<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FIRST CONSULTING GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8742 95-3539020
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
</TABLE>
--------------------------
111 WEST OCEAN BOULEVARD
4TH FLOOR
LONG BEACH, CA 90802
(562) 624-5200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
LUTHER J. NUSSBAUM
EXECUTIVE VICE PRESIDENT
FIRST CONSULTING GROUP, INC.
111 WEST OCEAN BOULEVARD
4TH FLOOR
LONG BEACH, CA 90802
(562) 624-5200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
ALAN C. MENDELSON, Esq. BROOKS STOUGH, Esq.
PATRICK A. POHLEN, Esq. JEFFREY P. HIGGINS, Esq.
TOMAS C. TOVAR, Esq. CRAIG E. WALKER, Esq.
Cooley Godward LLP Gunderson Dettmer Stough Villeneuve
Five Palo Alto Square Franklin & Hachigian, LLP
3000 El Camino Real 155 Constitution Drive
Palo Alto, CA 94306-2155 Menlo Park, CA 94025
(650) 843-5000 (650) 321-2400
</TABLE>
--------------------------
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, as amended (the "Securities Act"), 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
<TABLE>
<CAPTION>
TITLE OF SECURITIES PROPOSED MAXIMUM AGGREGATE
TO BE REGISTERED OFFERING PRICE (1) AMOUNT OF REGISTRATION FEE
<S> <C> <C>
Common Stock, $.001 par value................................... $50,000,000 $15,151
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act.
--------------------------
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 THAT 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 26, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
SHARES
[LOGO]
COMMON STOCK
Of the shares of Common Stock offered hereby, shares are being
sold by the Company and shares are being sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders."
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
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 has applied to have the Common Stock approved for quotation on the
Nasdaq National Market under the symbol FCGI.
----------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
-------------
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.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
Total (3).................. $ $ $ $
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to additional shares of Common Stock solely to cover over-allotments,
if any. If all such shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
----------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1998, at the office of the agent of
Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST
BANCAMERICA ROBERTSON STEPHENS
UBS SECURITIES
, 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING BY ENTERING INTO STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
--------------
First Consulting Group-Registered Trademark-, FCG-Registered Trademark-,
KITE-Registered Trademark- and the logo appearing on the front cover of this
Prospectus are registered trademarks of the Company. This Prospectus also
includes trademarks of companies other than the Company.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. THE COMMON STOCK OFFERED HEREBY INVOLVES
A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
THE COMPANY
First Consulting Group, Inc. ("FCG" or the "Company") provides information
technology and other consulting services to payors, providers and other
healthcare organizations in North America and Europe. The Company provided its
services to over 460 clients in the nine months ended September 30, 1997. The
Company's services are designed to increase its clients' operations
effectiveness in order to reduce cost, improve customer service and enhance the
quality of patient care. The Company's services address the increasing need of
its clients for healthcare-specific information technology expertise to
objectively evaluate, select, implement and manage an optimal set of information
systems and infrastructures. The Company's consultants provide this expertise
through multi-disciplinary teams specifically formed to provide a unique
solution for each client. The Company has experienced a compound annual revenue
growth rate of approximately 39.9% from 1992 through 1996 and has generated
significant revenue from its existing client base. The Company believes that its
success is attributable to its strong relationships with industry leading
clients, the healthcare, technology and consulting expertise of the Company's
consultants, and the depth and breadth of its consulting services.
Pressure from employers, government agencies and consumers has caused payors
and providers to attempt to reduce cost, improve customer service and increase
the quality of patient care. Payors have utilized a variety of managed care and
risk-shifting mechanisms to control costs. Providers have responded by improving
their ability to manage reimbursement, administrative and care management
functions. Additionally, both payors and providers are consolidating into larger
entities such as integrated delivery networks ("IDNs") in order to reduce costs,
improve efficiency and provide patient care across a continuum. Many of the
existing information systems used by payor and provider organizations were
developed to serve a specific function or to operate within a single entity,
such as a health maintenance organization, hospital or physician group. New or
existing information systems must be installed or upgraded and integrated to
provide the financial, administrative and clinical data needed by healthcare
organizations. Additionally, these systems must also address the increasing
needs of users to have clinical decision support tools, integrated patient and
financial information, managed care contracting and information networking.
Payor and provider organizations have found it increasingly difficult to
develop, implement and manage comprehensive information technology strategies
and systems. Many healthcare organizations lack the human and technical
resources necessary to effectively evaluate, select, implement and manage an
optimal set of information and communication systems, networks and applications.
The Company believes that the increasing pressures on payors and providers to
decrease costs, improve customer service and enhance the quality of patient
care, combined with the complexity of a consolidating industry and the lack of
internal technical expertise, have created an opportunity for companies
specializing in providing comprehensive information technology solutions to
healthcare organizations.
FCG's objective is to be a leading provider of information technology and
other consulting services to the healthcare industry. The Company's four
principal service lines are consulting, software implementation, network and
application integration and co-management services. The Company's consulting
services primarily consist of strategic planning, operations effectiveness,
procurement and contracting and other services. The Company also provides
implementation services for packaged software products, which include project
management, installation, interface programming, testing and training services.
The Company's network and application integration services include designing and
developing comprehensive system architectures, infrastructures, interfaces,
databases, applications and networks to address the need for information
integration and dissemination throughout a healthcare organization. The Company
also provides co-management services including interim staffing primarily for
senior-level information technology positions as well as support staff on a
temporary or permanent basis. The Company's services and consultants are
supported by internal research, training and a centralized information system
which provides real-time access to current industry and technology information
and project methodologies, experiences, models and tools. These programs include
the Company's Emerging Practices Group, Professional Development Programs,
Scottsdale Institute, Knowledge and Information Technology Exchange ("KITE") and
Practice Guilds.
The Company was incorporated in California in October 1980 and will be
reincorporated in Delaware prior to the effectiveness of this offering. The
Company's principal executive offices are located at 111 West Ocean Boulevard,
4th Floor, Long Beach, California 90802, and its telephone number is (562)
624-5200.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
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................................ For working capital and general corporate
purposes
Proposed Nasdaq National Market symbol......... FCGI
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
YEAR ENDED DECEMBER 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue..................................... $ 17,207 $ 19,050 $ 30,046 $ 47,744 $ 65,822 $ 48,262 $ 66,304
Cost of services................................ 9,200 10,721 16,869 26,518 40,718 30,160 39,513
--------- --------- --------- --------- --------- --------- ---------
Gross profit.................................. 8,007 8,329 13,177 21,226 25,104 18,102 26,791
General and administrative expenses............. 6,818 6,995 9,871 17,517 23,670 17,663 22,248
Compensation expenses related to stock
issuances (2)................................. -- -- -- 385 588 382 1,623
--------- --------- --------- --------- --------- --------- ---------
Income from operations........................ 1,188 1,334 3,306 3,324 846 57 2,920
Interest income (expense), net.................. 33 46 (77) (36) 3 (16) (58)
Other income, net............................... 34 77 32 18 44 33 110
Provision for income taxes...................... 531 592 1,577 1,423 500 41 1,649
--------- --------- --------- --------- --------- --------- ---------
Net income.................................... $ 724 $ 866 $ 1,684 $ 1,883 $ 393 $ 33 $ 1,323
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income per share (3)(4)..................... $ 0.23 $ 0.27 $ 0.66 $ 0.86 $ 0.15 $ 0.01 $ 0.50
Shares used in computing net income per share... 3,098 3,234 2,556 2,201 2,575 2,554 2,629
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------------
ACTUAL PRO FORMA (5) AS ADJUSTED(6)
--------- --------------- --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................................. $ 4,473 $ 4,473 $
Total assets........................................................... 34,343 34,343
Long-term debt......................................................... 2,585 2,585
Total stockholders' equity............................................. 5,681 13,780
</TABLE>
- ------------------------------
(1) Based on the number of shares outstanding at September 30, 1997. Excludes
(i) 149,000 shares of Common Stock issuable upon the exercise of stock
options outstanding under the Company's 1997 Equity Incentive Plan with an
exercise price of $19.03 per share, (ii) 20,000 shares of Common Stock
issuable upon exercise of stock options outstanding under the Company's 1997
Non-Employee Directors' Stock Option Plan with an exercise price of $19.03
per share, and (iii) 22,300 shares of Common Stock issuable upon the
exercise of non-qualified stock options with an exercise price of $4.52 per
share. See "Capitalization," "Management--1997 Equity Incentive Plan,"
"--1997 Non-Employee Directors' Stock Option Plan," and Note H of Notes to
Financial Statements.
(2) In connection with the Company's Associate Profit Sharing 401(k) and Stock
Ownership Plan ("ASOP") and certain non-qualified stock options granted to
the Company's vice presidents, the Company recognized a compensation expense
in its consolidated statements of operations. The non-recurring portion of
this compensation expense relates to the discontinued practice of matching
employee contributions under the 401(k) provisions of the ASOP with shares
of the Company's Common Stock valued at cost plus interest and of granting
stock options at below market prices. The primary component of this expense
relates to the excess of the average fair market value of the allocated
shares under the ASOP above the cost (plus interest) of shares of the
Company's Common Stock required to match employee contributions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes H and I of Notes to Financial Statements.
(3) Net income per share, excluding compensation expenses related to stock
issuances, would be $0.96, $0.33, $0.12 and $1.07 during the years ended
December 31, 1995 and 1996 and the nine months ended September 30, 1996 and
1997, respectively.
(4) See Note A-8 of Notes to Financial Statements for an explanation of the
computation of net income per share.
(5) Reflects the elimination of the Company's obligation to repurchase shares of
its Common Stock at either the fair market value of such shares as
determined by an independent valuation firm or the original issuance price
plus a growth factor relating to such shares. See Note A-12 of Notes to
Financial Statements.
(6) As adjusted to reflect the sale of shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $ per
share and the receipt of the estimated proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
------------------------------
UNLESS OTHERWISE INDICATED, ALL INFORMATION INCLUDED IN THIS PROSPECTUS
ASSUMES: (I) A FOR STOCK SPLIT IN THE FORM OF A STOCK DIVIDEND TO BE
DISTRIBUTED TO THE COMPANY'S STOCKHOLDERS PRIOR TO EFFECTIVENESS OF THIS
OFFERING; (II) THE REINCORPORATION OF THE COMPANY IN THE STATE OF DELAWARE TO BE
EFFECTED PRIOR TO EFFECTIVENESS OF THIS OFFERING; (III) A CHANGE IN THE
COMPANY'S TAX ACCOUNTING METHOD FROM CASH TO ACCRUAL BASIS ACCOUNTING; (IV) THE
AMENDMENT OF THE COMPANY'S EXISTING AMENDED AND RESTATED RESTRICTED STOCK BONUS
AGREEMENTS TO REMOVE CERTAIN REPURCHASE AND OTHER OBLIGATIONS ON THE PART OF THE
COMPANY AND ITS STOCKHOLDERS; AND (V) NO EXERCISE OF THE UNDERWRITERS' OVER-
ALLOTMENT OPTION. AS USED IN THIS PROSPECTUS, UNLESS THE CONTEXT OTHERWISE
REQUIRES, THE TERMS "FIRST CONSULTING GROUP, INC.," "FCG" AND "COMPANY" REFER TO
THE COMPANY AND ITS SUBSIDIARIES.
4
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING RISK FACTORS
SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO OTHER INFORMATION IN THIS
PROSPECTUS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. SEE
"SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 11 OF THIS
PROSPECTUS.
ABILITY TO ATTRACT AND RETAIN EMPLOYEES; DEPENDENCE ON KEY EMPLOYEES. In
order to staff additional engagements from existing clients, serve new clients
and expand the Company's services, the Company will be required to retain
existing personnel and attract and retain a significant number of additional
personnel who have broad experience or expertise in addressing healthcare,
information technology and consulting issues. Competition for such personnel in
the healthcare, information technology and consulting industries is intense, and
many of the companies with which the Company competes for qualified personnel
have substantially greater financial and other resources than the Company. There
can be no assurance that the Company will be able to recruit or retain a
sufficient number of qualified personnel to effectively serve existing or new
clients or to expand the Company's services. The failure to recruit and retain a
sufficient number of qualified personnel could impair the Company's ability to
maintain and expand its healthcare consulting and information technology
services and could have a material adverse effect on the Company's business,
financial condition and results of operations. Historically, the Company has
experienced high rates of turnover among its employees. The employee turnover
rates for 1995 and 1996 were 32.3% and 30.3%, respectively. As of September 30,
1997, the Company's annualized employee turnover rate for 1997 was 25.2%. Any
material increase in the Company's turnover rate could have a material adverse
effect on the Company's business, financial condition and results of operations.
Many of the Company's consultants develop and maintain strong business
relationships with the Company's clients, and the Company depends on these
relationships to generate additional assignments with existing clients and
engagements with new clients. The loss of one or more such consultants could
lead to erosion of the Company's client base and a decrease in the Company's
revenue. In addition, the decision of one or more of the Company's consultants
to join a competitor or otherwise compete directly or indirectly with the
Company may result in a loss of clients and a corresponding loss of revenue or
reduce the Company's ability to successfully compete for additional assignments
with existing clients and engagements with new clients. A decision by a
significant number of the Company's consultants to compete directly with the
Company would have a material adverse affect on the Company's business,
financial condition and results of operations. In addition, the Company's
performance has depended and will continue to depend upon the continued service
of its senior management and certain other key employees of the Company,
including certain consulting and technical personnel. The loss of the services
of certain of these key employees could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
does not maintain key employee life insurance. See "Business--Business
Strategy," "--Service Delivery," and "--Sales and Marketing."
VARIABILITY OF QUARTERLY OPERATING RESULTS. A substantial portion of the
Company's expenses, particularly personnel and related costs, depreciation,
office rent and occupancy costs, are relatively fixed. Certain variable costs
are assignment-specific and are billed as incurred. The Company's quarterly
operating results may vary significantly in the future depending on a number of
factors, many of which are outside the control of the Company. These factors may
include: the reduction in size, delay in commencement, interruption or
termination of one or more significant engagements or assignments; the loss of
personnel; the loss of one or more significant clients; the unpredictability of
engaging new clients and additional assignments from existing clients; increased
competition; write-offs of client billings; consolidation of, and subsequent
reduction in the number of, healthcare providers; pricing pressure; the number,
timing and contractual terms of significant client engagements; market demand
for the Company's services; delays or increased expenses incurred in connection
with existing assignments; consultant hiring and utilization trends; changes in
pricing policies by the Company or its competitors; changes in the Company's
business strategies; variability in the number of business days within a
quarter; and international currency fluctuations. Due to the foregoing factors,
quarterly revenue and operating
5
<PAGE>
results are not predictable with any significant degree of accuracy. In
particular, the timing between initial client contract and fulfillment of the
criteria necessary for revenue recognition can be lengthy and unpredictable, and
revenue in any given quarter can be materially adversely affected as a result of
such unpredictability. Business practices of clients, such as deferring
commitments on new assignments until after the end of fiscal periods, could
require the Company to maintain a significant number of under-utilized
consultants which could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company has experienced and will continue to experience variability in the
number of billable days in any quarter. The Company typically experiences a
lower number of billable days in the second and fourth quarters of every year.
The Company requires attendance at an annual meeting of all of its employees in
the second quarter of every year and encourages its employees to take vacation
during the December holidays. Variability in the number of billable days may
also result from other factors such as vacation days, sick time, paid and unpaid
leave and holidays, all of which could produce variability in the Company's
revenue and costs. In the event of any downturn in potential clients' businesses
or the economy in general, planned utilization of the Company's services may be
deferred or canceled, which could have a material adverse effect on the
Company's business, financial condition and results of operations. Based on the
preceding factors, the Company may experience a shortfall in revenue or earnings
from expected levels or otherwise fail to meet expectations of securities
analysts or the market in general, which could have a material adverse effect on
the market price of the Company's Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Selected Quarterly
Results of Operations."
ENGAGEMENT RISKS. Many of the Company's engagements provide benefits to
clients' businesses which are difficult to quantify. The Company's failure to
meet client expectations in the performance of its services may damage the
Company's reputation in the healthcare industry and adversely affect its ability
to attract new clients. If a client is not satisfied with the Company's
services, the Company will generally expend additional human and other resources
at its own expense to ensure client satisfaction. Such expenditures will
typically result in a lower operating margin for such engagement and could have
a material adverse impact on the Company's business, financial condition and
results of operations. In addition, the Company's clients may generally
terminate an engagement at any time without penalty. A decision by a client to
terminate an engagement or withhold payment for the Company's services could
have a material adverse effect on the Company's business, financial condition
and results of operations. Certain of the Company's services are billed on a
fixed-price basis, and any assignment delays or expenditures of time beyond that
projected for the assignment could result in write-offs of client billings which
would adversely affect the Company's profit margins on such engagements. Any
significant amount of such write-offs could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company may be required to hire new consultants in anticipation of providing
services for a new client or engagement. There can be no assurance that, if the
Company were unable to secure such client or engagement or upon termination of
such engagement, the Company would be able to redeploy its consultants on a
timely basis, or at all. The Company's inability to redeploy consultants could
have a material adverse effect on employee utilization, billing rates and
overall profit margins.
The Company's services to its clients often involve the implementation and
integration of complex information systems and software programming, some of
which are critical to the clients' operations. In the course of providing its
services, the Company will often recommend the products of a particular software
or hardware vendor. If the recommended product does not perform as expected or
contains defects or if the Company implements a product requested by the client
which does not perform well, the Company's reputation could be damaged, and the
Company could be subject to liability for any damages caused by the provision of
its services. The Company's engagement letters with its clients attempt to limit
the Company's exposure to potential liability claims, but such provisions may
not be effective. A successful liability claim brought against the Company may
adversely affect the Company's reputation in the healthcare industry and could
have a material adverse effect on the Company's business, financial condition
and results of operations. Although the Company maintains liability insurance,
there can be no assurance that such insurance would provide adequate coverage
for successful claims against the Company.
6
<PAGE>
UNPREDICTABLE MARKETING AND ENGAGEMENT CYCLES. The Company markets its
services primarily through ongoing client relationships. There can be no
assurance that the significant non-billable time and resources invested in
building client relationships will result in additional assignments from
existing clients. As part of building such relationships, the Company's
consultants typically expend substantial time and resources identifying
strategic or business issues and objectives, gathering information, preparing
engagement proposals and negotiating contracts. Any failure by the Company to
procure an engagement after expending significant non-billable time and
resources on marketing efforts could have a material adverse effect on the
Company's quarterly results as well as its business, financial condition and
results of operations. The delivery of consulting and information technology
services requires a significant commitment of resources by the Company and by
the client. The length of time required to complete an assignment may depend on
many factors outside the control of the Company, including the state of the
clients' existing information systems, changes or the anticipation of changes in
the regulatory environment affecting healthcare organizations, consolidation in
the healthcare industry in general, budgetary constraints and the client's
ability to commit the personnel and other resources necessary to complete
elements of the assignment for which the client is responsible. The failure of
the Company to deliver its services on a timely basis or within anticipated
budgets 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" and "Business--Sales
and Marketing."
COMPETITION. The market for healthcare information technology consulting is
intensely competitive, rapidly evolving and highly fragmented. The Company has
competitors that provide some or all of the services provided by the Company.
The Company competes for strategic consulting services and co-management
services with international consulting firms, regional and specialty consulting
firms and the consulting groups of international accounting firms. In its
implementation and integration service lines, the Company competes with
information system vendors, service groups of computer equipment companies,
technology consulting firms, systems integration companies, clients' internal
information management departments and other consulting firms. Many of the
Company's competitors have significantly greater financial, human and marketing
resources than the Company. As a result, such competitors may be able to respond
more quickly to new or emerging technologies and changes in customer demands, or
to devote greater resources to the development, promotion, sale and support of
their products and services than the Company. In addition, as healthcare
organizations become larger and more complex, the Company's larger competitors
may be better able to serve the needs of such organizations. There can be no
assurance that the Company will be able to attract and retain the personnel or
to dedicate the financial resources necessary to serve these resulting
organizations. The Company believes that it competes primarily on the basis of
the quality of its services; however, its clients may become increasingly
price-sensitive as competitive pricing pressures increase. Large information
technology companies have, in the past, offered strategic planning services at a
substantial discount as an incentive to utilize their implementation services,
and software and hardware vendors may provide discounted implementation services
for their products. These competitors may in the future discount such services
more frequently or offer such services at no charge. There can be no assurance
that the Company will be able to compete for price-sensitive clients on the
basis of its current pricing or cost structure, or that the Company will be able
to lower its prices or costs in order to compete effectively. Furthermore, many
of the Company's competitors have long-standing business relationships with key
personnel at healthcare organizations which could prevent or delay the Company
from expanding its client base. There can be no assurance that the Company will
be able to compete effectively with current and future competitors or that
competitive pressures faced by the Company will not cause the Company's revenue
or operating margins to decline or otherwise materially adversely affect its
business, financial condition and results of operations. See
"Business--Competition."
MANAGEMENT OF GROWTH. The Company currently is experiencing a period of
rapid growth which has placed, and will continue to place, significant and
increasing demands on the Company's management personnel and on its operational,
technical, financial, human and other resources. For the nine months ended
September 30, 1997, the Company's revenue increased to $66.3 million, or 37.4%,
from $48.3 million for the nine months ended September 30, 1996. During this
period, the total number of the Company's employees increased from 446 to 558,
including an increase in the number of the Company's consultants from 346 to
440. This growth has
7
<PAGE>
resulted in new and increased responsibilities for management personnel and has
placed significant demands on the Company's management, operating and financial
systems. The Company will be required to continue to develop and improve its
operational, financial and other internal systems in order to accommodate an
increased number of employees, client engagements and assignments and the
increased size of the Company's operations, workforce and facilities. There can
be no assurance, however, that the Company will be able to improve its
operational, financial and other internal systems, maintain the Company's
corporate culture, attract and retain qualified consultants or effectively
manage an increasingly large and geographically-dispersed workforce. Any failure
to develop and improve the Company's systems or to hire and retain qualified
personnel to manage its operations could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
has in the past changed, and may in the future change, the organizational
structure of its service lines and its business strategy. There can be no
assurance that any such reorganization would not result in operational
inefficiencies and delays in delivering the Company's services. Such
inefficiencies and disruption in the Company's business could have a material
adverse effect on the Company's business, financial condition and results of
operations. Furthermore, any future unexpected shortfall in revenue without a
corresponding and timely reduction in staffing and other expenses or
redeployment of employees to other client assignments, or any staffing increase
that is unaccompanied by a corresponding increase in the number of clients 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" and "Business-- Business
Strategy."
UNCERTAINTY AND CONSOLIDATION IN THE HEALTHCARE INDUSTRY; TECHNOLOGICAL
CHANGES. The Company derives substantially all of its revenue from clients in
the healthcare industry. As a result, the Company's business, financial
condition and results of operations are influenced by conditions affecting this
industry, particularly current trends towards consolidation among healthcare
organizations. Many healthcare providers and payors are consolidating to create
larger healthcare organizations. Such consolidation may reduce the number of
existing and potential clients for the Company's services. In addition, these
resulting organizations could have greater bargaining power, which could erode
the current pricing structure for the Company's services. The reduction in the
size of the Company's target market or the failure of the Company to maintain
adequate price levels could have a material adverse effect on the Company's
business, financial condition and results of operations. The healthcare industry
is also subject to political, economic, regulatory and technological changes
that may affect the procurement practices and operations of healthcare
organizations. During the past several years, the healthcare industry has been
subject to an increase in governmental regulation and reform proposals. These
reforms, if enacted, could increase governmental involvement in the healthcare
industry, lower reimbursement rates or otherwise change the operating
environment of the Company's clients. Healthcare organizations may react to
these proposals and the uncertainty surrounding them by curtailing or deferring
investments, including those for the Company's services. The Company cannot
predict with any certainty what impact, if any, such legislative or
market-driven reforms could have on its business, financial condition and
results of operations. In addition, technological change in the network and
application markets has created high demand for consulting, implementation and
integration services in order to meet increasingly complex information needs. If
the pace of technological change were to diminish, the Company's revenue could
decrease as a result of decreased demand for its services. Any material decrease
in demand would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Industry
Background" and "--Business Strategy."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. The Company intends to
expand its international consulting services, which will require a significant
amount of management's attention and the Company's human and financial
resources. The Company may establish additional international operations and
hire additional personnel. There can be no assurance that the Company will be
able to successfully recruit and retain the necessary number of highly skilled
consultants in each country in which it intends to conduct its operations. Any
inability to recruit and retain such employees could impair the Company's
ability to expand internationally and may have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
there can be no assurance that the Company will be able to establish
international market demand for its
8
<PAGE>
services. The Company's international business may be subject to a variety of
risks, including the difficulty of tailoring its services to individual
countries' healthcare market needs, currency fluctuations, potentially longer
payment cycles, difficulties in collecting international accounts receivable,
the enforcement of contractual obligations and intellectual property rights,
potentially adverse tax consequences, increased costs associated with
maintaining international marketing efforts, costs of localizing services in
international markets, adverse changes in regulatory requirements and possible
economic downturns outside of the United States. There can be no assurance that
such factors will not have a material adverse effect on the Company's future
international operations and, consequently, on its business, financial condition
and results of operations. See "Business-- Business Strategy."
RISKS ASSOCIATED WITH ACQUISITIONS. The Company intends to grow, in part,
through acquisitions of complementary businesses or technologies and
professional practices with healthcare and information technology expertise.
Such acquisitions involve a number of risks that could materially adversely
affect the Company's operating results, including the diversion of management's
attention, the assimilation of acquired operations and personnel, the operating
results of the acquired business, the amortization of acquired intangible assets
and the potential loss of key employees. The Company's ability to expand
successfully through acquisitions depends on many factors, including the
successful identification and acquisition of technologies, businesses and
personnel; management's ability to integrate such technologies, businesses or
personnel effectively; and management's ability to maintain the corporate
culture of the Company. There can be no assurance that the Company will be
successful in acquiring or integrating such technologies, businesses or
personnel, or that such acquisitions will enhance the Company's business. Any
failure by the Company to acquire or successfully integrate desirable
technologies, businesses or personnel could have a material adverse effect on
the Company's business, financial condition and results of operations. Moreover,
future acquisitions by the Company may result in the issuances of equity
securities which may be dilutive to existing stockholders or the incurrence of
indebtedness and amortization expenses related to goodwill and other intangible
assets which could adversely affect the Company's business, financial condition
and results of operations. See "Use of Proceeds" and "Business--Business
Strategy."
LIMITED PROTECTION OF PROPRIETARY INFORMATION AND PROCEDURES. The Company's
ability to compete effectively depends on its ability to protect its proprietary
information, including its proprietary methodologies, research, tools, software
code and other information. The Company relies primarily on a combination of
copyright and trade secret laws and confidentiality procedures to protect its
intellectual property rights. The Company requests that its consultants and
employees sign confidentiality agreements and generally limits access to and
distribution of its research, methodologies and software codes. There can be no
assurance that the steps taken by the Company to protect its proprietary
information will be adequate to prevent its misappropriation. In addition, the
laws of certain countries do not protect or enforce proprietary rights to the
same extent as do the laws of the United States. The unauthorized use of the
Company's intellectual property could have a material adverse effect on the
Company's business, financial condition or results of operations. There can be
no assurance that third parties will not assert infringement claims against the
Company in the future or that any such claims will not result in protracted and
costly litigation, regardless of the merits of such claims. See
"Business--Limited Protection of Proprietary Information and Procedures."
CONTROL BY EXISTING STOCKHOLDERS AND MANAGEMENT. Upon completion of this
offering, the Company's executive officers will beneficially own approximately
shares, or %, of the outstanding shares of Common Stock ( % if the
Underwriters' over-allotment option is exercised in full). In particular, upon
completion of this offering, James A. Reep, Chairman of the Board, Chief
Executive Officer and President of the Company, will own approximately % of
the outstanding shares of Common Stock ( % if the Underwriters' over-allotment
option is exercised in full). As a result, the Company's executive officers, if
acting together, will be able to exercise control over or significantly
influence matters requiring stockholder approval, including the election of
directors, mergers, consolidations and sales of all or substantially all of the
assets of the Company. This stockholder control may delay or prevent
transactions resulting in a change in control of the Company unless the terms
are approved by such stockholders. See "Principal and Selling Stockholders."
9
<PAGE>
BROAD MANAGEMENT DISCRETION OVER USE OF PROCEEDS. The primary purpose of
this offering is to increase the Company's equity capital. The anticipated net
proceeds to the Company from this offering have not been designated for any
specific purpose. Therefore, the Board of Directors of the Company will have
broad discretion with respect to the use of the net proceeds of this offering.
See "Use of Proceeds."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. 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. The initial public offering price will be determined by negotiation
between the Company and the representatives of the Underwriters based on several
factors, including prevailing market and economic conditions, revenue and
earnings of the Company, market valuations of other companies engaged in
activities similar to the Company, estimates of the business potential and
prospects of the Company, the present state of the Company's business
operations, the Company's management and other factors deemed relevant. In
addition, the stock market historically has experienced volatility which has
affected the market price of securities of many companies and which has
sometimes been unrelated to the operating performance of such companies. The
trading price of the Company's Common Stock could also be subject to significant
fluctuations in response to variations in quarterly results of operations,
announcements of acquisitions by the Company or its competitors, general trends
in the industry and overall market conditions and other factors. The market
price may also be affected by movements in prices of equity securities in
general. Finally, although the Company has sought approval for the Company's
Common Stock to be quoted on the Nasdaq National Market, there can be no
assurance that an active trading market will develop or be sustained subsequent
to this offering. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock in the public market after the offering hereby could adversely affect the
market price of the Common Stock. Upon completion of this offering, the Company
will have outstanding shares of Common Stock, assuming no exercise of
the Underwriters' over-allotment option, and no exercise of outstanding options
granted under the Company's stock option plans after September 30, 1997. Of such
outstanding shares, the shares sold in this offering will be available
for immediate sale in the public market. The holders of the remaining 2,732,434
shares have entered into agreements ("Lock-Up Agreements") agreeing not to sell
such shares for a period of 540 days following the date of this Prospectus
without the prior written consent of Hambrecht & Quist LLC; provided, however,
that at the end of the first 180 day period following the date of this
Prospectus, 10% of such shares will become eligible for sale; at the end of the
second 180 day period following the date of this Prospectus, an additional 10%
of such shares will become eligible for sale; and the remaining shares will
become eligible for sale 540 days after the date of this Prospectus. In
addition, as of September 30, 1997, there were options outstanding to purchase
an aggregate of 191,300 shares of Common Stock under the Company's stock option
plans, none of which will be eligible for sale within 90 days following the
offering. Following this offering, the Company intends to file a registration
statement covering the shares reserved for issuance under the Company's stock
option plans and the shares issued upon exercise of such options. See "Shares
Eligible for Future Sale."
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTAIN CHARTER PROVISIONS.
Certain provisions of Delaware law applicable to the Company could delay or make
more difficult a merger, tender offer or proxy contest involving the Company,
including Section 203 of the Delaware General Corporation Law, which prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder unless certain conditions are met. In addition,
the Board of Directors of the Company may issue shares of Preferred Stock
without stockholder approval on such terms 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 the holders of any Preferred Stock that
may be issued in the future. In addition, the Company's Certificate of
Incorporation and Bylaws provide for a classified board of directors, eliminate
the right of stockholders to act by written consent without a meeting, require
advanced stockholder notice to nominate directors and raise matters at the
annual stockholders meeting, eliminate cumulative voting in the election of
directors and allow for the removal of directors only for cause and with a
two-thirds vote of the Company's outstanding shares. All of the foregoing could
have the effect of delaying,
10
<PAGE>
deferring or preventing a change in control of the Company and could limit the
price that certain investors might be willing to pay in the future for shares of
the Company's Common Stock. See "Management--Board Composition" and "Description
of Capital Stock--Delaware Law and Certain Charter Provisions."
DILUTION; ABSENCE OF DIVIDENDS. The initial public offering price will be
substantially higher than the net tangible book value per share of Common Stock.
Assuming an initial public offering price of $ per share, investors purchasing
shares of Common Stock in this offering will incur immediate, substantial
dilution of $
per share in the net tangible book value of Common Stock. Additional dilution
will occur upon the exercise of outstanding options. The Company has never
declared or paid any cash dividends and does not anticipate paying cash
dividends in the foreseeable future. The Company's revolving line of credit
prohibits the Company from paying dividends in cash, stock or other property.
See "Dividend Policy" and "Dilution."
YEAR 2000. Many experts believe that the world's information systems are not
equipped to process the computer change-over to the year 2000, and that the
solution will require a large amount of time and resources. If these predictions
are accurate, the Company's clients may have to reallocate a significant portion
of their consulting and information systems budget to address this problem and
away from the Company's services. Such reallocation could have a material
adverse effect on the Company's business, financial condition and results of
operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act"),
including, without limitation, statements containing the words "believes,"
"anticipates," "expects" and words of similar import. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others: the importance of personnel,
variability of operating results, potential inability to maintain business
relationships, significant investment of resources in marketing, competition in
the healthcare consulting and information technology industry, management of the
Company's growth, consolidation and cost pressures in the healthcare industry,
expansion into international consulting, integration of acquired businesses and
personnel, limited protection of proprietary information, control by existing
stockholders and management and other factors referenced in this Prospectus.
Certain of these factors are discussed in more detail elsewhere in this
Prospectus, including, without limitation, under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." Given these uncertainties,
prospective investors are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to update any
such factors or to publicly announce the result of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $ per share are estimated to be $ ($ if the
Underwriters' over-allotment option is exercised in full) after deducting
underwriting discounts and estimated offering expenses payable by the Company.
The Company intends to use the net proceeds of this offering primarily for
working capital and general corporate purposes. The Company may apply an
undetermined portion of the net proceeds from this offering towards the
acquisition of complementary businesses or technologies and professional
practices with healthcare and information technology expertise. Pending
application of the net proceeds of the offering as described above, the Company
intends to invest such proceeds in short-term, investment-grade,
interest-bearing financial instruments.
The Company expects that its existing capital resources, including the net
proceeds of this offering and interest thereon and its borrowing capacity under
its existing credit facility, will be sufficient to satisfy the requirements of
its current and planned operations for at least the next twelve months. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never paid a cash dividend on its capital stock and does not
anticipate paying any cash dividends in the foreseeable future. The Company's
revolving line of credit prohibits the Company from paying dividends in cash,
stock or other property. The Company has obtained a waiver of such dividend
restriction in order to effect a for stock split in the form of a stock
dividend to be distributed to the Company's stockholders prior to effectiveness
of this offering.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 (i) on an actual basis, (ii) on a pro forma basis to reflect
the elimination of the Company's obligation to repurchase shares of its Common
Stock, and (iii) as adjusted to give effect to the receipt by the Company of the
estimated net proceeds from the sale of the shares of Common Stock offered
hereby at an assumed initial public offering price of $ per share, after
deducting the underwriting discounts and estimated offering expenses payable by
the Company. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and the Notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, less current portion.......................................... $ 2,585 $ 2,585 $ 2,585
Potential Put Obligation Related to Capital Stock............................. 8,099 -- --
--------- ----------- -----------
Stockholders' equity (1):.....................................................
Preferred stock, $.001 par value; shares authorized; no shares
issued and outstanding, actual, pro forma and as adjusted.................
Common stock, $.001 par value; shares authorized; shares
issued and outstanding, actual and pro forma; shares issued and
outstanding, as adjusted..................................................
Additional paid-in capital.................................................. 15,939 15,939
Retained earnings........................................................... 7,072 7,072 7,072
Deferred compensation (2)................................................... (3,039) (3,039) (3,039)
Unearned ASOP shares (3).................................................... (2,591) (2,591) (2,591)
Notes receivable--stockholders (4).......................................... (3,601) (3,601) (3,601)
Potential put obligations related to capital stock (5)...................... (8,099) -- --
--------- ----------- -----------
Total stockholders' equity................................................ 5,681 13,780
--------- ----------- -----------
Total capitalization.................................................... $ 16,365 $ 16,365 $
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- ------------------------
(1) Based on the number of shares outstanding at September 30, 1997. Excludes
(i) 149,000 shares of Common Stock issuable upon exercise of stock options
outstanding under the Company's 1997 Equity Incentive Plan with an exercise
price of $19.03 per share, (ii) 20,000 shares of Common Stock issuable upon
exercise of stock options outstanding under the Company's 1997 Non-Employee
Directors' Stock Option Plan with an exercise price of $19.03 per share, and
(iii) 22,300 shares of Common Stock issuable upon the exercise of
non-qualified stock options with an exercise price of $4.52 per share. See
"Capitalization," "Management--1997 Equity Incentive Plan," "--1997
Non-Employee Directors' Stock Option Plan," and Note H of Notes to Financial
Statements.
