowledge of any current special assessments against Landlord's Property.
Tenant shall pay to Landlord, along with Tenant's monthly rent, an amount
equal to one-twelfth (1/12) of its pro rata share of the estimated annual real
estate taxes, personal property taxes and installments for special assessments
for Landlord's Property. Such payment shall be applied by Landlord to the
payment of Tenant's pro rata share of such taxes on the Landlord's Property.
Landlord and Tenant shall make any necessary adjustment to such estimated
payment based on the actual taxes when such taxes are known.
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<PAGE>
ARTICLE 3
INSTALLATIONS, REPAIRS AND MAINTENANCE OF LEASED PREMISES
Section 3.1. Maintenance by Tenant. Tenant shall at all times keep the
Leased Premises and all partitions, doors, fixtures, electrical and lighting
fixtures, equipment and appurtenances thereof (including but not limited to
lighting and plumbing equipment, fixtures and electrical and plumbing lines
located within the Leased Premises but excluding such lines to the extent they
are electrical or plumbing distribution lines serving the entire Lease Premises
or areas in addition to the Leased Premises) in good order, condition and
repair, including periodic painting as determined by Landlord, reasonable wear
and tear excepted. If Tenant refuses or neglects to repair property as required
hereunder and to the reasonable satisfaction of Landlord as soon as reasonably
possible after written demand, Landlord may make such repairs without liability
to Tenant for any loss or damage that may accrue to Tenant's property or to
Tenant's business by reason thereof, and upon completion thereof, Tenant shall
pay Landlord's costs for making such repairs plus twenty (20%) percent for
overhead, upon presentation of bill therefor, as additional rent. When used in
this paragraph, the term "repairs" shall include replacements and renewals when
necessary and all such repairs shall be equal in quality and class of original
work.
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<PAGE>
Section 3.2. Maintenance by Landlord. Landlord shall keep foundations,
exterior walls, roof and all other structural members, both interior and
exterior and all common areas, of the Leased Premises in good repair and shall
have access to the Leased Premises for such purpose, but Landlord shall not be
required to make any such repairs which become necessary or desirable by reason
of the negligence of Tenant, its agents, servants, employee, or customers.
Landlord shall also keep and maintain heating, ventilating and air conditioning
lines and equipment. Tenant shall pay for a pro rata portion as a common area
maintenance charge (described in Section 5.5) of the cost of the replacement of
heating and air conditioning equipment. The total charge for replacement before
proration, shall be limited to a fraction of the replacement cost thereof, the
numerator of which shall be the number of years which have expired since the
commencement date of this Lease (including any partial year), and the
denominator of which shall be twenty (20). The balance of such cost shall be
paid by Landlord. Landlord shall enter into service contracts on all heating,
ventilating and air conditioning units, including but not limited to changing
filters, checking belts and oiling of units. Tenant shall pay its pro rata share
of the cost of such contracts as a common area charge.
Section 3.3. Exterior Signs. All signs to be installed by Tenant shall be
approved in advance in writing by the Design
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<PAGE>
Review Board appointed by the Board of Regents of the University of Wisconsin
System. All signs to be installed by Landlord shall be approved in advance in
writing by the Design Review Board. Tenant shall remove all signs installed by
Tenant at the termination of this Lease. Such installations and removals shall
be made in such a manner as to avoid injury, defacement or any other damages to
the buildings and improvements. The cost of repairing any damage to the building
caused by the installation, removal, or maintenance of the sign shall be borne
by the Tenant. The cost of all signs, other than those furnished by Landlord,
including the installation, maintenance, and removal thereof, shall be the
responsibility of the Tenant.
Section 3.4. Alterations, Changes and Installations by Tenant. Landlord
shall deliver and Tenant shall accept the Leased Premises in "as is" condition.
Tenant shall not make or cause to be made any alterations, additions or
improvements to the Leased Premises, or cause to be installed any fixtures,
interior or exterior lighting, plumbing equipment or mechanical equipment,
without the prior written consent of Landlord.
Section 3.5. Fixtures and Equipment. Subject to Section 3.4, Tenant may,
at its own expense, furnish and install such business and trade fixtures in and
on the Premises as may be necessary or desirable for Tenant's business. Any such
fixtures shall immediately become and remain the personal property of Landlord
except that Tenant may remove such fixtures installed
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and paid for by Tenant during or at the expiration of the term of this Lease and
Tenant shall repair damage caused by such removal and restore the Leased
Premises to the condition existing prior to installation of such fixtures,
reasonable wear and tear expected. The foregoing notwithstanding, Tenant
acknowledges that all voice and data cabling servicing the Leased Premises shall
be and shall remain the property of the Landlord and shall not be removed by
Tenant at any time during or at the expiration of the term of this Lease without
Landlord's written consent.
Section 3.6. Liens and Obligations. Tenant agrees not to create or to
permit others to create any lien or obligations against Landlord or the Leased
Premises in making alterations, repairs or in installing materials, fixtures or
equipment, agrees to cause any claim for such lien to be released, and further
agrees to hold Landlord harmless from all claims and demands by any third party
in any manner connected with such alterations, repairs or installations or with
Tenant's occupancy for such purpose. Tenant shall comply with all laws and all
directions, rules and regulations of all governmental regulatory bodies or
officials having jurisdiction over such alterations, repairs or installations,
except that Tenant shall not be required to comply with any laws, regulations or
orders by governmental authority necessitating structural alterations, changes,
repairs or additions, unless made necessary by the act or work performed by
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Tenant, in which case Tenant shall so comply, at its own expense, after first
procuring the written consent of Landlord.
ARTICLE 4
CONDUCT OF BUSINESS
Section 4.1. Business Use. It is understood and agreed that the Leased
Premises shall be used and occupied by Tenant as a general office. Tenant shall
not use the Leased Premises for any use not identified as a permitted use by any
zoning ordinance or other governmental regulation relating to the Leased
Premises or approved as a conditional use by the governmental bodies having
zoning authority. No use shall be permitted, or acts done, which will cause a
cancellation of any insurance policy covering the Leased Premises. Tenant shall
not sell, permit to be kept, used or sold in or about the Leased Premises any
article which may be prohibited by the standard form of fire insurance policy.
In the event Tenant's use of the Leased Premises results in an increase in the
cost of any insurance relating to the Landlord's Property, Tenant shall pay such
additional cost to Landlord upon demand. Tenant shall comply with all applicable
laws, ordinances, regulations and/or deed and plat restrictions affecting the
use and occupancy of the Leased Premises. Tenant shall not commit, or permit to
be committed, any waste or nuisance on the Leased Premises.
Section 4.2. Utility Charges. Tenant shall be responsible for its pro rata
share of all charges for heat, water, gas,
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sewer, electricity or any other utility used or consumed in the Leased Premises
including supplemental heating and charges for operation of heating, ventilating
and air conditioning equipment. In no event shall Landlord be liable for an
interruption or failure in the supply of any such utilities to the Leased
Premises. Tenant shall promptly pay for upon request of Landlord its pro rata
portion of such utility charges. Tenant's portion of such charges shall be based
on Tenant's portion of the net leasable area in the Building with appropriate
adjustments for use by Tenant more than normal business hours (initially 7 a.m.
to 7 p.m., Monday through Friday and 8:00 a.m. to 12:00 noon on Saturday) as
reasonably determined by Landlord. Landlord reserves the right to modify the
normal business hours schedule as warranted. The initial charge for one
additional hour of utility usage from November through April shall be $20.00 and
from May to October, $20.00. Landlord reserves the right to alter the per hour
charge as warranted.
Section 4.3. Taxes on Leasehold. Tenant shall be responsible for and shall
pay before delinquency all municipal, county, state, or other taxes assessed
during the term of this Lease against any leasehold interest or personal
property of any kind, owned by or placed in, upon or about Leased Premises by
Tenant.
Section 4.4. Assignment or Subletting. Tenant agrees not to sell, assign,
mortgage, pledge or in any manner transfer this
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Lease or any estate or interest thereunder and not to sublet the Leased Premises
or any part or parts thereof without the prior written consent of Landlord in
each instance which consent shall not be unreasonably withheld. Consent by
Landlord to one assignment of this Lease or to one licensing or subletting of
the Leased Premises shall not be a waiver of Landlord's rights hereunder as to
subsequent assignment or subletting. Landlord's rights to assign this Lease are
and shall remain unqualified. The foregoing notwithstanding, commencing as of
April 1, 2000, Tenant shall have the right to assign this Lease in its entirety,
or sublet all or any portion or portions of the Leased Premises, without the
necessity of obtaining the consent of Landlord provided that Persoft, Inc.
(provided it then currently leases space from Landlord in the Building and is
not then in default under the terms of its lease with Landlord) shall have a
first right of refusal to lease any block of space exceeding 2,000 square feet
which Tenant makes available for sublease or assignment to unrelated and
unaffiliated parties. This right of first refusal shall be exercised as follows:
Tenant, upon determining that such space has or will become available for
rental during the term of this Lease, shall provide to Persoft, Inc.
written notice addressed to 465 Science Drive, Madison, Wisconsin,
specifying the date on which such space will be available, the number of
square feet of floor space
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comprising such space, and the rental rate therefor. Persoft, Inc. may
elect to rent such space by written notice delivered to Tenant within
fourteen (14) days following the date of Tenant's notice. Persoft Inc.'s
written notice shall obligate it to lease such space on the terms proposed
in Tenant's notice. If Tenant has not received Persoft, Inc.'s notice
within such fourteen (14) day period, Persoft, Inc.'s right to lease such
space shall end provided Tenant actually leases such space within 90 days
thereafter and further provided that Persoft, Inc. shall have a right of
first refusal to lease such space, if such space again becomes available
for rental during the term of this Lease.
No such assignment or sublet shall relieve Tenant of any of its obligations
hereunder unless Landlord expressly agrees otherwise.
Section 4.5. Rules and Regulations. The rules and regulations appended to
this Lease as Exhibit C are hereby made a part of this Lease, and Tenant agrees
to comply with and observe the same. Tenant's failure to keep and observe said
rules and regulations shall constitute a breach of the terms of this Lease in
the manner as if the same were contained herein as covenants. Landlord reserves
the right from time to time to amend or supplement said rules and regulations
and to adopt and promulgate additional rules and regulations applicable to
Leased Premises.
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Notice of such additional rules and regulations, and amendments and supplements,
if any, shall be given to Tenant, and Tenant agrees thereupon to comply with and
observe all such rules and regulations and amendments thereto and supplements
thereof.
Section 4.6. Surrender. On the last day of the term of this Lease,
including any option term, or upon the sooner termination thereof, Tenant shall
peaceably and quietly surrender the Leased Premises and all improvements thereon
in the same condition as at the commencement of this Lease, in good order,
condition and repair, fire and other unavoidable casualty, and reasonable wear
and tear excepted. All alterations, additions, improvements and fixtures which
may be made or installed by either Landlord or Tenant upon the Leased Premises
shall remain the property of Landlord and shall remain upon and be surrendered
with the Leased Premises as a part thereof, without disturbance, molestation or
injury at the termination of the term of this Lease, whether by the elapse of
time or otherwise, all without compensation or credit to Tenant. At any time
prior to surrender of the Leased Premises the Tenant may, if not then in
default, remove all personal property (not including trade fixtures) not
attached to the Leased Premises, and signs installed at Tenant's expense. Any
property not so removed shall be deemed abandoned and shall become the property
of Landlord; provided, that the Landlord shall have the option to effect removal
of such personal property and Tenant shall pay Landlord, on demand, the cost
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thereof, with interest at the rate of ten (10%) percent per annum from the date
of such removal by Landlord, or the prime interest rate established by the
Firstar Bank Madison, N.A. or its successors or assigns, whichever is higher.
If, prior to surrender of the Leased Premises or within twenty (20) days
thereafter, Landlord so directs by written notice to Tenant, Tenant shall repair
any damage occasioned by such removals and Tenant will pay to Landlord, on
demand, the cost thereof with interest from the date of completion of such
repairs by Landlord, a the rate specified in the immediately preceding paragraph
of this Lease.
The delivery to Landlord at the place then fixed for the payment of rent
of the keys to the Leased Premises shall constitute surrender of the premises by
Tenant and acceptance of the keys by Landlord shall constitute acceptance by
Landlord of such surrender. Such acceptance by Landlord shall not constitute a
waiver of any rights to recover damages under terms of this Lease. This method
of surrender shall not be exclusive and shall be in addition to all other
methods of surrender.
Anything in this section to the contrary notwithstanding, at any
termination of this Lease, Landlord shall have a lien upon all of the property
of Tenant then located in or upon the Leased Premises to secure the payment of
any amounts due from Tenant to Landlord by reason of this Lease or to secure the
payment of damages, and Landlord may retain possession of such property until
payment in full of said amounts. Said lien shall not be defeated by placing such
property in storage. If Tenant has not redeemed said property within ninety (90)
days after the termination of said Lease, Landlord may sell such property
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at public or private sale without further notice to Tenant, and shall apply in a
reasonable manner determined by Landlord the proceeds of sale to reduce the
amounts then owed from Tenant to Landlord. The foregoing notwithstanding, Tenant
shall be entitled to remove property from the Leased Premises subsequent to such
termination, after written request therefor has been provided to Landlord
specifying the items to be removed. Landlord shall allow such removal to the
extent the value of property remaining subject to Landlord's lien reasonably
secures all amounts due Landlord. The rights of holders of liens superior to the
lien provided for herein shall be recognized by Landlord consistent with
applicable laws and statutes.
Section 4.7. Corporate Ownership. If the Tenant is a corporation and if at
any time during the term of this Lease any part or all of the corporate shares
of said corporation shall be transferred by sale, assignment, operation or law
or other disposition (except transfers by gift, bequest or inheritance) so that
the result of such transfer would be the loss of voting control of said
corporation by the person or persons owning a majority of said corporate shares
at the date of this Lease, the Tenant shall notify the Landlord in writing of
such changes in
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voting control and Landlord may terminate this Lease by giving Tenant written
notice of such termination within ninety (90) days after receipt of Tenant's
notice. The foregoing notwithstanding, this section shall not apply to any
changes, assignments or transfers resulting from the following:
(a) a transfer of or change in the ownership interest of
Tenant as long as the new ownership interest continues
to operate the business of the Tenant in the same manner
and has a financing net worth equal to or greater than
the transferring owner;
(b) a transfer of stock pursuant to a public offering of the
capital stock of Tenant;
(c) the merger, consolidation or amalgamation of Tenant with
a third party for the sale of all, or substantially all,
of the stock or assets of Tenant as long as the
surviving entity continues to operate the business of
the Tenant in the same manner and either (i) has a net
worth equal to or greater than the Tenant or (ii) can
reasonably demonstrate that it has the financial
capacity to perform the Tenant's obligations under this
Lease; or
(d) a transfer to (i) Tenant's management group in
accordance with or similar to the
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proposals described in memorandum the "Memorandum')
dated November 1, 1994 prepared by Resource Capital
Associates, Inc. with R.F. Reilly & Associates, (ii) a
parent, (iii) subsidiary or (iv) affiliate (as
hereinafter defined) of Tenant.
For purposes of this Section, an "affiliate of Tenant" shall mean any
trust, corporation, limited liability company or partnership; (i) which owns or
"controls" the majority of the ownership interest of Tenant, either directly or
indirectly through other entities, (ii) a majority of whose ownership interest
is owned or controlled by Tenant, (iii) the majority of whose ownership interest
is owned or controlled by an entity described in clause (i) above, or (iv) which
owns or controls a majority of the ownership interest of Tenant. As used in this
section, the phrase "ownership interest" shall mean a general partnership
interest if Tenant is a partnership, membership interest if Tenant is a limited
liability company and capital stock if Tenant is a corporation, and the word
"control" shall mean the right or power to direct or cause the direction of the
management policies of the entity in questions.
ARTICLE 5
COMMON USE AREAS AND FACILITIES
Section 5.1. Common Area. As used herein, "common area" shall include all
of that portion of the Building which are
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designed for common use and benefit, exclusive of space designed for rental to
Tenants for commercial purposes as the same may exist from time to time.
Section 5.2. Use of Common Area. Landlord hereby grants to Tenant, its
employees, agents, customers and invitees, the nonexclusive right during the
term of this Lease to use the common areas from time to time constituted, such
use to be in common with landlord and all tenants of Landlord from time to time,
its and their employees, agents, customers and invitees, except when the same
are being repaired.
Section 5.3. Operation and Maintenance. The common area shall at all times
be subject to the exclusive control and management of Landlord and Landlord
shall manage, operate, repair and maintain the common area and its facilities in
a clean and sightly condition. The manner in which such area and facilities
shall be maintained and the expenditures therefor shall be at the Landlord's
sole discretion.
Section 5.4. Preventing Public Rights. If Landlord deems it necessary in
order to prevent the acquisition of special rights, Landlord may from time to
time close all or any portion of the common area or take such action as shall be
reasonably appropriate for that purpose.
Section 5.5. Charge for Common Area and Facilities. During the term of
this Lease Tenant shall pay to Landlord an annual charge which shall be Tenant's
pro rata share of the Landlord's
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actual cost of operating, repairing, and maintaining the common area and other
facilities which shall include, but is not limited to driveways, parking areas,
landscaped and vacant areas, areaways, walks, curbs, corridors, stairwells,
gardens, sanitary and storm sewers, signs, public facilities such as washrooms,
drinking fountains, toilets, the cost of operating and repairing, lighting,
heating, ventilating and air conditioning systems, cleaning, painting, removing
of snow, ice and debris, policing and inspecting, insurance for hazards and
other risks, maintenance including but not limited to such repair of paving,
curbs, walkways, driveways, landscaping and drainage and lighting facilities as
may be necessary from time to time to keep the same in good condition and
repair, a reasonable allowance for the depreciation of maintenance equipment, a
reasonable allowance for Landlord's overhead costs in conjunction with the
foregoing, and all costs and expenses other than those of a capital nature, but
excluding legal fees recovered by Tenant from Landlord in any litigation
relating to this Lease. Landlord shall provide Tenant with an itemized statement
of such costs upon request.
Section 5.6. Formula For Pro Rata Share. The annual charge for common area
maintenance and facilities shall be computed on the basis of twelve (12)
consecutive calendar months commencing and ending on dates designated by the
Landlord and shall be paid in advance in monthly installments on the first day
of each calendar month in an amount estimated by Landlord. Within sixty
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(60) days after the end of each such twelve (12) month period, Landlord shall
determine and furnish to Tenant a computation of the actual amount charged for
such period; and the amounts so estimated and paid during such period shall be
adjusted promptly (including adjustments on a pro rata basis for any partial
such period at either end of the Lease term) by one party's paying to the other
whatever amount is necessary to effectuate such adjustment.
The Tenant's pro rata share of the Landlord's actual costs defined in this
Article shall be that portion which the area in the Leased Premises bears to the
total leasable area in the Building.
Section 5.7. Basis For Changes. Changes in any particular floor area
occurring during any calendar month shall be effective on the first day of the
next succeeding calendar month and the amounts of any floor area in effect for
the whole of any year shall be the average of the total amounts in effect on the
first day of each calendar month in such year.
ARTICLE 6
INSURANCE
Section 6.1. Casualty Insurance. Landlord shall at all times during the
term of this Lease keep all improvements which are now or hereafter located on
the Landlord's Property insured against loss or damage by fire and the extended
coverage hazards at full insurance value with loss payable to Landlord,
Landlord's
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mortgagee and such other parties as Landlord may designate, as their interests
may appear.
Tenant agrees to reimburse Landlord for its pro rata share of the cost of
such insurance. Tenant's pro rata share shall be equal to its pro rata share for
purposes of allocating common area maintenance charges under Section 5.6 of this
Lease. Each month Tenant shall pay to Landlord an amount equal to one-twelfth
(1/12) of its pro rata share of the estimated annual casualty insurance premium.
Upon Landlord's receipt of any premium notice, Tenant shall upon demand make up
any deficiency to the extent of its pro rata share.
Section 6.2. Public Liability Insurance. Landlord shall at all times
during the term of this Lease keep in full force and effect a policy of public
liability and property damage insurance with respect to the Landlord's Property
and all business operated thereon, with limits of public liability not less than
One Million and No/100 ($1,000,000.00) Dollars for injury or death in any one
occurrence, and property damage liability insurance in the amount of One Hundred
Thousand and No/100 ($100,000.00) Dollars. The policies shall name Landlord,
Tenant and Landlord's mortgagees and the lessor on the underlying ground lease
as coinsureds as their interests may appear. Upon written request by Tenant,
Landlord shall provide the Tenant with evidence of such insurance, including
identification of the Tenant as a coinsurer. Landlord may from time to time
during the term of this
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Lease reasonably increase the above stated coverage in its discretion. Tenant
shall reimburse Landlord for its pro rata share of the cost of such insurance in
the same manner as provided in Section 6.1 regarding casualty insurance.
Section 6.3. Tenant's Contents. Tenant shall be responsible for obtaining
such insurance as it may deem advisable for all property located in the Leased
Premises. It is understood that the insurance carried by Landlord does not cover
the risk of loss or damage to Tenant's property. Tenant waives any claim against
Landlord and shall save Landlord harmless from any claim for loss or damage to
contents, merchandise, fixtures, equipment or work done by Tenant regardless of
the cause of any such damage or loss.
Section 6.4. Increase in Fire Insurance. Tenant agrees that it will not
keep or use, in or upon the Leased Premises any article which may be prohibited
by the standard form fire insurance policy. If Tenant's use or occupancy causes
any increase in premiums for fire or casualty insurance on the Landlord's
Property, or the Leased Premises, or any part thereof, above the rate of the
least hazardous type of occupancy legally permitted in the Leased Premises,
Tenant shall pay the additional premium on such insurance. No part of such
additional premium resulting from the use or occupancy of another tenant shall
be charged to Tenant under Sections 6.1 and/or 6.2 of this Lease. The Tenant
shall also pay in such event any additional premium on
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any rent insurance policy that may be carried by the Landlord for its protection
against rent loss through fire or other casualty. Bills for such additional
premiums shall be rendered by Landlord to Tenant at such times as Landlord may
elect, and shall be due and payable by Tenant when rendered, and the amount
thereof shall be deemed to be, and be paid as, additional rent.
Section 6.5. Hold Harmless. Landlord shall not be liable for any loss,
injury, death, or damage to persons or property which at any time may be
suffered or sustained by Tenant or by any person whosoever may at an time be
using or occupying or visiting the Landlord's Property or be in, on, or about
the same, whether such loss, injury, death, or damage shall be caused by or in
any way result from or arise out of any act, omission, or negligence of Tenant
or of any occupant, subtenant, visitor, or user of any portion of the Landlord's
Property, or shall result from or be caused by any other matter or thing whether
of the same kind as or of a different kind than the matters or things above set
forth, and Tenant shall indemnify Landlord against all claims, liability, loss
or damage whatsoever on account of any such loss, injury, death or damage.
Tenant hereby waives all claims against Landlord for damages to the building and
improvements that are now on or hereafter placed or built on the Landlord's
Property and to the property of Tenant in, on, or about the Landlord's Property,
and for injuries to persons or property in or about the Landlord's Property,
from any cause
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arising at any time. The two preceding sentences shall not apply to loss,
injury, death, or damage arising by reason of the negligence or misconduct of
Landlord, its agents, or employees.
Section 6.6. Waiver of Subrogation. Landlord and Tenant hereby release
each other from any and all liability or responsibility to the other (or to
anyone claiming through or under them by way of subrogation or otherwise) for
any loss or damage to property caused by fire or any of the extended coverage or
supplementary insurance contract casualties, even if such fire or other casualty
shall have been caused by the fault or negligence of the party or anyone for
whom such party may be responsible, provided, however, that this release shall
be applicable and in force and effect only in respect to loss or damage
occurring during such time as the releaser's policies shall contain a clause or
endorsement to the effect that any such release shall not adversely effect or
impair or prejudice the right of the releaser to recover thereunder. Landlord
and Tenant each agree that their policies will include such a clause or
endorsement so long as the same is obtainable and if not obtainable, shall so
advise the other in writing and such notice shall release both parties from the
obligation to obtain such a clause or endorsement.
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ARTICLE 7
DESTRUCTION OF LEASED PREMISES
Section 7.1. Destruction of Leased Premises. If the building which
includes the Leased Premises is damaged or partially destroyed by fire or other
casualty to the extent of less than one-quarter (1/4) of the then cost of
replacement thereof above foundation, the same shall be repaired as quickly as
is practicable, by Landlord, except that the obligation of Landlord to rebuild
shall be limited to repairing or rebuilding of Landlord's improvements. If the
building which includes the Leased Premises is so destroyed or damaged to the
extent of one-quarter (1/4) or more of the then replacement cost thereof, then
Landlord or Tenant may elect to terminate this Lease by giving notice in writing
to the other party, in which event this Lease shall be terminated as of the date
of such notice.
Section 7.2. Rebuilding by Landlord. If Landlord shall undertake to
restore or repair the building which includes the Leased Premises, it shall
initiate and pursue the necessary work with all reasonable dispatch, in a manner
consistent with sound construction methods.
Section 7.3. Abatement of Rent Upon Destruction of Premises. If such
damage or partial destruction renders the Leased Premises wholly untenantable,
the base rent shall abate until the Leased Premises have been restored and
rendered tenantable. If such damage or partial destruction renders the
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premises untenantable only in part, the base rent shall abate proportionately as
to the portion of the Leased Premises rendered untenantable. Rent shall not
abate under this section if the damage or destruction is caused by the
negligence or misconduct of Tenant, its agents, employees, customers or
invitees.
ARTICLE 8
EFFECT OF CONDEMNATION
Section 8.l. Total Condemnation. In the event that the Leased Premises or
such part of the Leased Premises as will render the remainder untenantable,
shall be appropriated or taken under the power of eminent domain by any public
or quasi-public authority, this Lease shall terminate and expire as of the date
of taking.
Section 8.2. Partial Condemnation. In the event of partial condemnation,
not rendering the remainder of the Leased Premises untenantable, this Lease
shall remain in full force and effect, with the exception that the base rent
shall be reduced in proportion to the area of the Leased Premises lost by
condemnation.
Section 8.3. Landlord's Damages. In the event of any condemnation or
taking, whether whole or partial, the Tenant shall not be entitled to any part
of the award paid for such condemnation and Landlord is to receive the full
amount of such award, the Tenant hereby expressly waiving any rights or claim to
any part thereof.
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Section 8.4. Tenant's Damages. Although all damages in the event of any
condemnation are to belong to the Landlord whether such damages are awarded as
compensation for diminution in value of the leasehold or to the fee of the
Leased Premises, Tenant shall have the right to claim and recover from the
condemning authority, but not from Landlord, such compensation as may be
separately awarded or recoverable by Tenant in Tenant's own right on account of
any and all damage to Tenant's business by reason of the condemnation, and for
or on account of any cost or loss to which Tenant might be put in removing
Tenant's property.
ARTICLE 9
REMEDIES
Section 9.1. Events of Default by Tenant. Upon the failure by Tenant to
pay rent when due, Landlord may terminate this Lease or Tenant's right to use
and occupy the Leased Premises by ten (10) days' written notice to Tenant unless
Tenant within such ten (10) days pays all rent due. Upon the happening of any
one or more of the following events: (a) the levying of a writ of execution or
attachment on or against the property of Tenant; (b) the taking of any action
for the voluntary dissolution of Tenant; (c) the commencement of a mechanic's
lien foreclosure action against Tenant as a result of a mechanic's lien or claim
therefor against the land or Building of which the Leased Premises are a part;
and (d) the failure of Tenant to perform any other of the terms, provisions, and
covenants of this Lease, Landlord may
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terminate this Lease or Tenant's right to use and occupy the Leased Premises by
thirty (30) days' written notice to Tenant unless Tenant, within such thirty
(30) day period, cures the specified default or, if the default is of a
character which cannot be cured within thirty (30) days, the Tenant commences
and diligently pursues the cure of such default within thirty (30) days.
