<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CREDENTIALS SERVICES INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7320 13-3784792
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
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333 CITY BOULEVARD WEST, 10TH FLOOR
ORANGE, CALIFORNIA 92868
(714) 704-6400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MR. DAVID C. THOMPSON
President and Chief Executive Officer
CREDENTIALS SERVICES INTERNATIONAL, INC.
333 CITY BOULEVARD WEST, 10TH FLOOR
ORANGE, CALIFORNIA 92868
(714) 704-6400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copies to:
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JAMES M. MCLAUGHLIN, JR., ESQ. MELVIN KATZ, ESQ. WILLIAM H. HINMAN, JR., ESQ.
PATRICIA F. YOUNG, ESQ. MALONEY, MEHLMAN & KATZ SHEARMAN & STERLING
PILLSBURY MADISON & SUTRO LLP 405 LEXINGTON AVENUE 555 CALIFORNIA STREET
520 MADISON AVENUE, 40TH FLOOR NEW YORK, NEW YORK 10174 SAN FRANCISCO, CALIFORNIA 94104
NEW YORK, NEW YORK 10022
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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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] --------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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Common Stock, $.01 par value............................ $40,000,000 $12,121
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(1) Estimated solely for the purpose of calculating the registration fee.
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
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 OF SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 8, 1997
SHARES
[LOGO]
CREDENTIALS SERVICES INTERNATIONAL, INC.
COMMON STOCK
------------------------
Of the shares of Common Stock offered hereby, shares are being
offered by Credentials Services International, Inc. (the "Company") and
shares are being offered by certain stockholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any proceeds from the sale of shares by the Selling Stockholders.
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently anticipated that the initial public
offering price per share of the Common Stock will be between $ and
$ per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The Company intends
to make application to have the Common Stock approved for quotation on the
Nasdaq National Market under the symbol "CRSR."
------------------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 5 OF THIS PROSPECTUS FOR 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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Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
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Per Share................. $ $ $ $
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Total..................... $ $ $ $
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Total Assuming Full
Exercise of Over-
Allotment Option(3)..... $ $ $ $
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(1) See "Underwriting."
(2) Before deducting expenses estimated at $ , which are payable by the
Company.
(3) Assuming exercise in full of the 30-day option granted by the Selling
Stockholders to the Underwriters to purchase up to additional
shares, on the same terms, solely to cover over-allotments. See
"Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made in New York City on or about
, 1997.
------------------------
PAINEWEBBER INCORPORATED HAMBRECHT & QUIST
------------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
Credentials(R) is a trademark of Credentials Services International, Inc.
This prospectus includes trademarks and tradenames of other companies.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF THE COMMON STOCK TO STABILIZE ITS
MARKET PRICE, THE PURCHASE OF THE COMMON STOCK TO COVER SYNDICATE SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and related notes appearing elsewhere in
this Prospectus. Except as set forth in the Financial Statements and notes
thereto or as otherwise specified herein, all information in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option, (ii) reflects a
-for- split of the Common Stock to be effected prior to the commencement of
this offering and (iii) assumes the exercise of warrants to purchase the
equivalent of shares of Common Stock prior to the closing of this
offering. See "Description of Capital Stock" and "Underwriting." Investors
should carefully consider the information set forth under the heading "Risk
Factors."
This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed under the heading "Risk Factors" below, as
well as those discussed elsewhere in this Prospectus.
THE COMPANY
Credentials Services International, Inc. is a leading direct marketer of
credit information and monitoring membership programs to consumers. The Company
believes that it provides value-added programs that enable consumers to monitor
the accuracy of their personal credit data that is collected and held by credit
reporting bureaus. This information allows consumers to respond on an informed
basis to credit decisions made by providers of credit such as mortgage lenders,
consumer finance companies, auto loan providers, credit card providers, banks
and other lending institutions. Through its relationship with Experian Inc., one
of the three major credit reporting bureaus, the Company provides this
information to its members in a readily understandable, readable format and
offers members notification of significant events, such as credit inquiries and
the entry of negative credit data in the member's credit file, which might
affect their ability to obtain credit.
The Company markets its membership programs to consumers using direct
marketing techniques, primarily by direct mail and telemarketing campaigns
conducted through endorsed co-marketing relationships with major credit card
issuers that have a large customer base, such as banks, retailers and oil
companies. Through its co-marketing relationships, the Company markets its
programs to the customer bases of nationally-known organizations such as The
Chase Manhattan Bank USA, N.A., Bank One, N.A. and its affiliates (including the
recently merged First USA Bank credit card customer base), PNC National Bank,
N.A., Service Merchandise and Sun Company, Inc. (Sunoco). During the nine-month
period ended June 27, 1997, the Company increased the number of its co-marketers
to 24 from 13 at September 27, 1996. During this period, the Company's
membership base increased to approximately 1.3 million members from
approximately 828,000 members.
The consumer credit information and monitoring business conducted by the
Company was started in 1986 by a division of TRW, Inc. In October 1994, the
Company purchased certain assets of the business from TRW, Inc. In September
1996, TRW, Inc., sold its credit bureau and credit reporting business, and that
business was subsequently renamed Experian Inc. At the time of the Company's
acquisition in 1994, it entered into a ten-year contract with TRW, Inc. pursuant
to which the Company has access to Experian Inc.'s credit reports and daily
access to the national Experian Inc. credit file. The Company's information
systems are integrated with Experian Inc.'s database and systems, enabling the
Company to immediately and automatically notify a member when an inquiry is made
into the member's personal credit file. The Company believes that it is the only
company which currently offers this unique feature to consumers and that this
feature constitutes a substantial competitive advantage with respect to
developing co-marketing relationships and building its membership base.
1
<PAGE> 5
The Company seeks to become the leading provider of credit information and
monitoring programs to consumers and to continue to build its membership base
with its core programs and the introduction of new programs. The key elements of
the Company's strategy are as follows:
Grow and Maintain Membership Base By Offering Premium Quality
Programs. The Company's goal is to build and maintain its membership base by
continuing to provide its core value-added consumer credit programs, which the
Company believes are superior to the programs offered by its competitors.
Expand Distribution Channels. The Company intends to expand its network of
co-marketing relationships to include additional major banks, retailers and oil
companies, as well as to aggressively develop innovative new distribution
channels. Potential co-marketing partners may include mortgage servicing
companies, insurance companies and utility companies, such as regional telephone
companies. The Company also believes the World Wide Web may become a viable
distribution channel for its membership programs and is exploring that potential
distribution opportunity.
Develop New Programs. The Company intends to continue to develop and
market new programs to current and new members. The Company has test marketed
and is continuing to develop a program targeted to small businesses which would
provide those businesses with credit information and monitoring services to
enable them to better evaluate and monitor their own credit as well as the
credit of other businesses, particularly their vendors, suppliers and customers.
In addition, the Company is presently test marketing a number of other
consumer-oriented membership programs.
Provide Superior Levels of Customer Service. The Company is committed to
maintaining what it believes is a superior level of customer service, as
reflected by membership renewal rates and satisfaction among members and
co-marketers.
Develop and Use State-of-the-Art Technical Solutions. The Company intends
to continue developing and using advanced technological methods to solicit new
members, collect and market credit data and provide membership services.
The Company was incorporated in Delaware in 1993 and commenced operations
in October 1994. The Company's executive offices are located at 333 City
Boulevard West, 10th Floor, Orange, California 92868, and its telephone number
is (714) 704-6400.
2
<PAGE> 6
THE OFFERING
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Common Stock Offered by the Company.......... shares
Common Stock Offered by the Selling
Stockholders............................... shares
Common Stock to be Outstanding after the
Offering................................... shares(1)
Use of Proceeds.............................. The net proceeds to the Company from the
offering are estimated to be approximately
$ . The Company intends to apply the
net proceeds of the offering to repay certain
outstanding indebtedness in the aggregate
principal amount of approximately $15.0
million, plus accrued interest. The balance of
the net proceeds of the offering, if any, will
be used for general corporate purposes. The
Company will not receive any proceeds from the
sale of shares by the Selling Stockholders.
See "Use of Proceeds."
Proposed Nasdaq National Market Symbol....... CRSR
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(1) Based upon the number of shares of Common Stock outstanding at October ,
1997. See "Capitalization" and "Principal and Selling Stockholders."
Excludes shares of Common Stock issuable upon exercise of options
issued under the Company's 1997 Stock Option Plan. See "Management --
Executive Compensation."
3
<PAGE> 7
SUMMARY FINANCIAL INFORMATION
The following summary financial information for each of the two fiscal
years in the period ended September 27, 1996 and at June 27, 1997 and for the
nine-month period ended June 27, 1997 has been derived from the financial
statements of the Company that have been audited by Coopers & Lybrand L.L.P.,
independent auditors, included herein. The summary financial information for the
nine-month period ended June 28, 1996 has been derived from unaudited financial
statements prepared on the same basis as the audited financial statements and
contain, in the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position at such date and the operating results and cash flows for such period.
The results of operations for the nine months ended June 27, 1997 are not
necessarily indicative of results to be expected for any future period. The
summary financial information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes included elsewhere in this
Prospectus.
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FISCAL YEARS NINE-MONTH PERIODS
ENDED SEPTEMBER(1) ENDED JUNE(1)
------------------ -------------------------
1995 1996 1996 1997
------- -------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND
NUMBER OF MEMBERS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $12,540 $ 24,556 $ 17,091 $28,208
Operating income (loss).............................. (4,544) (20,629) (14,492) 2,552
Interest expense..................................... 1,239 1,818 893 1,052
Income (loss) before provision for income taxes and
extraordinary item................................. (5,783) (22,447) (15,385) 1,500
Income (loss) before extraordinary item.............. (5,783) (22,447) (15,385) 1,439
Income (loss) per share before extraordinary item....
Weighted average common and common equivalent shares
outstanding........................................
OTHER DATA:
Total members at end of period....................... 613,000 828,000 714,000 1,257,000
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JUNE 27, 1997
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ACTUAL AS ADJUSTED(2)
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(UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ 299 $
Total assets....................................................... 37,696
Total liabilities.................................................. 57,378
Total stockholders' deficit........................................ (19,682)
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(1) The Company's fiscal year ends on the last Friday of September of each year.
The Company's quarterly periods are each comprised of 13 weeks and end on a
Friday. The first month of each quarter is comprised of five weeks, and each
of the two remaining months of the quarter is comprised of four weeks.
(2) Adjusted to reflect (i) the sale by the Company of shares of
Common Stock offered hereby at an assumed initial public offering price of
$ per share; and (ii) the application of the estimated net proceeds
of this offering. See "Use of Proceeds" and "Capitalization."
4
<PAGE> 8
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company, its current
business and its future prospects before purchasing shares of the Company's
Common Stock offered hereby.
LIMITED OPERATING HISTORY
The Company commenced operations in October 1994. It has a limited
operating history and is at an early stage of development. While the Company's
business of direct marketing credit information and monitoring programs was
started by a division of TRW, Inc. ("TRW") in 1986, the Company has operated as
an independent business organization for approximately three years and,
therefore, its future results of operations are subject to the uncertainties,
including those concerning continuity of management and business relationships,
customarily encountered by new businesses.
HISTORY OF OPERATING LOSSES
For the nine-month period ended June 27, 1997, the Company generated net
income of approximately $1.3 million; however, as of June 27, 1997, the Company
had an accumulated deficit of approximately $26.9 million. For fiscal years 1996
and 1995, the Company incurred net losses of approximately $22.4 million and
$5.8 million, respectively. Management believes that the net loss for the year
ended September 27, 1996 was a result primarily of failed direct marketing and
telemarketing campaigns that were conducted on an unendorsed basis (i.e.,
without the benefit of co-marketer endorsements). The fiscal year 1996 losses
resulted in a severe liquidity shortfall which impaired the Company's ability to
undertake new marketing programs. Management of the Company has since taken a
variety of actions, including the investment of additional capital in the
Company, the replacement of certain key executive officers and the
implementation of new operational and financial control procedures, in an effort
to remedy the problems that led to the Company's financial difficulties in
fiscal year 1996. There can be no assurance, however, that these or any other
steps taken by management in the future will be sufficient to allow the Company
to maintain profitability or avoid liquidity problems and operating losses such
as those recently experienced by the Company.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly revenues, expenses and operating results have
varied significantly in the past and are likely to vary significantly from
quarter to quarter in the future. Factors which may affect the Company's
financial results include: response to membership solicitations; cancellations
and renewals of memberships; market acceptance of the Company's and the
co-marketers' existing and new programs; the demand for credit monitoring
services such as those offered by the Company; the timing of the Company's
investments in program development; unanticipated customer service
interruptions; unanticipated increased costs associated with maintenance and
expansion of operations; and competitive pressures on the Company's business
generally. Many of these factors (including postage and telephone rates for
direct mail and telemarketing campaigns) are beyond the Company's control. For
example, the U.S. Postal Service has proposed a postage rate increase to become
effective in mid-1998. In addition, any delay in the offering of a new program
by the Company, its co-marketers or otherwise, or slower than anticipated
consumer acceptance of such program, could adversely affect the Company's
margins in a given period. Due to the foregoing and other factors, the Company
believes that its quarterly operating results are likely to vary significantly
in the future, that period-to-period comparisons of its operating results are
not necessarily meaningful and that such comparisons cannot be relied upon as
indicators of future performance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON CO-MARKETERS; CO-MARKETER CONCENTRATION
The Company obtains substantially all of the information necessary for
conducting the Company's endorsed marketing efforts from customer lists supplied
by its co-marketers. Co-marketers provide the lists to the Company solely for
use in marketing specified products. As a result, the Company's ability to
market an
5
<PAGE> 9
existing program to potential new members or a new program to its existing
members is dependent on its ability to develop and maintain relationships with
co-marketers and to obtain approval for its marketing efforts from the relevant
co-marketer.
Approximately 42% of the Company's revenues for the nine-month period ended
June 27, 1997 were attributable to members solicited from customer lists
provided by its two largest co-marketers. The number of new members attributable
to any individual co-marketer fluctuates from period to period depending on
whether the Company has initiated a product marketing cycle for that co-marketer
during the relevant period. Accordingly, the percentage of the Company's total
revenue generated by each individual co-marketer has varied over time although
memberships and the associated revenue derived from endorsed marketing campaigns
conducted with The Chase Manhattan Bank USA, N.A. ("Chase") and Bank One, N.A.
and its affiliates (including the recently merged First USA Bank credit card
customer base) ("Bank One") have historically constituted a significant portion
of the Company's total revenues and membership base. For the nine-month period
ended June 27, 1997, approximately 37% of the Company's revenues were generated
from members who were originally solicited with the co-marketer endorsement of
Bank One (the "Bank One Endorsement"), and approximately 5% of the Company's
revenues were generated from members who were originally solicited with the
co-marketer endorsement of Chase (the "Chase Endorsement"). At June 27, 1997,
approximately 18% of the Company's members consisted of members who were
originally solicited with the Chase Endorsement and approximately 26% of the
Company's members consisted of members who were originally solicited with the
Bank One Endorsement. The Company is currently engaged in expanding the number
of its co-marketing partners (which has grown to 24 at June 27, 1997 from 13 at
September 27, 1996) and anticipates that, as a result, it will, over time,
become less dependent on individual co-marketers. There can be no assurance,
however, that such expansion efforts will succeed or that the Company will,
accordingly, be able to lessen its dependence on individual co-marketers.
Certain of these co-marketer relationships are governed by agreements which may
be terminated without cause by either party upon 60 to 90 days' notice without
penalty and upon 30 days' notice in the event of an uncorrected material breach.
Upon such termination, the Company has the right to continue its relationship
with the co-marketer's customers that have become members prior to the
termination. There can be no assurance that one or more of the Company's
significant co-marketers will not terminate its relationship with the Company or
that co-marketers will continue to provide additional customer lists to the
Company for use in future marketing of new or existing membership programs. The
loss of any significant co-marketer could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business."
DEPENDENCE ON MEMBERSHIP RENEWALS
Fees generated by renewals of memberships are a significant contributor to
the Company's net income. The initial year of a membership is less profitable to
the Company than renewal years due primarily to the marketing costs associated
with acquiring new members. In addition, during the initial year of a
membership, a member may cancel his or her membership in the program for a
complete refund of the membership fee for that year. Accordingly, the
profitability of the Company is substantially dependent upon its membership
renewals. Renewal rates are uncertain and are subject to several factors, many
of which are beyond the Company's control, including changing member
preferences, competitive price pressures, general economic conditions, customer
satisfaction and credit card holder turnover. In addition, due to the rapid
growth of the Company's membership base during fiscal year 1997, the membership
renewal rates historically experienced by the Company are not necessarily
indicative of future renewal rates. There can be no assurance that the Company
will continue to generate sufficient membership renewals to maintain
profitability or that memberships, if renewed, will not be cancelled. Failure of
the Company to generate a high rate of membership renewals would 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" and "Business -- Sales and Marketing."
6
<PAGE> 10
COMPETITION
The Company's principal competitor is CUC International Inc. ("CUC") which
offers credit reporting membership programs with certain features similar to
those provided by the Company's programs. In addition to this direct
competition, the Company also encounters competition for co-marketer
endorsements from other direct marketing businesses. Because agreements between
co-marketers and program providers are often exclusive with respect to a
particular service, potential co-marketers may be prohibited from entering into
agreements with the Company to promote a program if the features provided by the
Company's program are similar to, or overlap with, the features offered by an
existing program of a competitor. There can be no assurance that the Company's
competitors will not increase their emphasis on programs similar to those
offered by the Company and more directly compete with the Company, that new
competitors will not enter the market, that competitors will not increase the
compensation they provide to co-marketers to induce such co-marketers to enter
into agreements, or that other businesses will not themselves introduce
competing programs. Such potential competitors include major credit card
issuers, including the Company's co-marketers. Potential competitors also
include major credit reporting bureaus, including Experian Inc. ("Experian"),
which would have significant competitive advantages such as access to credit
data at minimal cost. There can be no assurance that the Company's current or
potential competitors will not provide programs comparable or superior to those
provided by the Company at lower membership prices or adapt more quickly than
the Company to evolving industry trends or changing market requirements. In
addition, alliances among competitors may emerge and rapidly acquire significant
market share. Many of the Company's current and prospective competitors,
including CUC, have substantially larger customer bases and greater financial
and other resources than those available to the Company. Increased competition
may result in price reductions, increased fees payable to co-marketers, reduced
profitability and loss of market share, any of which could materially adversely
affect the Company's business, financial condition and results of operations.
There can be no assurance that the Company will be able to compete effectively
against future and current competitors. See "Business -- Competition."
Experian provides substantially all of the credit information which the
Company furnishes to its members. Although neither Experian nor the other credit
reporting bureaus provide the credit monitoring services currently offered by
the Company, Experian and the other credit bureaus currently provide a credit
report directly to any consumer at the consumer's request at the rate of
approximately $8.00 per report (except in states where local legislation
provides that consumers are entitled to a free credit report upon their written
request). See "-- Government Regulation; Adverse Publicity -- State Fair Credit
Reporting Acts." There can be no assurance that Experian or the other credit
bureaus will not begin to more aggressively market their services to consumers
by initiating price reductions or advertising campaigns targeted to consumers
and that such actions will not adversely affect the Company's business,
financial condition and results of operations or require the Company to reduce
prices for certain of its programs in order to remain competitive. On August 13,
1997, Experian launched a program to offer consumers the opportunity to receive
their credit reports directly over the Internet. Although two days later
Experian announced that it was suspending this program due to certain
operational and security problems, there can be no assurance that this, or
similar programs, will not be implemented by Experian or other credit reporting
bureaus or that competition from such programs will not adversely affect the
Company's business, financial condition and result of operations. Experian and
the other credit reporting bureaus would have significant competitive advantages
over the Company in providing such reports or services, such as access to credit
data at minimal cost. See "-- Dependence on Third Parties -- Relationship with
Experian."
In addition, the introduction or announcement by competitors of the Company
of new programs similar to those offered by the Company could render the
Company's existing programs uncompetitive or obsolete, or result in a delay or
decrease in orders for the Company's existing programs as co-marketers or
customers evaluate new programs or select new programs as an alternative to the
Company's existing programs. Therefore, the announcement or introduction of new
programs by competitors of the Company could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Competition."
7
<PAGE> 11
Providers of membership programs also compete for the limited access
provided by co-marketers to their customers against other businesses engaged in
direct marketing activities, such as telemarketing and direct mail. In recent
years, there have been significant advances in new forms of direct marketing,
such as the development of interactive shopping and data collection through
television, the Internet and other media. Many industry experts predict that
electronic interactive commerce, such as shopping and information exchange
through the World Wide Web, will proliferate significantly in the foreseeable
future. To the extent it occurs, such proliferation could materially change the
economics of acquiring members for membership programs. Although the Company is
exploring the potential of what it believes are the most promising new forms of
direct marketing, there can be no assurance that the Company would be able to
adapt to a material change in the economics of its business or that such change
would not have a material adverse effect on the Company's business, financial
condition or results of operations. See "Business -- Competition."
DEPENDENCE ON CREDIT CARD INDUSTRY
Programs marketed through the Company's credit card issuer co-marketers
accounted for substantially all of the Company's revenues in fiscal year 1996
and the nine-month period ended June 27, 1997. A significant downturn in the
credit card industry or a trend in that industry to reduce or eliminate its use
of direct marketing programs would have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company is obligated under the terms of its agreement with credit card
issuers and merchant processors under rules promulgated by credit card
associations such as Visa International and MasterCard to maintain certain
standards of commercial conduct relating generally to the protection of credit
card holders and consumers. While the Company believes it has been in compliance
with such standards to date, violations of such standards could jeopardize the
Company's ability to utilize such associations to collect payment of membership
fees, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Credit Card
Enhancement Industry Background" and "-- Sales and Marketing."
DEPENDENCE ON THIRD PARTIES
Relationship with Experian. The Company receives substantially all of its
credit reports and credit information from Experian. In connection with the
acquisition of the Company's business in October 1994, the Company entered into
a ten-year contract with TRW (the predecessor to Experian) pursuant to which the
Company has access to Experian's credit reports and daily access to the national
Experian credit file. The Company is dependent upon access to Experian's data
base, which enables the Company to offer the credit monitoring feature of its
programs to its members. The Company's information systems are integrated with
and dependant upon Experian's database and systems. The Company's agreement with
Experian provides that either party may request a modification of the pricing
terms after October 1999, the fifth anniversary of the agreement. In the event
such a request is made and the Company and Experian are unable to agree upon new
pricing terms within a specified period, either party may terminate the
contract. In addition, if the Company fails to comply with various regulations
applicable to the Company, Experian may terminate the contract. There can be no
assurance that, in the event Experian ceases operations, or terminates, breaches
or chooses not to renew its agreement with the Company, a replacement source for
credit reports and information could be retained on a timely basis, if at all.
Any such termination, breach or nonrenewal could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"-- Government Regulation; Adverse Publicity" and "Business -- Overview" and
"-- Credit Information and Monitoring Programs."
Direct Marketing. The Company solicits members for its programs primarily
through direct mail and telemarketing. The Company outsources its direct mail
and telemarketing activities to third party contractors. The third party
contractors operate pursuant to agreements with the Company that may be
terminated with limited prior notice. There can be no assurance that, in the
event any such third party contractor ceases operations, or terminates, breaches
or chooses not to renew its agreement with the Company, a replacement direct
mailer or telemarketer could be retained on a timely basis, if at all. In
addition, as third party contractors, the level and quality of services provided
by direct mailers and telemarketers is beyond the control
8
<PAGE> 12
of the Company. Any service interruptions or quality problems could result in
negative publicity, customer dissatisfaction and membership cancellations which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Sales and Marketing."
Printing and Fulfillment Outsourcing. The Company outsources its printing
and membership fulfillment processes, and is dependent on printers and mailing
houses for prompt and accurate production of mailing inserts and initial
customer fulfillment packages. In the event that one of the printing or mailing
houses is unable or unwilling to provide materials on a timely basis or
terminates its relationship with the Company, there can be no assurance that the
Company would be able to replace such services without an interruption in its
marketing and customer service operations. Any such interruption could
materially and adversely affect the Company's business, financial condition and
results of operations. See "Business -- Fulfillment."
MANAGEMENT OF GROWTH
The Company has recently experienced a period of rapid growth that has
placed significant demands on its management and other resources. Continued
growth, if any, could continue to place significant demands on such resources.
For example, the Company's membership base increased to approximately 1.3
million members at June 27, 1997 from approximately 828,000 members at September
27, 1996. Revenues have also increased significantly since the inception of the
Company. The Company's ability to compete effectively and to manage future
growth, if any, will depend on its ability to continue to implement and improve
operational, financial and management information systems on a timely basis and
to expand, train, motivate and manage its employees. There can be no assurance
that the Company's personnel, systems, procedures and controls will be adequate
to support the Company's operations, and the failure to effectively support the
Company's operations could 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."
POTENTIAL NEGATIVE IMPACT OF COMPETING DISTRIBUTION CHANNELS; RESISTANCE TO
TELEMARKETING
In recent years, there have been significant advances in new forms of
direct marketing, such as the development of interactive shopping and data
collection through television, the Internet and other media. Electronic
interactive commerce, such as shopping and information exchange via the World
Wide Web, may proliferate significantly in the foreseeable future. To the extent
it occurs, such proliferation could materially change the economics of acquiring
members for membership service programs. Such change could have a materially
adverse effect on the Company's business, financial condition and results of
operations. Furthermore, as the telemarketing industry continues to grow, the
effectiveness of telemarketing, which is one of the two principal means by which
the Company markets its programs, as a direct marketing method may decrease as a
result of increased consumer resistance to telemarketing in general. See
"Business -- Credit Card Enhancement Industry Background," "-- Sales and
Marketing" and "-- Competition."
RELIANCE ON COMMUNICATIONS AND INFORMATION SYSTEMS; TECHNOLOGY RISKS
The Company's business is highly dependent on its computer and
telecommunications systems and any temporary or permanent loss of either system,
for whatever reason, could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
technologies on which the Company is dependent to effectively compete and meet
its co-marketers' needs are rapidly evolving and in many instances are
characterized by short product life cycles or innovation. There can be no
assurance that the Company will be successful in anticipating or adapting to
technological changes or in selecting and developing new and enhanced technology
on a timely basis. See "Business -- Management Information Systems."
9
<PAGE> 13
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the members of its management and
marketing staff, the loss of one or more of whom could have a material adverse
effect on the Company. In addition, the Company believes that its future success
will depend in large part upon its ability to attract and retain highly skilled
managerial and marketing personnel, particularly as the Company expands its
activities. The Company faces significant competition for such personnel, and
there can be no assurance that the Company will be successful in hiring or
retaining the personnel it requires for continued growth. The failure to hire
and retain such personnel could materially and adversely affect the Company's
business, financial condition and results of operations. See "Management" and
"Certain Transactions."
GOVERNMENT REGULATION; ADVERSE PUBLICITY
Federal Telephone Consumer Protection Act; Federal Telemarketing and
Consumer Fraud and Abuse Prevention Act. One of the principal methods the
Company uses to market its programs is telemarketing. The telemarketing industry
has become subject to an increasing amount of Federal and state regulation as
well as general public scrutiny in the past several years. The Federal Telephone
Consumer Protection Act of 1991 limits the hours during which telemarketers may
call consumers and prohibits the use of automated telephone dialing equipment to
call certain telephone numbers. The Federal Telemarketing and Consumer Fraud and
Abuse Prevention Act of 1994, and Federal Trade Commission ("FTC") regulations
promulgated thereunder, prohibit deceptive, unfair or abusive practices in
telemarketing sales. Both the FTC and state attorneys general have authority to
prevent telemarketing activities that constitute "unfair or deceptive acts or
practices." In addition, some states have enacted laws and others are
considering enacting laws targeted directly at telemarketing practices, and
there can be no assurance that any such laws, if enacted, will not adversely
affect or limit the Company's current or future telemarketing activities.
Although the Company does not control the telemarketing firms which it engages
to market the Company's programs, compliance with these regulations is generally
the responsibility of the Company, and the Company could be subject to a variety
of enforcement or private actions for any failure to comply with such
regulations. The risk of noncompliance by the Company with any rules and
regulations enforced by a Federal or state consumer protection authority may
subject the Company or its management to fines or various forms of civil or
criminal prosecution, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Federal Fair Credit Reporting Act. The Fair Credit Reporting Act ("FCRA")
became effective in 1971. Extensive amendments which became effective October 1,
1997 were recently enacted into law. The FCRA establishes a set of requirements
that "consumer reporting agencies" must follow in the conduct of their business.
A "consumer reporting agency" means any person who regularly engages in
assembling consumer credit information for the purpose of furnishing consumer
reports to third parties. The FCRA imposes numerous requirements on consumer
reporting agencies including restrictions on the permissible uses of consumer
reports and the contents of consumer reports, as well as requirements relating
to disclosures of reports to consumers, the form of and charges for such
disclosures, and the reinvestigation procedure that must be followed when a
consumer disputes an item contained in his or her report. While the Company is
not a "consumer reporting agency" within the meaning of the FCRA and therefore
is not subject to the FCRA, the Company is required by its contract with
Experian to comply with the FCRA and the interpretations rendered by the FTC.
Should the Company become subject to the FCRA and fail to comply with its
provisions, the Company could be subject to various civil and administrative
sanctions, the imposition of which could have a material adverse effect on the
Company. The Company could also be subject to administrative enforcement actions
initiated by the FTC. Violations of the FCRA may constitute unfair or deceptive
acts or practices in commerce in violation of the Federal Trade Commission Act
and the Company could be subject to penalties thereunder. In addition, if the
Company were found to have committed a knowing violation of the FCRA which
constitutes a pattern or practice of violations, the FTC may institute an action
to recover a civil penalty of up to $2,500 per violation. Finally, actions for
injunctions or for damages may also be initiated under the FCRA by the state
attorneys general.
State Fair Credit Reporting Acts. Slightly over half of the states have
enacted statutes governing the operations of consumer reporting agencies, and
some of the state statutes contain provisions that are different
10
<PAGE> 14
from the FCRA. An example of such a state statute was enacted in Colorado in
April 1997 through the adoption of the Colorado Fair Credit Reporting Act (the
"Colorado Act") which went into effect August 1, 1997. The Colorado Act
increases the notification requirements for credit reporting agencies and
lenders upon the addition of adverse items to, or three inquiries into, an
individual's credit report. The law provides that Colorado consumers are
entitled to a free credit report upon their written request and mandates an
annual mailing from each of the national systems and Colorado reporting agencies
alerting consumers to that fact. The Company is not in a position to know the
number of Colorado consumers who will request a free copy of their credit
report, or if consumers will regard such reports as substitutes for the
Company's services. There are five other states (Vermont, Maryland, Georgia,
Massachusetts and New Jersey) that have also enacted legislation requiring the
issuance of free credit reports to consumers upon request. The Company derives
approximately 15% of its members from states with such legislation. Other states
(including California) are currently considering the enactment of such
legislation. There can be no assurance that other states in which more of the
Company's members reside will not adopt similar legislation. In the event that
other states enact legislation requiring issuance of free credit reports, the
value to consumers of the programs the Company provides could be materially
reduced. Legislation requiring free issuance of credit reports could materially
and adversely affect the Company's business, financial condition and results of
operation. See "Business -- Government Regulation."
Adverse Publicity. The media often publicizes perceived non-compliance
with consumer protection regulations and violations of notions of fair dealing
with consumers, and the membership programs industry is susceptible to widely
publicized charges by the media of regulatory noncompliance and unfair dealing.
Any such publicity is potentially damaging to the Company's reputation, its
co-marketer relationships and consumer acceptance and loyalty.
NO PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; ABILITY TO RAISE
ADDITIONAL CAPITAL
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering or that the market price of the
Common Stock will not decline below the initial public offering price. The
initial public offering price will be determined by negotiations among the
Company, the Selling Stockholders and the Representatives of the Underwriters.
Factors such as fluctuations in the Company's operating results, announcements
of product or service innovations or new agreements with co-marketers by the
Company or its competitors, and market conditions for stocks of companies
similar to the Company and the condition of the capital markets generally could
have a significant impact on the market price of the Common Stock. See
"Underwriting" for information relating to the method of determining the initial
public offering price.
The Company believes that the net proceeds to the Company of this offering,
funds generated from operations and borrowings available under the Company's
revolving bank line of credit will be sufficient to meet its capital
requirements for the foreseeable future. However, in the event that the Company
were to seek additional financing, its ability to raise equity capital on terms
that would be acceptable to the Company may be adversely affected if options to
purchase a substantial portion of the shares of Common Stock reserved
for issuance under the Company's 1997 Stock Option Plan were outstanding.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial amounts of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock. Upon closing of this offering, based upon the number of shares
outstanding at October , 1997 and assuming no exercise after October , 1997
of outstanding stock options, there will be shares of Common Stock of
the Company outstanding. Of these shares, the shares offered hereby
( shares if the Underwriters' over-allotment option is exercised in
full) will be freely tradable without restriction or further registration under
the Securities Act of 1933, as amended (the "Securities Act"), unless purchased
by "affiliates" of the Company, as that term is defined in Rule 144 ("Rule 144")
under the Securities Act ("Affiliates"). The remaining shares of
Common Stock are deemed "restricted securities" as that term is defined in Rule
144. Of the restricted securities, shares of Common Stock are subject
to certain lock-up agreements (the "Lock-Up
11
<PAGE> 15
Agreements"). See "Underwriting." Upon expiration of the Lock-Up Agreements 180
days after the date of this Prospectus ( , 1998), approximately
shares of Common Stock will be available for sale in the public
market, subject to the provisions of Rule 144. The remaining shares
will be eligible for sale thereafter upon expiration of their respective holding
periods under Rule 144. See "Shares Eligible for Future Sale" and "Description
of Capital Stock -- Registration Rights."
CONTROL BY AFFILIATES
Upon completion of this offering, CSI Investment Partners II, L.P., a
Delaware limited partnership ("CSI Partners II"), will own approximately % of
the Company's outstanding Common Stock. That stockholder will, therefore, have
the ability to control the election of the Company's directors and also may have
the ability to determine the outcome of corporate actions requiring stockholder
approval. This concentration of ownership also may have the effect of delaying
or preventing a change in control of the Company. See "Management" and
"Principal and Selling Stockholders."
ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Bylaws (the "Bylaws") provide that any
action required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by any consent in writing, and requires reasonable advance notice by
a stockholder of a proposal or director nomination which such stockholder
desires to present at any annual or special meeting of stockholders. Special
meetings of the stockholders may be called only by the Chairman of the Board,
the Chief Executive Officer or, if none, the President of the Company or by the
Board of Directors. The Company's Amended and Restated Certificate of
Incorporation (the "Charter") provides for a classified Board of Directors, and
that members of the Board of Directors may be removed only for cause upon the
affirmative vote of holders of at least two-thirds of the shares of capital
stock of the Company entitled to vote. In addition, shares of the Company's
Preferred Stock may be issued in the future without stockholder approval and
upon such terms and conditions, and having such rights, privileges and
preferences, as the Board of Directors may determine. The rights of the holders
of Common Stock will be subject to, and may be adversely affected by, the rights
of any holders of Preferred Stock that may be issued in the future. The Company
has no present plans to issue any shares of Preferred Stock.
In addition, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law which prohibit the Company
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner or meets other criteria. These provisions, and other
provisions of the Charter, may have the effect of deterring hostile takeovers or
delaying or preventing changes in control or management of the Company,
including transactions in which stockholders might otherwise receive a premium
for their shares over then current market prices. In addition, these provisions
may limit the ability of stockholders to approve transactions that they may deem
to be in their best interests. See "Description of Capital Stock -- Delaware
Anti-Takeover Law and Certain Charter and Bylaw Provisions."
DILUTION
Purchasers of shares of Common Stock in this offering will suffer an
immediate and substantial dilution in the net tangible book value per share of
the Common Stock of $ from the initial public offering price. To the
extent that options to purchase shares of Common Stock granted under the
Company's 1997 Stock Option Plan are exercised, there will be further dilution.
See "Dilution."
LACK OF DIVIDENDS
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. See "Dividend Policy."
12
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock being offered by the Company hereby are estimated to be
$ , assuming an initial public offering price of $ per share
and after deducting estimated underwriting discounts and commissions and
offering expenses. The Company intends to apply the net proceeds of the offering
to be received by the Company to: (i) repay approximately $6.9 million principal
amount of outstanding term indebtedness at an average interest rate of 8.43% and
an estimated $2.1 million principal amount of revolving indebtedness at an
average interest rate of 9.50%, together with interest accrued thereon, arising
under a Credit Agreement, dated January 14, 1997, between the Company and
LaSalle National Bank, and having a maturity date of September 30, 1999; (ii)
repay approximately $3.0 million principal amount of indebtedness at an average
interest rate of 9.31%, together with interest accrued thereon, pursuant to a
Subordinated Promissory Note due December 1999 issued by the Company, and
payable to TRW; and (iii) repay approximately $3.0 million principal amount of
indebtedness at an average interest rate of 12.00%, together with interest
accrued thereon, arising under a Subordinated Loan Agreement, dated as of March
10, 1997, as amended, between the Company and Canterbury Mezzanine Capital, L.P.
("Canterbury Capital") incurred in connection with Canterbury Capital's
investment in the Company. See "Certain Transactions." The balance of the net
proceeds to the Company of the offering, if any, will be utilized for working
capital and general corporate purposes. Pending application for the foregoing
uses, the net proceeds will be invested in short-term U.S. Treasury securities,
certificates of deposit, commercial paper, investment grade, interest-bearing
securities and/or other short-term investments.
The Company will not receive any proceeds from the sale of the shares of
Common Stock by the Selling Stockholders. See "Principal and Selling
Stockholders."
DIVIDEND POLICY
The Company has never declared or paid dividends on its capital stock and
currently intends to retain all future earnings, if any, for use in the
operations of its business and does not anticipate paying any cash dividends in
the foreseeable future. The Company's future dividend policy will be determined
by its Board of Directors on the basis of various factors, including the
Company's results of operations, financial condition, capital requirements and
investment opportunities. The Company's existing senior and subordinated loan
agreements prohibit the payment of cash dividends, but, as noted under "Use of
Proceeds", except for the Company's revolving facility, all outstanding
indebtedness under such existing senior and subordinated loan agreements is to
be repaid upon consummation of this offering.
13
<PAGE> 17
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company as of June 27, 1997, adjusted to reflect (i) the sale by the Company
of shares of Common Stock offered hereby at an assumed initial public
offering price of $ per share; (ii) the exercise of warrants to
purchase the equivalent of shares of Common Stock in September 1997;
(iii) the application of the estimated net proceeds to be received by the
Company from the sale of the Common Stock offered by the Company hereby; and
(iv) repayment of a part of the current portion of certain long-term debt
subsequent to June 27, 1997 but prior to consummation of this offering. See "Use
of Proceeds."
<TABLE>
<CAPTION>
JUNE 27, 1997
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
LaSalle Credit Agreement -- revolving facility....................... $ 2,097 --
Current portion of long-term debt(1)................................. 2,350 --
-------- ------
Total short-term debt........................................ $ 4,447 --
======== ======
Long-term debt:
TRW Subordinated Promissory Note..................................... $ 3,000 --
Canterbury Junior Subordinated Note Payable(2)....................... 2,815 --
LaSalle Credit Agreement............................................. 5,600 --
-------- ------
Total long-term debt......................................... 11,415 --
Stockholders' deficit:
Preferred Stock, Cumulative Series A, $.10 par value; 2,000 shares
authorized; no shares issued and outstanding...................... -- --
Common Stock, $.01 par value; 50,000 shares authorized, actual;
shares authorized, as adjusted; 40,000 shares issued and
outstanding, actual; shares issued and outstanding, as
adjusted(4)....................................................... 1
Common stock purchase warrants (3)................................... 200
Additional paid-in capital........................................... 6,999
Accumulated deficit(5)............................................... (26,882)
Total stockholders' deficit.................................. (19,682)
-------- ------
Total capitalization......................................... $ (8,267) $
======== ======
</TABLE>
- ---------------
(1) See Note 6 of the Notes to Financial Statements.
(2) Includes unamortized discount of $185,000.
(3) On September 26, 1997, all of the warrants were exercised.
(4) Excludes shares of Common Stock issuable upon exercise of options
issued under the Company's 1997 Stock Option Plan. See "Management -- Stock
Option Plan."
(5) In connection with the repayment of long-term debt, unamortized discount and
unamortized debt issuance costs aggregating approximately $1.4 million at
June 27, 1997 will be written off in the quarter in which the offering is
completed as an extraordinary item -- loss on early extinguishment of debt.
14
<PAGE> 18
DILUTION
The net tangible book value of the Company as of June 27, 1997 was
$ , or $ per share. Net tangible book value per share
represents the amount of total tangible assets less total liabilities of the
Company, divided by the number of shares of Common Stock outstanding after
giving effect to (i) the sale of the shares of Common Stock offered by
the Company hereby (at an assumed initial public offering price of $
per share and after deduction of estimated underwriting discounts and
commissions and offering expenses), and (ii) the exercise of warrants to
purchase the equivalent of shares of Common Stock prior to the closing of
this offering. After giving effect to the application of the estimated net
proceeds to the Company from the initial public offering, the pro forma net
tangible book value of the Company at June 27, 1997 would have been $ ,
or $ per share. This represents an immediate increase in such net
tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors purchasing shares in
this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $
----
Net tangible book value per share before offering............ $
Increase attributable to new investors.......................
----
Pro forma net tangible book value per share after the
offering(1)..................................................
----
Dilution per share to new investors............................ $
====
</TABLE>
- ---------------
(1) Excludes shares of Common Stock issuable upon exercise of options
issued under the Company's 1997 Stock Option Plan. See "Management -- Stock
Option Plan."
The following table summarizes, on a pro forma basis as of June 27, 1997,
the differences between existing stockholders and new investors with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company, and the average consideration paid per share
(based upon an assumed initial public offering price of $ per share and
before deduction of the estimated underwriting discounts and commissions and the
expenses of the offering payable by the Company).
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
------------------- ------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------ ---------- ------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. % $ % $
New investors.........................
------ ---------- ------ ----------
Total....................... 100.0% $ 100.0%
====== ======== ====== ========
</TABLE>
- ---------------
(1) Sales by the Selling Stockholders in this offering will reduce the number of
shares of Common Stock held by existing stockholders to , or
approximately % ( , or approximately %, if the
Underwriters' over-allotment option is exercised in full), of the total
number of shares of Common Stock outstanding, and will increase the number
of shares of Common Stock held by new investors to , or
approximately % ( , or approximately %, if the
Underwriters' over-allotment option is exercised in full), of the total
number of shares of Common Stock outstanding after this offering.
15
<PAGE> 19
SELECTED FINANCIAL DATA
The following selected financial information at September 30, 1995 and
September 27, 1996 and for each of the two fiscal years in the period ended
September 27, 1996 and at June 27, 1997 and for the nine-month period ended June
27, 1997 has been derived from the financial statements of the Company that have
been audited by Coopers & Lybrand L.L.P., independent auditors, included herein.
The selected financial information for the nine-month period ended June 28, 1996
has been derived from unaudited financial statements prepared on the same basis
as the audited financial statements and contain, in the opinion of management,
all adjustments consisting only of normal recurring adjustments necessary for a
fair presentation of the Company's financial position at such date and the
Company's operating results and cash flows for such period. The results of
operations for the nine months ended June 27, 1997 are not necessarily
indicative of results to be expected for any future period. The revenue
information for each of the two fiscal years in the period ended December 31,
1993 and the revenue information for the six-month period ended June 30, 1994
(collectively, the "Predecessor Financial Information") was provided to the
Company by TRW at the time that the Company purchased certain of the assets of
TRW's credit reporting and monitoring business in October 1994 (the
"Acquisition"). The Predecessor Financial Information is unaudited, was not
prepared on the same basis as the post-Acquisition financial information for the
Company and in the opinion of management may not include all adjustments
necessary under generally accepted accounting principles ("GAAP") for a fair
presentation of the Company's operating results for the periods covered thereby.
The selected financial information set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY COMPANY
---------------------------------------- ----------------------------------------------
NINE-MONTH
FISCAL YEARS ENDED SIX-MONTH FISCAL YEARS PERIODS ENDED
DECEMBER 31,(1)(2)(3) PERIOD ENDED ENDED SEPTEMBER(1) JUNE(1)
------------------------- JUNE 30, ------------------ -------------------------
1992 1993 1994(2)(3) 1995 1996 1996 1997
----------- ----------- ------------ ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND NUMBER OF MEMBERS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Membership fees................ $27,759 $24,976 $ 11,022 $12,540 $24,556 $ 17,091 $28,208
Operating expenses
Marketing...................... 4,854 22,605 15,899 10,254
Membership servicing........... 4,128 12,999 8,768 8,419
General and administrative..... 8,102 9,581 6,916 6,983
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 17,084 45,185 31,583 25,656
------- ------- ------- ------- ------- ------- -------
Operating income (loss).......... (4,544) (20,629) (14,492) 2,552
Interest expense................. 1,239 1,818 893 1,052
------- ------- ------- ------- ------- ------- -------
Income (loss) before provision
for income taxes and
extraordinary item............. (5,783) (22,447) (15,385) 1,500
------- ------- ------- ------- ------- ------- -------
Provision for income taxes....... -- -- -- 61
Income (loss) before
extraordinary item............. (5,783) (22,447) (15,385) 1,439
------- ------- ------- ------- ------- ------- -------
Extraordinary item: Loss on early
extinguishment of debt, net of
income tax benefit............. -- -- -- 91
------- ------- ------- ------- ------- ------- -------
Net income (loss)................ $(5,783) $(22,447) $ (15,385) $ 1,348
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share......
Weighted average common and
common equivalent shares
outstanding....................
OTHER DATA:
Total members at end of period... (4) (4) (4) 613,000 828,000 714,000 1,257,000
</TABLE>
16
<PAGE> 20
<TABLE>
<CAPTION>
COMPANY
-----------------------------------------------
SEPTEMBER 30, SEPTEMBER 27,
1995(1) 1996(1) JUNE 27, 1997
------------- ------------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 7,970 $ 1,613 $ 299
Total assets.......................................... 33,093 27,552 37,696
Total liabilities..................................... 34,876 51,782 57,378
Stockholders' deficit................................. (1,783) (24,230) (19,682)
</TABLE>
- ---------------
(1) The Company's fiscal year ends on the last Friday of September of each year.
The Company's quarterly periods are each comprised of 13 weeks and end on a
Friday. The first month of each quarter is comprised of five weeks, and each
of the two remaining months of the quarter is comprised of four weeks. In
1992, 1993 and 1994, TRW's fiscal year ended on December 31 of each such
year.
(2) The Company has provided revenue data for certain periods prior to the
Acquisition as set forth in the table above; however, revenue and other data
for the period from June 30, 1994 to the date of Acquisition is unavailable
to the Company. Furthermore, for the reasons discussed below, the Company
believes that the revenue data presented above does not provide a basis for
evaluating any trend material to the Company's financial condition or
results of operations, is not comparable to the revenue data presented for
the periods after the Acquisition and may not be indicative of the Company's
future financial condition or results of operations. GAAP requires the
Company to defer revenue received from members upon their becoming members
or renewing their memberships and to recognize revenue over the term of the
memberships. The Company's understanding, based upon the information
obtained by the Company from TRW at the time of the Acquisition, is that TRW
did not produce separate balance sheets in conducting the consumer credit
reporting and monitoring membership business under the name Consumer
Information Services (the "CIS Business"). The Company believes, based upon
its own experience in conducting its business, that regular periodic
analysis of balance sheet data, including deferred revenue and cash
balances, is essential to assuring that revenues are accurately calculated
in accordance with GAAP. Furthermore, since the Company does not have
deferred revenue amounts available for the beginning and ending balance
sheet dates corresponding to the periods prior to the Acquisition, the
Company is unable to assess the comparability of the revenue data for those
periods. Moreover, the Company has no information regarding and is unable to
determine the manner in which TRW treated important revenue recognition
matters such as amortization of multi-year memberships, treatment of
membership cancellation allowances and recognition of revenue for
memberships that commence mid-month. Finally, it is the Company's
understanding that, for the pre-Acquisition periods shown above, TRW
operated the business in a manner that was intended to maximize cash flow by
focusing on revenues from membership renewals, while reducing marketing
costs by not actively seeking to acquire new members. The Company believes
that, because its strategy is to increase its membership base, the revenue
data for the pre-Acquisition period is not indicative of any trend material
to its business and is not comparable to the revenue data presented above
for post-Acquisition periods.
(3) The Company purchased certain assets of its credit reporting and monitoring
business from TRW in October 1994. Accordingly, the Company does not have
accounting records pertaining to the business prior to October 1994. Based
upon information obtained by the Company from TRW at the time of the
Acquisition, the Company believes that: the CIS Business was operated as a
relatively small part of a division of TRW; the CIS Business was not treated
as a separate accounting entity by TRW; TRW did report, for internal TRW
management purposes, data concerning direct revenues, direct expenses,
certain allocated expenses and numbers of members; however, a number of
material expenses were not charged to the CIS Business and such omitted
expenses included interest expenses, the expenses of the credit reports
provided to members, pre-screening marketing expenses, executive office
expenses, finance and accounting function expenses, bonuses, benefits
administration expenses, insurance expenses and legal expenses, and may
include other omitted expenses of which the Company is unaware; and the
foregoing omitted expenses could not at the time of the Acquisition be
separately compiled. Based upon the
17
<PAGE> 21
foregoing, the Company believes that it cannot provide data regarding
pre-Acquisition income or expenses that is meaningful to investors.
(4) The Company has no membership data for 1992. The membership data provided to
the Company by TRW at the time of the Acquisition indicated membership
levels of 968,000, 798,000 and 648,000 at January 1993, July 1993 and July
1994, respectively. In connection with the Acquisition, TRW represented to
the Company that there were no fewer than 620,000 members as of August 8,
1994. The Company is unable to determine the methodology used by TRW to
generate this data and therefore is unable to verify the accuracy of this
data. As discussed above, it is the Company's understanding that TRW
operated the business in a manner that was intended to maximize cash flow by
focusing on revenues from membership renewals while reducing marketing costs
by not actively seeking to acquire new members. The Company's strategy is to
increase its membership base and therefore the Company believes that the
membership data presented in this footnote does not reflect any trends
material to the Company's business, is not comparable to post-Acquisition
membership data and is not indicative of the Company's future financial
condition or results of operations.
18
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND
The consumer credit information and monitoring business conducted by the
Company was started in 1986 by a division of TRW. In October 1994, the Company
commenced operations when it purchased certain assets of that business from TRW.
During the course of the fiscal year ended September 30, 1995, the Company
focused its efforts on establishing the Company's infrastructure, including
rental and relocation of the Company's headquarters, the establishment of
management systems and procedures and the hiring of additional customer service
representatives and related expenditures to expand the customer service center.
During such period, the Company did not actively pursue new membership
acquisitions to the extent necessary to offset the loss of non-renewing members.
As a result, its membership base remained flat at approximately 600,000 members.
During the fiscal year ended September 27, 1996, the Company engaged in a
strategy of unendorsed marketing, which entailed soliciting new members without
the benefit of a co-marketer endorsement. Management believes this strategy was
not successful and yielded poor consumer response rates because it lacked the
benefit of a co-marketer's brand name and endorsement and the associated credit
card billing and collection mechanism.
In October 1996, the Company hired a new management team which redirected
the Company's efforts toward an endorsed marketing strategy. Implementation of
this new strategy has resulted in more effective marketing campaigns, a
significant increase in the number of the Company's co-marketing relationships
and in its membership base. At June 27, 1997, the Company had 24 co-marketers,
as compared to 13 at September 27, 1996. During this same period, the Company's
membership base increased to approximately 1.3 million members from
approximately 828,000 members. As a result, for the nine-month period ended June
27, 1997, the Company generated net income of $1.3 million as compared to a net
loss of $15.4 million for the nine-month period ended June 28, 1996 and a net
loss of $22.4 million for the fiscal year ended September 27, 1996. See
"-- Results of Operations".
The low consumer response rate resulting from the unendorsed marketing
campaigns conducted by the Company during fiscal year 1996 resulted in
significant losses for the Company. Under GAAP, the direct cost of a successful
marketing program is generally amortized over the initial membership term of the
members solicited in that campaign. However, because the costs of the unendorsed
marketing campaigns exceeded the revenues generated, the Company was required by
GAAP to write off such excess costs during fiscal year 1996. Further
contributing to the Company's losses for that fiscal year were increased
expenditures for facilities, equipment and personnel incurred in anticipation
that the unendorsed marketing campaigns would increase the Company's membership
base and revenues to levels significantly higher than those actually achieved.
OVERVIEW
The Company's revenues are principally derived from the sale of new
memberships and the renewal of existing memberships. New memberships are
typically offered with a free 30-day trial period. The Company's programs are
offered at prices ranging from $29 to $99 per year, depending upon the features
offered. The Company receives payment of the membership fees at or near the
beginning of the membership period, but recognizes revenue with respect to the
payment ratably over the membership period beginning at the end of the free
30-day trial period.
If the membership is not cancelled during the trial period, the member is
charged the annual membership fee. During the course of the first year of
membership, a member is free to cancel his or her membership in the program for
a complete refund of the membership fee. Subsequently, the member may cancel his
or her renewed membership at any time for a pro rata refund of the membership
fee. If multi-year members elect to cancel, they receive a full refund during
the first year of their membership, a 50% refund during the second year of
membership and no refund if they cancel their membership during the third year
of membership. The Company provides allowances for membership cancellations and
recognizes revenue net of such allowances.
19
<PAGE> 23
The Company's allowance policies are based on historical results and are
reviewed periodically. The Company's cancellation rates, including cancellations
occurring during the trial period, have generally ranged between 45% and 60%
since the Company's inception. There can be no assurance that these cancellation
rates will remain constant in the future.
A substantial portion of the Company's total operating expenses consist of
costs incurred in connection with the acquisition of new members. These costs,
including the cost of commissions payable to co-marketers, the costs of printing
and mailing membership solicitation materials for each program and the costs of
providing new member fulfillment kits, are amortized ratably over the program's
initial one- or three-year membership period, respectively. Accordingly, since
the majority of the Company's costs associated with a membership are generally
recognized during the initial membership period, the Company generates higher
gross margins on revenue generated by renewal memberships. The Company
calculates its membership renewal rate for any period by dividing the number of
members who renew their membership during that period (and who remain as members
90 days after such renewal) by the total number of members whose memberships are
due for renewal in that period. Since the Company's inception in 1994, its
renewal rate has remained relatively constant at approximately 70%. There can be
no assurance that this renewal rate will continue in the future.
The Company's membership base has grown significantly in the last year. At
June 27, 1997, the Company had approximately 1.3 million members, as compared to
approximately 828,000 members at September 27, 1996. The size of the Company's
membership base is a significant factor in determining anticipated membership
renewal income.
In addition to overall economic and industry factors which can affect the
Company, the profitability of the Company's business depends in large part upon
(i) the net response rate for direct mail solicitations of new memberships, (ii)
the net sales per hour for telemarketing solicitations of new memberships, (iii)
the costs associated with direct mail and telemarketing solicitations, (iv) the
costs associated with the fulfillment of new memberships, (v) the adequacy of
reserves against membership cancellations, (vi) the continued renewal rate of
memberships in accordance with historical experience, and (vii) the maintenance
of selling, general and administrative expenses at acceptable levels relative to
the Company's revenues and income.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items on
the Company's Statement of Operations as a percentage of revenues:
<TABLE>
<CAPTION>
FISCAL YEARS NINE-MONTH PERIODS
ENDED
SEPTEMBER ENDED JUNE
------------- ------------------
1995 1996 1996 1997
---- ---- ----------- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues
Membership fees..................................... 100% 100% 100% 100%
Operating expenses
Marketing........................................... 39 92 93 36
Membership servicing................................ 33 53 51 30
General and administrative.......................... 65 39 40 25
--- --- --- ---
Total operating expenses.............................. 137 184 184 91
--- --- --- ---
Operating income (loss)............................... (37) (84) (84) 9
Interest expense...................................... 10 7 5 4
--- --- --- ---
Income (loss) before provision for taxes.............. (47) (91) (89) 5
Provision for income taxes............................ -- -- -- --
--- --- --- ---
Income (loss) before extraordinary item............... (47)% (91)% (89)% 5 %
=== === === ===
</TABLE>
20
<PAGE> 24
NINE-MONTH PERIODS ENDED JUNE 1997 AND 1996
Revenue. Revenue increased by 65% to $28.2 million for the nine-month
period ended June 27, 1997 from $17.1 million for the comparable period in the
prior year. The increase resulted from a net increase in the Company's
membership base and, to a lesser extent, from an increase in the price charged
by the Company for its Credentials program. The Company's membership base
increased to approximately 1.3 million members at June 27, 1997 from
approximately 714,000 members at June 28, 1996. The increase was due to an
increase in the number of solicitations through existing co-marketers and the
addition of new co-marketers, principally Chase and PNC National Bank, N.A.
("PNC"). Approximately 49% of the increase in the Company's membership base
resulted from solicitations made to credit card holders of Chase and Bank One.
During this period, the Company mailed approximately 23.9 million pieces of mail
solicitations (excluding inserts and envelope attachments mailed along with a
co-marketer's correspondence) compared to approximately 12.3 million pieces
mailed during the comparable period in the prior year. Revenue derived from
membership renewals increased by 25% to $16.6 million for the nine-month period
ended June 27, 1997 from $13.3 million for the comparable period in the prior
year. As a percentage of revenues, revenues derived from renewals decreased to
60% for the nine-month period ended June 27, 1997 from 78% for the comparable
period in the prior year.
Marketing Expenses. Marketing expenses consist of membership solicitation
costs, including direct mail expenses such as printing and postage,
telemarketing expenses and commissions paid to co-marketers. Marketing expenses
decreased by 36% to $10.3 million for the nine-month period ended June 27, 1997
from $15.9 million for the comparable period in the prior year. As a percentage
of revenues, marketing expenses decreased to 36% for the nine-month period ended
June 27, 1997 from 93% for the comparable period in the prior year. This
decrease was due to the fact that, in accordance with GAAP, certain marketing
expenses associated with unprofitable, unendorsed marketing campaigns were
written off during the nine-month period ended June 28, 1996 rather than
amortized over the initial membership term. In addition, the decrease was caused
by operating costs and severance costs incurred during the nine-month period
ended June 28, 1996 related to an in-house telemarketing department which the
Company began during early fiscal year 1996 and subsequently discontinued in
late fiscal year 1996. This decrease was also due to lower per member
solicitation costs resulting from reductions achieved in per unit mailing and
printing costs and more favorable response rates.
Membership Servicing Expenses. Membership servicing expenses consist of
the costs of providing customer service, data processing costs, and the costs of
providing members with inquiry notices, newsletters, additional credit reports
and new member fulfillment kits. Membership servicing expenses decreased by 4%
to $8.4 million for the nine-month period ended June 27, 1997 from $8.8 million
for the comparable period in the prior year. As a percentage of revenues,
membership servicing expenses decreased to 30% for the nine-month period ended
June 27, 1997 from 51% for the comparable period in the prior year. This
decrease was due to the fact that certain expenses associated with the provision
of new member fulfillment kits related to the unprofitable unendorsed marketing
campaigns were written off during the nine-month period ended June 28, 1996
rather than amortized over the initial membership term.
General and Administrative Expenses. General and administrative expenses
consist of personnel and facilities expenses associated with the Company's
executive, sales, marketing, finance, program and co-marketing account
functions, costs associated with new product development, as well as
depreciation of fixed assets and amortization of intangibles, including
memberships purchased from TRW. General and administrative expenses increased to
$7.0 million for the nine-month period ended June 27, 1997 from $6.9 million for
the comparable period in the prior year. As a percentage of revenue, general and
administrative expenses decreased to 25% for the nine-month period ended June
27, 1997 from 40% during the comparable period in the prior year. This decrease
is largely attributable to the increase in revenues for the nine-month period
ended June 27, 1997.
Interest Expense. Interest expense consists of financing charges related
to notes payable, the Company's revolving bank loan facility, a new subordinated
loan facility and equipment leases, as well as amortization of deferred
financing costs. Interest expense increased 18% to $1.1 million for the
nine-month period ended June 27, 1997 from $0.9 million during the comparable
period in the prior year. The increase reflects higher
21
<PAGE> 25
utilization of the revolving bank loan to fund new marketing campaigns,
amortization of deferred financing costs relating to the Company's debt
refinancing, offset by a lower effective interest rate.
Provision for Income Taxes. For the nine-month period ended June 27, 1997,
the Company reported a provision for income taxes of $61,000 (the amount
equivalent to the income tax benefit of the extraordinary loss on early
extinguishment of debt). No additional income tax provision was made during this
period due to the utilization of net operating loss carryforwards. The Company
did not record a provision for income taxes for the nine-month period ended June
28, 1996 due to the incurrence of a net loss. The Company did not record a
benefit for income taxes during this period since the Company provided a full
valuation allowance on the related deferred income tax asset.
FISCAL YEARS ENDED SEPTEMBER 1996 AND 1995
Revenue. Revenues increased by 96% to $24.6 million in fiscal year 1996
from $12.5 million in fiscal year 1995 due primarily to the effect of accounting
for the Company's purchase of the membership base from TRW. For fiscal year
1995, the Company was not able to recognize any portion of the membership fees
collected by TRW prior to the Acquisition relating to memberships that continued
after the Acquisition. Ordinarily, the Company would have recognized the revenue
over the full membership period. This increase in the Company's revenue was also
due to an increase in the Company's membership base primarily resulting from an
increase in new marketing programs. The Company's membership base increased to
approximately 828,000 members at September 27, 1996 from approximately 613,000
members at September 30, 1995. During fiscal year 1996, the Company mailed
approximately 20.4 million pieces of mail solicitations compared to
approximately 7.0 million pieces mailed during fiscal year 1995. Revenue derived
from membership renewals increased to $18.1 million in fiscal year 1996 from
$10.5 million in fiscal year 1995. As a percentage of revenues, revenues derived
from renewals decreased to 74% in fiscal year 1996 from 83% in fiscal year 1995.
Marketing Expenses. Marketing expenses increased by 366% to $22.6 million
in fiscal year 1996 from $4.9 million in fiscal year 1995. As a percentage of
revenues, marketing expenses increased to 92% in fiscal year 1996 from 39% in
fiscal year 1995. This increase was due to the fact that, in accordance with
GAAP, certain expenses related to the unprofitable unendorsed marketing programs
were written off during fiscal year 1996 rather than amortized over the initial
membership term. The increase is also attributable to operating costs and
severance costs incurred in fiscal year 1996 related to an in-house
telemarketing department which the Company began during early fiscal year 1996
and subsequently discontinued in late fiscal year 1996. In addition, this
increase was due to an increase in both costs associated with the solicitation
of new members through direct mail and telemarketing channels as well as
commissions paid to co-marketers.
Membership Servicing Expenses. Membership servicing expenses increased by
215% to $13.0 million in fiscal year 1996 from $4.1 million in fiscal year 1995.
In fiscal year 1995, these expenses did not reflect the full cost of servicing
the membership base as a result of the effect of the accounting for the purchase
of the membership base acquired from TRW. Since the Company was obligated to
service these members for the remaining portions of their respective membership
terms, a provision relating to these costs was established and $4.2 million of
related expenses were charged to this provision. As a percentage of revenues,
membership servicing expenses increased to 53% in fiscal year 1996 from 33% in
fiscal year 1995. This increase was due to the fact that certain expenses
associated with the provision of new member fulfillment kits related to the
unendorsed marketing campaigns were written off during fiscal year 1996 rather
than amortized over the initial membership term. In addition, this increase was
due to an increase in the Company's membership base during fiscal year 1996.
General and Administrative Expenses. General and administrative expenses
increased by 18% to $9.6 million in fiscal year 1996 from $8.1 million in fiscal
year 1995. This increase was primarily the result of hiring additional personnel
in connection with implementation of the Company's endorsed marketing strategy
as well as an increase in the related facility costs. As a percentage of
revenues, general and administrative expenses decreased to 39% in fiscal year
1996 from 65% in fiscal year 1995. This decrease was due to better leveraging of
expenses over a larger revenue base.
Interest Expense. Interest expense increased by 47% to $1.8 million in
fiscal year 1996 from $1.2 million in fiscal year 1995 due to an increased level
of borrowing by the Company in fiscal year 1996.
22
<PAGE> 26
Provision for Income Taxes. The Company made no provision for income taxes
for fiscal years 1996 and 1995, respectively, due to its incurrence of net
losses in such fiscal years. The Company did not record a benefit for income
taxes in either year since it provided a full valuation allowance for the
related deferred income tax asset.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly statements of
operations data for each of the seven quarters in the period ended June 27, 1997
and the percentage of the Company's revenues represented by each item in the
respective quarter. In the opinion of the Company's management, this unaudited
information has been prepared on a basis consistent with the audited Financial
Statements appearing elsewhere in the Prospectus and includes all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information set forth therein when read in conjunction with the Financial
Statements and related Notes thereto. The operating results for any quarter are
not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------
FISCAL YEAR 1996 FISCAL YEAR 1997
------------------------------------- -------------------------------------
DEC. 29 MAR. 29 JUNE 28 SEP. 27 DEC. 27 MAR. 29 JUNE 27 SEP. 26
1995 1996 1996 1996 1996 1997 1997 1997
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues............................. $4,630 $5,528 $6,933 $ 7,465 $8,418 $9,524 $10,266
Operating income (loss).............. (4,353) (5,428) (4,711) (6,137) 930 1,005 617
Net income (loss).................... (4,653) (5,730) (5,002) (7,062) 461 627 260
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
FISCAL YEAR 1996 FISCAL YEAR 1997
-------------------------------------- -------------------------------------
DEC. 29 MAR. 29 JUNE 28 SEP. 27 DEC. 27 MAR. 29 JUNE 27 SEP. 26
1995 1996 1996 1996 1996 1997 1997 1997
------- ------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues........................... 100% 100% 100% 100% 100% 100% 100%
Operating income (loss)............ (94) (98) (68) (82) 11 11 6
Net income (loss).................. (100) (104) (72) (95) 5 7 3
</TABLE>
The Company's quarterly revenues, expenses and operating results have
varied significantly in the past and are likely to vary significantly from
quarter to quarter in the future. Factors which may affect the Company's
financial results include responses to membership solicitations, cancellations
and renewals of memberships, market acceptance of the Company's and its
co-marketers' existing and new programs, the demand for credit monitoring
services such as those offered by the Company, the timing of the Company's
investments in program development, increased costs associated with maintenance
and expansion of operations, and competitive pressures on the Company's business
generally.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $5.4 million and $4.4 million for
the nine-month period ended June 27, 1997 and fiscal year 1996, respectively.
For the nine-month period ended June 27, 1997, the use of cash reflected
increased member solicitations and increases in receivables. For fiscal year
1996, the use of cash reflected the results of unprofitable unendorsed marketing
programs. The Company's capital expenditures for the nine-month period ended
June 27, 1997 and fiscal year 1996 were $1.7 million and $2 million,
respectively. These expenditures, for both periods, primarily resulted from the
implementation of the Company's new computer system. The Company has budgeted
approximately $0.8 million in capital expenditures for fiscal year 1998. The
Company intends to expand its telecommunications and computer capabilities to
service an expanding membership base.
The Company had cash and cash equivalents of approximately $0.3 million at
June 27, 1997. The Company has a $2.5 million revolving bank line of credit. The
line of credit bears interest based upon LIBOR/prime rate and expires on
September 30, 1999. At June 27, 1997, $2.1 million was outstanding under
23
<PAGE> 27
the line of credit. Borrowings on the Company's revolving line of credit are
based upon the level of eligible accounts receivable.
In connection with the repayment of long-term debt, unamortized discount
and unamortized debt issuance cost aggregating approximately $1.4 million at
June 27, 1997 will be written off in the quarter in which the offering is
completed as an extraordinary item -- loss on early extinguishment of debt.
The Company intends to use its existing cash balances, funds generated from
operations and borrowing available under the Company's revolving bank line of
credit to address its cash requirements, and to fund the development of new
membership programs and new marketing channels. The Company intends to use the
net proceeds to the Company from this offering to repay certain outstanding
indebtedness. The Company believes that, as the volume of revenues attributable
to renewal members increases, such increase will help to generate net cash from
operating activities, and thereby minimize its need for financing from outside
sources. The Company believes that the net proceeds to the Company from this
offering, together with its cash balances following completion of the offering,
funds generated from operations, and borrowing available under the Company's
revolving bank line of credit, will be sufficient to meet its capital
requirements for the foreseeable future.
NET OPERATING LOSS CARRYFORWARDS
As of June 27, 1997, the Company had net operating loss carryforwards for
Federal and state purposes of approximately $19,366,000 and $17,241,694,
respectively. The net operating loss carryforwards begin expiring after the
years ended 2011 and 2004, respectively. Because of the "Change in Ownership"
provisions of the Tax Reform Act of 1986, the loss carryforwards will be subject
to an annual limitation regarding their utilization against future taxable
income.
24
<PAGE> 28
BUSINESS
OVERVIEW
Credentials Services International, Inc. is a leading direct marketer of
credit information and monitoring membership programs to consumers. The Company
believes that it provides value-added programs that enable consumers to monitor
the accuracy of their personal credit data that is collected and held by credit
reporting bureaus. This information allows consumers to respond on an informed
basis to credit decisions made by providers of credit such as mortgage lenders,
consumer finance companies, auto loan providers, credit card providers, banks
and other lending institutions. Through its relationship with Experian Inc., one
of the three major credit reporting bureaus, the Company provides this
information to its members in a readily understandable, readable format and
offers members notification of significant events, such as credit inquiries and
the entry of negative credit data in the member's credit file, which might
affect their ability to obtain credit.
The Company markets its membership programs to consumers using direct
marketing techniques, primarily by direct mail and telemarketing campaigns
conducted through endorsed co-marketing relationships with major credit card
issuers that have a large customer base, such as banks, retailers and oil
companies. Through its co-marketing relationships, the Company markets its
programs to the customer bases of nationally-known organizations such as The
Chase Manhattan Bank USA, N.A., Bank One, N.A. and its affiliates (including the
recently merged First USA Bank credit card customer base), PNC National Bank,
N.A., Service Merchandise and Sun Company, Inc. (Sunoco). During the nine-month
period ended June 27, 1997, the Company increased the number of its co-marketers
to 24 from 13 at September 27, 1996. During this period, the Company's
membership base increased to approximately 1.3 million members from
approximately 828,000 members.
The consumer credit information and monitoring business conducted by the
Company was started in 1986 by a division of TRW. In October 1994, the Company
purchased certain assets of the business from TRW. In September 1996, TRW sold
its credit bureau and credit reporting business, and that business was
subsequently renamed Experian Inc. At the time of the Company's acquisition in
1994, it entered into a ten-year contract with TRW pursuant to which the Company
has access to Experian's credit reports and daily access to the national
Experian credit file. The Company's information systems are integrated with
Experian's database and systems, enabling the Company to immediately and
automatically notify a member when an inquiry is made into the member's personal
credit file. The Company believes that it is the only company which currently
offers this unique feature to consumers and that this feature constitutes a
substantial competitive advantage with respect to developing co-marketing
relationships and building its membership base.
CREDIT CARD ENHANCEMENT INDUSTRY BACKGROUND
The Company believes that membership service programs can be of substantial
value to members who purchase the programs, to credit card issuer businesses
which co-market these programs and to the vendors whose services are offered
through the program. Benefits to co-marketers include the ability to build
consumer loyalty with existing customers, as well as to generate additional,
predictable revenues such as commission and fee income. For product and service
vendors, membership service programs represent an opportunity to generate
additional revenue with minimal incremental marketing costs for products and
service.
Historically, a substantial number of the businesses which utilized
membership service programs have been issuers of credit cards. More recently,
however, other businesses, including banks, retailers, insurance companies,
mortgage servicing companies, utility companies, regional telephone companies,
cable operators and non-profit organizations have also begun to offer service
programs as a means of offering value-added products and services to their
customers. In many cases, these businesses lack the core competency to
successfully design, market and manage membership programs. As a result, these
businesses seek to outsource such functions to companies which specialize in
such membership programs and can apply advanced database
25
<PAGE> 29
systems to capture, process and store consumer and market information, and that
can provide effective programs.
Based upon industry statistics, the Company estimates that in the United
States there are over 800 million credit, debit and retail credit cards issued
and over 115 million consumers who own a credit card. Of these credit card
holders, the Company estimates that approximately 88 million currently subscribe
to a credit card enhancement product or service. In addition to membership
programs such as those provided by the Company, credit card enhancement products
and services include various types of insurance sold to credit card holders,
memberships in discount purchasing clubs and organizations, credit card
registration services, travel clubs, dining clubs, shopping clubs and auto
clubs. The Company also estimates, based upon its own membership data and
industry statistics, that currently there are over three million consumers who
have purchased membership programs which provide credit information and
monitoring services, such as those offered by the Company and its competitors.
The Company believes that the size of the credit card holder population
represents a potential opportunity for continued growth of its membership base
because less than 3.0% of credit card holders have purchased a credit
information membership program. The Direct Marketing Association, the largest
trade association in the direct marketing field, estimates that revenues derived
from the consumer direct marketing segment are expected to grow by 7.4% per year
from 1996 to 2001, as compared to 5.0% per year for overall U.S. consumer sales
growth during the comparable period. Moreover, the Company believes that
long-term growth in consumer credit potentially should cause growth in the
Company's core business in two distinct ways, first by providing additional
channels by which the Company's products may be marketed to consumers, and
second by increasing consumer demand for credit-related information.
BUSINESS STRATEGY
The Company seeks to become the leading provider of credit information and
monitoring programs to consumers and to continue to build its membership base
with its core programs and the introduction of new programs. The key elements of
the Company's strategy are as follows:
Grow and Maintain Membership Base By Offering Premium Quality
Programs. The Company's goal is to build and maintain its membership base by
continuing to provide its core value-added consumer credit programs. The Company
believes that its card programs are superior to the programs offered by its
competitors because it provides its members with: (i) immediate notification of
inquiries into the member's credit file; (ii) free unlimited credit reports; and
(iii) additional credit reports in a manner that avoids a credit inquiry being
reported in a consumer's credit file which may adversely affect the consumer's
creditworthiness.
Expand Distribution Channels. The Company intends to expand its network of
co-marketing relationships to include additional major banks, retailers and oil
companies, as well as to aggressively develop innovative new distribution
channels. The Company believes that its strategy of focusing its marketing
efforts on endorsed co-marketing channels enables the Company to achieve higher
rates of consumer response to its new membership solicitations by leveraging the
considerable brand equity and goodwill enjoyed by major co-marketers.
Furthermore, the Company believes that there are additional distribution
channels that offer the opportunity to expand the base of potential members
beyond the scope of consumer credit card holders. Potential co-marketing
partners may include mortgage servicing companies, insurance companies and
utility companies, such as regional telephone companies. The Company also
believes the World Wide Web may become a viable distribution channel for its
membership programs and is exploring that potential distribution opportunity. In
addition, the Company currently monitors the international expansion efforts of
its vendor partners to seek opportunities to expand its membership base
internationally.
Develop New Programs. The Company intends to continue to develop and
market new programs to current and new members. The Company has test marketed
and is continuing to develop a program targeted to small businesses which would
provide those businesses with credit information and monitoring services to
enable them to better evaluate and monitor their own credit as well as the
credit of other businesses, particularly their vendors, suppliers and customers.
This program, named Business Credentials, was tested in July and August 1997 and
preliminary response rates have been favorable. The Company anticipates that it
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will continue to invest in further development and refinement, and the marketing
of this program in fiscal year 1998. In addition, the Company is presently test
marketing a number of consumer-oriented membership programs.
Provide Superior Levels of Customer Service. The Company is committed to
maintaining what it believes is a superior level of customer service, as
reflected by membership renewal rates and satisfaction among members and
co-marketers. The Company believes that its high level of customer satisfaction
is driven primarily by three principal factors: (i) convenience, consisting of
the timeliness and frequency of communications from the Company, and
accessibility of its customer service representatives ("CSRs"); (ii) the
professionalism of its CSRs, consisting of their courtesy, expertise and
helpfulness; and (iii) report functionality, consisting of the usability of the
reports, enhanced by clean, jargon-free plain English. The Company believes that
this customer satisfaction is also evidenced by the Company's relatively high
renewal rates as compared to its competitors and that this level of customer
satisfaction reinforces its relationships with its co-marketers. The Company's
highly-trained CSRs are available to customers via toll-free telephone service
during extended business hours, and members may order additional credit reports
via an interactive voice response unit seven days a week and 24 hours a day. The
Company carefully monitors benchmarks such as call response time and length of
telephone calls.
Develop and Use State-of-the-Art Technical Solutions. The Company intends
to continue developing and using advanced technological methods to solicit new
members, collect and market credit data and provide membership services.
Currently, the Company, through its membership database management system, can
model and analyze co-marketer lists to identify likely members. The Company
utilizes proprietary software which integrates the information collected from
Experian, its co-marketers and its membership data base. In addition, the
Company's strategy includes investing in state-of-the-art technology in other
key areas of its business, such as data base modeling and image processing for
the Company's membership service center.
CREDIT INFORMATION AND MONITORING PROGRAMS
The Company's program portfolio currently includes Credentials(R), Monitor,
VIP, Business Credentials and other related products. The Company's programs had
approximately 1.3 million members at June 27, 1997.
The Company's principal program, a one-year Credentials membership, is sold
for $49.00. The Company also offers certain variations of its core Credentials
program at prices ranging from $29.00 to $99.00 per membership and a three-year
Credentials membership for $98.00.
The Company's principal program, Credentials, provides subscribing members
with:
- personalized, easy-to-read Experian credit reports, presented in a plain
English format;
- immediate automatic notification of credit inquiries directed to
Experian;
- quarterly notice of any negative information submitted to the customer's
Experian credit file;
- a quarterly newsletter covering credit related and personal finance
issues;
- ongoing informational assistance from the Company's trained service
representatives;
- unlimited additional copies of the member's Experian credit report via
mail or facsimile; and
- upon request, a personal financial profile.
The Company believes that this information is useful to a significant
segment of the consumer population, including those who are interested in the
status of their personal creditworthiness as well as those concerned about the
accuracy of their credit reports. For example, consumers seeking a home mortgage
may want to review their credit history before applying for a mortgage loan. In
addition, the credit monitoring feature of the Credentials program is an
effective tool for detecting certain types of credit fraud.
The Company also offers certain variations to its core Credentials program.
The Monitor program offers personalized credit reports as well as the daily
automatic notification of credit inquiries, and quarterly notice of
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any negative information submitted to a customer's Experian credit file. The
Company encourages the sale of Monitor memberships to spouses of current
Credentials members. The Company also offers an enhanced program entitled VIP
for consumers interested in receiving a credit report which includes credit data
from all three of the major credit reporting bureaus.
The Company believes that its core programs are superior to the programs
offered by its competitors for the following reasons: (i) immediate inquiry
notification service -- the integration of the Company's information systems
with Experian's systems enables the Company to automatically and immediately
notify members when inquiries into their credit file are made. The Company
believes that its competitors are not currently able to provide consumers with
this feature and that this feature represents a substantial competitive
advantage to the Company; (ii) free unlimited additional credit report
requests -- unlike its competitors, the Company does not limit the number of
credit reports a member may receive; (iii) classification of credit report
requests -- when members first join the Credentials program and later request
additional copies of their Experian credit reports, these requests are not
recorded as credit inquiries which may adversely affect a consumer's
creditworthiness, whereas the Company believes that such requests made through
services offered by competitors of the Company are recorded in other areas of
the credit report and may be counted as credit inquiries in the evaluation of a
consumer's creditworthiness; and (iv) superior customer service -- members have
access to trained Company representatives through a toll-free telephone service
to discuss information that appears in their personal credit file. The Company's
customer service representatives have the ability to transfer a member directly
to the Experian Premier Service group for immediate assistance, and in the event
that a member suspects fraudulent activity, the Company's customer service
representatives notify Experian's fraud group, which initiates an investigation.
The Company's competitors do not have this direct transfer capability.
Members generally subscribe for renewable one- or three-year memberships in
the Company's programs. The multi-year memberships are sold on a discounted
basis. When consumers agree to enroll in a program, in most instances they
receive a 30-day trial membership. During this time, the member may use the
program's services without obligation, as outlined in a membership brochure
received by mail along with a membership card and membership identification
number. The brochure outlines in detail the benefits which the service offers
and contains toll-free numbers which may be called to access service benefits
and information. In the event that a consumer elects not to participate in the
service, he or she can call a toll-free number during the trial period to cancel
the service without charge. If the membership is not cancelled during the trial
period, the consumer's credit card is charged the annual membership fee. During
the course of the first year of membership, a member is free to cancel a
membership in the program for a complete refund. In subsequent years, the member
may cancel his or her membership and receive a pro rata refund of his or her
annual membership fees. Multi-year members receive a full refund in year one, a
50% refund in year two and no refund if they cancel their membership in year
three.
CO-MARKETING RELATIONSHIPS
The Company's strategy is to establish and maintain long-term relationships
with co-marketers that have a large customer base. The Company seeks to
understand co-marketer business objectives and to determine how those objectives
can be addressed by the membership service programs which the Company offers.
The Company arranges with co-marketer financial institutions, retailers and
other credit card issuers to market membership programs to such co-marketers'
individual customers. Co-marketers generally receive commissions on initial and
renewal memberships. The Company's agreements with these co-marketers typically
grant the Company the right to continue providing membership services directly
to such co-marketers' individual account holders even if the co-marketer
terminates the contract, provided that the co-marketer is still entitled to
receive its commission. The Company generally may not re-solicit those members
who cancel or fail to renew their membership. At June 27, 1997, the Company had
24 credit card issuer co-marketers, comprised of 17 banks, 4 retailers and 3 oil
companies.
Approximately 42% of the Company's revenues for the nine-month period ended
June 27, 1997 was attributable to members solicited from the customer lists
provided by its two largest co-marketers: approximately 37% from customer lists
provided by Bank One (including the recently merged First USA customer base) and
approximately 5% from customer lists provided by Chase. No other co-marketer
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represented more than 5% of the Company's revenues. At June 27, 1997,
approximately 18% of the Company's members consisted of members who were
originally solicited with the co-marketer endorsement of Chase and approximately
26% of the Company's members consisted of members who were originally solicited
with the co-marketer endorsement of Bank One. For the nine-month period ended
June 27, 1997, no other co-marketer with whom the Company conducted membership
solicitation campaigns accounted for more than 5% of the Company's members.
Certain of these and other co-marketer relationships are governed by agreements
which generally may be terminated without cause by either party upon 60 to 90
days' notice without penalty and upon 30 days' notice in the event of an
uncorrected material breach.
SALES AND MARKETING
The Company solicits members for its programs primarily through direct
marketing methods, including direct mail and telemarketing. The Company
outsources its direct marketing and telemarketing activities to third party
vendors. During the nine-month period ended June 27, 1997, approximately 23.9
million pieces of direct mail (excluding inserts and envelope attachments mailed
along with a co-marketer's correspondence) were mailed and approximately 1.1
million telemarketing calls were completed.
The Company's membership base is predominantly comprised of members
acquired through endorsed marketing channels, such as credit card issuers. The
Company believes this marketing methodology represents the most effective way of
increasing the Company's membership base for two reasons. First, the
co-marketers' endorsement helps sell the Company's programs by leveraging the
co-marketers' brand equity with its pre-existing customers. Endorsed direct mail
solicitations are conducted using stationery that bears the co-marketer's name
and logo and include an introductory letter signed by the co-marketer offering
the product, which are mailed either with the co-marketer's billings to its
credit card holders or by separate mailings that bear the co-marketer's name and
endorsement. Endorsed telemarketing solicitations are conducted by using the
co-marketer's name to offer the program. Second, billing membership fees to a
member's credit card issued by the co-marketer is an efficient billing and
collection mechanism.
The Company obtains substantially all of the information necessary to its
marketing efforts from customer lists provided by its co-marketers. The Company
inputs these customer lists into its management system database to model,
analyze and identify likely members. Co-marketers provide the lists to the
Company for use in marketing a specific program that has been pre-approved by
the co-marketer. As a result, the Company's ability to market a new program to
an existing customer base or an existing program to a new customer base is
dependent on obtaining approval from the co-marketer.
FULFILLMENT
The Company receives consumer responses to its program solicitations from
its telemarketers and, for direct mail, from consumers. The data provided by the
consumer is entered into the Company's data systems and a membership file is
established. This data, consisting of the member's name, address, social
security number and date of birth, is used to access the member's credit file
contained in Experian's consumer database and to generate the member's credit
report. This credit report data then is converted into a readable format by
Experian and transmitted back to the Company. The Company provides its data in a
tape format to its print vendor who prints the consumer credit reports, prepares
the new member fulfillment kit and mails it to the member via first-class mail.
Typically, this process takes between four and seven business days.
MEMBER SERVICES
The Company believes that providing high quality service to its members is
an important component in encouraging membership renewals, creating goodwill
with the public sufficient to generate increased new members and strengthening
the member's affinity for the relevant co-marketer. This customer satisfaction
enhances the Company's relationship with key co-marketers. Accordingly, the
Company maintains state-of-the-art customer service systems designed to maximize
customer satisfaction through rapid and efficient provision of member services.
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The Company maintains a membership service facility in Plano, Texas, with a
total of approximately 87 customer service representatives at June 27, 1997 who
are available to answer members' inquiries. For the convenience of its members,
the Company maintains toll-free telephone service during extended business hours
and provides an interactive voice response system so members may order
additional credit reports 24 hours a day, seven days a week. The Company has
implemented procedures to ensure that an inquiring member will be able to speak
with a customer service representative within approximately 20 seconds of having
placed a call. Furthermore, customer service representatives have the ability to
transfer a member directly to the Experian Premier Service group for immediate
assistance and, in the event that a member suspects fraudulent activity, the
Company's customer service representatives notify Experian's fraud group, which
initiates an investigation. Management believes that the Company's competitors
do not have the ability to directly transfer their members to any of the major
credit reporting bureaus. Prior to working with members, all customer service
representatives are required to complete a classroom training course covering
topics on the credit industry, related regulation, credit reporting, the
Company's programs and services and its systems and techniques for working with
members. Upon successful completion of this classroom work, each new customer
service representative begins to work with members while an experienced customer
service representative monitors his or her performance, offering guidance and
advice. The performance of customer service representatives is regularly
monitored by management.
Through its training programs, its telecommunications systems and its
software, the Company seeks to provide members with friendly, prompt and
effective answers to questions relating to its products. The Company also works
closely with the customer service staffs of its co-marketers to ensure that
their representatives are knowledgeable in matters relating to the programs
offered by the Company.
MANAGEMENT INFORMATION SYSTEMS
The Company has made substantial investments in its management information
systems to allow it to operate its business more efficiently and productively.
The Company utilizes an IBM AS/400 computer system to process and manage its
membership data. The Company has also developed proprietary software that is
designed to accept its co-marketers' customer databases for review, analysis and
modeling in order to identify potential members and implement effective
marketing programs. The Company's data processing and order fulfillment
processes, as well as its links with vendors, enables the Company to mail member
fulfillment kits to new members within seven business days of a customer
request. The system also receives confirmation of billing data from the
Company's merchant processors on a regular basis, permitting the Company to
update the status of each member.
COMPETITION
The Company's principal competitor is CUC which offers credit reporting
membership programs with certain features similar to those provided by the
Company's programs. CUC is a direct marketing company primarily engaged in
providing shopping, travel, discount and related types of benefits to its
customers. Based on industry data, credit programs accounted for approximately
3.0% of CUC's membership base. Additionally, CUC competes with many potential
co-marketers in its various business lines, such as travel-related services.
In addition to this direct competition, the Company also encounters
competition for co-marketer endorsements from other direct marketing businesses.
Because agreements between co-marketers and program providers are often
exclusive with respect to a particular service, potential co-marketers may be
prohibited from entering into agreements with the Company to promote a program
if the features provided by the Company's program are similar to, or overlap
with, the features offered by an existing program of a competitor. There can be
no assurance that the Company's competitors will not increase their emphasis on
programs similar to those offered by the Company and more directly compete with
the Company, that new competitors will not enter the market, that competitors
will not increase the compensation they provide to co-marketers to induce such
co-marketers to enter into agreements, or that other businesses will not
themselves introduce competing programs. Such potential competitors include
major credit card issuers, including the Company's co-marketers. Potential
competitors also include major credit bureau reporting services, including
Experian, which would have significant competitive advantages such as access to
credit
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data at minimal cost. There can be no assurance that the Company's current or
potential competitors will not provide programs comparable or superior to those
provided by the Company at lower membership prices or adapt more quickly than
the Company to evolving industry trends or changing market requirements. In
addition, alliances among competitors may emerge and rapidly acquire significant
market share. Many of the Company's current and prospective competitors,
including CUC, have substantially larger customer bases and greater financial
and other resources than those available to the Company. Increased competition
may result in price reductions, increased fees payable to co-marketers, reduced
profitability and loss of market share, any of which could materially adversely
affect the Company's business, financial condition and results of operations.
There can be no assurance that the Company will be able to compete effectively
against future and current competitors.
Experian provides substantially all of the credit information which the
Company furnishes to its members. Although neither Experian nor the other credit
reporting bureaus provide the credit monitoring services currently offered by
the Company, Experian and the other credit bureaus currently provide a credit
report directly to any consumer at the consumer's request at the rate of
approximately $8.00 per report (except in states where local legislation
provides the consumers are entitled to a free credit report upon their written
request). See "-- Government Regulation; Adverse Publicity -- State Fair Credit
Reporting Acts." There can be no assurance that Experian or the other credit
bureaus will not begin to more aggressively market their services to consumers
by initiating price reductions or advertising campaigns targeted to consumers
and that such actions will not adversely affect the Company's business,
financial condition and results of operations or require the Company to reduce
prices for certain of its programs in order to remain competitive. On August 13,
1997, Experian launched a program to offer consumers the opportunity to receive
their credit reports directly over the Internet. Although two days later
Experian announced that it was suspending this program due to certain
operational and security problems, there can be no assurance that this, or
similar programs, will not be implemented by Experian or other credit reporting
bureaus or that competition from such programs will not adversely affect the
Company's business, financial condition and result of operations. Experian and
the other credit reporting bureaus would have significant competitive advantages
over the Company in providing such reports or services, such as access to credit
data at minimal cost.
Currently, management believes that the Company enjoys several competitive
advantages, including (i) the high entry costs associated with starting a
competing business; (ii) the fact that none of the Company's competitors offers
daily monitoring of a member's credit file; and (iii) the Company's unique
contractual relationship with Experian.
The Company believes that the principal competitive factors in the
membership service industry include the ability to identify, develop and offer
innovative service programs, the quality of service programs offered, price and
marketing expertise. The Company believes that its ability to compete also
depends in part on a number of competitive factors outside its control,
including the ability to hire and retain employees, the development by others of
service programs that are competitive with the Company's service programs, the
price at which such competitors offer comparable service programs and the extent
to which such competitors are responsive to customer needs. In addition, the
introduction or announcement by competitors of the Company of new programs
similar to those offered by the Company could render the Company's existing
programs uncompetitive or obsolete, or result in a delay or decrease in orders
for the Company's existing programs as co-marketers or customers evaluate new
programs or select new programs as an alternative to the Company's existing
programs. Therefore, the announcement or introduction of new programs by
competitors of the Company could have a material adverse affect on the Company's
business, financial condition and results of operations.
Providers of membership programs also compete for the limited access
provided by co-marketers to their customers against other businesses engaged in
direct marketing activities, such as telemarketing and direct mail. In recent
years, there have been significant advances in new forms of direct marketing,
such as the development of interactive shopping and data collection through
television, the Internet and other media. Many industry experts predict that
electronic interactive commerce, such as shopping and information exchange
through the World Wide Web, will proliferate significantly in the foreseeable
future. To the extent it occurs, such proliferation could materially change the
economics of acquiring members for membership
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programs. Although the Company is exploring the potential of what it believes
are the most promising forms of direct marketing, there can be no assurance that
the Company would be able to adapt to a material change in the economics of its
business or that such change would not have a material adverse effect on the
Company's business, financial condition or results of operations. See "Risk
Factors -- Competition" and "-- Reliance on Communications and Information
Systems; Technology Risks."
GOVERNMENT REGULATION
Federal Telephone Consumer Protection Act; Federal Telemarketing and
Consumer Fraud and Abuse Prevention Act. One of the principal methods the
Company uses to market its programs is telemarketing. The telemarketing industry
has become subject to an increasing amount of Federal and state regulation as
well as general public scrutiny in the past several years. The Federal Telephone
Consumer Protection Act of 1991 limits the hours during which telemarketers may
call consumers and prohibits the use of automated telephone dialing equipment to
call certain telephone numbers. The Federal Telemarketing and Consumer Fraud and
Abuse Prevention Act of 1994, and Federal Trade Commission ("FTC") regulations
promulgated thereunder, prohibit deceptive, unfair or abusive practices in
telemarketing sales. Both the FTC and state attorneys general have authority to
prevent telemarketing activities that constitute "unfair or deceptive acts or
practices." In addition, some states have enacted laws and others are
considering enacting laws targeted directly at telemarketing practices, and
there can be no assurance that any such laws, if enacted, will not adversely
affect or limit the Company's current or future telemarketing activities.
Although the Company does not control the telemarketing firms which it engages
to market the Company's programs, compliance with these regulations is generally
the responsibility of the Company, and the Company could be subject to a variety
of enforcement or private actions for any failure to comply with such
regulations. The risk of noncompliance by the Company with any rules and
regulations enforced by a Federal or state consumer protection authority may
subject the Company or its management to fines or various forms of civil or
criminal prosecution, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Government Regulation; Adverse Publicity."
Federal Fair Credit Reporting Act. The Fair Credit Reporting Act ("FCRA")
became effective in 1971. Extensive amendments which became effective October 1,
1997 were recently enacted into law. The FCRA establishes a set of requirements
that "consumer reporting agencies" must follow in the conduct of their business.
A "consumer reporting agency" means any person who regularly engages in
assembling consumer credit information for the purpose of furnishing consumer
reports to third parties. The FCRA imposes numerous requirements on consumer
reporting agencies including restrictions on the permissible uses of consumer
reports and the contents of consumer reports, as well as requirements relating
to disclosures of reports to consumers, the form of and charges for such
disclosures, and the reinvestigation procedure that must be followed when a
consumer disputes an item contained in his or her report. While the Company is
not a "consumer reporting agency" within the meaning of the FCRA and therefore
is not subject to the FCRA, the Company is required by its contract with
Experian to comply with the FCRA and the interpretations rendered by the FTC.
Should the Company become subject to the FCRA and fail to comply with its
provisions, the Company could be subject to various civil and administrative
sanctions, the imposition of which could have a material adverse effect on the
Company. The Company could also be subject to administrative enforcement actions
initiated by the FTC. Violations of the FCRA may constitute unfair or deceptive
acts or practices in commerce in violation of the Federal Trade Commission Act
and the Company could be subject to penalties thereunder. In addition, if the
Company were found to have committed a knowing violation of the FCRA which
constitutes a pattern or practice of violations, the FTC may institute an action
to recover a civil penalty of up to $2,500 per violation. Finally, actions for
injunctions or for damages may also be initiated under the FCRA by the state
attorneys general.
State Fair Credit Reporting Acts. Slightly over half of the states have
enacted statutes governing the operations of consumer reporting agencies, and
some of the state statutes contain provisions that are different from the FCRA.
An example of such a state statute was enacted in Colorado in April 1997 through
the adoption of the Colorado Fair Credit Reporting Act (the "Colorado Act")
which went into effect August 1, 1997. The Colorado Act increases the
notification requirements for credit reporting agencies and lenders upon
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the addition of adverse items to, or three inquiries into, an individual's
credit report. The law provides that Colorado consumers are entitled to a free
credit report upon their written request and mandates an annual mailing from
each of the national systems and Colorado reporting agencies alerting consumers
to that fact. The Company is not in a position to know the number of Colorado
consumers who will request a free copy of their credit report, or if consumers
will regard such reports as substitutes for the Company's services. There are
five other states (Vermont, Maryland, Georgia, Massachusetts and New Jersey)
that have also enacted legislation requiring the issuance of free credit reports
to consumers upon request. The Company derives approximately 15% of its members
from states with such legislation. Other states (including California) are
currently considering the enactment of such legislation. There can be no
assurance that other states in which more of the Company's members reside will
not adopt similar legislation. In the event that other states enact legislation
requiring issuance of free credit reports, the value to consumers of the
programs the Company provides could be materially reduced. Legislation requiring
free issuance of credit reports could materially and adversely affect the
Company's business, financial condition and results of operation.
Credit Repair Organization Regulations. Both Federal and state laws
regulate the activities of "credit repair organizations." While the Company is
not currently a credit repair organization and has no present plans to become a
credit repair organization, it is possible that credit repair laws may be
amended at some time in the future to include organizations such as the Company.
Under the Federal Credit Repair Organizations Act (the "Credit Repair Act"), a
credit repair organization is generally defined as any person who uses any
instrumentality of interstate commerce or the mails to sell, provide, or perform
any service, in return for money for the express or implied purpose of improving
any consumer's credit record, credit history, or credit rating, or providing
advice or assistance to any consumer with regard to any such activity or
service.
The Credit Repair Act imposes certain restrictions on the activities and
contracts of credit repair organizations and requires that specific disclosures
be made to consumers. Any credit repair organization that fails to comply with
the Credit Repair Act can be subject to civil liability for both actual and
punitive damages and attorney's fees and can be subject to an enforcement action
by the FTC. Additionally, state attorneys general have the authority to bring
actions against credit repair organizations who violate the Credit Repair Act.
In addition to the Credit Repair Act, at least 36 states and the District
of Columbia have their own statutes regulating "credit services organizations."
Most of the state statutes define credit services organizations similarly. For
example, the Delaware statute, which is representative of most of the other
state statutes, generally defines a credit services organization as any person
who, with respect to the extension of credit by others and in return for the
payment of money, provides any of the services, advice or assistance with
respect to improving a buyer's credit record, history or rating or obtaining an
extension of credit for a buyer. The requirements imposed by the state statutes
generally include a prohibition against charging the buyer a service fee until
the credit services organization has performed all of the services it agreed to
perform, unless it posted a surety bond with the state; certain disclosure and
contractual requirements; and, in some states, a mandatory surety bond and
registration.
In general, a credit services organization that violates a state statute
can be subject to an injunction, civil actions for damages and civil and
criminal penalties. For example, in Delaware, a credit services organization
that violates that state's statute can be subject to an action for damages by an
injured buyer and can be prosecuted for a Class B misdemeanor. Additionally, a
buyer or the attorney general may bring an action to enjoin the credit services
organization's activities. In the District of Columbia, a "consumer credit
service organization" that violates the District's law may be fined not more
than $500 per violation and/or imprisoned for not more than a year. In addition,
civil fines, penalties and fees may be imposed. A consumer injured by a
violation may also bring an action for actual damages, including reasonable
attorney's fees and costs, against the consumer credit service organization.
Awards may also be entered for punitive damages. In addition, at least one
state, Georgia, makes merely operating a "credit repair services organization" a
misdemeanor.
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EMPLOYEES
As of June 27, 1997, the Company employed 152 persons on a full-time basis
and nine persons on a part-time basis. None of the Company's employees are
represented by a labor union. The Company believes that its employee relations
are good.
FACILITIES
The Company leases its 20,740 square foot headquarters facility in Orange,
California. The Company also leases its 15,452 square foot membership service
facility in Plano, Texas, which is primarily a call center for customer service
representatives and operations. These leases expire in December 1998 and
September 2001, respectively.
LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation or in
settlement proceedings relating to claims arising out of its operations in the
normal course of business. Except as described below, the Company is not
currently a party to, nor is any of its property the subject of, any legal
proceedings, the adverse outcome of which, individually or in the aggregate,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company is a party to a lawsuit pending in the United States District
Court for the Central District of California, Southern Division, entitled
Credentials Services International, Inc., et. al. v. John P. Ferry, et. al.,
USDC Case No. SACV 96-960 AHS (EEx) (the "Federal Action"). The lawsuit arose
out of the August 15, 1996 dismissal for cause of the Company's then President
and Chief Executive Officer, John P. Ferry, and its then Chief Financial
Officer, John N. Rees. In September 1996, Messrs. Ferry and Rees filed an
arbitration demand against the Company with the American Arbitration Association
(the "AAA") under the AAA Employment Dispute Arbitration Rules, each asserting a
breach of their respective employment agreements (the "Arbitration"). On or
about October 11, 1996, the Company filed a complaint against Messrs. Ferry and
Rees initiating the Federal Action. A first amended complaint was filed on
November 20, 1996, asserting claims for relief for breach of fiduciary duty,
constructive fraud, violation of California Corporations Code Section 309,
negligence, conversion, injunctive relief and interference with prospective
economic advantage. In February 1997, the court denied a motion by Messrs. Ferry
and Rees seeking to compel arbitration, and the Arbitration was stayed. On or
about April 7, 1997, Messrs. Ferry and Rees filed a cross-complaint in the
Federal Action alleging 22 causes of action against the Company, as well as
eight other cross-defendants. The Company subsequently filed a motion to dismiss
Messrs. Ferry and Rees' cross-complaint, and on or about July 22, 1997, the
court dismissed Messrs. Ferry and Rees' entire cross-complaint, giving them 30
days to file an amended complaint. On or about August 14, 1997, Messrs. Ferry
and Rees filed a first amended counter-complaint asserting 19 causes of action
against the Company and the other cross-defendants, including breach of
employment agreement, breach of the covenant of good faith and fair dealing,
breach of statutory obligation, fraud, constructive fraud, negligent
misrepresentation, wrongful termination in violation of public policy,
defamation, conversion, abuse of process, breach of fiduciary duty and
negligence, seeking unspecified damages, an accounting, declaratory relief and
certain injunctive relief. The causes of action arise out of alleged breaches of
the respective employment agreements of Messrs. Ferry and Rees, alleged
defamatory statements made by certain executive officers and directors of the
Company about Messrs. Ferry and Rees, an alleged breach of fiduciary duty
arising out of their status as limited partners in CIS Acquisition Partners,
L.P. and the 1996 refinancing of the Company and alleged breaches of good faith
and other duties owed to Messrs. Ferry and Rees by the Board of Directors of the
Company in connection with the termination of their employment and the conduct
of the business prior thereto. On or about August 29, 1997, the Company filed a
motion to dismiss the first amended counter-complaint. This motion is currently
pending before the Court. Discovery is continuing in the matter. The Company
believes that it has valid defenses to all of the causes of action alleged in
the first amended counter-complaint of Messrs. Ferry and Rees, and it intends to
vigorously prosecute and defend this action. The Federal Action is at an early
stage of proceedings; however, the Company presently believes that this action
will not have a material adverse effect upon the Company or its financial
condition or results of operations.
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<PAGE> 38
The Company, among others, is a party to a lawsuit in the Superior Court
for the State of California, County of Orange, against Steven Richards, James O.
Saloma and Joyce Richards entitled Lincolnshire Equity Fund, L.P., et. al. v.
Steven Richards, et. al., Case No. 781247 (the "State Court Action") which was
instituted by the Company, Lincolnshire Equity Fund, L.P., a privately held
Delaware limited partnership, and Lincolnshire Management, Inc. on or about July
2, 1997. The complaint in the State Court Action alleges causes of action for
libel, slander of title, trade libel, intentional interference with contract,
indemnity, breach of fiduciary duty, breach of contract and unjust enrichment.
Messrs. Richards and Saloma were employees and officers of the Company whose
employment was terminated for cause in September 1996. The complaint also
alleges that Joyce Richards, Mr. Richards' wife, was an executive search
consultant retained by the Company without disclosure of the conflict of
interest (her relationship to an officer of the Company) to the Company's Board
of Directors. On or about August 4, 1997, Messrs. Richards and Saloma filed a
cross-complaint in the State Court Action asserting causes of action for breach
of contract, breach of statutory obligations, indemnity, conversion and
declaratory relief, all directed to issues concerning their Company
compensation. The Company believes that it has valid defenses to all of the
causes of action alleged in the cross-complaint, and it intends to vigorously
prosecute and defend this action. The State Court Action is at an early stage of
proceedings; however, the Company presently believes that this action will not
have a material adverse effect upon the Company or its financial condition or
results of operations.
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<PAGE> 39
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Thomas J. Maloney.................... 44 Chairman and Director(1)
Charles Caudle....................... 68 Honorary Vice Chairman
David C. Thompson.................... 42 President, Chief Executive Officer and Director(1)
John Adams........................... 52 Executive Vice President, Member Services
Michael Cossel....................... 55 Executive Vice President, Operations
M. Gerard Keehan..................... 58 Executive Vice President, Marketing and Director
Vineet Pruthi........................ 52 Executive Vice President and Chief Financial Officer
James M. Rothe....................... 55 Executive Vice President, Sales
Donald J. Shea, Jr. ................. 39 Senior Vice President, New Products
C. Kenneth Clay...................... 33 Director(2)
Nicholas Dunphy...................... 49 Director(2)
William A. Hall...................... 65 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee of the Board of Directors.
(2) Member of Audit Committee of the Board of Directors.
Thomas J. Maloney has served as a director of the Company since July 1995.
In August 1996, Mr. Maloney was elected Chairman, President and Chief Executive
Officer of the Company. He served as President and Chief Executive Officer of
the Company until July 1997 and continues as Chairman of the Company. Mr.
Maloney has been a Managing Director of Lincolnshire Management, Inc., since
April 1993. Mr. Maloney is a founding partner of the law firm of Maloney,
Mehlman & Katz, counsel to the Company and to CSI Partners II. See "Certain
Transactions." Mr. Maloney holds a B.A. degree from Boston College and a J.D.
from Fordham University.
Charles Caudle has been Honorary Vice Chairman of the Company since July
1997. Prior to his appointment as Honorary Vice Chairman, Mr. Caudle served as
Chief Operating Officer of the Company from August 1996 to December 1996 and as
Executive Vice President and National Sales Manager of the Company from July
1995 to August 1996. From 1994 to 1996, Mr. Caudle served as Executive Vice
President of MBNA in special sales. From 1984 to 1994, Mr. Caudle served in
various operational and marketing management capacities at Visa, USA.
Previously, he was Chief Executive Officer of Barnett Credit Services
Corporation, the revolving credit arm of Barnett Banks of Florida. Mr. Caudle
has served as a director of several industry groups. Mr. Caudle attended West
Virginia University.
David C. Thompson joined the Company in October 1996 as Chief Financial
Officer. From November 1996 to July 1997, Mr. Thompson served as the Company's
Chief Operating Officer. In July 1997, he was elected President and Chief
Executive Officer of the Company. Mr. Thompson was elected a member of the Board
of Directors in December 1996. Prior to joining the Company, Mr. Thompson served
in various senior financial management positions, most recently as Senior Vice
President and Chief Financial Officer of SafeCard Services, Inc., a subsidiary
of the Ideon Group, from 1994 to 1996. From 1992 to 1994, Mr. Thompson was Vice
President and Chief Financial Officer of the bank card division of Fidelity
Investments. From 1983 to 1992, Mr. Thompson served in various senior financial
management positions at American Express. Mr. Thompson began his career as a
C.P.A. with Price Waterhouse from 1977 to 1983. Mr. Thompson holds a B.S. degree
in Accounting from Florida State University and an M.B.A. from New York
University.
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<PAGE> 40
John Adams joined the Company as Executive Vice President, Member Services,
in October 1996. Prior to joining the Company, Mr. Adams worked in various
senior operating positions in the credit industry, including for 16 years at TRW
where he assisted in establishing the CIS Business with responsibility for
developing systems, customer service and fulfillment capabilities, and two years
at Equifax. From 1992 to 1996, Mr. Adams founded and operated a direct mail
servicing company. Mr. Adams attended Claremont College.
Michael Cossel has been Executive Vice President, Operations, of the
Company since September 1996. Prior to joining the Company, from 1993 to 1994,
he served as a management consultant with Coopers & Lybrand's Financial Advisory
Services Group in the Washington, D.C. area. From 1988 to 1993, Mr. Cossel
served as the Chief Financial Officer and Administrative Officer of Beverage
Capital Corporation, a major Baltimore-based producer of private label and
national brand beverages. Previously, Mr. Cossel performed the dual roles of
Chief Financial Officer and Chief Operating Officer at Credit Card Services
Corporation. Mr. Cossel has a B.S. degree in Economics from Villanova University
and an M.B.A. from American University.
M. Gerard Keehan has been Executive Vice President, Marketing, of the
Company since January 1997, and a member of the Board of Directors of the
Company since July 1997. Prior to that time, Mr. Keehan was Director of
Marketing at TRW from 1985 to 1994, where he assisted in establishing the CIS
Business. Prior to joining TRW, Mr. Keehan was Senior Vice President and Chief
Administrative Officer for Transamerica Assurance in Southern California.
Vineet Pruthi joined the Company in November 1996 as Chief Financial
Officer. Prior to joining the Company, from 1991 to 1996, Mr. Pruthi was an
independent consultant in financial, due diligence and international business
matters. From 1982 to 1991, Mr. Pruthi served in various senior financial
management positions, including as Chief Financial Officer at Murjani, a
privately owned international group of companies. Mr. Pruthi is a Chartered
Accountant and has an M.B.A. from Rutgers Graduate School of Management.
James M. Rothe has been Executive Vice President, Sales, of the Company
since 1995. From 1991 to 1995, Mr. Rothe was President of Membership Development
Inc., which developed and sold the CreditWatch credit reporting service in
partnership with Trans-Union Corporation. From 1986 to 1991, Mr. Rothe was Vice
President of Sales for the CIS Business of TRW. Previously, Mr. Rothe was
Regional Manager for Dun & Bradstreet in Southern California. Mr. Rothe attended
the University of Nebraska.
Donald J. Shea, Jr., has been Senior Vice President, New Products, of the
Company since December 1996. From 1994 to 1996, Mr. Shea was Vice President,
Client Services, of Eire Partners, Inc. From 1990 to 1994, while he was an
Account Supervisor at DDB Needham Worldwide, Mr. Shea worked with many national
consumer goods companies, such as Frito-Lay and S.C. Johnson Wax, advertising a
variety of established products and services and launching new products. Mr.
Shea holds a B.A. degree from Georgetown University and an M.B.A. from
Northwestern University (Kellogg Graduate School of Management).
C. Kenneth Clay has served as a director of the Company since September
1997. Mr. Clay is a Director of Lincolnshire Management, Inc., and has been
employed at Lincolnshire since 1995. From 1992 to 1995, Mr. Clay was the Chief
Financial Officer of LINQ Industrial Fabrics, Inc., a manufacturer and marketer
of polypropylene-based industrial fabrics. Prior to that time, he was an officer
of the Bank of New York Commercial Corporation. Mr. Clay is also an officer and
director of Peripheral Computer Support, Inc., a company in which Lincolnshire
Equity Fund, L.P., is the controlling shareholder. Mr. Clay holds a B.S. degree
from Brigham Young University and an M.B.A. from The University of Texas at
Austin.
Nicholas Dunphy has served as a director of the Company since March 1997.
Mr. Dunphy is the co-founder and managing partner of Canterbury Capital, LLC,
which is the general partner of Canterbury Mezzanine Capital, L.P. Mr. Dunphy
was employed by Barclays Bank from 1980 to 1995. Prior to founding the Barclays
Mezzanine Group in 1989, Mr. Dunphy held a number of senior executive positions
in Barclays Project Finance, Utility and Leveraged Finance groups. Before
joining Barclays, Mr. Dunphy qualified as a Chartered Accountant in Canada and
subsequently spent five years with Toronto Dominion Bank.
37
<PAGE> 41
Mr. Dunphy received a B.Sc. degree from Manchester University in England and an
M.B.A. from York University in Canada.
William A. Hall has served as a director of the Company since July 1997.
Mr. Hall is the President and Chief Executive Officer of Sight & Sound
Distributing Company, an audio and video software distributor, having founded
this company in 1984. Since 1988, Mr. Hall has also been the owner of W.A.H.
Management/Consulting, consultants in strategic management to companies in the
home entertainment industry. Since April 1993, Mr. Hall has also been Vice
Chairman of, and a majority stockholder in, U.S. Animation, Inc., which provides
digital colorization and composition of animation for feature films, television,
commercials and interactive video games. Mr. Hall is a shareholder of
Lincolnshire Management, Inc. Mr. Hall is also a director of 3DO, an
international computer software company, Northward Press, a manufacturer of
music software, and Chromium Graphics, a specialty printing company.
The Company's Board of Directors currently consists of six directors.
Following completion of the offering, the Company's Board of Directors intends
to appoint at least one additional director who will not be an officer or an
employee of the Company or its affiliates. The Company's Board of Directors
consists of six directors. Each of the Company's directors serve three-year
terms which are staggered to provide for the election of approximately one-third
of the board members each year.
The Board of Directors is divided into three classes, with two to three
directors in each class. The Class I directors are Messrs. Maloney and Hall, the
Class II directors are Messrs. Thompson and Keehan, and the Class III directors
are Messrs. Clay, Dunphy and the additional directors to be appointed following
the completion of this offering. The terms of the Class I directors expire in
2000, the terms of the Class II directors expire in 1999, and the terms of the
Class III directors expire in 1998. Directors hold office until their terms
expire and their successors have been elected and qualified. Executive officers
of the Company are appointed by, and serve at the discretion of, the Board of
Directors. There are no family relationships among any of the directors or
executive officers of the Company.
Directors do not receive any fees for service on the Board of Directors.
Directors are reimbursed for their expenses for each meeting attended.
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Company's Chief
Executive Officer and to the Company's five other most highly compensated
executive officers other than the Chief Executive Officer whose total annual
salary and bonus exceeded $100,000, for services rendered in all capacities to
the Company during the fiscal year ended September 26, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ------------
OTHER RESTRICTED
NAME AND ANNUAL STOCK ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION AWARDS COMPENSATION
- --------------------------------------------- -------- ------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
David C. Thompson............................ $164,400 -- -- (2) $ 63,952(3)
President and Chief Executive Officer(1)
Charles Caudle............................... 250,000 -- -- (2) 33,478(3)
Honorary Vice Chairman
Thomas J. Maloney............................ 240,000 -- -- -- 3,000(5)
Chairman(4)
Michael Cossel............................... 152,470 -- -- (2) 11,098
Executive Vice President, Operations
James M. Rothe............................... 126,540 $32,225 -- (2) 1,807
Executive Vice President, Sales
Vineet Pruthi................................ 124,808 -- -- (2) 18,284(5)
Executive Vice President and Chief
Financial Officer
</TABLE>
38
<PAGE> 42
- ---------------
(1) Mr. Thompson served as Chief Financial Officer of the Company from October
1996 to November 1996 and as Chief Operating Officer from November 1996 to
July 1997.
(2) Under the terms of the Amended and Restated Agreement of Limited Partnership
of CSI Investment Partners II, L.P., dated as of October 7, 1997 (the "CSI
II Partnership Agreement"), the officers named in the table above (other
than Mr. Maloney) hold Class B limited partnership interests in that
partnership representing indirect interests in the Common Stock held by the
partnership as follows: Mr. Thompson holds a 3.25% interest; Mr. Caudle
holds a 0.10% interest; Mr. Cossel holds a 0.75% interest; Mr. Rothe holds a
0.95% interest; and Mr. Pruthi holds a 1.45% interest. The foregoing
interests were granted pursuant to agreements reached with each such officer
in October 1996. Under the terms of the CSI II Partnership Agreement, each
of the above-named officer's interest vests in accordance with a schedule
which provides that one-third of such interest vests in April 1998, an
additional one-third vests in April 1999 and the remaining one-third vests
in April 2000, contingent upon each individual's continued employment with
the Company. Upon vesting of an individual's interest, the Company Common
Stock underlying that interest will be distributed to the individual.
Assuming full vesting of all such interests for all of the individuals named
in the table above, the number of restricted shares that would be
distributed is as follows: Mr. Thompson, shares; Mr. Caudle,
shares; Mr. Cossel, shares; Mr. Rothe, shares;
and Mr. Pruthi, shares. The Company estimates that the value of
the above-described equity interests at September 27, 1997, was as follows:
Mr. Thompson, $ ; Mr. Caudle, $ ; Mr. Cossel, $ ;
Mr. Rothe, $ ; and Mr. Pruthi, $ . Any dividends paid on
the Company's Common Stock are not payable to the holders of the Class B
limited partnership interests. See "Certain Transactions."
(3) Includes relocation expenses consisting of selling expenses relating to the
sale of their prior residences and temporary living costs for Mr. Thompson
and Mr. Caudle in the amounts of $63,410 and $25,000, respectively, paid by
the Company.
(4) Mr. Maloney served as Chief Executive Officer of the Company from August
1996 to July 1997.
(5) Includes temporary living expenses for Mr. Maloney and Mr. Pruthi in the
amounts of $3,000 and $12,000, respectively, paid by the Company.
The Company anticipates that it may increase the base salary of the
above-named executives during the 1998 fiscal year; however, the Company does
not expect that in the aggregate such increases will materially increase the
Company's general and administrative expenses in fiscal year 1998. Mr. Maloney's
annual salary will be reduced to $150,000 per year following completion of this
offering.
EMPLOYMENT AGREEMENTS
The following summary descriptions of the material provisions of the
employment agreements between the Company and the named executive officers are
qualified in their entirety by reference to such agreements, a copy of each of
which is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
David C. Thompson, President and Chief Executive Officer, and the Company
entered into an Employment Agreement dated as of May 9, 1997. Under this
agreement, the Company has agreed to pay Mr. Thompson an annual base salary of
$180,000, plus an annual bonus of $25,000 and a special bonus dependent upon
attainment of certain business goals. This agreement expires May 9, 2000. The
Company may terminate the agreement earlier for cause without penalty or,
without cause, upon payment of an amount equal to Mr. Thompson's base salary for
the lesser of twelve months or the remainder of the employment term. Mr.
Thompson has agreed not to compete with the Company during the employment term
and for 18 months thereafter.
Charles Caudle, Honorary Vice Chairman, and the Company entered into an
Employment Agreement dated as of August 15, 1996. Under this agreement, the
Company has agreed to pay Mr. Caudle an annual base salary of $250,000, plus an
annual bonus dependent upon the attainment of certain business goals. This
agreement expires August 15, 1999 and is automatically renewed for a one-year
period unless either party provides the other with 60 days' written notice. The
Company may terminate the agreement earlier for cause without penalty or,
without cause, upon payment of an amount equal to Mr. Caudle's base salary for
the lesser
39
<PAGE> 43
of twelve months or the remainder of the employment term. Mr. Caudle has agreed
not to compete with the Company during the employment term and for two years
thereafter.
Michael Cossel, Executive Vice President, Operations, and the Company
entered into a Letter Agreement dated August 16, 1995. Under this agreement, the
Company has agreed to pay Mr. Cossel an annual salary of $140,000, plus an
annual bonus of up to $45,000 based on the performance of the Company. The
Company has agreed to pay to Mr. Cossel a severance package of up to one year's
salary if he is terminated without cause, which severance may be extended
another six months at the Company's discretion. Mr. Cossel has agreed not to
compete with the Company in any manner for twelve months after any payment is
made to him by the Company.
James M. Rothe, Executive Vice President, Sales, and the Company entered
into a Letter Agreement dated September 5, 1995 which was amended by memorandum
on January 6, 1997. Under this agreement, as amended, the Company has agreed to
pay Mr. Rothe an annual base salary of $140,000, plus a commission package based
on the attainment of certain business goals. In the event of termination without
cause, twelve months salary and benefits will be paid.
Vineet Pruthi, Executive Vice President and Chief Financial Officer, and
the Company entered into an Employment Agreement dated as of December 3, 1996.
Under this agreement, the Company has agreed to pay Mr. Pruthi an annual base
salary of $155,000, plus an annual bonus of $25,000 and a special bonus
dependent upon the attainment of certain business goals. The agreement expires
December 2, 1999. The Company may terminate the agreement earlier for cause
without penalty or, without cause, upon payment of an amount equal to Mr.
Pruthi's base salary for the lesser of twelve months or the remainder of the
employment term. Mr. Pruthi has agreed not to compete with the Company during
the employment term and for two years thereafter.
STOCK OPTION PLAN
The Company's 1997 Stock Option Plan (the "Stock Option Plan") was adopted
by the Board of Directors and approved by the Company's stockholders in
September 1997. Under the Stock Option Plan, a total of shares of
Common Stock have been reserved for issuance upon the exercise of stock options
and related stock appreciation rights ("SARs"). As of the date of this
Prospectus, options to purchase , , and
shares of Common Stock have been granted under the Stock Option Plan
to Messrs. , , and . See
"-- Executive Compensation." The following description of the material
provisions of the Stock Option Plan is qualified in its entirety by reference to
the Stock Option Plan, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
The Stock Option Plan provides that the number of shares of Common Stock
subject thereto and the number of outstanding stock options and their exercise
prices are to be appropriately adjusted in the event of a reorganization,
consolidation, reclassification, recapitalization, combination or exchange of
shares of Common Stock, stock split, reverse split, stock dividend or rights
offering. Shares of Common Stock allocated to options and/or SARs which have
expired or been terminated may be reallocated to other options and/or SARs under
such plan.
Pursuant to the Stock Option Plan, the Company may grant (i) incentive
stock options ("ISOs"), as that term is defined in the Internal Revenue Code of
1986, as amended (the "Code"), (ii) nonqualified stock options ("NSOs"), and
(iii) SARs to officers, directors and key employees of the Company. The Stock
Option Plan provides for administration by the Board of Directors of the Company
or by a Committee of the Board of Directors which selects the optionees,
authorizes the grant of options and determines the exercise price and other
terms of the options, including the vesting schedule thereof, if any, provided,
however, that the vesting schedule will be no less than three years from the
date of grant. Currently, the Stock Option Plan is administered by the
Compensation Committee of the Board of Directors.
The per share exercise price of each ISO granted under the Stock Option
Plan must be at least 100% of the fair market value of a share of Common Stock
(and not less than 110% of the fair market value in the case
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<PAGE> 44
of any optionee of an ISO who beneficially owns more than 10% of the total
combined voting power of the Company) on the date such option is granted. The
Stock Option Plan provides that the per share exercise price of an NSO must be
at least 85% of the fair market value of a share of Common Stock on the date
such option is granted. Each option granted under the Stock Option Plan may be
exercisable for a period determined by the Board of Directors or the Committee
administering the Stock Option Plan, not to exceed ten years (or five years in
the case of any optionee of an ISO who beneficially owns more than 10% of the
total combined voting power of the Company) from the date of grant. Options
issued under the Stock Option Plan will be exercisable as the Committee
administering such plan may determine, but in no event shall an option be
exercisable prior to after the date of grant.
ISOs granted under the Stock Option Plan are non-transferable, except upon
death, by will or by operation of the laws of descent and distribution, and may
be exercised during the employee's lifetime only by the optionee. The aggregate
fair market value of the stock with respect to which ISOs are exercisable for
the first time by an employee during any calendar year (under all such plans of
the Company and any parent and subsidiary companies of the Company) may not
exceed $100,000.
Options granted under the Stock Option Plan may be exercised within twelve
months after the date of an optionee's termination of employment by reason of
his death or disability, or within 90 days after the date of termination by
reason of retirement, voluntary termination approved by the Board of Directors
or involuntary termination by the Company other than for Cause (as defined in
the Stock Option Plan), but, in any such case, not later than the expiration
date of such option and only to the extent the option was otherwise exercisable
at the date of termination. In the event an optionee's employment is terminated
by the Company for Cause or voluntarily terminated by the optionee without the
approval of the Board of Directors, such optionee's option shall terminate
immediately upon the date of such termination.
The Stock Option Plan also provides for the grant of SARs, which may be
granted on a stand-alone basis or in tandem with stock options, which may be
surrendered to the Company in exchange for cash, shares of Common Stock or a
combination thereof, as determined by the Committee administering the Stock
Option Plan, having a value equal to the dollar amount obtained by multiplying
(x) the number of shares subject to the surrendered SAR or option by (y) the
amount by which the fair market value per share of Common Stock exceeds the
exercise price per share specified in the agreement governing the surrendered
SAR or option.
The Stock Option Plan expires on September , 2007 unless terminated
earlier by the Board of Directors. The Stock Option Plan is subject to amendment
by the Board of Directors without stockholder approval, except that no amendment
which increases the maximum aggregate number of shares which may be issued under
the Stock Option Plan or changes the class of eligible participants in the Stock
Option Plan will be effective without the approval of the stockholders of the
Company. The Board of Directors may terminate the Stock Option Plan at any time.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Certificate of Incorporation that
limit the liability of its directors for monetary damages for breach of their
fiduciary duty as directors, except for liability that cannot be eliminated
under the Delaware General Corporation Law ("Delaware Law"). The Delaware Law
provides that directors of a company will not be personally liable for monetary
damages for breach of their fiduciary duty as directors, except for liability
(i) for any breach of their duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for unlawful payment of dividend
or unlawful stock repurchase or redemption, as provided in Section 174 of the
Delaware Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
The Company's Certificate of Incorporation and ByLaws also provide that the
Company shall indemnify its directors and officers to the fullest extent
permitted by the Delaware Law. The Company has entered into separate
indemnification agreements with its directors and officers that could require
the Company, among other things, to indemnify them against certain liabilities
that may arise by reason of their status or service as directors and to advance
their expenses incurred as a result of any proceeding against them as to which
they
41
<PAGE> 45
could be indemnified. The Company believes that the limitation of liability
provision in its Certificate of Incorporation and the indemnification agreements
will facilitate the Company's ability to continue to attract and retain
qualified individuals to serve as directors and officers of the Company.
CERTAIN TRANSACTIONS
In October 1994, CIS Acquisitions Partners, L.P., a Delaware limited
partnership ("CIS Acquisition Partners"), invested $4.0 million in the Company
in connection with the acquisition by the Company of its credit information and
monitoring direct marketing business from TRW. In consideration of that
investment, the Company issued 100 shares of Common Stock to CIS Acquisition
Partners. At the time of the Acquisition, two former members of management
purchased minority limited partnership interests in CIS Acquisition Partners.
See "Business -- Legal Proceedings."
Under the terms of the CSI II Partnership Agreement, a group of eleven
officers and key employees of the Company hold Class B limited partnership
interests in CSI Investment Partners II, L.P. ("CSI Partners II"), a Delaware
limited partnership, representing indirect interests in the Company Common Stock
held by that partnership. The interests held by those eleven officers and key
employees aggregate a 10% interest in CSI Partners II. The foregoing interests
were granted pursuant to agreements reached with each such officer in October
1996. Under the terms of the CSI II Partnership Agreement, the interests of each
of the eleven individuals vests in accordance with a schedule which provides
that one-third of such interest vests in April 1998, an additional one-third
vests in April 1999, and the remaining one-third vests in April 2000, contingent
upon such individual's continued employment with the Company. Upon vesting of an
individual's interest, the Company Common Stock underlying that interest will be
distributed to such individual. Assuming full vesting of all such interests for
all of the eleven individuals, the number of such restricted shares that would
be distributed would be . See "Management -- Executive Compensation."
From November 1996 through January 1997, CSI Investment Partners II, L.P.,
a Delaware limited partnership ("CSI Partners II"), invested a total of $3.0
million in the Company in consideration of the issuance by the Company of 3,000
shares of Series A Cumulative Preferred Stock (the "Series A Preferred Stock")
and warrants to acquire shares of its Common Stock. In March 1997, as
a condition of a $3.0 million subordinated loan to the Company made by
Canterbury Mezzanine Capital, L.P., a Delaware limited partnership ("Canterbury
Capital"), CSI Partners II exchanged its 3,000 outstanding shares of Series A
Preferred Stock for 30,000 shares of the Company's Common Stock and exercised
its warrants (at a nominal exercise price) for 9,900 shares of Common Stock.
In January 1997, in connection with the refinancing of the Company's then
outstanding senior secured indebtedness, Lincolnshire Equity Fund, L.P., a
privately held Delaware limited partnership ("LEF"), agreed, subject to certain
conditions, to make available to the Company up to $4.25 million in additional
capital through the purchase of additional debt or equity securities of the
Company by not later than April 30, 1998. The Company's right to require such
additional investment by LEF was assigned by the Company to its senior secured
bank lender. By amendment in September 1997 to the agreement governing such
senior indebtedness, that lender relinquished the right to cause LEF to make
that additional investment, and the corresponding securities purchase agreement
between the Company and LEF pertaining to such investment has been cancelled. In
March 1997, as a condition to the subordinated loan made by Canterbury Capital
to the Company, LEF also agreed that, subject to certain triggering events, it
would purchase additional shares of Common Stock for up to $1.5 million. That
commitment on the part of LEF was assigned by the Company to Canterbury Capital,
but Canterbury Capital will relinquish the right to cause LEF to purchase such
additional shares upon the repayment by the Company of the outstanding
subordinated loan owing to Canterbury Capital at the time of completion of this
offering, and the corresponding agreement between the Company and LEF to
purchase these additional shares of Common Stock will thereupon be cancelled.
See "Use of Proceeds."
In connection with its $3.0 million subordinated loan to the Company in
March 1997, Canterbury Capital acquired warrants to purchase a total of
shares of Common Stock of the Company. The warrants were subject to
customary anti-dilution provisions and were exercisable at a nominal price. In
September
42
<PAGE> 46
1997, Canterbury Capital exercised all of those warrants and thereby purchased
shares of Common Stock, of which shares are being sold by
Canterbury Capital in the offering being made hereby. See "Principal and Selling
Stockholders."
Eighty-five percent of the total outstanding limited partnership interests
of CIS Acquisition Partners, and 100% of the total outstanding limited
partnership interests of CSI Partners II, are held by LEF which invests in
various business entities through investment partnerships or other entities. LEF
also indirectly holds the equity interests in the general partners of both of
these partnerships. Thomas J. Maloney, Chairman of the Board of the Company, C.
Kenneth Clay, a director of the Company, and William A. Hall, a director of the
Company, are all limited partners of LEF. Mr. Maloney is an officer and director
of (i) the corporate general partner of LEF, (ii) Credentials G.P., (which is
the corporate general partner of Credentials G.P., L.P., which is in turn the
general partner of CIS Acquisition Partners), and (iii) Credentials II G.P.,
Inc. (which is the corporate general partner of Credentials II G.P., L.P., which
is in turn the general partner of CSI Partners II), and holds direct and
indirect equity interests in each of these partnerships and corporations. Mr.
Maloney is an officer and director and a stockholder in Lincolnshire Management,
Inc. ("LMI"), an affiliate of LEF which renders management consulting services
to business entities in which LEF invests, including the Company. Mr. Hall is a
stockholder in LMI, and Mr. Clay is an employee of LMI. Messrs. Hall and
Maloney's stock holdings in LMI each constitute less than 10% of the total
issued and outstanding capital stock of LMI.
Since October 1994, the Company has been a party to a consulting agreement
with LMI, an affiliate of the limited partnerships which own the outstanding
Common Stock of the Company. Pursuant to this agreement, as amended in December
1996, LMI has rendered and is rendering management and financial consulting
services to the Company. These services have included assisting the Company in
refinancing and reorganizing its operations during the past year. For its
services, the Company paid LMI annual consulting fees and expenses of $259,000
in fiscal year 1995, $368,000 in fiscal year 1996 and $300,000 in fiscal year
1997. LMI and the Company terminated the Consulting Agreement effective at the
end of the 1997 fiscal year.
During the year ended September 30, 1995, LMI was paid $1.25 million for
professional services related primarily to the negotiations of the acquisition
from TRW, the negotiation of bank debt agreements and the negotiation of the
subordinated debt agreement. In addition, in March 1997, Lincolnshire
Management, Inc., was paid $300,000 for professional services relating primarily
to the negotiations of the bank debt agreements. In addition, the Company
incurred a one-time transaction fee of $500,000 on September 27, 1997 for LMI's
consulting services in connection with the successful reorganization and
recapitalization program effected by the Company during the 1997 fiscal year.
Mr. Maloney is a partner of the law firm of Maloney, Mehlman & Katz, which
has rendered legal services to the Company and collected fees from the Company
aggregating approximately $212,000 for legal services rendered during the 1997
fiscal year.
For information concerning indemnification of directors and officers, see
"Management -- Limitation of Liability and Indemnification Matters."
43
<PAGE> 47
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of October , 1997, and as adjusted
to reflect the sale by the Company and the Selling Stockholders of the shares
offered hereby (assuming no exercise of the Underwriters' over-allotment
option), by: (i) each person who is known by the Company to own beneficially
more than 5% of the Company's Common Stock, (ii) each of the Company's directors
and officers named in the Summary Compensation Table set forth under
"Management" and (iii) all directors and executive officers of the Company, as a
group.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING NUMBER OF OFFERING(1)
------------------- SHARES -------------------
NUMBER PERCENTAGE BEING OFFERED NUMBER PERCENTAGE
------ ---------- ------------- ------ ----------
<S> <C> <C> <C> <C> <C>
CSI Investment Partners II, L.P.(1)....... 89.2 % %
Canterbury Mezzanine Capital, L.P.(2)..... 10.8 %
David C. Thompson......................... (3)
Charles Caudle............................ (3)
Thomas J. Maloney......................... --
Michael Cossel............................ (3)
James M. Rothe............................ (3)
Vineet Pruthi............................. (3)
All executive officers and directors as a
group (11 persons)...................... (3)
------ -----
</TABLE>
- ---------------
(1) Consists of shares of Common Stock held by CSI Investment Partners
II, L.P. Credentials II G.P., L.P. is the managing general partner of CSI
Investment Partners II, L.P. For a description of the relationship between
CSI Investment Partners II, L.P. and the Company, see "Certain
Transactions." The sole limited partner of Credentials II G.P., L.P. is
Lincolnshire Equity Fund, L.P. ("LEF"). The general partner of Credentials
II G.P., L.P. is Credentials II G.P., Inc., a corporation which is
wholly-owned by LEF. The address for CSI Investment Partners II, L.P. is c/o
Lincolnshire Management, Inc., 780 Third Avenue, 45th Floor, New York, N.Y.
10017.
(2) Includes shares of Common Stock issued upon the exercise in
September 1997 of warrants held by Canterbury Mezzanine Capital, L.P.
Canterbury Capital LLC, is the managing general partner of Canterbury
Mezzanine Capital, L.P. For a description of the relationship between
Canterbury Mezzanine Capital, L.P. and the Company, see "Certain
Transactions." The address for Canterbury Mezzanine Capital, L.P. is 600
Fifth Avenue, 23rd Floor, New York, N.Y. 10020.