(2) Reflects the unamortized balance of deferred compensation relating to the
grant of stock options at below market prices. See Notes A and H of Notes to
the Financial Statements.
(3) Reflects the original cost of unallocated shares held by the ASOP. See Note
I of Notes to the Financial Statements.
(4) Certain of the Company's stockholders have purchased shares of Common Stock
using promissory notes payable over a maximum of ten years. See "Certain
Transactions" and Note D of Notes to the Financial Statements.
(5) The actual amount reflects the potential future obligation of the Company to
repurchase shares of its Common Stock at either the fair market value of
such shares as determined by an independent valuation firm or the original
issuance price plus a growth factor relating to such shares. See Notes H and
I of Notes to the Financial Statements.
13
<PAGE>
DILUTION
As of September 30, 1997, the Company had a net tangible book value of
approximately $13.8 million, or $4.69 per share of Common Stock. Net tangible
book value per share represents the amount of total tangible assets less total
liabilities and excluding the potential future obligation of the Company to
repurchase shares of its Common Stock, divided by the number of shares of Common
Stock outstanding. Without taking into account any other changes in the net
tangible book value after September 30, 1997 other than to give effect to the
receipt by the Company of the estimated net proceeds from the sale of the
shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $ per share, the pro forma net tangible book
value of the Company as of September 30, 1997 would have been approximately $
million, or $ per share. This represents an immediate increase in the net
tangible book value of $ per share to existing stockholders and an immediate
dilution of $ per share to new investors. 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 the offering................. $ 4.69
---------
Increase per share attributable to new investors (1)..................
---------
Pro forma net tangible book value per share after the offering..........
---------
Dilution per share to new investors..................................... $
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1997, the differences between existing stockholders and the new investors with
respect to the number of shares of Common Stock purchased from the Company, the
total consideration paid and the average price per share paid (in thousands,
except share data):
<TABLE>
<CAPTION>
SHARES
PURCHASED (1) TOTAL CONSIDERATION
------------------------ ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------------ --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............................. 2,935,530 % $ 15,939 % $ 5.43
New investors......................................
-- --
---------- ---------
Total.......................................... % %
-- --
-- --
---------- ---------
---------- ---------
</TABLE>
- ------------------------
(1) Based on the number of shares outstanding at September 30, 1997. Excludes
(i) 149,000 shares of Common Stock issuable upon exercise of stock options
outstanding under the Company's 1997 Equity Incentive Plan with an exercise
price of $19.03 per share, (ii) 20,000 shares of Common Stock issuable upon
exercise of stock options outstanding under the Company's 1997 Non-Employee
Directors' Stock Option Plan with an exercise price of $19.03 per share, and
(iii) 22,300 shares of Common Stock issuable upon the exercise of
non-qualified stock options with an exercise price of $4.52 per share. See
"Capitalization," "Management--1997 Equity Incentive Plan," "--1997
Non-Employee Directors' Stock Option Plan," and Note H of Notes to Financial
Statements.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company and Notes thereto included elsewhere in this Prospectus. The
consolidated statements of operations data for the years ended December 31,
1994, 1995 and 1996 and the consolidated balance sheet data at December 31, 1995
and 1996 are derived from the Company's consolidated financial statements that
have been audited by Grant Thornton LLP, independent certified public
accountants, included elsewhere in this Prospectus. The consolidated statements
of operations data for the nine months ended September 30, 1996 and 1997 and the
consolidated balance sheet data at September 30, 1997 are derived from unaudited
consolidated financial statements included elsewhere in this Prospectus. The
consolidated balance sheet data as of December 31, 1994 is derived from the
Company's audited consolidated balance sheet not included in this Prospectus.
The selected financial data as of December 31, 1992 and 1993 and for the years
then ended is derived from unaudited consolidated financial data not included in
this Prospectus. The data at and for the nine months ended September 30, 1996
and September 30, 1997 include, 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 those dates and results of
operations for those periods. The results of operations for the nine months
ended September 30, 1997 are not necessarily indicative of the results to be
expected for the full year or future periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue..................................... $ 17,207 $ 19,050 $ 30,046 $ 47,744 $ 65,822 $ 48,262 $ 66,304
Cost of services................................ 9,200 10,721 16,869 26,518 40,718 30,160 39,513
--------- --------- --------- --------- --------- --------- ---------
Gross profit.................................. 8,007 8,329 13,177 21,226 25,104 18,102 26,791
General and administrative expenses............. 6,818 6,995 9,871 17,517 23,670 17,663 22,248
Compensation expenses related to stock issuances
(1)........................................... -- -- -- 385 588 382 1,623
--------- --------- --------- --------- --------- --------- ---------
Income from operations........................ 1,188 1,334 3,306 3,324 846 57 2,920
Interest income (expense), net.................. 33 46 (77) (36) 3 (16) (58)
Other income, net............................... 34 77 32 18 44 33 110
Provision for income taxes...................... 531 592 1,577 1,423 500 41 1,649
--------- --------- --------- --------- --------- --------- ---------
Net income.................................... $ 724 $ 866 $ 1,684 $ 1,883 $ 393 $ 33 $ 1,323
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income per share (2)(3)..................... $ 0.23 $ 0.27 $ 0.66 $ 0.86 $ 0.15 $ 0.01 $ 0.50
Shares used in computing net income per share... 3,098 3,234 2,556 2,201 2,575 2,554 2,629
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 1,796 $ 1,675 $ 1,335 $ 2,075 $ 214 $ 4,473
Total assets........................................ 6,825 7,950 11,203 20,648 22,812 34,343
Long-term debt...................................... -- 643 1,550 3,362 2,692 2,585
Total stockholders' equity.......................... 3,683 1,558 1,710 1,612 3,040 5,681
</TABLE>
- ------------------------------
(1) In connection with the ASOP and certain non-qualified stock options granted
to the Company's vice presidents, the Company recognizes a compensation
expense in its consolidated statement of earnings. The non-recurring portion
of this compensation expense relates to the discontinued practice of
matching employee contributions under the 401(k) provisions of the ASOP with
shares of the Company's Common Stock valued at cost plus interest and of
granting stock options at below market prices. The primary component of this
expense relates to the excess of the average fair market value of the
allocated shares under the ASOP above the cost (plus interest) of shares of
the Company's Common Stock required to match employee contributions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes H and I of Notes to Financial Statements.
(2) Net income per share, excluding compensation expenses relating to stock
issuances, would be $0.96, $0.33, $0.12 and $1.07 during the years ended
December 31, 1995 and 1996 and the nine months ended September 30, 1996 and
1997, respectively.
(3) See Note A-8 of Notes to Financial Statements for an explanation of the
computation of net income per share.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED CONSOLIDATED FINANCIAL DATA" AND THE CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO CONTAINED ELSEWHERE IN THIS PROSPECTUS. EXCEPT FOR THE
HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS PROSPECTUS
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK FACTORS," AS
WELL AS THOSE DISCUSSED ELSEWHERE HEREIN. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" ON PAGE 11 OF THIS PROSPECTUS.
OVERVIEW
FCG provides information technology and other consulting services to payors,
providers and other healthcare organizations in North America and Europe. The
Company provided its services to over 460 clients in the nine months ended
September 30, 1997. The Company's services are designed to increase its clients'
operations effectiveness in order to reduce cost, improve customer service and
enhance the quality of patient care. The Company's services address the
increasing need of its clients for healthcare-specific information technology
expertise to objectively evaluate, select, implement and manage an optimal set
of information systems and infrastructures. The Company's consultants provide
this expertise through multi-disciplinary teams specifically formed to provide a
unique solution for each client. The Company has experienced a compound annual
revenue growth rate of approximately 39.9% from 1992 through 1996 and has
generated significant revenue from its existing client base. The Company
believes that its success is attributable to its strong relationships with
industry-leading clients, the healthcare, technology and consulting expertise of
the Company's consultants, and the depth and breadth of its consulting services.
The Company generates substantially all of its revenue from fees for
professional services. The Company typically bills for its services on an
hourly, fixed-fee or fixed-fee per month basis as specified by the agreement
with a particular client. The Company establishes standard hourly rates for each
level of consultant based on several factors including industry and
assignment-related experience, technical expertise, skills and knowledge. For
services billed on an hourly basis, fees are determined by multiplying the
amount of time expended on each assignment by the hourly rate for the
consultant(s) assigned to the engagement. Fixed fees are established on a
per-assignment or monthly basis and are based on several factors such as the
size, scope, complexity and duration of an assignment and the number of
consultants required to complete the assignment. Actual hourly or fixed fees for
an assignment may vary from the standard or historical rates charged by the
Company. For services billed on an hourly basis, the Company recognizes revenue
as services are performed. For services billed on a fixed fee basis, the Company
recognizes revenue using the percentage of completion method based on the amount
of time completed on each assignment versus the projected number of hours
required to complete such assignment. Revenue is recorded as incurred at
assignment rates net of unplanned adjustments for specific engagements.
Unplanned adjustments to revenue are booked at the time they are known. The
Company may obtain payment in advance of providing services. These advances are
recorded as deferred revenue and reflected as a liability on the Company's
balance sheet.
Cost of services primarily consists of the salaries, bonuses and related
benefits of consultants, subcontractor expenses, and the costs of the Company's
supplemental executive retirement plan. General and administrative expenses
primarily consist of the costs attributable to office space occupancy;
investments in the Company's information systems, research and practice support
and quality initiatives; salaries and expenses for executive management,
financial accounting and administrative personnel; recruiting fees and
professional development; and marketing, legal and other professional services.
In connection with the Company's Associate Profit Sharing 401(k) and Stock
Ownership Plan ("ASOP") and certain non-qualified stock options granted to the
Company's vice presidents, the Company recognizes a
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compensation expense on its consolidated statement of operations. The
non-recurring portion of this compensation expense is reflected in the Company's
consolidated statements of operations as compensation expenses related to stock
issuances and relates to the discontinued practice of matching employee
contributions under the 401(k) provisions of the ASOP with shares of the
Company's Common Stock valued at cost plus interest and of granting stock
options at below market prices. The non-recurring portion consists of (i) a
compensation expense recognized upon the grant of vested stock options at prices
below the then-prevailing fair market value of the Company's Common Stock; and
(ii) a compensation expense equal to the excess of the average fair market value
of the allocated shares of the Company's Common Stock under the ASOP above the
cost (plus interest) of shares of the Company's Common Stock required to match
employee contributions. The non-recurring portion of the compensation expense
related to the ASOP is non-deductible for the Company's income tax reporting
purposes. Beginning in 1998, the Company plans to grant all stock options at the
fair market value and, in connection with the Company's ASOP, to match employee
401(k) contributions with shares of the Company's Common Stock based on the fair
market value of the shares at the time matching contributions are made.
The Company's most significant expenses are its human resource and related
salary and benefit expenses. Approximately 78% of the Company's employees are
consultants, and the salaries and benefits of such consultants are recognized in
the Company's cost of services. Non-billable employee salaries and benefits are
recognized as a component of general and administrative expenses. The Company's
cost of services as a percentage of revenue is directly related to its
consultant utilization, which is the ratio of total billable hours to available
hours in a given month. The Company manages consultant utilization by monitoring
assignment requirements and timetables, available and required skills, and
available consultant hours per week and per month. The number of consultants
staffed on an assignment will vary according to the size, complexity, duration
and demands of the assignment. Assignment terminations, completions and
scheduling delays may result in periods in which consultants are not optimally
utilized. An unanticipated termination of a significant assignment or an overall
lengthening of the sales cycle could result in a higher than expected number of
unassigned consultants and could cause the Company to experience lower margins.
In addition, the opening of new offices, expansion into new markets, and the
hiring of consultants in advance of client assignments have resulted and may
continue to result in periods of lower consultant utilization.
The Company's effective tax rate has varied from period to period due to
differences between book and tax deductions associated with certain
non-deductible operating expenses, including certain compensation expenses
related to the ASOP.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
NET REVENUE. The Company's net revenue increased to $66.3 million, or
37.4%, for the nine months ended September 30, 1997 from $48.3 million for the
nine months ended September 30, 1996. This revenue growth was primarily
attributable to an increase in the revenue from the Company's implementation and
integration service lines and the increase in overall utilization of the
Company's consultants.
COST OF SERVICES. Cost of services increased to $39.5 million, or 31.0%,
for the nine months ended September 30, 1997 from $30.2 million for the nine
months ended September 30, 1996. The increase was primarily attributable to an
increase in the number of the Company's consultants. Cost of services as a
percentage of revenue decreased to 59.6% for the nine months ended September 30,
1997 from 62.5% for the nine months ended September 30, 1996. This decrease was
primarily attributable to increased utilization rates for the Company's
consultants during the nine months ended September 30, 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $22.2 million, or 26.0%, for the nine months ended September 30,
1997 from $17.7 million for the nine months ended September 30, 1996. This
increase was primarily attributable to the Company's relocation to a larger
corporate facility, expanded marketing initiatives, expansion into the United
Kingdom, and continued efforts to enhance and improve the Company's internal
infrastructure including upgrades to its management information systems. General
and administrative expenses as a percentage of revenue decreased to 33.6% for
the nine months ended September 30, 1997 from 36.6% for the nine months ended
September 30, 1996.
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<PAGE>
COMPENSATION EXPENSES RELATED TO STOCK ISSUANCES. Compensation expenses
related to stock issuances increased to $1.6 million, or 324.9%, for the nine
months ended September 30, 1997 from $382,000 for the nine months ended
September 30, 1996. This increase was primarily attributable to a non-recurring
compensation expense resulting from the difference between estimated average
fair market value and cost of the allocated ASOP shares as well as compensation
expenses associated with the granting of certain stock options at a discount
from fair market value.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
NET REVENUE. The Company's net revenue increased to $65.8 million, or
37.9%, for the year ended December 31, 1996 from $47.7 million for the year
ended December 31, 1995. This revenue growth was primarily attributable to an
increase in the revenue from the Company's implementation and integration
service lines and the expansion of services to IDNs and health plans.
COST OF SERVICES. Cost of services increased to $40.7 million, or 53.5%,
for the year ended December 31, 1996 from $26.5 million for the year ended
December 31, 1995. This increase was primarily attributable to an increase in
the number of the Company's consultants. Cost of services as a percentage of
revenue increased to 61.9% for the year ended December 31, 1996 from 55.5% for
the year ended December 31, 1995. This increase was primarily attributable to a
decrease in utilization rates for consultants and an increase in the number of
consultants.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $23.7 million, or 35.1%, for the year ended December 31, 1996 from
$17.5 million for the year ended December 31, 1995. This increase was primarily
attributable to an increase in the number of non-billable employees and expenses
relating to the improvement of the Company's infrastructure. General and
administrative expenses as a percentage of revenue decreased to 36.0% for the
year ended December 31, 1996 from 36.7% for the year ended December 31, 1995.
COMPENSATION EXPENSES RELATED TO STOCK ISSUANCES. Compensation expenses
related to stock issuances increased to $588,000, or 52.7%, for the year ended
December 31, 1996 from $385,000 for the year ended December 31, 1995. This
increase was primarily attributable to stock options granted below fair market
value in 1996.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
NET REVENUE. The Company's net revenue increased to $47.7 million, or
58.9%, for the year ended December 31, 1995 from $30.0 million for the year
ended December 31, 1994. This revenue growth was primarily attributable to an
increase in the number of new assignments and consultants and an increase in the
Company's focus on working with IDNs and health plans.
COST OF SERVICES. Cost of services increased to $26.5 million, or 57.2%,
for the year ended December 31, 1995 from $16.9 million for the year ended
December 31, 1994. The increase was primarily attributable to an increase in the
number of the Company's consultants. Cost of services as a percentage of revenue
remained relatively constant at 55.5% for the year ended December 31, 1995 from
56.1% for the year ended December 31, 1994.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $17.5 million, or 77.5%, for the year ended December 31, 1995 from
$9.9 million for the year ended December 31, 1994. This increase was primarily
attributable to an increase in the number of non-billable employees, increased
recruiting and training expenses, continued geographical expansion and
investments in internal information technology systems. General and
administrative expenses as a percentage of revenue increased to 36.7% for the
year ended December 31, 1995 from 32.8% for the year ended December 31, 1994.
COMPENSATION EXPENSES RELATED TO STOCK ISSUANCES. Compensation expenses
related to stock issuances was $385,000 for the year ended December 31, 1995.
There was no corresponding expense in the prior period. This expense was
primarily attributable to stock options granted below fair market value in 1995.
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<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited statements of operations
data for the seven quarters ended September 30, 1997, as well as such data
expressed as a percentage of the Company's net revenue for the periods
indicated. This data has been derived from unaudited financial statements that,
in the opinion of the Company's management, include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of such
information when read in conjunction with the Company's annual audited
consolidated financial statements and the notes thereto. The operating results
for any quarter are not necessarily indicative of the results for any future
period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue.......................... $ 15,422 $ 15,440 $ 17,400 $ 17,560 $ 20,155 $ 21,673 $ 24,476
Cost of services..................... 9,341 9,894 10,925 10,558 12,294 12,928 14,291
--------- --------- --------- --------- --------- --------- ---------
Gross profit....................... 6,081 5,546 6,475 7,002 7,861 8,745 10,185
General and administrative
expenses........................... 5,305 5,552 6,806 6,007 6,494 7,103 8,651
Compensation expenses related to
stock issuances.................... 128 127 127 206 524 524 575
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations........ 648 (133) (458) 789 843 1,118 959
Interest income (expense), net....... 1 (11) (6) 19 (21) (27) (10)
Other income, net.................... 9 12 13 11 91 10 9
Provision (benefit) for income
taxes.............................. 369 (74) (254) 459 506 610 533
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).................... $ 289 $ (58) $ (197) $ 360 $ 407 $ 491 $ 425
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PERCENTAGE OF NET REVENUE
---------------------------------------------------------------------------
Net revenue.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services..................... 60.6 64.1 62.8 60.1 61.0 59.7 58.4
--------- --------- --------- --------- --------- --------- ---------
Gross profit....................... 39.4 35.9 37.2 39.9 39.0 40.3 41.6
General and administrative
expenses........................... 34.4 36.0 39.1 34.2 32.2 32.8 35.3
Compensation expenses related to
stock issuances.................... 0.8 0.8 0.8 1.2 2.6 2.4 2.4
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations........ 4.2 (0.9) (2.7) 4.5 4.2 5.1 3.9
Interest income (expense), net....... -- (0.1) -- 0.1 (0.1) (0.1) --
Other income, net.................... 0.1 0.1 0.1 0.1 0.4 0.1 --
Provision (benefit) for income
taxes.............................. 2.4 (0.5) (1.5) 2.6 2.5 2.8 2.2
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).................... 1.9% (0.4)% (1.1)% 2.1% 2.0% 2.3% 1.7%
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
A substantial portion of the Company's expenses, particularly personnel and
related costs, depreciation, office rent and occupancy costs, are relatively
fixed. Certain variable costs are assignment-specific and are billed as
incurred. The Company's quarterly operating results may vary significantly in
the future depending on a number of factors, many of which are outside the
control of the Company. These factors may include: the reduction in size, delay
in commencement, interruption or termination of one or more significant
engagements or assignments; the loss of personnel; the loss of one or more
significant clients; the unpredictability of engaging new clients and additional
assignments from existing clients; increased competition; write-offs of client
billings;
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<PAGE>
consolidation of, and subsequent reduction in the number of, healthcare
providers; pricing pressure; the number, timing and contractual terms of
significant client engagements; market demand for the Company's services; delays
or increased expenses incurred in connection with existing assignments;
consultant hiring and utilization trends; changes in pricing policies by the
Company or its competitors; changes in the Company's business strategies;
variability in the number of business days within a quarter; and international
currency fluctuations. Due to the foregoing factors, quarterly revenue and
operating results are not predictable with any significant degree of accuracy.
In particular, the timing between initial client contract and fulfillment of the
criteria necessary for revenue recognition can be lengthy and unpredictable, and
revenue in any given quarter can be materially adversely affected as a result of
such unpredictability. Business practices of clients, such as deferring
commitments on new assignments until after the end of fiscal periods, could
require the Company to maintain a significant number of under-utilized
consultants which could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company has experienced and will continue to experience variability in the
number of billable days in any quarter. The Company typically experiences a
lower number of billable days in the second and fourth quarters of every year.
The Company requires attendance at an annual meeting of all of its employees in
the second quarter of every year and encourages its employees to take vacation
during the December holidays. Variability in the number of billable days may
also result from other factors such as vacation days, sick time, paid and unpaid
leave and holidays, all of which could produce variability in the Company's
revenue and costs. In the event of any downturn in potential clients' businesses
or the economy in general, planned utilization of the Company's services may be
deferred or canceled, which could have a material adverse effect on the
Company's business, financial condition and results of operations. Based on the
preceding factors, the Company may experience a shortfall in revenue or earnings
from expected levels or otherwise fail to meet expectations of securities
analysts or the market in general, which could have a material adverse effect on
the market price of the Company's Common Stock. See "Risk Factors-- Variability
of Quarterly Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1997 the Company generated cash
flow from operations of $8.1 million, of which approximately $1.8 million was
generated from depreciation of assets. The Company generated cash flow from
operations of $2.2 million and $779,000 for the years ended December 31, 1996
and 1995, respectively. During the nine months ended September 30, 1997, the
Company used cash flow of $2.7 million to purchase property and equipment.
Purchase of property and equipment has used cash flow of $3.6 million and $1.9
million for the years ended December 31, 1996 and 1995, respectively. During the
nine months ended September 30, 1997 the Company used cash flow of $356,000 for
financing activities. Financing activities used cash flow of $439,000 and
provided cash flow of $1.9 million for the years ended December 31, 1996 and
1995, respectively.
The Company has a revolving line of credit which allows the Company to
borrow up to $3.0 million at an interest rate of the prevailing prime rate plus
0.5%. The revolving line of credit expires on December 31, 1997. There was no
balance outstanding under the line of credit at September 30, 1997. The Company
has two term loan facilities ("Term Loan A" and "Term Loan B"). Term Loan A is a
$305,000 facility under which approximately $297,000 was outstanding as of
September 30, 1997. Term Loan A expires on July 1, 2003. Term Loan B is a $4.0
million facility under which approximately $2.8 million was outstanding as of
September 30, 1997. A portion of the proceeds from Term Loan B were used to
finance the purchase of shares by the ASOP. Term Loan B expires on December 4,
2001. Term Loan A and Term Loan B bear interest at a rate per annum equal to the
prevailing prime rate plus 0.5%. All borrowings under the Company's credit
facilities are secured by the Company's accounts receivable and other rights to
payment, general intangibles and equipment. The line of credit agreement
provides that the Company must satisfy certain financial and other covenants.
As a result of this offering, the Company's tax accounting method will
change from cash to accrual basis accounting, requiring the Company to pay a
deferred tax liability of approximately $5.0 million as of September 30, 1997.
The Company expects this tax liability to be paid over a period not exceeding
four years.
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<PAGE>
The Company believes that its existing capital resources, including the net
proceeds of this offering and interest thereon and its borrowing capacity under
its existing credit facility, will be sufficient to satisfy the requirements of
its current and planned operations for at least the next twelve months.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE, which
supersedes APB Opinion 15. Statement No. 128 replaces the presentation of
primary earnings per share ("EPS") with "Basic EPS" which includes no dilution
and is based on weighted-average common shares outstanding for the period.
Companies with complex capital structures, including the Company, will also be
required to present "Diluted EPS" that reflects the potential dilution of
securities such as employee stock options to purchase the Company's Common
Stock. Statement No. 128 is effective for financial statements issued for
periods ending after December 15, 1997. The Company has determined that the
adoption of Statement No. 128 will not have a material effect on the Company's
net income per share.
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<PAGE>
BUSINESS
OVERVIEW
FCG provides information technology and other consulting services to payors,
providers and other healthcare organizations in North America and Europe. The
Company provided its services to over 460 clients in the nine months ended
September 30, 1997. The Company's services are designed to increase its clients'
operations effectiveness in order to reduce cost, improve customer service and
enhance the quality of patient care. The Company's services address the
increasing need of its clients for healthcare-specific information technology
expertise to objectively evaluate, select, implement and manage an optimal set
of information systems and infrastructures. The Company's consultants provide
this expertise through multi-disciplinary teams specifically formed to provide a
unique solution for each client. The Company has experienced a compound annual
revenue growth rate of approximately 39.9% from 1992 through 1996 and has
generated significant revenue from its existing client base. The Company
believes that its success is attributable to its strong relationships with
industry leading clients, the healthcare, technology and consulting expertise of
the Company's consultants, and the depth and breadth of its consulting services.
INDUSTRY BACKGROUND
The healthcare industry has undergone dramatic change in recent years.
Payors and providers are experiencing increased pressure from employers,
government agencies and consumers to reduce cost, improve customer service and
increase the quality of patient care. These market forces have caused payors to
utilize a variety of managed care mechanisms to control cost such as preferred
provider organizations, capitation, utilization review, guidelines of care and
demand management. In order to implement these mechanisms, payors have invested
in information systems that enable their personnel to more effectively manage
increasingly complex benefit structures, support care management and improve
customer service. In addition, payors have managed costs by shifting the
financial risk for care, administrative functions and responsibility for quality
initiatives to providers. In response to the shift of these responsibilities
from payors, providers have sought to improve their ability to manage
reimbursement, administrative and care management functions. Specifically,
providers have sought to improve their ability to administer an increasing
number of reimbursement methodologies, manage care delivery, measure cost,
manage administrative functions and track quality measures across patient
populations. The shift in financial risk for care and other responsibilities has
caused providers to upgrade their existing information systems and invest in new
information systems. Both payors and providers have invested and will continue
to invest in information systems to improve their financial, administrative and
clinical processes.
In order to reduce costs, improve efficiency, and provide care across a
continuum, providers such as hospitals, acute and ambulatory care centers,
physician practices and clinical laboratories are consolidating to form larger
healthcare organizations. Physicians are also forming larger group practices
and, in many cases, affiliating with practice management organizations that
assist them in managing their practices more efficiently. In certain markets,
institutional and physician providers are combining to form IDNs that provide a
broad spectrum of clinical services across a geographic region. Providers are
also combining with payors to more effectively reduce costs, manage care and
implement risk sharing programs. In addition, payors are consolidating with
other payors to achieve administrative efficiencies, increase geographic
coverage and better manage medical expenses.
Many of the existing information systems used by payor and provider
organizations were developed to serve a specific function and to operate within
a single entity, such as a hospital or physician group. The information systems
of these larger, consolidated organizations must connect and function across a
dispersed set of geographic locations, facilities and operations. New and
existing information systems must be installed or upgraded and integrated with
existing and new information technology platforms to provide financial,
administrative and clinical data to users within constituent organizations.
These new or upgraded systems must address increasing needs of users to have
clinical decision support tools, integrated patient and financial information,
22
<PAGE>
managed care contracting and information networking. This trend has created
substantial and increasing demand for information technology and related
services. Industry sources project the market for healthcare information
technology in the United States to be $17.3 billion in 1997 and project the
market to grow to $27.9 billion in 2002. Industry sources also estimate the
market for healthcare information services in the United States to be $5.6
billion in 1997, growing to $11.6 billion in 2002.
Payor and provider organizations have found it increasingly difficult to
develop, implement and manage comprehensive information technology strategies
and systems. Many healthcare organizations lack the human and technical
resources necessary to effectively evaluate, select, implement and manage an
optimal set of information technology and communication systems, networks and
applications. Many of these organizations also lack the human resources
necessary to manage such implementations or to train other personnel within the
organization to maximize the value of the new system, network or application.
These same organizations often require a significant amount of administrative or
clinical process improvement which may be difficult to achieve using internal
resources. The Company believes that the increasing pressures on payors and
providers to decrease costs, improve customer service and enhance the quality of
patient care, combined with the complexity of a consolidating industry and the
lack of internal technical expertise, have created an opportunity for companies
specializing in providing comprehensive information technology solutions to
healthcare organizations.
FCG SOLUTION
FCG provides information technology and other consulting services to payors,
providers and other healthcare organizations. The Company's services are
designed to increase its clients' operations effectiveness in order to reduce
cost, improve customer service and enhance the quality of patient care.
Operations effectiveness offers a means to improve the financial, administrative
and clinical processes within a client organization. The Company's services
address the increasing need for healthcare-specific information technology
expertise to objectively evaluate, select, implement and manage an optimal set
of systems, networks and applications. The Company's services are provided by
the Company's 440 consultants, who collectively have extensive expertise in key
healthcare financial, administrative and clinical processes, information
technologies and applications. The Company provides this expertise to clients by
assembling multi-disciplinary teams which provide comprehensive services across
its four principal service lines: consulting, software implementation, network
and application integration and co-management services. The Company's services
and consultants are supported by internal research and a centralized information
system which provides real-time access to current industry and technology
information and project methodologies, experiences, models and tools. The
Company believes that its healthcare industry focus, information technology
expertise, experienced consultants, and research and practice support enable its
clients to reduce cost, improve customer service and enhance the quality of
patient care.
BUSINESS STRATEGY
The Company's objective is to be a leading provider of information
technology and other consulting services to the healthcare industry. Key
elements of the Company's strategy include:
RECRUIT AND RETAIN EXPERIENCED PROFESSIONALS. The Company seeks to recruit
and retain the most experienced healthcare, information technology and
consulting professionals. The Company recruits and retains these professionals
by offering a combination of a growing healthcare consulting practice, industry
leading clients, intellectually challenging client engagements and professional
interaction and growth. The Company supports its consultants through internal
research, training and a collaborative, professional environment designed to
promote teamwork. The Company believes that this environment encourages the
formation of new service lines and geographic expansion.
EXPAND RELATIONSHIPS WITH EXISTING CLIENTS. The Company generates a
substantial portion of its revenue from existing clients and client referrals.
The Company develops strong relationships with senior-level information
management and other decision-making personnel at leading healthcare
organizations. The Company
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<PAGE>
maintains these relationships by successfully completing assignments and meeting
client expectations. In particular, the Company believes that successful
completion of strategic plans for new and existing clients provides significant
opportunities to perform other services for these clients, including
implementation and integration services. The Company has demonstrated that this
strategy leads to additional assignments with its existing clients and referrals
to new clients. In providing its services, the Company attains an in-depth
understanding of its client's processes and internal information technology and
business strategies. Through this understanding, the Company plans to provide
operations effectiveness services to a greater portion of its client base.
Operations effectiveness services involve assessing, designing and improving
financial, administrative and clinical processes.
DEVELOP STRONG RELATIONSHIPS WITH INDUSTRY LEADING CLIENTS. As the
healthcare industry continues to consolidate into a fewer number of larger
provider and payor organizations, the Company has developed and will continue to
develop strong relationships with IDNs, health plans and leading academic
medical centers. The Company focuses its business development efforts toward
these organizations due to the high demand for expertise in completing large,
enterprise-level information technology and operations effectiveness
engagements. The Company also believes that these healthcare organizations can
serve as references for new clients, including those in targeted geographic or
other markets.
EXPAND SERVICES OFFERED TO HEALTHCARE ORGANIZATIONS. The Company regularly
evaluates the technological trends, products and needs in the healthcare
industry and, based on such evaluations, expands its services to meet changing
information technology, financial, administrative and clinical needs. The
Company believes that a significant opportunity exists for companies that
provide highly specialized resources that enable healthcare organizations to
rapidly integrate new operations and technologies, manage information, and
design and reengineer processes. The Company intends to hire additional
professionals and to selectively pursue acquisitions that complement the
Company's existing core competencies in information technology planning,
integration and implementation, and enterprise-level operations effectiveness
consulting. The Company also expects to offer new services such as packaged
research regarding information technology applications and related processes.
EXPAND INTERNATIONALLY IN TARGETED REGIONS. The Company plans to expand its
service capabilities in targeted geographic regions such as the United Kingdom,
Ireland, Germany, Canada and Mexico. The Company believes there is a significant
demand for its services in these countries, particularly in the areas of
implementation and operations effectiveness. The Company plans to capitalize on
its significant, proven skills in packaged software implementation by continuing
to form strategic alliances with systems vendors in selected international
markets. The Company intends to expand internationally by recruiting experienced
consultants within a region and through the acquisition of complementary
professional practices in targeted geographic regions.
SERVICES
The Company provides information technology and other consulting services to
the healthcare industry. The Company's four principal service lines include
consulting, software implementation, network and application integration and
co-management services. The Company typically is engaged on an
assignment-by-assignment basis and assembles client teams from one or more
service lines to match the expertise and service offerings with the overall
objectives required by each client and engagement. Many client engagements
involve multiple assignments. The Company may assemble several client teams to
serve the needs of a single client. The Company provides its services at the
client site to senior-level management and other personnel within the client
organization.
CONSULTING SERVICES
The Company's consulting services primarily consist of strategic planning,
operations effectiveness, procurement and contracting, and other services.
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The Company's strategic planning services involve the development of
strategic plans for healthcare organizations encompassing one or more of the
following areas: the decision to purchase and implement large-scale clinical,
patient information or financial applications; the installation and integration
of comprehensive communications, network and other information technology
systems; systems and information architectures; and organizational and
governance structures for information technology departments. The Company
believes that its strategic planning services will continue to be the core of
the Company's business as it provides a foundation for the introduction of the
Company's other services to clients and allows the Company to develop
multi-level relationships with its clients. The Company typically provides its
strategic planning services on a fixed-fee basis.
The goal of each strategic plan is to enable the client to maximize the
value of its information technology investments and improve operations
effectiveness. To ensure that each plan addresses the strategic goals,
priorities and needs of the client, the Company's strategic planning process
involves the participation of several senior-level management personnel,
clinicians, physicians and other user groups within the client organization. The
Company collects information regarding the client's business strategies,
information technology applications and systems, the capabilities of the
client's in-house technical staff and the operational needs of user groups. The
Company then identifies several information and infrastructure needs which must
be addressed in order to implement the client's business strategies. The Company
also develops a series of prioritized recommendations or assignments to be
completed by the client during the next three to five years. These
recommendations may include such items as the installation of packaged software
applications or communication networks, or the use of clinical repositories or
outcomes systems. The strategic plan delivered to the client describes the
recommendations in detail and typically includes specific information technology
alternatives, internal staffing recommendations and implementation schedules and
budgets. The Company also assists the client in building consensus with respect
to a particular strategic objective or assignment.
The Company's operations effectiveness services enhance its clients'
performance through financial, administrative and clinical process improvement.
The Company believes that information technology is the most important element
in implementing a successful business process redesign. Through its historic
information technology expertise and its emerging enterprise-level operations
effectiveness services, the Company provides the full set of skills required to
address the increased pressures facing its clients to reduce cost, improve
customer service and improve and measure quality of patient care. These services
are closely integrated with the Company's implementation and integration
services to ensure that clients receive maximum benefit from new systems
installations.
The Company provides information technology procurement and contracting
services that assist its clients with rapidly identifying, selecting and
contracting for the optimal information technology applications, networks and
systems. The Company's procurement and contracting consultants operate
independently of hardware and software vendors and accordingly provide objective
assessments and recommendations with respect to information technology
alternatives and pricing. Using these services, a client can efficiently
identify and select an appropriate vendor-based alternative, balance competing
interests within the client organization and, in many instances, negotiate price
discounts and other terms which may be difficult to achieve without the
Company's involvement. The Company does not purchase and resell hardware or
software to its clients. The Company's procurement and contracting services
support the Company's strategic planning, implementation and integration
services by assisting clients in selecting and contracting with vendors who will
provide the applications, networks or systems to be installed at the client
site. The Company's procurement and contracting services are often provided as
part of a client's larger information technology, networking or operational
initiatives which may involve the provision of the Company's other services. The
Company typically provides its procurement and contracting services on a
per-hour basis.