Section 9.2. Re-Entry by Landlord. Upon such termination of the Lease or
termination of Tenant's right to use and occupy the Leased Premises as
aforesaid, or if Tenant at any time during the term of this Lease vacates the
premises or ceases operating said business in the entire or any appreciable part
of the Leased Premises, except for causes beyond its control, Landlord may
reenter the Leased Premises. For purposes of this Lease "appreciable part" shall
mean 40% or more of the Leased Premises.
Section 9.3. Right to Relet. Should Landlord elect to reenter, as herein
provided, or should it take possession pursuant to legal proceedings or pursuant
to any notice provided for by law, it may either terminate this Lease or it may
from time to time without terminating this Lease, make such alterations and
repairs as may be necessary in order to relet the Leased Premises, and relet the
Leased Premises or any part thereof for such term or terms (which may be for a
term extending beyond the term of this Lease) and at such rental or rentals upon
such other terms and conditions as Landlord in its sole
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discretion may deem advisable upon each such reletting. All rentals received by
the Landlord from such reletting shall be applied, first, to the payment of any
indebtedness other than rent due hereunder from Tenant to Landlord; second, to
the payment of any costs of such alterations and repairs; third, to the payment
of rent due and unpaid future rent as the same may become due and payable
hereunder. If such rentals received from such reletting during the month be less
than that to be paid during that month by Tenant hereunder, Tenant shall pay any
such deficiency to Landlord. Such deficiency shall be calculated and paid
monthly. No such re-entry or taking possession of said premises by Landlord
shall be construed as an election in its part to terminate this Lease unless a
written notice of such intention be given to Tenant or unless the termination
thereof be decreed by a court of competent jurisdiction. Notwithstanding any
such reletting without termination, Landlord may at any time thereafter elect to
terminate this Lease for such previous breach. Should Landlord at any time
reenter or terminate this Lease for any breach, in addition to any other
remedies it may have, it may recover from Tenant all damages it may incur by
reason of such breach, including the cost of recovering the Leased Premises and
reasonable attorney's fees, all of which amounts shall be immediately due and
payable from Tenant to Landlord.
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Section 9.4. Parties May Remedy Defaults. In the event of any breach
hereunder by either party, and in lieu of Landlord's terminating this Lease as
herein provided, Landlord or Tenant respectively may immediately or at any time
thereafter, after having given the other party the requisite notice to correct
the same and that time for such correction having elapsed, cure such breach for
the account and at the expense of the other party. If Landlord or Tenant at any
time, by reason of such breach, is compelled to pay, or elects to pay, any sum
of money or do any act which will require the payment of any sum of money, or
incurs any expense, including reasonable attorney's fees, in instituting or
prosecuting any action or proceeding to enforce such party's rights hereunder,
the sum or sums so paid or incurred by such party, if paid or incurred by
Landlord, shall be deemed to be additional rent hereunder and shall be due from
Tenant to Landlord on the first day of the month following the payment of such
respective sums, and if paid or incurred by Tenant, shall be due and payable by
Landlord on demand without interest. This option given to the parties is
intended for their protection and its existence shall not release the parties
from the obligation to perform the terms and covenants herein provided to be
performed by the respective parties or deprive Landlord of any legal rights
which it may have by reason of any default of Tenant.
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Section 9.5. Landlord's Remedies; Liquidated Damages. In the event that at
any time, whether before or after the commencement of the term hereof, a
bankruptcy petition shall be filed by Tenant or against Tenant and Tenant shall
thereafter be adjudicated a bankrupt, or such petition shall be approved by the
court, in any court or pursuant to any statute either of the United States or of
any State, whether in bankruptcy, insolvency, for reorganization under Chapter
XI or XIII of the Bankruptcy Act or under any other provisions of the Bankruptcy
Act, or under the provisions of any law of like impact, for the appointment of a
receiver or trustee of Tenant or for the property of Tenant, or if Tenant shall
make an assignment of Tenant's property for the benefit of its creditors, or if
proceedings are instituted in a court of competent jurisdiction for the
reorganization, liquidation or involuntary dissolution of Tenant and said
involuntary petition or dissolution is not remedied within sixty (60) days, then
immediately upon the happening of any such event, and without any entry or other
act by Landlord, this Lease and the term and estate hereby granted (whether or
not the term shall therefore have commenced) shall expire, terminate and come to
an end in the same manner and with the same force and effect as if the date of
such occurrence were the date hereinbefore fixed for the expiration of the term
hereof. In the event of the termination of the term hereof by the happening of
any such event, Landlord shall forthwith upon such termination, and any
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other provisions of this Lease to the contrary notwithstanding, become entitled
to recover as and for liquidated damages caused by such breach of the provisions
of this Lease an amount equal to the difference between the net present value of
the then cash value of the rent reserved hereunder for the unexpired portion of
the demised term and the then cash rental value of the Leased Premises for such
unexpired portion of the term hereby demised unless the statute which governs or
shall govern the proceeding in which such damages are to be provided limits or
shall be entitled to prove as and for liquidated damages an amount equal to that
allowed by or under such statute. The provision of this paragraph shall be
without prejudice to Landlord's right to prove in full damages for rent accrued
prior to the termination of this Lease but not paid. This provision of this
Lease shall be without prejudice of any rights given Landlord by any pertinent
statute to prove any amounts allowed thereby. In making such computation, the
then cash rental value of the Leased Premises shall be deemed prima facie to be
the rent realized upon any reletting, if such reletting can be accomplished by
Landlord within a reasonable time after such a termination of this Lease.
Section 9.6. Expenses of Landlord. Upon the occurrence of an event of
default, notwithstanding anything herein to the contrary and whether or not
Landlord terminates this Lease, Tenant shall promptly, upon request, reimburse
Landlord for all
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costs and expenses reasonably incurred in enforcing this Lease, including
reasonable attorneys' fees.
Section 9.7. Waiver of Redemption. Tenant hereby expressly waives any and
all rights of redemption granted by or under any present or future laws in the
event of Tenant's being evicted or dispossessed for any cause, or in the event
of Landlord's obtaining possession of the Leased Premises, by reason for the
violation by Tenant of any of the covenants or conditions of this Lease, or
otherwise.
Section 9.8. Defaults of Landlord. Should Landlord be in default under the
terms of this Lease, Landlord shall cure such default within thirty (30) days
after written notice of such default from Tenant, or in the event such default
is of such a character as to require more than thirty (30) days to cure,
Landlord shall use due diligence to cure such default.
Section 9.9. Rights Cumulative. All rights and remedies of Landlord and
Tenant herein enumerated shall be cumulative and none shall exclude any other
right or remedy allowed by Law, and said rights and remedies may be exercised
and enforced concurrently and whenever and as often as occasion therefor arises.
ARTICLE 10
MISCELLANEOUS
Section 10.1. Subordination. At Landlord's option, this Lease shall be
subordinated to any existing mortgages covering
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the Leased Premises, any extension or renewal thereof, or to any new mortgages
which may be placed thereon from time to time, provided, however, anything to
the contrary contained herein notwithstanding, every such mortgage shall contain
a provision that the mortgagee shall recognize the validity of this Lease in the
event of foreclosure of the Landlord's interest so long as Tenant shall not be
in default under the terms of this Lease. Tenant shall execute whatever
instruments may be required to effect such subordination.
Section 10.2. Sale of Property. Landlord shall have the right at any time
to sell, transfer or convey its interest in all or any portion(s) of Landlord's
Property, improvements and buildings of which the Leased Premises are a part to
any person, firm or corporation whatsoever, and upon any such sale, transfer or
conveyances, Landlord shall cease to be liable under any covenant, condition or
obligation imposed upon it by this Lease, or any of the terms and provisions
thereof; provided, however, that any such sale, transfer or conveyance shall be
subject to this Lease and that all of the Landlord's covenants and obligations
contained herein shall be binding upon the subsequent owner or owners thereof;
and provided further that such transferee from Landlord shall in writing assume
the obligations of Landlord hereunder.
Section 10.3. Offset Statement. Within ten (10) days after request
therefor by Landlord, or in the event that upon any sale,
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assignment or hypothecation of the Leased Premises and/or all or any portion(s)
of the Landlord's Property by Landlord an offset statement shall be required by
Tenant; Tenant agrees to deliver in recordable form a certificate to any
proposed mortgagee or purchaser, or to Landlord, certifying (if such be the
case) that this Lease is in full force and effect and that there are no defenses
or offsets thereto, or stating those claimed by Tenant.
Section 10.4. Attornment. Tenant shall, in the event any proceedings are
brought for the foreclosure of, or in the event of exercise of the power or sale
under any mortgage made by the Landlord covering the Leased Premises, attorn to
the purchaser upon any such foreclosure or sale and recognize such purchaser as
the Landlord under this Lease.
Section 10.5. Recording. Tenant shall not record this Lease without the
written consent of Landlord; however, upon the request of either party hereto
the other party shall join in the execution of memorandum or so called "short
form" of this Lease for the purpose of recordation. Said memorandum or short
form of this Lease shall describe the parties, the Leased Premises and the term
of this Lease and shall incorporate this Lease by reference.
Section 10.6. Excavations. In case any excavation shall be made for
buildings or improvements or for any other purpose upon the land adjacent to or
near the Leased Premises, Tenant will afford to Landlord, or the person or
persons, firms or
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corporations causing or making such excavation, license to enter upon the Leased
Premises for the purpose of doing such work as Landlord or such person or
persons, firms or corporations shall deem to be necessary to preserve the walls
or structures of the building from injury, and to protect the building by proper
securing of foundations. Insofar as Landlord may have control over the same, all
such work shall be done in a manner as will not materially interfere with the
operation of Tenant's business in the Leased Premises.
Section 10.7. Access to Premises. Landlord reserves for itself and the
landlord under the underlying ground lease, the right to enter upon the Leased
Premises at all reasonable hours, upon reasonable advance notice, for the
purpose of inspecting the same, or of making repairs, additions or alterations
to the building in which the Leased Premises are located, to exhibit the Leased
Premises to prospective tenants, purchasers or others, to display during the
last ninety (90) days of the term, without hindrance or molestation by Tenant,
"For Rent" or similar signs on the exterior of the Leased Premises. The exercise
by Landlord of any of its rights under this provision shall not be deemed an
eviction or disturbance of Tenant's use and possession of the Leased Premises.
Section 10.8. Quiet Enjoyment. If and so long as Tenant pays the rent
reserved by this Lease and performs and observes all of the covenants and
provisions hereof, Tenant shall quietly
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enjoy the Leased Premises, subject, however, to the terms of this Lease.
Section 10.9. Notices. Any notice required or permitted under this Lease
shall be deemed sufficiently given or served if sent by certified mail to Tenant
at the address of the Leased Premises, and to Landlord at its office or such
other place as it may designate in writing, and either party may by like written
notice at any time and from time to time designate a different address to which
notices shall subsequently be sent. Notices given in accordance with these
provisions shall be deemed received when mailed.
Section 10.10. Holding Over. In the event Tenant remains in possession of
the Leased Premises after the expiration of this Lease and without the execution
of a new Lease, it shall be deemed to be occupying said premises as a Tenant
from month-to-month, subject to all conditions, provisions and obligations of
this Lease insofar as the same are applicable to a month-to-month tenancy.
Nothing in this section shall operate to preclude Landlord from removing Tenant
from the Leased Premises upon the expiration of this Lease.
Section 10.11. Consents by Landlord. Whenever under this Lease provision
is made for Tenant securing the written consent or approval of Landlord, such
consent or approval will not be unreasonably withheld.
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Section 10.12. Successors and Assigns. The terms, covenants and conditions
hereof shall be binding upon and inure to the successors in interest and assigns
of the parties hereto.
Section 10.13. Governmental Regulations. Tenant shall, at Tenant's sole
cost and expense, comply with all of the requirements of all city, county,
municipal, state, federal and other applicable governmental authorities, now in
force, or which may hereafter be in force, pertaining to signs, installations,
repairs and business operations in the Leased Premises and shall faithfully
observe all statutes now in force or which may hereafter be in force.
Section 10.14. Certain Expenses of Landlord. Any out-of-pocket expenses
reasonably incurred by Landlord for purposes of considering or acting upon any
request for consent or waiver under, or modification of, any of the provisions
of this Lease, including reasonable attorney's fees, shall be promptly
reimbursed by Tenant upon Landlord's request.
Section 10.15. Force Majeure. In the event that either Landlord or Tenant
shall be delayed or hindered in or prevented from the performance of any act
required hereunder by reason of strikes, lock outs, labor disputes, inability to
procure materials, failure of power, restrictive governmental laws or
regulations, riots, insurrection, war or other reason of a like nature not
attributable to the negligence or fault of the party delayed in performing work
or doing acts required under the terms
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of this Lease, then performance of such act shall be excused for the period of
the unavoidable delay and the period for the performance of any such act shall
be extended for an equivalent period. Provided, however, that this provision
shall not operate to excuse Tenant or Landlord from the timely payment of rent
and other payments required by the terms of this Lease.
Section 10.16. General. Nothing contained in this Lease shall be deemed or
construed by the parties hereto or by any third party to create the relationship
of principal and agent or of partnership or of joint venture or of any
association between Landlord and Tenant, it being expressly understood and
agreed that neither the method of computation of rent nor any other provisions
contained in this Lease nor any acts of the parties hereto shall be deemed to
create any relationship between Landlord and Tenant other than the relationship
of landlord and tenant. No waiver of any default of Tenant or Landlord hereunder
shall be implied from any omission by Landlord or Tenant any action on account
of such default if such default persists or is repeated, and no express waiver
shall affect any default other than the default specified in the express waiver
and that only for the time and to the extent therein stated. One or more waivers
of any covenant, term or condition of this Lease by Landlord or Tenant shall not
be construed as a waiver of a subsequent breach of the same covenant, term or
conditions. The consent or approval by Landlord to or of any act by Tenant
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requiring the Landlord's consent or approval shall not be deemed to waive or
render unnecessary Landlord's consent or approval to or of any subsequent
similar act by Tenant. The invalidity or unenforceability of any provision
hereof shall not affect or impair any provision. The plural sense where there is
more than one tenant and to either corporations, associations, partnership or
individuals, male or females, shall in all instances be assumed as though in
each case fully expressed. The laws of the State of Wisconsin shall govern the
validity, performance and enforcement of this Lease. The submission of this
Lease for examination does not constitute a reservation of or option for the
Leased Premises and this Lease becomes effective as a Lease only upon execution
and delivery thereof by Landlord and by Tenant. The headings contained herein
are for convenience only and do not define, limit or construe the contents of
the provisions hereof. All negotiations, representations and understandings
between the parties are incorporated herein and may be modified or altered only
by agreement in writing between the parties.
Section 10.17. Effect of Ground Lease. Tenant acknowledges that Landlord
is presently leasing Landlord's Property under a ground lease having a term
equal to or greater than the term of this Lease. Tenant further acknowledges
that all of its rights under this Lease are specifically subordinate to the
rights of
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the landlord named in said ground lease and its successors and assigns.
ARTICLE 11
ATTACHMENTS
Section 11.1. Attachments. The following are attached hereto and made a
part hereof with the same force and effect as if set forth in full herein:
Exhibit A: Legal Description of Landlord's Property.
Exhibit B-1: Location of Building on Landlord's Property.
Exhibit B-2: Location of Leased Premises in Building.
Exhibit C: Rules and Regulations.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease and
affixed their respective seals as of the day, month and year first above
written.
LANDLORD: TENANT:
UNIVERSITY RESEARCH PARK RCG/HAGLER, BAILLY, INC.
FACILITIES CORP.
BY: /S/ Wayne F. McGown BY: /S/ Michael Yokell
----------------------------- ----------------------------
Wayne F. McGown, Assistant Michael Yokell
Secretary/Treasurer Title: President
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EXHIBIT A
LEGAL DESCRIPTION OF LANDLORD'S PROPERTY
Lot 4 of University Research Park, University of Wisconsin Madison in the City
of Madison, Dane County, Wisconsin.
[EDGAR Note: Please see Appendix for description of omitted graphics]
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B-1
[EDGAR Note: Please see Appendix for description of omitted graphics]
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EXHIBIT B-2
[EDGAR NOTE: Please see Appendix for description of omitted graphics]
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EXHIBIT C
RULES AND REGULATIONS
The Building shall be a smoke-free environment. No Smoking shall be
permitted anywhere in the Building or in or around the Main entrance (fronting
on Science Drive) to the Building.
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EDGAR APPENDIX
Page 46: Written and pictoral legal description of Lot 4 of University Research
Park, University of Wisconsin - Madison in the City of Madison,
Dane County, Wisconsin.
Page 47: Pictoral depiction of Site Plan
Page 48: Floorplan for 455 Science Drive indicating leased premises and common
areas
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================================================================================
CREDIT AGREEMENT
between
HAGLER BAILLY CONSULTING, INC.
and
STATE STREET BANK AND TRUST COMPANY
---------------------------
Dated as of May 17, 1995
---------------------------
================================================================================
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TABLE OF CONTENTS
Page No.
--------
Section 1. Amount and Terms of the Credit................................. 1
1.1 Recitals; Commitment............................................ 1
1.2 Term Loan....................................................... 1
1.3 Term Note....................................................... 1
1.4 Revolving Credit Loans.......................................... 2
1.5 Revolving Credit Note........................................... 3
1.6 Interest........................................................ 3
1.7 Transaction Fee................................................. 4
1.8 Commitment Fee.................................................. 4
1.9 Reduction or Termination of Revolving Commitment................ 4
1.10 Prepayment..................................................... 5
1.11 Security; Subordination, etc................................... 5
1.12 Overdue Payments............................................... 6
1.13 Notations...................................................... 6
1.14 Form and Terms of Payment...................................... 7
1.15 Capital Adequacy............................................... 7
1.16 Use of Proceeds................................................ 7
Section 2. LIBOR Provisions............................................... 8
2.1 LIBOR Option.................................................... 8
2.2 Certain Definitions............................................. 8
2.3 Conditions for Basing Interest on the LIBOR Rate................ 10
2.4 Indemnification for Funding and Other Losses.................... 11
2.5 Change in Applicable Laws, Regulations, etc..................... 11
2.6 Taxes........................................................... 11
Section 3. Representations and Warranties................................. 12
3.1 Organization, Standing, etc. of the Company..................... 12
3.2 Subsidiaries.................................................... 12
3.3 Qualification................................................... 12
3.4 Financial Information; Disclosure, etc.......................... 12
3.5 Licenses; Franchises, etc....................................... 13
3.6 Tax Returns and Payments........................................ 13
3.7 Indebtedness, Liens and Investments, etc........................ 13
3.8 Title to Properties; Liens...................................... 14
3.9 Litigation, etc................................................. 14
3.10 Authorization; Compliance with Other Instruments............... 14
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3.11 Governmental Consent........................................... 14
3.12 Regulation U, etc.............................................. 15
3.13 Employee Retirement Income Security Act of 1974................ 15
3.14 Ownership of Company and Parent Company........................ 15
3.15 Environmental Matters.......................................... 16
Section 4. Conditions of Lending.......................................... 16
4.1 The Notes....................................................... 16
4.2 Opinions and Certificates....................................... 17
4.3 No Default; Representations and Warranties, etc................. 17
4.4 Security Documents.............................................. 17
4.5 Equity Investment............................................... 17
4.6 Acquisition..................................................... 17
Section 5. Affirmative Covenants.......................................... 18
5.1 Financial Statements, etc....................................... 18
5.2 Legal Existence; Franchises; Compliance with Laws, etc.......... 19
5.3 Insurance....................................................... 20
5.4 Payment of Taxes................................................ 21
5.5 Payment of Other Indebtedness, etc.............................. 21
5.6 Further Assurances.............................................. 21
5.7 Depository Account.............................................. 21
5.8 Field Audits.................................................... 21
Section 6. Negative Covenants............................................. 22
6.1 Indebtedness.................................................... 22
6.2 Mortgages, Liens, etc........................................... 23
6.3 Loans, Guarantees and Investments............................... 23
6.4 Restricted Payments............................................. 24
6.5 Mergers and Consolidations...................................... 25
6.6 Sale of Assets.................................................. 25
6.7 Issuance of Additional Shares, etc.............................. 25
6.8 Compliance with ERISA........................................... 25
6.9 Transactions with Affiliates.................................... 25
6.10 Observance of Subordination Provisions, etc.................... 25
6.11 Environmental Liabilities...................................... 26
6.12 Officer Distributions; Compensation............................ 26
Section 7. Financial Covenants............................................ 27
7.1 Capital Base.................................................... 27
7.2 Current Ratio................................................... 27
7.3 Adjusted Net Operating Income................................... 27
7.4 Funded Debt; Net Operating Income............................... 28
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7.5 Debt Service Coverage........................................... 28
7.6 Senior Liabilities; Adjusted Capital Base....................... 29
7.7 Billability..................................................... 29
Section 8. Defaults; Remedies............................................. 29
8.1 Events of Default; Acceleration................................. 29
8.2 Remedies on Default, etc........................................ 32
Section 9. Definitions.................................................... 32
Section 10. Setoffs, etc.................................................. 41
Section 11. Expenses; Indemnification..................................... 41
Section 12. Waivers....................................................... 42
Section 13. Miscellaneous................................................. 43
13.1 Notices, etc................................................... 43
13.2 Calculations, etc. ............................................ 44
13.3 Survival of Agreements, etc.................................... 44
13.4 Counterparts, etc.............................................. 44
13.5 Entire Agreement, etc.......................................... 44
13.6 Governing Law; Jurisdiction; Waiver of Jury Trial.............. 45
EXHIBIT A Form of Term Note
EXHIBIT B Form of Revolving Credit Note
EXHIBIT C Compliance Certificate
EXHIBIT D Borrowing Base Certificate
SCHEDULE 3.2 Subsidiaries
SCHEDULE 3.4 Financial Statements and Reports
SCHEDULE 3.7 Indebtedness, Liens, etc.
SCHEDULE 3.9 Litigation, etc.
SCHEDULE 3.14 Ownership of Parent Company
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CREDIT AGREEMENT dated as of May 17, 1995, by and between Hagler Bailly
Consulting, Inc., a Delaware corporation (the "Company"), and State Street Bank
and Trust Company (the "Bank"). Certain other terms used herein are defined in
subsection 2.2 and section 9.
The Company and the Bank hereby agree as follows:
Section 1. Amount and Terms of the Credit.
1.1 Recitals; Commitment. The Company wishes to (i) borrow from the Bank the
principal amount of $7,000,000 in the form of a term loan, and (ii) establish a
revolving credit with the Bank in an aggregate principal amount at any one time
outstanding not in excess of $4,500,000 (the "Revolving Commitment") to expire
on the Expiration Date. The Bank is willing to make such term loan and to
establish such revolving credit on behalf of the Company, subject to the terms
and conditions hereafter set forth.
1.2 Term Loan.
(a) Subject to the terms and conditions hereof, and in reliance upon the
representations and warranties contained herein, the Company will borrow from
the Bank, and the Bank will lend to the Company, the principal amount of
$7,000,000 (such borrowing being herein referred to as the "Term Loan").
(b) The closing of the Term Loan hereunder (the "Closing") shall take
place at the offices of Choate, Hall & Stewart, Exchange Place, 53 State Street,
Boston, Massachusetts 02109 at 10:00 a.m., Boston time, on May 25, 1995 (or at
such other time and place as may be mutually agreed upon). The Bank shall make
the Term Loan hereunder on such date by crediting the amount thereof in
immediately available funds to the Company's regular deposit account with it.
1.3 Term Note. The Term Loan made by the Bank pursuant to subsection 1.2 shall
be evidenced by a promissory note in the form attached hereto as Exhibit A (the
"Term Note"), payable to the order of the Bank, duly executed on behalf of the
Company, dated the date of the Closing and in the principal amount of the Term
Loan. The Term Note shall be payable in twenty-two (22) consecutive quarterly
installments of principal as follows: two (2) installments each in the amount of
$250,000, payable on September 30 and December 31, 1995; four (4) installments
each in the amount of $295,000, payable on March 31, June 30, September 30 and
December 31, 1996; four (4) installments each in the amount of $322,250, payable
on March 31, June 30, September 30 and December 31, 1997; four (4) installments
each in the amount of $352,000, payable on March 31, June 30, September 30 and
December 31, 1998; four (4) installments each in the amount of $384,500, payable
on March 31, June 30, September 30 and December 31, 1999; and four (4)
installments each in the amount of $271,250, payable on March 31, June 30,
September 30 and December 31, 2000. The Term Note shall bear interest at the
rate or rates, and payable on the dates, specified in subsection 1.6.
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1.4 Revolving Credit Loans.
(a) Subject to the terms and conditions hereof, and in reliance upon the
representations and warranties contained herein, the Bank hereby establishes a
revolving credit in favor of the Company in the principal amount of the
Revolving Commitment. The Company may borrow on or after the date of the Closing
and prior to the Expiration Date from time to time an aggregate principal amount
(the "Available Commitment") at any time not in excess of the lesser of (i) the
Revolving Commitment or (ii) the Borrowing Base, subject to the limitation on
the amount of the Available Commitment set forth in subparagraph (d) of this
subsection 1.4. Each such borrowing pursuant to this subsection 1.4 is sometimes
herein referred to as a "Revolving Credit Loan", and collectively as the
"Revolving Credit Loans"; the Revolving Credit Loans and the Term Loan being
sometimes herein referred to collectively as the "Loans" and each individually
as a "Loan".
(b) Each Revolving Credit Loan shall be made by the Bank in such amount
(not in excess of the Available Commitment) as the Company shall request,
provided that each borrowing shall be in a minimum of $100,000 or such lesser
amount as may be equal to the then unused portion of the Available Commitment.
Revolving Credit Loans shall be effected at the principal banking office of the
Bank in Boston, Massachusetts. The Company will give the Bank notice in writing
(or by telephonic communication confirmed by telex, telecopy or other facsimile
transmission on the same day as the telephone notice) prior to 1:30 p.m., Boston
time, on the date of each Revolving Credit Loan (except as otherwise provided in
subsection 2.3(a) for LIBOR Requests) specifying the amount of the Revolving
Credit Loan requested. The Bank shall make each Revolving Credit Loan hereunder
by crediting the amount thereof in immediately available funds to the Company's
regular deposit account with it.
(c) During the period prior to the Expiration Date, the Company may, at
its option, from time to time prepay all or any portion of the Revolving Credit
Loans (other than a LIBOR Portion) made from time to time hereunder, subject to
the provisions of subsection 1.10, and the Company may reborrow from time to
time hereunder amounts so paid up to the amount of the Available Commitment in
effect at the time of reborrowing.