(3) Under the terms of the CSI II Partnership Agreement, a group of eleven
officers and key employees of the Company hold Class B limited partnership
interests in CSI Investment Partners II, L.P. ("CSI Partners II"), a
Delaware limited partnership, representing indirect interests in the Company
Common Stock held by that partnership. The interests held by those eleven
officers and key employees aggregate a 10% interest in CSI Partners II. The
foregoing interests were granted pursuant to agreements reached with each
such officer in October 1996. Under the terms of the CSI II Partnership
Agreement, the interests of each of the eleven individuals vests in
accordance with a schedule which provides that one-third of such interest
vests in April 1998, an additional one-third vests in April 1999, and the
remaining one-third vests in April 2000, contingent upon such individual's
continued employment with the Company. Upon vesting of an individual's
interest, the Company Common Stock underlying that interest will be
distributed to such individual. Assuming full vesting of all such interests
shares for all of the eleven individuals, the number of restricted shares
that would be distributed would be . See "Certain Transactions."
44
<PAGE> 48
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of shares of Common Stock, $.01 par value, and
shares of Preferred Stock, $.10 par value. The following summary
description of the capital stock of the Company is qualified in its entirety by
reference to the Amended and Restated Certificate of Incorporation of the
Company and the Bylaws of the Company, a copy of each of which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
As of October , 1997, there were shares of Common Stock
outstanding held by stockholders of record.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders, including the
election of directors, and do not have cumulative voting rights. Accordingly,
the holders of a majority of the shares of Common Stock entitled to vote in any
election of directors can elect all of the directors standing for election, if
they so choose. Subject to preferences that may be applicable to any then
outstanding Preferred Stock and applicable law, holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of Common Stock will be
entitled to share ratably in the net assets legally available for distribution
to such stockholders after the payment or the provision for payment of all debts
and other liabilities of the Company and the preferential amounts to which the
holders of any outstanding shares of Preferred Stock shall be entitled. Holders
of Common Stock have no preemptive or conversion rights or other subscription
rights and there are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and the Common Stock
to be outstanding upon completion of this offering will be, fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue from time to time additional Preferred Stock in one or
more series and to fix the number of shares, designations, preferences, powers,
and relative, participating, optional or other special rights and the
qualifications or restrictions thereof. The preferences, powers, rights and
restrictions of different series of such Preferred Stock may differ with respect
to dividend rates, amounts payable on liquidation, voting rights, conversion
rights, redemption provisions, sinking fund provisions, purchase funds and other
matters. The issuance of additional Preferred Stock could decrease the amount of
earnings and assets available for distribution to holders of Common Stock or
adversely affect the rights and powers, including voting rights, of the holders
of Common Stock, and may have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no present plan to issue
additional shares of Preferred Stock.
REGISTRATION RIGHTS
The outstanding shares of Common Stock owned by CSI Partners II and
Canterbury Capital (other than the shares being offered by such parties pursuant
to this Prospectus) are not registered under the Securities Act, and,
accordingly, may not be re-offered or re-sold in the United States absent
registration under the Securities Act or an applicable exemption from the
registration requirements under the Securities Act. Under a Registration Rights
Agreement among the Company, CSI Partners II and Canterbury Capital (the
"Registration Rights Agreement"), any Holder (as defined below) of the Common
Stock has the right to request that the Company register their shares of Common
Stock and any Common Stock which may be issued or distributed in respect thereof
by way of recapitalization, reclassification, stock dividend, stock split or
other distribution ("Registrable Securities"). Any stockholder owning
Registrable Securities that have not been sold to the public has the right,
after , 199 , to require the Company to use its best efforts to
register under the Securities Act at least shares of Registrable
Securities for resale in up to two
45
<PAGE> 49
registrations upon demand. In addition, the Company has agreed to include in
unlimited incidental ("piggyback") registrations shares of Common Stock held by
CSI Partners II and Canterbury Capital or by any transferee of the registration
rights as permitted under the Registration Rights Agreement (any of which is a
"Holder"), provided that the number of shares of Common Stock that such Holder
requests to be included is not less than . If the Company qualifies
for the use of Form S-3 as promulgated by the Securities and Exchange
Commission, then at any time after , 199 any Holder has the right to
cause the Company to use its best efforts to effect a registration of at least
shares of the Registrable Securities on behalf of such Holder and
other Holders. The registration rights are assignable by any Holder to any
transferee acquiring at least Registrable Securities. The Company will
pay all registration expenses in connection with each registration of
Registrable Securities pursuant to the Registration Rights Agreement. See "Risk
Factors -- Shares Eligible for Future Sale; Registration Rights" and "Shares
Available for Future Sale."
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's Amended and Restated Bylaws (the "Bylaws") provide that any
action required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by any consent in writing, and requires reasonable advance notice by
a stockholder of a proposal or director nomination which such stockholder
desires to present at any annual or special meeting of stockholders. Special
meetings of the stockholders may be called only by the Chairman of the Board,
the Chief Executive Officer or, if none, the President of the Company or by the
Board of Directors. The Company's Amended and Restated Certificate of
Incorporation (the "Charter") provides for a classified Board of Directors, and
that members of the Board of Directors may be removed only for cause upon the
affirmative vote of holders of at least two-thirds of the shares of capital
stock of the Company entitled to vote. In addition, shares of the Company's
Preferred Stock may be issued in the future without stockholder approval and
upon such terms and conditions, and having such rights, privileges and
preferences, as the Board of Directors may determine. The rights of the holders
of Common Stock will be subject to, and may be adversely affected by, the rights
of any holders of Preferred Stock that may be issued in the future. The Company
has no present plans to issue any shares of Preferred Stock.
Furthermore, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law which prohibit the Company
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner or meets other criteria. These provisions, and other
provisions of the Charter, may have the effect of deterring hostile takeovers or
delaying or preventing changes in control or management of the Company,
including transactions in which stockholders might otherwise receive a premium
for their shares over then current market prices. In addition, these provisions
may limit the ability of stockholders to approve transactions that they may deem
to be in their best interests. See "Risk Factors -- Anti-Takeover Provisions."
TRANSFER AGENT AND REGISTRAR
The Company has appointed LaSalle National Bank, Chicago, Illinois, as the
Transfer Agent and Registrar for the Common Stock.
46
<PAGE> 50
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock of the Company, and no predictions can be made regarding the effect, if
any, that market sales of shares or the availability of shares for sale will
have on the market price prevailing from time to time. As described below, only
a limited number of shares will be available for sale shortly after this
offering due to certain contractual and legal restrictions on resale.
Nevertheless, sales of substantial amounts of Common Stock of the Company in the
public market after the restrictions lapse could adversely affect the prevailing
market price.
Upon completion of this offering, the Company will have outstanding
shares of Common Stock. The shares of Common Stock being
sold hereby will be freely tradable (other than by an "affiliate" of the Company
as such term is defined in the Securities Act) without restriction or
registration under the Securities Act. All remaining shares were issued and sold
by the Company in private transactions ("Restricted Shares") and are eligible
for public sale if registered under the Securities Act or sold in accordance
with Rule 144.
The Company's directors, executive officers and certain stockholders, who
collectively hold an aggregate of shares of Common Stock, have
agreed pursuant to certain agreements that they will not sell any Common Stock
owned by them without the prior written consent of PaineWebber Incorporated for
a period of 180 days from the date of this Prospectus (the "Lock-Up Period").
Following the expiration of the Lock-Up Period, approximately shares of
Common Stock, will be available for sale in the public market subject to
compliance with Rule 144. See "Underwriting."
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an affiliate of the Company, or a holder of
Restricted Shares who beneficially owns shares that were not acquired from the
Company or an affiliate of the Company within the previous one year, would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately shares immediately after this offering), or the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission (the "Commission"). Sales under Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. However, a person (or persons
whose shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days immediately preceding the sale and who
beneficially owns Restricted Shares is entitled to sell such shares under Rule
144(k) without regard to the limitations described above; provided that at least
two years have elapsed since the later of the date the shares were acquired from
the Company or from an affiliate of the Company. The foregoing is a summary of
Rule 144 and is not intended to be a complete description of it.
The Company intends to file a registration statement on Form S-8 covering
the shares underlying the options available for grant under the Company's 1997
Stock Option Plan. See "Management -- Stock Option Plan."
47
<PAGE> 51
UNDERWRITING
The Underwriters named below, acting through PaineWebber Incorporated and
Hambrecht & Quist LLC (the "Representatives"), have severally agreed, subject to
the terms and conditions set forth in the Underwriting Agreement by and among
the Company, the Selling Stockholders and the Representatives (the "Underwriting
Agreement"), to purchase from the Company and the Selling Stockholders, and the
Company and the Selling Stockholders have agreed to sell to the Underwriters
shares and shares, respectively, of the Company's Common
Stock, which in the aggregate equals the number of shares of Common Stock set
forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
PaineWebber Incorporated..........................................
Hambrecht & Quist LLC.............................................
Total...................................................
=========
</TABLE>
The Underwriting Agreement provides that the obligation of the Underwriters
to purchase all of the shares of Common Stock is subject to certain conditions.
The Underwriters are committed to purchase, and the Company and the Selling
Stockholders are obligated to sell, all of the shares of Common Stock offered by
this Prospectus, if any of the shares of Common Stock being sold pursuant to the
Underwriting Agreement are purchased.
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public at the public offering price set forth on the cover page of
this Prospectus, and to certain securities dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may re-allow, a discount not in excess of $ per share. After
the initial public offering, the public offering price and the concessions and
discounts may be changed by the Representatives.
The Selling Stockholders have granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to additional shares of Common Stock at the public
offering price less the underwriting discount and commissions set forth on the
cover page of this Prospectus. The Underwriters may exercise such option only to
cover over-allotments in the sale of the shares that the Underwriters have
agreed to purchase. To the extent that the Underwriters exercise such option,
each of the Underwriters will become obligated, subject to certain conditions,
to purchase approximately the same percentage of such additional shares as the
percentage of shares of Common Stock that each such Underwriter is obligated to
purchase pursuant to the Underwriting Agreement and as shown in the table set
forth above.
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 Company, its directors and executive officers and certain stockholders
have agreed not to offer, sell, contract to sell or grant any option to purchase
or otherwise dispose of any shares of Common Stock owned by them prior to the
expiration of 180 days from the date of this Prospectus, except (i) for shares
of Common Stock offered hereby, (ii) with the prior written consent of
PaineWebber Incorporated; and (iii) in the case of the Company, for the issuance
of shares of Common Stock upon the exercise of options or the grant of options
to purchase shares of Common Stock.
Prior to the offering, there has been no established trading market for the
shares of Common Stock. The initial public offering price for the Common Stock
offered hereby has been determined by negotiation among the Company, the Selling
Stockholders and the Underwriters. Among the factors considered in making such
determination were the history of and the prospects for the industry in which
the Company competes, an
48
<PAGE> 52
assessment of the Company's management, the past and present operations of the
Company, the historical results of operations of the Company and the trend of
its revenues and earnings, the prospects for future earnings of the Company, the
general condition of the securities markets at the time of the offering, the
prices of similar securities of generally comparable companies and other
relevant factors. There can be no assurance that an active trading market will
develop for the Common Stock or that the Common Stock will trade in the public
market subsequent to the offerings at or above the initial public offering
price.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with this offering, creating a short position in the Common Stock for
their own account. In addition, to cover overallotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
the Common Stock in the open market. The Underwriters may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing the Common
Stock in transactions to cover their short positions, in stabilization
transactions or otherwise. Finally, the Underwriters may bid for, and purchase,
shares of the Common Stock in market making transactions and impose penalty
bids. These activities may stabilize or maintain the market price of the Common
Stock above market levels that might otherwise prevail. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Maloney, Mehlman & Katz,
New York, New York, counsel to the Company and to CSI Partners II. Certain other
legal matters will be passed upon for the Company by Pillsbury Madison & Sutro
LLP, New York, New York, special securities counsel to the Company, and for the
Underwriters by Shearman & Sterling, San Francisco, California. Thomas J.
Maloney, Chairman of the Board of the Company, is a partner of Maloney, Mehlman
& Katz, and Mr. Maloney and another partner of that firm hold indirect
beneficial equity interests in the Company's Common Stock.
EXPERTS
The financial statements of Credentials Services International, Inc. at
September 30, 1996 and June 27, 1997 and for each of the two years in the period
ended September 27, 1996 and for the nine-month period ended June 27, 1997,
included in this Prospectus have been audited by Coopers & Lybrand L.L.P.,
independent public accountants, as stated in their report appearing herein, and
have been so included in reliance upon the report of such firm given upon its
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act with respect to
the Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is hereby made to such Registration
Statement, exhibits and schedules. Statements contained in this Prospectus
regarding the contents of any contract or other document are not necessarily
complete; with respect to each such contract or document filed as an exhibit to
the Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. A copy of the Registration
Statement, including the exhibits and schedules thereto, may be inspected
without charge at the principal office of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of such material may be obtained from
such office upon payment of the fees prescribed by the Commission.
In addition, the Commission maintains a World Wide Web site on the Internet
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission.
49
<PAGE> 53
CREDENTIALS SERVICES INTERNATIONAL, INC.
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants...................................................... F-2
Balance Sheets as of September 27, 1996 and June 27, 1997.............................. F-3
Statements of Operations for the fiscal years ended September 30, 1995 and September
27, 1996, and the nine-month periods ended June 28, 1996 (unaudited) and June 27,
1997................................................................................. F-4
Statements of Stockholders' Equity for the fiscal years ended September 30, 1995 and
September 27, 1996, and the nine-month period ended June 27, 1997.................... F-5
Statements of Cash Flows for the fiscal years ended September 30, 1995 and September
27, 1996 and the nine-month periods ended June 28, 1996 (unaudited) and June 27,
1997................................................................................. F-6
Notes to Financial Statements.......................................................... F-7
</TABLE>
F-1
<PAGE> 54
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Credentials Services International, Inc.
We have audited the accompanying balance sheets of Credentials Services
International, Inc. (the "Company") as of September 27, 1996 and June 27, 1997,
and the related statements of operations, accumulated deficit, and cash flows
for the years ended September 30, 1995 and September 27, 1996 and the nine-month
period ended June 27, 1997. 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 these 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 Credentials Services
International, Inc. as of September 27, 1996 and June 27, 1997, and the results
of its operations and its cash flows for the years ended September 30, 1995 and
September 27, 1996 and the nine-month period ended June 27, 1997 in conformity
with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
----------------------------------
Los Angeles, California
October 3, 1997
F-2
<PAGE> 55
CREDENTIALS SERVICES INTERNATIONAL, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 27, JUNE 27,
1996 1997
------------- -------------
<S> <C> <C>
Current assets
Cash and cash equivalents........................................... $ 1,613 $ 299
Accounts receivable, net of allowance for uncollectible accounts of
$147 (1996) and $559 (1997)...................................... 707 2,950
Current portion of deferred member solicitation costs and related
commissions...................................................... 5,826 10,520
Prepaid member solicitation costs................................... 766 2,333
Other............................................................... 184 162
------- --------
Total current assets........................................ 9,096 16,264
------- --------
Deferred member solicitation costs and related commissions, net of
current portion..................................................... 2,825
Property and equipment, net of accumulated depreciation of $381 (1996)
and $798 (1997)..................................................... 3,265 4,922
Purchased memberships, net of accumulated amortization of $4,265
(1996) and $5,864 (1997)............................................ 7,581 5,982
Goodwill, net of accumulated amortization of $1,063 (1996) and $1,462
(1997).............................................................. 6,909 6,511
Deferred financing costs, net of accumulated amortization of $467
(1996) and $689 (1997).............................................. 701 1,192
------- --------
Total assets................................................ $27,552 $ 37,696
======= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable.................................................... $ 5,671 $ 4,775
Accrued expenses.................................................... 1,692 3,390
Current portion of note payable to bank............................. 2,200 4,447
Current portion of deferred revenue................................. 21,074 22,202
Allowance for cancellations......................................... 1,216 1,565
Current portion of capital lease obligations........................ 222 306
Other current liabilities........................................... 387 --
------- --------
Total current liabilities................................... 32,462 36,685
------- --------
Deferred revenue, net of current portion.............................. 9,205 8,940
Capital lease obligations, net of current portion..................... 265 338
Note payable to bank, net of current portion.......................... 6,850 5,600
Subordinated notes payable............................................ 3,000 5,815
------- --------
Total liabilities........................................... 51,782 57,378
======= ========
Stockholders' deficit
Series A Cumulative Preferred Stock, par value $0.10 per share;
2,000 shares authorized; no shares issued or outstanding......... -- --
Common stock, par value $.01 per share; 1,000 (1996), 50,000 (1997)
shares authorized; 100 (1996), 40,000 (1997) shares issued and
outstanding...................................................... 1 1
Common stock purchase warrant....................................... -- 200
Additional paid-in capital.......................................... 3,999 6,999
Accumulated deficit................................................. (28,230) (26,882)
------- --------
Total stockholders' deficit................................. (24,230) (19,682)
------- --------
Total liabilities and stockholders' deficit................. $27,552 $ 37,696
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 56
CREDENTIALS SERVICES INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE-MONTH
PERIODS ENDED
FOR THE YEARS ENDED ---------------------------
------------------------------- JUNE 28,
SEPTEMBER 30, SEPTEMBER 27, 1996 JUNE 27,
1995 1996 (UNAUDITED) 1997
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Membership fees........................... $ 12,540 $ 24,556 $ 17,091 $28,208
OPERATING EXPENSES
Marketing................................. 4,854 22,605 15,899 10,254
Membership servicing...................... 4,128 12,999 8,768 8,419
General and administrative................ 8,102 9,581 6,916 6,983
------- -------- -------- -------
Total operating expenses.......... 17,084 45,185 31,583 25,656
Operating income (loss)..................... (4,544) (20,629) (14,492) 2,552
Interest expense.......................... 1,239 1,818 893 1,052
------- -------- -------- -------
Income (loss) before provision for income
taxes and extraordinary item.............. (5,783) (22,447) (15,385) 1,500
Provision for income taxes.................. -- -- -- 61
------- -------- -------- -------
Income (loss) before extraordinary item..... (5,783) (22,447) (15,385) 1,439
Extraordinary item: Loss on early
extinguishment of debt, net of income tax
benefit of $61............................ -- -- -- 91
------- -------- -------- -------
Net income (loss)........................... $ (5,783) $ (22,447) $ (15,385) $ 1,348
======= ======== ======== =======
Net income (loss) per common and common
equivalent share.......................... $ (128.96) $ (500.57) $ (343.09) $ 30.06
======= ======== ======== =======
Weighted average common and common
equivalent shares......................... 44,843 44,843 44,843 44,843
======= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 57
CREDENTIALS SERVICES INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SERIES A COMMON
COMMON STOCK PREFERRED STOCK STOCK ADDITIONAL
--------------- --------------- PURCHASE PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL DEFICIT TOTAL
------- ------ ------ ------ -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the years ended September 30, 1995
and September 27, 1996:
- -----------------------------------------
Issuance of common stock............... 100 $ 4,000 $ 4,000
Net loss............................... $ (5,783) (5,783)
------ ---------- ----------
Balances at September 30, 1995......... 100 4,000 (5,783) (1,783)
Net loss............................... (22,447) (22,447)
---------- ----------
Balances at September 27, 1996......... 100 4,000 (28,230) (24,230)
------ --------- ---------- ----------
For the nine-month period ended
June 27, 1997:
- -----------------------------------------
Issuance of preferred stock and common
stock purchase warrant............... 3,000 $ 1 $ 1 2,998 3,000
Exercise of common stock purchase
warrant.............................. 9,900 (1) 1
Issuance of common stock in exchange
for preferred stock.................. 30,000 $1 (3,000) (1)
Issuance of common stock purchase
warrant in connection with
subordinated note payable............ 200 200
Net income............................. 1,348 1,348
------ --- ------- ---- - ----- --------- ---------- ----------
Balances -- June 27, 1997................ 40,000 $1 -- -- $ 200 $ 6,999 $ (26,882) $(19,682)
====== === ======= ===== ===== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 58
CREDENTIALS SERVICES INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE-MONTH
------------------------------- PERIODS ENDED
SEPTEMBER 30, SEPTEMBER 27, -------------------------------
1995 1996 JUNE 28, 1996 JUNE 27, 1997
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................. $ (5,783) $ (22,447) $ (15,385) $ 1,348
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization................... 3,095 3,062 2,247 2,857
Deferred member solicitation costs and related
commissions paid.............................. (10,181) (22,889) (16,025) (18,097)
Deferred member solicitation costs and related
commissions charged to expense................ 5,474 21,770 15,350 10,578
Extraordinary item: Loss on early extinguishment
of debt....................................... -- -- -- 91
Decrease (increase) in accounts receivable...... 57 (431) (102) (2,243)
Increase in prepaid member solicitation costs... -- (766) (1,396) (1,567)
(Increase) decrease in other current assets..... (169) (15) (512) 22
Increase (decrease) in accounts payable......... 652 4,277 3,046 (896)
Increase (decrease) in accrued expenses......... 2,078 (386) (751) 1,698
Increase in deferred revenue.................... 17,840 12,439 8,761 863
Decrease in membership servicing liability...... (4,173) -- -- --
Increase (decrease) in allowance for
cancellations................................. 627 589 1,221 349
Increase (decrease) in other current
liabilities................................... -- 387 (387)
-------- -------- -------- --------
Net cash provided by (used in) operating
activities...................................... 9,517 (4,410) (3,546) (5,384)
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment........................... (837) (1,430) (1,013) (1,713)
Purchase of assets from TRW..................... (12,822) -- -- --
-------- -------- -------- --------
Net cash used in investing activities............. (13,659) (1,430) (1,013) (1,713)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable to bank............. 11,000 1,350 -- 12,379
Capital lease payments.......................... (69) (217) (185) (205)
Proceeds from sale of common stock.............. 4,000 -- -- --
Proceeds from junior subordinated note
payable....................................... -- -- -- 2,800
Proceeds from common stock purchase warrant..... -- -- -- 200
Proceeds from sale of preferred stock........... -- -- -- 3,000
Repayment of note payable -- bank............... (1,650) (1,650) (1,100) (11,382)
Financing costs paid............................ (1,169) (1,009)
-------- -------- -------- --------
Net cash provided by (used in) financing
activities...................................... 12,112 (517) (1,285) 5,783
-------- -------- -------- --------
Net increase (decrease) in cash................... 7,970 (6,357) (5,844) (1,314)
Cash and cash equivalents at beginning of
period.......................................... -- 7,970 7,970 1,613
-------- -------- -------- --------
Cash and cash equivalents at end of period........ $ 7,970 $ 1,613 $ 2,126 $ 299
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid for interest............................ $ 1,166 $ 1,026 $ 710 $ 673
Leased asset additions and related obligations.... $ 656 $ 117 $ 117 $ 361
Subordinated note payable to TRW.................. $ 3,000
Preferred stock exchanged for common stock........ -- -- -- $ 3,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 59
CREDENTIALS SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Credentials Services International, Inc. (the "Company"), is a Delaware
corporation which provides credit report monitoring services to consumers. The
services include provision of Experian credit reports to members, prompt
notification of inquiries made into a member's Experian credit record, a
quarterly newsletter about significant credit related issues, and various other
notifications to members principally related to activity within their Experian
credit record. The Company sells primarily one- and three-year memberships to
the Credentials(R) Monitoring Service which automatically renew unless canceled
by the subscriber. New members are generally provided with one month of free
service as a trial period. The Company markets its membership programs to
consumers using direct marketing techniques, primarily by direct mail and
telemarketing campaigns conducted through endorsed co-marketing relationships
with credit card issuers and other businesses that have a large customer base,
such as banks, retailers and oil companies. The Company's headquarters are
located in Orange, California and it maintains a customer service facility in
Plano, Texas.
Prior to November 1996, the Company was wholly-owned by CIS Acquisition
Partners, L.P., a Delaware limited partnership. As discussed more fully in Note
11, through a series of equity transactions in November 1996 through March 1997,
CSI Investment Partners II, L.P., a Delaware limited partnership ("CSI Partners
II"), acquired ownership of approximately 99.75% of the Company and became the
Company's parent. CIS Acquisition Partners, L.P. and CSI Partners II are related
partnerships whose principal limited partner is Lincolnshire Equity Fund, L.P.
2. MANAGEMENT'S PLAN
The Company incurred substantial net losses for the years ended September
30, 1995 and September 27, 1996. In addition, as of June 27, 1996, the Company
had a significant stockholders' deficit and a large working capital deficit.
Management believes that the prior year losses were primarily attributable to
the startup of the Company's operations (1995) and failed marketing programs
(1996). In 1996, the losses caused a severe liquidity shortfall thereby
affecting the Company's ability to undertake new programs and enter into new co-
marketer relationships. In August 1996, the Company's Board of Directors
appointed a new management team.
In November 1996 and January 1997, the Company received equity infusions
aggregating $3,000,000 and, in January 1997, the bank loan was refinanced to
provide additional liquidity to the Company. The Company also received a
$3,000,000 subordinated term loan in March of 1997.
The Company's marketing strategy since September 27, 1996, has been to
rebuild the Company's core distribution channel i.e. marketing through financial
institutions followed by expansion to other card issuing organizations (such as
oil companies and retailers) and then to other membership type organizations.
Management believes that this strategy will enable the Company to build a larger
membership base that should yield consistent and high margin renewal income.
Management believes that its existing cash balances, funds generated from
operations and borrowing available under the Company's bank revolving line of
credit are sufficient to provide for the Company's future cash needs.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year -- The Company has a 52-week fiscal year, which ends on the
last Friday of September.
Basis of Presentation and Use of Estimates -- The accompanying financial
statements have been prepared in accordance with generally accepted accounting
principles. 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. Actual results could differ from those estimates.
F-7
<PAGE> 60
CREDENTIALS SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications -- Certain reclassifications have been made in prior
period financial statements to conform to the current presentation.
Cash and Cash Equivalents -- Cash and cash equivalents include
cash-on-hand, demand deposits and short term investments with original
maturities of three months or less.
Revenue Recognition -- Initial and renewal membership fees are generally
billed to members credit cards. An allowance for cancellation is established
based on the Company's historical cancellation experience. Deferred membership
fees are recorded, net of estimated cancellations, when the free one-month trial
period has elapsed and are amortized as membership fees on a straight-line basis
over the membership period, generally 12 to 36 months. During an initial
membership period, a member may cancel his or her membership generally for a
complete refund of the membership fee. At September 27, 1996 and June 27, 1997,
the Company had memberships in the amount of $2,142,000 and $7,351,000,
respectively (before consideration of cancellations and refunds which have
generally ranged from 45% to 60%), which were in their 30-day trial period and
for which revenue had not been recognized as of the respective period end.
Commission Expense -- The Company has co-marketing agreements with credit
card issuers and pays commissions under the terms of these agreements based
principally on a percentage of billings. Such commissions are deferred,
consistent with the associated revenue, and amortized to expense ratably over
the subscription period of the membership.
Deferred Member Solicitation Costs -- Member solicitation costs relate
primarily to the acquisition of new members through direct response type
marketing promotions and include payments for postage, printing, the purchase of
contact lists, telemarketing, and other direct costs incurred to acquire or
retain members. These costs are deferred and amortized to expense on a
straight-line basis over the term of the initial membership period.
Prepaid member solicitation costs include new member acquisition costs
pertaining to solicitation promotions that were in process at the end of the
fiscal year. Accordingly, no membership fees have been received or recognized.
These costs are generally accumulated over a three- to four-month promotional
period and begin to amortize when related revenues are recognized.
The Company periodically compares deferred member solicitation costs to
related membership fees (net of related estimated direct membership servicing
costs for the membership period) generated by each marketing effort and, when
necessary, records an adjustment to recognize any impairment.
Property and Equipment -- Property and equipment are stated at cost less
accumulated depreciation. Depreciation and amortization is provided using the
straight-line method over the estimated useful lives of the related assets,
which vary from four to ten years. Expenditures for major renewals and
betterment are capitalized, while minor replacements, maintenance and repairs
which do not extend the asset lives are expensed as incurred. When assets are
sold or otherwise disposed of, the cost and related accumulated depreciation or
amortization is removed from the respective accounts, and any resulting gain or
loss is recognized.
The Company capitalizes various costs of computer software developed and
obtained for internal use including external direct costs of materials and
services and certain direct, payroll and related costs.
Purchased Memberships -- Purchased memberships represents the cost of the
purchased membership base at October 1, 1994, the date the business was
purchased by the Company from TRW, Inc.. The amount was determined based upon
the discounted estimated future net cash flows to be generated from the
purchased memberships assuming renewal rates based upon historical experience.
Purchased memberships are amortized on a straight-line basis over a period of
five years. Periodically, the Company compares actual member
F-8
<PAGE> 61
CREDENTIALS SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
renewal rates to the estimated renewal rates used in establishing the initial
cost of the purchased membership base to determine if any provision for
impairment is necessary.
Goodwill -- Goodwill represents the difference between the purchase price
of the assets acquired from TRW, Inc. and the value of the net assets acquired.
Such goodwill is being amortized on a straight-line basis over 15 years.
Periodically, the Company evaluates the actual and projected future undiscounted
cash flows of the Company to determine if any provision for impairment is
necessary.
Deferred Financing Costs -- Costs associated with obtaining long-term debt
financing have been capitalized and are amortized over the repayment term of the
related debt using a method that approximates the effective interest method.
Income Taxes -- The Company uses the liability method of accounting for
income taxes, which requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. The provision for
income taxes represents the tax payable for the period and the change during the
year in deferred tax assets and liabilities.
Net Income (loss) Per Common Share -- Net income (loss) per share has been
computed in accordance with Securities and Exchange Commission Staff Accounting
Bulletin (SAB) No. 83. The SAB requires that common shares issued by the Company
in the twelve months immediately preceding a proposed public offering plus the
number of common equivalent shares which became issuable during the same period
pursuant to the grant of warrants and stock options (using the treasury stock
method) at prices substantially less than the initial public offering price be
included in the calculation of common stock and common stock equivalent shares
as if they were outstanding for all periods presented.
Recently Issued Accounting Pronouncements -- In February 1997, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("FAS 128"). FAS 128 will change the
computation, presentation and disclosure requirements for earnings per share.
FAS 128 requires presentation of "basic" and "diluted" earnings per share, as
defined, on the face of the income statement for all entities with complex
capital structures. FAS 128 is effective for financial statements issued for
periods ending after December 15, 1997 and requires restatement of all prior
period earnings per share accounts. Management does not believe that this
restatement will have a material impact on its earnings per share statements
when adopted in fiscal 1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Nos. 130, "Comprehensive Income" ("FAS 130") and
131, "Disclosures About Segments of an Enterprise and Related Information" ("FAS
131"). FAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
FAS 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers.
F-9
<PAGE> 62
CREDENTIALS SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. ACCOUNTS RECEIVABLE
The Company's accounts receivable represent in process credit card billings
for new members that were submitted upon the expiration of the free trial
period, in process credit card billings for renewal members, and amounts owed to
the company by certain co-marketers who billed and collected membership fees on
behalf of the Company.
5. PROPERTY AND EQUIPMENT
The Company's property and equipment as of September 27, 1996 and June 27,
1997 was as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 27, JUNE 27,
1996 1997
------------- -------------
<S> <C> <C>
Office furniture................................ $ 63 $ 191
Office equipment................................ 458 447
Computer equipment.............................. 1,454 1,840
Leasehold improvements.......................... 156 220
Capitalized software............................ 1,515 3,022
------ ------
Total................................. 3,646 5,720
Less, accumulated depreciation.................. (381) (798)
------ ------
Net property and equipment...................... $ 3,265 $ 4,922
====== ======
</TABLE>
The Company's depreciation expense for the periods ended September 30,
1995, September 27, 1996 and June 27, 1997, was $217,000, $164,000 and $417,000,
respectively.
6. NOTES PAYABLE
Principal balances of notes payable at September 27, 1996 and June 27, 1997
consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 27, JUNE 27,
1996 1997
------------- -------------
<S> <C> <C>
Term note payable to bank....................... $ 9,050 $ 7,950
Revolving line of credit........................ -- 2,097
------- -------
9,050 10,047
Less: Current maturities........................ (2,200) (4,447)
------- -------
$ 6,850 $ 5,600
======= =======
</TABLE>
The principal balance on the note payable to bank at September 27, 1996 was
$9,050,000. The loan agreement required that the Company make quarterly interest
payments at a variable interest rate based, at the Company's option, on Prime,
the Federal Funds rate, or LIBOR. The interest rate in effect at September 27,
1996 was approximately 9.75%.
Substantially all of the Company's assets and a pledge of all of the
Company's outstanding common stock collateralized the note. The note payable
agreement contained various restrictive covenants, including provisions for
minimum debt service, cash flow, and deferred revenue to deferred costs ratios.
Additionally, such provisions prohibited the incurrence of additional
indebtedness without lender approval.
In January 1997, the note payable to bank was re-financed with another bank
which provided an $11,000,000 line of credit consisting of an $8,500,000 Term
Note and a $2,500,000 maximum amount revolving line of credit. Principal on the
Term Note is payable in eleven quarterly installments commencing March 31, 1997.
Interest is payable monthly at a variable rate based, at the Company's option,
on Prime, the Federal Funds rate or LIBOR. The interest rate in effect at June
27, 1997 was approximately 8.43%. Substantially all of the Company's assets and
a pledge of all outstanding common stock collateralize the note.
F-10
<PAGE> 63
CREDENTIALS SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE (CONTINUED)
The note payable agreement contains various restrictive covenants, including
provisions for minimum EBITDA requirements, the maintenance of minimum
subscriber levels, and debt to cash flow coverage ratios. Additionally, such
provisions prohibit the incurrence of additional indebtedness without lender
approval and restrict the Company's ability to pay dividends.
Borrowings on the Company's revolving line of credit are formula-based. The
formula is based upon the level of eligible accounts receivable, as defined in
the credit agreement, with a maximum borrowing limit of $2,500,000. The balance
borrowed on the revolving line of credit is due on September 30, 1999. Interest
is payable monthly at a variable rate based, at the Company's option, on Prime,
the Federal Funds rate or LIBOR. The interest rate in effect at June 27, 1997
was approximately 9.50%. The revolving line of credit is collateralized by
current assets, therefore the Company classifies the obligation due under the
line as a current liability.
Future minimum principal payments due on notes payable as of June 27, 1997
are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS TO END JUNE
-----------------
<S> <C>
1998............................................. $ 4,447
1999............................................. 2,975
2000............................................. 2,625
-------
$10,047
=======
</TABLE>
In January 1997, the Company refinanced its prior note payable to a bank
and wrote-off the remaining unamortized debt issuance costs related to that note
payable ($91,054, net of related income tax benefit of $60,702) as an
extraordinary item in the accompanying statement of operations.
7. SUBORDINATED NOTES PAYABLE
Subordinated notes payable at September 27, 1996 and June 27, 1997 consist
of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 27, JUNE 27,
1996 1997
------------- --------
<S> <C> <C>
Subordinated note payable to TRW, Inc................... $ 3,000 $3,000
Junior subordinated note payable to Canterbury, net of
unamortized discount of $185,000...................... -- 2,815
------ ------
$ 3,000 $5,815
====== ======
</TABLE>
In conjunction with the acquisition of "TRW Credentials", the Company
entered into a subordinated debt agreement with TRW, Inc. The principal amount
of the note is $3,000,000 due in full on December 31, 1999, with interest, based
on LIBOR, payable quarterly. As of September 27, 1996 and June 27, 1997, the
interest rates that were in effect were 9.0625% and 9.31%, respectively. The
agreement includes a mandatory prepayment based on a percentage of excess cash
as defined in the agreement.
In March 1997, Canterbury Mezzanine Capital L.P. ("Canterbury") loaned to
the Company $3,000,000 represented by a junior subordinated note payable.
Principal on the note is payable in two equal installments on March 10, 2001 and
March 10, 2002. Interest is payable semi-annually in arrears at a fixed rate per
annum equal to 12% per annum. The note payable agreement contains several
restrictive covenants, including provisions for minimum debt to cash flow
coverage ratios, limitations on number of mailings and telemarketing activity
and restrictions on the incurrence of additional indebtedness, subject to the
terms of the loan agreement.
F-11
<PAGE> 64
CREDENTIALS SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SUBORDINATED NOTES PAYABLE (CONTINUED)
In accordance with the provisions of the note payable to Canterbury, the
Company granted a warrant to Canterbury to purchase 4,843.05 shares of the
Company's Common Stock. The warrant is exercisable at a price of $.10 per share
and has a term of ten years expiring in March 2007. The number of shares and
exercise price per share subject to the warrant are subject to anti-dilution
provisions.
The Company allocated a portion of the proceeds received from the
Canterbury subordinated note payable to the warrant and recorded the amount
($200,000) as a discount on the Canterbury note payable. The discount is being
amortized on a straight line basis (which approximates the effective interest
method) over the term of the Canterbury note payable. The amount allocated to
the warrant was based on management's estimate of the relative fair values of
the warrants and the subordinated note payable (exclusive of the warrant
feature) at the date of issuance.
Future minimum principal payments due on subordinated notes payable as of
June 27, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS TO END JUNE
-----------------
<S> <C>
1998.............................................. --
1999.............................................. --
2000.............................................. $ 3,000
2001.............................................. 1,500
2002.............................................. 1,500
------
$ 6,000
======
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
Operating Leases -- The Company leases office space in Plano, Texas for its
customer service facility. The lease agreement requires monthly rent payments of
$16,000 that expire on September 2001. The Company also leases office facilities
in Orange, California, which house its corporate offices. The leases require
monthly payments of $2,927 and $23,334, respectively, which expire in July 14,
1997 and December 31, 1998, respectively. Rent expenses plus taxes, insurance,
maintenance and utilities for these leases was $381,000, $516,000 and $380,000
for the periods ended September 30, 1995, September 27, 1996 and June 27, 1997,
respectively. The Company also leases equipment under operating leases expiring
through 2001. Rent expenses, including taxes, repair and maintenance cost
associated with these leases for the years ended September 30, 1995 and
September 27, 1996 and June 27, 1997, was approximately $73,000, $85,000 and
$135,000, respectively. Future minimum rent and lease payments for each of the
five succeeding years are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS TO END JUNE
-----------------
<S> <C>
1998.............................................. $ 582
1999.............................................. 353
2000.............................................. 263
2001.............................................. 263
2002.............................................. 108
</TABLE>
F-12
<PAGE> 65
CREDENTIALS SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company leases computer equipment under several agreements that expire
in June and November 1998. Future minimum lease payments (net of interest) under
the Company's capitalized leases on computer equipment are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS TO END JUNE
-----------------
<S> <C>
1998........................................................ $341
1999........................................................ 287
2000........................................................ 81
2001........................................................ 0
2002........................................................ 0
----
Total minimum payments........................................ 709
Less amount representing interest............................. (65)
----
$644
Less Current Portion.......................................... (306)
----
$338
====
</TABLE>
Concentration of Credit Risk -- The Company maintains its cash accounts in
commercial banks. At September 27, 1996 and June 27, 1997, cash on deposit
exceeded the federally insured limit of $100,000 by $910,000 and $125,000,
respectively.
Litigation -- Various legal proceedings have arisen in the course of the
Company's business. While it is not possible to predict the outcome of any
litigation, management believes, based in part on advice from outside legal
counsel, that the resolution of these matters will not have a material adverse
effect on the Company's financial position or results of operations.
9. 401K RETIREMENT PLAN
The Company has a 401K salary reduction plan for the benefit of its
employees. Employees are eligible to participate after 30 days of employment.
The Company will make a matching contribution equal to 50% on the first 6% that
the employee contributes to the plan. The employer's matching portions for the
years ended September 30, 1995, September 30, 1996 and June 27, 1997 were
$35,000, $88,000 and $53,000, respectively.
10. RELATED PARTY TRANSACTIONS
In October 1994, the Company entered into a consulting agreement with
Lincolnshire Management, Inc. ("LMI"), an affiliate of CSI Partners II and CIS
Acquisition Partners, L.P. Pursuant to the agreement, LMI renders management and
financial consulting services to the Company. During fiscal year 1996, these
services included assisting the Company in refinancing and reorganizing its
operations. For the services provided, the Company paid LMI annual management
and consulting fees and expenses of $259,000 in fiscal year 1995, $368,000 in
fiscal year 1996 and $312,000 in the nine-month period ended June 27, 1997.
During the year ended September 30, 1995, Lincolnshire Management, Inc.,
was paid $1,250,000 for professional services relating primarily to the
negotiations of the acquisition from TRW, Inc., the negotiation of bank debt
agreements and the negotiation of the Subordinated Debt Agreement.
The Warrant Agreement, as discussed in Note 7, contains a provision such
that if, prior to a period of time specified in the Warrant Agreement, the note
payable and all other amounts due under the note payable agreement have been
repaid in full, and Canterbury has received in excess of $3,000,000 in cash by
reason of
F-13
<PAGE> 66
CREDENTIALS SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. RELATED PARTY TRANSACTIONS (CONTINUED)
the sale or any other disposition of all or any portion of the Warrant and
Warrant shares, Canterbury is required to pay to Lincolnshire Management, Inc.,
an affiliate of CSI Partners II, an amount equal to 25% of the amount it
receives in excess of $3,000,000.
In March 1997, Lincolnshire Management, Inc., was paid $300,000 for
professional services relating primarily to the negotiations of the bank debt
agreements.
11. INCOME TAXES
The provision for income taxes for the periods ended September 30, 1995,
September 27, 1996 and June 27, 1997 consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 27, JUNE 27,
1995 1996 1997
------------- ------------- --------
<S> <C> <C> <C>
Current:
Federal................................... $ 0 $ 0 $ 44
State..................................... 0 0 17
--- --- ---
$ 0 $ 0 $ 61
Deferred:
Federal................................... $ 0 $ 0 $ 0
State..................................... 0 0 0
--- --- ---
$ 0 $ 0 $ 0
--- --- ---
Provision for income taxes................ $ 0 $ 0 $ 61
=== === ===
</TABLE>
The provision (benefit) for income taxes differs from the amount that would
result from applying the Federal statutory rate as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 27, JUNE 27,
1995 1996 1997
------------- ------------- --------
<S> <C> <C> <C>
Tax provision (benefit) at the statutory
rate.................................. (34.00%) (34.00%) 34.00%
Change in valuation allowance........... 33.98 34.00 (30.78)
Other................................... 0.02 0.00 1.10
------- ------- -------
0.00% 0.00% 4.32%
======= ======= =======
</TABLE>
The components of the deferred tax asset and (liability) as of September
27, 1996 and June 27, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 27, JUNE 27,
1996 1997
------------- -------------
<S> <C> <C>
Allowance for doubtful accounts........... $ 64 $ 242
Property and equipment.................... (307) (231)
Purchased membership amortization......... 1,163 1,513
Capitalized marketing costs and
commissions............................. (2,505) (2,484)
Deferred revenue.......................... 3,942 5,328
Other..................................... 84 85
Goodwill.................................. (918) (1,503)
Net operating losses...................... 10,311 8,188
-------- --------
11,834 11,138
Valuation allowance....................... (11,834) (11,138)
-------- --------
Net deferred income taxes................. $ 0 $ 0
======== ========
</TABLE>
F-14
<PAGE> 67
CREDENTIALS SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES (CONTINUED)
The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
Management periodically evaluates the recoverability of the deferred tax assets.
At such time as it is determined that it is more likely than not that deferred
tax assets are realizable, the valuation allowance will be reduced.
As of June 27, 1997, the Company had net operating loss carryforwards for
Federal and state purposes of approximately $19,366,000 and $17,241,694,
respectively. The net operating loss carryforwards begin expiring after the
years ending 2011 and 2004, respectively. In the event of a "Change in
Ownership" the utilization against future taxable income of the loss
carryforwards will be subject to an annual limitation pursuant to the provisions
of the Tax Reform Act of 1988.
12. STOCKHOLDERS' DEFICIT
In 1996, the Company amended its Certificate of Incorporation to increase
the total number of shares of capital stock which the Company has authority to
issue to 55,000 shares, consisting of (i) 50,000 shares of Common Stock, par
value $.01 per share (the "Common Stock"); and (ii) 5,000 shares of Series A
Cumulative Preferred Stock, par value $.01 per share (the "Series A Stock"). (As
discussed below, in March 1997, the Company retired 3,000 shares of Series A
Stock thereby reducing the number of such shares authorized to 2,000.)
Preferred Stock
Each share of Series A Stock entitles its holder to receive, when and as
declared by the Board of Directors, preferential dividends which accrue
cumulatively at a compound rate of 12% per annum from the date of issuance of
each share of Series A Stock. Dividends payable with respect to each share of
Series A Stock shall be payable in cash or in shares of Series A Stock of the
Company at the issue value, at the option of the Company. In the event of
liquidation, the holders of shares of Series A Stock shall be entitled to an
amount equal to the sum of $1,000 per share of Series A Stock. The Series A
Stock is redeemable at the option of the Company at a price equal to or above
the Series A Redemption Price as outlined in the Company's Certificate of
Incorporation.
In November 1996, the Company issued 2,000 shares of Series A Stock and a
warrant for 9,900 shares of Common Stock in exchange for a $2,000,000
contribution by CSI Partners II to the capital of the Company. In January 1997,
the Company issued an additional 1,000 shares of Series A Stock in exchange for
an additional contribution of $1,000,000 to the capital of the Company by CSI
Partners II. In March 1997, CSI Partners II exchanged the 3,000 shares of Series
A Stock for 30,000 shares of Common Stock and exercised its warrant for 9,900
shares of Common Stock. Subsequent to the exchange, the 3,000 shares of Series A
Stock were retired.
Common Stock
At June 27, 1997, the Company had reserved 4,843.05 shares of its Common
Stock for issuance upon the exercise of the common stock purchase warrant issued
to Canterbury in connection with the junior subordinated note payable as
discussed in Note 7. On September 26, 1997, the warrant was exercised and the
related 4,843.05 shares of Common Stock were issued.
Management Equity
Under the terms of the CSI II Partnership Agreement, a group of eleven
officers and key employees of the Company hold Class B limited partnership
interests in CSI Investment Partners II, L.P. ("CSI Partners II"), a Delaware
limited partnership, representing indirect interests in the Company Common Stock
F-15
<PAGE> 68
CREDENTIALS SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' DEFICIT (CONTINUED)
held by that partnership. The interests held by those eleven officers and key
employees aggregate a 10% interest in CSI Partners II. The foregoing interests
were granted pursuant to agreements reached with each such officer in October
1996. Under the terms of the CSI II Partnership Agreement, the interests of each
of the eleven individuals vests in accordance with a schedule which provides
that one-third of such interest vests in April 1998, an additional one-third
vests in April 1999, and the remaining one-third vests in April 2000, contingent
upon such individual's continued employment with the Company. Upon vesting of an
individual's interest, the Company Common Stock underlying that interest will be
distributed to such individual. Based on the capital structure of the Company at
June 27, 1997, assuming full vesting of all such restricted shares for all of
the eleven individuals, the number of restricted shares that would be
distributed would be 3,990 shares. The CSI II Partnership Agreement requires
that the eleven individuals make a capital contribution to the partnership in
the aggregate amount of $660,000 in the year 2000.
F-16
<PAGE> 69
============================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
Prospectus Summary......................... 1
Risk Factors............................... 5
Use of Proceeds............................ 13
Dividend Policy............................ 13
Capitalization............................. 14
Dilution................................... 15
Selected Financial Data.................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 19
Business................................... 25
Management................................. 36
Certain Transactions....................... 42
Principal and Selling Stockholders......... 44
Description of Capital Stock............... 45
Shares Eligible for Future Sale............ 47
Underwriting............................... 48
Legal Matters.............................. 49
Experts.................................... 49
Additional Information..................... 49
Index to Financial Statements.............. F-1
</TABLE>
------------------------
UNTIL , 199 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
============================================================
============================================================
SHARES
CREDENTIALS SERVICES
INTERNATIONAL, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
PAINEWEBBER INCORPORATED
HAMBRECHT & QUIST
------------------------
, 1997
============================================================
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Registrant and the Selling Stockholders in connection with the sale and
distribution of the securities being registered hereby, other than underwriting
discounts and commissions. All amounts are estimated except the Securities and
Exchange Commission registration fee and the Nasdaq National Market filing fee.
<TABLE>
<CAPTION>
PAYABLE BY
REGISTRANT
----------
<S> <C>
SEC registration fee.............................................. $ 12,121
Nasdaq National Market filing fee.................................
Blue Sky fees and expenses........................................
Accounting fees and expenses......................................
Legal fees and expenses...........................................
Printing and engraving expenses...................................
Registrar and Transfer Agent's fees...............................
Miscellaneous fees and expenses...................................
------
Total................................................... $
======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Securities Act"). Article Seventh of
the Registrant's Certificate of Incorporation (Exhibit 3.1(i) hereto) and
Article VI of the Registrant's Amended and Restated Bylaws (Exhibit 3.2 hereto)
provides for indemnification of the Registrant's directors, officers, employees
and other agents to the extent and under the circumstances permitted by the
Delaware General Corporation Law. The Registrant has also entered into
agreements with its directors and officers that will require the Registrant,
among other things, to indemnify them against certain liabilities that may arise
by reason of their status or service as directors or officers to the fullest
extent not prohibited by law.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
the Underwriters of the Registrant, its directors and officers, and by the
Registrant of the Underwriters, for certain liabilities, including liabilities
arising under the Securities Act, and affords certain rights of contribution
with respect thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) In October 1994, the Registrant issued shares of its Common
Stock to CIS Acquisitions Partners, L.P., for aggregate cash
consideration of $4.0 million. The Registrant relied on the exemption
provided by Section 4(2) of the Securities Act.
(b) Under the terms of the CSI II Partnership Agreement, a group of eleven
officers and key employees of the Company hold Class B limited
partnership interests in CSI Investment Partners II, L.P. ("CSI
Partners II"), a Delaware limited partnership, representing indirect
interests in the Company Common Stock held by that partnership. The
interests held by those eleven officers and key employees aggregate a
10% interest in CSI Partners II. The foregoing interests were granted
pursuant to agreements reached with each such officer in October 1996.
Under the terms of the CSI II Partnership Agreement, the interests of
each of the eleven individuals vests in accordance with a schedule
which provides that one-third of such interest vests in April 1998, an
additional one-third vests in April 1999, and the remaining one-third
vests in April 2000, contingent upon such individual's continued
employment with the Company. Upon vesting of an individual's interest,
the Company Common Stock underlying that interest will be distributed
to such individual. Based on the capital structure of the Company at
June 27, 1997, assuming full vesting of all such restricted
II-1
<PAGE> 71
shares for all of the eleven individuals, the number of restricted
shares that would be distributed would be 3,990 shares. The CSI II
Partnership Agreement requires that the eleven individuals make a
capital contribution to the partnership in the aggregate amount of
$660,000 in the year 2000.
(c) From November 1996 through January 1997, the Registrant issued 3,000
shares of Series A Cumulative Preferred Stock (the "Series A Preferred
Stock") and granted warrants to acquire shares of its Common
Stock to CSI Investment Partners II, L.P. ("CSI Partners II"), for
aggregate cash consideration of $3.0 million. The Registrant relied on
the exemption provided by Section 4(2) of the Securities Act. In March
1997, as a condition of a $3.0 million subordinated loan to the Company
made by Canterbury Mezzanine Capital, L.P. ("Canterbury Capital"), CSI
Partners II exchanged its 3,000 outstanding shares of Series A
Preferred Stock for shares of the Registrant's Common Stock and
exercised its warrants (at a nominal exercise price) for shares of
Common Stock.
(d) In March 1997, the Registrant granted warrants to purchase a total of
shares of its Common Stock to Canterbury Capital in
connection with Canterbury Capital's $3.0 million subordinated loan to
the Registrant. The Registrant relied on the exemption provided by
Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------------ ---------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1(i) Certificate of Incorporation of the Registrant, as amended.
3.1(ii)* Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Amended and Restated Bylaws of the Registrant.
4.1* Specimen Common Stock Certificate.
4.2* Registration Rights Agreement among the Registrant, CSI Investment Partners
II, L.P., and Canterbury Mezzanine Capital, L.P.
5.1* Opinion of Maloney, Mehlman & Katz.
10.1+ Consumer Credit Subscriber Service Agreement, dated October 18, 1994,
entered into by TRW Inc., and the Registrant.
10.2 Office Lease, dated as of June 13, 1995, by and between TGALMA Limited and
the Registrant, as amended.
10.3 SubLease Agreement, dated as of December 6, 1994, by and between
Cal-Surance Associates and the Registrant; Office Lease dated August 23,
1988, by and between Metropolitan Tishman Tower Venture and Cal-Surance
Associates, Inc., as amended.
10.4 Employment Agreement, dated as of May 9, 1997, by and between David C.
Thompson and the Registrant.
10.5 Employment Agreement, dated as of August 15, 1996, by and between Chuck
Caudle and the Registrant.
10.6 Letter Agreement, dated August 16, 1995, by and between Mike Cossel and the
Registrant.
10.7 Letter Agreement, dated September 5, 1995, by and between James Rothe and
the Registrant.
10.8 Employment Agreement, dated as of December, 1996, by and between Vineet
Pruthi and the Registrant.
10.9 Letter Agreement, dated October 1, 1994, by and between Gerry Keehan and
the Registrant.
10.10 Employment Agreement, dated as of December 3, 1996, by and between Donald
J. Shea, Jr., and the Registrant.
</TABLE>
II-2
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------------ ---------------------------------------------------------------------------
<S> <C>
10.11* Credential Services International, Inc. 1997 Stock Option Plan.
10.12(i) Credit Agreement, dated as of January 14, 1997, between the Registrant and
LaSalle National Bank.
10.12(ii) Revolving Note, dated January 14, 1997, of the Registrant payable to
LaSalle National Bank.
10.12(iii) Term Note, dated January 14, 1997, of the Registrant payable to LaSalle
National Bank.
10.12(iv) Security Agreement, dated as of January 14, 1997, between the Registrant
and LaSalle National Bank.
10.12(v) Patent, Trademark and Copyright Security Agreement, dated as of January 14,
1997, between the Registrant and LaSalle National Bank.
10.12(vi) Collateral Assignment of Contracts, dated as of January 14, 1997, between
the Registrant and LaSalle National Bank.
10.12(vii) Pledge Agreement, dated as of January 14, 1997, made by CSI Investment
Partners II, L.P., in favor of LaSalle National Bank.
10.12(viii) Pledge Agreement, dated as of January 14, 1997, made by CIS Acquisition
Partners, L.P., in favor of LaSalle National Bank.
10.13* Amended and Restated Credit Agreement between the Registrant and LaSalle
National Bank.
10.14* Form of Director and Officer Indemnification Agreement.
10.15 Amended and Restated Agreement of Limited Partnership of CSI Investment
Partners II, L.P., dated as of October 7, 1997.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2* Consent of Maloney, Mehlman & Katz (included in its opinion filed as
Exhibit 5.1 to this Registration Statement).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions of
this agreement.
(b) FINANCIAL STATEMENT SCHEDULES
Financial statement schedules other than those referred to above have been
omitted because they are not applicable or not required or because the
information is included elsewhere in the Financial Statements or the notes
thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, 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.
II-3
<PAGE> 73
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 the purpose 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.
(3) It will provide to the underwriters at the closing(s) specified in
the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
II-4
<PAGE> 74
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Orange, State of
California, on the 8th day of October, 1997.
CREDENTIALS SERVICES INTERNATIONAL, INC.
By /s/ DAVID C. THOMPSON
----------------------------------------
David C. Thompson
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David C. Thompson and Vineet Pruthi, and each of
them, his true and lawful attorneys-in-fact and agents, each with full power of
substitution and re-substitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments, including post-effective
amendments, to this Registration Statement, and any registration statement
relating to the offering covered by this Registration Statement and filed
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that each of said attorneys-in-fact and agents or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- --------------------------- ------------------
<C> <S> <C>
/s/ DAVID C. THOMPSON President, Chief Executive October 8, 1997
- --------------------------------------------- Officer and Director
David C. Thompson (Principal Executive
Officer)
/s/ VINEET PRUTHI Executive Vice President October 8, 1997
- --------------------------------------------- and Chief Financial Officer
Vineet Pruthi (Principal Financial and
Accounting Officer)
/s/ THOMAS J. MALONEY Chairman and Director October 8, 1997
- ---------------------------------------------
Thomas J. Maloney
/s/ C. KENNETH CLAY Director October 8, 1997
- ---------------------------------------------
C. Kenneth Clay
/s/ NICHOLAS DUNPHY Director October 8, 1997
- ---------------------------------------------
Nicholas Dunphy
/s/ WILLIAM A. HALL Director October 8, 1997
- ---------------------------------------------
William A. Hall
/s/ M. GERARD KEEHAN Director October 8, 1997
- ---------------------------------------------
M. Gerard Keehan
</TABLE>
II-5
<PAGE> 75
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------------ ---------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1(i) Certificate of Incorporation of the Registrant, as amended.
3.1(ii)* Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Amended and Restated Bylaws of the Registrant.
4.1* Specimen Common Stock Certificate.
4.2* Registration Rights Agreement among the Registrant, CSI Investment Partners
II, L.P., and Canterbury Mezzanine Capital, L.P.
5.1* Opinion of Maloney, Mehlman & Katz.
10.1+ Consumer Credit Subscriber Service Agreement, dated October 18, 1994,
entered into by TRW Inc., and the Registrant.
10.2 Office Lease, dated as of June 13, 1995, by and between TGALMA Limited and
the Registrant, as amended.
10.3 SubLease Agreement, dated as of December 6, 1994, by and between
Cal-Surance Associates and the Registrant; Office Lease dated August 23,
1988, by and between Metropolitan Tishman Tower Venture and Cal-Surance
Associates, Inc., as amended.
10.4 Employment Agreement, dated as of May 9, 1997, by and between David C.
Thompson and the Registrant.
10.5 Employment Agreement, dated as of August 15, 1996, by and between Chuck
Caudle and the Registrant.
10.6 Letter Agreement, dated August 16, 1995, by and between Mike Cossel and the
Registrant.
10.7 Letter Agreement, dated September 5, 1995, by and between James Rothe and
the Registrant.
10.8 Employment Agreement, dated as of December, 1996, by and between Vineet
Pruthi and the Registrant.
10.9 Letter Agreement, dated October 1, 1994, by and between Gerry Keehan and
the Registrant.
10.10 Employment Agreement, dated as of December 3, 1996, by and between Donald
J. Shea, Jr., and the Registrant.
10.11* Credential Services International, Inc. 1997 Stock Option Plan.
10.12(i) Credit Agreement, dated as of January 14, 1997, between the Registrant and
LaSalle National Bank.
10.12(ii) Revolving Note, dated January 14, 1997, of the Registrant payable to
LaSalle National Bank.
10.12(iii) Term Note, dated January 14, 1997, of the Registrant payable to LaSalle
National Bank.
10.12(iv) Security Agreement, dated as of January 14, 1997, between the Registrant
and LaSalle National Bank.
10.12(v) Patent, Trademark and Copyright Security Agreement, dated as of January 14,
1997, between the Registrant and LaSalle National Bank.
10.12(vi) Collateral Assignment of Contracts, dated as of January 14, 1997, between
the Registrant and LaSalle National Bank.
</TABLE>
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------------ ---------------------------------------------------------------------------
<S> <C>
10.12(vii) Pledge Agreement, dated as of January 14, 1997, made by CSI Investment
Partners II, L.P., in favor of LaSalle National Bank.
10.12(viii) Pledge Agreement, dated as of January 14, 1997, made by CIS Acquisition
Partners, L.P., in favor of LaSalle National Bank.
10.13* Amended and Restated Credit Agreement between the Registrant and LaSalle
National Bank.
10.14* Form of Director and Officer Indemnification Agreement.
10.15 Amended and Restated Agreement of Limited Partnership of CSI Investment
Partners II, L.P., dated as of October 7, 1997.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2* Consent of Maloney, Mehlman & Katz (included in its opinion filed as
Exhibit 5.1 to this Registration Statement).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions of
this agreement.
<PAGE> 1
EXHIBIT 1.1
_______________ Shares
CREDENTIALS SERVICES INTERNATIONAL, INC.
Common Stock
UNDERWRITING AGREEMENT
November __, 1997
PAINEWEBBER INCORPORATED
HAMBRECHT & QUIST, LLC
As Representatives of the
several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Credentials Services International, Inc., a Delaware corporation (the
"Company"), and the persons named in Schedule I (the "Selling Stockholders")
propose to sell an aggregate of _________ shares (the "Firm Shares") of the
Company's Common Stock, $____ par value per share (the "Common Stock"), of which
_______ shares are to be issued and sold by the Company and an aggregate of
_________ shares are to be sold by the Selling Stockholders in the respective
amounts set forth opposite their respective names in Schedule I, in each case to
you and to the other underwriters named in Schedule II (collectively, the
"Underwriters"), for whom you are acting as representatives (the
"Representatives"). The Selling Stockholders have also agreed to grant to you
and the other Underwriters an option (the "Option") to purchase up to an
additional _______ shares of Common Stock (the "Option Shares") on the terms and
for the purposes set forth in Section 1(b). The Firm Shares and the Option
Shares are hereinafter collectively referred to as the "Shares."
The initial public offering price per share for the Shares and the
purchase price per share for the Shares to be paid by the several Underwriters
shall be agreed upon by the
<PAGE> 2
Company, the Selling Stockholders and the Representatives, acting on behalf of
the several Underwriters, and such agreement shall be set forth in a separate
written instrument substantially in the form of Exhibit A hereto (the "Price
Determination Agreement"). The Price Determination Agreement may take the form
of an exchange of any standard form of written telecommunication among the
Company, the Selling Stockholders and the Representatives and shall specify
such applicable information as is indicated in Exhibit A hereto. The offering
of the Shares will be governed by this Agreement, as supplemented by the Price
Determination Agreement. From and after the date of the execution and delivery
of the Price Determination Agreement, this Agreement shall be deemed to
incorporate, and, unless the context otherwise indicates, all references
contained herein to "this Agreement" and to the phrase "herein" shall be deemed
to include the Price Determination Agreement.
Each Selling Stockholder has executed and delivered a Custody
Agreement and a Power of Attorney in the form attached hereto as Exhibit B
(collectively, the "Agreement and Power of Attorney") pursuant to which each
Selling Stockholder has placed his Firm Shares in custody and appointed the
persons designated therein as a committee (the "Committee") with authority to
execute and deliver this Agreement on behalf of such Selling Stockholder and to
take certain other actions with respect thereto and hereto.
The Company and the Selling Stockholders confirm as follows
their respective agreements with the Representatives and the several other
Underwriters.
1. Agreement to Sell and Purchase.
(a) On the basis of the respective
representations, warranties and agreements of the Company and the Selling
Stockholders herein contained and subject to all the terms and conditions of
this Agreement, (i) the Company and each of the Selling Stockholders, severally
and not jointly, agree to sell to the several Underwriters and (ii) each of the
Underwriters, severally and not jointly, agrees to purchase from the Company
and the Selling Stockholders, at the purchase price per share for the Firm
Shares to be agreed upon by the Representatives, the Company and the Selling
Stockholders in accordance with Section 1(c) and set forth in the Price
Determination Agreement, the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule II, plus such additional number of Firm Shares
which such Underwriter may become obligated to purchase pursuant to Section 9
hereof. Schedule II may be attached to the Price Determination Agreement.(1)
(b) Subject to all the terms and conditions of
this Agreement, the Selling Stockholders grant the Option to the several
Underwriters[, on a pro rata basis based on the number of Firm Shares to be sold
by such Selling Stockholders] to purchase, severally and not jointly, up to ___
Option Shares from the Selling
-2-
<PAGE> 3
Stockholders at the same price per share as the Underwriters shall pay for the
Firm Shares. The Option may be exercised only to cover over- allotments in the
sale of the Firm Shares by the Underwriters and may be exercised in whole or in
part at any time (but not more than once) on or before the 45th day after the
date of this Agreement (or, if the Company has elected to rely on Rule 430A, on
or before the 45th day after the date of the Price Determination Agreement),
upon written or telegraphic notice (the "Option Shares Notice") by the
Representatives to the [Company] [Committee] no later than 12:00 noon, New York
City time, at least two and no more than five business days before the date
specified for closing in the Option Shares Notice (the "Option Closing Date")
setting forth the aggregate number of Option Shares to be purchased and the time
and date for such purchase. On the Option Closing Date, the Selling
Stockholders will sell to the Underwriters the number of Option Shares set forth
in the Option Shares Notice, and each Underwriter will purchase such percentage
of the Option Shares as is equal to the percentage of Firm Shares that such
Underwriter is purchasing, as adjusted by the Representatives in such manner as
they deem advisable to avoid fractional shares.
(c) The initial public offering price per share
for the Firm Shares and the purchase price per share for the Firm Shares to be
paid by the several Underwriters shall be agreed upon and set forth in the
Price Determination Agreement. In the event such price has not been agreed
upon and the Price Determination Agreement has not been executed by the close
of business on the fourteenth business day following the date on which the
Registration Statement becomes effective, this Agreement shall terminate
forthwith, without liability of any party to any other party except that
Section 7, Section 5(i) and Section 5(j) shall remain in effect.
2. Delivery and Payment. Delivery of the Firm Shares
shall be made to the Representatives for the accounts of the Underwriters
against payment of the purchase price by wire transfer. Such payment shall be
made at 10:00 a.m., New York City time, on the [third] [fourth] business day
after the date on which the first bona fide offering of the Shares to the
public is made by the Underwriters or at such time on such other date, not
later than ten business days after such date, as may be agreed upon by the
Company and the Representatives (such date is hereinafter referred to as the
"Closing Date").
To the extent the Option is exercised, delivery of the Option
Shares against payment by the Underwriters (in the manner specified above) will
take place at the time and date (which may be the Closing Date) specified in
the Option Shares Notice.
Certificates evidencing the Shares shall be in definitive form
and shall be registered in such names and in such denominations as the
Representatives shall request at least two business days prior to the Closing
Date or the Option Closing Date, as the case may be, by written notice to the
Company. For the purpose of expediting the checking and packaging of
certificates for the Shares, the Company agrees to make such certificates
available for inspection at least 24 hours prior to the Closing Date or the
Option Closing Date, as the case may be.
The cost of original issue tax stamps, if any, in connection
with the issuance and delivery of the Firm Shares and Option Shares by the
Company to the respective Underwriters shall be borne by the Company. The cost
of tax stamps, if any, in connection with the sale of the Firm Shares by the
Selling Stockholders shall be borne by the Selling Stockholders. The Company
and the Selling Stockholders will pay and save each Underwriter and any
subsequent holder of the Shares harmless from any and all liabilities with
respect to or resulting from any failure or delay in paying Federal and state
stamp and other transfer taxes, if any, which may be payable or determined to
be payable in connection with the original issuance or sale to such Underwriter
of the Firm Shares and Option Shares.
-3-
<PAGE> 4
3. Representations and Warranties of the Company. The
Company represents, warrants and covenants to each Underwriter that:
(a) A registration statement (Registration
No.___) on Form S-1 relating to the Shares, including a preliminary prospectus
and such amendments to such registration statement as may have been required to
the date of this Agreement, has been prepared by the Company under the
provisions of the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations (collectively referred to as the "Rules and Regulations") of
the Securities and Exchange Commission (the "Commission") thereunder, and has
been filed with the Commission. The term "preliminary prospectus" as used
herein means a preliminary prospectus as contemplated by Rule 430 or Rule 430A
("Rule 430A") of the Rules and Regulations included at any time as part of the
registration statement. Copies of such registration statement and amendments
and of each related preliminary prospectus have been delivered to the
Representatives. The term "Registration Statement" means the registration
statement as amended at the time it becomes or became effective (the "Effective
Date"), including financial statements and all exhibits and any information
deemed to be included by Rule 430A or Rule 434 of the Rules and Regulations.
If the Company files a registration statement to register a portion of the
Shares and relies on Rule 462(b) of the Rules and Regulations for such
registration statement to become effective upon filing with the Commission (the
"Rule 462 Registration Statement"), then any reference to the "Registration
Statement" shall be deemed to include the Rule 462 Registration Statement, as
amended from time to time. The term "Prospectus" means the prospectus as first
filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations
or, if no such filing is required, the form of final prospectus included in the
Registration Statement at the Effective Date.
(b) On the Effective Date, the date the
Prospectus is first filed with the Commission pursuant to Rule 424(b) (if
required), at all times subsequent to and including the Closing Date and, if
later, the Option Closing Date and when any post-effective amendment to the
Registration Statement becomes effective or any amendment or supplement to the
Prospectus is filed with the Commission, the Registration Statement and the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment or supplement thereto), including the financial
statements included in the Prospectus, did or will comply with all applicable
provisions of the Act and the Rules and Regulations and will contain all
statements required to be stated therein in accordance with the Act and the
Rules and Regulations. On the Effective Date and when any post-effective
amendment to the Registration Statement becomes effective, no part of the
Registration Statement or any such amendment did or will contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. At the Effective Date, the date the Prospectus or any amendment or
supplement to the Prospectus is filed with the Commission and at the Closing
Date and, if later, the Option Closing Date, the Prospectus did not or will not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The foregoing
representations and warranties in this Section 3(b) do not apply to any
statements or omissions made in reliance on and in conformity with information
relating to any Underwriter furnished in writing to the Company by the
Representatives specifically
-4-
<PAGE> 5
for inclusion in the Registration Statement or Prospectus or any amendment or
supplement thereto. For all purposes of this Agreement, the amounts of the
selling concession and reallowance set forth in the Prospectus constitute the
only information relating to any Underwriter furnished in writing to the
Company by the Representatives specifically for inclusion in the preliminary
prospectus, the Registration Statement or the Prospectus. The Company has not
distributed any offering material in connection with the offering or sale of
the Shares other than the Registration Statement, the preliminary prospectus,
the Prospectus or any other materials, if any, permitted by the Act.
(c) The Company is, and at the Closing Date will
be, a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware. The Company has, and at the Closing Date
will have, full power and authority to conduct all the activities conducted by
it, to own or lease all the assets owned or leased by it and to conduct its
business as described in the Registration Statement and the Prospectus. The
Company is, and at the Closing Date will be, duly licensed or qualified to do
business and in good standing as a foreign corporation in all jurisdictions in
which the nature of the activities conducted by it or the character of the
assets owned or leased by it makes such licensing or qualification necessary.
The Company does not own, and at the Closing Date will not own, directly or
indirectly, any shares of stock or any other equity or long-term debt
securities of any corporation or have any equity interest in any firm,
partnership, joint venture, association or other entity. Complete and correct
copies of the certificate of incorporation and of the by-laws of the Company
and all amendments thereto have been delivered to the Representatives, and no
changes therein will be made subsequent to the date hereof and prior to the
Closing Date or, if later, the Option Closing Date.
(d) The outstanding shares of Common Stock have
been, and the Shares to be issued and sold by the Company upon such issuance
will be, duly authorized, validly issued, fully paid and nonassessable and will
not be subject to any preemptive or similar right. The description of the
Common Stock in the Registration Statement and the Prospectus is, and at the
Closing Date will be, complete and accurate in all respects. Except as set
forth in the Prospectus, the Company does not have outstanding, and at the
Closing Date will not have outstanding, any options to purchase, or any rights
or warrants to subscribe for, or any securities or obligations convertible
into, or any contracts or commitments to issue or sell, any shares of Common
Stock or any such warrants, convertible securities or obligations.
(e) The financial statements and schedules
included in the Registration Statement or the Prospectus present fairly the
financial condition of the Company as of the respective dates thereof and the
results of operations and cash flows of the Company for the respective periods
covered thereby, all in conformity with generally accepted accounting
principles applied on a consistent basis throughout the entire period involved,
except as otherwise disclosed in the Prospectus. [The pro forma financial
statements and other pro forma financial information included in the
Registration Statement or the Prospectus (i) present fairly in all material
respects the information shown therein, (ii) have been prepared in accordance
with the Commission's rules and guidelines with respect to pro forma financial
statements and (iii) have been properly computed on the bases described
therein.
-5-
<PAGE> 6
The assumptions used in the preparation of the pro forma financial statements
and other pro forma financial information included in the Registration
Statement or the Prospectus are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.] No other financial statements or schedules of the Company are
required by the Act or the Rules and Regulations to be included in the
Registration Statement or the Prospectus. Coopers & Lybrand LLP (the
"Accountants"), who have reported on such financial statements and schedules,
are independent accountants with respect to the Company as required by the Act
and the Rules and Regulations. The statements included in the Registration
Statement with respect to the Accountants pursuant to Rule 509 of Regulation
S-K of the Rules and Regulations are true and correct in all material respects.
(f) The Company maintains a system of internal
accountings control sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access
to assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(g) Subsequent to the respective dates as of
which information is given in the Registration Statement and the Prospectus and
prior to the Closing Date, except as set forth in or contemplated by the
Registration Statement and the Prospectus, (i) there has not been and will not
have been any change in the capitalization of the Company, or in the business,
properties, business prospects, condition (financial or otherwise) or results
of operations of the Company, arising for any reason whatsoever, (ii) the
Company has not incurred nor will it incur any material liabilities or
obligations, direct or contingent, nor has it entered into nor will it enter
into any material transactions other than pursuant to this Agreement and the
transactions referred to herein and (iii) the Company has not and will not have
paid or declared any dividends or other distributions of any kind on any class
of its capital stock.
(h) The Company is not an "investment company" or
an "affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act
of 1940, as amended.
(i) Except as set forth in the Registration
Statement and the Prospectus, there are no actions, suits or proceedings
pending or threatened against or affecting the Company or any of its officers
in their capacity as such, before or by any Federal or state court, commission,
regulatory body, administrative agency or other governmental body, domestic or
foreign, wherein an unfavorable ruling, decision or finding might materially
and adversely affect the Company or its business, properties, business
prospects, condition (financial or otherwise) or results of operations.
-6-
<PAGE> 7
(j) The Company has, and at the Closing Date will
have, (i) all governmental licenses, permits, consents, orders, approvals and
other authorizations necessary to carry on its business as contemplated in the
Prospectus, (ii) complied in all respects with all laws, regulations and orders
applicable to it or its business and (iii) performed all its obligations
required to be performed by it, and is not, and at the Closing Date will not
be, in default, under any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement, lease, contract or
other agreement or instrument (collectively, a "contract or other agreement")
to which it is a party or by which its property is bound or affected. To the
best knowledge of the Company, no other party under any contract or other
agreement to which it is a party is in default in any respect thereunder. The
Company is not, and at the Closing Date will not be, in violation of any
provision of its certificate of incorporation or by-laws.
(k) No consent, approval, authorization or order
of, or any filing or declaration with, any court or governmental agency or body
is required in connection with the authorization, issuance, transfer, sale or
delivery of the Shares by the Company, in connection with the execution,
delivery and performance of this Agreement by the Company or in connection with
the taking by the Company of any action contemplated hereby, except such as
have been obtained under the Act or the Rules and Regulations and such as may
be required under state securities or Blue Sky laws or the by-laws and rules of
the National Association of Securities Dealers, Inc. (the "NASD") in connection
with the purchase and distribution by the Underwriters of the Shares to be sold
by the Company.
(l) The Company has full corporate power and
authority to enter into this Agreement. This Agreement has been duly
authorized, executed and delivered by the Company and constitutes a valid and
binding agreement of the Company and is enforceable against the Company in
accordance with the terms hereof. The performance of this Agreement and the
consummation of the transactions contemplated hereby and the application of the
net proceeds from the offering and sale of the Shares to be sold by the Company
in the manner set forth in the Prospectus under "Use of Proceeds" will not
result in the creation or imposition of any lien, charge or encumbrance upon
any of the assets of the Company pursuant to the terms or provisions of, or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, or give any other party a right to terminate any of
its obligations under, or result in the acceleration of any obligation under,
the certificate of incorporation or by-laws of the Company, any contract or
other agreement to which the Company is a party or by which the Company or any
of its properties is bound or affected, or violate or conflict with any
judgment, ruling, decree, order, statute, rule or regulation of any court or
other governmental agency or body applicable to the business or properties of
the Company.
(m) The Company has good and marketable title to
all properties and assets described in the Prospectus as owned by it, free and
clear of all liens, charges, encumbrances or restrictions, except such as are
described in the Prospectus or are not material to the business of the Company.
The Company has valid, subsisting and enforceable leases for the properties
described in the Prospectus as leased by it, with such exceptions as
-7-
<PAGE> 8
are not material and do not materially interfere with the use made and proposed
to be made of such properties by the Company.
(n) There is no document or contract of a
character required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement which is
not described or filed as required. All such contracts to which the Company is
a party have been duly authorized, executed and delivered by the Company,
constitute valid and binding agreements of the Company and are enforceable
against the Company in accordance with the terms thereof.
(o) No statement, representation, warranty or
covenant made by the Company in this Agreement or made in any certificate or
document required by this Agreement to be delivered to the Representatives was
or will be, when made, inaccurate, untrue or incorrect.
(p) Neither the Company nor any of its directors,
officers or controlling persons has taken, directly or indirectly, any action
intended, or which might reasonably be expected, to cause or result, under the
Act or otherwise, in, or which has constituted, stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Shares.
(q) No holder of securities of the Company has
rights to the registration of any securities of the Company because of the
filing of the Registration Statement.
(r) Prior to the Closing Date, the Shares will be
duly authorized for listing by the Nasdaq National Market ("NNM") upon
official notice of issuance.
(s) The Company is not involved in any material
labor dispute nor, to the knowledge of the Company, is any such dispute
threatened.
(t) The Company owns, or is licensed or otherwise
has the full exclusive right to use, all material trademarks and trade names
which are used in or necessary for the conduct of its businesses as described
in the Prospectus. No claims have been asserted by any person to the use of
any such trademarks or trade names or challenging or questioning the validity
or effectiveness of any such trademark or trade name. The use, in connection
with the business and operations of the Company of such trademarks and trade
names does not, to the Company's knowledge, infringe on the rights of any
person.
(u) Neither the Company nor, to the Company's
knowledge, any employee or agent of the Company has made any payment of funds
of the Company or received or retained any funds in violation of any law, rule
or regulation or of a character required to be disclosed in the Prospectus.
-8-
<PAGE> 9
(v) Neither the Company nor, to the Company's
knowledge, any employee or agent of the Company has violated any of the rules
or regulations of the Federal Trade Commission applicable to tele-marketing or
direct mail solicitations the violation of which could reasonably be expected
to have a material adverse effect on the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company.
(w) The Company and, to the Company's knowledge,
each employee and agent of the Company has acted in compliance with all
applicable provisions of the Federal Fair Credit Reporting Act or any similar
act of any state the violation of which could reasonably be expected to have a
material adverse effect on the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company.
(x) The Company is not a "credit repair
organization" as such term is defined under the Federal Credit Repair
Organizations Act.
4. Representations and Warranties of the Selling
Stockholders. Each Selling Stockholder, severally and not jointly, represents,
warrants and covenants to each Underwriter that:
(a) Such Selling Stockholder has full power and
authority to enter into this Agreement and the Agreement and Power of Attorney.
All authorizations and consents necessary for the execution and delivery by
such Selling Stockholder of the Agreement and Power of Attorney, and for the
execution of this Agreement on behalf of such Selling Stockholder, have been
given. Each of the Agreement and Power of Attorney and this Agreement has been
duly authorized, executed and delivered by or on behalf of such Selling
Stockholder and constitutes a valid and binding agreement of such Selling
Stockholder and is enforceable against such Selling Stockholder in accordance
with the terms thereof and hereof.
(b) Such Selling Stockholder now has, and at the
time of delivery thereof hereunder will have, (i) good and marketable title to
the Shares to be sold by such Selling Stockholder hereunder, free and clear of
all liens, encumbrances and claims whatsoever (other than pursuant to the
Agreement and Power of Attorney), and (ii) full legal right and power, and all
authorizations and approvals required by law, to sell, transfer and deliver
such Shares to the Underwriters hereunder and to make the representations,
warranties and agreements made by such Selling Stockholder herein. Upon the
delivery of and payment for such Shares hereunder, such Selling Stockholder
will deliver good and marketable title thereto, free and clear of all liens,
encumbrances and claims whatsoever.
(c) On the Closing Date or the Option Closing
Date, as the case may be, all stock transfer or other taxes (other than income
taxes) which are required to be paid in connection with the sale and transfer
of the Shares to be sold by such Selling Stockholder to the several
Underwriters hereunder will have been fully paid or provided for by such
Selling Stockholder and all laws imposing such taxes will have been fully
complied with.
-9-
<PAGE> 10
(d) The performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in the
creation or imposition of any lien, charge or encumbrance upon any of the
assets of such Selling Stockholder pursuant to the terms or provisions of, or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, or result in the acceleration of any obligation
under, if such Selling Stockholder is a corporation or partnership, the
organizational documents of such Selling Stockholder, or, as to all such
Selling Stockholders, any contract or other agreement to which such Selling
Stockholder is a party or by which such Selling Stockholder or any of its
property is bound or affected, or under any ruling, decree, judgment, order,
statute, rule or regulation of any court or other governmental agency or body
having jurisdiction over such Selling Stockholder or the property of such
Selling Stockholder.
(e) No consent, approval, authorization or order
of, or any filing or declaration with, any court or governmental agency or body
is required for the consummation by such Selling Stockholder of the
transactions on its part contemplated herein and in the Agreement and Power of
Attorney, except such as have been obtained under the Act or the Rules and
Regulations and such as may be required under state securities or Blue Sky laws
or the by-laws and rules of the NASD in connection with the purchase and
distribution by the Underwriters of the Shares to be sold by such Selling
Stockholder.
(f) Such Selling Stockholder has no knowledge of
any material fact or condition not set forth in the Registration Statement or
the Prospectus which has adversely affected, or may adversely affect, the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company, and the sale of the Shares proposed to be
sold by such Selling Stockholder is not prompted by any such knowledge.
(g) All information with respect to such Selling
Stockholder contained in the Registration Statement and the Prospectus (as
amended or supplemented, if the Company shall have filed with the Commission
any amendment or supplement thereto) complied and will comply with all
applicable provisions of the Act and the Rules and Regulations, contains and
will contain all statements required to be stated therein in accordance with
the Act and the Rules and Regulations, and does not and will not contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading.
(h) To the best knowledge of such Selling
Stockholder, the representations and warranties of the Company contained in
Section 3 are true and correct.
(i) Other than as permitted by the Act and the
Rules and Regulations, such Selling Stockholder has not distributed and will
not distribute any preliminary prospectus, the Prospectus or any other offering
material in connection with the offering and sale of the Shares. Such Selling
Stockholder has not taken, directly or indirectly, any action intended, or
which might reasonably be expected, to cause or result in, under the Act or
otherwise, or which has caused or resulted in, stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of
the Shares.
-10-
<PAGE> 11
(j) Certificates in negotiable form for the Firm
Shares and Option Shares to be sold hereunder by such Selling Stockholder have
been placed in custody, for the purpose of making delivery of such Firm Shares
and Option Shares under this Agreement, under the Agreement and Power of
Attorney which appoints ______________ as custodian (the "Custodian") for each
Selling Stockholder. Such Selling Stockholder agrees that the Shares represented
by the certificates held in custody for him or it under the Agreement and Power
of Attorney are for the benefit of and coupled with and subject to the interest
hereunder of the Custodian, the Committee, the Underwriters, each other Selling
Stockholder and the Company, that the arrangements made by such Selling
Stockholder for such custody and the appointment of the Custodian and the
Committee by such Selling Stockholder are irrevocable, and that the obligations
of such Selling Stockholder hereunder shall not be terminated by operation of
law, whether by the death, disability, incapacity or liquidation of any Selling
Stockholder or the occurrence of any other event. If any Selling Stockholder
should die, become disabled or incapacitated or be liquidated or if any other
such event should occur before the delivery of the Shares hereunder,
certificates for the Shares shall be delivered by the Custodian in accordance
with the terms and conditions of this Agreement and actions taken by the
Committee and the Custodian pursuant to the Agreement and Power of Attorney
shall be as valid as if such death, liquidation, incapacity or other event had
not occurred, regardless of whether or not the Custodian or the Committee, or
either of them, shall have received notice thereof.
5. Agreements of the Company and the Selling
Stockholders. The Company and the Selling Stockholders (as to Sections 5(i),
(j), (o), (p), (q) and (r)) agree, severally and not jointly, with the several
Underwriters as follows:
(a) The Company will not, either prior to the
Effective Date or thereafter during such period as the Prospectus is required
by law to be delivered in connection with sales of the Shares by an Underwriter
or dealer, file any amendment or supplement to the Registration Statement or
the Prospectus, unless a copy thereof shall first have been submitted to the
Representatives within a reasonable period of time prior to the filing thereof
and the Representatives shall not have objected thereto in good faith.
(b) The Company will use its best efforts to
cause the Registration Statement to become effective, and will notify the
Representatives promptly, and will confirm such advice in writing, (i) when the
Registration Statement has become effective and when any post-effective
amendment thereto becomes effective, (ii) of any request by the Commission for
amendments or supplements to the Registration Statement or the Prospectus or
for additional information, (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose or the threat thereof, (iv) of
the happening of any event during the period mentioned in the third sentence of
Section 5(e) that in the judgment of the Company makes any statement made in
the Registration Statement or the Prospectus untrue or that requires the making
of any changes in the Registration Statement or the Prospectus in order to make
the statements therein, in light of the circumstances in which they are made,
not misleading and (v) of receipt by the Company or any representative of the
Company of any other communication from the Commission relating to the Company,
the Registration Statement, any preliminary prospectus or the Prospectus. If
at any time the Commission shall issue any
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<PAGE> 12
order suspending the effectiveness of the Registration Statement, the Company
will make every reasonable effort to obtain the withdrawal of such order at the
earliest possible moment. The Company will use its best efforts to comply with
the provisions of and make all requisite filings with the Commission pursuant
to Rule 430A and to notify the Representatives promptly of all such filings.
(c) The Company will furnish to each
Representative, without charge, two signed copies of the Registration Statement
and of any post-effective amendment thereto, including financial statements and
schedules, and all exhibits thereto and will furnish to the Representatives,
without charge, for transmittal to each of the other Underwriters, a copy of
the Registration Statement and any post- effective amendment thereto, including
financial statements and schedules but without exhibits.
(d) The Company will comply with all the
provisions of any undertakings contained in the Registration Statement.
(e) On the Effective Date, and thereafter from
time to time, the Company will deliver to each of the Underwriters, without
charge, as many copies of the Prospectus or any amendment or supplement thereto
as the Representatives may reasonably request. The Company consents to the use
of the Prospectus or any amendment or supplement thereto by the several
Underwriters and by all dealers to whom the Shares may be sold, both in
connection with the offering or sale of the Shares and for any period of time
thereafter during which the Prospectus is required by law to be delivered in
connection therewith. If during such period of time any event shall occur
which in the judgment of the Company or counsel to the Underwriters should be
set forth in the Prospectus in order to make any statement therein, in the
light of the circumstances under which it was made, not misleading, or if it is
necessary to supplement or amend the Prospectus to comply with law, the Company
will forthwith prepare and duly file with the Commission an appropriate
supplement or amendment thereto, and will deliver to each of the Underwriters,
without charge, such number of copies thereof as the Representatives may
reasonably request.
(f) Prior to any public offering of the Shares by
the Underwriters, the Company will cooperate with the Representatives and
counsel to the Underwriters in connection with the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of such jurisdictions as the Representatives may request; provided, that
in no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to general service of process in any jurisdiction where it is not
now so subject.
(g) During the period of five years commencing on
the Effective Date, the Company will furnish to the Representatives and each
other Underwriter who may so request copies of such financial statements and
other periodic and special reports as the Company may from time to time
distribute generally to the holders of any class of its capital stock, and will
furnish to the Representatives and each other Underwriter who may so request a
copy of each annual or other report it shall be required to file with the
Commission.
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<PAGE> 13
(h) The Company will make generally available to
holders of its securities as soon as may be practicable but in no event later
than the last day of the fifteenth full calendar month following the calendar
quarter in which the Effective Date falls, an earnings statement (which need
not be audited but shall be in reasonable detail) for a period of 12 months
ended commencing after the Effective Date, and satisfying the provisions of
Section 11(a) of the Act (including Rule 158 of the Rules and Regulations).
(i) Whether or not the transactions contemplated
by this Agreement are consummated or this Agreement is terminated, the Company
and the Selling Stockholders, jointly and severally, will pay, or reimburse if
paid by the Representatives, all costs and expenses incident to the performance
of the obligations of the Company and the Selling Stockholders under this
Agreement, including but not limited to costs and expenses of or relating to
(1) the preparation, printing and filing of the Registration Statement and
exhibits to it, each preliminary prospectus, the Prospectus and any amendment
or supplement to the Registration Statement or the Prospectus, (2) the
preparation and delivery of certificates representing the Stocks, (3) the
printing of this Agreement, the Agreement Among Underwriters, any Dealer
Agreements, any Underwriters' Questionnaire and the Agreement and Power of
Attorney, (4) furnishing (including costs of shipping, mailing and courier)
such copies of the Registration Statement, the Prospectus and any preliminary
prospectus, and all amendments and supplements thereto, as may be requested for
use in connection with the offering and sale of the Stocks by the Underwriters
or by dealers to whom Stocks may be sold, (5) the listing of the Stocks on the
NNM, (6) any filings required to be made by the Underwriters with the NASD, and
the fees, disbursements and other charges of counsel for the Underwriters in
connection therewith, (7) the registration or qualification of the Stocks for
offer and sale under the securities or Blue Sky laws of such jurisdictions
designated pursuant to Section 5(f), including the fees, disbursements and
other charges of counsel to the Underwriters in connection therewith, and the
preparation and printing of preliminary, supplemental and final Blue Sky
memoranda, (8) counsel to the Company and counsel to the Selling Stockholders,
(9) the transfer agent for the Stocks and (10) the Accountants.
(j) If this Agreement shall be terminated by the
Company or the Selling Stockholders pursuant to any of the provisions hereof
(other than pursuant to Section 9) or if for any reason the Company or any
Selling Stockholder shall be unable to perform its obligations hereunder, the
Company and the Selling Stockholders, jointly and severally, will reimburse the
several Underwriters for all out-of- pocket expenses (including the fees,
disbursements and other charges of counsel to the Underwriters) reasonably
incurred by them in connection herewith.
(k) The Company will not at any time, directly or
indirectly, take any action intended, or which might reasonably be expected, to
cause or result in, or which will constitute, stabilization of the price of the
Stocks of Common Stock to facilitate the sale or resale of any of the Stocks.
(l) The Company will apply the net proceeds from
the offering and sale of the Stocks to be sold by the Company in the manner set
forth in the Prospectus under "Use of Proceeds" and shall file such reports
with the Commission with respect to the sale of
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<PAGE> 14
the Shares and the application of the proceeds therefrom as may be required in
accordance with Rule 463 under the Act.
(m) During the period of 180 days commencing at
the Closing Date, the Company will not, without the prior written consent of
PaineWebber Incorporated, grant options to purchase shares of Common Stock at
a price less than the initial public offering price.
(n) The Company will not, and will cause each of
its executive officers, directors and each beneficial owner of more than 5% of
the outstanding shares of Common Stock to enter into agreements with the
Representatives in the form set forth in Exhibit C to the effect that they will
not, for a period of 180 days after the commencement of the public offering of
the Shares, without the prior written consent of PaineWebber Incorporated, sell,
contract to sell or otherwise dispose of any shares of Common Stock or rights
to acquire such shares (other than pursuant to employee stock option plans or
in connection with other employee incentive compensation arrangements).
(o) The Selling Stockholders will not, for a
period of 180 days after the commencement of the public offering of the Shares,
without the prior written consent of PaineWebber Incorporated, sell, contract to
sell or otherwise dispose of any shares of Common Stock, other than pursuant to
bona fide gifts to persons who agree in writing with PaineWebber Incorporated to
be bound by the provisions of this Section 5(o).
(p) The Selling Stockholders will not, without
the prior written consent of PaineWebber Incorporated, make any bid for or
purchase any shares of Common Stock during the 120-day period following the
date hereof.
(q) As soon as any Selling Stockholder is advised
thereof, such Selling Stockholder will advise the Representatives and confirm
such advice in writing, (1) of receipt by such Selling Stockholder, or by any
representative of such Selling Stockholder, of any communication from the
Commission relating to the Registration Statement, the Prospectus or any
preliminary prospectus, or any notice or order of the Commission relating to
the Company or any of the Selling Stockholders in connection with the
transactions contemplated by this Agreement and (2) of the happening of any
event during the period from and after the Effective Date that in the judgment
of such Selling Stockholder makes any statement made in the Registration
Statement or the Prospectus untrue or that requires the making of any changes
in the Registration Statement or the Prospectus in order to make the statements
therein, in light of the circumstances in which they were made, not misleading.
(r) The Selling Stockholders will deliver to the
Representatives prior to or on the Effective Date a properly completed and
executed United States Treasury Department Form W-9 (or other applicable form
or statement specified by Treasury Department regulations in lieu thereof).
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<PAGE> 15
6. Conditions of the Obligations of the Underwriters.
In addition to the execution and delivery of the Price Determination Agreement,
the obligations of each Underwriter hereunder are subject to the following
conditions:
(a) Notification that the Registration Statement
has become effective shall be received by the Representatives not later than
5:00 p.m., New York City time, on the date of this Agreement or at such later
date and time as shall be consented to in writing by PaineWebber Incorporated
and all filings required by Rule 424 of the Rules and Regulations and Rule 430A
shall have been made.
(b) (i) No stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall be pending or threatened by the Commission,
(ii) no order suspending the effectiveness of the Registration Statement or the
qualification or registration of the Shares under the securities or Blue Sky
laws of any jurisdiction shall be in effect and no proceeding for such purpose
shall be pending before or threatened or contemplated by the Commission or the
authorities of any such jurisdiction, (iii) any request for additional
information on the part of the staff of the Commission or any such authorities
shall have been complied with to the satisfaction of the staff of the
Commission or such authorities, (iv) after the date hereof no amendment or
supplement to the Registration Statement or the Prospectus shall have been
filed unless a copy thereof was first submitted to the Representatives and the
Representatives did not object thereto in good faith and (v) the
Representatives shall have received certificates, dated the Closing Date and
the Option Closing Date and signed by the Chief Executive Officer or the
Chairman of the Board of Directors of the Company and the Chief Financial
Officer of the Company (who may, as to proceedings threatened, rely upon the
best of their information and belief), to the effect of clauses (i), (ii) and
(iii).
(c) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, (i)
there shall not have been a material adverse change in the general affairs,
business, business prospects, properties, management, condition (financial or
otherwise) or results of operations of the Company whether or not arising from
transactions in the ordinary course of business, in each case other than as set
forth in or contemplated by the Registration Statement and the Prospectus and
(ii) the Company shall not have sustained any material loss or interference
with its business or properties from fire, explosion, flood or other casualty,
whether or not covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree, which is not set
forth in the Registration Statement and the Prospectus, if in the judgment of
the Representatives any such development makes it impracticable or inadvisable
to consummate the sale and delivery of the Shares by the Underwriters at the
initial public offering price.
(d) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
shall have been no litigation or other proceeding instituted against the
Company or any of its officers or directors in their capacities as such, before
or by any Federal, state or local court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, in which
litigation or proceeding an unfavorable ruling, decision or finding would
materially and adversely affect
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<PAGE> 16
the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company.
(e) Each of the representations and warranties of
the Company and the Selling Stockholders contained herein shall be true and
correct in all material respects at the Closing Date and, with respect to the
Option Shares, at the Option Closing Date, as if made at the Closing Date and,
with respect to the Option Shares, at the Option Closing Date, and all
covenants and agreements herein contained to be performed on the part of the
Company and the Selling Stockholders and all conditions herein contained to be
fulfilled or complied with by the Company and the Selling Stockholders at or
prior to the Closing Date and, with respect to the Option Shares, at or prior
to the Option Closing Date, shall have been duly performed, fulfilled or
complied with.
(f) The Representatives shall have received an
opinion, dated the Closing Date and the Option Closing Date, and satisfactory
in form and substance to counsel for the Underwriters, from Maloney, Mehlman &
Katz, counsel to the Company, to the effect set forth in Exhibit D.
(g) The Representatives shall have received an
opinion, dated the Closing Date and the Option Closing Date, and satisfactory
in form and substance to counsel for the Underwriters, from Pillsbury Madison
& Sutro LLP, special securities counsel to the Company, to the effect set forth
in Exhibit E.
(h) The Representatives shall have received an
opinion, dated the Closing Date and the Option Closing Date, and satisfactory
in form and substance to counsel for the Underwriters, from Webster, Chamberlain
& Bean, special regulatory counsel to the Company, to the effect set forth in
Exhibit F.
(i) The Representatives shall have received an
opinion, dated the Closing Date and the Option Closing Date, from Shearman &
Sterling, counsel to the Underwriters, with respect to the Registration
Statement, the Prospectus and this Agreement, which opinion shall be
satisfactory in all respects to the Representatives.
(j) On the date of the Prospectus, the
Accountants shall have furnished to the Representatives a letter, dated the
date of its delivery, addressed to the Representatives and in form and
substance satisfactory to the Representatives, confirming that they are
independent accountants with respect to the Company as required by the Act and
the Rules and Regulations and with respect to the financial and other
statistical and numerical information contained in the Registration Statement.
At the Closing Date and, as to the Option Shares, the Option Closing Date, the
Accountants shall have furnished to the Representatives a letter, dated the
date of its delivery, which shall confirm, on the basis of a review in
accordance with the procedures set forth in the letter from the Accountants,
that nothing has come to their attention during the period from the date of the
letter referred to in the prior sentence to a date (specified in the letter)
not more than five days prior to the Closing Date and the Option Closing Date
which would require any change in their letter
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<PAGE> 17
dated the date of the Prospectus, if it were required to be dated and delivered
at the Closing Date and the Option Closing Date.
(k) At the Closing Date and, as to the Option
Shares, the Option Closing Date, there shall be furnished to the
Representatives an accurate certificate, dated the date of its delivery, signed
by each of the Chief Executive Officer and the Chief Financial Officer of the
Company, in form and substance satisfactory to the Representatives, to the
effect that:
(i) Each signer of such certificate has
carefully examined the Registration Statement and the Prospectus and
(A) as of the date of such certificate, such documents are true and
correct in all material respects and do not omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein not untrue or misleading and (B) since the
Effective Date, no event has occurred as a result of which it is
necessary to amend or supplement the Prospectus in order to make the
statements therein not untrue or misleading in any material respect.
(ii) Each of the representations and
warranties of the Company contained in this Agreement were, when
originally made, and are, at the time such certificate is delivered,
true and correct in all material respects.
(iii) Each of the covenants required
herein to be performed by the Company on or prior to the date of such
certificate has been duly, timely and fully performed and each
condition herein required to be complied with by the Company on or
prior to the delivery of such certificate has been duly, timely and
fully complied with.
(l) At the Closing Date [and, as to the Option
Shares, the Option Closing Date,] there shall have been furnished to the
Representatives an accurate certificate, dated the date of its delivery, signed
by the Committee on behalf of each of the Selling Stockholders, in form and
substance satisfactory to the Representatives, to the effect that the
representations and warranties of each of the Selling Stockholders contained
herein are true and correct in all material respects on and as of the date of
such certificate as if made on and as of the date of such certificate, and each
of the covenants and conditions required herein to be performed or complied
with by the Selling Stockholders on or prior to the date of such certificate
has been duly, timely and fully performed or complied with.
(m) On or prior to the Closing Date, the
Representatives shall have received the executed agreements referred to in
Section 5(n).
(n) The Shares shall be qualified for sale in
such states as the Representatives may reasonably request and each such
qualification shall be in effect and not subject to any stop order or other
proceeding on the Closing Date and the Option Closing Date.
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<PAGE> 18
(o) Prior to the Closing Date, the Shares shall
have been duly authorized for listing by the NNM upon official notice of
issuance.
(p) The Company and the Selling Stockholders
shall have furnished to the Representatives such certificates, in addition to
those specifically mentioned herein, as the Representatives may have reasonably
requested as to the accuracy and completeness at the Closing Date and the
Option Closing Date of any statement in the Registration Statement or the
Prospectus, as to the accuracy at the Closing Date and the Option Closing Date
of the representations and warranties of the Company and the Selling
Stockholders herein, as to the performance by the Company and the Selling
Stockholders of its and their respective obligations hereunder, or as to the
fulfillment of the conditions concurrent and precedent to the obligations
hereunder of the Representatives.
7. Indemnification.
(a) Each of the Company and the Selling
Stockholders, jointly and severally, will indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of each Underwriter
and each person, if any, who controls each Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), from and against any and all losses, claims,
liabilities, expenses and damages (including any and all investigative, legal
and other expenses reasonably incurred in connection with, and any amount paid
in settlement of, any action, suit or proceeding between any of the indemnified
parties and any indemnifying parties or between any indemnified party and any
third party, or otherwise, or any claim asserted), to which they, or any of
them, may become subject under the Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, liabilities, expenses or damages arise out of or are based on
any untrue statement or alleged untrue statement of a material fact contained
in any preliminary prospectus, the Registration Statement or the Prospectus or
any amendment or supplement to the Registration Statement or the Prospectus, or
the omission or alleged omission to state in such document a material fact
required to be stated in it or necessary to make the statements in it not
misleading, provided that the Company and the Selling Stockholders will not be
liable to the extent that such loss, claim, liability, expense or damage arises
from the sale of the Shares in the public offering to any person by an
Underwriter and is based on an untrue statement or omission or alleged untrue
statement or omission made in reliance on and in conformity with information
relating to any Underwriter furnished in writing to the Company by the
Representatives on behalf of any Underwriter expressly for inclusion in the
Registration Statement, any preliminary prospectus or the Prospectus. This
indemnity agreement will be in addition to any liability that the Company or
any Selling Stockholder might otherwise have.
(b) Each Underwriter will indemnify and hold
harmless the Company, the Selling Stockholders, each person, if any, who
controls the Company or the Selling Stockholders within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, each director of the Company
and each officer of the Company who signs the Registration Statement to the
same extent as the foregoing indemnity from the Company and
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<PAGE> 19
the Selling Stockholders to each Underwriter, but only insofar as losses,
claims, liabilities, expenses or damages arise out of or are based on any
untrue statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information relating to any Underwriter
furnished in writing to the Company by the Representatives on behalf of such
Underwriter expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus. This indemnity will be in addition to any
liability that each Underwriter might otherwise have.
(c) Any party that proposes to assert the right
to be indemnified under this Section 7 will, promptly after receipt of notice
of commencement of any action against such party in respect of which a claim is
to be made against an indemnifying party or parties under this Section 7,
notify each such indemnifying party of the commencement of such action,
enclosing a copy of all papers served, but the omission to so notify such
indemnifying party will not relieve such indemnifying party from any liability
that it may have to any indemnified party under the foregoing provisions of
this Section 7 unless, and only to the extent that, such omission results in
the forfeiture of substantive rights or defenses by the indemnifying party. If
any such action is brought against any indemnified party and it notifies the
indemnifying party of its commencement, the indemnifying party will be entitled
to participate in and, to the extent that it elects by delivering written
notice to the indemnified party promptly after receiving notice of the
commencement of the action from the indemnified party, jointly with any other
indemnifying party similarly notified, to assume the defense of the action,
with counsel satisfactory to the indemnified party, and after notice from the
indemnifying party to the indemnified party of its election to assume the
defense, the indemnifying party will not be liable to the indemnified party for
any legal or other expenses except as provided below and except for the
reasonable costs of investigation subsequently incurred by the indemnified
party in connection with the defense. The indemnified party will have the
right to employ its own counsel in any such action, but the fees, expenses and
other charges of such counsel will be at the expense of such indemnified party
unless (1) the employment of counsel by the indemnified party has been
authorized in writing by the indemnifying party, (2) the indemnified party has
reasonably concluded (based on advice of counsel) that there may be legal
defenses available to it or other indemnified parties that are different from
or in addition to those available to the indemnifying party, (3) a conflict or
potential conflict exists (based on advice of counsel to the indemnified party)
between the indemnified party and the indemnifying party (in which case the
indemnifying party will not have the right to direct the defense of such action
on behalf of the indemnified party) or (4) the indemnifying party has not in
fact employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be
at the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable
fees, disbursements and other charges of more than one separate firm admitted
to practice in such jurisdiction at any one time for all such indemnified party
or parties. All such fees, disbursements and other charges will be reimbursed
by the indemnifying party promptly as they are incurred. An indemnifying party
will not be liable for any settlement of any action or claim effected without
its written consent (which consent will not be unreasonably withheld). No
indemnifying party shall, without the
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<PAGE> 20
prior written consent of each indemnified party, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action
or proceeding relating to the matters contemplated by this Section 7 (whether
or not any indemnified party is a party thereto), unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising or that may arise out of such claim, action or
proceeding.
(d) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in the
foregoing paragraphs of this Section 7 is applicable in accordance with its
terms but for any reason is held to be unavailable from the Company, the
Selling Stockholders or the Underwriters, the Company, the Selling Stockholders
and the Underwriters will contribute to the total losses, claims, liabilities,
expenses and damages (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claim asserted, but after deducting any
contribution received by the Company or the Selling Stockholders from persons
other than the Underwriters, such as persons who control the Company or the
Selling Stockholders within the meaning of the Act, officers of the Company who
signed the Registration Statement and directors of the Company, who also may be
liable for contribution) to which the Company or the Selling Stockholders and
any one or more of the Underwriters may be subject in such proportion as shall
be appropriate to reflect the relative benefits received by the Company and
Selling Stockholders on the one hand and the Underwriters on the other. The
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Stockholders bear to the
total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the Prospectus. If,
but only if, the allocation provided by the foregoing sentence is not permitted
by applicable law, the allocation of contribution shall be made in such
proportion as is appropriate to reflect not only the relative benefits referred
to in the foregoing sentence but also the relative fault of the Company and the
Selling Stockholders, on the one hand, and the Underwriters, on the other, with
respect to the statements or omissions which resulted in such loss, claim,
liability, expense or damage, or action in respect thereof, as well as any
other relevant equitable considerations with respect to such offering. Such
relative fault shall be determined by reference to whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company or the
Representatives on behalf of the Underwriters, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the Selling Stockholders and
the Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 7(d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by
any other method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an
indemnified party as a result of the loss, claim, liability, expense or damage,
or action in respect thereof, referred to above in this Section 7(d) shall be
deemed to include, for purpose of this Section 7(d), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such
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<PAGE> 21
action or claim. Notwithstanding the provisions of this Section 7(d), no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts received by it, and no person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided in
this Section 7(d) are several in proportion to their respective underwriting
obligations and not joint. For purposes of this Section 7(d), any person who
controls a party to this Agreement within the meaning of the Act will have the
same rights to contribution as that party, and each officer of the Company who
signed the Registration Statement will have the same rights to contribution as
the Company, subject in each case to the provisions hereof. Any party entitled
to contribution, promptly after receipt of notice of commencement of any action
against such party in respect of which a claim for contribution may be made
under this Section 7(d), will notify any such party or parties from whom
contribution may be sought, but the omission to so notify will not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have under this Section 7(d). No party will be liable for
contribution with respect to any action or claim settled without its written
consent (which consent shall not be unreasonably withheld).
(e) The indemnity and contribution agreements
contained in this Section 7 and the representations and warranties of the
Company and the Selling Stockholders contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any investigation made
by or on behalf of the Underwriters, (ii) acceptance of any of the Shares and
payment therefor or (iii) any termination of this Agreement.
8. Termination. The obligations of the several
Underwriters under this Agreement may be terminated at any time prior to the
Closing Date (or, with respect to the Option Shares, on or prior to the Option
Closing Date), by notice to the Company from the Representatives, without
liability on the part of any Underwriter to the Company or any Selling
Stockholder, if, prior to delivery and payment for the Shares (or the Option
Shares, as the case may be), in the sole judgment of the Representatives, (i)
trading in any of the equity securities of the Company shall have been
suspended by the Commission, by an exchange that lists the Shares or by the
Nasdaq Stock Market, (ii) trading in securities generally on the New York Stock
Exchange shall have been suspended or limited or minimum or maximum prices
shall have been generally established on such exchange, or additional material
governmental restrictions, not in force on the date of this Agreement, shall
have been imposed upon trading in securities generally by such exchange or by
order of the Commission or any court or other governmental authority, (iii) a
general banking moratorium shall have been declared by either Federal or New
York State authorities or (iv) any material adverse change in the financial or
securities markets in the United States or in political, financial or economic
conditions in the United States or any outbreak or material escalation of
hostilities or declaration by the United States of a national emergency or war
or other calamity or crisis shall have occurred, the effect of any of which is
such as to make it, in the sole judgment of the Representatives, impracticable
or inadvisable to market the Shares on the terms and in the manner contemplated
by the Prospectus.
-21-
<PAGE> 22
9. Substitution of Underwriters. If any one or more of
the Underwriters shall fail or refuse to purchase any of the Firm Shares which
it or they have agreed to purchase hereunder, and the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase is not more than one-tenth of the aggregate number of Firm
Shares, the other Underwriters shall be obligated, severally, to purchase the
Firm Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase, in the proportions which the number of Firm Shares
which they have respectively agreed to purchase pursuant to Section 1 bears to
the aggregate number of Firm Shares which all such non-defaulting Underwriters
have so agreed to purchase, or in such other proportions as the Representatives
may specify; provided that in no event shall the maximum number of Firm Shares
which any Underwriter has become obligated to purchase pursuant to Section 1 be
increased pursuant to this Section 9 by more than one-ninth of the number of
Firm Shares agreed to be purchased by such Underwriter without the prior
written consent of such Underwriter. If any Underwriter or Underwriters shall
fail or refuse to purchase any Firm Shares and the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase exceeds one-tenth of the aggregate number of the Firm
Shares and arrangements satisfactory to the Representatives, the Company and
the Committee for the purchase of such Firm Shares are not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter, or the Company or any Selling Stockholder
for the purchase or sale of any Shares under this Agreement. In any such case
either the Representatives or the Company and the Committee shall have the
right to postpone the Closing Date, but in no event for longer than seven days,
in order that the required changes, if any, in the Registration Statement and
in the Prospectus or in any other documents or arrangements may be effected.
Any action taken pursuant to this Section 9 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
10. Miscellaneous. Notice given pursuant to any of the
provisions of this Agreement shall be in writing and, unless otherwise
specified, shall be mailed or delivered (a) if to the Company, at the office of
the Company, 333 City Boulevard West, 10th Floor, Orange, California 92868,
Attention: Chief Financial Officer, (b) if to any Selling Stockholder, to
[________________], Attention: [___________], or (c) if to the Underwriters, to
PaineWebber Incorporated at the offices of PaineWebber Incorporated, 1285
Avenue of the Americas, New York, New York 10019, Attention: Corporate Finance
Department. Any such notice shall be effective only upon receipt. Any notice
under Section 8 or 9 may be made by telex or telephone, but if so made shall be
subsequently confirmed in writing.
This Agreement has been and is made solely for the benefit of
the several Underwriters, the Company and the Selling Stockholders and of the
controlling persons, directors and officers referred to in Section 7, and their
respective successors and assigns, and no other person shall acquire or have
any right under or by virtue of this Agreement. The term "successors and
assigns" as used in this Agreement shall not include a purchaser, as such
purchaser, of Shares from any of the several Underwriters.
-22-
<PAGE> 23
With respect to any obligation of the Company and the Selling
Stockholders hereunder to make any payment, to indemnify for any liability or
to reimburse for any expense, notwithstanding the fact that such obligation is
a joint and several obligation of the Company and the Selling Stockholders, the
Underwriters (or any other person to whom such payment, indemnification or
reimbursement is owed) may pursue the Company with respect thereto prior to
pursuing any Selling Stockholder.
All representations, warranties and agreements of the Company
and the Selling Stockholders contained herein or in certificates or other
instruments delivered pursuant hereto, shall remain operative and in full force
and effect regardless of any investigation made by or on behalf of any
Underwriter or any of their controlling persons and shall survive delivery of
and payment for the Shares hereunder.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICT OF LAWS PRINCIPLES OF SUCH STATE. This Agreement may be signed in two
or more counterparts with the same effect as if the signatures thereto and
hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
The Company, the Selling Stockholders and the Underwriters
each hereby irrevocably waive any right they may have to a trial by jury in
respect of any claim based upon or arising out of this Agreement or the
transactions contemplated hereby.
This Agreement may not be amended or otherwise modified nor
may any provision hereof be waived except by an instrument in writing signed by
the Representatives and the Company.
Please confirm that the foregoing correctly sets forth the
agreement among the Company, the Selling Stockholders and the several
Underwriters.
Very truly yours,
CREDENTIAL SERVICES INTERNATIONAL, INC.,
a Delaware corporation
By:___________________________________
Title:
THE SELLING STOCKHOLDERS NAMED
IN SCHEDULE I ATTACHED HERETO
-23-
<PAGE> 24
By: The Committee
By:___________________________________
Confirmed as of the date first
above mentioned:
PAINEWEBBER INCORPORATED
HAMBRECHT & QUIST, LLC
Acting on behalf of themselves
and as the Representatives of the
other several Underwriters
named in Schedule II hereof.
By: PAINEWEBBER INCORPORATED
By:___________________________________
Title:
-24-
<PAGE> 1
EXHIBIT 3.1(i)
CERTIFICATE OF RETIREMENT AND
PROHIBITION OF REISSUANCE OF SHARES
OF
CREDENTIALS SERVICES INTERNATIONAL, INC.
(Pursuant to Section 243 of the General
Corporation Law of the State of Delaware)
Credentials Services International, Inc. (hereinafter called the
"corporation"), a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware, does hereby certify:
1. The name of the corporation is Credentials Services
International, Inc.
2. The corporation has retired 3,000 shares of its
Preferred Stock.
3. The Certificate of Incorporation of the corporation
prohibits the reissuance of any of the shares of its Preferred Stock, thereby
reducing the total number of authorized shares.
Executed on this 4th day of March, 1997.
CREDENTIALS SERVICES
INTERNATIONAL, INC.
By: /s/ Allan D. L. Weinstein
--------------------------------
Allan D. L. Weinstein
Secretary
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:01 AM 03/05/1997
971072022 - 2337205
<PAGE> 2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CREDENTIALS SERVICES INTERNATIONAL, INC.
_____________________
Credentials Services International, Inc., a corporation organized and
existing under the laws of the State of Delaware, does hereby certify as
follows:
1. The certificate of incorporation of the corporation
is hereby amended by striking out the first two (2)
paragraphs of ARTICLE FOURTH thereof in their
entirety and by substituting in lieu of said
paragraphs the new paragraphs set forth on Exhibit A
hereto.
2. The certificate of incorporation is hereby further
amended by adding to ARTICLE FOURTH a new paragraph
"C. Exchange" as set forth on Exhibit A hereto.
3. The amendment of the certificate of incorporation
herein certified has been duly adopted in accordance
with the provisions of Sections 228 and 242 of the
General Corporation Law of the State of Delaware.
Dated: March 4, 1997
CREDENTIALS SERVICES
INTERNATIONAL, INC.
By: /s/ Allan D. L. Weinstein
---------------------------------
Allan D. L. Weinstein
Secretary
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/05/1997
971072021- 2337205
<PAGE> 3
EXHIBIT A
ARTICLE FOURTH
The total number of shares of capital stock which the
Corporation has authority to issue is fifty-five thousand (55,000) shares,
consisting of:
(1) fifty thousand (50,000) shares of Common Stock, par
value $.01 per share (the "Common Stock"); and
* * * * * * * * *
C. Exchange
The Corporation shall issue thirty thousand (30,000) shares of
Common Stock in exchange for and in substitution and in lieu of the 3,000
outstanding shares of Series A Stock at the rate of ten (10) shares of Common
Stock for each outstanding share of Series A Stock, and the holder of the said
outstanding shares of Series A Stock shall surrender the certificates therefor
to the Corporation for cancellation and retirement and such Series A Stock
shall not under any circumstances be reissued, and such holder shall receive
and accept in lieu of the certificates representing Series A Stock one or more
new certificates representing Common Stock.
<PAGE> 4
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CREDENTIALS SERVICES INTERNATIONAL, INC.
______________________
Credentials Services International, Inc., a corporation
organized and existing under the laws of the State of Delaware, does hereby
certify as follows:
1. The name of the corporation (hereinafter called the
"Corporation") is Credentials Services International,
Inc.
2. The certificate of incorporation of the corporation
is hereby amended by striking out paragraph FOURTH
thereof in its entirety and by substituting in lieu
of said paragraph the new paragraph FOURTH set forth
as Exhibit A hereto.
3. The amendment of the certificate of incorporation
herein certified has been duly adopted in accordance
with the provisions of Sections 228 and 242 of the
General Corporation Law of the State of Delaware.
Dated: November 5, 1996
CREDENTIALS SERVICES
INTERNATIONAL, INC.
By: /s/ Allan D.L. Weinstein
-------------------------------
Allan D.L. Weinstein
Secretary
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 011/06/1996
960324656- 2337205
<PAGE> 5
EXHIBIT A
ARTICLE FOURTH
The total number of shares of capital stock which the
Corporation has authority to issue is twenty-five thousand (25,000) shares,
consisting of:
(1) twenty thousand (20,000) shares of Common Stock, par
value $.01 per share (the "Common Stock");
(2) five thousand (5,000) shares of Series A Cumulative
Preferred Stock, par value $.10 per share (the "Series A Stock"); and
The following is a statement of the designations, preferences
and relative, participating, optional and other special rights, and
qualifications, or restrictions thereof in respect of each class of stock of
the Corporation.
A. Common Stock
1. Voting Rights. Each share of Common Stock shall
entitle the holder thereof to one vote on each matter submitted to a vote of
the stockholders of the Corporation.
2. Dividend Rights. Subject to provisions of law and of
this Certificate of Incorporation, the holders of Common Stock shall be
entitled to receive dividends at such times and in such amounts as may be
determined by the Board of Directors of the Corporation.
3. Liquidation Rights. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary
(sometimes referred to herein as a "Liquidation"), after payment or provision
for payment of the debts and other liabilities of the Corporation and the
preferential amounts to which the holders of any outstanding shares of Series A
Stock shall be entitled upon Liquidation, the holders of Common Stock shall be
entitled to share ratably in the remaining assets of the Corporation.
B. Series A Preferred Stock
1. Dividends. The holders of shares of Series A Stock
shall be entitled to receive, when and as declared by the Board of Directors
and to the extent permitted under the Delaware General Corporation Law,
preferential dividends as provided in this section. Except as otherwise
provided herein, dividends on each share of Series A Stock shall accrue
cumulatively and at a compounded rate of 12% per annum (or $120 per annum) from
and including the date of issuance of each share of Series A Stock. Such
dividends will accrue whether or not they have been declared and whether or not
there are profits, surplus or other
-1-
<PAGE> 6
funds of the Corporation legally available for the payment of dividends. The
date on which the Corporation initially issues any shares of Series A Stock
will be deemed to be its "date of issuance" regardless of the number of times
transfer of such share is made on the stock records maintained by or for the
Corporation and regardless of the number of certificates which may be issued to
evidence such shares. Dividends shall be payable by the Corporation each
fiscal quarter of the Corporation to the holders of record of the shares of
Series A Stock as of the dates during each such quarter fixed by the Board of
Directors. At the option of the Corporation, the dividends payable with
respect to each share of Series A Stock shall be payable in cash or in shares
of Series A Stock ("Dividend Shares") of the Corporation at the Issue Value.
The number of Dividend Shares (including fractions thereof) payable on a
quarterly basis to the holders of each share of Series A Stock shall be
determined by multiplying the Issue Value of each such share of Series A Stock
by the foregoing annual dividend rate divided by four.
All accrued but unpaid dividends with respect to the Series A
Stock shall have been paid or a sum sufficient for payment thereof shall have
been set apart for such payment, before any dividends shall be declared or paid
or any other distribution declared or made with respect to any stock ranking
junior to the Series A Stock as to the payment of dividends "Junior Stock")
(other than a dividend of Junior Stock) and before any sum or sums shall be set
aside for or applied to the purchase or redemption of any shares of Junior
Stock. All dividends on the Series A Stock shall be declared or accrued pro
rata per share of Series A Stock. Except as otherwise contemplated herein,
holders of shares of Series A Stock shall not be entitled to any dividends,
whether payable in cash, property or stock, in excess of dividends payable at
the rate set forth above. All cash dividends paid to any holder of shares of
Series A Stock shall be rounded to the nearest cent.
2. Voting Rights. Except as expressly provided in this
Certificate of Incorporation or as otherwise required by law, the Series A
Stock shall have no voting rights.
3. Liquidation Rights. In the event of a Liquidation,
the holders of shares of Series A Stock shall be entitled, before any
distribution or payment is made upon any shares of any other class of capital
stock of the Corporation, to be paid, from the assets remaining after payment
of the debts and liabilities of the Corporation, an amount equal to the sum of
$1,000.00 (the "Series A Liquidation Value") per share of Series A Stock (or a
pro rata portion thereof for any fractional shares of Series A Stock),
including all shares of Series A Stock which have accrued as Dividend Shares on
the outstanding shares of Series A Stock, but which have not been declared and
paid as of the date of such Liquidation, plus any accrued but unpaid cash
dividends as of such date and such holders shall not be entitled to participate
further in the distribution of the assets of the Corporation. If, upon such
Liquidation, the assets of the Corporation to be distributed among the holders
of the capital stock of the Corporation shall be insufficient to permit payment
to the holders of Series A Stock of the amount distributable as aforesaid, then
the entire assets of the Corporation to be distributed to the holders of the
capital stock of the Corporation shall be distributed ratably among the holders
of Series A Stock in the ratio which the number of shares of Series A Stock
held by each such holder bears to the total number of shares of Series A Stock
issued and outstanding as of the date of such Liquidation. Written notice of
such Liquidation setting
-2-
<PAGE> 7
forth the payment date, the aggregate amount of the Series A Liquidation Value
and the place where the amounts distributable shall be payable, shall be given
by mail, postage prepaid, not less than thirty (30) days prior to the payment
date stated therein, to the holders of record of shares of the Series A Stock,
such notice to be addressed to each such holder at such holder's post office
address shown in the records of the Corporation. Neither the consolidation nor
merger of the Corporation into or with any other corporation or corporations,
regardless of whether the Corporation survives any such consolidation or
merger, nor the sale or transfer by the Corporation of all or any part of its
assets, nor the reduction in the number of outstanding shares of the capital
stock or of any class or series of stock of the Corporation, shall be deemed to
be a Liquidation within the meaning of any of the provisions of this paragraph.
4. Redemption.
(a) Redemption Price. Series A Stock (including all
shares thereof theretofore issued as Dividend Shares and all shares of Series A
Stock, including fractional shares, which have accrued as Dividend Shares on
the outstanding Series A Stock, but which have not theretofore been declared
and paid) shall be redeemable as provided in this paragraph 4 (subject to the
provisions of subparagraph (e) of this paragraph 4) by paying for each such
shares of Series A Stock, in cash, the sum of $1,000 (or a pro rata porion
thereof for any fractional shares of Series A Stock), such sum being
hereinafter called the "Series A Redemption Price," plus all accrued cash
dividends which have not theretofore been declared and/or paid.
(b) Redeemed or Otherwise Acquired Shares to be Retired.
Any shares of Series A Stock redeemed pursuant to this paragraph 4 or otherwise
acquired by the Corporation in any manner whatsoever shall be permanently
retired immediately on the acquisition thereof and shall not under any
circumstances be reissued; and the Corporation shall from time to time take
such appropriate action as may be necessary to reduce the authorized number of
shares of Series A Stock accordingly.
(c) Shares to be Redeemed. In case of a redemption of
only a percentage of the outstanding shares of the Series A Stock, the shares
of Series A Stock to be redeemed at the Series A Redemption Price shall be
selected pro rata and there shall be so redeemed from each registered holder
that percentage of all of the shares to be redeemed which the number of shares
of Series A Stock held of record by each such holder bears to the total number
of shares of Series A Stock at the time outstanding.
(d) Mandatory Redemptions. The Corporation shall
purchase and redeem, in the manner hereinafter provided, all of the shares of
Series A Stock (including all shares thereof issued as Dividend Shares and all
shares of Series A Stock, including fractional shares, which have accrued as
Dividend Shares on the outstanding Series A Stock, but which have not been
declared and paid to the date of such redemption), at the Series A Redemption
Price, upon the consummation of a Sale of the Corporation (as defined in
subparagraph (h) below).
-3-
<PAGE> 8
(e) Optional Redemptions. The Corporation may, at its
election expressed by resolution of its Board of Directors, purchase and redeem
at any time and from time to time any or all of the outstanding shares of
Series A Stock by payment of the percentage of the Series A Redemption Price
for such Series A Stock to be so redeemed set forth below for the period during
which such redemption is made:
<TABLE>
<CAPTION>
Redemption Date Percentage of Series A Redemption Price
--------------- ---------------------------------------
<S> <C>
Prior to November 5, 1997 104%
November 6, 1997 - November 5, 1998 103%
November 6, 1998 - November 5, 1999 102%
November 6, 1999 - November 5, 2000 101%
Subsequent to November 5, 2000 100%
</TABLE>
provided, however, that the redemption price payable in connection with any
mandatory redemption of Series A Stock pursuant to paragraph B.4(d) hereof
shall be 100% of the Series A Redemption Price regardless of the date of any
such redemption.
(f) Notice of Redemption. Notice of each redemption of
Series A Stock pursuant to this paragraph 4, specifying the date (the "Series A
Redemption Date") and place of redemption and the number of shares of Series A
Stock and the certificate numbers thereof which are to be redeemed, shall be
delivered to each holder of record of shares of Series A Stock to be redeemed
at such holder's address as shown by the records of the Corporation not more
than thirty (30) nor less than ten (10) days prior to the Series A Redemption
Date.
(g) Dividends after Series A Redemption Date. Notice of
redemption having been so delivered to the holders of Series A Stock and
provision for payment of the Series A Redemption Price for such shares on the
specified Series A Redemption Date having been made by the Corporation, then,
unless default be made in the payment of the Series A Redemption Price for such
shares when and as due, (i) the shares of Series A Stock designated for
redemption in such notice shall not be entitled to any Series A Dividends or
any other dividends accruing after the Series A Redemption Date specified, (ii)
on such Series A Redemption Date all rights of the respective holders of such
shares, as shareholders of the Corporation by reason of the ownership of such
shares, shall cease, except the right to receive the Series A Redemption Price
of such shares upon presentation and surrender of the respective certificates
representing such shares, and (iii) such shares shall not after such Series A
Redemption Date be deemed to be outstanding.
(h) Definitions. For purposes of this Article 4, the
following terms shall have the following meanings:
"Affiliate" shall mean, with respect to any specified Person,
(i) any other Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with,
such specified Person and (ii) if an individual, such Person's spouse and any
parent, grandparent, child, grandchild, or sibling of such Person or of such
Person's spouse.
-4-
<PAGE> 9
"Issue Value" shall equal $1,000.00 per share of Series A
Stock.
"Person" shall mean any individual, partnership, limited
liability company or partnership, firm, corporation, association, trust,
unincorporated organization or other entity.
"Sale of the Corporation" shall mean any (i) merger into or
consolidation with any other Person where the Corporation shall not be the
continuing or surviving corporation of such consolidation or merger, (ii) sale
or transfer of all or substantially all of the Corporation's properties or
assets, in one or more series of related transactions, to any Person, other
than the Corporation, who is not, immediately prior to such transaction, a
subsidiary or Affiliate of the Corporation or (iii) sale or other transfer for
value exchanging a pledge or hypothecation of Common Stock of the Corporation
(collectively, the "Sale Transaction") to any Person, who or which is not then
an Affiliate of the existing stockholders of the Corporation immediately prior
to any such sale transaction of more than 50%, in the aggregate, of the
outstanding shares of Common Stock of the Corporation held by such
stockholders, as a group, immediately prior to any such Sale Transaction.
-5-
<PAGE> 10
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 10:31 AM 10/07/1994
944190609 - 2337205
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
CIS ACQUISITION CORP. (the "Company"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by
the unanimous written consent of its members, filed with the
minutes of the Board adopted a resolution proposing and
declaring advisable the following Amendment to the Certificate
of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of
CIS Acquisition Corp. be amended by changing the
First Article thereof which sets forth the name of
the Company so that, as amended, said Article shall
be and read as follows:
"FIRST: The name of the corporation is Credentials
Services International, Inc."
SECOND: That in lieu of a meeting and vote of stockholders,
the stockholders have given unanimous written consent to said
amendment in accordance with the provisions of Section 228 of
the General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment was fully adopted in
accordance with the applicable provisions of Sections 242 and
228 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this certificate to
be signed by W. James Tozer, its President, this 6th day of October, 1994.
By: /s/ W. James Tozer, Jr.
--------------------------------
W. James Tozer, Jr.
President
<PAGE> 11
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 02:00 PM 08/30/1994
944163263 - 2337205
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
LINCOLNSHIRE BROADCASTING, INC.
The undersigned, being the SOLE INCORPORATOR of Lincolnshire
Broadcasting, Inc. (the "Company"), does hereby certify and set forth:
1. The name of the Company is: Lincolnshire
Broadcasting, Inc. The name under which the Company
was formed is Lincolnshire Broadcasting, Inc.
2. The certificate of incorporation of the Company was
filed with the Secretary of State of the State of
Delaware on the 20th day of May, 1993.
3. Paragraph FIRST of the certificate of incorporation
of the Company which sets forth the name of the
Company, is hereby amended to read:
FIRST: The name of the corporation is CIS Acquisition
Corp.
4. This amendment to the certificate of incorporation of
the Company was authorized by the written consent of
the sole incorporator of the Company, there being no
shareholders of record of the Company, no subscribers
for shares of the Company whose subscriptions have
been accepted and no directors of the Company.
IN WITNESS WHEREOF, the undersigned has executed this certificate this
30th day of August, 1994.
/s/ Cleve M. Scott
----------------------------
Cleve M. Scott
<PAGE> 12
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:00 PM 05/20/1993
723140227 - 2337205
CERTIFICATE OF INCORPORATION
OF
LINCOLNSHIRE BROADCASTING, INC.
The undersigned, being of legal age, in order to form a
corporation under and pursuant to the laws of the State of Delaware, does
hereby set forth as follows:
FIRST: The name of the corporation is
LINCOLNSHIRE BROADCASTING, INC.
SECOND: The address of the initial registered and principal
office of this corporation in this state is c/o The Corporation Trust Company,
1209 Orange Street, Wilmington, Delaware 19801, in the City of Wilmington,
County of New Castle, State of Delaware and the name of the registered agent at
said address is The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any
lawful act or activity for which corporations may be organized under the
corporation laws of the State of Delaware.
FOURTH: The corporation shall be authorized to issue the
following shares:
<TABLE>
<CAPTION>
Class Number of Shares Par Value
----- ---------------- ---------
<S> <C> <C>
COMMON 1,000 .01 per share
</TABLE>
FIFTH: The name and address of the incorporator are as
follows:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Cleve M. Scott c/o Ross & Hardies
Park Avenue Tower
65 East 55th Street
31st Floor
New York, New York 10022
</TABLE>
-1-
<PAGE> 13
SIXTH: The following provisions are inserted for the
management of the business and for the conduct of the affairs of the
corporation, and for further definition, limitation and regulation of the
powers of the corporation and of its directors and stockholders:
(1) The number of directors of the corporation shall be
such as from time to time shall be fixed by, or in the manner provided in the
By-Laws. Election of directors need not be by ballot unless the By-Laws so
provide.
(2) The Board of Directors shall have power without the
assent or vote of the stockholders:
(a) To make, alter, amend, change, add to or
repeal the By-Laws of the corporation; to fix and vary the
amount of shares to be reserved for any proper purpose; to
authorize and cause to be executed mortgages and liens upon
all or any part of the property of the corporation; to
determine the use and disposition of any surplus or net
profits; and to fix the times for the declaration and payment
of dividends.
(b) To determine from time to time whether, and
to what extent, times and places, and under what conditions
the accounts and books of the corporation (other than the
stock ledger) or any of them, shall be open to the inspection
of the stockholders.
(3) The directors in their discretion may submit any
contract or act for approval or ratification at any annual meeting of the
stockholders or at any other meeting of the stockholders called for the purpose
of considering any such act or contract, and any contract or act that shall be
approved or be ratified by the vote of the holders of a majority of the stock
of the corporation which is represented in person or by proxy at such meeting
and entitled to vote thereat (provided that a lawful quorum of stockholders be
there represented in person or by proxy) shall be as valid and as binding upon
the corporation and upon all the stockholders as though it had been approved or
ratified by every stockholder of the corporation, whether or not the contract
or act would otherwise be open to legal attack because of directors' interest,
or for any other reason.
(4) In addition to the power and authorities hereinbefore
or by statute expressly conferred upon them, the directors are hereby empowered
to exercise all such powers and do all such acts and things as may be exercised
or done by the corporation; subject, nevertheless, to the provisions of the
statutes of Delaware, of this certificate, and to any By-Laws from time to time
made by the stockholders; provided, however, that no By-Laws so made shall
invalidate any prior act of the directors which have been valid if such By-Law
had not been made.
SEVENTH: No director shall be liable to the corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director,
except with respect to (1) a
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<PAGE> 14
breach of the director's duty of loyalty to the corporation or its
stockholders, (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) liability under
Section 174 of the Delaware General Corporation Law or (4) a transaction from
which the director derived an improper personal benefit, it being the intention
of the foregoing provision to eliminate the liability of the corporation's
directors to the corporation or its stockholders to the fullest extent
permitted by Section 102(b)(7) of the Delaware General Corporation Law, as
amended from time to time. The corporation shall indemnify to the fullest
extent permitted by Sections 102(b)(7) and 145 of the Delaware General
Corporation Law, as amended from time to time, each person that such Sections
grant the corporation the power to indemnify.
EIGHTH: Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them and/or between
this corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware, may, on the application in
a summary way of this corporation or of any creditor or stockholder thereof or
on the application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of Section 279 Title 8 of
the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, to be summoned in such manner as the said court directors. If a
majority in number representing three-fourths (3/4) in value of the creditors
or class of creditors, and/or of the stockholders or class of stockholders of
this corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of this corporation as a consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
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NINTH: 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 law, and all rights and powers
conferred herein on stockholders, directors and officers are subject to this
reserved power.
IN WITNESS WHEREOF, the undersigned hereby executes this
document and affirms that the facts set forth herein are true under the
penalties of perjury this twentieth day of May, 1993.
/s/ Cleve M. Scott
----------------------------
Cleve M. Scott, Incorporator
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<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
CREDENTIALS SERVICES INTERNATIONAL, INC.