The Company's consultants typically assess the technical capabilities,
specifications and design philosophy of existing products and assist clients in
all stages of procurement such as system requirement assessment and definition,
procurement planning and management, requests for proposals, vendor evaluation
and selection and contract negotiation. The Company's procurement and
contracting services include such areas as clinical,
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patient, financial and managed care systems, claims processing, outcomes
systems, local area networks, wide area networks, voice and video systems,
electronic messaging, call centers, Internet and web technologies and
telemedicine.
The Company also provides general information management consulting services
to its existing clients on an as-needed basis in connection with industry trends
and developments, product introductions or changing regulatory requirements. The
Company's general consulting services typically are provided directly to senior-
level client personnel and involve small-scale, short duration assignments that
are important in maintaining strong client relationships.
SOFTWARE IMPLEMENTATION SERVICES
The Company provides implementation services for packaged software products
utilized by healthcare organizations. These services include project management,
installation, interface programming, testing and training services. In providing
these services, the Company draws on proven methodologies and its extensive
expertise in healthcare processes and information technology to ensure that each
implementation is completed efficiently with minimal disruption to clients'
operations. The Company's implementation specialists emphasize administrative
and clinical process improvement and user training, including technical support
staff training, in each engagement. The Company typically provides its
implementation services on a fixed-fee per month or per-hour basis.
Through its implementation services, the Company believes that it enables
its clients to maximize the value of each application investment. The Company
typically assembles a dedicated, on-site, multi-disciplinary team of consultants
to perform each implementation engagement. This team determines implementation
schedules and budgets with the client. The Company's implementation specialists
may also provide project management, quality assurance or an interface mapping
and programming function through which the Company efficiently installs the
application and ensures that, once installed, the application will communicate
with other applications and networks used by the client. This interface mapping
and programming function often requires that the Company develop a considerable
amount of additional software code. Training of client personnel involves all
aspects of the complete system. The Company has extensive expertise in
implementing applications from vendors such as AMISYS Managed Care Systems,
Inc., Cerner Corporation, HBO & Company, IDX Systems Corp., Medic Computer
Systems, Inc., MedicaLogic, Inc., Meditech, Inc., PHAMIS Inc., PeopleSoft, Inc.
and Shared Medical Systems Corporation. The Company believes that its expertise
with and independence from application vendors provides clients with an
objective, reliable resource to implement these applications.
NETWORK AND APPLICATION INTEGRATION SERVICES
The Company designs and develops comprehensive system architectures,
infrastructures, interfaces, databases, applications and networks to address the
need for information integration and dissemination throughout a healthcare
organization. The Company's network and application integration services
emphasize scalable architectures and systems that can accommodate an increasing
array of functions and features to address a client's emerging information
needs. The Company often identifies specific technology and service alternatives
for each clinical and operational site within the client organization in the
course of each integration plan and engagement. The Company's integration
services typically involve the Company's procurement and contracting and
implementation services in order to assist the client in acquiring the needed
hardware and software and, in some cases, to install the acquired software as
part of the integration plan. The Company typically provides its network and
application integration services on a fixed fee, per-hour, or fixed-fee per
month basis as negotiated in individual client contracts.
The Company's network and application integration services are typically
provided to consolidated healthcare organizations, including IDNs and health
plans. Application integration assignments include the implementation of master
patient indices, computer-based patient record systems, managed care and medical
management systems, physician practice management systems, clinical decision
support and data repositories,
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and data warehouses. Network integration assignments include the development of
information, technology and communication architectures and Internet, intranet
and desktop messaging systems. Network and application integration engagements
involve planning, designing and managing the installation and implementation of
hardware and software technologies. These engagements also involve comprehensive
site visits and user interviews, application programming and training across
multiple levels of a client organization. Often the Company prepares a detailed
mapping of physical, technical and operational elements of the integrated
applications or networks.
CO-MANAGEMENT SERVICES
The Company provides interim staffing for healthcare organizations primarily
for senior-level information technology positions such as Chief Information
Officers, Directors of Information Systems and information technology department
managers. The Company also provides information technology department
outsourcing on a temporary or permanent basis as determined by the client. The
Company's co-management services emphasize the importance of existing management
and other information technology personnel. Accordingly, the Company's personnel
work with existing information technology staff to address strategic business,
information and technology needs. The Company typically provides its
co-management services on a fixed-fee per month basis.
SERVICE DELIVERY
The Company's services are provided by 440 consultants who collectively have
expertise in key healthcare financial, administrative and clinical processes,
information technologies and applications. The Company believes that its
healthcare industry focus, information technology expertise, experienced
consultants, and research and practice support enable its clients to reduce
cost, improve customer service and enhance the quality of patient care.
To ensure client satisfaction, the Company typically assigns a Client
Service Executive to each client team. The Client Service Executive's primary
responsibility is to establish and maintain long-term relationships with
clients. The Client Service Executive regularly communicates with the client to
ensure client satisfaction and is also responsible for billing decisions on each
assignment. For client engagements with multiple independent assignments, the
Company assigns a Delivery Service Executive to each assignment. A Delivery
Service Executive has specific technology, process or service line expertise and
is responsible for supervising the daily functions of the client team and for
ensuring that the team's progress is consistent with the client's objectives and
schedule. The Company measures every client's satisfaction through a client
satisfaction survey completed at the conclusion of each assignment.
The Company employs consultants whose individual expertise combines
healthcare, information technology and consulting skills. The Company's
consultants have developed healthcare-specific expertise in key areas such as
financial, administrative and clinical processes, care management, clinical
decision support, health plan operations, medical and utilization management,
outcomes and performance management, physician practice management, ambulatory
care and privacy and confidentiality protection. The Company's consultants also
have expertise in implementing, integrating and developing a wide range of
information technology and management systems. These systems include packaged
software applications, client/server and object-oriented computing technologies,
data repositories and data warehousing, electronic commerce and electronic data
imaging, networking, web technologies, telemedicine, document management,
security and disaster recovery. The Company has expanded its recruiting efforts
to ensure that it continues to attract and retain the breadth and depth of
skills and expertise necessary to compete successfully in the healthcare
consulting industry. The Company recruits and retains its consultants by
offering a combination of a growing healthcare consulting practice, industry
leading clients, intellectually challenging client engagements and professional
interaction and growth.
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RESEARCH AND PRACTICE SUPPORT
The Company's services and consultants are supported by internal research,
training and a centralized information system which provides real-time access to
current industry and technology information and project methodologies,
experiences, models and tools. The Company's principal research and practice
support initiatives include the Emerging Practices Group, Professional
Development Programs, Scottsdale Institute, KITE and Practice Guilds.
EMERGING PRACTICES GROUP. The Emerging Practices Group performs industry
research and collects, packages and distributes knowledge regarding emerging
trends in the healthcare industry. Examples of topics that the Emerging
Practices Group has researched are information management practices in emerging
IDNs, process design and redesign for cross continuum care management, impact of
government legislation, physician integration, Internet and intranet in
healthcare, and use of hand-held computing devices. The Company documents
research findings, conducts internal and client workshops on these topics, and
makes the research available for use in its client engagements.
PROFESSIONAL DEVELOPMENT PROGRAMS. The Company believes that its investment
in professional development programs provides support for the professional
growth of all employees. The Company provides training to its employees through
an annual four-day educational retreat, as well as ongoing classroom education,
computer-based training and external seminars. The Company has programs to
educate all new employees about the history, culture and practices of FCG. All
employees are required to establish an annual professional development plan for
knowledge acquisition, skill development, leadership assessment and training,
project management and relationship management.
SCOTTSDALE INSTITUTE. The Company's Scottsdale Institute is a membership
organization composed of key executives, such as Chief Executive Officers, Chief
Operating Officers, Chief Medical Officers, and Chief Information Officers, from
more than 30 leading healthcare organizations across the United States.
Membership is by invitation only. The Scottsdale Institute provides its members
with a cost-sharing vehicle for information exchange, problem-solving and
learning related to improving operations effectiveness through information
management. The Emerging Practices Group performs guided research projects in
collaboration with three to five of the Scottsdale Institute's member
organizations that share common characteristics and information management
needs. The Emerging Practices Group delivers research reports and tools to
member organizations in areas such as management techniques, organizational
models, benchmarking and best practices, methodologies, plans, and vendor
information. This research enables the Company to develop practical, applied
solutions to problems of leading healthcare organizations and to anticipate
service needs of the broader market.
KNOWLEDGE AND INFORMATION TECHNOLOGY EXCHANGE. The Company's personnel have
access to the Company's internal research and to current industry and technology
information and project methodologies, experiences, models and tools through
KITE. KITE currently houses over 5,600 documents that include industry
information, service methodologies and tools, benchmarks and best practice
information and other documentation to support the Company's services and
consultants. KITE is updated on a continuous basis with information resulting
from each engagement, by the Emerging Practices Group, and by the Practice
Guilds. The Company believes that this resource allows its consultants to
utilize engagement-specific information which improves the quality and content
of services delivered to clients while reducing cost of delivery.
PRACTICE GUILDS. The Company has created an internal Practice Guild
structure for purposes of information exchange, retention, and continuous
employee education. The Company has the following Practice Guilds: Clinical
Informatics, Operations Effectiveness, Health Plans, Healthcare Delivery, and
Administrative Support. Each consultant in the Company is a member of one or
more Practice Guilds. The Practice Guilds share information concerning best
practices, tools, methodologies, and latest developments in area of expertise.
This information sharing is accomplished by a combination of periodic meetings,
e-mail, bulletin boards, teleconference, voicemail, and through KITE. The
Practice Guilds also provide an interest group for professionals to share
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experiences and foster better working relationships and teamwork, which in turn
support client service and productivity.
CLIENTS
For the nine months ended September 30, 1997, the Company provided services
to over 460 clients consisting of providers, payors and other healthcare
organizations in North America and Europe. The Company's clients include leading
IDNs, health plans, acute care centers, academic medical centers and other
organizations. A representative listing of the Company's clients is provided
below:
<TABLE>
<CAPTION>
ACUTE CARE CENTERS, PHYSICIAN
INTEGRATED DELIVERY NETWORKS ORGANIZATIONS AND CLINICS
- --------------------------------------- -------------------------------------------
Allina Health System Carle Clinic
<S> <C>
Atlantic Health System Children's Hospital (Boston)
Baylor Health Care System Children's Hospital (Chicago)
Catholic Healthcare West Lahey Hitchcock Clinic
Erlanger Health System MedPartners, Inc.
Henry Ford Health System Mount Sinai Medical Center (New York)
Inova Health Systems Northwest Hospital (Seattle)
Partner's Health Care System PhyCor/Straub Clinic and Hospital
Sentara Health Care System Rehabilitation Institute (Chicago)
Unity Health System St. Luke's Episcopal Hospital (Houston)
<CAPTION>
HEALTH PLANS ACADEMIC MEDICAL CENTERS
- --------------------------------------- -------------------------------------------
<S> <C>
Aetna Health Plans Loyola University Medical Center
Blue Cross Blue Shield (Michigan) Massachusetts General Hospital
Blue Cross Blue Shield (Tennessee) Northwestern Memorial Hospital
Great West Life UCSF/Stanford University Medical Center
University of California, Davis Medical
Health Partners (Alabama) Center
Humana HealthPlan University of Massachusetts Medical Center
Kaiser Permanente University of Miami School of Medicine
Mercy Health System (Michigan) University of Missouri Hospitals and Clinic
PacifiCare Health Systems University of Pennsylvania Medical Center
University of Texas M.D. Anderson Cancer
Rocky Mountain Healthcare Corporation Center
Sloans Lake Managed Care Vanderbilt University Medical Center
</TABLE>
In 1997 the Company entered into a collaborative agreement for a period of
three years with Premier, Inc. ("Premier"), a leading healthcare industry
association of approximately 1,800 hospitals and healthcare delivery
organizations. Under the agreement, the Company and Premier agree to collaborate
in marketing information management consulting services to Premier member
organizations. Premier members constitute approximately 33% of the nation's
non-federal government owned hospitals. The firm also has an exclusive agreement
with Voluntary Hospitals of America, Inc. ("VHA"), an association of
approximately 1,700 hospitals and healthcare delivery organizations. Under the
agreement, the Company acts as the exclusive consulting delivery arm for
information management consulting services sold by VHA to its member
organizations. These agreements provide the Company with potential assignments,
particularly with small and mid-sized healthcare provider organizations.
SALES AND MARKETING
The Company generates a substantial portion of its revenue from existing
clients and client referrals. The Company strives to develop strong
relationships with senior-level information management and other decision-
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making personnel at leading healthcare organizations. The Company maintains
these relationships by successfully completing assignments and meeting clients'
expectations. In particular, the Company believes that successful completion of
strategic plans for new and existing clients provides significant opportunities
to perform implementation and integration services. The Company has demonstrated
that this strategy leads to expanded opportunities with its clients and
referrals to new clients. In providing its services, the Company attains an
in-depth understanding of its client's processes and internal information
technology and business strategies. Through this understanding, the Company
plans to provide operations effectiveness services to a greater portion of its
client base. Operations effectiveness services involve assessing, designing and
improving financial, administrative and clinical process. The Company's vice
presidents and practice directors allocate a significant portion of their time
to business development and related activities. The Company also employs six
specialists who are responsible for new business development with targeted
clients.
The Company is frequently engaged to provide multiple services throughout
several phases of a client's information technology system lifecycle, including
planning, procurement and contracting, implementation, integration and
management. As a result of this involvement, the Company's personnel often
develop an in-depth understanding of the client's systems and capabilities and
develop strong relationships with personnel within the client organization.
These relationships provide the Company with significant opportunities to
undertake additional assignments for each client.
In addition to generating assignments from existing clients, the Company
attracts new clients through its targeted marketing activities. The Company's
marketing activities include public speaking, publishing, press releases and
trade show participation. The Company also maintains research reports and "white
papers" on its web site, along with other Company and industry information. The
Company's marketing staff produces a number of sales support tools including
presentations, article reprints, descriptions of the Company's services and case
studies.
COMPETITION
The market for healthcare information technology consulting is intensely
competitive, rapidly evolving and highly fragmented. The Company has competitors
that provide some or all of the services provided by the Company. The Company
competes for strategic consulting services and co-management services with
international consulting firms, regional and specialty consulting firms and the
consulting groups of international accounting firms. In its implementation and
integration service lines, the Company competes with information system vendors,
service groups of computer equipment companies, technology consulting firms,
systems integration companies, clients' internal information management
departments and other consulting firms. Many of the Company's competitors have
significantly greater financial, human and marketing resources than the Company.
As a result, such competitors may be able to respond more quickly to new or
emerging technologies and changes in customer demands, or to devote greater
resources to the development, promotion, sale and support of their products and
services than the Company. In addition, as healthcare organizations become
larger and more complex, the Company's larger competitors may be better able to
serve the needs of such organizations. There can be no assurance that the
Company will be able to attract and retain the personnel or to dedicate the
financial resources necessary to serve these resulting organizations. The
Company believes that it competes primarily on the basis of the quality of its
services; however, its clients may become increasingly price-sensitive as
competitive pricing pressures increase. Large information technology companies
have, in the past, offered strategic planning services at a substantial discount
as an incentive to utilize their implementation services, and software and
hardware vendors may provide discounted implementation services for their
products. These competitors may in the future discount such services more
frequently or offer such services at no charge. There can be no assurance that
the Company will be able to compete for price-sensitive clients on the basis of
its current pricing or cost structure, or that the Company will be able to lower
its prices or costs in order to compete effectively. Furthermore, many of the
Company's competitors have long-standing business relationships with key
personnel at healthcare organizations which could prevent or delay the Company
from expanding its client base. While the Company believes that it has been able
to compete successfully on the basis of the quality and
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range of its services and the accumulated expertise of its consultants, there
can be no assurance that the Company will be able to compete effectively with
current and future competitors or that competitive pressures faced by the
Company will not cause the Company's revenue or operating margins to decline or
otherwise materially adversely affect its business, financial condition and
results of operations.
LIMITED PROTECTION OF PROPRIETARY INFORMATION AND PROCEDURES
The Company's ability to compete effectively depends on its ability to
protect its proprietary information, including its proprietary methodologies,
research, tools, software code and other information. The Company relies
primarily on a combination of copyright and trade secret laws and
confidentiality procedures to protect its intellectual property rights. The
Company requests that its consultants and employees sign confidentiality
agreements and generally limits access to and distribution of its research,
methodologies and software codes. There can be no assurance that the steps taken
by the Company to protect its proprietary information will be adequate to
prevent its misappropriation. In addition, the laws of certain countries do not
protect or enforce proprietary rights to the same extent as do the laws of the
United States. The unauthorized use of the Company's intellectual property could
have a material adverse effect on the Company's business, financial condition or
results of operations. The Company believes that its systems and procedures and
other proprietary rights do not infringe upon the proprietary rights of third
parties. There can be no assurance, that third parties will not assert
infringement claims against the Company in the future or that any such claims
will not result in protracted and costly litigation, regardless of the merits of
such claims.
EMPLOYEES
As of September 30, 1997, the Company had 558 employees, 42 of whom were
vice presidents. The Company's vice presidents are stockholders of the Company
and are responsible for new business development, client relationships, company
leadership, service delivery and the long-term strategy of the Company. The
Company believes that its relationship with its employees is good.
FACILITIES
The Company's headquarters is located in approximately 24,000 square feet of
leased office space in Long Beach, California. The Company also leases an
aggregate of approximately 75,000 square feet of office space in the following
cities: San Francisco and Oakland, California; Morristown, New Jersey; Bethesda
and Baltimore, Maryland; New York City, New York; Tampa, Florida; Detroit and
Okemos, Michigan; Houston and Dallas, Texas; Boston, Massachusetts; Pittsburgh,
Pennsylvania; Chicago, Illinois; Atlanta, Georgia; Seattle, Washington; Denver,
Colorado; Dublin, Ireland; and London, England. The Company believes these
facilities are adequate to meet its needs for the next twelve months.
LEGAL PROCEEDINGS
From time to time, the Company may be involved in claims or litigation that
arise in the normal course of business. As of the date of this Prospectus, the
Company is not a party to any legal proceedings which, if decided adversely to
the Company, would have a material adverse effect on the Company's business,
financial condition or results of operations.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
September 30, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ----------------------------------------------------------------------------------
<S> <C> <C>
James A. Reep.............. 45 Chairman of the Board, Chief Executive Officer and President
Steven Heck................ 49 Executive Vice President, Practice and Director
Luther J. Nussbaum......... 50 Executive Vice President, Worldwide Practice Support and Director
Thomas A. Reep............. 42 Vice President, Finance and Chief Financial Officer
Richard N. Kramer.......... 44 Vice President and Managing Director, East Region
Roy A. Ziegler............. 35 Vice President and Managing Director, West Region
Don M. Tompkins............ 54 Vice President and Managing Director, Implementation Services
Michael R. Gorsage......... 46 Vice President and Managing Director, Network Integration Services
Frank I. Mueller........... 49 Vice President and Managing Director, International
Erica L. Drazen............ 51 Vice President and Managing Director, Emerging Practices
Roy W. Walters............. 50 Vice President and Managing Director, Quality Improvement
Paula K. Cowan............. 55 Vice President and Managing Director, Human Resources
Stanley R. Nelson (1)(2)... 71 Director
Steven Lazarus (1)......... 66 Director
Stephen E. Olson (1)(2).... 55 Director
Scott S. Parker............ 62 Director
Jack O. Vance (2).......... 72 Director
</TABLE>
- ------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
JAMES A. REEP co-founded the Company in 1980 and has served as Chairman of
the Board since December 1987 and Chief Executive Officer and President since
March 1991. Mr. Reep is a member of the Board of Directors of New Era of
Networks, Inc., which develops packaged solutions for application integration.
Mr. Reep also serves as a director of First Consulting Group (UK) Ltd., First
Consulting Group (Ireland) Ltd., and the Scottsdale Institute, subsidiaries of
the Company, and several non-profit organizations. From 1977 to 1980, Mr. Reep
was a consultant at Arthur Andersen. Mr. Reep received a B.A. from California
State University, Long Beach and an M.B.A. from the University of Chicago.
STEVEN HECK has served the Company as Executive Vice President, Practice
since April 1995 and as a director since April 1997. Mr. Heck served as Vice
President, Practice from April 1991 to March 1995. From 1990 to 1991, Mr. Heck
served as Chief Information Officer of Evangelical Health Systems. Mr. Heck
served the Company as Vice President, Midwest Region from May 1987 to December
1989. Prior to joining the Company, Mr. Heck was the Managing Partner of the
Great Lakes Health Care Practice at Price Waterhouse LLP from 1985 to 1987.
LUTHER J. NUSSBAUM has served the Company as Executive Vice President,
Worldwide Practice Support since April 1995 and has been a director since
November 1997. Prior to joining the Company Mr. Nussbaum was the President of
Nussbaum & Associates, a strategic and information consulting firm, from 1993 to
1995. From 1989 to 1993, Mr. Nussbaum served as President and Chief Executive
Officer of Evernet Systems, Inc., a national network systems integration
company. From 1986 to 1989, Mr. Nussbaum was the President and Chief Operating
Officer of Ashton-Tate Corp., a microcomputer software development company. Mr.
Nussbaum serves as a director of First Consulting Group (UK) Ltd. and First
Consulting Group (Ireland) Ltd., subsidiaries of the Company, and four private
entrepreneurial companies. Mr. Nussbaum received a B.A. from Rhodes College and
an M.B.A. from Stanford University.
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THOMAS A. REEP has served the Company as Vice President, Finance and Chief
Financial Officer since May 1980. Prior to joining the Company, Mr. Reep was an
accountant with Ernst & Young from 1977 to 1980. Mr. Reep is a certified public
accountant in the State of California. Mr. Reep serves as a director of a
non-profit organization. Mr. Reep received a B.S. and an M.B.A. from California
State University, Long Beach.
RICHARD N. KRAMER has served the Company as Vice President and Managing
Director, East Region since July 1995. Mr. Kramer served as Vice President, East
Region from January 1995 to June 1995. Prior to joining the Company, Mr. Kramer
was the National Partner for the Healthcare Information Technology Practice at
KPMG Peat Marwick LLP. Mr. Kramer received a B.A. from The Johns Hopkins
University and an M.B.A. from Columbia University Graduate School of Business.
ROY A. ZIEGLER has served the Company as Vice President and Managing
Director, West Region since January 1996. Mr. Ziegler served as Vice President
of Managed Care from November 1993 to December 1995. Prior to joining the
Company, Mr. Ziegler was the Practice Director of the Health Management
Initiative in the Pacific Region at Andersen Consulting from 1992 to 1993 and
served in other capacities from 1984 to 1991. Mr. Ziegler received a B.S. from
Pepperdine University.
DON M. TOMPKINS has served the Company as Vice President and Managing
Director, Implementation Services since January 1994. Mr. Tompkins served as
Vice President from April 1993 to December 1996. Prior to joining the Company,
Mr. Tompkins was a General Manager of Network Computing Tools for Texas
Instruments Incorporated from 1990 to 1996. Mr. Tompkins received a B.S. from
Chaminade University of Honolulu.
MICHAEL R. GORSAGE has served the Company as a Vice President and Managing
Director, Network Integration Services since May 1991. Prior to joining the
Company, Mr. Gorsage was the National Director of Communications Technologies
Consulting Services at Price Waterhouse LLP from 1989 to 1991 and served in
other capacities from 1984 to 1987. Mr. Gorsage received a B.S. from Northeast
Louisiana University and an M.B.A. from the University of Tampa.
FRANK I. MUELLER has served the Company as Vice President and Managing
Director, International since January 1997. Mr. Mueller served as Vice President
from January 1988 to December 1996 and joined the Company as a Practice Director
in November 1986. Prior to joining the Company, Mr. Mueller was the President of
Health Serv, a clinical decision support systems company, from 1981 to 1985. Mr.
Mueller received a B.A. from the University of Southern California and an M.A.
from California State University, Long Beach.
ERICA L. DRAZEN has served the Company as Vice President and Managing
Director, Emerging Practices since September 1995, and served as a director from
April 1997 to December 1997. Prior to joining the Company, Ms. Drazen was the
Vice President and Director of the Healthcare Information Systems Practice at
Arthur D. Little, Inc. from 1990 to 1995 and served in other capacities from
1969 to 1989. Ms. Drazen received a B.S. from Tufts University, an M.S. from
Massachusetts Institute of Technology and an Sc.D. from the Harvard School of
Public Health.
ROY W. WALTERS has served the Company as Vice President and Managing
Director, Quality Improvement since June 1996 and served as a director from
April 1997 to December 1997. Mr. Walters served as Vice President from March
1992 to May 1996. Prior to joining the Company, Mr. Walters was a consultant in
the Healthcare Group at Andersen Consulting from 1975 to February 1992. Mr.
Walters received a B.A. from Cornell University and an M.H.A. from Duke
University.
PAULA K. COWAN has served the Company as Vice President and Managing
Director, Human Resources since March 1996. Prior to joining the Company, Ms.
Cowan was a consultant for Meek and Associates, a strategic compensation and
performance management consulting firm, from 1992 to 1996 and served as Vice
President of Human Resources for Ashton-Tate Corp. from 1986 to 1992. Ms. Cowan
received a B.A. and an M.A. from California State University, Long Beach.
STANLEY R. NELSON has served the Company as a director since April 1997.
From 1993 to 1997, Mr. Nelson was the President of the Center for Clinical
Integration, Inc., the predecessor of the Scottsdale Institute, a
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subsidiary of the Company. Since 1988, Mr. Nelson has been an independent
healthcare consultant to various organizations. Prior to 1988, Mr. Nelson served
as the President and Chief Executive Officer of the Henry Ford Healthcare Corp.
in Detroit, Michigan and, prior to that, the Abbott-Northwestern Hospital in
Minneapolis, Minnesota. Mr. Nelson currently serves as a director of the
Scottsdale Institute, a subsidiary of the Company. Mr. Nelson received a B.S.
and an M.H.A. from the University of Minnesota.
STEVEN LAZARUS has served the Company as a director since April 1997. Since
1986, Mr. Lazarus has served as a senior principal of various venture capital
funds associated with ARCH Venture, including President and Chief Executive
Officer of ARCH Development Corporation and Managing Director of ARCH Venture
Partners. From 1986 to 1994, Mr. Lazarus served as the Associate Dean of the
Graduate School of Business of the University of Chicago. He currently serves as
a director of Amgen Inc., a biotechnology company, Primark Corporation, an
information services company, Illinois Superconductor Corporation, which
develops radio frequency equipment for the wireless communication industry, and
New Era of Networks, Inc., which develops packaged solutions for application
integration. Mr. Lazarus received a B.A. from Dartmouth College and an M.B.A.
from the Harvard University Graduate School of Business.
STEPHEN E. OLSON has served the Company as a director since April 1997.
Since 1988, Mr. Olson has served as Chairman of the Board of The Olson Company,
a developer of landmark residential communities within urban environments. Since
1992, Mr. Olson has also served as Chairman of the Board of Flowline, Inc., a
high-technology company specializing in intelligent sensors and controls. Mr.
Olson serves as a director of several private companies. Mr. Olson received a
B.A. from the University of Redlands and an M.B.A. from Pepperdine University.
SCOTT S. PARKER has served the Company as a director since November 1997. He
is currently the President and Chief Executive Officer of Intermountain Health
Care. Mr. Parker serves as a director of First Security Corporation MMI
Companies, Inc., a community and commercial bank, and Questar Corporation, a
natural gas and energy services holding company. Mr. Parker received a B.A. from
the University of Utah and an M.H.A. from the University of Minnesota.
JACK O. VANCE has served the Company as a director since April 1997. Mr.
Vance is the Managing Director of Management Research, Inc., a management
consulting firm. From 1973 to 1989, Mr. Vance was the Managing Partner of the
Los Angeles office of McKinsey & Company and served on the Executive Committee
of the firm's Board of Directors from 1962 to 1989. Mr. Vance serves as a
director of International Rectifier Corporation, a supplier of power
semiconductor components, Semtech Corporation, a manufacturer of analog
semiconductor products, and several private companies. Mr. Vance received a B.S.
from the University of Louisville and an M.B.A. from the Wharton School of the
University of Pennsylvania.
BOARD COMPOSITION
The Company currently has authorized 8 directors. In accordance with the
terms of the Company's Certificate of Incorporation, the terms of office of the
Board of Directors will be divided into three classes: Class I, whose term will
expire at the annual meeting of stockholders to be held in 1999; Class II, whose
term will expire at the annual meeting of stockholders to be held in 2000; and
Class III, whose term will expire at the annual meeting of stockholders to be
held in 2001. The Class I directors are Stephen Olson and Steven Heck, the Class
II directors are Stanley R. Nelson, Luther J. Nussbaum and Jack O. Vance and the
Class III directors are Scott S. Parker, Steven Lazarus and James A. Reep. At
each annual meeting of stockholders after the initial classification, the
successors to directors whose term will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. In addition, the Company's Certificate of Incorporation
provides that the authorized number of directors may be changed only by
resolution of the Board of Directors. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the directors. This classification of the Board of Directors may have the effect
of delaying or preventing changes in control or management of the Company.
Although directors of the Company may be removed for cause by the
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affirmative vote of the holders of a majority of the Common Stock, the Company's
Certificate of Incorporation provides that holders of two-thirds of the Common
Stock must vote to approve the removal of a director without cause.
BOARD COMMITTEES
The Audit Committee of the Board of Directors reviews the internal
accounting procedures of the Company and consults with, and reviews the services
provided by, the Company's independent auditors. The Compensation Committee of
the Board of Directors reviews and recommends to the Board of Directors the
compensation and benefits of all officers of the Company and reviews general
policy relating to compensation and benefits of employees of the Company. The
Compensation Committee also administers the issuance of stock options and other
awards under the Company's stock plans.
DIRECTOR COMPENSATION
The Company does not currently provide cash compensation to directors for
services in such capacity, but directors may be reimbursed for certain expenses
in connection with attendance at Board of Directors and committee meetings.
Directors receive automatic grants of nonstatutory stock options under the 1997
Non-Employee Directors' Stock Option Plan and are eligible for grants of
nonstatutory stock options under the 1997 Equity Incentive Plan. Currently, each
non-employee director is required to purchase and hold shares with an aggregate
fair market value equal to the annual fees paid to the directors under the
Non-Employee Director Restricted Stock Plan. See "--1997 Equity Incentive Plan,"
"--1997 Non-Employee Director Stock Option Plan," and "--Non-Employee Director
Restricted Stock Plan and Agreements."
EXECUTIVE COMPENSATION
The following table sets forth certain information for the year ended
December 31, 1996, regarding the compensation of the Company's Chief Executive
Officer and each of the four most highly compensated executive officers of the
Company whose salary and bonus for such year were in excess of $100,000 on an
annualized basis (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
LONG-TERM
---------------------- COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS AWARDS (2) COMPENSATION
- ----------------------------------------------------------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
James A. Reep
Chief Executive Officer and President.................... $ 370,000 $ 149,654 $ 957 $ --
Steven Heck
Executive Vice President, Practice....................... 335,000 205,525 99,707 150,254(3)
Frank I. Mueller
Vice President and Managing Director, International...... 310,000 97,433 339,707 3,096(4)
Richard W. Kramer
Vice President and Managing Director, East Region........ 275,000 120,288 15,957 9,581(4)
Roy A. Ziegler
Vice President and Managing Director, West Region........ 250,000 139,200 15,957 13,049(4)
</TABLE>
- ------------------------
(1) In accordance with Securities and Exchange Commission (the "Commission")
rules, other annual compensation in the form of perquisites and other
personal benefits has been omitted where the aggregate amount of such
perquisites and other personal benefits constitutes less than the lesser of
$50,000 or 10% of the total annual salary and bonus for the Named Executive
Officer for the fiscal year.
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<PAGE>
(2) Reflects the compensation expense associated with the exercise of stock
options, supplemental executive retirement plan contributions made on behalf
of the referenced individual and an allocation of 50 shares to such
individuals under the terms of the ASOP. In connection with maintaining
certain of the Company's benefit plans, the Company recognizes a
compensation expense with respect to certain of its employees. The Company's
employees recognize a corresponding amount as income and such amount is
generally reported on such employee's W-2. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
"Management--Associate Profit Sharing 401(k) and Stock Ownership Plan" and
"--Supplemental Executive Retirement Plan."
(3) Represents $120,254 in relocation expenses paid by the Company and $30,000
in loan forgiveness by the Company.
(4) Represents interest income from loans by the Company to the Named Executive
Officers for the purchase of shares of Common Stock under the 1994
Restricted Stock Plan, as amended. See "Certain Transactions."
OPTION GRANTS IN LAST FISCAL YEAR
There were no stock options granted to Named Executive Officers for the year
ended December 31, 1996.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
There were no option exercises by the Named Executive Officers during the
fiscal year ended December 31, 1996. The following table sets forth the number
and value of securities underlying unexercised options held by the Named
Executive Officers at December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT AT
DECEMBER 31, DECEMBER 31,
NAME 1996 (1) 1996
- ------------------------------------------------------------------ --------------------- ----------------------
<S> <C> <C>
James A. Reep..................................................... -- --
Steven Heck....................................................... 11,818 $ 106,598
Frank I. Mueller.................................................. -- --
Richard N. Kramer................................................. 30,980 450,449
Roy A. Ziegler.................................................... -- --
</TABLE>
- ------------------------
(1) Options vest immediately pursuant to vesting provisions contained in option
agreements. Any shares issued pursuant to such vesting provisions are
subject to repurchase at the original exercise price per share plus the
Growth Factor upon termination of employment. See "Principal and Selling
Stockholders."
1997 EQUITY INCENTIVE PLAN
The Company's 1997 Equity Incentive Plan (the "Incentive Plan") was adopted
by the Board of Directors on August 22, 1997, and was approved by the Company's
stockholders on October 24, 1997. There are currently 400,000 shares of Common
Stock authorized for issuance under the Incentive Plan. The Incentive Plan
provides for the grant of incentive stock options to employees (including
officers and employee-directors) and nonstatutory stock options, restricted
stock purchase awards, stock appreciation rights and stock bonuses ("stock
awards") to employees, directors and consultants. Incentive stock options
granted under the Incentive Plan are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). Nonstatutory stock options granted under the Incentive
Plan are intended not to qualify as incentive stock options under the Code. The
Incentive Plan is administered by the Board of Directors or a committee
appointed by the Board which determines recipients and types of stock awards to
be granted, including the exercise price, number of shares subject to the stock
award and the exercisability thereof.
The terms of stock options granted under the Incentive Plan generally may
not exceed 10 years. The exercise price of options granted under the Incentive
Plan is determined by the Board of Directors, provided
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<PAGE>
that the exercise price for an incentive stock option cannot be less than 100%
of the fair market value of the Company's Common Stock on the date of the option
grant, and the exercise price for a nonstatutory stock option cannot be less
than 85% of the fair market value of the Company's Common Stock on the date of
the option grant. Options granted under the Incentive Plan vest at a rate of 20%
on the first anniversary of the option grant and 1/60th every month thereafter.
No stock option may be transferred by the optionee other than by will or the
laws of descent or distribution, provided that a nonstatutory stock option
granted after the Company becomes publicly traded may be transferable if so
provided in the option agreement, and provided further that an optionee may
designate a beneficiary who may exercise the option following the optionee's
death. Generally, an optionee whose employment or other service relationship
with the Company and its affiliates terminates for any reason (other than by
death or permanent and total disability) may exercise his or her option in the
three-month period following such termination (unless such option expires sooner
by its terms). Options generally may be exercised for up to 18 months or 12
months after an optionee's employment or other service relationship with the
Company and its affiliates terminates due to death or disability, respectively
(unless such options expire sooner by their terms).
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock representing more than 10% of the
total combined voting power of all classes of stock of the Company or any of the
affiliates of the Company, unless the option exercise price is at least 110% of
the fair market value of the stock subject to the option on the date of grant,
and the term of the option does not exceed five years from the date of grant.