(d) Notwithstanding the foregoing provisions hereof, the Available
Commitment shall in no event exceed $3,500,000 unless and until the later of the
following shall occur: (i) the date on which the Bank shall have received the
financial statements, management letter (if any) and accountants' statement
required by subparagraphs (a) and (c) of subsection 5.1 hereof for the fiscal
year of the Company ending December 31, 1995, together with the compliance
certificate required by subsection 5.1(d) hereof for such fiscal year (A)
demonstrating compliance by the Company with the provisions of section 7 hereof,
and (B) certifying that no Event of Default has occurred; or (ii) the date on
which the Bank shall have received preliminary drafts of the financial
statements required by subsection 5.1(b) for the fiscal quarter of the Company
ending March 31, 1996, together with a preliminary copy of the compliance
certificate required by
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subsection 5.1(d) hereof for such fiscal quarter (A) demonstrating compliance by
the Company with the provisions of section 7 hereof, and (B) certifying that no
Event of Default has occurred. The Bank expressly acknowledges that the
financial statements and compliance certificate referred to in clause (ii) of
the preceding sentence may be preliminary in nature, and may be based upon the
Company's good faith calculation and estimates as to certain of the information
contained therein, to the extent necessary to permit the Company to present such
financial statements and compliance certificate to the Bank on or about March
31, 1996, provided that: (I) not later than April 15, 1996, the Company shall
furnish the Bank with the final copies of the financial statements required by
subsection 5.1(b) hereof for the fiscal quarter ending March 31, 1996, together
with the final compliance certificate required by subsection 5.1(d) hereof for
such fiscal quarter (1) demonstrating compliance by the Company with the
provisions of section 7 hereof, and (2) certifying that no Event of Default has
occurred; and (II) in the event the conditions of the foregoing clause (I) are
not satisfied on or prior to April 15, 1996, the Available Commitment shall not
thereafter exceed $3,500,000 and the provisions of subsection 1.10(b) hereof
shall be applicable to the extent that the then outstanding principal amount of
the Revolving Credit Loans exceeds the Available Commitment..
1.5 Revolving Credit Note. The Revolving Credit Loans made by the Bank pursuant
to subsection 1.4 shall be evidenced by a promissory note of the Company in a
principal amount equal to the Revolving Commitment, dated the date of the
Closing and in the form attached hereto as Exhibit B. There shall be one (1)
note payable to the order of the Bank (such note being herein called the
"Revolving Credit Note"; the Revolving Credit Note and the Term Note being
sometimes herein referred to collectively as the "Notes" and each individually
as a "Note"). The outstanding principal of the Revolving Credit Note shall be
payable on the Expiration Date. The Revolving Credit Note shall bear interest at
the rate or rates, and payable on the dates, specified in subsection 1.6.
1.6 Interest. The Loans shall bear interest on the unpaid principal amount
thereof until paid in full, as follows:
(a) Any portion of the outstanding principal balance of the Loans which is
not then subject to a LIBOR Option shall bear interest at the rate per annum
(determined on the basis of the actual number of days elapsed over a 365-day
year) equal to seven-eighths of one percent (7/8 of 1%) above the Prime Rate,
which interest shall be payable monthly in arrears on the first day of each
month, commencing on the first such date next succeeding the date of any such
Loan, and at maturity (whether by acceleration or otherwise). Each change in the
rate of interest payable on any portion of the outstanding principal balance of
the Loans which is not then subject to a LIBOR Option shall take effect
simultaneously with the corresponding change in the Prime Rate.
(b) Any LIBOR Portion shall bear interest at the rate per annum
(determined on the basis of the actual number of days elapsed over a 360-day
year) equal to two percent (2%) above the LIBOR Rate, which interest shall be
payable as follows: (i) in the case of any LIBOR Portion having a LIBOR Period
of 90 days or less, such interest shall be payable on the last day of the
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LIBOR Period applicable to such LIBOR Portion, and (ii) in the case of any LIBOR
Portion having a LIBOR Period in excess of 90 days, such interest shall be
payable in arrears at 90-day intervals, the first such payment to be made on the
last Banking Day of the 90-day period which begins on the first day of such
LIBOR Period, and shall also be payable on the last day of the LIBOR Period
applicable to such LIBOR Portion, and at maturity (whether by acceleration or
otherwise).
1.7 Transaction Fee. The Company shall pay the Lender a transaction fee (the
"Transaction Fee") in the amount of $86,250. The Lender acknowledges receipt
from the Company of $21,500 of such Transaction Fee. The balance of such
Transaction Fee (i.e., $64,750) shall be payable at the Closing. No portion of
the Transaction Fee shall be subject to refund or reduction.
1.8 Commitment Fee. The Company shall pay the Bank a commitment fee (the
"Commitment Fee") for the period commencing on the date of the Closing to and
including the Expiration Date, or the earlier date of the termination of the
Revolving Commitment hereunder, equal to threeeighths of one percent (3/8 of 1%)
per annum (computed on the basis of the actual number of days elapsed over a
365-day year) of the average daily unused portion of the Revolving Commitment.
The Commitment Fee shall be payable quarterly in arrears on the last day of each
March, June, September and December of each year, commencing on the first such
date next succeeding the date hereof, and on the date of any termination of the
Revolving Commitment. If any change in any requirement imposed upon the Bank by
any law of the United States of America or by any regulation, order,
interpretation, ruling or official directive (whether or not having the force of
law) of the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation or any other governmental or administrative agency
or board of the United States of America shall impose, increase, modify or deem
applicable any reserve, special deposit, assessment or other requirement against
the Revolving Commitment of the Bank hereunder, and the result of the foregoing,
in the determination of the Bank, is to impose a cost on the Bank that is
directly attributable to the maintaining of the Revolving Commitment, then the
Commitment Fee payable to the Bank shall be increased, for so long as the
increased cost is imposed on the Bank, to the extent determined by the Bank to
be necessary to compensate the Bank for such increased cost. The determination
by the Bank of the amount of such cost, if done in good faith and on a basis
consistent with that applied to other customers of the Bank having similar
compensation arrangements, shall, in the absence of manifest error, be
conclusive.
1.9 Reduction or Termination of Revolving Commitment. At any time prior to the
Expiration Date, on at least one (1) Banking Day's prior written notice to the
Bank, the Company may in whole permanently terminate, or from time to time
permanently reduce, the Revolving Commitment. Any such reduction hereunder shall
be in an amount not less than $100,000. Simultaneously with any termination of
the Revolving Commitment hereunder, the Company shall pay to the Bank the
Commitment Fee accrued to the date of such termination.
1.10 Prepayment.
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(a) On at least one (1) Banking Day's prior written notice to the Bank,
the Company may, at its option, prepay any Loan in whole at any time or in part
from time to time without penalty or premium, provided that: (i) no voluntary
prepayment of any LIBOR Portion may be made hereunder; and (ii) any Company Sale
Prepayment or Refinancing Prepayment shall be made together with the applicable
Prepayment Premium. Any optional prepayment of the Loans in part shall be in a
principal amount not less than $100,000. Each prepayment of the Term Loan shall
be applied to installments of principal payable on the Term Loan in the inverse
order of maturity. Any prepayment in full of the Term Loan shall be made
together with accrued interest on the amount prepaid to the date of such
prepayment.
(b) If at any time the outstanding principal amount of the Revolving
Credit Loans exceeds the Available Commitment, the Company will immediately
prepay the Revolving Credit Loans in an amount necessary to cause the
outstanding principal amount of the Revolving Credit Loans not to exceed the
Available Commitment. Any mandatory prepayment of the Revolving Credit Loans
pursuant to this subparagraph (b) shall be applied: (i) first, to the prepayment
of Revolving Credit Loans which are not then subject to a LIBOR Option, which
prepayment will be made without penalty or premium; and (ii) the balance of such
prepayment, if any, shall be applied to the LIBOR Portion or Portions of the
Revolving Credit Loans, which prepayment shall be made together with the
applicable LIBOR Premium.
(c) Within 120 days after the end of each fiscal year of the Company, the
Company will prepay the Term Loan, without penalty or premium, in an amount
equal to seventy-five percent (75%) of Excess Cash Flow for such fiscal year.
Each such prepayment of the Term Loan shall be applied to installments of
principal payable on the Term Loan in the inverse order of maturity.
1.11 Security; Subordination, etc. The Loans and the other obligations of the
Company hereunder and under the Notes shall be secured by and entitled to the
benefits of the following (except to the extent that any thereof may be
expressly waived by the Bank):
(a) A first priority perfected security interest, satisfactory to the Bank
(but subject to the provisions of subsections 6.2(b) and (c) hereof), in all
presently owned and after-acquired tangible and intangible personal property and
fixtures of the Company and its Subsidiaries;
(b) A first mortgage on any real estate now or hereafter owned by the
Company or any of its Subsidiaries;
(c) A collateral assignment of life insurance policy insuring the life of
Henri-Claude Bailly as contemplated by subsection 5.3;
(d) [Reserved];
(e) An intercreditor and subordination agreement with the Seller;
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(f) A guaranty from the Parent Company;
(g) A negative pledge and sale agreement from the Parent Company with
respect to the shares of capital stock of the Company owned by it;
(h) A guaranty from HB Capital;
(i) A guaranty from each of the Subsidiaries; and
(j) A subordination agreement or agreements signed by the Parent Company
and by such other Affiliates as may be designated by the Bank.
All of the agreements and instruments described in this subsection,
together with any and all other agreements and instruments heretofore or
hereafter securing the Loans and the Company's other obligations hereunder and
under the Notes, are sometimes hereinafter referred to collectively as the
"Security Documents" and individually as a "Security Document". All of the
personal property, fixtures, real estate and life insurance described in the
foregoing clauses (a), (b) and (c) of this subsection, together with any
additions thereto or replacements or proceeds thereof, are sometimes hereinafter
referred to collectively as the "Collateral". The Company agrees to take such
actions as may be necessary from time to time to cause the Bank to be secured by
and entitled to the benefits of the Security Documents as described in this
subsection, including, without limitation, the obtaining of consents of any
third parties. The Security Documents shall be satisfactory in form to the Bank
and its counsel.
1.12 Overdue Payments. In the event that the Company shall fail to make any
payment of principal of or interest on any Loan when due (and after the
expiration of any grace period applicable thereto), whether at maturity or at a
date fixed for the payment of any installment or prepayment thereof or by
declaration, acceleration or otherwise, interest on such unpaid principal and
(to the extent permitted by law) on such unpaid interest shall thereafter be
payable on demand at a rate per annum equal to four percent (4%) above the rate
otherwise applicable to such Loan hereunder.
1.13 Notations. Prior to any sale or other disposition of any Note by the Bank,
the Bank shall make a notation on such Note (or on a paper annexed thereto) of
the unpaid principal amount thereof at the time outstanding, the last date to
which interest has been paid thereon and the amount of unpaid interest accrued
thereon to the date of such sale or disposition. Upon payment in full of the
principal of and interest on any Note, such Note shall be cancelled and returned
to the Company, provided that the Revolving Credit Note shall not be cancelled
or returned so long as the Bank shall be obligated to make Revolving Credit
Loans hereunder.
1.14 Form and Terms of Payment. All payments by the Company of principal of or
interest on the Loans and of any fee due hereunder shall be made at the address
of the Bank set forth in subsection 13.1 (or at such other address as the Bank
shall have furnished to the Company in
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writing) and shall be made in immediately available funds. The Company hereby
authorizes the Bank to charge the Company's deposit accounts for the purpose of
effecting scheduled payments of such principal, interest and fees. If any
payment of principal of or interest on the Loans shall become due on a day which
is not a Banking Day, such payment may be made on the next succeeding Banking
Day and such extension shall be included in computing interest in connection
with such payment.
1.15 Capital Adequacy. If after the date of this Agreement, the Bank shall have
determined that the adoption or implementation of any applicable law, rule or
regulation regarding capital requirements for banks or bank holding companies,
or any change therein (including, without limitation, any change according to a
prescribed schedule of increasing requirements, whether or not known on the date
of this Agreement), or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by the Bank
with any request or directive of such entity regarding capital adequacy (whether
or not having the force of law) has the effect of reducing the return on the
Bank's capital to a level below that which the Bank could have achieved (taking
into consideration the Bank's policies with respect to capital adequacy
immediately before such adoption, implementation, change or compliance and
assuming that the Bank's capital was fully utilized prior to such adoption,
implementation, change or compliance) but for such adoption, implementation,
change or compliance as a consequence of its agreement to make Loans hereunder
by any amount deemed by the Bank to be material, the Company shall pay to the
Bank as an additional fee from time to time such amount as the Bank shall have
determined to be necessary to compensate it for such reduction. Any such
additional fee shall be payable by the Company within 30 days after the same is
requested by the Bank. The determination by the Bank of such amount, if done on
the basis of any reasonable averaging and attribution methods and on a basis
consistent with that applied to other customers of the Bank having similar
compensation arrangements, shall in the absence of manifest error be conclusive.
1.16 Use of Proceeds. The Company will use the proceeds of the Term Loan to
finance the cost of the Acquisition. The Company will use the proceeds of the
Revolving Credit Loans for working capital purposes, including the opening or
acquisition of new offices (subject to the provisions of subsection 6.3(h)
hereof) and including the payment of closing costs for the Acquisition and the
financing hereunder. The Company will not: (a) use any part of the proceeds of
the Revolving Credit Loans for the purpose of making any payment of principal of
or interest on the Term Loan or any payment of principal of the Seller Note; or
(b) use any part of the proceeds of any Loans for the purpose of purchasing or
carrying any margin stock within the meaning of Regulation U (12 CFR Part 221)
of the Board of Governors of the Federal Reserve System, or for any other
purpose which would violate any provision of any other applicable statute,
regulation, order or restriction.
Section 2. LIBOR Provisions.
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2.1 LIBOR Option. Subject to the provisions of this section 2, the Company shall
have the right to have the interest on all or any portion of the principal
amount of the Loans based on a LIBOR Rate, provided that not more than five (5)
LIBOR Portions of the Revolving Credit Loans shall be outstanding at any one
time.
2.2 Certain Definitions. As used herein, the following terms have the following
respective meanings:
Banking Day: (i) when used with respect to the LIBOR Option, a day
on which dealings may be effected in deposits of U.S. dollars in the London
interbank foreign currency deposits market and on which banks may conduct
business in London, England, and Boston, Massachusetts, and (ii) when used with
respect to the other provisions of this Agreement, any day excluding Saturday
and Sunday and excluding any other day which shall be in Boston, Massachusetts,
a legal holiday or a day on which banking institutions are authorized by law to
close.
Board: the Board of Governors of the Federal Reserve System of the
United States.
Legal Requirement: any requirement imposed upon the Bank by any law
of the United States of America or the United Kingdom or by any regulation,
order, interpretation, ruling or official directive (whether or not having the
force of law) of the Board, the Bank of England or any other board, central bank
or governmental or administrative agency, institution or authority of the United
States of America, the United Kingdom or any political subdivision of either
thereof.
LIBOR Option: the option granted pursuant to this section 2 to have
the interest on all or any portion of the principal amount of the Loans based on
a LIBOR Rate.
LIBOR Period: any period, selected as provided below in this section
2, of 30, 60, 90 or 180 days or (in the case of a LIBOR Portion of the Term
Loan) of 360 days or longer periods if available and agreed to by the Bank,
commencing on any Banking Day; provided, however, that (i) no LIBOR Period with
respect to any LIBOR Portion of the Revolving Credit Loans shall extend beyond
the Expiration Date, and (ii) no LIBOR Period with respect to any LIBOR Portion
of the Term Loan shall extend beyond the final maturity date of the Term Note.
If any LIBOR Period so selected would otherwise end on a date which is not a
Banking Day, such LIBOR Period shall instead end on the next preceding or
succeeding Banking Day as determined by the Bank in accordance with its then
current banking practice. Each determination by the Bank of any LIBOR Period
shall, in the absence of manifest error, be conclusive.
LIBOR Portion: subject to the proviso to subsection 2.1 hereof, that
portion of the Loans specified in a LIBOR Request (including any portion of such
Loans which are being borrowed by the Company concurrently with such LIBOR
Request) which is not less than
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$100,000, which does not exceed the outstanding balance of the Loans not already
subject to a LIBOR Option and, in the case of the Term Loan, does not exceed
such balance reduced by the amount of all installments thereof scheduled to come
due within the related LIBOR Period and which, as of the date of the LIBOR
Request specifying such LIBOR Portion, has met the conditions for basing
interest on the LIBOR Rate in subsection 2.3 hereof and the LIBOR Period of
which has commenced and not terminated.
LIBOR Premium: with respect to the prepayment of any LIBOR Portion
of any Loans (other than a prepayment pursuant to subsection 1.10(c) hereof), an
amount equal to the product of (i) the excess, if any, of the rate of interest
on the principal amount so prepaid over the rate of interest on debt securities
issued by the Treasury of the United States of America on a date approximating
the date of payment of such principal amount and having a maturity date
approximating the last Banking Day of the applicable LIBOR Period, multiplied by
(ii) the principal amount so prepaid, multiplied by (iii) a fraction, the
numerator of which is the number of days remaining in the related LIBOR Period
and the denominator of which is 360. Each determination by the Bank of any LIBOR
Premium shall, in the absence of manifest error, be conclusive.
LIBOR Rate: with respect to any LIBOR Portion for the related LIBOR
Period, an interest rate per annum (rounded upwards, if necessary, to the next
higher 1/100 of 1%) equal to the product of (a) the Base LIBOR Rate (as
hereinafter defined) and (b) Statutory Reserves. For purposes of this
definition, the term "Base LIBOR Rate" shall mean the rate (rounded to the
nearest 1/100 of 1% or, if there is no nearest 1/100 of 1%, the next higher
1/100 of 1%) at which deposits of U.S. dollars approximately equal in principal
amount to the LIBOR Portion and for a maturity equal to the applicable LIBOR
Period are offered to the Bank in the London interbank foreign currency deposits
market at approximately 11:00 a.m., London time, two (2) Banking Days prior to
the commencement of such LIBOR Period, for delivery on the first day of such
LIBOR Period. Each determination by the Bank of any LIBOR Rate shall, in the
absence of manifest error, be conclusive.
LIBOR Request: notice in writing (or by telephonic communication
confirmed by telex, telecopy or other facsimile transmission on the same day as
the telephone request) from the Company to the Bank (and received by the Bank
prior to 11:00 a.m., Boston time, two (2) Banking Days prior to the first day of
the LIBOR Period requested) requesting that interest on a LIBOR Portion be based
on the LIBOR Rate, specifying: (i) the first day of the LIBOR Period, (ii) the
length of the LIBOR Period consistent with the definition of that term, and
(iii) a dollar amount of the LIBOR Portion consistent with the definition of
that term.
Statutory Reserves: a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including, without
limitation, any marginal, special, emergency or supplemental reserves),
expressed as a decimal, established by the Board and any other banking authority
to which the Bank is subject for Eurocurrency Liabilities (as defined in
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Regulation D of the Board). Such reserve percentages shall include, without
limitation, those imposed under such Regulation D. LIBOR Portions of the Loans
shall be deemed to constitute Eurocurrency Liabilities and as such shall be
deemed to be subject to such reserve requirements without benefit of or credit
for proration, exceptions or offsets which may be available from time to time to
the Bank under such Regulation D. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
Tax: in relation to any LIBOR Portion and the applicable LIBOR Rate,
any tax, levy, impost, duty, deduction, withholding or other charges of whatever
nature required by any Legal Requirement (i) to be paid by the Bank and/or (ii)
to be withheld or deducted from any payment otherwise required hereby to be made
by the Company to the Bank, provided that the term "Tax" shall not include any
taxes imposed upon the net income of the Bank by the United States of America or
any political subdivision thereof.
2.3 Conditions for Basing Interest on the LIBOR Rate. Upon the condition that:
(a) The Bank shall have received a LIBOR Request from the Company prior to
11:00 a.m., Boston time, two (2) Banking Days prior to the first day of the
LIBOR Period requested;
(b) There shall have occurred no change in applicable law which would make
it unlawful for the Bank to obtain deposits of U.S. dollars in the London
interbank foreign currency deposits market;
(c) As of the date of the LIBOR Request and the first day of the LIBOR
Period, there shall exist no Event of Default, nor any event which, with the
giving of notice or expiration of any applicable grace period or both would
constitute an Event of Default, which is not waived by the Bank;
(d) After giving effect to such LIBOR Request, not more than five (5)
LIBOR Portions of the Revolving Credit Loans shall be outstanding; and
(e) The Bank shall not have determined in good faith that it is unable to
determine the LIBOR Rate in respect of the requested LIBOR Period or that it is
unable to obtain deposits of U.S. dollars in the London interbank foreign
currency deposits market in the applicable amounts and for the requested LIBOR
Period;
then interest on the LIBOR Portion requested during the LIBOR Period requested
will be based on the applicable LIBOR Rate.
2.4 Indemnification for Funding and Other Losses. Each LIBOR Request shall be
irrevocable and binding on the Company. The Company shall indemnify the Bank
against any loss or expense incurred by the Bank as a result of any failure on
the part of the Company to fulfill, on or before the date specified in any LIBOR
Request, the applicable conditions set forth in this
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Agreement, including, without limitation, any loss (including loss of
anticipated profits) or expense incurred by reason of the liquidation of
redeployment of deposits or other funds acquired by the Bank to fund or maintain
the requested LIBOR Portion when interest on such LIBOR Portion, as a result of
such failure on the part of the Company, is not based on the applicable LIBOR
Rate for the requested LIBOR Period.
2.5 Change in Applicable Laws, Regulations, etc. If any Legal Requirement shall
make it unlawful for the Bank to fund through the obtaining of U.S. dollar
deposits any LIBOR Portion, or otherwise to give effect to its obligations as
contemplated hereby, or shall impose on the Bank any costs based on or measured
by the excess above a specified level of the amount of a category of deposits or
other liabilities of the Bank which includes deposits by reference to which the
LIBOR Rate is determined as provided herein or a category of extensions of
credit or other assets of the Bank which includes any LIBOR Portion, or shall
impose on the Bank any restrictions on the amount of such a category of
liabilities or assets which the Bank may hold, (a) the Bank may by notice
thereof to the Company terminate the LIBOR Option, (b) any LIBOR Portion subject
thereto shall immediately bear interest thereafter at the rate provided for in
subsection 1.6(a), and (c) the Company shall indemnify the Bank against any
loss, penalty or expense incurred by the Bank by reason of the liquidation or
redeployment of deposits or other funds acquired by the Bank to fund or maintain
such LIBOR Portion (except to the extent the Bank shall have been compensated or
reimbursed for any such loss, penalty or expense by reason of any LIBOR Premium
or Premiums paid by the Company in connection therewith).
2.6 Taxes. It is the understanding of the Company and the Bank that the Bank
shall receive payments of amounts of principal of and interest on the Loans with
respect to the LIBOR Portions from time to time subject to a LIBOR Option free
and clear of, and without deduction for, any Taxes. If (a) the Bank shall be
subject to any such Tax in respect of any such LIBOR Portion or part thereof or
(b) the Company shall be required to withhold or deduct any such Tax from any
such amount, the LIBOR Rate applicable to such LIBOR Portion shall be adjusted
by the Bank to reflect all additional costs incurred by the Bank in connection
with the payment by the Bank or the withholding by the Company of such Tax and
the Company shall provide the Bank with a statement detailing the amount of any
such Tax actually paid by the Company. Determination by the Bank of the amount
of such costs shall, in the absence of manifest error, be conclusive, and at the
Company's request, the Bank shall demonstrate the basis of such determination.
If after any such adjustment, any part of any Tax paid by the Bank is
subsequently recovered by the Bank, the Bank shall reimburse the Company to the
extent of the amount so recovered. A certificate of an officer of the Bank
setting forth the amount of such recovery and the basis therefor shall, in the
absence of manifest error, be conclusive.
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Section 3. Representations and Warranties.
In order to induce the Bank to enter into this Agreement and to make the
Loans provided for hereunder, the Company makes the following representations
and warranties, which shall survive the execution and delivery hereof and of the
Notes:
3.1 Organization, Standing, etc. of the Company. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own and
operate its properties, to carry on its business as now conducted and proposed
to be conducted, to enter into this Agreement, the Security Documents to which
it is a party and all other documents to be executed by it in connection with
the transactions contemplated hereby, to issue the Notes and to carry out the
terms hereof and thereof.
3.2 Subsidiaries. Schedule 3.2 attached hereto correctly sets forth as to each
Subsidiary, its name, the jurisdiction of its incorporation, the number of
shares of its capital stock of each class outstanding and the number of such
outstanding shares owned by the Company and its Subsidiaries. Each such
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own and operate its properties, to
carry on its business as now conducted and now proposed to be conducted and to
enter into such of the Security Documents, if any, as relate to it and all other
documents to be executed by it in connection with the transactions contemplated
hereby. All of the outstanding capital stock of each Subsidiary is validly
issued, fully-paid and nonassessable, and is owned by the Company or its
Subsidiaries as specified in Schedule 3.2, in each case free of any mortgage,
pledge, lien, security interest, charge, option or other encumbrance.
3.3 Qualification. The Company and its Subsidiaries are duly qualified or
licensed and in good standing as foreign corporations duly authorized to do
business in each jurisdiction in which the character of the properties owned or
the nature of the activities conducted makes such qualification or licensing
necessary, other than jurisdictions in which the failure to be so qualified or
licensed would not have any material adverse effect on the business or
operations of the Company or its Subsidiaries or on their financial or other
condition.
3.4 Financial Information; Disclosure, etc. As of the date hereof, the Company
has furnished the Bank with the financial statements and other reports listed in
Schedule 3.4 attached hereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis and fairly present the financial position and results of operations of the
Persons to which they purport to relate as of the dates and for the periods
indicated. Between the end of the most recent fiscal period shown in such
financial statements and the date hereof, there has not been any material
adverse change in the business, operations,
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properties or financial position of the Company (or of the Persons to which such
financial statements purport to relate). Neither this Agreement nor any
financial statements, reports or other documents or certificates furnished to
the Bank by the Company in connection with the transactions contemplated hereby
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements herein or therein contained not
misleading. None of the Loans will render the Company unable to pay its debts as
they become due; the Company is not contemplating either the filing of a
petition by it under any state or federal bankruptcy or insolvency laws or the
liquidation of all or a major portion of its property; and the Company has no
knowledge of any person contemplating the filing of any such petition against
it.
3.5 Licenses; Franchises, etc. The Company and its Subsidiaries have all
material authorizations, licenses, permits and franchises of any public or
governmental regulatory body which are necessary for the conduct of the business
of the Company and its Subsidiaries as now conducted and proposed to be
conducted (such authorizations, licenses, permits and franchises, together with
any extensions or renewals thereof, being herein sometimes referred to
collectively as the "Licenses"). All of such Licenses are validly issued and in
full force and effect and the Company and its Subsidiaries have fulfilled and
performed all of their obligations with respect thereto and have full power and
authority to operate thereunder.
3.6 Tax Returns and Payments.
(a) The Company and its Subsidiaries have filed all tax returns required
by law to be filed and have paid all taxes, assessments and other governmental
charges levied upon any of their respective properties, assets, income or
franchises, other than those not yet delinquent and those, not substantial in
aggregate amount, being or about to be contested as provided in subsection 5.4.
The charges, accruals and reserves on the books of the Company and its
Subsidiaries in respect of their respective taxes are adequate in the opinion of
the Company, and the Company knows of no unpaid assessment for additional taxes
or of any basis therefor.
(b) The Company has advised the Bank that the Company may join in an
election under section 338(h)(10) of the Code with respect to the Acquisition
under circumstances which may cause the Company to be obligated to the Seller in
an amount equal to the incremental federal income taxes to be paid by the Seller
as a result of such election. It is further contemplated that any such
obligation of the Company to the Seller as a result of the aforesaid election
(which the Seller presently estimates will be approximately $600,000) would be
evidenced by the promissory note of the Company to the Seller (the "Tax Note").