ARTICLE I
NAME, PURPOSE AND LOCATION OF CORPORATION
The name of the corporation (hereinafter called the "Corporation") is
Credentials Services International, Inc. Its duration and purpose shall be
such as are expressed in its original Certificate of Incorporation and in such
amendments thereto as may be made from time to time. Its principal office in
the State of Delaware shall be in the City of Dover, and the resident agent in
charge thereof shall be The Prentice-Hall Corporation System, Inc., at 31
Loockerman Square, Suite L-100, in the City of Dover, County of Kent, but the
Corporation may also have office(s) in other locations either within or 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
MEETING OF THE SHAREHOLDERS
SECTION 1. Place and Notice 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.
SECTION 2. Time and Business of Annual Meetings.
Annual meetings of the stockholders of the Corporation for the
election of Directors and the transaction of such other business as may
properly come before the meeting shall be held, at such place, on such date and
at such time, as shall be determined by the Board of Directors. At each annual
meeting the stockholders shall elect by a plurality vote Directors to succeed
those
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whose terms expire at the time of the respective annual meetings pursuant to
the Certificate of Incorporation and shall transact such other business as may
properly be brought before the meeting. The annual meeting shall be held at
such date and time as shall be designated from time to time by the Board of
Directors.
SECTION 3. Notice of Annual Meetings.
Written notice of the annual meeting stating the place, date and hour
of the meeting shall be given to each stockholder entitled to vote thereat, not
less than ten (10) nor more than sixty (60) days before the date of the
meeting, unless a different period is prescribed by law. The Board of
Directors may postpone or reschedule any previously scheduled annual meeting.
SECTION 4. Calling of Special Meetings.
Special meetings of the stockholders, other than those required by
statute, may be called at any time by the Chief Executive Officer or by the
Board of Directors pursuant to a resolution unanimously approved by all of the
Directors then comprising the Board of Directors.
SECTION 5. Notice of Special Meeting.
Notice of special meetings, stating the time, place and purpose
thereof, shall be given by mailing, postage prepaid, at least 10 but not more
than 60 days before each such meeting, a copy of such notice addressed to each
stockholder of the Corporation at his post office address as recorded on the
books of the Corporation. The Board of Directors may postpone, reschedule or
cancel any previously scheduled special meeting.
Notice of any special meeting shall specify the general nature of the
business to be transacted thereat, and no other business maybe transacted at
such meeting.
SECTION 6. Business of Special Meetings.
Business conducted at special meetings shall be subject to the same
provisions and restrictions as those governing the conduct of business at
annual meetings, subject to any other provision of these By-Laws or as
otherwise prescribed by statute or by the Certificate of Incorporation.
Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting.
SECTION 7. Quorum.
The holders of a majority of the voting power of the capital 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
<PAGE> 3
by Delaware statute or by the Certificate of Incorporation. If, however, such
quorum shall not be present or represented at any meeting of the stockholders,
the person serving as chairman of the meeting 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
called. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, notice of the
adjourned meeting shall be given each stockholder of record entitled to vote at
the meeting.
SECTION 8. Voting; Proxies.
Unless otherwise provided in the Certificate of Incorporation, each
stockholder on the record date 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 or
after eleven (11) months from its date of execution, unless the proxy provides
for a longer period which in no case shall exceed seven (7) years from its date
of execution. The appointment of a proxy or proxies shall be made by an
instrument in writing executed by the stockholder or his duly authorized agent
and filed with the Secretary of the Corporation. When a quorum is present at
any meeting, the vote of the holders of a majority of the voting power of the
capital stock issued and outstanding and entitled to vote therein cast by those
present or represented by proxy at such meeting shall decide any question
brought before such meeting, unless the question is one upon which, by express
provision of the Delaware statutes or of the Corporation Certificate of
Incorporation or these By-Laws, a different vote is required, in which case
such express provision shall govern and control the vote required with respect
to such question.
SECTION 9. Inspectors of Election.
The Corporation shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at the meeting and render a written
report thereof. The Corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the chairman presiding
at the meeting shall appoint one or more inspectors to act at the meeting.
Each inspector, before entering upon the discharge of his duties, shall take
and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and
the voting power of each, the shares represented at the meeting, the existence
of a quorum, the authenticity, validity and effect of proxies, shall receive
votes, ballots or consents, shall hear and determine all challenges and
questions in any way arising in connection with the right to vote, shall count
and tabulate all votes or consents and determine the results, and shall do such
acts as may be proper to conduct the election or vote with fairness to all. If
there shall be more than one inspector of election, the decision, act or
certificate of a majority shall be effective in all respects as the
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<PAGE> 4
decision, act or certificate of all. Upon request of the chairman of the
meeting or of any stockholder or his proxy, the inspectors shall make a report
in writing of any challenge, question or matter determined by them and execute
a certificate of fact found by them.
SECTION 10. Stockholder Action.
Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
such holders and may not be effected by any consent in writing by such holders.
SECTION 11. List of Stockholders.
The officer who has charge of the stock ledger of the Corporation
shall prepare and make, or cause to be prepared and made, at least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) 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 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 entitled to vote at the meeting who is present
thereat.
SECTION 12. Nominations and Stockholder Business.
(a) Nominations of persons for election to the Board of Directors
of the Corporation and the conduct or transaction of any business to be
considered by the stockholders may be made at an annual meeting of stockholders
(a) pursuant to the Corporation's notice of meeting, (b) by or at the direction
of the Board of Directors, or (c) by any stockholder of the Corporation who
was a stockholder of record at the time of giving of notice provided for in
this Section, who is entitled to vote at the meeting and who has complied with
the notice procedures set forth in this Section.
(b) For nominations or other business to be properly brought
before an annual or special meeting of stockholders by a stockholder pursuant
to this Section, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation, and such business must be a proper
subject for stockholder action under the Delaware General Corporation Law. To
be timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not less than 60 days nor more
than 90 days prior to the first anniversary of the preceding year's annual
meeting or special meeting held in lieu thereof; hereinafter referred to
collectively, solely for purposes of this paragraph (b) of this Section 12 as
the "Annual Meeting"); provided, however, that, in the event that the date of
the annual meeting is advanced by more than 30 days or delayed by more than 60
days from such
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<PAGE> 5
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the 90th day prior to the date of such annual meeting and not
later than the close of business on the later of the 60th day prior to such
annual meeting or the 10th day following the day on which public announcement
of the date of such meeting is first made. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
Directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(including such person's written consent to being named in the proxy statement
as a nominee and consent to be named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and the beneficial owner, if any, on whose behalf
the proposal is made; and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner, and (ii) the class and
number of shares of the Corporation which are owned beneficially and of record
by such stockholder and such beneficial owner.
(c) Notwithstanding anything in this Section to the contrary, in
the event that the number of Directors to be elected to the Board of Directors
of the Corporation is increased and there is no public announcement specifying
the size of the increased Board of Directors made by the Corporation at least
70 days prior to the first anniversary of the preceding year's annual meeting,
a stockholder's notice required by this Section shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
Corporation.
Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nomination of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
Directors are to be elected pursuant to the Corporation's notice of meeting (a)
by or at the discretion of the Board of Directors or (b) by any stockholder of
the Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section. Nominations
by stockholders of persons for election to the Board of Directors may be made
at such a special meeting of stockholders if the stockholder's notice required
by this Section shall be delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the 90th day prior to the date of
such special meeting and not later than the close of business on the later of
the 60th day prior to the date of such special meeting or in the 10th day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
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<PAGE> 6
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section shall be eligible for election as
Directors at any meeting of stockholders. Only such business shall be
conducted at a meeting of stockholders as shall have been brought before the
meeting in accordance with the procedures set forth in this Section. The
chairman of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was made
in accordance with the procedures set forth in this Section and, if any
proposed nomination or business is not incompliance with this Section, to
declare that such defective proposal shall be disregarded.
(e) For purposes of this Section, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant
to Section 13, 14 or 15(d) of the Exchange Act.
(f) Notwithstanding the foregoing provisions of this Section, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section. Nothing in this Section shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 (or any successor regulation thereto
with respect to the same or substantially the same subject matter) under the
Exchange Act.
ARTICLE III
THE BOARD OF DIRECTORS
SECTION 1. Number of Directors; Terms.
The number of Directors which shall constitute the whole Board of
Directors shall be determined from time to time by resolution of the Board of
Directors except that the authorized number of Directors shall not be less than
two (2) nor more than nine (9). The Board of Directors may increase or decrease
the number of Directors from time to time without approval of the stockholders,
beyond the minimum or maximum number set forth in the immediately preceding
sentence of this Section 1. Where the number of Directors is increased, the
Board of Directors shall elect a person to fill each vacancy thus created, to
serve until the election by the stockholders at the next annual meeting of
stockholders or special meeting of stockholders held in lieu thereof.
Directors elected by the stockholders shall hold office until their respective
successors are duly elected and qualified or until such successors sooner die,
resign, are removed or become disqualified.
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<PAGE> 7
SECTION 2. Vacancies.
Subject to the provisions of the Certificate of Incorporation,
vacancies on the Board 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 any Director so chosen shall hold office for the remainder of the
full term of the Director whose place he has been elected to fill or of the
class for which he has been designated and until his successor is duly elected
and shall qualify. If there are no Directors in office, then an election of
Directors shall be held in the manner provided by statute.
Further subject to the provisions of the Certificate of Incorporation
a vacancy or vacancies in the Board of Directors shall be deemed to exist in
case of the death, resignation or removal of any Director, or if the
stockholders fail at any annual or special meeting of stockholders at which any
Director or Directors are required to be elected to elect the full authorized
number of Directors to be voted for at that meeting, or if there are newly
created Directorships resulting from any increase in the authorized numbers of
Directors.
SECTION 3. Resignation of Directors.
Any Director may resign at any time by giving written notice to the
Board of Directors, Chairman, President or Secretary of the Corporation, to
take effect at the time specified therein. The acceptance of such resignation,
unless required by the terms thereof, shall not be necessary to make it
effective.
SECTION 4. Duties and Powers of Board.
The Board of Directors shall have all the powers of the Corporation
and all of its business, except as otherwise provided by law. It shall appoint
and remove all officers, employees, and agents of the Corporation except as
hereinafter stated, prescribe their duties, establish their compensation except
as hereinafter stated, and require, when deemed advisable, security for their
faithful service. It may make rules and regulations not inconsistent with law
and these By-Laws for the guidance of the Corporation's officers, employees and
agents. Each director shall have full access to any and all corporate records
and shall have the right to interview any corporate officer or employee with
respect to any aspect of the Corporation's business. It shall cause a report
to be made to the annual meeting of the stockholders showing the business
operations and financial position of the Corporation. It shall generally
possess all the powers and perform all the duties usually exercised by or
imposed upon boards of directors of similar corporations. The Board of
Directors shall cause the officers of the Corporation to keep appropriate
records of the proceedings of stockholders and Directors. Such records shall
be maintained by and be in the custody of the Secretary of the Corporation.
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SECTION 5. Annual Meetings.
Immediately following each annual meeting of the stockholders and at
the place thereof, or at such other time and place as shall be fixed by
resolution of the Board of Directors prior to the annual meeting of the
stockholders, the Board of Directors shall hold a meeting for the purposes of
organization, election of officers, appointment of Committees, and the
transaction of such other business as they deem necessary. Notice of such
meeting is hereby dispensed with. In the event that a meeting of the Board of
Directors is not held immediately after the annual meeting of the stockholders,
or in the event that the Board of Directors fails to fix the time and place for
such meeting, 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 duly executed waiver of notice
thereof.
SECTION 6. Regular Meetings.
Regular meetings of the Board of Directors may be held at such time
and at such place as shall from time to time be determined by the Board of
Directors and, if so determined by a resolution of the Board of Directors,
notices thereof need not be given.
SECTION 7. Special Meetings.
Special meetings of the Board of Directors may be called by the
Chairman of the Board, if any, or the President on two (2) days notice to each
Director; special meetings shall be called by the President or Secretary on
like notice on written request of two Directors. Notices of special meetings
shall state the place, date and hour of the meetings, but need not state the
purposes for which the meeting is called.
SECTION 8. Quorum; Action.
A majority of the number of authorized 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 of the adjourned meeting, until a quorum shall be present.
SECTION 9. Action of Directors Without a Meeting.
Unless otherwise restricted by the Certificate of Incorporation or
these By-Laws, any action required or permitted to be taken at any meeting of
the Board of Directors or any Committee thereof may be taken without a meeting
if all members of the Board of Directors or Committee thereof, as the case may
be, consent thereto in writing and the writing or writings are
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filled with the minutes of proceedings of the Board of Directors or Committee
thereof, as the case may be.
SECTION 10. Meetings Outside of State.
The Board of Directors of the Corporation may hold meetings, both
regular and special, either within or without the State of Delaware.
SECTION 11. Telephonic Meetings.
Unless otherwise restricted by the Certificate of Incorporation or
these By-Laws, members of the Board of Directors or any Committee thereof may
participate in a meeting of the Board of Directors or any Committee thereof by
means of telephone conference or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this section shall constitute presence
in person at such meeting.
SECTION 12. Removal of Directors.
Any or all of the Directors may be removed with or without cause if
such removal is approved by the affirmative vote of the stockholders holding a
majority of the outstanding shares of stock of the Corporation entitled to
vote.
SECTION 13. Compensation.
Unless otherwise restricted by the Certificate of Incorporation, the
Board of Directors shall have the authority to establish 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 payments 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.
SECTION 14. Committees, Appointment and Limitation of Powers.
All Committees shall be appointed by the Board of Directors, except to
the extent otherwise authorized by any provision of these By- Laws. No
Committee, whether or not appointed by the Board, shall have authority to:
(a) declare dividends or distributions;
(b) approve or recommend to stockholders action or proposals
required by law to be approved by stockholders;
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(c) designate candidates for the office of director, for purposes
of proxy solicitation or otherwise, or fill vacancies on the
Board or any Committee thereof;
(d) amend the By-Laws;
(e) reduce earned or capital surplus;
(f) authorize or approve the reacquisition of shares unless
pursuant to a general formula or method specified by the
Board; or
(g) authorize or approve the issuance or sale of, or any contract
to issue or sell, shares or designate the terms of a series of
a class of shares, provided that the Board, having acted
regarding general authorization for the issuance or sale of
shares, or any contract therefor, and, in the case of a
series, the designation thereof, may, pursuant to a general
formula or method specified by the Board by resolution of by
adoption of a stock option or other plan, authorize a
Committee to fix the terms upon which such shares may be
issued or sold, including, without limitation, the price, the
dividend rate, provisions for redemption, sinking fund,
conversion, potential rights, and provisions for other
features of a class of shares, or a such Committee to adopt
any final resolution setting forth all the terms thereof and
to authorize the statement of the terms of a series for filing
with the Secretary of State of Delaware.
Nothing contained in this Section is intended to prohibit a Committee
from submitting recommendations to the Board of Directors regarding any matter
or transaction.
SECTION 15. Executive Committee.
(a) Members.
The Board of Directors, by resolution adopted by a majority of
the whole Board, may establish an Executive Committee, the members of which
shall consist of the Chairman of the Board of Directors, the President or, the
Chief Executive Officer (if the person occupying that office is different from
the Chairman of the Board and President) and the Executive Vice President of
the Corporation. In addition, the Board may from time to time designate one or
more other directors to serve as members of the Executive Committee.
(b) Powers.
Subject to the limitations stated in Section 14 of this
Article III and to any limitations imposed by law or imposed by the Board of
Directors, the Executive Committee may exercise all the powers of the Board in
the management of specified matters where such authority is delegated to it by
the Board, and also, subject to the same limitations, when the Board is not in
session, the Committee shall have, and may exercise, all the powers and
authority of the Board
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in the management and business of the Corporation (including the power to
authorize the seal of the Corporation to be affixed to all papers which may
require it).
(c) Meetings.
The Executive Committee shall adopt such rules and regulations
for the calling and holding of its meetings and for the transaction of business
at such meetings as to the Executive Committee shall deem appropriate and not
inconsistent with the law or these Bylaws. As provided by law, the Executive
Committee is authorized to hold meetings by conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence
in person at such meeting.
(d) Quorum.
Three members of the Executive Committee shall constitute a
quorum for the transaction of business, but less than a quorum may adjourn from
time to time and from place to place. The vote of the majority of the members
present at a meeting at which a quorum is present or of three members present
at such meeting, whichever is greater, shall be required to constitute action
by the Executive Committee, unless the vote of a greater number shall be
required by law.
SECTION 16. Audit Committee.
(a) Meetings.
At the first meeting of each newly elected Board of Directors,
the Board shall appoint an Audit Committee of at least two members, consisting
entirely of "independent outside Directors" of the Board (as defined in
paragraph (c) of this Section 15. of these By-Laws) and shall designate its
chairman. From time to time the Board may designate one or more independent
outside Directors as alternate members of the Committee.
(b) Powers.
The Audit Committee shall have the following powers and
duties:
(i) The Committee shall recommend annually to the Board
of Directors the independent public accountants (the
"independent accountants") to be engaged to audit the
books, records and accounts of the Corporation for
the ensuing fiscal year. Only independent
accountants recommended by the Committee and approved
by the Board shall be so engaged. In case of a
vacancy in the position of independent accountants
arising by dismissal, non-retention or resignation of
the independent accountants previously engaged by the
Company, the Committee shall recommend and
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the Board shall approve the engagement of other
independent accountants to fill such vacancy until
the next annual stockholders meeting;
(ii) The Committee shall arrange the details of the
engagement of the independent accountants, including
the remuneration to be paid to such accountants for
their services;
(iii) The Committee shall review with the Corporation's
independent accountants' as well as the Corporation's
Chief Financial Officer and/or Controller and other
appropriate personnel of the Corporation, the
following matters: (a) the Corporation's general
policies and procedures with respect to audits and
accounting and financial controls; and (b) the
general accounting and reporting principles and
practices which should be applied in preparing the
Corporation's financial statements and conducting
financial audits of its affairs;
(iv) The Committee shall meet with the independent
accountants as required, but at least twice a year,
and shall review with them the Corporation's interim
and year-end financial statements, any certification,
report, or opinion which the independent accountants
propose to render in connection with such statements,
and any other appropriate matter;
(v) The Committee shall meet with the Corporation's
internal audit staff as required, but at least twice
a year, and shall review with that staff the
Corporation's interim and year-end financial
statements, and to the extent to which the
Corporation's accounting staff has implemented any
modifications or improvements to the Corporation's
internal financial systems or controls suggested by
the independent accountants or the Committee;
(vi) The Committee shall have power to direct the
independent accountants and the Corporation's
internal audit staff to inquire into and report to it
on any corporate contract, transaction, or procedure;
the conduct of any corporate office, division, profit
center, subsidiary, or other unit; or any other
matter having to do with the Corporation's business
and affairs;
(vii) The Committee shall become and remain apprised of
those matters relating to the payment by the
Corporation of finders', promoters' or consultants'
commissions or fees, or any similar commissions or
fees, and advancement or reimbursement to any
corporate officers or employees as shall be necessary
or to permit the Committee to recommend to the Board
the policies which the Board should adopt and the
action which the Board should take to prevent any use
of Corporation funds or other assets which is
unlawful or contrary to Board policy; and
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(viii) The Committee shall make such reports and
recommendations to the Board in connection with the
foregoing functions as it shall deem appropriate or
as the Board may request, and shall take such action
thereon as the Board may direct it to take.
(c) Definitions.
(i) The term "independent accountants" shall include
individuals, companies or firms serving as the
independent outside auditors or independent outside
public accountants for the Corporation.
(ii) The term "independent outside Directors" shall mean
any person who, on the date of his election, is not
an officer or employee of the Corporation or any of
its subsidiaries.
(d) Meetings.
The Committee may adopt such rules and regulations for the
calling and holding of its meetings and for the transaction of business at such
meetings as shall be considered by the Committee to be necessary or desirable;
provided, that two members of the Committee shall constitute a quorum for the
transaction of the business and the affirmative vote of both members of the
Committee (if it shall consist of but two members) or of a majority of the
whole Committee (if it shall consist of more than two members) shall be
required to constitute action by the Committee.
(e) Staff.
The Committee may select and appoint such full-time or
part-time staff assistants, as the Committee deems necessary or desirable, who
shall perform such duties and responsibilities as the Committee shall assign.
The Compensation of its staff shall be fixed by the Committee and paid by the
Corporation in accordance with general Corporation policy, and any member of
its staff may be discharged only by the Committee.
SECTION 17. Compensation Committee.
(a) Members.
At the first meeting of each newly elected Board of Directors,
the Board shall appoint a Compensation Committee of at least two members,
consisting entirely of independent outside Directors of the Board (as defined
in Section 15(c)(ii) of this Article III of the By-Laws) and shall designate
its chairman. From time to time, the Board may designate one or more
independent outside Directors as alternate members of the Compensation
Committee.
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(b) Powers.
The Compensation Committee shall have the following powers and
duties:
(i) The Compensation Committee shall review and recommend
to the Board of Directors for its consideration and
determination the salaries of the Chairman of the
Board of Directors, the President, the Chief
Executive Officer, and to determine on its own
initiative the salaries of any Executive Officer (as
the term "Executive Officer" is defined from time to
time under Rule 3b(7) of the Securities Exchange Act
of 1934, as amended) or employee who has an annual
salary of $50,000 or more;
(ii) The Compensation Committee shall consider and make
recommendations to the Board of Directors with
respect to (a) any proposals for the application of
new benefits and incentive compensation plans or
programs, including stock bonus and stock option
plans to officers of the Company, and (ii) the
application to such officers of amendments to any
then existing such plans or programs which would
significantly increase the compensation of such
officers; and
(iii) The Compensation Committee shall perform such other
duties as may, from time to time, be delegated to the
Compensation Committee under any compensation or
benefit plans.
(c) Meetings.
The Compensation Committee shall adopt such rules and
regulations for the calling and holding of its meetings and for the transaction
of business at such meetings as shall be considered by the Compensation
Committee to be necessary or desirable; provided, that to members of the
Compensation Committee shall constitute a quorum for the transaction of
business and the affirmative vote of both members of the Committee (if it shall
consist of but two members) or of a majority of the whole Compensation
Committee (if it shall consist of more than two members) shall be required to
constitute action by the Compensation Committee.
(d) Staff.
The Compensation Committee shall be assisted by appropriate
corporate staffs, and in addition, the Compensation Committee may obtain
assistance from such other persons, who need not be employees of the
Corporation, or organizations as it may deem advisable, with the expenses
incurred thereby to be borne by the Corporation.
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SECTION 18. Auditing of Accounts.
It shall be the duty of the Board of Directors to cause the books and
accounts of the Corporation and vouchers and papers relating thereto to be
audited at least once a year.
SECTION 19. Other Interests of Directors.
No transaction between this Corporation and any director or officer of
any corporation, partnership, association, or other organization shall be
affected by any personal interest in such transaction of any Director of this
Corporation except to the extent provided by law.
SECTION 20. Submission of Acts to Stockholders.
The Board of Directors may submit any transaction for approval or
ratification at any meeting of the stockholders as the Board of Directors may,
in its discretion, determine or as required by law.
ARTICLE IV
NOTICES
SECTION 1. Notices to Directors and Stockholders.
Whenever, under the provisions of any statute or of the Certificate of
Incorporation or of the By-Laws, notice is required to be given to any Director
or the stockholders, such provisions shall not be construed to require
personal notice, but such notice shall be given in writing and may be
personally delivered or sent by mail or by electronic transmission, in any of
which cases, such notice shall be 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 personally delivered, deposited in the United States mail, or
by some form of electronic transmission, in any of which cases, such notice
shall be so addressed to either his address as it appears on the records of the
Corporation or at a regular place of his business. An Affidavit or
Declaration sworn to by the Secretary (or an Assistant Secretary) of the
Corporation that any such notice has been given to any of the Directors or to
the stockholders by any of the means hereinabove specified shall constitute
presumptive evidence that such notice has been so given upon the date specified
in such Affidavit or Declaration.
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SECTION 2. Waiver of Notice.
Whenever any notice is required to be given under the provisions of
any statute or of the Certificate of Incorporation or of these By-Laws, 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. Attendance of any such person at a meeting shall
constitute waiver of notice of such meeting, except when such person attends
the meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
ARTICLE V
OFFICERS
SECTION 1. Officers.
The officers of the Corporation shall be chosen by the Board of
Directors. The Board of Directors may elect or appoint a President or
Secretary and a Treasurer and/or such other officers (including a Chairman of
the Board, a Chief Executive Officer, a Chief Operating Officer, a Chief
Financial Officer, one or more Vice Presidents, a Controller and one or more
Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers and
Assistant Controllers) and agents as it shall deem necessary or appropriate and
who shall exercise such powers and perform such duties as shall be determined
from time to time by the Board of Directors and as are incident to their
office.
SECTION 2. Compensation.
The salaries of all officers (plus such Agents of the Corporation as
may be designated by the Board of Directors) shall be established by the Board
of Directors.
SECTION 3. Term; Vacancies.
Each officer of the Corporation shall hold office until the later of
the next annual meeting of the board of Directors or until his successor is
chosen and qualified or until his earlier resignation or removal. Any vacancy
occurring in any office of the Corporation shall be filled by the Board of
Directors at such time as the Board of Directors deems appropriate.
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SECTION 4. Removal and Resignation.
Any officer may be removed, either with or without cause, by the Board
of Directors at any regular or special meeting or, if a subordinate officer, by
an officer upon whom the power of removal of subordinate officers has been
conferred by the Board of Directors. Any officer may resign at any time by
giving notice to the Board of Directors or to the President or to the Secretary
of the Corporation. Any such resignation shall take effect at the date of
receipt of such notice or at any later time specified therein if approved or
authorized by the Board of Directors; and, unless otherwise specified in such
notice, the acceptance of the resignation shall not be necessary to make it
effective. Any vacancy occurring in any office of the Corporation by death,
resignation or removal shall be filed by the Board of Directors.
SECTION 5. Chairman of the Board.
Subject to the control of the Board of Directors, the Chairman of the
Board, if there shall be such officer, shall, if present, preside at all
meetings of the Board of Directors and stockholders.
SECTION 6. Chief Executive Officer.
The Chairman of the Board of Directors or the President, in either
case as authorized by the Board of Directors, shall be the Chief Executive
Officer of the Corporation. If the Chairman of the Board of Directors is the
Chief Executive Officer, he may designate the President to act as Chief
Executive Officer during the Chairman's absence. The Chief Executive Officer
of the Corporation shall have general and active supervision over the business,
affairs and operation of the Corporation and over its several officers, agents
and employees, subject, however, to the control of the Board. The Chief
Executive Officer shall be responsible for the implementation of all orders and
resolutions of the Board of Directors and of any committees thereof, and, in
general, shall perform all duties incident to the position of Chief Executive
Officer and such other duties as may from time to time be assigned by the Board
of Directors. The Chief Executive Officer may delegate and assign to other
officers, employees and agents of the Corporation or to committees appointed by
him such duties as the Chief Executive Officer considers proper and not
inconsistent with these By-Laws or any delegations and assignments made by the
Board or the Executive Committee.
SECTION 7. The President.
Subject to the control of the Board of Directors, and the Chairman of
the Board (to the extent of such powers as may be given by the Board of
Directors to the Chairman of the Board), the President shall have general
supervision, direction and control of the business of the Corporation and its
employees and shall exercise such general powers of management as are usually
vested in the office of President of a corporation. The President shall, in
the absence of the Chairman of the Board, preside at all meetings of the Board
of Directors and stockholders
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and shall have such other powers and duties as may from time to time be
assigned to him by the Board of Directors or prescribed by the By-Laws.
SECTION 8. Vice Presidents.
In the absence or disability of the President, the Vice President, if
there shall be such an officer, or if there be more than one, the Vice
Presidents in the order determined by the President or by the Board of
Directors (or if there be no such determination, then in the chronological
order of their election or appointment or their ranking as Executive Vice
Presidents or Senior Vice Presidents) shall perform all 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. A Vice President shall have such
other powers and perform such other duties as from time to time may be
prescribed by the Board of Directors.
SECTION 9. The Assistant Vice President.
The Assistant Vice President, if there shall be such an officer, or if
there be more than one, the Assistant Vice Presidents in the order determined
by the President (or if there be no such determination, then in the
chronological order of their election or appointment), shall perform such
duties and have such powers as from time to time may be prescribed by the Board
of Directors.
SECTION 10. The Secretary.
The Secretary shall keep or cause to be kept, at the principal office
or such other place as the Board of Directors may order, a book of minutes of
all meetings of Directors and Committees thereof and of stockholders,
containing the time and place of such meetings, whether regular or special,
and, if special, how authorized, the notice thereof given, the names of those
present at meetings of the Board of Directors and at meetings of Committees
thereof, the number of shares present or represented at stockholders meetings,
and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the Corporation's
office, or at the office of the Corporation's principal transfer agent, a share
register, or a duplicate share register, setting forth the names of the
stockholders and their addresses, the number and the classes of shares held by
each, and the number and date of cancellation of every certificate surrendered
for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and the Board of Directors required by the By-Laws or
By-Law to be given, and shall have such other powers and perform such other he
shall keep the seal of the Corporation in safe custody, duties as may be
prescribed by the Board of Directors or by the By-Laws.
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SECTION 11. The Assistant Secretary.
The Assistant Secretary, if there shall be such officer, or if there
be more than one, the Assistant Secretaries in the order determined by the
President (or if there be no such determination, then in the chronological
order of their election or appointment) shall, in the absence of the Secretary
or in 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.
SECTION 12. The Treasurer.
The Treasurer of the Corporation, who may also serve as the Chief
Financial Officer of the Corporation, shall keep and maintain, or cause to be
kept and maintained, adequate and correct accounts of the properties and
business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus, and
surplus shares, and shall send or cause to be sent to the stockholders of the
Corporation such financial statements and reports as are by law or these
By-Laws required to be sent to them. Any surplus, including earned surplus,
paid-in surplus and surplus arising from a reduction of stated capital, shall
be classified according to source and shown in a separate account. The books
of account shall at all times be open for inspection by any Director.
The Treasurer shall deposit, or cause to be deposited, all monies and
other valuables in the name and to the credit of the Corporation with such
depositaries as may be designated by the Board of Directors. He shall disburse
the funds of the Corporation as may be ordered by the Board of Directors and
shall render to the President and Directors, when they request it, an account
of all of his transactions as Treasurer, and, if applicable, as Chief Financial
Officer and of the financial condition of the Corporation, and shall have such
other powers and perform such other duties as may be prescribed by the Board of
Directors or these By-Laws.
SECTION 13. The Controller.
The Controller shall be the officer principally in charge of the
accounts of the Corporation, and shall have such other authority and duties as
may be assigned to him in accordance with these By-Laws.
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ARTICLE VI
INDEMNIFICATION
SECTION 1. General
Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he is or was a director, officer or employee of the
Corporation or that he is or was serving at the request of the Corporation as a
director, officer or employee of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter and "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a director, officer or
employee or in any other capacity while serving as a director, officer or
employee, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, Employee Retirement Income
Security Act of 1974 excise taxes or penalties and amounts paid in settlement)
reasonably incurred by such indemnitee in connection therewith; provided,
however, that, except as provided in this Section with respect to proceedings
to enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation.
SECTION 2. Advancement of Expenses
The right to indemnification conferred in this Section shall include
the right to be paid by the Corporation the expenses incurred in defending any
such proceeding in advance of its final disposition (hereinafter an
"advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expense under this Section or otherwise.
The rights to indemnification and to the advancement of expenses conferred in
this Section shall be contract rights and such rights shall continue as to an
indemnitee who has
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ceased to be a director, officer or employee and shall inure to the benefit of
the indemnitee's heirs, executors and administrators.
If a claim under this Section is not paid in full by the Corporation
within 60 days after written claim had been received by the Corporation, except
in the case of a claim for an advancement of the expenses, in which case the
applicable period shall be 20 days, the indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim.
If successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement or expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (i) any suit brought by the indemnitee
to enforce a right to indemnification hereunder (but not in a suit brought by
the indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) in a any suit by the Corporation to recover an
advancement or expense pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by an indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or such advancement of expenses, under this Section
or otherwise shall be on the Corporation.
SECTION 3. Non-Exclusivity.
The indemnification and powers set forth in this Article VI shall be
in addition to and the foregoing shall not be deemed exclusive of (i) any other
powers of the Corporation under the Certificate of Incorporation or applicable
law, or (ii) any other rights to which any person may be entitled, under any
statute, certificate or articles of incorporation, by-law, agreement, vote of
stockholders or disinterested directors, or otherwise, both as to action, his
official capacity and as to action in another capacity at the direction or
express or implied request of the Corporation while holding such position. Any
and all rights of any person hereunder 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 person.
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SECTION 4. 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 express or implied request of the Corporation as a
Director, officer, employee, agent or trustee of another corporation,
partnership, joint venture, trust or other enterprise (including without
limitation affiliates of the Corporation), against 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 provision of this Article VI or under the
provisions of the Delaware General Corporation Law.
SECTION 5. Effect of Reorganization.
For the purpose of this Article VI, references to "the Corporation"
shall include, without limitation, in addition to the resulting Corporation,
any constituent Corporation (including any constituent of a constituent
corporation) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, 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 corporation as a director, officer,
employee, agent or trustee of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the
provisions of this Article VI with respect to such constituent corporation if
its separate existence had continued.
SECTION 6. Presumptions.
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 seeking
indemnification did not act in good faith and in manner which he reasonably
believed to be in or not opposed to the best interest of the Corporation, or
with respect to any criminal action or proceeding, a presumption that the
person had reasonable cause to believe that his conduct was unlawful.
SECTION 7. Severability.
If any part of this Article VI shall be found in any action, suit or
proceeding or appeal therefrom or in any other circumstances or as to any
particular officer, Director, employee or agent to be unenforceable,
ineffective or invalid for any reason, the enforceability, effect and validity
of the remaining parts or of such parts in other circumstances shall not be
affected, except as otherwise required by applicable law; indemnification or
rights of any such person hereunder shall, as to such persons, apply only to
claims arising, or causes of action based on actions or events occurring, after
such amendment and delivery of notice of such amendment to the person or
persons so affected. Until notice of such amendment is given to the person or
persons whose rights hereunder are adversely affected, such amendment shall
have no effect on
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such rights of such persons hereunder. Any person entitled to indemnification
under the foregoing provisions of Article VI shall as to any act or omission
occurring prior to the date of receipt of such notice, be entitled to
indemnification to the same extent as had such provisions continued as By-Laws
of the Corporation without such amendment.
ARTICLE VII
CERTIFICATES OF STOCK
SECTION 1. Stock Certificates.
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 of
the Board, if any, 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.
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 or each class of
stock or series thereof and the qualification, 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
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 participation option or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
SECTION 2. Facsimile Signatures.
Any or all of the signatures on the certificate may be by facsimile.
In case any officer, transfer agent or registrant 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.
SECTION 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 issuance of a new
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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 give the Corporation a bond sufficient to indemnify it
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
SECTION 4. Transfers of Stock.
Upon compliance with provisions restricting the transfer or
registration of transfer of shares of stock, if any, and 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, and upon payment of any transfer taxes
due thereon, 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.
SECTION 5. Fixing Record Date.
In order that the Corporation may determine the stockholder entitled
to notice of or to vote at any meeting of stockholder 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 right, or entitled to exercise any right in respect of any
change, conversion or exchange of stock or for the purpose or any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty (60) days nor less than ten (10) days before the date of
such meeting, nor more than sixty (60) 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.
SECTION 6. Registered Stockholders.
The Corporation shall be entitled to recognize the exclusive rights 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.
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ARTICLE VIII
GENERAL PROVISIONS
SECTION 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 pursuant to law at any regular or special meeting.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation. 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 for any
purpose which 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.
SECTION 2. 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.
SECTION 3. Bonds.
The Board of Directors from time to time may require from any one or
more of the officers or agents of the Corporation that he or they shall give
bond for the faithful performance of duties in such form, in such sum and with
such sureties as said board may determine. The premiums for all such bonds
shall be paid by the Corporation.
SECTION 4. Voting Stock in Other Corporations.
Whenever the Corporation shall own stock of another Corporation, the
Chairman of the Board, the President, a Vice President, the Treasurer, or the
Secretary, acting either in person or by proxy, may exercise in the name and on
behalf of the Corporation all voting and subscription rights thereof, but the
Board of Directors may delegate such authority exclusively to any one or more
other persons.
SECTION 5. Execution of Writings.
Except as the Board of Directors otherwise shall direct or authorize,
deeds, transfers, contracts, bonds, notes, checks and other written obligations
shall be signed, accepted, endorsed or executed in the name and on behalf of
the Corporation by any one or more of the following officers, namely, the
Chairman of the Board, the President, any Vice President, the Treasurer, or
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the Secretary, and any such officer so acting also may seal, acknowledge and
deliver the instrument.
SECTION 6. Execution of Certifications.
Any action taken by the stockholders or the Board of Directors at any
meeting may be certified by the officer whose duty it is to keep the records
thereof or by the officer or person presiding thereat; and any such certificate
shall be conclusive evidence for all purposes that the action so certified was
taken.
SECTION 7. Contracts and Transactions.
Except as otherwise required by statute or by any provision of the
Certificate of Incorporation, any contract, transaction or act of this
Corporation or of the Board of Directors, or of a committee designate by the
Board of Directors which may be ratified by a majority in interest of a quorum
of stockholders of this Corporation at any annual meeting or any special
meeting called for such purpose, shall be as valid and binding as though
ratified by every stockholder of this Corporation; provided, however, that any
failure to submit any contract, transaction or act to the stockholders for
approval or ratification, or any failure of the stockholders to approve or
ratify such contract, transaction or act when submitted, shall not be deemed in
any way to invalidate the same or to deprive this Corporation, its Directors or
officers of their rights to proceed with such contract, transaction or action.
SECTION 8. Certificate of Incorporation.
The term "Certificate of Incorporation" as used herein shall mean the
Certificate of Incorporation of this Corporation and any and all amendments,
additions, supplements thereto adopted in accordance with applicable law.
SECTION 9. Amendment by Stockholders and Directors.
These By-Laws, except as hereinbelow provided, may be amended or
repealed, in whole or in part, and new By-Laws made by the stockholders at any
meeting of the stockholders by the affirmative vote of the holders of at least
a majority in interest of the capital stock then outstanding and entitled to
vote, provided that notice of the proposed amendment or repeal or of the
proposed making of new By-Laws shall have been given in the notice of such
meeting. Subject to the provisions of the Certificate of Incorporation, the
Directors may make, amend or repeal these By-Laws, in whole or in part, except
with respect to any provision hereof which by law, the Certificate of
Incorporation, or these By-Laws requires action by the stockholders. Any
By-Laws adopted by the Directors may be amended or repealed by the
stockholders.
26
<PAGE> 1
CONFIDENTIAL TREATMENT REQUESTED.
CONFIDENTIAL PORTIONS OF THIS
DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN
SEPARATELY FILED WITH THE COMMISSION.
Exhibit 10.1
CONSUMER CREDIT SUBSCRIBER SERVICE AGREEMENT
This CONSUMER CREDIT SUBSCRIBER SERVICE AGREEMENT ("Agreement") is entered into
by TRW Inc. ("TRW") and Credentials Services International, Inc. ("CIS") this
18th day of October, 1994.
On October 18, 1994, CIS acquired from TRW the business (the "Business") of
marketing and selling memberships to consumers. The Business currently provides
to the CIS members, among other things, "plain English" copies and verbal
summaries of their credit reports compiled by TRW (their "TRW Reports") on
demand; notification of the insertion into their TRW Reports of derogatory
information and of certain requests made for their TRW Reports; personal
profiles; and newsletters. The Business also includes two additional services
currently being developed which may be made available to CIS members: a "three
bureau" credit report which would include a composite of the information
contained in the TRW Report and the credit reports of Trans Union and Equifax,
and a report of comparable neighborhood property sales. In addition, the
Business may provide, in the future, other services to its members based upon
information on such members compiled by TRW.
The parties intend that TRW, to the extent such services are available from TRW
and consistent with the parties' mutual agreement, enable CIS to provide such
services to its current members throughout the term of this Agreement.
In consideration of the premises and the mutual covenants herein contained, the
parties hereto do hereby agree as follows:
1. TRW SERVICES.
1.1 CIS shall promptly identify to TRW all of its present members and
all of its future members added from time to time and shall also promptly notify
TRW when a member's membership lapses or is canceled for any reason. TRW shall
furnish to CIS when requested by CIS as described herein all credit information
it routinely provides to consumers when they request their TRW Reports and shall
identify to CIS all codes used therein and their respective meanings. In order
to facilitate the provision of such credit information, TRW shall provide to CIS
real-time, on-line access to TRW Reports. TRW shall not, however, provide CIS
with the ability to change any data in any TRW data base. TRW shall use
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<PAGE> 2
its best efforts to keep current the information it uses to provide the
Services, as defined below.
1.2 Consistent with the limitations placed on CIS as described herein,
TRW shall provide to CIS such real-time, on-line access to the TRW Reports at
one or more points of presence in the TRW telecommunications network specified
by CIS from time to time. CIS's access to said points of presence shall be
obtained exclusively at CIS's expense. CIS may effect such interconnection, at
its sole expense, via modem or such other means as may hereafter become
available, technically feasible and compatible with the TRW telecommunications
network.
1.3 TRW shall provide to CIS access to TRW Reports in the format in
which it routinely discloses TRW Reports to consumers. TRW will also make
reports available to CIS in all other formats routinely provided to TRW's credit
granting customers generally, if CIS reasonably requests that TRW do so for a
specific CIS member. CIS agrees that it will not make such a request unless it
has previously obtained the consumer's permission to obtain the TRW Report in
that format, and that for all CIS members joining CIS after the Closing, said
permission must be given by the member in writing. If TRW abandons the CAPS
system and ceases to provide "plain English" TRW Reports or reports in a
substantially similar format, the parties will negotiate an appropriate license
and royalty agreement on reasonable terms for CIS to utilize the pertinent
portions of the CAPS system so that it may continue to provide its members with
"plain English" reports. Any such license and royalty agreement between the
parties shall terminate when this Agreement terminates.
1.4 TRW shall not make a material modification of the computer programs
or language or other codes with respect to such access or with respect to the
information contained in the TRW Report without providing to CIS at least ninety
(90) days' prior written notice of any such modification. If TRW makes any such
modification, it will provide CIS with technical assistance as may reasonably be
requested by CIS, at CIS's cost, so that CIS can modify its systems as necessary
as a result of TRW's such modifications. TRW will provide CIS with seven (7)
days' prior notice of any such modification which is not material.
1.5 In no event shall TRW be required hereunder to provide to CIS access
to TRW Reports in a manner which would enable CIS to, nor shall CIS, manipulate
any of the data or other information contained in TRW Reports.
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<PAGE> 3
1.6 TRW shall promptly identify on the TRW Reports with respect to each
CIS member (i) all inquiries made by others of TRW Reports which inquiries TRW
routinely provides to its customers when they access a TRW credit report; and
(ii) all insertions of negative information into the TRW Report of any such CIS
member; provided however, that if TRW routinely notifies consumers of additional
negative information, TRW will provide such information to CIS as well. Each
such identification shall specify either the source of the inquiry or the source
of the negative information, and, in the case of negative information, the
substance thereof. TRW shall make available to CIS batch reports of all such
transactions, at no cost to CIS, throughout the term of this Agreement at such
times as such reports are obtained by the Business as of the date of this
Agreement, but no less frequently than once daily Mondays through Fridays.
1.7 Consistent with the parties' legal obligations and TRW's policies
and procedures at any given time generally applicable to its other prescreen
customers, TRW shall provide to CIS prescreen services as CIS may request from
time to time during the term of this Agreement at the prices shown in Exhibit B.
With regard to prescreen services, TRW and CIS hereby agree to be bound and to
abide by the terms and conditions set forth in Exhibit A to this Agreement,
which Exhibit is incorporated herein as if fully re-written. To the extent the
terms of Exhibit A conflict with the terms of this Agreement, the terms of this
Agreement shall govern.
1.8 TRW shall permit CIS to use the TRW telecommunications network, at
CIS's sole expense, to service and maintain its computer software that is used
to access TRW Reports.
1.9 TRW and CIS shall continue to reasonably cooperate in the
development of additional services to be marketed to CIS members, including the
development and provision of business credit information to CIS members.
1.10 TRW shall continue to provide consumer relations dispute resolution
services to all CIS members consistent with those services it provides to other
consumers with disputes. All of the services provided and to be provided by TRW
to CIS hereunder are referred to herein as the "Services".
2. CHARGES TO CIS. CIS agrees to pay TRW the applicable charge set forth in
Exhibit B with respect to each of the Services specified on Exhibit B not later
than thirty (30) days following receipt by CIS of TRW's
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<PAGE> 4
invoice. Notwithstanding the foregoing, except as otherwise set forth on Exhibit
B, CIS shall only be required to pay such charges with respect to the Services
actually delivered by TRW hereunder. Notwithstanding the prices set forth on
Exhibit B, with the exception of business credit reporting services, to the
extent that TRW provides a total package of Services to another entity identical
to the total package of Services provided to CIS hereunder and for the same
purposes as the total package of Services provided hereunder, the prices charged
to CIS for such Services shall be no more than the prices charged to any other
such entity. If and to the extent that the parties agree that TRW shall provide
additional Services to CIS hereunder, the parties shall negotiate in good faith
the terms under which TRW shall provide such Services. For TRW's provision of
business credit reporting services, to the extent that TRW provides an identical
package of business credit reporting services to any other person or entity for
the same purposes as those provided to CIS, in quantities comparable to those
provided to CIS, the prices charged to CIS for such business credit reporting
services shall be no more than the prices charged to any such other person or
entity.
3. EXCLUSIVITY. During the term of this Agreement, CIS shall purchase from TRW
at least one TRW Report with respect to each of its members added after the date
hereof and shall obtain solely from TRW all consumer credit reporting, business
credit reporting, prescreen, scoring and update services. If CIS compiles a
three-bureau report itself, it shall purchase the TRW portion of that report
exclusively from TRW, but may obtain the other portions of that report from
other entities. Notwithstanding the first two sentences of this Section 3, if
CIS does not compile the three bureau itself, it may purchase the three-bureau
report from other entities. TRW agrees that it shall not sell or otherwise
distribute CIS's membership list to any entity other than CIS or segregate the
CIS members or any group thereof or enable the CIS membership or any part
thereof to be extracted as a discrete list unless it is required to do so by
law.
4. CIS USE. CIS hereby certifies and warrants that it: (i) will request
prescreen services as provided in Exhibit A and that in all other instances it
will request TRW Reports exclusively for disclosure of that TRW Report to the
consumer about whom it pertains and to no one else (even if the consumer has
executed a Power of Attorney), and only when that consumer is a current CIS
member; (ii) will only request a TRW Report when it has received a request from
the member about whom it pertains that CIS obtain the report and deliver it to
the member; (iii) will have on file written permission from every CIS member to
so obtain a TRW Report and
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<PAGE> 5
provide it to the member, with the exception of those members referred to in
section 3.2(i) of the Agreement of Purchase and Sale between the parties for
whom membership contracts do not exist; (iv) will accurately convey the TRW
Report to the consumer about whom it pertains within four business days of its
receipt of the TRW Report from TRW; (v) will not copy TRW Reports or retain the
data contained therein in any form or by any method, and that once CIS delivers
the TRW Report to the consumer about whom it pertains CIS shall maintain or
possess no information from the TRW Report whatsoever; (vi) will not request or
use TRW Reports in violation of the Fair Credit Reporting Act, 15 U.S.C.
Section1681 et seq. ("FCRA") or companion state laws, and that it will comply
with all federal, state and local statutes, regulations and rules applicable to
its actions hereunder; (vii) will maintain TRW Reports and all information
contained therein in strict confidence and disclose such information and TRW
Reports only to employees whose duties reasonably relate to the legitimate
business purposes for which the information is requested, and will not disclose,
sell or otherwise distribute to third parties (other than the consumer about
whom the TRW Report relates) any information received hereunder, except as
otherwise required by law; (viii) will not offer its members credit repair or
similar services and will not attempt to have information on its members'
reports changed other than to forward disputes from its members directed to it
to the appropriate TRW consumer assistance office; and (ix) will provide TRW
with appropriate identifying information about CIS and the member inquired upon
in the form specified by TRW when requesting the Services, and will enter the
appropriate type code when requesting the Services to indicate the reason it is
obtaining the Services. Subject to section 1.4 hereof, TRW reserves the right to
modify the standard inquiry format to be used by CIS, and CIS agrees to abide by
such modifications.
5. AUDIT RIGHTS AND APPROVALS.
5.1 TRW shall have the right, at its discretion whenever it so desires,
to audit CIS's use of the Services to assure compliance with the terms of this
Agreement and TRW's policies. CIS will be responsible for assuring full
cooperation with TRW in connection with such audits and will provide TRW or
obtain for TRW access to such properties, records and personnel as TRW may
reasonably require for such purpose.
5.2 CIS agrees to implement adequate safeguards and measures to protect
consumer privacy with respect to its use of the Services and to inform consumers
of their rights under the FCRA and companion state and local laws and
regulations and to provide notifications, all to the extent
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<PAGE> 6
required to comply with any state or federal Deceptive Trade Practices Act or
similar law or regulation, or to comply with the FCRA or similar laws and
regulations. CIS also agrees that it will not mislead consumers or demean the
public's perception of the quality of TRW Reports. CIS agrees to submit the
safeguards and measures referred to above and all of its advertising campaigns,
materials, inserts, disclosures and similar advertising presentations with
respect to its use of the Services, and all substantive changes therein, in
writing to TRW for TRW's approval, and not to advertise its services or
communicate such materials to its members or potential members until it has
obtained such approval from TRW, which TRW shall not reasonably withhold or
delay. Such approval shall be based solely upon compliance with the standards
set forth in the first two sentences of this paragraph 5.2. If TRW notifies CIS
that is does not approve of its safeguards, measures, advertising presentations
or changes therein, CIS shall not effect any such safeguards, measures or
advertising presentations, or any changes therein, until the parties agree on
them or their differences are resolved through the dispute resolution procedures
described in paragraph 14 of this Agreement. If TRW fails to respond to any such
submission provided by CIS as described in this paragraph 5.2 within ten (10)
business days of its receipt of such submission, TRW shall be deemed to have
assented thereto.
6. TERM.
6.1 Unless this Agreement is earlier terminated pursuant to Sections
6.3 or 6.4, the term of this Agreement shall commence on the date hereof and
terminate on the day prior to the tenth anniversary hereof; provided, however,
that the term of this Agreement shall be automatically extended for successive
three year periods thereafter unless either party notifies the other, not later
than six (6) months prior to the termination of the then current term, that it
elects to terminate this Agreement as of the last day of such then current term.
6.2 Effective at any time on or after the fifth anniversary of the date
hereof, but only one time prior to the tenth anniversary of the date hereof and
one time in each subsequent renewal term, either party shall have the right to
request that the charges for those services set forth on Exhibit B be modified
for the balance of the then current term. In the event of any such request, the
parties shall negotiate in good faith the modification of such charges. If after
three months the parties are unable to reach agreement on such modification,
either party shall have the right to terminate this Agreement by written notice
to the other, such termination to be effective on the date specified in the
notice, which date
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<PAGE> 7
shall not be earlier than nine (9) months after the date of the notice. If the
parties reach agreement on the modification, the modified charges shall be
retroactive to the date of the notice requesting the modification and shall be
effective for the remainder of the then current term.
6.3 Subject to Section 6.4, if either party defaults in any of its
material obligations under this Agreement, the other party shall have the right
to terminate this Agreement by notice to the defaulting party specifying the
default. If the defaulting party fails to cure the default within thirty days
following the notice, at the notifying party's option, this Agreement shall
terminate after such thirty day period; provided, however, that if the default
is of a nature that it cannot be cured, this Agreement may only be terminated if
the defaulting party fails to take all reasonable and prudent steps within the
thirty day period to prevent a recurrence thereof.
6.4 If TRW believes, in its sole discretion, that CIS has violated
Sections 4 or 5.2 of this Agreement, TRW may immediately suspend the
effectiveness of this Agreement after giving CIS management 24 hours' (but not
less than one Business Day) prior notice of such suspension, and shall resume
its provision of the Services when it believes, in good faith, that such
violations have been cured or will not occur again. If at the end of the thirty
day period after giving such notice TRW does not believe such violations have
been cured or will not occur again, then TRW may terminate this Agreement.
6.5 The parties' rights of termination under Sections 6.3 and 6.4 shall
be in addition to all other rights they have under this Agreement, at law or in
equity with respect to the other's default.
7. DISCLAIMER OF WARRANTY. TRW warrants to CIS that TRW will use its best
efforts to deliver the Services with the same care, prudence, skill,
priority, timeliness and accuracy as it provides similar services of
similar size and complexity to its other customers under similar
circumstances. Because the Services involve conveying information
provided to TRW by other sources, TRW cannot and will not, for the fee
charged for the Services, be an insurer or guarantor of the accuracy or
reliability of the Services, data contained in its database, or data
provided with the Services. THE WARRANTY IN THE FIRST SENTENCE OF THIS
PARAGRAPH IS THE ONLY WARRANTY TRW HAS GIVEN CIS WITH RESPECT TO THE
SERVICES AND SUCH WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS
OR IMPLIED, TRW MIGHT HAVE GIVEN CIS WITH RESPECT THERETO, INCLUDING,
FOR EXAMPLE AND WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
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<PAGE> 8
8. LIMITATION OF LIABILITY. CIS acknowledges that TRW maintains a database,
updated on a periodic basis, from which CIS solicits information, and that TRW
does not undertake a separate investigation for each inquiry or request for
Services made by CIS. CIS also acknowledges that the prices TRW charges CIS for
the Services are based upon TRW's expectation that the risk of any loss or
injury that may be incurred by use of the Services will be borne by CIS and not
TRW. CIS therefore agrees that it is responsible for determining that the
Services are in accordance with TRW's obligations under this Agreement. If CIS
reasonably determines that the Services do not meet TRW's obligations under this
Agreement, CIS shall so notify TRW in writing within ten days after receipt of
the Services in question. CIS's failure to so notify TRW shall mean that CIS
accepts the Services as is, and TRW shall have no liability whatsoever for the
Services. If CIS so notifies TRW within ten days after receipt of the Services,
then, unless TRW disputes CIS's claim, TRW shall, at its option, either
reperform the Services in question or issue CIS a credit for the amount CIS paid
to TRW for the nonconforming Services. This reperformance or credit constitutes
CIS's sole remedy and TRW's maximum liability for any breach of this Agreement
by TRW. If, notwithstanding the above, liability is imposed on TRW, then CIS
agrees that TRW's total liability for any or all of CIS's losses or injuries
from TRW's acts or omissions under this Agreement, regardless of the nature of
the legal or equitable right claimed to have been violated, shall not exceed the
amount paid by CIS to TRW under this Agreement during the six month period
preceding the alleged breach by TRW of this Agreement. CIS covenants that it
will not sue TRW for any amount greater than permitted by this Agreement.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, UNDER NO CIRCUMSTANCES
WILL EITHER PARTY HAVE ANY OBLIGATION OR LIABILITY TO THE OTHER HEREUNDER FOR
ANY INCIDENTAL, INDIRECT, CONSEQUENTIAL OR SPECIAL DAMAGES INCURRED BY THE OTHER
PARTY (INCLUDING DAMAGES FOR LOST BUSINESS, LOST PROFITS OR DAMAGES TO BUSINESS
REPUTATION), REGARDLESS OF HOW SUCH DAMAGES ARISE AND REGARDLESS OF WHETHER OR
NOT A PARTY WAS ADVISED SUCH DAMAGES MIGHT ARISE.
9. INDEMNIFICATION. CIS shall indemnify, defend and hold TRW harmless from and
against any and all claims and expenses, including reasonable attorney fees,
which may be asserted against or incurred by TRW, based upon CIS's marketing of
Credentials, Monitor or other similar services involving the Services, the use
by CIS of the Services or other information furnished by TRW during the term of
this Agreement.
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10. INTELLECTUAL PROPERTY. CIS acknowledges that TRW has expended substantial
time, effort and funds to create and deliver the Services and compile its
consumer credit reporting database. The Services and the data in TRW's consumer
credit reporting database are and will continue to be TRW's exclusive property.
Nothing contained in this Agreement shall be deemed to convey to CIS or to any
other party any right, title or interest, including any patent, copyright or
other proprietary right, in or to the Services or the data in TRW's consumer
credit reporting database. Subject only to the Proration and Transition
Agreement signed by the parties on the date hereof, CIS will not use or permit
its employees, agents and subcontractors to use, the trademarks, service marks,
logos, names, or any other of TRW's or its affiliates' proprietary designations,
whether registered or unregistered, without TRW's prior written consent;
provided, however, that CIS shall have the right to use the TRW name during the
term of this Agreement in connection with its resale of the Services to its
members and its promotion and marketing of the Services to its members and its
promotion and marketing of the Services to prospective members and to identify
TRW as the source of some or all of the information contained in the TRW
Reports.
11. WAIVER. Either party may at any time waive compliance by the other with any
covenant or condition contained in this Agreement, but only by written
instrument signed by the party waiving such compliance. No such waiver, however,
shall be deemed to constitute the waiver of any such covenant or condition in
any other circumstance or the waiver of any other covenant or condition.
12. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and will inure
to the benefit of the parties hereto and their respective heirs,
representatives, successors and permitted assignees. This Agreement may not be
assigned, transferred, shared or divided in whole or in part by CIS without
TRW's prior written consent, which shall not be unreasonably withheld or
unnecessarily delayed.
13. EXCUSABLE DELAYS. Neither party shall be liable for any delay or failure in
its performance under this Agreement (other than for payment obligations
hereunder) if and to the extent that such delay or failure is caused by events
beyond the reasonable control of the party including, without limitation, acts
of God or public enemies, labor disputes, equipment malfunctions, computer
downtime, software defects, material or component shortages, supplier failures,
embargoes, rationing, acts of local,
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state or national governments or public agencies, utility or communication
failures or delays, fire, earthquakes, flood, epidemics, riots and strikes.
14. DISPUTE RESOLUTION. With the exception of any action taken under paragraphs
4 and 6 or any alleged violation of paragraph 10 of this Agreement, the parties
will resolve any dispute arising out of or relating to this Agreement in a
binding arbitration conducted under the auspices of the American Arbitration
Association in Orange County, California. Disputes arising out of or resulting
from actions taken under paragraphs 4, 6 or 10 of this Agreement may be resolved
informally by the parties or through the courts.
15. SEVERABILITY. This Agreement shall be deemed to be severable and, if any
provision is determined to be void or unenforceable, then that provision will be
deemed severed and the remainder of the Agreement will remain in effect.
16. CONTRACT IN ENTIRETY; LAW. This Agreement sets forth the entire
understanding and agreement between TRW and CIS concerning the Services, and
supersedes any prior or contemporaneous oral or written agreements or
representations. It may be modified only by a written amendment executed by both
parties. This Agreement shall be interpreted in accordance with the laws of the
State of California.
17. NOTICES. All notices, requests and other communications hereunder shall be
in writing and shall be deemed to have been duly given at the time of receipt if
delivered by hand or communicated by electronic transmission, or, if mailed,
three (3) days after mailing registered OR certified mail, return receipt
requested, with postage prepaid:
If to CIS, the to it in Lincolnshire Management, Inc.
care of: 780 Third Avenue
New York, NY 10017
Attn: Mr. W. James Tozer, Jr., President
Telecopier: 1-212-755-5457
with a copy to: Ross & Hardies
65 East 55th Street
New York, NY 10022
Attn: Christopher P. O'Connell, Esq.
Telecopier: 1-212-421-5682
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If to TRW, then to: TRW Inc.
505 City Parkway West
Orange, CA 92668
Attn: Donald M. DePamphilis, Vice
President, Planning and Development
Telecopier: 1-714-938-2513
with a copy to: TRW Inc.
505 City Parkway West
Orange, CA 92668
Attn: Vice President, Law
Telecopier: 1-714-938-2513
Provided, however, that if either party shall have designated a different
address by notice to the other given as provided above, then to the last address
so designated.
18. EFFECTIVE DATE. This Agreement is effective beginning on the date of this
Agreement indicated above.
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19. SURVIVAL. Paragraphs 2, 9 and 19 shall survive the termination of this
Agreement, as shall paragraphs 8, 14 and 16 with respect to activities arising
during the term of this Agreement.
The parties authorized representatives have executed this Agreement on the date
indicated above.
TRW Inc., Credentials Services International,
acting through its Information Inc.
Services Business
By: /s/ [illegible] By: /s/ [illegible]
------------------------------ ------------------------------------
Its: Assistant Secretary Its: Vice President
----------------------------- ------------------------------------
Address: 505 City Parkway West Address: 780 Third Avenue
Orange, CA 92668 New York, NY 10017
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EXHIBIT A
PRESCREENING SERVICES AGREEMENT
(this "Agreement")
Dated: ______________________________
Between
- ------------------------------ ---------------------------------------
_________________________ TRW INC.,
and as Ohio corporation,
a ______________ corporation acting by and through its
("Customer") Information Services Division
("TRW")
- ------------------------------ ---------------------------------------
For good and valuable consideration and intending to be legally bound, Customer
and TRW hereby agree as follows:
1. GENERAL PROVISIONS
A. Application. This Agreement shall apply to all Prescreening Services
performed by TRW for Customer during the Term and/or described in any Criteria
Letter(s) executed during the Term.
B. Meaning of "Prescreening Services." The process by which lists of individuals
("Consumers") provided by Customer or developed by TRW are segmented with use of
credit information, either alone or in conjunction with demographic information,
in order to determine the Consumers' eligibility for an offer of credit.
C. Meaning of "Third Party Processor." A firm engaged in the business of
providing data processing services, including but not limited to, netdowns,
demographic appending and segmentation, merge/purge processing, and general list
cleansing, with respect to direct mail or telemarketing programs.
D. Terms. The term of this Agreement (the "Term") is the period consisting of
the Initial Term and, if this Agreement is renewed, the Renewal Term(s), as
follows:
(1) Initial Term. The "Initial Term" is the period beginning at 12:01 a.m. on
the date written above and ending at 11:59 p.m. on the day before the first
anniversary of that date.
(2) Renewal Term(s). Unless one or both of the parties delivers written notice
of such party's (parties') intent not to renew no later than thirty (30) days
before the end of the Initial Term, this Agreement will renew automatically and
without further action by either party for an additional one-year period (a
"Renewal Term"). Thereafter, this Agreement will continue to renew automatically
unless and until either party delivers to the other a nonrenewal notice no later
than thirty (30) days before the end of the applicable Renewal Term.
2. PRESCREENING SERVICES
A. Requests for Prescreening Services. TRW will perform Prescreening Services
hereunder when requested to do so by Customer as follows:
(1) Content of Requests. When Customer desires TRW to undertake a Prescreening
Services project, Customer will deliver to TRW a written request containing
sufficient information to enable TRW to perform the Prescreening Services
project, including, for example: (a) a description of the Prescreening Services
Customer desires TRW to perform; (b) credit and/or demographic criteria Customer
desires TRW to use in performing the Prescreening Services; (c) any Customer
requirements concerning the medium or media by which TRW is to deliver the
information derived from the Prescreening Services TRW renders; (d) the date by
which Customer de-
<PAGE> 14
sires that the Prescreening Services be completed; and (e) such other
information or direction as may be necessary to enable TRW to perform the
Prescreening Services.
(2) Confirmation. After receipt of a request for Prescreening Services, TRW will
review the request. Following such review, TRW will issue to Customer for
signature a letter ("Criteria Letter") confirming the criteria, pricing and
delivery date(s) which will apply to the particular Prescreening Services
project.
B. Method of Performance. TRW will use reasonable commercial efforts in its
performance of the following Prescreening Services:
(1) List Segmentation. For each Prescreening Services program, TRW will segment
lists of Consumers using the eligibility criteria in the program's Criteria
Letter and select Consumer names ("Qualifying Names") using credit and/or
demographic information contained in TRW's data base.
(2) Delivery. When TRW completes such segmentation, TRW will deliver to Customer
or Customer's Third Party Processor a magnetic tape (or other medium) containing
information that identifies the Consumers who meet the eligibility criteria
established or approved by Customer (the "Identifying Data") and coded credit or
derived information (the "Credit Data") about such Consumers (the "Prescreened
List"). Prior to TRW's delivery of the Prescreened List to Customer's Third
Party Processor, if applicable, Customer shall have caused the Third Party
Processor to have delivered to TRW a duly executed undertaking in the form of
Exhibit A.
(3) Additional Data Processing Analyses. Except as otherwise agreed to in
writing by the parties, if Customer desires the Third Party Processor to perform
further data processing services, then (a) the Third Party Processor will be
deemed to be acting on behalf of or as an agent of Customer and not of TRW; and
(b) Customer will assure that the Third Party Processor will not receive or
accept any information from Customer or is designee which would enable the Third
Party Processor to match the Identifying Data with the selection criteria or
other such credit information and thereby create or have access to a consumer
credit report with respect to any individual Consumer.
(4) Netdown Services. If as a result of data processing services performed by
the Third Party Processor, Customer intends to make a firm offer of credit to
fewer Consumers than appeared as Qualifying Names on the Prescreened List, then
as soon as reasonably possible, but in no event later than ninety (90) days
after TRW delivers the Prescreened List to Customer's Third Party Processor,
Customer will cause the Third Party Processor to provide TRW with a list of
those Consumers to whom Customer intends to make its offer.
C. Time of Performance. TRW will use commercially reasonable efforts to provide
the Prescreening Services as expeditiously as possible and in a timely manner;
provided, however, that TRW will have no liability to Customer hereunder for
delays in providing such Prescreening Services.
3. FEES
A. Generally. In consideration of TRW's performance of the Prescreening
Services, Customer will pay TRW fees (the "Fees") as set forth for each
Prescreening Services program in its respective Criteria Letter or Annual
Pricing Amendment.
B. Taxes. Customer will be solely responsible for all Federal, state, and local
taxes levied or assessed in connection with TRW's performance of the
Prescreening Services, other than income taxes assessed with respect to TRW's
net income, for which income taxes TRW will be solely responsible.
C. Method of Payment. Periodically during the Term, TRW will deliver to Customer
invoices reflecting Fees due hereunder, together with any taxes for which
Customer is responsible hereunder. Customer will pay TRW the amounts indicated
on such invoices without setoff within thirty (30) days after the invoice date.
If Customer does not pay any portion of the invoiced Fees within the thirty (30)
day period described above, then Customer will pay interest on the unpaid amount
at the rate of one and one-half percent (1.5%) per month or the highest amount
permitted by law.
4. CONSUMER PRIVACY
<PAGE> 15
A. Generally. Customer hereby acknowledges that the information TRW will deliver
to Customer under this Agreement includes personal credit information pertaining
to individual Consumers and, as such, sound business practice requires that the
parties treat such information responsibly and take reasonable steps to assure
that such information is not misused by the parties or any other person.
Accordingly, each party agrees to abide by the provisions of this Section 4
throughout the Term and to indemnify, defend and hold harmless the other party
hereto from and against any and all third party claims, resulting in
liabilities, damages, losses, costs and expenses (including reasonable
attorney's fees) arising out of or resulting from such party's failure to comply
with its obligations under this Section 4.
B. Compliance with Law. In performing this Agreement and in using information
provided hereunder, both parties will comply with all Federal, state, and local
statutes, regulations, and rules applicable to consumer credit information from
time to time in effect during the Term, including, without limitation, the
Federal Fair Credit Reporting Act, corresponding state credit reporting
statutes, and substantive regulations promulgated under such statutes.
C. Confidential Treatment. Under no circumstances will Customer resell or
otherwise disclose to any other person any of the information that TRW delivers
to Customer or its Third Party Processor hereunder. Customer will maintain
internal procedures to assure that such information will be held in strict
confidence and disclosed only to those of Customer's employees whose duties
reasonably relate to the legitimate business purposes for which the information
is requested or used and to no other person. Without limiting the generality of
the foregoing, Customer will take suitable precautions to prevent loss,
compromise, or misuse of any tapes or other media containing consumer credit
information while in its possession or in transport.
D. Use of Prescreened Lists. Customer hereby certifies to TRW that it will
extend a firm offer of credit, insofar as such firm offer is required pursuant
to Federal law and/or regulation, including the Federal Trade Commission
commentary on prescreening, to every Consumer (a) whose name appears on a
Prescreened List, (b) as to whom there is confirmation that the applicant is the
individual Consumer prescreened and (c) whose name appears on the final list
produced as a result of additional data processing, performed by the Third Party
Processor prior to delivery of the Prescreened List to the Customer, if any.
E. Credit Criteria. Customer will not divulge the credit criteria used for any
program to any person, including, without limitation, a Third Party Processor.
F. TRW's Audit Rights. TRW will have the right to audit Customer's and the Third
Party Processor's use of the Prescreened List delivered to Customer and the
Third Party Processor hereunder. Customer will cooperate fully with TRW in
connection with such audits and will provide TRW with access to such of
Customer's properties, records and personnel as reasonably may be required for
such purpose. In addition, use of the Prescreened List may be monitored by TRW
to the extent and through methods deemed reasonable and appropriate by TRW,
including but not limited to by the seeding of names, which shall be part of the
Prescreened List, and may not be altered, removed or identified by Customer or
its Third Party Processor.
5. INTELLECTUAL PROPERTY
A. No License. Nothing contained in this Agreement shall be deemed to grant a
party any license, sublicense, copyright interest, proprietary rights, or other
claim against or interest in the other party's information. Neither party shall
acquire any patent rights, copyright interest or other right, claim or interest
in the computer programs, forms, schedules, manuals or other proprietary items
utilized or provided another party in connection with the services rendered
under this Agreement.
B. Single Use. Customer may not use a Prescreened list more than once without
the prior written approval of TRW.
C. Restrictions on Use. Neither party will use, or permit their respective
employees, agents and subcontractors to use, the trademarks, service marks,
logos, names, or any other proprietary designations of the other party, or the
other party's affiliates, whether registered or unregistered, without such other
party's prior written consent.
<PAGE> 16
D. Ownership of Credit Data. Customer acknowledges that TRW has expended
subsubstantial time, effort, and funds to compile TRW's consumer credit
reporting data base and that all information contained in such data base (and
all demographic or other information provided by TRW, if any) is and will
continue to be the exclusive business property of TRW. Nothing contained in this
Agreement shall be deemed to convey to Customer or Customer's Third Party
Processor any right, title or interest in or to TRW's consumer credit data base
(or any TRW demographic or other information) or any part thereof.
6. AUDIT RIGHTS, LIMITATIONS, AND DISPUTES
A. Customer's Audit Rights. Customer will have the right to audit TRW's
performance of the Prescreening Services (excluding Easy Prescreen services) as
follows. Upon Customer's request, TRW will supply Customer with an agreed upon
number of sample reports (with Identifying Data deleted) to enable Customer to
confirm that the credit criteria established by Customer and set forth in the
Criteria Letter were applied correctly by TRW in performance of the Prescreening
Services. Such audit will be solely for the purpose of determining whether such
criteria were applied correctly and for no other purpose whatsoever. If the
criteria established by Customer are found not to have been applied correctly,
then Customer will notify TRW in writing as soon as reasonably possible but in
no event later than five (5) business days after receipt of the applicable
sample reports. After receipt of such notice, TRW shall, at its election, make
the corrections that may be necessary, reperform the applicable Prescreening
Services or issue Customer a refund for any amount paid by Customer for such
Prescreening Services. Such correction, reperformance or refund shall constitute
Customer's sole remedy and TRW's maximum liability for TRW's breach of its
obligations hereunder.
B. Disclaimer of Warranty. TRW DOES NOT GUARANTY OR WARRANT THE ACCURACY,
COMPLETENESS, CURRENTNESS, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OF THE PRESCREENING SERVICES, THE PRESCREENED LIST OR THE MEDIA ON WHICH THE
PRESCREENED LIST IS PROVIDED AND SHALL NOT BE LIABLE TO CUSTOMER FOR ANY LOSS OR
INJURY ARISING OUT OF OR CAUSED IN WHOLE OR IN PART BY TRW'S ACTS OR OMISSIONS
IN PROCURING, COMPILING, COLLECTING, INTERPRETING, REPORTING, COMMUNICATING, OR
DELIVERING THE PRESCREENED SERVICES OR PRESCREENED LIST.
C. Breakdowns. TRW will have no obligation or liability for or on account of (i)
any mechanical or other breakdown, malfunction, or defect in computer or other
equipment or facilities or computer programs utilized by TRW in its performance
hereunder, or (ii) any loss or destruction of data provided by Customer. TRW
will, however, use reasonable efforts in good faith to prevent such breakdown,
malfunction or defect and, if such should occur, to restore operations as
promptly as possible.
D. Limitation of Liability. Customer acknowledges that the prices TRW charges
for the Prescreening Services and Prescreened List are based, in part, upon
TRW's expectation that the risk of any loss or injury that may be incurred by
use of the Prescreening Services and Prescreened List will be borne by Customer
and not by TRW. For this reason, if notwithstanding the limitations set forth in
Section 6A above, liability can be imposed on TRW, then Customer agrees that
TRW's total liability for any and all losses or injuries arising out of any acts
or omissions of TRW in connection with anything to be done or furnished under
this Agreement, regardless of the cause of the loss or injury and regardless of
the nature of the legal or equitable right claimed to have been violated, shall
never exceed the amount paid by Customer for the applicable Prescreening
Services and Prescreened List. Customer covenants that it will not sue TRW for
an amount greater than such sum and that Customer will not seek punitive damages
in any such suit against TRW.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, UNDER NO CIRCUMSTANCES
WILL EITHER PARTY HAVE ANY OBLIGATION OR LIABILITY TO THE OTHER HEREUNDER FOR
ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES (INCLUDING BUT NOT
LIMITED TO DAMAGE DUE TO LOSS OF BUSINESS,
<PAGE> 17
DATA , PROFITS OR GOODWILL) INCURRED BY THE OTHER PARTY, REGARDLESS OF HOW SUCH
DAMAGES ARISE AND WHETHER OR NOT A PARTY WAS ADVISED SUCH DAMAGES MIGHT ARISE.
E. Dispute Resolution. The parties will resolve any dispute arising out of or
relating to this Agreement in the following manner. To initiate the dispute
resolution mechanism contemplated by this Section 6E, one party must deliver to
the other a written dispute notice with a brief description of the disputed
issue. There will be a sixty (60) day negotiation period following the delivery
of such notice. During the negotiation period, the parties will meet and seek to
resolve the disputed issue. If the parties cannot resolve the disputed issue
through negotiations, then within thirty (30) days after the end of such
negotiation period, the parties will refer such issue to binding arbitration
conducted in Cuyahoga County, Ohio under the auspices of the American
Arbitration Association. The prevailing party in any such arbitration shall be
entitled to an award of its reasonable attorneys' fees and costs.
7. MISCELLANEOUS
A. Amendments. This Agreement may be amended at any time, but only by written
agreement which refers expressly to this Agreement and is signed by both
parties.
B. Termination and Cancellation. This Agreement may be terminated by mutual
agreement at any time, but only by a written agreement which refers expressly to
this Agreement and is signed by both parties. This Agreement may be terminated
unilaterally by either party if the other party has breached a material
obligation under this Agreement and does not cure such breach within thirty (30)
days of receipt of written notice thereof. No termination of this Agreement will
relieve either party of any liability for monetary sums owing to the other.
C. Notices. Notices hereunder shall be given by certified mail or express
courier to the address specified below or to such other address as such party
shall specify by written notice.
D. Waivers. Either party may at any time waive compliance by the other with any
covenants or conditions contained in this Agreement, but only by written
instrument signed by the party waiving such compliance. No such waiver, however,
shall be deemed to constitute the waiver of any such covenant or condition in
any other circumstance or the waiver of any other covenant or condition.
E. Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of each of the parties hereto. Neither
this Agreement nor the interests of the parties in the Agreement may be
assigned, transferred, shared or divided in any manner by either party without
the prior written consent of the other party hereto. Notwithstanding the
foregoing, TRW may assign, transfer and/or perform any of its obligations
hereunder through another division or through a wholly-owned subsidiary of TRW
Inc. and may, without the consent of Customer, assign all of its rights and
delegate all of its duties under this Agreement in conjunction with the sale of
substantially all of the assets and operations of the business to which this
Agreement relates.
F. Excusable Delays. Neither party will be liable for any delay or failure in
its performance under this Agreement if and to the extent such delay or failure
is caused by events beyond the reasonable control of such party, including,
without limitation, acts of God or public enemies, labor disputes, material or
component shortages, supplier failures, embargoes, rationing, acts of local,
state or national governments or public agencies, utility or communication
failures or delays, computer downtime, software defects, fire, earthquake,
flood, epidemics, riots and strikes. If a party becomes aware that such an event
will delay or prevent performance of its obligations hereunder, such party will
promptly notify the other party and use its best efforts to avoid or remove the
cause of nonperformance and complete performance of the acts delayed whenever
such cause is removed.
G. No Third Party Interest. Neither this Agreement nor any provisions set forth
herein is intended to, or shall, create any rights in or confer any benefits
upon any person other than the parties hereto.
H. Choice of Law. This Agreement will be governed by and construed in accordance
with the internal substantive laws of the State of Ohio, which are intended to
supersede any choice of laws rules which might otherwise be applicable.
<PAGE> 18
I. Severability. If any provision of this Agreement shall finally be determined
to be unlawful, then it is the parties desire and intention that such provision
be deemed automatically adjusted to the minimum extent necessary to conform to
applicable requirements of validity and legality and, as so adjusted, be deemed
a provision of this Agreement as if it were originally included herein;
provided, however, that if such provision cannot be so adjusted without
substantially and materially altering the rights and duties hereunder and
fundamentally depriving one party of the benefit of the bargain (taken as a
whole) contemplated by this Agreement, then the parties will seek to reform this
Agreement through the procedure outlined in Section 6E hereof so as to restore,
as nearly as possible, the parties' respective rights, duties and bargain. In
any case, the remaining provisions of this Agreement shall remain in effect.
J. Independent Contractor. The parties acknowledge that the relationship between
TRW and Customer is and will be solely that of independent contractors. The
parties further acknowledge that any and all rights not expressly granted
pursuant to this Agreement are reserved to the respective party and that neither
party will have the right, power or authority to obligate the other to any
contract, term or condition not expressly authorized herein.
K. Survival. Sections 4C, 4E, 5, 6, 7B, 7G, 7H and this Section K shall survive
termination of this Agreement.
L. Complete Agreement. This Agreement sets forth the entire understanding of
Customer and TRW with respect to the subject matter hereof and supersedes all
prior letters of intent, agreements, covenants, arrangements, communications,
representations or warranties, whether oral or written ,by any officer,
employee, or representative of either party relating thereto.
IN WITNESS WHEREOF, Customer and TRW have signed and delivered this Agreement.
_____________________________ TRW Inc.
By and Through Its
Information Services Division
By:__________________________ By:_______________________
Signature Signature
Name:_______________________ Name:_____________________
Print Print
Title:________________________ Title:______________________
Address for Notice: Address for Notice:
_____________________________ TRW Inc.
Information Systems & Services Division
_____________________________ 505 City Parkway West
Orange, CA 92668
_____________________________
Attn: Vice President and Assistant
Attn:_________________________ General Counsel
<PAGE> 19
CALIFORNIA ADDENDUM TO
PRESCREENING SERVICES AGREEMENT
This California Addendum to the Prescreening Services Agreement (the
"California Addendum") is entered into effective as of the ___ day of
__________, 199__, by and between TRW Inc., an Ohio corporation, by and through
its Information Services Division ("TRW") and the undersigned customer
("Customer"), and amends that certain Prescreening Services Agreement between
Customer and TRW for the provision by TRW of certain Prescreening Services
(which agreement together with any addendum and amendment thereto is referred to
herein as the "Prescreening Agreement").
1. Customer understands and agrees that this California Addendum shall
apply to any Prescreening Services and Prescreened Lists provided by TRW that
include the name, address or other information concerning any California
resident(s), excluding Prescreening Services and Prescreened Lists requested in
connection with a transaction by mail where Customer has neither (I) any
physical presence in the State of California nor (ii) its major credit
application processing office located in the State of California.
2. Customer represents and warrants to TRW that Customer will make no
attempt to understand or identify with a particular California Consumer any
information provided by TRW pertaining to that Consumer (other than that
Consumer's name and address) as part of the Prescreening Services or any
Prescreened List to which the California Addendum applies; provided, however,
that the foregoing shall not apply once the Consumer accepts the firm offer of
credit from Customer. Further, customer agrees to return to TRW immediately any
Prescreened List or other materials to which this California Addendum applies
that provides information pertaining to a Consumer which is identified or
identifiable with a particular Consumer (other than that Consumer's name and
address).
3. Customer represents and warrants to TRW that Customer shall not seek
to have TRW provide to any person, as part of TRW's providing the Prescreening
Services, full social security numbers or other information identified or
identifiable with a particular Consumer appended to any Prescreened List to
which this California Addendum applies.
4. Customer represents and warrants that any Third Party Processor used
by Customer is and shall be an independent entity not acting as the agent of
Customer in connection with the Prescreening Services provided to Customer by
TRW to which this California Addendum applies.
5. "Prescreening Services", "Prescreened List" and all other words
identified herein with an initial capital letter shall have the meaning set
forth in the Prescreening Agreement (including any prior addendum or amendment
thereto) unless otherwise set forth herein. All terms and conditions of the
Prescreening Agreement not specifically addressed herein shall be unchanged and
shall remain in force and effect to the extent set forth therein.
IN WITNESS WHEREOF, the parties have caused this California Addendum to
be executed by their respective duly authorized representatives effective as of
the date first written above.
TRW Inc. ___________________________________
Print or Type Name of Customer
By: ______________________________ By: _______________________________
Signature Signature
Name: ____________________________ Name: _____________________________
Print Print
Title: _____________________________ Title: ____________________________
<PAGE> 20
PRESCREENING SERVICES
THIRD PARTY PROCESSOR UNDERTAKING
Name of Third Party Processor:__________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
Name of Client: ________________________________________________________________
TRW Job Reference(s): __________________________________________________________
(if applicable to all TRW Prescreening Service Jobs for the
Client, indicate "All")
This Third Party Processor Undertaking (the "Undertaking") is being
provided by the above-named Third Party Processor ("Third Party Processor") to
TRW Inc. ("TRW") in connection with the Prescreening Services Job(s) and Client
described above. From time to time on written instructions from Client, TRW may
prepare and provide Third Party Processor with lists of individuals developed by
TRW. This Undertaking applies to any such list or other media provided directly
or indirectly by TRW to Third Party Processor on behalf of Client ("Media"). For
good and valuable consideration and intending to be legally bound, Third Party
Processor agrees as follows:
1. Third Party Processor acknowledges that the Media is and shall remain
the property of TRW and shall do nothing inconsistent with the copyright or
other proprietary rights of TRW in and to the Media. Third Party Processor will
not duplicate or compile any data contained in the Media or provide the same in
any form to any third party. Except as done at the request, and for the
exclusive benefit, of Client, Third Party Processor shall not conduct any
analyses of the Media or otherwise use it to understand the nature, character or
quality of the Media, nor shall Third Party Processor use any information it
obtains as a result of its handling, processing or possession of the Media in
connection with the creation, testing, promotion, marketing, selling and/or
licensing of Processor's information, products or services.
2. Third Party Processor acknowledges that all credit information and
certain other information provided hereunder will be coded so as not to reveal
to Third Party Processor any such information about any individual whose name is
contained on any Media, and Third Party Processor agrees that it will return to
TRW immediately any Media inadvertently supplied without such coding.
Notwithstanding anything herein to the contrary, in no case will Third Party
Processor attempt to learn or understand the selection criteria applied by TRW
in the preparation of the Media or the meaning of any coded information provided
on the Media.
IN WITNESS WHEREOF, Third Party Processor has signed this Undertaking by
a duly authorized representative effective as of the ___day of_______________,
19___.
______________________________________
Name of Third Party Processor
By:___________________________________
Signature
Name:_________________________________
Print
Title:________________________________
<PAGE> 21
EXHIBIT B
PRICING*
Consumer Reports:
Number of Reports in each twelve
month period commencing on the
date hereof and each anniversary of
the date hereof ***
*** ***
*** ***
*** ***
*** ***
*** ***
Prescreen Services***:
<TABLE>
<CAPTION>
*** *** ***
--- --- ---
<S> <C> <C>
*** *** ***
*** *** ***
*** *** ***
</TABLE>
*Prices for these Services and all other Services provided hereunder exclude
sales, use, turnover, VAT or other similar transaction-based taxes now or
hereafter issued. Any such taxes shall be an additional charge. ***
**(1) Beginning on October 1, 1995 and on the first day of October of each year
thereafter during which this Agreement is in effect, the parties will determine
the number of final consumer disclosures TRW has sent to CIS members ("CDFs")
divided by the Average CIS Membership, as defined below (the "CDF/Membership
Ratio"). "Average CIS Membership" shall be calculated by adding the total number
of CIS members at the end of each month during the prior twelve month period,
and dividing that number by 12.
(2) ***
(3) ***
(4) ***
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 22
(5) ***
***
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 1
EXHIBIT 10.2
HARRINGTON PLACE
OFFICE LEASE
BY AND BETWEEN
TGALMA LIMITED, A TEXAS LIMITED PARTNERSHIP
AS LANDLORD,
AND
CREDENTIALS SERVICES INTERNATIONAL, INC., A CALIFORNIA CORPORATION,
AS TENANT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Definitions and Basic Lease Provisions . . . . . . . . . . . . . . . . . . . 1
2. Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Acceptance of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Rent Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6. Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7. Services by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
8. Service Interruptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
9. Operating Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
10. Rental Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
11. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
12. Assignment and Subletting . . . . . . . . . . . . . . . . . . . . . . . . . . 6
13. Repair and Maintenance by Tenant . . . . . . . . . . . . . . . . . . . . . . 6
14. Alterations and Additions by Tenant . . . . . . . . . . . . . . . . . . . . . 7
15. Use and Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
16. Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
17. Mechanics' Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
18. Liability of Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
19. Tenant's Indemnification of Landlord . . . . . . . . . . . . . . . . . . . . 8
20. Tenant's Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
21. Landlord's Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
22. Rights Reserved by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . 9
23. (Intentionally Deleted) . . . . . . . . . . . . . . . . . . . . . . . . . . 10
24. Fire or Other Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . 10
25. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
26. Taxes on Tenant's Property . . . . . . . . . . . . . . . . . . . . . . . . 11
27. Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
OFFICE LEASE Page i
- ------------
<PAGE> 3
<TABLE>
<S> <C>
28. Surrender Upon Termination or Expiration; Holdover . . . . . . . . . . . . 12
29. Tenant's Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
30. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
31. Landlord's Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
32. No Implied Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
33. Waiver by Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
34. Landlord's Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
35. Attorneys' Fees and Legal Expenses . . . . . . . . . . . . . . . . . . . . 15
36. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
37. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
38. Notice to Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
39. Rules and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
40. Estoppel Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
41. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
42. Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
43. Business Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
44. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
45. No Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
46. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
47. Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
48. Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
49. Joint and Several Liability. . . . . . . . . . . . . . . . . . . . . . . . 17
50. No Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
51. Entire Agreement; Amendments . . . . . . . . . . . . . . . . . . . . . . . 17
52. Paragraph Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
53. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
54. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
15. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
56. Tenant's Service Providers . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
OFFICE LEASE Page ii
- ------------
<PAGE> 4
<TABLE>
<S> <C>
57. Rate of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
58. Right of First Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
59. Signage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
60. Execution and Approval of Lease . . . . . . . . . . . . . . . . . . . . . . 19
61. Cabling Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
62. Rental Abatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
63. Security System Installation . . . . . . . . . . . . . . . . . . . . . . . 19
EXHIBITS:
A: Land
B: Premises
C: Tenant Finish Construction
D: Project Rules and Regulations
E: Contractor Insurance Requirements
F: Right of First Notice
</TABLE>
OFFICE LEASE Page iii
- ------------
<PAGE> 5
This Office Lease (this Lease) is entered into as of June 13th, 1995
(the date of this Lease), TGALMA Limited, a Texas Limited Partnership
(Landlord), and Credentials Services International, Inc., a California
Corporation (Tenant).
1. Definitions and Basic Lease Provisions.
Some of the basic provisions and defined terms of this Lease are as
follows:
Project: The Harrington Place Building and the Land described on
Exhibit A.
Project Address: 1700 Alma, Plano, Texas 75075
Premises: Approximately 15,452 Rentable Square Feet as shown on
Exhibit B. Suite(s) 500 on Floor(s) five (5) of the
Building.
Total Project Area: 86,718 Rentable Square Feet.
Annual Base Rent: Term of Rental Rate
<TABLE>
<CAPTION>
(Annually) (Monthly)
<S> <C> <C> <C> <C>
Jun. 1, 1995 Through Jun. 30, 1995 $ 189,287.00 $ 15,773.92
Jul. 1, 1995 Through Oct. 31, 1995 $ 0.00 $ 0.00
Nov. 1, 1995 Through Sep. 30, 1996 $ 189,287.00 $ 15,773.92
Oct. 1, 1996 Through Sep. 30, 1997 $ 193,150.00 $ 16,095.83
Oct. 1, 1997 Through Sep. 30, 1998 $ 193,150.00 $ 16,095.83
Oct. 1, 1998 Through Sep. 30, 1999 $ 197,013.00 $ 16,417.75
Oct. 1, 1999 Through Sep. 30, 2000 $ 197,013.00 $ 16,417.75
Oct. 1, 2000 Through Sep. 30, 2001 $ 200,876.00 $ 16,739.67
</TABLE>
Rent: The Base Rent and all other amounts payable by
Tenant to Landlord under this Lease.
Commencement Date: June 1, 1995 (which date shall be at least 45 days
after the execution of this Lease).
Expiration Date: September 30, 2001
Lease Term: Seventy-six (76) months, ending on the Expiration
Date.
Base Year: The first full twelve (12) months of occupancy.
Tenant's Share: 17.824 %.
Tenant's Broker: Dale Clements of Miller Commercial and Gregory Gill
of Matlow-Kennedy.
Landlord's Agent: Harwood Pacific Corporation, a Texas corporation.
Security Deposit: $15,773.92
Permitted Use: General business offices.
Parking: No more than 90 undesignated parking spaces.
Tenant Party(ies): Tenant and its agents, employees, licensees,
servants, and invitees.
Addresses for notices under this Lease:
LANDLORD: TENANT: GUARANTOR:
TGALMA Limited, a Texas Limited Credentials Services N/A
Partnership International
c/o Harwood Pacific Corporation Inc., a California Corporation
2651 North Harwood, Suite 450 1700 Alma, Ste. 500
Dallas, Texas 75201 Plano, Texas 75075
Attention: Doug Walker, Attention: Nick Rees
General Manager Fax: N/A
Fax: (214)871-0879
with a copy to:
Credentials Services International,
Inc., a California Corporation
600 City Parkway West, 2nd Floor
Orange, California 92668
Fax: N/A
OFFICE LEASE Page 1
<PAGE> 6
2. Premises.
Landlord, in consideration of the Rent and the obligations of Tenant
under this Lease, hereby leases the Premises to Tenant and Tenant
takes the Premises as subject to the terms of this Lease. The number
of RENTABLE SQUARE FEET in the Premises and the Project is deemed to
be the square footage as set forth in Paragraph 1.
3. Lease Term.
(a) The Lease Term begins on the earlier to occur of (1) the date
Tenant occupies any part of the Premises or (2) the later to occur of
the Commencement Date or the Ready for Occupancy Date (defined below)
and ends on the Expiration Date.
(b) If the Ready for Occupancy Date does not occur by the Commencement
Date for any reason other than omission, delay, or default by any
Tenant Party, including, without limitation, delays caused by the
negligence of the Landlord, its agents or contractors, or the City of
Plano, Tenant's obligation to pay Rent does not commence until the
Ready For Occupancy Date occurs and the Expiration Date is extended to
the last day of the month following a period of time equal to the time
period beginning on the Commencement Date and ending on the day before
the Ready for Occupancy Date. This abatement of Rent is Tenant's sole
remedy and is full settlement of all claims that Tenant has against
Landlord by reason of the Premises not being ready for occupancy by
Tenant on the Commencement Date; provided, however, if the Ready for
Occupancy Date has not occurred within one hundred twenty (120) days
following the Commencement Date due to the acts, omissions or
negligence of Landlord, its agents or employees, Tenant may terminate
the Lease as its sole and exclusive remedy, and the parties shall be
released from all obligations under this Lease.
(c) If Tenant occupies any part of the Premises before the
Commencement Date or the Ready for Occupancy Date, as applicable, the
Lease Term and Tenant's obligation to pay Rent commence on the date
Tenant occupies the Premises and ends on the Expiration Date. Tenant
is deemed to occupy the Premises when Tenant takes possession of any
part of the Premises for any purpose, including placing furniture and
installing Tenant's equipment in the Premises; provided, however,
Tenant shall be granted the right to install its telephone/computer
cable and furniture systems prior to the Commencement Date so long as
the same does not interfere with Landlord's completion of the Tenant's
Finish Work. In addition, the Tenant shall have access to the
telecommunications room following execution of this Lease and when
such room is available. The Landlord agrees to instruct its contractor
to schedule such Tenant Finish Work in such a fashion as to reasonably
make the telecommunications room available and ready for Tenant's use
no later than ten (10) days following the commencement of the Tenant
Finish Work. Landlord agrees that the foregoing rights of Tenant shall
not constitute occupancy of the Premises and therefore shall not
trigger the payment of rent under the Lease.
(d) When the Ready For Occupancy Date is determined, Landlord and
Tenant shall exchange a letter acknowledging that date and, if the
Expiration Date changes under this Paragraph, the Expiration Date. If
any dispute arises regarding those dates, a certificate furnished by
Landlord's architect certifying the date Landlord substantially
completed the Tenant Finish Work (as defined in Exhibit C) is
conclusive and binding upon Landlord and Tenant.
(e) The Ready For Occupancy Date is the earlier to occur of (i) the
date the City of Plano approves the Premises for occupancy; or (ii)
the date the City of Plano would have approved the Premises for
occupancy but for delays caused by any Tenant Party; provided, if
Landlord performs any Additional Work (defined in Exhibit C), the
Ready for Occupancy Date is deemed accelerated by the number of days
in the Additional Work Period (defined in Exhibit C).
4. Acceptance of Premises.
Tenant's occupancy of the Premises is conclusive evidence that Tenant:
(A) accepts the Premises as suitable for the purposes for which they
are leased; (B) accepts the Premises and the Project as being in a
good and satisfactory condition subject only to such punchlist items
to be submitted by Tenant to Landlord within five (5) days following
the Ready for Occupancy Date, detailing those items of the Tenant
Finish Work in need of repair, replacement or completion by the
Landlord's contractor; and (C) waives any defects in the Premises and
the Project. Except for the gross negligence or intentional misconduct
of Landlord, its agents employees and contractors, Landlord is not
liable to any Tenant Party for any injury or damage to person or
property due to the condition or design of, or any defect in, the
Project that exists now or occurs in the future. Except for the gross
negligence or intentional misconduct of Landlord, its agents employees
and contractors, Tenant, for itself and all other Tenant Parties,
assumes all risks of injury or damage to person or property, either
proximate or remote, by reason of the condition or design of, or any
defects in, the Premises and the Project.
OFFICE LEASE Page 2
<PAGE> 7
5. Rent Payments.
(a) The first installment of Base Rent is payable by Tenant when this
Lease is executed. Subsequent installments of Base Rent are payable by
Tenant in advance on the first day of each calendar month during the
Lease Term beginning on the first day of the first full calendar month
after the Commencement Date (or the Ready for Occupancy Date, if
applicable). Base Rent for any partial calendar month is prorated on a
per diem basis.
(b) All Rent is payable by Tenant at the times and in the amounts
specified in this Lease in legal tender of the United States of
America to Landlord at the notice address for Landlord or to any other
person or at any other address as Landlord may from time to time
designate by notice to Tenant.
(c) Rent is payable by Tenant without notice, demand, abatement,
deduction or setoff, except as expressly specified in this Lease.
Tenant's obligation to pay Rent is independent of any obligation of
Landlord under this Lease. If any installment of Rent is not paid
within 10 days after it is due, Tenant shall pay a late charge in an
amount equal to 10% of the delinquent installment of Rent when it pays
the delinquent installment.
6. Electricity.
(a) Landlord, as specified below, shall furnish electricity as
follows: (i) up to 4 watts per Rentable Square Foot in the Premises at
208 volts for lighting; and (ii) up to 4 watts per Rentable Square
Foot in the Premises at 110 volts for office machines. If Tenant's use
will exceed the specified levels, Tenant must give Landlord prior
notice specifying Tenant's excess requirements. If the excess
electricity requirements can be supplied without, in Landlord's sole
opinion, overloading the existing Building systems or the additional
equipment necessary to supply Tenant's excess electricity requirements
can be installed without, in Landlord's sole opinion, creating a
dangerous condition in the Building, Landlord shall supply Tenant's
excess electricity requirements and Tenant shall pay Landlord the cost
of supplying the excess electricity requirements, including all
installation and submetering costs, on demand as additional Rent.
(b) If Tenant's actual electricity use exceeds its pro-rata share as
determined by Landlord, Landlord shall cause Landlord's engineer to
determine, at Tenant's sole cost and expense, the amount of excess
electricity to be allocated to Tenant based on the power requirements
of Tenant's equipment or lighting and Tenant shall pay Landlord on a
monthly basis the cost of the excess electricity as reasonably
determined by Landlord's engineer on demand as additional Rent.
Landlord may also, at its sole option and without any obligation to do
so, install supplemental air conditioning units in the Premises to
offset the heat-generating effect of Tenant's excess electricity usage
and Tenant shall pay Landlord the installation cost and the cost of
operation, use, repair, and replacement of the supplemental air
conditioning units on demand as additional Rent. The
telecommunications room in the Premises shall be separately metered
and Tenant shall pay as additional rent the cost of all electricity
usage for the equipment located therein.
(c) The obligation of Landlord to furnish electricity is subject to
the rules and regulations of the supplier of electricity and of any
municipal or other governmental authority regulating the business of
providing electricity. Landlord is not liable to Tenant for any
failure or defect in the supply or character of electricity furnished
to the Premises due to any requirement, act, or omission of the entity
supplying electricity to the Project.
7. Services by Landlord.
Landlord, subject to payment by Tenant as specified below, shall
furnish the following services for the occupied portions of the
Premises in a fashion consistent with comparable buildings in the
Plano submarket:
(a) Air conditioning, both heating and cooling (as required by the
seasons), from 6:30 a.m. to 8:00 p.m. on weekdays and on Saturdays
from 6:30 a.m. to 3:00 p.m., except on Holidays (as defined in Exhibit
D) (the HVAC Standard Hours) at temperatures and in amounts as are in
the sole judgment of Landlord reasonably required for comfortable use
and occupancy under normal business operations. Circulating air is
not available other than through the Building's HVAC system. Landlord
has no obligation to redesign the existing method of operation of the
Building's HVAC system. If Tenant requires HVAC services at any time
other than HVAC Standard Hours, Landlord shall furnish the services
for the portions of the Premises specified in a request by Tenant
received by the Project manager before 3:00 p.m. of the business day
preceding the date extra usage is required. Tenant shall pay Landlord
as additional Rent for such extra service an amount equal to
Landlord's actual cost for such service, including any administrative
costs incurred by Landlord in providing such service, up to a maximum
of $30.00 per hour for such excess service;
OFFICE LEASE Page 3
<PAGE> 8
(b) Cold and hot water (at the normal temperature of the water supply
to the Building) for lavatory and toilet purposes, with water service
to be at supply points provided for general use of tenants of the
Building through fixtures installed by Landlord, or by Tenant with
Landlord's prior consent;
(c) Janitor service to the Premises on days other than Fridays,
Saturdays, and Holidays;
(d) Window washing as determined by Landlord in its reasonable
discretion;
(e) Operator-less passenger elevators for ingress and egress to and
from the floor(s) on which the Premises are located (provided that
Landlord may reasonably limit the number of elevators to be in
operation on Saturdays, Sundays, and Holidays) and, to the extent
available, freight elevator service in common with other tenants but
only when scheduled through the Project manager;
(f) Common area rest room facilities; and
(g) Electric lighting for all common areas of the Building in the
manner and to the extent deemed by Landlord to be reasonable and
standard.
Building Standard Hours are weekdays, excluding Holidays, from 7:00
a.m. to 8:30 p.m. and Saturdays from 7:00 a.m. to 1:30 p.m., which
hours shall remain constant throughout the Term. Landlord may lock the
Building at all times other than during Building Standard Hours.
8. Service Interruptions.
Landlord does not warrant that the services provided by Landlord will
be free from any slow-down, interruption, or stoppage under voluntary
agreement between Landlord and governmental bodies, regulatory
agencies, utility companies, and others supplying services or caused
by the maintenance, repair, replacement, or improvement of any
equipment involved in the furnishing of the services or caused by
changes of services, alterations, strikes, lock-outs, labor
controversies, fuel shortages, accidents, acts of God, the elements,
or other causes beyond the reasonable control of Landlord. No
slow-down, interruption, or stoppage of the services may be construed
as an eviction, actual or constructive, of Tenant or cause an
abatement of Rent or in any manner or for any purpose relieve Tenant
from its obligations under this Lease. Landlord is not liable for
damage to persons or property, or in default under this Lease, as a
result of any slow-down, interruption, or stoppage. Landlord shall use
due diligence to resume the service upon any slow-down, interruption,
or stoppage. Notwithstanding the foregoing, in the event the services
furnished by Landlord are disrupted as a result of Landlord's gross
negligence or intentionally misconduct and such disruption prevents
Tenant from operating its business in the Premises for seventy-two
(72) continuous hours, thereafter all Rent and other charges shall
abate until the earlier of the restoration of such services or
Tenant's ability to resume operations in the Premises.
9. Operating Costs.
(a) The term Operating Costs means those expenses [(other than
expenses for electricity)] directly incurred in the management,
operation, maintenance, repair, and security of the Project, including
but not limited to the cost of all utilities, building supplies,
janitorial service, maintenance, repairs, fire and extended coverage,
public liability, and other insurance, all labor and employee benefit
costs (including wages, salaries, and fees of all personnel engaged in
the management, operation, maintenance, repair, and security of the
Project), ad valorem taxes and assessments, costs that reduce
operating expenses or are required to meet governmental regulations,
management fees, consulting fees, legal fees, accounting fees, and the
fair market rental of the Project managers' offices, together with
payments or credits Landlord makes to any tenant or tenants in the
Project in lieu of Landlord providing any of the services or paying
for any of the costs. If for any time period in question the Project
is less than 95 % occupied, Landlord shall increase those elements of
Operating Costs that vary based on the occupancy rate of the Project
as though the Project were 95 % occupied. Operating Costs shall
exclude the following: advertising costs; commissions and marketing
costs; charges exclusively benefiting another tenant's use; legal fees
specific to other tenant leases; capital improvements to the common
areas, except to the extent the same are amortized over the useful
life of such improvements according to generally accepted accounting
principles; wages and salaries of employees to the extent not involved
in the operation of the Project; costs for renovations or improvements
to other tenant premises; depreciation or amortization of the Project;
penalty or late payments incurred by Landlord, its agents or
contractors due to its negligence or willful misconduct; costs
associated with the removal or abatement of Hazardous Substances
(hereinafter defined) unless introduced into the premises by Tenant,
its agents or contractors; costs of repair or replacement items
covered
OFFICE LEASE Page 4
<PAGE> 9
by warranty; costs to comply with the Americans with Disabilities Act,
as of the date of this Lease; and costs associated with retail
operations. Notwithstanding anything to the contrary contained herein,
the Landlord's Controllable Operating Costs (hereinafter defined)
shall not increase by more than six percent (6%) per annum
Controllable Operating Costs shall mean all Operating Costs except
such expenses and costs which cannot be controlled by Landlord,
including but not limited to taxes, utilities and insurance.
(b) The term Excess Operating Costs means the amount by which the
Operating Costs for any calendar year after the first twelve (12)
months of occupancy exceed the Operating Costs for the first twelve
(12) months.
(c) If there are Excess Operating Costs for any calendar year, Tenant
shall pay to Landlord as additional Rent Tenant's Share of the Excess
Operating Costs.
(d) On or before December 15 of the Base Year and each subsequent
calendar year, Landlord shall deliver to Tenant Landlord's reasonable
estimate of the Excess Operating Costs on a Rentable Square Foot basis
for the next calendar year. Tenant shall pay to Landlord monthly as
additional Rent, in advance on or before the first day in each
succeeding calendar month, an amount equal to one twelfth (l/12th) of
the product of Tenant's Share of estimated Excess Operating Costs
multiplied by the Total Project Area for the applicable calendar year.
Landlord may adjust its estimate by notice to Tenant at any time
during the applicable calendar year if actual Excess Operating Costs
are substantially different from the estimate, and thereafter payments
by Tenant under this Paragraph adjust accordingly. The term calendar
year includes partial calendar years.
(e) No later than October 1 of each calendar year, Landlord shall
deliver to Tenant a statement certified by an authorized
representative of Landlord setting out in reasonable detail the actual
Excess Operating Costs for the prior calendar year. If the estimated
payments made by Tenant during the prior calendar year exceed Tenant's
Share of actual Excess Operating Costs for that year, Landlord shall
credit the difference against the next ensuing installments of
estimated payments by Tenant under this Paragraph. If the estimated
payments made by Tenant during the prior calendar year under this
Paragraph are less than Tenant's Share of the actual Excess Operating
Costs for that year, Tenant shall pay the amount of the difference to
Landlord in cash within 30 days after delivery of any invoice therefor
by Landlord accompanied by a statement of the actual Excess Operating
Costs for that year as additional Rent. Notwithstanding anything to
the contrary contained herein, Tenant shall have the right, not more
than once annually and no more than three (3) times during the Term,
to audit Landlord's calculation of the Operating Costs for the
preceding calendar year. Such audit may be conducted at Tenant's sole
cost and expense in Landlord's offices during normal business hours,
upon reasonable advance notice to Landlord with no more than two (2)
persons for no longer than two (2) consecutive eight (8) hour periods.
If such audit, conducted by an independent certified public accountant
reveals that Landlord has overstated Operating Costs by more than five
percent (5 %) for such calendar year, then in addition to the refund
of such overpayment, Landlord shall pay Tenant's reasonable audit
costs.
10. Rental Tax.
Tenant shall pay as additional Rent all licenses, charges, and other
fees of every kind and nature as and when they become due arising out
of or in connection with Tenant's use and occupancy of the Premises
and the Project (including the parking garages), including but not
limited to license fees, business license taxes, and privilege, sales,
excise, or other taxes (other than income) imposed upon Rent or upon
services provided by Landlord or upon Landlord in an amount measured
by Rent received by Landlord, but excluding any income or inheritance
taxes.
11. Security Deposit.
(a) Tenant shall pay the Security Deposit to Landlord upon execution
of this Lease as security for the performance by Tenant of its
obligations under this Lease. The Security Deposit does not bear
interest and is not an advance payment of Rent or a measure of
Landlord's damages for a default by Tenant. If Tenant defaults in the
performance of any of its obligations under this Lease, Landlord may,
without prejudice to any other remedy, use the Security Deposit to the
extent necessary to make good any arrearages in Rent or any other sum
for which Tenant is in default and any other damage, injury, expense,
or liability caused to Landlord by the default. If Landlord so applies
any part of the Security Deposit, Tenant shall pay to Landlord on
demand the amount necessary to restore the Security Deposit to its
original amount.
OFFICE LEASE Page 5
<PAGE> 10
(b) If Tenant is not then in default under this Lease, Landlord shall
return any remaining balance of the Security Deposit to Tenant upon
termination or expiration of this Lease and after surrender by Tenant
of possession of the Premises to Landlord in accordance with this
Lease.
(c) If Landlord assigns its interest in the Premises, Landlord shall
assign the Security Deposit to the assignee. Landlord has no further
liability for the return of the Security Deposit after the assignment
and Tenant shall look solely to the assignee for the return of the
Security Deposit. Tenant may not assign or encumber or attempt to
assign or encumber the Security Deposit. Landlord and its successors
and assigns are not bound by any actual or attempted assignment or
encumbrance of the Security Deposit by Tenant.
12. Assignment and Subletting.
(a) Tenant may not, without Landlord's prior consent: (1) assign or
transfer this Lease or any interest therein; (2) permit any assignment
of this Lease or any interest therein by operation of law; (3) sublet
the Premises or any part thereof; (4) grant any license, concession,
or other right of occupancy of any portion of the Premises; (5)
mortgage, pledge, or otherwise encumber its interest in this Lease; or
(6) permit the use of the Premises by any parties other than Tenant
and its employees. Landlord's consent to any assignment or subletting
is not a waiver of Landlord's right to approve or disapprove any
subsequent assignment or subletting. Notwithstanding the foregoing,
Tenant shall have the right to assign its obligations under the Lease
to a wholly owned subsidiary or parent entity without the consent of
Landlord and without Landlord's right to terminate as provided in
paragraph 12(d), provided Tenant shall remain liable for all
obligations under the Lease. Furthermore, Landlord shall agree that
its consent to an assignment of the Lease by Tenant shall not be
unreasonably withheld or delayed in the event Tenant assigns the Lease
to an entity with a net worth which is equal to or greater than Tenant
both as of the date of this Lease and at the time of the proposed
assignment, such assignee shall have a use of the Premises which is
substantially the same as the Tenant and shall not unreasonably
interfere with the use or occupancy of any other tenant in the
Project. Tenant and any guarantor of Tenant's obligations under this
Lease (GUARANTOR, whether one or more) remain jointly and severally
liable for the payment of Rent and performance of all other
obligations under this Lease after any assignment or subletting. Any
change in a majority of the voting rights or other control rights of
Tenant is an assignment for purposes of this Paragraph. If Tenant is a
partnership, then any transfer of a general partnership interest is an
assignment for purposes hereof. As a condition to the effectiveness of
each assignment or subletting, and whether or not Landlord's prior
consent is required for the assignment or subletting, Tenant shall pay
to Landlord its reasonable administrative and legal costs in
connection therewith not to exceed $1,000.00. Any attempted assignment
or sublease by Tenant in violation of the terms of this Paragraph is
void.
(b) Landlord, in addition to any other remedies under this Lease or
provided by law, may at its option collect directly from the assignee
or sublessee all rents payable to Tenant under the assignment or
sublease and apply the rent against any sums due to Landlord under
this Lease. Tenant authorizes and directs any assignee or sublessee to
make payments of rent directly to Landlord upon receipt of notice from
Landlord. No direct collection of rent by Landlord from any assignee
or sublessee is a novation or a release of Tenant or Guarantor from
the performance of their obligations under this Lease or under any
guaranty executed by Guarantor. Receipt by Landlord of rent from any
assignee, sublessee, or occupant of the Premises is not a waiver of
the covenant against assignment and subletting or a release of Tenant
or Guarantor.
(c) If Tenant wants to assign or sublease all or part of the Premises,
it shall deliver a notice to Landlord specifying the name of,
financial information for, and the nature of the business of the
proposed assignee or subtenant, and the proposed effective date and
terms of the assignment or sublease. Tenant may not assign or sublease
all or any part of the Premises at any time when Tenant is in default
under this Lease, whether or not an Event of Default has occurred.
(d) Landlord has a period of 30 days from receipt of Tenant's notice
and all information required herein to notify Tenant that Landlord
elects, in Landlord's sole discretion, to: (1) terminate this Lease as
to the space that is the subject of Tenant's notice as of the date
specified by Tenant; (2) consent to the assignment or sublease;
provided, if the rent payable to the Tenant by the sublessee is
greater than the Base Rent, the excess rent is payable by Tenant as
additional Rent to Landlord on the same dates Tenant pays Base Rent;
or (3) refuse to consent to Tenant's assignment or sublease of that
space. If Landlord does not notify Tenant of Landlord's election
within the 30-day period, Landlord is deemed to elect option (3).
13. Repair and Maintenance by Tenant.
(a) Tenant shall keep the Premises and all fixtures installed by or on
behalf of Tenant in good and tenantable condition. Tenant shall
promptly make all necessary non-structural interior repairs and
replacements thereto except those caused by fire
OFFICE LEASE Page 6
<PAGE> 11
or other casualty, all at Tenant's expense, under the supervision and
with the approval of Landlord. All repairs and replacements must be
equal in quality and class to the original work. Without diminishing
this obligation of Tenant, if Tenant fails to commence and diligently
pursue any repairs and replacements within ten (10) days following
notice from Landlord after the occurrence of the damage or injury,
Landlord may at its option make the repairs and replacements and
Tenant shall pay Landlord on demand as additional Rent the costs
incurred by Landlord, plus an administrative fee equal to 10% of the
actual cost thereof, plus 18% per annum interest from date of payment
by Landlord.
(b) To the extent Tenant fails to repair the same, Tenant shall pay
the cost of repairs and replacements due to damage or injury to the
Project or any part thereof caused by any Tenant Party. This amount is
payable by Tenant to Landlord on demand as additional Rent, plus 18%
per annum interest from date of payment by Landlord. If Landlord
performs any maintenance or repairs to the Premises, as provided
herein, or at the request of Tenant, over and above the services
required to be performed by Landlord pursuant to Paragraph 7, Tenant
shall pay the actual cost thereof, plus an administrative fee equal to
10% of the actual cost thereof, to Landlord as additional Rent within
5 business days after demand.
(c) Landlord agrees to maintain the Project in a condition at least
equal to its current condition and in a fashion substantially similar
to other comparable office buildings in the Plano submarket.
14. Alterations and Additions by Tenant.
(a) Tenant may not make or permit any alterations, improvements, or
additions in or to the Premises or the Project without Landlord's
prior consent. Notwithstanding the foregoing, Tenant shall be
permitted to make such nonstructural improvements in the Premises only
to the extent the costs of the same do not exceed more than $5,000.00
during any twelve (12) month period so long as such improvements are
nonstructural in nature and such improvements do not materially alter
the appearance of the Premises as the same appeared following
completion of the Tenant Finish Work. All alterations, additions, and
improvements made to, or fixtures or other improvements placed in or
upon, the Premises, whether temporary or permanent in character, by
either party (except only movable office furniture and equipment not
attached to the Building) are a part of the Project and are the
property of Landlord when they are placed in the Premises without
compensation to Tenant.
(b) Any alterations and improvements constructed by Tenant must comply
with all Applicable Laws (defined below), including without
limitation, all applicable environmental laws and the Americans With
Disabilities Act of 1990 (ADA). If Tenant's use of the Premises causes
Landlord to make any alterations or improvements to the Project to
comply with the provisions of ADA, Tenant shall reimburse Landlord for
the cost of the alterations or improvements, plus an administrative
fee equal to 10 % of the actual cost thereof, upon demand as
additional Rent. Neither Landlord's approval of Tenant's plans and
specifications for the alterations or improvements nor Landlord's
acceptance of Tenant's as-built plans is a confirmation or agreement
by Landlord that the improvements and alterations comply with
Applicable Laws.
15. Use and Occupancy.
The Premises may be used and occupied by Tenant only for general
business offices. Tenant shall use and maintain the Premises in a
clean, careful, safe, and proper manner and shall comply with all
laws, ordinances, orders, rules, and regulations ("APPLICABLE LAW") of
all governmental bodies (state, federal, and municipal) applicable to
or having jurisdiction over Tenant's particular use, occupancy, and
maintenance of the Premises and the Rules and Regulations attached
hereto and incorporated herein for all purposes; provided, Tenant
shall not be obligated to make structural modifications to the
Premises or the Project or remove hazardous substances which existed
on the Premises prior to the date of this Lease.
16. Parking.
(a) During the initial Lease Term, Landlord shall provide, at no
additional charge to Tenant, no more than 90 undesignated parking
spaces, with not more than an additional 10 parking spaces, if, as and
when available, as determined by Landlord, in areas specified by
Landlord. Tenant must deliver to Landlord a list of the automobile
license numbers of Tenant's employees who will be using such Parking.
(b) Tenant is not assigned designated parking spaces, but is permitted
to use whatever unreserved stalls are available, on a first-come,
first-served basis in areas of the parking lots and/or garage
designated from time to time by Landlord. If for any reason Landlord
fails or is unable to provide parking spaces to Tenant or parking
spaces are not available for use by Tenant Parties, this failure or
inability is not a default by Landlord under this Lease.
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(c) All Tenant Parties must comply with all traffic, security, safety,
and other rules and regulations promulgated from time to time with
respect to the parking area.
17. Mechanics' Liens.
Tenant may not cause or permit any mechanic's or materialman's lien to
be placed upon Landlord's interest in the Project or the Premises or
any part thereof by any contractor, subcontractor, laborer, or
materialman performing any labor or furnishing any materials to Tenant
for any improvement, alteration, or repair of or to the Premises, the
Project, or any part thereof. If as a result of Tenant's use or
occupancy of the Premises any lien is filed on Landlord's interest or
Tenant's interest in the Premises, Tenant shall cause the same to be
discharged within 20 days after filing. If Tenant does not discharge
the lien within the 20-day period, then, in addition to any other
right or remedy of Landlord, Landlord may, but is not obligated to,
discharge the lien by paying the amount claimed to be due or by
procuring the discharge of the lien by deposit in court or bonding.
Any amount paid by Landlord relating to any lien not caused by
Landlord, and all reasonable legal and other expenses of Landlord,
including reasonable attorneys' fees, in defending any action or in
procuring the discharge of any lien, with interest thereon at the rate
of 18% per annum from the date of payment by Landlord, is payable by
Tenant to Landlord on demand as additional Rent.
18. Liability of Landlord.
(a) Except for the gross negligence or intentional misconduct of the
Landlord, its agents, employees or contractors, Landlord is not liable
to Tenant, any Tenant Party, or any other person for any injury or
damage to person or property due to: (i) the Project or related
improvements or appurtenances being out of repair, or defects in or
failure of pipes or wiring, or backing up of drains, or the bursting
or leaking of pipes, faucets, and plumbing fixtures, or gas, water,
steam, electricity, or oil leaking, escaping, or flowing into the
Premises; (ii) any loss or damage caused by the acts or omissions of
other tenants in the Project or of any other persons; or (iii) any
loss or damage to property or person occasioned by theft, fire, act of
God, public enemy, injunction, riot, insurrection, war, court order,
requisition, or order of governmental authority, or any other cause
beyond the control of Landlord. All personal property at the Premises
is at the sole risk of Tenant.
(b) Notwithstanding the foregoing or anything else to the contrary
contained in this Lease, the liability of Landlord to Tenant for any
default or indemnity by Landlord under this Lease is limited to the
interest of Landlord in the Project. Neither Landlord nor any partner,
employee, agent, director, or officer of Landlord has any personal
liability for any amounts payable or obligations performable by
Landlord under this Lease.
19. Tenant's Indemnification of Landlord.
(a) Tenant shall indemnify, defend, and hold Landlord harmless from
all fines, suits, losses, costs, liabilities, claims, demands,
actions, and judgments of every kind and character by reason of any
breach by Tenant under this Lease and all claims, demands, actions,
damages, losses, costs, liabilities, expenses, and judgments suffered
by, recovered from, or asserted against Landlord (i) due to injury or
damage to person or property to the extent that the damage or injury
is caused, by strict liability, negligence, or misconduct of Tenant or
any Tenant Party, or (ii) when the injury or damage is the result, of
the violation by Tenant or any Tenant Party of any law, ordinance, or
governmental order of any kind; or (iii) when the injury or damage
occurring in the Premises in any other way arises out of the occupancy
or use by Tenant or any Tenant Party of the Premises or the Project,
including Landlord's negligence.
(b) Tenant is not required to indemnify, defend, or hold Landlord
harmless from any claim, demand, fine, suit, loss, liability, action
or judgment arising from Landlord's gross negligence or willful
misconduct.
(c) Except in the event of any action by Tenant against Landlord and
subject to pro rata reimbursement by Landlord to Tenant, to the extent
Landlord is ultimately found liable by a court of competent
jurisdiction, if Landlord is made a party to any litigation commenced
by or against Tenant or relating to this Lease or to the Premises,
then Tenant shall pay all costs and expenses, including attorneys'
fees and court costs, incurred by or imposed upon Landlord by virtue
of the litigation. The amount of all costs and expenses, including
attorney's fees and court costs, is a demand obligation bearing
interest at the rate of 18% per annum from the date of payment by
Landlord payable by Tenant to Landlord as additional Rent.
OFFICE LEASE Page 8
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20. Tenant's Insurance.
(a) Tenant shall, at its expense, maintain at all times a policy or
policies of insurance insuring Tenant against all liability for injury
to or death of a person or persons and for damage to or destruction of
property occasioned by or arising out of or in connection with the use
or occupancy of the Premises or by the condition of the Premises
(including Tenant's contractual liability to indemnify and defend
Landlord) with a combined single limit of $2,000,000.00 for bodily
injury and property damages, or with other limits as may be reasonably
required by Landlord. Tenant's policies must be written by an
insurance company or companies reasonably satisfactory to Landlord and
licensed to do business in the State of Texas with an A.M. Best rating
of A-IX, or better, with Landlord and Landlord's Agent, Harwood
Pacific Corporation, named as additional insureds without restriction.
If Tenant has an umbrella or excess policy, Tenant shall name Landlord
and Landlord's Agent as additional insureds without restriction on all
layers of umbrella or excess policies. Tenant shall obtain a written
obligation on the part of each insurance company to notify Landlord at
least 30 days prior to cancellation of the insurance.
(b) Tenant shall deliver copies of its insurance policies or duly
executed certificates of insurance to Landlord prior to occupying any
part of the Premises. Tenant shall deliver satisfactory evidence of
renewals of the insurance policies to Landlord at least 30 days prior
to the expiration of the respective policies. If Tenant fails to
comply with these insurance requirements, Landlord may obtain the
insurance and Tenant shall pay to Landlord on demand as additional
Rent the premium cost thereof plus interest at the rate of 18 % per
annum from the date of payment by Landlord.
21. Landlord's Insurance.
Landlord shall carry, or cause to be carried: (A) public liability
insurance with limits of liability of not less than $1,000,000.00 for
personal injury or death arising out of any one occurrence; and (B)
insurance for fire, extended coverage, vandalism and malicious
mischief, insuring the Project, including the Premises and all
appurtenances thereto, excluding Tenant's merchandise, trade fixtures,
furnishings, equipment, personal property, and any alterations or
additions made by Tenant. Tenant has no interest in any insurance
policies carried by Landlord.
22. Rights Reserved by Landlord.
Landlord reserves the following rights, exercisable without notice and
without liability to Tenant for damage or injury to property, persons,
or business and without effecting an eviction, constructive or actual,
or disturbance of Tenant's use or possession or giving rise to any
claim for set-off or abatement of Rent:
(a) To change the Building's or the Project's name or street address.
(b) To install, affix, and maintain any signs on the exterior and
interior of the Project.
(c) To designate and approve, prior to installation, all types of
window shades, blinds, drapes, awnings, window ventilators, and
similar equipment, and to control all internal lighting that is
visible from the exterior of the Project.
(d) To designate, restrict, and control all sources within the Project
where Tenant may obtain ice, drinking water, towels, toilet supplies,
catering, food and beverages, and like or other services on the
Premises and, in general, the exclusive right to designate, limit,
restrict, and control any business and any service in or to the
Project and its tenants; provided, however, the same does not
unreasonably interfere with Tenant's ability to conduct its business
in the Premises. Furthermore, Tenant shall have the right to install
vending and ice machines in the Premises for Tenant's use.
(e) To enter upon the Premises at reasonable hours to inspect, clean,
or make repairs or alterations to the Premises (but without any
obligation to do so, except as expressly specified in this Lease), to
make repairs or alterations to any part of the Building or the
Building systems, to show the Premises to prospective lenders,
purchasers, and, during the last 12 months of the Lease Term, to show
the Premises to prospective tenants at reasonable hours and, if the
Premises are vacant, to prepare them for re-occupancy, upon advance
telephonic notice under the circumstances and provided the same does
not unreasonably interfere with Tenant's ability to conduct its
business in the Premises.
(f) To retain at all times, and to use in appropriate instances, keys
to all doors within and into the Premises. No locks may be changed or
added without the prior consent of Landlord.
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(g) To decorate and make repairs, alterations, additions, changes, or
improvements, whether structural or otherwise, in and about the
Project, and for those purposes to enter upon the Premises and, during
the continuance of the work, temporarily close doors, entry ways,
public space, and corridors in the Project, to interrupt or
temporarily suspend Project services and facilities, and to change the
arrangement and location of entrances or passageways, doors and
doorways, corridors, elevators, stairs, toilets, or other public parts
of the Project, all without abatement or setoff of Rent or affecting
any of Tenant's obligations under this Lease, so long as the Premises
are reasonably accessible; provided, however the same does not
unreasonably interfere with Tenant's ability to conduct its business
in the Premises; provided, further, in the event Landlord's actions
prevent Tenant from conducting its business in the Premises for
seventy-two (72) consecutive hours, thereafter all Rent and other
charges under the Lease shall abate until Tenant is able to resume its
operations in the Premises.
(h) To have and retain a paramount title to the Premises and the
Project free and clear of any act of Tenant purporting to burden or
encumber the Premises or the Project.
(i) To grant to anyone the exclusive right to conduct any business or
render any service in or to the Project, provided the exclusive right
does not operate to exclude Tenant from the uses expressly permitted
in this Lease.
(j) To approve the weight, size, and location of safes and other
heavy equipment and articles in and about the Premises and the Project
and to require all those items and furniture and similar items to be
moved into and out of the Project and the Premises only at times and
in a manner specified by Landlord. Movements of Tenant's property into
or out of the Project and within the Project are entirely at the risk
and responsibility of Tenant. To require permits before allowing
Tenant's property to be moved into or out of the Project.
(k) To have access for Landlord and other tenants in the Project to
any mail chutes or other depositories located on the Premises
according to the rules of the United States Postal Service.
(1) To take reasonable measures as Landlord deems advisable for the
security of the Project and its occupants including, without
limitation, the search of all persons entering or leaving the Project,
the evacuation of the Project for cause, suspected cause, or for drill
purposes, the temporary denial of access to the Project, and the
closing of the Project after Building Standard Hours, subject to
Tenant's right to admittance when the Project is closed after Building
Standard Hours under reasonable regulations Landlord may prescribe
from time to time.
(m) To transfer, assign, or convey, in whole or in part, the Project
and Landlord's rights under this Lease. If Landlord transfers,
assigns, or conveys its rights under this Lease, Landlord is released
from any further obligations under this Lease and Tenant shall to look
solely to the successor in interest of Landlord for performance of the
obligations of "Landlord" under this Lease.
23. (Intentionally Deleted).
24. Fire or Other Casualty.
(a) If the Premises or any part thereof are damaged by fire or other
casualty, Tenant shall give prompt notice thereof to Landlord. If the
Project or any Building is so damaged by fire or other casualty that
substantial alteration or reconstruction of the Project or any
Building is, in Landlord's sole opinion, required (whether or not the
Premises are damaged) or if any mortgagee under a mortgage or deed of
trust covering the Project requires that the insurance proceeds
payable as a result of the fire or other casualty be used to retire
the mortgage debt, Landlord may, at its sole option, terminate this
Lease by giving Tenant notice of termination within 60 days after the
date of the damage. If Landlord terminates this Lease under this
Paragraph, the Rent abates as of the date of the damage.
(b) If Landlord does not elect to terminate this Lease, Landlord shall
within 75 days after the date of the damage commence to repair and
restore the Project to the extent of insurance proceeds actually
received (except that Landlord is not responsible for delays outside
its control) to substantially the same condition in which it was
immediately prior to the casualty. Landlord is not required to
rebuild, repair, or replace any part of Tenant's furniture or
furnishings or fixtures and equipment removable by Tenant under the
provisions of this Lease. Except for Landlord's gross negligence or
intentional misconduct, Landlord is not liable for any inconvenience
or annoyance to Tenant or injury to the business of Tenant resulting
in any way from casualty damage or the repairs; provided, during the
time and to the extent the Premises are unfit for occupancy, Landlord
shall, either furnish Tenant with comparable office space at
prevailing market rates or a fair diminution of Rent,
OFFICE LEASE Page 10
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the choice of which is at Landlord's sole discretion. Notwithstanding
anything to the contrary contained herein, in the event Landlord
elects to repair and restore the Project and is unable to complete
such repairs so that the Premises are tenantable within one hundred
eighty (180) days following the issuance of the construction permit,
Tenant shall have a one (1) time right to terminate the Lease by
providing Landlord with notice of termination within twenty (20) days
following such one hundred eighty (180) day period. Landlord shall
proceed diligently and in good faith to obtain all required building
permits and to repair such damage to the Premises following Landlord's
election to rebuild.
(c) If the damages are caused by the negligence or willful misconduct
of any Tenant Party, Rent does not abate and Tenant shall pay to
Landlord on demand as additional Rent any damages in excess of the
amount paid by insurance proceeds received by Landlord. Any insurance
carried by Landlord or Tenant against loss or damage to the Project or
to the Premises is for the sole benefit of the party carrying the
insurance and under its sole control.
25. Condemnation.
(a) If all or substantially all of the Project or any Building is
taken for any public or quasi-public use under any governmental law,
ordinance, or regulation or by right of eminent domain or is sold
under threat of condemnation to the condemning authority in lieu of
condemnation, then this Lease terminates as of the date when title or
physical possession of the portion of the Building or Project,
whichever first occurs, is taken by the condemning authority. If less
than all or substantially all of the Project or any Building is taken
or sold, Landlord (whether or not the Premises are affected) may
terminate this Lease by giving notice to Tenant within 60 days after
the right of election accrues, in which event this Lease terminates as
of the date when title or physical possession of the portion of the
Building and Project, whichever first occurs, is taken by the
condemning authority.
(b) If this Lease is not terminated upon any taking or sale of less
than all or substantially all of the Project:
(1) the Rent reduces by an amount representing that part
of the Rent properly allocable to the portion of the
Premises taken or sold; and
(2) Landlord shall, at Landlord's sole expense, restore
the Project to substantially its former condition to
the extent reasonably deemed feasible by Landlord;
provided Landlord's restoration obligation does not
exceed the scope of the work done by Landlord in
originally constructing the Project and installing
tenant finish improvements in the Premises; and
provided further Landlord is not required to spend
for the work an amount in excess of the amount
received by Landlord as compensation or damages (over
and above amounts going to the mortgagee of the
property taken) for the part of the Project so taken.
(c) Landlord is entitled to receive all of the compensation awarded
upon a taking of any part or all of the Project, including any award
for the value of the unexpired Lease Term. Tenant is not entitled to
and expressly waives all claim to any compensation; provided, Tenant
is entitled to receive any award for damages to Tenant's leasehold
improvements, relocation expense or otherwise, provided the same does
not diminish Landlord's award.
26. Taxes on Tenant's Property.
Tenant shall pay, and indemnify, defend, and hold Landlord harmless
against, all taxes levied or assessed against personal property,
furniture, fixtures, or other improvements placed by or for Tenant in
the Premises or if the assessed value of Landlord's property is
increased by inclusion of personal property, furniture, fixtures, or
other improvements placed by or for Tenant in the Premises and
Landlord elects to pay the increased taxes, Tenant shall pay to
Landlord on demand as additional Rent that part of the taxes for which
Tenant is liable under this Paragraph.
27. Waiver of Subrogation.
Each party waives all claims that arise or may arise in its favor
against the other party, or anyone claiming through or under them, by
way of subrogation or otherwise, during the Lease Term or any
extension or renewal thereof, for all losses of, or damage to, any of
its property (whether or not the loss or damage is caused by the fault
or negligence of the other party or anyone for whom the other party is
responsible), which loss or damage is covered by valid and collectible
fire and extended coverage insurance policies, to the extent that the
loss or damage is recovered under the insurance policies. These
waivers are in addition to, and not in limitation of, any other waiver
or release in this Lease with respect to any loss or damage to
property of the parties. Since these mutual waivers preclude the
assignment of any claim by way of subrogation (or otherwise) to an
insurance company (or any other person), each party shall immediately
give each insurance company issuing to it policies of fire and
extended coverage
OFFICE LEASE Page 11
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insurance written notice of the terms of these mutual waivers, and
have the insurance policies properly endorsed, if necessary, to
prevent the invalidation of the insurance coverages by reason of these
waivers.
28. Surrender Upon Termination or Expiration; Holdover.
(a) Upon the Expiration Date or any earlier termination of this Lease,
Tenant shall: (1) surrender to Landlord possession of the Premises in
good repair and condition, reasonable wear and tear and damages or
destruction by any condemnation or casualty (unless caused by Tenant)
excepted, and (2) deliver to Landlord all keys to the Premises and all
parking access cards. If Tenant does not immediately surrender
possession, Landlord may enter upon and take possession of the
Premises and expel or remove Tenant and any other person who may be
occupying the Premises, or any part thereof, by force if necessary,
without having any civil or criminal liability therefor.
(b) If Tenant or any of its successors in interest continues to hold
any part of the Premises after the termination of this Lease, the
holding over is a tenancy from month-to-month at a monthly rental
equal to 150 % of the monthly Base Rent payable at the time of
termination, plus the payment of all other Rent payable under this
Lease. While Tenant or its successor continues to hold the Premises
after the termination of this Lease, the month-to-month tenancy is
subject to all terms of this Lease; provided, all expansion rights,
rights of first refusal, first notice, and first offer, and all
extension rights automatically terminate.
(c) No payments of money by Tenant to Landlord after the termination
of this Lease reinstate, continue, or extend the Lease Term and no
extension of this Lease after the termination or expiration thereof is
valid unless it is reduced to writing and signed by Landlord and
Tenant. Nothing in this Paragraph may be construed to give Tenant the
right to hold over beyond the Expiration Date or any earlier
termination of this Lease or preclude Landlord from having the right
to dispossess or otherwise terminate Tenant's right of possession.
Any month-to-month tenancy is terminable at any time upon 30 days
notice from Landlord.
29. Tenant's Property.
(a) All furniture, movable trade fixtures, and equipment installed by
Tenant remains the property of Tenant and must be removed by Tenant at
the termination of this Lease. Any removal of Tenant's property must
be accomplished in a good and workmanlike manner so as not to damage
the Premises or the Project. Tenant, or Landlord at Tenant's expense,
shall repair any damage to the Premises or the Project caused by any
removal. All furniture, movable trade fixtures, and equipment
installed by Tenant not removed within 15 days after termination of
the Lease are conclusively presumed to be abandoned by Tenant.
(b) Upon request of Landlord, Tenant shall also remove, at Tenant's
sole cost, any improvements installed by Tenant without the consent of
Landlord.