The aggregate fair market value, determined at the time of grant, of the shares
of Company's Common Stock with respect to which incentive stock options are
exercisable for the first time by an optionee during any calendar year (under
all such plans of the Company and its affiliates) may not exceed $100,000. The
options, or portions thereof, which exceed this limit are treated as
nonstatutory stock options. Shares subject to stock awards that have expired or
otherwise terminated without having been exercised in full (or vested in the
case of restricted stock awards) shall again become available for the grant of
awards under the Incentive Plan. The Board of Directors has the authority to
reprice outstanding options and to offer optionees the opportunity to replace
outstanding options with new options for the same or a different number of
shares.
Stock awards granted under the Incentive Plan may be granted pursuant to a
repurchase option in favor of the Company in accordance with a vesting schedule
and at a price determined by the Board of Directors. Restricted stock purchases
must be at a price equal to at least 85% of the stock's fair market value on the
award date, but stock bonuses may be awarded in consideration of past services
without a purchase payment. Rights under a stock bonus or restricted stock bonus
agreement are transferable only upon the terms and conditions set forth in the
stock award agreement and the stock awarded pursuant to such an agreement
remains subject to the agreement.
Upon a Change in Control of the Company (as defined below), the surviving or
acquiring corporation may assume outstanding stock awards under the Incentive
Plan or substitute similar stock awards. If it does so, but the holder's service
is either voluntarily terminated with good reason or is involuntarily terminated
without cause (as defined in the Incentive Plan) within one month before, or 13
months after, the Change in Control, both the vesting and the exercisability of
the holder's stock award will accelerate. If the surviving or acquiring
corporation refuses to assume or to substitute for outstanding stock awards,
then (1) both the vesting and exercisability of stock awards held by persons
still serving the Company or an affiliate (whether as an employee, director or
consultant) will accelerate, and (2) all stock awards will terminate if not
exercised after such acceleration but before a Change in Control in which there
is a surviving or acquiring corporation. "Change in Control" means a
dissolution, liquidation, or sale of all or substantially all of the Company's
assets, a merger or consolidation in which the Company is not the surviving
corporation, a reverse merger in which the Company is the surviving corporation
but the shares of the Company's common stock outstanding immediately before the
merger are converted by virtue of the merger into other property, or the date
that at least 50% of the Board is not composed of the incumbent Board on August
22, 1997, as well as directors whose election or nomination was approved by a
vote of at least 50% of that incumbent Board.
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<PAGE>
As of September 30, 1997, no shares of Company's Common Stock had been
issued upon the exercise of options granted under the Incentive Plan, options to
purchase 149,000 shares of Company's Common Stock at an average exercise price
of $19.03 were outstanding and 246,000 shares remained available for future
grant. The Incentive Plan will terminate on August 21, 2007 unless sooner
terminated by the Board of Directors. As of September 30, 1997, no stock bonuses
or restricted stock awards have been granted under the Incentive Plan.
1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The Board of Directors adopted the 1997 Non-Employee Directors' Stock Option
Plan (the "Director Option Plan") on August 22, 1997 to provide for the
automatic grant to non-employee directors of the Company of options to purchase
shares of Common Stock. The Director Option Plan is administered by the Board,
unless the Board delegates administration to a committee. An aggregate of 50,000
shares of Common Stock has been reserved for issuance under the Director Option
Plan, subject to adjustment in the event of certain capital changes.
On August 22, 1997, each non-employee director was automatically granted an
option for 5,000 shares, 1/5 of which will vest on August 21, 1998 and 1/60 of
which will vest each month thereafter. Each person who is first elected as a
non-employee director after August 22, 1997 will automatically receive an option
for 1,000 shares, which will vest at the rate of 1/12 each month. In addition,
on January 1, 1998 and each January 1 thereafter, each non-employee director
will automatically receive an option for 1,000 shares, which will also vest at
the rate of 1/12 each month. As long as the non-employee director continues to
serve the Company or an affiliate, whether in the capacity of a director, an
employee or a consultant, the option will continue to vest and be exercisable.
The option is not transferable except by will, by the laws of descent and
distribution, pursuant to a domestic relations order or to the spouse, children,
lineal ancestors and lineal descendants of the optionee (or to a trust or
limited liability company or partnership created solely for the benefit of the
optionee and the foregoing persons). Although the option is exercisable during
the lifetime of the optionee only by the optionee or a permitted transferee, the
optionee may designate a third party who, in the event of the death of the
optionee, will be entitled to exercise the option. Options granted under the
Director Option Plan expire 10 years after the date of grant and have an
exercise price equal to 100% of the fair market value of the Common Stock on the
date of grant. If the optionee's service to the Company or an affiliate
terminates, vesting will stop but the optionee may exercise the option (to the
extent it remains exercisable) for 18 months if termination is due to death, or
for 12 months in all other circumstances.
Upon a Change in Control of the Company, the surviving or acquiring
corporation may assume outstanding options under the Director Option Plan or
substitute similar options. If it does so but the optionee's service is either
voluntarily terminated with good reason or is involuntarily terminated without
cause (as defined in the Director Option Plan) within one month before, or 13
months after, the Change in Control, both the vesting and the exercisability of
the optionee's option will accelerate. If the surviving or acquiring corporation
refuses to assume or to substitute for outstanding options, then (1) both the
vesting and exercisability of options held by optionees still serving the
Company or an affiliate will accelerate, and (2) all options will terminate if
not exercised after such acceleration but before the Change in Control where
there is a surviving or acquiring corporation.
As of September 30, 1997, no shares of Common Stock had been issued upon the
exercise of options granted under the Director Option Plan, options to purchase
20,000 shares of Common Stock at an exercise price of $19.03 per share were
outstanding and 30,000 shares remained available for future grant. The Director
Option Plan will terminate on August 21, 2007 unless sooner terminated by the
Board of Directors.
1994 RESTRICTED STOCK PLAN AND AGREEMENTS
The Company adopted the 1994 Restricted Stock Plan, as amended (the "1994
Plan"), to provide a mechanism for the purchase and sale of the Company's Common
Stock by its vice presidents. The 1994 Plan is administered by the Company's
Board of Directors or a committee appointed by the Board.
38
<PAGE>
Under the 1994 Plan, the Company has entered into Restricted Stock
Agreements ("RSAs") with each of its vice presidents. The 1994 Plan and RSAs
provide that each person, upon becoming a vice president of the Company, must
purchase and hold a specific minimum number of shares of the Company's Common
Stock. Vice presidents at Levels I and II are required to purchase and hold that
number of shares equal to one times the vice president's base salary divided by
the then-current fair market value of the Company's Common Stock. Vice
presidents at Levels III and IV are required to purchase and hold that number of
shares equal to two times the vice president's base salary divided by the
then-current fair market value of the Company's Common Stock. Prior to the
completion of this offering, the fair market value of the Company's Common Stock
is determined by reference to a report prepared for the Company by an
independent valuation firm. After the consummation of this offering, the fair
market value of the Company's Common Stock will be determined by reference to
the closing selling price of the Company's Common Stock on the Nasdaq National
Market.
Shares purchased under the RSAs are subject to a 10-year vesting period
beginning the date upon which an individual becomes a vice president and
continuing upon the completion of each year of service for such vice president.
Automatic acceleration of such vesting occurs upon death or permanent disability
of a vice president and certain changes in ownership of the Company. Partial
acceleration of vesting may also occur upon the vice president attaining the age
of 59.
Under the terms of the RSAs, the Company retains a repurchase right with
respect to unvested shares. Pursuant to this right, the Company may repurchase
unvested shares at the original issuance price plus a growth factor. The growth
factor is equal to the average interest rate compounded quarterly which the
Company pays to a commercial lending institution in a calendar quarter (the
"Growth Factor"). In the event the Company has no borrowings for a particular
quarter, then the Growth Factor shall be the prime rate on the first day of the
quarter, as announced in the Wall Street Journal or if the Wall Street Journal
discontinues such announcements, then it shall be the prime rate as announced by
Bank of America. Unvested shares acquired under RSAs are nontransferable, with
the exception of transfers for certain estate planning and charitable gift
purposes. In addition, the RSAs provide that, under certain circumstances and
upon attaining a certain age, a vice president may sell a portion, but not all,
of his or her shares to other vice presidents or to the Company. Vice presidents
pay the purchase price of the shares by means of non-recourse and recourse
non-interest bearing promissory notes.
The RSAs also contain non-competition and non-solicitation provisions which
apply generally to the vice president's employment with the Company and which
continue to bind the vice president even after repurchase of all shares by the
Company; provided, however, that such provisions may be superseded by an
employment agreement entered into between the Company and the vice president.
NON-EMPLOYEE DIRECTOR RESTRICTED STOCK PLAN AND AGREEMENTS
The Company adopted the Non-Employee Director Restricted Stock Plan (the
"Director Stock Plan") on August 22, 1997, subject to stockholder approval
within 12 months. The Director Stock Plan is administered by the Company's Board
of Directors or a committee appointed by the Board of Directors.
The Company has entered into Restricted Stock Agreements under the Director
Stock Plan with each of its non-employee directors ("Director RSAs"). The
Director RSAs provide that each person, upon becoming a non-employee director of
the Company, must purchase a minimum number of shares. Currently, each
non-employee director is required to purchase shares with an aggregate fair
market value equal to $10,000.
Directors RSAs provide for limited transferability, a repurchase right in
favor of the Company upon termination of Board service, and the payment of the
purchase price by the director and the repurchase price by the Company by means
of a promissory note and a combination of cash and a non-negotiable promissory
note, respectively.
39
<PAGE>
ASSOCIATE PROFIT SHARING 401(K) AND STOCK OWNERSHIP PLAN
The Associate Profit Sharing 401(k) and Stock Ownership Plan (the "ASOP"),
as amended, was adopted effective December 1, 1995. The ASOP covers all
employees of the Company and affiliates of the Company designated by the
Company's Board of Directors, excluding any union employees unless their
coverage is bargained for, and excluding non-resident aliens without U.S. source
earned income. ASOP participation commences automatically for newly eligible
employees on semiannual entry dates.
Under the ASOP, participants may elect to reduce their current compensation
by up to the lesser of 15% of such compensation or the statutorily prescribed
annual limit ($9,500 in 1997) and have the amount of such reduction contributed
to the ASOP. In addition, the Company may make contributions to the ASOP on
behalf of participants. Company contributions may be matching contributions
allocated based on each participant's compensation reduction contributions,
discretionary profit sharing contributions allocated based on each participant's
compensation, or "first share contributions" allocated to some or all
participants on a per capita basis.
The ASOP is intended to qualify under Section 401 of the Internal Revenue
Code of 1986, as amended, so that contributions by employees or by the Company
to the ASOP, and income earned thereon are not taxable until withdrawn and so
that contributions by the Company, if any, will be deductible by the Company
when made. Participants become vested in Company contributions under two graded
vesting schedules, so that matching and first share contributions are fully
vested after five years of service and profit sharing contributions are fully
vested after seven years of service. The ASOP is a leveraged employee stock
ownership plan. The ASOP borrowed $4.0 million from a third-party financial
institution (the "ASOP Loan") to purchase 357,462 shares of Common Stock in
1995. The shares of Common Stock so purchased were placed in a suspense account
under the ASOP from which they are released and allocated to participants
accounts' as the ASOP Loan is repaid. Any or all Company contributions may be
used to repay the ASOP Loan.
In 1996, the Company made matching contributions and first share
contributions to the ASOP sufficient to provide a 50% matching contribution and
a first share contribution of 50 shares of Company stock for each participant
who was employed by the Company on January 1, 1996 or became employed by the
Company thereafter. In 1997, the Company will make a matching contributions and
per capita contributions sufficient to provide (i) a 50% matching contribution
and (ii) a per capita contribution of 250 shares of Common Stock to be allocated
to the account of each participant who is employed by the Company on November
26, 1997. All 1996 Company contributions were, and all 1997 contributions will
be used to repay the ASOP Loan.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
On January 1, 1994 the Company adopted the Supplemental Executive Retirement
Plan (the "SERP"). The SERP was amended on January 1, 1996. The SERP is
administered by the Board of Directors or a committee appointed by the Board of
Directors.
Participants in the SERP are those executive officers at the vice president
or higher level of seniority who are eligible to participate in the 1994 Plan
and who are selected by the Board of Directors or a committee appointed by the
Board of Directors to participate. The Board of Directors or a committee
appointed by the Board of Directors may also designate other officers for
participation in the compensation reduction portion of the SERP. Participation
is conditioned on the submission of a completed enrollment form. SERP
participation terminates when a participant ceases to be a stockholder of the
Company, provided that a former stockholder who continues as an officer may
continue to participate in the compensation reduction portion of the SERP.
Participants may make fully vested compensation reduction contributions to
the SERP, subject to a maximum deferral of 10% of annual base salary. The
Company may make a voluntary "FCG Contribution" for any year in an amount
determined by the Board to the account of SERP participants. FCG Contributions
vest 10% for each year of service (with up to 5 years service credit for
participants who were vice presidents on January 1, 1994), provided that FCG
Contributions fully vest upon a Change in Control of the Company or upon a
participant's death, disability or attainment of age 65.
40
<PAGE>
Compensation reduction contributions and FCG Contributions are contributed
to an irrevocable grantor trust, under which accounts are maintained for each
participant, and are invested in investment subaccounts of variable universal
life insurance policies. A participant's SERP account is distributed to the
participant (or his or her beneficiaries) upon the participant's death,
disability or termination of employment, in forms and at times that vary based
on the event triggering the distribution and elections made by the participant.
The Company has the right to terminate the SERP at any time.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its Bylaws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person it is
required or permitted to indemnify. Pursuant to this provision, the Company
expects to enter into indemnification agreements with each of its directors and
executive officers.
The Company has obtained officer and director liability insurance with
respect to liabilities arising out of certain matters, including matters arising
under the Securities Act. In addition, the Company's Certificate of
Incorporation provides that, to the fullest extent permitted by Delaware law,
the Company's directors will not be liable for monetary damages for breach of
the directors' fiduciary duty of care to the Company and its stockholders. This
provision in the Certificate of Incorporation does not eliminate the duty of
care, and in appropriate circumstances, equitable remedies such as an injunction
or other forms of non-monetary relief would remain available under Delaware law.
Under current Delaware law, a director's liability to the Company or its
stockholders may not be limited with respect to any breach of the director's
duty of loyalty to the Company or its stockholders, for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for any transaction from which the director derived an improper personal
benefit, for improper transactions between the director and the Company and for
improper distributions to stockholders and loans to directors and officers. This
provision also does not affect a director's responsibilities under any other
laws such as the federal securities laws or state or federal environmental laws.
There is no pending litigation or proceeding involving a director or officer
of the Company as to which indemnification is being sought, nor is the Company
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.
41
<PAGE>
CERTAIN TRANSACTIONS
The Company and its vice presidents have entered into certain agreements
relating to the issuance of the Company's securities. Under the provisions of
the 1994 Plan, the Company's vice presidents have entered into RSAs that require
each vice president to purchase a minimum number of shares of the Company's
Common Stock. Shares of the Company's Common Stock are purchased under the RSAs
at a price per share equal to the then-prevailing market value for shares of the
Company's Common Stock as determined by an independent valuation firm. On and
prior to July 30, 1997, the Company also provided certain of its vice presidents
with non-qualified stock options to purchase shares of the Company's Common
Stock based on the number of shares purchased under the RSAs. These options were
granted with exercise prices below the then-prevailing market value for shares
of the Company's Common Stock as determined by an independent valuation firm. In
connection with the RSAs and stock option agreements entered into between the
Company and its vice presidents the Company has, from time to time, made certain
loans to its vice presidents equal to the following: (i) the aggregate purchase
price for shares of the Company's Common Stock purchased by a vice president
under the Company's 1994 Plan; (ii) the aggregate exercise price for stock
options exercised by a vice president in connection with the 1994 Plan; and
(iii) the aggregate amount of medicare and income taxes payable by a vice
president as a result of the exercise of stock options granted in connection
with the Company's 1994 Plan. The promissory notes evidencing such loans are
generally non-recourse, non-interest bearing, and have a stated term of ten
years. The Company records a compensation expense and the Company's vice
presidents recognize income on the imputed interest attributable to these notes.
Shares of the Company's Common Stock purchased under the RSAs or pursuant to the
exercise of stock options, for which purchase or exercise a loan was granted,
are pledged as security for the outstanding principal amounts of the loans. The
pledged shares remain as security for the loans until the entire outstanding
principal amounts have been paid. The RSAs require the Company's vice presidents
to repay the outstanding principal amounts of such loans at the greater of (i)
one-tenth (1/10) of the face amount of such loans, and (ii) one-half ( 1/2) of
the vice presidents' net after tax annual bonus. The Company's vice presidents
may repay the outstanding principal amounts in advance without penalty. As of
September 30, 1997, all of the outstanding options under these arrangements have
been exercised and the outstanding aggregate principal amount under these loans
equaled $4.8 million. In the future, the Company plans to grant all stock
options at market value and to match employee 401(k) contributions with shares
of the Company's Common Stock based on the market value of the shares at the
time of grant.
The Company has an ongoing, non-contractual business relationship with First
Ticket Travel, whose sole proprietor is Fatima Reep, the wife of James A. Reep,
Chairman of the Board, Chief Executive Officer and President of the Company.
From January 1, 1996 to September 30, 1997, the Company has purchased travel
services from First Ticket Travel in the amount of approximately $260,000.
The Company entered into a consulting agreement with Stanley R. Nelson on
September 1, 1997. The agreement provides that Mr. Nelson will be paid at the
rate of $63.00 per hour, up to a maximum of $10,920 per month, for consulting
services related to the administration of and strategic planning for the
Scottsdale Institute.
The Company intends to enter into indemnification agreements with its
directors and executive officers for the indemnification of and advancement of
expenses to such persons to the full extent permitted by law. The Company also
intends to execute such agreements with its future directors and executive
officers.
The Company believes that the foregoing transactions were in its best
interest. As a matter of policy the transactions were, and all future
transactions between the Company and any of its officers, directors or principal
stockholders will be, approved by a majority of the independent and
disinterested members of the Board of Directors, will be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties
and will be in connection with bona fide business purposes of the Company.
42
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1997, and as
adjusted to reflect the sale of the Company's Common Stock offered hereby by:
(i) each stockholder who is known by the Company to own beneficially more than
5% of the Company's Common Stock; (ii) each Named Executive Officer of the
Company; (iii) each director of the Company; (iv) each stockholder of the
Company who is selling shares of Company's Common Stock in this offering
("Selling Stockholder"); and (v) all directors and executive officers of the
Company as a group. Unless otherwise indicated, to the knowledge of the Company,
all persons listed below have sole voting and investment power with respect to
their shares of Company's Common Stock, except to the extent authority is shared
by spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE NUMBER OF OWNED AFTER THE
OFFERING (1) SHARES OFFERING (1)
----------------------- BEING -----------------------
5% STOCKHOLDERS, NAMED EXECUTIVE OFFICERS AND DIRECTORS NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------------------------------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
James A. Reep (2).......................................... 800,000 27.3% 80,000 720,000
FCG Enterprises, Inc. Associate Profit Sharing 401(k) Stock
Ownership Plan (3)....................................... 397,386 13.5 -- 397,386
Brent A. Hanson (4)........................................ 255,000 8.7 25,500 229,500
Thomas A. Reep (5)......................................... 180,518 6.1 16,000 164,518
Steven Heck (6)............................................ 53,439 1.8 5,344 48,095
Richard N. Kramer (7)...................................... 46,470 1.6 4,647 41,823
Frank I. Mueller........................................... 83,860 2.9 8,386 75,474
Roy A. Ziegler (8)......................................... 57,671 2.0 -- 57,671
Stanley R. Nelson.......................................... 525 * -- 525
Luther J. Nussbaum (9)..................................... 37,533 1.3 3,753 33,780
Steven Lazarus............................................. 525 * -- 525
Stephen E. Olson........................................... 525 * -- 525
Scott S. Parker............................................ -- * -- --
Jack O. Vance.............................................. 525 * -- 525
All executive officers and directors as a group (17
persons) (3)(10)......................................... 1,427,824 48.6 125,741 1,302,083
OTHER SELLING STOCKHOLDERS
- -----------------------------------------------------------
Raeford A. Bell (11)....................................... 75,396 2.6 7,540 67,856
Joseph M. Casper (12)...................................... 49,394 1.7 4,939 44,455
James E. D'Itri (13)....................................... 66,272 2.3 6,627 59,645
Pamela J. Garrison (14).................................... 71,716 2.4 7,172 64,544
Michael R. Gorsage (15).................................... 34,040 1.2 3,404 30,636
Mark S. Gross (16)......................................... 37,168 1.3 2,500 34,668
Daniel S. Herman (17)...................................... 11,616 * 1,000 10,616
Michael T. Krouse (18)..................................... 11,616 * 1,162 10,454
Bruce G. Lemon (19)........................................ 12,510 * 1,251 11,259
Patricia A. Lowery......................................... 64,000 2.2 6,400 57,600
G. Brian May............................................... 95,996 3.3 9,600 86,396
Louis F. Nicholson......................................... 36,638 1.2 3,664 32,974
Don M. Tompkins (20)....................................... 42,066 1.4 4,207 37,859
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares of
the Company's Common Stock.
43
<PAGE>
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Except as indicated by footnote, and subject to community
property laws where applicable, the Company believes, based on information
furnished by such persons, that the persons named in the table above have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them. Percentage of beneficial ownership is
based on 2,935,530 shares of Common Stock outstanding as of September 30,
1997 and shares of Common Stock outstanding after completion of this
offering. Certain shares are subject to repurchase at the original issuance
price plus a growth factor. The growth factor is equal to the average
interest rate compounded quarterly which the Company pays to a commercial
lending institution in a calendar quarter (the "Growth Factor"). In the
event the Company has no borrowings for a particular quarter, then the
Growth Factor shall be the prime rate on the first day of the quarter, as
announced in the Wall Street Journal or if the Wall Street Journal
discontinues such announcements, then it shall be the prime rate as
announced by Bank of America.
(2) The business address of the named stockholder is c/o First Consulting
Group, Inc., 111 West Ocean Blvd., 4th Floor, Long Beach, CA 90802. The
shares are held by The Reep Family Inter Vivos Trust, a Revocable Trust,
dated 10/12/93, of which Mr. Reep is a trustee.
(3) The business address of the named stockholder is c/o First Consulting
Group, Inc., 111 West Ocean Blvd., 4th Floor, Long Beach, CA 90802. The
Shares are held by Union Bank as trustee of the FCG Enterprises, Inc.
Associate Profit Sharing 401(k) and Stock Ownership Plan. The Company
allocates shares of its Common Stock as matching contributions to certain
of its executive officers. These executive officers have the right to
acquire the fair market value of the stock allocated to their respective
accounts upon termination of employment. Such stockholder also has the
right to vote such shares of Common Stock allocated under the ASOP with
respect to the approval or disapproval of any Company merger or
consolidation, recapitalization, reclassification, liquidation,
dissolution, sale of substantially all assets of a trade or business, or
such similar transaction. Of the shares held by the ASOP, 2,295 shares have
been allocated to the accounts of the following named executive officers:
Steven Heck (380 shares), Richard Kramer (375 shares), Frank Mueller (385
shares), James Reep (385 shares), Thomas Reep (385 shares) and Roy Ziegler
(385 shares). All other executive officers as a group have been allocated a
total of 2,320 shares.
(4) The business address of the named stockholder is c/o First Consulting
Group, Inc., 6903 Rockledge Drive, Suite 920, Bethesda, MD 20817. The
shares are held by The Brent A. Hanson Inter Vivos Trust dated March 24,
1995, of which Mr. Hanson is trustee.
(5) The business address of the named stockholder is c/o First Consulting
Group, Inc., 111 West Ocean Blvd., 4th Floor, Long Beach, CA 90802. The
shares are held by The Reep Family Inter Vivos Trust, dated May 27, 1992,
of which Mr. Reep and his wife, Patricia A. Reep, are trustees. Of the
shares held, 20,518 are unvested shares as of December 14, 1997. Of such
unvested shares, 10,259 are subject to repurchase by the Company at a price
equal to $9.52 per share plus the Growth Factor and 10,259 shares are
subject to repurchase by the Company at a price equal to $19.03 per share
plus the Growth Factor.
(6) Of the shares held, 5,345 are unvested shares as of December 14, 1997. Of
such unvested shares, 2,000 are subject to repurchase by the Company at a
price equal to $0.86 per share plus the Growth Factor, 1,572 are subject to
repurchase by the Company at a price equal to $2.11 per share plus the
Growth Factor, 1,182 are subject to repurchase by the Company at a price
equal to $2.28 per share plus the Growth Factor and 591 are subject to
repurchase by the Company at a price equal to $11.19 per share plus the
Growth Factor.
(7) Of the shares held, 32,529 are unvested as of December 14, 1997. Of such
unvested shares, 21,686 are subject to repurchase by the Company at a price
equal to $2.28 per share plus the Growth Factor and 10,843 are subject to
repurchase by the Company at a price equal to $11.19 per share plus the
Growth Factor.
44
<PAGE>
(8) Of the shares held, 34,604 are unvested shares as of December 14, 1997. Of
such unvested shares, 8,499 are subject to repurchase by the Company at a
price equal to $1.77 per share plus the Growth Factor, 6,908 are subject to
repurchase by the Company at a price equal to $2.11 per share plus the
Growth Factor, 12,798 are subject to repurchase by the Company at a price
equal to $2.28 per share plus the Growth Factor, and 6,399 are subject to
repurchase by the Company at a price equal to $11.19 per share plus the
Growth Factor.
(9) The shares are held by The Nussbaum Family Trust, a Revocable Living Trust
dated March 2, 1992, of which Mr. Nussbaum is a trustee. Of the shares
held, 16,274 are unvested shares as of December 14, 1997. Of such unvested
shares, 17,516 are subject to repurchase by the Company at a price equal to
$2.28 per share plus the Growth Factor and 8,758 are subject to repurchase
by the Company at a price equal to $11.19 per share plus the Growth Factor.
(10) Of the shares held, 165,434 are unvested shares as of December 14, 1997. In
general, such unvested shares are subject to repurchase by the Company at a
price equal to the original purchase price plus the Growth Factor.
(11) Of the shares held, 7,540 are unvested shares as of December 14, 1997. Of
such unvested shares, 4,000 are subject to repurchase by the Company at a
price equal to $0.56 per share plus the Growth Factor, 2,000 are subject to
repurchase by the Company at a price equal to $0.69 per share plus the
Growth Factor, 790 are subject to repurchase by the Company at a price
equal to $2.11 per share plus the Growth Factor, 500 are subject to
repurchase by the Company at a price equal to $2.28 per share plus the
Growth Factor and 250 are subject to repurchase by the Company at a price
equal to $11.19 per share plus the Growth Factor.
(12) Of the shares held, 34,578 are unvested shares as of December 14, 1997. Of
such unvested shares, 13,345 are subject to repurchase by the Company at a
price equal to $2.28 per share plus the Growth Factor, 7,280 are subject to
repurchase by the Company at a price equal to $9.52 per share plus the
Growth Factor, 6,673 are subject to repurchase by the Company at a price
equal to $11.19 per share plus the Growth Factor and 7,280 are subject to
repurchase by the Company at a price equal to $19.03 per share plus the
Growth Factor.
(13) Of the shares held, 39,764 are unvested shares as of December 14, 1997. Of
such unvested shares, 36,000 are subject to repurchase by the Company at a
price equal to $0.56 per share plus the Growth Factor, 3,600 are subject to
repurchase by the Company at a price equal to $1.76 per share plus the
Growth Factor and 164 are subject to repurchase by the Company at a price
equal to $2.11 per share plus the Growth Factor.
(14) The shares are held by the Steven Scott Levin and Pamela Jane Garrison
Revocable Trust of 1993 of which Ms. Garrison is a trustee. Of the shares
held, 21,515 are unvested as of December 14, 1997. Of such unvested shares,
12,000 are subject to repurchase by the Company at a price equal to $0.56
per share plus the Growth Factor, 6,000 are subject to repurchase by the
Company at a price equal to $0.69 per share plus the Growth Factor, 1,265
are subject to repurchase by the Company at a price equal to $2.11 per
share plus the Growth Factor, 1,500 are subject to repurchase by the
Company at a price equal to $2.28 per share plus the Growth Factor and 750
are subject to repurchase by the Company at a price equal to $11.19 per
share plus the Growth Factor.
(15) Of the shares held, 10,212 are unvested shares as of December 14, 1997. Of
such unvested shares, 6,000 are subject to repurchase by the Company at a
price equal to $0.86 per share plus the Growth Factor, 1,200 are subject to
repurchase by the Company at a price equal to $1.76 per share plus the
Growth Factor, 2,112 are subject to repurchase by the Company at a price
equal to $2.11 per share plus the Growth Factor, 600 are subject to
repurchase by the Company at a price equal to $2.28 per share plus the
Growth Factor and 300 are subject to repurchase by the Company at a price
equal to $11.19 per share plus the Growth Factor.
(16) Of the shares held, 26,020 are unvested shares as of December 14, 1997. Of
the unvested shares, 16,092 are subject to repurchase by the Company at a
price equal to $2.28 per share plus the Growth Factor, 3,251 are subject to
repurchase by the Company at a price equal to $4.52 per share plus the
Growth Factor, 3,426 are subject to repurchase by the Company at a price
equal to $11.19 per share plus the Growth Factor and 3,251 are subject to
repurchase by the Company at a price equal to $11.30 per share plus the
Growth Factor.
45
<PAGE>
(17) Of the shares held, 8,132 are unvested shares as of December 14, 1997. Of
the unvested shares, 5,421 are subject to repurchase by the Company at a
price equal to $2.28 per share plus the Growth Factor and 2,711 are subject
to repurchase by the Company at a price equal to $11.19 per share plus the
Growth Factor.
(18) Of the shares held, 8,132 are unvested shares as of December 14, 1997. Of
the unvested shares, 5,421 are subject to repurchase by the Company at a
price equal to $2.28 per share plus the Growth Factor and 2,711 are subject
to repurchase by the Company at a price equal to $11.19 per share plus the
Growth Factor.
(19) The shares are held by the Bruce G. Lemon Inter Vivos Trust dated April 20,
1994, of which Mr. Lemon is a trustee. Of the shares held, 8,757 are
unvested shares as of December 14, 1997. Of such unvested shares, 5,838 are
subject to repurchase by the Company at a price equal to $2.28 per share
plus the Growth Factor and 2,919 are subject to repurchase by the Company
at a price equal to $11.19 per share plus the Growth Factor.
(20) Of the shares held, 21,033 are unvested shares as of December 14, 1997. Of
such unvested shares, 2,376 are subject to repurchase by the Company at a
price equal to $2.11 per share plus the Growth Factor, 12,438 are subject
to repurchase by the Company at a price equal to $2.28 per share plus the
Growth Factor and 6,219 are subject to repurchase by the Company at a price
equal to $11.19 per share plus the Growth Factor.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, $.001 par value, and
10,000,000 shares of Preferred Stock, $.001 par value.
COMMON STOCK
As of September 30, 1997, there were 2,935,530 shares of Common Stock
outstanding held of record by 47 stockholders. 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. The holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities. Holders of Common Stock have no preemptive rights and no right to
convert their Common Stock into any other securities. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are, and all shares of 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 up to 10,000,000 shares of Preferred Stock, $.001 par
value, in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences, sinking fund terms and the
number of shares constituting any series or the designation of such series,
without any further vote or action by stockholders. The issuance of Preferred
Stock could adversely affect the voting power of holders of Common Stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation and could have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no present plan to issue any
shares of Preferred Stock.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware Law,
an anti-takeover law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. For purposes of Section 203, a
"business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
employees, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
The Company's Certificate of Incorporation and Bylaws also require that,
effective upon the closing of this offering, 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 the stockholders and may not be effected by a consent in
writing. In addition, special meetings of the stockholders of the Company may be
called only by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer of the Company or by any person or persons holding shares
representing at least 10% of the outstanding capital stock. The Company's
Certificate of Incorporation also provides for a classified Board and specifies
that the authorized number of directors may be changed only by resolution of the
Board of Directors. These provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of the Company. See
"Management--Board Composition."
TRANSFER AGENT AND REGISTRAR
American Securities Transfer & Trust Inc. has been appointed as the transfer
agent and registrar for the Company's Common Stock.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect the market price of the Common Stock
prevailing from time to time. Furthermore, since only a limited number of shares
will be available for sale shortly after this offering because of certain
contractual and legal restrictions on resale described below, 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 and
the ability of the Company to raise equity capital in the future.
Upon completion of this offering, based on the number of shares outstanding
as of September 30, 1997, the Company will have outstanding an aggregate of
shares of Common Stock assuming (i) the issuance by the Company of
shares of Common Stock offered hereby, (ii) no exercise of exercisable
options to purchase 22,300 shares of Common Stock, and (iii) no exercise of the
Underwriters' over-allotment option to purchase shares of Common Stock.
Of these shares, shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, except for
shares held by "affiliates" of the Company as that term is defined in Rule 144
under the Securities Act (whose sales would be subject to certain limitations
and restrictions described below) and the regulations promulgated thereunder.
The remaining 2,732,434 shares held by officers, directors, employees,
consultants and other shareholders of the Company were sold by the Company in
reliance on exemptions from registration requirements of the Securities Act and
are "restricted securities" within the meaning of Rule 144 under the Securities
Act. Restricted securities may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rules 144 or 701
promulgated under the Securities Act, which rules are summarized below. Subject
to the provisions of the Lock-Up Agreements and the provisions of Rules 144 and
701, additional shares may be available for sale in the public market as
follows: (i) no restricted securities will be eligible for immediate sale on the
effective date of this offering; (ii) 266,406 restricted securities will be
eligible for sale 180 days after the date of this Prospectus upon expiration of
the Lock-Up Agreements; (iii) an additional 246,602 restricted securities will
be eligible for sale 360 days after the date of this Prospectus upon expiration
of the Lock-Up Agreements; and (iv) an additional 2,219,426 restricted
securities will be eligible for sale 540 days after the date of this Prospectus
upon expiration of the Lock-Up Agreements. Each of the Company's vice presidents
are required to purchase and maintain a minimum number of shares of the
Company's Common Stock. In addition, shares of the Company's Common Stock held
for a period longer than one (1) year become eligible for sale under Rule 144
upon (i) the expiration of the Company's right of repurchase with respect of
such shares, and (ii) receipt of payments in respect of installment loans used
to repurchase such restricted securities.
The stockholders of the Company have agreed with the representatives of the
Underwriters for a period of 540 days after the date of this Prospectus, that
they will not, directly or indirectly, offer, sell, contract to sell or grant
any option to sell or otherwise dispose of, directly or indirectly, any shares
of Common Stock or securities convertible into or exchangeable for, or any
rights to purchase or acquire, Common Stock, without the prior written consent
of Hambrecht & Quist LLC; provided, however, that at the end of the first 180
day period following the date of this Prospectus, 10% of such shares will become
eligible for sale; at the end of the second 180 day period following the date of
this Prospectus, an additional 10% of such shares will become eligible for sale;
and the remaining shares will become eligible for sale 540 days after the date
of this Prospectus. Hambrecht & Quist LLC, in its sole discretion and at any
time without notice, may release all or any portion of the securities subject to
the 540-day lock-up agreement. The Company has agreed that it will not, without
the prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise
dispose of any shares of Common Stock, options to acquire shares of Common Stock
or securities exchangeable for or convertible into shares of Common Stock during
the 180-day period following the date of this Prospectus, except that the
Company may issue shares upon the exercise of options granted prior to the date
hereof, and may grant additional options under its stock option plans, provided
that, without the prior written consent of Hambrecht & Quist LLC, such
additional options shall not be exercisable during such 180-day period.
48
<PAGE>
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an affiliate of the Company, or person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
that were not acquired from the Company or an affiliate of the Company within
the previous one year, will be entitled to sell in any three-month period a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding shares of the Company's Common Stock (approximately shares
immediately after this offering) or (ii) the average weekly trading volume of
the Company's Common Stock in the Nasdaq National Market during the four
calendar weeks immediately preceding the date on which notice of the sale is
filed with the Commission. Sales pursuant to Rule 144 are subject to certain
requirements relating to manner of sale, notice and availability of current
public information about the Company. A person (or person 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 securities is entitled to sell such shares pursuant to 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.
An employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701 under the Securities Act, which permits affiliates and
non-affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, in each case commencing 90 days after the
date of this Prospectus. In addition, non-affiliates may sell Rule 701 shares
without complying with public information, volume and notice provisions of Rule
144.
The Company intends to file a registration statement under the Securities
Act to register shares of Common Stock reserved for issuance under the Incentive
Plan, the Director Option Plan, the 1994 Plan and the Director Stock Plan, thus
permitting the resale of such shares by non-affiliates in the public market
without restriction under the Securities Act. Such registration statement will
become effective immediately upon filing.
49
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their representatives,
Hambrecht & Quist LLC, BancAmerica Robertson Stephens and UBS Securities LLC
(the "Representatives"), have severally agreed to purchase from the Company and
the Selling Stockholders the following respective number of shares of Common
Stock:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Hambrecht & Quist LLC.............................................................
BancAmerica Robertson Stephens LLC................................................
UBS Securities LLC................................................................
----------
Total...........................................................................
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company, its counsel and independent
auditors. The nature of the Underwriters' obligation is such that they are
committed to purchase all shares of Common Stock offered hereby if any of such
shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow and such dealers may reallow a
concession not in excess of $ per share to certain other dealers. After the
initial public offering of the shares, the offering price and other selling
terms may be changed by the Representatives. The Representatives have informed
the Company that the Underwriters do not intend to confirm sales to accounts
over which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to additional
shares of Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the total number of shares of Common Stock offered hereby.
The Company will be obligated, pursuant to the option, to sell shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
The stockholders of the Company, who will own in the aggregate shares
of Common Stock after the offering, have agreed that they will not, without the
prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose
of any shares of Common Stock, options to acquire shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock owned by
them during the 540-day period following the date of this Prospectus; provided,
however, that at the end of the first 180 day period following the date of this
Prospectus, 10% of such shares will become eligible for sale; at the end of the
second 180 day period following the date of this Prospectus, an additional 10%
of such shares will become eligible for
50
<PAGE>
sale; and the remaining shares will become eligible for sale 540 days after the
date of this Prospectus. The Company has agreed that it will not, without the
prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose
of any shares of Common Stock, options to acquire shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock during
the 180-day period following the date of this Prospectus, except that the
Company may issue shares upon the exercise of options granted prior to the date
hereof, and may grant additional options under its stock option plans, provided
that, without the prior written consent of Hambrecht & Quist LLC, such
additional options shall not be exercisable during such 180-day period.
Prior to the offering, there has been no public market for the Common Stock.
The initial public offering price for the Common Stock will be determined by
negotiation between the Company and the Representatives. Among the factors to be
considered in determining the initial public offering price are prevailing
market and economic conditions, revenue and earnings of the Company, market
valuations of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the Company's management and other
factors deemed relevant. The estimated initial public offering price range set
forth on the cover of this preliminary prospectus is subject to change as a
result of market conditions and other factors.
Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transactions may be effected on the
Nasdaq National Market, in the over-the-counter market, or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Cooley Godward LLP, Palo Alto, California.
Certain legal matters in connection with the offering will be passed upon for
the Underwriters by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, Menlo Park, California.
EXPERTS
The financial statements of FCG Enterprises, Inc. d.b.a. First Consulting
Group as of December 31, 1996 and 1995, and for each of the three years in the
period ended December 31, 1996 appearing in this Prospectus and Registration
Statement have been audited by Grant Thornton LLP, independent certified public
accountants, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto, relating
to the Common Stock offered hereby has been filed by the Company with the
Commission. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. For further information with respect to the Company and the
51
<PAGE>
Common Stock offered hereby, reference is made to such Registration Statement,
exhibits and schedules. A copy of the Registration Statement may be inspected by
anyone without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
and copies of all or any part thereof maybe obtained from the Commission upon
payment of certain fees prescribed by the Commission. The Commission maintains a
World Wide Web site that contains reports, proxy and information statements and
other information filed electronically with the Commission. The address of the
site is
http://www.sec.gov.
52
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS......................................................... F-2
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS.............................................................................. F-3
CONSOLIDATED STATEMENTS OF OPERATIONS.................................................................... F-4
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY................................................ F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS.................................................................... F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
FCG Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of FCG
Enterprises, Inc. and its subsidiaries (d.b.a. First Consulting Group) as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
FCG Enterprises, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
/s/ GRANT THORNTON LLP
Los Angeles, California
November 21, 1997
F-2
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31,
---------------------- --------------------
PRO FORMA ACTUAL 1996 1995
----------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents...................................................... $ 4,473 $ 4,473 $ 214 $ 2,075
Accounts receivable, less allowance of $500, $83, and zero in 1997, 1996 and
1995, respectively........................................................... 19,932 19,932 14,920 13,709
Prepaid expenses............................................................... 985 985 1,067 882
Current portion of notes receivable--stockholders.............................. 289 289 184 154
----------- --------- --------- ---------
Total current assets......................................................... 25,679 25,679 16,385 16,820
Notes receivable--stockholders (Note D).......................................... 886 886 454 --
Property and equipment
Furniture, equipment, and leasehold improvements............................... 1,838 1,838 1,040 810
Information systems equipment.................................................. 8,321 8,321 6,565 4,148
----------- --------- --------- ---------
10,159 10,159 7,605 4,958
Less accumulated depreciation and amortization................................... 4,981 4,981 3,286 2,464
----------- --------- --------- ---------
5,178 5,178 4,319 2,494
Other assets
Executive Benefit Trust (Note G)............................................... 2,352 2,352 1,264 664
Deferred income taxes (Note C)................................................. -- -- -- 551
Other.......................................................................... 248 248 390 119
----------- --------- --------- ---------
2,600 2,600 1,654 1,334
----------- --------- --------- ---------
Total assets................................................................. $ 34,343 $ 34,343 $ 22,812 $ 20,648
----------- --------- --------- ---------
----------- --------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt (Note B)..................................... $ 721 $ 721 $ 670 $ 670
Accounts payable............................................................... 2,299 2,299 1,646 2,400
Accrued liabilities............................................................ 1,661 1,661 931 825
Accrued vacation............................................................... 1,866 1,866 1,368 934
Accrued bonuses................................................................ 3,684 3,684 -- 49
Deferred revenue............................................................... 306 306 -- --
Deferred income taxes (Note C)................................................. 4,841 4,841 4,218 4,411
----------- --------- --------- ---------
Total current liabilities.................................................... 15,378 15,378 8,833 9,289
Non-current liabilities
Long-term debt, net of current portion (Note B)................................ 2,585 2,585 2,692 3,362
Supplemental executive retirement plan (Note G)................................ 2,352 2,352 1,264 664
Deferred income taxes (Note C)................................................. 248 248 140 --
Other.......................................................................... -- -- 185 421
----------- --------- --------- ---------
5,185 5,185 4,281 4,447
Commitments and contingencies (Notes E and G).................................... -- -- -- --
Potential put obligation related to ASOP and capital stock (Notes H and I)....... -- 8,099 6,658 5,300
Stockholders' equity
Capital stock, no par value; 5,000,000 shares authorized, 2,935,530, 2,674,030
and 2,517,036 shares issued and outstanding at September 30, 1997, December
31, 1996 and 1995, respectively.............................................. 15,939 15,939 11,550 8,618
Retained earnings.............................................................. 7,072 7,072 5,749 5,356
Deferred compensation--stock incentive agreements (Notes A and H).............. (3,039) (3,039) (2,333) (1,593)
Unearned ASOP shares (Note I).................................................. (2,591) (2,591) (3,225) (4,000)
Notes receivable--stockholders (Note D)........................................ (3,601) (3,601) (2,043) (1,469)
Potential put obligation related to ASOP and capital stock (Notes H and I)..... -- (8,099) (6,658) (5,300)
----------- --------- --------- ---------
Total stockholders' equity................................................... 13,780 5,681 3,040 1,612
----------- --------- --------- ---------
Total liabilities and stockholders' equity................................... $ 34,343 $ 34,343 $ 22,812 $ 20,648
----------- --------- --------- ---------
----------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue................................................ $ 66,304 $ 48,262 $ 65,822 $ 47,744 $ 30,046
Cost of services........................................... 39,513 30,160 40,718 26,518 16,869
--------- --------- --------- --------- ---------
Gross profit........................................... 26,791 18,102 25,104 21,226 13,177
General and administrative expenses........................ 22,248 17,663 23,670 17,517 9,871
Compensation expenses related to stock issuances........... 1,623 382 588 385 --
--------- --------- --------- --------- ---------
Income from operations................................. 2,920 57 846 3,324 3,306
Interest income............................................ 166 164 245 172 46
Interest expense........................................... (224) (180) (242) (208) (123)
Other income, net.......................................... 110 33 44 18 32
--------- --------- --------- --------- ---------
Income before income taxes............................. 2,972 74 893 3,306 3,261
Provision for income taxes................................. 1,649 41 500 1,423 1,577
--------- --------- --------- --------- ---------
Net income............................................. $ 1,323 $ 33 $ 393 $ 1,883 $ 1,684
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per share....................................... $ 0.50 $ 0.01 $ 0.15 $ 0.86 $ 0.66
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in computing net income per share.............. 2,629 2,554 2,575 2,201 2,556
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL STOCK UNEARNED
---------------------- RETAINED DEFERRED ASOP
SHARES AMOUNT EARNINGS COMPENSATION SHARES
----------- --------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994.................................. 2,600 $ 694 $ 3,594 $ -- $ --
Redemption of capital stock............................... (920) (118) (1,805) -- --
Issuance of capital stock under the stock bonus plan...... 177 334 -- -- --
Stock issued under stock option agreement--compensation... -- 57 -- -- --
Net income................................................ -- -- 1,684 -- --
----------- --------- ----------- ------- -----------
Balance, December 31, 1994................................ 1,857 967 3,473 -- --
Redemption of capital stock............................... (54) (80) -- -- --
Issuance of capital stock................................. 13 30 -- -- --
Stock issued under stock option agreement--compensation... -- 76 -- -- --
Issuance of capital stock under the ASOP.................. 358 4,000 -- -- (4,000)
Issuance of capital stock under the RSAs.................. 343 3,625 -- (1,978) --
Increase of potential put obligation...................... -- -- -- -- --
Compensation recognized under the RSAs.................... -- -- -- 385 --
Net income................................................ -- -- 1,883 -- --
----------- --------- ----------- ------- -----------
Balance, December 31, 1995................................ 2,517 8,618 5,356 (1,593) (4,000)
Redemption of capital stock............................... (7) (40) -- -- --
Issuance of capital stock under the RSAs.................. 140 1,953 -- (1,048) --
Compensation recognized under the RSAs.................... -- -- -- 308 --
Capital stock released under the ASOP..................... -- 272 -- -- 775
Interest income on notes receivable--stockholders......... -- -- -- -- --
Issuance of new capital stock to associates in the ASOP... 24 362 -- -- --
Increase of potential put obligation...................... -- -- -- -- --
Excess income tax benefits attributable to exercised stock
options................................................. -- 385 -- -- --
Net income................................................ -- -- 393 -- --
----------- --------- ----------- ------- -----------
Balance, December 31, 1996................................ 2,674 11,550 5,749 (2,333) (3,225)
Redemption of capital stock (unaudited)................... (16) (304) -- -- --
Issuance of capital stock under the RSAs (unaudited)...... 261 2,477 -- (1,019) --
Compensation recognized under the RSAs (unaudited)........ -- -- -- 313 --
Capital stock released under the ASOP (unaudited)......... -- 1,252 -- -- 938
Issuance of capital stock to ASOP (unaudited)............. 16 304 (304)
Interest income on notes receivable--stockholders
(unaudited)............................................. -- -- -- -- --
Issuance of new capital stock to associates in the ASOP
(unaudited)............................................. -- 265 -- -- --
Increase of potential put obligation (unaudited).......... -- -- -- -- --
Excess income tax benefits attributable to exercised stock
options (unaudited)..................................... -- 395 -- -- --
Net income (unaudited).................................... -- -- 1,323 -- --
----------- --------- ----------- ------- -----------
Balance, September 30, 1997 (unaudited)................... 2,935 $ 15,939 $ 7,072 $ (3,039) $ (2,591)
----------- --------- ----------- ------- -----------
----------- --------- ----------- ------- -----------
<CAPTION>
NOTES POTENTIAL
RECEIVABLE-- PUT
STOCKHOLDERS OBLIGATION TOTAL
-------------- ----------- ---------
<S> <C> <C> <C>
Balance, January 1, 1994.................................. $ -- $ (2,730) $ 1,558
Redemption of capital stock............................... -- -- (1,923)
Issuance of capital stock under the stock bonus plan...... -- -- 334
Stock issued under stock option agreement--compensation... -- -- 57
Net income................................................ -- -- 1,684
------- ----------- ---------
Balance, December 31, 1994................................ -- (2,730) 1,710
Redemption of capital stock............................... -- -- (80)
Issuance of capital stock................................. -- -- 30
Stock issued under stock option agreement--compensation... -- -- 76
Issuance of capital stock under the ASOP.................. -- -- --
Issuance of capital stock under the RSAs.................. (1,469) -- 178
Increase of potential put obligation...................... -- (2,570) (2,570)
Compensation recognized under the RSAs.................... -- -- 385
Net income................................................ -- -- 1,883
------- ----------- ---------
Balance, December 31, 1995................................ (1,469) (5,300) 1,612
Redemption of capital stock............................... -- -- (40)
Issuance of capital stock under the RSAs.................. (481) -- 424
Compensation recognized under the RSAs.................... -- -- 308
Capital stock released under the ASOP..................... -- -- 1,047
Interest income on notes receivable--stockholders......... (93) -- (93)
Issuance of new capital stock to associates in the ASOP... -- -- 362
Increase of potential put obligation...................... -- (1,358) (1,358)
Excess income tax benefits attributable to exercised stock
options................................................. -- -- 385
Net income................................................ -- -- 393
------- ----------- ---------
Balance, December 31, 1996................................ (2,043) (6,658) 3,040
Redemption of capital stock (unaudited)................... -- -- (304)
Issuance of capital stock under the RSAs (unaudited)...... (1,454) -- 4
Compensation recognized under the RSAs (unaudited)........ -- -- 313
Capital stock released under the ASOP (unaudited)......... -- -- 2,190
Issuance of capital stock to ASOP (unaudited).............
Interest income on notes receivable--stockholders
(unaudited)............................................. (104) -- (104)
Issuance of new capital stock to associates in the ASOP
(unaudited)............................................. -- -- 265
Increase of potential put obligation (unaudited).......... -- (1,441) (1,441)
Excess income tax benefits attributable to exercised stock
options (unaudited)..................................... -- -- 395
Net income (unaudited).................................... -- -- 1,323
------- ----------- ---------
Balance, September 30, 1997 (unaudited)................... $ (3,601) $ (8,099) $ 5,681
------- ----------- ---------
------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31,
SEPTEMBER 30,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................... $ 1,323 $ 33 $ 393 $ 1,883 $ 1,684
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.......................................... 1,794 1,196 1,739 767 478
Provision for bad debts................................................ 417 -- 83 -- --
Deferred income taxes.................................................. 731 39 498 1,727 717
Loss (gain) on sale of assets.......................................... 62 (27) 5 (13) (42)
Compensation from stock issuances...................................... 3,399 -- 1,830 385 57
Interest income on notes receivable--stockholders...................... (128) -- (93) -- --
Change in assets and liabilities:
Accounts receivable.................................................... (5,429) (511) (1,294) (6,001) (2,558)
Prepaid expenses....................................................... 82 (53) (185) (721) 13
Other assets........................................................... 141 (65) (271) (39) (5)
Accounts payable....................................................... 653 1,210 (102) 1,293 594
Accrued liabilities.................................................... 4,912 3,665 (158) 1,183 138
Deferred revenue....................................................... 306 -- -- -- --
Other.................................................................. (185) -- (235) 315
--------- --------- --------- --------- ---------
Net cash provided by operating activities............................ 8,078 5,487 2,210 779 1,076
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Issuance of notes receivable............................................. (918) -- (709) (153) --
Payments on notes receivable............................................. 168 -- 648 177 55
Purchase of property and equipment....................................... (2,713) (3,218) (3,571) (1,928) (1,210)
--------- --------- --------- --------- ---------
Net cash used in investing activities................................ (3,463) (3,218) (3,632) (1,904) (1,155)
Cash flows from financing activities:
Proceeds from issuance of long-term debt................................. 150 -- -- 4,000 1,690
Principal payments on long-term debt..................................... (511) (503) (670) (2,160) (363)
Proceeds from issuance of capital stock.................................. 5 110 271 106 334
Capital stock repurchase................................................. -- -- (40) (80) (1,923)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities.................. (356) (393) (439) 1,866 (262)
--------- --------- --------- --------- ---------
Net change in cash and cash equivalents.............................. 4,259 1,876 (1,861) 741 (341)
Cash and cash equivalents at beginning of period........................... 214 2,075 2,075 1,334 1,675
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period................................. $ 4,473 $ 3,951 $ 214 $ 2,075 $ 1,334
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cash paid during the period for:
Interest................................................................. $ 225 $ 246 $ 328 $ 202 $ 123
Income taxes............................................................. $ 610 $ 25 $ 33 $ 539 $ 557
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
FCG Enterprises, Inc. and its subsidiaries, d.b.a. First Consulting Group
(the "Company"), is a leading provider of information technology and other
consulting services for healthcare providers, payors, and other healthcare
organizations. The Company's services are designed to assist its clients in
increasing operations effectiveness by reducing cost, improving customer service
and enhancing the quality of patient care. The Company provides this expertise
to clients by assembling multi-disciplinary teams which provide comprehensive
services across its four principal service lines: consulting, software
implementation, network and application integration and co-management services.
The Company's services and consultants are supported by internal research and a
centralized information system which provides real-time access to current
industry and technology information, project methodologies, experiences and
tools.
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of FCG
Enterprises, Inc. and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.
2. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
3. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
provided on a straight-line basis in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives. Leasehold
improvements are amortized over the lives of the respective leases or the
service lives of the improvements, whichever is shorter.
4. INCOME TAXES
The Company accounts for income taxes on the liability method under which
deferred tax liabilities (assets) are determined based on the differences
between the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these differences
reverse. Deferred tax expense (benefit) is equal to the change in the deferred
tax liability (asset) from the beginning to the end of the year. A current tax
asset or liability is recognized for the estimated taxes refundable or payable
for the current year.
5. POTENTIAL PUT OBLIGATIONS
Currently the existing stockholders of the Company, including the Associate
Profit Sharing 401(k) and Stock Ownership Plan ("ASOP"), have the ability to
require the Company to repurchase their shares upon the occurrence of certain
conditions, which are outside the control of the Company (see Notes H and I). As
such, the Company reflects estimated potential future obligations related to
these repurchase commitments outside of equity in the accompanying financial
statements.
6. REVENUE RECOGNITION
The Company generates substantially all of its revenue from fees for
professional services. The Company typically bills for its services on an
hourly, fixed-fee or fixed-fee per month basis. For services billed on an hourly
basis, the Company recognizes revenue as services are performed. For services
billed on a fixed-fee or fixed-fee
F-7
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
per month basis, the Company recognizes revenue using the percentage of
completion method. Revenue is recorded as incurred at assignment rates net of
any adjustments due to specific engagement situations.
7. STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation as prescribed by
APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and has adopted
the disclosure provisions of FAS 123, ACCOUNTING FOR STOCK-BASED COMPENSATION
("FAS 123"). FAS 123 requires pro forma disclosures of net income and net income
per share as if the fair value based method of accounting for stock-based awards
had been applied. Under the fair value based method, compensation cost is
recorded based on the value of the award at the grant date and is recognized
over the service period. The adoption of FAS 123 disclosure provisions has no
effect on either the Company's financial condition or its results of operations.
8. EARNINGS PER SHARE
Net income per common and common equivalent shares is computed based on the
weighted average of common and common equivalent shares outstanding during the
period. Unexercised stock options are dilutive for all periods presented and are
included as common stock equivalents using the treasury stock method. ASOP
shares that have not been committed to be released are not treated as
outstanding when determining the weighted average number of shares. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, common and
common equivalent shares issued below the initial public offering price during
the twelve months immediately preceding the initial public offering date (using
the treasury stock method) have been included in the calculation of common and
common equivalent shares as if they were outstanding for all periods presented.
9. UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying consolidated financial statements and related notes thereto
include unaudited consolidated interim financial information as of September 30,
1997 and for the nine months ended September 30, 1997 and 1996. This information
has been prepared on the same basis as the audited consolidated financial
statements and, in management's opinion, includes all adjustments, consisting
only of normal recurring adjustments, necessary for the fair presentation of the
information for the periods presented. Results for such interim periods are not
necessarily indicative of results for the full year or for any future periods.
10. CREDIT RISKS
Financial instruments that subject the Company to concentrations of credit
risks consist primarily of billed and unbilled accounts receivable. The
Company's clients are primarily involved in the healthcare industry.
Concentrations of credit risk with respect to billed and unbilled accounts
receivable are limited due to the Company's credit evaluation process and the
nature of its clients. Historically, the Company has not incurred significant
credit-related losses.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Management believes the fair value of financial instruments approximates
their carrying amounts. The carrying value of cash and cash equivalents
approximates their estimated fair values. Management believes the fair values of
notes payable and shareholders' notes receivable approximate their carrying
values based on current rates for instruments with similar characteristics.
F-8
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
12. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The Company is in the process of modifying its stock agreements such that,
upon the effectiveness of the proposed initial public offering, the Company will
no longer have the obligation to repurchase shares of the Company's stock from
the current stockholders. A pro forma unaudited consolidated balance sheet as of
September 30, 1997 has been presented to reflect this change.
13. DEFERRED COMPENSATION--STOCK INCENTIVE AGREEMENTS
In accordance with APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, the Company records a charge to deferred compensation when it grants
options or sells stock to officers or employees at an exercise price which is
less than the fair market value of such shares. Amounts recorded as deferred
compensation are amortized over the appropriate service period based upon the
vesting schedule for such grants (generally ten years).
14. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
15. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE, which
supersedes APB Opinion 15 ("FAS 128"). FAS 128 replaces the presentation of
primary earnings per share ("EPS") with "Basic EPS" which includes no dilution
and is based on weighted-average common shares outstanding for the period.
Companies with complex capital structures, including the Company, will also be
required to present "Diluted EPS" that reflects the potential dilution of
securities such as employee stock options to purchase common stock. FAS 128 is
effective for financial statements issued for periods ending after December 15,
1997. The Company has determined that the adoption of FAS 128 will not have a
material effect on the Company's net income per share.
16. RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 and 1997 presentation.
F-9
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--LONG-TERM DEBT
Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
SEPTEMBER 30, --------- ---------
-------------
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to bank....................................... $ 3,280 $ 3,333 $ 4,000
Other note payable......................................... 26 29 32
------ --------- ---------
3,306 3,362 4,032
Less current portion....................................... 721 670 670
------ --------- ---------
Non-current portion........................................ $ 2,585 $ 2,692 $ 3,362
------ --------- ---------
------ --------- ---------
</TABLE>
The note payable to bank is collateralized by all deposit accounts, accounts
receivable, and equipment of the Company and bears interest at the bank's prime
rate (8.25% and 8.50% at December 31, 1996 and 1995, respectively) plus 0.5%. At
December 31, 1996, the notes payable are payable in monthly installments of
$56,000 plus interest ($672,000 annually) with the last installment due December
2001. Amounts due under the notes payable to bank are collateralized by
unreleased ASOP shares (See Note I).
NOTE C--PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal.......................................................... $ 844 $ 2 $ 2 $ (289) $ 717
State............................................................ 74 -- -- (16) 143
--------- --------- --------- --------- ---------
Total current.................................................. 918 2 2 (305) 860
Deferred........................................................... 731 39 498 1,727 717
--------- --------- --------- --------- ---------
Provision for income taxes......................................... $ 1,649 $ 41 $ 500 $ 1,423 $ 1,577
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
F-10
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C--PROVISION FOR INCOME TAXES (CONTINUED)
Temporary differences consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
SEPTEMBER 30, --------- ---------
-------------
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets
Current deferred tax asset................................................... $ 200 $ 186 $ 45
------ --------- ---------
Non-current..................................................................
Supplemental executive retirement plan contributions....................... 685 506 273
Stock based compensation................................................... 213 104 181
Other...................................................................... 178 61 97
------ --------- ---------
Total non-current deferred tax assets.................................... 1,076 671 551
------ --------- ---------
Total deferred tax assets.............................................. 1,276 857 596
------ --------- ---------
Deferred tax liabilities
Current--Accrual to cash basis adjustment.................................... 5,041 4,404 4,456
Non-current--Stock based compensation 1,324 811 --
------ --------- ---------
Total deferred tax liabilities 6,365 5,215 4,456
------ --------- ---------
Total net deferred tax liabilities................................... $ 5,089 $ 4,358 $ 3,860
------ --------- ---------
------ --------- ---------
</TABLE>
As a result of the following items, the total provision for income taxes was
different from the amount computed by applying the statutory U.S. federal income
tax rate to earnings before income taxes:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal income tax at statutory rate.................... 35.0% 35.0% 35.0% 35.0% 35.0%
Changes due to:
State franchise tax, net of federal income tax
benefit............................................. 6.1 6.1 6.1 6.1 6.1
Meals and entertainment............................... 3.0 7.1 7.1 3.0 4.1
ASOP.................................................. 14.3 12.5 12.5 -- --
Other................................................. (2.9) (5.3) (4.7) (1.1) 3.2
--- --- --- --- ---
55.5% 55.4% 56.0% 43.0% 48.4%
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
For tax reporting purposes, the Company had historically elected to be taxed
under the cash basis of reporting as opposed to the accrual method used for
financial reporting purposes. As a result of such election, a deferred tax
liability of $5,041,000 $4,404,000 $4,456,000, and $2,364,000 exists at
September 30, 1997, December 31, 1996, 1995 and 1994, respectively. As a result
of the proposed initial public offering of common stock, the Company would be
required to change its tax reporting to the accrual basis to be consistent with
financial reporting purposes. As a result of this change, the deferred tax
liability resulting from the use of cash basis reporting for income taxes will
become payable over a period not exceeding four years.
F-11
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D--NOTES RECEIVABLE--STOCKHOLDERS
Notes receivable from stockholders consist primarily of loans provided to
participants of the restricted stock bonus and non-qualified stock option
agreements (see Note H). The Company allows participants to exchange notes for
the purchase of shares of common stock and the exercise of stock options. Notes
received in exchange for common stock have been classified as a reduction of
stockholders' equity. In addition, the Company also provides participants with
notes to cover associated taxes related to the exercise of stock options. Notes
are generally non-recourse and non-interest bearing and have been discounted
using imputed annual interest rates from 5.77% to 6.36%. Such notes are payable
over a ten-year term.
Participants are required to pay, each year, the greater of 10% of the
outstanding amounts or 50% of the after tax amount of any annual bonus received
by them to repay outstanding amounts of the notes. Stockholders' notes
receivable received in exchange for common stock were $2,043,000 and $1,469,000
as of December 31, 1996 and 1995, respectively. Notes receivable--stockholders
related to advances to associates for payment of taxes associated with stock
option exercises were $454,000 and zero as of December 31, 1996 and 1995,
respectively.
NOTE E--COMMITMENTS AND CONTINGENCIES
The Company leases its office facilities, certain office space and living
accommodations for consultants on short-term projects under operating leases
which expire at various dates through 2002. At December 31, 1996, the Company
was obligated under non-cancelable operating leases with future minimum rentals
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -------------------------------------------------------------------------------------
<S> <C>
1997.............................................................................. $ 1,505
1998.............................................................................. 1,620
1999.............................................................................. 1,297
2000.............................................................................. 969
2001.............................................................................. 1,259
---------
$ 6,650
---------
---------
</TABLE>
Rent expense aggregated $1,703,000, $1,241,000 and $789,000 for the years
ended December 31, 1996, 1995, 1994, respectively.
LINE OF CREDIT
The Company has a $3,000,000 revolving line of credit available through
December 31, 1997, at the bank's prevailing prime rate plus 0.5%. There was no
balance outstanding on this line of credit at December 31, 1996 and 1995.
Borrowings on the line are collaterized by all of the Company's deposit
accounts, accounts receivable and equipment. Under the line of credit agreement,
the Company is required to maintain certain compensating balances and selected
financial ratios.
LITIGATION
The Company is involved in various legal actions arising in the normal
course of business. Management is of the opinion that the outcome of these
matters will not have a material adverse effect on the Company's financial
position or results of operation.
F-12
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F--STOCK OPTIONS
A summary of stock option transactions is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE OPTIONS
PER SHARE OUTSTANDING
----------------- -----------
<S> <C> <C>
Balance at January 1, 1994........................................................ $ 0.69 40,000
Options granted................................................................. 2.11 12,112
Options exercised............................................................... 1.22 (32,112)
Options canceled................................................................ 0.69 (20,000)
-----------
Balance at December 31, 1994...................................................... -- --
Options granted................................................................. 2.28 319,860
Options exercised............................................................... 2.28 (183,252)
-----------
Balance at December 31, 1995...................................................... 2.28 136,608
Options granted................................................................. 4.52 91,542
Options exercised............................................................... 3.75 (48,482)
Options canceled................................................................ 2.28 (5,556)
-----------
Balance at December 31, 1996...................................................... 3.05 174,112
Options granted (unaudited)..................................................... 16.79 222,794
Options excercised (unaudited).................................................. 4.58 205,606
-----------
Balance at September 30, 1997 (unaudited)......................................... $ 17.34 191,300
-----------
-----------
</TABLE>
All options outstanding at December 31, 1996, 1995 and 1994, are
exercisable. As of December 31, 1996, option prices ranged from $2.28 to $4.52
and had a weighted-average remaining contractual life of 4.3 years.
Adjusted pro forma information regarding net income is required by FAS 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using the "minimal value" method for
option pricing with the following weighted-average assumptions: risk-free
interest rate of 6%; dividend yield of 0%; and a weighted-average expected life
of the option of two years. For purposes of adjusted pro forma disclosures, the
estimated fair value of the options is not materially different from the
intrinsic value of the options. As such, the pro forma impact on reported
results for the years ended December 1996 and 1995 was not significant and has
not been presented herein. The weighted-average fair value of options granted
during the year ended December 31, 1996 and 1995 was $11.16 and $4.50,
respectively.
For the year ended December 31, 1996, 1995 and 1994, compensation expense
recognized in income for stock-based employee compensation related to the grant
of options was $215,000, $385,000, and zero, respectively.
NOTE G--PROFIT-SHARING PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
PROFIT-SHARING PLAN
The Company had a discretionary profit-sharing plan covering substantially
all employees. Contributions are determined by the Board of Directors and are
limited to the maximum amount deductible for federal income tax purposes.
Discretionary contributions to the profit-sharing plan were $150,000 and
$100,000 for the years
F-13
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G--PROFIT-SHARING PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(CONTINUED)
ended December 31, 1995 and 1994, respectively. Effective January 1, 1996, this
plan was merged into the ASOP (see Note I).
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company established a Supplemental Executive Retirement Plan ("SERP")
for vice president stockholders of the Company for the purpose of providing
supplemental retirement benefits and pre-retirement death benefits to officers
of the Company and their beneficiaries. These benefits are provided in
consideration of services rendered to the Company and as an inducement for
continued services. Company contributions are discretionary, and it is
anticipated they will be made on an annual basis in amounts determined by the
Company's Board of Directors. The SERP contains vesting schedules for Company
contributions, while all participant contributions to the SERP are 100% vested.
SERP assets are available to satisfy the Company's general creditors and,
therefore, are accounted for as assets of the Company in an Executive Benefit
Trust account. Company contributions to the SERP were $372,000, $301,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
The contributions to the SERP are invested by the Company in Variable Life
Insurance Contracts. Management believes that the participants' account balance,
cash surrender value of life insurance and death benefits will be sufficient to
satisfy the Company's obligations under the SERP.
NOTE H--STOCK INCENTIVE AGREEMENTS
AMENDED AND RESTATED RESTRICTED STOCK BONUS AGREEMENTS
Effective October 1, 1996, the Company executed and adopted Amended and
Restated Restricted Stock Bonus Agreements ("RSAs"). All vice president
stockholders, including the Company's principal stockholder, became parties to
the RSAs. The principal terms of the RSAs require these vice presidents to
purchase shares of the Company's Common Stock with a fair market value equal to,
at a minimum, one or two times their annual salary.
The Company routinely makes non-recourse loans to these vice presidents to
finance the purchase of the required shares of the Company's Common Stock. The
balance of any notes related to the purchase of shares of the Company's Common
Stock has been recorded as a reduction of stockholders' equity (see Note D).
The Company has agreed to repurchase shares of the Company's Common Stock
purchased by vice presidents of the Company under either its RSAs or its
non-statutory stock option agreements. The redemption price to be paid by the
Company is based generally upon a ten year vesting schedule that is based upon
credited years of service as a vice president of the Company. A vice president
receives a combination of the current market value of stock for vested shares,
and the lower of the current market value or the original cost plus a Growth
Factor for unvested shares based upon the vesting schedule. The Growth Factor is
equal to the average interest rate compounded quarterly which the Company pays
to a commercial lending institution in a calendar quarter. In the event the
Company has no borrowings for a particular quarter, then the Growth Factor shall
be the prime rate on the first day of the quarter, as announced in the Wall
Street Journal or if the Wall Street Journal discontinues such announcements,
then it shall be prime rate as announced by Bank of America. The Company has no
obligation to repurchase any shares from the vice president until the officer's
employment is terminated, a vice president is deceased, or until a vice
president is 100% vested (ten years of service as an officer) and/or
F-14
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H--STOCK INCENTIVE AGREEMENTS (CONTINUED)
reaches specified ages, as defined. Until a vice president reaches a specified
age, a vice president may not require the Company to repurchase any shares while
still employed if it reduces a vice president's total shareholdings below the
minimum shareholder requirements.
If the Company is required to purchase shares of stock under the agreement,
in no event shall the Company be obligated to pay in the aggregate, during any
fiscal year, more than 20% of its retained earnings as of the end of the
immediately preceding fiscal year. Additionally, the Company is not obligated to
repurchase stock to the extent that it would violate federal or state laws. The
commitment by the Company to repurchase shares requires the Company to record
the estimated potential future obligation of the Company to repurchase such
securities outside of permanent equity. The complete details of the vesting
requirements, payment terms and rights to purchase additional stock over the
required amounts are contained in the amended and restated stock bonus
agreement.
The Company is in the process of amending its RSAs such that, upon the
effectiveness of the Company's proposed initial public offering, the Company
will no longer be obligated to repurchase shares from stockholders.
The Company maintains life insurance coverage for the purpose of redeeming
stock of its vice president stockholders through the SERP in the event of death
of the vice president (see Note G). For most vice presidents, the insured
benefit is equal to the current market value of the vice president's
shareholdings. The Company is also the beneficiary of a split-dollar life
insurance policy on its principal stockholder that is intended to partially fund
the repurchase of the principal stockholder's stock upon death. The Company also
maintains long-term disability insurance policies on the principal stockholder
to help fund the purchase of stock upon permanent disability of the stockholder.
NON-QUALIFIED STOCK OPTION AGREEMENT
Effective January 1, 1996, and restated January 1, 1997, the Company
executed and adopted a non-qualified stock option agreement for certain
officers. The principal terms of the agreement provide that for each share of
stock purchased at fair market value, the stockholder is granted one exercisable
stock option which allows the stockholder to purchase additional shares at a
price below the fair market value of the Company's Common Stock. During 1996,
91,542 shares were granted under the provisions of the agreement and
stockholders exercised options on 48,482 shares of capital stock.
Effective December 19, 1995, the Company executed and adopted a
non-qualified stock option agreement for certain vice presidents. The principal
terms of the agreement provided that for each share of stock purchased at fair
market value of the Company's Common Stock, the stockholder was granted two
exercisable stock options which allow the stockholder to purchase additional
shares at approximately 20% of the fair market value of the Company's Common
Stock. During 1995, 319,860 stock options were granted under the provisions of
the agreement and vice presidents exercised options on 183,252 shares of capital
stock. The agreements also provide that the Company will make non-recourse loans
available for the purchase of stock, the exercise of stock options and
associated taxes (see Note D).