The Company acknowledges that it will not incur such obligation to the Seller
nor issue the Tax Note unless the Bank, in its sole discretion, shall consent
thereto in writing.
3.7 Indebtedness, Liens and Investments, etc. Schedule 3.7 attached hereto
correctly describes, as of the date or dates indicated therein, (a) all
outstanding Indebtedness of the Company and its Subsidiaries in respect of
borrowed money, Capital Leases and the deferred purchase price of
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property; (b) all existing mortgages, liens and security interests in respect of
any property or assets of the Company or its Subsidiaries; (c) all outstanding
investments, loans and advances of the Company and its Subsidiaries; and (d) all
existing guarantees by the Company and its Subsidiaries.
3.8 Title to Properties; Liens. The Company and its Subsidiaries have good and
marketable title to all of their respective properties and assets, and none of
such properties or assets is subject to any mortgage, pledge, lien, security
interest, charge or encumbrance except the existing mortgages and security
interests referred to in Schedule 3.7 attached hereto and except minor liens and
encumbrances which in the aggregate are not substantial in amount, do not in any
case materially detract from the value of the property subject thereto or
materially impair the operations of the Company and its Subsidiaries and have
not arisen otherwise than in the ordinary course of business. The Company and
its Subsidiaries enjoy quiet possession under all leases to which they are
parties as lessees, and all of such leases are valid, subsisting and in full
force and effect. None of such leases contains any provision restricting the
incurrence of indebtedness by the lessee or any unusual or burdensome provision
materially adversely affecting the current and proposed operations of the
Company and its Subsidiaries.
3.9 Litigation, etc. Except as set forth in Schedule 3.9 attached hereto, as of
the date hereof, there is no action, proceeding or investigation pending or
threatened (or any basis therefor known to the Company) which questions the
validity of this Agreement, the Notes, the Security Documents or the other
documents executed in connection herewith, or any action taken or to be taken
pursuant hereto, or which might result, either in any case or in the aggregate,
in any material adverse change in the business operations, affairs or condition
of the Company or any Subsidiary or any of their respective properties or in any
material liability on the part of the Company or any Subsidiary.
3.10 Authorization; Compliance with Other Instruments. The execution, delivery
and performance of this Agreement, the Notes and the Security Documents have
been duly authorized by all necessary corporate action on the part of the
Company and its Subsidiaries, will not result in any violation of or be in
conflict with or constitute a default under any term of the charter or by-laws
of the Company or any Subsidiary, or of any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to the
Company or any Subsidiary, or result in the creation of any mortgage, lien,
charge or encumbrance upon any of the properties or assets of the Company or any
Subsidiary pursuant to any such term (except pursuant to the Security
Documents). Neither the Company nor any Subsidiary is in violation of any term
of its charter or by-laws, or of any material term of any material agreement or
instrument to which it is a party, or, to the best of the Company's knowledge,
of any judgment, decree, order, statute, rule or governmental regulation
applicable to it.
3.11 Governmental Consent. Neither the Company nor any Subsidiary nor any of
their respective shareholders is required to obtain any order, consent, approval
or authorization of, or required to make any declaration or filing (other than
ordinary notice filings) with, any
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governmental authority in connection with the execution and delivery of this
Agreement and the issuance and delivery of the Notes pursuant hereto, or in
connection with the execution and delivery of the Security Documents and the
granting of the security interests in the Collateral pursuant thereto, or in
connection with the Acquisition.
3.12 Regulation U, etc. Neither the Company nor any Subsidiary owns or has any
present intention of acquiring any "margin stock" within the meaning of
Regulation U (12 CFR Part 221) of the Board of Governors of the Federal Reserve
System (herein called "margin stock"). None of the proceeds of the Loans will be
used, directly or indirectly, by the Company or any Subsidiary for the purpose
of purchasing or carrying, or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry, any margin
stock or for any other purpose which might constitute the transactions
contemplated hereby a "purpose credit" within the meaning of said Regulation U,
or cause this Agreement to violate Regulation U, Regulation T, Regulation X, or
any other regulation of the Board of Governors of the Federal Reserve System or
the Securities Exchange Act of 1934. If requested by the Bank, the Company will
promptly furnish the Bank with a statement in conformity with the requirements
of Federal Reserve Form U-1 referred to in said Regulation U.
3.13 Employee Retirement Income Security Act of 1974. The terms used in this
subsection 3.13 and in subsection 6.8 of this Agreement shall have the meanings
assigned thereto in the applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the Internal Revenue Code of
1986, as amended (the "Code"), and the term "Affiliated Company" shall mean the
Company and all corporations, partnerships, trades or businesses (whether or not
incorporated) which constitute a controlled group of corporations with the
Company, an affiliated service group or other affiliated group, within the
meaning of Section 414(b), Section 414(c), Section 414(m) or Section 414(o),
respectively, of the Code or Section 4001 of ERISA. Each employee benefit plan
sponsored by an Affiliated Company and, to the best of the Company's knowledge,
each multiemployer plan to which any Affiliated Company makes contributions, is
in material compliance with applicable provisions of ERISA and the Code. No
Affiliated Company has incurred any material liability to the Pension Benefit
Guaranty Corporation ("PBGC") or any employee benefit plan on account of any
failure to meet the contribution requirements of any such plan, minimum funding
requirements or prohibited transactions under ERISA or the Code, termination of
a single employer plan, partial or complete withdrawal from a multiemployer
plan, or the insolvency, reorganization or termination of any multiemployer
plan, and no event has occurred or conditions exist which present a material
risk that any Affiliated Company will incur any material liability on account of
any of the foregoing circumstances. The consummation of the transactions
contemplated by this Agreement will not result in any prohibited transaction
under ERISA or the Code for which an exemption is not available.
3.14 Ownership of Company and Parent Company. All of the outstanding shares of
capital stock of the Company are owned by the Parent Company, free of any
assignment, pledge, lien, security interest, charge, option or other
encumbrance. The Company is not obligated in any manner to
15
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issue any additional shares of its capital stock. Schedule 3.14 attached hereto
correctly sets forth the number of shares of the Parent Company's capital stock
of each class authorized and the number thereof outstanding, the name of each of
the Parent Company's shareholders as of the date hereof, including Persons who
will become such shareholders upon payment of the Parent Company Subscriptions
(the "Parent Company Shareholders"), and the number of shares of each class of
such capital stock owned by the Parent Company Shareholders.
3.15 Environmental Matters. Neither the Company nor any Subsidiary nor, to the
Company's knowledge, any other Person has ever caused or permitted any Hazardous
Material to be disposed of on or under any real property owned, leased or
operated by the Company or any Subsidiary or in which the Company or any
Subsidiary has ever held, directly or indirectly, any legal or beneficial
interest or estate, and no such real property has ever been used (either by the
Company or any Subsidiary or, to the Company's knowledge, by any other Person)
as (i) a disposal site or permanent storage site for any Hazardous Material or
(ii) a temporary storage site for any Hazardous Material. The Company and each
of its Subsidiaries have been issued and are in compliance with all material
permits, certificates, licenses, approvals and other authorizations relating to
environmental matters and necessary or desirable for their respective
businesses, and have filed all notifications and reports relating to chemical
substances, air emissions, underground storage tanks, effluent discharges and
Hazardous Material waste storage, treatment and disposal required in connection
with the operation of their respective businesses, the failure to have or comply
with which would, individually or in the aggregate, have a material adverse
effect on the Company or any Subsidiary. All Hazardous Materials used or
generated by the Company or any Subsidiary or any business merged into or
otherwise acquired by the Company or any Subsidiary have been generated,
accumulated, stored, transported, treated, recycled and disposed of in
compliance with all applicable laws and regulations, the violation of which has
any reasonable likelihood of having a material adverse effect on the Company or
any Subsidiary. Neither the Company nor any Subsidiary has any liabilities with
respect to Hazardous Materials, and to the knowledge of the Company, no facts or
circumstances exist which could give rise to liabilities with respect to
Hazardous Materials, which could have any reasonable likelihood of having a
material adverse effect on the Company or any Subsidiary.
Section 4. Conditions of Lending.
The obligation of the Bank to make any Loan hereunder is subject to the
following conditions:
4.1 The Notes. On or prior to the date of the Closing, the Bank shall have
received the Revolving Credit Note (in the amount of the Revolving Commitment)
and the Term Note (in the amount of the Term Loan), duly completed, executed and
delivered, as provided in section 1.
4.2 Opinions and Certificates. On and as of the date of the Closing, the Bank
shall have received:
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(a) The favorable opinion of counsel for the Company, dated as of such
date and in form and substance satisfactory to the Bank and its counsel.
(b) A certificate, dated as of such date, signed by a principal officer of
the Company, certifying that the conditions specified in subsection 4.3 have
been fulfilled.
(c) All other information and documents which the Bank or its counsel may
reasonably have requested in connection with the transactions contemplated by
this Agreement, such information and documents where appropriate to be certified
by the proper Company officers or governmental authorities.
4.3 No Default; Representations and Warranties, etc. On the date of the Closing
and on the date of each Loan hereunder: (a) the representations and warranties
of the Company contained in section 3 of this Agreement shall be true on and as
of such dates as if they had been made on such dates (except to the extent that
such representations and warranties expressly relate to an earlier date or are
affected by the consummation of transactions permitted under this Agreement);
(b) the Company shall be in compliance in all material respects with all of the
terms and provisions set forth herein on its part to be observed or performed on
or prior to such dates; (c) after giving effect to the Loans to be made on such
dates, no Event of Default specified in section 8 hereof, nor any event which
with the giving of notice or expiration of any applicable grace period or both
would constitute such an Event of Default, shall have occurred and be
continuing; and (d) since the date of this Agreement, there shall have been no
material adverse change in the assets or liabilities or in the financial or
other condition of the Company or any Subsidiary. Each request for a Loan
hereunder shall constitute a representation and warranty by the Company to the
Bank that all of the conditions specified in this subsection 4.3 have been
satisfied in all material respects as of the date of each such Loan.
4.4 Security Documents. On or prior to the date of the Closing, the Bank shall
have received the Security Documents, together with any other documents required
or contemplated by the terms thereof, including Uniform Commercial Code
financing statements.
4.5 Equity Investment. On or prior to the date of the Closing, the Parent
Company shall have made an equity investment in the Company of not less than
$3,000,000 (including Company Subscriptions of $431,280 which shall be paid not
later than June 30, 1995) in a manner satisfactory to the Bank.
4.6 Acquisition. Contemporaneously with the Closing: (a) the Company shall have
completed the Acquisition in a manner satisfactory to the Bank and its counsel;
(b) the obligations of the Company to the Seller pursuant to the Seller Note
and/or the Purchase Agreement shall have been subordinated to the Loans and to
the other obligations of the Company to the Bank hereunder and under the Notes
in a manner satisfactory to the Bank and its counsel; and (c) the Bridge Note
and the transactions contemplated thereby, including the security therefor and
the arrangements for the distribution of funds to certain Parent Company
Shareholders and the
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application of such funds to the payment of the Parent Company Subscriptions,
the Company Subscriptions and the Bridge Note, shall be satisfactory in form and
substance to the Bank and its counsel.
Section 5. Affirmative Covenants.
So long as any of the Loans shall remain available to the Company, and
until the principal of and interest on the Loans and all fees due hereunder
shall have been paid in full, the Company agrees that:
5.1 Financial Statements, etc. The Company will furnish or cause to be furnished
to the Bank:
(a) Within 90 days after the end of each fiscal year of the Company, (i)
the consolidated and consolidating balance sheets of the Company and its
Subsidiaries as at the end of such year, and (ii) the related consolidated and
consolidating statements of income and surplus and cash flows for such year,
setting forth in comparative form with respect to such consolidated financial
statements figures for the previous fiscal year, all in reasonable detail,
together with the opinion thereon of Ernst & Young or other independent public
accountants selected by the Company and satisfactory to the Bank, which opinion
shall be in a form generally recognized as unqualified and shall state that such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with that of the preceding
fiscal year (except for changes, if any, which shall be specified and approved
in such opinion) and that the audit by such accountants in connection with such
financial statements has been made in accordance with generally accepted
auditing standards related to reporting, provided that such accountants'
certification may be limited to the consolidated financial statements in which
case the consolidating financial statements shall be signed by the chief
financial officer of the Company;
(b) Within 15 days after the end of each month, (i) the unaudited
consolidated and consolidating balance sheets of the Company and its
Subsidiaries as at the end of such month, and (ii) the related unaudited
consolidated and consolidating statements of income and surplus and cash flows
for such month and for the period from the beginning of the current fiscal year
to the end of such month, all in reasonable detail and signed by the chief
financial officer of the Company;
(c) Together with the financial statements delivered pursuant to
subparagraph (a) above, (i) a copy of the management letter, if any,
accompanying such financial statements, and (ii) a statement signed by the
accountants who have reported on such financial statements to the effect that in
connection with their examination of such financial statements they have
reviewed the provisions of this Agreement and have no knowledge of any event or
condition which constitutes an Event of Default or which, after notice or
expiration of any applicable grace period or both, would constitute such an
Event of Default or, if they have such knowledge, specifying
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the nature and period of existence thereof, provided, however, that in issuing
such statement, such independent accountants shall not be required to go beyond
normal auditing procedures conducted in connection with their opinion referred
to above;
(d) Together with the financial statements delivered pursuant to
subparagraph (a) above, and together with the financial statements delivered
pursuant to subparagraph (b) above for the last months of each of the first
three quarterly accounting periods in each fiscal year of the Company, a
compliance certificate substantially in the form of Exhibit C attached hereto
signed by the chief financial officer of the Company;
(e) Within seven days after the end of each month, a borrowing base
certificate substantially in the form of Exhibit D attached hereto (the
"Borrowing Base Certificate"), together with an aging of accounts receivable
report, in each case signed by the chief financial officer of the Company;
(f) Within seven days after the end of each month, a backlog report
prepared by the Company's management setting forth in reasonable detail the
amount of the Company's authorized and obligated backlog;
(g) Within 30 days after the end of each fiscal year of the Company, a
budget prepared by the Company's management setting forth in reasonable detail,
and on a monthly basis, the Company's budget for the ensuing fiscal year; and
(h) Forthwith upon any officer of the Company obtaining knowledge of any
condition or event which constitutes an Event of Default or which, after notice
or lapse of time or both, would constitute an Event of Default, a certificate
signed by the chief financial officer of the Company specifying in reasonable
detail the nature and period of existence thereof and what action the Company
has taken or proposes to take with respect thereto.
The Company will also furnish or cause to be furnished to the Bank such
other information regarding the business, affairs and condition of the Company
and its Subsidiaries as the Bank may from time to time reasonably request. The
Company will permit the Bank to inspect the books and any of the properties or
assets of the Company and its Subsidiaries at such reasonable times as the Bank
may from time to time request.
5.2 Legal Existence; Franchises; Compliance with Laws, etc. The Company will,
and will cause each Subsidiary to: maintain its corporate existence and
business; maintain all properties which are reasonably necessary for the conduct
of such business, now or hereafter owned, in good repair, working order and
condition; take all actions necessary to maintain and keep in full force and
effect its rights and franchises, including the Licenses; and, except as
otherwise provided herein, comply with all applicable statutes, rules,
regulations and orders of, and all applicable restrictions imposed by, all
governmental authorities in respect of the conduct of its business and the
ownership of its properties; provided that neither the Company nor any
Subsidiary shall be
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required by reason of this subsection to comply therewith at any time while the
Company or such Subsidiary shall be contesting its obligations to do so in good
faith by appropriate proceedings promptly initiated and diligently conducted,
and if it shall have set aside on its books such reserves, if any, with respect
thereto as are required by generally accepted accounting principles and deemed
adequate by the Company and its independent public accountants. Neither the
Company nor any Subsidiary will, without the prior written consent of the Bank,
engage in any business other than the management consulting business and
activities incidental thereto.
5.3 Insurance. The Company will maintain or cause to be maintained on all
insurable properties now or hereafter owned by the Company or any Subsidiary
insurance against loss or damage by fire or other casualty to the extent
customary with respect to like properties of companies conducting similar
businesses and will maintain or cause to be maintained public liability and
workmen's compensation insurance insuring the Company and its Subsidiaries to
the extent customary with respect to companies conducting similar businesses
and, upon request, will furnish to the Bank satisfactory evidence of the same.
Each insurance policy pertaining to any of the Collateral shall: (i) name the
Bank as an insured pursuant to a so-called "standard mortgagee clause"; (ii)
provide that no action of the Company or any tenant or subtenant shall void such
policy as to the Bank; and (iii) provide that the Bank shall be notified of any
proposed cancellation of such policy at least thirty (30) days in advance of
such proposed cancellation and will have sufficient time to correct any
deficiencies justifying such proposed cancellation. All such policies shall be
delivered to the Bank upon request. In the event of a casualty loss, the Company
may apply the proceeds of any insurance to the restoration or replacement of the
property or asset which was the subject of such loss, provided that (A) the
Company shall have demonstrated to the reasonable satisfaction of the Bank that
such property or asset will be restored to substantially its previous condition
or will be replaced by a substantially identical property or asset, and (B) the
Bank shall have received, if requested by it, a favorable opinion from counsel
for the Company, satisfactory in scope and form to the Bank, as to the Bank's
having a prior security interest in and valid first lien on such restored or
replaced property or asset (subject to the provisions of subsection 6.2(c)
hereof). In addition to the foregoing, the Company will maintain a life
insurance policy or policies in the amount of $2,000,000 insuring the life of
Henri-Claude Bailly and shall cause its rights under such policy or policies to
be assigned to the Bank as security for the Loans and the Company's other
obligations to the Bank hereunder and under the Notes (such assignment to
constitute a Security Document and such life insurance to constitute Collateral
for all purposes of this Agreement). In the event the Bank shall receive payment
in respect of such life insurance policy, it shall permit a portion thereof to
be paid over to the estate of the insured to the extent necessary to satisfy
then outstanding obligations of the Parent Company or the Company under its
employment contract with the insured, provided that (a) the Company shall have
furnished the Bank with reasonably detailed information demonstrating the amount
and nature of such obligation, and (b) at the time of such payment, no Event of
Default shall have occurred and be continuing hereunder.
5.4 Payment of Taxes. The Company will, and will cause each Subsidiary to, pay
and discharge promptly as they become due and payable all taxes, assessments and
other governmental charges
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or levies imposed upon it or its income or upon any of its properties or assets,
or upon any part thereof, as well as all lawful claims of any kind (including
claims for labor, materials and supplies) which, if unpaid, might by law become
a lien or a charge upon its property; provided that neither the Company nor any
Subsidiary shall be required to pay any such tax, assessment, charge, levy or
claim if the amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings promptly initiated and
diligently conducted and if the Company or such Subsidiary, as the case may be,
shall have set aside on its books such reserves, if any, with respect thereto as
are required by generally accepted accounting principles and deemed appropriate
by the Company and its independent public accountants.
5.5 Payment of Other Indebtedness, etc. Except as to matters being contested in
good faith and by appropriate proceedings, and subject to the provisions of
subsection 6.10 hereof, the Company will, and will cause each Subsidiary to, pay
promptly when due, or in conformance with customary trade terms, all other
Indebtedness and obligations incident to the conduct of its business.
5.6 Further Assurances. From time to time hereafter, the Company will execute
and deliver, or will cause to be executed and delivered, such additional
instruments, certificates or documents, and will take all such actions, as the
Bank may reasonably request, for the purposes of implementing or effectuating
the provisions of this Agreement, the Security Documents or the Notes, or of
more fully perfecting or renewing the Bank's rights with respect to the
Collateral pursuant hereto or thereto. Upon the exercise by the Bank of any
power, right, privilege or remedy pursuant to this Agreement or the Security
Documents which requires any consent, approval, registration, qualification or
authorization of, or any filing with, any governmental authority or
instrumentality (including, without limitation, the giving of any notices
pursuant to the federal Assignment of Claims Act), the Company will execute and
deliver, or will cause the execution and delivery of, all applications,
certifications, instruments and other documents and papers that the Bank may be
required to obtain for such governmental consent, approval, registration,
qualification, authorization or filing. In the event the Company or any
Subsidiary shall at any time or from time to time acquire or own any real
property, the Company will, if requested by the Bank, promptly execute and
deliver, or cause to be executed and delivered, to the Bank a mortgage or deed
of trust, satisfactory in form and substance to the Bank and its counsel,
granting a valid first lien on such real property as security for the Loans and
the other obligations of the Company hereunder and under the Notes.
5.7 Depository Account. The Company will, and will cause each Subsidiary to,
maintain its principal depository account with the Bank.
5.8 Field Audits. Without limiting the provisions of subsection 5.1 hereof, the
Company will permit the Bank to audit the books and records and other assets of
the Company and its Subsidiaries at such times (during normal business hours)
and in such manner and detail as the Bank deems advisable in the Bank's sole
discretion. It is presently contemplated that, so long as no Event of Default
has occurred and is continuing hereunder, such audits will be conducted at
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approximately six-month intervals. In connection with any such audit or audits,
the Bank shall be allowed to verify the receivables of the Company and to
confirm with account debtors the validity and amount of all of the Company's
accounts receivable. The Company shall promptly pay the Bank's standard audit
fee in connection with any such audit (such fee is presently $750 per audit, but
the Company acknowledges that such fee may be subject to adjustment from time to
time in accordance with the Bank's standard practice). So long as no Event of
Default has occurred and is continuing hereunder, the Company shall be obligated
to pay such audit fees only in respect of the audits conducted at approximately
six-month intervals as hereinabove contemplated.
Section 6. Negative Covenants.
So long as any of the Loans shall remain available to the Company, and
until the principal of and interest on the Loans and all fees due hereunder
shall have been paid in full, the Company agrees that:
6.1 Indebtedness. The Company will not, and will not permit any Subsidiary to,
create, incur, assume or become or remain liable in respect of any Indebtedness,
except:
(a) Indebtedness to the Bank;
(b) Subordinated Debt owing to the Parent Company;
(c) Current liabilities of the Company or any Subsidiary (other than for
borrowed money) incurred in the ordinary course of its business and in
accordance with customary trade practices;
(d) Existing Indebtedness, if any, of the Company or any Subsidiary
referred to in Schedule 3.7 attached hereto, in not more than the respective
unpaid principal amounts thereof specified in such Schedule;
(e) Indebtedness of the Company or any Subsidiary secured as permitted by,
and subject to the proviso to, subparagraph (c) of subsection 6.2;
(f) Indebtedness of the Company or any Subsidiary in respect of guarantees
to the extent permitted under subsection 6.3;
(g) Subordinated Debt (in addition to the Subordinated Debt permitted
under subparagraph (b) of this subsection 6.1), including Indebtedness in
respect of the Seller Note;
(h) Indebtedness in respect of the Bridge Note; and
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(i) Indebtedness in respect of the Tax Note, provided that the Bank, in
its sole discretion, shall have consented thereto as contemplated by subsection
3.6(b) hereof.
6.2 Mortgages, Liens, etc. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist,
any mortgage, lien, charge or encumbrance on, or security interest in, or pledge
of, or conditional sale or other title retention agreement (including any
Capital Lease) with respect to, any property or asset now owned or hereafter
acquired by the Company or any Subsidiary, except:
(a) Any lien securing Indebtedness to the Bank;
(b) The existing mortgages and security interests referred to in Schedule
3.7 attached hereto, or any renewal, extension or refunding of any such mortgage
or security interest in an amount not exceeding the amount thereof remaining
unpaid immediately prior to such renewal, extension or refunding;
(c) Purchase money mortgages, liens and other security interests,
including Capital Leases, created in respect of property acquired by the Company
or any Subsidiary after the date hereof or existing in respect of property so
acquired at the time of acquisition thereof, provided that (i) each such lien
shall at all times be confined solely to the item or items of property so
acquired, and (ii) the aggregate principal amount of Indebtedness secured by all
such liens shall at no time exceed $500,000;
(d) Liens for taxes not yet delinquent or being contested in good faith as
provided in subsection 5.4; liens in connection with workmen's compensation,
unemployment insurance or other social security obligations; liens securing the
performance of bids, tenders, contracts, surety and appeal bonds, liens to
secure progress or partial payments and other liens of like nature arising in
the ordinary course of business; mechanics', workmen's, materialmen's or other
like liens arising in the ordinary course of business in respect of obligations
which are not yet due or which are being contested in good faith; and other
liens or encumbrances incidental to the conduct of the business of the Company
or any Subsidiary or to the ownership of their respective properties or assets,
which were not incurred in connection with the borrowing of money or the
obtaining of credit and which do not materially detract from the value of the
properties or assets of the Company and its Subsidiaries or materially affect
the use thereof in the operation of their business; and
(e) Security interests in the Parent Company Subscriptions and the Company
Subscriptions, including the proceeds thereof, securing the Indebtedness
evidenced by the Bridge Note.
6.3 Loans, Guarantees and Investments. The Company will not, and will not permit
any Subsidiary to, make or permit to remain outstanding any loan or advance to,
or guarantee or endorse (except as a result of endorsing negotiable instruments
for deposit or collection in the
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ordinary course of business) or otherwise assume or remain liable with respect
to any obligation of, or make or own any investment in, or acquire (except in
the ordinary course of business) the properties or assets of, any Person,
except:
(a) Extensions of credit by the Company or any Subsidiary in the ordinary
course of business in accordance with customary trade practices;
(b) The presently outstanding investments, loans and advances, if any, and
the presently existing guarantees, if any, referred to in Schedule 3.7 attached
hereto;
(c) Marketable direct obligations of the United States of America or any
department or agency thereof maturing not more than one year from the date of
issuance thereof;
(d) Certificates of deposit, repurchase agreements, money market deposits
or other similar types of investments maturing not more than one year from the
date of acquisition thereof and evidencing direct obligations of any bank within
the United States of America the long-term debt of which is rated "Baa" or
better by Moody's Investor Services, Inc. or "BBB" or better by Standard &
Poor's Corporation;
(e) Commercial paper issued by any corporation organized under the laws of
the United States of America or any state thereof, rated "A-1" or better by
Standard & Poor's Corporation or "P-1" or better by Moody's Investors Services,
Inc., and maturing not more than nine (9) months from the date of acquisition
thereof;
(f) Loans and advances, not exceeding $200,000 in aggregate principal
amount outstanding at any time, to officers and employees of the Company;
(g) Loans and advances, not exceeding $600,000 in aggregate principal
amount outstanding at any time, to HB Capital, subject to the provisions of
subsection 1.11(h) hereof; and
(h) Investments and advances made by the Company in the ordinary course of
business for the purpose of opening or acquiring new offices for the conduct of
its business, provided that, at the time thereof and immediately after giving
effect thereto, no condition or event shall exist which constitutes, or which
after notice or lapse of time or both would constitute, an Event of Default.
6.4 Restricted Payments. The Company will not directly or indirectly declare,
order, pay or make any Restricted Payment or set aside any sum or property
therefor if, at the time of such proposed action or immediately after giving
effect thereto, any condition or event shall exist which constitutes, or which
after notice or lapse of time or both would constitute, an Event of Default.
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6.5 Mergers and Consolidations. The Company will not, and will not permit any
Subsidiary to, enter into any merger or consolidation (other than the merger of
RCG/Hagler Bailly, Inc. into the Company pursuant to the Acquisition) without
the prior written consent of the Bank.
6.6 Sale of Assets. The Company will not, and will not permit any Subsidiary to,
sell, lease or otherwise dispose of all or any substantial part of its
properties or assets without the prior written consent of the Bank.