30. Events of Default.
The following are events of default ("EVENTS OF DEFAULT") by Tenant
under this Lease:
(a) Tenant fails to pay any Rent when due and the failure continues
[after notice from Landlord] for a period of ten (10) days, provided
Landlord has no obligation to give notice of the failure to pay Rent
more than two (2) times in any twelve (12) month period.
(b) Tenant fails to comply with any of the terms of this Lease, other
than the payment of Rent, and does not cure or commence to cure and
diligently pursue the same to completion within thirty (30) days after
Landlord delivers notice of the failure to Tenant.
(c) Tenant or Guarantor becomes insolvent, makes a transfer in fraud
of creditors, commits any act of bankruptcy, makes an assignment for
the benefit of creditors, or admits in writing its inability to pay
its debts as they become due.
(d) Tenant or Guarantor files a petition under any section or chapter
of the Bankruptcy Code of the United States, as amended, or under any
similar law or statute of the United States or any state thereof, or
Tenant or Guarantor is adjudged
OFFICE LEASE Page 12
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bankrupt or insolvent in proceedings filed against Tenant or
Guarantor, or a petition or answer proposing the adjudication of
Tenant or Guarantor as a bankrupt or its reorganization under any
present or future federal or state bankruptcy or similar law is filed
in any court and the petition or answer is not discharged or denied
within 120 days after filing.
(e) A receiver or trustee is appointed for all or substantially all of
the assets of Tenant or Guarantor or of the Premises or of any of
Tenant's property located therein in any proceeding brought by Tenant
or Guarantor, or any receiver or trustee is appointed in any
proceeding brought against Tenant or Guarantor and is not discharged
within 60 days after appointment or Tenant or Guarantor shall consent
to or acquiesce in the appointment.
(f) Tenant, if a natural person, dies or becomes incapacitated or, if
Tenant is not a natural person, Tenant is dissolved or ceases to
exist.
(g) Tenant's leasehold estate is taken on execution or other process
of law in any action against Tenant.
(h) Tenant fails to possess the Premises within thirty (30) days of
the Ready for Occupancy Date (provided no Rent abatement shall occur),
or thereafter abandons or vacates any portion of the Premises, or
ceases to use the Premises for the Permitted Use or takes any action,
as determined by Landlord, which evidences an intent to abandon or
vacate the Premises.
31. Landlord's Remedies.
If an Event of Default occurs, Landlord may then or any time
thereafter while the Event of Default continues pursue any one or more
of the following remedies:
(a) Terminate this Lease by giving notice to Tenant, in which event
Tenant shall immediately surrender the Premises to Landlord. If Tenant
fails to surrender the Premises, Landlord may, without prejudice to
any other remedy, take possession of the Premises and expel or remove
Tenant and any other person occupying the Premises, or any part
thereof, without being liable for prosecution or any claim of damages.
Tenant shall pay to Landlord on demand as additional Rent the amount
of all loss and damage Landlord suffers by reason of the termination,
whether through inability to re-let the Premises on satisfactory terms
or otherwise. Without limiting the generality of the foregoing, Tenant
shall pay to Landlord on demand the sum of (x) all Rent accrued
hereunder through the date of termination, (y) an amount equal to the
total Rent that Tenant would have been required to pay for the
remainder of the Lease Term discounted to present value at a per annum
rate equal to the discount rate of the Federal Reserve Bank of Dallas
plus one percent (1%), and (z) the amount of all other loss and damage
Landlord suffers by reason of the termination, reduced by the then
present fair rental value of the Premises for such period, similarly
discounted. Landlord has no duty to re-let the Premises. Landlord's
damages specifically include, but are not limited to: (1) all
reasonable expenses necessary to re-let the Premises including the
cost of renovating, repairing, and altering the Premises for a new
tenant or tenants (not to exceed building standard), advertisements,
and brokerage fees; and (2) any increase in insurance premiums caused
by the vacancy of the Premises. Nothing in this Lease limits
Landlord's right to prove and obtain in bankruptcy or insolvency
proceedings damages by reason of the termination of this Lease in an
amount equal to the maximum allowed by any statute or rule of law in
effect at the time when the damages are to be proved, whether or not
the amount is greater, equal to, or less than the amount of the loss
or damages referred to above.
(b) Take possession of the Premises and remove Tenant or any other
person occupying the Premises, or any part thereof, without having any
civil or criminal liability and without terminating this Lease.
Landlord may (but is under no obligation to) re-let the Premises or
any part thereof for the account of Tenant and on conditions and for
uses as Landlord in its sole discretion may determine. Landlord may
collect and receive any rents payable by reason of any re-letting.
Tenant will be liable for all Rent accrued hereunder through the date
Landlord takes possession and all Rent and other sums required to be
paid by Tenant during the remainder of the Lease Term, reduced by any
net sums thereafter received by Landlord through reletting the
Premises during such period. Actions to collect the amount due by
Tenant under the preceding sentence may be brought from time to time
by Landlord, on one or more occasions, without the necessity of
Landlord's waiting until the expiration of the Lease Term; Landlord
may also elect to accelerate the amount due by Tenant under the
preceding sentence, with the amount due by Tenant discounted to
present value using the method provided in subparagraph (a), reduced
by the then present fair rental value of the Premises for such period,
similarly discounted. Tenant shall pay Landlord on demand as
additional Rent all reasonable expenses necessary to re-let the
Premises, which includes the cost of renovating, repairing, and
altering the Premises for a new tenant or tenants, advertisements, and
brokerage fees, as well as any deficiency that may arise by reason of
the re-letting. Landlord is not liable for any failure to re-let the
Premises or any part thereof or for any failure to collect any Rent
due upon any re-letting. No taking of possession of the Premises by
Landlord is an election on Landlord's part to terminate this Lease
unless a notice of termination is given to Tenant under subparagraph
(a).
OFFICE LEASE Page 13
<PAGE> 18
(c) Enter upon the Premises without having any civil or criminal
liability and do whatever Tenant is obligated to do under the terms of
this Lease. Tenant shall reimburse Landlord on demand as additional
Rent for any expenses Landlord incurs in performing Tenant's
obligations under this Lease, together with interest at the rate of
18% per annum from the date incurred until repaid by Tenant. Landlord
is not liable for any damages resulting to Tenant from Landlord's
actions or omissions in performing Tenant's obligations, whether
caused by the negligence of Landlord or otherwise, but excepting the
gross negligence or intentional misconduct of Landlord.
(d) Landlord may, without further notice of any kind to Tenant,
interrupt or cause the interruption of any utility service serving the
Premises, remove, alter, or change any door, window, attic hatchway
cover to the Premises, or any lock, latch, hinge, hinge pin, doorknob,
or other mechanism connected to any door, window, or attic hatchway
cover to the Premises, and intentionally prevent Tenant from entering
the Premises, as permitted by applicable law. Landlord is under no
obligation to restore any door, window, or attic hatchway cover or any
lock, latch, hinge, hinge pin, doorknob, or other mechanism attached
thereto or to deliver or make available to Tenant any key to any door,
window, or attic hatchway cover until Tenant fully cures all Events of
Default then existing under this Lease.
No repossession of or re-entering all or any part of the Premises
under subparagraphs (b), (c), or (d) above or otherwise and no re-
letting of the Premises or any part thereof under subparagraph (b)
relieves Tenant or Guarantor of any liabilities or obligations under
this Lease, all of which survive repossession or re-entering by
Landlord. If Landlord repossesses or re-enters all or any part of the
Premises after an Event of Default, Tenant shall pay to Landlord the
Rent required to be paid by Tenant. No right or remedy of Landlord
under this Lease is intended to be exclusive of any other right or
remedy. Each right and remedy of Landlord is cumulative and all other
rights or remedies under this Lease or now or hereafter existing at
law, in equity or by statute. In addition to other remedies provided
in this Lease, Landlord is entitled, to the extent permitted by
applicable law, to injunctive relief in case of the violation, or
attempted or threatened violation, of any of the terms of this Lease,
or to a decree compelling specific performance of the terms of this
Lease.
32. No Implied Waiver.
The failure of Landlord or Tenant to insist at any time upon the
strict performance of any of the terms of this Lease or to exercise
any option, right, power, or remedy contained in this Lease is not a
waiver of the right or remedy for the future. The waiver of any breach
of this Lease or violation of the Rules and Regulations attached to
this Lease does not prevent a subsequent act, which would have
originally constituted a breach or violation, from having all the
force and effect of an original breach or violation. Acceptance by
Landlord of any Rent after the breach of any of the terms of this
Lease or violation of any Rule or Regulation is not a waiver of the
breach or violation, and no waiver by Landlord of any of the terms of
this Lease is effective unless expressed in writing and signed by
Landlord.
33. Waiver by Tenant.
Tenant waives and surrenders for itself and all persons or entities
claiming by, through, and under it, including creditors of all kinds:
(A) any right and privilege which it or any of them has under any
present or future constitution, statute, or rule of law to redeem the
Premises or to have a continuance of this Lease for the Lease Term
after termination of Tenant's right of occupancy by order or judgment
of any court or by any legal process or writ, or under the terms of
this Lease, (B) the benefits of any present or future constitution,
statute, or rule of law that exempts property from liability for debt
or for unpaid Rent, (C) any provision of law relating to notice or
delay in levy of execution in case of eviction of a tenant for
nonpayment of Rent, and (D) any rights, privileges, and liens set out
under Section 91.004 of the Texas Property Code (as amended), and
Tenant exempts Landlord from any liability or duty thereunder.
34. Landlord's Lien.
To secure payment of all Rent and any damages or losses Landlord
suffers by reason of the breach by Tenant of this Lease, Tenant grants
to Landlord a security interest in, and an express contractual lien
on, all goods, wares, equipment, fixtures, furniture, improvements,
and other personal property of Tenant presently or hereafter situated
in the Premises and the Project (except parts of the property
exchanged, replaced, or sold from time to time in the ordinary course
of Tenant's operations) and all proceeds therefrom. The property may
not be removed from the Premises or the Project without the consent of
Landlord until all arrearages in Rent are paid and any other defaults
cured by Tenant. This security interest is governed by Article 9 of
the Texas Business & Commerce Code (the "CODE"). Upon request by
Landlord, Tenant shall execute and deliver to Landlord a financing
statement in form sufficient to perfect the security interest of
Landlord in the property and proceeds under the provisions of the
Code. The security interest granted in this Paragraph is in addition
to Landlord's
OFFICE LEASE Page 14
<PAGE> 19
statutory and constitutional liens. Landlord agrees to subordinate the
lien created hereunder to a valid, bona-fide third party equipment
lease, purchase money security interest or a loan from a commercial
bank secured by such property.
35. Attorneys' Fees and Legal Expenses.
If either party files litigation concerning the interpretation or
enforcement of this Lease, the prevailing party is entitled to recover
from the losing party the prevailing party's reasonable attorneys'
fees, court costs, and expenses, whether at the trial or appellate
level.
36. Subordination.
(a) This Lease and all rights of Tenant under this Lease are subject
and subordinate to any mortgage or deed of trust secured by a first
lien against the Project, all increases, renewals, modifications,
consolidations, replacements, and extensions of any first lien
mortgage or deed of trust and all leases, restrictions, easements, and
encumbrances recorded in the Real Property Records of Dallas County,
Texas, to the extent they validly affect the Project. Tenant shall,
upon demand at any time or times, execute, acknowledge, and deliver to
Landlord, or to Landlord's first mortgagee, any instruments that may
be necessary or proper to more effectively effect or evidence this
subordination to any first mortgage or first deed of trust.
(b) If any first mortgage or first deed of trust against the Project
is foreclosed, Tenant shall, upon request by the purchaser at the
foreclosure sale attorn to the purchaser and recognize the purchaser
as "Landlord" under this Lease and execute, acknowledge, and deliver
to the purchaser an instrument in appropriate form acknowledging the
attornment.
(c) Tenant waives the provisions of any statute or rule of law, now or
hereafter in effect, that may give or purport to give Tenant any right
or election to terminate or otherwise adversely affect this Lease and
the obligations of Tenant under this Lease if any foreclosure sale
occurs. This Lease is not affected in any way whatsoever by any
foreclosure sale unless the holder(s) of the indebtedness or other
obligations secured by the mortgages or deeds of trust declare
otherwise.
37. Quiet Enjoyment.
If Tenant pays the Rent when due and performs all other obligations of
Tenant under this Lease, then Tenant may peaceably and quietly enjoy
the Premises during the Lease Term without any disturbance from
Landlord or from any other person claiming by, through, or under
Landlord, but not otherwise, subject to the terms of this Lease and of
the deeds of trust, mortgages, ground leases, ordinances, leases,
utility easements, and agreements to which this Lease is subordinate.
38. Notice to Landlord.
If any act or omission by Landlord occurs that would give Tenant the
right to damages from Landlord or the right to terminate this Lease
due to constructive or actual eviction from all or part of the
Premises or otherwise, Tenant may not sue for damages or exercise any
right to terminate until (A) it gives notice of the act or omission to
Landlord and Landlord's first mortgagee, if any, and (B) a reasonable
period of time for remedying the act or omission elapses following the
giving of the notice, during which time Landlord, its agents,
employees, and first mortgagee are entitled to enter the Premises and
cure the act or omission. During the period after the giving of the
notice and during the curing of the act or omission, the Rent payable
by Tenant abates only to the extent that any part of the Premises is
untenantable.
39. Rules and Regulations.
All Tenant Parties must comply with the Rules and Regulations (as
changed from time to time as hereinafter provided) attached as EXHIBIT
D which shall be consistently applied to all tenants. Landlord may at
any time change the Rules and Regulations or promulgate other Rules
and Regulations as Landlord deems advisable for the safety, care,
cleanliness, or orderliness of the Project. No changes are effective
until a copy of the changes is delivered to Tenant. Tenant is
responsible for the compliance with the Rules and Regulations by all
Tenant Parties. Landlord shall use reasonable efforts to enforce
compliance by all other tenants with the Rules and Regulations from
time to time in effect, but Landlord is not responsible to Tenant for
failure of any person to comply with the Rules and Regulations.
OFFICE LEASE Page 15
<PAGE> 20
40. Estoppel Certificate.
Tenant shall, from time to time upon not less than 15 days' prior
notice by Landlord, execute, acknowledge, and deliver to Landlord an
Estoppel Certificate in substantially the form attached as EXHIBIT F.
41. Notices.
All notices, requests, approvals, and other communications required or
permitted to be delivered under this Lease must be in writing and are
effective on the business day sent if delivered by telecopier or
facsimile; or 3 days after being deposited in the United States mail,
certified, return receipt requested, postage prepaid; or upon receipt
if delivered personally or by any method other than by telecopier
(with written confirmation) or mail, in each instance addressed to
Landlord or Tenant, as the case may be, at the address specified in
Paragraph I of this Lease, or to any other address either party may
designate by 10 days' prior notice to the other party.
42. Hazardous Materials.
(a) Tenant may not cause or permit the escape, disposal, or release in
the Premises or the Project of any biologically active, chemically
active, or hazardous substances or materials (collectively, "HAZARDOUS
SUBSTANCES") or bring, or permit any other Tenant Party to bring, any
hazardous substances into the Premises or the Project. The term
HAZARDOUS SUBSTANCES includes, but is not limited to, those described
in the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et
seq., the Texas Water Code, the Texas Solid Waste Disposal Act, and
other applicable state or local environmental laws and the regulations
adopted under those acts.
(b) If any lender or governmental agency requires testing to ascertain
whether or not a release of hazardous substances has occurred in or on
the Premises or the Project based on probable cause that a release
occurred and was caused by any Tenant Party, then Tenant shall
reimburse the reasonable costs of the testing to Landlord on demand as
additional Rent if it is determined that any Tenant Party caused such
release of the hazardous substance. Tenant shall execute affidavits,
representations, and the like from time to time at Landlord's request
concerning Tenant's best knowledge and belief regarding the presence
of hazardous substances in the Premises and the Project. Tenant shall
indemnify Landlord in the manner elsewhere provided in this Lease from
any release of hazardous substances in or on the Premises or the
Project caused by any Tenant Party. These covenants survive the
expiration or earlier termination of this Lease.
(c) To Landlord's actual current knowledge, without independent
investigation or inquiry, as of the date of this Lease, Landlord has
complied with all environmental laws with respect to the Premises and
the Project.
43. Business Purpose.
Tenant represents that this Lease is executed by Tenant, and all
obligations of Tenant arising out of this Lease are, primarily for
business or commercial purposes and not for personal, family, or
household purposes.
44. Severability.
Each of the terms of this Lease is, and must be construed to be,
separate and independent. If any of the terms of this Lease or its
application to any person or circumstances is to any extent invalid
and unenforceable, the remainder of this Lease, or the application of
that term to persons or circumstances other than those as to which it
is invalid or unenforceable, are not affected thereby.
45. No Merger.
The fact that the same person may acquire or hold, directly or
indirectly, this Lease or the leasehold estate hereby created or any
interest in this Lease or in the leasehold estate as well as the fee
estate in the Premises or any interest in the fee estate does not
cause a merger of this Lease or of the leasehold estate hereby created
with the fee estate in the Premises.
OFFICE LEASE Page 16
<PAGE> 21
46. Force Majeure.
When this Lease prescribes a period of time for action to be taken by
either Landlord or Tenant, such party shall not be lia- ble or
responsible for, and there shall be excluded from the computation for
the period of time, any delays due to strikes, acts of God, shortages
of labor or materials, war, governmental laws, regulations,
restrictions, or any other cause of any kind that is beyond the
control of such party.
47. Brokerage.
Landlord and Tenant each warrant that it has had no dealings with any
broker or agent in connection with the negotiation or execution of
this Lease other than Tenant's Broker and Landlord's Agent
(collectively, "BROKERS"). Landlord and Tenant shall each indemnify,
defend, and hold the other harmless against all costs, expenses,
attorneys' fees, or other liability for commissions or other
compensation or charges claimed by any broker or agent other than
Brokers claiming by, through, or under such party with respect to this
Lease or any renewal or extension or with respect to any expansion of
the Premises. Any brokerage commissions payable to Brokers are payable
by Landlord pursuant to the terms of separate agreements between
Landlord and Brokers.
48. Gender.
Words of any gender used in this Lease include any other gender and
words in the singular number include the plural, unless the context
otherwise requires.
49. Joint and Several Liability.
If there is more than one Tenant, the obligations imposed upon Tenant
under this Lease are joint and several.
50. No Representations.
Landlord or Landlord's agents made no representations or promises with
respect to the Premises or the Project except as expressly set forth
in this Lease. No rights, easements, or licenses are acquired by
Tenant by implication or otherwise except as expressly set forth in
this Lease.
51. Entire Agreement; Amendments.
This Lease is the entire agreement between the parties. All
negotiations, considerations, representations, and understandings
between Landlord and Tenant are incorporated in this Lease. No act or
omission of any employee or agent of Landlord or of Landlord's Broker
may alter, change, or modify any of the terms of this Lease. No
amendment or modification of this Lease is binding unless expressed in
a written instrument executed by Landlord and Tenant.
52. Paragraph Headings.
The paragraph headings in this Lease are for convenience only and in
no way enlarge or limit the scope or meaning of the paragraphs in this
Lease.
53. Binding Effect.
All terms of this Lease are binding upon the respective heirs,
personal representatives, successors, and, to the extent assignment is
permitted, assigns of Landlord and Tenant.
54. Exhibits.
The following exhibits are attached to and made a part of this Lease:
EXHIBIT A Land, B Premises, C Tenant Finish Construction, D Project
Rules and Regulations, E Contractor Insurance Requirements, F Right
of First Notice and Certificate of Ready for Occupancy Date.
OFFICE LEASE Page 17
<PAGE> 22
55. Counterparts.
This Lease may be executed in two or more counterparts, each of which
is deemed an original and all of which together constitute one and the
same instrument.
56. Tenant's Service Providers.
Tenant shall cause all moving companies and other entities providing
services to Tenant in the Premises to deliver evidence satisfactory to
Landlord that the insurance specified in EXHIBIT E is in force prior
to entering the Project.
57. Rate of Interest.
It is agreed that all interest chargeable under this Lease shall under
no circumstances exceed the maximum amount of interest permitted by
applicable law. If the rate of interest specified in this Lease shall
ever be greater than the maximum amount of interest permitted by
applicable law, then the rate of interest chargeable under this Lease
shall be the maximum amount of interest permitted by applicable law.
58. Right of First Notice.
(a) If during the initial Lease Term the space described on EXHIBIT F
attached to this Lease (the FIRST NOTICE SPACE) is available for lease
and Landlord receives an expression of interest in the First Notice
Space from a prospective tenant, Landlord shall deliver a notice to
Tenant offering to lease the First Notice Space to Tenant. Landlord's
notice must specify the First Notice Rate (defined below). The term
AVAILABLE FOR LEASE means that the First Notice Space is not then
subject to any existing rights of third parties, including, without
limitation, rights of first notice, expansion rights, extension
rights, options to lease, or other rights.
(b) Tenant may elect to lease the First Notice Space by delivering a
notice (the RESPONSE NOTICE) to Landlord within 5 days after the date
of Landlord's notice specifying that Tenant elects either (1) to lease
all, but not less than all, of the First Notice Space or (2) to
decline to lease the First Notice Space.
(c) If (1) Landlord does not receive the Response Notice within the
5-day period or (2) in the Response Notice Tenant does not elect to
lease all of the First Notice Space, Tenant is deemed to waive its
right to lease the First Notice Space and Tenant has no further rights
to the First Notice until the same becomes available for lease.
(d) If Tenant timely delivers a Response Notice electing to lease all
of the First Notice Space, Tenant's lease of the First Notice Space
commences 30 days after Landlord's receipt of the Response Notice
(unless Landlord and Tenant agree on a different commencement date)
and is on the same terms as this Lease except that the Rent and other
applicable terms for the First Notice Space adjust based on the First
Notice Rate. Landlord shall prepare, and Landlord and Tenant will
execute and deliver, within 10 days after Landlord's receipt of the
Response Notice, an amendment to the Lease adding the First Notice
Space to the Premises upon the terms specified in this Paragraph.
(e) Landlord is not obligated to offer the First Notice Space to
Tenant, and Tenant may not exercise its option to lease the First
Notice Space, if at the time Landlord would otherwise be obligated to
give the Notice to Tenant, Tenant is in default under this Lease or
has previously been a default under this Lease two (2) or more times.
(f) The term FIRST NOTICE RATE means the Base Rent, parking,
refurbishment allowance, brokerage commissions and other inducements
that Landlord quotes for the First Notice Space for a term equal to
the remainder of the Lease Term, as determined by Landlord in its sole
discretion. Notwithstanding the forgoing, if the First Notice Space
becomes available for lease and Tenant executes a lease amendment for
the same within twelve (12) months following the date of this Lease,
the First Notice Rate shall be equal to the Annual Base Rental, as set
forth the schedule in Paragraph 1 hereof.
(g) Tenant may not assign this option to lease the First Notice Space
to any assignee of the Lease, nor may any sublessee or assignee
exercise this option.
OFFICE LEASE Page 18
<PAGE> 23
59. Signage.
Notwithstanding anything to the contrary contained herein, Tenant
shall have a limited right to exterior monument signage in an area to
be designated by Landlord ("Signage"), subject to Landlord's approval,
in its sole discretion, as to design, location, and installation of
such Signage. Tenant shall have a one time right to placement of the
Signage, at Tenant's sole cost and expense and in compliance with all
applicable laws and ordinances, at the commencement of the Term
provided Tenant has given Landlord 30 days advance written notice
requesting the Signage. Following Tenant's notice to Landlord, Tenant
shall submit plans and specifications to Landlord detailing the design
and installation of the Signage for Landlord's approval. Following
Landlord's approval, Tenant shall obtain all necessary approvals and
permits in compliance with all applicable laws. Tenant shall install
the Signage using a contractor acceptable to Landlord. Tenant shall
maintain the Signage subject to Landlord's reasonable requirements at
Tenant's sole cost and expense and shall be responsible for the cost
of removing the same upon the expiration or earlier termination of the
Lease.
60. Execution and Approval of Lease.
Employees and agents of Landlord and of Landlord's Broker have no
authority to make or agree to make a lease or any other agreement or
undertaking in connection herewith. The submission of this Lease for
examination and negotiation is not an offer to lease, agreement to
reserve, or option to lease the Premises. This Lease is effective and
binding on Landlord only upon the execution and delivery of this Lease
by Landlord and Tenant. If Landlord's first mortgagee requires any
modifications of the terms of this Lease as a condition to approving
this Lease, other than a modification of the Base Rent, Tenant shall
execute and deliver any required modifications within 10 days after
receipt of Landlord's demand.
61. Cabling Allowance.
Tenant shall receive up to $1.00 per rentable square foot for computer
and telephone cabling. Any amount not used for cabling will not be
paid to Tenant.
62. Rental Abatement.
Landlord grants Tenant four (4) months of rental abatement to offset
their relocation costs.
63. Security System Installation.
Tenant shall have the right to install their own security system at
their own expense but Tenant shall be allowed to tie it into the
existing building security system.
This Lease is executed in multiple originals as of the date
first above set forth.
LANDLORD:
TGALMA Limited,
a Texas Limited Partnership
By: Harwood Pacific Corporation,
its Authorized Agent
By: /s/ DOUG WALKER
---------------------------
Name: Doug Walker
Title: General Manager, Harwood
Pacific Corporation
TENANT:
Credentials Services International, Inc.,
a California Corporation
By: /s/ NICK REES
-------------------------------------
Name: Nick Rees
Title: President
OFFICE LEASE Page 19
<PAGE> 24
EXHIBIT A
to Office Lease by and between
TGALMA Limited, a Texas Limited Partnership, as Landlord
and
Credentials Services International, Inc., a California Corporation, as Tenant
THE LAND
(LAND DESCRIPTION IS ATTACHED AS PAGE 2 OF 2)
OFFICE LEASE
EXHIBIT A Page 1 of 1 /S/DW/JNR
<PAGE> 25
EXHIBIT A
LEGAL DESCRIPTION
THE LAND REFERRED TO HEREIN IS SITUATED IN THE COUNTY OF COLLIN. STATE OF
TEXAS, AND IS DESCRIBED AS FOLLOWS:
TRACT 1:
BEING ALL OF LOT 1 in BLOCK I of HARRINGTON CENTER, an Addition to the City of
Plano, Texas, according to the Map thereof recorded in Volume C, Page 315, of
the Map Records of Collin County, Texas, situated in the Joseph Klepper Survey,
Abstract No. 213, in the City of Plano, Collin County, Texas, said tract being a
part of a 20.038 acre tract of land described in a deed from Bernice S.
Underwood, et al., to Andrew G. Fenney, et al., recorded in Volume 873, Page
500, of the Deed Records, Collin County, Texas; said tract being more
particularly described as follows:
COMMENCING at a point on the new East line of Alma Drive (100' R.O.W.), said
point being 50.00 feet East of the centerline and being 331.95 feet west of the
Northwest corner of Stone Pony Apartments Volume 8, Page 5, Plat Records,
Collin County);
THENCE, North 00 degrees 11 minutes 44 seconds West, along the East line of
Alma Drive, a distance of 36.67 feet to the POINT OF BEGINNING;
THENCE, North 00 degrees 11 minutes 44 seconds West, along the East line of
Alma Drive, a distance of 280.00 feet to a point for corner;
THENCE, North 90 degrees 00 minutes 00 seconds East, a distance of 399.38 feet
to a point for corner;
THENCE, South 00 degrees 00 minutes 00 seconds East, a distance of 292.00 feet
to a point for corner;
THENCE, South 90 degrees 00 minutes 00 seconds West, a distance of 345.78 feet
to a point for corner;
THENCE, North 77 degrees 09 minutes 38 seconds West, a distance of 54.00 feet to
a POINT OF BEGINNING AND CONTAINING 116,158 square feet or 2.666 acres of land,
more or less.
/s/ DW/JNR
<PAGE> 26
EXHIBIT B
to Office Lease by and between
TGALMA Limited, a Texas Limited Partnership, as Landlord
and
Credentials Services International, Inc., a California Corporation, as Tenant
(FLOOR PLAN OF THE PREMISES IS ATTACHED AS EXHIBIT B AS PAGE 2 OF 2)
OFFICE LEASE /s/ DW/JNR
EXHIBIT B Page 1 of 1
<PAGE> 27
EXHIBIT B
THE PREMISES
[floor plan]
/s/DW/JNR
<PAGE> 28
EXHIBIT C
to Office Lease by and between
TGALMA Limited, a Texas Limited Partnership, as Landlord,
and
Credentials Services International, Inc., a California Corporation, as Tenant
TENANT FINISH CONSTRUCTION
A. LANDLORD WORK: Landlord shall construct or cause to be constructed the
following work ("Landlord Work") according to the pricing plan
attached hereto and incorporated herein as Schedule C-1 (the
"Construction Documents"). All Landlord Work performed under the
Pricing Plan and/or Construction Documents shall be at building
standard. Tenant shall be obligated for any Additional Work, as
provided below.
B. PLANS AND SPECIFICATIONS: Tenant shall submit to Landlord, within 5
days after the date of this Lease, space plan(s) and other information
(collectively the Space Plan) necessary or required by Landlord to
complete the initial plans and specifications (the Initial
Construction Documents) for the construction of the Landlord Work in
the Premises [pursuant to the Pricing Plan and/or Construction
Documents]. Landlord shall prepare and submit the Initial Construction
Documents to Tenant for Tenant's approval as soon as practical after
receiving the Space Plan.
Within 5 days after receipt of the Initial Construction
Documents, Tenant shall deliver to Landlord a notice either approving
or disapproving them. Any disapproval must specify in reasonable
detail the reasons for the disapproval. If Tenant requests any changes
in the Initial Construction Documents that vary from the Pricing
and/or Plan, any redrawing is at Tenant's expense. If Landlord does
not receive a notice from Tenant disapproving the Initial Construction
Documents within the 5-day period, Tenant is deemed to approve the
Initial Construction Documents. Any redrawing of or changes in the
Initial Construction Documents requested by Tenant after Tenant's
initial approval is at Tenant's expense.
If the Initial Construction Documents have not been approved
by Landlord and Tenant within 30 days after the date of this Lease,
Landlord may terminate this Lease by giving notice to Tenant.
The approved Initial Construction Documents are referred to as
the Construction Documents and all work to be performed by Landlord
pursuant to the Construction Documents is referred to as the Tenant
Finish Work.
C. ADDITIONAL WORK: If Landlord performs, at Tenant's request and upon
submission by Tenant and approval by Landlord of necessary plans and
specifications (as approved, the Additional Work Plans), any work over
and above the Landlord Work and/or the Tenant Finish Work (Additional
Work), including any Additional Work approved by change order or work
order, the Additional Work is at Tenant's expense, regardless of any
remaining balance of the Work Allowance. Landlord is not obligated to
perform any Additional Work until Tenant pays Landlord the Actual Cost
of the Additional Work, as estimated by Landlord. If the Actual Cost
of the Additional Work exceeds the estimated amount paid by Tenant,
Tenant shall pay the excess to Landlord.
The Additional Work is not part of the Tenant Finish Work. If
Landlord agrees to perform any Additional Work, Landlord shall request
that its contractor estimate the additional amount of time that will
be added to the completion of the Tenant Finish Work because of the
Additional Work (the Additional Work Period). This estimate is
conclusive and binding on Landlord and Tenant for the purpose of
establishing the Ready for Occupancy Date.
D. DELAYS: If Landlord is delayed in substantially completing the Tenant
Finish Work or any Additional Work as a result of:
(1) Tenant's failure to promptly and timely furnish any information
required by Landlord;
Page l of 2
OFFICE LEASE /s/DW/JNR
EXHIBIT C
<PAGE> 29
(2) Tenant's delay in approving the Construction Documents or in
submitting any Additional Work Plans or in modifying the Additional
Work Plans as required by Landlord;
(3) Tenant's request for materials, finishes, or installations other
than Landlord's Building standard items or long lead items;
(4) Tenant's changes in the Construction Documents or any Additional
Work Plans; or
(5) interference with Landlord's work by any Tenant Party;
then the Ready for Occupancy Date is accelerated by the number of days
of Tenant delays.
E. EARLY ENTRY: Upon request by Tenant, Landlord shall permit Tenant and
its contractors to enter the Premises prior to the Ready for Occupancy
Date, in order that Tenant may perform through its own contractor(s)
(who must be approved by Landlord) other work and decorations Tenant
wants in the Premises while Landlord's contractors are working. This
license to enter prior to the Ready for Occupancy Date is subject to
the following conditions:
(1) Tenant's contractor(s) must work in harmony and not interfere
with Landlord's contractors and subcontractors; and
(2) Tenant must deliver evidence to Landlord of compliance with the
requirements of EXHIBIT E prior to commencement of the work by
Tenant's contractor(s).
Landlord may revoke this license upon 48 hours' notice to
Tenant if the entry causes disharmony or interference with the Tenant
Finish Work.
Landlord is not liable in any way for any injury, loss, or
damage that occurs to any of Tenant's decorations or installations
made prior to the Ready for Occupancy Date, the entry being solely at
Tenant's risk. Tenant shall indemnify, defend, and hold Landlord
harmless from any claims, demands, actions, losses, and damages
arising from activities of Tenant's contractors, workers, and
mechanics.
F. PAYMENTS BY TENANT: Any and all amounts payable by Tenant under this
EXHIBIT C are payable to Landlord as additional Rent within 10 days
after Tenant's receipt of Landlord's demand.
OFFICE LEASE
EXHIBIT C Page 2 of 2 /s/DW/JNR
<PAGE> 30
EXHIBIT D
to Office Lease by and between
TGALMA Limited, a Texas Limited Partnership, as Landlord,
and
Credentials Services International, Inc., a California Corporation, as Tenant
RULES AND REGULATIONS
1. Tenant's use and occupancy of the Premises shall be subject to the
following:
(a) Tenant may not deface or injure the Premises or the Project or any
part thereof or overload the floors of the Premises. Tenant may not
commit waste or permit waste to be committed or cause or permit any
nuisance on or in the Premises or the Project. Tenant shall pay
Landlord on demand as additional Rent for any damage to the Premises
or to any other part of the Project caused by any negligence or
willful act or any misuse or abuse (whether or not the misuse or abuse
results from negligence or willful acts) by Tenant or any Tenant Party
or any other person (except Landlord or any of its agents, employees,
or contractors) not prohibited by Tenant from entering upon the
Premises.
(b) Tenant may not use or allow the Premises to be used for any
purpose prohibited by any Applicable Law, or by any restrictive
covenants applicable to the Project. Tenant shall conduct its business
and occupy the Premises and control all Tenant Parties so as not to
create any nuisance or interfere with, annoy, or disturb any other
tenants in the Project or Landlord in its management of the Project
and so as not to injure the reputation of the Project.
(c) Tenant may not erect, place, or allow to be placed any sign,
advertising matter, stand, booth, or showcase in or upon the
doorsteps, vestibules, halls, corridors, doors, walls, windows, or
pavement of the Project (except for lettering on the door or doors to
the Premises as allowed by the Rules and Regulations attached as
EXHIBIT D) without the prior consent of Landlord.
(d) Tenant may not use or allow or permit the Premises to be used in
any way or for any purpose that:
(1) Landlord deems hazardous on account of the
possibility of fire or other casualty;
(2) increases the rate of fire or other insurance for
the Project or its contents or in respect of the
operation of the Project; or
(3) renders the Project uninsurable at normal rates by
responsible insurance carriers authorized to do
business in the State of Texas or renders void or
voidable any insurance on the Project.
If insurance premiums are increased because of Tenant's use of
the Premises, then, in addition to any other remedies Landlord
may have, Tenant shall pay the amount of the increase to
Landlord as additional Rent within 5 days after demand.
2. No birds, animals, reptiles, or any other creatures may be brought
into or about the Project.
3. Nothing may be swept or thrown into the corridors, halls, elevator
shafts, or stairways.
4. Tenant may not make or permit any improper noises in the Building,
create a nuisance, or do or permit anything which, in Landlord's sole
judgment, interferes in any way with other tenants or persons having
business with them.
5. No equipment of any kind may be operated on the Premises that could in
any way annoy any other tenant in the Building.
6. Tenant shall cooperate with Building employees in keeping the Premises
neat and clean.
OFFICE LEASE
EXHIBIT D Page 1 of 5 /s/ DW/JNR
<PAGE> 31
7. Corridor doors, when not in use, must be kept closed.
8. No bicycles or similar vehicles are allowed in the Building.
Alterations, improvements, and additions in and to the Premises
requested by Tenant must be made in accordance with plans and
specifications approved in advance by Landlord. All work must be
performed at Tenant's expense either by Landlord or by contractors and
subcontractors approved in advance by Landlord. If the work is not
performed by Landlord, then all work performed by Tenant's contractors
and subcontractors is subject to the following conditions:
(a) Each contractor and subcontractor must deliver evidence
satisfactory to Landlord that the insurance specified on EXHIBIT E is
in force prior to commencing work.
(b) Tenant shall ensure that all workers are cooperative with Project
personnel and comply with all Project Rules and Regulations.
(c) Tenant must deliver to Landlord evidence that Tenant has obtained
all necessary governmental permits and approvals for the improvements
or alterations prior to starting any work.
(d) All construction must be done in a good and workmanlike manner and
is subject to approval by Landlord during and after construction, in
its sole discretion.
(e) Lien releases from each contractor and subcontractor must be
submitted to Landlord within 5 days after completion of the work
performed by the contractor or subcontractor.
(f) Within 30 days after completion of any improvements or
alterations, Tenant, at its cost, shall deliver to Landlord 2
reproducible copies of "as-built" plans and specifications (1/8"
scale) for each floor where alterations or improvements were made.
10. Tenant shall refer all contractors, contractor's representatives, and
installation technicians rendering any service on or to the Premises
for Tenant to Landlord for Landlord's approval and supervision for
performance of any contractual service. This provision applies to all
work performed in the Building, including installation of telephones,
telephone equipment, electrical devices, and attachments and
installations of any nature affecting floors, walls, woodwork, trim,
windows, ceiling, equipment, or any other physical portion of the
Building.
11. No nails, hooks, or screws may be driven into or inserted in any part
of the Building except by Building maintenance personnel.
12. Sidewalks, doorways, vestibules, halls, stairways, and similar areas
may not be obstructed by any Tenant Party, or used for any purpose
other than ingress and egress to and from the Premises, or for going
from one part of the Building to another part of the Building. No
furniture may be placed in front of the Building or in any lobby or
corridor without prior consent of Landlord.
13. Any Tenant Party who desires to enter the Building after Building
Standard Hours, is required to sign in upon entry and sign out upon
leaving, giving the location during their stay and their time of
arrival and departure.
14. All deliveries must be made via the service entrance and service
elevator during normal working hours or at other times as Landlord may
determine. Prior approval must be obtained from the Landlord for all
deliveries that must be received after Building Standard Hours.
15. Landlord or its agents or employees may enter the Premises to examine
the same or to make repairs, alterations, or additions as Landlord
deems necessary for the safety, preservation, or improvement of the
Building.
16. Landlord may require all Tenant Parties to evacuate the Building in
the event of an emergency or catastrophe.
OFFICE LEASE
EXHIBIT D Page 2 of 5 /s/ DW/JNR
<PAGE> 32
17. Tenant may not do anything, or permit anything to be done, in or about
the Building, or bring or keep anything in the Building that in any
way increases the possibility of fire or other casualty, or do
anything in conflict with the valid laws, rules, or regulations of any
governmental authority.
18. No food may be distributed from Tenant's office without the prior
approval of the Building Manager.
19. No additional locks may be placed on any doors without the prior
consent of Landlord. All necessary keys must be furnished by Landlord
and must be surrendered to Landlord upon termination of this Lease.
Tenant shall then give Landlord the combination for all locks on the
doors and vaults.
20. Tenant shall comply with parking rules and regulations as may be
posted and distributed from time to time.
21. Plumbing and appliances may be used only for the purposes for which
constructed. No sweeping, rubbish, rags, or other unsuitable material
may be thrown or placed therein. Any stoppage or damage resulting to
any fixtures or appliances from misuse by any Tenant or Party is
payable by Tenant.
22. No signs, posters, advertisements, or notices may be painted or
affixed on any windows, doors, or other parts of the Building, except
in colors, sizes, and styles, and in places, approved in advance by
Landlord. Landlord has no obligation or duty to give this approval.
Building standard suite identification signs will be prepared by a
sign writer approved by Landlord. The cost of the Building standard
signs is payable by Tenant. Landlord may remove all unapproved signs
without notice to Tenant, at the expense of Tenant. Directories will
be placed by Landlord, at Landlord's expense, in conspicuous places in
the Building. No other directories are permitted.
23. No portion of the Building may be used as lodging rooms or for any
immoral or unlawful purposes.
24. Tenant may not operate, or allow the operation of any coin or token
operated vending machine or similar device for the sale of any goods,
wares, merchandise, food, beverages, or services, including but not
limited to pay lockers, pay toilets, scales, amusement devices and
machines for the sale of beverages, foods, candy, cigarettes or other
commodities, without the prior consent of Landlord.
25. Tenant must obtain Landlord's prior approval, which is at Landlord's
sole discretion, for installation of any solar screen material, window
shades, blinds, drapes, awnings, window ventilators, or other similar
equipment and any window treatment of any kind whatsoever. Landlord
may control all internal lighting that is visible from the exterior of
the Building and may change any unapproved lighting without notice to
Tenant, at Tenant's expense.
26. Holidays are New Year's Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving, and Christmas. Business days are weekdays other
than holidays.
27. Tenant shall at all times keep a chair pad under every chair that has
rollers and is located in a carpeted area.
28. Tenant shall not permit any of its Tenant Party to hold, carry, smoke,
or dispose of a lighted cigar, cigarette, pipe, or any other lighted
smoking equipment in any common area of the Buildings, unless
designated as a "smoking" area by Landlord. The common areas includes,
but are not limited to, all rest rooms, common corridors, stairwells,
elevator lobbies, first floor lobbies, and other areas used in common
with other tenants and occupants of the Buildings.
29. Tenant shall notify the Building Manager when any furnishings or
equipment are to be taken into or out of the Building. Moving of
those items must be done under the supervision of the Building
Manager, after receiving approval from Landlord.
30. Landlord may prescribe the weight and position of safes and other
heavy equipment that may overstress any portion of the floor. All
damage done to the Building by the improper placing of heavy items
that overstress the floor will be repaired at the sole expense of the
Tenant.
31. The persons employed to move Tenant's equipment, material, furniture,
or other property in or out of the building must be acceptable to
Landlord. The moving company must be a locally recognized professional
mover, whose primary business is the performing of relocation
services, and must be bonded and fully insured. A certificate or other
verification of such insurance must be received and approved by
Landlord prior to the start of any moving operations. Insurance must
be
OFFICE LEASE
Page 3 of 5 /s/ DW/JNR
EXHIBIT D
<PAGE> 33
sufficient, in Landlord's sole opinion, to cover all personal
liability, theft or damage to the project, including but not limited
to floor coverings, doors, walls, elevators, stairs, foliage, and
landscaping. Special care must be taken to prevent damage to foliage
and landscaping during adverse weather. All moving operations will be
conducted at such times and in such a manner as Landlord will direct,
and all moving will take place during non-business hours unless
Landlord agrees in writing otherwise. Tenant will be responsible for
the provision of building security during all moving operations, and
will be liable for all losses and damages sustained by any party as a
result of the failure to supply adequate security. Landlord will have
the right to prescribe the weight, size, and position of all
equipment, materials, furniture, or other property brought into the
building. Heavy objects will, if considered necessary by Landlord,
stand on wood strips of such thickness as is necessary to properly
distribute the weight. Special care must be taken so as to prevent
damage to the floor coverings and elevators in the Building. Landlord
will not be responsible for loss of or damage to any such property
from any cause, and all damage done to the building by moving or
maintaining such property will be repaired at the expense of Tenant.
Landlord reserves the right to inspect all such property to be brought
into the building and to exclude from the building all such property
which violates any of these rules and regulations or the lease of
which these rules and regulations are a part. Supplies, goods,
materials, packages, furniture, and all other items of every kind
delivered to or taken from the premises will be delivered or removed
through the entrance and route designated by Landlord, and Landlord
will not be responsible for the loss or damage of any such property
unless such loss or damage results from the negligence of Landlord,
its agents, or employees.
32. Landlord will have the right to prohibit any advertising by Tenant
mentioning the building that, in Landlords reasonable opinion, tends
to impair the reputation of the building or its desirability as a
building for offices, and upon written notice from Landlord, Tenant
will refrain from or discontinue such advertising.
33. Each Tenant will store all its trash and garbage within its premises.
No material will be placed in the trash boxes or receptacles if such
material is of such nature that it may not be disposed of in the
ordinary and customary manner of removing and disposing of trash and
garbage without being in violation of any law or ordinance governing
such disposal. All garbage and refuse disposal will be made only
through entryways and elevators provided for such purposes and at such
times as Landlord designates. Removal of any furniture or furnishings,
large equipment, packing crates, packing materials, and boxes will be
the responsibility of each Tenant and such items may not be disposed
of in the building trash receptacles nor will they be removed by the
building's janitorial service, except at Landlord's sole option and at
the Tenant's expense. No furniture, appliances, equipment, or
flammable products of any type may be disposed of in the building
trash receptacles.
34. Canvassing, peddling, soliciting, and distributing handbills or any
other written materials in the building are prohibited, and each
Tenant will cooperate to prevent the same.
35. No picketing may be conducted at or within the Building.
36. The requirements of the Tenants will be attended to only upon
application by written, personal, or telephone notice at the office of
the building. Employees of Landlord will not perform any work or do
anything outside of their regular duties unless under special
instructions from Landlord.
37. A directory of the building will be provided for the display of the
name and location of Tenants only and such reasonable number of the
principal officers and employees of Tenants as Landlord in its sole
discretion approves, but landlord will not in any event be obligated
to furnish more than one (1) directory strip for each Tenant. Any
additional names(s) that Tenant desires to place in such directory
must first be approved by Landlord, and if so approved, Tenant will
pay to Landlord a charge, set by Landlord, for each such additional
name. All entries on the building directory display will conform to
standards and style set by Landlord in its sole discretion. Space on
any exterior signage will be provided in Landlord's sole discretion.
No Tenant will have any right to the use of any exterior sign.
38. Tenant may not use space heaters without the prior consent of
Landlord. Tenant will see that the doors of the premises are closed
and locked and that all space heaters (if their use is approved by
Landlord), coffee pots, water faucets, water apparatus, and utilities
are shut off before Tenant or Tenant's employees leave the premises,
so as to prevent waste or damage, and for any default or carelessness
in this regard Tenant will make good all injuries sustained by other
Tenants or occupants of the building or Landlord. On multiple-tenancy
floors, all Tenants will keep the doors to the building corridors
closed at all times except for ingress and egress.
39. Neither Landlord nor any operator of the parking areas within the
project, as the same are designated and modified by Landlord, in its
sole discretion, from time to time (the "parking areas") will be
liable for loss of or damage to any vehicle or any contents of such
vehicle or accessories to any such vehicle, or any property left in
any of the parking areas, resulting
OFFICE LEASE
EXHIBIT D Page 4 of 5 /s/DW/JNR
<PAGE> 34
from fire, theft, vandalism, accident, conduct of other users of the
parking areas and other persons, or any other casualty or cause.
Further, Tenant understands and agrees that: (a) Landlord will not be
obligated to provide any traffic control, security protection or
operator for the parking areas; (b) Tenant uses the parking areas at
its own risk; and (c) Landlord will not be liable for personal injury
or death, or theft, loss of, or damage to property. Tenant waives and
releases Landlord from any and all liability arising out of the use of
the parking areas by Tenant, its employees, agents, invitees, and
visitors, whether brought by any of such persons or any other person.
40. Tenant (including Tenant's employees, agents, invitees, and visitors)
will use the parking spaces solely for the purpose of parking
passenger model cars, small vans, and small trucks and will comply in
all respects with any rules and regulations that may be promulgated by
Landlord from time to time with respect to the parking areas. The
parking areas may be used by Tenant, its agents, or employees, for
occasional overnight parking of vehicles. Tenant will ensure that any
vehicle parked in any of the parking spaces will be kept in proper
repair and will not leak excessive amounts of oil or grease or any
amount of gasoline. If any of the parking spaces are at any time used
(a) for any purpose other than parking as provided above; (b) in any
way or manner reasonably objectionable to Landlord; or (c) by Tenant
after default by Tenant under the lease, Landlord, in addition to any
other rights otherwise available to Landlord, may consider such
default any event of default under the lease.
41. Tenant's right to use the parking areas will be in common with other
Tenants of the project and with other parties permitted by Landlord to
use the parking areas. Landlord reserves the right to assign and
reassign, from time to time, particular parking spaces for use by
persons selected by Landlord. Landlord will not be liable to Tenant
for any unavailability of Tenant's designated spaces, if any, nor will
any unavailability entitle Tenant to any refund, deduction, or
allowance. Tenant will not park in any numbered space or any space
designated as: RESERVED, HANDICAPPED, VISITORS ONLY, or LIMITED TIME
PARKING (or similar designation).
42. Landlord may rescind any of these Rules and Regulations and make other
future Rules and Regulations as in the judgment of Landlord are from
time to time needed for the safety, protection, care, and cleanliness
of the Building, the operation thereof, the preservation of good order
therein, and the protection and comfort of its tenants, their agents,
employees, and invitees. Those rules, when made and notice thereof
given to a tenant, are binding upon the Tenant in the same manner as
the original rules.
OFFICE LEASE
EXHIBIT D Page 5 of 5 /s/DW/JNR
<PAGE> 35
EXHIBIT E
to Office Lease by and between
TGALMA Limited, a Texas Limited Partnership, as Landlord,
and
Credentials Services International, Inc., a California Corporation, as Tenant
CONTRACTOR INSURANCE REQUIREMENTS
All contractors, subcontractors, suppliers, service providers, moving
companies, and others performing work of any type for Tenant in the Project
shall:
- carry the insurance listed below with companies with an A.M.
Best rating of A-IX, or better, and otherwise acceptable to
Landlord; and
- furnish Certificates of Insurance to Landlord evidencing
required coverages at least 10 days prior to entry in the
Project and Renewal Certificates at least 30 days prior to the
expiration dates of Certificates previously furnished.
Certificates of Insurance must provide for 30 days' prior written notice of
cancellation or material change to Landlord, c/o Harwood Pacific Corporation,
2651 North Harwood, Suite 450, Dallas, Texas 75201, Attention: Property
Manager.
1. Workers Compensation: Statutory workers compensation insurance
covering full liability under applicable Workers Compensation Laws at
the required statutory limits.
Employers' Liability: Employers' liability insurance with the
following minimum limits of liability:
$100,000 Each Accident
$500,000 Disease-Policy Limit
$100,000 Disease-Each Employee
3. Commercial General Liability: This insurance policy must:
a. Be written on a standard liability policy form (sometimes
known as commercial general liability insurance) but without
exclusionary endorsements that may delete coverage for
products/completed operations, personal and advertising
injury, blanket contractual, fire legal liability, or medical
payments.
b. Be endorsed to provide that:
- aggregate limits, if any, apply separately to each of
the insured's jobs or projects away from premises
owned by or rented to the insured;
- the insurance is primary and non-contributory to any
insurance provided by Landlord; and
- include the following minimum limits:
$1,000,000 General Aggregate
$1,000,000 Products-Completed Operations Aggregate
$1,000,000 Personal & Advertising Injury
$1,000,000 Each Occurrence
$ 50,000 Fire Damage (Any one fire)
$ 5,000 Medical Expense (Any one person)
OFFICE LEASE
EXHIBIT E Page 1 of 2 /s/DW/JNR
<PAGE> 36
4. Automobile Liability: Automobile liability insurance for claims of
ownership, maintenance, or use of owned, non-owned, and hired motor
vehicles at, upon, or away from the Project with the following minimum
limits:
$500,000 Combined Single Limit Bodily Injury and
Property Damage per Occurrence
5. Excess Liability: Following form excess liability insurance with
coverages at least as broad as the required commercial general
liability insurance with the following minimum limits:
$1,000,000 Each Occurrence
$2,000,000 Aggregate
6. General Requirements: All policies must be:
- written on an occurrence and not on a claims-made basis;
- endorsed to name as additional insureds Landlord, Manager, and
their respective officers, directors, employees, agents,
partners, and assigns;
- endorsed to waive any rights of subrogation against Landlord,
Manager, and their respective officers, directors, employees,
agents, partners, and assigns; and
- primary and non-contributing with, and not in excess of, any
other insurance available to Tenant, Landlord, Manager or any
other entity named as an additional insured).
OFFICE LEASE
EXHIBIT E Page 2 of 2 /s/DW/JNR
<PAGE> 37
EXHIBIT F
to Office Lease by and between
TGALMA Limited, a Texas Limited Partnership, as Landlord,
and
Credentials Services International, Inc., a California Corporation, as Tenant
(THE FLOOR PLAN OF THE FIRST NOTICE SPACE IS ATTACHED AS PAGE 2 OF 2)
OFFICE LEASE
EXHIBIT F Page 1 of 1 /s/DW/JNR
<PAGE> 38
EXHIBIT F
RIGHT OF FIRST NOTICE
[FLOOR PLAN]
/s/DW/JNR
<PAGE> 39
CERTIFICATE OF READY FOR OCCUPANCY DATE
The undersigned, Landlord and Tenant under a Lease (the "Lease") dated
____________________, 1995 for premises located at 1700 Alma, Ste. ____, Plano,
Texas 75075, desire to execute this certificate to evidence their agreement
that the "Ready for Occupancy Date" under the Lease occurred on
______________________, 1995, [and the "Expiration Date" is
_______________________, 199__,] notwithstanding anything to the contrary in
the Lease. In all other respects the Lease is ratified and confirmed.
EXECUTED as of __________________, 1995
LANDLORD
_________________________________________
By:______________________________________
Doug Walker
Its: General Manager
TENANT
Credentials Services International, Inc.,
a California Corporation
By:______________________________________
Its:_____________________________________
<PAGE> 1
EXHIBIT 10.3
[LETTERHEAD OF CAL-SURANCE ASSOCIATES, INC.]
October 26, 1995
Ms Lorie Ellwood
Credentials Services International, Incorporated
333 City Boulevard West, Suite 1000
Orange, California 92668
Dear Lorie,
Per the "Letter Addendum" to our existing Sublease Agreement with Credentials
Services International, Inc., dated September 17, 1995 (see attached), the
additional 5,897 square feet on the tenth floor brings the total square footage
to 20,740. At the agreed upon rate of $1.10 per square foot, your new monthly
rent payment to Cal-Surance, beginning November 1, 1995 is $22,814.00.
Cal-Surance will not charge you for the final three days of October, 1995.
As always, please call me at (714) 939-7420 with any questions regarding your
occupancy.
Sincerely,
/s/ Scott Hampshire
Scott Hampshire
I.S. Manager
cc: Iris Tatro
Julie Helms
[attachment unavailable]
<PAGE> 2
[LETTERHEAD OF CAL-SURANCE ASSOCIATES, INC.]
September 20, 1995
Ms Lorie Ellwood
Credentials Services Incorporated
333 City Boulevard West, Suite 1000
Orange, California 92668
Dear Lorie,
Confirming our conversation of this afternoon between yourself, Jim Saloma and
myself, Cal-Surance will make available an additional two offices and one
cubicle. You may occupy these spaces as of Monday, September 25th. Cal-Surance
will not charge you for this additional floor space until the addendum to the
existing sub-lease for the entire 10th floor is in effect.
In return for this accommodation, we will remove the furniture currently in use
by our Lancer Claims Services division when we vacate the remainder of the 10th
floor. You will occupy that space as is, unfurnished at the time you take
occupancy, at the current rate of $1.10 per square foot, in accordance with the
terms of the original sub-lease agreement between Credentials Services
Incorporated and Cal-Surance, dated December 6, 1994. After you take occupancy
of the remainder of the 10th floor, all the terms and conditions of the original
sub-lease agreement will prevail.
Please sign and return this letter to me to indicate your acceptence of these
terms. Be assured that I am continuing to make the best effort to have the space
you require available as quickly as possible.
Sincerely,
/s/ Scott Hampshire
Scott Hampshire
I.S. Manager
cc: Thomas R. Linn /s/ John N. Rees
Vice President & Chief Financial Officer For Credentials
<PAGE> 3
[LETTERHEAD OF CAL-SURANCE ASSOCIATES, INC.]
September 19, 1995
Ms. Allison Garvin
Leasing Manager
MS Management Services
333 City Boulevard West, Suite 1250
Orange, CA 92668
RE: Sublease Square Foot Expansion -
Credentials Services International, Inc.
Dear Allison:
Pursuant to your conversations with Rich Zimmerman of Matlow-Kennedy Commercial
Real Estate Services, please accept this second "Letter Addendum" to our
existing Sublease Agreement with Credentials Services International, Inc., as
our notification that Cal-Surance Companies has subleased the remaining rentable
square feet of office space on the tenth (10th) floor to the sublessee.
This additional office space, in the amount of 5,897 square feet, as identified
on the attached floor plan, has been added to the original 12,000 square foot
segment plus the 2,843 square foot segment which was added May 1, 1995 under the
letter addendum dated May 17, 1995. This new segment of space shall be added to
the existing space effective on or about October 29, 1995 under the same exact
terms and conditions as the existing sublease dated December 6, 1994.
As you know, in past correspondence the landlord has been made aware of the fact
that the sublessee had indicated their desire to effect this expansion of space
to include the entire tenth (10th) floor at a future date.
Sincerely,
/S/ Thomas R. Linn
Thomas R. Linn, C.P.A.
Vice President & Chief Financial Officer
Accepted: Accepted:
Creditials Services International, Inc. Metropolitan Life Insurance Company
By: /s/ Nick Rees By: /s/ [illegible]
------------------------------------ ---------------------------------
Nick Rees 10/25/95
Enclosures
<PAGE> 4
EXHIBIT "A"
[floor plan]
<PAGE> 5
[LETTERHEAD OF CAL-SURANCE COMPANIES]
May 17, 1995
Ms. Allison Garvin
Leasing Manager
MS Management Services
333 City Blvd. West, Suite 1250
Orange, CA. 92668
RE: Sublease Square Foot Expansion - Credentials Services International, Inc.
Dear Allison:
Pursuant to your conversations with Rich Zimmerman of Matlow-Kennedy Commercial
Real Estate Services, please accept this "Letter Addendum" to our existing
Sublease Agreement with Credentials Services International, Inc., as our
notification that Cal-Surance Companies has subleased an additional 2,843
rentable square feet of office space on the tenth (10th) floor to the sublessee.
This additional office space, as identified on the attached floor plans, has
been added to the original 12,000 square foot segment of space effective May 1,
1995, under the same exact terms and conditions as the existing sublease dated
December 6, 1994.
Correspondence from the sublessee that indicates their desire to effect this
expansion of space is also attached for your records. Finally, further expansion
to include the entire tenth (10th) floor is anticipated within the near future.
Notification relative to that sublease action will be handled under separate
cover at the appropriate date.
Sincerely,
/s/ Thomas R. Linn
Thomas R. Linn, C.P.A.
Vice President and
Chief Financial Officer
ACCEPTED: ACCEPTED:
Credentials Services International, Inc. Metropolitan Life Insurance Company
By: /s/ Nick Rees By: /s/ [illegible] 5/22/95
--------------------------------- ---------------------------
Nick Rees
TRL/it.
Enclosures
<PAGE> 6
December 13, 1994
Mr. Thomas R. Linn Mr. Nick Rees
Vice President/Chief Financial Officer Principal/Treasurer
Cal-Surance Companies Credentials Services International, Inc.
333 City Boulevard West, Suite 900 33 City Boulevard West, Suite 210
Orange, CA 92668 Orange, CA 92668
RE: SIDE LETTER AGREEMENT TO THE SUBLEASE DATED DECEMBER 6, 1994
This side letter relates to the sublease agreement (dated December 6, 1994 for
referenced purposes) between Cal-Surance Associates, a California Corporation as
"Sublessor" and Credentials International, Inc. as "Sublessee."
Gentlemen:
PREMISES
SQUARE FOOTAGE: Sublessor and Sublessee agree that the premises delineated
on the attached space plan for the 10th floor space is
approximately 13,500 square feet, rather than the 12,00
square feet as described in the executed Sublease
document. Sublessor understands and agrees that the
Sublessee will occupy the 13,500 rentable square feet at
no additional charge. When the Sublessee does elect to
expand beyond the outlined space, Sublessor will secure an
accurate field measurement of the space and adjust the
square footage to reference the space occupied. Sublessee
will commence payment on the space and adjust the square
footage to reference the space occupied. Sublessee will
commence payment on the space subject to that measurement
and at the stipulated rental rate of $1.10 FSG per month
under the terms of the Sublease.
RECEPTION SERVICES: Staffing of the 10th floor reception area is unresolved at
this time. Sublessor and Sublessee will agree upon a
mutually acceptable arrangement.
Agreed and Accepted:
Cal-Surance Associates Credentials Services International, Inc.
By: /s/ [illegible] By: /s/ John N. Rees
---------------------------- ---------------------------------------
Date: 12-16-94 Date: 14 Dec. 1994
-------------------------- ---------------------------------------
<PAGE> 7
STANDARD SUBLEASE
American Industrial Real Estate Association
[logo of American Industrial Real Estate Association]
1. PARTIES. This Sublease, dated, for reference purposes only, December 6
______, 1994, is made by and between Cal-Surance Associates, a California
Corporation (herein called "Sublessor") and Credentials Services International,
Inc. (herein called "Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the County
of Orange State of California, commonly known as 333 City Boulevard West,
Orange, CA and described as 12,000 square feet of rentable/usable office space
on the tenth (10th) floor of the building, Exhibit A (Space Plan) will delineate
the area to be occcupied. Said real property, including the land and all
improvements thereon, is hereinafter called the "Premises".
3. TERM.
3.1 TERM. The term of this Sublease shall be for four (4) years commencing
on January 1, 1995 and ending on December 31, 1998 unless sooner terminated
pursuant to any provision hereof.
3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if for
any reason Sublessor cannot deliver possession of the Premises to Sublessse
on said date, Sublessor shall not be subject to any liability therefore, nor
shall such failure affect the validity of this Lease or the obligations of
Sublessee hereunder or extend the term hereof, but in such case Sublessee
shall not be obligated to pay rent until possession of the Premisses is
tendered to Sublessee; provided, however, that if Sublessor shall not have
delivered possession of the Premises within sixty (60) days from said
commencement date, Sublessee may, at Sublessee's option, by notice in writing
to Sublessor within ten (10) days thereafter, cancel this Sublease, in which
event the parties shall be discharged from all obligations thereunder. If
Sublessee occupies the Premises prior to said commencement date, such
occupancy shall be subject to all provisions hereof, such occupancy shall not
advance the termination date and Sublessee shall pay rent for such period at
the initial monthly rates set forth below.
/s/[initials]
-1-
<PAGE> 8
4. RENT. Sublessee shall pay to Sublessor as rent for the Premises equal monthly
payments of $13,200.00, in advance, on the 1st day of each month of the term
hereof. Sublessee shall pay Sublessor upon the execution hereof $13,200.00 as
rent for January, 1995 . Rent for any period during the term hereof which is for
less than one month shall be a prorata portion of the monthly installment. Rent
shall be payable in lawful money of the United Sates to Sublessor at the address
stated herein or to such other persons or at such other places as Sublessor may
designate in writing.
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof $ N/A as security for Sublessee's faithful performance of Sublessee's
obligations hereunder. If Sublessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Sublease,
Sublessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any other
sum to which Sublessor may become obligated by reason of Sublessee's default, or
to compensate Sublessor for any loss or damage which Sublessor may suffer
thereby. If Sublessor so uses or applies all or any portion of said deposit,
Sublessee shall within ten (10) days after written demand therefore deposit cash
with Sublessor in an amount sufficient to restore said deposit to the full
amount hereinabove stated and Sublessee's failure to do so shall be a material
breach of this Sublease. Sublessor shall not be required to keep said deposit
separate from its general accounts. If Sublessee performs all of Sublessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Sublessor, shall be returned, without payment of interest or
other increment for its use to Sublessee (or at Sublessor's option, to the last
assignee, if any, of Sublessee's interest hereunder) at the expiration of the
term hereof, and after Sublessee has vacated the Premises. No trust relationship
is created herein between Sublessor and Sublessee with respect to said Security
Deposit.
6. USE.
6.1 Use. The Premises shall be used and occupied only for general office
uses and any other legal purpose and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Sublessor warrants to Sublessee that the Premises, in its
existing state, but without regard to the use for which Sublessee will use the
Premises, does not violate any appicable building code regulation or ordinance
at the time that this Sublease is executed. In the event that it is determined
that this warranty has been violated, then it shall be the obligation of the
Sublessor, after written notice from Sublessee, to promptly, at Sublessor's sole
cost and expense, rectify any such violation. In the event that Sublessee does
not give to Sublessor written notice of the violation of this warranty within 1
year from the commencement of the term of this Sublease, it shall be
conclusively deemed that such violation did not exist and the correction of the
same shall be the obligation of the Sublessee.
(b) Except as provided in paragraph 6.2(a), Sublease shall, at
Sublessees's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, restrictions of record, and requirements in effect
during the term or any part of the term hereof regulating the use by Sublessee
of the Premises. Sublessee shall not use or premit the use of the Premises in
any manner that
/s/[initials]
-2-
<PAGE> 9
will tend to create waste or a nuisance or, if there shall be more than one
tenant of the building containing the Premises, which shall tend to disturb such
other tenants.
6.3 CONDITION OF PREMISES. Except as provided in paragraph 6.2(a)
Sublessee hereby accepts the Premises in their condition existing as of the
date of the execution hereof, subject to all applicable zoning, municipal,
county and state laws, ordinances, and regulations governing and regulating
the use of the Premises, and accepts this Sublease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto Sublessee
acknowledges that neither Sublessor nor Sublessor's agents have made any
representation or warranty as to the suitability of the Premises for the
conduct of Sublessee's business.
7. MASTER LEASE
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", a copy of which is attached
hereto marked Exhibit 1, dated August 23, 1988 wherein Metropolitan Tishman
Tower Venture, a Joint Venture is the lessor hereinafter referred to as the
"Master Lessor".
7.2 This Sublease is and shall be at all times subject and subordiante to
the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions
of the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event the terms of this
Sublease document shall control over the Master Lease. Therefore, for the
purposes of this Sublease, wherever in the Master Lease the word "Lessor" is
used it shall be deemed to mean the Sublessor herein and wherever in the
Master Lease the word "Lessee" is used it shall be deemed to mean the
Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with,
for the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease except for the following paragraphs which
are excluded therefrom: N/A
/s/[initials]
-3-
<PAGE> 10
7.5 The obligations that Sublessee has assumed under paragraph 7.4
hereof are hereinafter referred to as the "Sublessee's Assumed Obligations." The
obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations."
7.6 Sublessee shall hold Sublessor free and harmless of and from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire term
of this Sublease, subject, however to any earlier termination of the Master
Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of and
from all liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in
full force and effect and that no default exists on the part of any party to the
Master Lease.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease and all rentals and income arising
therefrom, subject however to terms of Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a
default shall occur in the performance of Sublessor's Obligations under the
Master Lease, that Sublessor may receive, collect and enjoy the rents accruing
under this Sublease. However, if Sublessor shall default in the performance of
its obligations to Master Lessor then Master Lessor may, at its option, receive
and collect, directly from Sublessee, all rent owing and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the rents from the Sublessee, be deemed
liable to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon
receipt of any written notice from the Master Lessor stating that a default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the rents due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such
rents to Master Lessor without any obligation or right to inquire as to whether
such default exists and notwithstanding any notice from or claim from Sublessor
to the contrary and Sublessor shall have no right or claim against Sublessee for
any such rents so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease
without the consent of Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease requires that Sublessor obtain
the consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within 10 days of the date hereof, Master Lessor
signs this Sublease thereby giving its consent to this Subletting.
9.2 In the event that the obligations of the Sublessor under the Master
Lease have been guaranteed by third parties then this Sublease, nor the Master
Lessor's consent, shall not be effective unless, within 10 days of the date
hereof, said guarantors sign this Sublease thereby giving guarantors consent to
this Sublease and the terms thereof.
9.3 In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor of its obligations or alter
the primary liability of Sublessor to pay the rent and perform and comply with
all of the obligations of Sublessor to be performed under the Master Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any one
else liable under the Master Lease shall not be deemed a waiver by Master Lessor
of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent to any
subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master Lease,
Master Lessor may proceed directly against Sublessor, any guarantors or any one
else liable under the Master Lease or this Sublease without first exhausting
Master Lessor's remedies against any other person or entity liable thereon to
Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and assignments
of the Master Lease or this Sublease or any amendments or modifications thereto
without notifying Sublessor nor any one else liable under the Master Lease and
without obtaining their consent and such action shall not relieve such persons
from liability.
(f) In the event that Sublessor shall default in its obligations under
the Master Lease, then Master Lessor, at its option and without being obligated
to do so, may require Sublessee to attorn to Master Lessor in which event Master
Lessor shall undertake the obligations of Sublessor under this Sublease from the
time of the exercise of said option to termination of this Sublease but Master
Lessor shall not be liable for any prepaid rents nor any security deposit paid
by Sublessee, nor shall Master Lessor be liable for any other defaults of the
Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of Sublessor
at the end of this document shall constitute their consent to the terms of this
Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
9.6 In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any default of Sublessor described in any notice of default within
ten days after service of such notice of default on Sublessee. If such default
is cured by Sublessee then Sublessee shall have the right of reimbursement and
offset from and against Sublessor
10. BROKER'S FEE.
10.1 Upon execution hereof by all parties, Sublessor shall pay to
Matlow-Kennedy Commercial Real Estate Services, a licensed real estate broker,
(herein called "Broker"), a fee as set forth in a separate agreement between
Sublessor and Broker, or in the event there is no separate agreement between
Sublessor and Broker, the sum of $ N/A for brokerage services rendered by Broker
to Sublessor in this transaction.
10.2 Sublessor agrees that if Sublessee exercises any option or right of
first refusal granted by Sublessor herein, or any option or right substantially
similar thereto, either to extend the term of this Sublease, to renew this
Sublease, to purchase the Premises, or to lease or purchase adjacent property
which Sublessor may own or in which Sublessor has an interest, or if Broker is
the procuring cause of any lease, sublease, or sale pertaining to the Premises
or any adjacent property which Sublessor may own or in which Sublessor has an
interest, then as to any of said transactions Sublessor shall pay to Broker a
fee, in cash, in accordance with the schedule of Broker in effect at the time of
the execution of this Sublease. Notwithstanding the foregoing, Sublessor's
obligation under this Paragraph 10.2 is limited to a transaction in which
Sublessor is acting as a sublessor, lessor or seller.
10.3 Master Lessor agrees, by its consent to this Sublease, that if
Sublessee shall exercise any option or right of first refusal granted to
Sublessee by Master Lessor in connection with this Sublease, or any option or
right substantially similar thereto, either to extend the Master Lease, to renew
the Master Lease, to purchase the Premises or any part thereof, or to lease or
purchase adjacent property which Master Lessor may own or in which Master Lessor
has an interest, or if Broker is the procuring cause of any other lease or sale
entered into between Sublessee and Master Lessor pertaining to the Premises, any
part thereof, or any adjacent property which Master Lessor owns or in which it
has an interest, then as to any of said transactions Master Lessor shall pay to
Broker a fee, in cash, in accordance with the schedule of Broker in effect at
the time of its consent to this Sublease.
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be due
and payable upon the exercise of any option to extend or renew, as to any
extension or renewal; upon the execution of any new lease, as to a new lease
transaction or the exercise of a right of first refusal to lease; or at the
close of escrow, as to the exercise of any option to purchase or other sale
transaction.
10.5 Any transferee of Sublessor's interest in this Sublease, or of
Master Lessor's interest in the Master Lease, by accepting an assignment
thereof, shall be deemed to have assumed the respective obligations of Sublessor
or Master Lessor under this Paragraph 10. Broker shall be deemed to be a
third-party beneficiary of this paragraph 10.
11. ATTORNEY'S FEES. If any party or the Broker named herein brings an action
to enforce the terms hereof or to declare rights hereunder, the prevailing party
in any such action, on trial and appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the Court. The
provision of this paragraph shall inure to the benefit of the Broker named
herein who seeks to enforce a right hereunder.
/s/ [initials]
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<PAGE> 11
12. ADDITIONAL PROVISIONS. [If there are no additional provisions draw a line
from this point to the next printed word alter the space left here. If there are
additional provisions place the same here.] See Attached Additional Provisions.
IF THIS SUBLEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION
IS MADE BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE
OR THE TRANSACTION RELATING THERETO.
Executed at Cal-Surance Associates
------------------------ ----------------------------------------
On By: /s/ [illegible]
--------------------------------- ------------------------------------
address By:
---------------------------- ------------------------------------
"Sublessor" (Corporate Seal)
Executed at Credentials Services International, Inc.
------------------------ ----------------------------------------
on By: /s/ John N. Rees
--------------------------------- ------------------------------------
address By:
---------------------------- ------------------------------------
"Sublessee" (Corporate Seal)
Executed at Metropolitan Life Insurance Company
------------------------ ----------------------------------------
on By: /s/ H.R. Duboff
--------------------------------- ------------------------------------
address By: H.R. Duboff, A.V.P.
"Master Lessor" (Corporate Seal)
Executed at
------------------------ ----------------------------------------
On
--------------------------------- ------------------------------------
Address
---------------------------- ------------------------------------
"Guarantors"
Form 401 778
NOTE: These forms are often modified to meet changing requirements of
law and needs of the industry. Always write or call to make sure you
are utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 345 So. Figueroa St., M-1, Los Angeles, CA 90071. (213)
687-8777.
-4-
<PAGE> 12
ADDITIONAL PROVISIONS FOR SUBLEASE DATED DECEMBER 6, 1994
BY AND BETWEEN CAL-SURANCE ASSOCIATES,
A CALIFORNIA CORPORATION, ("SUBLESSOR") AND
CREDENTIALS SERVICES INTERNATIONAL, INC. ("SUBLESSEE")
13. TARGET OCCUPANCY: For Sublessee is December 9, 1994. (Early occupancy
through December 31, 1994 shall be rent free).
14. PASS-THROUGH ESCALATIONS: Sublessee to pay its prorata share of the 10th
floor operating escalation pass-throughs over the base calendar year 1995. 1995
shall be the base the year, 1996 shall be the comparison year for any increases.
15. PARKING: 4.35 parking stalls per 1000 rentable square feet free for the term
of the lease. Should Sublessee exercise it's option and occupy additional space
on the 10th floor, additional parking stalls shall be provided in this ratio.
Sublessee to pay cost of validations for their own use.
16. EXPANSION: Sublessee to have the option to the balance of the 10th floor
during the term of the lease. Sublessee to take such space in it's "as-is"
condition. Rental rate for such space shall be $1.10 per square foot, full
service gross, plus any accrued escalation.
17. IMPROVEMENTS TO THE PREMISES: Sublessee to take premises in it's "as-is"
condition.
18. FURNITURE: Sublessor to furnish the premises with existing furniture,
subject to a mutually agreed upon inventory to be submitted by Sublessor to
Sublessee for approval.
19. OPTION TO PURCHASE: Sublessee to have the option to purchase the above
referenced furniture at the end of the term at wholesale market prices.
20. TELEPHONE: Sublessor to provide Sublessee access to the existing switch (NEC
Neax 2400) at no cost. Sublessee to pay all costs of installation and
modifications of Sublessor switch.
21. RECEPTION AREA: Sublessor and Sublessee will share the reception area,
equally relating to the cost of a receptionist, to greet visitors on the 10th
floor. This would allow visitors to Cal-Surance to be directed to the 9th or
10th floors.
22. CONFERENCE ROOM: Sublessee will allow Landlord access to the large
conference room on a mutually approved, reserved basis of approximately one time
per week for 3 hours. Sublessor to leave all electronic equipment in the
conference room including televisions, VCR, etc. for joint use by Sublessor and
Sublessee.
23.COMPUTER ROOM/TELEPHONE ROOM: Sublessee to have access to Sublessor's
computer room on the 9th floor to install and modify equipment so long as
Sublessor maintains the room for Sublessor's operation.
24. REAL ESTATE BROKERAGE COMMISSION: Matlow-Kennedy Commercial Real Estate
Services will be paid a leasing commission by Landlord in accordance with the
Schedule of Commissions and Fees submitted to Sublessor.
25. COMMUNICATION: Sublessee and Sublessor agree to authorize transmission of
all documents by facsimile machine and acceptance via facsimile machine.
/s/[Initials]
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<PAGE> 13
EXHIBIT "A"
[floor plan]
-6-
<PAGE> 14
METROPOLITAN LIFE INSURANCE COMPANY
a New York Corporation,
as Successor In Interest To
Metropolitan Tishman Tower Venture
December 6, 1994
Thomas R. Linn
Chief Financial Officer
The Cal-Surance Companies
333 City Boulevard West
Orange, California 92668
RE: The City Tower
333 City Boulevard West
Suite 900 and 1000
Orange, California 92668
Sublet Premises: A portion of the Master Lease Premises, Suite
1000, as shown in black on the plan attached
hereto as Exhibit "A" and made a part hereof
Date of Master Lease: August 23, 1988 and subsequently amended
January 3, 1990
Date of Sublease: December 9, 1994
Sublessee: Credential Services International
Ladies/Gentlemen:
Pursuant to the terms of your lease ("Master Lease") covering the above
captioned premises, as the same may have been amended to the date of hereof, you
have requested our consent to a sublease (the "Sublease") (dated as described in
the above caption) to the above-captioned Sublessee, a copy of which Sublease is
attached hereto as "Exhibit "B" and made a part hereof.
We hereby grant our consent to the sublease upon the following express terms and
conditions:
<PAGE> 15
December 6, 1994
Page 2
1. The Sublease is subject and subordinate to the Master Lease and to all of
its terms, covenants, conditions, provisions and agreements.
2. The Sublessee shall perform faithfully and be bound by all of the terms,
covenants, conditions, provisions and agreements of the Master Lease, for
the period covered by the Sublease, but only to the extent applicable to
the Sublet premises.
3. Neither the Sublease nor this consent thereto shall:
(a) release or discharge you from any liability, whether past, present or
future, under the Master Lease;
(b) operate as an approval by us to or for any of the specific terms,
covenants, conditions, provisions or agreements of the Sublease and we
shall not be bound thereby;
(c) be construed to modify, waive or affect any of the terms, covenants,
conditions, provisions or agreements of the Master Lease, or to waive
any breach thereof, or any of our rights as Landlord thereunder or
enlarge or increase our obligations as Landlord thereunder; or
(d) be construed as a consent by us to any further subletting either by
you or by the Sublease or to any assignment by you of the Master Lease
or assignment by the Sublessee of the Sublease, whether or not the
Sublease purports to permit the same and, without limiting the
generality of the foregoing, both you and the Sublessee agree that the
Sublessee has no right whatsoever to assign, mortgage or encumber the
Sublease nor to sublet any portion of the Sublet Premises or permit
any portion of the Sublet premises to be used or occupied by any other
party; further, in connection herewith, both you and the Sublessee
agree that an assignment by operation of law or a transfer of control
of Sublessee (including but not limited to transfer of the controlling
interest of the stock Sublessee, if Sublessee is a corporation) shall
be deemed to be a prohibited assignment hereunder.
4. You shall not be released from any liability under the Master Lease because
of our failure to give notice of default under or in respect of any of the
terms, covenants, conditions, provisions or agreements of the Master Lease.
5. You immediately and irrevocably assign to Landlord all rent and other
payments due Subtenant under the Sublease; provided, however, that you
shall have a license to collect such rent and other payments until the
occurrence of an event of default under
<PAGE> 16
December 6, 1994
Page 3
any of the provisions of the Prime Lease, regardless of whether or not
notice of such event of default has been given. At any time at our option,
we shall have the right to give notice to the Lease, regardless of whether
or not notice of such event of default has been given. At any time at our
option, we shall have the right to give notice to the Subtenant of such
assignment. We shall credit you with any rent received by us under such
assignment but the acceptance of any payment on account of rent from the
Subtenant as the result of any such default shall in no manner whatsoever
serve to release you from any liability under the terms covenants,
conditions, provisions or agreement under the Prime Lease. No such payment
of rent or any other payment by the Subtenant directly to Landlord and/or
acceptance of such payment(s) by Landlord, regardless of the circumstances
or reasons therefor, shall in any manner whatsoever be deemed attornment by
the Subtenant to us in the absence of either a specific written agreement
signed by us to such an effect or written notice from Landlord to Subtenant
pursuant to paragraph 7 below.
6. Both you and the Sublessee shall be and continue to be liable for the
payment of (a) all bills rendered by us for charges incurred by the
Sublessee for services and materials supplied to the Sublet Premises beyond
that which is required by the terms of the Master Lease and (b) any
additional costs incurred by Landlord for maintenance and repair of the
Sublet Premises as the result of Sublessee (rather than you) occupying the
sublet Premises (including but not limited to any excess cost to Landlord
of services furnished to or for the Sublet Premises resulting from the
extent to which Sublessee uses them for purposes other than as set forth in
the Master Lease).
7. Except as hereinafter expressly set forth to the contrary, the term of the
Sublease shall expire and come to an end on its natural expiration date or
any premature termination date thereof or concurrently with any premature
or natural termination of the Master Lease (whether by consent or other
right, now or hereafter agreed to by Landlord or Master Tenant, or by
operation of law or at Landlord's option in the event of default by Master
Tenant). Notwithstanding the foregoing, in the event that the Term (as
defined in the Master Lease) of the Master Lease should terminate prior to
the Term (as defined in Section 5 of the Sublease) of the Sublease, it is
agreed that, at the option of Landlord, which option shall be exercisable
by written notice to Sublessee prior to or upon the effective date of the
termination of the Master Lease, Sublessee shall be bound to Landlord under
the terms, covenants and conditions of the sublease as provided in
paragraph 8, below, for the remaining balance of the natural Term of the
Sublease (as opposed to early termination) thereof, with the same force and
effect as if Landlord were the Sublessor under such Sublease, and Sublessee
does hereby agree to attorn to Landlord as its Landlord such attornment to
be effective and self-operative without the execution of any further
instruments on the part of any of
<PAGE> 17
December 6, 1994
Page 4
the parties to this Agreement, immediately upon Landlord's exercise of the
aforementioned option.
8. In the event Landlord exercises its option of attornment as provided in the
paragraph immediately above, Sublessee shall observe and perform: (i) each
of the terms, covenants and conditions of the Sublease that Landlord
designates be observed and performed, and (ii) such other terms, covenants
and conditions to which the parties may agree. It is further agreed that
Landlord shall not be:
(a) liable for any act or omission of Sublessor; or
(b) obligated to cure any defaults of any prior Sublessor which occurred
prior to the time that Landlord succeeded to the interest of Landlord
under the Sublease; or
(c) subject to any offsets or defenses which sublessee may be entitled to
assert against any prior Landlord (including Sublessor); or
(d) bound by any payment of rent or additional rent by Sublessee to any
prior Landlord (including Sublessor) for more than one month in
advance; or
(e) bound by any amendment or modification of the Sublease made without
the written consent of Landlord: or
(f) liable or responsible for or with respect to the retention,
application and/or return to Sublessee of any security deposit paid to
any prior landlord (including Sublessor), whether or not still held by
such prior landlord, unless and until Landlord has actually received
for its own account as Landlord the full amount of such security
deposit.
9. This consent is not assignable, nor shall this consent be a consent to any
amendment, modification, extension or renewal of the Sublease, without
Landlord's prior written consent.
10. You covenant and agree that under no circumstances shall we be liable for
any brokerage commission or other charge or expense in connection with the
Sublease and you agree to indemnify, protect, defend and hold us harmless
against same and against any cost or expense (including but not limited to
counsel fees) incurred by us in resisting any claim for such brokerage
commission. Further, the Sublessee represents and warrants that it has
dealt with no brokers in connection with this sublease. The Sublessee
agrees to indemnify, protect, defend and hold us harmless against any cost
<PAGE> 18
December 6, 1994
Page 5
or expense (including but not limited to counsel fees) incurred by us in
resisting any claim for brokerage commissions of brokers clamming through
or as agent for the Sublessee.
11. You and Sublessee understand and acknowledge that Landlord's consent hereto
is not a consent to any improvement or alteration work being performed in
the demised premises, that Landlord's consent must be separately sought and
will not necessarily be given, and that if such consent is given, the same
will be subject to your signing Landlord's standard form of Agreement with
respect to work being performed by persons other than Landlord unless
otherwise agreed to in writing by Landlord.
12. Any adjustment of rent pursuant to Paragraph 3 of the Sublease or otherwise
shall be subject to the prior written approval of Landlord.
13. In the event any party to this consent brings any suit or other proceeding
with respect to the subject matter or enforcement of this consent, the
prevailing party (as determined by the court, agency or other authority
before which such suit or proceeding is commenced) shall, in addition to
such other relief as may be awarded, be entitled to recover attorneys'
fees, expenses and costs of investigation as actually incurred (including,
without limitation, attorneys' fees, expenses and costs of investigation
incurred in appellate proceedings or in connection with the enforcement or
collection of any judgment obtained in any suit or other proceeding with
respect to the subject matter or enforcement of this consent, costs
incurred in establishing any right to indemnification, or in any action or
participation, or in connection with, any case or proceeding under Chapters
7, 11 or 13 of the Bankruptcy Code, 11 United States Code Section 101, et
seq., or any successor statues). The parties hereto expressly agree that
(i) any attorneys' fees incurred in connection with the enforcement or
collection of any judgment obtained in any suit or other proceeding with
respect to the subject matter or enforcement of this consent shall be
recoverable as a separate item, (ii) the provisions of this Section 13
shall survive the entry of any judgment with respect to the subject matter
or enforcement of this consent, and (iii) the provisions of this Section 13
will not merge, or be deemed to have merged, into any such judgment.
14. The exercise by Landlord of any remedy against Subtenant shall not preclude
Landlord's exercise of the same or other remedies against you at the same
or different times, and the exercise by Landlord of any remedy against you
shall not preclude Landlord's exercise of the same or other remedies
against failure by Landlord to exercise any remedy against Subtenant or any
failure to give notice of default to Subtenant shall not preclude
Landlord's exercise of any remedy against you. Any delay or failure by
Landlord to exercise any remedy against you or any failure to give
<PAGE> 19
December 6, 1994
Page 6
notice of default to you shall not preclude Landlord's exercise of any
remedy against Subtenant.
This consent shall be of no force or effect unless and until you (as Prime
Tenant) and the Subtenant execute and deliver to Landlord a copy of this
consent, which execution and delivery shall indicate your and Subtenant's
acknowledgment of and agreement to the foregoing terms and conditions and shall
constitute Subtenant's acknowledgment that it has received a copy of the master
Lease from you.
Sincerely,
Metropolitan Life Insurance Company,
a New York Corporation,
as Successor In Interest to
Metropolitan Tishman Tower Venture
By: /s/ [illegible]
---------------------------------
Title: A.V.P.
---------------------------------
ACKNOWLEDGED AND AGREED:
Master Tenant:
/s/ [illegible]
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------------------
Sublessee:
By: /s/ John N. Rees
---------------------------------
Title: Treasurer
---------------------------------
<PAGE> 20
EXHIBIT "A"
[floor plan]
<PAGE> 21
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE (the "Second Amendment") is dated as of
October 18, 1993, by and between METROPOLITAN LIFE INSURANCE COMPANY, a New York
corporation ("Landlord"), and CAL-SURANCE ASSOCIATES, a California corporation
("Tenant"), with reference to the following facts:
A. Landlord's predecessor-in-interest and Tenant entered into that certain
lease dated August 23, 1988, as amended by the letter from Landlord to Tenant
dated January 3, 1990 (collectively, the "Original Lease") for the premises
commonly known as 333 City Boulevard West, Rooms 900 and 1000, Orange,
california (the "Demised Premises").
B. Landlord and Tenant now desire to modify and amend the Original Lease to
reflect, among other things, the termination of all rights of Tenant to lease
certain space on the eighth floor of the Building, as more particularly set
forth below.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and other good and valuable consideration, the receipt whereof and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
1. Scope of Second Amendment. Except as expressly provided in this Second
Amendment, the original Lease shall remain in full force and effect. Except as
expressly provided in this Second Amendment, the term "Lease" as used in the
Original Lease shall refer to the Original Lease as modified by this Second
Amendment. Capitalized terms used in this Second Amendment and not otherwise
defined herein shall have the respective meanings set forth in the Original
Lease.
2. Modifications to Lease. Article 42 of the Original Lease is hereby
deleted in its entirety.
3. Certain Payments by Landlord. (a) Landlord shall reimburse or otherwise
pay Tenant certain amounts as more particularly set forth in this Paragraph 3 of
this Second Amendment, provided, however, that under no circumstances shall
Landlord be obligated to reimburse or otherwise pay Tenant any amount in excess
of an aggregate of Twenty-Two Thousand Five Hundred Dollars ($22,500) on account
of any and all obligations arising under this Paragraph 3 of this Second
Amendment.
(b) As used in this second Amendment, the term "Rent" shall mean
annual rent (but not additional rent) as determined by Landlord in accordance
with Landlord's standard practices. As used in this Second Amendment, the term
"Commission" shall mean a commission payable to a real estate licensee on
account of the sublease (and not the lease or the assignment of space within the
portion of the Demised Premises located on the ninth or tenth floor of the
Building, but not more than (i) six percent of Rent payable during the first
year of the sublease term, plus (ii) five percent of Rent payable during the
second year of the sublease term, plus (iii) four percent of Rent payable during
the third year of the
- 1 -
<PAGE> 22
sublease term, plus (iv) three percent of Rent payable during the fourth year of
the sublease term, plus (v) two percent of Rent payable during the fifth year of
the sublease term. Not later than sixty (60) days following the date Tenant
establishes to Landlord's satisfaction Tenant's entitlement thereto, (i)
Landlord shall reimburse Tenant for one-half (1/2) of all Commissions actually
paid by Tenant in connection with a sublease of space within the portion of the
Demised Premises located on the ninth or tenth floor of the Building provided
that the sublease is permitted pursuant to Article 3 and Article 58 of the
Original Lease, and (ii) Landlord shall reimburse Tenant for one-half (l/2) of
any override actually paid by Tenant to an outside real estate licensee in
connection with such permitted sublease, provided that the entire amount of the
override shall not exceed one-half (1/2) of the Commission payable in respect of
such sublease.
(c) In the event Landlord enters into a bona fide lease for a term of
five (5) years or more (a "Third-Party Lease") of all or any portion of the
eighth floor of the Building with a tenant other than Tenant (a "Third-Party
Tenant"), which Third-Party Tenant actually occupies the premises covered by
such Third-Party Lease and commences the payment of rent thereunder, Landlord
shall pay Tenant the amount of $2.25 per rentable square foot of premises
covered by such Third Party Lease not later than sixty (60) days following the
date such Third Party Tenant commences the payment of rent thereunder.
4. Compliance with Law. (a) Tenant acknowledges that the Americans with
Disabilities Act of 1990 and the Fair Housing Act of 1968 (collectively, as
amended and as supplemented by further laws from time to time, the "Acts")
imposes certain requirements upon the owners, lessees and operators of
commercial facilities and places of public accommodation, including, without
limitation, prohibitions on discrimination against any individual on the basis
of disability (which discrimination includes certain failures to design and
construct facilities for first occupancy that are readily accessible to and
usable by individuals with disabilities and certain failures, when making
alterations affecting the usability of a facility, to make the same in such a
manner that such altered portions are readily accessible to and usable by
individuals with disabilities). Accordingly Tenant agrees to take all proper and
necessary action to cause the Demised Premises to be maintained, used and
occupied in compliance with the Acts and, further, to otherwise assume all
responsibility to ensure the Demised Premises' continued compliance with all
provisions of the Acts throughout the Term.
(b) Without limiting its obligations under the Lease, Tenant
covenants and agrees to comply with all laws, rules, regulations and guidelines
now or hereafter made applicable to the Demised Premises by government or other
public authorities respecting the disposal of waste, trash, garbage and other
matter (liquid or solid), generated by Tenant, its employees, agents,
contractors, invitees, licensees, guests and visitors, the disposal of which is
not otherwise the express obligation of Landlord under the Lease, including, but
not limited to, laws, rules, regulations and guidelines respecting recycling and
other forms of reclamation (all of which are herein collectively referred to as
"Waste Management Requirements"). Tenant covenants and agrees to comply with all
rules and regulations established by Landlord to enable Landlord from time to
time to comply with Waste
- 2 -
<PAGE> 23
Management Requirements applicable to Landlord (i) as owner of the Demised
Premises and (ii) in performing Landlord's obligations under the Lease, if any.
5. Waiver. No failure or delay by a party to insist upon the strict
performance of any term, condition or covenant of this Second Amendment, or to
exercise any right, power or remedy hereunder shall constitute a waiver of the
same or any other term of this Second Amendment or preclude such party from
enforcing or exercising the same or any such other term, conditions, covenant,
right, power or remedy at any later time.
6. Tenant's Representation and Acknowledgment. Tenant hereby acknowledges
that Landlord has performed all of its obligations with respect to the Original
Premises. Tenant further acknowledges that as of the date hereof Landlord is not
in default under any of the terms of the Original Lease.
7. California Law. This Second Amendment shall be construed and governed by
the laws of the State of California.
8. Authority. This Second Amendment shall be binding upon and inure to the
benefit of the parties hereto, their respective heirs, legal representatives,
successors and assigns. Each party hereto and the persons signing below warrant
that the person signing below on such party's behalf is authorized to do so and
to bind such party to the terms of this Second Amendment.
9. Attorneys' Fees and Costs. In the event of any action at law or in
equity between the parties hereto to enforce any of the provisions hereof, any
unsuccessful party to such litigation shall pay to the successful party all
costs and expenses, including actual attorneys' fees (including costs and
expenses incurred in connection with all appeals) incurred therein by such
successful party, and such costs, expenses and attorneys' fees may be included
in and as part of such judgment. A successful party shall be any party who is
entitled to recover his costs of suit, whether or not the suit proceeds to final
judgment.
10. Entire Agreement; No Amendment. This Second Amendment constitutes the
entire agreement and understanding between the parties herein named with respect
to the subject of this Second Amendment and shall supersede all prior written
and oral agreements concerning the subject matter contained herein. Neither
Landlord nor Landlord's representatives have made any representations or
promises with respect to the Demised Premises except as herein expressly set
forth in the Original Lease or in this Second Amendment. This Second Amendment
may not be altered, amended, modified or otherwise changed in any respect
whatsoever except by a writing duly executed by authorized representatives of
the parties hereto. Each party acknowledges that it has read this Second
Amendment, fully understands all of this Second Amendment's terms and
conditions, and hereby executes this Second Amendment freely, voluntarily and
with full knowledge of its significance. This Second Amendment is entered into
by the undersigned parties freely and voluntarily and with and upon advice of
counsel.
- 3 -
<PAGE> 24
11. Severability. If any provision of this Second Amendment or the
application thereof to any person or circumstances shall be invalid or
unenforceable to any extent, the remainder of this Second Amendment and the
application of such provision to other persons or circumstances, other than
those to which it is held invalid, shall not be affected thereby and shall be
enforced to the furthest extent permitted by law, provided that the invalidity
of such provision does not materially affect the benefits accruing to any party
hereto.
12. Counterparts. This Second Amendment may be executed in duplicates or
counterparts, or both, and such duplicates or counterparts together shall
constitute but one original of the Second Amendment. Each duplicate and
counterpart shall be equally admissible in evidence, and each original shall
fully bind each party who has executed it.
13. Agreement to Perform Necessary Acts. Each party agrees that upon demand
therefor, it shall promptly perform all further acts and execute, acknowledge
and deliver all further instructions, instruments and documents which may be
reasonably necessary or useful to carry out the provisions of this Second
Amendment or to evidence, perfect or otherwise effectuate the rights and
remedies relating to this Second Amendment.
14. Captions and Headings. The titles or headings of the various paragraphs
hereof are intended solely for convenience of reference and are not intended and
shall not be deemed to or in any way be used to modify, explain or place any
construction upon any of the provisions of this Second Amendment.
IN WITNESS WHEREOF, the undersigned have duly executed this Second
Amendment as of the date first above written.
METROPOLITAN LIFE INSURANCE
COMPANY,
a New York corporation
By /s/ [illegible]
----------------------------------------
Its Investment Officer
----------------------------------------
CAL-SURANCE ASSOCIATES,
a California corporation
By /s/ Thomas R. Linn
----------------------------------------
Its Thomas R. Linn, V.P. & C.F.O.
----------------------------------------
- 4 -
<PAGE> 25
Tishman West Management Corp.
"THE CITY"
One City Boulevard West
Suite 1700
Orange, California 92668
Telephone 714-634-8500
Facsimile 714-634-9542
Cal-Surance Associates, Inc. January 3, 1990
333 City Blvd. West, Room 1000
Orange, California 92668
Re: 333 City Blvd. West, Orange CA.-
Rooms 900 & 1000
Gentlemen:
Reference is hereby made to the lease dated August 23, 1988, between the
undersigned, as Landlord, and you, as Tenant, covering the captioned premises
(the "demised premises"), as more particularly described therein (herein the
"Lease").
This is our agreement, effective the date hereof, that the Lease is amended as
follows:
1. In that substantial completion of the demised premises did not occur until
December 12, 1988, this is our agreement, effective the date hereof, that the
term of the Lease is extended so that the last day thereof shall be December 31,
1998, instead of August 31, 1998.
2. The date of "September 1, 1993" appearing in Article H, Section I, of the
Lease is changed to "January 1, 1994".
3. Article 40 of the Lease is amended in the following respects:
(a) The date of "September 1, 1998" is changed to "January 1,
1999" wherever it appears in Article 40.
(b) The date of "November 1, 1997" is changed to "March 1,
1998" in subdivision "(a)" of Article 40.
(c) The date of "August 31, 2003" is changed to "December 31,
2003" in the next-to-last paragraph of Article 40.
4. Article 41 is deleted in its entirety.
5. Article 42 is amended as follows:
<PAGE> 26
Cal-Surance Associates, Inc.
January 3, 1990
Page 2
(a) The clause ", other than the space designated in Article
41," appearing in the fourth line thereof is deleted.
(b) Tenant's rights of first refusal with respect to space on
the 8th floor of the Building, only, shall be deferred and not become effective
until June 1, 1995; however, Landlord will not lease any space on the 8th floor
of the Building to any future tenant which lease has a term, including options
to renew, in excess of sixty (60) months.
(c) For as long as Tenant's right of first refusal is in effect
as to space on the 9th floor of the Building, Landlord will not lease any space
on the 9th floor to any future tenant which lease has a term, including options
to renew, in excess of sixty (60) months.
6. Article 38 appearing in the rider to the Lease (Base Annual Rent) is amended
by deleting the first sentence in its entirety and replacing it with the
following:
"Base Annual Rent appearing in Article H of Section I hereof
shall abate for the periods (i) commencing with the first month of the term and
continuing through the fifteenth (15th) month and (ii) commencing with the
sixty-first (61st) month of the term and continuing through the sixty-third
(63rd) month; upon expiration of such periods, Tenant shall pay Base Annual Rent
at the full rental rate stated in Article H, Section I, as the same may be
increased as provided therein. The foregoing abatement of Base Annual Rent shall
not be applicable to so-called 'escalation rent', if any, which may accrue
pursuant to Article 28 of the Lease."
Tenant represents that Tenant has dealt with Tishman West Management Corp. and
only with Tishman West Management Corp., as broker, in connection with this
agreement and that, insofar as Tenant knows, no other broker negotiated this
agreement or is entitled to any commission in connection herewith.
Except as expressly amended hereby, all terms, covenants, conditions, provisions
and agreements of the Lease remain in full force and effect.
<PAGE> 27
Cal-Surance Associates, Inc.
January 3, 1990
Page 3
Kindly indicate your confirmation of the foregoing by signing this letter and
the enclosed copy hereof.
Very truly yours,
TISHMAN WEST MANAGEMENT CORP.,
THROUGH TISHMAN WEST COMPANIES,
AS AGENT FOR METROPOLITAN
TISHMAN TOWER VENTURE
By /s/ [illegible]
-------------------------------------
Vice President
CONFIRMED AND AGREED:
CAL-SURANCE ASSOCIATES, INC.
By /s/ Jonell Hart
-------------------------------------
Corporate Administrator Title
<PAGE> 28
OFFICE LEASE
In consideration of the rents and covenants hereinafter set forth, the
Landlord named in Article B of Section I hereby leases to the Tenant named in
Article C of Section I, and Tenant hereby hires from Landlord, the demised
premises described in Article F of Section I of this lease (hereinafter
referred to as "demised premises") upon the conditions set forth below, and it
is as agreed that each of the terms, covenants, provisions, and agreements
hereinafter specified shall be a condition.
Section I -- FUNDAMENTAL LEASE PROVISIONS
ARTICLE
A. Date of Lease: August 23,1998
B. Landlord: TISHMAN WEST MANAGEMENT CORP., a California
corporation, as Manager for METROPOLITAN TISHMAN TOWER
VENTURE, a joint venture
C. Tenant: CAL-SURANCE ASSOCIATES, INC., a California
corporation
D. Trade Name (if any): CAL-SURANCE GROUP and LANCER CLAIMS
SERVICE
E. Guarantor (if any): none
F. Demised Premises (Section II Article 1): the entire 10th
floor, to be commonly known as Suite 1000 and a portion of the
9th floor, to be commonly known as Suite 900, both as shown
hatched in black on the floor plans annexed hereto and made a
part hereof in the office building (the "Building") known as
333 City Boulevard West and located in the City of Orange
State of California.
G. Lease Term (Section II. Article I): Ten (10) years commencing
September 1, 1988 ______________ and expiring August 31, 1998
H. Base Annual Rent (Section II Article I): Six Hundred Seventy
Nine Thousand Two Hundred Thirty Dollars ($679,230.00)
increasing as of September 1,1993 to Nine Hundred Five
Thousand Six Hundred Forty Dollars ($905,640.00) with
additional increases if the Demised Premises are increased.
I. Use of Premises (Section II. Article 2): General office
purposes not in conflict with Article 14 of the Rules and
Regulations.
J. Address for Notice to Landlord (Section II. Article 27):
Address for Notice to Tenant:
10960 Wilshire Boulevard 2790 Skypark Drive
Los Angeles. California 90024 Torrance, California 90505
Attention: Legal Department Attention: President
N. Security Deposit (Section II, Article 30): $__________________
O. Broker(s) (Section II Article 35): Tishman West Management
Corp.
Address: 10960 Wilshire Boulevard
Los Angeles, California 90024
License Number 0-617337-1
Cooperating Broker: Cushman & Wakefield
Address: 19750 South Vermont Avenue,
Suite 100
Torrance, California 90502
License Number: 00616335
Fed I.D. No.: 152899582
<PAGE> 29
Section II - GENERAL LEASE PROVISIONS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
------- ----
<S> <C> <C>
1. Demised Premises, Term, Rent . . . . . . . . . . . . . . . . . . . . . 1
2. Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Assignment, Mortgage, Subletting . . . . . . . . . . . . . . . . . . . 1
4. Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
5. Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
6. Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . 2
7. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
8. Rules and Regulations . . . . . . . . . . . . . . . . . . . . . . . . 2
9. Liability and Indemnification and Mutual Waiver of
Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
10. Damage or Destruction . . . . . . . . . . . . . . . . . . . . . . . . 3
11. Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
12. Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
13. Access to Premises . . . . . . . . . . . . . . . . . . . . . . . . . . 4
14. Vaults, Vault Space . . . . . . . . . . . . . . . . . . . . . . . . . 4
15. Certificates of Occupance . . . . . . . . . . . . . . . . . . . . . . 4
16. Life-Safety Systems . . . . . . . . . . . . . . . . . . . . . . . . . 4
17. Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
18. Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
19. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 5
20. No Representations by Landlord . . . . . . . . . . . . . . . . . . . . 5
21. End of Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
22. Quiet Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
23. Failure to Give Possession . . . . . . . . . . . . . . . . . . . . . . 6
24. Termination, No Waiver, No Oral Change . . . . . . . . . . . . . . . . 6
25. Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . . . . . . 6
26. Inability to Perform . . . . . . . . . . . . . . . . . . . . . . . . . 6
27. Bills and Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 7
28. Increase or Decrease of Taxes or Operating Costs . . . . . . . . . . 7
29. Food, Beverages and Odors . . . . . . . . . . . . . . . . . . . . . . 8
30. Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
31. Care of Floor and Window Coverings . . . . . . . . . . . . . . . . . . 8
32. Marginal Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
33. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
34. Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
35. Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
36. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
37. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
<PAGE> 30
DEMISED PREMISES
1. Landlord hereby leases to Tenant and Tenant hereby hires from Landlord
the demised premises described in Article F of Section I.
TERM
The term of this lease shall be for the term specified in Article G of Section
I (or until such term shall sooner cease and expire, as hereinafter provided).
RENT
Tenant shall pay Landlord a base annual rental as specified in Article H of
Section I which Tenant agrees to pay in lawful money of the United States which
shall be legal tender in payment of all debts and dues, public and private, at
the time of payment, in equal monthly installments in advance on the first day
of each calendar month during said term, at the office of Landlord or such
other place as Landlord may designate, without any set off or deduction
whatsoever. The time of payment of rent and any other sums payable hereunder
is of the essence of this lease and, in addition to all other remedies
available to Landlord hereunder, all sums payable hereunder, shall bear
interest at an annual rate equal to 4% over the annual prime rate of interest
announced publicly by Citibank, N.A. in New York, New York from time to time
(but in no event in excess of the maximum rate of interest permitted by law)
after the due date until paid in full.
In addition to the amount of the base annual rental, Tenant shall pay the
amount of any rental adjustments and additional payments as and when
hereinafter provided in this lease.
OCCUPANCY
2. Tenant shall use and occupy demised premises for the purpose set forth
in Article I of Section I and for no other purpose. The character of the
occupancy of demised premises, as restricted by this Article and as further
restricted by Articles 3 and 15 and any of the Rules and Regulations attached
to this lease, or hereafter adopted, is an additional consideration and
inducement for the granting of this lease.
ASSIGNMENT, MORTGAGE, SUBLETTING
3. Neither Tenant, nor Tenant's legal representatives, successors or
assigns, shall assign, mortgage or encumber this lease, or sublet, or use or
occupy or permit demised premises or any part thereof to be used or occupied by
others, and any assignment, mortgage, encumbrance, sublease or permission shall
be voidable, at the option of Landlord and, at the further option of Landlord,
shall terminate this lease. If this lease be assigned, or if demised premises
or any part thereof be sublet or occupied by any party other than Tenant,
Landlord may, after default by Tenant, collect rent from the assignee,
subtenant or occupant, and apply the net amount collected to the rent herein
reserved, but no such assignment, subletting, occupancy or collection shall be
deemed a waiver of this covenant, or the acceptance of the assignee, subtenant
or occupant as tenant, or a release of Tenant from the further performance by
Tenant of the obligations on the part of Tenant herein contained. A transfer
of control of Tenant whereby the stock in Tenant is transferred, assigned,
hypothecated or conveyed, solely for the purpose of transferring Tenant's
responsibilities under this Lease to a third party shall be deemed an
assignment under this lease and shall be subject to all the provisions of this
Article.
Notwithstanding any contrary provision of the foregoing, but subject
to the last paragraph of this Article, Tenant may assign this lease upon the
following express conditions:
A. that the proposed assignee shall be subject to the prior written
consent of the Landlord, which consent will not be unreasonably withheld or
delayed but, without limiting the generality of the foregoing, it shall be
reasonable for Landlord to deny such consent if:
(1) the use to be made of demised premises by the proposed
assignee is (a) not generally consistent with the character
and nature of all other tenancies in the Building, or (b) a
use which conflicts with any so-called "exclusive" then in
favor of, or for any use which is the same as that stated in
any percentage lease to, another tenant of the Building or any
of Landlord's then buildings which are in the same complex as
the Building, or (c) a use which would be prohibited by any
other portion of this lease (including but not limited to any
Rules and Regulations then in effect); or
<PAGE> 31
(2) the character, moral stability, reputation and financial
responsibility of the proposed assignee are not reasonably
satisfactory to Landlord.
B. that Tenant shall pay to Landlord Landlord's then standard reasonable
processing fee and shall reimburse Landlord for all reasonable
attorneys' fees incurred by Landlord in connection therewith:
C. that the proposed assignee shall execute an agreement pursuant to
which it shall agree to perform faithfully and be bound by all of the
terms, covenants, conditions, provisions and agreements of this lease:
D. that an executed duplicate original of said assignment and assumption
agreement, on Landlord's then standard form, shall be delivered to
Landlord within five days after the execution thereof, and that such
assignment shall not be binding upon Landlord until the delivery
thereof to Landlord and the execution and delivery of Landlord's
consent thereto, and
E. that the consent by Landlord to an assignment shall not in anywise be
construed to relieve Tenant or the assignee from obtaining the express
consent in writing of Landlord to any further assignment or to release
Tenant from any liability whether past, present or future under this
lease or to release Tenant from any liability under this lease because
of Landlord's failure to give notice of default under or in respect of
any of the terms, covenants, conditions, provisions or agreements of
this lease.
Landlord shall have the option to terminate this lease, rather than approve the
assignment hereof. If Landlord selects to exercise this option, it will give
thirty (30) days prior written notice of such election during which time Tenant
may elect to rescind its request by giving written notice of such rescission to
Landlord within such thirty (30) day period.
ALTERATIONS
4. Tenant shall make no alterations, decorations, additions or
improvements in or to demised premises without Landlord's prior written
consent, and then only by contractors or mechanics approved in advance in
writing by Landlord and only upon such conditions as Landlord may impose. All
such work shall be done at such times and in such manner as Landlord may from
time to time designate. All work done by Tenant shall be performed in full
compliance with all laws, rules, orders, ordinances, directions, regulations
and requirements of all governmental agencies, offices, departments, bureaus
and boards having jurisdiction, and in full compliance with the rules, orders,
directions, regulations and requirements of the Insurance Services Office and
of any similar body. Before commencing any work, Tenant shall (a) give
Landlord at least five days written notice of the proposed commencement of such
work in order to give Landlord an opportunity to prepare, post and record such
notice as may be permitted by law to protect Landlord from having its interest
in demised premises or the Building made subject to a mechanic's lien and (b)
shall secure, at Tenant's own cost and expense, a completion and lien indemnity
bond, satisfactory to Landlord, for said work. Any mechanic's lien filed
against demised premises or against the Building or the land upon which the
Building is located or any of the areas used in connection with the operation
of the Building for work claimed to have been done for, or materials claimed to
have been furnished to Tenant, shall be discharged by Tenant, by bond or
otherwise, within 10 days after the filing thereof, at the cost and expense of
Tenant. All alterations, additions or improvements upon demised premises, made
by either party, including, without limiting the generality of the foregoing,
all panelling, partitions, railings, mezzanine floors, galleries and the like
(but not including cabinets, furniture, moveable partitions, trade fixtures or
other moveable items) shall, become the property of Landlord and shall remain
upon, and be surrendered with demised premises, as a part thereof at the end of
the term hereof. If Tenant shall remove any property from demised premises,
Tenant shall repair any damage arising from such removal.
REPAIRS
5. Tenant shall take good care of demised premises and fixtures therein
and, subject to the provisions of Articles 4, 10 and 49(b) thereof, shall make
all other repairs necessary to keep the demised premises and the Building in
good order and condition and which repairs shall be in quality and class equal
to the original work. Landlord, however, shall repair any damage to the
demised premises caused by Tenant or Tenant's agents, servants, employees,
contractors, visitors or licensees (except to the extent such damage is covered
by insurance, the cost of which is included in Operating Costs, as defined in
Article 28) and any and all other nonstructural damage except that (i) covered
by the insurance referred to above, (ii) caused by the negligence of Landlord,
its agents, servants, employees, visitors or licensees, (iii) included within
Landlord's duty to repair as hereinafter set forth or (iv) caused by other
tenants in the Building or their respective agents, servants, contractors,
visitors or licensees, provided that Landlord
<PAGE> 32
is paid the proceeds (or equivalent thereof) resulting from payments made under
the insurance policies obtained by Tenant under Article 59; repair the Building
plumbing, heating, ventilating or air conditioning and electrical systems and
make structural repairs within demised premises arising from ordinary wear and
tear or through causes over which Tenant has no control. Landlord may repair,
at the expense of Tenant, all damage or injury to demised premises, or to the
Building or to its fixtures, appurtenances or equipment or to any of the areas
used in connection with the operation of the Building done by Tenant or
Tenant's agents, servants, employees, contractors, visitors or licensees or
caused by moving property of Tenant in or out of the Building, or by
installation or removal of furniture or other property, or resulting from fire,
heating, ventilating or air conditioning unit or system, short circuits,
overflow or leakage of water, steam, gas, sewer gas, sewage or odors, or by
frost or by bursting or leaking of pipes or plumbing works, or gas, or from any
other cause, due to the carelessness, negligence or improper conduct of Tenant
or Tenant's agents, servants, employees, contractors, visitors or licensees.
Landlord shall have the right to replace, at the expense of Tenant, any and all
plate and other glass damaged or broken by or due to the negligence of Tenant,
Tenant's agents, servants or employees. Except as provided in Article 10
hereof, there shall be no allowance to Tenant for a diminution of rental value,
and no liability on the part of Landlord by reason of inconvenience, annoyance
or injury to business arising from the making of, or the failure to make, any
repairs, alterations, decorations, additions or improvements in or to any
portion of the Building or any of the areas used in connection with the
operation thereof, or demised premises, or in or to fixtures, appurtenances or
equipment, or by reason of the act or neglect of Tenant or any other tenant or
occupant of the Building; and in no event shall Landlord be responsible for any
consequential damages arising or alleged to have arisen from any of the
foregoing matters. Tenant hereby waives all rights under the provisions of
Sections 1932, 1933, 1941 and 1942 of the Civil Code of the State of California
and all rights under any law in existence during the term of this lease
authorizing a tenant to make repairs at the expense of a landlord or to
terminate a lease upon the complete or partial destruction of the leased
premises.
REQUIREMENTS OF LAW
6. Tenant shall comply with all laws, rules, orders, ordinances,
directions, regulations and requirements of federal, state, county and
municipal authorities pertaining to Tenant's use of demised premises, and with
any direction of any public officer or officers, pursuant to law, which shall
impose any duty upon Landlord or Tenant with respect to the use or occupation
of demised premises, and shall not do or permit to be done, any act or thing
upon demised premises which will invalidate or be in conflict with any
insurance policy covering the Building or any of the areas used in connection
with the operation thereof or its fixtures, appurtenances or equipment or the
property located therein, and shall not do or permit to be done any act or
thing upon demised premises which shall or might subject Landlord to any
liability or responsibility for injury to any person or persons or to any
property by reason of any business or operation being carried on upon demised
premises or for any other reason and Tenant hereby indemnifies Landlord against
any such liability or responsibility. Tenant shall not place a load upon any
floor of demised premises exceeding the floor load per square foot area which
such floor was designed to carry and which is allowed by law. Business
machines and mechanical equipment shall be placed and maintained by Tenant at
Tenant's expense in settings sufficient in Landlord's judgment to absorb and
prevent vibration, noise and annoyance.
INSURANCE
Tenant shall comply with all rules, orders, directions, regulations and
requirements of the Insurance Services Office or any other similar body, and
shall not do, or permit anything to be done, in or upon demised premises, or
bring or keep anything therein, which shall increase the rate, of any insurance
on the Building or any of the areas used in connection with the operation
thereof or its fixtures, appurtenances or equipment or on property located
therein. If by reason of failure of Tenant to comply with the provisions of
the provisions of this Article, any insurance rate shall at any time be higher
than it otherwise would be, then Tenant shall reimburse Landlord for that part
of all such premiums thereafter paid by Landlord which shall have been charged
because of such violation by Tenant, and shall make such reimbursement upon the
first day of the month following such outlay by Landlord. In any action or
proceeding wherein Landlord and Tenant are parties, a schedule or "make-up" of
rate for the Building or demised premises issued by the Insurance Services
Office, or other body making insurance rates for the Building or demised
premises, shall be conclusive evidence of the facts therein stated and of the
several items and charges in the insurance rate then applicable to demised
premises.
<PAGE> 33
SUBORDINATION
7. This lease is subject and subordinate to all ground or underlying
leases, mortgages and deeds of trust which now affect the real property of
which demised premises forms a part or affect the ground or underlying leases,
and to all renewals, modifications, consolidations, replacements and extensions
thereof. It is further agreed that this lease may, at the option of Landlord,
be made subordinate to any ground or underlying leases, mortgages, or deeds of
trust which may hereafter affect the real property of which demised premises
forms a part or affect the ground or underlying leases, and that Tenant, or
Tenant's successors-in-interest, will execute and deliver upon the demand of
Landlord any and all instruments desired by Landlord subordinating in the
manner requested by Landlord this lease to such lease, or mortgage or deed of
trust. Landlord is hereby irrevocably appointed and authorized as agent and
attorney-in-fact of Tenant to execute and deliver all such subordination
instruments in the event Tenant fails to execute and deliver said instruments
within five days after written request therefor.
ATTORNMENT
Tenant agrees that, at the option of the landlord under any ground lease now or
hereafter affecting the real property of which demised premises forms a part,
Tenant shall attorn to said landlord in the event of the termination or
cancellation of such ground lease and, if requested by said landlord, enter
into a new lease with said landlord (or successor ground lessee designated by
said landlord) for the balance of the term then remaining hereunder upon the
same terms and conditions as those herein provided.
MORTGAGES
In the event of foreclosure or exercise of power of sale under any mortgage or
deed of trust now or hereafter affecting the real property of which demised
premises forms a part, the holder of any such mortgage or deed of trust (or
purchaser at any sale pursuant thereto) shall have the option (a) supplementing
this Article to require Tenant to attorn to such holder or purchaser and to
enter into a new lease with such holder or purchaser (as Landlord) for the
balance of the term then remaining hereunder upon the same terms and conditions
as those herein provided, or (b) notwithstanding this Article, to elect that
this lease become or remain as the case may be, superior to said mortgage or
deed of trust.
Tenant shall, upon request by any such holder or purchaser, execute
and deliver any and all instruments desired by such holder or purchaser
evidencing the superiority of this lease to any said mortgage or deed of trust.
In the event that Landlord or any such holder at any time requests
that this Article contain different language to the same general effect, Tenant
agrees to promptly execute and deliver an amendment of this lease memorializing
the same.
RULES AND REGULATIONS
8. Tenant and Tenant's agents, servants, employees, contractors, visitors
and licensees shall observe faithfully and comply strictly with the Rules and
Regulations attached hereto and made a part hereof, and such other and further
reasonable Rules and Regulations as Landlord or Landlord's agents may from time
to time adopt, provided that no such Rules and Regulations shall unreasonably
impair Tenant's right to use the demised premises as general offices for
insurance-related services. Notice of any additional Rules or Regulations
shall be given in such manner as Landlord may elect. In case Tenant disputes
the reasonableness of any Rule or Regulation hereafter made or adopted by
Landlord or Landlord's agents, the parties hereto agree to submit the question
of the reasonableness of such Rule or Regulation for arbitration in the county
seat of the county in which demised premises is located in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, whose
determination shall be final and conclusive upon the parties hereto. No
dispute of the reasonableness of any Rule or Regulation shall be deemed a
compliance upon Tenant's part with the foregoing provisions of this Article
unless the same has been raised by service of a notice upon Landlord within 10
days after notice of the adoption of any such Rule or Regulation has been
served upon Tenant. Landlord shall not be liable to Tenant for violation of
any said Rules and Regulations, or the breach of any term, covenant, condition,
provision or agreement in any lease, by any other tenant or other party in the
Building.
LIABILITY AND INDEMNIFICATION AND MUTUAL WAIVER OF SUBROGATION
9. Neither Landlord nor Landlord's agents shall be liable for any damage
to property entrusted to them, their agents, servants, employees or to the
Building personnel, nor for the loss of any property by theft or otherwise.
Neither Landlord nor Landlord's agents shall be liable for any injury or death
of persons or for damages to or
<PAGE> 34
destruction of property resulting from falling plaster, steam, gas,
electricity, water, or rain which may leak from any part of the Building or
from the pipes, appliances or plumbing works of the same or from the street or
subsurface or from any other place or resulting from dampness or any other
cause of whatsoever nature, and Tenant hereby indemnifies Landlord against any
and all claims, liabilities, losses, damages, costs and expenses (including but
not limited to attorneys' fees and expenses) whatsoever arising out of the
foregoing, provided that neither the forgoing indemnification obligation nor
the waivers contained herein shall apply with respect to any claim, demand,
liability, loss or damage caused by or due to the negligence or misconduct, of
Landlord, Landlord's agents, servants or employees. Neither Landlord nor
Landlord's agents shall be liable for any such damage caused by other tenants
or parties in the Building, or any of the areas used in connection with the
operation of the Building or for interference with the light or other
incorporeal hereditaments or caused by construction of any private, public or
quasi public work; nor shall Landlord be liable for any latent defect in the
Building though Landlord, if required by Article 5 of this Lease, shall make
good faith effort to repair any latent defect of which it is given notice. If
at any time any windows of demised premises become darkened, for any reason
whatsoever, including, but not limited to Landlord's own acts, Landlord shall
not be liable for any damage that Tenant may sustain thereby and Tenant shall
not be entitled to any compensation or abatement of rent or release from any of
the obligations of Tenant hereunder because of such darkening. Tenant shall
reimburse Landlord for all expenses, damages or fines incurred or suffered by
Landlord by reason of any breach, violation or nonperformance by Tenant or
Tenant's agents, servants, employees, contractors, visitors or licensees of any
term, covenant, condition, provision or agreement of this lease, or by reason
of damage to persons or property caused by moving property in or out of the
Building or by the installation or removal of furniture of other property of or
for Tenant or by reason of or arising out of the occupancy or use by Tenant of
demised premises of the Building or any of the areas used in connection with
the operation of said Building or any part of any thereof, or from any other
cause due in whole or in part to the negligence or other wrongful act of
Tenants or Tenant's agents, servants, employees, contractors, visitor or
licensees. Tenant shall give immediate notice to Landlord in case of fire or
accident to or defect in the Building or any of its fixtures, appurtenances or
equipment.
MUTUAL WAIVER OF SUBROGATION
10. Notwithstanding the provisions of this Article: Landlord waives any
and all rights of recovery against Tenant for or arising out of damage to or
destruction of the Building, or demised premises, from causes then included
under standard fire and extended coverage insurance policies or endorsements,
whether or not such damage or destruction shall have been caused by the
negligence of Tenant, its agents, servants, employees, contractors, visitors or
licensees. Tenant waives any and all rights of recovery against Landlord for
or arising out of damage to or destruction of any property of Tenant from
causes then included under standard fire and extended coverage insurance
policies or endorsements, whether or not caused by the negligence of Landlord,
its agents, servants, employees, contractors, visitors or licensees, but only
to the extent that Tenant's insurance policies then in force permit such
waiver. Landlord and Tenant represent that their present insurance policies
now in force permit such waiver.
EMINENT DOMAIN
11. If the whole or any part of demised premises shall be taken or
condemned or all or any portion of the term here by any competent authority for
any public or quasi public use or purpose, or transferred by agreement in
connection with such public or quasi public use or purpose with or without any
condemnation action or proceeding being instituted, then, and in either such
event, the term of this lease shall, at the option of the Landlord, terminate
as of the date when the possession of the part so taken shall be required for
such use or purpose, and without apportionment of the award, such that the
entire award is paid to Landlord. The then current rental, however, shall in
any such case be apportioned. Tenant hereby expressly assigns to Landlord any
award which may be made in any taking or condemnation as therein provided,
together with any and all rights of Tenant now or hereafter arising in or to
the same or any part thereof.
SERVICES
ELEVATORS, HEATING, VENTILATING AND AIR CONDITIONING
12. Landlord shall: (a) provide automatic elevator facilities on normal
business days from 8:00 a.m. to 6:00 p.m. except Saturdays, when the hours
shall be 8:00 a.m. to 1:00 p.m., and have one elevator available at all other
times; (b) on normal business days from 8:00 a.m. to 6:00 p.m. except
Saturdays, when the hours shall be 8:00 a.m. to 1:00 p.m. (and at other times
for a reasonable additional charge to be fixed by Landlord) ventilate demised
<PAGE> 35
premises and furnish heating or air conditioning when in the judgment of
Landlord it may be required for the comfortable occupancy of demised premises.
Tenant agrees to keep and cause to be kept closed all doors from demised
premises, and the windows in demised premises and Tenant agrees to cooperate
fully at all times with Landlord and to abide by all reasonable regulations and
requirements which Landlord may prescribe for the proper functioning and
protection of the heating, ventilating and air conditioning system. Tenant
shall not install or use in demised premises any equipment which would generate
heat so as to adversely affect the heating, ventilating and air conditioning
system. Landlord, throughout the term of this lease, shall have free access to
any and all mechanical installations of Landlord or Tenant, including, but not
limited to, air conditioning, fan, ventilating and machine rooms, telephone
rooms and electrical closets. Tenant agrees that there shall be no
construction of partitions or other obstructions which might interfere with
Landlord's free access thereto, or interfere with the moving of Landlord's
equipment to or from the enclosures containing said installations. Tenant
further agrees that neither Tenant, nor its agents, servants, employees,
contractors, visitors or licensees shall at any time enter the said enclosures
or tamper with, adjust, touch or otherwise in any manner affect Landlord's said
mechanical installations; ELECTRICITY (c) provide electricity for "Building
Standard" lighting and normal office business machine (not including computers
or electronic data processing or ancillary equipment) purposes only. Tenant
agrees not to use any apparatus or device in, or upon, or about demised
premises which may in any way increase the amount of such electricity usually
furnished or supplied to said premises and Tenant further agrees not to connect
any apparatus or device to the wires, conduits or pipes, or other means by
which such electricity is supplied, for the purpose of using additional or
unusual amounts of electricity, without the prior written consent of Landlord.
If Tenant uses the same to excess or follows a regular practice of using
electricity beyond the normal business hours of 8:00 a.m. to 6:00 p.m. on
normal business days and of 8:00 a.m. to 1:00 p.m. on Saturdays. Landlord
shall have the right to estimate from time to time (both retroactively and
prospectively) the amount that Tenant should pay on account thereof, and
Tenant, after notice by Landlord of such estimate or revised estimate, agrees
to pay such amount on the first day of each calendar month thereafter or, if
such estimate be made during the last month of the term or after its
expiration, promptly upon demand by Landlord. Upon Landlord's consent as
referenced above Tenant agrees to pay the amount attributable to such increase
as set forth in the immediate preceding sentence. At all times Tenant's use of
electric current shall never exceed the capacity of the feeders to the Building
or the risers or wiring installation. Tenant shall not install or use or
permit the installation or use in demised premises, of any computer or
electronic data processing or ancillary equipment or any other electrical
apparatus designed to operate on electrical current in excess of 110 volts,
without the prior written consent of Landlord: WATER (d) furnish water for
drinking and lavatory purposes only, but if Tenant requires, uses or consumes
water for any purpose in addition to ordinary drinking and lavatory purposes,
of which fact Tenant constitutes Landlord to be the sole judge. Landlord may
install a water meter and thereby measure Tenant's water consumption for all
purposes. Tenant shall pay Landlord for the cost of the meter and the cost of
the installation thereof and throughout the duration of Tenant's occupancy.
Tenant shall keep said meter and installation equipment in good working order
and repair at Tenant's own cost and expense, in default of which Landlord may
cause such meter and equipment to be replaced or repaired and collect the cost
thereof from Tenant. Tenant agrees to pay for water consumed, as shown on said
meter, as and when bills are rendered and on default in making such payment
Landlord may pay such charges and collect the same from Tenant; CLEANING (e)
cause demised premises to be kept clean, provided the same are used exclusively
as ordinary desk-type offices and are kept reasonably in order by Tenant, and,
if to be kept clean by Tenant, no one other than persons approved in advance in
writing by Landlord shall be permitted to enter demised premises for such
purposes. If demised premises or any part thereof is not used exclusively as
ordinary desk-type offices, same shall be kept clean and in order by Tenant, at
Tenant's expense, and to the satisfaction of Landlord, and by persons approved
in advance in writing by Landlord. Tenant shall pay to Landlord the cost of
removal of any of Tenant's refuse and rubbish, to the extent that the same
exceeds the refuse and rubbish usually attendant upon the use of demised
premises exclusively as ordinary desk-type offices.
Tenant shall at all times maintain in good repair at its own cost and
expense all sinks and other plumbing facilities and equipment attached thereto.
Tenant may elect to install in the demised premises and which is in addition to
building standard tenant improvements and not installed with the Construction
Credit (as defined in Article 41). Tenant hereby indemnifies Landlord against
any and all claims, liabilities, losses, damages, costs and expenses whatsoever
(including, but not limited to attorneys' fees and expenses) whether suffered
by Landlord or other occupants or persons in the Building or any of the areas
uses in connection with the operation thereof arising out of the matters
referred to in the next preceding sentence, unless caused by or due to the
negligence of Landlord,
<PAGE> 36
Landlord's agents, servants or employees. Landlord shall not be obligated to
clean or provide supplies for any such plumbing facilities or equipment
attached thereto, and if the rooms in which any such facilities or equipment
are located require cleaning in excess of that normally provided by Landlord
for ordinary desk-type office space, including, without limitation, kitchen
floors and counter tops. Tenant shall, at Tenant's expense, cause any such
excess cleaning to be performed only by a contractor approved in advance in
writing by Landlord. Landlord hereby reserves the right, without limiting the
generality of the foregoing, to require that any such cleaning be performed by
Landlord's regular cleaning contractor for the Building. Nothing herein
contained shall be construed to confer upon Tenant the right to install any
plumbing facilities without the prior written consent of Landlord. Landlord,
as part of the Operation Expenses, shall remain responsible for the care and
maintenance of each floor's standard restroom facilities unless any care of
maintenance is required as a result of the negligence of misconduct of Tenant,
Tenant's agents, servants or employees.
Landlord reserves the right to stop service of the elevator, plumbing,
heating, ventilating, air conditioning, and electric or other mechanical
systems, or cleaning services, when necessary by reason of accident or
emergency or for inspection, repairs, alterations, decorations, additions or
improvements, which in the judgment of Landlord are desirable or necessary to
be made, until same shall have been completed, and shall further have no
responsibility or liability for failure to supply any of such services in such
instance.
ACCESS TO PREMISES
13. Tenant shall permit Landlord to use and maintain pipes and conduits in
and through demised premises, provided the same are not visible to Tenant and
do not interfere with Tenant's use and occupancy of the demised premises.
Landlord and Landlord's agents shall have the right to enter demised premises
at reasonable times with reasonable notice (except in those emergencies where
it is impractical to give notice), to examine the same and to make such
repairs, alterations, decorations, additions and improvements as Landlord may
deem necessary or desirable, and Landlord shall be allowed to take all material
into and upon demised premises that may be required therefor without the same
constituting an eviction of Tenant in whole or in part, and subject to the
provisions of Article 10, the rent reserved shall in no wise abate while said
repairs, alterations, decorations, additions or improvements are being made, by
reason of inconvenience, annoyance, or injury to the business of Tenant because
of the prosecution of any such work, or otherwise. Landlord and Landlord's
agents are expressly granted permission to inspect demised premises at any
reasonable time and to show demised premises at any reasonable time to
prospective tenants, mortgages, purchasers, lessees of the Building and other
persons with a business interest therein. If, during the last month of the
term, Tenant shall have removed all or substantially all of Tenant's property
therefrom, Landlord may immediately enter and alter, renovate and redecorate
demised premises, without elimination or abatement of rent, or other
compensation, and such acts shall have no effect upon this lease. If Tenant
shall not be personally present to open and permit an entry into demised
premises at any time, when for an reason an entry therein shall be necessary or
permissible hereunder. Landlord or Landlord's agents may enter the same by a
master key, or may forcibly enter the same, without rendering Landlord or such
agents liable therefor (if during such entry Landlord or Landlord's agents
shall accord reasonable care to Tenant's property), and without in any manner
affecting the obligations, terms, covenants, conditions, provisions or
agreements of this lease. Landlord shall have the right to change the
arrangement and location of entrances and passageways, doors and doorways, and
corridors, elevators, stairs, toilets, and other public parts of the Building,
and after reasonable notice, to change the name, number and designation by
which either the complex of which the Building is a part or the Building is
commonly known. Nothing herein contained, however, shall be deemed or
construed to impose upon Landlord any obligation, responsibility or liability
whatsoever, for the care, supervision or repair of the Building or any part
thereof, other than as otherwise provided in this lease. Notwithstanding the
above, Landlord shall provide card key access to the ninth floor of the
Building so long as Tenant is the sole occupant thereof and to the tenth floor
of the Building after the hours set forth in Section II Article 12 so long as
Tenant is the sole occupant thereof.
14. [Article deleted.]
CERTIFICATES OF OCCUPANCY
15. Tenants shall not at any time use or occupy demised premises in
violation of the certificates of occupancy issued for the Building, and in the
event that any department of the City or County in which the Building is
located, or of the State of California shall hereafter at any time contend or
declare that demised premises are used for a purpose which is in violation of
such certificate or certificates of occupancy. Tenant shall, upon 5 days
notice from
<PAGE> 37
Landlord or any governmental agency immediately discontinue such use of demised
premises. Failure by Tenant to discontinue such use after such notice shall be
considered a default under this lease and Landlord shall have the right to
terminate this lease immediately, and in addition thereto shall have the right
to exercise any and all rights and privileges and remedies given to Landlord by
and pursuant to the provisions of Article 18 hereof The statement in this lease
of the nature of the business to be conducted by Tenant in demised premises
shall not be deemed or construed to constitute a representation or guaranty by
Landlord that such business is lawful or permissible or will continue to be
lawful or permissible under any certificate of occupancy issued for the
Building, or otherwise permitted by law.
LIFE-SAFETY SYSTEMS
16. A sprinkler system or so called life safety system shall be installed
in the Building and if any such system or any of its appliances shall be
damaged or injured or not in proper working order by reason of any act or
omission of Tenant, Tenant's agents, servants, employees, contractors, visitors
or licensees, Tenant shall forthwith restore the same to good working
condition: and if the Insurance Service Office or any other similar body or
any bureau, department or official of the state, county or city government, or
any governmental authority having jurisdiction, require that any changes,
modifications, alterations, or additional equipment be made or supplied in or
to any such system by reason of any changes in existing law or in the location
of partitions, trade fixtures, or other contents of demised premises from those
existing on the commencement date of this Lease or by reason of any change in
Tenant's business as permitted by this lease. Tenant shall, at Tenant's
expense, promptly make and supply such changes, modifications, alterations or
additional equipment with respect to the demised premises.