OTHER EQUITY PLANS
Effective August 22, 1997, the Company adopted an equity incentive plan and
non-employee director stock option plan. The principal terms of the equity
incentive plan allow the Company to grant either stock options,
F-15
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H--STOCK INCENTIVE AGREEMENTS (CONTINUED)
stock bonuses or stock appreciation rights to acquire up to 400,000 shares of
the Company's Common Stock. The stock awards vest over a five year term from the
date of grant. Under the plan, the Company granted employees 149,000 options on
or about August 22, 1997, to purchase the Company's Common Stock at an exercise
price equal to the market price of the Company's Common Stock on the date of
grant. As of September 30, 1997, none of these options had been exercised. The
Company had no stock appreciation rights issued or outstanding as of September
30, 1997.
The non-employee directors stock option plan allows the Company to grant
options under such plan for up to 50,000 shares of the Company's Common Stock.
Under the plan, the Company granted 20,000 options on August 22, 1997, to
purchase the Company's Common Stock at an exercise price equal to the market
price of the Company's Common Stock on date of grant. These options vest over a
five-year term from date of grant.
NOTE I--ASSOCIATE PROFIT SHARING 401(K) SAVINGS AND STOCK OWNERSHIP PLAN
The Company sponsors an ASOP under which eligible employees may choose to
contribute to the ASOP up to 15% of their annual salary subject to certain IRS
limits. The Company may, at its discretion, make a matching contribution at a
percentage of the employee contribution determined by the Company. The matching
percentage amount will be made using the Company's Common Stock. The shares for
this purpose are provided by the Company's leveraged ASOP which covers
substantially all employees. The Company makes contributions to the ASOP equal
to the ASOP's debt service. The ASOP shares initially were pledged as collateral
for the ASOP-related debt. As the debt is repaid, shares are released from
serving as collateral and could be allocated to employees who made 401(k)
contributions that year, based on the proportion of debt service paid in the
year to the total debt service expected on the ASOP debt. The Company accounts
for its ASOP in accordance with Statement of Position 93-6, EMPLOYERS'
ACCOUNTING FOR EMPLOYEE STOCK OWNERSHIP PLANS. Accordingly, the Company reports
in its Statement of Financial Position the debt of the ASOP and unearned ASOP
shares, which is the original cost basis of the ASOP shares pledged as
collateral for the debt. As shares are committed to be released, the Company
credits unearned ASOP shares based on the cost of the shares to the ASOP. The
Company records compensation expense based on the fair market value of the
shares committed to be released. The difference between the fair market value of
shares committed to be released and the cost of those shares to the ASOP is
either charged or credited to shareholders' equity accounts, as applicable.
Compensation expense for the 401(k) match and the ASOP was approximately
$2,501,000 and $1,841,000 for the nine months ended September 30, 1997 and year
ended December 31, 1996, respectively. No compensation expense related to the
ASOP was recognized in 1995 as the ASOP was adopted on December 1, 1995 and none
of the shares had been committed to be released. Prior to the adoption of the
ASOP, the Company sponsored a profit-sharing plan which included a 401(k)
provision with essentially the same provisions as the ASOP. The Company's
matching contributions to the 401(k) provision under the previous profit sharing
plan was $560,000 and $372,000 during 1995 and 1994, respectively.
F-16
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I--ASSOCIATE PROFIT SHARING 401(K) SAVINGS AND STOCK OWNERSHIP PLAN
(CONTINUED)
The ASOP shares were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Allocated shares.................................................. 93,195 --
Unreleased shares................................................. 288,191 357,462
------------ ------------
Total ASOP shares............................................. 381,386 357,462
Fair market value of unreleased shares............................ $ 7,258,000 $ 4,039,000
</TABLE>
Upon the cessation of employment of an employee, the Company pays the
employee the fair market value of the shares of the Company's Common Stock
previously allocated to such employee under the ASOP. The fair market value of
the Company's Common Stock is determined by an independent valuation firm. The
ultimate funding of this obligation rests with the Company. Accordingly, the
Company has recorded the potential future obligation to repurchase such
securities outside of permanent equity (see also Note H). Subsequent to the
Company's closing of its anticipated initial public offering, shares of the
Company's Common Stock held by the ASOP are expected to be tradable on an
established exchange and recording such amounts outside of permanent equity will
no longer be required (see Note A-13).
NOTE J--CONCENTRATION OF CREDIT RISK
The Company maintains its cash balances in a financial institution located
in Long Beach, California. These balances are insured by the Federal Deposit
Insurance Corporation up to $100,000. At December 31, 1996, the Company had
balances in excess of the insured amount of approximately $1,133,000. The
Company has not experienced any losses in such account and believes it is not
exposed to any significant credit risk on its cash and cash equivalents. The
Company has concentrations of credit risk related to accounts receivable and
revenues. At December 31, 1996, accounts receivable associated with five clients
represented approximately 24% of the accounts receivable balance. Also, for the
year ended December 31, 1996, approximately 19% of total net revenue was
attributable to five clients. In 1994, one customer accounted for 11% of total
net revenue.
NOTE K--SUBSEQUENT EVENT (UNAUDITED)
In consideration for employees allowing the Company to make a plan
modification to the current ASOP plan, the Company has committed to release 250
shares of the Company's Common Stock to each participant in the ASOP as of
November 26, 1997 (143,250 shares in the aggregate). This commitment will result
in a charge to compensation expense of approximately $5.0 million in the fourth
quarter of 1997. The committed shares will be held in suspense and will be
released to participant accounts as debt service payments are made in the future
and to the extent that shares distributed to an individual do not exceed certain
Internal Revenue Service limitations.
F-17
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................................... 3
Risk Factors......................................... 5
Special Note Regarding Forward-Looking Statements.... 11
Use of Proceeds...................................... 12
Dividend Policy...................................... 12
Capitalization....................................... 13
Dilution............................................. 14
Selected Consolidated Financial Data................. 15
Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 16
Business............................................. 22
Management........................................... 32
Certain Transactions................................. 42
Principal and Selling Stockholders................... 43
Description Of Capital Stock......................... 47
Shares Eligible For Future Sale...................... 48
Underwriting......................................... 50
Legal Matters........................................ 51
Experts.............................................. 51
Additional Information............................... 51
Index To Financial Statements........................ F-1
</TABLE>
--------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
--------------
HAMBRECHT & QUIST
BANCAMERICA ROBERTSON STEPHENS
UBS SECURITIES
, 1998
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the distribution of the Common Stock being registered. All amounts are
estimated, except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq
National Market Filing Fee:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee...................................................................
NASD Filing Fee........................................................................
Nasdaq National Market Filing Fee......................................................
Blue Sky Fees and Expenses.............................................................
Accounting Fees........................................................................
Legal Fees and Expenses................................................................
Transfer Agent and Registrar Fees......................................................
Printing and Engraving.................................................................
Miscellaneous..........................................................................
---
Total.............................................................................. $ *
---
---
</TABLE>
- ------------------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation provides that directors of the
Registrant shall not be personally liable to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, to the fullest
extent permitted by the Delaware General Corporation Law. The Registrant's
Bylaws provide for indemnification of officers and directors to the full extent
and in the manner permitted by Delaware law. Section 145 of the Delaware General
Corporation Law makes provision for such indemnification in terms sufficiently
broad to cover officers and directors under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act").
The Registrant intends to enter into indemnification agreements with each
director and certain officers which provide indemnification under certain
circumstances for acts and omissions which may not be covered by any directors'
and officers' liability insurance.
The form of Underwriting Agreement, filed as Exhibit 1.1 to the Registration
Statement, provides for indemnification of the Registrant and its controlling
persons against certain liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since September 30, 1994, the Company has sold and issued the following
unregistered securities:
(1) From January 1, 1994 to December 31, 1994, the Company issued 159,016
shares of Common Stock to officers of the Company. During this time, officers
exercised options to purchase 32,112 shares of Common Stock at a weighted
average exercise price of $1.22 per share.
(2) On December 14, 1995, the Company issued 357,462 shares of Common Stock
to the Associate Profit Sharing and 401(k) Stock Ownership Plan at a price of
$11.19 per share.
(3) From January 1, 1995 to December 31, 1995, the Company issued 159,930
shares of Common Stock to officers of the Company at a price of $11.19 per share
and 13,200 shares of Common Stock to officers of the
II-1
<PAGE>
Company at a price of $2.28 per share. During this time, officers exercised
options to purchase 183,252 shares of Common Stock at a weighted average price
of $2.28 per share.
(4) From January 1, 1996 to December 31, 1996, the Company issued 91,542
shares of Common Stock to officers of the Company at a price of $11.30 per
share. During this time, officers exercised options to purchase 48,482 shares of
Common Stock at a weighted average exercise price of $3.75 per share.
(5) From January 1, 1997 to September 30, 1997, the Company issued 55,894
shares of Common Stock to officers of the Company at a price of $19.03 per
share. During this time, officers exercised options to purchase 205,606 shares
of Common Stock at a weighted average exercise price of $4.58 per share.
The sales and issuances of securities in the transactions described in
paragraphs (4) and (5) and the exercise of stock options referred to in
paragraphs (1) and (3) above were deemed to be exempt from registration under
the Securities Act by virtue of Rule 701 promulgated thereunder in that they
were offered and sold either pursuant to a written compensatory benefit plan or
pursuant to a written contract relating to compensation, as provided by Rule
701.
The sales and issuances of securities in the transactions described in
paragraphs (1) through (3) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2). The purchasers in each case
represented their intention to acquire the securities for investment only and
not with a view to the distribution thereof. Appropriate legends are affixed to
the stock certificates issued in such transactions. Similar legends were imposed
in connection with any subsequent sales of any such securities. All recipients
either received adequate information about the Registrant or had access, through
employment or other relationships, to such information.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
1.1+ Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.3 Bylaws of the Registrant.
4.1+ Specimen Common Stock Certificate.
5.1+ Opinion of Cooley Godward LLP.
10.1 1997 Equity Incentive Plan.
10.1.1 Form of Incentive Stock Option between the Registrant and its employees, directors, and consultants.
10.1.2 Form of Non-Statutory Stock Option between the Registrant and its employees, directors, and consultants.
10.1.3 Form of Non-Statutory Stock Option (United Kingdom) between the Registrant and its United Kingdom
resident employees, directors, and consultants.
10.1.4 Form of 1997 Equity Incentive Plan Notice of Exercise between the Registrant and its employees,
directors, and consultants.
10.2 1997 Non-Employee Directors' Stock Option Plan.
10.2.1 Form of Non-Statutory Stock Option (Initial Option-Continuing Non-Employee Directors) between the
Registrant its continuing non-employee directors.
10.2.2 Form of Non-Statutory Stock Option (Initial Option-New Non-Employee Directors) between the Registrant
and its non-employee directors.
10.2.3 Form of Non-Statutory Stock Option (Annual Option) between the Registrant and its non-employee
directors.
10.2.4 Form of 1997 Non-Employee Directors' Stock Option Plan Notice of Exercise between the Registrant and its
non-employee directors.
10.3+ 1994 Restricted Stock Plan, as amended.
10.3.1+ Form of Amended and Restated Restricted Stock Agreement between the Registrant and its executive
officers.
10.3.2 Form of Loan and Pledge Agreement between the Registrant and its vice presidents.
10.3.3 Form of Secured Promissory Note (Non-Recourse) between the Registrant and its vice presidents.
10.4+ Associate Profit Sharing 401(k) and Stock Ownership Plan, as amended.
10.5+ 1997 Non-Employee Director Restricted Stock Plan.
10.5.1+ Form of Restricted Stock Agreement between the Registrant and its non-employee directors.
10.6 Supplemental Executive Retirement Plan.
10.7 Form of Indemnity Agreement between the Registrant and its directors and executive officers.
10.8 Lease, dated as of October 3, 1996, between the Registrant and Landmark Square Associates, L.P. for the
Registrant's principal executive offices in Long Beach, CA.
10.9 Credit Agreement between the Registrant and Wells Fargo Bank, dated July 3, 1996.
11.1 Statement re computation of per share earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Grant Thornton LLP, Certified Public Accountants.
23.2+ Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
+ To be filed by amendment.
II-3
<PAGE>
(b) Financial Statement Schedules
Schedules are omitted because they are not applicable, or because the
information is included in the Financial Statements or the Notes thereto.
ITEM 17. UNDERTAKINGS
A. The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 above, 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 of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
C. The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, First Consulting
Group, Inc. has duly caused this Registration Statement to be signed on its
behalf, by the undersigned, thereunto duly authorized, in the City of Long
Beach, County of Los Angeles, State of California, on November 26, 1997.
<TABLE>
<S> <C> <C>
FIRST CONSULTING GROUP, INC.
By: /s/ JAMES A. REEP
-----------------------------------------
James A. Reep
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND
PRESIDENT
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Luther J. Nussbaum and Thomas A. Reep, and each
of them, his attorneys-in-fact, each with the power of 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 to sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto in all
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 in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that such attorneys-in-fact and agents or any of them, or his 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 by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------- ---------------------------- ------------------
<C> <C> <S> <C>
/s/ JAMES A. REEP Chairman, Chief Executive
- ---------------------------------- Officer and President
James A. Reep (PRINCIPAL EXECUTIVE November 26, 1997
OFFICER)
/s/ THOMAS A. REEP Chief Financial Officer and
- ---------------------------------- Vice President (PRINCIPAL
Thomas A. Reep FINANCIAL AND ACCOUNTING November 26, 1997
OFFICER)
/s/ STEVEN HECK
- ---------------------------------- Director November 26, 1997
Steven Heck
/s/ STEVEN LAZARUS
- ---------------------------------- Director November 26, 1997
Steven Lazarus
/s/ STANLEY R. NELSON
- ---------------------------------- Director November 26, 1997
Stanley R. Nelson
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------- ---------------------------- ------------------
<C> <C> <S> <C>
/s/ LUTHER J. NUSSBAUM
- ---------------------------------- Director November 26, 1997
Luther J. Nussbaum
/s/ STEPHEN E. OLSON
- ---------------------------------- Director November 26, 1997
Stephen E. Olson
/s/ SCOTT S. PARKER
- ---------------------------------- Director November 26, 1997
Scott S. Parker
/s/ JACK O. VANCE
- ---------------------------------- Director November 26, 1997
Jack O. Vance
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1+ Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.3 Bylaws of the Registrant.
4.1+ Specimen Common Stock Certificate.
5.1+ Opinion of Cooley Godward LLP.
10.1 1997 Equity Incentive Plan.
10.1.1 Form of Incentive Stock Option between the Registrant and its employees, directors, and consultants.
10.1.2 Form of Non-Statutory Stock Option between the Registrant and its employees, directors, and consultants.
10.1.3 Form of Non-Statutory Stock Option (United Kingdom) between the Registrant and its United Kingdom
resident employees, directors, and consultants.
10.1.4 Form of 1997 Equity Incentive Plan Notice of Exercise between the Registrant and its employees,
directors, and consultants.
10.2 1997 Non-Employee Directors' Stock Option Plan.
10.2.1 Form of Non-Statutory Stock Option (Initial Option-Continuing Non-Employee Directors) between the
Registrant its continuing non-employee directors.
10.2.2 Form of Non-Statutory Stock Option (Initial Option-New Non-Employee Directors) between the Registrant
and its non-employee directors.
10.2.3 Form of Non-Statutory Stock Option (Annual Option) between the Registrant and its non-employee
directors.
10.2.4 Form of 1997 Non-Employee Directors' Stock Option Plan Notice of Exercise between the Registrant and its
non-employee directors.
10.3+ 1994 Restricted Stock Plan, as amended.
10.3.1+ Form of Amended and Restated Restricted Stock Agreement between the Registrant and its executive
officers.
10.3.2 Form of Loan and Pledge Agreement between the Registrant and its vice presidents.
10.3.3 Form of Secured Promissory Note (Non-Recourse) between the Registrant and its vice presidents.
10.4+ Associate Profit Sharing 401(k) and Stock Ownership Plan, as amended.
10.5+ 1997 Non-Employee Director Restricted Stock Plan.
10.5.1+ Form of Restricted Stock Agreement between the Registrant and its non-employee directors.
10.6 Supplemental Executive Retirement Plan.
10.7 Form of Indemnity Agreement between the Registrant and its directors and executive officers.
10.8 Lease, dated as of October 3, 1996, between the Registrant and Landmark Square Associates, L.P. for the
Registrant's principal executive offices in Long Beach, CA.
10.9 Credit Agreement between the Registrant and Wells Fargo Bank, dated July 3, 1996.
11.1 Statement re computation of per share earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Grant Thornton LLP, Certified Public Accountants.
23.2+ Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
+ To be filed by amendment.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
FIRST CONSULTING GROUP, INC.
First Consulting Group, Inc., a corporation organized under and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify:
I
The name of the corporation is:
First Consulting Group, Inc.
II
The address, including street, number, city, and county, of the registered
office of the corporation in the State of Delaware is 1013 Centre Road, City of
Wilmington, County of New Castle, and the name of the registered agent of the
corporation in the State of Delaware at such address is Corporation Service
Company.
III
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the Delaware General Corporation
Law.
IV
The Corporation is authorized to issue two classes of stock, which shall
respectively be designated as "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is sixty million
(60,000,000) shares, fifty million (50,000,000) shares of which shall be Common
Stock and ten million (10,000,000) shares of which shall be Preferred Stock.
The Common Stock and the Preferred Stock each shall have a par value of one
tenth of one cent ($.001) per share.
The Board of Directors is authorized to provide by resolution or
resolutions for the issuance of shares of stock of any class or of any series of
any class at any time and from time to time and, by filing a Certificate of
Designation in the manner prescribed under the laws of the State of Delaware, to
fix and amend the voting powers, full or limited, or no voting powers, and the
designations, preferences and relative, participating, optional or other special
rights, if any, and qualifications, limitations or restrictions thereof. Unless
otherwise provided in any such resolution or resolutions, the number of shares
of stock of any such series to which such resolution or resolutions apply may be
increased (but not above the total number of authorized shares of the class) or
decreased (but not below the number of shares thereof then outstanding)
1.
<PAGE>
by filing a Certificate of Designation in the manner prescribed under the laws
of the State of Delaware. In case the number of shares of any series shall be
decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
Shares of Common Stock and Preferred Stock may be issued from time to time
as the Board of Directors of the corporation shall determine and on such terms
and for such consideration as shall be fixed by the Board of Directors.
No holder of any shares of stock of the Corporation of any class shall be
entitled as such, as a matter of right, to subscribe for or purchase any shares
of stock of the Corporation of any class, whether now or hereafter authorized or
whether issued for cash, property or services or as a dividend or otherwise, or
to subscribe for or purchase any obligations, bonds, notes, debentures, other
securities or stock convertible into shares of stock of the Corporation of any
class or carrying or evidencing any right to purchase shares of stock of any
class.
Except as may be required by law, each holder of Common Stock shall have
one vote in respect of each share of Common Stock held by such person on all
matters voted upon by the stockholders.
V
(A) For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
1. The management of the business and the conduct of the affairs of
the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. A majority of the whole Board of Directors shall constitute a
quorum for the transaction of business, and, except as otherwise provided in
this Certificate of Incorporation or the Bylaws, the vote of a majority of the
directors present at a meeting at which a quorum is then present shall be the
act of the Board. As used in this Certificate of Incorporation, the terms
"whole Board" and "whole Board of Directors" are hereby exclusively defined and
limited to mean the total number of directors which the Corporation would have
if the Board had no vacancies.
3. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of the initial public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock to the public (the "Initial Public Offering"), the
directors shall be divided into three classes (to be designated as Class I,
Class II
2.
<PAGE>
and Class III, respectively), as nearly equal in number as the then total number
of Directors constituting the whole Board of Directors permits, with the terms
of office of one class expiring each year. Notwithstanding the foregoing, and
except as otherwise required by law, whenever the holders of any one or more
series of Preferred Stock shall have the right, voting separately as a class, to
elect one or more Directors of the Corporation, the terms of the Director or
Directors elected by such holders shall expire at the next succeeding annual
meeting of stockholders. Subject to the foregoing, at each annual meeting of
stockholders the successors to the class of directors whose term shall then
expire shall be elected to hold office for a term expiring at the third
succeeding annual meeting. Notwithstanding the foregoing, each director shall
serve until his successor shall have been duly elected and qualified, unless he
or she shall resign, become disqualified, disabled or shall otherwise be
removed. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
4. Subject to the rights of the holders of any series of Preferred
Stock, and notwithstanding the fact that some lesser percentage may be specified
by law, this Certificate of Incorporation or the Bylaws, the Board of Directors
or any individual director may be removed from office at any time (i) with cause
by the affirmative vote of the holders of a majority of the voting power of all
the then-outstanding shares of voting stock of the Corporation, entitled to vote
at an election of directors (the "Voting Stock") or (ii) without cause by the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all the then-outstanding shares of the Voting
Stock. As used in this Certificate of Incorporation, the term "with cause" is
hereby exclusively defined and limited to mean commission of a felony or a
finding by a court of competent jurisdiction of liability for negligence, or
misconduct, in the performance of the director's duty to the Corporation in a
matter of substantial importance to the Corporation, where such adjudication is
no longer subject to direct appeal.
5. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
(B) 1. Subject to paragraph (h) of Section 43 of the Bylaws, and
notwithstanding the fact that some lesser percentage may be specified law, the
Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote
of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of
all of the then-outstanding shares of the Voting Stock. The Board of Directors
shall also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
3.
<PAGE>
3. No action shall be taken by the stockholders of the Corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws, and following the closing of the Initial Public Offering, no action
shall be taken by the stockholders by written consent.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
5. Special meetings of the stockholders of the Corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the President, (iii) the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board of Directors for
adoption) or (iv) by the holders of the shares entitled to cast not less that
ten percent (10%) of the votes at the meeting, and shall be held at such place,
on such date, and at such time as the Board of Directors shall fix.
VI
(A) The Corporation may agree to the terms and conditions upon which any
director, officer, employee or agent accepts his office or position and in its
Bylaws, by contract or in any other manner may agree to indemnify and protect
any director, officer, employee or agent of the Corporation, or any person who
serves at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint ventures, trust, employee
benefit plan or other enterprise, to the fullest extent permitted by the laws
(including, without limitation, the statutes, case law and principles of equity)
of the State of Delaware. If the laws (including, without limitation, the
statutes, case law or principles of equity, as the case may be) of the State of
Delaware are amended or changed to permit or authorize broader rights of
indemnification to any of the persons referred to in the immediately preceding
sentence, then the Corporation shall be automatically authorized to agree to
indemnify such respective persons to the fullest extent permitted or authorized
by such law, as so amended or changed, without the need for amendment or
modification of this Article VI and without further action by the directors or
stockholders of the Corporation.
(B) A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
4.
<PAGE>
(C) Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII
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
any receivers appointed for this Corporation under the provisions of Section 291
of Title 8 of the Delaware Code or on the application of trustees in dissolution
or of nay receiver or receivers appointed for this Corporation under the
provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths 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 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, or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
VIII
(A) The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VIII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
(B) Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI,
and VIII.
5.
<PAGE>
IX
The name and mailing address of the incorporator is as follows:
Cooley Godward LLP
Gordon K. Ho
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
IN WITNESS WHEREOF, the undersigned Sole Incorporator has hereunto set her
hand this 25 of November, 1997.
---------------------------------------
Gordon K. Ho
Sole Incorporator
6.
<PAGE>
BYLAWS
OF
FIRST CONSULTING GROUP, INC.
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I OFFICES......................................................... 1
Section 1. Registered Office........................................ 1
Section 2. Other Offices............................................ 1
ARTICLE II CORPORATE SEAL.................................................. 1
Section 3. Corporate Seal........................................... 1
ARTICLE III STOCKHOLDERS' MEETINGS.......................................... 1
Section 4. Place of Meetings........................................ 1
Section 5. Annual Meeting........................................... 2
Section 6. Special Meetings......................................... 3
Section 7. Notice of Meetings....................................... 4
Section 8. Quorum................................................... 4
Section 9. Adjournment and Notice of Adjourned Meetings............. 5
Section 10. Voting Rights............................................ 5
Section 11. Joint Owners of Stock.................................... 5
Section 12. List of Stockholders..................................... 5
Section 13. Action Without Meeting................................... 6
Section 14. Organization............................................. 6
ARTICLE IV DIRECTORS....................................................... 7
Section 15. Number and Term of Office................................ 7
Section 16. Powers................................................... 7
Section 17. Classes of Directors..................................... 7
Section 18. Vacancies................................................ 7
Section 19. Resignation.............................................. 8
Section 20. Removal.................................................. 8
Section 21. Meetings................................................. 8
(a) Annual Meetings.......................................... 8
(b) Regular Meetings......................................... 8
(c) Special Meetings......................................... 8
(d) Telephone Meetings....................................... 8
(e) Notice of Meetings....................................... 9
(f) Waiver of Notice......................................... 9
Section 22. Quorum and Voting........................................ 9
Section 23. Action Without Meeting................................... 9
Section 24. Fees and Compensation.................................... 10
Section 25. Committees............................................... 10
(a) Executive Committee...................................... 10
(b) Other Committees......................................... 10
(c) Term..................................................... 10
(d) Meetings................................................. 11
i.
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TABLE OF CONTENTS
(CONTINUED)
PAGE
Section 26. Organization............................................. 11
ARTICLE V OFFICERS........................................................ 11
Section 27. Officers Designated...................................... 11
Section 28. Tenure and Duties of Officers............................ 12
(a) General.................................................. 12
(b) Duties of Chairman of the Board of Directors............. 12
(c) Duties of Chief Executive Officer........................ 12
(d) Duties of President...................................... 12
(e) Duties of Vice Presidents................................ 12
(f) Duties of Secretary...................................... 12
(g) Duties of Chief Financial Officer........................ 13
Section 29. Delegation of Authority.................................. 13
Section 30. Resignations............................................. 13
Section 31. Removal.................................................. 13
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION................................................ 14
Section 32. Execution of Corporate Instruments....................... 14
Section 33. Voting of Securities Owned by the Corporation............ 14
ARTICLE VII SHARES OF STOCK................................................. 14
Section 34. Form and Execution of Certificates....................... 14
Section 35. Lost Certificates........................................ 15
Section 36. Transfers................................................ 15
Section 37. Fixing Record Dates...................................... 15
Section 38. Registered Stockholders.................................. 16
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION............................ 17
Section 39. Execution of Other Securities............................ 17
ARTICLE IX DIVIDENDS....................................................... 17
Section 40. Declaration of Dividends................................. 17
Section 41. Dividend Reserve......................................... 17
ARTICLE X FISCAL YEAR..................................................... 18
Section 42. Fiscal Year.............................................. 18
ARTICLE XI INDEMNIFICATION................................................. 18
ii.
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TABLE OF CONTENTS
(CONTINUED)
PAGE
Section 43. Indemnification of Directors, Executive Officers, Other
Officers, Employees and Other Agents..................... 18
(a) Directors and Officers................................... 18
(b) Employees and Other Agents............................... 18
(c) Expenses................................................. 18
(d) Enforcement.............................................. 19
(e) Non-Exclusivity of Rights................................ 19
(f) Survival of Rights....................................... 20
(g) Insurance................................................ 20
(h) Amendments............................................... 20
(i) Saving Clause............................................ 20
(j) Certain Definitions...................................... 20
ARTICLE XII NOTICES......................................................... 21
Section 44. Notices.................................................. 21
(a) Notice to Stockholders................................... 21
(b) Notice to Directors...................................... 21
(c) Affidavit of Mailing..................................... 21
(d) Time Notices Deemed Given................................ 21
(e) Methods of Notice........................................ 22
(f) Failure to Receive Notice................................ 22
(g) Notice to Person with Whom Communication Is Unlawful..... 22
(h) Notice to Person with Undeliverable Address.............. 22
ARTICLE XIII AMENDMENTS..................................................... 23
Section 45. Amendments............................................... 23
ARTICLE XIV LOANS TO OFFICERS............................................... 23
Section 46. Loans to Officers........................................ 23
ARTICLE XV MISCELLANEOUS................................................... 23
Section 47. Annual Report............................................ 23
iii.
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BYLAWS
OF
FIRST CONSULTING GROUP, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
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SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation, for
the purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To
be properly brought before an annual meeting, business must be: (A) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (B) otherwise properly brought before the
meeting by or at the direction of the Board of Directors, or (C) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation not later than the close
of business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; PROVIDED, HOWEVER, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
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(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 5. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other 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 1934 Act (including without limitation such person's written consent
to being named in the proxy statement, if any, as a nominee and to serving as a
director if elected); and (ii) as to such stockholder giving notice, the
information required to be provided pursuant to paragraph (b) of this Section 5.
At the request of the Board of Directors, any person nominated by a stockholder
for election as a director shall furnish to the Secretary of the corporation
that information required to be set forth in the stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated in accordance with
the procedures set forth in this paragraph (c). The chairman of the meeting
shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "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.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption) or (iv) by the holders of shares entitled to cast not
less than ten percent (10%) of the votes at the meeting, and shall be held at
such place, on such date, and at such time as the Board of Directors, shall fix.
3.
<PAGE>
(b) If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
general nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these Bylaws. If the notice is not given within
sixty (60) days after the receipt of the request, the person or persons
requesting the meeting may set the time and place of the meeting and give the
notice. Nothing contained in this paragraph (b) shall be construed as limiting,
fixing, or affecting the time when a meeting of stockholders called by action of
the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a 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. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, either
by the chairman of the meeting or by vote of the holders of a majority of the
shares represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, all action taken by the holders of a majority of the vote cast,
excluding abstentions, at any meeting at which a quorum is present shall be
valid and binding upon the corporation; PROVIDED, HOWEVER, that directors shall
be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. Where a separate vote by a class or classes or series is required,
except where otherwise provided by the statute or by the Certificate of
Incorporation or these Bylaws, a majority of the outstanding shares of such
class or classes or series, present in person or represented by proxy, shall
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constitute a quorum entitled to take action with respect to that vote on that
matter and, except where otherwise provided by the statute or by the Certificate
of Incorporation or these Bylaws, the affirmative vote of the majority
(plurality, in the case of the election of directors) of the votes cast,
including abstentions, by the holders of shares of such class or classes or
series shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting
of stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. 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, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents (if such consents are allowed
pursuant to these Bylaws) shall have the right to do so either in person or by
an agent or agents authorized by a proxy granted in accordance with Delaware
law. An agent so appointed need not be a stockholder. No proxy shall be voted
after three (3) years from its date of creation unless the proxy provides for a
longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, 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
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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 specified, at the
place where the meeting is to be held. The list shall be produced and kept at
the time and place of meeting during the whole time thereof and may be inspected
by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of Incorporation,
any action required by statute to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of the State of Delaware if such
action had been voted on by stockholders at a meeting thereof, then the
certificate filed under such section shall state, in lieu of any statement
required by such section concerning any vote of stockholders, that written
notice and written consent have been given as provided in Section 228 of the
General Corporation Law of Delaware.
(d) Notwithstanding the foregoing, no such action by written consent
may be taken following the closing of the initial public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "1933 Act"), covering the offer and sale of Common Stock of the corporation
(the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the Chief
Executive Officer, or, if the Chief Executive Officer is absent, a chairman of
the meeting chosen by a majority in interest of the stockholders entitled to
vote, present in person or by proxy, shall act as chairman. The
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Secretary, or, in his absence, an Assistant Secretary directed to do so by the
Chairman, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. CLASSES OF DIRECTORS. Subject to the rights of the holders
of any series of Preferred Stock to elect additional directors under specified
circumstances, following the closing of the Initial Public Offering, the
directors shall be divided into three classes in accordance with the provisions
of the Certificate of Incorporation.
SECTION 18. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall
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hold office for the remainder of the full term of the director for which the
vacancy was created or occurred and until such director's successor shall have
been elected and qualified. A vacancy in the Board of Directors shall be deemed
to exist under this Bylaw in the case of the death, removal or resignation of
any director.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When
one or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. REMOVAL. Subject to the rights of the holders of any series
of Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all the then-outstanding shares of the Voting Stock.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the Chief Executive Officer or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar
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communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by such means shall
constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
facsimile, telegraph or telex, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director 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.
(f) WAIVER OF NOTICE. The transaction of all business at any meeting
of the Board of Directors, or any committee thereof, however called or noticed,
or wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater number
and except with respect to indemnification questions arising under Section 43
hereof, for which a quorum shall be one-third of the exact number of directors
fixed from time to time in accordance with the Certificate of Incorporation, a
quorum of the Board of Directors shall consist of a majority of the exact number
of directors fixed from time to time by the Board of Directors in accordance
with the Certificate of Incorporation; PROVIDED, HOWEVER, at any meeting whether
a quorum be present or otherwise, a majority of the directors present may
adjourn from time to time until the time fixed for the next regular meeting of
the Board of Directors, without notice other than by announcement at the
meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
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SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and provided in the
resolution of the Board of Directors shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, including without limitation the power or authority
to declare a dividend, to authorize the issuance of stock and to adopt a
certificate of ownership and merger, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall such committee have the powers denied to the Executive Committee
in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors shall
serve a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to the provisions of subsections (a)
or (b) of this Bylaw may at any time increase or decrease the number of members
of a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the
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Board of Directors may fill any committee vacancy created by death, resignation,
removal or increase in the number of members of the committee. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of
any committee may be waived in writing at any time before or after the meeting
and will be waived by any director by attendance thereat, except when the
director attends such special 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. A majority of the authorized number
of members of any such committee shall constitute a quorum for the transaction
of business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the Chief Executive Officer, or if the Chief Executive Officer is
absent, the President, or, in the absence of any such officer, a chairman of the
meeting chosen by a majority of the directors present, shall preside over the
meeting. The Secretary, or in his absence, an Assistant Secretary directed to
do so by the Chief Executive Officer, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one
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person may hold any number of offices of the corporation at any one time unless
specifically prohibited therefrom by law. The salaries and other compensation
of the officers of the corporation shall be fixed by or in the manner designated
by the Board of Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time.
(c) DUTIES OF CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall preside at all meetings of the stockholders and at all meetings of the
Board of Directors, unless the Chairman of the Board of Directors has been
appointed and is present. The Chief Executive Officer shall, subject to the
control of the Board of Directors, have general supervision, direction and
control of the business and officers of the corporation. The Chief Executive
Officer shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
(d) DUTIES OF PRESIDENT. The President may assume and perform the
duties of the Chief Executive Officer in the absence or disability of the Chief
Executive Officer or whenever the office of Chief Executive Officer is vacant.
The President shall perform other duties commonly incident to his office and
shall also perform such other duties and have such other powers as the Board of
Directors or the Chief Executive Officer shall designate from time to time.
(e) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors,
the Chief Executive Officer or the President shall designate from time to time.
(f) DUTIES OF SECRETARY. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other
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duties and have such other powers as the Board of Directors shall designate from
time to time. The Chief Executive Officer may direct any Assistant Secretary to
assume and perform the duties of the Secretary in the absence or disability of
the Secretary, and each Assistant Secretary shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the Chief Executive Officer shall
designate from time to time.