6.7 Issuance of Additional Shares, etc. The Company will not, and will not
permit any Subsidiary to, directly or indirectly:
(a) Issue any additional shares of its capital stock or reissue any
treasury shares (or options to acquire any such shares), whether now or
hereafter authorized, unless (i) in the case of shares of capital stock of the
Company, such shares are issued to the Parent Company, and (ii) in the case of
shares of capital stock of any Subsidiary, such shares are issued to the Company
or to another Subsidiary; or
(b) Sell, assign, pledge or otherwise encumber or dispose of any shares of
capital stock of any Subsidiary (or options to acquire any such shares).
6.8 Compliance with ERISA. The Company will make, and will cause all Affiliated
Companies to make, all payments or contributions to employee benefit plans
required under the terms thereof and in accordance with applicable minimum
funding requirements of ERISA and the Code and applicable collective bargaining
agreements. The Company will cause all employee benefit plans sponsored by any
Affiliated Company to be maintained in material compliance with ERISA and the
Code. The Company will not engage, and will not permit or suffer any Affiliated
Company or any Person entitled to indemnification or reimbursement from the
Company or any Affiliated Company to engage, in any prohibited transaction for
which an exemption is not available. No Affiliated Company will terminate, or
permit the PBGC to terminate, any employee benefit plan or withdraw from any
multiemployer plan, in any manner which could result in material liability of
any Affiliated Company.
6.9 Transactions with Affiliates. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, enter into any lease or other transaction
with any shareholder or with any Affiliate of the Company or such shareholder,
on terms that are less favorable to the Company or such Subsidiary than those
which might be obtained at the time from Persons who are not such a shareholder
or Affiliate.
6.10 Observance of Subordination Provisions, etc. The Company will not make, or
cause or permit to be made, any payments in respect of any Subordinated Debt, in
contravention of the subordination provisions contained in the evidence of such
Subordinated Debt or in contravention of any written agreement pertaining
thereto, nor will the Company (a) amend, modify or change in any manner any of
such subordination provisions without the prior written
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consent of the Bank or (b) amend, modify or change in any manner adverse to the
interests of the Bank any of the other provisions set forth in the agreements
under which such Subordinated Debt is outstanding or contained in the evidence
of such Subordinated Debt. The Company will not, without the prior written
consent of the Bank, amend, modify or change, or waive or consent to the waiver
of any provision of: (i) the Bridge Note or the provisions of the Purchase
Agreement pertaining thereto; (ii) the Parent Company Subscriptions or the
Company Subscriptions; or (iii) any other document or instrument pertaining to
the matters contemplated by subsection 4.6(c) hereof.
6.11 Environmental Liabilities. The Company will not, and will not permit any
Subsidiary to, violate any requirement of law, rule or regulation regarding
Hazardous Materials; and, without limiting the foregoing, the Company will not
and will not permit any Subsidiary or any other Person to, dispose of any
Hazardous Material into or onto, or (except in accordance with applicable law)
from, any real property owned, leased or operated by the Company or any
Subsidiary or in which the Company or any Subsidiary holds, directly or
indirectly, any legal or beneficial interest or estate, nor allow any lien
imposed pursuant to any law, regulation or order relating to Hazardous Materials
or the disposal thereof to be imposed or to remain on such real property, except
for liens being contested in good faith by appropriate proceedings and for which
adequate reserves have been established and are being maintained on the books of
the Company and its Subsidiaries.
6.12 Officer Distributions; Compensation. The Company will not, directly or
indirectly:
(a) Make or pay any Officer Distributions in respect of any fiscal year
prior to the applicable Officer Distribution Date (and in no event prior to
March 31, 1996);
(b) Make or pay any Officer Distributions if, at the time thereof or
immediately after giving effect thereto (i) the Company shall fail to be in
compliance with any of the provisions of section 7 hereof, or (ii) any other
condition or event shall exist which constitutes, or which after notice or lapse
of time or both would constitute, an Event of Default;
(c) Make or pay any Permitted Officer Distributions in respect of the
fiscal year ending December 31, 1995 unless prior to the payment of any such
Permitted Officer Distributions, the Company shall have deposited not less than
$500,000 (from any source) with the Bank pursuant to escrow arrangements
satisfactory to the Bank and its counsel, any amount so deposited (together with
interest, if any, thereon) to be held by the Bank as cash collateral for the
Loans (and to constitute "Collateral" for all purposes of this Agreement and the
applicable Security Documents) unless and until the later of the following shall
occur (whereupon such deposit and interest thereon shall be returned to the
Company): (i) the date on which the Bank shall have received the financial
statements, management letter (if any) and accountants' statement required by
subparagraphs (a) and (c) of subsection 5.1 hereof for the fiscal year ending
December 31, 1996; or (ii) the date on which the Bank shall have received the
compliance certificate required by subsection 5.1(d) hereof for such fiscal year
(A) demonstrating compliance
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by the Company with the provisions of section 7 hereof, and (B) certifying that
no Event of Default has occurred; or
(d) Permit or otherwise consent to any amendment, modification or waiver
of the provisions of sections 7 or 8 of the Stockholders Agreement dated May 15,
1995 among the Parent Company and the Parent Company Shareholders.
Section 7. Financial Covenants.
So long as any of the Loans shall remain available to the Company, and
until the principal of and interest on the Loans and all fees due hereunder
shall have been paid in full, the Company agrees that:
7.1 Capital Base. The Company will not at any time permit: (a) Company Capital
Base to be less than $3,000,000; or (b) Capital Base to be less than $3,000,000,
which minimum Capital Base amount shall increase by $200,000 at the end of each
fiscal quarter of the Company through and including the fiscal quarter ending
December 31, 1999, and which minimum amount shall further increase by an amount
equal to 75% of the net proceeds of any issue of equity securities by the
Company or the Parent Company (other than equity securities issued to then
existing shareholders of the Company or the Parent Company) occurring prior to
the payment in full of the Term Loan, such increase in the minimum amount
hereunder to be effective as of the date of any such issue of equity securities.
7.2 Current Ratio. The Company will not permit Current Assets to be less than:
(a) 100% of Current Liabilities at any time from the date hereof through
December 31, 1996; (b) 110% of Current Liabilities at any time from January 1,
1997 through December 31, 1998; or (c) 125% of Current Liabilities at any time
after December 31, 1998.
7.3 Adjusted Net Operating Income. The Company will not permit Adjusted Net
Operating Income for any twelve-month period ending on the last day of any
fiscal quarter of the Company occurring during the fiscal years set forth below
to be less than the respective amounts indicated:
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================================================================================
During Fiscal Year Minimum Amount of Adjusted
Ending December 31, Net Operating Income
------------------- --------------------
1995 $4,500,000
1996 4,750,000
1997 5,000,000
1998 5,250,000
1999 5,500,000
2000 5,750,000
================================================================================
7.4 Funded Debt; Net Operating Income. The Company will not permit the aggregate
principal amount of Funded Debt outstanding at any time during any fiscal
quarter of the Company occurring in the fiscal years set forth below to be
greater than the respective percentages indicated of Net Operating Income for
any twelve-month period ending on the last day of such fiscal quarter:
================================================================================
Funded Debt as a Maximum
During Fiscal Year Percentage of Net
Ending December 31, Operating Income
------------------- ----------------
1995 450%
1996 350%
1997 275%
1998 200%
1999 200%
2000 200%
================================================================================
7.5 Debt Service Coverage. The Company will not permit Net Operating Income for
any twelve-month period ending on the last day of any fiscal quarter occurring
in the fiscal years set forth below to be less than the respective percentages
of Pro Forma Debt Service indicated:
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================================================================================
Net Operating Income as a
During Fiscal Year Minimum Percentage of Pro
Ending December 31, Forma Debt Service
------------------- ------------------
1995 125%
1996 125%
1997 125%
1998 150%
1999 150%
2000 150%
================================================================================
7.6 Senior Liabilities; Adjusted Capital Base. The Company will not permit the
aggregate amount of Senior Liabilities outstanding at any time during the fiscal
years of the Company set forth below to exceed the respective percentages of
Adjusted Capital Base indicated:
================================================================================
Senior Liabilities as a Maximum
Fiscal Year Percentage of Adjusted
Ending December 31, Capital Base
------------------- ------------
1995 180%
1996 170%
1997 150%
1998 130%
1999 120%
2000 120%
================================================================================
7.7 Billability. The Company will not permit Billability to be less than 55% at
any time.
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Section 8. Defaults; Remedies.
8.1 Events of Default; Acceleration. If any of the following events (each an
"Event of Default") shall occur:
(a) The Company shall default in the payment of principal of or interest
on any Loan or any other fee due hereunder for more than five (5) days after the
same becomes due and payable, whether at maturity or at a date fixed for the
payment of any installment or prepayment thereof or otherwise; or
(b) The Company shall default in the performance of or compliance with any
term contained in sections 6 or 7; or
(c) The Company shall default in the performance of or compliance with any
term contained herein other than those referred to above in this section 8 and
such default shall not have been remedied within 30 days after written notice
thereof shall have been given to the Company by the Bank; or
(d) The Company, any Subsidiary or any shareholder of the Company which is
a party to any of the Security Documents shall default in the performance of or
compliance with any term contained in the Security Documents or in the
performance of or compliance with any term contained in any other written
agreement with the Bank, and such default shall continue for more than the
period of grace, if any, specified therein and shall not have been waived
pursuant thereto; or
(e) Any material representation or warranty made by the Company herein or
pursuant hereto shall prove to have been false or incorrect in any material
respect when made; or
(f) The Company or any Subsidiary shall default in any payment due on any
Indebtedness in respect of borrowed money, any Capital Lease or the deferred
purchase price of property (if the aggregate outstanding principal amount of all
such Indebtedness in default shall exceed $100,000) and such default shall
continue for more than the period of grace, if any, applicable thereto, or in
the performance of or compliance with any term of any evidence of such
Indebtedness or of any mortgage, indenture or other agreement relating thereto,
and any such default shall continue for more than the period of grace, if any,
specified therein and shall not have been waived pursuant thereto; or
(g) The Company or any Subsidiary shall discontinue its business or shall
make an assignment for the benefit of creditors, or shall fail generally to pay
its debts as such debts become due, or shall apply for or consent to the
appointment of or taking possession by a trustee, receiver or liquidator (or
other similar official) of the Company or such Subsidiary or any
30
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substantial part of the property of the Company or such Subsidiary, or shall
commence a case or have an order for relief entered against it under the federal
bankruptcy laws, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency or other similar law, or if the Company
or any Subsidiary shall take any action to dissolve or liquidate the Company or
such Subsidiary; or
(h) If, within 30 days after the commencement against the Company or any
Subsidiary of a case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy, insolvency or
other similar law, such case shall have been consented to or shall not have been
dismissed or all orders or proceedings thereunder affecting the operations or
the business of the Company and such Subsidiary stayed, or if the stay of any
such order or proceeding shall thereafter be set aside, or if within 30 days
after the entry of a decree appointing a trustee, receiver or liquidator (or
other similar official) of the Company or any Subsidiary or any substantial part
of the property of the Company or such Subsidiary, such appointment shall not
have been vacated; or
(i) A final judgment which, with other outstanding final judgments against
the Company and its Subsidiaries, exceeds an aggregate of $100,000 shall be
rendered against the Company or any Subsidiary and if, within 60 days after
entry thereof, such judgment shall not have been discharged or execution thereof
stayed pending appeal, or if, within 60 days after the expiration of any such
stay, such judgment shall not have been discharged, or if any such judgment
shall not be discharged forthwith upon the commencement of proceedings to
foreclose any lien, attachment or charge which may attach as security therefor
and before any of the property or assets of the Company or any Subsidiary shall
have been seized in satisfaction thereof; or
(j) If the Parent Company Shareholders shall, during any calendar year,
sell or otherwise dispose of 20% of more of the outstanding shares of capital
stock of the Parent Company owned by them in the aggregate at the beginning of
such calendar year (other than the repurchase of shares by the Parent Company
from the estates of deceased shareholders pursuant to repurchase agreements in
effect from time to time between the Parent Company and its shareholders); or
(k) If Henri-Claude Bailly shall for any reason, including death or
disability, cease to be, or cease to perform on a full-time basis the duties of,
the chief executive officer of the Company, and within 90 days thereafter a
successor chief executive officer reasonably acceptable to the Bank (the name of
any such successor executive officer to be substituted in this subparagraph (k)
in place of the name of said Henri-Claude Bailly) shall not have been appointed
and assumed his or her duties as chief executive officer of the Company; or
(l) If the Parent Company shall cease to own all of the outstanding shares
of capital stock of the Company; or
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(m) If the Parent Company Subscriptions, the Company Subscriptions and the
Bridge Note are not paid in full by June 30, 1995;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, any of the following actions may be taken. The Bank
may by written notice to the Company, (i) declare the principal of and accrued
interest in respect of the Notes to be forthwith due and payable, whereupon the
principal of and accrued interest in respect of the Notes (together with any
LIBOR Premium applicable thereto) shall become forthwith due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Company, and/or (ii) terminate the Revolving
Commitment to make any or all of the Revolving Credit Loans hereunder, whereupon
said Revolving Commitment of the Bank hereunder shall forthwith terminate
without any other notice of any kind. If any Event of Default of the character
described in subparagraphs (g) or (h) of this subsection 8.1 with respect to the
Company shall occur, the principal of and accrued interest in respect of the
Notes (together with any LIBOR Premium applicable thereto) shall forthwith
become due and payable without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived by the Company, and (ii) the
Revolving Commitment of the Bank to make Revolving Credit Loans hereunder shall
forthwith terminate without notice of any kind.
8.2 Remedies on Default, etc. In case any one or more Events of Default shall
occur and be continuing, the Bank may proceed to protect and enforce its rights
by an action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any agreement contained herein or in any Note or
Security Document, or for an injunction against a violation of any of the terms
hereof or thereof, or in aid of the exercise of any power granted hereby or
thereby or by law. In case of a default in the payment of any principal of or
interest on any Note, or in the payment of any fee due hereunder, the Company
will pay to the Bank such further amount as shall be sufficient to cover the
cost and expense of collection, including, without limitation, reasonable
attorneys' fees, expenses and disbursements. No course of dealing and no delay
on the part of the Bank in exercising any right shall operate as a waiver
thereof or otherwise prejudice the Bank's rights. No right conferred hereby or
by any Note or Security Document upon the Bank shall be exclusive of any other
right referred to herein or therein or now or hereafter available at law, in
equity, by statute or otherwise.
Section 9. Definitions. As used herein the following terms have the following
respective meanings:
Acquisition: the acquisition by the Company of the business and all
of the properties and assets of RCG/Hagler Bailly, Inc. by way of the purchase
from the Seller of all of the outstanding shares of capital stock of RCG/Hagler
Bailly, Inc. pursuant to the Purchase Agreement and the concurrent merger of
RCG/Hagler Bailly, Inc. into the Company.
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<PAGE>
Adjusted Capital Base: at any time, the sum of (a) Capital Base and
(b) the aggregate principal amount of all Subordinated Debt of the Company then
outstanding, all as determined on an Adjusted Consolidated Basis.
Adjusted Consolidated Basis: as applied to any calculation
hereunder, a calculation based on a consolidation which includes the Parent
Company, HB Capital (so long as HB Capital is a wholly-owned subsidiary of the
Parent Company and the guaranty referred to in subsection 1.11(h) hereof
continues in full force and effect), the Company and the Subsidiaries, but which
excludes any other subsidiary or Affiliate of the Parent Company or HB Capital,
and which is otherwise in accordance with generally accepted accounting
principles.
Adjusted Net Operating Income: for any period, Net Operating Income
for such period, after restoring thereto amounts deducted for Discretionary
Payments (without double counting Bonus Recapture, if any, included in Net
Operating Income) in respect of such period, all as determined on an Adjusted
Consolidated Basis.
Affiliate: as applied to any Person, a spouse or relative of such
Person, any member, director or officer of such Person, any corporation,
association, firm or other entity of which such Person is a member, director or
officer, and any other Person directly or indirectly controlling, controlled by
or under direct or indirect common control with such Person.
Affiliated Company: the meaning specified in subsection 3.13.
Available Commitment: the meaning specified in subsection 1.4(a).
Bank: the meaning specified at the beginning of this Agreement.
Banking Day: the meaning specified in subsection 2.2.
Billability: at any time, the quotient (expressed as a percentage)
of (a) Total Billable Hours for the most recently ended fiscal quarter of the
Company, divided by (b) Theoretical Billing Capacity for such period.
Bonus Recapture: as of the end of each fiscal year of the Company,
the amount, if any, by which (a) Bonus Reserves exceeds (b) Permitted Officer
Distributions.
Bonus Reserves: as applied to any fiscal year of the Company, the
amount deducted in the computation of Net Income for such fiscal year in respect
of reserves established on the books of the Company for Officer Distributions.
Borrowing Base: an amount equal to 80% of Eligible Receivables,
provided that prior to March 31, 1997, the Borrowing Base shall be equal to 70%
of Eligible Receivables
33
<PAGE>
during any period in which the Available Commitment is permitted to exceed
$3,500,000 in accordance with subsection 1.4(d) hereof.
Borrowing Base Certificate: the meaning specified in subsection
5.1(e).
Bridge Note: the promissory note of the Company issued to the Seller
in the principal amount of $431,280 pursuant to the terms of the Purchase
Agreement which promissory note is due and payable not later than June 30, 1995,
subject to the distribution for the account of certain of the Parent Company
Shareholders of not less than $431,280 from certain profit sharing plans
maintained by the Seller or its Affiliates, all in accordance with the
provisions of the Purchase Agreement.
Capital Base: the sum of the following (determined on an Adjusted
Consolidated Basis): (a) shareholders' equity of the Parent Company and its
subsidiaries; (b) prior to June 30, 1995 (but not thereafter), the amount of the
Parent Company Subscriptions; and (c) amounts reserved on the books of the
Parent Company and its subsidiaries for the payment of bonuses and profit
sharing to professionals and employees who are shareholders of the Parent
Company.
Capital Expenditure: any payment made directly or indirectly for the
purpose of acquiring or constructing fixed assets, real property or equipment
which in accordance with generally accepted accounting principles would be added
as a debit to the fixed asset account of the Person making such expenditure,
including, without limitation, amounts paid or payable under any conditional
sale or other title retention agreement or under any lease or other periodic
payment arrangement which is of such a nature that payment obligations of the
lessee or obligor thereunder would be required by generally accepted accounting
principles to be capitalized and shown as liabilities on the balance sheet of
such lessee or obligor.
Capital Lease: any lease of property (real, personal or mixed)
which, in accordance with generally accepted accounting principles, should be
capitalized on the lessee's balance sheet or for which the amount of the asset
and liability thereunder as if so capitalized should be disclosed in a note to
such balance sheet.
Closing: the meaning specified in subsection 1.2(b).
Code: the meaning specified in subsection 3.13.
Collateral: the meaning specified in subsection 1.11.
Commitment Fee: the meaning specified in subsection 1.8.
Company: the meaning specified at the beginning of this Agreement.
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<PAGE>
Company Capital Base: the sum of (a) the shareholders' equity of the
Company, determined in accordance with generally accepted accounting principles;
and (b) prior to June 30, 1995 (but not thereafter), the amount of the Company
Subscriptions.
Company Sale Prepayment: any prepayment of the Loans, in whole or in
part, made concurrently with and/or from the proceeds of any sale of all or any
substantial part of the business and properties and assets of the Company or the
Parent Company or the sale of all or any substantial part of the shares of
capital stock of the Company or the Parent Company.
Company Subscriptions: the irrevocable subscription or subscriptions
of the Parent Company to purchase shares of common stock of the Company for an
aggregate purchase price of $431,280, the proceeds of which are to be applied by
the Company promptly upon receipt thereof to the payment in full of the Bridge
Note.
Current Assets: all assets of the Parent Company and its
subsidiaries which may be properly classified as current assets in accordance
with generally accepted accounting principles, determined on an Adjusted
Consolidated Basis, provided that Current Assets shall not include any amounts
attributable to services or other work in process which has not been billed to
clients.
Current Liabilities: all liabilities of the Parent Company and its
subsidiaries which may be properly classified as current liabilities in
accordance with generally accepted accounting principles, determined on an
Adjusted Consolidated Basis, provided that Current Liabilities shall include the
unpaid principal of the Revolving Credit Loans (whether or not due within 12
months).
Discretionary Payments: for any period, the aggregate amount of all
bonuses and other discretionary payments, including profit sharing, incentive
compensation or similar arrangements, reimbursement of expenses and the like,
accrued or payable by the Parent Company and its subsidiaries, determined on an
Adjusted Consolidated Basis, to officers and management employees in respect of
such period (whether or not the actual payment thereof is made during such
period or during a subsequent period).
Eligible Foreign Clients: clients of the Company whose place of
business is outside of the United States of America, but whose obligations to
the Company are payable in U.S. dollars and are funded, underwritten or
otherwise supported by an international financial development or investment
institution which is included in the international listing of Thompson Bank
Directory and whose long term debt is rated "AAA" by Thompson Bank Watch and
whose short term debt is rated "TBW-1" by Thompson Bank Watch (where such rating
may apply).
Eligible Receivables: the gross amount, as reflected on the
Company's books in accordance with generally accepted accounting principles
consistently applied, of outstanding accounts receivable of the Company with
respect to amounts due in the ordinary course of the
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<PAGE>
Company's business from account debtors whose principal place of business is
within the United States of America and from Eligible Foreign Clients, which
amounts have been invoiced to account debtors and are not outstanding more than
90 days past the invoice date (it being acknowledged by the Company that a
reinvoiced amount to the same account debtor shall be deemed outstanding from
the date of the original invoice therefor), as to which the Bank has a valid and
perfected first priority security interest under all applicable law and as to
which the Company has furnished reasonably detailed information to the Bank in a
Borrowing Base Certificate, determined after deducting from the aggregate amount
thereof (i) all payments, adjustments and credits of all kinds against such
accounts receivable, and (ii) all amounts due thereon considered by and in the
reasonable discretion of the Bank to be uncollectible by reason of rejection or
other disputes, insolvency of the account debtor (however evidenced), or any
other legitimate reason and further excluding any accounts receivable arising
out of transactions with Affiliates of the Company or with respect to which
there shall exist any deposits, liens (including liens securing any bonds),
payables, discounts, retentions, aged credit balances or other similar offsets
or reductions, all as determined by the Lender in its reasonable discretion.
Without limiting the foregoing, it is expressly agreed that in the event fifty
percent (50%) or more of the accounts receivable owed by any account debtor
(including Affiliates of such account debtor) are more than 120 days past the
invoice date, then none of the accounts receivable owing by such account debtor
or by any Affiliate of such account debtor shall constitute Eligible
Receivables.
ERISA: the meaning specified in subsection 3.13.
Event of Default: the meaning specified in section 8.
Excess Cash Flow: for any fiscal year of the Company, Net Operating
Income for such fiscal year, minus (without duplication of deductions) the sum
of (a) all Capital Expenditures made during such fiscal year (except for Capital
Expenditures made from the proceeds of Total Debt, other than the Loans); (b)
all payments made during such fiscal year in respect of the principal of or
interest on Total Debt; and (c) the amount of all taxes in respect of income and
profits paid during such fiscal year, all as determined on an Adjusted
Consolidated Basis.
Expiration Date: May 31, 1997, or such later date or dates as may be
established by mutual agreement of the Company and the Bank as hereinafter
provided. Not earlier than 90 days, nor later than 60 days, prior to the
Extension Agreement Date (as hereinafter defined), the Company may by written
notice to the Bank request that the Expiration Date then in effect hereunder be
extended for an additional period of one (1) year. Upon the receipt of any such
request, the Bank shall notify the Company in writing not later than 15 days
prior to the Extension Agreement Date whether or not the Bank is willing to
extend the Expiration Date as so requested. If the Bank so notifies the Company
that it is willing to extend the Expiration Date as requested, the parties shall
enter into a written agreement extending the Expiration Date for an additional
period of one (1) year. If the Bank is unwilling to extend the Expiration Date
as so requested, or if the Bank shall fail to respond to the Company's request
as aforesaid, the
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<PAGE>
Revolving Commitment shall expire on the Expiration Date then in effect and the
entire unpaid principal of and interest on the Revolving Credit Loans shall be
due and payable on such Expiration Date. Nothing herein shall be deemed to
constitute an obligation or commitment on the part of the Company or the Bank to
agree to any such extension of the Expiration Date, the entering into of any
such agreement to be within the respective discretion of each of them. For
purposes of this definition, the term "Extension Agreement Date" shall mean, at
any time, the date which is one year prior to the Expiration Date then in effect
hereunder.
Funded Debt: at any time, the aggregate principal amount of all
outstanding Indebtedness, (without duplication) of the Parent Company and its
subsidiaries (including Subordinated Debt of the Company), determined in
accordance with generally accepted accounting principles on an Adjusted
Consolidated Basis, which Indebtedness matures twelve months or more from the
date of creation thereof, which is directly or indirectly renewable or
extendable at the option of the debtor, by its terms or by the terms of any
instrument or agreement relating thereto, to a date twelve months or more from
the date of creation thereof, or which is incurred under a revolving credit,
line of credit or similar agreement obligating the lender or lenders to extend
credit over a period of twelve months or more, provided that, for purposes of
this definition, "Funded Debt" shall include an amount equal to the outstanding
principal of the Revolving Credit Loans (whether or not due within twelve
months) minus the amount of all net collected cash balances maintained by the
Company on deposit in demand deposit accounts with the Bank at such time.
Hazardous Material: (a) any asbestos or insulation or other material
composed of or containing asbestos and (b) any petroleum product and any
hazardous, toxic or dangerous waste, substance or material defined as such in
(or for purposes of) the Comprehensive Environmental Response, Compensation and
Liability Act, any so-called "Superfund" or "Superlien" law, or any other
applicable federal, state, local or other statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to, or imposing liability or
standards of conduct concerning, any hazardous, toxic or dangerous waste,
substance or material, as now or at any time hereafter in effect.
HB Capital: HB Capital, Inc., a Delaware corporation.
Indebtedness: as applied to any Person, (i) all items (except items
of capital or surplus or of retained earnings) which in accordance with
generally accepted accounting principles would be included in determining total
liabilities as shown on the liability side of the balance sheet of such Person
as of the date of which Indebtedness is to be determined, including any Capital
Lease, (ii) all indebtedness secured by any mortgage, pledge, lien or
conditional sale or other title retention agreement to which any property or
asset owned or held by such Person is subject, whether or not the indebtedness
secured thereby shall have been assumed, and (iii) all indebtedness of others
which such Person has directly or indirectly guaranteed, endorsed (otherwise
than for collection or deposit in the ordinary course of business), discounted
or sold with recourse or agreed (contingently or otherwise) to purchase or
repurchase or otherwise
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<PAGE>
acquire, or in respect of which such Person has agreed to supply or advance
funds (whether by way of loan, stock purchase, capital contributions or
otherwise) or otherwise to become directly or indirectly liable.
Interest Expense: for any period, the aggregate amount (determined
in accordance with generally accepted accounting principles on an Adjusted
Consolidated Basis) of interest paid or payable during such period by the Parent
Company and its subsidiaries in respect of all Indebtedness for borrowed money,
Capital Leases and the deferred purchase price of property.
Licenses: the meaning specified in subsection 3.5.
Loan or Loans: the meanings specified in subsection 1.4(a).
Net Income: net income (or loss), excluding extraordinary items, of
the Parent Company and its subsidiaries for the period in question, determined
in accordance with generally accepted accounting principles on an Adjusted
Consolidated Basis.