BANKRUPTCY
17. (A) Prior to Term. If at any time prior to the date herein fixed as
the commencement of the term of this lease there shall be filed by or against
Tenant in any court pursuant to any statute either of the United States or of
any State of petition in bankruptcy or insolvency or for reorganization or for
the appointment of a receiver or trustee or conservator of all or a portion of
Tenant's property, or if Tenant makes an assignment of the benefit of
creditors, this lease shall ipso facto be canceled and terminated and in such
event neither Tenant nor any person claiming through or under Tenant or by
virtue of any statute or of an order of any court shall be entitled to
possession of demised premises and Landlord, in addition to the other rights
and remedies given by subdivision (C) hereof or by virtue of any other
provision in this lease contained or by virtue of any statute or rule of law,
may retain as damages any rent, security deposit or moneys received by it from
Tenant or others on behalf of Tenant.
(B) During Term. If at the date fixed as the commencement of the
term of this lease or if at any time during the term hereby demised there shall
be filed by or against Tenant in any court pursuant to any statute either of
the United States or of any State a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee or conservator
of all or a portion of Tenant's property, or if Tenant makes an assignment for
the benefit of creditors, this lease, at the option of Landlord exercised
within a reasonable time after notice of the happening of any one or more of
such events, may be canceled and terminated and in such event neither Tenant
nor any person claiming through or under Tenant of by virtue of any statute or
of an order of any court shall be entitled to possession or to remain in
possession of demised premises but shall forthwith quit and surrender demised
premises, and Landlord in addition to the other rights and remedies granted by
subdivision (C) hereof or by virtue of any other provision in this lease
contained or by virtue of any statute or rule of law, may retain as damages any
rent, security, deposit or monies received by it from Tenant or others on
behalf of Tenant.
(C) Measure of Damages. In the event of the termination of this
lease pursuant to subdivisions (A) or (B) of this Article. Landlord shall be
entitled to the same rights and remedies as those set for the in subdivisions
(D) and (E) of Article 18 and in Article 21 of this lease.
(D) In the event of the occurrence of any of the events specified
in this Article. If Landlord shall not choose to exercise, or by law shall not
be able to exercise, its rights hereunder to terminate this lease upon the
occurrence of such events, then, in addition to any other rights of Landlord
hereunder or by law, (i) Landlord shall not be obligated to provide Tenant with
any of the services specified in Article 12, unless Landlord has received
compensation in advance for such services, and the parties agree that
Landlord's estimate of the compensation required with respect to such services
shall control, and (ii) neither Tenant, as debtor-in-possession, nor any
trustee
<PAGE> 38
or other person (herein after collectively called the "Assuming Tenant" ) shall
be entitled to assume this lease unless, on or before the date of such
assumption, the Assuming Tenant (x) cures, or provides adequate assurance that
the latter will promptly cure, any existing default under this lease, (y)
compensates, or provides adequate assurance that the Assuming Tenant will
promptly compensate, Landlord for any pecuniary loss (including, without
limitation, attorney's fees and disbursements) resulting from such default, and
(z) provides adequate assurance of future performance under this lease, it
being covenanted and agreed by the parties that, for such purposes, any cure or
compensation shall be effected by the immediate payment of any monetary default
or any required compensation, or the immediate correction or bonding of any
non-monetary default; any "adequate assurance" of such cure or compensation
shall be effected by the establishment of an escrow fund for the amount at
issue or by bonding, and "adequate assurance" of future performance shall be
effected by the establishment of an escrow fund for the amount at issue or by
bonding, it being covenanted and agreed by Landlord and Tenant that the
foregoing provision was a material part of the consideration for this lease.
DEFAULT
18. (A) It shall, at Landlord's option, be deemed a breach of this lease
if (1) Tenant defaults (a) in the making of any payment of money pursuant to
this lease and such default continues for more than ten (10) days from the date
on which the same is due, or (b) in filling any other term, covenant,
condition, provision or agreement of this lease if said default under this
clause (b) continues to exist at the expiration of 30 days after notice thereof
given by Landlord to Tenant or (2) any execution or attachment shall be issued
against substantially all of Tenant's property and shall not be discharged
within 60 days thereafter or (3) demised premises shall be taken or occupied by
someone other than Tenant notwithstanding the foregoing, Tenant shall not be in
breach of Section I (a) of this Article 18 the first time, in any calendar
year, Tenant fails to make payment of any money due pursuant to this Lease,
provided Tenant makes such payment within three (3) days after the date
Landlord gives written notice to Tenant that such payment was not paid when
due.
(B) In the event that Landlord elects, pursuant to subdivision (A)
of this Article, to declare a breach of this lease, then Landlord shall have
the right to give Tenant three days notice of intention to end the term of this
lease and thereupon' at the expiration of aid three days, the term of this
lease shall expire as fully and completely as if that day were the day herein
definitely fixed for the expiration of the term hereof and Tenant shall then
quit and surrender demised premises to Landlord, but Tenant shall remain liable
as hereinafter provided. If Tenant fails to so quit and surrender demised
premises as aforesaid, Landlord shall have the right, without notice, to
re-enter demised premises either by force or otherwise and dispossess Tenant
and the legal representatives of Tenant and all other occupants of demised
premises by unlawful detainer or other summary proceedings, or otherwise, and
remove their effects and regain possession of demised premises (but Landlord
shall not be obligated to effect such removal) and Tenant hereby waives service
of notice of intention to re-enter or to institute legal proceedings to that
end.
(C) In the event of any breach of this lease by Tenant (and
regardless of whether or not Tenant has abandoned demised premises), this lease
shall not terminate unless Landlord, at Landlord's option, elects at any time
when Tenant is in breach of this lease to terminate Tenant's right to
possession as provided in subdivision (B) of this Article or at Landlord's
further option, by the giving of any notice (including but not limited to any
notice preliminary or prerequisite to the bringing of legal proceedings in
unlawful detainer) terminating Tenant's right to possession . For so long as
this lease so continues in effect, Landlord may enforce all of Landlord's
rights and remedies under this lease, including the right to recover all rent
as it becomes due hereunder. For the purposes of this subdivision (C), the
following shall not constitute termination of Tenant's right to possession:
(1) acts of maintenance or preservation or efforts to re-let demised premises,
or (2) the appointment of a receiver upon initiative of Landlord to protect
Landlord's interest under this lease.
(D) In the event of termination of this lease or termination of
Tenant's right to possession (as the result of Tenant's breach of this lease or
pursuant to Article 17) Landlord shall have the right:
(1) To remove any and all persons and property from demised
premises, with or without legal process, and pursuant to such rights and
remedies as the laws of the State of California shall then provide or permit,
but Landlord shall not be obligated to effect such removal. Said property may,
at Landlord's option, be stored or otherwise dealt with as provided within this
lease or as such laws may then provide or permit, including but not
<PAGE> 39
limited to the right of Landlord to sell or otherwise dispose of the same or to
store the same, or any part thereof, in a warehouse or elsewhere at the expense
and risk of and for the account of Tenant.
(2) To recover from Tenant damages, which shall include but shall
not be limited to: (a) The worth, at the time of award, of the amount by which
the unpaid rent (including but not limited to escalation rent pursuant to
Article 28 even if determined at a later date) for the balance of the term
after the time of award exceeds the amount of such rental loss that Tenant
proves could be reasonably avoided for the same period: and (b) Such expenses
as Landlord may incur for legal expenses, attorneys' fees, court costs, for
re-letting ( including but not limited to advertising), brokerage, for putting
demised premises in good order, condition and repair, for preparing the same
for re-letting, and for keeping demised premises in good order, condition and
repair (before and after Landlord has prepared the same for re-letting), and
all costs (including but not limited to attorneys' and receivers' fees)
incurred in connection with the appointment of the performance by any receiver.
(3) To enforce, to the extent permitted by the laws of the State
of California then in force and effect, any other rights or remedies set forth
in this lease or otherwise applicable hereto by operation of law or contract.
(E) In the event of a breach or threatened breach by Tenant of any
of the terms, covenants, conditions, provisions or agreements of this lease.
Landlord shall additionally have the right of injunction and Tenant agrees to
pay the premium for the any bond required in connection with such injunction.
Mention in this lease of any particular remedy shall not preclude Landlord from
any other remedy at law or in equity.
(F) Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future law in the event of
Tenant's being evicted or dispossessed for any cause, or in the event of
Landlord's obtaining possession of demised premises, by reason of the violation
by Tenant of any of the terms, covenants, conditions, provisions or agreements
of this lease, or otherwise.
FEES AND EXPENSES
19. If Tenant shall default in the performance of any obligation on
Tenant's part to be performed under this lease. Landlord may immediately, or
at any time thereafter, after 10 days prior written notice to Tenant, or such
shorter notice, if any as may be reasonable in the event of an emergency,
perform the same for the account of Tenant. If Landlord at any time 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 (including but not limited to
employment of attorneys or incurring of costs), by reason of the failure of
Tenant to comply with any term, Covenant, conditions, provision or agreement
hereof, or, if Landlord is compelled to incur or elects to incur any expense
(including but not limited to) reasonable attorneys' fees in instituting,
prosecuting or defending any action or proceeding whether or not such action or
proceeding proceeds to judgment) by reason of any default to Tenant hereunder,
the sum or sums so paid or incurred by Landlord (with interest at an annual
rate equal to 4% over the annual prime rate of interest announced publicly by
Citibank, N.A. in New York from time to time, but in no event in excess of the
maximum rate of interest permitted by law) shall be due from Tenant to Landlord
promptly upon demand by Landlord.
NO REPRESENTATIONS BY LANDLORD
20. Neither Landlord nor Landlord's agents have made any representations
or promises with respect to the Building or demised premises except as herein
expressly set forth. The taking possession of demised premises by Tenant shall
be conclusive evidence, as against Tenant, that Tenant accepts the same in its
then "as is" condition and that demised premises and the Building were in good
and satisfactory condition at the time such possession was so taken. The
foregoing shall not be construed to relieve Landlord of its obligations to
repair "punch list" items as required under the Work Letter or to repair
"latent-defects" or to make other repairs as provided in Article 5.
END OF TERM
21. Upon the expiration or other termination of the term of this lease,
Tenant shall quit and surrender to Landlord demised premises, broom clean, in
as good order, condition and repair as it now is or may hereafter be placed,
casualty loss and ordinary wear excepted. Tenant shall remove all property of
Tenant, as directed by Landlord. Any property left on demised premises at the
expiration or other termination of this lease, may, at the option of Landlord,
either be deemed abandoned or be placed in storage at a public warehouse in the
name of and
<PAGE> 40
for the account of and at the expense and risk of Tenant or otherwise disposed
of by Landlord in the manner provided by law. Tenant expressly releases
Landlord of and from any and all claims and liability for damage to or
destruction or loss of property left by Tenant upon demised premises at the
expiration or other termination of this lease and Tenant hereby indemnifies
Landlord against any and all claims and liability with respect thereto. If
Tenant holds over after the said term with the consent of the Landlord, express
or implied, such tenancy shall be from month to month only and shall not be a
renewal hereof, and Tenant shall pay the rent and all the other charges at the
same rate as herein provided and also comply with all of the terms, covenants,
conditions, provisions and agreements of this lease for the time during which
Tenant holds over. If Tenant holds over after the said term without the
consent of Landlord and shall fail to vacate demised premises after the
expiration or sooner termination of this lease for any cause or after Tenant's
right to occupy same ceases, thereafter, and notwithstanding anything to the
contrary contained elsewhere in this lease. Tenant shall be liable to Landlord
for the use and occupancy of demised premises in an amount agreed to be (i) for
the first 60 days of the holdover tenancy, two times and (ii) thereafter, four
times the monthly installment of rent and all the other charges as provided in
this lease for the last month of the term hereunder. If demised premises are
not surrendered at the end of the term, Tenant shall be additionally
responsible to Landlord for all damage (including but not limited to the loss
of rent) which Landlord shall suffer by reason thereof, and Tenant hereby
indemnifies Landlord against all claims made by any succeeding tenant against
Landlord, resulting from delay by Landlord in delivering possession of demised
premises to such succeeding tenant. Tenant's obligation to observe or perform
all of the terms, covenants, conditions, provisions and agreements of this
Article shall survive the expiration or other termination of this lease.
QUIET POSSESSION
22. Landlord covenants and agrees with Tenant that upon Tenant's paying
said rent and observing and performing all of the terms, covenants, conditions,
provisions and agreements of this lease on Tenant's part to be observed or
performed. Tenant shall have quiet possession of the premises hereby demised,
for the term aforesaid, subject, however, to the terms of this lease and of any
mortgages and deeds of trust affecting all or any portion of the Building or
any of the areas used in connection with the operation of the Building.
FAILURE TO GIVE POSSESSION
23. If Landlord shall be unable to give possession of demised premises on
the date of the commencement of the term hereof by reason of the fact that
demised premises are located in a building being constructed and which has not
been sufficiently completed to make demised premises ready for occupancy or by
reason of the fact that a certificate of occupancy has not been procured or for
any other reason, or if the Building is not in course of construction and
Landlord is unable to give possession of demised premises on the date of
commencement of the term hereof by reason of the holding over of any tenant or
tenants or for any other reason or if repairs, alterations, improvements or
decorations of demised premises or of the Building or any of the areas used in
connection with the operation of the Building are not completed any such delay
resulting therefrom shall be deemed excused and Landlord shall not be subject
to any liability for the failure to give possession on said date. Under such
circumstances the rent reserved and covenanted to be paid herein shall not
commence until possession of demised premises is given or demised premises is
available for occupancy by Tenant, unless such delay is the fault of the
Tenant. No such failure to give possession on the date of the commencement of
the term shall in anywise affect or impair the validity of this lease or the
obligations of Tenant hereunder, nor shall the same be construed in anywise to
extend the term of this lease. If permission is given to Tenant to enter into
the possession of demised premises or to occupy premises other than demised
premises prior to the date specified as the commencement of the term of this
lease, such occupancy shall be deemed to be under all the terms, covenants,
conditions, provisions and agreements of this lease, including without
limitation Tenant hereby agreeing to pay rent at the same rate as though the
term of this lease had commenced.
TERMINATION, NO WAIVER, NO ORAL CHANGE
24. In the event that this lease terminates for any reason (including but
not limited to termination by Landlord) prior to its natural expiration date,
such termination will effect the termination of any and all agreements for the
extension of this lease (whether expressed in an option, exercised or not, or
collateral document or otherwise): any right herein contained on the part of
Landlord to terminate this lease shall continue during any extension hereof:
any option on the part of Tenant herein contained for any extension hereof:
any option on the part of Tenant herein contained for and extension hereof
shall not be deemed to give Tenant any option for a further extension beyond
the
<PAGE> 41
first extended term. Interruption or curtailment of any services shall not
constitute a constructive or partial eviction or entitle Tenant to any
abatement of rent or any compensation (including but not limited to
compensation for annoyance, inconvenience or injury to business). No act or
thing done by Landlord or Landlord's agents during the term hereby demised
shall be deemed an acceptance of a surrender of demised premises, and no
agreement to accept such surrender shall be valid unless in writing signed by
Landlord. No employee of Landlord or of Landlord's agents shall not operate as
a termination of this lease or a surrender of demised premises. The failure of
Landlord to seek redress for violation of, or to insist upon the strict
performance of, any term, covenant, condition, provision or agreement of this
lease, or any of the Rules and Regulations attached to this lease or hereafter
adopted by Landlord, shall not prevent a subsequent act, which would have
originally constituted a violation, from having all the force and effect of any
original violation. The receipt by Landlord of rent with knowledge of the
breach of any term, covenant, condition, provision or agreement of this lease,
shall not be deemed a waiver of such breach. The failure of Landlord to
enforce any of the Rules and Regulations attached to this lease, or hereafter
adopted, against Tenant or any other tenant in the Building shall not be deemed
a waiver of any such Rule and Regulation. No provision of this lease shall be
deemed to have been waived by Landlord, unless such waiver be in writing signed
by Landlord. No payment by Tenant or receipt by Landlord of a lesser amount
than the monthly rent herein stipulated shall be deemed to be other than on
account of the earliest stipulated rent, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment as rent 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
pursue any other remedy in this lease provided. This lease contains the entire
agreement between the parties, and recites the entire consideration given and
accepted by the parties. Any agreement hereafter made shall be ineffective to
change, modify, waive or discharge it in whole or in part unless such agreement
is in writing and signed by the party against whom enforcement of the change,
modification, waiver or discharge is sought.
WAIVER OF TRIAL BY JURY
25. The respective parties hereto shall and they hereby do waive trial by
jury in any action, proceeding or counter-claim brought by either of the
parties hereto against the other on any matter whatsoever arising out of or in
any way connected with this lease, the relationship of Landlord and Tenant,
Tenant's use or occupancy of demised premises or any claim of injury or damage,
or the enforcement of any remedy under any statute, emergency or otherwise.
INABILITY TO PERFORM
26. This lease and obligation of Tenant to pay rent hereunder and to keep,
observe and perform all of the other terms, covenants, conditions, provisions
and agreements of this lease on the part of Tenant to be kept, observed or
performed shall in no wise be affected, impaired or excused because Landlord is
unable to fulfill any of its obligations under this lease or to supply, or is
delayed or curtailed in supplying, any service expressly or impliedly to be
supplied or is unable to make, or is delayed or curtailed in supplying, any
service expressly or impliedly to be supplied or is unable to make, or is
delayed or curtailed in supplying, any equipment or fixtures, if Landlord is
prevented, delayed or curtailed from so doing by reason of any cause beyond
Landlord's reasonable control, including, but not limited to, acts of God,
strike or labor troubles, fuel or energy shortages, governmental preemption or
curtailment in connection with a national emergency or in connection with any
rule, order, guideline or regulation of any department or governmental agency
or by reason of the conditions of supply and demand which have been or are
affected by a war or other emergency. Any such prevention, delay or
curtailment shall be deemed excused and Landlord shall not be subject to any
liability resulting therefrom.
BILLS AND NOTICES
27. Except as otherwise in this lease provided, a bill, statement,
consent, notice or communication which Landlord may desire or be required to
give to Tenant, shall be in writing and served by registered or certified mail
(postage paid) addressed to Tenant at the address set forth in Article J of
Section I or at the last known address of Tenant or if no address is available
and applicable law permits left at demised premises addressed to Tenant, and
the time of the rendition of such bill or statement and of the giving of such
consent, notice or communication shall be deemed to be the time when the same
is delivered to Tenant, mailed, or left at demised premises as herein provided.
Any notice, request, demand or communication by Tenant to Landlord must be in
writing and served by registered or certified mail (postage fully prepaid)
addressed to Landlord, at the address set forth in Article J
<PAGE> 42
of Section I, or at such other address as Landlord shall designate by notice
given as herein provided, and the time of the giving of such notice, request,
demand or communication shall be deemed to be the time shown on the return
receipt as the date of delivery or the date the post office certified delivery
could not be made.
INCREASE OF TAXES OR OPERATING COSTS
28. See Article 28 as set forth in Rider No. 1 attached hereto and made a
part hereof as amended by Article 43 as set forth in Rider No. 2 attached
hereto and made a part hereof.
FOOD, BEVERAGES AND ODORS
29. Tenant shall not prepare any food nor do any cooking, conduct any
restaurant, luncheonette or cafeteria for the sale or service of food or
beverages to its employees or to others, or cause or permit any odors of
cooking or other processes, or any unusual or objectionable odors to emanate
from demised premises. Tenant shall not install or permit the installation or
use of any vending machine or permit the delivery of any food or beverage to
demised premises except by such persons and in such manner as are approved in
advance in writing by Landlord.
30. [Article deleted.]
CARE OF FLOOR AND WINDOW COVERINGS
31. Supplementing Articles 5 and 21, Tenant shall take good care of any
and all floor and window coverings installed at any time in any portion of
demised premises, and Tenant shall make, as and when needed, all repairs in and
to the said coverings and shampoo and/or clean any of said coverings as
necessary to preserve them in good order, condition and appearance by persons
approved by Landlord. Upon the expiration or other termination of the term of
this lease, Tenant shall surrender the said coverings to Landlord in as good
order, condition and repair as they were upon the installation thereof,
ordinary wear excepted. Supplementing Article 12, Landlord shall vacuum any
carpets periodically.
MARGINAL NOTES
32. The marginal notes are inserted only as matter of convenience and for
reference and in no way define, limit or describe the scope or intent of this
lease nor do they in any way affect this lease.
DEFINITIONS
33. The term "office", or "offices," wherever used in this lease, shall
not be construed to mean premises used as a store or stores, for the sale,
display or storage at any time, of goods, wares or merchandise of any kind, or
as a shop, or for manufacturing or for any purpose contrary to Rule and
Regulation No. 14. The term "Landlord" as used in this lease means only the
owner or the mortgagee in possession or grantee in possession under a deed of
trust, or the owner of the lease of the Building for the time being, so that in
the event of any sale or sales of said land and/or Building or of said lease,
or in the event of a lease of said land and/or Building, the same Landlord
shall be and hereby is entirely freed and relieved of all covenants and
obligations of Landlord hereunder, and it shall be deemed and construed without
further agreement between the parties or their successors-in-interest or
between the parties and the purchaser at any such sale or the said lessee of
the Building, that the purchaser or the lessee of the Building has assumed and
agreed to carry out any and all covenants and obligations of Landlord
hereunder. The words "re-enter" and "re-entry" as used in this lease are not
restricted to their technical legal meaning.
PLANS
34. Any plan attached to and made part of this lease except as otherwise
specifically provided, is used solely for the purpose of identifying or
designating the premises demised under the terms of this lease and any
markings, measurements, dimensions, footages or notes of any kind contained
thereon have no bearing upon any of the terms, covenants, conditions,
provisions or agreements of this lease and are not to be considered a part
thereof.
BROKERAGE
35. Tenant represents that Tenant has dealt directly with (and only with)
the broker(s) listed in Article O of Section I as broker(s) in connection with
this lease and that no other broker negotiated this lease or is entitled to any
commission in connection herewith.
<PAGE> 43
BINDING EFFECT
36. All of the terms, conditions, provisions and agreements of this lease
shall be deemed to be covenants. The covenants contained in this lease shall
bind and inure to the benefit of Landlord and Tenant and their respective legal
representatives and successors, and, except as otherwise provided in this
lease, their assigns.
MISCELLANEOUS
37. (A) This lease is offered to Tenant for signature by Tenant and
this lease shall not be binding upon Landlord unless and until such time as
Landlord shall have executed and delivered the same.
(B) Tenant shall not at any time prior to or during the term
hereof, either directly or indirectly, use any contractors, labor or materials
whose use would create any difficulty with other contractors or labor engaged
by Tenant or by Landlord or by others in the construction, maintenance or
operation of demised premises or the Building or the complex of which the
Building forms a part.
(C) If a partnership or more than one legal person is at any time
Tenant, (1) each partner and each legal person is jointly and severally liable
for the keeping, observing and performing of all of the terms, covenants,
conditions, provisions, and agreements of this lease to be kept, observed or
performed by Tenant, and (2) the term "Tenant" as used in this lease shall mean
and include each of them jointly and severally and the act of or notice from,
or notice or refund to, or the signature of, any one or more of them, with
respect to the tenancy of this lease, including but not limited to, any
renewal, extension expiration, termination or modification of this lease, shall
be binding upon each and all of the persons executing this lease as Tenant with
the same force and effect as if each and all of them had so acted or so given
or received such notice or refund or so signed. Termination of a
partnership-Tenant shall be deemed to be a permitted assignment jointly to all
of the partners, who shall thereafter be governed by the next preceding clauses
"(1)" and "(2)" hereof just as if each and all such former partners had
initially signed this lease jointly as individuals.
(D) In addition to the rent and other charges to be paid by Tenant
hereunder, Tenant shall reimburse Landlord, upon demand, for any and all taxes
payable by Landlord (other than net income taxes) whether or not now customary
or within the contemplation of the parties hereto: (1) upon, allocable to, or
measured by the rent payable hereunder, including without limitation, any gross
receipts tax or excise tax levied by any governmental or taxing body with
respect to the receipt of such rent: or (2) upon with respect to the
possession, leasing, operation, management, maintenance, alteration, repair,
use or occupancy by Tenant of demised premises or any portion thereof: or (3)
upon the measured value of Tenant's personal property located in demised
premises or in any storeroom, garage or any other place in the demised premises
or the Building or the property upon which they are located or are a part
thereof, or the areas used in connection with the operation of the Building, it
being the intention of Landlord and Tenant that, to the extent possible, such
personal property taxes shall be billed to and paid directly by Tenant: or (4)
upon this transaction. Taxes paid by Tenant pursuant to this subdivision (D)
shall not be included in any computation pursuant to Article 28. Nothing
herein shall obligate the Tenant to reimburse Landlord for any federal, state
or local income or franchise taxes.
(E) The language in all parts of this lease shall be construed
according to its normal and usual meaning and not strictly for or against
either Landlord or Tenant.
(F) In the event any term, covenant, condition, provision or
agreement herein contained is held to be invalid or void by any court of
competent jurisdiction, the invalidity of any such term, covenant, condition,
provision or agreement shall in no way affect any other term, covenant,
condition, provision or agreement herein contained.
(G) Landlord shall not be obligated to provide or maintain any
security patrol or security system. However, if Landlord elects to provide
such patrol or system, the cost thereof shall be included in Operating Costs as
defined in Article 28. Landlord shall not be responsible for the quality of
any such patrol or system which may be provided hereunder or for damage or
injury to the Tenant, its employees, invitees or others due to the failure,
action or inaction of such patrol or system.
(H) Any basement storage space or other storage space at any time
demised to Tenant hereunder shall be used exclusively for storage.
Notwithstanding any other provision of this lease to the contrary, (1) only
such ventilation and heating will be furnished by Landlord as will, in
Landlord's judgment, be adequate for use of said space for storage, (2) no
cleaning, water or air conditioning will be furnished therefor, and (3) only
such electricity will be furnished thereto as will, in Landlord's judgment, be
adequate to light said space as storage space.
(I) Time is of the essence with respect to the performance of each
and every provision of this lease to be performed by Tenant.
<PAGE> 44
(J) Neither this lease, nor any notice nor memorandum regarding
the terms hereof, shall be recorded by Tenant. Any such unauthorized recording
shall give Landlord the right to declare a breach of this lease and pursue the
remedies provided herein.
(K) If the name of Tenant or any successor or assign shall be
changed during the term of this lease, such party shall promptly notify
Landlord thereof, which notice shall be accompanied by a certified copy of the
document effecting such change of name.
(L) Tenant shall at any time and from time to time upon not less
than 10 days' prior notice from Landlord execute, acknowledge and deliver to
Landlord a statement in writing certifying to those facts for which
certification has been requested by Landlord or any current or prospective
purchaser, mortgagee (or beneficiary under a deed of trust) or underlying
lessor, including without limitation (a) that this lease is unmodified and in
full force and effect (or, if modified, adequately identifying such
modifications and certifying that this lease, as so modified, is in full force
and effect) and (b) the dates to which the base annual rent, additional
payments and other charges are paid and (c) whether or not there is any default
by Landlord (to Tenant's best knowledge) or Tenant in the performance of any
term, covenant, condition, provision or agreement contained in this lease and
further whether or not Tenant has, to the best of its knowledge, any setoffs,
defenses or counterclaims against enforcement of the obligations to be
performed under this lease and, if there are, specifying each such default,
setoff, defense or counterclaim. Any such statement may be conclusively relied
upon by any prospective purchaser or lessee or encumbrancer of demised premises
or of all or any portion of the Building or the areas used in connection with
the operation of the Building. Tenant's failure to deliver such statement
within such time shall be conclusive upon Tenant that this lease is in full
force and effect, without modification except as may be represented by
Landlord, that there are no uncured defaults in Landlord's performance, and
that not more than one month's base annual rent has been paid in advance.
(M) If, at any time during the term of this lease, the holder of
Landlord's interest hereunder is a partnership or joint venture, Tenant agrees
to look only to the assets of such partnership or joint venture and not to the
partners or joint venturers personally with respect to any obligations or
payments due or which may become due from Landlord hereunder. A deficit in the
capital account of any partner or joint venturer shall not be considered an
asset of such partnership or joint venture.
(N) Tenant, its employees and invitees may, except as otherwise
specifically provided in this lease, use the common areas of the Building and
the areas used in connection with the operation of the Building and the areas
used in connection with the operation of the Building, as such common areas may
be designated from time to time by Landlord (the "Common Areas"), in common
with other persons for ingress and egress and open-space purposes and for other
purposes specifically designated by Landlord during the term of this lease
which use shall be subject to the restrictions set forth in this lease
(including without limitation the Rules and Regulations) and any further
restrictions promulgated by Landlord from time to time. Landlord shall at all
times have the right and privilege of determining the nature and extent of the
Common Areas and of making such changes therein and thereto from time to time
which in its opinion are deemed to be desirable and for the best interests of
all persons using the Common Areas and of Landlord, including, without
limitation, the withdrawal of any portion thereof and the relocation of
driveways, entrances, exits, corridors, automobile parking spaces, the
direction and flow of traffic, installation of prohibited areas, landscaped
areas, and all other facilities thereof. Nothing contained herein shall be
deemed to create any liability upon Landlord for any injury to or death of
persons or for damage to or destruction of property, including without
limitation for any damage to motor vehicles of Tenant, its customers or
employees, or for loss of property from within such motor vehicles unless
caused by the negligence of Landlord, its agents, servants or employees.
Landlord shall at all times during the term of this lease have the sole and
exclusive control of the Common Areas and may at any time and from time to time
during the term hereof exclude and restrain any person from use or occupancy
thereof excepting, however, bona fide invitees of Tenant and other tenants of
Landlord who make use of said Common Areas in accordance with the rules and
regulations pertaining thereto. The rights of Tenant hereunder in and to the
Common Areas shall at all times be subject to the rights of Landlord and other
tenants of Landlord who use the same in common with Tenant, and it shall be the
duty of Tenant to keep all of the Common Areas free and clear of any
obstructions created or permitted by Tenant or resulting from Tenant's
operation and to permit the use of any of the Common Areas only for normal
parking and ingress and egress by the invitees of Tenant to and from the
Building. If, in the opinion of Landlord, unauthorized persons are using the
Common Areas by reason of the presence of Tenant in demised premises, Tenant,
upon demand of Landlord, shall correct such situation by appropriate action or
proceedings against all such unauthorized persons. Nothing herein
<PAGE> 45
shall affect the right of Landlord at any time to remove any such unauthorized
persons from said areas or to prevent the use of any of said areas by
unauthorized persons.
(O) If, as a result of any governmental rule or regulation,
Landlord imposes a curtailment of services or equipment in demised premises or
the Building, Tenant shall comply therewith and shall be liable to Landlord for
any surcharge imposed for any violation by Tenant.
(P) If Tenant is at any time in default in the payment of any sum
of money pursuant to the terms, covenants, conditions, provisions or agreements
of this lease or pursuant to any order now or hereafter placed by Tenant with
Landlord (including without limitation charges for any materials or services or
construction work furnished to Tenant by Landlord) with respect to demised
premises over and above or in addition to or in lieu of the base annual rent
(or any installment thereof), Landlord shall have all the remedies as in the
case of default by Tenant in the payment of an installment of the base annual
rent reserved in this lease.
(Q) If Landlord, not as a result of any governmental rule or
regulation, changes the address of the Building, Landlord shall reimburse
Tenant for the cost of reprinting stationery and business cards.
(R) In addition to the card key access referred to in Article 13,
Landlord shall provide security to the Building including, without limitation,
the placement of a guard in the lobby.
Any rider or exhibit annexed hereto is made a part hereof.
In Witness Whereof, Landlord and Tenant have respectively executed
this lease as of the day and year first above written.
TISHMAN WEST MANAGEMENT CORP., as Manager for METROPOLITAN TISHMAN
TOWER VENTURE, a joint venture
.................................Landlord
By.../s/[illegible]..............
Vice President
CAL-SURANCE ASSOCIATES, INC.
a California corporation
..................................Tenant
By.../s/[illegible]...............
Chief Executive Officer (Title)
<PAGE> 46
RIDER NO. 1 ANNEXED TO AND MADE A PART OF
LEASE DATED___________________________
BETWEEN________________________________
TISHMAN WEST MANAGEMENT CORP., AS MANAGER
FOR METROPOLITAN TISHMAN TOWER VENTURE,
AS LANDLORD AND CAL-SURANCE ASSOCIATES, INC.
__________________________________________, AS TENANT
INCREASE OF TAXES OR OPERATING COSTS
Article 28 is amended in its entirety to read as follows:
28. If, in any calendar year during the term of this lease (i) Taxes (as
hereinafter defined) shall be increased above the amount of Taxes for the
base year or (ii) Operating Costs (as hereinafter defined) shall be
increased above those in effect during the base year, the base annual rent
shall be increased by 9.1992% of the amount of such increase in Taxes and
separately by the same percentage of the amount of increase in Operating
Costs.
(A) Definitions.
1. "Taxes" shall mean taxes and assessments upon or with respect to the
Building and the areas used in connection with the operation of the
Building imposed by federal, state or local governments or
governmental assessment districts, but shall not include income,
franchise, capital stock, estate or inheritance taxes, but shall
include gross receipts taxes and other business taxes. If, because
of any change in the method of taxation of real estate, any tax or
assessment is imposed upon Landlord or upon the owner of the land
and/or the Building and/or the areas used in connection with the
operation of the Building or upon or with respect to the land and/or
the Building and/or the areas used in connection with the operation
of the Building or the rents or income therefrom, in substitution
for or in lieu of any tax or assessment which would otherwise be a
real estate tax or assessment subject matter, or with respect to any
subject matter which was during fiscal year 1977-78 the subject of a
real estate tax or assessment, such other tax or assessment shall be
deemed to be included in Taxes. For the purpose of fixing the real
estate tax for the base year herein referred to, the assessed
valuation shall be deemed to be the assessed valuation of the land
and the Building and the areas used in connection with the operation
of the Building determined as of the first day in March
1989...(subject to such reduction as may be obtained, if any) and
the real estate tax rate shall be the present aggregate tax rate. In
case there shall be a reduction of the assessed valuation for any
tax year which affects the Taxes in any year for which a rent
adjustment shall have been made, the rent adjustment shall be
recalculated on the basis of the revised assessed valuation and
Landlord will credit against the rent next becoming due from Tenant
such sums as may be due to Tenant by reason of the recalculation,
less the expenses incurred in effecting such reduction. In no event
shall the amount of any such credit be in excess of the amount of
the rent increase actually paid to Landlord by Tenant for the period
covered by such credit as a result of an increase in Taxes.
2. "Operating Costs" shall mean (a) wage and labor costs applicable to
the persons engaged in the management, operation, maintenance,
overhaul or repair of the Building, and the areas used in connection
with the operation of the Building, whether they may be employed by
Landlord or by an independent contractor with whom Landlord shall
have contracted or may contract for such services; any increase or
decrease in the hours of employment or the number of paid holidays
or vacation days, social security taxes, unemployment insurance
taxes and the cost (if any) of providing disability,
hospitalization, medical, welfare, pension, retirement or other
benefits applicable with respect to such employees, shall
correspondingly affect the wage and labor costs; and (b) cost of
utilities, fuel, building supplies and materials, insurance, service
and management contracts and the common area maintenance charge
obligation allocated to the Building and the areas used in
connection with the operation of the Building; and (c) alterations
to the Building or
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<PAGE> 47
the areas used in connection with the operation of the Building for
life-safety systems or energy conservation or other capital
improvements or replacements (together with all costs, and interest
thereon at a rate equal to 4% over the annual prime rate of interest
announced publicly by Citibank, N.A. in New York, New York from time
to time [but in no event in excess of the maximum rate of interest
permitted by law], incurred in connection with any such alterations
or other capital improvements or replacements) all amortized over
their useful life except that any such costs (and the interest
thereon) incurred in connection with alterations or replacements for
energy conservation may be amortized at a yearly rate equal to the
savings realized during such period as a result of such alteration
or replacement; and (d) such other items are now or hereafter
customarily included in the cost of managing, operating,
maintaining, overhauling and repairing the Building and the areas
used in connection with the operation of the Building in accordance
with now or hereafter accepted accounting or management principles
or practices.
3. "Base year" shall mean the calendar year 1989.
4. "Subsequent year" shall mean any calendar year following the base
year, falling wholly or partly within the term of this lease.
(B) Statements for Tenant.
On or before the 1st day of April 1991, and on or before that day in each
subsequent year, and on or before the 1st day of April immediately following the
expiration or earlier termination of this lease, Landlord will furnish a
comparative statement which shall show a comparison on a monthly and yearly
basis of all pertinent items and information applicable to the base year and to
the calendar year preceding the year in which the comparative statement is
submitted, and the amount, if any, of the increase in rent to be enforced as
hereinafter set forth. The failure of Landlord to furnish a comparative
statement for any year in accord with this subdivision (B) shall be without
prejudice to the right of Landlord to furnish comparative statements in
subsequent years. In the event that Landlord shall, for any reason, be unable to
furnish a comparative statement on or before April 1st of any year, Landlord may
furnish such statement as soon thereafter as practicable, with the same force
and effect as a comparative statement would have had, if delivered on or before
April 1st of such year.
(C) Payment of Increase in Rent.
1. The payment of any increase in rent pursuant to the provisions of
subdivision (B) of this Article, shall be made as follows: on the first day of
the month following the furnishing of a comparative statement Tenant shall
forthwith pay to Landlord a sum equal to one-twelfth of the annual amount shown
on the comparative statement equaling Tenant's share of such increase multiplied
by the number of months then elapsed commencing with January 1st of the
preceding calendar year (provided, however, that if the term of this lease
commenced in said preceding calendar year Tenant shall forthwith pay to Landlord
a sum equal to one-twelfth of Tenant's share of such increase multiplied by the
number of months then elapsed commencing only with the month in which the term
of this lease commenced), and, in advance, one-twelfth of the annual amount
shown on the comparative statement equaling such share with respect to the then
current month and thereafter, until a different comparative statement shall be
submitted as above provided, the monthly installments of rent payable under this
lease shall be increased by an amount equal to one-twelfth of the annual amount
shown on the comparative statement equaling Tenant's share of such increase. In
the event that a comparative statement shall show, or in the event that a
comparative statement, if submitted, would have shown an increase in rent which
shall be different from the rent herein reserved or from that shown by the last
previous comparative statement, then the rent payable by Tenant shall be
adjusted proportionately consistent with the foregoing provisions. The rent due
to Landlord, as disclosed by the comparative statement furnished by Landlord,
shall be paid within ten days after the rendition of such comparative statement.
2. Prior to the determination of the actual Taxes and Operating Costs for
any particular calendar year (or portion thereof) during the term of this lease,
Landlord may at any time and from time to time reasonably estimate the amount of
such Taxes and/or Operating Costs. If, in the reasonable estimation of Landlord,
the Taxes and/or Operating Costs for such calendar year will exceed the actual
Taxes and/or Operating Costs, respectively, for the preceding calendar year,
Landlord will notify Tenant of the amount of such
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<PAGE> 48
estimated excess and Tenant shall forthwith (a) pay, commencing on the first day
of each succeeding calendar month, one-twelfth of Tenant's proportionate share
of such excess, calculated in accordance with this Article, and (b) pay to
Landlord a sum equal to Tenant's monthly proportionate share of such excess
multiplied by the number of months then elapsed commencing with January 1st of
such calendar year through and including the month in which such payment is
made. Upon the determination of the actual Taxes and Operating Costs for such
calendar year, as reflected in a comparative statement described above,
appropriate adjustments shall be made with respect to such increased monthly
installments of rent paid by Tenant which were based upon Landlord's estimate.
(D) Occupancy.
There shall be added to the actual Operating Costs for any portion (or
all) of the Base Year during which the Building is less that 100% occupied those
additional expenses (of the type set forth in paragraph 2 of subdivision (A) of
this Article) which Landlord reasonably determines it would have so incurred had
the Building been 100% occupied during any such period.
(E) Partial Calendar Year.
In any comparative statement covering less than a full calendar year there
shall be added to the actual Operating Costs for the period covered by the
comparative statement those additional expenses (of the type set forth in
paragraph 2 of subdivision (A) of this Article) which Landlord reasonably
determines it would have so incurred had the Building been 100% occupied during
the full calendar year.
In light of the foregoing full revision of Article 28, Articles K, L and M
of Section I of this lease are hereby deleted.
-3-
<PAGE> 49
RULES AND REGULATIONS
1. No sidewalks, entrance, passages, courts, elevators, vestibules, stairways,
corridors, or halls shall be obstructed or encumbered by Tenant or used for any
purpose other than ingress and egress to and from demised premises or the
Buildings and if demised premises is situated on the ground floor of the
Building, Tenant shall further, at Tenant's own expense, keep the sidewalks and
curb directly in front of demised premises clean and free from rubbish.
2. No awning or other projection shall be attached to the outside walls or
windows of the Building without the prior written consent of Landlord. No
curtains, blinds, shades, drapes or screens shall be attached to or hung in, or
used in connection with any window or door of demised premises, without the
prior written consent of Landlord. Such awnings, projections, curtains, blinds,
shades, drapes, screens and other fixtures must be of a quality, type, design,
color, material and general appearance approved by Landlord, and shall be
attached in the manner approved by Landlord. All electrical fixtures hung in
offices or spaces along the perimeter of demised premises must be fluorescent,
of a quality, type, design, bulb color, size and general appearance approved by
Landlord.
3. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by Tenant on any part of the outside or inside of
demised premises or of the Building, without the prior written consent of
Landlord. In the event of the violation of the foregoing by Tenant, Landlord may
remove same without any liability, and may charge the expense incurred by such
removal to Tenant. Interior signs on doors and directory tablet shall be
inscribed, painted or affixed for Tenant by Landlord at the expense of Tenant,
and shall be of a quality, quantity, type, design, color, size, style,
composition, material, location and general appearance acceptable to Landlord.
4. The sashes, sash doors, skylights, windows, and doors that reflect or admit
light or air into the halls, passageways or other public places in the Building
shall not be covered or obstructed by Tenant, nor shall any bottles, parcels, or
other articles be placed on the window sills, or in the public portions of the
Building.
5. No show cases or other articles shall be put in front of or affixed to any
part of the exterior of the Building, nor placed in public portions thereof
without the prior written consent of Landlord.
6. The water and wash closets and other plumbing fixtures shall not be used for
any purposes other than those for which they were constructed, and no sweepings,
rubbish, rags or other substances shall be thrown therein. All damages resulting
from any misuse of the fixtures shall be borne by Tenant to the extent that
Tenant or Tenant's agents, servants, employees, contractors, visitors or
licensees shall have caused the same.
7. Tenant shall not mark, paint, drill into or in any way deface any part of
demised premises of the Building. No boring, cutting or stringing of wires shall
be permitted, except with the prior written consent of Landlord, and as Landlord
may direct.
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<PAGE> 50
8. No animal or bird of any kind shall be brought into or kept in or about
demised premises or the Building.
9. Prior to leaving demised premises for the day, Tenant shall draw or lower
window coverings and extinguish all lights.
10. Tenant shall not make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of the Building or neighboring
buildings or premises or those having business with them. Tenant shall not throw
anything out of the doors, windows or skylights or down the passageways.
11. Neither Tenant nor any of Tenant's agents, servants, employees, contractors,
visitors or licensees shall at any time bring or keep upon demised premises any
inflammable, combustible or explosive fluid, chemical or substance.
12. No additional locks, bolts or mail slots of any kind shall be placed upon
any of the doors or windows by Tenant, nor shall any change be made in existing
locks or the mechanism thereof. Tenant must, upon the termination of the
tenancy, restore to Landlord all keys of stores, offices and toilet rooms,
either furnished to, or otherwise procured by Tenant, and in the event of the
loss of any keys so furnished, Tenant shall pay to Landlord the cost thereof.
13. All removals, or the carrying in or out of any safes, freight, furniture,
fixtures, bulky matter or heavy equipment of any description must take place
during the hours which Landlord or its agent may determine from time to time.
Landlord reserves the right to prescribe the weight and position of all safes,
which must be placed upon two-inch thick plank strips to distribute the weight.
The moving of safes, freight, furniture, fixtures, bulky matter or heavy
equipment of any kind must be made upon previous notice to the Superintendent of
the Building and in a manner and at times prescribed by him, and the persons
employed by Tenant for such work are subject to Landlord's prior approval.
Landlord reserves the right to inspect all safes, freight or other bulky
articles to be brought into the Building and to exclude from the Building all
safes, freight or other bulky articles which violate any of these Rules and
Regulations or the lease of which these Rules and Regulations are a part.
14. Tenant shall not occupy or permit any portion of demised premises to be
occupied as an office that it is not generally consistent with the character and
nature of all other tenancies in the Building, or is (a) for an employment
agency, a public stenographer or typist, a labor union office, a physician's or
dentist's office, a dance or music studio, a school, a beauty salon or barber
shop, the business of photographic or multilith or multigraph reproductions or
offset printing (not precluding using any part of demised premises for
photographic, multilith or multigraph reproductions solely in connection with
Tenant's own business and/or activities), a restaurant or bar, an establishment
for the sale or confectionery or soda or beverages or sandwiches or ice cream or
baked goods, an establishment for the preparation or dispensing or consumption
of food or beverages (of
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<PAGE> 51
any kind) in any manner whatsoever, or as a news or cigar stand, or as a radio
or television or recording studio, theater or exhibition-hall, for
manufacturing, for the storage of merchandise or for the sale of merchandise,
goods or property of any kind at auction, or for lodging, sleeping or for any
immoral purpose, or for any business which would tend to generate a large amount
of foot traffic in or about the Building or the land upon which it is located,
or any of the areas used in the operation of the Building, including but not
limited to any use (i) for a banking, trust company, depository, guarantee, or
safe deposit business, (ii) as a savings bank, or as savings and loan
association, or as a loan company, (iii) for the sale of travelers checks, money
orders, drafts, foreign exchange or letters of credit or for the receipt of
money for transmission, (iv) as a stock broker's or dealer's office or for the
underwriting of securities, or (v) a government office or foreign embassy or
consulate, or (vi) tourist or travel bureau, or (b) a use which conflicts with
any so-called "exclusive" then in favor of, or is for any use the same as that
stated in any percentage lease to, another tenant of the Building or any of
Landlord's then buildings which are in the same complex as the Building, or (c)
a use which would be prohibited by any other portion of this lease (including
but not limited to any Rules and Regulations then in effect) or in violation of
law. Tenant shall not engage or pay any employees on demised premises, except
those actually working for Tenant on demised premises nor shall Tenant advertise
for laborers giving an address at demised premises.
15. Tenant shall not purchase spring water, towels, janitorial or maintenance or
other like service from any company or persons not approved by Landlord.
Landlord shall approve a sufficient number of sources of such services to
provide Tenant with a reasonable selection, but only in such instances and to
such extent as Landlord in its judgment shall consider consistent with security
and proper operation of the Building.
16. Landlord shall have the right to prohibit any advertising or business
conducted by Tenant referring to the Building which, in Landlord's opinion,
tends to impair the reputation of the Building or its desirability as a first
class building for offices, and upon notice from Landlord, Tenant shall refrain
from or discontinue such advertising.
17. Landlord reserves the right to exclude from the Building between the hours
of 6 P.M. and 8 A.M. on all days, and at all hours on Saturdays, Sundays and
legal holidays, all persons who do no present a pass to the Building issued by
Landlord. Landlord may furnish passes to Tenant so that Tenant may validate and
issue same. Tenant shall safeguard said passes and shall be responsible for all
acts of persons in or about the Building who possess a pass issued to Tenant.
18. Tenant's contractors shall, while in the Building or elsewhere in the
complex of which the Building forms a part, be subject to and under the control
and direction of the Superintendent of the Building (but not as agent or servant
of said Superintendent or of Landlord).
19. If demised premises is or becomes infested with vermin as a result of the
use or any misuse or neglect of demised premises by Tenant, its agents,
servants, employees,
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<PAGE> 52
contractors, visitors or licensees, Tenant shall forthwith at Tenant's expense
cause the same to be exterminated from time to time to the satisfaction of
Landlord and shall employ such licensed exterminators as shall be approved in
writing in advance by Landlord.
20. The requirements of Tenant will be attended to only upon application at the
office of the Building. Building personnel shall not perform any work or do
anything outside of their regular duties, unless under special instructions from
the office of Landlord.
21. Canvassing, soliciting and peddling in the Building are prohibited and
Tenant shall co-operate to prevent the same.
22. No water cooler, air conditioning unit or system or other apparatus shall be
installed or used by Tenant without the written consent of Landlord.
23. There shall not be used in any space, or in the public halls, plaza areas or
lobbies of the Building, or elsewhere in the complex of which the Building forms
a part, either by Tenant or by jobbers or others, in the delivery or receipt of
merchandise, any hand trucks or dollies, except those equipped with rubber tires
and side guards.
24. Tenant, Tenant's agents, servants, employees, contractors, licensees or
visitors shall not park any vehicles in any driveways, service entrances, or
areas posted as "No Parking."
25. Tenant shall install and maintain, at Tenant's sole cost and expense, an
adequate visibly marked (at all times properly operational) fire extinguisher
next to any duplicating or photocopying machine or similar heat producing
equipment, which may or may not contain combustible material, in demised
premises.
26. Tenant shall keep its window coverings closed during any period of the day
when the sun is shining directly on the windows of demised premises.
27. Tenant shall not use the name of the Building for any purpose other than as
the address of the business to be conducted by Tenant in demised premises, nor
shall Tenant use any picture of the Building in its advertising, stationery or
in any other manner without the prior written permission of Landlord. Landlord
expressly reserves the right at any time to change said name without in any
manner being liable to Tenant therefor.
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<PAGE> 53
[FLOOR PLANS]
<PAGE> 54
RIDER NO. 2 ANNEXED TO
AND MADE A PART OF LEASE
DATED AUGUST 23, 1988
BETWEEN TISHMAN WEST MANAGEMENT
CORP., AS AGENT FOR METROPOLITAN TISHMAN
TOWER VENTURE, AS LANDLORD, AND
CAL-SURANCE ASSOCIATES, INC., AS TENANT
BASE ANNUAL RENT
38. Base Annual Rent shall abate for the period commencing
with the sixty-first month of the term and continuing through the
sixty-third month; upon expiration of such period, Tenant shall pay
Base Annual Rent at the full rental rate stated in Article H, Section
I, as the same may be increased as provided in this Lease. Should this
Lease terminate as a result of Tenant's breach under any of the terms,
covenants, conditions or provisions of this Lease at any time prior to
the expiration of the initial Lease Term hereof, then, in addition to
any and all amounts which Landlord may recover under Article 18 of
this Lease, the unamortized portion of (i) Base Annual Rent (at the
full rental rate stated in Section I Article H) which has been abated;
(ii) all real estate commissions paid or unconditionally payable to
the Brokers with respect to this Lease (not to exceed $346,210) or any
options hereunder; (iii) the amount paid to Tenant pursuant to Article
54; and (iv) the cost of all tenant improvements constructed by or for
Tenant where the cost or an allowance or credit was provided by
Landlord if in Landlord's reasonable judgment such tenant improvements
cannot be used in connection with any new lease of the demised
premises, shall become due and payable, in full, upon ten (10) days'
written notice to Tenant. For purposes of the preceding sentence, the
Base Annual Rent which was abated for months one (1) through fifteen
(15), as well as the real estate commissions, the amounts paid
pursuant to Article 54 hereof, and costs of unuseable tenant.
improvements, shall be amortized over the initial Lease Term and the
Base Annual Rent which was abated for months sixty-one (61) through
sixty-three (63) shall be amortized over a five (5) year period
commencing with month sixty-one (61) of the Lease Term. Nothing herein
shall excuse Tenant from paying Tenant's Share of Taxes and Operating
Costs pursuant to Article 28 or any other amount required to be paid
by Tenant elsewhere in this Lease.
TENANT REVIEW OF LANDLORD RECORDS
39. Tenant shall have the right to review, using such
accountants or other representatives as Tenant reasonably may elect,
Landlord's records and supporting documentation with respect to
comparative statements to sent Tenant by Landlord pursuant to Article
28, on the following terms and conditions:
(a) Tenant shall give Landlord at least twenty (20) days'
written notice of the exercise of such right stating the date such
review shall occur.
(b) Tenant's review of Landlord's records shall occur during
normal business hours at the offices of Landlord at Orange,
California.
(c) Tenant may conduct such review only once each calendar
year, although such review may extend for more than one day if
reasonably necessary but must proceed on a continuous basis, and may
be made by more than one (1) person. Tenant may only review Landlord's
books and records for the two most recent comparative statements.
(d) Tenant's review shall be at the sole cost and expense of
Tenant.
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(e) after such review Tenant disputes the accuracy of one (1)
or more comparative statements, Tenant may retain a certified public
accountant, mutually acceptable to Landlord and Tenant, to audit
Landlord's books and records. If such audit reveals that Landlord
overcharged Tenant, Landlord shall promptly reimburse Tenant for the
amount of the overcharge or, in the event of any underpayment by
Tenant, Tenant shall promptly pay Landlord for the amount of the
underpayment. If the amount of such overpayment is greater than five
percent (5%) of the total payment made pursuant to the respective
comparative statement, Landlord shall reimburse Tenant for the cost of
such audit.
TENANT OPTION TO RENEW TERM
40. Tenant shall have the right to extend the term of this
Lease for one additional period of five (5) years (the "Option Term"),
commencing September 1, 1998, on the following terms and conditions:
(a) Tenant shall have given Landlord written notice
of Tenant's exercise of such option ("Tenant's Option Notice"),
pursuant to the procedures set forth in Article 27, so that Landlord
actually receives such notice not later than November 1, 1997, time
being of the essence thereof.
(b) Tenant shall not be in default under any of the
terms, covenants, conditions or provisions of the Lease at any time
after giving to Landlord Tenant's Option Notice, which default has not
been cured within the time period, if any, permitted for such cure or,
if earlier, by September 1, 1998.
(c) Tenant shall not have sublet more than 50% of the
demised premises, and in the event of any such subletting (pursuant to
Article 3 of the Lease), this Article 40 shall be null and void and of
no further force or effect; provided, however, that such condition
shall not apply to a sublease of the entire demised premises for the
entire remaining term, or the entire remaining term less one (1) day.
(d) There shall be no further right to renew or
extend the term of this Lease beyond such additional five (5) year
period.
(e) Tenant has not filed nor had filed against it any
action or proceeding under the Federal Bankruptcy Act at any time
during the initial term of the Lease, which action or proceeding was
not fully dismissed prior to the later of (i) the date of Tenant's
Option Notice or (ii) within sixty (60) days of being filed.
(f) Tenant shall accept the demised premises for the
extended term in their then "as is" condition. In the event Tenant
elects to exercise such option, all of the terms, covenants,
conditions and provisions of the Lease shall be applicable to the
extended term, except for the following:
(g) This Article 40 shall be of no further force or
effect.
(h) The Base Annual Rent appearing in Article H,
Section I hereof shall be increased (but in no event decreased)
commencing on the first day of the Option Term by an amount equal to
ninety percent (90%) of the annual fair market rental rate for the
demised premises, as provided below.
(1) Landlord shall deliver to Tenant written
notice of Landlord's determination of the annual fair market rental
rate to be applicable during the Option Term ("Landlord's Rent
Notice"), within thirty (30) days after receipt of Tenant's Option
Notice. Upon receipt of Landlord's Rent Notice, Tenant shall have the
right to withdraw
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and cancel Tenant's previously given Option Notice by giving Landlord
written notice of such withdrawal ("Tenant's Cancellation Notice")
within fifteen (15) days after receipt of Landlord's Rent Notice and,
in the event of Tenant's Cancellation Notice being given, this Article
40 shall be deemed null and void and the term of the Lease shall
expire on the expiration date provided in Article G, Section I,
hereof.
(2) If Tenant does not give Landlord Tenant's
Cancellation Notice but disputes the amount of the annual fair market
rental rate to be applicable during the Option Term, as stated in
Landlord's Rent Notice, Tenant must give Landlord written notice
thereof (herein "Tenant's Dispute Notice") within fifteen (15) days
after receipt of Landlord's Rent Notice. Tenant's Dispute Notice shall
contain Tenant's determination of the annual fair market rental rate
to be applicable during the Option Term, as governed by this Article
40, and how such rental rate was determined by Tenant.
(3) Failure of Tenant to give Landlord either
a Tenant's Cancellation Notice or a Tenant's Dispute Notice within the
required 15-day period shall conclusively be deemed approval by Tenant
of Landlord's Rent Notice and the annual fair market rental rate to be
applicable during the Option Term.
(4) In the event Tenant gives Landlord a
Tenant's Dispute Notice in a timely manner, the parties shall attempt,
in good faith, to determine the annual fair market rental rate. If the
Tenant and Landlord cannot determine annual fair market rental rate
within ten (10) days after Landlord's receipt of Tenant's Dispute
Notice (which may be extended by mutual agreement of the parties), the
issue of annual fair market rental rate shall be submitted for
appraisal as set forth below.
(5) Ten (10) days after Landlord's receipt of
Tenant's Dispute Notice, as that period may be extended as provided
above, if the Tenant and Landlord cannot agree upon the annual fair
market rental rate, then within the next ten (10) days, Tenant and
Landlord shall each select an appraiser and notify the other party of
the same. If one party fails to select an appraiser or fails to notify
the other party within the ten day period, then the remaining
appraiser shall, within thirty (30) days, determine the annual fair
market rental rate. If the parties have complied with this Article 40
so that the appraisers have been selected in a timely fashion, then
the Tenant and Landlord shall contact the appraisers and provide for a
meeting of the two appraisers so chosen within fifteen (15) days after
the second appraiser was appointed. The two appraisers shall thereupon
appoint a third appraiser within five (5) days and in the event of
their being unable to agree upon such appointment within five (5) days
after the time aforesaid, the third appraiser shall be selected by the
parties themselves if they can agree thereon within a further period
of five (5) days. If the parties cannot so agree, then either party,
on behalf of both, may request such appointment by the Presiding Judge
of the Superior Court of Orange County. In the event of the failure,
refusal or inability of any appraiser to act, a new appraiser shall be
appointed in his or her stead, which appointment shall be made in the
same manner as hereinbefore provided for the appointment of such
appraiser so failing, refusing or unable to act. The three appraisers
will then have thirty (30) days to determine the annual fair market
rental rate. In the event the appraisers cannot agree upon a single
annual fair market rental rate, the annual fair market rental rate
shall be the arithmetic mean of the three rates determined by the
appraisers. After the annual fair market rental rate has been
calculated, Tenant shall have ten (10) days after notice thereof, to
give Landlord Tenant's Cancellation Notice. In the event Tenant gives
Tenant's Cancellation Notice, this Article 40 shall be null and void
and the term of the Lease shall expire on the expiration date provided
in Article G, Section I, hereof. Failure of Tenant to give Landlord a
Tenant's Cancellation Notice within the required 10-day period shall
conclusively be deemed approval by Tenant of the annual fair market
rental rate to be applicable during the Option Term.
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(A) All appraisers to be appointed
hereunder shall be MAI real estate appraisers with at least five (5)
years' experience in appraising commercial real estate office
buildings in the Orange County area.
(B) In determining the Option Term base
annual rent, "fair market rental rate" shall mean the average
effective base annual rent (or equivalent) which landlords are then
receiving from tenants of comparable space within a 5-mile radius of
the Building, taking into account rental concessions such as "free
rent", free or reserved parking, moving expenses and other new tenant
concessions then being offered by landlords to tenants or prospective
tenants, and shall further take into account that Landlord shall not
be required to provide any tenant improvements for Tenant during the
Option Term or pay any broker commissions based on such renewal (if
such be the case). In no event shall the Option Term base annual
rental rate be less than the highest base annual rental rate which
Tenant is or was paying for any square foot of space in the Building
during the last month of the initial 10-year term of the Lease.
(C) Each party shall pay the costs of
its appointed appraiser and shall share equally in all remaining
costs, including the costs of the third appraiser.
(6) In the event the determination by
the appraisers has not been rendered by the first day of the Option
Term, commencing on the first day of the Option Term, Tenant shall pay
base annual rent for all its demised premises based on the rate
contained in Landlord's Rent Notice, which rate shall be subject to
retroactive adjustment, if necessary, upon the parties' receipt of the
final determination by the appraisers. In the event the final
determination results in an Option Term base annual rental rate lower
than that contained in Landlord's Rent Notice, and Tenant has made all
rental payments during the Option Term based on Landlord's Rent
Notice, Tenant shall be forthwith credited with any overpayment to the
next installment (or installments) of base annual rent accruing after
receipt of the final award.
(i) Effective September 1, 1998, the
following provisions of Article 28 shall be amended as follows:
(1) The date of assessed valuation set
forth in the third sentence of paragraph "1" of Subdivision "A" shall
be deemed to be the first day in March, 1998, and the aggregate tax
rate referred to in the same sentence shall be deemed to be the
aggregate tax rate as of March 1, 1998;
(2) The "Base Year" as set forth in
paragraph "3"of said Subdivision shall be deemed to be the calendar
year 1998. In the event Tenant validly exercises its aforesaid option
to extend the term of the Lease and does not subsequently give Landlord
a Tenant's Cancellation Notice, the Lease shall be deemed amended to
extend the term through August 31, 2003, as provided in this Article,
without further act on the part of Landlord or Tenant; however, the
parties shall execute a written memorialization of the terms and
conditions governing the Option Term, at the request of either party.
All specific dates contained in this Article 40 shall be subject to
adjustment in the event the actual commencement date of this Lease is a
date other than September 1, 1988.
TENANT OPTION TO EXPAND
41. Landlord hereby grants to Tenant an option to expand
into 3745 rentable square feet of additional space on the ninth floor
of the Building (the "Option Space")
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located contiguous to Tenant's existing demised premises and shown
cross-hatched in black on the plan annexed hereto. The terms and
conditions of such option to expand are as follows:
(a) If Tenant desires to exercise such option, Tenant
must have given Landlord written notice of Tenant's intent to exercise
its option such that Landlord actually receives such written notice
not later than September 1, 1990. Subject to (b)(4)(i) below, Tenant
shall take such Option Space on March 1, 1991 ("Effective Date"). Each
of the foregoing dates as well as the giving by Tenant of any notice
of exercise of Tenant's option to expand are of the essence and the
option granted by this Article 41 shall be null and void in the event
Tenant fails to comply with each of the foregoing dates for exercise
of the option and for the Effective Date of expansion.
(b) In the event of due exercise of Tenant's option
to expand, the Option Space shall be added to the premises previously
demised, as of the Effective Date, on the following terms and
conditions:
(1) The Option Space shall be added for the
balance of the lease term.
(2) The Base Annual Rent appearing in Article
H, Section I hereof, shall be increased as of the Effective Date, by
$67,410.00 to a new total of $746,640.00; increasing again effective
September 1, 1993 by $248,880.00 to a new total of $995,520.00.
(3) The percentage of increase in Taxes or
Operating Costs to be borne by Tenant appearing in the first paragraph
of Article 38 shall, as of the Effective Date, be increased by .9089%
to a new total of 10.1080%.
(4) Tenant shall accept the Option Space in
its then "as is" condition; provided, however:
(i) that Landlord shall grant Tenant a
construction credit of $112,350.00 (the "Construction Credit") which
shall be used only as against the cost of construction of improvements
or alterations permanently installed and incorporated into the realty
of the Option Space (the "Tenant Work"). All tenant work shall be
performed by Landlord's contractors. In the event the Option Space has
been improved prior to the Effective Date, the amount of the
Construction Credit shall be reduced by the cost to Landlord of
construction of all demising walls, HVAC, drop ceiling and ceiling
lighting already existing in the Option Space prior to the Effective
Date which Tenant elects to retain and benefits Tenant (the amount of
such reduction to be reasonably determined by Landlord in Landlord's
standard manner for determining such construction costs);
(ii) that all Tenant Work designated by
Tenant must include materials such as are readily available and
installable in the Option Space. Without limiting the generality of
the foregoing, Tenant shall designate only "building standard
mini-blinds" as the only window covering for the exterior windows of
the Option Space. Landlord shall have the sole right to select all
suppliers, vendors and materialmen for all materials to be
incorporated within the Option Space;
(iii) that all working drawings
covering the Tenant Work shall be prepared by Landlord's own
contractors, the reasonable cost of which (but in no event exceeding
$1,872.50) shall be included in the Construction Credit. Any part of
the Construction Credit not totally consumed shall be credited against
the installments of Base Annual Rent subsequently due from Tenant;
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(iv) that notwithstanding the Effective
Date above, the date by which Tenant's obligations to pay the increase
in Base Annual Rent provided in subsection "(b)(2)," above, shall not
commence to accrue until Landlord shall have substantially completed
all Tenant Work. However, if Tenant requests materials or
installations other than Landlord's standard (such nonstandard
materials or installations being subject to Landlord's written
approval which approval shall not be unreasonably withheld, and being
referred to as "Tenant Overstandard Work") or if Tenant requests any
work in addition to that contained in final working drawings or if
Tenant fails to supply Landlord with information and selections or
designations with respect to any aspect of the Tenant Work promptly
after Landlord's request therefor, and if such request for nonstandard
materials or installations or Tenant Overstandard Work or such failure
or such changes shall delay the work to be performed by Landlord, or
if Tenant shall otherwise delay the substantial completion of the
Tenant Work, then the happening of such delays shall in no event
postpone the date for the commencement of the payment of the increase
in Base Annual Rent beyond the date by which it would have otherwise
commenced in the absence of such delays;
(v) that any Tenant's Overstandard Work
which Tenant requests and which Landlord agrees to perform shall be
done at cost, plus ten percent (10%) thereof as a fee. Cost includes
but is not limited to so-called "General Conditions" (e.g., trash
clean-up and hauling, job lighting and power, insurance, safety
protection, security and hoists) in whole or in part apportionable to
Tenant's Overstandard Work. If the aggregate of all Tenant's
Overstandard Work to which Landlord agrees is less than $1,000, the
whole thereof shall be payable promptly after the completion of such
work and after Landlord bills Tenant therefor; if the aggregate of all
Tenant's Overstandard Work exceeds $1,000 such aggregate shall be
payable 50% upon Tenant signing with Landlord the agreement wherein
Landlord agrees to perform such Tenant's Overstandard Work and the
balance shall be payable in monthly progress payments promptly after
Landlord's billing Tenant therefor. Such payments, in either event,
shall be collectible as additional obligations of Tenant pursuant to
the Lease and, in default in payment thereof, Landlord shall (in
addition to all other remedies) have the same rights as in the event
of default in payment of rent.
(5) All of the other terms, covenants,
conditions and provisions of this Lease shall apply to the Option
Space.
(c) Notwithstanding any other provisions stated above,
it is agreed as follows:
(1) Tenant shall not be allowed to exercise
any of its rights contained in this Article 41 at any time when the
Lease is not in effect or at any time when Tenant is in default under
any of the terms, covenants, conditions or provisions of this Lease.
(2) The provisions of Articles 23 and 26
shall apply hereto.
(d) Nothing herein shall act to prohibit Landlord
from entering into one or more leases with prospective tenants for all
or any part of the available space on the 9th floor of the Building
during the period that Tenant's option to expand is in effect nor,
subject to Article 42 below, shall Landlord be required to offer any
such space to Tenant before entering into such leases with others for
all or any part thereof, unless Tenant shall have previously exercised
its right to expand into the Option Space prior to Landlord executing
such lease(s) with such other tenant(s); provided that for so long as
Tenant's option rights under this Article 41 remain in effect,
Landlord shall not enter into a lease of all or any portion of the
Option Space, or renew or extend such lease, so that the same would
extend beyond January 1, 1991.
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TENANT RIGHT TO EXPAND
42. With respect to periods of time after the commencement
date of this Lease, Landlord hereby grants to Tenant a right of first
refusal to lease space on the 9th lour, other than the space
designated in Article 41, and on the 8th floor of the Building (herein
the "Expansion Space") before Landlord shall lease any part thereof to
a prospective tenant. For purposes thereof, each portion of the
rentable square footage on the 8th and 9th floors shall for
convenience purposes be hereafter referred to as "Space A" and shall,
for notice-purposes, be assigned sequential numbers (e.g., Space A-l,
Space A-2, etc.). The terms and conditions of such right of first
refusal shall be as follows:
(a) When Space A is vacant or otherwise available for
leasing, and a prospective tenant has entered into negotiations with
Landlord to lease all or any part of the Expansion Space, Landlord
shall give written notice to Tenant thereof in the manner provided in
Article 27, such notice to contain the following:
(1) a demising plan showing the Space A in
question hatched in black;
(2) Landlord's standard measurement of the
number of rentable square feet in Space A;
(3) the amount of the effective base annual
rental increase and increase in percentage of increase of Taxes or
Operating Costs to be borne by Tenant (pursuant to Article 38) with
respect to Space A in the event Tenant shall elect to exercise its
right of first refusal, based on the offer made by the prospective
tenant;
(4) the estimated availability-date and
commencement date of any lease to be executed covering such Space A
and the length of the proposed term;
(5) the amount of the construction allowance,
if any, to be afforded the prospective tenant to be applied towards
the cost of construction of improvements and alterations within Space
A;
(6) any other terms and conditions upon which
Landlord proposes to lease such Space A to the proposed tenant, to the
extent such terms and conditions are different from those contained in
this Lease.
(b) Tenant shall have ten (10) days after receipt of
Landlord's said notice in which to notify Landlord, in the manner
provided in Article 27, of Tenant's exercise of its right of first
refusal and Tenant shall have the right to accept Space A on the exact
terms and conditions as offered by Landlord to such prospective
tenant. In the event Tenant shall fail to respond in writing within
such 10-day period or shall otherwise notify Landlord in writing of
its election not to exercise its rights hereunder, Landlord shall then
be allowed to execute a lease with a prospective tenant for Space A,
within a 90-day period thereafter, on the same terms and conditions as
stated in Landlord's written notice to Tenant. In the event Landlord
does not enter into such Lease within said 90- day period, or desires
to change the economic terms such that said terms shall be more
favorable to such prospective tenant or to materially change the
non-economic terms and conditions from those set forth in Landlord's
notice to Tenant (specifically those terms and conditions affecting
term, size and location of Space A), Tenant's right of first refusal
as provided herein shall be reinstated. Landlord agrees that so long
as Tenant's right of first refusal is in effect as to the 8th Floor,
Landlord shall not enter into or propose a lease of space on the 8th
Floor of the Building for a term in excess of sixty-one (61) months.
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(c) Notwithstanding the proposed date of availability
set forth in Landlord's notice, Landlord shall (at Landlord's sole and
exclusive option) have the right, on thirty days' prior written notice
to Tenant to cause said commencement date to be deferred so that the
same shall be any day not more than ninety days later. In addition,
upon occurrence of any of the matters set forth in Article 26,
Landlord shall have the right (but not the obligation) to defer any
said date one day for each day of delay caused by such matter or
matters referred to in Article 26.
(d) In the event of due exercise of Tenant's right of
first refusal, Space A shall be added to the premises previously
demised as of the commencement date stated in Landlord's said notice
to Tenant (or such other date as stated in a notice provided pursuant
to subparagraph (c) above). The addition of Space A shall be on the
following basis:
(1) Space A, if it consists of 2,000 rentable
square feet or less, shall be added to the Lease for, at Landlord's
sole option, the shorter of (i) the term stated in Landlord's notice
to Tenant pursuant to subparagraph (2) above, or (ii) the term of the
Lease, as the same may be extended. Space A, if it consists of more
than 2,000 rentable square feet, shall be added to the Lease for the
term stated in Landlord's notice to Tenant and if such term extends
beyond the expiration date of this Lease, the term of this Lease
shall be extended applicable only to such Space A; provided, however,
that Landlord shall have the right, at Landlord's sole option, to
cause the expiration of the term as to Space A to be coterminous with
the expiration date of the Lease provided Landlord so notifies Tenant
in connection with the giving of notice thereof as set forth in
subparagraph (a) above.
(2) Tenant shall accept Space A in its then
"as is" condition, subject to any construction allowance contained in
Landlord's notice to Tenant.
(3) The increase in base annual rental
applicable to Space A, as stated in Landlord's written notice to
Tenant, shall be effective as of the commencement date of the addition
of Space A.
(4) The increase in the percentage of
increase of Taxes or Operating Costs to be borne by Tenant pursuant to
Article 28 and applicable to Space A, as stated in Landlord's written
notice to Tenant, shall be effective as of the commencement date.
(5) All of the other terms, covenants,
conditions and provisions of this Lease shall apply to Space A.
(e) Notwithstanding any other provisions stated in
this Article 42, it is agreed as follows:
(1) Tenant shall not be allowed to exercise
any of its rights contained in this Article 42 at any time when the
Lease is not in effect or at any time when Tenant is in breach under
this Lease.
(2) In the event Tenant assigns this Lease or
sublets more than 25% of the demised premises, this Article 42 shall
be of no further force or effect.
(3) To exercise its rights hereunder, Tenant
must not have filed nor had filed against it any action or proceeding
under the Federal Bankruptcy Act at any time during the term of the
Lease, which action or proceeding was not fully dismissed
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prior to the later of (i) the date of Tenant's Option Notice or (ii)
within sixty (60) days of being filed.
(4) Tenant may not exercise the option
contained in this Article if the effective date of addition of Space A
to the premises previously demised would be at any time during the
last twenty-four (24) months of the term of this Lease (unless Tenant
has an option to renew the term hereof and elects to irrevocably
exercise such option to renew concurrently with the giving notice of
acceptance of the Expansion Space).
(5) The provisions of Article 23 shall apply
hereto.
(f) The fact of proposed or actual assignment or
subletting by any present or future tenant of Space A, or the default
of said tenant or its desire to terminate its lease, shall not make
the same "available" for exercising of Tenant's rights hereunder
unless Landlord elects in writing to Tenant to treat the same causing
"availability," and Landlord shall have the right to renew or extend
the tenancy of any present or future tenant of Space A without first
offering the same to Tenant.
(g) In the event Tenant shall decline to exercise its
right of first refusal with respect to any Expansion Space as it
becomes available and Landlord thereafter enters into a lease therefor
with another tenant, Tenant shall have no further rights of first
refusal thereto, unless and until such Expansion Space again becomes
available for lease to a new tenant.
(h) In the event Landlord desires to renew or extend
a lease of any Expansion Space to a tenant then occupying such
Expansion Space, beyond the terms set forth in such lease, Landlord
must first deliver written notice to Tenant of the upcoming
availability of such Expansion Space at least nine (9) months prior to
its availability.
(1) If Tenant believes it is interested in
such Expansion Space, Tenant shall give Landlord written notice of
Tenant's interest ("Tenant's Option Notice") within fourteen (14)
calendar days following receipt of notice of availability from
Landlord as set forth immediately above, pursuant to the procedures
set forth in Article 27.
(2) Within fourteen (14) calendar days
following Landlord's receipt of Tenant's Option Notice, Landlord shall
deliver to Tenant a written proposal to Tenant setting forth the
material terms and conditions upon which it would be willing to lease
such Expansion Space to Tenant (the "Proposal"), which Proposal shall
not be any less favorable to Tenant than the terms on which Landlord
is willing to actually lease the Expansion Space to the tenant then
occupying it.
(3) If Tenant desires to accept the
Proposal, it shall, within fourteen (14) calendar days following
Tenant's receipt of the Proposal, give Landlord written notice of
Tenant's acceptance of the Proposal. In the event Tenant shall fail to
respond in writing within such fourteen (14) day period, Tenant shall
be deemed to have rejected the Proposal.
ESCALATION
43. Article 28 is modified as follows:
(a) The definition of "Taxes" appearing in "(A)(1)" of
Article 28 shall be deemed modified to exclude therefrom during the
initial 120 months of the term hereof, all increases in Taxes
resulting from a reassessment of the Building (or the land on which
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the Building is situated) by the taxing authorities having
jurisdiction thereof due to a transfer of title to the Building by
sale or exchange.
(b) In no event shall Tenant's obligation for the payment of
any percentage of the increase in "Operating Costs" pursuant to
Article 28, exceed eight percent (8%) per annum of the Base Year
Operating Costs, compounded annually (e.g., first year's increase
shall not exceed 8% over the Base Year Operating Costs; second year,
16.64% over the Base Year Operating Costs; third year, 25.97% over the
Base Year Operating Costs; fourth year, 36.04 over the Base Year
Operating Costs; etc., for the balance of the term).
Landlord agrees to give to Tenant, prior to June 30 of each year, a
good faith estimate of that year's Taxes and Operating Costs and the
effect thereof on Tenant's obligation to pay its share of Taxes and
Operating Expenses. If Landlord is unable to accurately estimate any
of the individual components that make up Operating Expenses, it shall
so notify Tenant and shall use reasonable efforts to make an accurate
estimate when it is able to do so. Tenant acknowledges that Landlord's
obligations hereunder are for estimates only and that notwithstanding
such estimates, Tenant shall be responsible for its share of actual
Taxes and Operating Expenses, as determined in accordance with Article
28 hereof, but subject to the modifications contained in this Article
43.
Notwithstanding the foregoing definition of Operating Costs,
as contained in Article 28, Operating Costs shall not include the
following:
(i) any ground lease rental;
(ii) costs incurred by Landlord for the repair of
damage to the Building, to the extent that Landlord is reimbursed by
insurance proceeds;
(iii) costs, including permit, license and
inspection costs, incurred with respect to the installation of tenant
improvements made for tenants in the Building or incurred in
renovating or otherwise improving, decorating, painting or
redecorating vacant space for tenants or other occupants of the
Building;
(iv) leasing commissions, attorneys' fees, and
other costs and expenses incurred in connection with negotiations or
disputes with present or prospective tenants or other occupants of the
Building;
(v) expenses in connection with services or other
benefits which are not offered to Tenant or for which Tenant is
charged directly but which are not provided to another tenant or
occupant of the Building;
(vi) overhead and profit increment paid to
Landlord or to subsidiaries or affiliates of Landlord for services in
the Building to the extent the same exceeds the costs of such services
rendered by unaffiliated third parties on a competitive basis;
(vii) interest, principal, points and fees on
debts or amortization on any mortgage or mortgages or any other debt
instrument encumbering the Building or the Land;
(viii) 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;
(ix) advertising and promotional expenditures,
and costs of signs in or on the Building identifying the owner of the
Building;
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<PAGE> 64
(x) electrical power costs for which any Tenant
directly contracts with the local public service company;
(xi) expenses for which Landlord is paid or
reimbursed in full by another tenant or other person, other than
pursuant to an operating cost escalation clause similar to such clause
contained herein;
(xii) capital improvement costs other than those
which are mandated by applicable law or regulation or for energy
conservation or life safety.
Notwithstanding the foregoing definition of Operating Costs,
as contained in Article 28, Operating Costs shall include capital
replacement costs, amortized on a reasonable basis.
PARTIALLY COMPLETED BUILDING
44. Because the Building is not fully occupied and not
fully assessed for purposes of "Taxes," Article 28 is modified further
as follows:
(a) Interim Years. Should the assessed valuation of
the land and Building on the first day of March 1988 not be the
assessment for the completed Building, then until such assessment is
made for the completed Building, the increase or decrease in taxes
available for escalation as provided in Article 28 hereof for the
years prior to and including the year in which the assessment for the
completed Building is effective (the "Interim Years") shall be
computed by comparing the aggregate real estate tax rate in effect for
such Interim Years with the aggregate real estate tax rate in effect
during the Base Year. The following method shall be used to measure
any increase or decrease in real estate taxes under this Article for
such interim year computations:
Interim Year Interim Year Interim Year
Tax Rate x Assessment = Real Estate Taxes
M I N U S
Base Year Tax Adjusted Interim Adjusted Base Year
Rate x Year Assessment* = Real Estate Tax
E Q U A L S:
*The Adjusted Interim Year Increase or decrease
Assessment shall mean the available for escal-
Interim Year Assessment lation as provided in
less any statutorily mandated Article 28
annual increased on the
Base Year Assessment
(b) Post Interim Years. Should the assessed valuation of the
land and Building on the first day of March, 1988, not be the
assessment for the completed Building, then for all years after the
Interim Years, the Base Year Taxes under Article 28 shall be deemed to
be the product of the Adjusted Interim Year Assessment for the Last
Interim Year, multiplied by the Base Year Tax Rate.
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<PAGE> 65
(c) Example. The following is an example of the foregoing:
<TABLE>
<CAPTION>
Assessment Tax Rate Total Taxes
---------- -------- -----------
<S> <C> <C> <C>
Base Year* $1,000,000 1.013% $10,130.00
--------------------------------------------------------------------------------------
First Interim Year $1,500,000 1.015% $ 15,225.00
Less 2%/year
(for one year) ($20,000)
--------
increase on
Base Year
Assessment, as
provided by law
Adjusted Interim
Year Assessment
and Taxes $1,480,000 1.013% $ 14.992.40
-----------
Tax Increase
available for
escallation $ 232.60
--------------------------------------------------------------------------------------
Second (and last)
Interim Year $3,000,000 1.015% $ 30,450.00
Less 2%/year
(for two years) ($50,000)
---------
increase on
Base Year
Assessment, as
provided by law
Adjusted Interim
Year Assessment
and Taxes $2,950,000 1.013% $ 29,883.50
-----------
Tax Increase
available for
escalation $ 566.50
Adjusted Base Year
Assessment and Taxes
for all Post-
Interim Years $2,950,000 1.013% $ 29,883.50
</TABLE>
MONUMENT SIGN
45. (a) Landlord shall erect upon the earlier to occur of
(i) the date which is one (1) year from the commencement date of this
Lease, or (ii) the date upon which the occupancy level of the Building
equals 75%, at Landlord's sole cost and expense, one free- standing
monument sign (the "Sign") for Tenant indicating its presence in the
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<PAGE> 66
Building. The size, materials, design and all other aspects of the
Sign shall be agreed upon by Landlord and Tenant and shall be
consistent with Landlord's signs as currently existing. The Sign shall
be erected by Landlord in the "drop-off area" of the Building as shown
on the plan annexed hereto and made a part hereof and shall be subject
to the following further terms and conditions:
(1) The Sign shall contain only the name of
"Cal-Surance Group" together with its logo, as such logo has been
previously disclosed to Landlord.
(2) Landlord shall have the right to erect
other free-standing monument signs on or about the land on which the
Building is located without restriction.
(b) In addition to the foregoing, Landlord shall also
erect, within six (6) months after commencement of the Lease Term, a
directory sign (the "Directory") for certain tenants in the Building.
The size, materials, design and all other aspects of the Directory
shall be determined by Landlord, but shall be consistent with
Landlord's signs as currently existing in the complex known as The
City. The Directory shall be erected by Landlord in a location near
the northeast corner of the Building and Tenant shall be one of the
related tenants of the Building to appear on our Directory, subject to
the following further terms and conditions:
(1) With respect to Tenant, the Directory
shall contain only one line (which will be approximately 8 feet long,
using letters approximately 3 1/2 inches high), which may contain the
name or names of Tenant and/or any of its affiliates in the Building,
together with their logos, as such logos have been previously
disclosed to Landlord.
(2) Landlord shall have the right to erect
other Directories on or about the Building without restriction.
(c) With respect to both the Sign and the Directory:
(1) Upon expiration or earlier termination of
the Lease or at such other time that Tenant's signage rights are
terminated as provided herein, Landlord shall cause the names referred
to above to be removed from the Sign and the Directory.
(2) Landlord shall maintain the Sign and
Directory in good condition and repair and all costs of maintenance
and repair of the Sign and Directory shall be borne by Landlord during
the term hereof.
(d) In the event Tenant assigns this Lease, the
rights of Tenant under this Article 45 shall inure to the benefit of
such assignee subject to the following terms and conditions:
(1) The Directory shall not contain the
name(s) of any person or entity whose principal business is the same
as that of Landlord or Landlord's successor-in-interest or that of any
other tenant occupying more than 5,000 rentable square feet of space
in the Building (or to occupy such space for which a lease has been
signed), as determined by Landlord in its sole discretion.
(2) The proposed assignee of Tenant shall
submit to Landlord the proposed name to appear on the Sign and
Directory. Notwithstanding the foregoing, Landlord in its sole
discretion may elect to terminate the signage rights of such assignee
as set forth herein with respect to the Sign by offsetting the payment
of Base Annual Rent by assignee at the rate of $25,000 per year during
the remaining initial Lease Term and in proportion thereto for any
partial year. If Tenant has exercised its rights to renew the
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<PAGE> 67
Lease Term pursuant to Article 40 without relinquishing its rights
under this Article 45, then Landlord in its sole discretion may elect
to terminate the signage rights of an assignee under an assignment
made during the Lease Term, as extended, with respect to the Sign by
offsetting the payment of Base Annual Rent by the assignee at the rate
of $25,000 per year during the remaining term of the Lease and in
proportion thereto for any partial year.
(e) In the event Tenant sublets all of the demised
premises for the entire term of this Lease to any third party, such
sublessee shall have the rights set forth in this Article 45 subject,
however, to the same restrictions as are applicable to an assignee. In
the event Tenant sublets less than all of the demised premises or for
a term less than the entire term of this Lease, this Article 45 shall
be null and void prospectively from the effective date of such
subletting and Tenant shall lose its signage rights hereunder;
provided, however, that Tenant shall retain its signage rights with
respect to the Sign so long as Tenant occupies 10,000 rentable square
feet or more of the demised premises and further, such sublessee, if
it has subleased an entire floor and if Tenant is willing to
relinquish its signage rights with respect to the Directory, shall be
entitled, subject to the conditions set forth above, to have its name
on the Directory.
(f) Landlord covenants and agrees that so long as
Tenant's name (but not the name of its assignee) is on Tenant's
monument sign, Landlord shall not display on the exterior of the
Building, above the third floor thereof, a sign for another tenant
occupying space in the demised premises or to occupy space for which a
lease has been signed if the principal business of such other tenant
is insurance or the insurance brokerage business. Upon Landlord's
breach of the covenants set forth in the immediately preceding
sentence, Tenant's sole remedy shall be to terminate this Lease by
delivery of written notice to Landlord within 30 days following such
breach.
PARKING
46. Supplementing Article 37(N), during the term of this
Lease Tenant's employees shall be entitled to park up to a maximum of
174 motor vehicles in Landlord's parking structure, on an unreserved
basis, in common with other tenants, at no additional charge during
the initial term hereof and for a charge no greater to the prevailing
rate as then being charged by Landlord for parking during the Option
Term and any renewals thereof, provided all such persons abide by
Landlord's reasonable rules and regulations with respect to such
parking as may be instituted from time to time, As part of the
foregoing 174-space allocation, Landlord shall provide ten (10)
parking spaces to Tenant's employees on a reserved basis, in an area
of the parking structure designated by Landlord (herein the "Reserved
Parking"), on the following terms and conditions:
(a) Landlord shall have the right, in Landlord's sole
discretion, to change or relocate Tenant's Reserved Parking stalls to
other covered areas of the parking structure, upon five (5) days'
written notice to Tenant; provided, however, that Landlord shall use
its best efforts to substantially maintain the level of convenience
afforded Tenant by the initial assignment of Tenant's Reserved Parking
stalls.
(b) Landlord shall provide adequate identification of
Tenant's Reserved Parking stalls by way of appropriate signage on or
within the parking structure, as deemed reasonable by Landlord. Tenant
shall notify Landlord of unauthorized parking in Tenant's Reserved
Parking and Landlord shall take reasonable steps, as determined by
Landlord, to cause unauthorized parking to cease. Tenant shall not
erect nor cause to be erected any improvements within Landlord's
parking structure which segregate Tenant's Reserved Parking by way of
barriers, gates, access controls or any other like or similar
improvements.
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<PAGE> 68
(c) Landlord reserves the right to institute during
the term of this Lease a system of card-controlled and/or gate access
to the parking structure for ingress and egress of motor vehicles
provided such system does not result in the loss of Tenant's parking
privileges granted hereby.
(d) Nothing contained in this Article shall be
applicable whereby to reduce or materially affect any of the
provisions of Article 28 of this Lease.
(e) Article 9 of the Lease shall be applicable to the
parking area and Tenant's use of the parking structure and enforcement
of Tenant's Reserved Parking rights hereunder.
(f) In the event Tenant shall expand into additional
space in the Building pursuant to Article 41 or 42 above, Tenant's
parking allocation shall be increased at the rate of five (5) parking
spaces per 1,000 usable square feet of space in the additional space
added by virtue of such expansion. Of the parking spaces to which
Tenant would be entitled hereunder, Tenant may have Reserved Parking
on the basis of one (1) Reserved Parking per each 4,000 usable square
feet of space that is added by the expansion.
NON-DISTURBANCE
47. Notwithstanding the provisions of Articles 7 and 22,
Metropolitan Life Insurance Company, who is the beneficiary of the
deed of trust encumbering the real property on which the Building is
located, agrees that, so long as Tenant is not in default under any of
the terms, covenants, conditions, provisions or agreements of this
Lease, Tenant shall not be joined in any foreclosure or other
proceeding (resulting from a default under such deed of trust) for the
purpose of disturbing Tenant's possession of the demised premises. In
the event of such foreclosure or other proceeding, Tenant agrees to
accept the successor owner as Landlord under the Lease, acknowledging
that such successor owner shall be liable to Tenant as Landlord under
the Lease only as of such time as such successor owner becomes the
owner of the real property on which the Building is located.
Furthermore, Tenant's obligation to subordinate this Lease to future
ground leases, underlying leases and deeds of trust is subject to the
execution by the lessor under any such ground lease or underlying
lease or the beneficiary under any such deed of trust of a similar
non-disturbance agreement in favor of Tenant.
Agreed:
Metropolitan Life Insurance Company
AFTER-HOURS HVAC By /s/ illegible
--------------------------------
48. Article 12(b) is modified so that, in the event Tenant
required heating, ventilation, air conditioning ("HVAC") service
during days and/or hours in excess of the days and hours specified in
subsection "(b)" (herein "after hours "HVAC"), Landlord will provide
such after-hours HVAC to Tenant on the following terms and conditions:
(a) Tenant shall be entitled to purchase after-hours
HVAC utilizing a special rate of $50.00 per hour per floor ("Special
Rate"). Tenant shall pay for after-hours HVAC: (i) 30% of the Special
Rate for the first 10 hours of after-hours HVAC usage in any calendar
month; (ii) 50% of the Special Rate for the second 10 hours of
after-hours HVAC usage in any calendar month; (iii) 100% of the
Special Rate for the next 40 hours of after-hours HVAC usage in any
calendar month; and (iv) 100% of the actual prevailing rate (which
currently is $100.00 per hour but is subject to change), charged at
that time by Landlord to tenants in the Building for after-hours HVAC
usage for all hours in excess
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<PAGE> 69
of 60 used in any calendar month. The Special Rate may be increased
proportionately with any increase in costs incurred by Landlord in
supplying after-hours HVAC, except that such increases shall be
limited to not more than 8% per year, compounded annually and
calculated on the maximum amount Landlord could have charged Tenant as
the Special Rate for each year using the 8% increase, whether or not
the maximum amount was actually charged to Tenant.
The monthly allotment of hours as provided for herein
are non-accruable and may not be carried over to any subsequent month
or retroactively applied to any prior month.
(b) To be assured of receiving after hours HVAC,
Tenant shall give written notice to Landlord, such notice to be
personally delivered to Landlord's offices at One City Boulevard,
Orange, California, at least 24 hours prior to the date and time when
Tenant requires such after-hours HVAC. The written notice shall state
the dates and inclusive time period during which Tenant requires
after-hours HVAC service and a statement that Tenant requests such
after-hours HVAC service for such period of time. Landlord will use
its efforts to provide such after-hours HVAC if Tenant fails to
provide at least 24 hours' advance notice based on the actual amount
of notice Landlord receives from Tenant. Tenant shall be responsible
for payment of after-hours HVAC based on the periods of time stated in
Tenant's written notice unless (1) Tenant gives subsequent written
notice to Landlord in sufficient time for Landlord to take the steps
necessary to cancel Tenant's prior written request for after-hours
HVAC service, or (2) no after-hours HVAC is provided Tenant by
Landlord pursuant to Tenant's written notice requesting same. Tenant
may give notice orally to Landlord in substitution for written notice
as circumstances require; provided, however, that Landlord may rely on
such oral notice as if it were written and Tenant hereby waives any
right contest its responsibility for payment of after-hours HVAC upon
the giving of oral notice therefore.
(c) Landlord shall have the right to refuse
after-hours HVAC service on Sundays, holidays and any other days and
times when Landlord does not have, for reasons beyond its control,
sufficient technical personnel available to implement Tenant's request
for after-hours HVAC or in the event Tenant shall fail to give
Landlord sufficient prior notice of Tenant's needs therefor. The terms
and conditions of Article 26 shall be applicable to Landlord's
obligations to provide after-hours HVAC.
(d) Tenant shall not be in breach under this Lease at
the time or time that Tenant requests after-hours HVAC.
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<PAGE> 70
INDEMNIFICATION
49. Article 9 is supplemented as follows:
(a) Tenant agrees to indemnify Landlord, its agents
and employees (and any Lessor under any underlying or ground leases)
against and save Landlord harmless from any and all loss, cost,
liability, damage and expense including, without limitation,
penalties, fines and reasonable counsel fees, incurred in connection
with or arising from (i) any default by Tenant in the observance or
performance of any of the terms, covenants or conditions of this Lease
on Tenant's part to be observed or performed, or (ii) the use or
occupancy or manner of use or occupancy of the demised premises in
violation of applicable laws or in violation of the provisions of this
Lease by Tenant or any person claiming through or under Tenant, or
(iii) any acts, omissions, negligence or misconduct of Tenant or any
person claiming through or under Tenant, or of the contractors,
agents, employees, or licensees of Tenant or any such person, in, on
or about the demised premises or the Building, either prior to,
during, or after the expiration of, the Lease term including, without
limitation, any acts, omissions or negligence in the making or
performing of any of the construction work to be performed by Tenant.
Notwithstanding the foregoing, nothing herein shall require Tenant to
indemnify Landlord for any Claims to the extent arising from the
negligence or misconduct of Landlord, Landlord's agents, or employees.
(b) Notwithstanding anything in this Lease to the
contrary, Tenant shall not be required to defend, save harmless and
indemnify Landlord from any liability for injury, loss, accident or
damage to any person or property resulting from Landlord's negligent
acts or omissions or willful misconduct or that of its agents,
contractors, employees, partners or licensees, in connection with
Landlord's activities on or about the demised premises or the
Building. Such exclusion from Tenant's indemnity is not intended to
and shall not relieve any insurance carrier of its obligations under
policies required to be carried by Tenant pursuant to the provisions
of this Lease to the extent that such policies cover (or, if such
policies would have been carried as required, would have covered) the
result of negligent acts or omissions or willful misconduct of
Landlord or those of its agents, contractors, servants, employees or
licensees; provided, however, the provisions of this sentence shall in
no way be construed to imply the availability of any double or
duplicate coverage following the primary liability of such carriers or
of such implied carriers. There shall be deducted from any amount
Tenant is required to pay to Landlord by reason of its indemnification
obligations the net amount (after deduction of reasonable attorneys'
fees and costs) received by Landlord as proceeds recovered from
Landlord's own insurance coverage.
CLEANING
50. Article 12(e) is supplemented to provide that the
cleaning to be provided by Landlord pursuant to said subsection (c)
shall be in substantial compliance with the "Cleaning Specifications"
which are attached as Exhibit "A" hereto. In addition, Landlord
agrees to clean and treat all carpets through out the demised premises
with a fiberseal or substantially similar product once each year
during the term of the Lease.
DAMAGE OR DESTRUCTION
51. If the demised premises or the Building shall be damaged
by fire or other cause which damage can be repaired, in Landlord's
reasonable judgment, within 120 days from the date of such damage, the
damage shall be repaired by and at the expense of Landlord and the
rent, until such repairs shall be made, shall be apportioned according
to the part of the demised premises which is tenantable or used by
Tenant. If such damage is due to the fault or neglect of Tenant or
Tenant's agents, servants, employees,
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<PAGE> 71
contractor's visitors or licensees, there shall be no apportionment or
abatement of rent, and the debris, if any, shall be removed at the
expense of Tenant. No liability shall accrue for reasonable delay
which may arise by reason of adjustment of insurance on the part of
Landlord or Tenant, for reasonable delay on the account of "labor
troubles, or any other cause beyond Landlord's control. If the demised
premises or the Building shall be damaged by fire or other cause,
which damage cannot be repaired in Landlord's reasonable judgment,
within 120 days, Landlord may, within 120 days after such damage, give
Tenant notice of any decision not to restore or rebuild, and thereupon
the term of this Lease shall expire by the lapse of time on the 30th
day after notice is given, and Tenant shall vacate the demised
premises and surrender the same to Landlord.
If the Landlord has not elected to terminate this Lease in
accordance with the previous provisions, then Landlord shall commence
to diligently repair and restore the damage to the demised premises
and the Building.
If Landlord elects or is obligated to repair or restore the
Building or demised premises and fails to complete 90% of the repairs
or restoration of the Building or demised premises within 210 days
after the occurrence of the fire or other cause, or if Landlord
thereafter fails to diligently pursue such repairs to completion,
Tenant shall have the right to terminate this Lease by Tenant giving
Landlord written notice, as provided in Article 27 hereof, of such
election at any time after the expiration of such 210-day period but
prior to the completion of such work, provided that
(a) Landlord's failure to complete such repairs shall
not have been due to any delays, interference or hindrance by Tenant,
Tenant's agents, employees or contractors.
(b) The casualty or loss shall not have been caused
by the negligence or willful misconduct of Tenant, its agents,
employees, invitees or contractors.
(c) The 210-day period shall be extended one day for
each day of delay in completion of all repairs caused by acts,
occurrences or events beyond the reasonable control of Landlord
including without limitation the occurrences and events described in
Article 26 hereof and including any delay caused by Tenant.
EMINENT DOMAIN
52. Article 11 is amended to provide that in the event of a
taking or condemnation as provided therein, Tenant shall be entitled
to recover any award made by the condemning agency or authority for
(a) relocation costs, (b) unamortized value of any improvements paid
by Tenant from funds other than funds furnished by Landlord to Tenant
as a Construction Credit, (c) furnishings, moveable trade fixtures and
equipment, and (d) goodwill; provided, however, that any such award by
the condemning agency or authority is made separately from Landlord's
award and no part thereof shall be attributable to Tenant's interest
in the leasehold estate created hereby or result in any diminution of
Landlord's award as indicated by the condemning agency or authority.
FOODS AND ODORS
53. Without limiting the generality of Article 29,
including but not limited to the prohibition contained therein against
Tenant permitting odors to emanate from demised premises, Landlord
agrees that Tenant shall have the right to keep and use in demised
premises, at no additional cost to Tenant, two residential-type
microwave ovens and two residential-type refrigerators. Such microwave
ovens may be used only for the warming of food cooked elsewhere and
such refrigerators may have a so-called "ice maker" or other auxiliary
facility which may be attached by Tenant, at Tenant's sole cost and
-18- Cal-Surance Lease
<PAGE> 72
expense, to Landlord's water-source in the Building. Tenant shall be
solely responsible for all maintenance and repair of the microwave
ovens and refrigerators, both of which shall be supplied by Tenant at
Tenant's sole cost and expense.
With respect to the microwave ovens:
(a) Tenant shall at all times keep Landlord fully advised of
the name, address and telephone number (including but not limited to
emergency service telephone numbers) of any operator or servicing
organization who services or provides or from whom Tenant leases or
licenses such microwave ovens;
(b) The installation or use of each microwave ovens will in no
way overload, create any problems with, or require any modification of
the electrical or heating, ventilating and air conditioning systems or
any other system in the Building; and
(c) Each microwave oven shall be installed only in Tenant's
lounges. Such lounges shall be cleaned in accordance with Article 12
hereof; provided, however, that Landlord shall not be responsible for
any excess cleaning over and above that required by normal office
tenants with small lounges and kitchen facilities.
EXECUTION BONUS
54. Within thirty (30) days after Tenant shall execute
this Lease, Landlord shall pay to Tenant the sum of $50,000.00 as
consideration for Tenant's execution of this Lease. Further, within
thirty (30) days after Tenant shall first take possession of the
demised premises, Landlord shall pay to Tenant the sum of $50,000.00
as consideration for Tenant's occupancy of the Premises. Tenant may
utilize the foregoing amount for any purpose desired by Tenant.
WORKLETTER
55. Landlord and Tenant have entered into a separate
letter agreement entitled "Work Letter" of even date herewith which is
a material part of this Lease and incorporated herein by reference.
Landlord's Standard Work, as defined therein, and all of the computer
and other equipment delineated in Tenant's space plan with not require
any additional installations under Article 12 nor will they require
any additional payments under Article 12. If Tenant's electrical
current exceeds the capacity of Landlord's feeders, Tenant, at its own
cost and expense, may install additional feeders to meet its needs,
provided that such installation does not interfere with the Building
systems and provided further that such feeders are removed by Tenant,
at its own cost and expense, upon expiration or sooner termination of
this Lease.
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<PAGE> 73
ASBESTOS
56. Landlord hereby represents to Tenant that, to
Landlord's knowledge, the Building and the demised premises, to the
extent constructed by Landlord, do not contain asbestos. Such
knowledge is based solely on the representations given to Landlord by
its contractor and architect. In the unlikely event asbestos is found
in the demised premises or Building as a result of Landlord's
construction as described above, Landlord, at its cost, which will not
be included as Operating Costs, shall take whatever action is required
to take in accordance with the laws and regulations of those
governmental agencies having jurisdiction over such matters. If the
existence of asbestos is caused by Tenant, Tenant shall remove such
asbestos or other hazardous waste at Tenant's expense but in
compliance with all requirements imposed by Landlord. The conduct of
any such removal shall be in accordance with all applicable
governmental rules, laws, regulations and ordinances.
STORAGE SPACE
57. Landlord hereby grants to Tenant an option to lease up
to 400 square feet of storage space in the basement of the Building
subject to availability, except that Landlord agrees that such storage
space will be available to the extent that Tenant exercises its
option, as provided herein, within six (6) months from the
commencement of the term hereof. The terms and conditions of such
option are as follows:
(a) If Tenant desires to exercise such option, Tenant
must have given Landlord written notice of Tenant's intent to exercise
its option.
(b) The annual rental for such space shall be Ten
Dollars ($10.00) per square foot.
Notwithstanding the foregoing, Tenant shall not be allowed to
exercise any of its rights contained in this Article 41 at any time
when the Lease is not in effect or at any time when Tenant is in
default under any of the terms, covenants, conditions or provisions of
this Lease. Further, Landlord makes no representation to Tenant that
the storage space shall be available to Tenant at any time after the
six (6) month period referred to above, Tenant acknowledging that
Landlord shall be entitled to rent out or use such storage space, as
it sees fit, after such six (6) month period.
SUBLETTING
58. Notwithstanding the contrary provision of Article 3
hereof, Tenant may sublet all or a portion of demised premises upon
the fulfillment of all the following express conditions, but not
otherwise:
(a) Tenant is not then in breach under this Lease;
(b) Tenant does not sublet to more than eight (8)
subtenants at any given time and that if the aggregate rental (in
money or monies' worth) payable by any given subtenant at any time
exceeds, on a square foot basis, the amount per square foot payable by
Tenant to Landlord for the sublet premises in question, then and in
that event Tenant shall pay to Landlord, as additional rental under
this Lease, as and when received, 50% of the profit receivable (or
attributable to the period of occupancy) after the fifth anniversary
date of the commencement date of this Lease by Tenant on the sublease
in question; any profit receivable prior thereto shall belong to and
may be retained by the Tenant. "Profit" as used herein shall mean
gross rental receivable by Tenant for such month with respect to such
sublet premises, less (1) the pro rata base monthly rent and
escalation rent payable by Tenant to Landlord with respect to such
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<PAGE> 74
sublet premises and, further, less (2) an amortized portion of the
aggregate of any broker's commission (payable to an outside broker
with respect to such sublease) and advertising expenses to obtain a
subtenant or subtenants and (3) a pro rata portion of the unamortized
Tenant's Overstandard Work initially made by Tenant in the sublet
premises and paid for by Tenant and additionally (4) a pro rata
portion per month of the value of improvements or so-called "free
rent" (or both) granted by tenant to the subtenant in order to obtain
such sublease;
(c) Each subtenant shall be subject to the prior
written approval of Landlord, which approval will not be unreasonably
withheld or delayed, but which shall be subject to the same criteria
set forth in Article 3 with respect to an assignment of lease;
(d) In no event shall the term of any sublease be for
a longer period than the unexpired term of this Lease;
(e) Neither such sublease nor Landlord's consent
thereto shall release or discharge Tenant of or from any liability,
whether past, present or future, under this Lease;
(f) Tenant shall not be released from any liability
under this Lease because of Landlord's failure to give notice of
default under or in respect of any of the terms, covenants,
conditions, provisions or agreements of this lease;
(g) Each subtenant shall execute an agreement
reasonably satisfactory to Landlord;
(h) Each sublease shall expressly provide that it is
subject and subordinate to this Lease;
(i) An executed duplicate original of each such
sublease (in a form reasonably acceptable to Landlord), attached to
Landlord's standard form of Consent Agreement (which shall also be
signed by Tenant and such subtenant), shall be delivered to Landlord
within ten (10) days after the execution thereof, and that any such
sublease shall not be binding upon Landlord until the foregoing are
delivered to Landlord.
If Tenant assigns this Lease, this Article shall be of no further
force or effect for the period after expiration of the initial Lease
Term.
Landlord shall have the option to terminate the portion of this Lease
that pertains to any sublet space for the period of time such
subletting was to be in effect rather than approve the subletting
thereof. If Landlord elects to exercise this option, it will give
thirty (30) days prior written notice of such election during which
time Tenant may elect to rescind its request to sublet by giving
written notice of such rescission to Landlord within such thirty (30)
day period.
The subletting of all of the demised premises for the entire remaining
term of this Lease (or the entire remaining term of this Lease less
one day) shall not be deemed a subletting subject to the terms and
conditions of this Article 58, but rather an assignment under Article
3.
INSURANCE COVERAGE
59. Tenant shall carry insurance against loss or damage by
fire and such other risks and hazards as are insurable under present
and future standard forms of fire and extended coverage insurance
policies, to the personal property, furniture, furnishings and
fixtures belonging to Tenant located in the demised premises for not
less than one
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<PAGE> 75
hundred percent (100%) of the actual replacement value thereof.
Tenant's failure to carry such insurance shall not constitute a breach
under this Lease but shall relieve Landlord of any responsibilities
under Article 5 it might have had to repair the demised premises,
based on its receipt of the proceeds from the insurance required under
this Article 59.
REQUIREMENTS OF LAW
60. Notwithstanding anything to the contrary in Article 6
hereof, Tenant shall not be in breach of the floor load requirements
of Article 6 and shall not be responsible to Landlord for any damage
incurred with respect thereto so long as Tenant maintains a floor load
less than 100 pounds per square foot.
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<PAGE> 76
CLEANING SPECIFICATIONS
Tenant's Premises:
GENERAL CLEANING - Nightly:
Mop and sweep as needed to maintain in clean condition all
building standard resilient floors in demised premises.
Carpet sweep or vacuum all carpeted areas and rugs (vacuum,
as needed, at least once weekly).
Empty all wastepaper baskets, receptacles, and ash trays.
Dust and wipe clean all furniture, window sills and doors
and counter tops.
Mop up and wash floors for spills and smears throughout
tenant's space, as needed, and wash floors in general as
required.
HIGH DUSTING:
Office Areas
Do all high dusting approximately once a month including the
following:
Dust all pictures, frames, charts, graphs and similar wall
hangings not reached in nightly cleaning. Damp dust as
required.
Dust all window frames and mini-blinds.
MISCELLANEOUS PERIODIC CLEANING: (To be Performed as Needed)
Office Areas
Building standard office doors throughout demised premises
to be checked for general cleanliness as necessary, removing
fingerprints, smudges and other marks.
Steel wool, dry buff or damp mop or wet mop and was as
required building standard resilient floors not less than
once every 60 days.
WINDOW CLEANING
All windows, inside and outside, shall be cleaned four (4)
times per year as directed by Landlord.
Tenant's building standard glass partitions and doors shall
be cleaned once every month.
Note: It is understood and agreed that Landlord has the
right to change, add to, or delete from to any of the above
items as may from time to time become reasonably necessary
for the operation of the building provided Landlord
continues to provide cleaning services consistent with a
first class office building.
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<PAGE> 77
GUARANTY
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and
sufficiency of which are hereby acknowledged, and in consideration
for, and as an inducement to Landlord to make the within lease with
Tenant, the undersigned guarantees, without condition or limitation,
to Landlord, the payment in full of all amounts owing by Tenant under
the terms of the within lease, including the "Rules and Regulations"
as therein provided, and the performance and observance in full of all
of Tenant's covenants, conditions, provisions and agreements provided
to be performed or observed by Tenant under Articles 9 and 49 of the
within lease, without requiring any notice of non- payment,
non-performance or non-observance, or proof, or notice, or demand,
whereby to charge the undersigned therefor, all of which the
undersigned hereby expressly waives and expressly agrees that the
validity of this guaranty and the obligations of the guarantor
hereunder shall in no wise be terminated, affected or impaired by
reason of the assertion by Landlord against Tenant of any of the
rights or remedies reserved to Landlord pursuant to the provisions of
the within lease. Landlord may grant extensions of time and other
indulgences and may modify, amend and waive any of the terms,
covenants, conditions, provisions or agreements of the within lease,
and discharge or release any party or parties thereto, all without
notice to the undersigned and without in any way impairing, releasing
or affecting the liability or obligation of the undersigned. The
undersigned agrees that Landlord may proceed directly against the
undersigned without taking any action under the within lease and
without exhausting Landlord's remedies against Tenant; and no
discharge of Tenant in bankruptcy or in any other insolvency
proceedings shall in any way or to any extent discharge or release the
undersigned from any liability or obligation hereunder. The
undersigned further covenants and agrees that this guaranty shall
remain and continue in full force and effect as to any renewal,
modification or extension of the within lease, and that no subletting
and no assignment of the within lease, with or without Landlord's
consent thereto, shall release or discharge the undersigned. As a
further inducement to Landlord to make the within lease and in
consideration thereof, Landlord and the undersigned covenant and agree
that in any action or proceeding brought by either Landlord or the
undersigned against the other on any matter whatsoever arising out of,
under, or by virtue of any of the terms, covenants, conditions,
provisions or agreements of the within lease or of this guaranty,
Landlord and the undersigned shall and do hereby waive trial by jury.
The undersigned agrees to pay, in addition to any damages which a
court of competent jurisdiction may award, such amount or amounts as
the court may determine to be reasonable attorneys fees incurred by
Landlord or its successors or assigns in the enforcement of this
guaranty. All rights under this guaranty shall inure to the benefit of
any successors or assigns of Landlord.
IN WITNESS WHEREOF, the undersigned has signed this Guaranty as of the
23rd day of August, 1988.
CHARTER FINANCIAL SERVICES
CORPORATION, a California
corporation
By: /s/ [illegible]
--------------------
Chief Executive Officer
-----------------------
Title
-1- Guaranty
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of May 9, 1997, between DAVID C. THOMPSON,
an individual residing at 111 Baywood Drive, Newport Beach, CA 92660
("Executive"), and CREDENTIAL SERVICES INTERNATIONAL, INC., a Delaware
corporation, having its principal place of business at 333 City Boulevard West,
10th Floor, Orange, California 92868 (the "Company").
W I T N E S S E T H:
WHEREAS, the Company desires to employ Executive as President
and Chief Executive Officer and to be assured of its right to his services, on
the terms and conditions hereinafter set forth, and Executive desires to become
so employed on such terms and conditions;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and conditions herein contained, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. Employment Duties. The Company hereby employs
Executive and Executive hereby accepts such employment as President and Chief
Executive Officer of the Company, on the terms and subject to the conditions
hereinafter set forth. In his capacity as President and Chief Executive
Officer of the Company, Executive shall have responsibility for (i) supervising
the day to day operations of the Company; (ii) insuring the co-marketing
operations on endorsed mailings are done profitably; (iii) focusing the Company
on generating free cash flow and EBITDA (as hereinafter defined) in accordance
with the budget attached hereto; establishing appropriate profit and loss
budgets, controls, monitoring and follow-up for products, departments and
methods of marketing; (iv) rationalizing the selling, general and
administrative costs of the Company to a justifiable and economically sensible
level; (v) increasing the membership base; (vi) improving both the short term
and long term prospects of the Company's business; and (vii) such other matters
as the Company's Board of Directors ("Board") or Chairman of the Board shall
determine from time to time, consistent with Executive's position as President
and Chief Executive Officer of the Company. Executive shall report and be
responsible to the Chairman of the Board or such other person as may be
designated by the Board. Executive shall be based and shall perform his duties
at the Company's offices located in Orange, California and shall travel to the
extent necessary to perform his duties hereunder. Executive shall devote his
full business time and energies to the business and affairs of the Company and
shall not accept other employment, perform any services for any other person,
firm or corporation or permit any of his personal business or investment
affairs to interfere with the performance of his duties hereunder. Executive
shall, upon reasonable notice, furnish such information and proper assistance
to the Company as reasonably may be required by the Company in connection with
any legal action involving the Company or any of its affiliates. Executive
agrees to use his best efforts, skills and abilities to promote and protect the
interests of the Company and, faithfully and to the best of his ability,
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perform his duties hereunder. Executive agrees to serve as a director or
officer of any of the Company's subsidiaries or controlled affiliates
requesting his services and to perform such services for such subsidiaries or
controlled affiliates, consistent with his office, as its board of directors
shall request.
2. Term; Termination.
(a) Executive's employment pursuant hereto shall
commence on the date of this Agreement (the "Employment Date") and shall remain
in effect, subject to renewal pursuant to subparagraph (b) of this paragraph 2
and to earlier termination pursuant to subparagraph (c) of this paragraph 2,
until December 2, 1999 (the "Expiration Date"). The term of employment
hereunder, commencing with the Employment Date and including any renewals or
extensions hereof, is hereinafter referred to as the "Employment Term."
(b) In addition to the expiration of the
Employment Term as hereinabove provided, this Agreement and Executive's
employment by the Company shall terminate on the Date of Termination (as
hereinafter defined) as follows:
(i) automatically upon Executive's death;
(ii) at the Company's option if, as a result
of Executive's incapacity due to physical or mental illness, he is unable to
perform the duties of his employment hereunder for a continuous period of sixty
(60) days or an aggregate of ninety (90) days in any one hundred eighty (180)
day period (each such period being hereinafter referred to as a "Disability
Period");
(iii) at the Company's option at any time
for Cause. "Cause" shall be defined to mean (A) the commission by Executive of
any felony, (B) the commission by Executive of any crime involving dishonesty,
(C) the engagement by Executive in any act of fraud, misappropriation or
misfeasance, (D) the engagement by Executive in any activity constituting a
material breach of paragraphs 9, 10 or 11 of this Agreement or other material
breach by Executive of any provision of this Agreement, (E) Executive's failure
to carry out the reasonable written directives of the Board or Chief Operating
Officer (consistent with the provisions of this Agreement) or his repeated
non-attentiveness to or repeated failure to carry out his duties under this
Agreement, (F) the engagement by Executive in any transaction with the Company
involving a conflict of interest or self-dealing, without the prior written
consent of the Board, or (H) the engagement by Executive in conduct materially
adverse to the interests of the Company; provided, however, that the Company
shall not be deemed to have Cause pursuant to clause (iii)(E) unless the
Company gives Executive written notice that the specified conduct has occurred
and, if such conduct can be cured, Executive fails to cure the conduct within
thirty (30) days after receipt of such notice. Termination of Executive for
Cause shall be communicated by delivery to Executive of a notice specifying the
conduct or event constituting Cause, including, with respect to conduct
described in clause (iii)(E) which Executive can cure, that Executive failed to
cure such conduct during the thirty-day period following the date on which the
Company gave Executive written notice thereof.
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(iv) at the Company's option at any time
without Cause; and
(v) at the Company's option at any time
after any fiscal period in which the Company's (A) net revenues and EBITDA (as
hereinafter defined) as reflected on the Company's internally prepared
financial statements or (B) total membership as reflected on the Company's
books and records, do not exceed the amounts listed on Schedule A.
(c) Any termination by the Company pursuant to
subparagraph (b) shall be communicated to Executive by a Notice of Termination.
"Notice of Termination" shall mean a written notice indicating the specific
provision of this Agreement upon which such termination is based and, in the
case of a termination pursuant to subparagraph (b)(iii), setting forth in
reasonable detail the facts and circumstances giving rise to such termination.
(d) As appropriate under the circumstances, "Date
of Termination" shall mean, as applicable: (A) the date of Executive's death;
(B) thirty (30) days after a Notice of Termination is given to Executive if
Executive's employment is terminated pursuant to subparagraph (b)(ii) above; or
(C) the date specified in the Notice of Termination if Executive's employment
is terminated by the Company pursuant to subparagraph (b)(iii), (b)(iv) or
(b)(v) above.
3. Compensation.
(a) The Company shall pay Executive an annual
base salary ("Base Salary") during the Employment Term of $180,000 payable in
equal installments in accordance with the Company's regular payroll practices
for executive level employees, as determined from time to time by the Board,
but in no event less frequently than monthly. The Company shall also pay
Executive an annual bonus in an amount equal to $25,000 (the "Bonus") within
thirty (30) days after the Accountants (as hereinafter defined) issue and
deliver their report with respect to the audited financial statements of the
Company for such year. In addition, the Company shall pay Executive an annual
special bonus as provided in paragraph 3(b) (the "Special Bonus"). The Company
and the Executive have agreed to an equity package for Executive as provided in
the Restated and Amended Agreement of Limited Partnership of CIS Acquisition
Partners dated as of May 9, 1997.
(b) As long as no Adverse Event (as hereinafter
defined) has occurred and is continuing or would occur as a result of the
payment of the Special Bonus to Executive, Executive shall be entitled to
payment of a Special Bonus equal to that percentage of the Bonus Pool (as
hereinafter defined) to be determined by the Board in the Board's sole
discretion. The "Bonus Pool" shall be an amount determined by the Board in the
Board's sole discretion, based upon attainment of business goals.
(c) Any amount payable to Executive on account of
the Special Bonus for any year during the Employment Term will be paid to
Executive by the Company within thirty (30) days after the Company's regular
independent accountants (the "Accountants") issue and deliver to the Company
their report with respect to the audited financial statements of the Company
for such year. In the event the Special Bonus is not paid to Executive because
an
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<PAGE> 4
Adverse Event has occurred or would occur as a result of the payment of the
Special Bonus, the Special Bonus shall be paid to Executive on the earliest
date on which the Adverse Event has been cured and would not occur as a result
of the payment of the Special Bonus.
(d) For purposes of this Agreement, the following
terms shall have the following meanings:
(i) "Adverse Event" shall mean: (x) the
failure of the Company to pay any installment of principal or interest when due
under any Loan Document (as hereinafter defined); or (y) the occurrence of any
event which constitutes, or which, with the giving of notice or the passage of
time will constitute, a default or an event of default under any Loan Document
and with respect to which the lender under such Loan Document has declared an
event of default.
(ii) "Loan Document" shall mean any
agreement, instrument or document executed and delivered by the Company in
connection with its borrowing of funds from, or evidencing the Company's
obligation to pay moneys to, IBJ Schroder Bank & Trust Company ("IBJ"), TRW
Inc. ("TRW") or any affiliate of IBJ or TRW (or any institution which hereafter
refinances all or any portion of the Company's indebtedness to any of such
lenders), as any such agreement, instrument or document may be amended or
supplemented from time to time.
4. Compensation Upon Termination and During Disability.
(a) If Executive's employment shall be terminated
by his death, the Company shall pay to his estate Executive's unpaid Base
Salary for the period through the Date of Termination from the Company's
regular payroll. In addition, the Company shall pay to the Executive's estate
any Bonus and Special Bonus earned prior to the Date of Termination to which
the Executive is unconditionally entitled to be paid at the time that any such
Bonus or Special Bonus is required to be paid under the terms of this
Agreement, so long as no Adverse Event has occurred and is continuing or would
occur as a result of the payment thereof.
(b) In the event of the Executive's physical or
mental disability, the Company shall continue to pay the Executive his Base
Salary during the Disability Period. If the Executive is unconditionally
entitled to any Bonus and Special Bonus earned prior to the end of the
Disability Period, the Company shall pay such Bonus and Special Bonus to the
Executive at the time that such Bonus and Special Bonus is required to be paid
under the terms of this Agreement, so long as no Adverse Event has occurred and
is continuing or would occur as a result of the payment thereof. If the
Company terminates the Executive following the Disability Period, the Company
shall pay the Executive his Base Salary for the period from the Company's
regular payroll through the Date of Termination. The Company shall also pay
the Executive any Bonus and Special Bonus earned prior to the Date of
Termination to which the Executive is unconditionally entitled to be paid, at
the time that any such Bonus and Special Bonus is entitled to be paid under the
terms of this Agreement, so long as no Adverse Event has occurred and is
continuing or would occur as a result of the payment thereof.
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<PAGE> 5
(c) If Executive's employment shall be terminated
for Cause, the Company shall continue to pay Executive his Base Salary through
the Date of Termination. The Company shall have no obligation to pay Executive
any Bonus and Special Bonus or any portion of any Bonus and Special Bonus in
the event Executive's employment is terminated for Cause.
(d) If Executive's employment is terminated by
the Company without Cause pursuant to paragraph 2(b)(iv) hereof, the Company
shall continue to pay Executive, at the rate provided in paragraph 3(a) hereof,
an amount equal to his Base Salary for the lesser of twelve (12) months or the
remainder of the Employment Term. In addition, for the period from the Date of
Termination until the earlier of the Expiration Date or the date twelve (12)
months after the Date of Termination, the Company shall provide Executive, at
the Company's expense, medical insurance coverage for the Executive and
Executive's family substantially equivalent to the medical insurance coverage
provided by the Company to Executive immediately prior to the Date of
Termination. The Company shall also pay the Executive any Bonus and Special
Bonus earned prior to the Date of Termination to which the Executive is
unconditionally entitled to be paid, at the time that any such Bonus and
Special Bonus are required to be paid under the terms of this Agreement, so
long as no Adverse Event has occurred and is continuing or would occur as a
result of the payment thereof. The Company shall provide reasonable
outplacement services for Executive at the Company's reasonable expense for a
period of twelve (12) months following the Date of Termination. In the event
of the termination of this Agreement by the Company without Cause pursuant to
paragraph 2(b)(iv) hereof, the amounts to be paid to Executive pursuant to this
paragraph 4(d) shall constitute liquidated damages and shall be the exclusive
remedy of the Executive.
(e) Unless otherwise agreed by the Company and
Executive, all payments made to Executive (or his estate, as applicable)
pursuant to this paragraph 4, whether during the Disability Period or after the
Date of Termination, shall be made in the amounts, at the times and subject to
the terms and conditions otherwise applicable to payments to Executive pursuant
to paragraph 3 hereof, as if such payments were made to Executive during the
Employment Term.
5. Reimbursement of Expenses. In addition to the
compensation and benefits provided to Executive pursuant to other provisions of
this Agreement, the Company will reimburse Executive in a manner consistent
with established policies of the Company for reasonable out-of pocket expenses
actually incurred or paid by him in the performance of his services hereunder,
subject to presentation of expense statements, receipts, vouchers or other
supporting information as the Company may reasonably require.
6. Other Benefits. In addition to the compensation and
benefits provided to Executive pursuant to other provisions of this Agreement,
during the Employment Term, Executive shall be entitled to the following:
(a) participation in and receipt of benefits
under: (i) any retirement plan or arrangement for the benefit of executive
employees of the Company; and (ii) any health or other insurance plan or
arrangement for the benefit of executive employees of the Company;
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<PAGE> 6
all on terms no less favorable than those offered to other executive level
employees of the Company, to the extent that Executive is otherwise eligible to
participate or receive benefits under any such plan or arrangement, and
(b) a number of paid vacation days, sick days and
personal days which are provided to other executive level employees of the
Company, but in no event shall the number of paid vacation days in any year of
the Employment Term exceed twenty (20).
7. Other Agreements. Executive represents and warrants
to the Company that he is not a party to any agreement, written or oral, and is
not bound by the terms of any written or oral agreement to which he is not a
party which prohibits him from performing his duties under this agreement or of
serving the Company in any other capacity. Executive agrees to indemnify the
Company and shall hold the Company harmless from and against any liability,
loss, cost or expense, including reasonable attorneys fees and expenses,
incurred by the Company by reason of the inaccuracy of the representations and
warranties made by Executive in this paragraph 7.
8. Life Insurance. Executive agrees that, if requested
by the Company, he will cooperate with the Company to obtain a policy or
policies of life insurance on his life in such amount(s) as the Company may
determine, including submitting to any appropriate medical examinations and
completing and executing any appropriate application(s) or similar form(s).
Any such policy or policies shall be for the benefit of the Company and the
Company shall pay all premiums thereunder.
9. Inventions, Etc. Executive agrees to promptly
disclose in writing to the Company all ideas, formulae, programs, systems,
devices, processes, business concepts, discoveries and inventions (hereinafter
referred to collectively as "Discoveries"), whether or not patentable, which
he, while employed hereunder, conceives, makes, develops, acquires or reduces
to practice, whether alone or with others and whether during or after usual
working hours, and which are related to the Company's business or interest, or
are used or usable by the Company, or arise out of or in connection with the
duties performed by Executive hereunder. Executive hereby transfers and
assigns to the Company all right, title and interest in and to all Discoveries,
including any and all domestic and foreign patent rights therein and any
renewals thereof. On request of the Company, Executive shall from time to time
during or after the expiration or termination of his employment by the Company,
execute such further reasonable instruments (including, without limitation,
applications for letters patent and assignments thereof) and do all such other
reasonable and legal acts and things as may be deemed necessary or desirable by
the Company to protect and/or enforce its rights in respect of Discoveries.
All expenses of filing or prosecuting any patent application shall be borne by
the Company, but Executive shall cooperate in filing and/or prosecuting any
such application. Executive shall receive no additional compensation for the
performance of his obligations hereunder, except as may be agreed to by the
Company.
10. Covenant Regarding Confidentiality. All information
about the business and affairs of the Company which is not generally available
to the public or disclosed by the Company and any information about the Company
which becomes generally available to the
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public as a result of a breach by any person of any confidentiality obligation
to the Company (including, without limitation, its secrets and information
about its business, financial condition and performance, prospects, products,
technology, know-how, merchandising and advertising programs and plans, and the
names of its suppliers, customers and lenders and the nature of its dealings
with them) constitute "Company Confidential Information." Executive
acknowledges that he will have access to, and knowledge of, Company
Confidential Information, and that improper use or revelation of same by
Executive, whether during or after the termination of his employment by the
Company, could cause serious injury to the business of the Company.
Accordingly, Executive agrees that, except as required to perform his duties
under this Agreement, or as required by law, he will forever keep secret and
inviolate all Company Confidential Information which shall come into his
possession, and he will not disclose the same to any other person or
organization for so long as such Company Confidential Information is not
generally known by, or accessible to, the public. Executive further agrees
that he will not use any Company Confidential Information for his own benefit
or directly or indirectly for the benefit of any person or organization other
than the Company and its affiliates.
11. Covenant Not to Compete.
(a) During the Employment Term and for a period
of eighteen (18) months thereafter (whether his employment shall have ended by
reason of the expiration of this Agreement or otherwise), Executive will not:
(i) directly or indirectly, as owner, stockholder, investor, partner, director,
officer, employee, consultant, lender, or otherwise, engage or become
interested in any business, trade or occupation in the Restricted Territory (as
hereinafter defined) which sells products or provides services similar to or
competitive with any business of the Company, as conducted at or within one (1)
year prior to the date of termination of his employment; (ii) directly or
indirectly hire or endeavor to recruit or hire for any purpose any person who
is (or was during the six (6) period [sic] immediately preceding such attempted
hiring or recruitment) employed by the Company or otherwise induce or attempt
to induce any then current employee of the Company to terminate such
employment, or (iii) solicit or attempt to solicit for any business any
customer of the Company which conducted business with the Company at any time
during the one (1) year period immediately preceding such solicitation or
otherwise induce or attempt to induce any customer, supplier or lender of the
Company to diminish or terminate such business relationship; provided, however,
that the ownership by Executive of not more than five percent (5%) of any class
of outstanding securities of an issuer listed on a national securities exchange
or regularly traded in the over-the counter market shall nor constitute a
violation of this paragraph 11(a); and further provided, however, in the event
this Agreement is terminated by the Company without Cause the prohibition in
subparagraph 11(a)(i) shall not survive beyond the Date of Termination. The
"Restricted Territory" shall mean anywhere in the counties of Orange,
California, Dallas, Texas, Fort Worth, Texas, any other locations in the States
of California or Texas or other location in the United States of America and
any other region, county, city or locality therein where the Company is
currently transacting, or during the past five (5) years, has been transacting
business. The parties agree and intend that the covenants contained in this
paragraph 11(a) shall be construed as a series of separate covenants, one for
each applicable county, state or country. Except for geographic coverage, each
such separate covenant shall be deemed identical in terms.
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(b) Executive acknowledges that the operation and
conduct of the business of the Company is special and unique and involves the
use of trade secrets and confidential information and that during the period of
his employment hereunder, Executive will acquire special knowledge and/or skill
that he could effectively utilize in competition with the Company. Executive
further acknowledges that the provisions of paragraphs 9, 10 and 11 hereof are
essential to the goodwill and profitability of the Company and have provided
substantial inducement to the Company's agreement to execute and consummate
this Agreement, and that the application or operation thereof shall not involve
a substantial hardship upon his future business or livelihood. Executive
agrees that remedies at law for any breach by him of the covenants contained in
paragraphs 9, 10 and 11 hereof will be inadequate, and that in the event of a
violation of the covenants therein, in addition to any and all legal and
equitable remedies which may be available to the Company, the said covenants
may be enforced by an injunction in a suit in equity, without the necessity of
proving actual damage, and that a temporary injunction may be granted
immediately upon the commencement of any such suit and without notice. Should
any court determine that any of the separate covenants of this paragraph 11
shall be unenforceable in respect of geographic area, then such covenant shall
be deemed eliminated for the purpose of those proceedings to the extent
necessary to permit the remaining separate covenants to be enforced. If any
other provision of paragraphs 9, 10 and 11 shall be deemed by an appropriate
court to be unenforceable for any reason, then such court shall be empowered to
substitute, to the extent enforceable, provisions similar thereto or other
provisions so as to provide the Company, to the fullest extent permitted by
applicable law, the benefits intended by paragraphs 9, 10 and 11 hereof.
Executive acknowledges that the covenants contained in this paragraph 11 are
intended by the parties to be in addition to and not in lieu of or in
limitation of any other agreement or covenant between Executive and the
Company. Each of the provisions of paragraphs 9, 10 and 11 hereof shall
survive the termination of this Agreement and the termination of Executive's
employment by the Company.
12. Fee, Expenses and Indemnification.
(a) Each party hereto shall pay all reasonable
legal fees and related expenses (including the costs of experts, evidence and
counsel) incurred by the other party hereto as a result of the other party's
seeking to obtain or enforce any right or benefit provided by this Agreement,
provided the other party substantially prevails in the proceeding.
(b) Notwithstanding any other provision of this
Agreement to the contrary, the Company agrees that during the term of
Executive's employment with the Company and subsequent to the occurrence of a
termination of Executive's employment, it shall indemnify Executive and hold
Executive harmless if Executive is made or threatened to be made a party to any
action or proceeding by reason of the fact Executive was an employee of the
Company against expenses, including attorney's and paralegals' fees, judgments,
fines and amounts paid in settlement, in each case to the extent actually and
reasonably incurred as a result of such action or proceeding, or any appeal
thereof; provided that Executive shall not be entitled to indemnification
hereunder unless Executive acted in good faith and in a manner that Executive
reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that Executive's conduct was unlawful. The Company
may, at its election, pay in advance any
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<PAGE> 9
expenses, including attorneys' and paralegals' fees, actually and reasonably
incurred by Executive in defending any action or proceeding, or any appeal
thereof, upon receipt of Executive's undertaking to repay such amounts if it is
ultimately determined that Executive is not entitled to be indemnified by the
Company as authorized under this Section 12(b).
13. Notices. All notices and other communications given
or made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made as of the date delivered if delivered personally or by
facsimile (followed by first class U.S. mail), or three days after mailing if
mailed by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice, except that notice of changes
of address shall be effective upon receipt):
If to the Company:
Credentials Services International, Inc.
333 City Boulevard West, 10th Floor,
Orange, California 92868
Attention: Chief Executive Officer
Telecopy No.: (714) 704-6503
with a copy to:
Lincolnshire Management, Inc.
780 Third Avenue
New York New York 10017
Attention: T.J. Maloney
Telecopy No.: (212) 755-5457
and to:
Maloney, Mehlman & Katz
405 Lexington Avenue
New York, New York 10174
Attn: Barry T. Mehlman, Esq.
Telecopy No.: (212) 972-0220
If to Executive, to him at his address set forth in the
introductory paragraph of this Agreement.
14. General.
(a) This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of California
applicable to contracts made and to be performed entirely within such state
(without regard to principles of conflicts of law of California or of any other
jurisdictions).
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<PAGE> 10
(b) The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
(c) This Agreement sets forth the entire
agreement and understanding of the parties relating to the subject matter
hereof, and supersedes all prior agreements, arrangements and understandings,
written or oral, between the parties.
(d) This Agreement and the benefits hereunder are
personal to the Company and are not assignable or transferable, nor may the
services to be performed hereunder be assigned by the Company to any person,
firm or corporation; provided, however, that this Agreement and the benefits
hereunder may be assigned by the Company to any corporation acquiring all or
substantially all of the assets or stock of the Company or to any corporation
into which the Company may be merged or consolidated.
(e) All references in this Agreement to amounts
to be paid or benefits to be provided to or on behalf of Executive are to the
gross amounts thereof which are due hereunder. Except as otherwise provided
herein, the Company shall have the right to deduct therefrom or collect from
Executive all sums which may be required to be deducted or withheld under any
provision of law, including, but not limited to, social security payments,
income tax withholding, any other deduction required by law and any interest,
penalties or additions to tax imposed with respect thereto.
(f) This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms or covenants hereof may
be waived, only by a written instrument executed by both parties hereto, or in
the case of a waiver, by the party waiving compliance. The failure of either
party at any time or times to require performance of any provision hereof shall
in no manner affect the right of such party at a later time to enforce the
same. No waiver by either party of the breach of any term or covenant
contained in this Agreement, whether by conduct or otherwise, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such breach, or a waiver of the breach of any other term or
covenant contained in this Agreement.
(g) This Agreement may be executed in
counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same instrument.