(g) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the Chief Executive Officer. The Chief Financial Officer, subject
to the order of the Board of Directors, shall have the custody of all funds and
securities of the corporation. The Chief Financial Officer shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the Chief Executive
Officer shall designate from time to time. The Chief Executive Officer may
direct the Treasurer or any Assistant Treasurer, or the Controller or any
Assistant Controller to assume and perform the duties of the Chief Financial
Officer in the absence or disability of the Chief Financial Officer, and each
Treasurer and Assistant Treasurer and each Controller and Assistant Controller
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
or the Chief Executive Officer shall designate from time to time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the Chief Executive Officer or to
the Secretary. Any such resignation shall be effective when received by the
person or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
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ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. 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 of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or
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Assistant Secretary, certifying the number of shares owned by him in the
corporation. Any or all of the signatures on the certificate may be facsimiles.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue. Each certificate shall state upon the face
or back thereof, in full or in summary, all of the powers, designations,
preferences, and rights, and the limitations or restrictions of the shares
authorized to be issued or shall, except as otherwise required by law, set forth
on the face or back a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights. Within a reasonable time after the issuance or
transfer of uncertificated stock, the corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to this section or otherwise required
by law or with respect to this section a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
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. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall
be made only upon its books by the holders thereof, in person or by attorney
duly authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of
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Directors may fix, in advance, a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which record date shall not be more than sixty (60)
nor less than ten (10) days before the date of such meeting. If no record date
is fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given, or
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; PROVIDED, HOWEVER, that the Board of Directors may
fix a new record date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the corporation
may determine the stockholders entitled to consent to corporate action in
writing without a meeting, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which date shall not be
more than 10 days after the date upon which the resolution fixing the record
date is adopted by the Board of Directors. Any stockholder of record seeking to
have the stockholders authorize or take corporate action by written consent
shall, by written notice to the Secretary, request the Board of Directors to fix
a record date. The Board of Directors shall promptly, but in all events within
10 days after the date on which such a request is received, adopt a resolution
fixing the record date. If no record date has been fixed by the Board of
Directors within 10 days of the date on which such a request is received, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by applicable law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in the State of Delaware,
its principal place of business or an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive
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dividends, and to vote as such owner, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the Chief Executive Officer, the President or any Vice President, or
such other person as may be authorized by the Board of Directors, and the
corporate seal impressed thereon or a facsimile of such seal imprinted thereon
and attested by the signature of the Secretary or an Assistant Secretary, or the
Chief Financial Officer or Treasurer or an Assistant Treasurer; PROVIDED,
HOWEVER, that where any such bond, debenture or other corporate security shall
be authenticated by the manual signature, or where permissible facsimile
signature, of a trustee under an indenture pursuant to which such bond,
debenture or other corporate security shall be issued, the signatures of the
persons signing and attesting the corporate seal on such bond, debenture or
other corporate security may be the imprinted facsimile of the signatures of
such persons. Interest coupons appertaining to any such bond, debenture or
other corporate security, authenticated by a trustee as aforesaid, shall be
signed by the Treasurer or an Assistant Treasurer of the corporation or such
other person as may be authorized by the Board of Directors, or bear imprinted
thereon the facsimile signature of such person. In case any officer who shall
have signed or attested any bond, debenture or other corporate security, or
whose facsimile signature shall appear thereon or on any such interest coupon,
shall have ceased to be such officer before the bond, debenture or other
corporate security so signed or attested shall have been delivered, such bond,
debenture or other corporate security nevertheless may be adopted by the
corporation and issued and delivered as though the person who signed the same or
whose facsimile signature shall have been used thereon had not ceased to be such
officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF 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.
SECTION 41. DIVIDEND RESERVE. 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 Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to
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the interests of the corporation, and the Board of Directors may modify or
abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND OFFICERS. The corporation shall indemnify its
directors and officers to the fullest extent not prohibited by the Delaware
General Corporation Law; PROVIDED, HOWEVER, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
executive officers and, PROVIDED, FURTHER, that the corporation shall not be
required to indemnify any director or officer in connection with any proceeding
(or part thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the corporation, (iii) such indemnification is provided by
the corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law or (iv) such
indemnification is required to be made under subsection (d).
(b) EMPLOYEES AND OTHER AGENTS. The corporation shall have power to
indemnify its employees and other agents as set forth in the Delaware General
Corporation Law.
(c) EXPENSES. The corporation shall advance to any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer, of
the corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, prior to the final disposition of the proceeding, promptly
following request therefor, all expenses incurred by any director or officer in
connection with such proceeding upon receipt of an undertaking by or on behalf
of such person to repay said amounts if it should be determined ultimately that
such person is not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
officer of the corporation (except by reason of the fact that such officer is or
was a director of the corporation in which event this paragraph shall not apply)
in any action, suit or proceeding, whether civil, criminal,
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administrative or investigative, if a determination is reasonably and promptly
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, that the facts known
to the decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of the
corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and officers
and officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or officer. Any right to indemnification or
advances granted by this Bylaw to a director or officer shall be enforceable by
or on behalf of the person holding such right in any court of competent
jurisdiction if (i) the claim for indemnification or advances is denied, in
whole or in part, or (ii) no disposition of such claim is made within ninety
(90) days of request therefor. The claimant in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an officer of the
corporation (except in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such officer is or
was a director of the corporation) for advances, the corporation shall be
entitled to raise a defense as to any such action clear and convincing evidence
that such person acted in bad faith or in a manner that such person did not
believe to be in or not opposed to the best interests of the corporation, or
with respect to any criminal action or proceeding that such person acted without
reasonable cause to believe that his conduct was lawful. 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
action that indemnification of the claimant is proper in the circumstances
because he 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 claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law.
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(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall only
be prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and officer to the full
extent not prohibited by any applicable portion of this Bylaw that shall not
have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(i) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony
in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative.
(ii) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any proceeding.
(iii) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority
to indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Bylaw with
respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had
continued.
20.
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(iv) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer,
employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(v) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted
in a manner "not opposed to the best interests of the corporation" as
referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
21.
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(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action
or meeting which shall be taken or held without notice to any such person with
whom communication is unlawful shall have the same force and effect as if such
notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom
(i) notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such person during
the period between such two consecutive annual meetings, or (ii) all, and at
least two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
22.
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ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the Voting Stock. The
Board of Directors shall also have the power to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing in these Bylaws shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
ARTICLE XV
MISCELLANEOUS
SECTION 47. ANNUAL REPORT.
(a) Subject to the provisions of paragraph (b) of this Bylaw, the
Board of Directors shall cause an annual report to be sent to each stockholder
of the corporation not later than one hundred twenty (120) days after the close
of the corporation's fiscal year. Such report shall include a balance sheet as
of the end of such fiscal year and an income statement and statement of changes
in financial position for such fiscal year, accompanied by any report thereon of
independent accounts or, if there is no such report, the certificate of an
authorized officer of the corporation that such statements were prepared without
audit from the books and records of the corporation. When there are more than
100 stockholders of record of the corporation's shares, as determined by
Section 605 of the California Corporations Code, additional information as
required by Section 1501(b) of the California Corporations Code shall also be
contained in such report, provided that if the corporation has a class of
securities registered under Section 12 of the 1934 Act, that Act shall take
precedence. Such report shall be sent to stockholders at least fifteen (15)
days prior to the next annual meeting of stockholders after the end of the
fiscal year to which it relates.
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(b) If and so long as there are fewer than 100 holders of record of
the corporation's shares, the requirement of sending of an annual report to the
stockholders of the corporation is hereby expressly waived.
24.
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FCG ENTERPRISES, INC.
1997 EQUITY INCENTIVE PLAN
ADOPTED AUGUST 22, 1997
APPROVED BY SHAREHOLDERS ___________, 199___
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees, Directors and Consultants may be given an opportunity to benefit from
increases in value of the common stock of the Company ("Common Stock") through
the granting of (i) Incentive Stock Options, (ii) Nonstatutory Stock Options,
(iii) stock bonuses, (iv) rights to purchase restricted stock and (v) stock
appreciation rights.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants, to secure and retain
the services of new Employees, Directors and Consultants and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof or (iii) stock
appreciation rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
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(e) "COMPANY" means FCG Enterprises, Inc., a California corporation.
(f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 8(b)(2) of the Plan.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means that
the Participant's service to the Company or an Affiliate of the Company, whether
in the capacity of an Employee, a Director or a Consultant, is not interrupted
or terminated. The Participant's Continuous Status as an Employee, Director or
Consultant shall not be deemed to have terminated merely because of a change in
the capacity in which the Participant renders such service to the Company or an
Affiliate or the Company or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's service. The Board or its designee, in that party's sole
discretion, may determine whether Continuous Status as an Employee, Director or
Consultant shall be considered interrupted in the case of: (i) any leave of
absence approved by the Board or its designee, including sick leave, military
leave, or any other personal leave; or (ii) transfers between locations of the
Company or between the Company, Affiliates or their successors.
(i) "COVERED EMPLOYEE" means the Chief Executive Officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to shareholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board.
(k) "DISABILITY" means the permanent and total disability of the
Participant within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows (and in each case prior to the
Listing Date, in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations):
(1) If the Common Stock is listed on any established stock exchange,
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a
2.
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share of Common Stock shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or market (or
the exchange or market with the greatest volume of trading in Common Stock) on
the trading day prior to the day of determination, as reported in the Wall
Street Journal or such other source as the Board deems reliable;
(2) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means a
right granted pursuant to subsection 8(b)(3) of the Plan.
(q) "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange, or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(r) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act),
does not possess an interest in any other transaction as to which disclosure
would be required under Item 404(a) of Regulation S-K, and is not engaged in a
business relationship as to which disclosure would be required under Item 404(b)
of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for
purposes of Rule 16b-3.
(s) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(t) "OFFICER" means (i) prior to the Listing Date, any person designated
by the Company as an officer and (ii) from and after the Listing Date, a person
who is an officer of the Company within the meaning of Section 16 of the
Exchange Act and the rules and regulations promulgated thereunder.
(u) "OPTION" means a stock option granted pursuant to the Plan.
3.
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(v) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(w) "OPTIONEE" means a person to whom an Option is granted pursuant to the
Plan.
(x) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(y) "PARTICIPANT" means a person to whom a Stock Award is granted pursuant
to the Plan.
(z) "PLAN" means this FCG Enterprises, Inc. 1997 Equity Incentive Plan.
(aa) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(ab) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(ac) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(ad) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, any right to purchase restricted stock, and any Stock
Appreciation Right.
(ae) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a Participant evidencing the terms and conditions of an individual Stock
Award grant. Each Stock Award Agreement shall be subject to the terms and
conditions of the Plan.
(af) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted pursuant to subsection 8(b)(1) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
4.
<PAGE>
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
a Stock Appreciation Right, or a combination of the foregoing; the provisions of
each Stock Award granted (which need not be identical), including the time or
times when a person shall be permitted to receive stock pursuant to a Stock
Award; whether a person shall be permitted to receive stock upon exercise of an
Independent Stock Appreciation Right; and the number of shares with respect to
which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 14.
(4) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a Committee or
Committees of one or more members of the Board. In the discretion of the Board,
a Committee may consist solely of two or more Outside Directors, in accordance
with Code Section 162(m), or solely of two or more Non-Employee Directors, in
accordance with Rule 16b-3. If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the Plan, the
powers theretofore possessed by the Board (and references in this Plan to the
Board shall thereafter be to the Committee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as may be adopted
from time to time by the Board. The Board may abolish the Committee at any time
and revest in the Board the administration of the Plan. Notwithstanding
anything in this Section 3 to the contrary, the Board or the Committee may
delegate to a committee of one or more members of the Board the authority to
grant Options to eligible persons who (1) are not then subject to Section 16 of
the Exchange Act and/or (2) are either (i) not then Covered Employees and are
not expected to be Covered Employees at the time of recognition of income
resulting from such Option, or (ii) not persons with respect to whom the Company
wishes to comply with Section 162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate
5.
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Four Hundred Thousand (400,000) shares of Common Stock. If any Stock Award
shall for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full (or vested in the case of Restricted Stock), the
stock not acquired under such Stock Award shall revert to and again become
available for issuance under the Plan. Shares subject to Stock Appreciation
Rights exercised in accordance with Section 8 of the Plan shall not be available
for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
to Employees, Directors and Consultants.
(b) Prior to the Listing Date, no person shall be eligible for the grant
of an Option if, at the time of grant, such person owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates unless the exercise price of such Option is at least
one hundred ten percent (110%) of the Fair Market Value of such stock at the
date of grant and the Option is not exercisable after the expiration of five (5)
years from the date of grant. After the Listing Date this provision shall apply
only to Incentive Stock Options.
(c) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, after the Listing Date no person shall be eligible to be
granted Options and Stock Appreciation Rights covering more than Two Hundred
Thousand (200,000) shares of the Company's common stock in any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted, and the exercise price
of each Nonstatutory Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an Option may be granted
6.
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with an exercise price lower than that set forth in the preceding sentence if
such Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash or (ii) at the discretion of the Board at the
time of the grant of the Option, (A) by delivery to the Company of other Common
Stock of the Company, (B) according to a deferred payment (however, in the event
the Company reincorporates in Delaware, then payment of the common stock's "par
value," as defined in the Delaware General Corporation Law, shall not be made by
deferred payment), or other arrangement (which may include, without limiting the
generality of the foregoing, the use of other Common Stock of the Company) with
the person to whom the Option is granted or to whom the Option is transferred
pursuant to subsection 6(d), or (C) in any other form of legal consideration
that may be acceptable to the Board. In the case of any deferred payment
arrangement, interest shall be compounded at least annually and shall be charged
at the minimum rate of interest necessary to avoid the treatment as interest,
under any applicable provisions of the Code, of any amounts other than amounts
stated to be interest under the deferred payment arrangement.
(d) TRANSFERABILITY. Prior to the Listing Date, an Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Option is
granted only by such person. After the Listing Date, a Nonstatutory Stock
Option may be transferred to the extent provided in the Option Agreement;
provided that if the Option Agreement does not expressly permit the transfer of
a Nonstatutory Stock Option, the Nonstatutory Stock Option shall not be
transferable except by will, by the laws of descent and distribution or pursuant
to a domestic relations order satisfying the requirements of Rule 16 of the
Exchange Act and shall be exercisable during the lifetime of the person to whom
the Option is granted only by such person or any transferee pursuant to a
domestic relations order. Notwithstanding the foregoing, the person to whom the
Option is granted may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionee, shall thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. Prior to the Listing Date
and to the extent required by applicable law, the vesting provisions of
individual Options may vary, but Options granted to persons other officers,
directors or consultants (within the meaning of Section 260.140.41 of Title 10
of the California Code of Regulations) in each case will provide for vesting of
at least twenty percent (20%) per
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year of the total number of shares subject to the Option, although vesting may
be subject to reasonable conditions such as continued employment. The
provisions of this subsection 6(e) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates (other than upon the Optionee's death or disability), the
Optionee may exercise his or her Option (to the extent that the Optionee was
entitled to exercise it at the date of termination) but only within such period
of time ending on the earlier of (i) the date three (3) months after the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement,
which, prior to the Listing Date, shall not be less than thirty (30) days unless
such termination is for cause), or (ii) the expiration of the term of the Option
as set forth in the Option Agreement. If, after termination, the Optionee does
not exercise his or her Option within the time specified in the Option
Agreement, the Option shall terminate, and the shares covered by such Option
shall revert to and again become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that, if the exercise of
the Option following the termination of the Optionee's Continuous Status as an
Employee, Director or Consultant (other than upon the Optionee's death or
disability) would be prohibited at any time solely because the issuance of
shares would violate the registration requirements under the Securities Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option as described in subsection 6(a) or (ii) the expiration of a period
of three (3) months after the termination of the Optionee's Continuous Status as
an Employee, Director or Consultant during which the exercise of the Option
would not be in violation of such registration requirements (if such provisions
would result in an extension of the time during which the Option may be
exercised beyond the period described in the first paragraph of this subsection
6(f)).
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement, which, prior to the Listing Date, in no event shall be
less than six (6) months), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, at the date of termination, the Optionee
is not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an
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Employee, Director or Consultant, the Option may be exercised (to the extent the
Optionee was entitled to exercise the Option at the date of death) by the
Optionee's estate, by a person who acquired the right to exercise the Option by
bequest or inheritance or by a person designated to exercise the option upon the
Optionee's death pursuant to subsection 6(d), but only within the period ending
on the earlier of (i) the date eighteen (18) months following the date of death
(or such longer or shorter period specified in the Option Agreement, which,
prior to the Listing Date, in no event shall be less than six (6) months), or
(ii) the expiration of the term of such Option as set forth in the Option
Agreement. If, at the time of death, the Optionee was not entitled to exercise
his or her entire Option, the shares covered by the unexercisable portion of the
Option shall revert to and again become available for issuance under the Plan.
If, after death, the Option is not exercised within the time specified herein,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate; provided, however,
that, prior to the Listing Date and to the extent required by applicable law,
(i) the right to repurchase at the original purchase price shall lapse at a
minimum rate of twenty percent (20%) per year over five (5) years from the date
the Option was granted, and (ii) such right shall be exercisable only within (A)
the ninety (90) day period following the termination of employment or the
relationship as a Director or Consultant, or (B) such longer period as may be
agreed to by the Company and the Optionee, and (iii) such right shall be
exercisable only for cash or cancellation of purchase money indebtedness for the
shares. Notwithstanding the foregoing, shares received on exercise of an Option
by an officer, director or consultant (within the meaning of Section 260.140.41
of Title 10 of the California Code of Regulations) may be subject to additional
or greater restrictions. Any shares repurchased pursuant to the Company's
repurchase right described in this subsection 6(i) shall be returned to and
again become available for issuance under the Plan.
(j) RIGHT OF REPURCHASE. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to
repurchase all or any part of the vested shares exercised pursuant to the
Option; provided, however, that, prior to the Listing Date and to the extent
required by applicable law, (i) such repurchase right shall be exercisable only
within (A) the ninety (90) day period following the termination of employment or
the relationship as a Director or Consultant (or in the case of a
post-termination exercise of the Option, the ninety (90) period following such
exercise), or (B) such longer period as may be agreed to by the Company and the
Optionee, (ii) such repurchase right shall be exercisable for less than all of
the vested shares only with the Optionee's consent and (iii) such right shall be
exercisable only for cash or cancellation of purchase money indebtedness for the
shares at a repurchase price equal to the greater of the exercise price or the
stock's Fair Market Value at the time of such termination. Notwithstanding the
foregoing, shares received on exercise of an Option by an officer, director or
consultant (within the meaning of Section 260.140.41 of Title
9.
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10 of the California Code of Regulations) may be subject to additional or
greater restrictions specified in the Option Agreement.
(k) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionee of the
intent to transfer all or any part of the shares exercised pursuant to the
Option. Such right of first refusal shall be exercised by the Company no more
than thirty (30) days following receipt of notice of the Optionee's intent to
transfer shares and must be exercised as to all the shares the Optionee intends
to transfer unless the Optionee consents to exercise for less than all the
shares offered. The purchase of the shares following exercise shall be
completed within thirty (30) days of the Company's receipt of notice of the
Optionee's intent to transfer shares, or such longer period of time as has been
offered by the person to whom the Optionee intends to transfer the shares, or as
may be agreed to by the Company and the Optionee. Except as expressly provided
in this subsection 6(k), such right of first refusal shall otherwise comply with
any applicable provisions of the Bylaws of the Company.
(l) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall have
the authority (but not an obligation) to include as part of any Option Agreement
a provision entitling the Optionee to a further Option (a "Re-Load Option") in
the event the Optionee exercises the Option evidenced by the Option Agreement,
in whole or in part, by surrendering other shares of Common Stock in accordance
with this Plan and the terms and conditions of the Option Agreement. Any such
Re-Load Option (i) shall be for a number of shares equal to the number of shares
surrendered as part or all of the exercise price of such Option; (ii) shall have
an expiration date which is the same as the expiration date of the Option the
exercise of which gave rise to such Re-Load Option; and (iii) shall have an
exercise price which is equal to one hundred percent (100%) of the Fair Market
Value of the Common Stock subject to the Re-Load Option on the date of exercise
of the original Option. Notwithstanding the foregoing, a Re-Load Option which
is an Incentive Stock Option and which is granted to a 10% shareholder (as
described in subsection 5(b)), shall have an exercise price which is equal to
one hundred ten percent (110%) of the Fair Market Value of the stock subject to
the Re-Load Option on the date of exercise of the original Option and shall have
a term which is no longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board may designate at the time of the grant of the
original Option; provided, however, that the designation of any Re-Load Option
as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in subsection 12(e) of the Plan and in Section 422(d) of the
Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load
Option shall be subject to the availability of sufficient shares under
subsection 4(a) and shall be subject to such other terms and conditions as the
Board may determine which are not inconsistent with the express provisions of
the Plan regarding the terms of Options.
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7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus or restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate agreements need not be identical, but each stock bonus or restricted
stock purchase agreement shall include (through incorporation of provisions
hereof by reference in the agreement or otherwise) the substance of each of the
following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board shall determine and
designate in such agreement, but in no event shall the purchase price be less
than eighty-five percent (85%) of the stock's Fair Market Value on the date such
award is made. Notwithstanding the foregoing, the Board may determine that an
eligible person may be awarded stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company for its
benefit.
(b) TRANSFERABILITY. Rights under a stock bonus or restricted stock
purchase agreement shall be transferable by the grantee only upon such terms and
conditions as are set forth in the applicable Stock Award Agreement, as the
Board or the Committee shall determine in its discretion, so long as stock
awarded under such Stock Award Agreement remains subject to the terms of the
agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash; (ii) at the
discretion of the Board, according to a deferred payment or other arrangement
with the person to whom the stock is sold; or (iii) in any other form of legal
consideration that may be acceptable to the Board in its discretion.
Notwithstanding the foregoing, the Board to which administration of the Plan has
been delegated may award stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but need
not, be subject to a repurchase option in favor of the Company in accordance
with a vesting schedule to be determined by the Board. Prior to the Listing
Date and to the extent required by applicable law, the applicable agreement
shall provide (i) that the right to repurchase at the original purchase price
shall lapse at a minimum rate of twenty percent (20%) per year over five (5)
years from the date the Stock Award was granted (except that a Stock Award
granted to an officer, director or consultant (within the meaning of Section
260.140.41 of Title 10 of the California Code of Regulations) may become fully
vested, subject to reasonable conditions such as continued employment, at any
time or during any period established by the Company or of any of its
Affiliates), and (ii) such right shall be exercisable only (A) within the ninety
(90) day period following the termination of employment or the relationship as a
Director or Consultant, or (B) such longer period as may be agreed to by the
Company and the Participant, and (iii) such right shall be exercisable only for
cash or cancellation of purchase money indebtedness for the shares.
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(e) TERMINATION OF CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of stock held by that person which have not
vested as of the date of termination under the terms of the stock bonus or
restricted stock purchase agreement between the Company and such person.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under the
Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the
Participant must provide written notice of exercise to the Company in compliance
with the provisions of the Stock Award Agreement evidencing such right. Except
as provided in subsection 5(c), no limitation shall exist on the aggregate
amount of cash payments the Company may make under the Plan in connection with
the exercise of a Stock Appreciation Right.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(1) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock Appreciation
Rights will be granted appurtenant to an Option, and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the Participant to elect between
the exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised Tandem Right shall be in cash
(or, if so provided, in an equivalent number of shares of stock based on Fair
Market Value on the date of the Option surrender) in an amount up to the excess
of (A) the Fair Market Value (on the date of the Option surrender) of the number
of shares of stock covered by that portion of the surrendered Option in which
the Optionee is vested over (B) the aggregate exercise price payable for such
vested shares.
(2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will be
granted appurtenant to an Option and may apply to all or any portion of the
shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock to
which the Concurrent Right pertains. The appreciation distribution payable on
an exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Concurrent Right) in an amount equal to such portion as
shall be determined by the Board or the Committee at the time of the grant of
the excess of (A) the aggregate Fair Market Value (on the date of the exercise
of the Concurrent Right) of the vested shares of stock purchased under the
underlying Option which have Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.
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(3) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights will
be granted independently of any Option and shall, except as specifically set
forth in this Section 8, be subject to the same terms and conditions applicable
to Nonstatutory Stock Options as set forth in Section 6. They shall be
denominated in share equivalents. The appreciation distribution payable on the
exercised Independent Right shall be not greater than an amount equal to the
excess of (A) the aggregate Fair Market Value (on the date of the exercise of
the Independent Right) of a number of shares of Company stock equal to the
number of share equivalents in which the Participant is vested under such
Independent Right, and with respect to which the Participant is exercising the
Independent Right on such date, over (B) the aggregate Fair Market Value (on the
date of the grant of the Independent Right) of such number of shares of Company
stock. The appreciation distribution payable on the exercised Independent Right
shall be in cash or, if so provided, in an equivalent number of shares of stock
based on Fair Market Value on the date of the exercise of the Independent Right.
9. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board shall have the authority to effect, at any time and from
time to time, (i) the repricing of any outstanding Options under the Plan and/or
(ii) with the consent of any adversely affected holders of Options, the
cancellation of any outstanding Options under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of stock, but having an exercise price per share not
less than eighty-five percent (85%) of the Fair Market Value for a Nonstatutory
Stock Option, one hundred percent (100%) of the Fair Market Value for an
Incentive Stock Option or, in the case of an Option held by a 10% shareholder
(as described in subsection 5(b)), not less than one hundred ten percent (110%)
of the Fair Market Value per share of stock on the new grant date.
Notwithstanding the foregoing, the Board may grant an Option with an exercise
price lower than that set forth above if such Option is granted as part of a
transaction to which Section 424(a) of the Code applies.
(b) Shares subject to an Option canceled under this Section 9 shall
continue to be counted against the maximum award of Options permitted to be
granted pursuant to subsection 5(c) of the Plan. The repricing of an Option
under this Section 9, resulting in a reduction of the exercise price, shall be
deemed to be a cancellation of the original Option and the grant of a substitute
Option; in the event of such repricing, both the original and the substituted
Options shall be counted against the maximum awards of Options permitted to be
granted pursuant to subsection 5(c) of the Plan. The provisions of this
subsection 9(b) shall be applicable only to the extent required by Section
162(m) of the Code.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares under
13.
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Stock Awards; provided, however, that this undertaking shall not require the
Company to register under the Securities Act the Plan, any Stock Award or any
stock issued or issuable pursuant to any such Stock Award. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell stock upon exercise of such
Stock Awards unless and until such authority is obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
12. MISCELLANEOUS.
(a) Subject to any applicable provisions of the California Corporate
Securities Law of 1968 and related regulations relied upon as a condition of
issuing securities pursuant to the Plan, the Board shall have the power to
accelerate the time at which a Stock Award may first be exercised or the time
during which a Stock Award or any part thereof will vest, notwithstanding the
provisions in the Stock Award stating the time at which it may first be
exercised or the time during which it will vest.
(b) Neither an Employee, Director or a Consultant nor any person to whom a
Stock Award is transferred in accordance with the Plan shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Stock Award unless and until such person has satisfied all
requirements for exercise of the Stock Award pursuant to its terms.
(c) To the extent required by applicable law, throughout the term of any
Stock Award, the Company shall deliver to the Participant, not later than one
hundred twenty (120) days after the close of each of the Company's fiscal years
during the term of such Stock Award, a balance sheet and an income statement.
This subsection 12(c) shall not apply (i) after the Listing Date, or (ii) when
issuance is limited to key employees whose duties in connection with the Company
assure them access to equivalent information.
(d) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Participant any right to continue in the
employ of the Company or any Affiliate or to continue serving as a Consultant or
a Director, or shall affect the right of the Company or any Affiliate to
terminate the employment of any Employee with or without notice and with or
without cause, or the right to terminate the relationship of any Consultant
pursuant to the terms of such Consultant's agreement with the Company or
Affiliate or service as a Director pursuant to the Company's Bylaws and the
provisions of the corporate law of the state in which the Company is
incorporated.
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(e) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(f) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred in accordance with the Plan,
as a condition of exercising or acquiring stock under any Stock Award, (1) to
give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(g) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means (in addition to the Company's
right to withhold from any compensation paid to such person by the Company) or
by a combination of such means: (1) tendering a cash payment; (2) authorizing
the Company to withhold shares from the shares of the Common Stock otherwise
issuable to the Participant as a result of the exercise or acquisition of stock
under the Stock Award; or (3) delivering to the Company owned and unencumbered
shares of the Common Stock of the Company.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of
15.
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shares subject to the Plan pursuant to subsection 4(a), and the outstanding
Stock Awards will be appropriately adjusted in the class(es) and number of
shares and price per share of stock subject to such outstanding Stock Awards.
Such adjustments shall be made by the Board, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company".)
(b) In the event of: (1) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the individuals who, as of the date of the adoption of
this Plan, are members of the Board (the "Incumbent Board"), cease for any
reason to constitute at least 50% of the Board, provided, however, that if the
election, or nomination for election, by the Company's shareholders of any new
director was approved by a vote of at least 50% of the Incumbent Board, such new
director shall, for purposes of this subsection 13(b), be considered as a member
of the Incumbent Board (collectively, a "Change in Control"), then: (i) any
surviving or acquiring corporation shall assume Stock Awards outstanding under
the Plan or shall substitute similar Stock Awards (including an option to
acquire the same consideration paid to shareholders in the transaction described
in this subsection 13(b)) for those outstanding under the Plan, (ii) in the
event the any surviving or acquiring corporation does assume such Stock Awards
or substitute similar Stock Awards for those outstanding under the Plan, then
upon the Participant's Voluntary Termination with Good Reason (as described in
subsection 13(c)) or the Participant's Involuntary Termination without Cause (as
described in subsection 13(d)) the vesting of such Stock Awards and the time
during which such Stock Awards may be exercised shall be accelerated upon the
occurrence of such event, or (iii) in the event any surviving or acquiring
corporation refuses to assume such Stock Awards or to substitute similar Stock
Awards for those outstanding under the Plan, (A) with respect to Stock Awards
held by persons then performing services as Employees, Directors or Consultants
and subject to any applicable provisions of the California Corporate Securities
Law of 1968 and related regulations relied upon as a condition of issuing
securities pursuant to the Plan, the vesting of such Stock Awards and the time
during which such Stock Awards may be exercised shall be accelerated prior to
such event and the Stock Awards terminated if not exercised after such
acceleration and at or prior to such event, and (B) with respect to any other
Stock Awards outstanding under the Plan, such Stock Awards shall be terminated
if not exercised prior to such event.
(c) The term "Voluntary Termination with Good Reason" means (i) the
Participant's resignation, with good reason, as an Employee, Director or
Consultant of the Company within one month prior to the Change in Control or
(ii) the Participant's resignation, with good reason, as an Employee, Director
or Consultant of the surviving or acquiring corporation which assumed the
Participant's Stock Award or substituted a similar Stock Award for the
Participant's Stock Award within 13 months after a Change in Control. "Good
reason" means any of the following:
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(1) reduction of the Participant's rate of compensation as in effect
immediately prior to the Change in Control;
(2) failure to provide a package of welfare benefit plans which,
taken as a whole, provide substantially similar benefits to those in which the
Participant was entitled to participate immediately prior to the Change in
Control (except that employee contributions may be raised to the extent of any
cost increases imposed by third parties);
(3) a change in the Participant's responsibilities, authority, title
or office resulting in diminution of position, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith which is
remedied by the Company promptly after notice thereof is given by the
Participant;
(4) a request that the Participant relocate to a worksite that is
more than 35 miles from the Participant's prior worksite, unless the Participant
accept such relocation opportunity;
(5) failure or refusal of a successor to the Company to assume the
Company's obligations under this option agreement; or
(6) material breach by the Company or any successor to the Company of
any of the material provisions of the Participant's Stock Award.
(d) The term "Involuntary Termination without Cause" means (i) the
involuntary termination, without cause, of the Participant's Continuous Status
as an Employee, Director or Consultant by the Company within one month prior to
a Change in Control or (ii) the involuntary termination, without cause, of the
Participant's Continuous Status as an Employee, Director or Consultant of the
surviving or acquiring corporation which assumed the Participant's Stock Award
or substituted a similar Stock Award for the Participant's Stock Award within 13
months after a Change in Control. "Cause" means any of the following:
(1) the Participant's theft, dishonesty, or falsification of
documents or records;
(2) the Participant's improper use or disclosure of the company's
confidential or proprietary information;
(3) any action by the Participant which has a detrimental effect on
the company's reputation or business;
(4) The Participant's failure or inability to perform any reasonable
assigned duties after written notice from the company of, and a reasonable
opportunity to cure, such failure or inability;
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(5) any material breach by the Participant of any employment or
service agreement between the Participant and the company which breach is not
cured pursuant to the terms of such agreement; or
(6) the Participant's conviction (including any plea of guilty or
nolo contendere) of any criminal act which impairs the Participant's ability to
perform his or her duties with the company.
14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the shareholders of
the Company to the extent shareholder approval is necessary for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for shareholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations thereunder regarding the exclusion of performance-based compensation
from the limit on corporate deductibility of compensation paid to certain
executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees,
Directors or Consultants with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) Rights under any Stock Award granted before amendment of the Plan
shall not be impaired by any amendment of the Plan unless (i) the Company
requests the consent of the person to whom the Stock Award was granted and (ii)
such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Awards; provided, however, that the rights under any Stock
Award shall not be impaired by any such amendment unless (i) the Company
requests the consent of the person to whom the Stock Award was granted and (ii)
such person consents in writing.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate ten (10) years from the date the
Plan is adopted by the Board or approved by the shareholders of the Company,
whichever is earlier. No Stock Awards may be granted under the Plan while the
Plan is suspended or after it is terminated.
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(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the Stock Award was granted.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the date adopted by the Board, but no
Stock Awards granted under the Plan shall be exercised unless and until the Plan
has been approved by the shareholders of the Company, which approval shall be
within twelve (12) months before or after the date the Plan is adopted by the
Board.
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INCENTIVE STOCK OPTION
EXEMPT FROM QUALIFICATION UNDER
SECTION 25102(o) OF THE
CALIFORNIA CORPORATIONS CODE
__________________, Optionee:
FCG Enterprises, Inc. (the "Company"), pursuant to its 1997 Equity
Incentive Plan (the "Plan"), has granted to you, the optionee named above, an
option to purchase shares of the common stock of the Company ("Common Stock").
This option is intended to qualify as an "incentive stock option" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers), directors and consultants and is intended to comply with
the provisions of Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act"). The grant
of this option and the issuance of shares upon the exercise of this option are
also intended to be exempt from the securities qualification requirements of the
California Corporations Code pursuant to Section 25102(o) of that code. Defined
terms not explicitly defined in this agreement but defined In the Plan shall
have the same definitions as in the Plan.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of
shares of Common Stock subject to this option is ______________ (_________).
2. VESTING. Subject to the limitations contained herein, 1/5th of the
shares will vest (become exercisable) on _________________, 199_ (12 months
after the date of the grant) and 1/60th of the shares will then vest each month
thereafter until either (i) you cease to provide services to the Company for
any reason, or (ii) this option becomes fully vested.
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) EXERCISE PRICE. The exercise price of this option is __________
($_____________) per share, being not less than the fair market value of the
Common Stock on the date of grant of this option.
(b) METHOD OF PAYMENT. Payment of the exercise price per share is
due in full upon exercise of all or any part of each installment which has
accrued to you. You may
1.
<PAGE>
elect, to the extent permitted by applicable statutes and regulations, to make
payment of the exercise price under one of the following alternatives:
(i) Payment of the exercise price per share in cash
(including check) at the time of exercise;
(ii) Provided that at the time of exercise the Company's
Common Stock is publicly traded, payment pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board which, prior to the
issuance of Common Stock, results in either the receipt of cash (or check) by
the Company or the receipt of irrevocable instructions to pay the aggregate
exercise price to the Company from the sales proceeds;
(iii) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interests, which Common
Stock shall be valued at its fair market value on the date of exercise; or
(iv) Payment by a combination of the methods of payment
permitted by subsection 3(b)(i) through 3(b)(iii) above.
4. WHOLE SHARES. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Securities Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act.
6. TERM. The term of this option commences on __________, 199_, the
date of grant, and expires on __________________ (the "Expiration Date,"
which date shall be no more than ten (10) years from date this option is
granted), unless this option expires sooner as set forth below or in the
Plan. In no event may this option be exercised on or after the Expiration
Date. This option shall terminate prior to the Expiration Date of its term
as follows: three (3) months after the termination of your Continuous Status
as an Employee, Director or Consultant with the Company or an Affiliate of
the Company unless one of the following circumstances exists:
(a) Your termination of Continuous Status as an Employee, Director or
Consultant is due to your permanent and total disability (within the meaning of
Section 422(c)(6) of the Code). This option will then expire on the earlier of
the Expiration Date set forth above or twelve (12) months following such
termination of Continuous Status as an Employee, Director or Consultant. You
should be aware that if your disability is not considered a permanent and
2.