Net Operating Income: for any period, Net Income for such period
(after giving effect to the deduction of any Discretionary Payments in the
computation of Net Income for such period), after restoring thereto amounts
deducted for (a) depreciation and amortization; (b) Interest Expense (less any
interest income included in the calculation of Net Income for such period); and
(c) taxes in respect of income and profits paid during such period, all as
determined on an Adjusted Consolidated Basis. As applied to any fiscal year of
the Company, Net Operating Income shall also include the amount of any Bonus
Recapture attributable to such fiscal year.
Note or Notes: the meanings specified in subsection 1.5.
Officer Distribution Date: as applied to any fiscal year of the
Company, the later to occur of the following: (a) the date on which the Bank
shall have received the financial statements, management letter (if any) and
accountants' statement required by subparagraphs (a) and (c) of subsection 5.1
hereof for such fiscal year; or (b) the date on which the Bank shall have
received the compliance certificate required by subsection 5.1(d) hereof for
such fiscal year (i) demonstrating compliance by the Company with the provisions
of section 7 hereof, (ii) certifying that no Event of Default has occurred, and
(iii) setting forth the amount of any Bonus Recapture for such fiscal year.
Officer Distributions: cash payments to officers of the Company in
respect of bonuses, incentive compensation or similar arrangements.
Parent Company: Hagler Bailly, Inc., a Delaware corporation.
Parent Company Shareholders: the meaning specified in subsection
3.14.
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<PAGE>
Parent Company Subscriptions: the irrevocable subscriptions of
certain of the Parent Company Shareholders to purchase shares of common stock of
the Parent Company for an aggregate purchase price of $431,280, the proceeds of
which are to be applied by the Parent Company promptly upon receipt thereof to
the payment in full of the Company Subscriptions.
PBGC: the meaning specified in subsection 3.13.
Permitted Officer Distributions: as applied to any fiscal year of
the Company, the amount of Officer Distributions which may be made by the
Company in respect of such fiscal year in compliance with the provisions of
subsection 6.12(b) hereof.
Person: a corporation, an association, a partnership, a joint
venture, an organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
Prepayment Premium: as applied to any Company Sale Prepayment or
Refinancing Prepayment, an amount equal to the product of (i) the principal
amount of the Loans so prepaid, multiplied by (ii) a percentage applicable in
accordance with the following table, depending upon the twelve-month period in
which such prepayment occurs:
================================================================================
During Fiscal Year
Ending December 31, Premium
------------------- -------
1995 1.5%
1996 1.0%
1997 0.5%
1998 and thereafter None
================================================================================
Prime Rate: the per annum rate of interest announced from time to
time by the Bank as its "prime rate".
Pro Forma Debt Service: the maximum aggregate amount (determined in
accordance with generally accepted accounting principles on an Adjusted
Consolidated Basis) of principal, premium, if any, and interest payable or
guaranteed by the Parent Company and its subsidiaries for the period of four (4)
consecutive fiscal quarters immediately following the date as of which Pro Forma
Debt Service is to be determined in respect of all Total Debt outstanding on
such date, adjusted to give effect to any immediately proposed incurrence or
retirement of Total Debt. For purposes of this definition, interest on any
Indebtedness which is payable at a floating or variable rate shall be determined
on the basis of the interest rate in effect on the date as of which Pro Forma
Debt Service is to be determined.
39
<PAGE>
Purchase Agreement: the Sale Agreement dated as of May 25, 1995
between the Company and the Seller, providing for the Acquisition.
Restricted Payment: (a) any dividend or other distribution, direct
or indirect, on or on account of any shares of any class of stock of the Company
now or hereafter outstanding (other than a dividend consisting of the shares of
capital stock of Capital to the Parent Company pursuant to the Acquisition), and
(b) any redemption, purchase or other acquisition, direct or indirect, of any
shares of any class of stock of the Company now or hereafter outstanding or of
any warrants or rights to purchase any such stock (including without limitation
the repurchase of any such stock or warrant or any refund of the purchase price
thereof in connection with the exercise by the holder thereof of any right of
rescission or similar remedies with respect thereto).
Revolving Commitment: the meaning specified in subsection 1.1.
Revolving Credit Loan or Loans: the meanings specified in subsection
1.4(a).
Revolving Credit Note: the meaning specified in subsection 1.5.
Security Documents: the meaning specified in subsection 1.11.
Seller: RCG International, Inc.
Seller Note: the 9.5% subordinated note due May 15, 2001 of the
Company issued to the Seller in the principal amount of $4,650,000 pursuant to
the terms of the Purchase Agreement.
Senior Liabilities: all liabilities of the Parent Company and its
subsidiaries, determined in accordance with generally accepted accounting
principles on an Adjusted Consolidated Basis, other than Subordinated Debt of
the Company.
Subordinated Debt: (a) the existing Indebtedness of the Company
which is designated as "Subordinated Debt" in Schedule 3.7 attached hereto, (b)
Indebtedness in respect of the Seller Note and (c) any other Indebtedness of the
Company consented to in writing by the Bank which matures in its entirety later
than the Term Loan and by its terms (or by the terms of the instrument under
which it is outstanding and to which appropriate reference is made in the
instrument evidencing such Subordinated Debt) is made subordinate and junior in
right of payment to the Loans and to the Company's other obligations to the Bank
hereunder and under the Notes by provisions satisfactory in form and substance
to the Bank and its counsel. As used in the Agreement, the term "Subordinated
Debt" shall not be deemed to include any Indebtedness (whether or not
subordinated) of the Parent Company, HB Capital or any subsidiary of either of
them, other than the Company.
40
<PAGE>
Subsidiary: any corporation of which more than 50% of the
outstanding Voting Stock (other than director's qualifying shares) is at the
time owned by the Company or by one or more Subsidiaries or by the Company and
one or more Subsidiaries.
Tax Note: the meaning specified in subsection 3.6(b).
Term Loan: the meaning specified in subsection 1.2(a).
Term Note: the meaning specified in subsection 1.3.
Theoretical Billing Capacity: for any fiscal quarter of the Company,
the amount accrued on the Company's books for payroll expense for such period in
respect of all employees of the Company.
Total Billable Hours: for any fiscal quarter of the Company, the
amount accrued on the Company's books for billable services rendered to clients
by professionals and employees of the Company during such period.
Total Debt: all Indebtedness of the Parent Company and its
subsidiaries (without duplication) in respect of borrowed money, Capital Leases
and the deferred purchase price of property, including Subordinated Debt of the
Company, all as determined on an Adjusted Consolidated Basis.
Transaction Fee: the meaning specified in subsection 1.7.
Voting Stock: stock having ordinary voting power to elect a majority
of the board of directors of the corporation in question, irrespective of
whether or not at the time stock of any class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency.
Section 10. Setoffs, etc. If the Company becomes insolvent, howsoever evidenced,
or any Event of Default occurs, any Indebtedness from the Bank to the Company or
any Subsidiary may, without regard to the value of the Collateral, be offset and
applied toward the payment of any Indebtedness from the Company to the Bank,
whether or not such Indebtedness, or any part thereof shall then be due.
Section 11. Expenses; Indemnification.
(a) Whether or not the transactions contemplated hereby shall be
consummated, the Company agrees (i) to pay all reasonable expenses, including
reasonable fees and disbursements of counsel for the Bank, which the Bank has
incurred or may hereafter incur in connection with
41
<PAGE>
the preparation of this Agreement, the Security Documents, the Notes and all
other documents related hereto (including any amendment, consent or waiver
hereafter requested by the Company hereunder or thereunder) and the transactions
contemplated hereby or the enforcement of the rights of the Bank hereunder or
under the Notes or the Security Documents in the event of a default hereunder or
thereunder, (ii) to pay all taxes and fees (including interest and penalties,
but excluding taxes on the net income of the Bank), including, without
limitation, all recording and filing fees, transfer and documentary stamp and
similar taxes, which may be payable in respect of the execution and delivery of
this Agreement, the Security Documents, the Notes and all other documents
related hereto (including any amendment, consent or waiver hereafter requested
by the Company hereunder or thereunder) and to indemnify the Bank and hold the
Bank harmless against any loss or liability resulting from non-payment or delay
in payment of any such tax, and (iii) to pay the Bank's audit fee in the amount
of $750 for the field audit conducted by the Bank in connection with the
Company's application for credit hereunder.
(b) The Company will indemnify the Bank, its directors, officers and
employees and each other Person, if any, who controls the Bank, and will hold
the Bank and such other Persons harmless from and against any and all claims,
damages, losses, liabilities, judgments and expenses (including without
limitation all reasonable fees and expenses of counsel and all expenses of
litigation or preparation therefor) which the Bank or such other Persons may
incur or which may be asserted against the Bank or such other Persons in
connection with or arising out of any investigation, litigation or proceeding
involving the Company or any shareholder or any Affiliate of the Company or any
such shareholder (including compliance with or contesting of any subpoenas or
other process issued against the Bank, or any director, officer or employee of
the Bank, or any Person, if any, who controls the Bank in any proceeding
involving the Company or any shareholder or any Affiliate of the Company or any
such shareholder), whether or not the Bank is party thereto, other than claims,
damages, losses, liabilities or judgments with respect to any matter as to which
the Bank or such other Person seeking indemnity shall have been finally
adjudicated not to have acted in good faith. Promptly upon receipt by any
indemnified party hereunder of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
Company hereunder, notify the Company in writing of the commencement thereof.
Section 12. Waivers. The Bank's failure to insist upon the strict performance of
any term, condition or other provision of this Agreement, the Security Documents
or the Notes or to exercise any right or remedy hereunder or thereunder shall
not constitute a waiver by the Bank of any such term, condition or other
provision or default or Event of Default in connection therewith; and any waiver
of any such term, condition or other provision or of any such default or Event
of Default shall not affect or alter this Agreement, the Security Documents or
the Notes, and each and every term, condition and other provision of this
Agreement, the Security Documents and the Notes shall, in such event, continue
in full force and effect and shall be operative with respect to any other then
existing or subsequent default or Event of Default in connection therewith.
42
<PAGE>
Section 13. Miscellaneous.
13.1 Notices, etc.
(a) All notices (other than notices in respect of borrowings and
prepayments, but including requests for extension of the Expiration Date) and
other communications hereunder shall be in writing and shall be personally
delivered or sent by telecopier or by first class mail, postage prepaid, as
follows:
(i) If to the Bank:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: Linda A. Moulton
Vice President
Telecopier no.: 617-654-4176
with a copy to:
Allen M. Bornheimer, Esquire
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Telecopier no.: 617-248-4000
(ii) If to the Company:
Hagler Bailly Consulting, Inc.
1530 Wilson Boulevard
Suite 900
Arlington, Virginia 22209-2406
Attention: Daniel M. Rouse
Vice President and
Chief Financial Officer
Telecopier no.: 703-351-0342
with a copy to:
Pepper, Hamilton & Scheetz
300 Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103-2799
Attention: Cary S. Levinson, Esq.
43
<PAGE>
Telecopier no.: 215-981-4750
or to such other address or addresses as the party to whom such notice is
directed may have designated in writing to the other party hereto. A notice
shall be deemed to have been given upon the earlier to occur of (i) three (3)
days after the date on which it is deposited in the U.S. mails or (ii) receipt
by the party to whom such notice is directed.
(b) Notices to the Bank in respect of borrowings and prepayments of the
Loans shall be delivered in accordance with the applicable provisions hereof,
addressed to the Bank at:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: Sheila Metcalf
Telephone no.: 617-654-3661
Telecopier no.: 617-654-3178
Telex: 200139
Call Back: STATE UR
or to such other address as the Bank may designate in writing to the Company.
13.2 Calculations, etc. Calculations hereunder shall be made and financial data
required hereby shall be prepared, both as to classification of items and as to
amounts, in accordance with generally accepted accounting principles and
practices which principles and practices shall be consistently applied and in
conformity with those used in the preparation of the financial statements
referred to herein.
13.3 Survival of Agreements, etc. This Agreement shall inure to the benefit of
the Bank and its successors and assigns including any subsequent holder or
holders of the Notes, and the term "Bank" shall include any such holder or
holders whenever the context permits. All agreements, representations and
warranties made herein shall survive the execution and delivery of this
Agreement and the making of the Loans hereunder.
13.4 Counterparts, etc. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all the
counterparts shall together constitute one and the same instrument.
13.5 Entire Agreement, etc. This Agreement constitutes the entire contract
between the parties hereto and shall supersede and take the place of any other
instrument purporting to be an agreement of the parties hereto relating to the
transactions contemplated hereby. This Agreement may not be changed orally but
only by an agreement in writing signed by the party against whom any waiver,
change, modification or discharge is sought.
44
<PAGE>
13.6 Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement and the
Notes, including the validity thereof and the rights and obligations of the
parties hereunder and thereunder, shall be construed in accordance with and
governed by the laws of the Commonwealth of Massachusetts. The Company, to the
extent that it may lawfully do so, hereby consents to service of process, and to
be sued, in the Commonwealth of Massachusetts and consents to the jurisdiction
of the courts of the Commonwealth of Massachusetts and the United States
District Court for the District of Massachusetts, as well as to the jurisdiction
of all courts to which an appeal may be taken from such courts, for the purpose
of any suit, action or other proceeding arising out of any of its obligations
hereunder or under the Notes or with respect to the transactions contemplated
hereby or thereby, and expressly waives any and all objections it may have as to
venue in any such courts. The Company further agrees that a summons and
complaint commencing an action or proceeding in any of such courts shall be
properly served and shall confer personal jurisdiction if served personally or
by certified mail to it at its address provided in subsection 13.1 or as
otherwise provided under the laws of the Commonwealth of Massachusetts. The
Company irrevocably waives all right to a trial by jury in any proceeding
hereafter instituted by or against the Company in respect of this Agreement, the
Notes, the Security Documents, or any other documents executed in connection
herewith or therewith.
45
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as a
sealed instrument as of the date first above written.
HAGLER BAILLY CONSULTING, INC.
By /s/ Henri-Claude A. Bailly President
------------------------------------------
(Title)
STATE STREET BANK AND TRUST COMPANY
By /s/ Linda M. Moulton Vice President
------------------------------------------
(Title)
46
<PAGE>
EXHIBIT A
[Form of Term Note]
HAGLER BAILLY CONSULTING, INC.
Term Note
$7,000,000
Boston, Massachusetts
____________, 1995
HAGLER BAILLY CONSULTING, INC., a Delaware corporation (the
"Company"), for value received, hereby promises to pay to STATE STREET BANK AND
TRUST COMPANY (the "Bank"), or order, the principal amount of Seven Million
Dollars ($7,000,000), payable in twenty-two (22) consecutive quarterly
installments of principal as follows: two (2) installments each in the amount of
$250,000, payable on September 30 and December 31, 1995; four (4) installments
each in the amount of $295,000, payable on March 31, June 30, September 30 and
December 31, 1996; four (4) installments each in the amount of $322,250, payable
on March 31, June 30, September 30 and December 31, 1997; four (4) installments
each in the amount of $352,000, payable on March 31, June 30, September 30 and
December 31, 1998; four (4) installments each in the amount of $384,500, payable
on March 31, June 30, September 30 and December 31, 1999; and four (4)
installments each in the amount of $271,250, payable on March 31, June 30,
September 30 and December 31, 2000; with interest on the unpaid principal amount
hereof at the rate or rates specified in the Credit Agreement referred to below,
payable on the dates specified in the Credit Agreement and at maturity (whether
by acceleration or otherwise); provided that, if the Company shall fail to make
any payment of principal of or interest on this Note, when due, whether at
maturity or at a date fixed for the payment of any installment or prepayment
thereof or by
47
<PAGE>
declaration, acceleration or otherwise, the Company shall pay to the holder of
this Note on demand by such holder, interest on such unpaid principal and (to
the extent permitted by law) on such unpaid interest from the date due until
paid in full at a rate per annum equal to four percent (4%) above the rate
otherwise applicable hereunder; provided, further that in no event shall the
amount contracted for and agreed to be paid by the Company as interest on this
Note exceed the highest lawful rate permissible under any law applicable hereto.
This Note evidences a term loan under and is subject to the
provisions of a certain Credit Agreement dated as of May 17, 1995 (as amended
from time to time, the "Credit Agreement") by and between the Company and the
Bank. The holder of this Note is entitled to the benefits of the Credit
Agreement and to the benefits of the Security Documents referred to therein.
Neither this reference to such Credit Agreement nor any provision thereof shall
affect or impair the absolute and unconditional obligation of the Company to pay
the principal of and interest on this Note as provided herein. All payments of
principal of and interest on this Note shall be payable in immediately available
funds at the address of the Bank set forth in the Credit Agreement. Capitalized
terms used herein without definition which are defined in the Credit Agreement
shall have the meanings ascribed to them in the Credit Agreement.
This Note is subject to prepayment in whole or in part, in certain
circumstances with a premium and in other circumstances without a premium, and
to acceleration on default at the times and in the manner specified in the
Credit Agreement. The maker and all endorsers of this Note hereby waive
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance or enforcement of this
Note.
This Note is governed by the laws of the Commonwealth of
Massachusetts and is executed as a sealed instrument as of the date first above
written.
HAGLER BAILLY CONSULTING, INC.
By_________________________________
(Title)
48
<PAGE>
EXHIBIT B
[Form of Revolving Credit Note]
HAGLER BAILLY CONSULTING, INC.
Revolving Credit Note
$4,500,000 Boston, Massachusetts
_____________, 1995
HAGLER BAILLY CONSULTING, INC. , a Delaware corporation (the
"Company"), for value received, hereby promises to pay to STATE STREET BANK AND
TRUST COMPANY (the "Bank"), or order, on or before the Expiration Date (as
defined in the Credit Agreement referred to below), the principal amount of Four
Million Five Hundred Thousand Dollars ($4,500,000) or such lesser amount as may
at the maturity hereof, whether by acceleration or otherwise, be the aggregate
unpaid principal amount of all revolving credit loans made by the Bank to the
Company pursuant to the Credit Agreement, with interest on the unpaid principal
amount hereof at the rate or rates specified in the Credit Agreement, payable on
the dates specified in the Credit Agreement and at maturity (whether by
acceleration or otherwise); provided that, if the Company shall fail to make any
payment of principal of or interest on this Note, when due, whether at maturity
or at a date fixed for the payment of any installment or prepayment thereof or
by declaration, acceleration or otherwise, the Company shall pay to the holder
of this Note on demand by such holder, interest on such unpaid principal and (to
the extent permitted by law) on such unpaid interest from the date due until
paid in full at a rate per annum equal to four percent (4%) above the rate
otherwise applicable hereunder; provided, further that in no event shall the
amount contracted for and agreed to be paid by the Company as interest on this
Note exceed the highest lawful rate permissible under any law applicable hereto.
This Note evidences a revolving credit loan or loans under, and is
subject to the provisions of, a certain Credit Agreement dated as of May 17,
1995 (as amended from time to time, the "Credit Agreement") by and between the
Company and the Bank. The holder of this Note is entitled to the benefits of the
Credit Agreement and to the benefits of the Security Documents referred to
therein. Neither this reference to such Credit Agreement nor any provision
thereof shall affect or impair the absolute and unconditional obligation of the
Company to pay the principal of and interest on this Note as provided herein.
All payments of principal of and interest on this Note shall be payable in
immediately available funds at the address of the Bank set forth in the Credit
Agreement. Capitalized terms used herein
1
<PAGE>
without definition which are defined in the Credit Agreement shall have the
meanings ascribed to them in the Credit Agreement.
This Note is subject to prepayment in whole or in part, in certain
circumstances with a premium and in other circumstances without a premium, and
to acceleration on default at the times and in the manner specified in the
Credit Agreement. The maker and all endorsers of this Note hereby waive
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance or enforcement of this
Note.
This Note is governed by the laws of the Commonwealth of
Massachusetts and is executed as a sealed instrument as of the date first above
written.
HAGLER BAILLY CONSULTING, INC.
By_________________________________
(Title)
2
<PAGE>
EXHIBIT D
HAGLER BAILLY CONSULTING, INC
Borrowing Base Certificate
To:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention:
Linda A. Moulton
Vice President
Ladies and Gentlemen:
Pursuant to subsection 5.1(e) of the Credit Agreement dated as of
May 17, 1995 (the "Credit Agreement"), by and between State Street Bank and
Trust Company (the "Bank") and Hagler Bailly Consulting, Inc. (the "Company"),
set forth below is a computation of the Borrowing Base for the month of
__________, of 19__ (the "Borrowing Base Month"). (Other capitalized terms used
herein without definition which are defined in the Credit Agreement shall have
the respective meanings ascribed to them in the Credit Agreement.)
I certify to you that the figures set forth below have been
calculated in accordance with the applicable provisions of the Credit Agreement.
(a)
Total accounts receivable
(including ineligibles):
$___________________________
Less ineligible receivables:
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<PAGE>
(______________________)
= Eligible Receivables
$________________________
(b)
Borrowing Base: Eligible
Receivables (as shown
above) x 80% [70%, if applicable
under "Borrowing Base" definition] =
$________________________
[not to exceed $3,500,000 or
$4,500,000, as applicable]
Attached hereto is an accounts receivable aging report as of the last day of the
Borrowing Base Month.
Certified as of the ___ day of ________________, ____.
By:__________________________________________________
Title:_______________________________________________
2
<PAGE>
SCHEDULE 3.2
NONE
1
<PAGE>
SCHEDULE 3.4
FINANCIAL STATEMENTS AND FINANCIAL REPORTS
BALANCE SHEETS AND INCOME STATEMENTS PAST THREE CALENDAR YEARS AND FOUR MONTHS
ENDED APRIL 30, 1995
FORECASTS (DIFFERING SCENARIOS) THROUGH THE YEAR (CALENDAR) 2001
SCHEDULES OF INVESTOR CONTRIBUTIONS, SOURCES OF EQUITY AND INITIAL SHARES
BACKLOGS, BY MONTH, FROM AUGUST, 1994 THROUGH MARCH 31, 1995
PIPELINE ANALYSES (INCLUDING BIDS/PROPOSALS), AS OF MARCH, 1995 AND APRIL, 1995
SUMMARY OF CONTRACT COSTS AND REVENUE (CSR) REPORTS DETAILED GENERAL LEDGERS,
CUMULATIVE, FOR PAST 3 CALENDAR YEARS AND FOR THE FOUR MONTHS ENDED APRIL 30,
1995
SUB-LEDGER SUMMARY OF FIXED ASSETS AND RESERVES
SCHEDULES OF ACCOUNTS RECEIVABLE, PERIODIC, OVER THE PAST THREE YEARS AND
SEMI-MONTHLY FROM DECEMBER 31, 1994
ANALYSIS OF TRENDS IN A/R AND BORROWING BASE COMPUTATIONS (PRO FORMA)
FINANCIAL TRENDS, HIGHLIGHTS AND OTHER STATISTICAL DATA FOR THE PAST TEN YEARS
HISTORICAL PURCHASE, ACQUISITION DATA AND ROI CALCULATIONS
ALL WORKPAPERS, AND ANALYSIS FOR THE PAST THREE CALENDAR YEARS AND THE THREE
MONTHS ENDED MARCH 31, 1995, AS A PART OF THE NORMAL RECORDS AND WORKPAPERS
MAINTAINED BY THE COMPANY
CASH FLOW FORECASTS BY MONTH THROUGH 2001
HBRS ACQUISITION DOCUMENTS INCLUDING FINANCIALS AND LISTED ASSUMED ASSETS AND
LIABILITIES
LETTER DATED MAY 11, 1995 FROM HENRI-CLAUDE BAILLY TO LINDA A. MOULTON AND
LOWELL C. FREIBERG REGARDING THE U.S. AGENCY FOR INTERNATIONAL DEVELOP
1
<PAGE>
SCHEDULE 3.7
THERE IS NO INDEBTEDNESS FOR BORROWED MONEY, LIENS (OTHER THAN $36K JUDGMENT IN
FAVOR OF R. VOEGTLE), MORTGAGES, GUARANTIES EXCEPT THE INTERCOMPANY DEBT, AND
o XEROX II CAPITAL LEASE PAYABLE $23K
o INVESTMENTS - KFX, INC. STOCK (TRADED OTC) VALUE STATED AT COST OR MARKET,
WHICHEVER IS LOWER
(SEE B/S ATTACHED)
1
<PAGE>
BALANCE SHEET
ASSETS
BALANCE SHEET
[THIS PAGE ILLEGIBLE]
1
<PAGE>
LIABILITIES & EQUITY
[THIS PAGE ILLEGIBLE]
2
<PAGE>
SCHEDULE 3.9
PENDING LITIGATION
o R. VOEGTLE V. RCG/HAGLER BAILLY
o N. GRAY V. RCG/HAGLER BAILLY
o RCG/HAGLER BAILLY V. CALDERON ENERGY COMPANY AND ALBERT CALDERON (AND
COUNTERSUIT BY CALDERON INCLUDING PRINCIPALS)
The foregoing are described on the schedule attached.
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<PAGE>
RISK MANAGEMENT
LITIGATION SCHEDULE
o R. Voegtle v. RCG/Hagler Bailly
Claim: $35,000
Counsel: Mastbaum & Archer, Boulder, Colorado (David
Mastbaum)
Status: Active
Next Action: Appeal follow-up
R. Voegtle, an employee of RCG/Hagler Bailly, Inc., was converted in employee
status from full-time to "zero-minimum" (a status that eliminates benefits and
pays the employee solely for pre-approved hours worked/billed). After a period
of not being provided with billable/pre-approved work to do and therefore be
paid for, Voegtle sued alleging that since he had signed an employment agreement
to work as a full-time employee and did not sign a new employment agreement
officially changing his status, the company was compelled to treat him as a
full-time employee and pay him a full-time salary. He also alleged that, if the
company had, in fact if not in writing, terminated him, he was also owed
separation compensation (severance pay).
The court agreed with his position and he was awarded $35,000 plus court costs.
The case has been appealed to the Colorado Court of Appeals and has been bonded
accordingly through the auspices of Reliance's risk management group.
o N. Gray v. RCG/Hagler Bailly, Inc. (administrative complaint with the Virginia
Department of Equal Employment Opportunity)
Claim: None Specified
Counsel: Epstein, Becker, Washington, D.C. (Tom Bagby)
Status: Active
Next Action: Offer in Settlement being finalized
N. Gray, a black clerical administrative employee, was terminated for
non-performance and attitude. He refused to participate in an exit interview and
left the premises immediately though he was not asked to. Subsequently, Gray
filed a racial discrimination complaint with the EEOC which referred the
complaint to the Virginia Department of Equal Employment Opportunity. An
investigation by Linda Dennett (an investigator for the State of Virginia)
determined that no "discrimination" had occurred. The prospect, however, of a
civil case was raised and we have offered a Gray a with prejudice settlement of
$5,000 in exchange for waivers and, through his counsel, has accepted. The
details are being currently worked out through our attorneys.
1
<PAGE>
o RCG/Hagler Bailly, Inc. v. Calderon Energy Company and Albert Calderon
(complaint) Calderon Energy Company v. RCG/Hagler Bailly, Inc. and Michael
Yokell (cross-complaint)
Claim: $126,000 (Cross-Complaint only)
Counsel: Connelly, Jackson & Souther, Toledo, Ohio
(Steven Smith)
Status: Active
Next Action: Depositions/Interrogatories
Calderon Energy Company, a client of RCG/Hagler Bailly, owed the company
approximately $18k for more than a year when the company sued to collect this
remaining outstanding debt. Calderon had paid the company approximately $107k
relative this assignment.