(h) Subject to the provisions of paragraph 11
hereof, if any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any partner. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the
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<PAGE> 11
original intent of the parties as closely as possible in an acceptable manner
to the end that the transactions contemplated hereby are fulfilled to the
extent possible.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
* * * * *
CREDENTIALS SERVICES
INTERNATIONAL, INC.
By: /s/ Thomas J. Maloney
-------------------------------
Name: Thomas J. Maloney
Title: Chairman
/s/ David C. Thompson
-----------------------------------
DAVID C. THOMPSON
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<PAGE> 12
SCHEDULE A
<TABLE>
<CAPTION>
Total
Date New Revenues EBITDA Memberships*
---- ------------ ------ -----------
<S> <C> <C> <C>
Total Fiscal Year 1997 $52,695,000 $9,700,000 $1,401,000
Six Months Ended
March 31, 1998 $35,469,000 $7,552,000 1,730,000
Total Fiscal Year 1998 $77,445,000 $19,827,000 2,035,000
</TABLE>
__________________________________
* Can include multi-year memberships (not to exceed three (3) years)
provided the percentage of multi-year memberships to total memberships does not
exceed that specified in applicable debt covenants with respect to which the
Company is a party. The Company will not sell lifetime memberships unless
approved by the Board of Directors.
<PAGE> 1
EXHIBIT 10.5
EXECUTION COPY
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of August 15, 1996, between CHUCK CAUDLE,
an individual residing at 615 Promontory Drive East, Newport Beach, California
92660 ("Executive"), and CREDENTIAL SERVICES INTERNATIONAL, INC., a Delaware
corporation, having its principal place of business at 333 City Boulevard West,
10th Floor, Orange, California 92868 (the "Company").
W I T N E S S E T H:
WHEREAS, the Company desires to employ Executive as an
executive officer and to be assured of its right to his services, on the terms
and conditions hereinafter set forth, and Executive desires to become so
employed on such terms and conditions;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and conditions herein contained, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. Employment Duties. The Company hereby employs
Executive and Executive hereby accepts such employment as Vice Chairman of the
Company, on the terms and subject to the conditions hereinafter set forth. In
such capacity, Executive shall have, subject to the authority of the Company's
Board of Directors ("Board"), primary responsibility for developing and
promoting the Company's reputation and image in the best possible light to the
direct marketing industry, credit card issuers and the business community at
large and such other matters as the Company's Board or Chairman shall determine
from time to time consistent with Executive's position as Vice Chairman of the
Company. Executive shall be based and shall perform his duties at the
Company's offices located in Orange, California and shall travel to the extent
necessary to perform his duties hereunder. Executive shall devote his full
business time and energies to the business and affairs of the Company and shall
not accept other employment, perform any services for any other person, firm or
corporation or permit any of his personal business or investment affairs to
interfere with the performance of his duties hereunder. Executive shall, upon
reasonable notice, furnish such information and proper assistance to the
Company as reasonably may be required by the Company in connection with any
legal action involving the Company or any of its affiliates. Executive agrees
to use his best efforts, skills and abilities to promote and protect the
interests of the Company and, faithfully and to the best of his ability,
perform his duties hereunder. Executive agrees to serve as a director or
officer of any of the Company's subsidiaries or controlled affiliates
requesting his services and to perform such services for such subsidiaries or
controlled affiliates, consistent with his office, as its board of directors
shall request.
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<PAGE> 2
2. Term; Termination.
(a) Executive's employment pursuant hereto shall
commence on the date of this Agreement (the "Employment Date") and shall remain
in effect, subject to renewal pursuant to subparagraph (b) of this paragraph 2
and to earlier termination pursuant to subparagraph (c) of this paragraph 2,
until August 15, 1999 (the "Initial Expiration Date"). The term of employment
hereunder, commencing with the Employment Date and including any renewals or
extensions hereof, is hereinafter referred to as the "Employment Term."
(b) Unless written notice of termination is given
by either party hereto to the other party not less than sixty (60) days prior
to the Initial Expiration Date or any Extension Date (as hereinafter defined),
subject to the provisions of subparagraph (c) of this paragraph 2, this
Agreement shall be automatically extended for additional periods of one year
commencing on the Initial Expiration Date and on each anniversary of the
Initial Expiration Date (each such anniversary date being referred to herein as
an "Extension Date").
(c) In addition to the expiration of the
Employment Term as hereinabove provided, this Agreement and Executive's
employment by the Company shall terminate on the Date of Termination (as
hereinafter defined) as follows:
(i) automatically upon Executive's death;
(ii) at the Company's option if, as a result
of Executive's incapacity due to physical or mental illness, he is unable to
perform the duties of his employment hereunder for a continuous period of sixty
(60) days or an aggregate of ninety (90) days in any one hundred eighty (180)
day period (each such period being hereinafter referred to as a "Disability
Period");
(iii) at the Company's option at any time
for Cause. "Cause" shall be defined to mean (A) the commission by Executive of
any felony, (B) the commission by Executive of any crime involving dishonesty,
(C) the engagement by Executive in any act of fraud, misappropriation or
misfeasance, (D) the engagement by Executive in any activity constituting a
material breach of paragraphs 9, 10 or 11 of this Agreement or other material
breach by Executive of any provision of this Agreement, (E) Executive's failure
to carry out the reasonable written directives of the Board or Chief Operating
Officer (consistent with the provisions of this Agreement) or his repeated non-
attentiveness to or repeated failure to carry out his duties under this
Agreement, (F) the engagement by Executive in any transaction with the Company
involving a conflict of interest or self-dealing, without the prior written
consent of the Board, or (H) the engagement by Executive in conduct materially
adverse to the interests of the Company or which brings discredit to the
Company and materially adversely affects the Company;
(iv) at the Company's option at any time
without Cause; and
(v) at the Company's option at any time
after any fiscal period in which the Company's (A) net revenues and EBITDA (as
hereinafter defined) as reflected on
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<PAGE> 3
the Company's internally prepared financial statements or (B) total membership
as reflected on the Company's books and records do not exceed the amounts
listed on Schedule A.
(d) Any termination by the Company pursuant to subparagraph
(b) or (c) shall be communicated to Executive, or, in the case of a termination
by Executive pursuant to subparagraph (b), shall be communicated to the Company,
by a Notice of Termination. "Notice of Termination" shall mean a written notice
indicating the specific provision of this Agreement upon which such termination
is based and, in the case of a termination pursuant to subparagraph (c), setting
forth in reasonable detail the facts and circumstances giving rise to such
termination.
(e) As appropriate under the circumstances, "Date of
Termination" shall mean, as applicable: (A) the date of Executive's death; (B)
thirty (30) days after a Notice of Termination is given to Executive if
Executive's employment is terminated pursuant to subparagraph (c)(ii) above; or
(C) the date specified in the Notice of Termination if Executive's employment
is terminated by the Company pursuant to subparagraph (c)(iii), (c)(iv) or
(c)(v) above.
3. Compensation.
(a) The Company shall pay Executive an annual
base salary ("Base Salary") during the Employment Term of Two Hundred Fifty
Thousand and 00/100 Dollars ($250,000), payable in equal installments in
accordance with the Company's regular payroll practices for executive level
employees, as determined from time to time by the Board, but in no event less
frequently than monthly. The Company shall also pay Executive an annual bonus
as provided in paragraph 3(b) (the "Bonus"). The Company and the Executive
have agreed to an equity package for Executive as provided in the Restated and
Amended Agreement of Limited Partnership of CIS Acquisition Partners dated as
of May 9, 1997.
(b) As long as no Adverse Event (as hereinafter
defined) has occurred and is continuing or would occur as a result of the
payment of the Bonus to Executive, Executive shall be entitled to payment of a
Bonus equal to that percentage of the Bonus Pool (as hereinafter defined) to be
determined by the Board in the Board's sole discretion. The "Bonus Pool" shall
be an amount determined by the Board in the Board's sole discretion based upon
attainment of business goals.
(c) Any amount payable to Executive on account of
the Bonus for any year during the Employment Term will be paid to Executive by
the Company within thirty (30) days after the Company's regular independent
accountants (the "Accountants") issue and deliver to the Company their report
with respect to the audited financial statements of the Company for such year.
In the event the Bonus is not paid to Executive because an Adverse Event has
occurred or would occur as a result of the payment of the Bonus, the Bonus
shall be paid to Executive on the earliest date on which the Adverse Event has
been cured and would not occur as a result of the payment of the Bonus.
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<PAGE> 4
(d) For purposes of this Agreement, the following
terms shall have the following meanings:
(i) "Adverse Event" shall mean: (x) the
failure of the Company to pay any installment of principal or interest when due
under any Loan Document (as hereinafter defined); or (y) the occurrence of any
event which constitutes, or which, with the giving of notice or the passage of
time will constitute, a default or an event of default under any Loan Document
and with respect to which the lender under such Loan Document has declared an
event of default.
(ii) "Loan Document" shall mean any
agreement, instrument or document executed and delivered by the Company in
connection with its borrowing of funds from, or evidencing the Company's
obligation to pay moneys to, IBJ Schroder Bank & Trust Company ("IBJ"), TRW
Inc. ("TRW") or any affiliate of IBJ or TRW (or any institution which hereafter
refinances all or any portion of the Company's indebtedness to any of such
lenders), as any such agreement, instrument or document may be amended or
supplemented from time to time.
4. Compensation Upon Termination and During Disability.
(a) If Executive's employment shall be terminated
by his death, the Company shall pay to his estate Executive's unpaid Base
Salary for the period through the Date of Termination from the Company's
regular payroll. In addition, the Company shall pay to the Executive's estate
any Bonus earned prior to the Date of Termination to which the Executive is
unconditionally entitled to be paid at the time that any such Bonus is required
to be paid under the terms of this Agreement, so long as no Adverse Event has
occurred and is continuing or would occur as a result of the payment thereof.
(b) In the event of the Executive's physical or
mental disability, the Company shall continue to pay the Executive his Base
Salary during the Disability Period. If the Executive is unconditionally
entitled to any Bonus earned prior to the end of the Disability Period, the
Company shall pay such Bonus to the Executive at the time that such Bonus is
required to be paid under the terms of this Agreement, so long as no Adverse
Event has occurred and is continuing or would occur as a result of the payment
thereof. If the Company terminates the Executive following the Disability
Period, the Company shall pay the Executive his Base Salary for the period from
the Company's regular payroll through the Date of Termination. The Company
shall also pay the Executive any Bonus earned prior to the Date of Termination
to which the Executive is unconditionally entitled to be paid, at the time that
any such Bonus is entitled to be paid under the terms of this Agreement, so
long as no Adverse Event has occurred and is continuing or would occur as a
result of the payment thereof.
(c) If Executive's employment shall be terminated
for Cause, the Company shall continue to pay Executive his Base Salary through
the Date of Termination. The Company shall have no obligation to pay Executive
any Bonus or any portion of any Bonus in the event Executive's employment is
terminated for Cause.
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<PAGE> 5
(d) If Executive's employment is terminated by
the Company without Cause pursuant to paragraph 2(c)(iv) hereof, the Company
shall continue to pay Executive, at the rate provided in paragraph 3(a) hereof,
an amount equal to his Base Salary for the lesser of twelve (12) months or the
remainder of the Employment Term. In addition, for the period from the Date of
Termination until the earlier of the Expiration Date or the date twelve (12)
months after the Date of Termination, the Company shall provide Executive, at
the Company's expense, medical insurance coverage for the Executive and
Executive's family substantially equivalent to the medical insurance coverage
provided by the Company to Executive immediately prior to the Date of
Termination. The Company shall also pay the Executive any Bonus earned prior
to the Date of Termination to which the Executive is unconditionally entitled
to be paid, at the time that any such Bonus is required to be paid under the
terms of this Agreement, so long as no Adverse Event has occurred and is
continuing or would occur as a result of the payment thereof. In the event of
the termination of this Agreement by the Company without Cause pursuant to
paragraph 2(c)(iv) hereof, the amounts to be paid to Executive pursuant to this
paragraph 4(d) shall constitute liquidated damages and shall be the exclusive
remedy of the Executive.
(e) Unless otherwise agreed by the Company and
Executive, all payments made to Executive (or his estate, as applicable)
pursuant to this paragraph 4, whether during the Disability Period or after the
Date of Termination, shall be made in the amounts, at the times and subject to
the terms and conditions otherwise applicable to payments to Executive pursuant
to paragraph 3 hereof, as if such payments were made to Executive during the
Employment Term.
5. Reimbursement of Expenses. In addition to the
compensation and benefits provided to Executive pursuant to other provisions of
this Agreement, the Company will reimburse Executive in a manner consistent
with established policies of the Company for reasonable out-of-pocket expenses
actually incurred or paid by him in the performance of his services hereunder,
subject to presentation of expense statements, receipts, vouchers or other
supporting information as the Company may reasonably require.
6. Other Benefits. In addition to the compensation and
benefits provided to Executive pursuant to other provisions of this Agreement,
during the Employment Term, Executive shall be entitled to the following:
(a) participation in and receipt of benefits
under: (i) any retirement plan or arrangement for the benefit of executive
employees of the Company; and (ii) any health or other insurance plan or
arrangement for the benefit of executive employees of the Company; all on terms
no less favorable than those offered to other executive level employees of the
Company, to the extent that Executive is otherwise eligible to participate or
receive benefits under any such plan or arrangement, and
(b) a number of paid vacation days, sick days and
personal days which are provided to other executive level employees of the
Company, but in no event shall the number of paid vacation days in any year of
the Employment Term exceed twenty (20).
5
<PAGE> 6
7. Other Agreements.
(a) Executive represents and warrants to the
Company that he is not a party to any agreement, written or oral, and is not
bound by the terms of any written or oral agreement to which he is not a party
which prohibits him from performing his duties under this agreement or of
serving the Company in any other capacity. Executive agrees to indemnify the
Company and shall hold the Company harmless from and against any liability,
loss, cost or expense, including reasonable attorneys fees and expenses,
incurred by the Company by reason of the inaccuracy of the representations and
warranties made by Executive in this paragraph 7.
(b) The Company will reimburse Executive in the
amount of Twenty Five Thousand and 00/100 Dollars ($25,000) for reasonable
out-of-pocket expenses incurred by Executive in connection with Executive's
relocation to the vicinity of the Company.
(c) Not later then April 30, 1997, the Company
shall purchase the automobile currently owned by Executive for an amount not to
exceed $31,500.00. Executive shall be entitled to utilize such automobile
during the Employment Term, it being understood that title to such automobile
shall be retained by the Company.
(d) The Company agrees that it shall indemnify
Executive and hold Executive harmless if Executive is made or threatened to be
made a party to any action or proceeding by reason of the fact that Executive
was an employee of the Company against expenses, including attorneys' and
paralegals' fees, judgments, fines and amounts paid in settlement, in each case
to the extent actually and reasonably incurred as a result of such action or
proceeding, or any appeal thereof; provided that the Company shall have no
obligation to indemnify Executive hereunder unless Executive acted in good
faith and in a manner that Executive reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe that Executive's
conduct was unlawful. The Company may, at its election, pay in advance any
expenses, including attorneys' and paralegals' fees, in each case and to the
extent actually and reasonably incurred by Executive in defending any action or
proceeding, or any appeal thereof, upon receipt of Executive's undertaking to
repay such amounts if it is ultimately determined that Executive is not
entitled to be indemnified by the Company as authorized under this provision.
8. Life Insurance. Executive agrees that, if requested
by the Company, he will cooperate with the Company to obtain a policy or
policies of life insurance on his life in such amount(s) as the Company may
determine, including submitting to any appropriate medical examinations and
completing and executing any appropriate application(s) or similar form(s). Any
such policy or policies shall be for the benefit of the Company and the Company
shall pay all premiums thereunder.
9. Inventions, Etc. Executive agrees to promptly
disclose in writing to the Company all ideas, formulae, programs, systems,
devices, processes, business concepts, discoveries and inventions (hereinafter
referred to collectively as "Discoveries"), whether or not patentable, which
he, while employed hereunder, conceives, makes, develops, acquires or
6
<PAGE> 7
reduces to practice, whether alone or with others and whether during or after
usual working hours, and which are related to the Company's business or
interest, or are used or usable by the Company, or arise out of or in
connection with the duties performed by Executive hereunder. Executive hereby
transfers and assigns to the Company all right, title and interest in and to
all Discoveries, including any and all domestic and foreign patent rights
therein and any renewals thereof. On request of the Company, Executive shall
from time to time during or after the expiration or termination of his
employment by the Company, execute such further reasonable instruments
(including, without limitation, applications for letters patent and assignments
thereof) and do all such other reasonable and legal acts and things as may be
deemed necessary or desirable by the Company to protect and/or enforce its
rights in respect of Discoveries. All expenses of filing or prosecuting any
patent application shall be borne by the Company, but Executive shall cooperate
in filing and/or prosecuting any such application. Executive shall receive no
additional compensation for the performance of his obligations hereunder,
except as may be agreed to by the Company.
10. Covenant Regarding Confidentiality. All information
about the business and affairs of the Company which is not generally available
to the public or disclosed by the Company and any information about the Company
which becomes generally available to the public as a result of a breach by any
person of any confidentiality obligation to the Company (including, without
limitation, its secrets and information about its business, financial condition
and performance, prospects, products, technology, know-how, merchandising and
advertising programs and plans, and the names of its suppliers, customers and
lenders and the nature of its dealings with them) constitute "Company
Confidential Information." Executive acknowledges that he will have access to,
and knowledge of, Company Confidential Information, and that improper use or
revelation of same by Executive, whether during or after the termination of his
employment by the Company, could cause serious injury to the business of the
Company. Accordingly, Executive agrees that, except as required to perform his
duties under this Agreement, or as required by law, he will forever keep secret
and inviolate all Company Confidential Information which shall come into his
possession, and he will not disclose the same to any other person or
organization for so long as such Company Confidential Information is not
generally known by, or accessible to, the public. Executive further agrees
that he will not use any Company Confidential Information for his own benefit
or directly or indirectly for the benefit of any person or organization other
than the Company and its affiliates.
11. Covenant Not to Compete.
(a) During the Employment Term and for a period
of two (2) years thereafter (whether his employment shall have ended by reason
of the expiration of this Agreement or otherwise), Executive will not: (i)
directly or indirectly, as owner, stockholder, investor, partner, director,
officer, employee, consultant, lender, or otherwise, engage or become
interested in any business, trade or occupation in the Restricted Territory (as
hereinafter defined) which sells products or provides services similar to or
competitive with any business of the Company, as conducted at or within one (1)
year prior to the date of termination of his employment; (ii) directly or
indirectly hire or endeavor to recruit or hire for any purpose any person who
is (or was during the six (6) period [sic] immediately preceding such attempted
hiring or recruitment) employed by the Company or otherwise induce or attempt
to induce any
7
<PAGE> 8
then current employee of the Company to terminate such employment, or (iii)
solicit or attempt to solicit for any business any customer of the Company
which conducted business with the Company at any time during the one (1) year
period immediately preceding such solicitation or otherwise induce or attempt
to induce any customer, supplier or lender of the Company to diminish or
terminate such business relationship; provided, however, that the ownership by
Executive of not more than five percent (5%) of any class of outstanding
securities of an issuer listed on a national securities exchange or regularly
traded in the over-the counter market shall nor constitute a violation of this
paragraph 11(a); and further provided, however, in the event this Agreement is
terminated by the Company without Cause the prohibition in subparagraph
11(a)(i) shall not survive beyond the Date of Termination. The "Restricted
Territory" shall mean anywhere in the counties of Orange, California, Dallas,
Texas, Fort Worth, Texas, any other locations in the States of California or
Texas or other location in the United States of America and any other region,
county, city or locality therein where the Company is currently transacting, or
during the past five (5) years, has been transacting business. The parties
agree and intend that the covenants contained in this paragraph 11(a) shall be
construed as a series of separate covenants, one for each applicable county,
state or country. Except for geographic coverage, each such separate covenant
shall be deemed identical in terms.
(b) Executive acknowledges that the operation and
conduct of the business of the Company is special and unique and involves the
use of trade secrets and confidential information and that during the period of
his employment hereunder, Executive will acquire special knowledge and/or skill
that he could effectively utilize in competition with the Company. Executive
further acknowledges that the provisions of paragraphs 9, 10 and 11 hereof are
essential to the goodwill and profitability of the Company and have provided
substantial inducement to the Company's agreement to execute and consummate
this Agreement, and that the application or operation thereof shall not involve
a substantial hardship upon his future business or livelihood. Executive
agrees that remedies at law for any breach by him of the covenants contained in
paragraphs 9, 10 and 11 hereof will be inadequate, and that in the event of a
violation of the covenants therein, in addition to any and all legal and
equitable remedies which may be available to the Company, the said covenants
may be enforced by an injunction in a suit in equity, without the necessity of
proving actual damage, and that a temporary injunction may be granted
immediately upon the commencement of any such suit and without notice. Should
any court determine that any of the separate covenants of this paragraph 11
shall be unenforceable in respect of geographic area, then such covenant shall
be deemed eliminated for the purpose of those proceedings to the extent
necessary to permit the remaining separate covenants to be enforced. If any
other provision of paragraphs 9, 10 and 11 shall be deemed by an appropriate
court to be unenforceable for any reason, then such court shall be empowered to
substitute, to the extent enforceable, provisions similar thereto or other
provisions so as to provide the Company, to the fullest extent permitted by
applicable law, the benefits intended by paragraphs 9, 10 and 11 hereof.
Executive acknowledges that the covenants contained in this paragraph 11 are
intended by the parties to be in addition to and not in lieu of or in
limitation of any other agreement or covenant between Executive and the
Company. Each of the provisions of paragraphs 9, 10 and 11 hereof shall survive
the termination of this Agreement and the termination of Executive's employment
by the Company.
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<PAGE> 9
12. Notices. All notices and other communications given
or made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made as of the date delivered if delivered personally or by
facsimile (followed by first class U.S. mail), or three days after mailing if
mailed by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice, except that notice of changes
of address shall be effective upon receipt):
If to the Company:
Credentials Services International, Inc.
333 City Boulevard West, 10th Floor
Orange, California 92868
Attention: Chief Executive Officer
Telecopy No.: (714) 704-6503
with a copy to:
Lincolnshire Management, Inc.
780 Third Avenue
New York New York 10017
Attention: T.J. Maloney
Telecopy No.: (212) 755-5457
and to:
Maloney, Mehlman & Katz
405 Lexington Avenue
New York, New York 10174
Attn: Barry T. Mehlman, Esq.
Telecopy No.: (212) 972-0220
If to Executive, to him at his address set forth in the
introductory paragraph of this Agreement.
13. General.
(a) This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of California
applicable to contracts made and to be performed entirely within such state
(without regard to principles of conflicts of law of California or of any other
jurisdictions).
(b) The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
9
<PAGE> 10
(c) This Agreement sets forth the entire
agreement and understanding of the parties relating to the subject matter
hereof, and supersedes all prior agreements, arrangements and understandings,
written or oral, between the parties.
(d) This Agreement and the benefits hereunder are
personal to the Company and are not assignable or transferable, nor may the
services to be performed hereunder be assigned by the Company to any person,
firm or corporation; provided, however, that this Agreement and the benefits
hereunder may be assigned by the Company to any corporation acquiring all or
substantially all of the assets or stock of the Company or to any corporation
into which the Company may be merged or consolidated.
(e) All references in this Agreement to amounts
to be paid or benefits to be provided to or on behalf of Executive are to the
gross amounts thereof which are due hereunder. Except as otherwise provided
herein, the Company shall have the right to deduct therefrom or collect from
Executive all sums which may be required to be deducted or withheld under any
provision of law, including, but not limited to, social security payments,
income tax withholding, any other deduction required by law and any interest,
penalties or additions to tax imposed with respect thereto.
(f) This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms or covenants hereof may
be waived, only by a written instrument executed by both parties hereto, or in
the case of a waiver, by the party waiving compliance. The failure of either
party at any time or times to require performance of any provision hereof shall
in no manner affect the right of such party at a later time to enforce the
same. No waiver by either party of the breach of any term or covenant
contained in this Agreement, whether by conduct or otherwise, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such breach, or a waiver of the breach of any other term or
covenant contained in this Agreement.
(g) This Agreement may be executed in
counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same instrument.
(h) Subject to the provisions of paragraph 11
hereof, if any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any partner. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the
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<PAGE> 11
original intent of the parties as closely as possible in an acceptable manner
to the end that the transactions contemplated hereby are fulfilled to the
extent possible.
* * * * *
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
CREDENTIALS SERVICES
INTERNATIONAL, INC.
By: /s/ Thomas J. Maloney
----------------------------
Name: Thomas J. Maloney
Title: Chairman
/s/ Chuck Caudle
-------------------------------
CHUCK CAUDLE
11
<PAGE> 12
SCHEDULE A
<TABLE>
<CAPTION>
Total
Date New Revenues EBITDA Memberships*
---- ------------ ------ -----------
<S> <C> <C> <C>
Total Fiscal Year 1997 $52,695,000 $9,700,000 $1,401,000
Six Months Ended
March 31, 1998 $35,469,000 $7,552,000 1,730,000
Total Fiscal Year 1998 $77,445,000 $19,827,000 2,035,000
</TABLE>
__________________________________
* Can include multi-year memberships (not to exceed three (3) years)
provided the percentage of multi-year memberships to total memberships does not
exceed that specified in applicable debt covenants with respect to which the
Company is a party. The Company will not sell lifetime memberships unless
approved by the Board of Directors.
<PAGE> 1
EXHIBIT 10.6
[LETTERHEAD OF CREDENTIALS SERVICES INTERNATIONAL, INC.]
August 16, 1995
Mike Cossel
4610 49th Street NW
Washington, D.C. 20016
Dear Mike:
Confirming our discussion of August 15, 1995, I am pleased to offer you a
position with Credentials where you will initially oversee the Customer Service
Operation of the company as well as the Production Department and other areas
of the infrastructure.
1. As such, your salary, effective September 1, 1995, will be $140,000
per annum. You will also be entitled to an annual bonus of up to
$45,000 based on the performance of the company. Such bonus will be
at the discretion of the Board of Directors, and a bonus will be paid
no later than 90 days following the fiscal year end of the company.
2. You will be reimbursed for moving expenses up to $25,000.
3. We would ask for one additional commitment from you which is your
consent to keep all CSI information confidential and that you not
compete with the company in any manner for 12 months after any
payment is made to you by the company.
4. Should you be released from your position with the company without
cause, you will be entitled to a severance package of up to one year
salary paid monthly and benefits plus accrued bonus, if any. If, for
any reason, you have not found new employment during that period, the
company, at its discretion, may extend the severance period for
another six months.
5. Until you move from Washington, D.C., you will be entitled to receive
$2,500 per month to cover interim living expenses in Orange County.
Should this offer meet with your approval please sign below where
indicated.
Accepted:
/s/ Mike Cossel 8/28/95 /s/ John Ferry 8/29/95
- ---------------------------------- ----------------------------------
Mike Cossel Date John Ferry Date
President
<PAGE> 1
EXHIBIT 10.7
[LETTERHEAD OF CREDENTIALS SERVICES INTERNATIONAL, INC.]
Date: January 6, 1997
To: Jim Rothe
From: Dave Thompson /s/ Dave Thompson
Subject: Compensation
Jim, as we discussed, effective January 1, 1997, you have been appointed
Executive Vice President - Sales. The details are as follows:
o Annual base compensation of $140,000, to be adjusted annually based
upon performance.
o An annual bonus targeted at 20% of your base compensation, based upon
the attainment of business goals as determined by myself and the Board
of Directors.
o Participation in equity ownership, as previously agreed.
o In the event of termination without cause, twelve months salary and
benefits will be paid.
This updates your previous letter agreement dated September 5, 1995. In the
next several months, we will work towards implementing an employment agreement
for you.
Please see me with any questions.
cc: S. Henderson
<PAGE> 2
[LETTERHEAD OF CREDENTIALS SERVICES INTERNATIONAL, INC.]
September 5, 1995
Mr. James Rothe CONFIDENTIAL
31762 Via Perdiz
Coto de Caza, California 92679
Dear Jim:
We are pleased to offer you the opportunity of joining Credentials in
the role of Vice President of Sales and hope to have you on board as soon as
possible.
In that role, you will be responsible for the continued development of
endorsed relationships with banks and others who might sell our products using
their lists of members, cardholders, etc.
You will have additional responsibilities of managing our
relationships with independent sales agents who develop the same co- marketing
relationships mentioned above, and in helping to create a direct sales force
for CSI (if we collectively see the need to do so).
You will become a member of the management team of the company and we
will look to you to become involved in the strategic planning and future growth
of the company.
Relative to your compensation, your salary will be $90,000 per year to
be adjusted annually based on performance, plus, you will receive a commission
package as follows:
1. For each new paid member created directly through your efforts
you will be compensated $0.50.
2. For each new member created through the efforts of independent
agents who report to you, you will be compensated $0.25.
3. You will also receive $0.10 per new member created from
programs with current house accounts, and you will have the
general management duties for certain of those accounts.
These accounts include those listed below and certain others
which will need to be updated prior to your employment. For
new programs, not yet enacted by House accounts, i.e., a
telemarketing program, where none existed before, your
commission will be $0.25 per new member and $0.10 per renewal
from these new programs.
<PAGE> 3
First USA Star Bank
Norwest Marine Midland
Sun Oil First Omni
Corestates Super America
ZCMI Union Bank
Beneficials/Best Buy CompuServe
Service Merchandise Brandsmart
Mellon Bank
4. You will also be compensated for each of the members who renew
their membership created in (1) and (2) above at the rate of
$0.10 per member during your employment period.
5. Commission will be payable on members created, based on a cash
on cash return, which means that advertising, postage and
commission dollars spent must equal the dollars return before
any commission is earned. Commissions will be paid quarterly,
one quarter in arrears, after any deductions for
cancellations. Obviously, all travel expenses, etc., will be
reimbursed.
We look forward to your joining us and your addition to our management
team and hope that you will accept this offer in the spirit that it is made.
Sincerely,
/s/ John P. Ferry/signed in his absence/L.F.
John P. Ferry
President
<PAGE> 1
EXHIBIT 10.8
EXECUTION COPY
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of December 3, 1996, between VINEET PRUTHI, an
individual residing at 1102 Westover Road, Stamford, Connecticut 06902
("Executive"), and CREDENTIAL SERVICES INTERNATIONAL, INC., a Delaware
corporation, having its principal place of business at 333 City Boulevard West,
10th Floor, Orange, California 92868 (the "Company").
W I T N E S S E T H:
WHEREAS, the Company desires to employ Executive as Chief Financial
Officer and to be assured of its right to his services, on the terms and
conditions hereinafter set forth, and Executive desires to become so employed
on such terms and conditions;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and conditions herein contained, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Employment; Duties. Company hereby employs Executive and
Executive hereby accepts such employment as Chief Financial Officer of the
Company, on the terms and subject to the conditions hereinafter set forth. In
his capacity as Chief Financial Officer of the Company, Executive shall have
responsibility for (i) establishing, updating and implementing accounting and
financial control procedures and policies of the Company, (ii) supervising the
Company's accounting and finance personnel, (iii) supervising the Company's
investor relations, internal audit procedures, tax compliance and lender
relations and compliance, and (iv) such other matters as the Company's Board of
Directors ("Board") or Chief Executive Officer shall determine from time to
time, consistent with Executive's position as Chief Financial Officer of the
Company. Executive shall report and be responsible to the Chief Executive
Officer or such other person as may be designated by the Board. Executive
shall be based and shall perform his duties at the Company's offices located in
Orange, California and shall travel to the extent necessary to perform his
duties hereunder. Executive shall devote his full business time and energies
to the business and affairs of the Company and shall not accept other
employment, perform any services for any other person, firm or corporation or
permit any of his personal business or investment affairs to interfere with the
performance of his duties hereunder. Executive shall, upon reasonable notice,
furnish such information and proper assistance to the Company as reasonably may
be required by the Company in connection with any legal action involving the
Company or any of its affiliates. Executive agrees to use his best efforts,
skills and abilities to promote and protect the interests of the Company and,
faithfully and to the best of his ability, perform his duties hereunder.
Executive agrees to serve as a director or officer of any of the Company's
subsidiaries or controlled affiliates requesting his services and to perform
such services for such subsidiaries or controlled affiliates, consistent with
his office, as its board of directors shall request.
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<PAGE> 2
2. Term; Termination.
(a) Executive's employment pursuant hereto shall
commence on the date of this Agreement (the "Employment Date") and shall remain
in effect, subject to earlier termination pursuant to subparagraph (b) of this
paragraph 2, until December 2, 1999 (the "Expiration Date"). The term of
employment hereunder, commencing with the Employment Date and including any
renewals or extensions hereof, is hereinafter referred to as the "Employment
Term."
(b) In addition to the expiration of the Employment Term
as hereinabove provided, this Agreement and Executive's employment by the
Company shall terminate on the Date of Termination (as hereinafter defined) as
follows:
(i) automatically upon Executive's death;
(ii) at the Company's option if, as a result of
Executive's incapacity due to physical or mental illness, he is unable to
perform the duties of his employment hereunder for a continuous period of sixty
(60) days or an aggregate of ninety (90) days in any one hundred eighty (180)
day period (each such period being hereinafter referred to as a "Disability
Period");
(iii) at the Company's option at any time for
Cause. "Cause" shall be defined to mean (A) the commission by Executive of any
felony, (B) the commission by Executive of any crime involving dishonesty, (C)
the engagement by Executive in any act of fraud, misappropriation or
misfeasance, (D) the engagement by Executive in any activity constituting a
material breach of paragraphs 9, 10 or 11 of this Agreement or other material
breach by Executive of any provision of this Agreement, (E) Executive's failure
to carry out the reasonable written directives of the Board or Chief Operating
Officer (consistent with the provisions of this Agreement) or his repeated
non-attentiveness to or repeated failure to carry out his duties under this
Agreement, (F) the engagement by Executive in any transaction with the Company
involving a conflict of interest or self-dealing, without the prior written
consent of the Board, or (H) [sic] the engagement by Executive in conduct
materially adverse to the interests of the Company or which brings discredit to
the Company and materially adversely affects the Company; and
(iv) the Company's option at any time without
Cause.
(c) Any termination by the Company pursuant to
subparagraph (b) shall be communicated to Executive by a Notice of Termination.
"Notice of Termination" shall mean a written notice indicating the specific
provision of this Agreement upon which such termination is based and, in the
case of a termination pursuant to subparagraph (b)(iii), setting forth in
reasonable detail the facts and circumstances giving rise to such termination.
(d) As appropriate under the circumstances, "Date of
Termination" shall mean, as applicable: (A) the date of Executive's death; (B)
thirty (30) days after a Notice of Termination is given to Executive if
Executive's employment is terminated pursuant to
2
<PAGE> 3
subparagraph (b)(ii) above; or (C) the date specified in the Notice of
Termination if Executive's employment is terminated by the Company pursuant to
subparagraph (b)(iii) or (b)(iv) above.
3. Compensation.
(a) The Company shall pay Executive an annual base
salary ("Base Salary") during the Employment Term of $155,000 payable in equal
installments in accordance with the Company's regular payroll practices for
executive level employees, as determined from time to time by the Board, but in
no event less frequently than monthly. The Company shall also pay Executive an
annual bonus in an amount equal to $25,000 (the "Bonus") within thirty (30)
days after the Accountants (as hereinafter defined) issue and deliver their
report with respect to the audited financial statements of the Company for such
year. In addition, the Company shall pay Executive an annual special bonus as
provided in paragraph 3(b) (the "Special Bonus"). The Company and the
Executive have agreed to an equity package for Executive as provided in the
Restated and Amended Agreement of Limited Partnership of CIS Acquisition
Partners dated as of May 9, 1997.
(b) As long as no Adverse Event (as hereinafter defined)
has occurred and is continuing or would occur as a result of the payment of the
Special Bonus to Executive, Executive shall be entitled to payment of a Special
Bonus equal to that percentage of the Bonus Pool (as hereinafter defined) to be
determined by the Board in the Board's sole discretion. The "Bonus Pool" shall
be an amount determined by the Board in the Board's sole discretion based upon
attainment of business goals.
(c) Any amount payable to Executive on account of the
Special Bonus for any year during the Employment Term will be paid to Executive
by the Company within thirty (30) days after the Company's regular independent
accountants (the "Accountants") issue and deliver to the Company their report
with respect to the audited financial statements of the Company for such year.
In the event the Special Bonus is not paid to Executive because an Adverse
Event has occurred or would occur as a result of the payment of the Special
Bonus, the Special Bonus shall be paid to Executive on the earliest date on
which the Adverse Event has been cured and would not occur as a result of the
payment of the Special Bonus.
(d) For purposes of this Agreement, the following terms
shall have the following meanings:
(i) "Adverse Event" shall mean: (x) the failure
of the Company to pay any installment of principal or interest when due under
any Loan Document (as hereinafter defined); or (y) the occurrence of any event
which constitutes, or which, with the giving of notice or the passage of time
will constitute, a default or an event of default under any Loan Document and
with respect to which the lender under such Loan Document has declared an event
of default.
(ii) "Loan Document" shall mean any agreement,
instrument or document executed and delivered by the Company in connection with
its borrowing of funds from, or evidencing the Company's obligation to pay
moneys to, IBJ Schroder Bank & Trust
3
<PAGE> 4
Company ("IBJ"), TRW Inc. ("TRW"), or any affiliate of IBJ or TRW (or any
institution which hereafter refinances all or any portion of the Company's
indebtedness to any of such lenders), as any such agreement, instrument or
document may be amended or supplemented from time to time.
4. Compensation Upon Termination and During Disability.
(a) If Executive's employment shall be terminated by his
death, the Company shall pay to his estate Executive's unpaid Base Salary for
the period through the Date of Termination from the Company's regular payroll.
In addition, the Company shall pay to the Executive's estate any Bonus and
Special Bonus earned prior to the Date of Termination to which the Executive is
unconditionally entitled to be paid at the time that any such Bonus and Special
Bonus are required to be paid under the terms of this Agreement, so long as no
Adverse Event has occurred and is continuing or would occur as a result of the
payment thereof.
(b) In the event of the Executive's physical or mental
disability, the Company shall continue to pay the Executive his Base Salary
during the Disability Period. If the Executive is unconditionally entitled to
any Bonus and Special Bonus earned prior to the end of the Disability Period,
the Company shall pay such Bonus and Special Bonus to the Executive at the time
that such Bonus and Special Bonus are required to be paid under the terms of
this Agreement, so long as no Adverse Event has occurred and is continuing or
would occur as a result of the payment thereof. If the Company terminates the
Executive following the Disability Period, the Company shall pay the Executive
his Base Salary for the period from the Company's regular payroll through the
Date of Termination. The Company shall also pay the Executive any Bonus and
Special Bonus earned prior to the Date of Termination to which the Executive is
unconditionally entitled to be paid, at the time that any such Bonus and
Special Bonus are required to be paid under the terms of this Agreement, so
long as no Adverse Event has occurred and is continuing or would occur as a
result of the payment thereof.
(c) If Executive's employment shall be terminated for
Cause, the Company shall continue to pay Executive his Base Salary through the
Date of Termination. The Company shall have no obligation to pay Executive any
Bonus and Special Bonus or any portion of any Bonus and Special Bonus in the
event Executive's employment is terminated for Cause.
(d) If Executive's employment is terminated by the
Company without Cause pursuant to paragraph 2(b)(iv) hereof, the Company shall
continue to pay Executive, at the rate provided in paragraph 3(a) hereof, an
amount equal to his Base Salary for the lesser of twelve (12) months or the
remainder of the Employment Terms. In addition, for the period from the Date
of Termination until the earlier of the Expiration Date or the date twelve (12)
months after the Date of Termination, the Company shall provide Executive, at
the Company's expense, medical insurance coverage for the Executive and
Executive's family substantially equivalent to the medical insurance coverage
provided by the Company to Executive immediately prior to the Date of
Termination. The Company shall also pay the Executive any Bonus and Special
Bonus earned prior to the Date of Termination to which the Executive is
unconditionally entitled to be paid, at the time that any such Bonus and
Special Bonus are
4
<PAGE> 5
required to be paid under the terms of this Agreement, so long as no Adverse
Event has occurred and is continuing or would occur as a result of the payment
thereof. In the event of the termination of this Agreement by the Company
without Cause pursuant to paragraph 2(b)(iv) hereof, the amounts to be paid to
Executive pursuant to this paragraph 4(d) shall constitute liquidated damages
and shall be the exclusive remedy of the Executive.
(e) Unless otherwise agreed by the Company and
Executive, all payments made to Executive (or his estate, as applicable)
pursuit to this paragraph 4, whether during the Disability Period or after the
Date of Termination, shall be made in the amounts, at the times and subject to
the terms and conditions otherwise applicable to payments to Executive pursuant
to paragraph 3 hereof, as if such payments were made to Executive during the
Employment Term.
5. Reimbursement of Expenses. In addition to the compensation
and benefits provided to Executive pursuant to other provisions of this
Agreement, the Company will reimburse Executive in a manner consistent with
established policies of the Company for reasonable out-of-pocket expenses
actually incurred or paid by him in the performance of his services hereunder,
subject to presentation of expense statements, receipts, vouchers or other
supporting information as the Company may reasonably require.
6. Other Benefits. In addition to the compensation and
benefits provided to Executive pursuant to other provisions of this Agreement,
during the Employment Term, Executive shall be entitled to the following:
(a) participation in and receipt of benefits under: (i)
any retirement plan or arrangement for the benefit of executive employees of
the Company; and (ii) any health or other insurance plan or arrangement for the
benefit of executive employees of the Company; all on terms no less favorable
than those offered to other executive level employees of the Company, to the
extent that Executive is otherwise eligible to participate in or receive
benefits under any such plan or arrangement; and
(b) a number of paid vacation days, sick days and
personal days which are provided to other executive level employees of the
Company, but in no event shall the number of paid vacation days in any year of
the Employment Term exceed twenty (20).
7. Other Agreements.
(a) Executive represents and warrants to the Company
that he is not a party to any agreement, written or oral, and is not bound by
the terms of any written or oral agreement to which he is not a party which
prohibits him from performing his duties under this agreement or of serving the
Company in any other capacity. Executive agrees to indemnify the Company and
shall hold the Company harmless from and against any liability, loss, cost or
expense, including reasonable attorneys fees and expenses, incurred by the
Company by reason of the inaccuracy of the representations and warranties made
by Executive in this paragraph 7.
5
<PAGE> 6
(b) Upon submission of an invoice or invoices with such
supporting information including bills or receipts as the Company may
reasonably require, the Company will reimburse Executive for (i) up to an
aggregate of $50,000 of reasonable expenses incurred or to be incurred by
Executive in connection with the relocation of Executive's primary residence
from Stamford, Connecticut to southern California and (ii) for rental payments
in connection with the rental of a house for Executive and Executive's family
in an amount not exceeding $2,500 per month for up to twelve months following
Executive's relocation to California. In addition, until August 30, 1997
Company shall provide Executive (on a non-exclusive basis subject to
availability) with the use (for Executive only) of the house rented by the
Company in Newport Beach, California.
8. Life Insurance. Executive agrees that, if requested by the
Company, he will cooperate with the Company to obtain a policy or policies of
life insurance on his life in such amount(s) as the Company may determine,
including submitting to any appropriate medical examinations and completing and
executing any appropriate application(s) or similar form(s). Any such policy or
policies shall be for the benefit of the Company and the Company shall pay all
premiums thereunder.
9. Inventions, Etc. Executive agrees to promptly disclose in
writing to the Company all ideas, formulae, programs, systems, devices,
processes, business concepts, discoveries and inventions (hereinafter referred
to collectively as "Discoveries"), whether or not patentable, which he, while
employed hereunder, conceives, makes, develops, acquires or reduces to
practice, whether alone or with others and whether during or after usual
working hours, and which are related to the Company's business or interests, or
are used or usable by the Company, or arise out of or in connection with the
duties performed by Executive hereunder. Executive hereby transfers and
assigns to the Company all right, title and interest in and to all Discoveries,
including any and all domestic and foreign patent rights therein and any
renewals thereof. On request of the Company, Executive shall from time to time
during or after the expiration or termination of his employment by the Company,
execute such reasonable instruments (including, without limitation,
applications for letters patent and assignments thereof) and do all such other
reasonable and legal acts and things as may be deemed necessary or desirable by
the Company to protect and/or enforce its rights in respect of Discoveries.
All expenses of filing or prosecuting any patent application shall be borne by
the Company, but Executive shall cooperate in filing and/or prosecuting any
such application. Executive shall receive no additional compensation for the
performance of his obligations hereunder, except as may be agreed to by the
Company.
10. Covenant Regarding Confidentiality. All information about
the business and affairs of the Company which is not generally available to the
public or disclosed by the Company and any information about the Company which
becomes generally available to the public as a result of a breach by any person
of any confidentiality obligation to the Company (including, without
limitation, its secrets and information about its business, financial condition
and performance, prospects, products, technology, know-how, merchandising and
advertising programs and plans, and the names of its suppliers, customers and
lenders and the nature of its dealings with them) constitute "Company
Confidential Information." Executive acknowledges that he will have access to,
and knowledge of, Company Confidential Information, and that
6
<PAGE> 7
improper use or revelation of same by Executive, whether during or after the
termination of his employment by the Company, could cause serious injury to the
business of the Company. Accordingly, Executive agrees that, except as
required to perform his duties under this Agreement, or as required by law, he
will forever keep secret and inviolate all Company Confidential Information
which shall come into his possession, and he will not disclose the same to any
other person or organization for so long as such Company Confidential
Information is not generally by, or accessible to, the public. Executive
further agrees that he will not use any Company Confidential Information for
his own benefit or directly or indirectly for the benefit of any person or
organization other than the Company and its affiliates.
11. Covenant Not To Compete.
(a) During the Employment Term and for a period of two
(2) years thereafter (whether his employment shall have ended by reason of the
expiration of this Agreement or otherwise), Executive will not: (i) directly or
indirectly, as owner, stockholder, investor, partner, director, officer,
employee, consultant, lender, or otherwise, engage or become interested in any
business, trade or occupation in the Restricted Territory (as hereinafter
defined) which sells products or provides services similar to or competitive
with any business of the Company, as conducted at or within one (1) year prior
to the date of termination of his employment; (ii) directly or indirectly hire
or endeavor to recruit or hire for any purpose any person who is (or was during
the six (6) period [sic] immediately preceding such attempted hiring or
recruitment) employed by the Company or otherwise induce or attempt to induce
any then current employee of the Company to terminate such employment; or (iii)
solicit or attempt to solicit for any business any customer of the Company
which conducted business with the Company at any time during the one (1) year
period immediately preceding such solicitation or otherwise induce or attempt
to induce any customer, supplier or lender of the Company to diminish or
terminate such business relationship; provided, however, that the ownership by
Executive of not more than five percent (5%) of any class of outstanding
securities of an issuer listed on a national securities exchange or regularly
traded in the over-the-counter market shall not constitute a violation of this
paragraph 11(a), and further provided, however, in the event this Agreement is
terminated by the Company without Cause the prohibition in subparagraph
11(a)(i) shall not survive beyond the Date of Termination. The "Restricted
Territory" shall mean anywhere in the counties of Orange, California, Dallas,
Texas, Fort Worth, Texas, any other locations in the States of California or
Texas or other location in the United States of America and any other region,
county, city or locality therein where the Company is currently transacting or
during the past five (5) years, has been transacting business. The parties
agree and intend that the covenants contained in this paragraph 11(a) shall be
construed as a series of separate covenants, one for each applicable county,
state or country. Except for geographic coverage, each such separate covenant
shall be deemed identical in terms.
(b) Executive acknowledges that the operation and
conduct of the business of the Company is special and unique and involves the
use of trade secrets and confidential information and that during the period of
his employment hereunder, Executive will acquire special knowledge and/or skill
that he could effectively utilize in competition with the Company. Executive
further acknowledges that the provisions of paragraphs 9, 10 and 11 hereof are
essential to the goodwill and profitability of the Company and have provided
7
<PAGE> 8
substantial inducement to the Company's agreement to execute and consummate
this Agreement, and that the application or operation thereof shall not involve
a substantial hardship upon his future business or livelihood. Executive
agrees that remedies at law for any breach by him of the covenants contained in
paragraphs 9, 10 and 11 hereof will be inadequate, and that in the event of a
violation of the covenants thereon, in addition to any and all legal and
equitable remedies which may be available to the Company, the said covenants
may be enforced by an injunction in a suit in equity, without the necessity of
proving actual damage, and that a temporary injunction may be granted
immediately upon the commencement of any such suit and without notice. Should
any court determine that any of the separate covenants of this paragraph 11
shall be unenforceable in respect of geographic area, then such covenant shall
be deemed eliminated for the purpose of those proceedings to the extent
necessary to permit the remaining separate covenant to be enforced. If any
other provision of paragraphs 9, 10 and 11 shall be deemed by an appropriate
court to be unenforceable for any reason, then such court shall be empowered to
substitute, to the extent enforceable, provisions similar thereto or other
provisions so as to provide the Company, to the fullest extent permitted by
applicable law, the benefits intended by paragraphs 9, 10 and 11 hereof.
Executive acknowledges that the covenants contained in this paragraph 11 are
intended by the parties to be in addition to and not in lieu of or in
limitation of any other agreement or covenant between Executive and the
Company. Each of the provisions of paragraphs 9, 10 and 11 hereof shall
survive the termination of this Agreement and the termination of Executive's
employment by the Company.
12. Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered if delivered personally or by facsimile (followed by
first class U.S. mail), or three days after mailing if mailed by registered or
certified mail (postage prepaid, return receipt requested) to the parties at
the following addresses (or at such other address for a party as shall be
specified by like notice, except that notice of changes of address shall be
effective upon receipt):
If to the Company:
Credentials Services International, Inc.
333 City Boulevard West, 10th Floor
Orange, California 92868
Attention: Chief Executive Officer
Telecopy No.: (714) 704-6503
with a copy to:
Lincolnshire Management, Inc.
780 Third Avenue
New York, New York 10017
Attention: T.J. Maloney
Telecopy No.: (212) 755-5457
8
<PAGE> 9
and to:
Maloney, Mehlman & Katz
405 Lexington Avenue
New York, New York 10174
Attn: Barry T. Mehlman, Esq.
Telecopy No.: (212) 972-0220
If to Executive, to him at his address set forth in the introductory
paragraph of this Agreement.
13. General.
(a) This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California applicable
to contracts made and to be performed entirely within such state (without
regard to principles of conflicts of law of New York or of any other
jurisdictions).
(b) The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
(c) This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, between the parties.
(d) This Agreement and the benefits hereunder are
personal to the Company and are not assignable or transferable, nor may the
services to be performed hereunder be assigned by the Company to any person,
firm or corporation; provided, however, that this Agreement and the benefits
hereunder may be assigned by the Company to any corporation acquiring all or
substantially all of the assets or stock of the Company or to any corporation
into which the Company may be merged or consolidated.
(e) All references in this Agreement to amounts to be
paid or benefits to be provided to or on behalf of Executive are to the gross
amounts thereof which are due hereunder. Except as otherwise provided herein,
the Company shall have the right to deduct therefrom or collect from Executive
all sums which may be required to be deducted or withheld under any provision
of law, including, but not limited to, social security payments, income tax
withholding, any other deduction required by law and any interest, penalties or
additions to tax imposed with respect thereto.
(f) This Agreement may be amended, modified, superseded,
canceled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by both parties hereto, or in the case of
a waiver, by the party waiving compliance. The failure of either party at any
time or times to require performance of any provision hereof shall in no manner
affect the right of such party at a later time to enforce the same. No waiver
by either party of the breach of any term or covenant contained in this
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<PAGE> 10
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or construed as, a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in
this Agreement.
(g) This Agreement may be executed in counterparts, each
of which shall be an original and all of which taken together shall constitute
one and the same instrument.
(h) Subject to the provisions of paragraph 11 hereof, if
any term or other provision of this Agreement is invalid, illegal or incapable
of being enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions contemplated
hereby are fulfilled to the extent possible.
* * * * * *
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
CREDENTIALS SERVICES
INTERNATIONAL, INC.
By /s/ Thomas J. Maloney
------------------------------
Name: Thomas J. Maloney
Title: Chairman
/s/ Vineet Pruthi
---------------------------------
VINEET PRUTHI
10
<PAGE> 11
SCHEDULE A
<TABLE>
<CAPTION>
Total
Date New Revenues EBITDA Memberships*
---- ------------ ------ -----------
<S> <C> <C> <C>
Total Fiscal Year 1997 $52,695,000 $9,700,000 $1,401,000
Six Months Ended
March 31, 1998 $35,469,000 $7,552,000 1,730,000
Total Fiscal Year 1998 $77,445,000 $19,827,000 2,035,000
</TABLE>
__________________________________
* Can include multi-year memberships (not to exceed three (3) years)
provided the percentage of multi-year memberships to total memberships does not
exceed that specified in applicable debt covenants with respect to which the
Company is a party. The Company will not sell lifetime memberships unless
approved by the Board of Directors.
<PAGE> 1
EXHIBIT 10.9
[LOGO OF CREDENTIALS SERVICES INTERNATIONAL, INC.]
DATE: January 6, 1997
TO: Gerry Keehan
FROM: Dave Thompson
/s/ Dave Thompson
SUBJECT: Compensation
Gerry, as we discussed, effective January 1, 1997, you have been appointed
Executive Vice President - Marketing. The details are as follows:
* Annual base compensation of $140,000, to be adjusted annually based upon
performance.
* An annual bonus targeted at 20% of your base compensation, based upon
the attainment of business goals as determined by myself and the Board
of Directors.
* Participation in equity ownership, as previously agreed.
* In the event of termination without cause, twelve months salary and
benefits will be paid.
This updates your previous letter agreement dated October 1, 1994. In the next
several months, we will work towards implementing an employment agreement for
you.
Please see me with any questions.
cc: S. Henderson
<PAGE> 2
[LETTERHEAD OF CREDENTIALS SERVICES INTERNATIONAL, INC.]
October 1, 1994
Mr. Gerry Keehan
28241 Leticia Avenue
Mission Viejo, CA 92692
Dear Gerry:
This letter will evidence the agreement between you and Credentials Services
International, Inc., a Delaware Corporation (the "Company"), regarding the
terms of your employment by the Company. By your execution and return of this
letter, you agree with the Company as follows:
1. Term: Through September 30, 1999; however, either you or the Company
may terminate without cause, and the Company may terminate with cause, at any
time prior to that date.
2. Duties and Responsibilities: Your duties and responsibilities shall
be those assigned to you by the President and the Board of Directors of the
Company, and you shall devote your full time and effort to the performance of
those duties and responsibilities.
3. Salary: $100,000 annually.
4. Bonus: If the Company meets its projected cash flow budget on a
cumulative basis from October 1, 1994, $30,000 plus, at the discretion of the
Board of Directors, up to an additional $15,000.
5. Special Bonus: Should the Company exceed its projected cash flow
budget in any year (October 1 - September 30), after taking into account prior
year shortfalls, you, along with other executives, will participate in a
special bonus pool of no more than $950,000.
6. Additional Benefits: You will be entitled to a vacation allowance
and to participate in all 401(k), insurance, profit-sharing and other benefit
plans adopted for the benefit of the
page one of two
<PAGE> 3
employees of the Company generally and to reimbursement of expenses incurred
for the benefit of the Company in accordance with Company policies.
7. Effect of Termination: If the Company terminates this Agreement
without cause, it will continue your Salary until the earlier of twelve months
after such termination or September 30, 1999; if the Company terminates this
Agreement without cause or if this Agreement terminates on September 30, 1999,
or if you die or are disabled, the Company will pay to you any Bonus to which
you are entitled on a pro rata basis for the year in which such termination
occurs. In all other cases, your salary will terminate on termination of this
Agreement and you will not be entitled to a Bonus for the year in which such
termination occurs.
8. Conditions of Employment: It is a condition of your employment with
the Company that you execute and deliver the Company's conditions and deliver
the Company's Conditions of Employment.
We look forward to working with you and making you a part of our executive
team. Please evidence your agreement with the foregoing by executing and
returning this letter.
Very truly yours,
Credentials Services International, Inc.
By: /s/John P. Ferry
----------------------------------
John P. Ferry, President
Accepted and Agreed:
/s/ Gerry Keehan
- ----------------------------------
Gerry Keehan
page two of two
<PAGE> 1
EXHIBIT 10.10
EXECUTION COPY
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of December 3, 1996, between DONALD J. SHEA, JR.,
an individual residing at 1240 Gregory Street, Wilmette, Illinois 60091
("Executive"), and CREDENTIAL SERVICES INTERNATIONAL, INC., a Delaware
corporation, having its principal place of business at 333 City Boulevard West,
10th Floor, Orange, California 92868 (the "Company").
W I T N E S S E T H:
WHEREAS, the Company desires to employ Executive as Director of
Product Development and to be assured of its right to his services, on the
terms and conditions hereinafter set forth, and Executive desires to become so
employed on such terms and conditions;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and conditions herein contained, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Employment Duties. The Company hereby employs Executive and
Executive hereby accepts such employment as Director of Product Development of
the Company, on the terms and subject to the conditions hereinafter set forth.
In his capacity as Director of Product Services of the Company, Executive shall
have responsibility for overseeing all aspects of the Company's marketing
efforts with respect to its new products and other general marketing activities
of the Company and such other matters as the Company's Board of Directors
("Board"), Chief Operating Officer or such other executive of the Company
designated by the Chief Operating Officer shall determine from time to time,
consistent with Executive's position as Director of Product Services of the
Company. Executive shall report and be responsible to the Chief Operating
Officer or such other person as may be designated by the Board or Chief
Operating Officer. Executive shall be based and shall perform his duties at
the Company's offices located in Orange, California and shall travel to the
extent necessary to perform his duties hereunder. Executive shall devote his
full business time and energies to the business and affairs of the Company and
shall not accept other employment, perform any services for any other person,
firm or corporation or permit any of his personal business or investment
affairs to interfere with the performance of his duties hereunder. Executive
shall, upon reasonable notice, furnish such information and proper assistance
to the Company as reasonably may be required by the Company in connection with
any legal action involving the Company or any of its affiliates. Executive
agrees to use his best efforts, skills and abilities to promote and protect the
interests of the Company and, faithfully and to the best of his ability,
perform his duties hereunder. Executive agrees to serve as a director or
officer of any of the Company's subsidiaries or controlled affiliates
requesting his services and to perform such services for such subsidiaries or
controlled affiliates, consistent with his office, as its board of directors
shall request.
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<PAGE> 2
2. Term; Termination.
(a) Executive's employment pursuant hereto shall
commence on the date of this Agreement (the "Employment Date") and shall remain
in effect, subject to renewal pursuant to subparagraph (b) of this paragraph 2
and to earlier termination pursuant to subparagraph (c) of this paragraph 2,
until December 2, 1999 (the "Expiration Date"). The term of employment
hereunder, commencing with the Employment Date and including any renewals or
extensions hereof, is hereinafter referred to as the "Employment Term."
(b) In addition to the expiration of the Employment Term
as hereinabove provided, this Agreement and Executive's employment by the
Company shall terminate on the Date of Termination (as hereinafter defined) as
follows:
(i) automatically upon Executive's death;
(ii) at the Company's option if, as a result of
Executive's incapacity due to physical or mental illness, he is unable to
perform the duties of his employment hereunder for a continuous period of sixty
(60) days or an aggregate of ninety (90) days in any one hundred eighty (180)
day period (each such period being hereinafter referred to as a "Disability
Period");
(iii) at the Company's option at any time for
Cause. "Cause" shall be defined to mean (A) the commission by Executive of any
felony, (B) the commission by Executive of any crime involving dishonesty, (C)
the engagement by Executive in any act of fraud, misappropriation or
misfeasance, (D) the engagement by Executive in any activity constituting a
material breach of paragraphs 9, 10 or 11 of this Agreement or other material
breach by Executive of any provision of this Agreement, (E) Executive's failure
to carry out the reasonable written directives of the Board or Chief Operating
Officer (consistent with the provisions of this Agreement) or his repeated
non-attentiveness to or repeated failure to carry out his duties under this
Agreement, (F) the engagement by Executive in any transaction with the Company
involving a conflict of interest or self-dealing, without the prior written
consent of the Board, or (H) the engagement by Executive in conduct materially
adverse to the interests of the Company or which brings discredit to the
Company and materially adversely affects the Company; and
(iv) at the Company's option at any time without
Cause.
(c) Any termination by the Company pursuant to
subparagraph (b) shall be communicated to Executive by a Notice of Termination.
"Notice of Termination" shall mean a written notice indicating the specific
provision of this Agreement upon which such termination is based and, in the
case of a termination pursuant to subparagraph (b)(iii), setting forth in
reasonable detail the facts and circumstances giving rise to such termination.
(d) As appropriate under the circumstances, "Date of
Termination" shall mean, as applicable: (A) the date of Executive's death; (B)
thirty (30) days after a Notice of Termination is given to Executive if
Executive's employment is terminated pursuant to
2
<PAGE> 3
subparagraph (b)(ii) above; or (C) the date specified in the Notice of
Termination if Executive's employment is terminated by the Company pursuant to
subparagraph (b)(iii) or (b)(iv) above.
3. Compensation. [Std. perf. reviews and annual merit increases.
/s/DJS]
(a) The Company shall pay Executive an annual base
salary ("Base Salary") during the Employment Term of $125,000 payable in equal
installments in accordance with the Company's regular payroll practices for
executive level employees, as determined from time to time by the Board, but in
no event less frequently than monthly. The Company shall also pay Executive an
annual bonus in an amount equal to $25,000 (the "Bonus") within thirty (30)
days after the Accountants (as hereinafter defined) issue and deliver their
report with respect to the audited financial statements of the Company for such
year. In addition, the Company shall pay Executive an annual special bonus as
provided in paragraph 3(b) (the "Special Bonus"). The Company and the
Executive shall mutually agree to an equity package for Executive not later
than February 28, 1997 on terms to be approved by the Board.
(b) As long as no Adverse Event (as hereinafter defined)
has occurred and is continuing or would occur as a result of the payment of the
Special Bonus to Executive, Executive shall be entitled to payment of a Special
Bonus equal to that percentage of the Bonus Pool (as hereinafter defined) to be
determined by the Board in the Board's sole discretion. The "Bonus Pool" shall
be an amount determined for each fiscal year of the Company listed on Schedule
A equal to the excess of (A) ten percent (10%) of the amount by which the
Company's EBITDA for such fiscal year exceeds the target EBITDA for such fiscal
year listed on Schedule A over (B) $75,000; provided, however, no Special Bonus
shall be paid in any fiscal year that net revenues and total memberships of the
Company do not exceed the amounts for such items for the periods or dates
listed on Schedule A. "EBITDA" means the Company's consolidated earnings
before interest, taxes, depreciation and amortization (excluding non-recurring
or extraordinary items). The Company's EBITDA for each year shall be
determined by reference to the Company's financial statements for such year
prepared in accordance with generally accepted accounting principles, as
audited by the Company's regular independent accountants (the "Accountants"),
and such determination shall be final and binding on the parties hereto. [Bonus
program at discretion of BOD. /s/DJS]
(c) Any amount payable to Executive on account of the
Special Bonus for any year during the Employment Term will be paid to Executive
by the Company within thirty (30) days after the Accountants issue and deliver
to the Company their report with respect to the audited financial statements of
the Company for such year. In the event the Bonus is not paid to Executive
because an Adverse Event has occurred or would occur as a result of the payment
of the Special Bonus, the Special Bonus shall be paid to Executive on the
earliest date on which the Adverse Event has been cured and would not occur as
a result of the payment of the Special Bonus.
(d) For purposes of this Agreement, the following terms
shall have the following meanings:
3
<PAGE> 4
(i) "Adverse Event" shall mean: (x) the failure of
the Company to pay any installment of principal or interest when due under any
Loan Document (as hereinafter defined); or (y) the occurrence of any event
which constitutes, or which, with the giving of notice or the passage of time
will constitute, a default or an event of default under any Loan Document and
with respect to which the lender under such Loan Document has declared an event
of default.
(ii) "Loan Document" shall mean any agreement,
instrument or document executed and delivered by the Company in connection with
its borrowing of funds from, or evidencing the Company's obligation to pay
moneys to, IBJ Schroder Bank & Trust Company ("IBJ"), TRW Inc. ("TRW") or any
affiliate of IBJ or TRW (or any institution which hereafter refinances all or
any portion of the Company's indebtedness to any of such lenders), as any such
agreement, instrument or document may be amended or supplemented from time to
time.
4. Compensation Upon Termination and During Disability.
(a) If Executive's employment shall be terminated by his
death, the Company shall pay to his estate Executive's unpaid Base Salary for
the period through the Date of Termination from the Company's regular payroll.
In addition, the Company shall pay to the Executive's estate any Bonus and
Special Bonus earned prior to the Date of Termination to which the Executive is
unconditionally entitled to be paid at the time that any such Bonus or Special
Bonus is required to be paid under the terms of this Agreement, so long as no
Adverse Event has occurred and is continuing or would occur as a result of the
payment thereof.
(b) In the event of the Executive's physical or mental
disability, the Company shall continue to pay the Executive his Base Salary
during the Disability Period. If the Executive is unconditionally entitled to
any Bonus and Special Bonus earned prior to the end of the Disability Period,
the Company shall pay such Bonus and Special Bonus to the Executive at the time
that such Bonus and Special Bonus is required to be paid under the terms of
this Agreement, so long as no Adverse Event has occurred and is continuing or
would occur as a result of the payment thereof. If the Company terminates the
Executive following the Disability Period, the Company shall pay the Executive
his Base Salary for the period from the Company's regular payroll through the
Date of Termination. The Company shall also pay the Executive any Bonus and
Special Bonus earned prior to the Date of Termination to which the Executive is
unconditionally entitled to be paid, at the time that any such Bonus and
Special Bonus is entitled to be paid under the terms of this Agreement, so long
as no Adverse Event has occurred and is continuing or would occur as a result
of the payment thereof.
(c) If Executive's employment shall be terminated for
Cause, the Company shall continue to pay Executive his Base Salary through the
Date of Termination. The Company shall have no obligation to pay Executive any
Bonus and Special Bonus or any portion of any Bonus and Special Bonus in the
event Executive's employment is terminated for Cause.
(d) If Executive's employment is terminated by the
Company without Cause pursuant to paragraph 2(b)(iv) hereof, the Company shall
continue to pay Executive, at the rate provided in paragraph 3(a) hereof, an
amount equal to his Base Salary for the lesser of twelve (12) months or the
remainder of the Employment Term. In addition, for the period from the Date
4
<PAGE> 5
of Termination until the earlier of the Expiration Date or the date twelve (12)
months after the Date of Termination, the Company shall provide Executive, at
the Company's expense, medical insurance coverage for the Executive and
Executive's family substantially equivalent to the medical insurance coverage
provided by the Company to Executive immediately prior to the Date of
Termination. The Company shall also pay the Executive any Bonus and Special
Bonus earned prior to the Date of Termination to which the Executive is
unconditionally entitled to be paid, at the time that any such Bonus and
Special Bonus are required to be paid under the terms of this Agreement, so
long as no Adverse Event has occurred and is continuing or would occur as a
result of the payment thereof. In the event of the termination of this
Agreement by the Company without Cause pursuant to paragraph 2(b)(iv) hereof,
the amounts to be paid to Executive pursuant to this paragraph 4(d) shall
constitute liquidated damages and shall be the exclusive remedy of the
Executive.
(e) Unless otherwise agreed by the Company and
Executive, all payments made to Executive (or his estate, as applicable)
pursuant to this paragraph 4, whether during the Disability Period or after the
Date of Termination, shall be made in the amounts, at the times and subject to
the terms and conditions otherwise applicable to payments to Executive pursuant
to paragraph 3 hereof, as if such payments were made to Executive during the
Employment Term.
5. Reimbursement of Expenses. In addition to the compensation
and benefits provided to Executive pursuant to other provisions of this
Agreement, the Company will reimburse Executive in a manner consistent with
established policies of the Company for reasonable out-of pocket expenses
actually incurred or paid by him in the performance of his services hereunder,
subject to presentation of expense statements, receipts, vouchers or other
supporting information as the Company may reasonably require.
6. Other Benefits. In addition to the compensation and
benefits provided to Executive pursuant to other provisions of this Agreement,
during the Employment Term, Executive shall be entitled to the following:
(a) participation in and receipt of benefits under: (i)
any retirement plan or arrangement for the benefit of executive employees of
the Company; and (ii) any health or other insurance plan or arrangement for the
benefit of executive employees of the Company; all on terms no less favorable
than those offered to other executive level employees of the Company, to the
extent that Executive is otherwise eligible to participate or receive benefits
under any such plan or arrangement; and
(b) a number of paid vacation days, sick days and
personal days which are provided to other executive level employees of the
Company, but in no event shall the number of paid vacation days in any year of
the Employment Term exceed twenty (20).
7. Other Agreements.
(a) Executive represents and warrants to the Company
that he is not a party to any agreement, written or oral, and is not bound by
the terms of any written or oral agreement to which he is not a party which
prohibits him from performing his duties under this agreement
5
<PAGE> 6
or of serving the Company in any other capacity. Executive agrees to indemnify
the Company and shall hold the Company harmless from and against any liability,
loss, cost or expense, including reasonable attorneys fees and expenses,
incurred by the Company by reason of the inaccuracy of the representations and
warranties made by Executive in this paragraph 7.
(b) Upon submission of an invoice or invoices for which
supporting information including bills or receipts as the Company may
reasonably require, the Company may reimburse Executive for (i) up to an
aggregate of $25,000 [itemize for D.T. /s/DJS] of reasonable expenses incurred
or to be incurred by Executive in connection with the relocation of Executive's
primary residence from Wilmette, Illinois to southern California and (ii) coach
class round-trip airfare between Chicago, Illinois and southern California for
one person for up to a maximum ten (10) trips during the period commencing with
the Employment Date and terminating on June 30, 1997. In addition, the Company
shall provide Executive until June 30, 1997 (on a non-exclusive basis subject
to availability) with the use (for Executive only) of the house rented by the
Company in Newport Beach, California.
8. Life Insurance. Executive agrees that, if requested by the
Company, he will cooperate with the Company to obtain a policy or policies of
life insurance on his life in such amount(s) as the Company may determine,
including submitting to any appropriate medical examinations and completing and
executing any appropriate application(s) or similar form(s). Any such policy
or policies shall be for the benefit of the Company and the Company shall pay
all premiums thereunder.
9. Inventions, Etc. Executive agrees to promptly disclose in
writing to the Company all ideas, formulae, programs, systems, devices,
processes, business concepts, discoveries and inventions (hereinafter referred
to collectively as "Discoveries"), whether or not patentable, which he, while
employed hereunder, conceives, makes, develops, acquires or reduces to
practice, whether alone or with others and whether during or after usual
working hours, and which are related to the Company's business or interest, or
are used or usable by the Company, or arise out of or in connection with the
duties performed by Executive hereunder. Executive hereby transfers and
assigns to the Company all right, title and interest in and to all Discoveries,
including any and all domestic and foreign patent rights therein and any
renewals thereof. On request of the Company, Executive shall from time to time
during or after the expiration or termination of his employment by the Company,
execute such further reasonable instruments (including, without limitation,
applications for letters patent and assignments thereof) and do all such other
reasonable and legal acts and things as may be deemed necessary or desirable by
the Company to protect and/or enforce its rights in respect of Discoveries.
All expenses of filing or prosecuting any patent application shall be borne by
the Company, but Executive shall cooperate in filing and/or prosecuting any
such application. Executive shall receive no additional compensation for the
performance of his obligations hereunder, except as may be agreed to by the
Company.
10. Covenant Regarding Confidentiality. All information about
the business and affairs of the Company which is not generally available to the
public or disclosed by the Company and any information about the Company which
becomes generally available to the public as a result of a breach by any person
of any confidentiality obligation to the Company
6
<PAGE> 7
(including, without limitation, its secrets and information about its business,
financial condition and performance, prospects, products, technology, know-how,
merchandising and advertising programs and plans, and the names of its
suppliers, customers and lenders and the nature of its dealings with them)
constitute "Company Confidential Information." Executive acknowledges that he
will have access to, and knowledge of, Company Confidential Information, and
that improper use or revelation of same by Executive, whether during or after
the termination of his employment by the Company, could cause serious injury to
the business of the Company. Accordingly, Executive agrees that, except as
required to perform his duties under this Agreement, or as required by law, he
will forever keep secret and inviolate all Company Confidential Information
which shall come into his possession, and he will not disclose the same to any
other person or organization for so long as such Company Confidential
Information is not generally known by, or accessible to, the public. Executive
further agrees that he will not use any Company Confidential Information for
his own benefit or directly or indirectly for the benefit of any person or
organization other than the Company and its affiliates.
11. Covenant Not to Compete.
(a) During the Employment Term and for a period of two
(2) years thereafter (whether his employment shall have ended by reason of the
expiration of this Agreement or otherwise), Executive will not: (i) directly or
indirectly, as owner, stockholder, investor, partner, director, officer,
employee, consultant, lender, or otherwise, engage or become interested in any
business, trade or occupation in the Restricted Territory (as hereinafter
defined) which sells products or provides services similar to or competitive
with any business of the Company, as conducted at or within one (1) year prior
to the date of termination of his employment; (ii) directly or indirectly hire
or endeavor to recruit or hire for any purpose any person who is (or was during
the six (6) period [sic] immediately preceding such attempted hiring or
recruitment) employed by the Company or otherwise induce or attempt to induce
any then current employee of the Company to terminate such employment, or (iii)
solicit or attempt to solicit for any business any customer of the Company
which conducted business with the Company at any time during the one (1) year
period immediately preceding such solicitation or otherwise induce or attempt
to induce any customer, supplier or lender of the Company to diminish or
terminate such business relationship; provided, however, that the ownership by
Executive of not more than five percent (5%) of any class of outstanding
securities of an issuer listed on a national securities exchange or regularly
traded in the over-the-counter market shall nor constitute a violation of this
paragraph 11(a); and further provided, however, in the event this Agreement is
terminated by the Company without Cause the prohibition in subparagraph
11(a)(i) shall not survive beyond the Date of Termination. The "Restricted
Territory" shall mean anywhere in the counties of Orange, California, Dallas,
Texas, Fort Worth, Texas, any other locations in the States of California or
Texas or other location in the United States of America and any other region,
county, city or locality therein where the Company is currently transacting, or
during the past five (5) years, has been transacting business. The parties
agree and intend that the covenants contained in this paragraph 11(a) shall be
construed as a series of separate covenants, one for each applicable county,
state or country. Except for geographic coverage, each such separate covenant
shall be deemed identical in terms.
7
<PAGE> 8
(b) Executive acknowledges that the operation and
conduct of the business of the Company is special and unique and involves the
use of trade secrets and confidential information and that during the period of
his employment hereunder, Executive will acquire special knowledge and/or skill
that he could effectively utilize in competition with the Company. Executive
further acknowledges that the provisions of paragraphs 9, 10 and 11 hereof are
essential to the goodwill and profitability of the Company and have provided
substantial inducement to the Company's agreement to execute and consummate
this Agreement, and that the application or operation thereof shall not involve
a substantial hardship upon his future business or livelihood. Executive
agrees that remedies at law for any breach by him of the covenants contained in
paragraphs 9, 10 and 11 hereof will be inadequate, and that in the event of a
violation of the covenants therein, in addition to any and all legal and
equitable remedies which may be available to the Company, the said covenants
may be enforced by an injunction in a suit in equity, without the necessity of
proving actual damage, and that a temporary injunction may be granted
immediately upon the commencement of any such suit and without notice. Should
any court determine that any of the separate covenants of this paragraph 11
shall be unenforceable in respect of geographic area, then such covenant shall
be deemed eliminated for the purpose of those proceedings to the extent
necessary to permit the remaining separate covenants to be enforced. If any
other provision of paragraphs 9, 10 and 11 shall be deemed by an appropriate
court to be unenforceable for any reason, then such court shall be empowered to
substitute, to the extent enforceable, provisions similar thereto or other
provisions so as to provide the Company, to the fullest extent permitted by
applicable law, the benefits intended by paragraphs 9, 10 and 11 hereof.
Executive acknowledges that the covenants contained in this paragraph 11 are
intended by the parties to be in addition to and not in lieu of or in
limitation of any other agreement or covenant between Executive and the
Company. Each of the provisions of paragraphs 9, 10 and 11 hereof shall
survive the termination of this Agreement and the termination of Executive's
employment by the Company.
12. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered if delivered personally or by facsimile
(followed by first class U.S. mail), or three days after mailing if mailed by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice, except that notice of changes of address
shall be effective upon receipt):
If to the Company:
Credentials Services International, Inc.
333 City Boulevard West, 10th Floor,
Orange, California 92868
Attention: Chief Executive Officer
Telecopy No.: (714) 704-6503
8
<PAGE> 9
with a copy to:
Lincolnshire Management, Inc.
780 Third Avenue
New York New York 10017
Attention: T.J. Maloney
Telecopy No.: (212) 755-5457
and to:
Maloney, Mehlman & Katz
405 Lexington Avenue
New York, New York 10174
Attn: Barry T. Mehlman, Esq.
Telecopy No.: (212) 973-6911
If to Executive, to him at his address set forth in the introductory
paragraph of this Agreement.
13. General.
(a) This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of California
applicable to contracts made and to be performed entirely within such state
(without regard to principles of conflicts of law of California or of any other
jurisdictions).
(b) The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
(c) This Agreement sets forth the entire
agreement and understanding of the parties relating to the subject matter
hereof, and supersedes all prior agreements, arrangements and understandings,
written or oral, between the parties.
(d) This Agreement and the benefits hereunder are
personal to the Company and are not assignable or transferable, nor may the
services to be performed hereunder be assigned by the Company to any person,
firm or corporation; provided, however, that this Agreement and the benefits
hereunder may be assigned by the Company to any corporation acquiring all or
substantially all of the assets or stock of the Company or to any corporation
into which the Company may be merged or consolidated.
(e) All references in this Agreement to amounts
to be paid or benefits to be provided to or on behalf of Executive are to the
gross amounts thereof which are due hereunder. Except as otherwise provided
herein, the Company shall have the right to deduct therefrom or collect from
Executive all sums which may be required to be deducted or withheld under any
provision of law, including, but not limited to, social security payments,
income tax
9
<PAGE> 10
withholding, any other deduction required by law and any interest, penalties or
additions to tax imposed with respect thereto.
(f) This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms or covenants hereof may
be waived, only by a written instrument executed by both parties hereto, or in
the case of a waiver, by the party waiving compliance. The failure of either
party at any time or times to require performance of any provision hereof shall
in no manner affect the right of such party at a later time to enforce the
same. No waiver by either party of the breach of any term or covenant
contained in this Agreement, whether by conduct or otherwise, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such breach, or a waiver of the breach of any other term or
covenant contained in this Agreement.
(g) This Agreement may be executed in
counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same instrument.
(h) Subject to the provisions of paragraph 11
hereof, if any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any partner. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
* * * * *
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
CREDENTIALS SERVICES
INTERNATIONAL, INC.
By: /s/ D. Thompson
-----------------------------
Name: D. Thompson
Title: CEO
/s/ Donald J. Shea, Jr.
---------------------------------
DONALD J. SHEA, JR.
(with changes noted)
10
<PAGE> 11
SCHEDULE A
<TABLE>
<CAPTION>
Total
Fiscal Year Ending New Revenues EBITDA Memberships*
- ------------------ ------------ ------ -----------
<S> <C> <C> <C>
September 30, 1997 $55,187,000 $9,700,000
September 30, 1998 $77,445,000 $19,827,000
Date
----
September 30, 1997 1,512,000
September 30, 1998 2,035,000
</TABLE>
__________________________________
* Can include multi-year memberships (not to exceed three (3) years)
provided the percentage of multi-year memberships to total memberships does not
exceed 15% in any one year. The Company will not sell lifetime memberships
unless approved by the Board of Directors.
<PAGE> 1
Exhibit 10.12 (i)
CREDIT AGREEMENT
between
CREDENTIALS SERVICES INTERNATIONAL INC.
and
LASALLE NATIONAL BANK
Dated as of January 14, 1997
<PAGE> 2
TABLE OF CONTENTS
Recital ................................................................... 1
Article 1. Definitions and Accounting Matters ........................ 1
1.01 Certain Defined Terms ..................................... 1
1.02 Accounting Terms and Determinations ....................... 14
Article 2. Loans ..................................................... 14
2.01 Term Loan ................................................. 14
2.02 Revolving Loan ............................................ 15
2.03 Rate Options for all Loans ................................ 15
2.04 Optional Prepayments ...................................... 15
2.05 Mandatory Prepayment of Loans ............................. 16
2.06 Prepayment Fee ............................................ 16
2.07 Reduction of Commitment ................................... 17
2.08 Notes ..................................................... 17
2.09 Procedure for Revolving Credit Borrowing .................. 17
2.10 Conversion and Continuation Elections ..................... 18
2.11 Interest .................................................. 19
2.12 Fees ...................................................... 19
2.13 Computation of Fees and Interest .......................... 20
2.14 Payments by Borrowers ..................................... 20
2.15 Security .................................................. 20
2.16 Collection and Application of Commitment Proceeds;
Establishment and Administration of Cash
Collateral Account .................................... 20
Article 3. Taxes, Yield Protection and Illegality .................... 21
3.01 Taxes ..................................................... 21
3.02 Illegality ................................................ 22
3.03 Increased Costs ........................................... 22
3.04 Funding Losses ............................................ 22
3.05 Inability to Determine Rate ............................... 23
3.06 Survival .................................................. 23
Article 4. Conditions Precedent ...................................... 24
4.01 Conditions to Initial Loans ............................... 24
4.02 Conditions to all Loans ................................... 26
Article 5. Representations and Warranties ............................ 27
5.01 Existence and Power ....................................... 27
5.02 Financial Condition ....................................... 27
5.03 Litigation ................................................ 28
5.04 No Breach ................................................. 28
5.05 Corporate Action; Capitalization .......................... 28
5.06 Governmental Authorization ................................ 28
<PAGE> 3
5.07 Use of Proceeds; Margin Regulations..........................29
5.08 ERISA........................................................29
5.09 Taxes........................................................29
5.10 Investment Company Act.......................................29
5.11 Solvency.....................................................30
5.12 Subsidiaries, Etc............................................30
5.13 Title to Properties..........................................30
5.14 Collateral Documents.........................................30
5.15 Environmental Matters........................................30
5.16 Labor Relations..............................................30
5.17 No Default...................................................30
5.18 Intellectual Property........................................31
5.19 Insurance....................................................31
5.20 Full Disclosure..............................................31
5.21 Vendor Contracts.............................................31
Article 6. Affirmative Covenants........................................32
6.01 Financial Statements.........................................32
6.02 Certificates: Borrowing Base Certificates; Other Information.32
6.03 Notices......................................................34
6.04 Maintenance of Existence.....................................35
6.05 Taxes........................................................35
6.06 Maintenance of Property......................................35
6.07 Insurance....................................................35
6.08 Compliance with Laws.........................................35
6.09 Performance of Obligations...................................35
6.10 Use of Proceeds..............................................36
6.11 Inspection...................................................36
6.12 ERISA Compliance.............................................36
6.13 Further Assurances...........................................36
6.14 Posts Closing Deliveries.....................................36
Article 7. Negative Covenants...........................................36
7.01 Limitation of Liens..........................................36
7.02 Limitation on Indebtedness...................................36
7.03 Loans and Investments........................................38
7.04 Sale of Assets...............................................38
7.05 Mergers, Consolidations, Etc.................................38
7.06 Restricted Payments..........................................38
7.07 Management Fees..............................................39
7.08 Transactions with Affiliates.................................39
7.09 Contingent Obligations.......................................39
7.10 ERISA........................................................39
7.11 Change in Business...........................................40
7.12 Accounting Changes...........................................40
7.13 Change in Structure..........................................40
7.14 Use of Proceeds..............................................40
ii
<PAGE> 4
7.15 Deposit Accounts ............................................ 40
7.16 Amendments .................................................. 40
Article 8. Financial Covenants ......................................... 40
8.01 Minimum EBITDA .............................................. 40
8.02 Minimum Number of Subscribers ............................... 41
8.03 Debt Service Ratio .......................................... 41
8.04 Deferred Revenue to Deferred Expense Ratio .................. 41
8.05 Capital Expenditures ........................................ 42
Article 9. Events of Default ........................................... 42
9.01 Event of Default ............................................ 42
9.02 Remedies .................................................... 44
9.03 Rights Not Exclusive ........................................ 44
Article 10. Miscellaneous ............................................... 44
10.01 Amendments and Waivers ...................................... 44
10.02 Notices ..................................................... 44
10.03 No Waiver; Cumulative Remedies .............................. 45
10.04 Expenses .................................................... 45
10.05 Indemnity ................................................... 45
10.06 Marshaling; Payment Set Aside ............................... 45
10.07 Successors and Assigns ...................................... 46
10.08 Assignments and Participations .............................. 46
10.09 Set Off ..................................................... 46
10.10 Counterparts ................................................ 46
10.11 Severability ................................................ 46
10.12 No Third Party Beneficiaries ................................ 46
10.13 Governing Law and Jurisdiction .............................. 46
10.14 Waiver of Jury Trial ........................................ 47
10.15 Entire Agreement ............................................ 47
iii
<PAGE> 5
Exhibit A Form of Borrowing Base Certificate
Exhibit B Form of Notice of Borrowing
Exhibit C Form of Notice of Conversion/Continuation
Exhibit D Form of Revolving Note
Exhibit E Form of Term Note
Exhibit F Form of Financial Condition Certificate
Exhibit G Form of Compliance Certificate
Schedule 1.01 Prior Indebtedness
Schedule 5.02 Indebtedness and Liabilities
Schedule 5.03 Litigation
Schedule 5.05(b) Authorized Capital Stock of Borrower
Schedule 5.08 ERISA Matters
Schedule 5.12 Subsidiaries
Schedule 5.16 Environmental Matters
Schedule 5.18 Intellectual Property Matters
Schedule 5.21 Significant Vendor Contracts
Schedule 7.01 Existing Liens
Schedule 7.09 Contingent Obligations
iv
<PAGE> 6
CREDIT AGREEMENT
THIS CREDIT AGREEMENT dated as of January 14, 1997 is entered
into between CREDENTIALS SERVICES INTERNATIONAL, INC., a Delaware corporation
("Borrower"), and LASALLE NATIONAL BANK, a national banking association
("Lender").
Recital:
Borrower desires that Lender extend a revolving credit
facility and a term loan to Borrower to fund the repayment of certain
indebtedness of Borrower and to provide working capital financing for Borrower.
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants contained herein, Borrower and Lender
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS.
1.01 Certain Defined Terms. The following terms used in this
Agreement shall have the following meanings, applicable both to the singular
and the plural forms of the terms defined:
"Account" shall mean any "account" as that term is defined in
Section 9-106 of the UCC.
"Account Debtor" shall mean a Person who is obligated on or
under an Account.
"Acquisition Agreement" shall mean that certain Agreement of
Purchase and Sale dated as of September 20, 1994 between Borrower and TRW Inc.
"Affiliate" shall mean, as to any Person, any other Person
that, directly or indirectly, is in control of, is controlled by or is under
common control with, such Person. A Person shall be deemed to control another
Person if the controlling Person possesses, directly or indirectly, the power
to direct or cause the direction of the management and policies of the other
Person, whether through the ownership of voting securities, by contract or
otherwise. Without limitation, any director, executive officer or beneficial
owner of five percent (5%) or more of the equity of a Person shall for the
purposes of this Agreement be deemed to control the other Person. Lender shall
not be deemed an Affiliate of Borrower or any Subsidiary of Borrower.
"Agreement" shall mean this Credit Agreement, as it may be
amended, restated or otherwise modified and in effect from time to time.
"Applicable Interest Rate" shall mean either the Base Rate or
the Eurodollar Rate, as the case may be.
"Asset Disposition", with respect to any Person, shall mean
(i) the sale, lease, conveyance, disposition or other transfer by such Person
of any of its assets, including by way of a sale-leaseback transaction and
including the sale or other transfer of any of the equity securities of any
Subsidiary of such Person , other than any sale, lease, conveyance, disposition
or other transfer of any assets in the ordinary course of business; or (ii) the
issuance, sale, conveyance, disposition or other transfer by such Person of any
equity securities of such Person.
"Attorney Fees" shall mean and include all fees and
disbursements of any law firm or other external counsel, the allocated cost of
internal legal services and all disbursements of internal counsel.
-1-
<PAGE> 7
"Base Rate" shall mean, for any day, the higher of (a) the
Federal Funds Rate for such day plus 2.00% per annum or (b) the Prime Rate for
such day plus 1.00% per annum.
"Base Rate Loan" shall mean a Loan, or any portion thereof,
which bears interest based on the Base Rate.
"Borrowing" shall mean a borrowing hereunder consisting of
Loans made to Borrower on the same day by Lender pursuant to Article 2.
"Borrowing Base" shall mean, as of any date of calculation, an
amount equal to 85% of the Gross Amount of Eligible Accounts.
"Borrowing Base Certificate" shall mean a certificate, in
substantially the form of Exhibit A attached hereto, setting forth the
Borrowing Base and the component calculations thereof.
"Business Day" shall mean any day other than a Saturday,
Sunday or other day on which commercial banks in Chicago, Illinois or New York,
New York are authorized or required by law to close and, if the applicable
Business Day relates to any Eurodollar Rate Loan, a day on which dealings are
carried on in the London interbank market.
"Capital Expenditures" shall mean, for any period and with
respect to any Person, the aggregate of all expenditures by such Person and its
Subsidiaries for the acquisition or leasing of fixed or capital assets or
additions to fixed or capital assets (including replacements, capitalized
repairs and improvements during such period) which should be capitalized under
GAAP on a consolidated balance sheet of such Person and its Subsidiaries.
"Capital Lease" shall mean any leasing or similar arrangement
which, in accordance with GAAP, is classified as a capital lease.
"Capital Lease Obligations" shall mean all monetary
obligations of Borrower or any of its Subsidiaries under any Capital Leases.
"Cash Equivalents" shall mean (a) direct obligations of the
United States of America, or of any agency thereof, or obligations guaranteed
as to principal and interest by the United States of America, or of any agency
thereof and, in either case maturing not more than 90 days from the date of
issuance, (b) certificates of deposit issued by any bank or trust company
organized under the laws of the United States of America or any state thereof
and having combined capital, surplus and undivided profits of at least
c.500,000,000 and maturing not more than 90 days after the date of issuance;
and (c) commercial paper rated A-1 or P-1 or better by Standard & Poor's
Ratings Group or Moody's Investors Services, Inc, respectively, and maturing
not more than 90 days after the date of issuance.
"Change of Control" shall mean any event or series of events
by which either (a) Pledgors and any Subsequent Pledgors shall, collectively,
cease to own and control 100% of the outstanding capital stock of Borrower; or
(b) the Fund shall cease to own, directly or indirectly through one or more
intermediaries, at least 51% of the aggregate equity interests in each Pledgor.
"Closing Date" shall mean January 14, 1997.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Collateral" shall mean all property and interests in property
and proceeds thereof now owned or hereafter acquired by Borrower, its
Subsidiaries or Pledgors in or upon which a Lien now or hereafter exists in
favor of Lender, whether under this Agreement, the Collateral Documents or
under any other documents executed by any such persons and delivered to Lender.
"Collateral Assignment of Contracts" shall mean that certain
Collateral Assignment of Contracts dated as of the date hereof executed by
Borrower in favor of Lender, assigning to Lender as collateral security for the
Obligations
-2-
<PAGE> 8
all right, title and interest of Borrower under the Acquisition Agreement, the
Service Agreement and the Significant Vendor Contracts.
"Collateral Assignment of Undertakings" shall mean that certain
Collateral Assignment of Undertaking Under Securities Purchase Agreement dated
as of the date hereof executed by Borrower in favor of Lender, assigning to
Lender as collateral security for the Obligations all right, title and interest
of Borrower under the Securities Purchase Agreement.
"Collateral Documents" shall mean, collectively, the Security
Agreement, the Pledge Agreements, the Intellectual Property Security Agreement,
the Subordination Agreements, the Collateral Assignment of Contracts, the
Collateral Assignment of Undertakings and all other security agreements,
mortgages, patent and trademark assignments, lease assignments, guarantees and
other similar agreements, and all amendments, restatements, modifications or
supplements thereof or thereto, between Borrower or Borrower's Subsidiaries or
Pledgors and Lender now or hereafter delivered to Lender pursuant to or in
connection with the transactions contemplated hereby, and all financing
statements (or comparable documents now or hereafter filed in accordance with
the UCC or comparable law) against Borrower, Pledgors or any of Borrower's
Subsidiaries as debtor in favor of Lender, as secured party.
"Commitment" is defined in Section 2.02.
"Common Stock Pledge Agreement" shall mean that certain Pledge
Agreement dated as of the date hereof made by Common Stock Pledgor in favor of
Lender, as amended, restated or otherwise modified and in effect from time to
time.
"Common Stock Pledgor" shall mean CIS Acquisition Partners,
L.P., a Delaware limited partnership.
"Contingent Obligation" shall mean, as to any Person, (a) any
Guaranty Obligation of that Person; and (b) any direct or indirect obligation
or liability of that Person (i) in respect of any letter of credit, banker's
acceptances, bank guaranties, surety bonds and similar instruments issued for
the account of such Person or as to which such Person is otherwise liable for
reimbursement of drawings or payments; or (ii) to purchase any materials,
supplies or other property from, or to obtain the services of, another Person
if the relevant contract or other related document or obligation requires that
payment for such materials, supplies or other Property, or for such services,
shall be made regardless of whether delivery of such materials, supplies or
other property is ever made or tendered, or such services are ever performed or
tendered.
"Controlled Group" shall mean Borrower and all Persons
(whether or not incorporated) under common control or treated as a single
employer with Borrower pursuant to Section 414(b), (c), (m) or (o) of the Code.
"Conversion Date" shall mean any date on which Borrower
converts a Base Rate Loan to a Eurodollar Rate Loan or a Eurodollar Rate Loan
to a Base Rate Loan.
"Debt Service Ratio" shall mean the ratio of (a) the amount of
(i) EBITDA for such period, minus (ii) Capital Expenditures for such period,
minus (iii) taxes paid in cash during period, to (b) the sum of Interest
Expense for such period plus scheduled amortization of the principal portion of
the Term Loan during such period.
"Default" shall mean an Event of Default or an event which
with notice or lapse of time or both would, if not cured or otherwise remedied
during such time, constitute an Event of Default.
"Dollars" and "$" shall mean lawful money of the United States
of America.
"EBITDA" shall mean, for any period, (a) Net Income of
Borrower and its Subsidiaries as determined in accordance with Modified Accrual
Accounting, plus (b) Interest Expense; plus (c) charges against Net Income for
taxes, plus (d) depreciation and amortization deducted in determining Net
Income; plus (e) all other non-cash charges deducted in determining Net Income;
plus (f) Management Fees paid pursuant to and in accordance with Section 7.07;
plus (g) Special 1997 Non-Recurring Charges; minus (h) interest income, and
minus (i) extraordinary gains included in the determination of Net Income.
-3-
<PAGE> 9
"Eligible Accounts" shall mean, as at any date of
determination, the aggregate of all Accounts owing to Borrower that meet the
following criteria:
(a) the Account has not been outstanding for more
than 60 days from the date of invoice or billing or, in the
case of an Account included in the category of Tape to Tape
Receivables, 90 days;
(b) the Account arose from the outright sale of
goods or the performance of services by Borrower to or for an
Account Debtor located in the United States and the Account is
evidenced by such invoices, statements or other instruments
ordinarily used in the trade;
(c) the Account Debtor is not an Affiliate of
Borrower;
(d) the Account is not subject to any Lien except
the Lien in favor of Lender or other Permitted Liens;
(e) the Account is a legal, valid, binding and
enforceable obligation of the Account Debtor not subject to
any dispute, credit, allowance, defense, offset, counterclaim,
adjustment or refund, and the goods pertaining to such Account
have not been rejected, repossessed or returned or the
services pertaining to such Account have not been terminated;
provided, however, any Account arising out of the sale of a
membership which may be canceled by the Account Debtor before
the stated expiry date therefor shall nevertheless, subject to
the satisfaction of all other requirements set forth in
clauses (a) through (i), be deemed an Eligible Account unless
Borrower has actual knowledge of the cancellation of such
membership;
(f) no notice or actual knowledge of bankruptcy,
insolvency, failure or suspension or termination of business
of the Account Debtor has been received or obtained by
Borrower;
(g) the Account is in full conformity with the
representations and warranties made by Borrower to Lender with
respect thereto;
(h) the Account is included in any of the following
categories in Borrower's financial records: Tape to Tape
Receivables, Signature Tape Accrual, Orange Processing
Backlog, Renewal Billings in Process and Suspense File to
Bill; and
(i) it is not an Account which Lender, exercising
reasonable discretion in a manner that is not arbitrary or
capricious, has determined to be unacceptable to it.
"Eligible Account Reserve" shall mean an amount equal to the
sum of: (a) 20% of the outstanding face amount of all Eligible Accounts
included in the category Renewal Billing in Process, Tape to Tape Receivables
and Signature Tape Accounts, plus (b) 15% of the outstanding face amount of all
Eligible Accounts included in the category Suspense File to Bill; or such other
percentage as Lender may from time to time reasonably designate upon prior
written notice to Borrower.
"Environmental Laws" shall mean all federal, state or local
laws, statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any governmental authority,
in each case relating to environmental, health and safety matters.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1 974, as amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or
not incorporated) under common control with Borrower within the meaning of
Section 414(b), 414(c) or 414(m) of the Code.
-4-
<PAGE> 10
"ERISA Event" shall mean (a) a Reportable Event with respect
to a Qualified Plan or a Multiemployer Plan; (b) a withdrawal by Borrower or
any ERISA Affiliate from a Qualified Plan subject to Section 4063 of ERISA
during a plan year in which it was a substantial employer (as defined in
Section 4001(A)(2) of ERISA); (c) a complete or partial withdrawal by Borrower
or any ERISA Affiliate from a Multiemployer Plan; (d) the filing of a notice of
intent to terminate, the treatment of a plan amendment as a termination under
Section 40412 or 4041A of ERISA or the commencement of proceedings by PBGC to
terminate a Qualified Plan or Multiemployer Plan subject to Title IV of ERISA;
(e) a failure by Borrower or any member of the Controlled Group to make
required contributions to a Qualified Plan or Multiemployer Plan; (f) an event
or condition with could reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Qualified Plan or Multiemployer Plan; (g) the imposition of
any liability under Title IV of ERISA, other than PBGC premiums due but not
delinquent under Section 4007 of ERISA, upon Borrower or any ERISA Affiliate;
(h) an application for a funding waiver or an extension of any amortization
period pursuant to Section 412 of the Code with respect to any Plan; (i) a
non-exempt prohibited transaction occurs with respect to any Plan for which
Borrower or any Subsidiary of Borrower may be directly or indirectly liable; or
(j) a violation of the applicable requirements of Section 404 or 405 of ERISA
or the exclusive benefit rule under Section 401(a) of the Code by any fiduciary
or disqualified person with respect to any Plan for which Borrower or any
member of the Controlled Group may be directly or indirectly liable.
"Eurodollar Rate Loan" shall mean a Loan, or any portion
thereof, which bears interest based on the Eurodollar Rate.
"Eurodollar Base Rate" shall mean, with respect to a
Eurodollar Rate Loan for the relevant Interest Period, the rate determined by
Lender to be the rate at which deposits in Dollars are offered by Lender to
first-class banks in the London interbank market at approximately 11:00 a.m.
(London time) two (2) Business Days prior to the first day of such Interest
Period, in the appropriate amount of the relevant Eurodollar Rate Loan and
having a maturity approximately equal to such Interest Period, as adjusted for
Reserves.
"Eurodollar Rate" shall mean, with respect to a Eurodollar
Rate Loan for the relevant Interest Period, the Eurodollar Base Rate applicable
to such Interest Period plus 2.75%. The Eurodollar Rate shall be rounded to the
next higher multiple of 1/16 of 1% if the rate is not such a multiple.
"Event of Default" shall mean the occurrence of any event
described in Section 9.01.
"Excess Cash Flow" shall mean, for any period of determination
for Borrower and its Subsidiaries on a consolidated basis, without duplication,
(a) EBITDA, minus (b) Capital Expenditures (excluding Capital Expenditures
financed with Indebtedness other than the Revolving Loans and excluding the
amount of Capital Expenditures attributable to Capital Leases other than the
portion thereof actually paid in cash), minus (c) amortization of the principal
portion of Indebtedness (whether scheduled or not), minus (d) income taxes
actually paid in cash, minus (e) Interest Expense (including the interest
component of Capital Leases but excluding the amortization of discount and
other interest not payable in cash), minus (f) to the extent included in
determining Net Income, Net Proceeds and Net Issuance Proceeds applied as a
mandatory prepayment of the Loans in accordance with Section 2.05, minus (g)
Management Fees paid pursuant to and in accordance with Section. 7.07; minus
(h) Special 1997 Non-Recurring Charges; minus (i) the increase (or plus the
decrease, as the case may be), as of the last day of a fiscal year from the
last day of the previous fiscal year, in the excess of current assets
(excluding cash and cash equivalents) over current liabilities (excluding the
outstanding amount of the Revolving Loans and the current portion of long-term
indebtedness and all accrued interest), plus (j) the reductions (or minus the
decrease, as the case may be), in long-term liabilities, as calculated in
accordance with Modified Accrual Accounting and not otherwise accounted for
herein.
"Federal Funds Rate" shall mean, for any day, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (a) if the day for which such rate is
to be determined is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions in the next preceding Business Day as
so published on the next succeeding Business Day and (b) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average
of the quotations on such
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<PAGE> 11
day on such transactions received by Lender from three different Federal funds
brokers of recognized standing selected by Lender in its sole discretion.
"Fund" shall mean Lincolnshire Equity Fund, L.P., a Delaware
limited partnership.
"GAAP" shall mean generally accepted accounting principles
consistently applied, as in effect from time to time.
"Gross Amount of Eligible Accounts" shall mean the outstanding
face amount of Eligible Accounts less the Eligible Accounts Reserve.
"Guaranty Obligation" shall mean, as applied to any Person,
any direct or indirect liability of that Person with respect to any
Indebtedness, lease, dividend, or letter of credit or other obligation of
another Person. The amount of any Guaranty Obligation shall be deemed equal to
the stated or determinable amount of the primary obligation in respect of which
such Guaranty Obligation is made or, if not stated or if indeterminable, the
maximum reasonably anticipated liability in respect thereof.
"Indebtedness" shall mean, as to any Person, without
duplication: (a) all indebtedness for borrowed money; (b) all obligations
issued, undertaken or assumed as the deferred purchase price of property or
services (other than trade payables entered into in the ordinary course of
business which are not past due in excess of 90 days); (c) all non-contingent
reimbursement or payment obligations with respect to letters of credits, surety
bonds or similar instruments; (d) all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced incurred
in connection with the acquisition of property or assets; (e) all indebtedness
created or arising under any conditional sale (but not including Subscribers'
rights to refunds) or other title retention agreement, or incurred as
financing, in either case with respect to property acquired by such Person
(even though the rights and remedies of the seller or bank under such agreement
in the event of default are limited to repossession or sale of such property)
(f) all Capital Lease Obligations; (g) all indebtedness referred to in clauses
(a) through (f) above secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien upon
or in property owned by such Person, even though such Person has not assumed or
become liable for the payment of such Indebtedness; and (h) all Guaranty
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (a) through (f) above.
"Insolvency Proceedings" shall mean (a) any case, action or
proceeding before any court or other governmental authority relating to
bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution,
winding up or relief of debtors, or (b) any general assignment for the benefit
of creditors, composition, marshaling of assets for creditors, or other similar
arrangement in respect of its creditors generally or any substantial portion of
its creditors; in each case undertaken under United States federal, state or
foreign law.
"Intellectual Property Security Agreement" shall mean that
certain Patent, Trademark and Copyright Security Agreement dated as of the date
hereof executed by Borrower in favor of Lender, as amended, restated or
otherwise modified and in effect from time to time.
"Interest Expense" shall mean, for any period, the total
interest expense of Borrower and its Subsidiaries, whether paid or accrued
(including the interest component of Capital Leases), all as determined in
conformity with GAAP.
"Interest Payment Date" shall mean, with respect to each
Eurodollar Rate Loan, the last day of each Interest Period applicable to such
Loan and, with respect to each Base Rate Loan, the last Business Day of each
calendar month and the date, if any, such Base Rate Loan is converted into a
Eurodollar Rate Loan.
"Interest Period" shall mean, with respect to any Eurodollar
Rate Loan, the period commencing on the Business Day such Loan is disbursed or
continued or on the Conversion Date on which such Loan is converted to the
Eurodollar Rate Loan and ending on the date one, two, three or six months
thereafter, as selected by Borrower in its Notice of Borrowing or Notice of
Conversion/Continuation; provided, however that:
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<PAGE> 12
(a) if any Interest Period would otherwise end on
a day which is not a Business Day, that Interest Period shall be
extended to the next succeeding Business Day unless the result of such
extension would be to carry such Interest Period into another calendar
month, in which event such Interest Period shall end on the
immediately preceding Business Day;
(b) any Interest Period that begins on the last
Business day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of the calendar
month at the end of such Interest Period;
(c) no Interest Period shall extend beyond the
Termination Date; and
(d) no Interest Period applicable to the Term Loan
or portion thereof shall extend beyond any date upon which is due any
scheduled principal payment in respect of the Term Loan unless the
aggregate principal amount of the Term Loan represented by Base Rate
Loans or by Eurodollar Rate Loans having Interest Periods that will
expire on or before such date is equal to or in excess of the amount
of such principal payment.
"Lincolnshire" shall mean Lincolnshire Management, Inc., a
Delaware corporation.
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, collateral assignment, deposit arrangement, encumbrance, lien or
preference, priority or other security interest or preferential arrangement of
any kind or nature, including those created by, arising under or evidenced by
any conditional sale or other title retention agreement, the interest of a
lessor under a Capital Lease Obligation or any financing lease having
substantially the same economic effect as any of the foregoing, and any
contingent or other agreement to provide any of the foregoing.
"Loan" shall mean an extension of credit by Lender to Borrower
pursuant to each of Sections 2.01 and 2.02 and shall include each Revolving
Loan and the Term Loan.
"Loan Documents" shall mean, collectively, this Agreement, the
Notes, the Collateral Documents and all documents delivered to Lender in
connection herewith and therewith.
"Management Agreement" shall mean that certain Management
Agreement dated September 30, 1994, as amended prior to the date hereof,
between Borrower and Lincolnshire as in effect on the date hereof.
"Management Fee" is defined in Section 7.07.
"Management Fee Subordination Agreement" shall mean that
certain Subordination Agreement (Management Fee) dated as of the date hereof
between Lender and Lincolnshire, as amended, restated or otherwise modified and
in effect from time to time.
"Margin Stock" shall mean "margin stock" as such term is
defined in Regulation G, T, U or X of the Federal Reserve Board.
"Material Adverse Effect" shall mean (a) a material adverse
change in, or a material adverse effect upon, the operations, business,
properties, condition (financial or otherwise) or prospects of Borrower or
Borrower and the Borrower's Subsidiaries taken as a whole; (b) a material
impairment of the ability of Borrower to perform under any Loan Document to
which it is a party; or (c) a material adverse effect upon (i) the legality,
validity, binding effect or enforceability of any Loan Document, or (ii) the
perfection or priority of any Lien granted to Lender under any of the
Collateral Documents.
"Maximum Revolving Credit Amount" shall mean, at any
particular time, the lesser of (a) $2,500,000 or (b) the Borrowing Base.
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<PAGE> 13
"Modified Accrual Accounting" shall mean the modified accrual
basis accounting method utilized by Borrower and reviewed by Borrower's
independent public accountants in the preparation of the annual financial
statements of Borrower for the fiscal year ended September 30, 1996,
consistently applied.
"Multiemployer Plan" shall mean a "multiemployer plan" (within
the meaning of Section 4001(a)(3) of ERISA) and to which any member of the
Controlled Group makes, is making, or is obligated to make contributions or,
during the preceding three calendar years, has made, or been obligated to make,
contributions.
"Net Income" shall mean, for any period, the net income (or
loss) of Borrower and its Subsidiaries on a consolidated basis for such period,
determined in accordance with GAAP.
"Net Issuance Proceeds" shall mean, in respect of any issuance
of debt or equity, cash proceeds received or receivable in connection
therewith, net of reasonable out-of-pocket costs and expenses paid or incurred
in connection therewith in favor of any Person not an Affiliate of Borrower;
provided, however, that the term "Net Issuance Proceeds" shall not include (a)
any proceeds in respect of the issuance of Subordinated Indebtedness if such
Subordinated Indebtedness is issued by Borrower on or prior to December 31,
1997; or (b) any proceeds in respect of the issuance of debt or equity, or
both, to the Fund pursuant to and in accordance with the Securities Purchase
Agreement.
"Net Proceeds" shall mean proceeds in cash or other cash
equivalents (including Cash Equivalents) as and when received by a Person
making an Asset Disposition, net of: (a) the direct costs relating to such
Asset Disposition excluding amounts payable to Borrower or any Affiliate of
Borrower, (b) sale, use, income or other transaction taxes paid or payable as a
result thereof, and (c) amounts required to be applied to repay principal,
interest and prepayment premiums and penalties on Indebtedness secured by a
Lien on the asset which is the subject of such Asset Disposition or which is or
may be required (by the express terms of the instrument governing such
Indebtedness) to be repaid in connection with such Asset Disposition. "Net
Proceeds" shall also include proceeds paid on account of any loss, destruction
of damage of property or any condemnation or seizure of property, net of (i)
all funds actually applied to repair or reconstruct the damaged property or
property affected by the condemnation or taking, (ii) all costs and expenses
reasonably incurred in connection with the collection of such proceeds, award
or other payments, and (iii) any amounts retained by or paid to or subject to
the claims of parties having superior rights to such proceeds, awards or other
payments.
"Notes" shall mean, collectively, the Revolving Note and the
Term Note.
"Notice of Borrowing" shall mean a notice given by Borrower to
Lender pursuant to Section 2.09(a), substantially in the form of Exhibit B
hereto.
"Notice of Conversion/Continuation" shall mean a notice given
by Borrower to Lender pursuant to Section 2.10, substantially in the form of
Exhibit C hereto.
"Obligations" shall mean all Loans, and other Indebtedness,
advances, debts, liabilities, obligations, covenants and duties owing by
Borrower to Lender, or any Person required to be indemnified, that arises under
any Loan Document, whether or not for the payment of money, whether arising by
reason of an extension of credit, loan, guaranty, indemnification or in any
other manner, whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising and however acquired.
"Operating Account;" shall mean a non-interest bearing cash
operating account of Borrower maintained with Lender.
"Permitted Liens" is defined in Section 7.01.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.
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<PAGE> 14
"Person" shall mean any individual, corporation, company,
voluntary association, partnership, trust, unincorporated organization or
government (or any agency, instrumentality or political subdivision thereof).
"Plan" shall mean an employee benefit plan (as defined in
Section 3(3) of ERISA) which Borrower or any member of the Controlled Group
sponsors or maintains or to which Borrower or any member of the Controlled
Group makes, is making or is obligated to make contributions.
"Pledge Agreements" shall mean the Common Stock Pledge
Agreement and the Preferred Stock Pledge Agreement.
"Pledged Collateral" shall have the meaning set forth in each
of the Pledge Agreements.
"Pledgors" shall mean, collectively, the Preferred Stock
Pledgor and the Common Stock Pledgor.
"Preferred Stock Pledge Agreement" shall mean that certain
Pledge Agreement dated as of the date hereof executed by the Preferred Stock
Pledgor in favor of Lender, as amended, restated or otherwise modified and in
effect from time to time.
"Preferred Stock Pledgor" shall mean CSI Investment Partners
II, L.P., a Delaware limited partnership.
"Prepayment Fee" is defined in Section 2.06.
"Prime Rate" shall mean the rate of interest from time to time
publicly announced by Lender at its principal office in Chicago, Illinois as
its prime commercial lending rate. Prime Rate is a reference rate and does not
necessarily represent the lowest or best rate actually charged by Lender to any
customer.
"Prior Indebtedness" shall mean the indebtedness and
obligations specified on Schedule 1.01.
"Products" shall mean the services or products made available
from time to time by Borrower to Subscribers, including, without limitation,
those known as Credentials, Monitor, V/P, Privacy Watch, Three Bureau,
Operation Identification, Credit Card Loss Protection and Business Credentials.
"Qualified Plan" shall mean a pension plan (as defined in
Section 3(2) of ERISA) intended to be tax-qualified under Section 401(a) of the
Code and which any member of the Controlled Group sponsors, maintains or to
which it makes, is making or is obligated to make contributions, or in the case
of a multiple employer plan (as described in Section 4064(a) of ERISA) has made
contributions at any time during the immediately preceding period covering at
least five (5) plans years, but excluding any Multiemployer Plan.
"Regulatory Change" shall mean, relative to Lender, (a) any
change in (or the adoption, implementation, phase-in or commencement of
effectiveness of) any Requirement of Law, guideline or request (whether or not
having the force of law) or (b) any change in the application to Lender of any
Requirement of Law, guideline or request (whether or not having the force of
law).
"Reportable Event" shall mean, as to any Plan, (a) any of the
events set forth in Section 4043(b) of ERISA or the regulations thereunder,
other than any such event for which the 30-day notice requirement under ERISA
has been waived in regulations issued by the PBGC, (b) a withdrawal from a Plan
described in Section 4063 of ERISA, or (c) a cessation of operations described
in Section 4062(e) of ERISA.
"Requirement of Law" shall mean, as to any Person, any law,
treaty, rule or regulation or determination of an arbitrator or of a
governmental authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
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<PAGE> 15
"Reserves" shall mean the maximum aggregate reserve
requirements, as prescribed by the Board of Governors of the Federal Reserve
System, or any successor, with respect to "Eurocurrency liabilities", as
defined in Regulation D of the Federal Reserve Board, or in respect of any
other category of liabilities which includes deposits by reference to which the
interest rate on Eurodollar Rate Loans is determined or category of extensions
of credit or other assets which includes loans by a non-United States office of
Lender to United States residents.
"Revolving Loans" is defined in Section 2.02.
"Revolving Note" shall mean a promissory note of Borrower
payable to the order of Lender and otherwise substantially in the form of
Exhibit D hereto, evidencing indebtedness of Borrower under the Commitment of
Lender.
"Securities Purchase Agreement" shall mean that certain
Securities Purchase Agreement dated as of the date hereof between Borrower and
the Fund, pursuant to which the Fund has committed to purchase certain
securities of Borrower.
"Security Agreement" shall mean that certain Security
Agreement dated as of the date hereof executed by Borrower in favor of Lender,
as amended, restated or otherwise modified and in effect from time to time
"Service Agreement" shall mean the Consumer Credit Subscriber
Service Agreement dated as of October 18, 1994 between the Company and Experian
Information Solutions, Inc. (as successor-in-interest to TRW Inc.), as amended
by Settlement and Release Agreement dated as of September 11, 1996.
"Significant Vendor Contracts" shall mean a Vendor Contract
which provides for the sale or purchase of goods or services or both in an
amount not less than $500,000.
"Solvent" shall mean, as to any Person at any time, that (a)
the fair value of the property of such Person is greater than the amount of
such Person's liabilities; (b) the present fair saleable value of the property
of such Person is not less than the amount that would be required to pay the
probable liability of such Person on its debts as they become absolute and
matured; (c) such Person is able to pay its debts and other liabilities as they
mature in the normal course of business; (d) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature; and (e) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's property would constitute
unreasonably small capital.
"Special 1997 Non-Recurring Charges" shall mean the sum of
severance payments, TRW computer lease payments and rental payments for
unoccupied office space previously utilized for telemarketing purposes to the
extent paid by Borrower and included in the determination of Net Income for the
fiscal year of Borrower ended September 30, 1997; provided, however, in
calculating EBITDA for all purposes of this Agreement, Special 1997
Non-Recurring Charges shall not in any event exceed (a) $1,315,000 for such
fiscal year; (b) $475,000 for the fiscal quarter ended March 31, 1997; (c)
$150,000 for the fiscal quarter ended June 30, 1997; and $150,000 for the
fiscal quarter ended September 30, 1997.
"Subordinated Indebtedness" shall mean (a) the Indebtedness of
Borrower evidenced by that certain Subordinated Promissory Note of Borrower
dated October 1, 1994, payable to TRW Inc. in the original principal amount of
$3,000,000, as amended, restated or otherwise modified as permitted by the
terms of the Subordination Agreement (the "Subordinated Note"); and (b) any
other Indebtedness of Borrower or any Subsidiary of Borrower issued on terms
and conditions satisfactory to Lender and the payment of which is subordinated
in writing to the payment of the Obligations on terms satisfactory to Lender.
"Subordination Agreements" shall mean the TRW Subordination
Agreement and the Management Fee Subordination Agreement.
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<PAGE> 16
"Subscriber" shall mean a Person who subscribes to one or more
Products, who has made at least one payment therefor, whose account is active
and not more than 60 days past due and has not been terminated (or action has
not been taken by Borrower or such Person to terminate the account). For the
purposes of computing the number of Subscribers, a Person who subscribes to
more than one of the Products shall be deemed such number of Subscribers as is
equal to the number of Products subscribed to by such Person.
"Subsequent Pledgor" shall mean any partnership or other
entity now or hereafter formed or organized by the Fund to hold capital stock
of Borrower; provided, that each such partnership or other entity has pledged
to Lender, as security for the Obligations, all capital stock of Borrower held
by such partnership or entity pursuant to a pledge agreement substantially in
the form of the Pledge Agreements.
"Subsidiary" of a Person shall mean any corporation,
association, partnership, joint venture or other entity of which more than 50%
of the voting stock or other equity interests are owned or controlled directly
or indirectly by such Person, or one or more of the Subsidiaries of such
Person, or a combination thereof. "Wholly-Owned Subsidiary" shall mean any
corporation in which 100% of the capital stock of each class having ordinary
voting power and 100% of the capital stock of every other class is owned,
beneficially and of record by Borrower or by one or more other Wholly-Owned
Subsidiaries, or both.
"Term Note" shall mean the promissory note of Borrower payable
to the order of Lender, in substantially the form of Exhibit E, evidencing the
indebtedness of Borrower to Lender resulting from the Term Loan made to
Borrower by Lender.
"Termination Date" shall mean September 30, 1999.
Notwithstanding the foregoing, the aggregate outstanding principal balance of
the Term Loan shall be due and payable in full on the Termination Date, if not
sooner paid in full.
"TRW Subordination Agreement" shall mean that certain
Subordination Agreement (TRW) dated as of the date hereof executed by TRW Inc.
in favor of Lender, as amended, restated or otherwise modified and in effect
from time to time.
"UCC" or "Uniform Commercial Code" shall mean, the Uniform
Commercial Code, as from time to time in effect in the State of Illinois.
"Vendor Contracts" shall mean any contract between Borrower
and a vendor named therein which provides for the sale or purchase of goods or
services or both, excluding any co-marketing agreements.
1.02 Accounting Terms and Determinations. Unless the context otherwise
clearly requires, all accounting terms not expressly defined herein shall be
construed, and all financial computations required under this Agreement shall
be made, in accordance with GAAP, consistently applied. References in this
Agreement to "fiscal year", "fiscal quarter" and "fiscal month" refer to such
fiscal period of Borrower.
ARTICLE 2
LOANS
2.01 Term Loan. (a) Amount. Subject to and upon the terms and
conditions set forth in this Agreement, Lender agrees to make a secured term
loan (the "Term Loan") in the principal amount of $8,500,000 to Borrower on
the Closing Date. No portion of the principal amount of the Term Loan shall be
reborrowed once repaid.
(b) Repayment of Term Loan. The Term Loan shall be repaid in
eleven (11) consecutive quarterly installments payable on the last day of each
calendar quarter commencing on March 31, 1997 and continuing thereafter until
the Termination Date, as follows:
Installment Date Installment Amount
---------------- ------------------
March 31, 1997 $ 550,000
June 30, 1997 $ 550,000
September 30, 1997 $ 550,000
December 31, 1997 $ 550,000
March 31, 1998 $ 700,000
June 30, 1998 $ 700,000
September 30, 1998 $ 700,000
December 31, 1998 $ 700,000
March 31, 1999 $ 875,000
June 30, 1999 $ 875,000
September 30, 1999 $1,750,000
Notwithstanding the foregoing, the aggregate outstanding principal balance of
the Term Loan shall be due and payable in full on the Termination Date, if not
sooner paid in full.
2.02 Revolving Loan. Subject to and upon the terms and conditions set
forth in this Agreement, from and including the date of this Agreement and
prior to but not including the Termination Date, Lender agrees to make
revolving loans to Borrower (each individually, a "Revolving Loan" and,
collectively, the "Revolving Loans") from time to time in an amount not to
exceed at any time outstanding $2,500,000 (such amount as the same may be
reduced from time to time pursuant to Section 2.07 the "Commitment"); provided,
however, that, after giving effect to any Borrowing of Revolving Loans, the
principal amount of all outstanding Revolving Loans shall not exceed the
Maximum Revolving Credit Amount. Subject to the terms of this Agreement,
Borrower may borrow, repay and reborrow at any time prior to the Termination
Date. Borrower shall repay in full the outstanding principal balance of the
Revolving Loans on the Termination Date.
2.03 Rate Options for all Loans. The Loans may be Base Rate Loans or
Eurodollar Rate Loans, or a combination thereof, selected by Borrower in
accordance with Section 2.09; provided, however, that there shall be no more
than five (5) Interest Periods in effect with respect to all Loans at any one
time.
2.04 Optional Prepayments. Subject to Section 3.04, Borrower may, at
any time or from time to time, upon written notice to Lender not later than
10:00 a.m. (Chicago time) on the Business Day of such prepayment, prepay all or
any part of any Loan. Unless the aggregate outstanding principal balance of the
Term Loan is to be prepaid in full, voluntary prepayments of the Term Loan
shall be in an aggregate minimum amount of $250,000 and integral multiples of
$100,000 in excess of that amount. Such notice of prepayment shall specify the
date and amount of such prepayment and whether such prepayment is of Base Rate
Loans or Eurodollar Rate Loans, or any combination thereof. Such notice shall
not thereafter be revocable by Borrower. If such notice is so given, Borrower
shall make such prepayment, and the payment amount specified in such notice
shall be due and payable on the date specified therein, together with accrued
interest to such date on the amount prepaid and any amounts required pursuant
to Section 3.04. Each prepayment of the Term Loan shall be applied to the
installments of the Term Loan in inverse order of maturity. Any prepayment of
any type of Loans shall be applied first to the portion of such Loans
maintained as Base Rate Loans and then to the portion of such Loans maintained
as Eurodollar Rate Loans (in order of Eurodollar Rate Loans having the shortest
Interest Periods).
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<PAGE> 17
2.05 Mandatory Prepayments of Loans.
(a) Net Proceeds. Upon the receipt by Borrower of any Net
Proceeds or Net Issuance Proceeds, Borrower shall make or cause to be made a
mandatory prepayment of the Loans in an aggregate amount equal to the amount of
such Net Proceeds or Net Issuance Proceeds.
(b) Excess Cash Flow. Not later than one hundred fifty (1
50) days following the end of each fiscal year of Borrower commencing with the
fiscal year ending September 30, 1997, Borrower shall prepay the Loans in an
amount equal to fifty percent (60%) of Excess Cash Flow for such fiscal year.
(c) Overadvance. If at any time and for any reason the
aggregate amount of Revolving Loans is greater than the Maximum Revolving
Credit Amount, Borrower shall immediately make a mandatory prepayment of the
Revolving Loans in an amount equal to such excess.
(d) Application. Any prepayment of the Loans pursuant to
Section 2.05(a) or (b) shall be applied first, to unpaid installments of the
Term Loan in the inverse order of maturity; and second, following the payment
in full of the Term Loan, to repay Revolving Loans. Any such prepayment of any
type of Loans shall be applied first to the portion of such Loans maintained as
Base Rate Loans and then to the portion of such Loans maintained as Eurodollar
Rate Loans (in order of Loans having the shortest Interest Periods); provided,
however, that, in the case of prepayments pursuant to clauses (a) or (b) or
this Section 2.05, if the amount of Base Rate Loans then outstanding is less
than the required prepayment, Borrower may, at its option, place any amounts
which it would otherwise be required to use to prepay Eurodollar Rate Loans on
a day other than the last day of the Interest Period therefor in an
interest-bearing account pledged to Lender until the end of such Interest
Period at which time such pledged amounts shall be applied to prepay such
Eurodollar Rate Loans. Borrower shall pay, together with each prepayment under
this Section 2.05, accrued interest on the amount prepaid and any amounts
required pursuant to Section 3.04.
2.06 Prepayment Fee. If Borrower shall prepay all of the Obligations
prior to the second anniversary of the Closing Date and if Lender shall no
longer have any Commitment hereunder, Borrower shall pay to Lender as
liquidated damages and compensation for the costs of being prepared to make
funds available to Borrower hereunder an amount (the "Prepayment Fee") equal
to: (a) with respect to the Revolving Loans, (i) 2% of the amount of the then
current Commitment for any such prepayment occurring during the period from the
Closing Date through January 13, 1998; and (ii) 1% of the then current
Commitment for any such prepayment occurring during the period commencing on
January 14, 1998 and ending on January 13, 1999; and (b) with respect to the
Term Loan, (i) 2% of an amount equal to 50% of the outstanding principal
balance of the Term Loan as of the prepayment date for any such prepayment
occurring during the period from the Closing Date through January 13, 1998; and
(ii) 1% of an amount equal to 50% of the outstanding principal balance of the
Term Loan as of the prepayment date for any such prepayment occurring during
the period commencing on January 14, 1998 and ending on January 13, 1999;
provided, however, that Borrower shall not be obligated to pay any Prepayment
Fee if the prepayment is made (A) in connection with the sale of Borrower in
its entirety (whether through merger, consolidation, sale of assets or sale of
stock); or (B) pursuant to Section 2.04 or Section 2.05(b) from internally
generated funds.
2.07 Reduction of Commitment. Borrower may permanently reduce the
Commitment in whole or in part, without premium, penalty or other fee, in an
aggregate minimum amount of $250,000 and integral multiples of $100,000 in
excess of that amount, upon at least three (3) Business Days' written notice to
Lender; provided, however, that the amount of the Commitment may not be reduced
below the greater of (a) the aggregate principal amount of the outstanding
Revolving Loans at such time and (b) $1,000.
2.08 Notes. The Term Loan shall be evidenced by the Term Note payable
to the order of Lender in the original principal amount of $8,500,000. The
Revolving Loans shall be evidenced by the Revolving Note payable to the order
of Lender in the original principal amount of $2,500,000. Borrower hereby
irrevocably authorizes Lender to endorse on the schedules attached to each Note
(or on a continuation of such schedule), the amount of each Loan made
thereunder, the interest rate applicable, all payments of principal and
interest thereon and the principal balance thereof from time to time
outstanding; provided, however, that the failure to make, or an error in
making, a notation thereon with respect to any Loan shall not limit or
otherwise affect the obligations of Borrower hereunder or under
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such note. The notation on each such schedule shall be prima facie evidence of
the principal amount thereof owing and unpaid.
2.09 Procedure for Revolving Credit Borrowing.
(a) Each Borrowing of a Revolving Loan shall be made by
either (i) delivering to Lender a Notice of Borrowing or (ii) giving telephonic
notice thereof to Lender (promptly confirmed by delivering to Lender a Notice
of Borrowing) not later than (x) 12:00 noon (Chicago time) on the date two (2)
Business Days prior to the requested Borrowing date, in the case of Eurodollar
Rate Loans; and (y) 12:00 noon (Chicago time) on the requested Borrowing date,
in the case of Base Rate Loans. Such Notice of Borrowing shall specify (i) the
amount of the Borrowing, which, in the case of Base Rate Loans, shall be in an
aggregate minimum principal amount of $100,000 and multiples of $1,000,000 in
excess thereof and, in the case of Eurodollar Rate Loans, shall be in a minimum
principal amount of $500,000 and multiples of $500,000 thereof; (ii) the
requested Borrowing date, which shall be a Business Day; (iii) whether the
Borrowing is to be comprised of Eurodollar Rate Loans or Base Rate Loans; and
(iv) the duration of the Interest Period applicable to any Eurodollar Rate
Loans included in such notice; provided, however, that with respect to the
Borrowing to be made on the Closing Date, such Borrowing shall consist of Base
Rate Loans only.
(b) Unless Lender is otherwise directed in writing by
Borrower, the proceeds of each requested Borrowing shall be made available to
Borrower by Lender at or before 3:00 p.m. (Chicago time) on such Borrowing date
by deposit of such amount to Borrower's Operating Account.
(c) Unless Lender shall otherwise agree, during the
existence of a Default, Borrower may not elect to have a Loan be made as,
converted into or continued as, a Eurodollar Rate Loan.
(d) Borrower hereby irrevocably authorizes Lender, in
Lender's sole discretion, to advance to Borrower, and to charge to Borrower's
Operating Account hereunder as a Revolving Loan, a sum sufficient to pay when
due all interest accrued on the Obligations and to pay when due all costs, fees
and expenses at any time owed by Borrower to Lender hereunder.
2.10 Conversion and Continuation Elections.
(a) Borrower may upon irrevocable written notice to Lender
in accordance with Section 2.10(b):
(i) elect to convert on any Business Day, all or
any portion of any Base Rate Loan in an aggregate minimum amount of
$500,000 or any multiple of $500,000 in excess thereof into Eurodollar
Rate Loans; or
(ii) elect to convert on the last day of the
applicable Interest Period all or any portion of any Eurodollar Rate
Loans having Interest Periods maturing on such day in an aggregate
minimum amount of $500,000 or any multiple of $500,000 in excess
thereof into Base Rate Loans; or
(iii) elect to renew on the last day of the
applicable Interest Period any Eurodollar Rate Loans having Interest
Periods maturing on such day in an aggregate minimum amount of
$500,000 or any multiple of $500,000 in excess thereof;
provided, however, that if any Eurodollar Rate Loans shall have been reduced by
payment, prepayment or conversion of part thereof to be less than $500,000 such
Eurodollar Rate Loans shall automatically convert into Base Rate Loans and on
and after such date the right of Borrower to continue such Loans as, and to
convert such Loans into, Eurodollar Rate Loans, as the case may be, shall
terminate.
(b) Borrower shall either (i) deliver to Lender a Notice of
Conversion/Continuation or (ii) give telephonic notice thereof to Lender
(promptly confirmed by delivering to Lender a Notice of
Conversion/Continuation), not later than 12:00 p.m. (Chicago time) on the date
two (2) Business Days in advance of the Conversion Date or continuation date,
if the Loans are to be converted into or continued as Eurodollar Rate Loans,
specifying: (i) the
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<PAGE> 19
proposed Conversion Date or continuation date; (ii) the aggregate amount of
Loans to be converted or continued; and (iii) the duration of the requested
Interest Period with respect to any Loans to be converted into, or continued,
as Eurodollar Rate Loans.
(c) If upon the expiration of any Interest Period
applicable to Eurodollar Rate Loans, Borrower has failed to select timely a new
Interest Period to be applicable to such Eurodollar Rate Loans, or if any
Default shall then exist, Borrower shall be deemed to have elected to convert
such Eurodollar Rate Loans into Base Rate Loans effective as of the expiration
date of such current Interest Period.
(d) Unless Lender shall otherwise agree, during the
existence of a Default, Borrower may not elect to have a Loan converted into or
continued as a Eurodollar Rate Loan.
(e) Notwithstanding any other provision contained in this
Agreement, after giving effect to any Borrowing, or to any continuation or
conversion of any Loans, there shall not be more than five (5) different
Interest Periods in effect with respect to all Loans at any one time.
2.11 Interest.
(a) Subject to Section 2.11(c) and Section 2.11(d), (i)
each Loan shall bear interest on the outstanding principal amount thereof from
the date when made at a rate per annum equal to the Applicable Interest Rate.
(b) Interest on each Loan shall be paid in arrears on each
Interest Payment Date. Interest shall also be paid on the date of any payment
or prepayment of Loans pursuant to Section 2.04 or Section 2.05 for the portion
of the Loans so prepaid and upon payment (including prepayment) in full thereof
and, during the existence of any Event of Default, interest shall be payable on
demand of Lender.
(c) At the election of Lender, (i) upon the occurrence and
during the continuance of any Event of Default described in Section 9.01 (a),
Borrower shall pay interest on the principal amount of all Loans at a rate per
annum determined by adding four percent (4%) per annum to the Applicable
Interest Rate then in effect for such Loans; and (ii) upon the occurrence and
during the continuance of any other Event of Default, Borrower shall pay on the
principal amount of all Loans at a rate per annum determined by adding two
percent (2%) per annum to the Applicable Interest Rate then in effect for such
Loans.
(d) Anything herein to the contrary notwithstanding, the
obligation of Borrower hereunder shall be subject to the limitation that
payments of interest shall not be required for any period for which interest is
computed hereunder to the extent (but only to the extent) that contracting for
or receiving such payment by Lender would be contrary to the provisions of any
law applicable to Lender limiting the highest rate of interest which may be
lawfully contracted for, charged or received by Lender, and in such event
Borrower shall pay Lender interest at the highest rate permitted by applicable
law.
2.12 Fees.
(a) Origination Fee. Borrower shall pay to Lender on the
Closing Date an origination fee (the "Origination Fee") in the amount of
$110,000.
(b) Unused Line Fee. Borrower shall pay to Lender a fee
(the "Unused Line Fee") at the rate of one-half of one percent (0.50%) per
annum from and after the Closing Date until the Termination Date on the amount
by which the Commitment in effect from time to time exceeds the average daily
balance of all Revolving Loans outstanding during the preceding calendar
quarter. The Unused Line Fee shall be payable quarterly in arrears on the last
calendar day of each March, June, September and December occurring after the
Closing Date and on the Termination Date.
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<PAGE> 20
2.13 Computation of Fees and Interest.
(a) All computations of fees and interest payable under
this Agreement shall be made on the basis of a 360-day year and actual days
elapsed. Interest shall be payable for the day an Obligation is incurred but
not for the day of any payment on the amount paid if payment is received prior
to 2:00 p.m. (Chicago time) at the place of payment.
(b) Any change in the interest rate on a Loan resulting
from a change in the Applicable Interest Rate shall become effective as of the
opening of business on the day on which such change in the Applicable Interest
Rate becomes effective.
(c) Each determination of an interest rate by Lender shall
be conclusive and binding on Borrower in the absence of manifest error.