After the complaint was filed in Bowling Green, Virginia, Calderon counter-sued
the company for performing unnecessary consulting services, in the amount of
$143,000.
The company and Calderon are involved currently in depositions and
interrogatories.
The case is scheduled to be heard in August of 1995.
The company doesn't view the counter-complaint as having any merit and does not
believe that any outcome will have a material or adverse effect on the company.
2
<PAGE>
SCHEDULE 3.14
Shares Of Class A
Stockholder Investment Common Stock
- ----------- ---------- ------------
John Armstrong $175,000 35,000
Henri-Claude Bailly 500,000 100,000
Robin Calhoun 100,000 20,000
Robert Ciliano 175,000 35,000
Niels de Terra 75,000 15,000
James Hogan 75,000 15,000
David Keith 100,000 20,000
Joshua Lipton 40,000 8,000
Steve Mitnick 75,000 15,000
Jean-Louis Poirier 225,000 45,000
Robert Raucher 75,000 15,000
Ronald Reilly 25,000 5,000
Daniel Rouse 75,000 15,000
Robert Rowe 275,000 55,000
Fred M. Schriever 60,000 12,000
Alex Steinbergh 50,000 10,000
Alan Streicher 350,000 70,000
Van Liere 50,000 10,000
Michael Yokell 500,000 100,000
---------- -------
TOTAL $3,000,000 600,000
1
AMENDMENT TO CREDIT AGREEMENT
THIS AGREEMENT, dated as of June 20, 1996, by and among Hagler
Bailly Consulting, Inc., a Delaware corporation, and State Street Bank and Trust
Company (the "Bank").
W I T N E S S E T H:
WHEREAS, the Company and the Bank are parties to that certain Credit
Agreement dated as of May 17, 1995 (the "Credit Agreement"); and
WHEREAS, the parties wish to amend the Credit Agreement and to
confirm their understanding as to certain matters thereunder as hereinafter set
forth;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. Capitalized terms used herein without definition
which are defined in the Credit Agreement shall have the respective meanings
ascribed to them in the Credit Agreement.
2. Amendments to Credit Agreement. The Credit Agreement is hereby
amended, effective as of December 31, 1995, as follows:
2.1 Section 9 of the Credit Agreement is amended by deleting the
definition of "Current Liabilities" in its entirety and by substituting in lieu
thereof a new definition as follows:
"Current Liabilities: all liabilities of the Parent Company and
its subsidiaries which may be properly classified as current
liabilities in accordance with generally accepted accounting
principles, determined on an Adjusted Consolidated Basis, provided
that Current Liabilities shall not include any liabilities to third
parties who are not officers, employees or Affiliates of the Parent
Company and its subsidiaries to the extent such liabilities are
attributable to services or other work in process which have not
been billed to clients and which have been excluded from the
computation of Current Assets in accordance with the definition of
that term, and provided, further that Current Liabilities shall
include the unpaid principal of the Revolving Credit Loans (whether
or not due within twelve months)."
2.2 The Credit Agreement is further amended by deleting Exhibit C
(being the form of Compliance Certificate) in its entirety and by substituting
therefor a new Exhibit C in the form attached hereto.
3. Limitation on Available Commitment. The Company and the Bank
acknowledge and agree that the conditions set forth in subsection 1.4(d) of the
Credit Agreement
<PAGE>
have been satisfied and that the limitation on the amount of the Available
Commitment set forth in such subsection 1.4(d) is terminated effective as of the
date hereof.
4. Prepayment of Term Loan. As contemplated by that certain letter
agreement dated March 18, 1996 between the Company and the Bank (the "Escrow
Letter") the Company caused $500,000 to be deposited (the "Escrow Deposit") with
the Bank in the "Hagler Bailly Consulting, Inc. Escrow Account" referred to
therein (the "Escrow Account"). The Company and the Bank agree that the Escrow
Deposit together with interest accrued thereon in the Escrow Account (net of the
Bank's charge for maintenance of the Escrow Account) shall be applied to the
prepayment of the Term Loan, such prepayment to be applied to installments of
principal payable on the Term Loan in the inverse order of maturity. The
prepayment will take place as soon as practicable following the date hereof and
will coincide with the end of an appropriate LIBOR Period so as to avoid any
LIBOR Premium. Concurrently with such prepayment, the Escrow Account shall be
closed and the provisions of the Escrow Letter with respect to the further
maintenance thereof shall terminate.
5. Miscellaneous.
5.1 As modified hereby, the provisions of the Credit Agreement
shall continue in full force and effect.
5.2 This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of the
counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as a sealed instrument as of the date first above written.
HAGLER BAILLY CONSULTING, INC.
BY /s/ Daniel M. Rouse, CFO
-------------------------------------
(Title)
STATE STREET BANK AND TRUST COMPANY
BY /s/ Linda M. Moulton, Vice President
-------------------------------------
(Title)
-2-
<PAGE>
EXHIBIT C
HAGLER BAILLY CONSULTING, INC.
Compliance Certificate
To: State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: Linda A. Moulton
Vice President
Ladies and Gentlemen:
Pursuant to subsection 5.1(d) of the Credit Agreement dated as of May 17,
1995 (the "Credit Agreement"), by and between Hagler Bailly Consulting, Inc.
(the "Company") and State Street Bank and Trust Company (the "Bank"), a review
of the activities of the Company for the fiscal [year, quarter] ending
__________, 19__ (the "Fiscal Period") has been made under my supervision with a
view to determining whether the Company has performed its obligations under and
is in compliance with the terms of the Credit Agreement. Based upon such review,
I hereby certify to you that the Company has performed all of its obligations
and is in compliance with the terms of the Credit Agreement for the Fiscal
Period and, to the best of my knowledge, no event has occurred which
constitutes, or which with the passage of time, or service of notice, or both,
would constitute an Event of Default as defined in the Credit Agreement. (Other
capitalized terms used herein without definition which are defined in the Credit
Agreement shall have the respective meanings ascribed to them in the Credit
Agreement.)
I further certify to you that the figures set forth below accurately
represent amounts required to be calculated under the applicable provisions of
the Credit Agreement indicated, each as of the last day of the Fiscal Period
unless otherwise indicated.
-3-
<PAGE>
1. Subsections 6.1(e) and 6.2(c) - Purchase Money Liens, etc.
(a) Indebtedness outstanding pursuant to subsections
6.1(e) and 6.2(c) on the last day of the Fiscal Period: $________
(b) Maximum amount of Indebtedness permitted under
subsections 6.1(e) and 6.2(c): $500,000
2. Subsection 6.3(g) - Loans to HB Capital.
(a) Loans and advances to HB Capital outstanding on
the last day of the Fiscal Period: $________
(b) Maximum amount permitted under subsection 6.3(g): $600,000
3. Subsection 7.1(a) - Company Capital Base.
(a) Company Capital Base as of the last day of Fiscal
Period: $________
(b) Minimum Company Capital Base required by
subsection 7.1(a): $3,000,000
4. Subsection 7.1(b) - Capital Base.
(a) Capital Base (see item 14 below) as of the last
day of the Fiscal Period: $_________
(b) Minimum Capital Base required by subsection 7.1(b)
- - sum of:
(i) Capital Base required at Closing: $3,000,000
(ii) $200,000 for each fiscal quarter
ending after Closing: $_________
(iii) 75% of equity issue: $_________
Minimum Capital Base Required by subsection 7.1(b): $_________
-4-
<PAGE>
5. Subsection 7.2 - Current Ratio.
(a) Current Assets* as of the last day of the Fiscal
Period, excluding $_______ attributable to unbilled services
or other work in process (attach schedule): $_________
(b) Current Liabilities* as of the last day of the
Fiscal Period, excluding $_______ of liabilities
attributable to unbilled services or other work in process
(attach schedule): $_________
(c) Current ratio as of the last day of the Fiscal
Period, i.e. (a) as a percentage of (b): _________%
(d) Minimum percentage permitted by subsection 7.2: _________%
6. Subsection 7.3 - Adjusted Net Operating Income.
(a) Adjusted Net Operating Income (see item 12 below)
for 12-month period ending on the last day of the Fiscal
Period: $_________
(b) Minimum Adjusted Net Operating Income permitted by
subsection 7.3: $_________
7. Subsection 7.4 - Funded Debt/Net Operating Income.
(a) Funded Debt outstanding on the last day of the
Fiscal Period: $_________
(b) Net Operating Income (see item 11 below) for
12-month period ending on the last day of the Fiscal Period: $_________
(c) Funded Debt as a percentage of Net Operating
Income, i.e., (a) as a percentage of (b): ________%
(d) Minimum percentage permitted by subsection 7.4: ________%
-5-
<PAGE>
8. Subsection 7.5 - Debt Service Coverage.
(a) Net Operating Income (see item 11 below) for 12
month period ending on the last day of the Fiscal Period: $_________
(b) Pro Forma Debt Service*: $_________
(c) Net Operating Income as a percentage of Pro Forma
Debt Service, i.e. (a) as a percentage of (b): _________%
(d) Minimum percentage permitted under subsection 7.5: _________%
9. Subsection 7.6 - Senior Liabilities/Adjusted Capital Base.
(a) Senior Liabilities (see item 13 below) as of the
last day of the Fiscal Period: $_________
(b) Adjusted Capital Base (see item 15 below) as of
the last day of the Fiscal Period: $_________
(c) Senior Liabilities as a percentage of Adjusted
Capital Base, i.e. (a) as a percentage of (b): _________%
(d) Maximum percentage permitted by subsection 7.6: _________%
10. Subsection 7.7 - Billability.
(a) Total Billable Hours for fiscal quarter ending on
the last day of the Fiscal Period: $_________
[attached schedule]
(b) Theoretical Billing Capacity for the fiscal
quarter ending on last day of the Fiscal Period: $_________
(c) Billability for fiscal quarter ending on last day
of Fiscal Period, i.e. (a) divided by (b): _________%
(d) Minimum Billability required by subsection 7.7: 55%
-6-
<PAGE>
11. Net Operating Income Calculation.*
For the 12 month period ending on the last day of the Fiscal Period:
Net income (after deducting Discretionary Payments) $_________
+ Depreciation and amortization: $_________
+ Interest Expense (net of interest income): $_________
+ Taxes paid in respect of income and profits: $_________
+ Bonus Recapture; if applicable (see item 16 below); $_________
= Net Operating Income: $_________
12. Adjusted Net Operating Income Calculation.*
For the 12-month period ending on the last day of the Fiscal Period:
Net Operating Income (see item 11 above) $_________
+ Discretionary Payments (net of Bonus
Recapture, if applicable) $_________
= Adjusted Net Operating Income $_________
13. Senior Liabilities Computation.*
As of the last day of the Fiscal Period:
All liabilities $_________
- Subordinated Debt of Company ($________)
= Senior Liabilities $_________
14. Capital Base Computation.*
As of the last day of the Fiscal Period:
Shareholders equity $_________
+ Reserves for bonuses $_________
= Capital Base $_________
-7-
<PAGE>
15. Adjusted Capital Base Computation.*
As of the last day of the Fiscal Period:
Capital Base (see item 14 above) $_________
+ Subordinated Debt of Company $_________
= Adjusted Capital Base $_________
16. Bonus Recapture Computation
As of last day of most recent fiscal year (ending December 31, 19__):
Bonus Reserves $_________
- Permitted Officer Distributions ($________)
= Bonus Recapture (not less than zero) $_________
Certified as of the ___ day of __________, 19__.
By: _______________________________
Title:_______________________________
*Determined on an Adjusted Consolidated Basis in accordance with the provisions
of the Credit Agreement.
-8-
EXTENSION AGREEMENT
THIS AGREEMENT, dated as of August 1, 1996, by and between Hagler Bailly
Consulting, Inc., a Delaware corporation, and State Street Bank and Trust
Company (the "Bank").
W I T N E S S T H:
WHEREAS, the Company and the Bank are parties to that certain Credit
Agreement dated as of May 17, 1995, as amended (the "Credit Agreement"); and
WHEREAS, the parties wish to extend the Expiration Date under the Credit
Agreement as hereinafter set forth;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. Capitalized terms used herein without definition which are
defined in the Credit Agreement shall have the respective meanings ascribed to
them in the Credit Agreement.
2. Extension of Expiration Date. The Expiration Date is hereby extended
for a period of one (1) year to May 31, 1998.
3. Miscellaneous.
3.1. As modified hereby, the provisions of the Credit Agreement
shall continue in full force and effect.
3.2. This Agreement may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which when
so executed and delivered shall be an original, but all of the counterparts
shall together constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as a
sealed instrument as of the date first above written.
HAGLER BAILLY CONSULTING, INC.
By: /s/ Daniel M. Rouse, CFO
---------------------------------------
(Title)
STATE STREET BANK AND TRUST COMPANY
By: /s/ Linda M. Moulton, Vice President
---------------------------------------
(Title)
-2-
AMENDMENT TO CREDIT AGREEMENT
THIS AGREEMENT, dated as of November 12, 1996, by and between Hagler
Bailly Consulting, Inc., a Delaware corporation (the "Company"), and State
Street Bank and Trust Company (the "Bank").
W I T N E S S E T H:
WHEREAS, the Company and the Bank are parties to that certain Credit
Agreement dated as of May 17, 1995, as amended (the "Credit Agreement"); and
WHEREAS, the parties wish to amend the Credit Agreement in the
manner hereinafter set forth;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. Capitalized terms used herein without definition which are
defined in the Credit Agreement shall have the respective meanings ascribed to
them in the Credit Agreement.
2. Amendments to Credit Agreement. The Credit Agreement is hereby amended
as follows:
2.1 Section 1 of the Credit Agreement is amended by adding a new
subsection 1.17 in appropriate numerical order as follows:
"1.17 Letters of Credit.
(a) Subject to the terms and conditions hereof, the Company
may request the Bank to issue, from time to time, standby letters of
credit (the "Letters of Credit" and each individually a "Letter of
Credit") in an aggregate stated amount at any one time not exceeding
the lesser of $1,000,000 or the then unused portion of the Available
Commitment. Each request for a Letter of Credit shall be made by the
Company by application on the Bank's standard form or in such other
manner as the Bank may approve and shall be made such reasonable
time in advance as the Bank may require. The Letters of Credit shall
be issued pursuant to a duly executed letter of credit agreement on
the Bank's standard form and shall be accompanied by such other
instruments and agreements as the Bank may require. No Letter of
Credit shall have an expiration date later than the earlier of three
hundred sixty-five (365) days following the date of issuance or the
Expiration Date. Until each Letter of Credit shall have expired
without being drawn, the stated amount of such Letter of Credit
shall be deemed an outstanding Revolving Credit Loan for purposes of
calculating the unused portion of the Available Commitment and for
purposes of calculating the Commitment Fee pursuant to subsection
1.8. Once drawn, a Letter of Credit shall be funded from
<PAGE>
the Available Commitment by the Bank advancing the stated amount
thereof to the Company, and any amount so advanced shall be a
Revolving Credit Loan and shall accrue interest as such from the
date so advanced.
(b) For each Letter of Credit issued hereunder, the Company
shall pay the Bank a fee (the "Letter of Credit Fee") equal to two
percent (2%) per annum (computed on the basis of the actual number
of days elapsed over a 360-day year) on the stated amount thereof,
payable quarterly in arrears on the day of each third calendar month
which corresponds with the date of issuance of such Letter of
Credit, until the expiration of such Letter of Credit. The Letter of
Credit fee shall be in addition to such other transactions fees and
similar charges as the Bank imposes on its customers generally from
time to time with respect to letter of credit transactions.
(c) If, upon the occurrence of any Event of Default, there
shall be outstanding any Letters of Credit or any drafts accepted
for payment by the Bank under any Letters of Credit, the Company
will, on demand by the Bank, deposit and at all times maintain with
the Bank an amount of cash (the "Cash Collateral") equal to the
aggregate stated amount of all outstanding Letters of Credit. The
Cash Collateral so deposited shall be held by the Bank as part of
the Collateral. Such Cash Collateral shall be returned by the Bank
to the Company only when there is no longer any Event of Default
continuing hereunder."
2.2 Subsection 8.1 of the Credit Agreement is amended by deleting
the last paragraph thereof in its entirety and inserting in place thereof the
following:
"then, and in any such event, and at any time thereafter, if any
Event of Default shall then be continuing, any of the following
actions may be taken. The Bank may by written notice to the Company,
(i) declare the principal of and accrued interest in respect of the
Notes to be forthwith due and payable, whereupon the principal of
and accrued interest in respect of the Notes (together with any
LIBOR Premium applicable thereto) shall become forthwith due and
payable without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived by the Company, (ii)
demand Cash Collateral in accordance with subsection 1.17(c) hereof,
and/or (iii) terminate the Revolving Commitment, whereupon the
Revolving Commitment of the Bank and the undertaking of the Bank to
issue Letters of Credit hereunder shall forthwith terminate without
any other notice of any kind. If any Event of Default referred to in
subparagraphs (g) or (h) of this subsection 8.1 shall occur, (i) the
principal of and accrued interest in respect of the Notes (together
with any LIBOR Premium applicable thereto) shall forthwith become
due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived by the Company,
(ii) the Cash Collateral shall forthwith become due and payable in
accordance
-2-
<PAGE>
with subsection 1.17(c) hereof, without any notice of any kind; and
(iii) the Revolving Commitment of the Bank to make Revolving Credit
Loans and the undertaking of the Bank to issue Letters of Credit
hereunder shall forthwith terminate without any other notice of any
kind.
2.3 Section 9 of the Credit Agreement is amended by inserting the
following new defined terms in appropriate alphabetical order:
"Cash Collateral: the meaning specified in subsection 1.17(c).
Letter or Letters of Credit: the meanings specified in subsection
1.17(a).
Letter of Credit Fee: the meaning specified in subsection 1.17(b)."
3. Miscellaneous
3.1 As modified hereby, the provisions of the Credit Agreement shall
continue in full force and effect.
3.2 This Agreement may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of the counterparts shall
together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as a
sealed instrument as of the date first above written.
HAGLER BAILLY CONSULTING, INC.
By: /s/ Daniel M. Rouse, CFO
--------------------------------
(Title)
STATE STREET BANK AND TRUST COMPANY
By: /s/ Linda M. Mouton, Vice President
------------------------------------
(Title)
-3-
HAGLER BAILLY CONSULTING, INC.
Term Note
$7,000,000 Boston, Massachusetts
May 26, 1995
HAGLER BAILLY CONSULTING, INC., a Delaware Corporation (the
"Company"), for value received, hereby promises to pay to STATE STREET BANK AND
TRUST COMPANY (THE "Bank"), or order, the principal amount of Seven Million
Dollars ($7,000,000), payable in twenty-two (22) consecutive quarterly
installments of principal as follows: two (2) installments each in the amount of
$250,000, payable on September 30 and December 31, 1995; four (4) installments
each in the amount of $295,000, payable on March 31, June 30, September 30 and
December 31, 1996; four (4) installments each in the amount of $322,250, payable
on March 31, June 30, September 30 and December 31, 1997; four (4) installments
each in the amount of $352,000, payable on March 31, June 30, September 30 and
December 31, 1998; four (4) installments each in the amount of $384,500, payable
on March 31, June 30, September 30 and December 31, 1999; and four (4)
installments each in the amount of $271,250, payable on March 31, June 30,
September 30 and December 31, 2000; with interest on the unpaid principal amount
hereof at the rate or rates specified in the Credit Agreement referred to below,
payable on the dates specified in the Credit Agreement and at maturity (whether
by acceleration or otherwise); provided that, if the Company shall fail to make
any payment of principal of or interest on this Note, when due, whether at
maturity or at a date fixed for the payment of any installment or prepayment
thereof or by declaration, acceleration or otherwise, the Company shall pay to
the holder of this Note on demand by such holder, interest on such unpaid
principal and (to the extent permitted by law) on such unpaid interest from the
date due until paid in full at a rate per annum equal to four percent (4%) above
the rate otherwise applicable hereunder; provided, further that in no event
shall the amount contracted for and agreed to be paid by the Company as interest
on this Note exceed the highest lawful rate permissible under any law applicable
hereto.
This Note evidences a term loan under and is subject to the
provisions of a certain Credit Agreement dated as of May 17, 1995 (as amended
from time to time, the "Credit Agreement") by and between the Company and the
Bank. The holder of this Note is entitled to the benefits of the Credit
Agreement and to the benefits of the Security Documents referred to therein.
Neither this reference to such Credit Agreement nor any provision thereof shall
affect or impair the absolute and unconditional obligation of the Company to pay
the principal of and interest on this Note as provided herein. All payments of
principal of and interest on this Note shall be payable in immediately available
funds at the address of the Bank set forth in the Credit Agreement. Capitalized
terms used herein without definition which are defined in the Credit Agreement
shall have the meanings ascribed to them in the Credit Agreement.
<PAGE>
This Note is subject to prepayment in whole or in part, in certain
circumstances with a premium and in other circumstances without a premium, and
to acceleration on default at the times and in the manner specified in the
Credit Agreement. The maker and all endorsers of this Note hereby waive
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance or enforcement of this
Note.
This Note is governed by the laws of the Commonwealth of
Massachusetts and is executed as a sealed instrument as of the date first above
written.
HAGLER, BAILLY CONSULTING, INC.
By /s/ Henri-Claude A. Bailly, President
---------------------------------------
(Title)
HAGLER BAILLY CONSULTING, INC.
Revolving Credit Note
$4,500,000 Boston, Massachusetts
May 26, 1995
HAGLER BAILLY CONSULTING, INC., a Delaware corporation (the
"Company"), for value received, hereby promises to pay to STATE STREET BANK AND
TRUST COMPANY (the "Bank"), or order, on or before the Expiration Date (as
defined in the Credit Agreement referred to below), the principal amount of Four
Million Five Hundred Thousand Dollars ($4,500,00) or such lesser amount as may
at the maturity hereof, whether by acceleration or otherwise, be the aggregate
unpaid principal amount of all revolving credit loans made by the Bank to the
Company pursuant to the Credit Agreement, with interest on the unpaid principal
amount hereof at the rate or rates specified in the Credit Agreement, payable on
the dates specified in the Credit Agreement and at maturity (whether by
acceleration or otherwise); provided that, if the Company shall fail to make any
payment of principal of or interest on this Note, when due, whether at maturity
or at a date fixed for the payment of any installment or prepayment thereof or
by declaration, acceleration or otherwise, the Company shall pay to the holder
of this note on demand by such holder, interest on such unpaid principal and (to
the extent permitted by law) on such unpaid interest from the date due until
paid in full at a rate per annum equal to four percent (4%) above the rate
otherwise applicable hereunder; provided, further, that in no event shall the
amount contracted for and agreed to be paid by the Company as interest on this
Note exceed the highest lawful rate permissible under any law applicable hereto.
This Note evidences a revolving credit loan or loads under, and is
subject to the provisions of, a certain Credit Agreement dated as of May 17,
1995 (as amended from time to time, the "Credit Agreement") by and between the
Company and the Bank. The holder of this Note is entitled to the benefits of the
Credit Agreement and to the benefits of the Security Documents referred to
therein. Neither this reference to such Credit Agreement nor any provision
thereof shall affect or impair the absolute and unconditional obligation of the
Company to pay the principal of and interest on this Note as provided herein.
All payments of principal of and interest on this Note shall be payable in
immediately available funds at the address of the Bank set forth in the Credit
Agreement. Capitalized terms used herein without definition which are defined in
the Credit Agreement shall have the meanings ascribed to them in the Credit
Agreement.
This Note is subject to prepayment in whole or in part, in certain
circumstances with a premium and in other circumstances without a premium, and
to acceleration on default at the times and in the manner specified in the
Credit Agreement. The maker and all endorsers of this Note hereby waive
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance or enforcement of this
Note.
<PAGE>
This Note is governed by the laws of the Commonwealth of
Massachusetts and is executed as a sealed instrument as of the date first above
written.
HAGLER, BAILLY CONSULTING, INC.
By /s/ Henri-Claude A. Bailly, President
--------------------------------------
(Title)
This instrument is subject to an Intercreditor and Subordination Agreement
dated as of May 25, 1995, as the same may be amended from time to time,
among Hagler Bailly Consulting, Inc., RCG International, Inc. and State
Street Bank and Trust Company, which, among other things, subordinates the
maker's obligations to the payee to the maker's obligations to the holder
of Senior Indebtedness as defined in said Agreement.
HAGLER BAILLY CONSULTING, INC.
9.5% SUBORDINATED NOTE DUE MAY 15, 2001
$4,650,000 New York, New York
May 25, 1995
FOR VALUE RECEIVED, Hagler Bailly Consulting, Inc. (the "Company"), a
Delaware corporation, promises to pay on May 15, 2001, RCG International, Inc.
("Holder") or order, the principal amount of FOUR MILLION SIX HUNDRED FIFTY
THOUSAND DOLLARS ($4,650,000), or, if less, the aggregate unpaid principal
amount then outstanding under this Note. The Company promises to pay interest
(computed on a 360-day year, 30-day month basis) on the unpaid balance of such
principal amount from May 25, 1995, payable in semi-annual installments on each
May 15, and November 15, after the date of this Note, at the rate of 9.5% per
annum until such principal amount shall become due and payable (whether at
stated maturity or by prepayment or declaration or otherwise), and to pay
interest on any overdue principal and (to the extent permitted by applicable
law) on any overdue interest at the rate of 12.5% per annum until paid. Payments
of principal and interest shall be made in lawful money of the United States of
America at the principal office of Holder at 111 West 40th Street, New York, New
York 10018 or at such other address as Holder may have from time to time
furnished the Company in writing.
1. Prepayment of Notes. The Company may, at its option, upon notice as
provided in the succeeding sentence, prepay at any time all or from time to time
any part of the Note, at the principal amount so prepaid, together with interest
thereon accrued to date of such prepayment. The Company will give written notice
of each prepayment to the Holder not less than five (5) days prior to the date
fixed for such prepayment, specifying (a) the date of prepayment, (b) the
aggregate principal amount to be prepaid on such date and (c) the aggregate
amount of accrued interest payable on such prepayment.
2. Taxes. All payments by the Company of principal of, and interest on,
this Note and all other amounts payable hereunder shall be made free and clear
of and without deduction for any present or future income, excise, stamp or
franchise taxes and other taxes, duties, fees, withholdings or other charges of
any nature whatsoever imposed by any taxing authority.