2.14 Payments by Borrower.
(a) All payments of principal, interest and fees hereunder
shall be made, without set off, deduction or counterclaim, in immediately
available funds to Lender at Lender's address specified pursuant to Section
10.02, by 2:00 p.m. (Chicago time) on the date when due. Any payment received
by Lender later than 2:00 (Chicago time) shall be deemed to have been received
on the immediately succeeding Business Day and any applicable interest or fee
with respect to such payment shall continue to accrue to such succeeding
Business Day.
(b) Whenever any payment hereunder shall be stated to be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of interest or fees, as the case may be.
2.15 All Loans to Constitute One Obligation. The loans shall
constitute one general Obligation of Borrower and shall be secured by Lender's
Lien upon all of the Collateral in accordance with the Collateral Documents.
2.16 Collection and Application of Commitment Proceeds; Establishment
and Administration of Cash Collateral Account.
(a) On or before January 1, 1997, Lender shall establish at
its office at 135 South LaSalle Street, Chicago, Illinois, an account
designated as "Credentials Services International, Inc. Cash Collateral
Account" (the "Cash Collateral Account"). Borrower shall cause funds to be
deposited in the Cash Collateral Account in an amount equal to the "Required
Amount", as determined in accordance with Section 2.16(c), and at the time
determined in accordance with Section 2.16(c). The Cash Collateral Account
shall at all times be under the sole dominion and control of Lender and
Borrower shall not have any right to withdraw any funds deposited or held from
time to time in the Cash Collateral Account. Borrower shall have the right to
direct Lender to invest funds held in the Cash Collateral Account in Cash
Equivalents or such other investments as Borrower and Lender shall agree.
(b) For the purposes of this Section. 2.16, the term
"Direction Notice" shall mean a written notice delivered by Borrower to the
Fund, given in accordance with and in the form and manner required under the
Securities Purchase Agreement, directing that the Fund satisfy its commitment
under the Securities Purchase Agreement by purchasing debt or equity securities
of Borrower in an amount equal to then applicable Required Amount.
(c) (i) If an Event of Default has occurred and is
continuing on January 1, 1998, then the Required Amount shall be an
amount equal to 50% of the principal balance of the Term Loan
outstanding on the date of occurrence of such Event of Default and
Borrower shall deliver a Direction Notice to the Fund on January 2,
1998.
(ii) If no Event of Default has occurred and is
continuing on January 1, 1998 but an Event of Default occurs during
the period commencing on January 2, 1998 and ending on February 27,
1998,
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<PAGE> 21
then the Required Amount shall be an amount equal to 50% of the
principal balance of the Term Note outstanding on the date of
occurrence of such Event of Default and Borrower shall deliver a
Direction Notice promptly upon the occurrence of such Event of
Default.
(iii) If a Direction Notice has not been required
to have been delivered pursuant to clause (i) or (ii) above prior to
February 28, 1998, then the Required Amount shall be an amount equal
to 50% of the principal balance of the Term Note outstanding on
February 28, 1998 and Borrower shall deliver a Direction Notice on
February 28, 1998.
(d) Upon delivery of a Direction Notice, Borrower shall
promptly take all actions required to be taken by Borrower under Section 5 of
the Securities Purchase Agreement and shall direct that the Required Amount be
paid by the Fund by wire transfer of immediately available funds directly to
the Cash Collateral Account to be held by Lender and applied in accordance with
this Section 2.16.
(e) Provided that no Event of Default has occurred and is
continuing, upon any principal payment on the Term Loan by Borrower (a "Term
Loan Payment"), Lender shall release to Borrower funds from the Cash Collateral
Amount in an amount equal to the sum of (i) 50% of Term Loan Payment, plus (ii)
all amounts then in the Cash Collateral Account representing earnings on the
funds held in the Cash Collateral Account.
(f) Borrower shall not be entitled to, and Lender shall
have no obligation to release to Borrower under Section 2.16(e), any funds from
the Cash Collateral Account from and after the date of commencement of (i) a
suit, action or proceeding by Lender against Borrower to enforce payment of or
to collect the Obligations, or (ii) a foreclosure action by Lender to realize
upon Lender's Lien on the Collateral, or (c) any Insolvency Proceeding (any of
the foregoing, a "Realization Proceeding"). Notwithstanding anything to the
contrary in this Agreement or in any other Loan Document, Lender agrees, prior
to applying any funds in the Cash Collateral Account to the Obligations, to
exercise and enforce all such rights, remedies and recourse against Borrower
and the Collateral as Lender shall deem appropriate in the circumstances and to
apply to payment of the Obligations all proceeds derived by Lender from the
exercise and enforcement of such rights and remedies pursuant to any one or
more Realization Proceedings. If, after giving effect to Lender's recovery of
all amounts realized from such Realization Proceedings, any Obligations shall
remain outstanding, all funds then remaining in the Cash Collateral Account,
including all earnings thereon, may be applied by Lender to such remaining
Obligations, in such order of application as Lender may determine in its sole
discretion. The balance in the Cash Collateral Account, including earnings
thereon, if any, remaining after payment in full of the Obligations shall be
released by Lender to Borrower as promptly as practicable thereafter.
ARTICLE 3
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 Taxes.
(a) All payments by Borrower to Lender under this Agreement
shall be made free and clear of, and without deduction or withholding for, any
present or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding franchise or similar taxes
as are imposed on or measured by Lender's revenues or net income by the United
States of America or any jurisdiction under the laws of which Lender is
organized or maintains a lending office (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities herein referred to
as "Taxes").
(b) In addition, Borrower shall pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document ("Other Taxes").
(c) Borrower shall indemnify and hold harmless Lender for
the full amount of Taxes or Other Taxes paid by Lender and any liability,
including penalties, interest, additions to tax and expenses, arising therefrom
or with
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<PAGE> 22
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. Payment under this Section. 3.01 shall be made within thirty
(30) days from the date Lender makes written demand therefor.
(d) If Borrower shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to Lender, then (i) the sum payable shall be increased as necessary
so that after making all required deductions Lender receives an amount equal to
the sum it would have received had no such deduction been made; (ii) Borrower
shall make such deductions; and (iii) Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law.
(e) Within thirty (30) after the date of any payment by
Borrower of Taxes or Other Taxes, Borrower shall furnish to Lender the original
or a certified copy of a receipt evidencing payment thereof, or other evidence
of payment satisfactory to Lender.
3.02 Illegality. If, as the result of any Regulatory Change, Lender
shall determine that it is unlawful for Lender to make, continue or maintain
any Loan as, or to convert any Loan into, a Eurodollar Rate Loan, the
obligation of Lender to make, continue or maintain any portion of the principal
amount of any Loans as, or to convert any Loans into, Eurodollar Rate Loans
shall, upon such determination forthwith be suspended until Lender shall notify
Borrower in reasonable detail that the circumstances causing such suspension no
longer exist, and all Eurodollar Rate Loans shall automatically converted into
Base Rate Loans.
3.03 Increased Costs. If any Regulatory Change imposes, modifies or
deems applicable any capital adequacy, capital maintenance or similar
requirement (including a request or requirement which affects the manner in
which Lender allocates capital resources to its commitments, including its
Commitment hereunder) and as a result thereof, the rate of return on Lender's
capital as a consequence of its Commitment or Loans, is reduced to a level
below that which Lender could have achieved but for such circumstances then and
in each such case upon notice from time to time by Lender to Borrower, Borrower
shall pay to Lender such additional amount or amounts as shall compensate
Lender for such reduction in its rate of return (a "Compensatory Amount");
provided, however, that (a) each Compensatory Amount shall be reduced to the
extent, if any, that Lender increases the Prime Rate in order to recover all or
part of the increased costs which are imposed by such Regulatory Change and (b)
in determining any increased expense, reduction in rate of return on capital or
reduction in an amount received, Lender shall act reasonably and in good faith
and shall, to the extent the increased costs or reductions in amounts received
or receivable related to Lender's loans and commitments in general and are not
specifically attributable to the Loans and the Commitment hereunder, use
averaging and attribution methods which are reasonable and which cover all
loans similar to the Loans made by Lender whether or not the loan documentation
for such other loans permits Lender to receive increased costs of the type
described in this Section 3.03. Such notice shall contain a statement of Lender
as to any such additional amount or amounts, including calculations thereof in
reasonable detail, which shall in the absence of manifest error, be conclusive
evidence of the matters stated therein and be binding upon Borrower.
3.04 Funding Losses. If Lender shall incur any loss or expense
(including any loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by Lender to make, continue or
maintain any portion of the principal amount of any Loan as, or to convert any
portion of the principal amount of any Loan into, a Eurodollar Rate Loan) as a
result of:
(a) the failure of Borrower to make any payment or
mandatory prepayment of principal of any Eurodollar Rate Loan (including
payments made after any acceleration thereof);
(b) the failure of Borrower to borrow, continue or convert
a Loan after Borrower has given (or is deemed to have given) a Notice of
Borrowing or a Notice of Conversion/Continuation;
(c) the failure of Borrower to make any prepayment after
Borrower has given a notice in accordance with Section 2.04;
(d) the prepayment (including prepayment pursuant to
Section 2.05) of a Eurodollar Rate Loan on a day which is not the last day of
the Interest Period with respect thereto; or
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<PAGE> 23
(e) the conversion pursuant to Section 2.10 of any
Eurodollar Rate Loan to a Base Rate Loan on a day that is not the last day of
the applicable Interest Period,
then, upon the request of Lender to Borrower, Borrower shall pay directly to
Lender such amount as will reimburse Lender for the actual amount of such loss
or expense. A statement as to any such loss or expense (including calculations
thereof in good faith and in reasonable detail) shall be submitted by Lender to
Borrower and shall be prima facie evidence of the matters stated therein and be
binding on Borrower; provided, however, that Borrower shall not be liable in
respect of any such loss or expense as to which Lender became aware and failed
to notify Borrower promptly if and to the extent that prompt notice could have
avoided or materially lessened payment by Borrower hereunder.
3.05 Inability to Determine Rates. If Lender shall have determined
that for any reason adequate and reasonable means do not exist for ascertaining
the Eurodollar Base Rate for any requested Interest Period with respect to a
proposed Eurodollar Rate Loan or that the Eurodollar Base Rate applicable
pursuant to Section 2.10(a) for any requested Interest Period with respect to a
proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost
to Lender of funding such Loan, Lender shall forthwith give notice of such
determination to Borrower. Thereafter, the obligation of Lender to make or
maintain Eurodollar Rate Loans hereunder shall be suspended until Lender
revokes such notice in writing. Upon receipt of such notice, Borrower may
revoke any Notice of Borrowing or Notice of Conversion/Continuation then
submitted by it. If Borrower does not revoke such notice, Lender shall make,
convert or continue the Loans, as proposed by Borrower, in the amount specified
in the applicable notice submitted by Borrower, but such Loans shall be made,
converted or continued as Base Rate Loans.
3.06 Survival. The agreements and obligation of Borrower in this
Article 3 shall survive the payment of all other Obligations.
ARTICLE 4
CONDITIONS PRECEDENT
4.01 Conditions to Initial Loans. The obligation of Lender to make the
initial Loans on the Closing Date is subject to the prior or concurrent
satisfaction of the following conditions:
(a) Financial Condition. Borrower shall have delivered to
Lender a Financial Condition Certificate dated the Closing Date, substantially
in the form of Exhibit F, executed on behalf of Borrower by the chief financial
officer of Borrower, with appropriate attachments in form and substance
satisfactory to Lender, demonstrating that, after giving effect to the initial
Loans, Borrower is Solvent.
(b) Fees. Borrower shall have paid the Origination Fee.
(c) Capital Contribution. Borrower shall have received, in
consideration of the issuance and sale to the Preferred Stock Pledgor of 1,000
shares of preferred stock of Borrower, cash proceeds in an aggregate amount
equal to not less than $1,000,000.
(d) Security Interests. Lender shall have received (i)
acknowledgment copies of all UCC financing statements filed, registered or
recorded to perfect the security interest of Lender, or other evidence
satisfactory to Lender that there has been filed, registered or recorded all
financing statements and other filings, registrations and recordings necessary
and advisable to perfect the Liens of Lender in accordance with applicable law;
and (ii) written advice relating to such Lien and judgment searches as Lender
shall have requested.
(e) Opinions of Counsel. Lender shall have received the
written opinion or opinions of Maloney, Mehlman & Katz, members of the New York
Bar, counsel for Borrower and Pledgors, and special counsel to the Fund in form
and substance satisfactory to Lender and its counsel, dated as of the Closing
Date.
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<PAGE> 24
(f) Termination of Prior Indebtedness Liens and Other
Liens. Lender shall have received duly executed UCC-3 termination statements
and such other instruments, in form and substance satisfactory to Lender, as
shall be necessary to terminate and satisfy all Liens created pursuant to the
Prior Indebtedness and all other Liens except Permitted Liens.
(g) Documents. Borrower shall have delivered or caused to
be delivered to Lender the following documents, each, unless otherwise noted,
dated the Closing Date, duly executed, in form and substance satisfactory to
Lender:
(i) Revolving Note.
(ii) Security Agreement. The Security Agreement.
(iii) Initial Borrowing Base Certificate. The
initial Borrowing Base Certificate dated not more than five (5) days
prior to the Closing Date.
(iv) Officer's Certificate. A certificate executed
by the chief financial officer of Borrower, on behalf of Borrower,
stating that: (a) the representations and warranties contained in
Article 5 are true and correct on and as of the Closing Date as though
made on and as of the Closing Date; (b) no Default exists or would
result from the initial Borrowing; and (c) there has not occurred
since September 30, 1995 any material adverse change in the Collateral
or the financial condition or operations of the business of Borrower
except as disclosed in the unaudited financial statements of Borrower
as at September 30, 1996 furnished to the Lender pursuant to Section
5.02.
(v) Intellectual Property Security Agreement. The
Intellectual Property Security Agreement.
(vi) Subordination Agreements. The TRW
Subordination Agreement and the Management Fee Subordination Agreement.
(vii) Insurance Policies and Endorsements. Copies of
policies of insurance required to be maintained under this Agreement
and the other Loan Documents together with endorsements or
certificates satisfactory to Lender naming Lender as loss payee or
additional insured, as appropriate, under such policies.
(viii) Organizational Documents and Good Standing.
Certified copies of the certificate of incorporation of Borrower
together with good standing certificates from the state of its
incorporation and from all states in which the laws thereof require
Borrower to be qualified or licensed to do business, each dated a
recent date prior to the Closing Date.
(ix) Bylaws. Copies of the bylaws of Borrower
certified as of the Closing Date by the secretary or assistant
secretary of Borrower.
(x) Resolutions. Resolutions of the Board of
Directors of Borrower approving and authorizing the execution,
delivery and performance of the Loan Documents to which Borrower is a
party, certified as of the Closing Date by the secretary or assistant
secretary of Borrower as being in full force and effect without
modification or amendment.
(xi) Incumbency Certificates. Signature and
incumbency certificates of all officers of Borrower executing the Loan
Documents.
(xii) Collateral Assignment of Contracts. The
Collateral Assignment of Contracts.
(xiii) Pledge Agreements. The Pledge Agreements,
together with stock certificates representing the Pledged Shares (as
defined in each Pledge Agreement), stock powers duly executed in blank
and proxies.
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<PAGE> 25
(xiv) Letter of Direction. A letter of direction
from Borrower addressed to Lender with respect to the disbursement of
the proceeds of the Loan and the initial advance under the Revolving
Loan.
(xv) Pledgor Organization Documents and Good
Standing. Certified copies of the certificate of limited partnership
of each Pledgor together with good standing certificates from the
State of Delaware.
(xvi) Incumbency Certificate. Signature and
incumbency certificate of the officer of the general partner of the
general partner of each Pledgor.
(xvii) Resolutions. Resolutions of the Board of
Directors of the general partner of the general partner of each
Pledgor each certified as of the Closing Date by its secretary or
assistant secretary as being in full force and effect without
modification or amendment, authorizing and approving the execution,
delivery and performance of each Loan Document to which such Pledgor
is a party.
(xviii) Collateral Assignment of Undertakings. The
Collateral Assignment of Undertakings.
(xix) Securities Purchase Agreement. A copy of the
Securities Purchase Agreement executed by Borrower and the Fund.
(h) Due Diligence. Lender shall have received evidence of
the completion to the satisfaction of Lender of such investigations, reviews
and audits with respect to Borrower as Lender may deem appropriate.
(i) Prior Indebtedness. Lender shall have received a payoff
letter from each lender of the Prior Indebtedness in form and substance
satisfactory to Lender, together with such UCC-3 termination statements,
releases of Liens and other instruments, documents or agreements necessary or
appropriate to terminate any Liens in favor of such lenders securing Prior
Indebtedness which is to be paid off on the Closing Date as Lender may
reasonably request, duly executed and in form and substance satisfactory to
Lender.
(j) Other Documents. Lender shall have received such other
approvals, opinions, documents or materials as Lender may reasonably request.
4.02 Conditions to all Loans. The obligation of Lender to make any
Loan, or to continue or convert any Loan hereunder, is subject to the
satisfaction of the following conditions on the relevant borrowing or
continuation or Conversion Date:
(a) Notice of Borrower or Continuation/Conversion. Lender
shall have received a Notice of Borrowing or a Notice of
Continuation/Conversion, as applicable, in accordance with Section 2.09 or
Section 2.10, as applicable.
(b) Representations and Warranties. The representations and
warranties of Borrower contained in Article 5 shall be true and correct in all
material respects on and as of such Borrowing, or continuation or Conversation
Date, with the same effect as if made on and as of such Borrowing or
continuation or Conversion Date (except to the extent such representations and
warranties expressly refer to an earlier date, in which case they shall be true
and correct as of such earlier date).
(c) No Default. No Default shall exist or shall result from
such Borrowing or continuation or conversion.
Each Notice of Borrowing and Notice of Continuation/Conversion submitted by
Borrower hereunder shall constitute a representation and warranty by Borrower
hereunder, as of the date of each such notice and as of the date of each such
Borrowing or continuation or conversion that the conditions in Section 4.02 are
satisfied.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender as follows:
5.01 Existence and Power. Borrower(a) is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware;
(b) has all requisite corporate power and authority, and has all governmental
licenses, authorizations, consents and approvals necessary to own its assets
and carry on its business as now being or as proposed to be conducted; and (c)
is duly qualified to do business and in good standing in all jurisdictions in
which the nature of the business conducted by it makes such qualification
necessary and where failure so to qualify would have a Material Adverse Effect.
5.02 Financial Condition.
(a) The audited annual financial statements of financial
condition of Borrower dated September 30, 1995 and the related audited
statements of income or operations, stockholders' equity and cash flows for the
fiscal year ended on that date and the unaudited interim financial statements
of Borrower dated September 30, 1996 and the related unaudited statements of
income, stockholders' equity and cash flows for the fiscal year then ended:
(i) were prepared in accordance with GAAP
consistently applied throughout the respective periods covered
thereby, except as otherwise expressly noted therein, subject to, in
the case of the unaudited interim financial statements, normal
year-end adjustments and the absence of footnote disclosures;
(ii) present fairly in all material respects the
financial condition of Borrower as of the dates thereof and results of
operations for the periods covered thereby;
(iii) except as specifically disclosed in Schedule
5.02, show all material indebtedness and other liabilities, direct or
contingent of Borrower as of the date thereof, including liabilities
for taxes, material commitments and Contingent Obligations.
(b) Since September 30, 1995, there has been no Material
Adverse Effect except as disclosed in the unaudited financial statements of
Borrower as of September 30, 1996 furnished to Lender pursuant to this Section
5.02.
5.03 Litigation. Except as specifically disclosed in Schedule 5.03,
there are no actions, suits, proceedings, governmental investigations or
arbitrations now pending or, to the best knowledge of Borrower, threatened
against or affecting Borrower or any Subsidiary of Borrower which (a) purport
to affect or pertain to this Agreement or any other Loan Document or the
transactions contemplated hereby or thereby; or (b) if determined adversely to
Borrower or such Subsidiary could reasonably be expected to have a Material
Adverse Effect. No injunction, writ, temporary restraining order or any other
order has been issued by any court or other governmental authority purporting
to enjoin or restrain the execution, delivery or performance of this Agreement
or any other Document.
5.04 No Breach. The execution, delivery and performance by Borrower of
each Loan Document to which Borrower is a party do not and will not conflict
with or result in a breach of, or require any consent under, the charter or
by-laws of Borrower or any applicable law or regulation, or any order, writ,
injunction or decree of any court or governmental authority or agency, or any
agreement or instrument to which Borrower is a party or by which it or its
property is bound or to which it or its property is subject, or constitute a
default under any such agreement or instrument, or (except for the Liens
created pursuant to the Loan Documents) result in the creation or imposition of
any Lien under the terms of any such agreement or instrument.
5.05 Corporate Action; Capitalization.
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(a) Borrower has all necessary corporate power and
authority to execute, deliver and perform its obligations under each of the
Loan Documents to which it is a party. The execution, delivery and performance
by Borrower of each Loan Document to which it is a party have been duly
authorized by all necessary corporate action on its part and each of the Loan
Documents to which it is a party has been duly and validly executed and
delivered by Borrower and constitutes the legal, valid and binding obligation
of such Borrower, enforceable in accordance with their respective terms, except
as enforceability may be limited by applicable bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability.
(b) Schedule 5.05(b) sets forth the authorized capital
stock of Borrower. All issued and outstanding shares of capital stock of
Borrower are duly authorized and validly issued, fully paid, non-assessable,
and free and clear of all Liens other than those in favor of Lender and such
shares were issued in compliance with all applicable state and federal laws
concerning the issuance of securities. No shares of capital stock of Borrower,
other than those described in Schedule 5.05(b), are issued and outstanding.
Except as set forth on Schedule 5.05(b), there are no pre-emptive or other
outstanding rights, options, warrants, conversion rights or other similar
agreements or understandings for the purchase or acquisition of any shares of
capital stock or other securities of Borrower.
5.06 Governmental Authorization. No authorizations, approvals or
consents of, and no notices to or filings or registrations with, any
governmental or regulatory authority or agency are necessary for the execution,
delivery or performance by, or enforcement against, Borrower of this Agreement
or any other Loan Document.
5.07 Use of Proceeds; Margin Regulations. The proceeds of the Loans
are intended to be and shall be used solely for the purposes set forth in and
permitted by Section 6.10. Borrower is not generally engaged in the business of
purchasing or selling Margin Stock or extending credit for the purpose of
purchasing or carrying Margin Stock.
5.08 ERISA.
(a) Schedule 5.08 lists all Plans and separately identifies
Plans intended to be Qualified Plans and Multiemployer Plans. Borrower and
each of Borrower's Subsidiaries are in compliance with all requirements of each
Plan and each Plan complies with and is operated in compliance with all
applicable provisions of law. Each Qualified Plan and each related trust has
been determined by the Internal Revenue Service to qualify under, and be exempt
from tax under, the Code. Nothing has occurred which would cause the loss of
such qualification or tax- exempt status. All required contributions have been
made in accordance with the provisions of each Plan, and with respect to
Borrower or any ERISA Affiliate, there are no unfunded pension liabilities or
withdrawal liabilities. Neither Borrower nor any ERISA Affiliate has engaged in
a prohibited transaction, as defined in Section 4975 of the Code or Section 406
of ERISA.
(b) No ERISA Event has occurred or is expected to occur
with respect to any Plan. No liability under any Title IV Plan has been funded
nor has such obligation been satisfied with, the purchase of a contract form an
insurance company that is not rated AAA by Standard & Poor's Corporation or the
equivalent by each other nationally recognized rating agency.
(c) Except as specifically disclosed in Schedule 5.08, no
member of the Controlled Group has represented or contracted to any current or
former employee that such current or former employee would be provided, at any
cost to any member of the Controlled Group, with life insurance or employee
welfare plan benefits (within the meaning of Section 3(1) of ERISA) following
retirement or termination of employment.
(d) Members of the Controlled Group have complied in all
material respects with the notice and continuation coverage requirements of
Section 4980B of the Code. No member of the Controlled Group has engaged,
directly or indirectly, in a non-exempt prohibited transaction (as defined in
Section 4975 of the Code or Section 406 of ERISA) in connection with any Plan
which could reasonably be expected to have a Material Adverse Effect.
5.09 Taxes. Borrower and each of Borrower's Subsidiaries have filed
all federal and other material tax returns and reports required to be filed and
have paid all federal and other material taxes, assessments, fees and other
governmental charges levied or imposed upon them or their property, income or
assets otherwise due and payable, except those which are being contested in
good faith by appropriate proceedings and for which adequate reserves have been
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provided in accordance with GAAP. There is no proposed tax assessment against
Borrower or any of Borrower's Subsidiaries which, if made, could reasonably be
expected to have a Material Adverse Effect.
5.10 Investment Company Act. Borrower is not an "investment company",
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
5.11 Solvency. Borrower and each of Borrower's Subsidiaries is Solvent.
5.12 Subsidiaries, Etc. Borrower has no Subsidiaries or equity
investments in any other corporation or entity other than those disclosed in
Schedule 5.12.
5.13 Title to Properties. Borrower and each of its Subsidiaries have
good record and marketable title to all property necessary or used in the
ordinary conduct of its businesses, except for Permitted Liens.
5.14 Collateral Documents. All representations and warranties of
Borrower, any of Borrower's Subsidiaries or any other party to any Collateral
Document contained in the Collateral Documents are true and correct.
5.15 Environmental Matters.
(a) Except as disclosed in Schedule 5.15, the operations of
Borrower and each of Borrower's Subsidiaries comply with all Environmental
Laws, except such non-compliance which could not reasonably be expected to have
a Material Adverse Effect.
(b) Except as disclosed in Schedule 5.15, Borrower and each
of Borrower's Subsidiaries have obtained all licenses, permits, authorizations
and registrations required under any Environmental Law ("Environmental
Permits") and necessary for their respective operations, all such Environmental
Permits are in good standing, and Borrower and each of Borrower's Subsidiaries
are in compliance with all material terms and conditions of such Environmental
Permits, except where the failure to obtain or to be in compliance could not
reasonably be expected to have a Material Adverse Effect.
(c) Except as disclosed in Schedule 5.15, none of Borrower
or any of Borrower's Subsidiaries or any of their respective property or
operations is subject to any outstanding written order from or agreement with
any governmental authority nor subject to any judicial or administrative
proceedings respecting any Environmental Law.
(d) Except as disclosed in Schedule 5.15, there are no
conditions or circumstances existing with respect to any property, or arising
from operations prior to the Closing Date, of Borrower or any of Borrower's
Subsidiaries that could reasonably be expected to have a Material Adverse
Effect.
5.16 Labor Relations. There are no strikes, lockouts or other labor
disputes against Borrower or any of Borrower's Subsidiaries or, to the best
knowledge of Borrower, threatened against or affecting Borrower or any of its
Subsidiaries, in any case, which could reasonably be expected to have a
Material Adverse Effect, and no significant unfair labor practice complaint is
pending against Borrower or any of its Subsidiaries or, to the best knowledge
of Borrower, threatened against any of them before any governmental authority,
in any case which could reasonably be expected to have a Material Adverse
Effect.
5.17 No Default. Neither Borrower nor any of Borrower's Subsidiaries
is in default under or with respect to the provisions of any agreement,
undertaking, contract, indenture, mortgage or other instrument, document or
agreement to which such Person is a party or by which it or any of its property
is bound which, individually or together with all such defaults, could
reasonably be expected to have a Material Adverse Effect.
5.18 Intellectual Property. Schedule 5.18 identifies all United States
and foreign patents, trademarks, service marks, trade names and registered
copyrights, and all registrations and applications for registration thereof and
all licenses thereof, owned or held by Borrower or any of its Subsidiaries on
the Closing Date. Except as disclosed in Schedule 5.18, as of the Closing Date,
Borrower and its Subsidiaries are the sole beneficial owners of, or have the
right to use, free from
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<PAGE> 29
any restrictions, claims, rights or encumbrances, the intellectual property
referred to in Schedule 5.18 and all other processes, designs, formulas,
computer programs, computer software packages, trade secrets, inventions,
product manufacturing instructions, technology, research and development,
know-how and all other intellectual property that are necessary for the
operation of Borrowers and its Subsidiaries' businesses as being operated on
the Closing Date. Each patent, trademark, service mark, trade name, copyright
and license listed on Schedule 5.18 is in full force and effect except to the
extent the failure to be in effect could not reasonably be expected to have
Material Adverse Effect. Except as set forth in Schedule 5.18, to the best
knowledge or Borrower, as of the Closing Date (a) none of the present or
contemplated products or operations of Borrower or its Subsidiaries infringes
any patent, trademark, service mark, trade name, copyright or nay license right
pertaining to any such intellectual property owned by any other Person and (b)
there is no pending or threatened claim or litigation against or affecting
Borrower or any of its Subsidiaries contesting the right of any of them to
manufacture, process, sell or use any such product or to engage in any such
operation except for claims or litigation which could not reasonably be
expected to have a Material Adverse Effect.
5.19 Insurance. The properties of Borrower and its Subsidiaries are
insured with financially sound and reputable insurance companies not Affiliates
of Borrower, in such amounts, with such deductibles and covering such risks as
are customarily carried by companies engaged in similar businesses and owning
similar properties in localities where Borrower or such Subsidiary operates. A
correct and complete listing of such insurance including, issuers, coverages
and deductibles, has been provided to Lender.
5.20 Full Disclosure. None of the representations or warranties made
by Borrower or any of Borrower's Subsidiaries as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in each exhibit, report, written statement or certificate
furnished by or on behalf of Borrower or any of Borrower's Subsidiaries in
connection with the Loan Documents contains any untrue statement of a material
fact or omits any material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which
they are made, not misleading as of the time when made or delivered.
5.21 Vendor Contracts. As of the Closing Date, Borrower is not a party
to any Significant Vendor Contracts other than the Significant Vendor Contracts
listed on Schedule 5.21.
ARTICLE 6
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as Lender shall have any
Commitment hereunder, or any Loan or other Obligation shall remain unpaid or
unsatisfied, unless Lender shall waive compliance in writing:
6.01 Financial Statements. Borrower shall deliver, or cause to be
delivered, to Lender in form and detail satisfactory to Lender:
(a) as soon as available, but not later than ninety (90)
days after the end of each fiscal year or in the case of the fiscal year ended
September 30, 1996, not later than February 15, 1997, a copy of the audited
consolidated balance sheet of Borrower and its Subsidiaries as at the end of
such year and the related consolidated statements of income or operations,
stockholders' equity and cash flows for such fiscal year, setting forth in each
case in comparative form the figures for the previous fiscal year, and
accompanied by the opinion of a nationally-recognized independent public
accounting firm acceptable to Lender stating that such financial statements
present fairly in all material respects the financial position for the periods
indicated and were prepared in conformity with GAAP consistently applied, and
were reviewed in accordance with Modified Accrual Accounting consistently
applied. Such opinion shall not be qualified or limited because of a restricted
or limited examination by such accountants of any material portion of
Borrower's or any Subsidiary's records;
(b) as soon as available, but not later than thirty (30)
days after the end of each fiscal month of each year, a copy of the unaudited
consolidated balance sheet of Borrower and its Subsidiaries, and the related
consolidated statements of income, stockholders' equity and cash flows as of
the end of such month and for the portion of the fiscal
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year then ended, all certified on behalf of Borrower by the chief financial
officer of Borrower as being complete and correct and fairly presenting in all
material respects, in accordance with GAAP and Modified Accrual Accounting, the
financial position and results of operations of Borrower and each of its
Subsidiaries, subject to normal year-end adjustment and absence of footnote
disclosure; and
(c) as soon as available, but not later than one hundred
twenty (1 20) days after the end of each fiscal year of the Fund commencing
with the fiscal year ended December 31, 1996, a copy of the audited
consolidated balance sheet of the Fund and its Subsidiaries as at the end of
such year and the related consolidated statements of income or operations,
partners' capital and cash flows for such fiscal year, and accompanied by the
opinion of a nationally-recognized independent public accounting firm stating
that such financial statements present fairly in all material respects the
financial position for the periods indicated and were prepared in conformity
with GAAP consistently applied.
6.02 Certificates; Borrowing Base Certificates; Other Information.
Borrower shall furnish to Lender:
(a) concurrently with the delivery of the annual financial
statement referred to in Section 6.01(a), a certificate of the independent
certified accountants reporting on such financial statement stating that in
making the examination necessary therefor no knowledge was obtained of any
Default, except as specified in such certificate;
(b) concurrently with the delivery of the financial
statements referred to in Sections 6.01(a) and 6.01(b), a certificate of the
chief financial officer of Borrower stating that such officer has obtained no
actual knowledge of any Default, except as specified in such certificate,
together with a compliance certificate, substantially in the form of Exhibit G
attached hereto, signed by such officer, setting forth calculations for the
period then ended which demonstrate compliance by Borrower with the provisions
of Article 8.
(c) concurrently with the delivery of the financial
statements referred to in Section 6.01(a) and 6.01(b), a management report, in
reasonable detail, signed on behalf of Borrower by the chief financial officer
of Borrower, describing the operations and financial condition of Borrower and
its Subsidiaries for the month and the portion of the fiscal year then ended
(or in the case of annual financial statements for the fiscal year then ended)
and setting forth a mailing tracking summary, a current mailing schedule and a
statements of increases or decreases in the number of Subscribers;
(d) promptly after the same are sent, copies of all
financial statements and reports sent to Borrower's stockholders and, promptly
after filed, copies of all financial statements and reports which Borrower may
make to, or file with, the Securities Exchange Commission or similar
governmental authority;
(e) no later than the last Business day of each week, a
Borrowing Base Certificate, certified on behalf of Borrower by the chief
financial officer of Borrower, setting forth the Borrowing Base of Borrower as
at the end of the previous week or as at such other date as Lender may
reasonably require;
(f) promptly upon the request of Lender, a report of an
independent collateral auditor satisfactory to Lender with respect to Accounts,
indicating whether or not the information set forth in the Borrowing Base
Certificate most recently delivered is accurate and complete in all material
respects; provided, however, that, so long as no Default has occurred and is
continuing, Borrower shall only be obligated to pay the expenses of the
preparation of two such collateral reports in any fiscal year;
(g) as soon as available and in any event no later than the
last day of each fiscal year, a copy of the plan and budget (including a
projected balance sheet, income statement and cash flow statement) of Borrower
for the forthcoming fiscal year prepared in such detail as shall be reasonably
satisfactory to Lender.
(h) concurrently with the delivery of the projections
referred to in Section 6.02(g), a written supplement revising and supplementing
the Schedules hereto to the extent necessary to disclose new or changed facts
or circumstances after the Closing Date; provided, however, that delivery of
such subsequent disclosure shall not constitute a waiver by Lender or a cure of
any Default resulting in connection with the matters disclosed;
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<PAGE> 31
(i) promptly upon receipt thereof, copies of any reports
submitted by Borrower's certified public accountants in connection with each
annual, interim or special audit or review of any type of the financial
statements or internal control systems of Borrower made by such accountants,
including any comment letters submitted by such accountants to management of
Borrower in connection with their services; and
(j) promptly, such additional business, financial,
corporate and other information as Lender may from time to time reasonably
request.
6.03 Notices. Borrower shall promptly notify Lender of any of the
following, promptly and in no event later than three (3) Business Days after
Borrower's becoming aware thereof:
(a) the occurrence of any Default;
(b) any litigation, arbitration or governmental
investigation or proceeding not previously disclosed by Borrower to Lender
which has been instituted or, to the knowledge of Borrower, is threatened
against, Borrower or any Subsidiary of Borrower which, if adversely determined,
could reasonably be expected to have a Material Adverse Effect or which relates
to this Agreement or any other Loan Document;
(c) the occurrence of any other circumstances of which any
of the officers of Borrower has actual knowledge and which could reasonably be
expected to result in a Material Adverse Effect;
(d) any material adverse development which shall occur in
any litigation, arbitration or governmental investigation or proceeding
previously disclosed by Borrower to Lender;
(e) the receipt of any notice of any default or event of
default with respect to any Subordinated Indebtedness received from any holder
thereof;
(f) the institution of any steps by Borrower, any member of
its Controlled Group or any other Person to terminate any Plan, or the failure
to make any required contribution to any Plan if such termination could
reasonably be expected to have a Material Adverse Effect or if such failure is
sufficient to give rise to a Lien under section 302(f) of ERISA, or the taking
of any action with respect to a Plan which could reasonably be expected to
result in the requirement that Borrower or any member of its Controlled Group
furnish a bond or other security to the PBGC or such Plan, or the occurrence of
any event with respect to any Plan which could reasonably be expected to have a
Material Adverse effect or any increase in the contingent liability of Borrower
or any member of its Controlled Group with respect to any post-retirement Plan
benefit which could reasonably be expected to have a Material Adverse Effect;
(g) any assessment of withdrawal liability made against
Borrower or any member of its Controlled Group by any Multiemployer Plan;
(h) any ERISA Event which could reasonably be expected to
result in a Material Adverse Effect;
(i) any Material Adverse Effect subsequent to the date of
the most recent audited financial statement delivered to Lender pursuant to
this Agreement; and
(j) any material change in accounting policies or financial
reporting practices by Borrower or any of Borrower's Subsidiaries, including
changes required by GAAP.
Each notice pursuant to this Section 6.03 shall be accompanied by a written
statement by the chief executive officer of Borrower setting forth details of
the occurrence referred to therein and stating what action Borrower proposes to
take with respect thereto.
6.04 Maintenance of Existence. Borrower shall, and shall cause each of
its Subsidiaries to, maintain and preserve, its respective existence as a
corporation and all rights, privileges, licenses and franchises necessary in
the normal conduct
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of its business except in connection with transaction permitted by Section 7.05
and sales of assets permitted by Section 7.04.
6.05 Taxes. Borrower shall, and shall cause each of its Subsidiaries
to, pay all tax liabilities, assessments and governmental charges or levies
upon it or its properties or assets, unless the same are being contested in
good faith by appropriate proceedings which stay the enforcement of any Lien,
and adequate reserves in accordance with GAAP are being maintained by Borrower
or such Subsidiary.
6.06 Maintenance of Property. Borrower shall, and shall cause each of
its Subsidiaries to, maintain and preserve all of its property which is used or
useful in its business in good working order and condition, ordinary wear and
tear excepted.
6.07 Insurance. Borrower shall, and shall cause each of its
Subsidiaries to, maintain with financially sound and reputable independent
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons, including workers'
compensation insurance, public liability and property and casualty insurance.
All property damage and casualty insurance shall name Lender a loss payee and
all liability insurance shall name Lender as additional insured. Upon request
of Lender, Borrower shall furnish Lender at reasonable intervals a certificate
of the chief executive officer of Borrower and, if requested by Lender, any
insurance broker of Borrower, setting forth the nature and extent of all
insurance maintained by Borrower and its Subsidiaries in accordance with this
Section 6.07.
6.08 Compliance with Laws. Borrower shall comply, and shall cause each
of its Subsidiaries to comply, with all Requirements of Law (including ,
without limitation, all Environmental Laws) except where the failure to so
comply could not reasonably be expected to have a Material Adverse Effect.
6.09 Performance of Obligations. Borrower shall, and shall cause each
of its Subsidiaries to, comply with the provisions of all contracts or
agreements to which it is a party or by which it is bound where the failure to
so comply could, individually or in the aggregate with all such other failures,
reasonably be expected to have a Material Adverse Effect.
6.10 Use of Proceeds. Borrower shall use the proceeds of the Loans
solely (a) to fund the repayment of Prior Indebtedness, and (b) for working
capital and other general corporate purposes.
6.11 Inspection. Borrower shall, and shall cause each of its
Subsidiaries to, maintain proper books of record and account reflecting all of
its business affairs and transactions in accordance with GAAP and permit
Lender, on reasonable notice and at reasonable times and intervals during
ordinary business hours, to visit all of its offices, discuss its financial
matters with officers of Borrower and its independent public accountants
(subject to any applicable code of professional responsibility to which such
accountants may be subject) and examine and make abstracts from any of its
books or other corporate records.
6.12 ERISA Compliance. Borrower shall, and shall cause each of its
Subsidiaries to, maintain and operate all Plans in compliance in all material
respects with the provisions of ERISA, the Code, all other applicable laws and
the respective requirements of the governing documents for such Plans.
6.13 Further Assurances. Promptly upon request by Lender, Borrower
shall, and shall cause each of its Subsidiaries to, take such additional
actions as Lender may reasonably require from time to time in order (a) to
carry out more effectively the purposes of this Agreement or any other Loan
Document, (b) to subject to the Liens created by any of the Collateral Document
any of the properties, rights or interests covered by any of the Collateral
Documents, and (c) to perfect and maintain the validity, effectiveness and
priority of any of the Collateral Documents and the Liens intended to be
created thereby.
6.14 Post Closing Deliveries. Within thirty (30) days after the
Closing Date, Borrower shall (a) deliver to Lender agreements executed by the
landlord of each of the premises leased by Borrower containing such consents
and waivers as may be required by Lender; (b) deliver to Lender the written
consent of Experian Information Solutions, Inc. (the
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<PAGE> 33
successor-in-interest to TRW Inc. under the Service Agreement) to the
Collateral Assignment of Contracts; and (c) establish the Operating Account.
ARTICLE 7
NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as Lender shall have any
Commitment hereunder, or any Loan or other Obligation shall remain unpaid or
unsatisfied, unless Lender shall waive compliance in writing:
7.01 Limitation on Liens. Neither Borrower nor any of its Subsidiaries
shall create, incur, assume or suffer to exist, any Lien upon any of its
properties or assets, whether now owned or hereafter acquired, other than the
following ("Permitted Liens"):
(a) Liens created pursuant to the Loan Documents;
(b) Any Lien existing on the Closing Date and set forth in
Schedule 7.01 securing Indebtedness outstanding on such date which is permitted
by Section 7.02(b);
(c) Liens for taxes, fees, assessments or other
governmental charges which are not delinquent or remain payable without
penalty, or to the extent that nonpayment thereof is permitted under Section
6.05; provided, however, that no notice of lien has been filed or recorded
under the Code;
(d) Statutory Liens of carriers, landlords, warehousemen,
mechanics, materialmen, repairmen or other similar Liens arising in the
ordinary course of business which are not overdue for a period of more than 30
days or which are being contested in good faith and by appropriate proceedings
which have the effect of preventing the forfeiture or sale of the property
subject thereto;
(e) Liens (other than any Lien imposed by ERISA) consisting
of pledges or deposits under worker's compensation unemployment insurance and
other social security legislation;
(f) Deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a similar
nature incurred in the ordinary course of business; provided, that all such
Liens in the aggregate, even if enforced, could not be reasonably expected to
have a Material Adverse Effect;
(g) Easements, rights-of-way, restrictions and other
similar encumbrances existing on the date hereof or hereafter incurred in the
ordinary course of business which, in the aggregate, are not material in
amount, and which do not in any case materially detract from the value of the
property subject thereto or interfere with the ordinary conduct of the business
of Borrower or any of its Subsidiaries;
(h) Purchase money security interests on any property
acquired or held by Borrower or its Subsidiaries in the ordinary course of
business securing Indebtedness incurred or assumed for the purpose of financing
all or any part of the cost of acquiring such property, which Indebtedness is
permitted under Section 7.02(b); provided, however, that (i) any such Lien
attaches to such property concurrently with or within twenty (20) days after
the acquisition thereof, (ii) such Lien attaches solely to the property so
acquired in such transaction, and (iii) the principal amount of the debt
secured thereby does not exceed 80% of the cost of such Property;
(i) Liens securing Capital Lease Obligations permitted under
Section 7.02(b).
7.02 Limitation on Indebtedness. Neither Borrower nor any of its
Subsidiaries shall create, incur, suffer to exist or otherwise become or remain
directly or indirectly liable with respect to, any Indebtedness, except:
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<PAGE> 34
(a) the Obligations;
(b) Indebtedness secured by Liens permitted under Section
7.01(h) and (i) in an aggregate amount outstanding at any time outstanding not
to exceed $745,000;
(c) the Subordinated Indebtedness; and
(d) unsecured Indebtedness to the Fund incurred in
connection with the Securities Purchase Agreement; provided, that such
Indebtedness is subordinated to payment of the Obligations to the written
satisfaction of Lender.
7.03 Loans and Investments. Borrower shall not purchase or acquire, or
permit any of its Subsidiaries to purchase or acquire, or make any commitment
therefor, any capital stock, equity interest or any obligations or other
securities of, or any interest in, any Person, or make or commit to acquire all
or substantially all of the assets of a Person, or of any business or division
of a Person, or make or commit to make any advance, loan, extension of credit
or capital contribution to or any other investment in, any Person including any
Affiliate, except for:
(a) investments in Cash Equivalents;
(b) extensions of credit in the nature of accounts
receivable or notes receivable arising from the sale or lease of goods or
services in the ordinary course of business; and
(c) loans and advances to employees of Borrower or any of
Borrower's Subsidiaries for moving, travel and other similar expenses in the
ordinary course of business not to exceed $50,000 in the aggregate at any time
outstanding.
7.04 Sale of Assets. Neither Borrower nor any of its Subsidiaries
shall sell, assign, transfer, lease, convey or otherwise dispose of any
property, whether now owned or hereafter acquired, or enter into any agreement
to do so except:
(a) sales of services, dispositions of inventory, or used,
worn-out or surplus equipment in the ordinary course of business;
(b) disposition of obsolete equipment to the extent that
such equipment is exchanged for credit against the purchase price of similar
replacement equipment or the proceeds of such disposition are reasonably and
promptly applied to the purchase price of such replacement equipment; and
(c) dispositions not otherwise permitted hereunder which
are made for fair market value and the mandatory prepayment in the amount of
the Net Proceeds of such disposition is made as provided in Section 2.05;
provided, that (i) at the time of any disposition, no Event of Default shall
exist or shall result from such disposition, (ii) the aggregate sales price
from such disposition is paid in cash, and (iii) the aggregate value of all
assets so sold by Borrower and its Subsidiaries shall not exceed $25,000 in any
fiscal year.
7.05 Mergers, Consolidations, Etc. Neither Borrower nor any of its
Subsidiaries shall enter into any merger or consolidate, or liquidate, wind-up
or dissolve or convey, transfer, lease or otherwise dispose (whether in one
transaction or in a series of transactions) all or substantially all of its
assets, except any Subsidiary of Borrower may merge with Borrower, provided
that Borrower shall be the continuing or surviving corporation, or with any one
or more Subsidiaries of Borrower, provided that if any transaction shall be
between a Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary
shall be the continuing or surviving corporation.
7.06 Restricted Payments. Neither Borrower nor any of its Subsidiaries
shall declare or make any dividend payment or other distribution of assets,
properties, cash, rights, obligations or securities on account of any shares of
any class of its capital stock, or purchase, redeem or otherwise acquire for
value any shares of its capital stock or any warrants, rights or options to
acquire such shares now or hereafter outstanding (including, without
limitation, the existing warrants held by the Preferred Stock Pledgor), except
that any Wholly-Owned Subsidiary of Borrower may declare and pay dividends to
Borrower or to any other Wholly-Owned Subsidiary of Borrower.
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<PAGE> 35
7.07 Management Fees; Transaction Fee. Neither Borrower nor any of its
Subsidiaries shall pay any management, consulting or similar fees to any
Affiliate of Borrower or to any officer, director or employee of Borrower or
any Subsidiary or any Affiliate of Borrower except for the management fee
("Management Fee") payable to Lincolnshire under the Management Agreement
including accrued fees payable thereunder in the amount of $125,000; provided,
however, that payment of the Management Fee shall be subject to the terms of
the Management Fee Subordination Agreement. Neither Borrower nor any of its
Subsidiaries shall pay any closing, transaction or similar fee to any Affiliate
of Borrower or to any officer, director or employee of Borrower or any
Subsidiary or Affiliate of Borrower except for the transaction fee (the
"Transaction Fee") payable to Lincolnshire in an amount not to exceed $300,000;
provided, however, that no portion of the Transaction Fee may be paid by
Borrower to Lincolnshire if at the time of payment thereof a Default has
occurred and is continuing or if the payment thereof would result in a Default.
7.08 Transactions with Affiliates. Neither Borrower nor any of its
Subsidiaries shall enter into any transaction with any Affiliate of Borrower or
of any such Subsidiary, except (a) as expressly permitted by this Agreement; or
(b) in the ordinary course of business and pursuant to the reasonable
requirements of the business of Borrower or such Subsidiary; and, in each case,
upon fair and reasonable terms no less favorable to Borrower or such Subsidiary
than would obtain in a comparable arms-length transaction with a Person not an
Affiliate of Borrower or such Subsidiary and which are disclosed in writing to
Lender.
7.09 Contingent Obligations. Neither Borrower nor any of its
Subsidiaries shall create, incur, assume or suffer to exist any Contingent
Obligations except for (a) endorsements for collection or deposit in the
ordinary course of business; and (b) Contingent Obligations existing on the
Closing Date and disclosed on Schedule 7.09 hereto.
7.10 ERISA. Neither Borrower nor any of its Subsidiaries shall:
(a) terminate any Plan subject to Title IV of ERISA so as
to result in any material liability to Borrower or any ERISA Affiliate;
(b) permit to exist any ERISA Event or any other event or
condition, which represents the risk of a material liability to any Borrower or
any ERISA Affiliate;
(c) make a complete or partial withdrawal (within the
meaning of ERISA Section 4201) from any Multiemployer Plan so as to result in
any material liability to Borrower or any ERISA Affiliate;
(d) enter into any new Plan or modify any existing Plan so
as to increase its obligations thereunder which could result in any material
liability to Borrower or any ERISA Affiliate; or
(e) permit the present value of all nonforfeitable accrued
benefits under any Plan materially to exceed the fair market value of Plan
assets allocable to such benefits, all determines as of the most recent
valuation date for each such Plan.
7.11 Change in Business. Neither Borrower nor any of its Subsidiaries
shall engage in any material line of business substantially different from that
carried on by it on the date hereof.
7.12 Accounting Changes. Neither Borrower nor any of its Subsidiaries
shall make any significant change in accounting treatment or reporting
practices except as required by GAAP, or change the fiscal year of Borrower or
any of its consolidated Subsidiaries.
7.13 Change in Structure. Except as permitted under Section 7.05,
neither Borrower nor any of its Subsidiaries shall make any changes in its
equity capital structure, or amend its certificate or articles of incorporation
or by-laws in any material respect.
7.14 Use of Proceeds. Borrower shall not use any portion of the Loan
proceeds, directly or indirectly, (a) to purchase or carry Margin Stock or
repay or otherwise refinance Indebtedness of Borrower or others incurred to
purchase or carry Margin Stock, or (b) otherwise in any manner which is in
contravention of any Requirement of Law.
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<PAGE> 36
7.15 Deposit Accounts. From and after the date of establishment of the
Operating Account, Borrower shall not, and shall not permit any Subsidiary to,
establish any deposit account with any bank or other financial institution
other than a bank or financial institution which has entered into a blocked
account agreement with Lender in form and substance acceptable to Lender;
provided however, that Borrower may establish and maintain payroll accounts at
one bank or other financial institution in each of California and Texas without
the requirement that such bank or financial institution enter into a blocked
account agreement with Lender.
7.16 Amendments. Borrower shall not amend, modify or waive any
provision of any of the Management Agreement, the Service Agreement, the
Securities Purchase Agreement or any document evidencing the Subordinated
Indebtedness.
ARTICLE 8
FINANCIAL COVENANTS
8.01 Minimum EBITDA.
(a) Borrower shall not permit EBITDA for the twelve month
period ending on the last day of any calendar quarter set forth below to be
less than the minimum amount set forth below opposite such fiscal quarter
ending date:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Minimum EBITDA
--------------------- --------------
<S> <C>
March 31, 1997 $2,800,000
June 30, 1997 $4,700,000
September 30, 1997 $7,000,000
December 31, 1997 and the last
day of each fiscal quarter
thereafter $8,000,000
</TABLE>
provided, however, that for the quarters ending on each of March 31, 1997 and
June 30, 1997, the computation of EBITDA shall be calculated on a year-to-date
basis commencing with September 30, 1996.
(b) Borrower shall not permit EBITDA for any fiscal quarter
of Borrower commencing with the fiscal quarter ended March 31, 1997 to be less
than $1,000,000.
8.02 Minimum Number of Subscribers. Borrower shall not permit the
number of Subscribers as determined as of any date set forth below to be less
than the minimum number set forth below for such date:
<TABLE>
<CAPTION>
Date Minimum Number
---- --------------
<S> <C>
March 31, 1997 925,000
June 30, 1997 950,000
September 30, 1997
and the last day of each
fiscal quarter thereafter 1,000,000
</TABLE>
8.03 Debt Service Ratio.
(a) Borrower shall not permit the Debt Service Ratio as
determined as of any date set forth below to be less than the minimum ratio set
forth below opposite such date:
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<PAGE> 37
<TABLE>
<CAPTION>
Twelve Month Ending Minimum Ratio
------------------- -------------
<S> <C>
March 31, 1997 1.40 to 1.00
June 30, 1997 1.50 to 1.00
September 30, 1997 1.60 to 1.00
December 31, 1997 and
the last day of each
fiscal quarter thereafter 1.75 to 1.00
</TABLE>
provided, however, that for the quarters ending on each of March 31, 1997 and
June 30, 1997, the computation of the Debt Service Ratio shall be calculated on
a year-to-date basis commencing with September 30, 1996.
(b) Borrower shall not permit the Debt Service Ratio as
determined as of the last day of each fiscal quarter for the fiscal quarter
ending on such day to be less than 1.20 to 1.00.
8.04 Deferred Revenue to Deferred Expense Ratio. Borrower shall not
permit the ratio of (a) deferred revenue, as determined in accordance with
GAAP, to (b) deferred expenses, as determined in accordance with GAAP, to be
less than 1.0 to 1.0 at any time.
8.05 Capital Expenditures. Borrower shall not expend, or commit to
expend, for Capital Expenditures during any one fiscal year on a non-cumulative
basis in excess of (a) $1,650,000 for the fiscal year ending September 30,
1997; and (b) $150,000 for each fiscal year thereafter.
ARTICLE 9
EVENTS OF DEFAULT
9.01 Event of Default. Each of the following occurrences shall
constitute an Event of Default hereunder:
(a) Non-Payment. Borrower shall (i) fail to pay when due
any of the Obligations consisting of principal with respect to the Loans or
(ii) shall fail to pay within five (5) days of the date when due any of the
other Obligations under this Agreement or the Other Loan Documents; or
(b) Specific Covenant Defaults. Borrower shall fail to
perform or observe any term, covenant or agreement contained in Sections 6.01,
6.02, 6.03, 6.10 or 6.11, Article 7 or Article 8; or
(c) Other Covenant Defaults. Borrower shall fail to perform
or observe any other term or covenant contained in this Agreement or any Loan
Document not otherwise constituting an Event of Default under this Article 9
and such default shall continue unremedied for a period of fifteen (15) days
after the earlier of (i) the date upon which any officer of Borrower had actual
knowledge of such failure or (ii) the date upon which written notice thereof is
given to Borrower by Lender; or
(d) Representations and Warranties. Any representation or
warranty by Borrower or any of Borrower's Subsidiaries made or deemed made
herein, in any other Loan Document or which is contained in any certificate,
document or financial or other statement furnished at any time under this
Agreement or in or under any other Loan Document shall prove to have been
incorrect in any material respect on or as of the date made or deemed made; or
(e) Cross-Default. Borrower or any Subsidiary of Borrower
(i) fails to make any payment in respect of any Indebtedness or Contingent
Obligation having an aggregate principal amount of more than $250,000 when due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) and such failure continues after the applicable grace or notice
period, if any, or (ii) fails to perform or observe any other condition or
covenant, or any other event shall occur or condition exist, under any
agreement or instrument relating to any such Indebtedness or Contingent
Obligation, if the effect of such failure event or condition is to cause, or to
permit the holder of such Indebtedness or
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<PAGE> 38
beneficiary of such Contingent Obligation to cause such Indebtedness to be
declared to be due and payable prior to its stated or such Contingent
Obligation to become payable or cash collateral in respect thereof to be
demanded; or
(f) Insolvency; Voluntary Proceedings. Borrower or any of
Borrower's Subsidiaries (i) ceases or fails to be Solvent or admits in writing
its inability to pay, its debts as they become due, subject to applicable grace
period, if any, whether at stated maturity or otherwise; (ii) voluntarily
ceases to conduct its business in the ordinary course; (iii) commences any
Insolvency Proceeding with respect to itself; or (iv) takes any action to
effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency
Proceeding is commenced or filed against Borrower or any Subsidiary of
Borrower, or any writ, judgment, warrant of attachment, execution or similar
process, is issued or levied against a substantial part of Borrower's or any
Subsidiary's properties, and any such proceeding or petition shall not be
dismissed, or such writ, judgment, warrant or attachment, execution or similar
process shall not be released, vacated or fully bonded within forty five (45)
days after commencement, filing or levy; (iii) Borrower or any Subsidiary of
Borrower admits the material allegations of a petition against it in any
Insolvency Proceeding or an order for relief is ordered in any Insolvency
Proceeding; or (iii) Borrower or any Subsidiary of Borrower acquiesces in the
appointment of a receiver, trustee, custodian, conservator, liquidator,
mortgagee in possession or other similar Person for itself or a substantial
portion of its property or business; or
(h) ERISA. Any Termination Event occurs which Lender
believes is reasonably likely to subject Borrower to liability in excess of
$250,000; or
(i) Change of Control. A Change of Control shall occur; or
(j) Judgments. One or more judgments, non-interlocutory
orders or decrees shall be entered against Borrower or any of Subsidiary of
Borrower involving in the aggregate a liability as to any single or related
series of transactions or conditions of $200,000 or more and the same shall
remain unsatisfied, unvacated and unstayed pending appeal for a period of
thirty (30) days after the entry thereof; or
(k) Collateral. Any provision of any Collateral Document
shall for any reason cease to be valid and binding on or enforceable against
Borrower or any Subsidiary of Borrower or Borrower or any Subsidiary of
Borrower shall so state in writing or bring an action to limit its obligations
or liabilities thereunder; or any Collateral Document shall for any reason
(other than pursuant to the terms thereof) cease to create a valid security
interest in the Collateral purported to be covered thereby or such security
interest shall for any reason cease to be a perfected and first priority
security interest subject only to Permitted Liens; or
(l) Failure of Subordination. The Subordination Agreements
shall at any time be invalidated or otherwise cease to be in full force and
effect; or.
(m) Audit Qualification. The auditor's report on the
audited financial statement delivered pursuant to Section 6.01(a) shall include
any material qualification (including with respect to the scope of audit) or
exception; or
(n) Pledgor Default. Either Pledgor shall fail in any
material respect to perform or observe any term, covenant or agreement in its
respective Pledge Agreement, or either Pledge Agreement shall for any reason be
revoked or invalidated or otherwise cease to be in full force and effect or
either Pledgor shall contest in any manner the validity or enforceability of
its Pledge Agreement or deny that it has any further liability or obligation
thereunder; or
(o) Service Agreement. The Service Agreement shall
terminate by its terms or otherwise or shall cease to be in full force and
effect, for whatever reason.
9.02 Remedies. If any Event of Default shall occur, Lender may(a)
declare the Commitment of Lender to make Loans to be terminated, whereupon such
Commitment shall forthwith be terminated; (b) declare the Obligations to be
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived by Borrower; and (c)
exercise all rights and remedies available to it under the Loan Documents or
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<PAGE> 39
applicable law; provided, however, that upon the occurrence of any Event of
Default specified in Section 9.01(f) and (g) above, the obligation of Lender to
make Loans shall automatically terminate and all Obligations shall
automatically become due and payable without further act of Lender.
9.03 Rights Not Exclusive. The rights provided for in this Agreement
and the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE 10
MISCELLANEOUS
10.01 Amendments and Waivers. No amendment or wavier of any provision
of this Agreement or any other Loan Document shall be effective unless the same
shall be in writing and signed by Lender and Borrower, and then such waiver
shall be effective only in the specific instance and for the specific purpose
for which given.
10.02 Notices.
(a) All notices, requests and other communications provided
for hereunder shall be in writing (including, by facsimile transmission) and
mailed by certified or registered mail, telecopied or delivered by personal or
overnight delivery, to the address or facsimile number specified for notices on
the signature page hereto, or to such other address or facsimile number as
shall be designated by any party in a written notice to the other party given
in compliance herewith.
(b) All such notices, requests and communications shall be
effective (i) if delivered in person, when delivered, (ii) if delivered by
facsimile, on the date of transmission if transmitted by 4:00 p.m. Chicago time
on such date, or otherwise on the next Business Day, (iii) if delivered by
overnight courier, one (1) Business Day after delivery to the courier properly
addressed and (iv) if mailed, upon the third Business day after the date
deposited in the U.S. Mail, certified or registered, except that notices
pursuant to Section 1 of Article 9 shall not be effective until actually
received by Lender.
(c) Borrower agrees that any agreement of Lender in Section
1 hereof to receive certain notices by telephone and facsimile is solely for
the convenience and at the request of Borrower. Lender shall be entitled to
rely on the authority of any Person purporting to be a Person authorized by
Borrower to give such notice and Lender shall not have any liability to
Borrower or other Person on account of any action taken or not taken by Lender
in reliance upon such telephonic or facsimile notice. The obligation of
Borrower to repay the Obligations shall not be affected in any way or to any
extent by any failure by Lender to receive written confirmation of any
telephonic or facsimile notice or the receipt by Lender of a confirmation which
is at variance with the terms understood by Lender to be contained in the
telephonic or facsimile notice.
10.03 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of Lender, any right, remedy, power or
privilege hereunder, shall operate as a wavier thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude
any other or further exercise thereof of the exercise of any other right,
remedy, power or privilege.
10.04 Expenses. Borrower shall reimburse Lender for all costs,
internal charges and out-of-pocket expenses, including reasonable attorneys'
and paralegal' fees, paid or incurred by Lender in connection with the
preparation, negotiation, execution, delivery, syndication, renewal, amendment
or modification of the Loan Documents or in connection with the collection of
the Obligation and enforcement of the Loan Documents or in connection with the
administration of the Loan Documents resulting from any request made by
Borrower or the existence of a Default. Borrower further agrees to reimburse
Lender for each audit, collateral analysis or other business analysis performed
by or for the benefit of Lender in connection with this Agreement or the other
Loan Documents (including the allocated cost of such internal services), search
and filing costs, fees and expenses, incurred by Lender in connection with the
matters referred to in this Section 10.04.
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<PAGE> 40
10.05 Indemnity. Borrower shall indemnify, defend and hold harmless
Lender and its officer, directors, employees, counsel, agents and
attorneys-in-fact (each an "Indemnified Person") from and against any and all
liabilities, obligation, losses, damages, penalties, actions, judgments, suits,
costs, charges, expenses or disbursement, including attorneys' and paralegal'
fees, of any kind or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of this Agreement and other Loan
Documents, or the transactions contemplated hereby and thereby, and with
respect to any investigation, litigation or proceeding (including any
Insolvency Proceeding) relating to this Agreement or the Loan or the use of the
proceeds thereof, whether or not any Indemnified Person is a party thereof;
provided, however, that Borrower shall have no obligation hereunder to any
Indemnified Person with respect to any liabilities arising from the gross
negligence or willful misconduct of such indemnified Person. The obligations of
this Section 10.05 shall survive payment of the Obligations. At the election of
any Indemnified Person, Borrower shall defend such Indemnified Person using
legal counsel satisfactory to such Indemnified Person in such Person's sole
discretion, at the sole cost and expense of Borrower. All amounts owing under
this Section 10.05 shall be paid within thirty (30) days after demand.
10.06 Marshaling; Payments Set Aside. Lender shall be under no
obligation to marshal any assets in favor of Borrower or any other Person or
against or in payment of any or all of the Obligations. To the extent that
Borrower makes a payment or payments to Lender, or Lender enforces its Liens or
exercise its rights of set off, and such payment or payments or the proceeds of
such enforcement or set off or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid
to a trustee, receiver or any other party in connection with any Insolvency
proceeding, or otherwise, then to the extent of such recovery the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or set off had not occurred.
10.07 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that Borrower may not
assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of Lender.
10.08 Assignments and Participations. Lender shall have the right to
assign any or all of Lender's rights and obligations under this Agreement.
Lender may sell participations to one or more other financial institutions in
or to all or a portion of its rights and obligations hereunder and in respect
of any or all facilities under this Agreement.
10.09 Set Off. In addition to any rights and remedies now or hereafter
granted under applicable law, upon the occurrence and during the continuance of
any Event of Default, Lender is authorized by Borrower at any time and from
time to time to set off and to appropriate and to apply any and all balances
held by Lender at any of its offices for the account of Borrower or any of its
Subsidiaries and all other property at any time held or owing by Lender to or
for the credit or for the account of Borrower or any of its Subsidiaries
against and on account of any and all Obligations which are not paid when due.
10.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed original and all of which together
shall constitute one and the same instrument.
10.11 Severability. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
10.12 No Third Party Beneficiaries. This Agreement is entered into
for the sole protection and legal benefit of Borrower and Lender, and their
permitted successors and assigns, and no other Person shall be a direct or
indirect legal beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any of the other Loan Documents.
Lender shall have no obligation to any Person not a party to this Agreement or
the other Loan Documents.
10.13 Governing Law and Jurisdiction.
(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS.
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<PAGE> 41
(b) BORROWER HEREBY IRREVOCABLY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT
SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
ANY LOAN DOCUMENTS AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND
IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE
OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH
COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF LENDER
TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
ANY JUDICIAL PROCEEDING BY BORROWER AGAINST LENDER OR ANY AFFILIATE THEREOF
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A
COURT IN CHICAGO, ILLINOIS.
(c) BORROWER DESIGNATES AND APPOINTS CT CORPORATION SYSTEM
AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY BORROWER WHICH
IRREVOCABLY AGREE IN WRITING TO SO SERVE AS ITS AGENT TO RECEIVE ON ITS BEHALF
SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE
BEING HEREBY ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE AND BINDING SERVICE IN
EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY
REGISTERED MAIL TO BORROWER AT ITS ADDRESS PROVIDED IN SECTION 10.02 EXCEPT
THAT, UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH
COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT
APPOINTED BY BORROWER REFUSES TO ACCEPT SERVICE, BORROWER HEREBY AGREES THAT
SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN
SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
10.14 Waiver of Jury Trial. BORROWER AND LENDER EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR OTHERWISE.
BORROWER AND LENDER EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY WAIVED BY
OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY
OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR
THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THE AGREEMENT AND THE OTHER LOAN DOCUMENTS.
10.16 Entire Agreement. This Agreement, together with the other Loan
Documents, sets forth the entire agreement and understanding between Borrower
and Lender and supersedes all prior or contemporaneous agreements and
understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof. The execution of this Agreement by Borrower shall
constitute a full, complete and irrevocable release of any and all claims which
Borrower may
-36-
<PAGE> 42
have at law or in equity in respect of all prior discussions and
understandings, verbal or written, relating to the subject matter of this
Agreement and the other Loan Documents.
* * * * *
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
CREDENTIALS SERVICES INTERNATIONAL, INC.
By: /s/ Vineet Pruthi
-------------------------------------------
Title: ___________________________
c/o Lincolnshire Management, Inc.
780 Third Avenue
New York, New York 10017
Facsimile No.: (212) 755-5457
Telephone No.: (212) 319-3633
Attention: President
LASALLE NATIONAL BANK
By: /s/ Andrew Kanfer
--------------------------------------------
Title: Loan Officer
135 South LaSalle Street
Chicago, Illinois 60603
Facsimile No: (312) 904-4605
Telephone No.: (312) 904-2771
Attention: Andrew Kanfer
-37-
<PAGE> 43
EXHIBIT A
BORROWING BASE CERTIFICATE
CREDENTIALS SERVICES INTERNATIONAL, INC.
Number: ____________ Date: ____________
<TABLE>
<S> <C> <C> <C> <C>
1. Face amount of outstanding Accounts as of __________ $ __________
2. Less: (A) Accounts over 60 days $ __________
(B) Reserves (per attached __________
schedule)
(C) Other __________
TOTAL INELIGIBLE ACCOUNTS
3. Net Accounts (Line 1 minus Line 2) $ __________
4. 85% of Line 3 - Total Availability of Revolving Loans $ __________
5. Maximum Borrowing Limit (Lesser of Line 4 or $2,500,000) $ __________
6. Revolving Loans Outstanding $ __________
7. Collateral Excess or Shortage (Line 5 minus Line 6) $ __________
</TABLE>
Borrower hereby certifies, through its officer indicated below, that
the information set forth above is accurate as of ____________________,
199_, to the best of such officer's knowledge after diligent inquiry.
CREDENTIALS SERVICES INTERNATIONAL, INC.
By: ________________________________
Name: _____________________________
Title: ____________________________
<PAGE> 44
EXHIBIT B
FORM OF NOTICE OF BORROWING
_____________, 199_
LaSalle National Bank
135 South LaSalle Street
Chicago, IL 60603
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of
December_ , 1996 (the "Credit Agreement") between Credentials Services
International, Inc. ("Borrower") and LaSalle National Bank ("Lender").
Capitalized terms used herein but not otherwise defined herein have the same
meanings as in the Credit Agreement.
Pursuant to Section 2.09 of the Credit Agreement, Borrower hereby
notifies Lender that on ________________, 199_, Borrower desires to borrow an
aggregate principal amount of $________of the Revolving Loan.
The disbursement of the portion of the Revolving Loan hereby requested
shall be a (check applicable blanks):
____ Base Rate Loan; or
____ Eurodollar Rate Loan having an Interest Period of
____ one month
____ two months
____ three months
____ six months
Borrower acknowledges that this Notice of Borrowing and acceptance by
Borrower of the proceeds of the Revolving Loan contemplated hereby constitute a
representation and warranty by Borrower that the conditions set forth in
Section 4.02 of the Credit Agreement have been satisfied or waived by Lender in
writing.
Very truly yours,
CREDENTIAL SERVICES INTERNATIONAL, INC.
By: ___________________________________
Title: ________________________________
<PAGE> 45
EXHIBIT C
NOTICE OF CONVERSION/CONTINUATION
LaSalle National Bank
120 South LaSalle Street
Chicago, IL 60606
Ladies and Gentlemen:
This Notice of Continuation/Conversion is delivered to you pursuant to Section
2.10 of the Credit Agreement dated as of January ___ , 1997 (the "Credit
Agreement") between Credentials Services International, Inc. ("Borrower") and
LaSalle National Bank ("Lender"). Capitalized terms used herein but not
otherwise defined herein have the same meanings as in the Credit Agreement.
Borrower hereby requests that on ______________, 19__:
(a) $____________________ of the currently outstanding principal
amount of [Term] [Revolving] Loans originally made to Borrower on _____________,
19__,
(b) which is currently being maintained as [Base Rate Loans]
[Eurodollar Rate Loans],
(c) be [converted into] [continued as],
(d) [Eurodollar Rate Loans having an Interest Period of
months] [Base Rate Loans].
Borrower hereby represents and warrants that, both before and after giving
effect to the conversion or continuation requested above, the conditions in
Section. 4.02. of the Credit Agreement have been satisfied or waived by Lender
in writing.
Very truly yours,
CREDENTIALS SERVICES INTERNATIONAL, INC.
By:
Title:
<PAGE> 46
EXHIBIT D
REVOLVING NOTE
$2,500,000 January __, 1997
Chicago, Illinois
FOR VALUE RECEIVED, the undersigned, CREDENTIALS SERVICES INTERNATIONAL, INC.,
a Delaware corporation ("Borrower"), hereby unconditionally promises to pay to
the order of LASALLE NATIONAL BANK ("Lender"), at Lender's office at 135 South
LaSalle Street, Chicago, IL 60603, or at such other place as Lender may from
time to time designate in writing, the principal sum of TWO MILLION FIVE
HUNDRED THOUSAND AND NO/100 DOLLARS ($2,500,000), or, if less, the aggregate
unpaid principal amount of all advances made pursuant to Section 2.02 of the
Credit Agreement (as defined below), at such times as are specified in, and in
accordance with the provisions of, the Credit Agreement. This Revolving Note is
referred to in and was executed and delivered pursuant to that certain Credit
Agreement of even date herewith (as amended, restated or otherwise modified
from time to time, the "Credit Agreement") between Borrower and Lender, to
which reference is hereby made for a statement of the terms and conditions
under which the Revolving Loans evidenced hereby were made and are to be
repaid. Capitalized terms used herein and not otherwise defined herein are as
defined in the Credit Agreement. This Revolving Note is secured by the
Collateral.
Borrower further promises to pay interest on the outstanding unpaid principal
amount from the date of such Revolving Loans until paid in full at the
applicable rate or rates specified in Section 2.11(a) of the Credit Agreement;
provided, however, at the election of Lender, following the occurrence and
during the continuance of any Event of Default, Borrower promises to pay to
Lender interest on the unpaid principal amount hereof at the applicable rate or
rates specified in Section 2.11(c) of the Credit Agreement. Interest shall be
payable in arrears on the dates specified in Section 2.1 l(b) of the Credit
Agreement. Interest shall be computed on the basis of a 360 day year for the
actual number of days elapsed in the period during which it accrues.
At the time of each Revolving Loan, and upon each payment or prepayment of
principal of each Revolving Loan, Lender shall make a notation either on the
schedule attached hereto and made a part hereof or in Lender's own books and
records; provided, however, that the failure of Lender to make such recordation
or notation shall not affect the Obligations of Borrower hereunder or under the
Credit Agreement.
Demand, presentment, protest and notice of nonpayment and protest are hereby
waived by Borrower.
THIS REVOLVING NOTE HAS BEEN DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE
AT CHICAGO, ILLINOIS AND SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES
OF BORROWER AND LENDER HEREUNDER, SHALL BE DETERMINED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF ILLINOIS. Whenever possible each provision of
this Revolving Note shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Revolving Note shall
be prohibited by or invalid under applicable 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 Revolving Note. Whenever in this Revolving Note reference is made to
Lender or Borrower, such reference shall be deemed to include, as applicable, a
reference to their respective successors and assigns. The provisions of this
Revolving Note shall be binding upon and
<PAGE> 47
shall inure to the benefit of such successors and assigns. Borrower's
successors and assigns shall include, without limitation, a receiver, trustee
or debtor in possession of or for Borrower.
IN WITNESS WHEREOF, the undersigned has executed this Revolving Note as of the
date first written above.
CREDENTIALS SERVICES INTERNATIONAL, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
-2-
<PAGE> 48
EXHIBIT E
TERM NOTE
$8,500,000 January __, 1997
Chicago, Illinois
FOR VALUE RECEIVED, the undersigned, CREDENTIALS SERVICES INTERNATIONAL, INC.,
a Delaware corporation ("Borrower"), hereby unconditionally promises to pay to
the order of LASALLE NATIONAL BANK ("Lender"), at Lender's office at 135 South
LaSalle Street, Chicago, IL 60603, or at such other place as Lender may from
time to time designate in writing, the principal sum of EIGHT MILLION FIVE
HUNDRED THOUSAND AND NO/100 DOLLARS ($8,500,000). This Term Note is referred to
in and was executed and delivered pursuant to that certain Credit Agreement of
even date herewith (as amended, restated or otherwise modified from time to
time, the "Credit Agreement") between Borrower and Lender, to which reference
is hereby made for a statement of the terms and conditions under which the Term
Loan evidenced hereby was made and is to be repaid. Capitalized terms used
herein but not otherwise defined herein are as defined in the Credit Agreement.
This Term Note is secured by the Collateral.
Unless otherwise required to be paid sooner pursuant to the provisions of the
Credit Agreement, the principal indebtedness evidenced hereby shall be payable
in eleven (11) consecutive installments in the amounts and at the times
specified in Section 2.01(b) of the Credit Agreement payable on the last day of
each calendar quarter commencing on March 31, 1997 and continuing thereafter
until September 30, 1999.
Borrower further promises to pay interest on the outstanding unpaid principal
amount hereof from the date hereof until paid in full at the applicable rate or
rates specified in Section 2.11(a) of the Credit Agreement; provided, however,
at the election of Lender, following the occurrence and during the continuance
of any Event of Default, Borrower promises to pay to Lender interest on the
unpaid principal amount hereof at the applicable rate or rates specified in
Section 2.11(c) of the Credit Agreement. Interest shall be payable in arrears
on the dates specified in Section 2.11 l(b) of the Credit Agreement. Interest
shall be computed on the basis of a 360 day year for the actual number of days
elapsed in the period during which it accrues.
At the time of each payment or prepayment of principal of the Term Loan, Lender
shall make a notation either on the schedule attached hereto and made a part
hereof or in Lender's own books and records; provided, however, that the
failure of Lender to make such recordation or notation shall not affect the
Obligations of Borrower hereunder or under the Credit Agreement.
Demand, presentment, protest and notice of nonpayment and protest are hereby
waived by Borrower.
THIS TERM NOTE HAS BEEN DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE AT
CHICAGO, ILLINOIS AND SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF
BORROWER AND LENDER HEREUNDER, SHALL BE DETERMINED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF ILLINOIS. Whenever possible each provision of
this Term Note shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Term Note shall be
prohibited by or invalid under applicable 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 Term Note. Whenever in this Term Note reference is made to Lender or
Borrower, such reference shall be deemed to include, as applicable, a reference
to their respective successors and assigns. The provisions of this Term Note
shall be binding upon and shall inure to the benefit of such
<PAGE> 49
successors and assigns. Borrower's successors and assigns shall include,
without limitation, a receiver, trustee or debtor in possession of or for
Borrower.
IN WITNESS WHEREOF, the undersigned has executed this Term Note as of the date
first written above.
CREDENTIALS SERVICES INTERNATIONAL, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
-2-
<PAGE> 50
EXHIBIT F
FINANCIAL CONDITION CERTIFICATE
The undersigned, ____________________________, does hereby certify on behalf of
Credential Services International, Inc., a Delaware corporation ("Borrower"),
that he is the duly elected and acting Chief Financial Officer of Borrower.
This Certificate is executed and delivered pursuant to the Credit Agreement
dated the date hereof (the "Credit Agreement") between Borrower and LaSalle
National Bank ("Lender"). All capitalized terms used and not defined in this
Certificate have the same meanings as in the Credit Agreement.
In his capacity as Chief Financial Officer of Borrower, the undersigned does
hereby certify on behalf of Borrower that, as of the date hereof and
immediately after giving effect to the transactions contemplated by the Credit
Agreement, Borrower: (a) owns and will own assets the fair value of which is
greater than the amount of Borrower's liabilities and is not less than the
amount that would be required to pay the probable liability of Borrower on its
debts as they become absolute and matured; (b) is able to realize upon its
property and pay its debts and other liabilities as they mature in the normal
course of business; (c) does not intend to and does not believe that it will
incur debts or liabilities beyond Borrower's ability to pay as such debts and
liabilities mature; and (d) is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which Borrower's property
would constitute unreasonably small capital.
Attached hereto as Exhibit A are pro forma financial statements and projections
which support the conclusions set forth above.
Dated: January __, 1997
CREDENTIALS SERVICES INTERNATIONAL, INC.
By:_____________________________________
Name:___________________________________
Title:Chief Financial Officer
<PAGE> 51
EXHIBIT A
PRO FORMA BALANCE SHEETS AND PROJECTIONS
<PAGE> 52
EXHIBIT G
COMPLIANCE CERTIFICATE
Pursuant to Section 6.02(b) of the Credit Agreement (the "Credit Agreement"),
dated as of December 31, 1996 between Credentials Services International, Inc.,
a Delaware corporation ("Borrower"), and LaSalle National Bank ("Lender"),
Borrower, through its chief financial officer, hereby delivers to Lender this
Certificate on behalf of Borrower. All capitalized terms used herein but not
otherwise defined herein shall have the meanings set forth in the Credit
Agreement.
This Certificate is delivered for the accounting period from ______________
199_ to ____________ , 199_.
A. MANDATORY PREPAYMENTS
1. Section 2.05(a)
(a) State whether Borrower or any Subsidiary of Borrower received
Net Proceeds or Net Issuance Proceeds Yes/No
(b) If the answer is yes, state on a schedule attached to this
Certificate the date of and the nature of the transaction
giving rise to Net Cash Proceeds, the aggregate amount of the
Net Cash Proceeds and the amount, if required, of any
mandatory prepayment.
2. Section 2.05(b)
Borrower's calculation of Excess Cash Flow for the fiscal year ended
September 30, 19_ is as follows:
EBITDA $ _______________
- - Capital Expenditures (excluding Capital Expenditures financed with
Indebtedness other than Revolving Loans and excluding the amount of
capital Expenditures attributable to Capital Leases other than the
portion thereof actually paid in cash) $ _______________
- - Scheduled amortization of the principal portion of Indebtedness $
_______________
- - Income taxes actually paid in cash $ _______________
- - Interest Expense (including the interest component of Capital leases
but excluding the amortization of discount and other interest not
payable in cash) $ _______________
- - Net Proceeds and Net Issuance Proceeds applied as a mandatory
prepayment of the Loans in accordance with Section 2.05 $___________
- - Increase in the excess of current assets (excluding cash and cash
equivalents) over current liabilities (excluding the outstanding
amount of the revolving Loans and the current portion of long-term
Indebtedness and all accrued interest) $ _______________
- - Decrease in the excess of current assets (excluding cash and cash
equivalents) over current liabilities (excluding the outstanding
amount of the Revolving Loans and the current portion of long-term
Indebtedness and all accrued interest) $ _______________
+ Reductions in long-term liabilities $ _______________
<PAGE> 53
- - Increases in long-term liabilities $ _______________
- - Special 1997 Non-Recurring Charges $ _______________
- - Management Fees paid pursuant to and in accordance with Section 7.07
$ _______________
B. FINANCIAL COVENANTS
1. MINIMUM EBITDA (Section 8.01)
EBITDA as of the fiscal quarter ended ___________ $ _______________
2. MINIMUM NUMBER OF SUBSCRIBERS (Section 8.02)
The number of Subscribers as of the fiscal quarter ended ___________ $
_______________
3. DEBT SERVICE RATION (Section 8.03)
The ratio of (i) EBITDA - Capital Expenditures - taxes paid in cash to
(ii) Interest Expense + scheduled payments of Term Loan
______________ to 1.0
4. DEFERRED REVENUES TO DEFERRED EXPENSES RATIO (Section 8.04)
The ratio of deferred revenues to deferred expenses
____________ to 1.0
5. CAPITAL EXPENDITURES (Section 8.05)
(a) State whether any Capital Expenditures have been made or
incurred during the period from September 30, 199_ to
_________________ Yes/No
(b) If the answer is yes, list such Capital Expenditures on a
schedule attached to this Certificate.
The undersigned chief financial officer hereby certifies, on behalf of
Borrower, that he has obtained no knowledge of any Default except as
specifically described on a schedule attached to this Certificate.
CREDENTIALS SERVICES INTERNATIONAL, INC.
By:_____________________________________
Chief Financial Officer
<PAGE> 1
Exhibit 10.12 (ii)
REVOLVING NOTE
January 14, 1997
Chicago, Illinois
$2,500,000
FOR VALUE RECEIVED, the undersigned, CREDENTIALS SERVICES
INTERNATIONAL, INC., a Delaware corporation ("Borrower"), hereby
unconditionally promises to pay to the order of LASALLE NATIONAL BANK
("Lender"), at Lender's office at 135 South LaSalle Street, Chicago, IL 60603,
or at such other place as Lender may from time to time designate in writing,
the principal sum of TWO MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($2,500,000), or, if less, the aggregate unpaid principal amount of all
advances made pursuant to Section 2.02 of the Credit Agreement (as defined
below), at such times as are specified in, and in accordance with the
provisions of, the Credit Agreement. This Revolving Note is referred to in and
was executed and delivered pursuant to that certain Credit Agreement of even
date herewith (as amended, restated or otherwise modified from time to time,
the "Credit Agreement") between Borrower and Lender, to which reference is
hereby made for a statement of the terms and conditions under which the
Revolving Loans evidenced hereby were made and are to be repaid. Capitalized
terms used herein and not otherwise defined herein are as defined in the Credit
Agreement. This Revolving Note is secured by the Collateral.
Borrower further promises to pay interest on the outstanding unpaid principal
amount from the date of such Revolving Loans until paid in full at the
applicable rate or rates specified in Section 2.11(a) of the Credit Agreement;
provided, however, at the election of Lender, following the occurrence and
during the continuance of any Event of Default, Borrower promises to pay to
Lender interest on the unpaid principal amount hereof at the applicable rate or
rates specified in Section 2.11(c) of the Credit Agreement. Interest shall be
payable in arrears on the dates specified in Section 2.11(b) of the Credit
Agreement. Interest shall be computed on the basis of a 360 day year for the
actual number of days elapsed in the period during which it accrues.
At the time of each Revolving Loan, and upon each payment or
prepayment of principal of each Revolving Loan, Lender shall make a notation
either on the schedule attached hereto and made a part hereof or in Lender's
own books and records; provided, however, that the failure of Lender to make
such recordation or notation shall not affect the Obligations of Borrower
hereunder or under the Credit Agreement.
Demand, presentment, protest and notice of nonpayment and protest are
hereby waived by Borrower.
THIS REVOLVING NOTE HAS BEEN DELIVERED AT AND SHALL BE DEEMED TO HAVE
BEEN MADE AT CHICAGO, ILLINOIS AND SHALL BE INTERPRETED, AND THE RIGHTS AND
LIABILITIES OF BORROWER AND LENDER HEREUNDER, SHALL BE DETERMINED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS. Whenever possible each
provision of this Revolving Note shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this
Revolving Note shall be prohibited by or invalid under applicable 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 Revolving Note. Whenever in this Revolving Note reference is
made to Lender or Borrower, such reference shall be deemed to include, as
applicable, a reference to their respective successors and assigns. The
provisions of this Revolving Note shall be binding upon and shall inure to the
benefit of such successors and assigns. Borrower's successors and assigns shall
include, without limitation, a receiver, trustee or debtor in possession of or
for Borrower.
IN WITNESS WHEREOF, the undersigned has executed this Revolving Note
as of the date first written above.
CREDENTIALS SERVICES INTERNATIONAL, INC.
By: /s/ Vineet Pruthi
--------------------------------------
Name: Vineet Pruthi
Title: Chief Financial Officer
<PAGE> 1
Exhibit 10.12 (iii)
TERM NOTE
January 14, 1997
Chicago, Illinois
$8,500,000
FOR VALUE RECEIVED, the undersigned, CREDENTIALS SERVICES
INTERNATIONAL, INC., a Delaware corporation ("Borrower"), hereby unconditionally
promises to pay to the order of LASALLE NATIONAL BANK ("Lender"), at Lender's
office at 136 South LaSalle Street, Chicago, IL 60603, or at such other place as
Lender may from time to time designate in writing, the principal sum of EIGHT
MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($8,500,000). This Term Note is
referred to in and was executed and delivered pursuant to that certain Credit
Agreement of even date herewith (as amended, restated or otherwise modified from
time to time, the "Credit Agreement") between Borrower and Lender, to which
reference is hereby made for a statement of the terms and conditions under which
the Term Loan evidenced hereby was made and is to be repaid. Capitalized terms
used herein but not otherwise defined herein are as defined in the Credit
Agreement. This Term Note is secured by the Collateral.
Unless otherwise required to be paid sooner pursuant to the provisions
of the Credit Agreement, the principal indebtedness evidenced hereby shall be
payable in eleven (11) consecutive installments in the amounts and at the times
specified in Section 2.01(b) of the Credit Agreement payable on the last day of
each calendar quarter commencing on March 31, 1997 and continuing thereafter
until September 30, 1999.
Borrower further promises to pay interest on the outstanding unpaid
principal amount hereof from the date hereof until paid in full at the
applicable rate or rates specified in Section 2.11 (a) of the Credit Agreement;
provided, however, at the election of Lender, following the occurrence and
during the continuance of any Event of Default, Borrower promises to pay to
Lender interest on the unpaid principal amount hereof at the applicable rate or
rates specified in Section 2.11(c) of the Credit Agreement. Interest shall be
payable in arrears on the dates specified in Section 2.11(b) of the Credit
Agreement. Interest shall be computed on the basis of a 360 day year for the
actual number of days elapsed in the period during which it accrues.
At the time of each payment or prepayment of principal of the Term
Loan, Lender shall make a notation either on the schedule attached hereto and
made a part hereof or in Lender's own books and records; provided, however,
that the failure of Lender to make such recordation or notation shall not
affect the Obligations of Borrower hereunder or under the Credit Agreement.
Demand, presentment, protest and notice of nonpayment and protest are
hereby waived by Borrower.
THIS TERM NOTE HAS BEEN DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN
MADE AT CHICAGO, ILLINOIS AND SHALL BE INTERPRETED, AND THE RIGHTS AND
LIABILITIES OF BORROWER AND LENDER HEREUNDER, SHALL BE DETERMINED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS. Whenever possible each
provision of this Term Note shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Term
Note shall be prohibited by or invalid under applicable 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 Term Note. Whenever in this Term Note reference is made to Lender or
Borrower, such reference shall be deemed to include, as applicable, a reference
to their respective successors and assigns. The provisions of this Term Note
shall be binding upon and shall inure to
<PAGE> 2
the benefit of such successors and assigns. Borrower's successors and assigns
shall include, without limitation, a receiver, trustee or debtor in possession
of or for Borrower.
IN WITNESS WHEREOF, the undersigned has executed this Term Note as of
the date first written above.
CREDENTIALS SERVICES INTERNATIONAL, INC.
By: /s/ Vineet Pruthi
--------------------------------------
Name: Vineet Pruthi
Title: Chief Financial Officer
<PAGE> 1
Exhibit 10.12 (iv)
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") dated as of January 14, 1997 is
entered into by Credentials Services International, Inc., a Delaware
corporation ("Debtor"), and LaSalle National Bank ("Secured Party").
Recitals:
A. Debtor and Secured Party have entered into a certain Credit
Agreement of even date herewith (as amended, restated or otherwise modified and
in effect from time to time, the "Credit Agreement"), pursuant to which Secured
Party has agreed, subject to the terms and conditions thereof, to make loans
and other financial accommodations to Debtor from time to time.
B. Secured Party has required, as a condition to its entering into
the Credit Agreement, that Debtor execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce Secured
Party to enter into the Credit Agreement and to make loans and financial
accommodations to Debtor thereunder, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
1. Definitions. Capitalized terms used herein without definition
are used herein as defined in the Credit Agreement. In addition, the following
terms shall have the following meanings:
"Accounts" shall mean any "account," as such term is defined in the
Uniform Commercial Code and, in any event, shall include, without limitation,
all Accounts as defined in the Credit Agreement.
"Chattel Paper" shall mean any "chattel paper," as such term is
defined in the Uniform Commercial Code.
"Collateral" is defined in Section 2 hereof.
"Contracts" shall mean all contracts, undertakings or other agreements
(other than rights evidenced by Chattel Paper, Documents or Instruments) in or
under which Debtor may now or hereafter have any right, title or interest,
including, without limitation, with respect to an Account, any agreement
relating to the terms of payment or the terms of performance thereof.
"Copyrights" shall mean any of Debtor's copyrights, rights and
interests in copyrights, works protectable by copyrights, copyright
registrations and copyright applications, including, without limitation, the
copyright registrations and applications listed on Schedule 3 attached hereto,
and all renewals of any of the foregoing, all income, royalties, damages and
payments now or hereafter due or payable under or with respect to any of the
foregoing, including, without limitation, damages and payments for past,
present and future infringements of any of the foregoing and the right to sue
for past, present and future infringements of any of the foregoing.
"Documents" shall mean any "documents," as such term is defined in the
Uniform Commercial Code.
"Equipment" shall mean any "equipment," as such term is defined in the
Uniform Commercial Code and shall include motor vehicles, tractors, trailers
and other like property, whether or not the title thereto is governed by a
certificate of title or ownership.
"General Intangibles" shall mean any "general intangibles," as such
term is defined in the Uniform Commercial Code and shall include, without
limitation, all right, title and interest in or under any Contract, drawings,
materials and records, claims, literary rights, goodwill, rights of
performance, Copyrights, Trademarks, patents, warranties, rights under
insurance policies and rights of indemnification.
"Goods" shall mean any "goods," as such term is defined in the Uniform
Commercial Code.
<PAGE> 2
"Instruments" shall mean any "instrument," as such term is defined in
the Uniform Commercial Code and shall include, without limitation, promissory
notes, drafts, bills of exchange, trade acceptances, letters of credit and
Chattel Paper.
"Inventory" shall mean any "inventory," as such term is defined in the
Uniform Commercial Code.
"Investment Property" shall mean any "certificated security," or
"uncertificated security" as such terms are defined in the Uniform Commercial
Code.
"Patents" shall mean any of Debtor's patents and patent applications,
including, without limitation, the inventions and improvements described and
claimed therein, all patentable inventions and those patents and patent
applications listed on Schedule 4 attached hereto, and the reissues, divisions,
continuation, renewals, extensions and continuations-in-part of any of the
foregoing, and all income, royalties, damages and payments now or hereafter due
or payable under or with respect to any of the foregoing, including, without
limitation, damages and payments for past, present and future infringements of
any of the foregoing and the right to sue for past, present and future
infringements of any of the foregoing.
"Proceeds" shall mean "proceeds," as such term is defined in the
Uniform Commercial Code and shall include, without limitation, (a) any and all
proceeds of any insurance, indemnity, warranty or guaranty payable with respect
to any of the Collateral, (b) any and all payments, in any form whatsoever,
made or due and payable from time to time in connection with any confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
governmental authority, and (c) any and all other amounts from time to time
paid or payable under, in respect of or in connection with any of the
Collateral.
"Trademarks" shall mean any of Debtor's trademarks, trade names,
corporate names, company names, business names, fictitious business names,
trade styles, service marks, logos, other business identifiers, prints and
labels on which any of the foregoing have appeared or appear, all registrations
and recordings thereof, and all applications in connection therewith,
including, without limitation, the trademarks and applications listed on
Schedule 5 attached hereto and renewals thereof, and all income, royalties,
damages and payments now or hereafter due or payable under or with respect to
any of the foregoing, including, without limitation, damages and payments for
past, present and future infringements of any of the foregoing and the right to
sue for past, present and future infringements of any of the foregoing.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
effect from time to time in the State of Illinois; provided, however, if, by
reason of mandatory provisions of law, the attachment, perfection or priority
of Secured Party's security interest in any Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than the State of
Illinois, the term "Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
2. Grant of Security Interest. As collateral security for the
prompt payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the Obligations, Debtor hereby pledges and grants to Secured
Party a Lien on and security interest in and to all of Debtor's right, title
and interest in the following property and interests in property, whether now
owned or hereafter acquired by Debtor and wherever located (collectively, the
"Collateral"):
(a) all Accounts;
(b) all Inventory;
(c) all General Intangibles;
(d) all Instruments, together with all payments thereon or
thereunder;
(e) all Equipment;
-2-
<PAGE> 3
(f) all Documents;
(g) all Contracts;
(h) all Goods;
(i) all Investment Property;
(j) all bank and depositary accounts maintained by Debtor,
including, without limitation, the Cash Collateral Account, all funds on
deposit therein, all investments arising out of such funds, all claims
thereunder or in connection therewith, and all cash, securities, rights and
other property at any time and from time to time received, receivable or
otherwise distributed in respect of such accounts;
(k) all other tangible and intangible property of Debtor,
including without limitation, all Proceeds, products, accessions, rents,
profits, income, benefits, substitutions, additions and replacement of and to
any of the property described in this Section 3 including, without limitation,
any proceeds of insurance thereon and all rights, claims and benefits against
any Person relating thereto) and all books, correspondence files, records,
invoices and other papers, including, without limitation, all tapes, cards,
computer runs, computer programs, computer files and other papers, documents
and records in the possession or under the control of Debtor or any computer
bureau or service company from time to time acting for Debtor.
3. Representations, Warranties and Covenants of Debtor. Debtor
represents and warrants to, and covenants with, Secured Party as follows:
(a) Debtor is and will be the owner of the Collateral and no Lien
other than Permitted Liens exists or will exist upon such Collateral at any
time.
(b) This Agreement is effective to create in favor of Secured
Party a valid security interest in and Lien upon all of Debtor's right, title
and interest in and to the Collateral and, upon the filing of appropriate
Uniform Commercial Code financing statements in the jurisdictions listed on
Schedule 1 attached hereto, such security interest will be duly perfected in
all of the Collateral (other than Instruments not constituting Chattel Paper,
Investment Property, deposit accounts and cash), and upon delivery of the
Instruments to Secured Party, duly endorsed by Debtor or accompanied by
appropriate instruments of transfer duly executed by Debtor, the security
interest in the Instruments will be duly perfected.
(c) All of the Equipment, Inventory and Goods is located at the
places specified on Schedule 1 attached hereto. Except as disclosed on
Schedule 1, none of the Collateral is in the possession of any bailee,
warehouseman, processor or consignee. The chief place of business, chief
executive office and the office where Debtor keeps its books and records are
located at the place specified on Schedule 1. Debtor does not do business and
has not done business under any trade name or fictitious business name except
as disclosed on Schedule 2 attached hereto.
(d) No Copyrights, Patents or Trademarks have been adjudged
invalid or unenforceable or have been canceled, in whole or in part, or are not
presently subsisting. Each of the Copyrights, Patents and Trademarks is valid
and enforceable. Debtor is the sole and exclusive owner of the entire and
unencumbered right, title and interest in and to each of the Copyrights,
patents and Trademarks, free and clear of any liens, charges and encumbrances,
including, without limitation, licenses, shop rights and covenants by Debtor
not to sue third persons. Debtor has adopted, used or is currently using, or
has a current bona fide intention to use, all of the Trademarks and Copyrights.
Debtor has no notice of any suits or actions commenced or threatened with
respect to the Copyrights, Patents or Trademarks. The Copyrights, Patents and
Trademarks listed on Schedules 3, 4 and 5, respectively, constitute all of the
Copyrights, Patents and Trademarks owned by Debtor as of the date hereof.
(e) All information heretofore, herein or hereafter furnished to
Secured Party by or on behalf of Debtor with respect to the Collateral and the
Account Debtors is and will be accurate and complete in all material respects.
-3-
<PAGE> 4
4. Agreements of Debtor. Debtor hereby agrees with Secured Party as
follows:
(a) Delivery of Instruments. Debtor shall deliver and pledge to
Secured Party any and all Instruments, duly endorsed or accompanied by such
instruments of assignment and transfer executed by Debtor in such form and
substance as Secured Party may request.
(b) Other Documents and Actions. Debtor shall give, execute,
deliver, file or record any financing statement, notice, instrument, agreement
or other document that may be necessary or desirable in the reasonable judgment
of Secured Party to create, preserve, perfect or validate the security interest
granted pursuant hereto or to enable Secured Party to exercise and enforce the
rights of Secured Party hereunder with respect to such security interest.
(c) Books and Records. Debtor shall maintain at its own cost and
expense complete and accurate books and records of the Collateral, including,
without limitation, a record of all payments received and all credits granted
with respect to the Collateral and all other dealings with the Collateral. Upon
the occurrence and during the continuation of any Event of Default, Debtor
shall deliver any such books and records, or true and correct copies thereof,
to Secured Party at any time on demand. Debtor shall permit any representative
of Secured Party to inspect such books and records at any time during
reasonable business hours and shall provide photocopies thereof at Debtor's
expense to Secured Party upon the request of Secured Party.
(d) Notice to Account Debtors; Verification. (i) Upon the
occurrence and during the continuance of any Event of Default, upon request of
Secured Party, Debtor shall promptly notify (and Debtor hereby authorizes
Secured Party so to notify) each Account Debtor in respect of any Accounts or
Instruments that such Collateral has been assigned to Secured Party and that
any payments due or to become due in respect of such Collateral are to be made
directly to Secured Party, and (ii) Secured Party shall have the right at any
time or times to make direct verification with the Account Debtors of any and
all of the Accounts.
(e) Intellectual Property. If Debtor shall (i) obtain rights to
any patentable inventions, Copyrights, Patents or Trademarks not listed on
Schedule 3, 4 or 5, or (ii) become entitled to the benefit of any Copyrights,
Patents or Trademarks or any improvements on any Patent, the provisions of this
Agreement shall automatically apply thereto and Debtor shall give Secured Party
prompt written notice thereof. Debtor hereby authorizes Secured Party to
modify this Agreement by amending Schedules 3, 4 and 5, as applicable, to
include any such Copyrights, Patents and Trademarks. Debtor shall have the
duty, to the extent required by reasonable commercial judgment and, in any
event, if the failure to do so could reasonably be expected to have a Material
Adverse Effect, (i) to prosecute diligently any patent, trademark, copyright or
service mark applications pending as of the date hereof or thereafter, (ii) to
make application on unpatented but patentable inventions and on trademarks,
copyrights and service marks, as appropriate, (iii) to preserve and maintain
all rights in the Copyrights, Patents and Trademarks, and (iv) to ensure that
the Copyrights, Patents and Trademarks are and remain enforceable. Any expenses
incurred in connection with Debtor's obligation under this Section 4(e) shall
be borne by Debtor. Debtor shall not abandon any right to file a patent,
trademark, copyright or service mark application, or abandon any pending patent
application, or any other Copyright, Patent or Trademark without the written
consent of Secured Party, unless such abandonment could not reasonably be
expected to have a Material Adverse Effect.
(f) Further Identification of Collateral. Debtor shall, when and as
often as reasonably requested by Secured Party, furnish to Secured Party,
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Secured Party may
reasonably request, all in reasonable detail.
(g) Investment Property. Debtor shall take any and all actions
required or requested by Secured Party, from time to time, to (i) cause Secured
Party to obtain exclusive control of any Investment Property owned by Debtor in
a manner acceptable to Secured Party and (ii) obtain from any issuers of
Investment Property and such other Persons, for the benefit of Secured Party,
written confirmation of Secured Party's control over such Investment Property.
-4-
<PAGE> 5
(h) Compliance with Loan Documents. Debtor shall comply with the
provisions of the Loan Documents applicable to the Collateral, including,
without limitation, maintenance of insurance, restrictions on dispositions and
providing Secured Party the right to inspections with respect to the
Collateral.
(i) Other Liens. Debtor shall not create, permit or suffer to
exist, and shall defend the Collateral against and take such other action as is
necessary to remove, any Lien on the Collateral except Permitted Liens, and
shall defend the right, title and interest of Secured Party in and to the
Collateral and in and to all Proceeds thereof against the claims and demands of
all Persons whatsoever.
(j) Preservation of Rights. Whether or not any Event of Default
has occurred or is continuing, Secured Party may, but shall not be required to,
take any actions Secured Party reasonably deems necessary or appropriate to
preserve any Collateral or any rights against third parties to any of the
Collateral, including obtaining insurance on the Collateral at any time when
Debtor has failed to do so, and Debtor shall promptly pay, or reimburse Secured
Party for, all expenses incurred in connection therewith.
(k) Changes in Name; Location. Debtor shall notify Secured Party
promptly in writing prior to any change in Debtor's name, identity or corporate
structure or the proposed use by Debtor of any trade name or fictitious
business name other than any such name set forth on Schedule 2 attached hereto.
Debtor shall keep the Collateral at the locations specified in Schedule 1 and
shall give Secured Party 30 days' prior written notice of any change in
Debtor's chief place of business or of any new location for any of the
Collateral.
(i) Bank Accounts; Collections. (i) Debtor shall not establish any
deposit account with any financial institution unless permitted by the terms of
the Credit Agreement.
(m) Until notice from Secured Party to the contrary, given at any
time after the occurrence and during the continuance of any Default, Debtor
shall, at its own expense, endeavor to collect all amounts due with respect to
any of the Accounts and shall take such action with respect to such collection
as Debtor may deem advisable.
(n) Upon demand therefor by Secured Party at any time following
the occurrence and during the continuance of any Default, Debtor shall,
forthwith upon receipt, transmit and deliver to Secured Party, in the form
received, all cash, checks, drafts and other instruments or writings for the
payment of money which may be received by Debtor at any time in payment or
otherwise as proceeds of any Collateral. Any such items which may be so
received by Debtor shall not be commingled by Debtor with any of its other
funds or property but, until delivery to Secured Party, shall be held separate
and apart from such other funds and property and in trust for Secured Party.
5. Remedies. During the period during which an Event of Default
shall have occurred and be continuing:
(a) Secured Party shall have, in addition to other rights and
remedies provided for herein or otherwise available to it, all of the rights
and remedies of a Secured Party upon default under the Uniform Commercial Code
(whether or not the Uniform Commercial Code applies to the affected Collateral)
and Lender may, without notice, demand or legal process of any kind except as
may be required by law, at any time or times (i) enter Debtor's premises and
take physical possession of the Collateral and maintain such possession on
Debtor's premises, at no cost to Lender, or remove the Collateral or any part
thereof to such other place or places as Secured Party may desire, (ii) require
Debtor to, and Debtor hereby agrees to, assemble the Collateral as directed by
Secured Party and make it available to Secured Party at a place to be
designated by Secured Party which is reasonably convenient to Secured Party and
Debtor and (iii) without notice except as specified below, sell, lease, assign,
grant an option or options to purchase or otherwise dispose of the Collateral
or any part thereof at public or private sale, at any exchange, broker's board
or at any of the offices of Secured Party or elsewhere, for cash, on credit or
for future delivery, and upon such other terms as Secured Party may deem
commercially reasonable. Debtor agrees that, to the extent notice of sale shall
be required by law, at least 10 days' notice to Debtor of the time and place of
any public sale or the time after which any private sale is to be made shall
constitute reasonable notification. Secured Party shall not be obligated to
make any sale of Collateral regardless of notice of sale having been given.
Secured Party may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor and such sale may, without
further notice, be made at the time and place to which it was so adjourned;
-5-
<PAGE> 6
(b) Secured Party may make any reasonable compromise or settlement
deemed desirable with respect to any of the Collateral and may extend the time
of payment, arrange for payment in installments or otherwise modify the terms
of, any of the Collateral; and
(c) Secured Party may, in the name of Secured Party or in the name
of Debtor or otherwise, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in exchange for any
of the Collateral, but shall be under no obligation to do so.
6. Deficiency; Application of Proceeds. If the proceeds of sale,
collection or other realization of or upon the Collateral are insufficient to
cover the costs and expenses of such realization and the payment in full of the
Obligations, Debtor shall remain liable for any deficiency. The proceeds of any
collection, sale or other realization of all or any part of the Collateral
shall be applied: first, to payment of all expenses payable or reimbursable by
Debtor under the Loan Documents; second, to payment of all accrued unpaid
interest on the Revolving Loans; third, to payment of principal of the
Revolving Loans; fourth, to payment of all accrued unpaid interest on the Term
Loan; fifth, to payment of principal of the Term Loan; sixth, to payment of any
other amounts owing constituting Obligations; and last, any remainder shall be
for the account of and paid to Debtor.
7. Power of Attorney. Debtor hereby irrevocably constitutes and
appoints Secured Party, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of Debtor and in the name of Debtor or in its own name, from time to time
in the discretion of Secured Party, after the occurrence and during the
continuance of an Event of Default, for the purpose of carrying out the terms
of this Agreement, to take any and all appropriate action and to execute and
deliver any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Agreement and, without limiting
the generality of the foregoing, hereby gives Secured Party the power and
right, on behalf of Debtor, without notice to or assent by Debtor, to do the
following upon the occurrence and during the continuance of an Event of
Default:
(a) to ask, demand, collect, receive and acquittance and receipts
for any and all moneys due and to become due under any Collateral and, in the
name of Debtor or its own name or otherwise, to take possession of and endorse
and collect any checks, drafts, notices acceptances or other Instruments for
the payment of moneys due under any Collateral and to file any claim or to take
any other action or proceeding in any court of law or equity or otherwise
deemed appropriate by Secured Party for the purpose of collecting any and all
such moneys due under any Collateral whenever payable and to file any claim or
to take any other action or proceeding or otherwise deemed appropriate by
Secured Party for the purpose of collecting any and all such moneys due under
any Collateral;
(b) to pay or discharge charges or Liens levied or placed on or
threatened against the Collateral, other than Permitted Liens, to effect any
insurance required by the terms of the Credit Agreement and to pay all or any
part of the premiums therefor;
(c) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due and to become due
thereunder directly to Secured Party or as Secured Party may direct, and to
receive payment of and receipt for any and all moneys, claims and other amounts
due and to become due in respect of or arising out of any Collateral;
(d) to sign and indorse any invoices, drafts against debtors,
assignments, verifications and notices in connection with Accounts and other
Documents constituting or relating to the Collateral;
(e) to commence and prosecute any suits, actions or proceedings to
collect the Collateral or any part thereof and to enforce any other right in
respect of any Collateral;
(f) to participate in the defense of any suit, action or
proceeding brought against Debtor with respect to any Collateral, or to defend
same with Debtor's consent;
(g) to settle, compromise or adjust any such suit, action or
proceeding as it relates to the Collateral and, in connection therewith, to
give such discharges or releases as Secured Party may deem appropriate;
-6-
<PAGE> 7
(h) to communicate in its own name with any party to any Contract
with regard to the assignment of the right, title and interest of Debtor in and
under the Contracts hereunder and other matters relating thereto;
(i) to execute, in connection with any sale of Collateral provided
for in Section 5 hereof, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral; and
(j) generally to sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully and completely
as though Secured Party were the absolute owner thereof for all purposes and to
do, at Secured Party's option and at Debtor's expense, at any time or from time
to time, all acts and things which Secured Party reasonably deems necessary to
protect, preserve or realize upon the Collateral and Secured Party's Lien
therein, in order to effect the intent of this Agreement, all as fully and
effectively as Debtor might do.
Debtor hereby ratifies, to the extent permitted by law, all actions that such
attorneys lawfully take or cause to be taken by virtue hereof. The power of
attorney granted hereunder is a power coupled with an interest and shall be
irrevocable until the Obligations are indefeasibly paid in full and the Credit
Agreement is terminated.
8. Termination. This Agreement and the Liens and security
interests granted hereunder shall not terminate until the termination of the
Credit Agreement and the full and complete performance and satisfaction of all
Obligation (regardless of whether the Credit Agreement shall have earlier
terminated).
9. Further Assurances. At any time and from time to time, upon the
request of Secured Party, and at the sole expense of Debtor, Debtor shall
promptly and duly execute and deliver any and all such further instruments,
documents and agreements and take such further actions as Secured Party may
reasonably require in order for Secured Party to obtain the full benefits of
this Agreement, including, without limitation, using Debtor's best efforts to
secure all consents and approvals necessary or appropriate for the assignment
to Secured Party of any Collateral held by Debtor or in which Debtor has any
rights not heretofore assigned, the filing of any financing or continuation
statements under the Uniform Commercial Code with respect to the Liens and
security interests granted hereby, transferring Collateral to Secured Party's
possession if a security interest in such Collateral can be perfected by
possession, placing the interest of Secured Party as lienholder on the
certificate of title of any motor vehicle and obtaining waivers of liens from
landlords and mortgagees. Debtor further hereby authorizes Secured Party to
file any such financing or continuation statement without the signature of
Debtor to the extent permitted by law.
10. Limitation on Duty of Secured Party. The powers conferred on
Secured Party under this Agreement are solely to protect the Secured Party's
interest in the Collateral and shall not impose any duty upon it to exercise
any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder,
Secured Party shall have no duty as to any of the Collateral. Secured Party
shall be accountable only for amounts that it actually receives as a result of
the exercise of such powers and neither Secured Party nor any of their
respective officers, directors, employees or agents shall be responsible to
Debtor for any act or failure to act, except for gross negligence or willful
misconduct. Without limiting the foregoing, Secured Party shall be deemed to
have exercised reasonable care in the custody and preservation of the
Collateral in its possession if such Collateral is accorded treatment
substantially equivalent to that which Secured Party, in its individual
capacity, accords its own property consisting of the type of Collateral
involved, it being understood and agreed that Secured Party shall have no
responsibility for taking any necessary steps, other than steps taken in
accordance with the standard of care set forth above, to preserve rights
against any Person with respect to any Collateral.
11. Debtor to Remain Liable. Without limiting the generality of
Section 10, Secured Party shall have no obligation or liability under any
Contract or license by reason of or arising out of this Agreement or the
granting to Secured Party of a security interest therein or assignment thereof
or the receipt by Secured Party of any payment relating to any Contract or
license hereto, nor shall Secured Party be required or obligated in any manner
to perform or fulfill any of the obligations of Debtor under or pursuant to any
Contract or license, or to make any payment or to make any inquiry as to the
nature or the sufficiency of any payment received by it or the sufficiency of
any performance by any party under any Contract or license, or to present or
file any claim, or to take any action to collect or enforce any performance or
the payment of any amount which may have been assigned to it or which it may be
entitled at any time or times.
-7-
<PAGE> 8
12. Miscellaneous.
(a) No Waiver. No failure on the part of Secured Party to
exercise, and no course of dealing with respect to, and no delay in exercising,
any right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise by Secured Party of any right, power or
remedy hereunder preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The rights and remedies hereunder provided
are cumulative and may be exercised singly or concurrently, and are not
exclusive of any rights and remedies provided by law.
(b) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois, without giving
effect to the choice of law principles thereof.
(c) Notices. All notices, demands and requests that any party is
required or elects to give to any other party shall be given in accordance with
the provisions of the Credit Agreement.
(d) Amendments. The terms of this Agreement may be waived, altered
or amended only by an instrument in writing duly executed by Debtor and Secured
Party.
(e) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the respective successors and assigns of each of
the parties hereto, provided, that Debtor shall not assign or transfer its
rights hereunder without the prior written consent of Secured Party.
(f) Counterparts; Headings. This Agreement may be executed in any
number of counterparts, all of which together shall constitute one and the same
instrument. The headings in this Agreement are for convenience of reference
only and shall not alter or otherwise affect the meaning hereof.
(g) Severability. If any provision hereof is invalid or
unenforceable in any jurisdiction, then, to the fullest extent permitted by
law, the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of Secured Party in
order to carry out the intentions of the parties hereto as nearly as may be
possible, and the invalidity or unenforceability of any provision in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.
(h) Other Loan Documents. This Agreement supplements the other
Loan Documents and nothing in this Agreement shall be deemed to limit or
supersede the rights granted to Secured Party in any other Loan Document. If
any item of Collateral hereunder also constitutes collateral granted to Secured
Party under any other mortgage, agreement or instrument, in the event of any
conflict between the provisions of this Agreement and the provision of such
other mortgage, agreement or instrument, the provision or provisions selected
by Secured Party shall control
-8-
<PAGE> 9
with respect to such Collateral. In the event of any conflict between any
provision of this Agreement and any provision of the Credit Agreement, the
provisions of the Credit Agreement shall control to the extent of such
inconsistency.
IN WITNESS WHEREOF, the parties have caused this Security Agreement to be duly
executed and delivered as of the date first written above.
CREDENTIALS SERVICES INTERNATIONAL, INC.
By: /s/ Vineet Pruthi
--------------------------------------
Name: Vineet Pruthi
Title: Chief Financial Officer
LASALLE NATIONAL BANK
By: /s/Andrew Kanfer
--------------------------------------
Name: Andrew Kanfer
Title: Loan Officer
-9-
<PAGE> 10
SCHEDULE 1
TO
SECURITY AGREEMENT
Offices; Locations of Collateral
1. Chief Executive Office:
333 City Boulevard West, 10th Floor
Orange, California 92668
2. Locations of Tangible Collateral:
(a) 333 City Boulevard West, 10th Floor
Orange, California 92668
[Three leased, on-site lockers in basement, containing certain
records, inventory and equipment.]
(b) 1700 Alma Drive, Suite 500
Plano,Texas 75075
(c) Public Storage
601 N. Main Street
Orange, California 92868
[Locker Containing old mainframe
terminals and miscellaneous files.]
(A) Arcus Data Security
PO Box 488
Gardena, California 90248
[Security storage of back-up data tapes.]
<PAGE> 11
SCHEDULE 2
TO
SECURITY AGREEMENT
Trade Names; Fictitious Names
1. CSI uses the following unregistered trade names:
American Privacy Watch
Business Credentials
Credentials and Monitor Service
Loss Notification Service
Operation Identification Service
Privacy Watch Service
Small Business Credit Monitor
Three Bureau Credit Report
U.S. Marshall's Operation Identification
2. Credentials is a registered service mark:
Federal Service Mark: "CREDENTIALS"
Registration Number: 1,466,544
Expiration Date: November 24, 2007
<PAGE> 12
SCHEDULE 3
TO
SECURITY AGREEMENT
Copyrights
None.
<PAGE> 13
SCHEDULE 4
TO
SECURITY AGREEMENT
Patents
None.
- -
<PAGE> 14
SCHEDULE 5
TO
SECURITY AGREEMENT
Trademarks
Privacy Watch is a registered trademark:
Trademark: "Privacy Watch"
Registration Number: 2,000,996
Expiration Date: September 27, 2006
<PAGE> 1
Exhibit 10.12 (v)
PATENT, TRADEMARK AND COPYRIGHT SECURITY AGREEMENT
THIS TRADEMARK AND COPYRIGHT SECURITY AGREEMENT ("Agreement") is
entered into as of January 14, 1997 by CREDENTIALS SERVICES INTERNATIONAL,
INC., a Delaware corporation ("Debtor"), and LASALLE NATIONAL BANK ("Secured
Party").
RECITALS:
A. Debtor and Secured Party have entered into a certain Credit
Agreement of even date herewith (as amended, restated or otherwise modified and
in effect from time to time, the "Credit Agreement"), pursuant to which Secured
Party has agreed, subject to the terms and conditions thereof, to make loans
and other financial accommodations to Debtor from time to time.
B. Secured Party has required, as a condition to its entering into
the Credit Agreement, that Debtor execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce Secured
Party to enter into the Credit Agreement and to make loans and financial
accommodations to Debtor thereunder, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
1. Incorporation of Security Agreement; Credit Agreement
Definitions. The Security Agreement and the provisions thereof are hereby
incorporated herein in their entirety by this reference thereto. Capitalized
terms used herein without definition are used herein as defined in the Credit
Agreement.
2. Assignment for Security. To secure the complete and timely
payment and satisfaction of the Obligations, Debtor hereby grants to Lender a
continuing security interest in Debtor's entire right, title and interest in
and to all of its now owned or existing and hereafter acquired or arising:
(a) patents and patent applications, including, without
limitation, the inventions and improvements described and claimed therein, all
patentable inventions and those patents and patent applications listed on
Schedule 1 attached hereto, and the reissues, divisions, continuations,
renewals, extensions and continuations-in-part of any of the foregoing, and all
income, royalties, damages and payments now or hereafter due or payable under
or with respect to any of the foregoing, including, without limitation, damages
and payments for past, present and future infringements of any of the foregoing
and the right to sue for past, present and future infringements of any of the
foregoing (all of the foregoing herein referred to as the "Patents");
(b) all trademarks, trade names, corporate names, company
names, business names, fictitious business names, trade styles, service marks,
logos, other business identifiers, prints and labels on which any of the
foregoing have appeared or appear, all registrations and recordings thereof,
and all applications in connection therewith, including, without limitation,
the trademarks and applications listed on Schedule 2 attached hereto, and any
renewals thereof, and all income, royalties, damages and payments now or
hereafter due or payable )under or with respect to any of the foregoing,
including, without limitation, damages and payments for past, present and
future infringements of any of the foregoing and the right to sue for past,
present and future infringements of any of the foregoing (all of the foregoing
herein referred to as the "Trademarks"); and
(c) all copyrights and interests in copyrights, works
protectable by copyrights, copyright registrations and copyright applications,
including, without limitation, the copyright registrations and applications
listed on Schedule 3 attached hereto, and all renewals of any of the foregoing,
all income, royalties, damages and payments now and hereafter due or payable
under or with respect to any of the foregoing, including, without limitation,
damages and payments for past, present and future infringements of any of the
foregoing and the right to sue for past, present and future infringements of
any of the foregoing (all of the foregoing herein referred to as the
"Copyrights");
(d) all rights corresponding to any of the foregoing
throughout the world and the goodwill of Debtor's business connected with the
use of and symbolized by the Trademarks.
<PAGE> 2
In addition to, and not by way of limitation of, all other rights granted to
Lender under this Agreement, Debtor hereby assigns, transfers and conveys to
Lender all of the Patents, Copyrights and Trademarks, together with the rights
and goodwill described in clause (d) above to the extent necessary to enable
Lender, effective upon the occurrence of any Event of Default, to realize on
such property and any successor or assign to enjoy the benefits thereof. This
right and assignment shall inure to the benefit of Lender and its successors,
assigns and transferees, whether by voluntary conveyance, operation of law,
assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise.
Such right and assignment is granted without charge, without requirement that
any monetary payment whatsoever, including, without limitation, any royalty or
license fee, be made to Debtor or any other Person by Secured Party, except
that if Lender shall receive proceeds from the disposition of any such
property, such proceeds shall be applied to the Obligations.
3. Reports of Applications. The Patents, Copyrights and
Trademarks listed on Schedules 1, 2 and 3, respectively, constitute all of the
federally registered patents, copyrights and trademarks, and all of the federal
applications therefor now owned by Debtor. Debtor shall provide Secured Party
on an annual basis with a list of all patents, copyrights and trademarks issued
or applied for by Debtor subsequent to the issuance of the previous list, which
patents, copyrights and trademarks, if any, shall be subject to the terms and
conditions of the Security Agreement and this Agreement.
4. Effect on Credit Agreement; Cumulative Remedies. Debtor
acknowledges and agrees that this Agreement is not intended to limit or
restrict in any way the rights and remedies of Secured Party under the Credit
Agreement or the Security Agreement but rather is intended to supplement and
facilitate the exercise of such rights and remedies. All of the rights and
remedies of Secured Party with respect to the Patents, Copyrights and
Trademarks, whether established hereby, by the Credit Agreement or the Security
Agreement, by any other agreements, or by law, shall be cumulative and may be
exercised singularly or concurrently.
5. Binding Effect. This Agreement shall be binding upon Debtor
and its successors and assigns and shall inure to the benefit of Secured Party
and its successors and assigns.
6. Applicable Law; Severability. This Agreement shall be
construed in accordance with, and governed by, all of the provisions of the
Illinois Uniform Commercial Code and by the other internal laws of the State of
Illinois, except for the perfection and enforcement of security interests and
liens in other jurisdictions, which shall be governed by the laws of such other
jurisdiction or, as applicable, by the laws of the United States of America.
Whenever possible, each provision of this Agreement shall be interpreted in
such a manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under applicable
law, such
<PAGE> 3
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provisions or the
remaining provisions of this Agreement.
* * * * *
IN WITNESS WHEREOF, the undersigned has duly executed this Agreement
as of the date first written above.
CREDENTIALS SERVICES INTERNATIONAL, INC.
By: /s/ Vineet Pruthi
--------------------------------------
Name: Vineet Pruthi
Title: Chief Financial Officer
Address: 333 City Boulevard West
Orange, CA 92688
Accepted and Agreed To:
LASALLE NATIONAL BANK
By: /s/ ANDREW KANFER
- ------------------------
Name: Andrew Kanfer
Title: Loan Officer
Address: 135 South LaSalle Street
Chicago, IL 60603
<PAGE> 4
SCHEDULE 1
PATENTS
U.S. Patent No. Date Issued Related Foreign Patents
U.S. Patent Application No. Date Applied
<PAGE> 5
SCHEDULE 2
TRADEMARKS
Trademark Registrations
Mark Registration No. Date
Privacy Watch No. 2,000,996 9/17/96
Trademark Applications
Mark Trademark Application No. Date Applied
<PAGE> 6
SCHEDULE 3
COPYRIGHTS
Copyright Registrations
Registration No. Date
Copyright Applications
Copyright Description Copyright Application No. Date Applied
<PAGE> 7
ACKNOWLEDGMENT
STATE OF Illinois )
) SS
COUNTY OF Cook )
I, Susan Adams, a Notary Public in and for said County and State, DO
HEREBY CERTIFY THAT Vineet Pruthi the CFO of CREDENTIALS SERVICES
INTERNATIONAL, INC. a Delaware corporation, personally known to me to be the
same person whose name is subscribed to the foregoing instrument as such
_______________ appeared before me this day in person and acknowledged that he
signed and delivered said instrument as his own free and voluntary act and as
the free and voluntary act of such corporation.
GIVEN under my hand and notarial seal this 14th day of January, 1997.
/s/ Susan A. Adams
--------------------------------------
Notary Public
My Commission Expires:
OFFICIAL SEAL SUSAN A ADAMS
NOTARY PUBLIC STATE OF ILLINOIS MY COMMISSION
EXP. MAY 26,1999
<PAGE> 1
Exhibit 10.12 (vi)
COLLATERAL ASSIGNMENT OF CONTRACTS
THIS COLLATERAL ASSIGNMENT OF CONTRACTS ("Assignment") dated as of
January 14,1997 is entered into by Credentials Services International, Inc., a
Delaware corporation ("Assignor"), and LaSalle National Bank ("Assignee").
Recitals:
A. Assignor and Assignee have entered into a certain Credit
Agreement of even date herewith (as amended, restated or otherwise modified and
in effect from time to time, the "Credit Agreement"), pursuant to which
Assignee has agreed, subject to the terms and conditions thereof, to make loans
and other financial accommodations to Assignor from time to time.
B. Assignee has required, as a condition to its entering into the
Credit Agreement, that Assignor execute and deliver this Assignment
NOW, THEREFORE, in consideration of the premises and to induce
Assignee to enter into the Credit Agreement and to make loans and financial
accommodations to Assignor thereunder, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereby agree as follows:
1. Definitions. Capitalized terms used herein without definition
are used herein as defined in the Credit Agreement. In addition, the following
terms shall have the following meanings:
"Assigned Contracts" shall mean (a) the Acquisition Agreement, (b) the
Management Agreement, (c) the Significant Vendor Contracts and (d) the Service
Agreement.
"Assignment"shall mean this Assignment, as amended, restated or
otherwise modified from time to time as permitted hereunder.
2. Assignment for Security. As collateral security for the
prompt payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the Obligations, Assignor hereby assigns, transfers and sets over
to Assignee all of Assignor's right, title and interest in and to each of the
Assigned Contracts, including, without limitation, except to the extent
reserved below, (a) the right upon valid tender to accept any goods or services
provided under each of the Assigned Contracts, (b) all claims for damages in
respect of the Assigned Contracts arising as a result of any default under the
Assigned Contracts, (c) any and all rights of the Assignor to compel
performance of the terms of the Assigned Contracts, (d) all rights, benefits
and claims under all warranty and indemnity provisions contained in the
Assigned Contracts, (e) the benefit of all insurance payments provided for in
the Assigned Contracts and (f) the right to any other monies due and to become
due to the Assignor under the Assigned Contracts. Notwithstanding the
foregoing, so long as no Event of Default shall have occurred and be
continuing, Assignor shall retain all rights to exercise all rights and powers
under the Assigned Contracts.
3. Assignor to Remain Liable. It is expressly agreed that
anything herein to the contrary notwithstanding, Assignor shall remain liable
under the Assigned Contracts to perform all of its obligations thereunder and
Assignee shall have no obligation or liability under the Assigned Contracts by
reason of, or arising out of, this Assignment nor shall Assignee be required or
obligated in any manner to perform or fulfill any obligations of Assignor under
or pursuant to any of the Assigned Contracts, or to make any payment or to make
any inquiry as to the nature or sufficiency of any payment received by it, or
to present or file any claim or to take any other action to collect or enforce
the payment of any amounts which may have been assigned to it or to which it
may be entitled hereunder at any time or times.
4. Modification of Assigned Contracts. Assignor agrees that so
long as this Assignment is in effect, it will not, without the prior written
consent of Assignee, which consent shall not be unreasonably withheld or
delayed, amend, modify or permit to be amended or modified any of the Assigned
Contracts or waive or permit to be waived any provisions of any of the Assigned
Contracts, or exercise any right to terminate or cancel any of the Assigned
<PAGE> 2
Contracts or consent or agree to, or suffer or permit, the termination thereof
(other than by expiration in accordance with its terms, without action by any
party thereto) whether or not on account of any default therein specified.
Notwithstanding anything to the contrary contained in this Section 4, the
consent of Assignee shall not be required for any such amendment, modification,
waiver, termination or cancellation with respect to any Significant Vendor
Contract provided that such amendment, modification, waiver, termination or
cancellation could not reasonably be expected to result in a Material Adverse
Effect. Assignor shall give Assignee prompt written notice of any amendment,
modification, waiver, termination or cancellation with respect to any Assigned
Contract.
5. Power of Attorney. Assignor does hereby appoint Assignee, its
successors and assigns, Assignor's true and lawful attorney, irrevocably, with
full power (in the name of Assignor or otherwise) at any time after an Event of
Default has occurred and is continuing, to ask, require, demand, receive,
compound and give acquittance for any and all monies and claims for monies due
and to become due under, or arising out of, each of the Assigned Contracts to
the extent that the same have been assigned by this Assignment, to endorse any
checks or other instruments or orders in connection therewith and to file any
claims or take any action or institute (or, if previously commenced, assume
control of) any proceedings and to obtain any recovery in connection therewith
which Assignee may deem to be necessary or advisable.
6. Further Assurances. Assignor agrees that at any time and from
time to time, upon the written request of Assignee, Assignor will promptly and
duly execute and deliver any and all such further instruments and documents as
Assignee may reasonably request in order to obtain the full benefits of this
Assignment and of the rights and powers herein granted.
7. Representations, Warranties and Covenants. Assignor hereby
represents, warrants and covenants (a) each of the Assigned Contracts is in
full force and effect and is enforceable in accordance with its respective
terms and that there is no default under any of the terms thereof; and (b)
Assignor has not assigned or pledged, and so long as this Assignment shall
remain in effect, Assignor will not assign or pledge, the whole or any part of
the rights hereby assigned to anyone other than Assignee, its successors or
assigns. Assignor further covenants that it will not take any action or fail
to take any action or institute any proceedings the taking or omission of which
might result in the material alteration or impairment of any of the Assigned
Contracts or this Assignment or any of the rights created by any of the
Assigned Contracts or this Assignment.
8. Notice of Default. Assignor shall promptly notify Assignee of,
and provide to Assignee copies of, any default notices given or received by
Assignor under any of the Assigned Contracts.
9. Financing Statements. Assignee is authorized at the expense of
Assignor to sign and file, at any time and from time to time, without the
signature of Assignor, any and all Uniform Commercial Code financing
statements, changes thereto or renewals thereof in connection with this
Assignment which Assignee may reasonably deem to be necessary or advisable in
order to perfect or maintain the security interest granted hereby. If Assignee
shall file any such financing statements, changes or renewals without the
signature of Assignor, Assignee shall provide Assignor with notice thereof as
soon as practicable after such filing.
10. Cumulative Remedies. Each and every right, power and remedy
herein given to the Assignee shall be cumulative and shall be in addition to
every other right, power and remedy of Assignee now or hereafter existing at
law, in equity or by statute, and each and every right, power and remedy,
whether herein given or otherwise existing, may be exercised from time to time,
in whole or in part, in accordance with the terms of this Assignment and as
often and in such order as may be deemed expedient by Assignee, and the
exercise or the beginning of the exercise of any right, power or remedy shall
not be construed to be a waiver of the right to exercise at the same time or
thereafter any other right, power or remedy. No delay or omission by Assignee
in the exercise of any right or power or in the pursuance of any remedy
accruing upon any breach or default by Assignor shall impair any such right,
power or remedy or be construed to be a waiver of any such right, power or
remedy or to be an acquiescence therein.
11. Severability; Impairment of Rights. Any provision of this
Assignment which is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
shall not invalidate or render unenforceable
<PAGE> 3
such provisions in any other jurisdiction. If for any other reason whatsoever,
the collateral assignment herein contained is either wholly or partly
defective, Assignor hereby undertakes to do all such other lawful acts as, in
the sole judgment of Assignee, shall be required in order to ensure and give
effect to the full intent of this Assignment.
12. Notices. All notices, demands and requests hereunder shall be
given in accordance with the provisions of the Credit Agreement.
13. Amendments; Waivers. None of the terms and conditions of this
Assignment may be changed, waived, modified or varied in any manner whatsoever
unless in writing duly signed by Assignor and Assignee.
14. Binding Effect. This Assignment shall be binding upon Assignor
and its successors and assigns and shall inure to the benefit of Assignee and
its successors and assigns, provided, however, that Assignor may not transfer
or assign any or all of its rights or obligations hereunder without the prior
written consent of Assignee. All agreements, statements and representations
made by Assignor herein or in any certificate or other instrument delivered by
Assignor or on its behalf under this Assignment shall be deemed to have been
relied upon by Assignee and shall survive the execution and delivery of this
Assignment, the Credit Agreement and the other Loan Documents.
15. Governing Law. This Assignment and the rights and obligations
of the parties hereunder shall be construed in accordance with and be governed
by the internal laws of the State of Illinois.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to
be executed and delivered by their duly authorized officers as of the date
first above written.
CREDENTIALS SERVICES INTERNATIONAL, INC.
By: /s/ T.J. Maloney
--------------------------------------
Name: T.J Maloney
Title: Chairman
LASALLE NATIONAL BANK
By: /s/ Andrew Kanfer
--------------------------------------
Name: Andrew Kanfer
Title: Loan Officer
<PAGE> 4
CONSENT AND AGREEMENT
The undersigned, TRW Inc., an Ohio corporation, hereby acknowledges
notice of and consents to all of the terms of the foregoing Assignment of
Contracts ("Assignment") as such Assignment relates to the Acquisition
Agreement and the Servicing Agreement (as such terms are defined in the Credit
Agreement referred to in the foregoing Assignment).
TRW INC.
By:
--------------------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.12 (vii)
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Agreement") dated as of January 14, 1997 is
made by CSl Investment Partners II, LP. ("Pledgor"), in favor of LASALLE
NATIONAL BANK ("Pledgor"). Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the "Credit Agreement" (as defined
below)
Recitals:
A. Credentials Services International, Inc., a Delaware corporation
("Borrower"), and Pledgee have entered into a certain Credit Agreement of even
date herewith (as amended, restated or otherwise modified from time to time,
the "Credit Agreement"), pursuant to which Pledgee has agreed, subject to
certain conditions precedent, to make loans and other financial accommodations
to Borrower from time to time.
B. Pledgor owns all of the issued and outstanding preferred stock
of Borrower and will derive direct and indirect economic benefit from the loans
and other financial accommodations made to Borrower under the Credit Agreement.
C. Pledgee has required, as a condition to its entering into the
Credit Agreement, that Pledgor execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce Pledgee
to enter into the Credit Agreement and to make loans and financial
accommodations to Borrower thereunder, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Pledgor hereby agrees with Pledgee as follows:
1. Definitions. Unless otherwise defined herein, all capitalized
terms used herein shall have the meanings set forth in the Credit Agreement.