3. Accounting; Financial Statements and Other Information. The Company
will maintain and cause each of its Subsidiaries to maintain a uniform system of
accounting established and administered in accordance with generally accepted
accounting principles ("GAAP"). The Company will deliver to Holder:
<PAGE>
(a) as soon as practicable after the end of each of the first three
quarterly fiscal periods of each fiscal year of Hagler, and in any event
within 45 days thereafter, consolidating and consolidated balance sheets
of Hagler and its Subsidiaries as at the end of such period and
consolidating and consolidated statements of income and of cash flows of
the Company and its Subsidiaries for such period and (in the case of the
second and third quarterly periods) for the portion of the current fiscal
year to the end of such period, all in reasonable detail and certified by
the principal financial officer of the Company as being complete and as
fairly presenting, in accordance with GAAP, the financial position of
Hagler and its Subsidiaries and results of their operations for the period
then ended, subject only to changes resulting from year-end audit
adjustments;
(b) as soon as practicable after the end of each fiscal year of
Hagler, and in any event within 90 days thereafter, consolidating and
consolidated balance sheets of Hagler and its Subsidiaries as at the end
of such year and consolidating and consolidated statements of income and
of cash flows of Hagler and its Subsidiaries for such year, setting forth
in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and, in the case of such consolidated statements,
accompanied by the report and opinion thereon of independent public
accountants of recognized national standing selected by Hagler and
reasonably acceptable to Holder, which opinion shall be prepared in
accordance with generally accepted auditing standards and shall be based
upon an examination by such accountants of the accounts of Hagler and all
of its Subsidiaries;
(c) together with each delivery of financial statements referred to
in subdivisions (a) and (b) above, an Officer's Certificate of the Company
(i) stating that each of the signers has reviewed the relevant terms of
this Note and has made, or caused to be made under his supervision, an
adequate review of the transactions and condition of Hagler and its
Subsidiaries during the fiscal period covered by such financial
statements, (ii) stating that such review has not disclosed the existence
during such period nor does such signer have knowledge of the existence,
as at the date of such certificate, of any Default, or, if any Default
existed or exists, specifying the nature and period of existence thereof
and the action the Company has taken or is taking or proposes to take with
respect thereto, and (iii) setting forth and demonstrating in reasonable
detail compliance during and at the end of such period with the financial
and restricted payment covenants contained in this Note;
(d) together with each delivery of financial statements referred to
in subdivision (b) above, a certificate by the independent public
accountants reporting on such financial statements (provided that such
accountants shall not be required to go beyond normal auditing procedures
to make such statement) (i) briefly setting forth the scope of their
examination (which shall have been made in accordance with generally
accepted auditing standards) and stating that in their judgment such
examination is sufficient to enable them to render such certificate, (ii)
stating whether or not their examination has disclosed the existence of
any Default and, if so, specifying the nature and period of existence
thereof, and
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(iii) covering the matters referred to in clause (iii) of subdivision (c)
above with respect to the fiscal year covered by such financial
statements;
(e) promptly upon receipt thereof, copies of all reports, if any,
submitted to the Company by independent accountants in connection with
each annual or interim audit of the books of the Company or any of its
Subsidiaries made by such accountants;
(f) prompt written notice of (i) any litigation involving a claim of
more than $200,000 against the Company or any of its Subsidiaries, or (ii)
any matter which, in the opinion of the Company, might have a materially
adverse effect on the operations, business condition (financial or
otherwise), affairs or prospects of the Company or any of its Subsidiaries
(a "Material Adverse Effect");
(g) forthwith upon any officer of the Company obtaining knowledge of
any Default or any Event of Default, a certificate of such officer
specifying the nature and period of existence thereof and what action the
Company has taken, is taking or proposes to take with respect thereto;
(h) concurrently with the transmittal thereof, copies of all
information provided under Section 5.1 of the Credit Agreement; and
(i) as soon as practicable, all such other information and data with
respect to the business, affairs or condition of the Company or any of its
Subsidiaries as from time to time may reasonably be requested by Holder.
4. Inspection. The Company will permit any authorized representative
designated by Holder to visit and inspect, at the Company's expense (provided
that not more than two such inspections shall be paid for in any year unless
there has occurred a Default), any of the properties of the Company or any of
its Subsidiaries, including its and their books (and to make copies thereof or
extracts therefrom), and to discuss its and their affairs, finances and accounts
with its and their officers, all at such reasonable times and as often as may
reasonably be requested by Holder.
5. Maintenance of Corporate Existence, etc. The Company will preserve its
corporate existence, franchises, privileges and right to do business. and those
of each of its Subsidiaries.
6. Payment of Impositions, etc. The Company will and will cause each
Subsidiary to promptly pay or cause to be paid all Impositions before the same
become delinquent, except where contested in good faith, by proper proceedings
pursuant to which collection from the Company of such Imposition is suspended,
if adequate reserves therefor have been established on the books of the Company
or such Subsidiary, as the case may be, in accordance with and to the extent
required by GAAP, and where non-payment will not have, individually or in the
aggregate, a Material Adverse Effect.
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7. Compliance with Legal and Insurance Requirements, etc. The Company at
its expense will, and will cause each of its Subsidiaries to, promptly (a)
comply with all Legal Requirements and Insurance Requirements and (b) procure,
maintain and comply with all permits, licenses and other authorizations material
to the proper operation of their respective properties and businesses.
8. Insurance of Properties and Business. The Company will maintain or
cause to be maintained, with financially sound and reputable insurers, insurance
with respect to the properties and business of the Company and its Subsidiaries
against loss or damage of the kinds customarily insured against by corporations
of established reputation engaged in the same or a similar business and
similarly situated, in such amounts and by such methods as shall be deemed
adequate by the Board of Directors of the Company and acceptable to Holder. All
insurance shall provide that no cancellation, reduction in amount or change in
coverage shall be effective until thirty (30) days after receipt by Holder of
written notice thereof.
9. Insurance on Life of Principal Officer. So long as Henri-Claude Bailly
shall be an officer of the Company, the Company will maintain (with Chubb
LifeAmerica Insurance Company or other insurers satisfactory to Holder) life
insurance on his life with the Company named as beneficiary, in the amount of
$2,000,000.
10. Conduct of Business. The Company will carry on its business and will
cause the business of its Subsidiaries to be carried on in an efficient manner
and will not engage or permit any of its Subsidiaries to engage in any business
other than businesses engaged in by the Company on the date of this Note, and in
activities substantially similar or related thereto.
11. Employment Agreement. The Company will not (a) materially amend,
modify, waive any provision of, or consent to any action under, such of the
terms and conditions of the Employment Agreement as relate to compensation,
duties, non-competition and non-interference or (b) terminate the Employment
Agreement without the prior written consent of Holder.
12. Mortgages, Liens, etc. The Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or permit
to exist any mortgage, lien, charge or encumbrance on or security interest in or
pledge of' or conditional sale or other title retention agreement with respect
to any property or asset now owned or hereafter acquired by the Company or such
Subsidiary, or any Indebtedness or liability of the Company or any of its
Subsidiaries, provided that the foregoing restrictions shall not prohibit:
(a) liens for Impositions the payment of which is not at the time
required by Section 6;
(b) liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, or to secure the performance of bids,
tenders, statutory obligations, surety and
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appeal bonds, payment and performance bonds, completion bonds,
return-of-money bonds and other similar obligations (not incurred in
connection with the borrowing of money or the obtaining of advances or
credit);
(c) liens on assets of the Company and/or its Subsidiaries created
under the Credit Agreement or the Security Documents referred to therein;
(d) in the case of the issued and outstanding capital stock of any
Subsidiary owned by the Company, the pledge thereof pursuant to the Credit
Agreement; and
(e) in the case of any equipment or other similar personal property
acquired by the Company or any Subsidiary and having an unpaid purchase
price of no more than $500,000 ($700,000, if and to the extent of the
Contingent Obligation under the HBRS Transaction), individually or in the
aggregate, liens (such term to include security interests and conditional
sale and other title retention agreements) created to finance the
acquisition of such personal property, provided that each such lien shall
at all times be confined solely to the items of personal property so
acquired and shall at no time confer on the holder of such lien any right
in respect of any other property of the Company or any Subsidiary.
13. Investments.
(a) Except as provided in paragraphs (b) and (c) below, the Company
will not, and will not permit any Subsidiary to, directly or indirectly
make or own any Investment, except that the Company or any Subsidiary may
make and own Investments consisting of (i) marketable direct obligations
of the United States of America, (ii) certificates of deposit or other
obligations of banks organized and existing under the laws of the United
States of America and having capital and surplus and undivided profits of
at least $500,000,000, and (iii) commercial paper issued by a corporation
organized under the laws of any state of the United States or of the
District of Columbia and rated at least A-1 by S&P or P-1 by Moody's,
provided that all such Investments shall mature within a period of nine
(9) months from the date when made and, provided further that the Company
may make aggregate Investments in the Common Stock of direct Wholly-Owned
Subsidiaries of the Company not to exceed $100,000.
(b) The Company shall be permitted to make and own Investments in HB
Capital, Inc. so long as the aggregate amount of such Investments shall
not exceed $600,000 and HB Capital, Inc. shall have unconditionally
guaranteed the payment of this Note pursuant to a guaranty agreement
satisfactory in form and substance to Holder (such guaranty shall be
permitted to terminate if there is no Default and the Company no longer
makes or owns any Investment in HB Capital, Inc.).
(c) The Company shall be permitted to make and own Investments in
the form of loans or advances to officers or employees of the Company made
in the ordinary course
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of business and consistent with past practice so long as the aggregate
outstanding amount of all such Investments does not exceed $200,000. The
Company shall also be permitted to make advances in the ordinary course of
business and consistent with past practices to officers and employees for
travel and similar reimbursable business expenses to be incurred by such
officer or employee.
14. Indebtedness and Contingent Obligations, etc. The Company will not,
and will not permit any Subsidiary to, directly or indirectly create or suffer
to exist any Indebtedness; provided that nothing contained in this Section 14
shall prohibit the Company from incurring the Indebtedness created by this Note,
the Bridge Note (as defined and issued pursuant to the Purchase Agreement), the
Virginia Lease (as defined below) or the Credit Agreement or Indebtedness
incurred in connection with the purchase of personal property or equipment in an
aggregate outstanding amount not to exceed $500,000, which Indebtedness is
non-recourse except as to such property or equipment or the Contingent
Obligation of the Company in an aggregate amount not to exceed $200,000 arising
from the purchase of assets from HBRS, Inc. pursuant to an asset purchase
agreement, executed effective as of April 1, 1995 (the "HBRS" Transaction"). The
Company will not amend, modify, waive any provision of, consent to any action
under, or extend the Company's lease (the "Virginia Lease") on its Arlington,
Virginia headquarters without the prior written consent of Holder.
15. Restricted Payments. The Company will not directly or indirectly
declare, order, pay or make or set apart any sum or property for any Restricted
Payment, except for (a) the declaration and payment on or before May 31, 1995,
of a dividend in-kind consisting of the capital stock of HB Capital, Inc., the
value of which does not exceed $100 and (b) payments in any fiscal year of the
Company in an aggregate amount necessary to enable Hagler to make its then
required payments under the Stockholders Agreement, provided that such payments
do not exceed amounts allowed to be paid under Section 8 of the Stockholders
Agreement and at the time of payment therof and after giving effect thereto, no
Default shall exist.
16. Transactions with Affiliates. The Company will not, and will not
permit any Subsidiary to, directly or indirectly, enter into any transaction
with any Affiliate except for: (a) transactions (other than transactions
constituting Investments in HB Capital, Inc. or loans or advances permitted by
Section 13(c) above) in the ordinary course of business on terms that are no
less favorable to the Company or such Subsidiary, as the case may be, than those
which might be obtained at the time from Persons who are not Affiliates and (b)
salaries and other employee compensation, provided that if the Company fails to
pay when due any amounts owed under this Note, the Credit Agreement or the
Virginia Lease, then, so long as such failure to pay continues, salaries and
other compensation of officers and directors of the Company or any Subsidiary
shall not increase in the aggregate without the written consent of Holder;
provided that increases required pursuant to the Employment Agreement shall be
permitted but shall be included in determining amounts available hereunder.
17. Disposal of Indebtedness of Securities or Subsidiaries, etc. The
Company will not
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(a) directly or indirectly sell, assign, pledge or otherwise
transfer any Indebtedness or claim against or any stock or other
securities of (or options to acquire stock or other securities of any
Subsidiary except as required by the Credit Agreement; or
(b) permit any Subsidiary directly or indirectly to own or hold any
Indebtedness of or claim against the Company or any other Subsidiary, or
any stock or other securities of (or options to acquire stock or other
securities of) any other Subsidiary; or
(c) permit any Subsidiary directly or indirectly to issue or sell
any shares of its stock or any other securities except to the Company.
18. Sale, Consolidation, Merger, etc. The Company will not, and will not
permit any Subsidiary to (other than as contemplated by the Purchase Agreement),
directly or indirectly,
(a) sell, lease or otherwise dispose of all or substantially all of
its properties or assets; or
(b) consolidate with or merge into any other Person or permit any
other Person to consolidate with or merge into it, except that a
Subsidiary may be consolidated with or merged into the Company or a
Wholly-Owned Subsidiary, if the Company or such WhollyOwned Subsidiary, as
the case may be, shall be the surviving corporation; or
(c) sell, lease or otherwise dispose of any of its properties or
assets otherwise than in the ordinary course of business.
19. Financial Covenants. The Company shall comply with the financial
covenants contained in Section 7 of the Credit Agreement, notwithstanding
termination of the Credit Agreement, provided that in the event that any
provision of Section 7 of the Credit Agreement is waived (or amended in a manner
which has the effect of being a waiver, i.e., such amendment is not modifying
future compliance with the Credit Agreement) and the Company has certified to
Holder that no consideration has been offered or given by the Company or Hagler
to the person consenting to such waiver or amendment in order to obtain such
waiver or amendment and has requested Holder to consent in writing to such
waiver (or such amendment) under this Section 19, then Holder will not
unreasonably withhold its consent to such request.
20. Replacement of Notes. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Note and,
in the case of any such mutilation, upon surrender of such Note to the Company
for cancellation, and in the case of loss, an agreement of indemnity by Holder,
the Company at its expense will execute and deliver, in lieu thereof, a new Note
of like tenor, dated the date to which interest on such lost, stolen, destroyed
or mutilated Note has been paid.
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21. Events of Default; Declaration of Note Due. If one or more of the
following events ("Events of Default") shall occur:
(a) if any principal of this Note shall not be paid when due,
whether at stated maturity or by prepayment or otherwise; or
(b) if any interest on this Note shall not be paid for more than 5
days after such interest shall have become due; or
(c) if the Company shall fail to perform or comply with any term of
Sections 11 to 19, inclusive, of this Note for a period of 15 days; or
(d) if, without the written consent of Holder, which consent shall
not be unreasonably withheld, the Company shall (i) amend, or receive
under the Credit Agreement any waiver or modification of, the amortization
schedule contained in the Credit Agreement, or (ii) fail to make such
amortization payments when due (or within 90 days of the date provided for
in the Credit Agreement, provided that acceptance of such late payment by
State Street Bank and Trust Company shall not be deemed a waiver under
clause (i) above); or
(e) if the Company shall fail to perform or comply with (i) any term
of this Note required to be performed or complied with by it (other than
those referred to above in this Section 21) or (ii) any covenant contained
in the Purchase Agreement and such failure shall continue for more than 15
days after written notice thereof shall have been given to the Company by
Holder; or
(f) if any representation or warranty of the Company contained in
this Note or made in the Purchase Agreement shall prove to have been
incorrect in any material respect as of the date on which made; or
(g) if, other than as provided in clause (d) above, (i) the Company
or any Subsidiary shall default (as principal or guarantor or other
surety) in the payment of any principal of or premium, if any, or interest
on the Indebtedness evidenced by the Credit Agreement or any other
Indebtedness; or the Company or any Subsidiary shall default with respect
to any term of any evidence of any such Indebtedness or of any mortgage,
indenture or other agreement relating thereto, and (ii) such default shall
continue for more than the period of grace, if any, provided with respect
thereto and, except with respect to payment, shall not have been
effectively waived; or
(h) if Hagler, the Company or any Subsidiary shall make an
assignment for the benefit of creditors, or shall admit in writing its
inability to pay its debts as they become due, or shall not generally be
paying its debts as they become due, or shall file a petition in
bankruptcy, or shall be adjudicated a bankrupt or insolvent, or shall file
a petition or answer seeking for itself, or consenting to, or acquiescing
in, any reorganization, arrangement,
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<PAGE>
composition, readjustment, liquidation, dissolution or similar relief
under any present or future statute, law or regulation, or shall file an
answer admitting or not contesting the material allegations of a petition
filed against it in any such proceeding, or shall seek or consent to or
acquiesce in the appointment of any trustee, receiver or liquidator of
Hagler, the Company or such Subsidiary or any material part of its
properties; or
(i) if, within 30 days after the commencement of any proceeding
against the Company or any Subsidiary seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or
similar relief under any present or future statute, law or regulation,
such proceeding shall not have been dismissed, or if, within 30 days after
the appointment without the consent or acquiescence of Hagler, the Company
or any Subsidiary, of any trustee, receiver or liquidator of Hagler, the
Company or such Subsidiary or of any substantial part of its properties,
such appointment shall not have been vacated; or
(j) if Hagler, the Company or their respective directors or
stockholders shall take any action looking to the dissolution or
liquidation of Hagler or the Company; or
(k) if a final judgment which, with other then outstanding final
judgments against the Company and its Subsidiaries, exceeds an aggregate
of $200,000 shall be rendered against the Company or any Subsidiary, and
if, within 15 days after the entry thereof, such judgment shall not have
been discharged or execution thereof stayed pending appeal or if, within
15 days after the expiration of any such stay, such judgment shall not
have been discharged; or
(l) a Change in Control shall have occurred; or
(m) Mr. Henri-Claude Bailly shall fail to own 75% of the number of
shares of Common Stock of Hagler owned by him on the date of this Note
(without giving effect to any stock split or other corporate event
pursuant to which such number is increased or decreased) or shall cease to
be the chief executive officer of the Company (other than by death or
disability, so long as a successor acceptable to Holder shall serve in his
stead); or
(n) if Hagler shall fail to perform any of its obligations under the
Lease Guaranty;
then, and in any such event, Holder may at any time at its option, by written
notice to the Company, declare this Note to be due and payable, whereupon the
same shall forthwith become due and payable, together with interest accrued
hereon, without presentment, demand, protest or notice, all of which are hereby
waived; provided that upon the occurrence of any of the events described in
clause (h), (i) or (j) of this Section 21, this Note shall automatically be and
become due and payable, together with interest accrued hereon, without
presentment, demand, protest or notice, all of which are hereby waived.
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<PAGE>
22. Remedies on Default, etc. In case any one or more Events of Default
shall have occurred and shall be continuing, the Holder may proceed to protect
and enforce its rights by a suit in equity, action at law or other appropriate
proceeding, whether for the specific performance of any agreement contained in
this Note, or for an injunction against a violation of any of the terms hereof,
or in aid of the exercise of any right, power or remedy granted thereby or by
law, equity, statute or otherwise. In the case of a Default in the payment of
any principal of or interest on the Note, the Company will pay to the Holder
such further amount as shall be sufficient to cover the cost and expense of
collection, including, without limitation, reasonable attorneys' fees. No course
of dealing and no delay on the part of the Holder in exercising any right, power
or remedy shall operate as a waiver thereof or otherwise prejudice the Holder's
rights, powers or remedies. No right, power or remedy conferred hereby shall be
exclusive of any other right, power or remedy referred to herein or now or
hereafter available at law, in equity, by statute or otherwise.
23. Subordination. The indebtedness evidenced by this Note is subordinate
and junior in right of payment to the extent set forth in the lntercreditor and
Subordination Agreement referred to in the legend at the top hereof.
24. Definitions. As used herein the following terms have the following
respective meanings:
Affiliate: (a) Messrs. Bailly and Yokell (b) any Person owning or
controlling 5% or more of any class of stock or similar interests of Hagler or
any Subsidiary, (c) any spouse of any such Person, (d) any relative (within the
third degree) of any such Person or spouse, (e) any corporation, association,
partnership or other business entity in which any such Person or spouse or
relative has a substantial interest (including in the case of a partnership, any
general partnership interest), direct or indirect, and (f) any corporation,
association, partnership or other business entity, other than a Subsidiary, 5%
or more of any class of stock or similar interests, or in the case of a
partnership, the general partnership interest, of which is owned or controlled
by Hagler or any Subsidiary.
Change in Control: (a) after an initial public offering of stock of
Hagler, any person (as such term is used in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than
the Management Group, is or becomes "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to
have "beneficial ownership" of all shares that any such person has the right to
acquire whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of 25% or more of the common stock of Hagler
on a fully diluted basis; or
(b) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of Hagler or the
Company (together with any new or replacement directors whose election by such
Board or whose nomination for election by the shareholders of Hagler or the
Company was approved by a vote of two-thirds of the directors of the Company
then still in office who were either directors at the beginning of such period
or whose
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election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of Hagler or the
Company then in office.
Common Stock: stock of any class or classes (however designated) the
holders of which are ordinarily entitled to vote for the election of a majority
of the directors (or persons performing similar functions) of the corporation,
association or other entity in question.
Contingent Obligation: means, relative to any Person, any agreement,
undertaking or arrangement by which such Person guarantees, endorses or
otherwise becomes or is contingently liable upon (by direct or indirect
agreement, contingent or otherwise, to provide funds for payment, to supply
funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor
against loss) the Indebtedness, obligation or any other liability of any other
Person (other than by endorsements of instruments in the course of collection),
or guarantees the payment of dividends or other distributions upon the shares of
any other Person. The amount of any Person's obligation under any Contingent
Obligation shall (subject to any limitation set forth therein) be deemed to be
the outstanding principal amount (or maximum principal amount, if larger) of the
Indebtedness, obligation of other liability guaranteed thereby.
Credit Agreement: means the Credit Agreement, dated May 17, 1995, between
Consulting and State Street Bank and Trust Company, as in effect on the Closing
Date (as such term is defined in the Purchase Agreement) except that, solely for
purposes of Section 17(a) above, it shall mean as amended from time to time.
Default: any condition or event which constitutes or which, after notice
or lapse of time or both, would constitute an Event of Default and which has not
been fully cured or duly waived.
Employment Agreement: means the agreement, dated as of May 25, 1995,
between the Company and Henri-Claude Bailly as in effect on the Closing Date (as
such term is defined in the Purchase Agreement), except the term "Employment
Agreement" shall also include any amendments thereafter made in accordance with
Section 11 hereof.
Event of Default: the meaning specified in Section 21 of this Note.
GAAP: the meaning specified in Section 3 of this Note.
Hagler: Hagler Bailly, Inc. and any successor thereto.
Impositions: all taxes, fees, duties, withholdings, assessments
(including, without limitation, all assessments for public improvements or
benefits), levies, and other charges, in each case whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character
(including all penalties or interest thereon), which at any time may be
assessed, levied, confirmed or imposed on or in respect of or be a lien upon the
Company or any of its Subsidiaries or any of its or their respective properties,
assets, income or profits.'
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Indebtedness: as applied to any Person, (a) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services, (b) all obligations of such Person for the payment of money evidenced
by notes, bonds, debentures or similar instruments, (c) all obligations,
contingent or otherwise, relative to the face amount of all letters of credit,
whether or not drawn, and banker's acceptances issued for the account of such
Person, (d) all indebtedness secured by any mortgage, pledge, security interest,
lien or conditional sale or other title retention agreement existing on any
property or asset owned or acquired by such Person subject thereto, whether or
not such indebtedness shall have been assumed and whether or not the remedies of
the Persons entitled to payment of such indebtedness are limited upon default to
repossession of such property, and (e) all Contingent Obligations of such
Person. The term "Indebtedness" shall not include leases which under generally
accepted accounting principles are not required to be capitalized, but shall
include the Virginia Lease.
Insurance Requirements: all terms of each insurance policy and
requirements of the issuers of all such policies applicable to or affecting the
Company or any Subsidiary or any properties of the Company or any Subsidiary, or
any business conducted by the Company or any Subsidiary.
Investment: any direct or indirect purchase or other acquisition of stock
or other securities of any Person, any direct or indirect loan, advance or
capital contribution to any Person, and any direct or indirect purchase or other
acquisition of any property or asset other than those acquired by such Person in
the ordinary course of its business.
Legal Requirements: all laws, statutes, codes, acts, ordinances, orders,
judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, directions and requirements of all governments, departments,
commissions, boards, courts, authorities, agencies, officials and officers,
foreseen or unforeseen, ordinary or extraordinary, which now or at any time
hereafter may be applicable to the Company or any Subsidiary or any properties
of the Company or any Subsidiary.
Lease Guaranty: the Lease Guaranty, dated as of May 25, 1995, by Hagler
for the benefit of Holder, as such Lease Guaranty may from time to time be
amended or modified.
Management Group: Messrs. Bailly, Yokell, Armstrong, Ciliano, Poirier,
Rouse, Rowe, Steinbergh and Streicher.
Material Adverse Effect: the meaning specified in Section 3(f).
Officer's Certificate: as applied to any Person, a certificate executed on
behalf of such Person by its President or one of its Vice Presidents or its
Controller.
Person: a corporation, an association, a partnership, an organization, a
business, an individual or a government or political subdivision thereof or any
governmental agency.
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Purchase Agreement: the sale agreement, dated as of May 25, 1995, between
RCG International, Inc. and the Company.
Restricted Payment: (a) any dividend or other distribution, direct or
indirect, on account of any shares of any class of stock of the Company now or
hereafter outstanding, or (b) any redemption, retirement, purchase or other
acquisition, direct or indirect, of any shares of any class of stock of the
Company now or hereafter outstanding (or any warrants, rights or options to
purchase any such stock) or (c) any payment by the Company on behalf of Hagler,
or any payment to Hagler or any member of the Management Group for services
rendered to the Company or any Subsidiary other than, in the case of members of
the Management Group, payment permitted under Section 16 (b) above.
Stockholder Agreement: the Stockholders Agreement, dated as of May 15,
1995, among Hagler and its Stockholders as in effect on the Closing Date (as
such term is defined in the Purchase Agreement).
Subsidiary: any corporation, association or other business entity a
majority (by number of votes) of the voting stock or Common Stock of which is at
the time owned or controlled, directly or indirectly, by the Company.
Wholly-owned Subsidiary: any Subsidiary all of the outstanding shares of
each class of stock of which are at the time owned directly by the Company.
25. Indemnification. The Company hereby indemnifies, exonerates and holds
the Holder and its officers, directors and employees (collectively, the
"Indemnified Parties") free and harmless from and against any and all actions,
causes of action, suits, losses, costs, liabilities and damages, and expenses
incurred in connection therewith (irrespective of whether any such Indemnified
Party is a party to the action for which indemnification hereunder is sought),
including reasonable attorneys' fees and disbursements (collectively, the
"Indemnified Liabilities"), incurred by the Indemnified Parties or any of them
(except as a result of such person's gross negligence or willful misconduct as
determined by a final, unappealable decision of a court of competent
jurisdiction) as a result of, or arising out of, or relating to
(a) the transaction contemplated by the Purchase Agreement,
(b) the entering into and performance of this Note by the Holder,
or
(c) enforcement of the Holder's rights or remedies under this Note
or the collection of any amounts payable hereunder.
26. Notices, etc. All notices and other communications hereunder shall be
in writing and shall be delivered faxed or mailed by first class mail, postage
prepaid, addressed if to the Holder, at 111 West 40th Street, New York, New York
10018 Attention: President, fax number (212) 768-7811
-13-
<PAGE>
with a copy to Reliance Group Holdings, Inc., Park Avenue Plaza, New York, New
York 10055, Attention: Lowell C. Freiberg, fax number (212) 909-1864, and if the
Company at 1530 Wilson Boulevard, Suite 900 Arlington, Virginia 22209-2406 or to
such other address as Holder or the Company may notify the other in accordance
with the provisions hereof.
27. Amendment. No amendment or waiver of any provision of this Note, nor
consent to any departure by the Company herefrom, shall in any event be
effective unless the same shall be in writing and signed by the Company and the
Holder, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
28. Miscellaneous. This Note shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of and be enforceable by
the Holder. This Note shall be construed and enforced in accordance with and
governed by the laws of the State of New York (without giving effects to the
conflicts of law principles thereof). The headings in this Note are for purposes
of reference only and shall not limit or define the meaning hereof.
HAGLER BAILLY CONSULTING, INC.
By /s/ Daniel M. Rouse, CFO
----------------------------
Title:
-14-
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