2. Pledge. Pledgor hereby pledges, assigns, transfers, delivers
and grants to Pledgee a first lien on and first security interest in (a) all of
the capital stock of Borrower now owned or hereafter acquired by Pledgor
(collectively, the "Pledged Shares"), (b) all other property hereafter
delivered to, or in the possession or in the custody of, Pledgee in
substitution for or in addition to the Pledged Shares, (c) any other property
of Pledgor, as described in Section 5 below or otherwise, now or hereafter
delivered to, or in the possession or custody of Pledgor, and (d) all proceeds
of the foregoing (all of the foregoing being referred to herein collectively as
the "Pledged Collateral"). All of the Pledged Shares now owned by Pledgor which
are presently represented by stock certificates are listed on Exhibit A hereto
and such stock certificates, with undated stock powers duly executed in blank
by Pledgor, are being delivered to Pledgee simultaneously herewith. Pledgee
shall maintain possession and custody of the certificates representing the
Pledged Shares and any additional Pledged Collateral.
3. Security for Liabilities. The Pledged Collateral secures the
prompt payment, performance and observance of (I) all of the Obligations; and
(b) Pledgor's obligations and liabilities under this Agreement and each
agreement, document or instrument executed pursuant to or in connection with
this Agreement (all of the foregoing being referred to herein collectively as
the "Liabilities").
4. Representations, Warranties and Covenants of Pledgor. Pledgor
represents and warrants to Pledgee, and covenants with Pledgee, as follows:
(a) Pledgor is the record and beneficial owner of, and has legal
title to, the Pledged Shares listed on Exhibit A and such shares are, and all
other shares of stock constituting Pledged Collateral will be, free and clear
of all Liens except the Liens created by this Agreement.
(b) Pledgor has full power, authority and legal right to execute
the pledge provided for herein and to pledge the Pledged Shares and any
additional Pledged Collateral to Pledgee.
<PAGE> 2
(c) This Agreement has been duly authorized, executed and
delivered by Pledgor and constitutes a legal, valid and binding obligation of
Pledgor enforceable in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency and other similar laws
affecting the enforcement of creditors' rights generally or by the availability
of equitable remedies.
(d) There are no outstanding options, warrants or other agreements
with respect to the Pledged Shares and there will be no outstanding options,
warrants or other agreements with respect to any Pledged Collateral, other than
as set forth on Exhibit A.
(e) No consent, approval or authorization of or designation or
filing with any governmental authority on the part of Pledgor is required in
connection with the pledge and security interest granted under this Agreement
or the exercise by Pledgee of the voting and other rights provided for in this
Agreement.
(f) The execution, delivery and performance of this Agreement by
Pledgor will not violate any provision of any applicable law or regulation or
of any order, judgment, writ, award or decree of any court, arbitrator or
governmental authority applicable to Pledgor, or of the agreement of limited
partnership of Pledgor or of any mortgage, indenture, lease, contract or other
agreement, instrument or undertaking to which Pledgor is a party or which is
binding upon Pledgor or upon any of its property, and will not result in the
creation or imposition of any Lien on any of the assets of Pledgor except as
contemplated by this Agreement.
(g) The pledge, assignment and delivery to Pledgee of the Pledged
Shares pursuant to this Agreement creates a valid first perfected security
interest in the Pledged Shares and the proceeds thereof in favor of Pledgee,
subject to no prior Lien or to any agreement purporting to grant to any third
party a security interest in the property or assets of Pledgor which would
include the Pledged Shares.
(h) Pledgor agrees that it will defend Pledgee's security interest
in the Pledged Collateral and the proceeds thereof against the claims and
demands of all Persons.
5. Stock Dividends, Distributions, Etc. If, while this Agreement
is in effect, Pledgor shall become entitled to receive or shall receive any
stock certificate (including, without limitation, any certificate representing
a stock dividend or a stock distribution in connection with any
reclassification, increase or reduction of capital or issued in connection with
any reorganization), or any options or rights, whether as an addition to, in
substitution for, or in exchange for any of the Pledged Shares, or otherwise,
Pledgor agrees to accept the same as Pledgee's agent and to hold the same in
trust for Pledgee, and to deliver the same forthwith to Pledgee in the exact
form received, with the endorsement of Pledgor when necessary or appropriate
undated stock powers duly executed in blank, to be held by Pledgee, subject to
the terms hereof, as additional Pledged Collateral. If any distribution of
capital shall be made on or in respect of the Pledged Shares or any property
shall be distributed upon or with respect to the Pledged Shares pursuant to the
recapitalization or reclassification of the capital of the issuer thereof or
pursuant to the reorganization thereof, the property so distributed shall be
delivered to Pledgee to be held as additional Pledged Collateral. Except as
provided in Section 6(a)(ii) below, all sums of money and property so paid or
distributed in respect of the Pledged Shares which are received by Pledgor
shall, until paid or delivered by Pledgee, be held by Pledgor in trust as
additional Pledged Collateral.
6. Dividends and Voting Rights.
(a) So long as no Event of Default has occurred and is continuing,
Pledgor shall be entitled, subject to the other provisions of this Agreement,
including, without limitation, Section 9 below:
(i) to vote or consent with respect to the Pledged Shares
in any manner not inconsistent with this Agreement, the Credit
Agreement and the other Loan Documents; and
(ii) to receive cash dividends or other cash distribution
in the ordinary course made in respect of the Pledged Shares, to the
extent permitted to be paid pursuant to the Credit Agreement.
-2-
<PAGE> 3
(b) Upon the occurrence and during the continuance of an Event of
Default, Pledgor's right to exercise any of the voting or other privileges in
respect of the Pledged Shares shall immediately become suspended and all such
rights shall thereupon become vested in Pledgee, who shall thereupon have the
sole right to exercise such voting and other privileges in respect of such
Pledged Shares. To effect such transfer of rights, at any time during the
continuance of an Event of Default, Pledgee shall have the right to date and to
present to the issuer of the Pledged Shares the irrevocable proxy executed by
Pledgor substantially in the form of Exhibit B hereto.
(c) Upon the occurrence and during the continuance of an Event of
Default, if Pledgor, as record and beneficial owner of the Pledged Shares,
shall have received or shall have become entitled to receive, any cash
dividends or other cash distribution, Pledgor shall deliver to Pledgee, all
such cash or other distributions as additional Pledged Collateral.
7. Rights of Pledgee. Pledgee shall not be liable for any failure
to collect or realize upon the Obligations or any collateral security or
guaranty therefor, or any part thereof, or for any delay in so doing, nor shall
Pledgee be under any obligation to take any action whatsoever with regard
thereto. Any or all of the Pledged Shares held by Pledgee hereunder may, if an
Event of Default has occurred and is continuing, with prompt subsequent notice
to Pledgor, be registered in the name of Pledgee or its nominee and Pledgee or
its nominee may thereafter without notice exercise all voting and corporate
rights at any meeting with respect to Borrower and exercise any and all rights
of conversion, exchange, subscription or any other rights, privileges or
options pertaining to any of the Pledged Shares as if it were the absolute
owner thereof, including, without limitation, the right to vote in favor of,
and to exchange at its discretion any and all of the Pledged Shares upon, the
merger, consolidation, reorganization, recapitalization or other readjustment
with respect to Borrower or upon the exercise by Pledgor or Pledgee of any
right, privilege or option pertaining to any of the Pledged Shares, and in
connection therewith, to deposit and deliver any and all of the Pledged Shares
with any committee, depository, transfer agent, registrar or other designated
agency upon such terms and conditions as Pledgee may determine, all without
liability except to account for property actually received by Pledgee, but
Pledgee shall have no duty to exercise any of such rights, privileges or
options and shall not be responsible for any failure to do so or delay in so
doing.
8. Remedies.
(a) Upon the occurrence and during the continuance of an Event of
Default, Pledgee may exercise from time to time any rights and remedies
available to it under law or otherwise. If any notification of intended
disposition of any of the Collateral is required by law, such notification, if
mailed, shall be deemed reasonable and properly given if mailed, at least ten
days before such disposition, postage prepaid, addressed to Pledgor at the
address of Pledgor set forth in Section 19. Any proceeds of any disposition of
Collateral may be applied by Pledgee to the payment of expenses in connection
with the Collateral, including reasonable attorneys' fees and legal expenses
and any balance of such proceeds may be applied by Pledgee toward the payment
of the Liabilities in the order of application set forth in the Security
Agreement. All rights and remedies of Pledgee expressed hereunder are in
addition to all other rights and remedies possessed by it, including those
under any other agreement or instrument relating to any of the Liabilities or
any security therefor. No delay on the part of Pledgee in the exercise of any
right or remedy shall operate as a waiver thereof, and no single or partial
exercise by Pledgee of any right or remedy shall preclude other or further
exercise thereof or the exercise of any other right or remedy. No action of
Pledgee permitted hereunder shall impair or affect the rights of Pledgee in and
to the Collateral.
(b) Pledgor agrees that in any sale of any of the Collateral
whenever an Event of Default shall have occurred and be continuing, Pledgee is
hereby authorized to comply with any limitation or restriction in connection
with such sale as it may be advised by counsel is necessary in order to avoid
any violation of applicable law (including, without limitation, compliance with
such procedures as may restrict the number of prospective bidders and
purchasers, require that such prospective bidders and purchasers have certain
qualifications, and restrict such prospective bidders and purchasers to persons
who will represent and agree that they are purchasing for their own account for
investment and not with a view to the distribution or resale of such
Collateral), or in order to obtain any required approval of the sale of the
purchaser by any governmental regulatory authority or official, and Pledgor
further agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a
-3-
<PAGE> 4
commercially reasonable manner, nor shall Pledgee be liable or accountable to
Pledgor for any discount allowed by the reason of the fact that such Collateral
is sold in compliance with any such limitation or restriction.
(c) Pledgor agrees to do or cause to be done all such other acts
and things as may be necessary to make such sale or dispositions of any portion
or all of the Pledged Collateral valid and binding and in compliance with all
applicable laws, regulations, orders, injunctions, decrees or any court,
arbitrator or governmental authority having jurisdiction over any such sale or
disposition, all at Pledgor's expense.
9. No Disposition. Without the prior written consent of Pledgee,
Pledgor agrees that Pledgor will not sell, assign, transfer, exchange or
otherwise dispose of, or grant any option with respect to, the Pledged Shares
or any other Pledged Collateral, nor will Pledgor create, incur or permit to
exist any Lien with respect to any of the Pledged Shares, any other Pledged
Collateral or any interest therein, or any proceeds thereof, except for the
Lien provided for by this Agreement. Without the prior written consent of
Pledgor, Pledgee agrees that it will not vote to enable, and will not otherwise
permit, Borrower to issue any stock or other securities of any nature in
addition to or in exchange or substitution for the Pledged Shares.
10. Further Assurances. At any time and from time to time, upon
the written request of Pledgee, Pledgor shall execute and deliver all stock
powers, financing statements and such further documents and do such further
acts and things as Pledgee may reasonably request consistent with the
provisions hereof in order to effect the purposes of this Agreement.
11. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
12. No Waiver; Cumulative Remedies. Pledgee shall not by any act,
delay, omission or otherwise be deemed to have waived any of its remedies
hereunder, and no waiver by Pledgee shall be valid unless in writing and signed
by Pledgee and then only to the extent therein set forth. A waiver by Pledgee
of any right or remedy hereunder on any one occasion shall not be construed as
a bar to any right or remedy which Pledgee would otherwise have on any further
occasion. No course of dealing between Pledgor Pledgee and no failure to
exercise, nor any delay in exercising on the part of Pledgee of any right,
power or privilege hereunder or under any other Loan Document shall impair such
right or remedy or operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
13. Binding Effect. This Agreement shall be binding on the
successors and assigns of Pledgor and shall inure to the benefit of Pledgee and
its successors and assigns, except that Pledgor shall not have any right to
assign its obligations under this Agreement or any interest herein without the
prior written consent of Pledgee.
14. Termination. This Agreement and the Liens granted hereunder
shall terminate upon termination of the Credit Agreement and the full and
complete performance and satisfaction of the Liabilities and promptly upon such
termination and such full and complete performance and satisfaction, Pledgee
shall surrender the certificates evidencing any Pledged Collateral to Pledgor.
15. Possession of Pledged Collateral. Beyond the exercise of
reasonable care to assure the safe custody of the Pledged Collateral in the
physical possession of Pledgee pursuant hereto, neither Pledgee nor any nominee
of Pledgee shall have any duty or liability to collect any sums due in respect
thereof or to protect, preserve or exercise any rights pertaining thereto and
shall be relieved of all responsibility for the Pledged Collateral upon
surrender thereof to Pledgor.
16. Survival. All representations and warranties of Pledgor
contained in this Agreement shall survive the execution and delivery of this
Agreement.
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<PAGE> 5
17. Taxes and Expenses. To the extent not paid by Borrower,
Pledgor shall upon demand pay to Pledgee all reasonable expenses, including the
reasonable fees and expenses of counsel for Pledgee and of any experts and
agents, that Pledgee may incur in connection with: (a) the custody or
preservation of, or the sale of, collection from, or other realization upon,
any of the Pledged Collateral; (b) the exercise or enforcement of any of the
rights of Pledgee hereunder; or (c) the failure of Pledgor to perform or
observe any of the provisions hereof.
18. Attorney-in-Fact. Pledgor hereby irrevocably appoints Pledgee
as Pledgor's attorney-in-fact, effective upon the occurrence and during the
continuance of an Event of Default, with full authority in the place and stead
of Pledgor and in the name of Pledgor or otherwise, from time to time in
Pledgee's discretion, to take any action and to exercise any instrument that
Pledgee deems reasonably necessary or advisable to accomplish the purposes of
this Agreement, including, without limitation, to receive, endorse and collect
all instruments made payable to Pledgor representing any dividend, interest
payment or other distribution in respect of any pledged collateral or any part
thereof and to give full discharge for the same, when and to the extent
permitted by this Agreement.
19. Notices. All notices, demands and other communications
hereunder shall be in writing and delivered personally or by nationally
recognized overnight courier, or sent by first class mail or by telecopy (with
such telecopy to be confirmed promptly in writing sent by first class mail,
sent:
(a) If to Pledgor, to:
CSI Investment Partners II, L.P.
c/o Lincolnshire Management, Inc.
780 Third Avenue
New York, NY 10017
Attention: Allan Weinstein
T.J. Maloney
Telephone: (212) 319-3633 Telecopier: (212) 319-5457
(b) If to Pledgee, to
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Andrew Kanfer
Telephone: (312)904-2771
Telecopier: (312)904-4605
or to such other address or telecopy number as any party hereto may most
recently have designated in writing to the other party by such notice. All
such communications shall be deemed to have been given or made (i) if delivered
in person, when delivered, (ii) if delivered by telecopy, on the date of
transmission if transmitted on a Business Day before 4:00 p.m. Chicago time,
otherwise on the next Business Day, (iii) if delivered by overnight courier,
one Business Day after delivery to the courier properly addressed and (iv) if
mailed, three Business Days after deposited in the United States mail,
certified or registered.
20. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
(a) PLEDGOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN
CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND PLEDGOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF
SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND
IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE
OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURT OR THAT SUCH COURT
IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF PLEDGEE TO
BRING PROCEEDINGS AGAINST PLEDGOR IN THE COURTS OF ANY OTHER JURISDICTION. ANY
JUDICIAL PROCEEDING BY PLEDGOR AGAINST PLEDGEE OR ANY AFFILIATE THEREOF
INVOLVING,
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<PAGE> 6
DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH THIS AGREEMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO,
ILLINOIS.
(b) PLEDGOR DESIGNATES AND APPOINTS CT CORPORATION SYSTEM AND SUCH
OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY PLEDGOR WHICH IRREVOCABLY AGREE
IN WRITING TO SO SERVE AS ITS AGENT TO RECEIVE ON ITS BEHALF SERVICE OF ALL
PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY
ACKNOWLEDGED BY PLEDGOR TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT.
A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO
PLEDGOR AT ITS ADDRESS PROVIDED IN SECTION 19 EXCEPT THAT, UNLESS OTHERWISE
PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE
VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY PLEDGOR REFUSES TO
ACCEPT SERVICE, PLEDGOR HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL
CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
21. WAIVER OF JURY TRIAL. PLEDGOR AND PLEDGEE EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO ITS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY
ANY OF THE PARTIES AGAINST THE OTHER PARTY, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS OR OTHERWISE. PLEDGOR AND PLEDGEE EACH AGREE THAT ANY SUCH
CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY.
WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE
RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY
ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART,
TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION
HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
23. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICT OF LAWS PROVISIONS.
24. Modifications. No amendment, modification, termination or
waiver of any provision of this Agreement or consent to any departure by
Pledgor thereof from, shall be effective without the written agreement of
Pledgee and Pledgor and then only to the extent specifically set forth in such
writing.
25. Headings. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of
this Agreement for any other purpose.
26. Counterparts. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one and the same
instrument and all of the parties hereto may execute this Agreement by signing
any such counterpart.
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<PAGE> 7
27. Entire Agreement. This Agreement embodies the entire agreement
and understanding between Pledgor and Pledgee with respect to the subject
matter hereof and supersedes all prior oral and written agreements and
understandings between Pledgor and Pledgee relating to the subject matter
hereof.
* * * * *
IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to
be duly executed as of the day and year first written above
CSI INVESTMENT PARTNERS II, L.P.
By: Credentials II G.P.L.P.
By: Credentials II G.P., Inc.
By: /s/ T.J. Maloney
--------------------------------------
Name: T.J. Maloney
Title: President
LASALLE NATIONAL BANK
By: /s/ Andrew Kanfer
--------------------------------------
Name: Andrew Kanfer
Title: Loan Officer
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<PAGE> 8
ACKNOWLEDGMENT
The undersigned hereby (a) acknowledges receipt of a copy of the foregoing
Pledge Agreement, (b) waives any rights or requirement at any time hereafter to
receive a copy of such Pledge Agreement in connection with the registration of
any Pledged Shares or any other Pledged Collateral (as such terms are defined
therein) in the name of Pledgee or its nominee or the exercise of voting rights
by Pledgee, and fc) agrees promptly to note on its books and records the
transfer of the security interest in the stock of the undersigned as provided
in such Pledge Agreement, including the following legend:
PURSUANT TO THAT CERTAIN PLEDGE AGREEMENT DATED AS OF JANUARY 14, 1997
(AS FROM TIME TO TIME AMENDED, RESTATED OR OTHERWISE MODIFIED) CSI
INVESTMENT PARTNERS IL, LP, HAS UNDER AND SUBJECT TO THE TERMS OF
SECTION 6(b) OF SUCH PLEDGE AGREEMENT EMPOWERED LASALLE NATIONAL BANK
TO VOTE THE SHARES REPRESENTED BY THIS CERTIFICATE PURSUANT TO SUCH
PLEDGE AGREEMENT.
Dated: January 14, 1997
CREDENTIALS SERVICES INTERNATIONAL, INC.
By: /s/ T.J. Maloney
--------------------------------------
Name: T.J. Maloney
Title: Chairman
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<PAGE> 9
EXHIBIT A
TO
PLEDGE AGREEMENT (Preferred Stock)
Pledged Shares
1. 3,000 Shares of Series A Cumulative Preferred Stock ("Preferred
Stock"), par value $.01 per share, after giving effect to the issuance
by Borrower to Pledgor of 1,000 shares of Preferred Stock
simultaneously with the closing of the transactions contemplated under
the Credit Agreement between CSI and LaSalle National Bank.
2. There are no outstanding options, warrants or other agreements with
respect to issuance or acquisition of the pledged shares.
<PAGE> 10
EXHIBIT B
To
Pledge Agreement
IRREVOCABLE PROXY
The undersigned hereby appoints LaSalle- NATIONAL BANK ("Lender"), as
proxy with full. power of substitution, and hereby authorizes Lender to
represent and vote all of the shares of the capital stock of Credentials
Services International, Inc. held of record by the undersigned on the date of
exercise hereof or at any meeting or at any other time chose by Lender in its
sole discretion. but only at the times provided in that certain Pledge
Agreement dated as of January 14, 1997 executed by the undersigned in favor of
Lender.
Date: ____________________
CSI INVESTMENT PARTNERS II, L.P.
By: Credentials II, GP. L.P.
By: Credentials II G.P., Inc.
By: /s/ T.J. Maloney
--------------------------------------
Name: T.J. Maloney
Title: President
<PAGE> 1
Exhibit 10.12 (viii)
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Agreement") dated as of January 14, 1997 is made by CIS
Acquisition Partners, L.P. ("Pledgor"), in favor of LASALLE NATIONAL BANK
("Pledgee"). Capitalized terms used herein and not otherwise defined shall have
the meanings set forth in the "Credit Agreement" (as defined below)
Recitals:
A. Credentials Services International, Inc., a Delaware corporation
("Borrower"), and Pledgee have entered into a certain Credit Agreement of even
date herewith (as amended, restated or otherwise modified from time to time,
the "Credit Agreement"), pursuant to which Pledgee has agreed, subject to
certain conditions precedent, to make loans and other financial accommodations
to Borrower from time to time.
B. Pledgor owns all of the issued and outstanding common stock of Borrower
and will derive direct and indirect economic benefit from the loans and other
financial accommodations made to Borrower under the Credit Agreement.
C. Pledgee has required, as a condition to its entering into the Credit
Agreement, that Pledgor execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce Pledgee to enter
into the Credit Agreement and to make loans and financial accommodations to
Borrower thereunder, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Pledgor hereby agrees with
Pledgee as follows:
1. Definitions. Unless otherwise defined herein, all capitalized terms used
herein shall have the meanings set forth in the Credit Agreement.
2. Pledge. Pledgor hereby pledges, assigns, transfers, delivers and grants
to Pledgee a first lien on and first security interest in (a) all of the
capital stock of Borrower now owned or hereafter acquired by Pledgor
(collectively, the "Pledged Shares"), (b) all other property hereafter
delivered to, or in the possession or in the custody of, Pledgee in
substitution for or in addition to the Pledged Shares, (c) any other property
of Pledgor, as described in Section 5 below or otherwise, now or hereafter
delivered to, or in the possession or custody of Pledgor, and (d) all proceeds
of the foregoing (all of the foregoing being referred to herein collectively as
the "Pledged Collateral"). All of the Pledged Shares now owned by Pledgor which
are presently represented by stock certificates are listed on Exhibit A hereto
and such stock certificates, with undated stock powers duly executed in blank
by Pledgor, are being delivered to Pledgee simultaneously herewith. Pledgee
shall maintain possession and custody of the certificates representing the
Pledged Shares and any additional Pledged Collateral.
3. Security for Liabilities. The Pledged Collateral secures the prompt
payment, performance and observance of (I) all of the Obligations; and (b)
Pledgor's obligations and liabilities under this Agreement and each agreement,
document or instrument executed pursuant to or in connection with this
Agreement (all of the foregoing being referred to herein collectively as the
"Liabilities").
4. Representations, Warranties and Covenants of Pledgor. Pledgor represents
and warrants to Pledgee, and covenants with Pledgee, as follows:
(a) Pledgor is the record and beneficial owner of, and has legal
title to, the Pledged Shares listed on Exhibit A and such shares are, and all
other shares of stock constituting Pledged Collateral will be, free and clear
of all Liens except the Liens created by this Agreement.
(b) Pledgor has full power, authority and legal right to execute
the pledge provided for herein and to pledge the Pledged Shares and any
additional Pledged Collateral to Pledgee.
(c) This Agreement has been duly authorized, executed and delivered
by Pledgor and constitutes a legal, valid and binding obligation of Pledgor
enforceable in accordance with its terms, except as such enforceability may be
<PAGE> 2
limited by applicable bankruptcy, insolvency and other similar laws affecting
the enforcement of creditors' rights generally or by the availability of
equitable remedies.
(d) There are no outstanding options, warrants or other agreements
with respect to the Pledged Shares and there will be no outstanding options,
warrants or other agreements with respect to any Pledged Collateral, other than
as set forth on Exhibit A.
(e) No consent, approval or authorization of or designation or
filing with any governmental authority on the part of Pledgor is required in
connection with the pledge and security interest granted under this Agreement
or the exercise by Pledgee of the voting and other rights provided for in this
Agreement.
(f) The execution, delivery and performance of this Agreement by
Pledgor will not violate any provision of any applicable law or regulation or
of any order, judgment, writ, award or decree of any court, arbitrator or
governmental authority applicable to Pledgor, or of the agreement of limited
partnership of Pledgor or the charter or by-laws of Borrower or of any
securities issued by Borrower or of any mortgage, indenture, lease, contract or
other agreement, instrument or undertaking to which Pledgor or Borrower is a
party or which is binding upon Pledgor or Borrower or upon any of their
respective property, and will not result in the creation or imposition of any
Lien on any of the assets of Pledgor or Borrower except as contemplated by this
Agreement.
(g) The pledge, assignment and delivery to Pledgee of the Pledged
Shares pursuant to this Agreement creates a valid first perfected security
interest in the Pledged Shares and the proceeds thereof in favor of Pledgee,
subject to no prior Lien or to any agreement purporting to grant to any third
party a security interest in the property or assets of Pledgor which would
include the Pledged Shares.
(h) Pledgor agrees that it will defend Pledgee's security interest
in the Pledged Collateral and the proceeds thereof against the claims and
demands of all Persons.
5. Stock Dividends, Distributions, Etc. If, while this Agreement is in
effect, Pledgor shall become entitled to receive or shall receive any stock
certificate (including, without limitation, any certificate representing a
stock dividend or a stock distribution in connection with any reclassification,
increase or reduction of capital or issued in connection with any
reorganization), or any options or rights, whether as an addition to, in
substitution for, or in exchange for any of the Pledged Shares, or otherwise,
Pledgor agrees to accept the same as Pledgee's agent and to hold the same in
trust for Pledgee, and to deliver the same forthwith to Pledgee in the exact
form received, with the endorsement of Pledgor when necessary or appropriate
undated stock powers duly executed in blank, to be held by Pledgee, subject to
the terms hereof, as additional Pledged Collateral. If any distribution of
capital shall be made on or in respect of the Pledged Shares or any property
shall be distributed upon or with respect to the Pledged Shares pursuant to the
recapitalization or reclassification of the capital of the issuer thereof or
pursuant to the reorganization thereof, the property so distributed shall be
delivered to Pledgee to be held as additional Pledged Collateral. Except as
provided in Section 6(a)(ii) below, all sums of money and property so paid or
distributed in respect of the Pledged Shares which are received by Pledgor
shall, until paid or delivered by Pledgee, be held by Pledgor in trust as
additional Pledged Collateral.
6. Dividends and Voting Rights.
(a) So long as no Event of Default has occurred and is continuing,
Pledgor shall be entitled, subject to the other provisions of this Agreement,
including, without limitation, Section 9--below:
(i) To vote or consent with respect to the Pledged Shares
in any manner not inconsistent with this Agreement, the Credit
Agreement and the other Loan Documents; and
(ii) To receive cash dividends or other cash distribution in
the ordinary course made in respect of the Pledged Shares, to the
extent permitted to be paid pursuant to the Credit Agreement.
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<PAGE> 3
(b) Upon the occurrence and during the continuance of an Event of
Default, Pledgor's right to exercise any of the voting or other privileges in
respect of the Pledged Shares shall immediately become suspended and all such
rights shall thereupon become vested in Pledgee, who shall thereupon have the
sole right to exercise such voting and other privileges in respect of such
Pledged Shares. To effect such transfer of rights, at any time during the
continuance of an Event of Default, Pledgee shall have the right to date and to
present to the issuer of the Pledged Shares the irrevocable proxy executed by
Pledgor substantially in the form of Exhibit B hereto.
(c) Upon the occurrence and during the continuance of an Event of
Default, if Pledgor, as record and beneficial owner of the Pledged Shares,
shall have received or shall have become entitled to receive, any cash
dividends or other cash distribution, Pledgor shall deliver to Pledgee, all
such cash or other distributions as additional Pledged Collateral.
7. Rights of Pledgee. Pledgee shall not be liable for any failure to collect
or realize upon the Obligations or any collateral security or guaranty
therefor, or any part thereof, or for any delay in so doing, nor shall Pledgee
be under any obligation to take any action whatsoever with regard thereto. Any
or all of the Pledged Shares held by Pledgee hereunder may, if an Event of
Default has occurred and is continuing, with prompt subsequent notice to
Pledgor, be registered in the name of Pledgee or its nominee and Pledgee or its
nominee may thereafter without notice exercise all voting and corporate rights
at any meeting with respect to Borrower and exercise any and all rights of
conversion, exchange, subscription or any other rights, privileges or options
pertaining to any of the Pledged Shares as if it were the absolute owner
thereof, including, without limitation, the right to vote in favor of, and to
exchange at its discretion any and all of the Pledged Shares upon, the merger,
consolidation, reorganization, recapitalization or other readjustment with
respect to Borrower or upon the exercise by Pledgor or Pledgee of any right,
privilege or option pertaining to any of the Pledged Shares, and in connection
therewith, to deposit and deliver any and all of the Pledged Shares with any
committee, depository, transfer agent, registrar or other designated agency
upon such terms and conditions as Pledgee may determine, all without liability
except to account for property actually received by Pledgee, but Pledgee shall
have no duty to exercise any of such rights, privileges or options and shall
not be responsible for any failure to do so or delay in so doing.
8. Remedies.
(a) Upon the occurrence and during the continuance of an Event of
Default, Pledgee may exercise from time to time any rights and remedies
available to it under law or otherwise. If any notification of intended
disposition of any of the Collateral is required by law, such notification, if
mailed, shall be deemed reasonable and properly given if mailed, at least ten
days before such disposition, postage prepaid, addressed to Pledgor at the
address of Pledgor set forth in Section 19. Any proceeds of any disposition of
Collateral may be applied by Pledgee to the payment of expenses in connection
with the Collateral, including reasonable attorneys' fees and legal expenses
and any balance of such proceeds may be applied by Pledgee toward the payment
of the Liabilities in the order of application set forth in the Security
Agreement. All rights and remedies of Pledgee expressed hereunder are in
addition to all other rights and remedies possessed by it, including those
under any other agreement or instrument relating to any of the Liabilities or
any security therefor. No delay on the part of Pledgee in the exercise of any
right or remedy shall operate as a waiver thereof, and no single or partial
exercise by Pledgee of any right or remedy shall preclude other or further
exercise thereof or the exercise of any other right or remedy. No action of
Pledgee permitted hereunder shall impair or affect the rights of Pledgee in and
to the Collateral.
(b) Pledgor agrees that in any sale of any of the Collateral
whenever an Event of Default shall have occurred and be continuing, Pledgee is
hereby authorized to comply with any limitation or restriction in connection
with such sale as it may be advised by counsel is necessary in order to avoid
any violation of applicable law (including, without limitation, compliance with
such procedures as may restrict the number of prospective bidders and
purchasers, require that such prospective bidders and purchasers have certain
qualifications, and restrict such prospective bidders and purchasers to persons
who will represent and agree that they are purchasing for their own account for
investment and not with a view to the distribution or resale of such
Collateral), or in order to obtain any required approval of the sale of the
purchaser by any governmental regulatory authority or official, and Pledgor
further agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a
-3-
<PAGE> 4
commercially reasonable manner, nor shall Pledgee be liable or accountable to
Pledgor for any discount allowed by the reason of the fact that such Collateral
is sold in compliance with any such limitation or restriction.
(c) Pledgor agrees to do or cause to be done all such other acts
and things as may be necessary to make such sale or dispositions of any portion
or all of the Pledged Collateral valid and binding and in compliance with all
applicable laws, regulations, orders, injunctions, decrees or any court,
arbitrator or governmental authority having jurisdiction over any such sale or
disposition, all at Pledgor's expense.
9. No Disposition. Without the prior written consent of Pledgee, Pledgor
agrees that Pledgor will not sell, assign, transfer, exchange or otherwise
dispose of, or grant any option with respect to, the Pledged Shares or any
other Pledged Collateral, nor will Pledgor create, incur or permit to exist any
Lien with respect to any of the Pledged Shares, any other Pledged Collateral or
any interest therein, or any proceeds thereof, except for the Lien provided for
by this Agreement. Without the prior written consent of Pledgor, Pledgee agrees
that it will not vote to enable, and will not otherwise permit, Borrower to
issue any stock or other securities of any nature in addition to or in exchange
or substitution for the Pledged Shares.
10. Further Assurances. At any time and from time to time, upon the written
request of Pledgee, Pledgor shall execute and deliver all stock powers,
financing statements and such further documents and do such further acts and
things as Pledgee may reasonably request consistent with the provisions hereof
in order to effect the purposes of this Agreement.
11. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
12. No Waiver; Cumulative Remedies. Pledgee shall not by any act, delay,
omission or otherwise be deemed to have waived any of its remedies hereunder,
and no waiver by Pledgee shall be valid unless in writing and signed by Pledgee
and then only to the extent therein set forth. A waiver by Pledgee of any right
or remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy, which Pledgee would otherwise have on any further occasion. No
course of dealing between Pledgor and Pledgee and no failure to exercise, nor
any delay in exercising on the part of Pledgee of any right, power or privilege
hereunder or under any other Loan Document shall impair such right or remedy or
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.
13. Binding Effect. This Agreement shall be binding on the successors and
assigns of Pledgor and shall inure to the benefit of Pledgee and its successors
and assigns, except that Pledgor shall not have any right to assign its
obligations under this Agreement or any interest herein without the prior
written consent of Pledgee.
14. Termination. This Agreement and the Liens granted hereunder shall
terminate upon termination of the Credit Agreement and the full and complete
performance and satisfaction of the Liabilities and promptly upon such
termination and such full and complete performance and satisfaction, Pledgee
shall surrender the certificates evidencing any Pledged Collateral to Pledgor.
15. Possession of Pledged Collateral. Beyond the exercise of reasonable care
to assure the safe custody of the Pledged Collateral in the physical possession
of Pledgee pursuant hereto, neither Pledgee nor any nominee of Pledgee shall
have any duty or liability to collect any sums due in respect thereof or to
protect, preserve or exercise any rights pertaining thereto and shall be
relieved of all responsibility for the Pledged Collateral upon surrender
thereof to Pledgor.
16. Survival. All representations and warranties of Pledgor contained in this
Agreement shall survive the execution and delivery of this Agreement.
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<PAGE> 5
17. Taxes and Expenses. To the extent not paid by Borrower, Pledgor shall upon
demand pay to Pledgee all reasonable expenses, including the reasonable fees
and expenses of counsel for Pledgee and of any experts and agents, that Pledgee
may incur in connection with: (a) the custody or preservation of, or the sale
of, collection from, or other realization upon, any of the Pledged Collateral;
(b) the exercise or enforcement of any of the rights of Pledgee hereunder; or
(c) the failure of Pledgor to perform or observe any of the provisions hereof.
18. Attorney-in-Fact. Pledgor hereby irrevocably appoints Pledgee as
Pledgor's attorney-in-fact, effective upon the occurrence and during the
continuance of an Event of Default, with full authority in the place and stead
of Pledgor and in the name of Pledgor or otherwise, from time to time in
Pledgee's discretion, to take any action and to exercise any instrument that
Pledgee deems reasonably necessary or advisable to accomplish the purposes of
this Agreement, including, without limitation, to receive, endorse and collect
all instruments made payable to Pledgor representing any dividend, interest
payment or other distribution in respect of any pledged collateral or any part
thereof and to give full discharge for the same, when and to the extent
permitted by this Agreement.
19. Notices. All notices, demands and other communications hereunder shall be
in writing and delivered personally or by nationally recognized overnight
courier, or sent by first class mail or by telecopy (with such telecopy to be
confirmed promptly in writing sent by first class mail, sent:
(a) If to Pledgor, to:
CIS Acquisition Partners, L.P.
c/o Lincolnshire Management, Inc.
780 Third Avenue
New York, NY 10017
Attention:Allan Weinstein
T.J. Maloney
Telephone: (212) 319-3633
Telecopier: (212) 319-5457
(b) If to Pledgee, to
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Andrew Kanfer
Telephone: (312) 904-2771
Telecopier: (312) 904-4605
or to such other address or telecopy number as any party hereto may most
recently have designated in writing to the other party by such notice. All
such communications shall be deemed to have been given or made (i) if delivered
in person, when delivered, (ii) if delivered by telecopy, on the date of
transmission if transmitted on a Business Day before 4:00 p.m. Chicago time,
otherwise on the next Business Day, (iii) if delivered by overnight courier,
one Business Day after delivery to the courier properly addressed and (iv) if
mailed, three Business Days after deposited in the United States mail,
certified or registered.
20. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
(a) PLEDGOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN
CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND PLEDGOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF
SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND
IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE
OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURT OR THAT SUCH COURT
IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF PLEDGEE TO
BRING PROCEEDINGS AGAINST PLEDGOR IN THE COURTS OF ANY OTHER JURISDICTION.
-5-
<PAGE> 6
ANY JUDICIAL PROCEEDING BY PLEDGOR AGAINST PLEDGEE OR ANY AFFILIATE THEREOF
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THIS AGREEMENT SHALL BE BROUGHT ONLY IN A COURT
IN CHICAGO, ILLINOIS.
(b) PLEDGOR DESIGNATES AND APPOINTS CT CORPORATION SYSTEM AND SUCH
OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY PLEDGOR WHICH IRREVOCABLY AGREE
IN WRITING TO SO SERVE AS ITS AGENT TO RECEIVE ON ITS BEHALF SERVICE OF ALL
PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY
ACKNOWLEDGED BY PLEDGOR TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT.
A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO
PLEDGOR AT ITS ADDRESS PROVIDED IN SECTION 19 EXCEPT THAT, UNLESS OTHERWISE
PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE
VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY PLEDGOR REFUSES TO
ACCEPT SERVICE, PLEDGOR HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL
CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
21. WAIVER OF JURY TRIAL. PLEDGOR AND PLEDGEE EACH WAIVE THEIR RESPECTIVE
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF OR RELATED TO ITS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN
ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE
PARTIES AGAINST THE OTHER PARTY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS OR OTHERWISE. PLEDGOR AND PLEDGEE EACH AGREE THAT ANY SUCH CLAIM OR
CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT
LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT
TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE
THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION HEREOF. THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT.
23. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS,
WITHOUT REGARD TO CONFLICT OF LAWS PROVISIONS.
24. Modifications. No amendment, modification, termination or waiver of any
provision of this Agreement or consent to any departure by Pledgor thereof
from, shall be effective without the written agreement of Pledgee and Pledgor
and then only to the extent specifically set forth in such writing.
25. Headings. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
26. Counterparts. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one and the same
instrument and all of the parties hereto may execute this Agreement by signing
any such counterpart.
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<PAGE> 7
27. Entire Agreement. This Agreement embodies the entire agreement and
understanding between Pledgor and Pledgee with respect to the subject matter
hereof and supersedes all prior oral and written agreements and understandings
between Pledgor and Pledgee relating to the subject matter hereof.
* * * * *
IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to
be duly executed as of the day and year first written above
CIS ACQUISITION PARTNERS, L.P.
By: Credentials G.P.L.P.
By: Credentials G.P., Inc.
By: /s/ T.J. Maloney
--------------------------------------
Name: T.J. Maloney
Title: President
LASALLE NATIONAL BANK
By: /s/ Andrew Kanfer
--------------------------------------
Name: Andrew Kanfer
Title: Loan Officer
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<PAGE> 8
EXHIBIT A
TO
PLEDGE AGREEMENT
(Common Stock)
Pledged Shares
1. 100 Shares of common stock, par value $.01 per share.
2. CSI Investment Partners II, L.P, is the registered holder of a
Warrant to Purchase 9,900 shares of common stock of Credentials
Services International, Inc.
<PAGE> 9
ACKNOWLEDGMENT
The undersigned hereby (a) acknowledges receipt of a copy of the foregoing
Pledge Agreement, (b) waives any rights or requirement at any time hereafter to
receive a copy of such Pledge Agreement in connection with the registration of
any Pledged Shares or any other Pledged Collateral (as such terms are defined
therein) in the name of Pledgee or its nominee or the exercise of voting rights
by Pledgee, and (c) agrees promptly to note on its books and records the
transfer of the security interest in the stock of the undersigned as provided
in such Pledge Agreement, including the following legend:
PURSUANT TO THAT CERTAIN PLEDGE AGREEMENT DATED AS OF JANUARY 14, 1996
(AS FROM TIME TO TIME AMENDED, RESTATED OR OTHERWISE MODIFIED) CIS
ACQUISITION PARTNERS, L.P. HAS UNDER AND SUBJECT TO THE TERMS OF
SECTION 6(b) OF SUCH PLEDGE AGREEMENT EMPOWERED LASALLE NATIONAL BANK
TO VOTE THE SHARES REPRESENTED BY THIS CERTIFICATE PURSUANT TO SUCH
PLEDGE AGREEMENT.
Dated: January 14, 1997.
CREDENTIALS SERVICES INTERNATIONAL, INC.
By: /s/ T.J. Maloney
--------------------------------------
Name: T.J. Maloney
Title: Chairman
<PAGE> 10
EXHIBIT B
to
PLEDGE AGREEMENT
IRREVOCABLE PROXY
The undersigned hereby appoints LASALLE National BANK ("Lender"), as
proxy with full power of substitution, and hereby authorizes Lender to
represent and vote all of the shares of The capital stock of
Credentials Services International, inc. held of record by the
undersigned on the date of exercise hereof or at any meeting or at any
other time chose by Lender in its sole discretion, but only at the
times provided in that certain Pledge Agreement dated as of January
14, 1997 executed by the undersigned in favor of Lender.
Date: _________________________________
CIS ACQUISITION PARTNERS, L.P.
By: Credentials G.P.L.P.
By: Credentials G.P., Inc.
By: /s/ T.J. Maloney
--------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.15
CSI INVESTMENT PARTNERS II, L.P.
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
<PAGE> 2
CSI INVESTMENT PARTNERS II, L.P.
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, dated October 7,
1997, among Credentials II G.P. L.P., a Delaware limited partnership (the
"General Partner"), and LINCOLNSHIRE EQUITY FUND, L.P., a Delaware limited
partnership ("Fund") and the parties named in Schedule B annexed to this
Agreement.
W I T N E S S E T H:
WHEREAS, the undersigned are executing this Amended and Restated
Agreement of Limited Partnership, as reformed (the "Agreement") for the purpose
of amending the provisions of a certain limited partnership agreement, dated as
of November 6, 1996 (the "Original Agreement"), with respect to a Delaware
limited partnership formed under the name CSI Investment Partners II, L.P.,
pursuant to the Original Agreement and a Certificate of Limited Partnership
filed with the Delaware Secretary of State on November 4, 1996 (as amended,
supplemented or restated from time to time, the "Certificate"), in accordance
with the provisions of the Delaware Revised Uniform Limited Partnership Act; and
WHEREAS, the foregoing amendments include the addition of a new class of
limited partners denominated as Class B Limited Partners (as hereinafter
defined) and set forth relative rights of the Class A Partners and Class B
Partners with respect to the Partnership as hereinafter provided; and
WHEREAS, the original Agreement was amended and restated as
of May 9, 1997; and
WHEREAS, in June 1997, the parties to the Original Agreement executed
Amendment No. 1 to that agreement and the provisions of that amendment are now
restated as set forth herein; and
WHEREAS, the Amended and Restated Agreement of Limited Partnership,
dated May 9, 1997 (the "May 9 Writing") was intended to give effect to
agreements reached on or about October 18, 1996 between Credentials Services
International, Inc., a Delaware corporation (the "Company") and certain of its
executive officers and key employees who are the persons named as Class B
Limited Partners herein; and
WHEREAS, each of the parties to this Agreement agrees and confirms that
as a result of a mutual mistake made by each of the parties to the May 9
Writing, the provisions included in the May 9 Writing relating to the Preferred
Return set forth in Section 4.2 of the May 9 Writing did not correctly reflect
the mutual intention and agreement of the parties hereto; and
<PAGE> 3
WHEREAS, the parties to this Agreement agree and confirm that because
the above-mentioned provision in the May 9 Writing did not reflect their mutual
intentions and agreement that it is not, and never was, part of the contract
created among them; and
WHEREAS, the parties to this Agreement desire to reform this Agreement
to reflect their true intentions and agreement and desire that this Agreement,
as reformed and revised, is not, and shall not be interpreted or deemed to
constitute, a new contract or agreement or an amendment of the contract existing
prior to the date of this Agreement, but rather a reformation of the existing
agreement effected to express the true intentions and agreements of the parties
to this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein made, and intending to be legally bound, the parties hereby agree as
follows:
ARTICLE I
DEFINITIONS
The defined terms used in this Agreement, unless the context otherwise
requires, shall have the meanings specified in this Article I and in the
Preambles to this Agreement.
"Accountants" shall mean such firm of independent public accountants as
the General Partner may appoint, from time to time, as provided in Section
5.1.1(f).
"Act" shall mean the Delaware Revised Uniform Limited Partnership Act,
as the same may be amended from time to time, and any successor to such Act.
"Affiliate" shall have the meaning ascribed thereto by Rule 12b-2 under
the Securities Exchange Act of 1934, as amended, as in effect on the date
hereof.
"Agreement" shall mean this Agreement of Limited Partnership, as
originally executed and as subsequently amended, modified, supplemented or
restated from time to time.
"Capital Account" when used in respect to any Partner shall mean any
Capital Contribution or Contributions actually made by such Partner to the
Partnership, increased by the amount of all income and gains credited to the
Capital Account of such Partner pursuant to Section 4.4. hereof and decreased by
the sum of (a) all amounts of cash and assets distributed by the Partnership to
such Partner pursuant to Sections 4.1 and 4.2 and (b) the amount of all losses
charged to the Capital Account of such Partner pursuant to Section 4.3. This
provision and the other provisions of this Agreement relating to the maintenance
of Capital Accounts are intended to comply with Treasury Regulation Section
1.704-1(b) and shall be interpreted and applied in a manner consistent with such
Regulations. Therefore,
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<PAGE> 4
notwithstanding anything contained herein to the contrary and in further
defining the method in which the Capital Accounts of the Partners shall, in all
respects, be maintained in accordance with Treasury Regulation Section
1.704-1(b)(2)(iv), and any optional charges, credits or adjustments to such
Capital Accounts by the Partners which are provided for in such Regulations, and
are otherwise proper under state law and this Agreement, and which are made by
the Partnership and shall be made with any and all correlative adjustments to
the Capital Accounts of the Partners required by Treasury Regulation Section
1.704-1(b)(2)(iv).
"Capital Contributions" shall mean the capital contributions made in
cash to the Partnership pursuant to Article III by the Partners or, as the
context requires, by the General Partner and the Class A Limited Partners or,
when such term is used in the singular, by any one Partner (or, in all cases, by
the predecessor holders of the Interests of such Partner or Partners), as set
forth in Schedule A hereto.
"Cash Flow" for a Fiscal Year shall mean the aggregate cash receipts of
the Partnership for such Fiscal Year from all sources (including sales of
assets, refinancing of debt and amounts released from reserves no longer deemed
necessary by the General Partner for the operation of the Partnership), other
than receipts in respect of Capital Contributions, reduced by (i) appropriations
for reserves which the General Partner may deem reasonably necessary for the
discharge of the liabilities and obligations of the Partnership and (ii)
repayment of the principal amount of Partnership debt.
"Certificate" shall mean the Certificate of Limited Partnership of the
Partnership, filed with the Delaware Secretary of State, as such Certificate may
be amended or restated from time to time.
"Class A Limited Partners" or "Class A Partners" shall mean the Limited
Partners whose name or names are set forth on Schedule A hereto.
"Class B Limited Partners" or "Class B Partners" shall be the Limited
Partners whose names are set forth on Schedule B hereto.
"Code" shall mean the Internal Revenue Code of 1986 and any amendments
or additions thereto, and any predecessor or successor statute.
"Company" shall mean Credentials Services International, Inc., a
Delaware corporation, and its successors and assigns.
"Company Stock" shall mean the issued and outstanding (i) common Stock,
$.01 par value per share, and (ii) series A cumulative preferred stock, $.10 par
value per share, of the Company.
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<PAGE> 5
"Consent" shall mean the consent of a Person, given as provided in
Section 10.1 to do the act or thing for which the consent is solicited, or the
act of granting such consent, as the context may require. Reference to the
Consent or other action of a majority or specified percentage in Interest of the
Limited Partners shall mean, respectively, the Consent or other action of the
Class A Limited Partners whose aggregate Profit Percentages in the Partnership
as of the time such Consent is given or required represent more than fifty
percent (50%), or not less than the specified percentage, as the case may be, of
the aggregate Profit Percentages of all Class A Limited Partners.
"Contingent Profits Interest" shall mean the Interest which each of the
Class B Limited Partners and the collective Interests which all of the Class B
Limited Partners (as a class) shall have in the Partnership which are subject to
vesting and forfeiture provisions set forth in Section 3.5.3 hereof.
"Corporate Fund G.P." shall mean Credentials G.P., L.P., a separate
limited partnership organized under Delaware law which is the general partner of
CIS Acquisition Partners, L.P.
"Designated Class A Stock" shall mean the aggregate of 35,910 shares of
common stock of the Company evidenced by stock certificate number 3 which is
issued to the Partnership.
"Designated Class B Management Stock" shall mean the aggregate of 3,990
shares of common stock of the Company evidenced by stock certificates numbered
4, 5, 6, 7, 8, 9, 10, 11, 12, 13 and 14 which are issued to the Partnership and
are to be distributed to the Class B Limited Partners subject to and in
accordance with the terms and conditions of Section 4.2 of this Agreement.
"Employment Termination" shall mean the voluntary or involuntary
termination of employment by a Class B Partner with the Company with or without
cause or for any other reason whatsoever.
"Employment Termination For Cause" shall mean the termination of any
Class B Partner's employment with the Company for or by reason of any willful
misconduct or gross negligence in the performance of his duties for the Company,
the commission by any such Class B Limited Partner of any felony or any act of
moral turpitude or any violation or breach in any material respect by any such
Class B Limited Partner of any of the terms and conditions of his employment by
the Company.
"Fair Market Value" shall mean the value of Partnership assets,
including the Company Stock, as determined in good faith by the General Partner
after consultation with the Accountants.
"Fiscal Year" shall mean the fiscal year commencing on January 1 of each
year and ending on December 31 of the same year
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<PAGE> 6
or, in the case of the first and last fiscal years, the fraction thereof which
commences on the date on which the Partnership is formed under the Act (in the
case of the first fiscal year) or which ends on the date on which the winding up
of the Partnership is completed (in the case of the last fiscal year).
"Fund" shall have the meaning given to such term in the preamble of this
Agreement.
"Fund G.P." shall mean Lincolnshire Equity Partners, L.P., a Delaware
limited partnership, the general partner of Fund.
"Gain From Sale" shall mean any income or gain of the Partnership for
federal income tax purposes resulting from the sale of Company Stock or any
other transaction the proceeds of which, in accordance with generally accepted
accounting principles, are considered capital in nature, except that if the
value of the Company Stock or other asset as carried on the books of the
Partnership differs from its adjusted basis for federal income tax purposes at
the time of such transaction, such income or gain will be calculated with
reference to such value. In the event the value of any asset of the Partnership
as carried on the books of the Partnership is adjusted (except in the case of an
adjustment pursuant to section 734(b) or section 743(b) of the Code) to Fair
Market Value, the amount of such adjustment shall be taken into account at the
time of such adjustment as gain or loss from the disposition of such asset for
purposes of computing Gains from Sale or Losses from Sale.
"General Partner" shall mean Credentials II G.P. L.P., a Delaware
limited partnership, its successors or any other Person that becomes the
successor General Partner of the Partnership as provided herein, in all cases in
such Person's capacity as the General Partner of the Partnership.
"Incapacity" or "Incapacitated" shall mean, as to any Person, the
adjudication of bankruptcy, incompetence or insanity, or the death, dissolution
or termination (other than by merger or consolidation), as the case may be, of
such Person.
"Interest" shall mean the entire interest of a Partner in the
Partnership at any particular time, including the right of such Partner to any
and all benefits to which such Partner may be entitled as provided in this
Agreement, together with the obligations of such Partner to comply with all of
the terms and provisions of this Agreement.
"Limited Partners" shall mean, collectively, the Class A Partners
(which, as of this date, consists solely of the Fund) and the Class B Partners
and any other Person admitted to the Partnership as a Limited Partner as
provided in this Agreement, and any Substituted Limited Partner, with respect to
each such Person, in such Person's capacity as a limited partner of the
- 5 -
<PAGE> 7
Partnership and provided such Person has not withdrawn or been removed as a
Limited Partner.
"Limited Partner" shall mean one of the Limited Partners.
"Liquidation Trustee" shall mean a Person selected by a majority in
Interest of the Limited Partners to act as a liquidating trustee as provided in
Section 7.5.1.
"LMI" shall mean Lincolnshire Management, Inc., a Delaware corporation,
and its successors and assigns.
"LMI Management Consulting Agreement" shall mean that certain Management
Agreement, dated September 30, 1994, as heretofore or hereafter amended, between
the Company and LMI.
"Losses From Sale" shall mean any net loss of the Partnership for
federal income tax purposes resulting from the sale of Company Stock or any
other transaction the proceeds of which, in accordance with generally accepted
accounting principles, are considered capital in nature, except that if the
value of the Company Stock or other asset as carried on the books of the
Partnership differs from its adjusted basis for federal income tax purposes at
the time of such transaction, such loss shall be calculated with reference to
such value. In the event the value of any asset of the Partnership as carried on
the books of the Partnership is adjusted (except in the case of an adjustment
pursuant to section 734(b) or section 743(b) of the Code) to Fair Market Value,
the amount of such adjustment shall be taken into account at the time of such
adjustment as gain or loss from the disposition of such asset for purposes of
computing Gains from Sale or Losses from Sale.
"Net Cash Flow" for any period shall be an amount equal to Cash Flow
reduced by Partnership Expenses.
"Net Gain From Sale" means, for each Fiscal Year or other period, the
excess of the sum of the Gains from Sale over the sum of the Losses from Sale
recognized by the Partnership during such period.
"Net Income or Net Loss" means for each fiscal year or other period, an
amount equal to the Partnership's taxable income or loss for such year or
period, determined in accordance with Section 703(a) of the Code with the
following adjustments: (i) any income of the Partnership that is exempt from
Federal income tax and is not otherwise taken into account in computing Net
Income or Net Loss pursuant to this definition shall be added to such taxable
income or loss; and (ii) any expenditures of the Partnership described in
Section 705(a)(2)(B) of the Code or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(i) and
not otherwise taken into account in computing Net Income or Net Loss
- 6 -
<PAGE> 8
pursuant to this definition shall be subtracted from such taxable income or
loss.
"Net Loss From Sale" means, for each fiscal year or other period, the
excess of the sum of the Losses From Sale over the sum of the Gains From Sale
recognized by the Partnership during such period.
"Net Sales Proceeds" shall mean the net proceeds from the sale or other
disposition of Partnership assets by the Partnership, after deduction for (i)
any expenses incurred with respect to such sale or other disposition and (ii)
reserves which the General Partner may deem reasonably necessary for the
discharge of the liabilities and obligations of the Partnership.
"Partners" shall mean the General Partner and the Class A
and Class B Limited Partners, collectively, unless otherwise
indicated. "Partner" shall mean one of the Partners.
"Partnership" shall mean the limited partnership created by the Original
Agreement and the Certificate, as such limited Partnership may be constituted
from time to time hereafter.
"Partnership Expenses" shall mean the expenses of the
Partnership described in Section 5.6.
"Person" shall mean any individual, partnership, corporation,
unincorporated organization or association, trust or other entity.
"Regulations" shall mean the regulations issued by the United States
Internal Revenue Service under the Code.
"Sale of the Company" shall mean the sale, assignment or transfer of all
of the then outstanding capital stock of the Company, by way of merger,
consolidation or sale or exchange of shares of capital stock, or the sale or
exchange of all or substantially all of the assets and business of the Company,
for cash, securities or other property (or any combination thereof), to any one
or more parties who are not Affiliates of the Company or of the Partnership in
one or more series of related transactions.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Substituted Limited Partner" shall mean any Person admitted to the
Partnership as a Limited Partner pursuant to the provisions of Section 7.3.
"Transfer" shall mean any sale, exchange, transfer, pledge, mortgage,
hypothecation, grant of a security interest in, assignment or other disposition
by a Limited Partner of all or
- 7 -
<PAGE> 9
any fraction of its Interest in the Partnership as permitted pursuant to the
terms of Article VII.
"Unrecovered Capital" shall mean, with respect to each Class A Partner
and the General Partner, the excess of the Capital Contributions made with
respect to each such Partner's Interest over the aggregate distributions of Net
Cash Flow and Net Sales Proceeds pursuant to Sections 4.1(a) to such Partner on
account of such Partner's Interest.
"Vested Profits Interest" shall mean the Interest of each Class B
Partner and the collective Interests of all of the Class B Partners (as a class)
in the Partnership which has or have vested, in whole or in part, in accordance
with the provisions of Section 3.5.3 hereof but which is or are subject to, and
shall be determined by, the provisions of Section 4.2 hereof.
ARTICLE II
REFORMATION OF AGREEMENT; ORGANIZATION
2.1 Reformation of Agreement. The May 9 Writing was intended to give
effect to agreements reached on or about October 18, 1996 between the Company
and certain of its executive officers and key employees who are the persons
named as Class B Limited Partners herein. Each of the parties hereto hereby
agrees and confirms that as a result of a mutual mistake made by each of the
parties to the May 9 Writing, the provisions included in the May 9 Writing
relating to the Preferred Return set forth in Section 4.2 of the May 9 Writing
did not correctly reflect the mutual intention and agreement of the parties
hereto. The parties hereto hereby agree and confirm that because the
above-mentioned provision in the May 9 Writing did not reflect their mutual
intentions and agreement that it is not, and never was, part of the contract
created among them. The parties hereto hereby reform this Agreement to reflect
their true intentions and agreement and this Agreement, as reformed and revised,
is not, and shall not be interpreted or deemed to constitute, a new contract or
agreement or an amendment of the contract existing prior to the date hereof, but
rather a reformation of the existing agreement effected to express the true
intentions and agreements of the parties hereto.
2.2 Continuation. The Partnership was formed pursuant to the Original
Agreement and the Certificate filed under the Act and the Partners desire to
continue the Partnership pursuant to the provisions of the Act. The rights and
liabilities of the Partners shall be as provided in the Act, except as herein
otherwise expressly provided to the extent permitted by the Act.
2.3 Name. The name of the Partnership is and shall continue to be "CSI
Investment Partners II, L.P." or such other name as the General Partner shall
determine on notice to the Partners.
- 8 -
<PAGE> 10
2.4 Place of Business and Office; Registered Agent. The Partnership
shall maintain its principal place of business at c/o Lincolnshire Management,
Inc., 780 Third Avenue, New York, New York 10017, or such other place as the
General Partner shall determine. The registered agent of the Partnership is
National Registered Agents, Inc. Notice of any change of such principal office
or registered agent shall be given to all Partners on or before the date of any
such change.
2.5 Purpose. The principal purpose of the Partnership is to acquire,
hold and dispose of Company Stock to purchase Company Stock and any other form
of security, investment or instrument of the Company or any of its subsidiaries
selected by the General Partner, and to do every over thing incidental or
related to such activities or intended to enhance the value of the Partnership's
assets as the General Partner may deem appropriate, subject to the provisions of
this Agreement.
2.6 Term. The term of the Partnership commenced on the filing of the
certificate with the Delaware Secretary of State in accordance with the Act and
shall continue in full force and effect until the earlier of (a) December 31,
2026, or (b) dissolution prior thereto pursuant to the provisions hereof.
2.7 Qualification in Other Jurisdictions. The General Partner shall
cause the Partnership to be qualified, formed, reformed or registered under
foreign limited partnership statutes or similar laws in any jurisdiction in
which the Partnership owns property or transacts business if such qualification,
formation, reformation or registration is required in order to protect the
limited liability of the Limited Partners or to permit the Partnership lawfully
to own property or transact business in such jurisdiction, and shall cause the
Partnership not to transact business in any such jurisdiction until it is so
qualified, formed, reformed or registered. The General Partner shall execute,
file and publish all such certificates, notices, statements or other instruments
necessary to permit the Partnership to conduct business as a limited partnership
in all jurisdictions where the Partnership elects to do business and to maintain
the limited liability of the Limited Partners.
ARTICLE III
PARTNERS AND CAPITAL
3.1 General Partner.
3.1.1 The General Partner is, and shall continue to be,
Credentials II G.P. L.P., a Delaware limited partnership, and/or any other
Person who becomes the successor General Partner as provided herein. The address
and Capital Contribution of the General Partner are set forth on Schedule A
hereto.
3.1.2 The General Partner shall not be required to
lend any funds or to make Capital Contributions to the
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<PAGE> 11
Partnership in addition to that set forth on said Schedule A; provided, however,
that if the General Partner or any Affiliate of the General Partner lends funds
to the Partnership, the terms of such lending (i) must be as favorable to the
Partnership as the terms that could have been obtained at the time of such
lending from a Person that was not the General Partner or its Affiliate and (ii)
may provide for (a) the grant of a security interest in favor of the General
Partner or such Affiliate in any or all of the assets of the Partnership and (b)
the repayment of such loans to the General Partner or any such Affiliate prior
to the satisfaction of any of the Partnership's other obligations upon the
dissolution, liquidation or winding up of the Partnership.
3.2 Class A Limited Partners.
3.2.1 The names, addresses and Capital Contributions of the Class
A Limited Partners are set forth on Schedule A hereto and all such Class A
Limited Partners are admitted to the Partnership as limited partners. The
Capital Contributions of the Class A Limited Partners have been received by the
Partnership on or before the date of this Agreement.
3.2.2 Other than the Capital Contributions received by the
Partnership from the Class A Limited Partners on or before the date of this
Agreement, no Limited Partner shall be required to make any Capital
Contributions or lend any funds to the Partnership; provided, however, that if
any Class A Limited Partner or any Affiliate of any Class A Limited Partner
lends funds to the Partnership, the terms of such lending must be as favorable
to the Partnership as the terms that could have been obtained at the time of
such lending from a Person that was not such Class A Limited Partner or an
Affiliate of such Class A Limited Partner; provided, however, that any loan by
any Class A Limited Partner or Affiliate may be made on such terms and subject
to such security as are applicable to loans made by the General Partner under
Section 3.1.2 hereof.
3.3 Partnership Capital and Loans.
3.3.1 The General Partner's Contributions to the Partnership's
capital shall equal its Capital Contributions as set forth on Schedule A. Each
Class A Limited Partner has contributed to the Partnership in cash one hundred
percent (100%) of the Capital Contribution to the Partnership's capital required
to be made by such Limited Partner as set forth on Schedule A.
3.3.2 No Class A Partner shall be paid interest by the
Partnership or by the General Partner on, or in respect of, any Capital
Contribution to the Partnership or on such Class A Partner's Capital Account.
3.3.3 No Class A Partner shall have any right to demand the
return of its Capital Contribution other than upon
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<PAGE> 12
dissolution of the Partnership pursuant to Article VIII. The General Partner
shall have no personal liability to the Class A Limited Partners for the return
of their Capital Contributions or repayment of any loans they may make to the
Partnership, and shall be under no obligation to distribute any amount to the
Class A Partners, unless, prior thereto, all liabilities of the Partnership to
Persons other than Partners shall have been paid or, in the good faith
determination of the General Partner, there shall remain in the Partnership,
following the distribution, property sufficient to pay such liabilities.
3.4 Liability of Partners. Except as specifically set forth herein, no
Limited Partner shall have any personal liability whatever in his or its
capacity as a Limited Partner, whether to the Partnership, to any of the
Partners or to the creditors of the Partnership, for the debts, liabilities,
contracts or any other obligations of the Partnership or for any losses of the
Partnership. Subject to the provisions of the Act, a Limited Partner shall be
liable only to make its Capital Contribution and shall not be required to lend
any other funds to the Partnership, or after its Capital Contribution shall have
been paid in full, to make any further Capital Contribution to the Partnership
or to repay to the Partnership, any Partner or any creditor of the Partnership
all or any fraction of any negative amount of such Limited Partner's Capital
Account.
3.5 Class B Limited Partners.
3.5.1 The names, addresses and Contingent Profits Interest of
each of the Class B Limited Partners are set forth on Schedule B hereto.
3.5.2 Capital Contributions. None of the Class B Limited Partners
has made any Capital Contributions to the Partnership and each Class B Limited
Partner's initial Capital Account in the Partnership shall be zero.
Notwithstanding the foregoing, the Class B Limited Partners are required on May
1, 2000 to make a capital contribution in an amount for each Class B Limited
Partner determined by multiplying six million six hundred thousand dollars
($6,600,000) by that partner's Contingent Profits Interest set forth in Schedule
B.
3.5.3 Vesting and Distribution of Management Shares.
(a) The sole Interest of each Class B Limited Partner in the
Partnership shall be his respective interest in the income, profits, proceeds
and distributions from and of the Designated Class B Management Stock which
shall vest and be subject to forfeiture in the following percentages in the
event of his Employment Termination during the following periods:
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<PAGE> 13
<TABLE>
<CAPTION>
Percentage of
Contingent Employment
Profits Interest Vested Termination Period
- ----------------------- ------------------
<S> <C>
Zero Percent (0%) From date hereof
through April 30, 1998
Thirty-three and one- From May l, 1998
third percent (33 1/3%) through April 30, 1999
Sixty-six and From May 1, 1999
two-thirds percent through April 30, 2000
(66 2/3%)
One hundred percent From and after May 1,
(100%) 2000.
</TABLE>
(b) Notwithstanding the schedule of vesting of the Contingent
Profits Interests of the Class B Limited Partners set forth in paragraph (a) of
this Section 3.5.3, the vesting of all or any then remaining percentages of the
Contingent Profits Interests held by any one or more Class B Limited Partners
shall be accelerated in their entirety (automatically and without further act of
the parties) and become Vested Profits Interests as of the close of business on
the day immediately preceding the date of consummation of the Sale of the
Company, provided, however, that, in the event that the Sale of the Company is
not consummated within thirty (30) days after the date of such accelerated
vesting, then such accelerated vesting shall be canceled and be of no further
force or effect and the schedule of vesting and forfeiture of the Contingent
Profits Interests held by such Class B Partners set forth in paragraph (a) of
this Section 3.5.3 shall be reinstated in its entirety.
3.5.4 Reallocations or Cancellations of Interests. In the event
of any Employment Termination by the Company of any Class B Limited Partner
during any of the foregoing periods which results in the forfeiture of all or
any percentage of the Contingent Profits Interest of any such Limited Partner,
such forfeited Contingent Profits Interest may be: (a) reallocated and issued by
the General Partner, in its sole and absolute discretion, to such other one or
more Class B Limited Partners or to any new Class B Limited Partner to be
admitted hereafter as a Partner of the Partnership and, in either such event,
such reallocated Contingent Profits Interest shall vest and be subject to
forfeiture in accordance with such schedule or conditions as the General Partner
deems, in its sole and absolute discretion, appropriate, or (b) cancelled in its
entirety, thereby reducing the total Contingent Profits Interest allocable to
the Class B Limited Partners (as a class) as the General Partner shall, in its
sole and absolute discretion, determine; and PROVIDED, HOWEVER, that, in the
event of the Employment Termination for Cause by the Company of any Class B
Limited Partner, any Contingent Profits Interest and/or Vested Profits Interest
in the
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<PAGE> 14
Partnership then held by such Class B Limited Partner, shall thereupon, and
without further act of the Partnership or of such Class B Limited Partner, be
cancelled and forfeited in its entirety to the Partnership (which may be
reallocated or cancelled by the General Partner as hereinabove provided) and
shall thenceforth not constitute any Interest, whether Contingent Profits
Interest or Vested Profits Interest or otherwise, in the Partnership and such
Person shall not be entitled to any rights or benefits whatsoever deriving from
or with respect to his prior relationship as a Class B Limited Partner of the
Partnership and the Partnership shall not have any obligations whatsoever to
such Person.
3.5.5 Section 83(b) Election. As a condition of admission to the
Partnership, each Class B Limited Partner hereby further agrees to make an
election under Section 83(b) of the Code to report income, if any, relating to
or by reason of his receipt of a Contingent Profits Interest.
3.6 Status of Limited Partners.
3.6.1 The Limited Partners shall not participate or take part in
the control of the Partnership business and shall have no right or authority to
act for, or bind, the Partnership.
3.6.2 Unless named in this Agreement, or unless admitted to the
Partnership as the General Partner, a Limited Partner or a Substituted Limited
Partner, as provided in this Agreement, no Person shall be considered a Partner.
The Partnership and the General Partner need deal only with Persons so named or
admitted as Partners. Neither the General Partner nor the Partnership shall be
required to deal with any other Person merely because of an assignment or
transfer of a Partnership Interest to such Person as a result of an assignment
thereof or a transfer thereof by reason of the Incapacity of a Partner. Any
distribution by the Partnership to the Person shown on the Partnership's books
and records as a Partner or to its legal representatives, or the permitted
assignee of the right to receive Partnership distributions as provided herein,
shall acquit the Partnership and the General Partner of any liability to any
other Person who may be interested in such distribution by reason of any other
assignment by the Partner or by reason of his Incapacity, or for any other
reason.
3.6.3 The General Partner also may be a Limited Partner of the
Partnership, upon acquiring the Interest of a Limited Partner. The General
Partner shall, in its capacity as a Limited Partner, be entitled to participate
in any Consent of the Limited Partners, and the Interest of the General Partner
as a Limited Partner shall be counted in any computations required in any such
Consent.
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<PAGE> 15
ARTICLE IV
DISTRIBUTIONS; ALLOCATIONS
4.1 Distributions Prior to Termination and Dissolution of the
Partnership.
(a) Net Cash Flow and Net Sales Proceeds shall be distributed to
the Partners, 99% to the Class A Limited Partners and 1% to the General Partner.
(b) All distributions of Net Cash Flow and Net Sales Proceeds
made within any Fiscal Year shall be subject to adjustment by reference to the
Partnership's financial statements for such Fiscal Year. If any additional
amount is to be distributed or paid by reason of such financial statements, such
additional amount shall be deemed distributed for such Fiscal Year; and if any
excess amount was distributed for such Fiscal Year as reflected by such
financial statements, the excess amount shall be taken into account in
determining subsequent distributions or payments.
4.2 Distributions to Class B Partners.
4.2.1 Designated Class B Management Stock shall be distributed to
the Class B Limited Partners in accordance with Section 4.2.2 as the Class B
Limited Partners' Contingent Profits Interests become Vested Profits Interests.
To facilitate these distributions, Designated Class B Management Stock
(consisting of 3,990 shares of Company Stock ) will be evidenced by share
certificate nos. 4-14, which will be held by and in the name of the Partnership
until such time as Designated Class B Management Stock is to be distributed to
the Class B Limited Partners. The remaining Company Stock held by the
Partnership, the Designated Class A Stock (consisting of 35,910 shares of
Company Stock), will be evidenced by share certificate no. 3. None of the Class
B Limited Partners shall have any direct, indirect, vested or contingent right
to receive any Gain From Sale or any other dividends or other income from, or
any distribution of, any of the Designated Class A Stock or any proceeds or
other consideration received by the Partnership in connection with the sale,
exchange or other disposition of the Designated Class A Stock. No Partners other
than the Class B Partners shall have any right to receive any distribution of
Designated Class B Management Stock or any proceeds or other consideration
received by the Partnership in connection with the sale, exchange or other
disposition of the Designated Class B Management Stock, except to the extent
that the Class B Limited Partners cease to be Partners and do not have Vested
Profits Interests. The Partnership shall not sell, transfer, assign or exchange
any of the Designated Class B Management Stock, except to the extent required to
pay expenses in connection with liquidation of the Partnership which would be
allocable to the Class B Limited Partners' Interests.
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<PAGE> 16
4.2.2 At such time as, and to the extent that, a Class B Limited
Partner's Contingent Profits Interest becomes a Vested Profits Interest, such
Class B Limited Partner shall be entitled , and only entitled to, distributions
in-kind of Designated Class B Management Stock with respect to his or her Vested
Profits Interest. Each such Class B Limited Partner shall receive such
percentage of the Designated Class B Management Stock as shall be determined by
a fraction, the numerator of which shall be each such Class B Limited Partner's
percentage of the Vested Profits Interests (of all Class B Limited Partners) and
the denominator of which shall be ten (10) or such lesser number as then equals
the total Vested Profits Interest percentage to which the Class B Limited
Partners (as a class) are then entitled after giving effect to the provisions of
Section 3.5.4 hereof.
4.3 Allocation of Net Income and Net Loss.
(a) Net Income and Net Gain From Sale. Net Income and Net Gain
From Sale for any Fiscal Year shall be allocated in such manner as equitably
reflects amounts of cash distributed (or, in the case of unrealized income,
amounts to be distributed) to the Class A Limited Partners and the General
Partner pursuant to Section 4.1(a).
(b) Net Loss and Net Loss From Sale. Net Loss and Net Loss From
Sale for any fiscal year shall be allocated, to the extent of prior allocations
of Net Income and/or Net Gain From Sale, in the reverse order and priority that
Net Income and/or Net Gain From Sale have been allocated pursuant to Section
4.3(a). Net Loss and Net Loss From Sale in excess of any Net Income and/or Net
Gain From Sale shall be allocated among the General Partner and Class A Limited
Partners pro rata in accordance with the positive balances in their Capital
Accounts.
(c) Deficits in Capital Accounts. The Net Loss and Net Loss From
Sale allocated pursuant to Section 4.3(b) hereof shall not exceed the maximum
amount of losses that can be so allocated without causing any Limited Partner to
have a deficit in his Capital Account at the end of any Fiscal Year. In the
event that some but not all of the Limited Partners would have a deficit in his
Capital Account as a consequence of an allocated Net Loss or Net Loss From Sale
pursuant to Section 4.3(b), the limitation set forth in this Section 4.3(c)
shall be applied on a Limited Partner by Limited Partner basis so as to allocate
the maximum permissible losses to each Limited Partner under Section
1.704-1(b)(2)(ii)(d) of the Regulations. All Net Loss and/or Net Loss From Sale
in excess of the limitation set forth in this Section 4.3(c), shall be allocated
among the Partners in accordance with their interests in the Partnership as
determined under the Regulations. Offsetting allocations of Net Income and Net
Gain From Sale shall be made in subsequent Fiscal Years so as to achieve as
nearly as possible the results that would have been
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<PAGE> 17
achieved had this Section 4.3(c) not been included in this Agreement.
(d) Qualified Income Offset. In the event any Partner
unexpectedly receives any adjustments, allocations, or distributions described
in Regulations Section 1.704- 1(b)(2)(ii)(d)(4) or Regulations Section
1.704-1(b)(2)(ii)(d)(6), or otherwise, which results in such Partner having a
Capital Account deficit, items of Partnership income and gain shall be specially
allocated to each such Partner in an amount and manner sufficient to eliminate,
to the extent required by the Regulations, the Capital Account deficit of such
Partner as quickly as possible, provided that an allocation pursuant to this
Section 4.3(d) shall be made if and only to the extent that such Partner would
have an Adjusted Capital Account Deficit after all other allocations provided
for in this Article IV have been tentatively made as if this Section 4.3(d) were
not in the Agreement.
(e) Tax Allocations on Gross-Up. In accordance with Code Section
704(c) and the Treasury Regulations thereunder, income, gain, loss and deduction
with respect to any property (other than cash) contributed to the capital of the
Partnership shall be allocated among the Partners so as to take account of any
variation between the adjusted basis of such property to the Partnership for
federal income tax purposes and its initial fair market value as determined by
the General Partner for entry on the books of the Partnership. In the event the
value of any Partnership asset on the books of the Partnership is adjusted
(except in the case of an adjustment pursuant to Section 734(b) or Section
743(b) of the Code) to its Fair Market Value, subsequent allocations of income,
gain, loss and deduction with respect to such asset shall take account of any
variation between the adjusted basis of such asset for federal income tax
purposes and such value in the same manner as under Section 704(c) of the Code
and the Treasury regulations thereunder. Any elections or other decisions
relating to such allocations shall be made by the General Partner in any manner
that reasonably reflects the purposes and intention of this Agreement.
Allocations pursuant to this Section 4.3(c) are solely for the purposes of
federal, state and local taxes and shall not affect, or in any way be taken into
account in computing, any Partner's Capital Account or share of Net Income, Net
Gain From Sale, Net Loss, Net Loss From Sale or other items, or distributions
pursuant to any provision of this Agreement.
In any event the value of any Partnership asset is adjusted
pursuant to Regulations Section 1.704-1(b)(2)(iv)(f), subsequent allocations of
income, gain, loss, and deduction with respect to such asset shall take account
of any variation between the adjusted basis of such asset for Federal income tax
purposes and its value in the same manner as under Code Section 704(c) and the
Regulations thereunder. It is understood that the admission of the Class B
Limited Partners is an event described in
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<PAGE> 18
Regulation Section 1.704-1(b)(2)(iv)(f), and the assets of the Partnership as of
the date hereof shall be revalued and any income or loss resulting therefrom
shall be allocated among the Class A Limited Partners and the General Partner
pursuant to such Regulation.
4.4 Determination of Distributions and Allocations Among Limited
Partners. Unless the context requires otherwise, all Net Cash Flow, Net Sale
Proceeds, Net Income and Net Gain From Sale distributed or allocated to the
Limited Partners generally shall be distributed or allocated to each such
Limited Partner entitled to such distribution or allocation in proportion to the
Interests of each such Limited Partner as set forth on Schedule A and Schedule
B, respectively, provided, however, that no such distributions shall be made to
the Class B Limited Partners except with respect to distributions of Designated
Class B Management Company Stock in accordance with Section 4.2.2. Net Loss and
Net Loss From Sale allocable to the Partners or to the Class A Limited Partners
shall be allocated in proportion to the Capital Contributions made by such Class
A Limited Partners.
4.5 Distribution and Payments In-Kind. The General Partner, in its sole
discretion, may distribute Partnership assets in kind to the General Partner
and/or the Class A Limited Partners at such times and in such amounts as cash
could be distributed to such Partners, and the General Partner shall distribute
only Designated Class B Management Restricted Stock to the Class B Limited
Partners in accordance with Section 4.2.2. Any unrealized gain or unrealized
loss with respect to any asset distributed in kind shall be reflected in such
Partners' Capital Accounts as if such asset had been sold for its Fair Market
Value on the date of distribution, the proceeds derived therefrom had been
distributed to the Partner receiving the asset, and the amount of gain or loss
with respect thereto had been allocated to such Partners pursuant to Section
4.3. If any Class B Limited Partner would have a Capital Account deficit as a
result of the distribution of Designated Class B Management Stock to such Class
B Limited Partner, the special allocation provisions of Section 4.3(d) shall be
applied to eliminate the Capital Account deficit of such Class B Limited Partner
resulting from such distribution. This provision shall apply to any distribution
of Designated Class B Management Stock to a Class B Limited Partner, whether in
liquidation of such Class B Limited Partner's Interest or in liquidation of the
Partnership or a non-liquidating distribution to such Class B Limited Partner.
4.6 The Partnership shall not be responsible for, and shall not be
required to pay or to reimburse, any of the Class A Partners or any of the Class
B Partners for all or any portion of federal, state or other tax liabilities
arising out of their acquisition of Interests in the Partnership or by reason of
any Net Income allocations to, or distributions of, Net Cash Flow and/or Net
Gain From Sale to any of the Limited Partners.
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<PAGE> 19
ARTICLE V
RIGHTS AND DUTIES OF THE GENERAL PARTNER
5.1 Management and Administration.
5.1.1 Except as overwise expressly provided herein or by law, the
General Partner is hereby vested with the full, exclusive and complete right,
power and discretion to operate, manage and control the affairs of the
Partnership and to make all decisions affecting Partnership affairs, as deemed
proper, necessary or advisable by the General Partner to carry on the business
of the Partnership as described in Section 2.5 and the General Partner shall
have all of the rights, powers and obligations of a general partner of a general
or limited partnership under the Act and otherwise as provided by law.
Without limiting the generality of the foregoing, all of the
Partners hereby specifically agree and consent that the General Partner may, on
behalf of the Partnership, at any time, from time to time and without further
notice to or Consent from any other Partner, do the following, directly or
indirectly through a subsidiary:
(a) purchase of Company Stock or any other
class of capital stock of the Company now or hereafter authorized or debt
instruments issued by the Company or options, warrants or other rights to
purchase any of the foregoing for the Partnership as contemplated by Section 2.5
hereof;
(b) sell all or any part of the
Partnership's assets (including all or part of the Company Stock) whether for
cash or securities and on such reasonable terms as the General Partner shall
determine to be appropriate;
(c) pledge, hypothecate and/or grant or
assign a security interest in all or any portion of the Company Stock owned of
record and/or beneficially by the Partnership to any one or more Persons as a
condition or in consideration of, in connection with or in order to secure or
collateralize any loans or advances made by any of such Persons to the Company
and/or the Partnership;
(d) vote the Company Stock owned by the
Partnership, enter into, and perform under, any stockholders agreement, voting
trust, proxy or other agreement governing the Company Stock and act as a
stockholder of the Company with whatever power the Partnership has by virtue of
its percentage ownership of the Company Stock, by contract or otherwise;
(e) incur all expenditures permitted by this
Agreement, and, to the extent that funds of the Partnership are
available, pay all expenses, debts and obligations of the
Partnership;
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<PAGE> 20
(f) engage, compensate and discharge any
agent, attorney, employee, accountant, consultant or other person, including
anyone who, in addition to acting in such capacity, may also be a General
Partner, Affiliate, or Limited Partner hereunder (or officer, director or equity
owner thereof), at such compensation and upon such terms and conditions as the
General Partner may deem appropriate;
(g) maintain such bank accounts on behalf of
the Partnership and make such signature arrangements with respect
thereto, as the General Partner shall determine to be
appropriate;
(h) enter into agreements with any and all
persons, entities and governmental agencies with respect to the financing and
operating of the Partnership business upon such terms as the General Partner
deems appropriate;
(i) compromise, submit to arbitration, sue
on or defend all claims in favor of or against the Partnership;
(j) do all acts it deems necessary or
appropriate to further the Partnership business or for the
protection and preservation of the Partnership assets;
(k) determine the appropriate accounting
method or methods to be used by the Partnership;
(l) amend this Agreement to reflect the
substitution or addition of a Limited Partner or a General Partner or the
reduction of Capital Accounts upon the return of capital to the Class A
Partners;
(m) cause the Partnership to enter into
transactions in which the General Partner or Affiliates have an interest
including, but not limited to, transactions which involve the purchase or sale
of any property or securities to or from the Partnership, and transactions in
which (i) services will be rendered for or by the Partnership, or (ii) fees or
commissions will be received by the General Partner or Affiliates from the
Partnership (or officer, director or equity owner thereof);
(n) enter into, execute, amend, supplement,
acknowledge and deliver any and all contracts, agreements or other instruments
as the General Partner shall determine to be appropriate in furtherance of the
purposes of the Partnership;
(o) pending cash distributions to the
Partners, invest in short-term investments;
(p) admit an assignee of all or any fraction
of a Limited Partner's Interest or the General Partner's Interest
to be a Substituted Limited Partner or a substituted General
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<PAGE> 21
Partner in the Partnership pursuant to and subject to the terms of Section 7.3
or 6.1, respectively;
(q) be responsible for providing those
administrative services to the Partnership deemed necessary by the General
Partner, including, without limitation, making any filings necessary on behalf
of the Partnership in Delaware and such other jurisdictions in which the
Partnership owns property or transacts business;
(r) act as "tax matters partner" of the
Partnership for tax purposes;
(s) cause the Partnership and/or the Company
or its subsidiaries to borrow money for Partnership or Company purposes,
respectively, from such lenders, in such amounts, at such times and on such
terms as the General Partner determines appropriate to repay, refinance and/or
renegotiate such borrowings, and to grant security for such borrowings to the
lender or lenders thereof, including pledging the Company Stock.
5.1.2 Third parties dealing with the Partnership may rely
conclusively upon any certificate of the General Partner to the effect that it
is acting on behalf of the Partnership. The signature of the General Partner
shall be sufficient to bind the Partnership, in every manner, to any agreement
or on any document including, but nor limited to, documents drawn or agreements
made in connection with the acquisition or disposition of any assets or
properties in furtherance of the purposes of the Partnership.
5.2 Restrictions on the Authority of the General Partner. Without
the Consent of more than fifty percent (50%) in Interest of the Class A Limited
Partners, the General Partner shall not have the authority (i) to admit a Person
as a Partner, except as provided in this Agreement or (ii) to elect to dissolve
the Partnership, except that no Consent of the Class A Limited Partners shall be
required and the General Partner shall have the authority to elect to dissolve
the Partnership as provided in Section 8.1. Without the Consent of more than
fifty percent (50%) in Interest of the Class A Limited Partners, the General
Partner shall not have the authority to offer and sell limited partnership
Interests in the Partnership and admit such persons as additional Class A
Limited Partners, except as provided in Section 3.5.3 hereof concerning the
admission of any new Class B Limited Partners with respect to which the General
Partner shall have authority to admit any such new Class B Partners in its sole
and absolute discretion.
5.3 Duties and Obligations of the General Partner.
5.3.1 The General Partner shall take all action which may be
necessary or appropriate for the continuation of the Partnership's valid
existence as a limited partnership under the laws of Delaware and of each other
jurisdiction in which such
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<PAGE> 22
existence is necessary to protect the limited liability of the Limited Partners
or to enable the Partnership to conduct the business in which it is engaged.
5.3.2 The General Partner shall at all times conduct its affairs
and the affairs of the Partnership in such a manner that no Limited Partner, in
its capacity as a limited partner, shall have any personal liability with
respect to any Partnership liability or obligation, except as expressly assumed
by any Limited Partner.
5.3.3 The General Partner shall prepare or cause to be prepared,
and shall file on or before the due date (or any extension thereof), any tax
returns required to be filed by the Partnership. The General Partner shall cause
the Partnership to pay any taxes payable by the Partnership (it being understood
that the expenses of preparation and filing of such tax returns, and the amounts
of such taxes, are expenses of the Partnership and not of the General Partner);
provided, however, that the General Partner shall not be required to cause the
Partnership to pay any tax so long as either the General Partner or the
Partnership is in good faith and by appropriate legal proceedings, contesting
the validity, applicability or amount thereof, and such contest does not
materially endanger any right or interest of the Partnership.
5.4 Other Business of Partners.
5.4.1 The General Partner shall devote to the Partnership such
time and effort as the General Partner determines shall be necessary to conduct
the Partnership's business and affairs in an appropriate manner. Subject to the
foregoing, any Partner and any Affiliate of any Partner may engage in or possess
any interest in other business ventures of any kind, nature or description,
independently or with another, whether such ventures are competitive with the
Partnership, or otherwise.
5.4.2 Except as otherwise provided in this Section 5.4, neither
the Partnership nor any Partner shall have any rights or obligations by virtue
of this Agreement or the Partnership relation created hereby in or to any such
independent ventures or in or to the income or profits or losses derived
therefrom.
5.4.3 The Limited Partners recognize and Consent that the General
Partner or Affiliates of the General Partner (including LMI and its respective
officers, directors, shareholders, partners and other Affiliates) may engage in
other activities and may receive other fees and/or annual retainers from the
Company and the Company's subsidiaries, including, but not limited to, the LMI
Management Consulting Agreement and, except as specifically provided herein,
neither the Partnership
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nor any Partner shall have any interest therein by virtue of this Agreement or
the Partnership relation created hereby.
5.4.4 Subject to the provisions of Section 5.2, the Limited
Partners hereby further Consent that the General Partner may offer to any
Limited Partner or Affiliate thereof or any other Person or Persons, in any
capacity, the opportunity to invest in, or to make loans to, the Partnership,
the Company or the Company's subsidiaries and no other Partner shall have any
right to participate or any interest therein by virtue of this Agreement or the
partnership relation created hereby.
5.5 Compensation of General Partner.
5.5.1 The General Partner shall not receive any salary, fees,
profits, distributions or compensation from the Partnership, except as provided
in Article IV and this Article V.
5.6 Allocation of Expenses.
5.6.1 The Partnership shall bear or pay from its own resources
all expenses incurred in connection with the General Partner's rent and general
office overhead, including clerical, bookkeeping and administrative costs,
salaries of personnel, payroll taxes and employee costs related to such
salaries, telephone charges, office supplies and office equipment expenses and
other like expenses related to the Partnership. All Partnership Expenses (as
defined below) shall be paid out of Cash Flow arising from short term
investments, to the extent funds arising therefrom are available, and thereafter
from other amounts of Cash Flow or, in the event of any insufficiency of Cash
Flow in any Fiscal Year, shall be paid out of any other cash funds of the
Partnership. To the extent the General Partner incurs any Partnership Expenses
on behalf of the Partnership, the Partnership shall promptly reimburse the
General Partner for such Partnership Expenses. Partnership Expenses shall
include the following:
(a) all filing fees or other similar fees payable from time to
time in respect of this Agreement or the Partnership;
(b) all taxes or governmental charges, all brokerage fees,
commissions, bank charges, transfer fees, filing fees, lawyers' and accountants'
costs, agents', consultants', experts, and other professional fees and any other
duties, charges or fees, whether in connection with the constitution of, or
increase in, Partnership assets or, the sale or purchase of, or proposed sale or
purchase of, Partnership assets and which may have become or may be payable in
respect of, or prior to, or upon the occasion of, the transaction or dealing, or
attempted or proposed transaction or dealing;
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(c) all expenses incurred in relation to the registration of
Partnership assets in the name of the General Partner or its nominee, or the
custody of the documents of title thereto;
(d) all taxes payable in respect of the acquisition of, holding
of, or dealing with investments or other assets of the Partnership;
(e) the remuneration and expenses of the Accountants and other
costs incurred in connection with the preparation of the financial statements
referred to in Section 12.2 hereof;
(f) the costs of maintaining records and books of account in
relation to the business of the Partnership referred to in Section 12.1;
(g) any interest on, and other costs and expenses with respect
to, borrowings effected pursuant to Article IX hereof;
(h) all costs and expenses incurred in relation to convening and
holding meetings of the Limited Partners pursuant to Article IX hereof;
(i) all costs and expenses of, or incidental to, the preparation
of amendments to this Agreement as referred to in Article VIII;
(j) all costs and expenses of and incidental to the preparation
and dispatch to Partners of all checks, warrants, reports, circulars, forms and
notices and any other documents necessary or desirable in connection with the
business and administration of the Partnership;
(k) all costs and expenses incurred as a result of the
termination of the Partnership and the realization of the Partnership assets;
(l) the remuneration and expenses of legal counsel to the
Partnership and any costs and expenses of any litigation involving the
Partnership and the amount of any judgment or settlement paid in connection
therewith, excluding, however the costs and expenses of any litigation, judgment
or settlement in which the conduct of the General Partner is found to have
violated the standard of conduct set forth in Section 5.7;
(m) any other costs in connection with the organization or
administration of the Partnership or otherwise that may be authorized by this
Agreement or approved by the Consent of more than fifty percent (50%) in
Interest of the Class A Limited Partners; and
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(n) all expenses incurred in the collection of Cash Flow.
5.7 Exculpation; Indemnification of the General Partner by the
Partnership. Neither the General Partner nor any of its Affiliates (including,
but not limited to, LMI) nor its or their officers, directors, shareholders,
partners, members, employees or agents (individually, an "Indemnitee" and
collectively, "Indemnitees") shall be liable, responsible or accountable in
damages or otherwise to the Partnership or any Limited Partner for any loss,
damage or tax liability incurred by reason of any act or omission performed or
omitted by the Indemnitee on behalf of the Partnership, or in furtherance of the
interests of the Partnership, provided that the Indemnitee committed no act of
gross negligence or willful misconduct with respect to such acts or omissions.
The Partnership, out of its assets and not out of the separate assets of the
General Partner or any Limited Partner, shall indemnify and hold harmless, to
the fullest extent permitted by law, the Indemnitee who was or is a party to or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding whether civil, criminal, administrative or investigative
(including any action by or in the right of the Partnership), by reason of any
acts or omissions or alleged acts or omissions arising out of such Person's
activities as General Partner, Affiliate, officer, director, shareholder,
partner, member, employee or agent thereof, if such activities were performed
either on behalf of the Partnership or in furtherance of the interests of the
Partnership, against losses, damages and expenses for which such Person has not
otherwise been reimbursed (including attorneys' fees and charges, judgments,
fines and amounts paid in settlement) actually incurred by such Person in
connection with such action, suit or proceeding, so long as such Person
committed no act of gross negligence or willful misconduct with respect to such
acts or omissions and, with respect to any criminal action or proceeding, had no
reasonable cause to believe and did not believe his conduct was unlawful, and
provided that the satisfaction of any indemnification and any holding harmless
shall be from and limited to Partnership Assets and no Limited Partner shall
have any personal liability on account thereof. The indemnification for
attorneys' fees and charges contained herein shall include the legal costs
incurred by a party to enforce its rights under this Agreement. The General
Partner and LMI may consult with the Accountants and counsel to the Partnership
in respect of Partnership affairs and shall be fully protected and justified in
any action or inaction which is taken or omitted in good faith, in reliance upon
and in accordance with the opinion or advice of such counsel or Accountants. In
determining whether an Indemnitee acted with the requisite degree of care, the
Indemnitee shall be entitled to rely on reports and written statements of the
directors, officers and employees of the Company unless the Indemnitee to be
exculpated hereby had reason to believe that such reports or statements were not
true and complete. For the purposes of this Section 5.7, the directors,
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officers and employees of the Company and its subsidiary corporations, if any,
solely by reason of such positions, shall not be deemed to be Affiliates of the
General Partner.
ARTICLE VI
TRANSFERABILITY OF THE GENERAL PARTNER'S INTEREST
6.1 Assignment of the General Partner's Interest. Without the prior
Consent of more than fifty percent (50%) in Interest of the Class A Limited
Partners, the General Partner shall not after the date hereof enter into any
agreement as a result of which any Person (other than Fund G.P., LMI, Corporate
Fund G.P., a Person which is a partnership of which the General Partner, Fund
G.P., Corporate Fund G.P., LMI or the general partner of the General Partner is
the general partner, or which succeeds to the business, substantially as an
entirety of the General Partner, Fund G.P., Corporate Fund G.P., LMI or the
general partner of the General Partner or which is wholly-owned, directly or
indirectly, by the General Partner, Fund G.P., Corporate Fund G.P., LMI or the
general partner of the General Partner or which is another Affiliate of the
General Partner, Fund or LMI) shall have all or any part of the general
partnership interest in the Partnership. In connection with any assignment of
all or any part of the General Partner's general partnership interest in the
Partnership, an appropriate amendment to the Certificate shall be timely filed
in accordance with the Act and the Partnership shall not be dissolved. The
Limited Partners consent to the continuation of the business of the Partnership
following any assignment of the General Partner's Interest to a person described
in the parenthetical clause of the first sentence of this Section 6.1 and to the
appointment of such Person as a substitute General Partner of the Partnership.
6.2 Resignation or Withdrawal of the General Partner. Except in
connection with an assignment permitted by Section 6.1, without the prior
Consent of more than fifty percent (50%) in Interest of the Class A Limited
Partners, the General Partner may not resign or withdraw from the Partnership.
Except as required by the Act no event shall be deemed to be an "event of
withdrawal" pursuant to Section 17-402 of the Act that is not expressly referred
to in this Article VI.
6.3 Removal of the General Partner. The General Partner may be removed
only for Cause on not less than nine (9) months' notice from the Class A Limited
Partners, or their representative duly appointed for the purpose of giving such
notice, with the Consent of at least ninety percent (90%) in Interest of the
Class A Limited Partners. "Cause" means the General Partner committed an act of
gross negligence or willful misconduct.
6.4 Incapacity of the General Partner. In the event of the Incapacity of
the General Partner, the Partnership shall be dissolved, subject to the
provisions of Section 6 5.
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6.5 Continuation of the Partnership.
6.5.1 In the event of the Incapacity, removal, withdrawal or
resignation of the General Partner, the Partnership shall be dissolved, unless
the Class A Limited Partners shall, within ninety (90) days after the occurrence
of any such event, elect, by the Consent of all the Class A Limited Partners, to
continue the Partnership upon the same terms and conditions as are set forth in
this Agreement, except as required by the last sentence of this Section 6.5.1.
In the event the election described in the first sentence of this Section 6.5.1
is made, the Class A Limited Partners unanimously shall elect a new General
Partner to serve as the General Partner of the Partnership, and such election
shall be deemed to have occurred immediately prior to the occurrence of an event
described in the first sentence of this Section 6.5.1. The newly appointed
General Partner, if it so desires to serve, shall be required to purchase the
interest of the prior General Partner for an amount equal to the greater of the
Fair Market Value, or the liquidation value, thereof, determined by the
Accountants.
6.5.2 Upon the General Partner ceasing to be the General Partner
of the Partnership as provided in this Agreement, other than in connection with
an assignment permitted by Section 6.1 above, its liability as the General
Partner shall cease as provided in Section 6.6, and the Partnership shall
promptly file an amendment to the Partnership's Certificate and otherwise take
all steps reasonably necessary under the Act to cause such cessation of
liability.
6.5.3 Upon the General Partner ceasing to be the General Partner
of the Partnership as provided in this Agreement other than in connection with
an assignment permitted by Section 6.1 above, the designees of the General
Partner and its Affiliates shall tender their resignations from all
directorships and officerships held by them in the Company and its subsidiaries,
if any.
6.6 Liability of a Withdrawn or Removed General Partner. Subject to the
provisions concerning exculpation and indemnification contained in Section 5.7,
a General Partner which shall become Incapacitated, withdraw, be removed or
resign from the Partnership, shall remain liable for obligations and liabilities
incurred by it as General Partner prior to the time such Incapacity, withdrawal,
removal or resignation shall have become effective, but it shall be free of any
obligation or liability incurred on account of the activities of the Partnership
from and after the time such Incapacity, withdrawal, removal or resignation
shall have become effective.
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ARTICLE VII
TRANSFERABILITY OF A LIMITED PARTNER'S INTEREST
7.1 Restrictions on Transfer of Interests.
7.1.1 Notwithstanding any other provisions of this Section 7.1,
no Transfer of all or any fraction of a Class A Limited Partner's Interest may
be made without (a) the prior written Consent of the General Partner, which
Consent may be withheld for any reason in the General Partner's sole and
absolute discretion, and (b) the receipt by the General Partner not less than
ten (10) days prior to the date of any proposed transfer of a written opinion of
responsible counsel (who may be counsel for the Partnership), satisfactory in
form and substance to the General Partner to the effect that such Transfer would
not result in any adverse legal or regulatory consequences to the Partnership or
any Partner thereof, including but not limited to:
(i) a violation of the Securities Act of
1933, as amended, or any "Blue Sky" laws or other securities or other laws or
regulations of the United States or any state of the United States or any over
jurisdiction applicable to the Partnership or the Interest to be transferred;
(ii) the loss by the Partnership of its
status as a partnership for tax purposes; or
(iii) the termination of the Partnership
pursuant to Section 708(b)(1)(B) of the Code; provided, however, that: clause
(i) of the foregoing provisions of this Section 7.1.1 shall not apply to a
Transfer by a Limited Partner to a Person which succeeds to its business
substantially as an entirety, or which, directly or indirectly, owns all the
outstanding equity securities of such Limited Partner or is a wholly-owned
subsidiary of such Limited Partner (or of the Person of which such Limited
Partner, directly or indirectly, is a wholly-owned subsidiary); provided
further, however, that the General Partner may not consent to the transfer of
Interests of a Limited Partner who has a relationship with the General Partner
as described in Section 3.03(9) of Revenue Procedure 89-12 as modified,
supplemented or superseded in relevant part (a "Related Limited Partner") so as
to reduce the aggregate Interest of such Related Limited Partner (after taking
into account the proposed transfer) to less than 66% the original Interests of
such Related Limited Partner. The General Partner agrees to cooperate with any
Limited Partner making a Transfer by providing promptly such records and other
factual information as may be reasonably requested with respect to any proposed
Transfer. Each Limited Partner hereby severally agrees that it will not transfer
all or any fraction of its Interest in the Partnership except as permitted by
this Agreement.
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7.1.2 In no event shall all or any part of an Interest be
transferred to a minor or an incompetent except in trust or by will or intestate
succession.
7.1.3 The transferring Class A Limited Partner agrees that it
will pay all reasonable expenses, including attorneys' fees, incurred by the
Partnership in connection with such Transfer.
7.1.4 Any Person which acquires all or any fraction of the
Interest of a Class A Limited Partner shall be obligated to pay to the
Partnership the appropriate portion of any amounts thereafter becoming due in
respect of the unpaid Capital Contributions committed to be made by its
predecessor in interest and shall succeed to the appropriate part of the Capital
Account of its predecessor in interest. Each Class A Limited Partner agrees
that, notwithstanding the Transfer of all or any fraction of its Interest, as
between it and the Partnership, it will remain liable for the unpaid Capital
Contributions as required to be made with respect to its interest prior to the
time, if any, when the purchaser, assignee or transferee of such Interest, or
fraction thereof, is admitted as a Substituted Limited Partner.
7.1.5 Notwithstanding anything herein to the contrary, in no
event may an Interest of a Class A Limited Partner be transferred, unless such
Interest represents either original aggregate Capital Contributions to the
Partnership of at least $10,000 or such Limited Partner's entire Interest.
7.2 Assignees.
7.2.1 The Partnership shall not recognize for any purpose any
purported Transfer of all or any fraction of the Interest of a Limited Partner,
unless the provisions of Section 7.1 shall have been complied with and there
shall have been filed with the Partnership a dated notice of such Transfer, in
form satisfactory to the General Partner, executed and acknowledged by both the
seller, assignor or transferor and the purchaser, assignee or transferee, and
such notice (i) contains the agreement of the purchaser, assignee or transferee,
satisfactory to the General Partner, to be bound by all the applicable terms and
provision of this Agreement and (ii) represents that such Transfer was made in
accordance with all applicable laws and regulations.
7.2.2 Unless and until an assignee of an Interest becomes a
Substituted Limited Partner, such assignee shall not be entitled to give
Consents with respect to such Interest.
7.2.3 Subject to Section 7.1.4 any Limited Partner which shall
transfer all of its Interest shall cease to be a Limited Partner, except that,
unless and until a Substituted Limited Partner is admitted in its stead, such
assigning Limited
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Partner shall retain the statutory rights of the assignor of a limited partner's
interest under the Act.
7.2.4 Anything herein to the contrary notwithstanding, both the
Partnership and the General Partner shall be entitled to treat the assignor of
an Interest as the absolute owner thereof in all respects, and shall incur no
liability for distributions made in good faith to it, until such time as a
written assignment that conforms to the requirements of this Article VII has
been received by the Partnership and accepted by the General Partner.
7.2.5 A Person who is the assignee of all or any fraction of the
Interest of a Limited Partner as permitted hereby but does not become a
Substituted Limited Partner and who desires to make a further Transfer of such
Interest, shall be bound by all of the provisions of this Article VII to the
same extent and in the same manner as any Limited Partner desiring to make a
Transfer of its Interest.
7.3 Substituted Limited Partners.
7.3.1 No Limited Partner shall have the right to substitute a
purchaser, assignee, transferee, donee, heir, legatee, distributee or other
recipient of all or any fraction of such Limited Partner's Interest as a Limited
Partner in its place. Any such purchaser, assignee, transferee, donee, heir,
legatee, distributee or other recipient of an Interest (whether pursuant to a
voluntary or involuntary Transfer) shall be admitted to the Partnership as a
Substituted Limited Partner only (i) with the written Consent of the General
Partner which Consent may be withheld for any reason in the General Partner's
sole discretion, (ii) by satisfying the requirements of Sections 7.1 and 7.2,
(iii) upon the receipt of all necessary governmental consents, and (iv) upon an
amendment to this Agreement and the Certificate, if required, and the recording
of all amendments and other documents required to be recorded in the proper
records of each jurisdiction in which such recordation is necessary to qualify
the Partnership to conduct business or to preserve the limited liability of the
Limited Partners.
7.3.2 Each Substituted Limited Partner, as a condition to its
admission as a Limited Partner, shall execute and acknowledge such other
instruments, in form and substance satisfactory to the General Partner, as the
General Partner reasonably deems necessary or desirable to effectuate such
admission and to confirm the agreement of the Substituted Limited Partner to be
bound by all the terms and provisions of this Agreement with respect to the
Interest acquired. All reasonable expenses, including attorneys' fees, incurred
by the Partnership in this connection shall be borne by such Substituted Limited
Partner.
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7.3.3 Until an assignee shall have been admitted to the
Partnership as a Substituted Limited Partner pursuant to Section 7.3.1, such
assignee shall be entitled to all of the rights of an assignee of a limited
partnership interest under the Act.
7.4 Incapacity of a Limited Partner. In the event of the Incapacity of a
Limited Partner, the Partnership shall not terminate, and the Limited Partner's
trustee in bankruptcy or other legal representative shall have only the rights
of a transferee of the right to receive Partnership distributions applicable to
the Interest of such Incapacitated Limited Partner as provided herein. Any
Transfer from such trustee in bankruptcy or legal representative shall be
subject to the provisions of this Agreement.
7.5 Transfers During a Fiscal Year. In the event of the Transfer of a
Partner's Interest at any time other than the end of a Fiscal Year, the
distributive share of the various items of Partnership profit, income, gain,
deduction, loss, credit and allowance computed for tax purposes shall be
allocated between the transferor and the transferee in the ratio of the number
of days in the Fiscal Year before and after the Transfer or in such other manner
as the General Partner determines to be fair under the circumstances, including,
without limitation, a closing of the books of the Partnership.
7.6 Restrictions Upon Transfer of Class B Partners' Interests.
Notwithstanding any other provisions of the Article VII and subject to the
provisions of Section 3.5.3 hereof, in no event shall the Contingent Profits
Interest or Vested Profits Interest of any Class B Limited Partner (or the
resulting Designated Class B Management Stock distributed pursuant to Section
4.2) be transferable by such Class B Limited Partner, in whole or in part,
without the prior written consent of the General Partner, which consent may be
withheld for any reason whatsoever in the General Partner's sole and absolute
discretion.
ARTICLE VIII
DISSOLUTION, LIQUIDATION AND TERMINATION OF THE PARTNERSHIP
8.1 Dissolution. The Partnership shall be dissolved, upon the happening
of any of the following events:
(i) the expiration of its term;
(ii) the failure of the Limited Partners to elect to continue the
Partnership as provided, and upon the occurrence of an event specified
in Section 6.5.1;
(iii) at least three (3) months prior written notice to the
Limited Partners of the election to dissolve the
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Partnership by the General Partner if at any time the Fair Market Value
of the Partnership assets, less the face amount of the liabilities of
the Partnership, shall be less than ten percent (10%) of the original
Capital Contributions;
(iv) the sale of or other disposition by the Partnership of all
or substantially all of the Company Stock, and any other assets of the
Partnership, unless the General Partner determines that the continued
existence of the Partnership is necessary or desirable;
(v) termination required by operation of law; or
(vi) the Consent of the General Partner and fifty percent (50%)
in Interest of the Class A Limited Partners.
Dissolution of the Partnership shall be effective on the day on which the event
occurs giving rise to the dissolution, but the Partnership shall not terminate
until the Certificate has been canceled and the assets of the Partnership have
been distributed as provided in Section 8.2.
8.2 Liquidation.
8.2.1 Upon dissolution of the Partnership, the General Partner
or, if there is none, a Person selected by a majority in interest of the Limited
Partners to act as a liquidating trustee (the "Liquidating Trustee") shall wind
up the affairs of the Partnership and proceed within a reasonable period of time
to sell or otherwise liquidate the assets of the Partnership (subject to Section
4.2.2 with respect to Designated Class B Management Shares) and, after paying or
making due provision by the setting up of reserves for all liabilities to
creditors of the Partnership, to distribute the assets among the Partners in
accordance with the provisions for the making of distributions set forth in
Section 8.2.2 of this Agreement. Notwithstanding the foregoing, in the event
that the General Partner or the Liquidating Trustee shall, in its absolute
discretion, determine that a sale or other disposition of part or all of the
Partnership's investments would cause undue loss to the Partners or otherwise be
impractical or imprudent, and taking into consideration the Partnership's
obligation to distribute Designated Class B Management Stock to Class B Limited
Partners pursuant to Section 4.2 hereof, the General Partner or the Liquidating
Trustee may either defer liquidation of, and withhold from distribution for a
reasonable time, any investments or distribute part or all of such investments
to the Partners, or to a liquidating trust for their benefit, in kind as
provided in Sections 8.2.2 and 4.6 hereof.
8.2.2 If the Fair Market Value of Partnership assets to be
distributed in kind exceeds ("unrealized gain") or is less than ("unrealized
loss") the Partnership basis in such assets, to the extent not otherwise
recognized to the Partnership, such
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unrealized gain or unrealized loss shall be taken into account in computing
income, losses and gains for such Fiscal Year for all purposes of crediting or
charging the Capital Accounts of the Partners pursuant to Section 4.3 and this
Section as if such assets had been sold for their Fair Market Value on the date
of distribution. Thereupon, all of the assets of the Partnership, or the
proceeds therefrom, shall be distributed or used as follows and in the following
order of priority:
(i) for the payment of the debts and liabilities of the
Partnership, including, without limitation, any amounts due to the
General Partner pursuant to Section 5.6, and the expenses of
liquidation;
(ii) to the setting up of any reserves which the General Partner
or the Liquidating Trustee may deem reasonably necessary for any
contingent or unforeseen liabilities or obligations of the Partnership;
and
(iii) to the Class A Limited Partners and the General Partner in
an amount equal to the positive balances in their respective Capital
Accounts as determined after taking into account all Capital Account
adjustments for all of the Partnership's taxable years including the
Partnership's taxable year during which such liquidation occurs; to the
Class B Limited Partners, Designated Class B Management Stock shall be
distributed in accordance with Section 4.2.2. The amount of such
distribution in kind for such purposes of this Section 8.2.2(iii) shall
be equal to the Fair Market Value of the assets so distributed;
provided, however, that in no event shall the Class B Limited Partners
be entitled to receive distributions of more shares of Designated Class
B Management Stock than are distributable under Section 4.2.2, subject
to Section 3.5.4.
8.2.3 When the General Partner or the Liquidating Trustee has
complied with the foregoing liquidation plan, the Partners shall execute,
acknowledge and cause to be filed, in accordance with the Act and the laws of
such jurisdictions in which the Partnership is qualified to transact business,
an instrument or instruments evidencing the cancellation of the Certificate and
termination of the Partnership.
ARTICLE IX
AMENDMENTS
9.1 Adoption of Amendments; Limitations Thereon.
9.1.1 By their execution of this Agreement, the Class A Limited
Partners have thereby signified their approval of all Amendments to the Original
Agreement set forth in this Agreement.
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9.1.2 This Agreement is subject to amendment only with the
written Consent of the General Partner and more than fifty percent (50%) in
Interest of the Class A Limited Partners; provided, however, that no amendment
to this Agreement may:
(a) increase the Capital Contributions required to be made by any
Class A Partner or require any Partner to make a loan to the
Partnership; convert a Limited Partner's Interest into a General
Partner's Interest; modify the limited liability of a Limited Partner;
or increase the liabilities or responsibilities of, or diminish the
protections of, any Partner under this Agreement; in each case, without
the Consent of each such affected Partner; and provided, further, that
no amendment which would increase the Capital Contributions required to
be made by any Partner may be adopted unless all of the Partners are
offered the opportunity to increase their Capital Contributions on a pro
rata basis;
(b) alter the Interest of any Partner in income, gains, losses or
distributions of the Partnership or amend or modify any portion of
Article IV without the Consent of each Partner adversely affected by
such amendment or modification; provided, however, that (i) neither the
admission of additional Limited Partners and General Partners, nor (ii)
the reallocation of the Contingent Profits Interest of any Class B
Limited Partner nor the issuance of any such Contingent Profits Interest
to any new Class B Limited Partner, nor (iii) the cancellation of any
such Contingent Profits Interest of any Class B Limited Partner, by the
General Partner, in its sole and absolute discretion in accordance with
the provisions of this Agreement shall constitute such an alteration,
amendment or modification;
(c) amend or modify any provision of Article VII in a manner that
would further restrict the transferability of a Class A Limited
Partner's Interest without the Consent of all of the Limited Partners;
(d) amend any provisions hereof which require the Consent, action
or approval of a specified percentage in Interest of the Class A Limited
Partners without the Consent of such specified percentage in Interest of
the Class A Limited Partners;
(e) cause the Partnership to lose its status as a partnership
for federal income tax purposes; or
(f) amend this Section 9.1.1 without the Consent of all of the
Class A Limited Partners.
9.1.3 Notwithstanding any provision hereof and in addition to
any amendments otherwise authorized hereby, this
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Agreement may be amended from time to time by the General Partner (i) to add to
the representations, duties or obligations of the General Partner or surrender
any right or power granted to the General Partner herein; (ii) to cure any
ambiguity or correct or supplement any provision hereof which may be
inconsistent with any other provision hereof, or correct any printing,
stenographic or clerical errors or omissions; (iii) to withdraw one or more
Limited Partners, in accordance with the terms of this Agreement; (iv) to amend
Schedule A or Schedule B hereto to provide any necessary information regarding
any Partner; and (v) to reflect any change in the amount of the Capital
Contribution of any Partner in accordance with the terms of this Agreement;
provided, however, that no amendment shall be adopted pursuant to this Section
9.1.2 if (a) such amendment would alter the Interest of a Partner in income,
gains or losses or distributions or is adverse to the Interests of the Limited
Partners, or (b) such amendment would, in the opinion of counsel for the
Partnership, alter or result in the alteration of the limited liability of the
Limited Partners or the status of the Partnership as a partnership for federal
income tax purposes. The General Partner shall send each Limited Partner a copy
of any amendment adopted pursuant to this Section 9.1.2.
9.1.4 Upon the adoption of any amendment to this Agreement, the
amendment shall be executed by the General Partner and all of the Limited
Partners and shall be duly filed in the proper records of each jurisdiction in
which filing is necessary for the Partnership to conduct business or to preserve
the limited liability of the Limited Partners. Any such amendment may be
executed by the General Partner on behalf of the Limited Partners pursuant to
the power of attorney granted in Article X.
9.2 Amendment of Certificate. In the event this Agreement shall be
amended pursuant to this Article IX, the General Partner shall amend the
Certificate to reflect such change if the General Partner deems such amendment
to be necessary and shall make any other filings or publications required or
desirable to reflect such amendment, including any required filing for
recordation of the Certificate or other similar document.
ARTICLE X
CONSENTS, VOTING AND MEETINGS
10.1 Method of Giving Consent. Any Consent required by this Agreement
may be given as follows:
(a) by a written Consent given by the consenting Partner at or
prior to the doing of the act or thing for which the Consent is
solicited, provided that such Consent shall not have been nullified by
either (i) notice to the General Partner by the Consenting Partner at or
prior to the time of, or the negative vote by such Consenting Partner
at, any meeting held to consider the doing of such act or thing, or (ii)
notice to the General Partner by the Consenting
- 34 -
<PAGE> 36
Partner prior to the doing of any act or thing, the doing of which has
not been made the subject of an approval at such a meeting; or
(b) by the affirmative vote by the Consenting Partner to the
doing of the act or thing for which the Consent is solicited at any
meeting called and held to consider the doing of such act or thing.
10.2 Meetings. Any matter (regardless of whether such matter requires
the Consent of all or any of the Limited Partners pursuant to this Agreement)
may be considered at a meeting of the Limited Partners held not less than
twenty-eight (28) days after notice thereof shall have been given by the General
Partner to all Limited Partners. Such notice (i) may be given by the General
Partner, in its discretion, at any time, and (ii) shall be given by the General
Partner within thirty (30) days after receipt by the General Partner of a
request for such a meeting made by at least fifty percent (50%) in Interest of
the Limited Partners. Any such notice shall state briefly the purposes, time and
place of the meeting. All such meetings shall be held at the principal office of
the Partnership or at such other reasonable place as the General Partner shall
designate and during normal business hours.
10.3 Record Dates. The General Partner may set in advance a date for
determining the Limited Partners entitled to notice of and to vote at any
meeting. No record date shall be more than sixty (60) days nor less than ten
(10) days prior to the date of the meeting to which such record date relates.
10.4 Submissions to Limited Partners. The General Partner shall give all
of the Limited Partners entitled to vote thereon notice of any proposal or other
matter required by any provision of this Agreement or by law to be submitted for
the consideration and approval of the Limited Partners or any class thereof.
Such notice shall include any information required by the relevant provisions of
this Agreement or by law. Neither the General Partner nor the Partnership shall
solicit, request or negotiate for or with respect to any proposed waiver or
amendment of any of the provisions of this Agreement or the Certificate or any
Consent by the Limited Partners unless each Limited Partner entitled to vote
thereon shall be informed thereof by the General Partner or the Partnership, as
the case may be, and shall be afforded the opportunity of considering the same
and shall be supplied with sufficient information to enable such Limited Partner
to make an informed decision with respect thereto. Neither the General Partner
nor the Partnership shall, directly or indirectly, pay or cause to be paid any
remuneration, fee or other consideration to any Limited Partner for or as an
inducement to the entering into by such Limited Partner of any waiver or
amendment of any of the terms and provisions of this Agreement or the
Certificate or the giving of any Consent, unless such remuneration is
concurrently paid on the same terms, in
- 35 -
<PAGE> 37
proportion to their respective Limited Partner Interests, to all the then
Limited Partners entitled to vote thereon.
10.5 Class B Limited Partners. Notwithstanding any other provisions of
this Article X, the Consent, vote or approval of any of the Class B Limited
Partners shall not be required for any action taken, or proposed to be taken, by
the General Partner under this Agreement, including without limitation, adoption
of amendments to this Agreement in accordance with Article IX hereof, nor shall
the Partnership be required to forward notice of any such proposed actions,
amendments or meetings to any Class B Limited Partners, except in either case
with respect to any such actions or amendments or proposed actions or amendments
which would adversely affect the Vested Profits Interest in the Partnership of
any such Class B Partner.
ARTICLE XI
POWER OF ATTORNEY
Each Partner, by its execution hereof, hereby irrevocably makes,
constitutes and appoints the General Partner as its true and lawful agent and
attorney-in-fact, with full power of substitution and full power and authority
in its name, place and stead, to make, execute, sign, acknowledge, swear to,
record, publish and file in such Partner's or such Partner's assignee's name,
place and stead: (i) any and all counterparts of this Agreement and any and all
amendments hereto to which such Partner is a signatory; (ii) the original
certificate of limited partnership of the Partnership and all amendments thereto
required or permitted by law or the provisions of this Agreement; (iii) all
certificates and other instruments deemed advisable by the General Partner to
carry out the provisions of this Agreement and any applicable law or to permit
the Partnership to become or to continue as a limited partnership or partnership
wherein the limited partners have limited liability in each jurisdiction where
the Partnership may be doing business; (iv) all instruments that the General
Partner deems appropriate to reflect a change or modification of this Agreement
including, without limitation, the admission of additional Limited Partners, the
substitution of any assignee as a Substituted Limited Partner or substituted
General Partner, and the forfeiture by Limited Partners of their interests,
pursuant to the provisions of this Agreement; (v) all conveyances and other
instruments or documents deemed advisable by the General Partner, including
without limitation, those to effect the dissolution and termination of the
Partnership; (vi) all fictitious or assumed name certificates required or
permitted to be filed on behalf of the Partnership; (vii) any changes in this
Agreement as are required or are desirable in the judgment of the General
Partner in order to comply with the laws of Delaware or the Code; (viii) all
insertions and/or corrections to any documents executed by such Partner in
connection with such Partner's admission as a Limited Partner of the
Partnership, including, without limitation, filling in blank addresses, dollar
amounts, schedules of Capital Contributions and subscription
- 36 -
<PAGE> 38
agreements, if any, executed by such Partner; and (ix) all other instruments
which may be required or permitted by law to be filed, recorded or published on
behalf of the Partnership. Any person dealing with the Partnership may presume
conclusively and rely upon the fact that any instrument referred to above is
authorized, valid and binding, without further inquiry.
The foregoing power of attorney:
(a) is coupled with an interest, shall be irrevocable and shall
survive the Incapacity of the Partner in respect of which such power of
attorney may be exercised;
(b) may be exercised by the General Partner, or the officers and
directors of the general partner of the General Partner either by
signing separately as attorney-in-fact for each Partner or, after
listing all of the Partners executing an instrument, by a single
signature of the General Partner, any such officer or director acting as
attorney-in-fact for all of them; and
(c) shall survive the delivery of an assignment by a Partner of
the whole or any fraction of its Interest, except that, where the
assignee of the whole of such Partner's Interest has been approved by
the General Partner for admission to the Partnership as a Substituted
Limited Partner, the power of attorney of the assignor shall survive the
delivery of such assignment for the sole purpose of enabling the General
Partner or the officers and directors of the general partner of the
General Partner to execute, swear to, acknowledge and file any
instrument necessary or appropriate to effect such substitution.
Each Partner shall execute and deliver to the General Partner within
fifteen (15) days after receipt of the General Partner's request therefor such
further designations, powers-of-attorney and other instruments as the General
Partner reasonably deems necessary to carry out the terms of this Agreement.
ARTICLE XII
RECORDS AND ACCOUNTING; REPORTS; FISCAL AFFAIRS
12.1 Records and Accounting.
12.1.1 Proper and complete records and books of account of the
business of the Partnership, including a list of the names, addresses and
Interests of all Limited Partners, shall be maintained at the Partnership's
principal place of business. Any Partner, or its duly authorized representative,
shall be entitled to a copy of the list of names, addresses and Interests of the
Limited Partners, provided such information shall be used only for Partnership
purposes. Each Partner and its duly authorized representatives may visit and
inspect any of the properties of the Partnership or the offices of the General
- 37 -
<PAGE> 39
Partner, examine their books of account, records, reports and other papers (to
the extent the same pertain to the Partnership) which are not legally required
to be kept confidential or secret, make copies and extracts therefrom, and
discuss the affairs, finances and accounts of the Partnership with the General
Partner, all at such reasonable times and as often as may be reasonably
requested.
12.1.2 The books and records of the Partnership shall be kept in
accordance with the accrual basis method of accounting and in such a way as
shall permit the preparation of the financial statements referred to in Section
11.2.1. The accrual basis method of accounting shall be followed by the
Partnership for tax purposes, and the taxable year of the Partnership shall be
its Fiscal Year.
12.2 Annual Reports.
12.2.1 Within one hundred twenty (120) days after the end of each
Fiscal Year, the General Partner shall cause to be delivered to each Class A
Limited Partner and each Class B Limited Partner holding a Vested Profits
Interest at any time during the Fiscal Year, an annual report containing the
following:
(a) financial statements of the Partnership, including, without
limitation, a balance sheet as of the end of the Fiscal Year and
statements of income, Partners' equity and cash flows for such Fiscal
Year; and
(b) a statement, in reasonable detail, showing the Capital
Account of such Limited Partner and computing the distributions to such
Limited Partner during such Fiscal Year.
12.2.2 No value shall ever be attributed to the firm name of the
Partnership, or the right of its use, or to the goodwill appertaining to the
Partnership or its business, either during the continuation of the Partnership
or in the event of its dissolution or termination. Liabilities shall be
determined in accordance with the method of accounting employed by the
Partnership and may include reserves for estimated accrued expenses and reserves
for unknown or untaxed liabilities or contingencies.
12.3 Tax Information. Within ninety (90) days after the end of each
Fiscal Year, the General Partner will cause to be delivered to each Person who
was a Partner at any time during such Fiscal Year a Form K-l and such other
information, if any, with respect to the Partnership as may be necessary for the
preparation of such Partner's income tax returns, including a statement showing
such Partner's shares of income, gain or loss and credits for such Fiscal Year
for income tax purposes.
- 38 -
<PAGE> 40
12.4 Partnership Funds. The funds of the Partnership may be deposited in
the name of the Partnership in one or more bank accounts in one or more banks.
Withdrawals therefrom shall be made upon such signature(s) as the General
Partner may designate. No funds of the Partnership shall be kept in any account
other than a Partnership account; funds shall not be commingled with the funds
of any other Person; and the General Partner shall not employ, or permit any
other Person to employ, such funds in any manner except for the benefit of the
Partnership.
12.5 Elections. The determination of the General Partner with respect to
the treatment of any item or its allocation for federal, state or local tax
purposes shall be binding upon all of the Partners so long as such determination
shall not be inconsistent with any express term hereof and provided that the
Accountants shall not disagree therewith.
12.6 Other Information. With reasonable promptness, the General Partner
will deliver, to the extent it may lawfully be disclosed, such other information
available to the General Partner, including financial statements and
computations, relating to the Partnership as any Limited Partner may from time
to time reasonably request.
ARTICLE XIII
REPRESENTATIONS AND WARRANTIES OF THE LIMITED PARTNERS
Each Limited Partner is fully aware that the Partnership and the General
Partner are relying upon the truth and accuracy of the following representations
by each of the Limited Partners. Each of the Limited Partners hereby represents
and warrants that:
(a) Such Limited Partner (i) if an individual, has full power and
is legally competent to enter into the Agreement, (ii) if an entity is
duly organized, validly existing and in good standing under the laws of
its state or country of organization, has full power and authority to
enter into this Agreement, and (iii) the execution of this Agreement and
the consummation of the transactions contemplated hereby will not
constitute a violation of, or a default under, or conflict with, any
conduct, commitment, agreement, understanding, arrangement or
restriction of any kind to which such Limited Partner is a party or by
which such Limited Partner is bound.
(b) The Partnership has made available to such Limited Partner
its advisors and designated representatives, if any, for a reasonable
time prior to the execution hereof the opportunity to ask questions and
receive answers concerning the terms and conditions of an investment in
the Partnership and to obtain such information and documents which the
Partnership possesses or can acquire without unreasonable effort or
expense. Such Limited Partner, its advisors and designated
representatives, if any, have
- 39 -
<PAGE> 41
received all such additional information requested. Such Limited Partner
is not relying on the Partnership or the General Partner for guidance
with respect to tax and other applicable laws of any jurisdiction or any
other economic considerations.
(c) Such Limited Partner is acquiring its Interest for its own
account, for investment and not with a view to, or for resale in
connection with, the distribution thereof or with any present intention
of distributing or reselling any portion thereof.
(d) This Agreement is the valid and binding obligation of such
Limited Partner, enforceable against such Limited Partner in accordance
with its terms.
ARTICLE XIV
MISCELLANEOUS
14.1 Notices.
14.1.1 Any notice to any Limited Partner shall be given at the
address of such Partner set forth in Schedule A hereto or at such other mailing
address of which such Limited Partner shall advise the General Partner in
writing. Any notice to the Partnership or the General Partner shall be given at
the principal office of the Partnership as set forth in Section 2.4. The General
Partner may at any time change the location of such office. Notice of any such
change shall be given to the Partners on or before the date of any such change.
14.1.2 Unless otherwise provided herein, all notices required
under the terms and provisions hereof shall be in writing, either delivered by
hand, by first class mail, by overnight courier or by telex, telecopier or
telegram, including by facsimile transmission, and any such notice shall be
effective when actually given in person, if by hand, when transmitted, upon
receipt of a legible facsimile transmission, if given by telecopier, when
transmitted, upon receipt of a legible transmission, if given by telex or
telegram, on the first business day after delivery when delivered by overnight
courier, or on the third business day after the day when deposited with the
United States mail, postage prepaid.
14.2 Governing Law; Severability of Provisions. It is the intention of
the parties that the internal laws of Delaware and, in particular, the
provisions of the Act shall govern the validity of this Agreement, the
construction of its terms and interpretation of the rights and duties of the
Partners. If any portion of this Agreement shall be held to be invalid, the
remainder of this Agreement shall not be affected thereby.
14.3 Entire Agreement. This Agreement constitutes the
entire agreement among the Partners; it supersedes any prior
- 40 -
<PAGE> 42
agreement or understanding among them, oral or written other than each Limited
Partner's Subscription Agreement with respect to such Partner's Interest, which
is hereby incorporated herein by reference. There are no representations,
agreements, arrangements or understandings, oral or written between or among the
Partners relating solely to the subject matter of this Agreement which are not
fully expressed herein other than each Limited Partner's Subscription Agreement.
This Agreement may not be modified or amended other than pursuant to Article IX.
14.4 Headings, etc. The headings in this Agreement are inserted for
convenience of reference only and shall not affect the interpretation of this
Agreement. Wherever from the context it appears appropriate, each term stated in
either the singular or the plural shall include the singular and the plural, and
pronouns stated in either the masculine or the neuter gender shall include the
masculine, the feminine and the neuter.
14.5 Binding Provisions. The covenants and agreements contained herein
shall be binding upon and inure to the benefit of the heirs, executors,
administrators, personal or legal representatives, permitted successors and
assigns of the respective parties hereto.
14.6 No Waiver. The failure of any Partner to seek redress for
violation, or to insist on strict performance, of any covenant or condition of
this Agreement shall not prevent a subsequent act which would have constituted a
violation from having the effect of an original violation.
14.7 Confidentiality. Each Limited Partner will maintain the
confidentiality of non-public information regarding the Partnership, the
Company, the General Partner and any Affiliate of any of them received by such
Limited Partner pursuant to this Agreement in accordance with such procedure, as
it applies generally to information of this kind.
14.8 No Right to Partition. Except as otherwise expressly provided in
this Agreement, the Partners, on behalf of themselves and their shareholders,
partners, heirs, executors, administrators, personal or legal representatives,
successors and assigns, if any, hereby specifically renounce, waive and forfeit
all rights, whether arising under contract or statute or by operation of law, to
seek, bring or maintain any action in any court of law or equity for partition
of the Partnership or any asset of the Partnership, or any interest which is
considered to be Partnership property, regardless of the manner in which title
to any such property may be held.
14.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument, provided that each such counterpart
shall be executed by the General Partner.
- 41 -
<PAGE> 43
14.10 No Third Party Beneficiary. Nothing contained in this Agreement
shall be deemed to create any third party beneficiary status or grant any rights
to any Capital Contributions to any party who is not a Partner.
[INTENTIONALLY LEFT BLANK]
- 42 -
<PAGE> 44
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Agreement as of the date first above written.
GENERAL PARTNER:
CREDENTIALS II G.P. L.P.
By: Credentials II G.P., Inc.
Its General Partner
By:/s/ Thomas J. Maloney
------------------------------
Name: Thomas J. Maloney
Title: President
CLASS B LIMITED PARTNERS CLASS A LIMITED PARTNER:
/s/ DAVID C. THOMPSON LINCOLNSHIRE EQUITY FUND, L.P.
- --------------------------------
David C. Thompson By: Lincolnshire Equity
Partners, L.P.
Its General Partner
- --------------------------------
Charles C. Caudle By: Lincolnshire Equity,
Inc.
/s/ VINEET PRUTHI Its General Partner
- --------------------------------
Vineet Pruthi By:/s/ Thomas J. Maloney
--------------------------
/s/ M. GERRARD KEEHAN Name:Thomas J. Maloney
- -------------------------------- Title: Vice President
M. Gerrard Keehan
/s/ JAMES M. ROTHE
- --------------------------------
James M. Rothe
- --------------------------------
Donald L. Shea
/s/ MICHAEL L. COSSELL
- --------------------------------
Michael L. Cossell
/s/ TONYA CARMICHAEL
- --------------------------------
Tonya Carmichael
/s/ ROBERT T. RICHARDSON
- --------------------------------
Robert T. Richardson
/s/ MARILYN SCHWARTZ
- --------------------------------
Marilyn Schwartz
- --------------------------------
John J. Adams
- 43 -
<PAGE> 45
Schedule A
CAPITAL CONTRIBUTIONS AND PROFIT PERCENTAGES
OF
CSI INVESTMENT PARTNERS II, L.P.
<TABLE>
<CAPTION>
Aggregate Capital Profit
Name and Address of Partner Contribution(s) Percentage
- --------------------------- --------------- ----------
<S> <C> <C>
Credentials II G.P. L.P. 20,000.00 1%
c/o Lincolnshire Management, Inc. (11/07/96)
780 Third Avenue
New York, NY 10017 10,000.00
(04/14/97)
Class A Limited Partner
- -----------------------
Lincolnshire Equity Fund, L.P. 1,980,000.00 99%
c/o Lincolnshire Management, Inc. (11/07/96)
780 Third Avenue
New York, NY 10017 990,000.00
(01/14/97)
</TABLE>
- 44 -
<PAGE> 46
Schedule B
CLASS B LIMITED PARTNERS
<TABLE>
<CAPTION>
Name Contingent Profits Interest
---- ---------------------------
<S> <C>
David C. Thompson 3.25
Charles C. Caudle 0.10
Vineet Pruthi 1.45
M. Gerrard Keehan 1.50
James M. Rothe 0.95
Donald L. Shea 1.15
Michael L. Cossell 0.75
Tonya Carmichael 0.10
Robert T. Richardson 0.25
Marilyn Schwartz 0.25
John J. Adams 0.25
-----
TOTAL 10.00%
</TABLE>
- 45 -
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. 33- ) of our report dated October 3, 1997, on our audits of the
financial statements of Credentials Services International, Inc. We also consent
to the reference to our firm under the captions "Experts", "Selected Financial
Data", and "Summary Financial Information."
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Los Angeles, CA
October 8, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> SEP-27-1996 SEP-26-1997
<PERIOD-START> OCT-01-1995 SEP-28-1996
<PERIOD-END> SEP-27-1996 JUN-27-1997
<CASH> 1,613 299
<SECURITIES> 0 0
<RECEIVABLES> 854 3,509
<ALLOWANCES> 147 559
<INVENTORY> 0 0
<CURRENT-ASSETS> 9,096 16,264
<PP&E> 3,646 5,720
<DEPRECIATION> 381 798
<TOTAL-ASSETS> 27,552 37,696
<CURRENT-LIABILITIES> 32,462 36,685
<BONDS> 0 0
0 0
0 0
<COMMON> 1 1
<OTHER-SE> 3,999 6,999
<TOTAL-LIABILITY-AND-EQUITY> 27,552 37,696
<SALES> 0 0
<TOTAL-REVENUES> 24,556 28,208
<CGS> 0 0
<TOTAL-COSTS> 12,999 8,419
<OTHER-EXPENSES> 32,186 17,237
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,818 1,052
<INCOME-PRETAX> (22,447) 1,500
<INCOME-TAX> 0 61
<INCOME-CONTINUING> (22,447) 1,439
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 91
<CHANGES> 0 0
<NET-INCOME> (22,447) 1,348
<EPS-PRIMARY> (500.57) 30.06
<EPS-DILUTED> 0 0
</TABLE>