<PAGE>
total disability within the meaning of Section 422(c)(6) of the Code, and you
exercise this option more than three (3) months following the date of your
termination of employment, your exercise will be treated for tax purposes as the
exercise of a "nonstatutory stock option" instead of an "incentive stock
option."
(b) Your termination of Continuous Status as an Employee, Director or
Consultant is due to your death or your death occurs within three (3) months
following your termination of Continuous Status as an Employee, Director or
Consultant. This option will then expire on the earlier of the Expiration Date
set forth above or eighteen (18) months after your death.
(c) If during any part of such three (3) month period you may not
exercise your option solely because of the condition set forth in Section 5
above, then your option will not expire until the earlier of the Expiration Date
set forth above or until this option shall have been exercisable for an
aggregate period of three (3) months after your termination of Continuous Status
as an Employee, Director or Consultant.
(d) If your exercise of the option within three (3) months after
termination of your Continuous Status as an Employee, Director or Consultant
with the Company or with an Affiliate of the Company would result in liability
under Section 16(b) of the Securities Exchange Act of 1934, then your option
will expire on the earlier of (i) the Expiration Date set forth above, (ii) the
tenth (lOth) day after the last date upon which exercise would result in such
liability or (iii) six (6) months and ten (10) days after the termination of
your Continuous Status as an Employee, Director or Consultant with the Company
or an Affiliate of the Company.
However, this option may be exercised following termination of Continuous
Status as an Employee, Director or Consultant only as to that number of shares
as to which it was exercisable on the date of termination of Continuous Status
as an Employee, Director or Consultant under the provisions of Section 2 of this
option.
In order to obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on the
date of grant of the option and ending on the day three (3) months before the
date of the option's exercise, you must be an employee of the Company or an
Affiliate of the Company, except in the event of your death or permanent and
total disability. The Company has provided for continued vesting or extended
exercisability of your option under certain circumstances for your benefit, but
cannot guarantee that your option will necessarily be treated as an " incentive
stock option" if you provide services to the Company or an Affiliate of the
Company as a consultant or exercise your option more than three (3) months after
the date your employment with the Company and all Affiliates of the Company
terminates.
7. EXERCISE
(a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to
3.
<PAGE>
the Secretary of the Company, or to such other person as the Company may
designate, during regular business hours, together with such additional
documents as the Company may then require pursuant to the Plan.
(b) By exercising this option you agree that:
(i) as a precondition to the completion of any exercise of
this option, the Company may require you to enter an arrangement providing for
the payment by you to the Company of any tax withholding obligation of the
Company arising by reason of (1) the exercise of this option; (2) the lapse of
any substantial risk of forfeiture to which the shares are subject at the time
of exercise; or (3) the disposition of shares acquired upon such exercise;
(ii) you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of this option that occurs within two (2) years after
the date of this option grant or within one (l) year after such shares of Common
Stock are transferred upon exercise of this option; and
(iii) the Company (or a representative of the underwriters)
may, in connection with the first underwritten registration of the offering of
any securities of the Company under the Securities Act, require that you not
sell or otherwise transfer or dispose of any shares of Common Stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days) following the effective date (the "Effective Date") of the
registration statement of the Company filed under the Securities Act as may be
requested by the Company or the representative of the underwriters. You further
agree that the Company may impose stop-transfer instructions with respect to
securities subject to the foregoing restrictions until the end of such period.
8. TRANSFERABILITY This option is not transferable, except by will or by
the laws of descent and distribution, and is exercisable during your life only
by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise this
option.
9. OPTION NOT A SERVICE CONTRACT. This option is not an employment
contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in this option shall obligate the Company or any Affiliate of the
Company, or their respective shareholders, Board of Directors, officers or
employees to continue any relationship which you might have as a Director or
Consultant for the Company or Affiliate of the Company.
10. NOTICES. Any notices provided for in this option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid,
4.
<PAGE>
addressed to you at the address specified below or at such other address as you
hereafter designate by written notice to the Company.
11. GOVERNING PLAN DOCUMENT. This option is subject to all the provisions
of the Plan, a copy of which is attached hereto and its provisions are hereby
made a part of this option, including without limitation the provision of
Section 6 of the Plan relating to option provisions, and is further subject to
all interpretations, amendments, rules and regulations which may from time to
time be promulgated and adopted pursuant to the Plan. In the event of any
conflict between the provisions of this option and those of the Plan, the
provisions of the Plan shall control.
Dated the _______ day of _______________, 199__.
FCG ENTERPRISES, INC.
By
-----------------------------------
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
FCG Enterprises, Inc. 1997 Equity Incentive Plan
Notice of Exercise
5.
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its Affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock option plans of the Company, and (ii) the following agreements only:
NONE
---------
(Initial)
OTHER
----------------------------------
----------------------------------
----------------------------------
---------------------------------------
OPTIONEE
Address:
-----------------------------
-----------------------------
6.
<PAGE>
NONSTATUTORY STOCK OPTION
EXEMPT FROM QUALIFICATION UNDER
SECTION 25102(O) OF THE
CALIFORNIA CORPORATIONS CODE
_________________________, Optionee:
FCG Enterprises, Inc. (the "Company"), pursuant to its 1997 Equity
Incentive Plan (the "Plan"), has granted to you, the optionee named above, an
option to purchase shares of the common stock of the Company ("Common
Stock"). This option is not intended to qualify as and will not be treated as
an "incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's
employees (including officers), directors and consultants and is intended to
comply with the provisions of Rule 701 promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"). The grant of this option and the issuance of shares upon
the exercise of this option are also intended to be exempt from the
securities qualification requirements of the California Corporations Code
pursuant to Section 25102(o) of that code. Defined terms not explicitly
defined in this agreement but defined in the Plan shall have the same
definitions as in the Plan.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of
shares of Common Stock subject to this option is _____________ (_____________).
2. VESTING. Subject to the limitations contained herein, 1/5th of the
shares will vest (become exercisable) on _______________, 199___ (12 months
after the date of the grant) and 1/60th of the shares will then vest each
month thereafter until either (i) you cease to provide services to the
Company for any reason, or (ii) this option becomes fully vested.
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) EXERCISE PRICE. The exercise price of this option is
_______________ ($_______________) per share, being not less than 85% of the
fair market value of the Common Stock on the date of grant of this option.
(b) METHOD OF PAYMENT. Payment of the exercise price per share is
due in full upon exercise of all or any part of each installment which has
accrued to you. You may
1
<PAGE>
elect, to the extent permitted by applicable statutes and regulations, to
make payment of the exercise price under one of the following alternatives:
(i) Payment of the exercise price per share in cash
(including check) at the time of exercise;
(ii) Provided that at the time of exercise the Company's
Common Stock is publicly traded, payment pursuant to a program developed
under Regulation T as promulgated by the Federal Reserve Board which, prior
to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds;
(iii) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly in the Wall Street
Journal, payment by delivery of already-owned shares of Common Stock, held
for the period required to avoid a charge to the Company's reported earnings,
and owned free and clear of any liens, claims, encumbrances or security
interests, which Common Stock shall be valued at its fair market value on the
date of exercise; or
(iv) Payment by a combination of the methods of payment
permitted by subsection 3(b)(i) through 3(b)(iii) above.
4. WHOLE SHARES. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, this option may not be exercised unless the shares
issuable upon exercise of this option are then registered under the
Securities Act or, if such shares are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the
registration requirements of the Securities Act.
6. TERM. The term of this option commences on _______________,
199___, the date of grant, and expires on _______________ (the "Expiration
Date," which date shall be no more than ten (10) years from date this option
is granted), unless this option expires sooner as set forth below or in the
Plan. In no event may this option be exercised on or after the Expiration
Date. This option shall terminate prior to the Expiration Date of its term
as follows: three (3) months after the termination of your Continuous Status
as an Employee, Director or Consultant with the Company or an Affiliate of
the Company unless one of the following circumstances exists:
(a) Your termination of Continuous Status as an Employee, Director
or Consultant is due to your permanent and total disability (within the
meaning of Section 422(c)(6) of the Code). This option will then expire on
the earlier of the Expiration Date set forth above or twelve (12) months
following such termination of Continuous Status as an Employee, Director or
Consultant.
2
<PAGE>
(b) Your termination of Continuous Status as an Employee, Director
or Consultant is due to your death or your death occurs within three (3)
months following your termination of Continuous Status as an Employee,
Director or Consultant. This option will then expire on the earlier of the
Expiration Date set forth above or eighteen (18) months after your death.
(c) If during any part of such three (3) month period you may not
exercise your option solely because of the condition set forth in Section 5
above, then your option will not expire until the earlier of the Expiration
Date set forth above or until this option shall have been exercisable for an
aggregate period of three (3) months after your termination of Continuous
Status as an Employee, Director or Consultant.
(d) If your exercise of the option within three (3) months after
termination of your Continuous Status as an Employee, Director or Consultant
with the Company or with an Affiliate of the Company would result in
liability under Section 16(b) of the Securities Exchange Act of 1934, then
your option will expire on the earlier of (i) the Expiration Date set forth
above, (ii) the tenth (10th) day after the last date upon which exercise
would result in such liability or (iii) six (6) months and ten (10) days
after the termination of your Continuous Status as an Employee, Director or
Consultant with the Company or an Affiliate of the Company.
However, this option may be exercised following termination of
Continuous Status as an Employee, Director or Consultant only as to that
number of shares as to which it was exercisable on the date of termination of
Continuous Status as an Employee, Director or Consultant under the provisions
of Section 2 of this option.
7. EXERCISE.
(a) This option may be exercised, to the extent specified above,
by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require
pursuant to the Plan.
(b) By exercising this option you agree that:
(i) as a precondition to the completion of any exercise
of this option, the Company may require you to enter an arrangement providing
for the payment by you to the Company of any tax withholding obligation of
the Company arising by reason of (1) the exercise of this option; (2) the
lapse of any substantial risk of forfeiture to which the shares are subject
at the time of exercise; or (3) the disposition of shares acquired upon such
exercise; and
(ii) the Company (or a representative of the
underwriters) may, in connection with the first underwritten registration of
the offering of any securities of the Company under the Securities Act,
require that you not sell or otherwise transfer or dispose of any shares of
Common Stock or other securities of the Company during such period (not to
3
<PAGE>
exceed one hundred eighty (180) days) following the effective date (the
"Effective Date") of the registration statement of the Company filed under
the Securities Act as may be requested by the Company or the representative
of the underwriters. You further agree that the Company may impose
stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such period.
8. TRANSFERABILITY. This option is not transferable, except by will
or by the laws of descent and distribution, and is exercisable during your
life only by you. Notwithstanding the foregoing, by delivering written
notice to the Company, in a form satisfactory to the Company, you may
designate a third party who, in the event of your death, shall thereafter be
entitled to exercise this option.
9. OPTION NOT A SERVICE CONTRACT. This option is not an employment
contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the
Company, or of the Company to continue your employment with the Company. In
addition, nothing in this option shall obligate the Company or any Affiliate
of the Company, or their respective shareholders, Board of Directors,
officers or employees to continue any relationship which you might have as a
Director or Consultant for the Company or Affiliate of the Company.
10. NOTICES. Any notices provided for in this option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the
address specified below or at such other address as you hereafter designate
by written notice to the Company.
11. GOVERNING PLAN DOCUMENT. This option is subject to all the
provisions of the Plan, a copy of which is attached hereto and its provisions
are hereby made a part of this option, including without limitation the
provisions of Section 6 of the Plan relating to option provisions, and is
further subject to all interpretations, amendments, rules and regulations
which may from time to time be promulgated and adopted pursuant to the Plan.
In the event of any conflict between the provisions of this option and those
of the Plan, the provisions of the Plan shall control.
Dated the ____ day of __________________, 199__.
FCG ENTERPRISES, INC.
By ________________________
Duly authorized on behalf
of the Board of Directors
4
<PAGE>
ATTACHMENTS:
FCG Enterprises, Inc. 1997 Equity Incentive Plan
Notice of Exercise
5
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with
respect to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the
Company and its Affiliates regarding the acquisition of stock in the Company
and supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the
undersigned under stock option plans of the Company, and (ii) the following
agreements only:
NONE _________
(Initial)
OTHER ________________________________
________________________________
________________________________
____________________________________________
OPTIONEE
Address: ____________________________________
____________________________________
6
<PAGE>
NONSTATUTORY STOCK OPTION
(FOR RESIDENTS OF THE UNITED KINGDOM)
_________________________, Optionee:
FCG Enterprises, Inc. (the "Company"), pursuant to its 1997 Equity
Incentive Plan (the "Plan"), has granted to you, the optionee named above, an
option to purchase shares of the common stock of the Company ("Common Stock").
This option is not intended to qualify as and will not be treated as an
"incentive stock option" within the meaning of Section 422 of the United States
Internal Revenue Code of 1986, as amended (the "Code"). Defined terms not
explicitly defined in this agreement but defined in the Plan shall have the same
definitions as in the Plan.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of
shares of Common Stock subject to this option is _______________
(_______________).
2. VESTING. Subject to the limitations contained herein, 1/5th of the
shares will vest (become exercisable) on _______________, 199___ (12 months
after the date of the grant) and 1/60th of the shares will then vest each month
thereafter until either (i) you cease to provide services to the Company for any
reason, or (ii) this option becomes fully vested.
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) EXERCISE PRICE. The exercise price of this option is
_______________ ($_______________) per share, being not less than 100% of the
fair market value of the Common Stock on the date of grant of this option.
(b) METHOD OF PAYMENT. Payment of the exercise price per share is
due in full upon exercise of all or any part of each installment which has
accrued to you. You may elect, to the extent permitted by applicable statutes
and regulations, to make payment of the exercise price under one of the
following alternatives:
(i) Payment of the exercise price per share in cash
(including check) at the time of exercise;
(ii) Provided that at the time of exercise the Company's
Common Stock is publicly traded, payment pursuant to a program developed under
Regulation T (as promulgated by the Federal Reserve Board pursuant to the United
States Securities Exchange Act of 1934, as amended (the "Exchange Act"), with a
principal purpose to regulate extensions of credit by and to United States
brokers and dealers) which, prior to the issuance of Common Stock, results in
either the receipt of cash (or check) by the Company or the receipt of
1.
<PAGE>
irrevocable instructions to pay the aggregate exercise price to the Company from
the sales proceeds;
(iii) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interests, which Common
Stock shall be valued at its fair market value on the date of exercise; or
(iv) Payment by a combination of the methods of payment
permitted by subsection 3(b)(i) through 3(b)(iii) above.
4. WHOLE SHARES. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Securities Act of
1933, as amended (the "Securities Act"), or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Securities Act.
6. TERM. The term of this option commences on _______________, 199___,
the date of grant, and expires on _______________ (the "Expiration Date," which
date shall be no more than seven (7) years from date this option is granted),
unless this option expires sooner as set forth below or in the Plan. In no
event may this option be exercised on or after the Expiration Date. This option
shall terminate prior to the Expiration Date of its term as follows: three (3)
months after the termination of your Continuous Status as an Employee, Director
or Consultant (as defined in the Plan) with the Company or an Affiliate of the
Company unless one of the following circumstances exists:
(a) Your termination of Continuous Status as an Employee, Director or
Consultant is due to your permanent and total disability (within the meaning of
Section 422(c)(6) of the Code). This option will then expire on the earlier of
the Expiration Date set forth above or twelve (12) months following such
termination of Continuous Status as an Employee, Director or Consultant.
(b) Your termination of Continuous Status as an Employee, Director or
Consultant is due to your death or your death occurs within three (3) months
following your termination of Continuous Status as an Employee, Director or
Consultant. This option will then expire on the earlier of the Expiration Date
set forth above or eighteen (18) months after your death.
(c) If during any part of such three (3) month period you may not
exercise your option solely because of the condition set forth in Section 5
above, then your option will
2.
<PAGE>
not expire until the earlier of the Expiration Date set forth above or until
this option shall have been exercisable for an aggregate period of three (3)
months after your termination of Continuous Status as an Employee, Director or
Consultant.
(d) If your exercise of the option within three (3) months after
termination of your Continuous Status as an Employee, Director or Consultant
with the Company or with an Affiliate of the Company would result in liability
under Section 16(b) of the Exchange Act, then your option will expire on the
earlier of (i) the Expiration Date set forth above, (ii) the tenth (10th) day
after the last date upon which exercise would result in such liability or
(iii) six (6) months and ten (10) days after the termination of your Continuous
Status as an Employee, Director or Consultant with the Company or an Affiliate
of the Company.
However, this option may be exercised following termination of Continuous
Status as an Employee, Director or Consultant only as to that number of shares
as to which it was exercisable on the date of termination of Continuous Status
as an Employee, Director or Consultant under the provisions of Section 2 of this
option.
7. EXERCISE.
(a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to the Plan.
(b) By exercising this option you agree that:
(i) as a precondition to the completion of any exercise of
this option, the Company may require you to enter an arrangement providing for
the payment by you to the Company of any tax withholding obligation of the
Company arising by reason of (1) the exercise of this option; (2) the lapse of
any substantial risk of forfeiture to which the shares are subject at the time
of exercise; or (3) the disposition of shares acquired upon such exercise; and
(ii) the Company (or a representative of the underwriters)
may, in connection with the first underwritten registration of the offering of
any securities of the Company under the Securities Act, require that you not
sell or otherwise transfer or dispose of any shares of Common Stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days) following the effective date (the "Effective Date") of the
registration statement of the Company filed under the Securities Act as may be
requested by the Company or the representative of the underwriters. You further
agree that the Company may impose stop-transfer instructions with respect to
securities subject to the foregoing restrictions until the end of such period.
8. TRANSFERABILITY. This option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding
3.
<PAGE>
the foregoing, by delivering written notice to the Company, in a form
satisfactory to the Company, you may designate a third party who, in the event
of your death, shall thereafter be entitled to exercise this option.
9. OPTION NOT A SERVICE CONTRACT. This option is not an employment
contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in this option shall obligate the Company or any Affiliate of the
Company, or their respective shareholders, Board of Directors, officers or
employees to continue any relationship which you might have as a Director or
Consultant for the Company or Affiliate of the Company.
By receiving this option, you shall not acquire any right to
compensation or damages in consequence of the termination of your office or
employment for any reason whatsoever insofar as such rights may be claimed to
have otherwise arisen as a result of your ceasing to have any rights (actual or
prospective) under, or to be entitled to exercise, this option as a result of
such termination.
10. NOTICES. Any notices provided for in this option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the address
specified below or at such other address as you hereafter designate by written
notice to the Company.
11. GOVERNING PLAN DOCUMENT. This option is subject to all the provisions
of the Plan, a copy of which is attached hereto and its provisions are hereby
made a part of this option, including without limitation the provisions of
Section 6 of the Plan relating to option provisions, and is further subject to
all interpretations, amendments, rules and regulations which may from time to
time be promulgated and adopted pursuant to the Plan. In the event of any
conflict between the provisions of this option and those of the Plan, the
provisions of the Plan shall control.
Dated the ____ day of __________________, 199__.
FCG ENTERPRISES, INC.
By
------------------------------------------
Duly authorized on behalf
of the Board of Directors
4.
<PAGE>
ATTACHMENTS:
FCG Enterprises, Inc. 1997 Equity Incentive Plan
Notice of Exercise
5.
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its Affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock option plans of the Company, and (ii) the following agreements only:
NONE
--------------
(Initial)
OTHER
-----------------------------------
-----------------------------------
-----------------------------------
---------------------------------------
OPTIONEE
Address:
-----------------------------
-----------------------------
6.
<PAGE>
FCG ENTERPRISES, INC.
1997 EQUITY INCENTIVE PLAN
NOTICE OF EXERCISE
FCG Enterprises, Inc.
111 W. Ocean Boulevard
4th Floor
Long Beach, CA 90802 Date of Exercise:______________________
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase the
number of shares for the price set forth below.
Type of option (check one): Incentive / / Nonstatutory / /
Stock option dated: _______________________
Number of shares as
to which option is
exercised: _______________________
Certificates to be
issued in name of: _______________________
Total exercise price: $______________________
Cash payment delivered
herewith: $______________________
By this exercise, I agree (i) to provide such additional documents as you
may require pursuant to the terms of the 1997 Equity Incentive Plan or the stock
option agreement, (ii) to provide for the payment by me to you (in the manner
designated by you) of your withholding obligation, if any, relating to the
exercise of this option, and (iii) if this exercise relates to an incentive
stock option, to notify you in writing within fifteen (15) days after the date
of any disposition of any shares of Common Stock issued upon exercise of this
option that occurs within two (2) years after the date of grant of this option
or within one (1) year after such shares of Common Stock are issued upon
exercise of this option.
1.
<PAGE>
I hereby make the following certifications and representations with respect
to the number of shares of Common Stock of the Company listed above (the
"Shares"), which are being acquired by me for my own account upon exercise of my
stock option as set forth above:
I acknowledge that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and are deemed to
constitute "restricted securities" under Rule 701 and "control securities" under
Rule 144 promulgated under the Securities Act. I warrant and represent to the
Company that I have no present intention of distributing or selling said Shares,
except as permitted under the Securities Act and any applicable state securities
laws.
I further acknowledge that I will not be able to resell the Shares for
at least ninety days after the stock of the Company becomes publicly traded
(I.E., subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934) under Rule 701 and that more restrictive
conditions apply to affiliates of the Company under Rule 144.
I further acknowledge that all certificates representing any of the
Shares subject to the provisions of the option shall have endorsed thereon
appropriate legends reflecting the foregoing limitations, as well as any legends
reflecting restrictions pursuant to the Company's Articles of Incorporation,
Bylaws and/or applicable securities laws.
I further agree that, if required by the Company (or a representative
of the underwriters) in connection with the first underwritten registration of
the offering of any securities of the Company under the Securities Act, I will
not sell or otherwise transfer or dispose of any Shares or other securities of
the Company held by me as provided by the terms of the Plan and my option.
Very truly yours,
_________________________________________________
2.
<PAGE>
FCG ENTERPRISES, INC.
1997 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN
ADOPTED AND EFFECTIVE AUGUST 22, 1997
SHAREHOLDER APPROVAL NOT REQUIRED
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which Non-Employee
Directors may be given an opportunity to benefit from increases in value of the
common stock of the Company ("Common Stock") through the granting of
Nonstatutory Stock Options.
(b) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(c) The Company intends that the Options issued under the Plan shall be
Nonstatutory Stock Options granted pursuant to Section 6 hereof.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "ANNUAL OPTION" means a stock option granted pursuant to subsection
5(d) of the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(f) "COMPANY" means FCG Enterprises, Inc., a California corporation.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided
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<PAGE>
that the term "Consultant" shall not include Directors who are paid only a
director's fee by the Company or who are not compensated by the Company for
their services as Directors.
(h) "CONTINUOUS SERVICE" means that the Optionee's service to the Company
or an Affiliate of the Company, whether in the capacity of a Director or
subsequently as an Employee or a Consultant, is not interrupted or terminated.
The Optionee's Continuous Service shall not be deemed to have terminated merely
because of a change in the capacity in which the Optionee renders such service
to the Company or an Affiliate or the Company or a change in the entity for
which the Optionee renders such service, provided that there is no interruption
or termination of the Optionee's service. The Board or its designee, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of: (i) any leave of absence approved by the
Board or its designee, including sick leave, military leave, or any other
personal leave; or (ii) transfers between locations of the Company or between
the Company, Affiliates or their successors.
(i) "DIRECTOR" means a member of the Board.
(j) "DISABILITY" means the permanent and total disability of the Optionee
within the meaning of Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows:
(i) If the Common Stock is listed on any established stock exchange,
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in Common Stock) on the trading day prior to the day of determination,
as reported in the Wall Street Journal or such other source as the Board deems
reliable;
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
2
<PAGE>
(o) "INITIAL OPTION" means a stock option granted pursuant to subsection
5(b) or subsection 5(c) of the Plan.
(p) "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange, or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(q) "NON-EMPLOYEE DIRECTOR" means a Director who is not a current Employee
or Officer of the Company or its parent or subsidiary and does not receive
compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(s) "OFFICER" means (i) prior to the Listing Date, any person designated
by the Company as an officer and (ii) from and after the Listing Date, a person
who is an officer of the Company within the meaning of Section 16 of the
Exchange Act and the rules and regulations promulgated thereunder.
(t) "OPTION" means a stock option granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(v) "OPTIONEE" means a person to whom an Option is granted pursuant to the
Plan.
(w) "PLAN" means this FCG Enterprises, Inc. 1997 Non-Employee Directors'
Stock Option Plan.
(x) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(y) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
3
<PAGE>
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in
a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(ii) To amend the Plan or an Option as provided in Section 12.
(iii) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a Committee or
Committees of one or more members of the Board. If administration is delegated
to a Committee, the Committee shall have, in connection with the administration
of the Plan, the powers theretofore possessed by the Board (and references in
this Plan to the Board shall thereafter be to the Committee), subject, however,
to such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 11 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Options shall not
exceed in the aggregate Fifty Thousand (50,000) shares of Common Stock. If any
Option shall for any reason expire or otherwise terminate, in whole or in part,
without having been exercised in full, the stock not acquired under such Option
shall revert to and again become available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY AND NON-DISCRETIONARY GRANTS.
(a) Options shall be granted only to Non-Employee Directors of the
Company.
(b) On August 22, 1997, the date of the approval of the Plan by the Board
(the "Adoption Date"), each person who is then a Non-Employee Director
automatically shall be granted an Initial Option to purchase Five Thousand
(5,000) shares of Common Stock of the Company on the terms and conditions set
forth herein.
4
<PAGE>
(c) Each person who is, after the Adoption Date, elected for the first
time to be a Non-Employee Director automatically shall, upon the date of his or
her initial election to be a Non-Employee Director by the Board or shareholders
of the Company, be granted an Initial Option to purchase One Thousand (1,000)
shares of Common Stock of the Company on the terms and conditions set forth
herein.
(d) On January 1 of each year, commencing with January 1, 1998, each
person who is then a Non-Employee Director automatically shall be granted an
Annual Option to purchase One Thousand (1,000) shares of Common Stock of the
Company on the terms and conditions set forth herein.
6. OPTION PROVISIONS.
Each Option shall include (through incorporation of provisions hereof by
reference in the Option or otherwise) the substance of each of the following
provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) PRICE. The exercise price of each Option shall be not less than one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (1) in cash or (2) at the discretion of the Board at the
time of the grant of the Option, (A) by delivery to the Company of other Common
Stock of the Company, (B) according to a deferred payment (however, in the event
the Company reincorporates in Delaware, then payment of the Common Stock's "par
value," as defined in the Delaware General Corporation Law, shall not be made by
deferred payment), or other arrangement (which may include, without limiting the
generality of the foregoing, the use of other Common Stock of the Company) with
the person to whom the Option is granted or to whom the Option is transferred
pursuant to subsection 6(d), or (C) in any other form of legal consideration
that may be acceptable to the Board. In the case of any deferred payment
arrangement, interest shall be compounded at least annually.
(d) TRANSFERABILITY. An Option shall be transferable only to the extent
specifically provided in the Option Agreement; provided, however, that if the
Option Agreement does not specifically provide for the transferability of the
Option, the Option shall not be transferable except by will, by the laws of
descent and distribution, pursuant to a domestic relations order satisfying
the requirements of Rule 16 of the Exchange Act or to the spouse, children,
lineal ancestors and lineal descendants of the Optionee (or to a trust or a
limited liability partnership or company created solely for the benefit of
the Optionee and/or the foregoing persons) and shall be exercisable during
the lifetime of the person to whom the Option is granted only by such person
or a permitted transferee. Notwithstanding the foregoing, the person to whom
the Option is
5
<PAGE>
granted may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionee, shall thereafter be entitled to exercise the Option.
(e) VESTING.
(i) The total number of shares of stock subject to an Option shall be
allotted in periodic installments. The Option Agreement shall provide that from
time to time during each of such installment periods, the Option may become
exercisable ("vest") with respect to some or all of the shares allotted to that
period, and may be exercised with respect to some or all of the shares allotted
to such period and/or any prior period as to which the Option became vested but
was not fully exercised.
(ii) Initial Options for continuing Non-Employee Directors provided
under subsection 5(b) in each case will provide for vesting of 1/5th of the
shares 12 months after the date of the grant and 1/60th of the shares each month
thereafter; provided, however, that if the Optionee's Continuous Service
(whether as a Director, Employee or Consultant) is terminated either (1)
voluntarily (including due to death or disability) or (2) due to an Involuntary
Termination without Cause as defined in subsection 11(d), then the vesting of
such Option and the time during which such Option may be exercised shall be
accelerated upon the occurrence of such event.
(iii) Initial Options for new Non-Employee Directors provided
under subsection 5(c) in each case will provide for vesting of 1/12th of the
shares each month after the date of the grant; provided, however, that if the
Optionee's Continuous Service (whether as a Director, Employee or Consultant) is
terminated either (1) voluntarily (including due to death or disability) or (2)
due to an Involuntary Termination without Cause as defined in subsection 11(d),
then the vesting of such Option and the time during which such Option may be
exercised shall be accelerated upon the occurrence of such event.
(iv) Annual Options provided under subsection 5(d) in each case will
provide for vesting of 1/12th of the shares each month after the date of the
grant; provided, however, that if the Optionee's Continuous Service (whether as
a Director, Employee or Consultant) is terminated either (1) voluntarily
(including due to death or disability) or (2) due to an Involuntary Termination
without Cause as defined in subsection 11(d), then the vesting of such Option
and the time during which such Option may be exercised shall be accelerated upon
the occurrence of such event.
(f) TERMINATION OF SERVICE. In the event an Optionee's Continuous Service
(whether as a Director, Employee or Consultant) terminates (other than upon the
Optionee's death), the Optionee may exercise his or her Option (to the extent
that the Optionee was entitled to exercise it at the date of termination) but
only within such period of time ending on the earlier of (i) the date twelve
(12) months after the termination of the Optionee's Continuous Service or (ii)
the expiration of the term of the Option as set forth in the Option Agreement.
If, after termination,
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<PAGE>
the Optionee does not exercise his or her Option within the time specified in
the Option Agreement, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.
If the exercise of the Option following the termination of the Optionee's
Continuous Service (other than upon the Optionee's death or disability) would be
prohibited at any time solely because the issuance of shares would violate the
registration requirements under the Securities Act, then the Option shall
terminate on the earlier of (i) the expiration of the term of the Option as
described in subsection 6(a) or (ii) the expiration of a period of twelve (12)
months after the termination of the Optionee's Continuous Service during which
the exercise of the Option would not be in violation of such registration
requirements (if such provisions would result in an extension of the time during
which the Option may be exercised beyond the period described in the first
paragraph of this subsection 6(f)).
(g) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Service (whether as a Director, Employee or Consultant),
the Option may be exercised (to the extent the Optionee was entitled to exercise
the Option at the date of death) by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the option upon the Optionee's death pursuant to
subsection 6(d), but only within the period ending on the earlier of (i) the
date eighteen (18) months following the date of death , or (ii) the expiration
of the term of such Option as set forth in the Option Agreement. If, at the
time of death, the Optionee was not entitled to exercise his or her entire
Option, the shares covered by the unexercisable portion of the Option shall
revert to and again become available for issuance under the Plan. If, after
death, the Option is not exercised within the time specified herein, the Option
shall terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(h) RIGHT OF REPURCHASE. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to
repurchase all or any part of the vested shares exercised pursuant to the
Option.
(i) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionee of the
intent to transfer all or any part of the shares exercised pursuant to the
Option. Such right of first refusal shall be exercised by the Company no more
than thirty (30) days following receipt of notice of the Optionee's intent to
transfer shares and must be exercised as to all the shares the Optionee intends
to transfer unless the Optionee consents to exercise for less than all the
shares offered. The purchase of the shares following exercise shall be
completed within thirty (30) days of the Company's receipt of notice of the
Optionee's intent to transfer shares, or such longer period of time as has been
offered by the person to whom the Optionee intends to transfer the shares, or as
may be agreed to by the Company and the Optionee. Except as expressly provided
in this subsection 6(i), such right of
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<PAGE>
first refusal shall otherwise comply with any applicable provisions of the
Bylaws of the Company.
7. CANCELLATION AND RE-GRANT OF OPTIONS.
The Board shall have the authority to effect, at any time and from time to
time, (i) the repricing of any outstanding Options under the Plan and/or
(ii) with the consent of any adversely affected holders of Options, the
cancellation of any outstanding Options under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of stock, but having an exercise price per share not
less than the Fair Market Value for an Option. Notwithstanding the foregoing,
the Board may grant an Option with an exercise price lower than that set forth
above if such Option is granted as part of a transaction to which Section 424(a)
of the Code applies.
8. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep available at
all times the number of shares of stock required to satisfy such Options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares under Options; provided, however, that this undertaking
shall not require the Company to register under the Securities Act the Plan, any
Option or any stock issued or issuable pursuant to any such Option. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such Options unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
10. MISCELLANEOUS.
(a) Neither a Non-Employee Director nor any person to whom an Option is
transferred in accordance with the Plan shall be deemed to be the holder of, or
to have any of the rights of a holder with respect to, any shares subject to
such Option unless and until such person has satisfied all requirements for
exercise of the Option pursuant to its terms.
(b) Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any holder of Options any right to continue
serving as a Director, Employee or Consultant, or shall affect the right of the
Company or any Affiliate to terminate the
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<PAGE>
Optionee's service as a Director, Employee or Consultant pursuant to the
Company's Bylaws and the provisions of the corporate law of the state in
which the Company is incorporated.
(c) The Company may require any person to whom an Option is granted, or
any person to whom an Option is transferred in accordance with the Plan, as a
condition of exercising or acquiring stock under any Option, (i) to give written
assurances satisfactory to the Company as to such person's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters, and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Option; and (ii) to give written assurances satisfactory
to the Company stating that such person is acquiring the stock subject to the
Option for such person's own account and not with any present intention of
selling or otherwise distributing the stock. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if
(1) the issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective registration
statement under the Securities Act, or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(d) To the extent provided by the terms of an Option Agreement, the person
to whom an Option is granted may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of stock under an
Option by any of the following means (in addition to the Company's right to
withhold from any compensation paid to such person by the Company) or by a
combination of such means: (1) tendering a cash payment; (2) authorizing the
Company to withhold shares from the shares of the Common Stock otherwise
issuable to the participant as a result of the exercise or acquisition of stock
under the Option; or (3) delivering to the Company owned and unencumbered shares
of the Common Stock of the Company.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any Option, without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a), and the
outstanding Options will be appropriately adjusted in the class(es) and number
of shares and price per share of stock subject to such outstanding Options.
Such adjustments shall be made by the Board, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities
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<PAGE>
of the Company shall not be treated as a "transaction not involving the
receipt of consideration by the Company".)
(b) In the event of: (1) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the individuals who, as of the date of the adoption of
this Plan, are members of the Board (the "Incumbent Board"), cease for any
reason to constitute at least 50% of the Board, provided, however, that if the
election, or nomination for election, by the Company's shareholders of any new
Director was approved by a vote of at least 50% of the Incumbent Board, such new
Director shall, for purposes of this subsection 11(b), be considered as a member
of the Incumbent Board (collectively, a "Change in Control"), then: (i) any
surviving or acquiring corporation shall assume Options outstanding under the
Plan or shall substitute similar options (including an option to acquire the
same consideration paid to shareholders in the transaction described in this
subsection 11(b)) for those outstanding under the Plan, (ii) in the event the
any surviving or acquiring corporation does assume such Options or substitute
similar Options for those outstanding under the Plan, then upon the Optionee's
Voluntary Termination with Good Reason (as described in subsection 11(c)) or the
Optionee's Involuntary Termination without Cause (as described in subsection
11(d)) the vesting of such Options and the time during which such Options may be
exercised shall be accelerated upon the occurrence of such event, or (iii) in
the event any surviving or acquiring corporation refuses to assume such Options
or to substitute similar Options for those outstanding under the Plan, (A) with
respect to Options held by persons then performing services as Directors,
Employees or Consultants, the vesting of such Options and the time during which
such Options may be exercised shall be accelerated prior to such event and the
Options terminated if not exercised after such acceleration and at or prior to
such event, and (B) with respect to any other Options outstanding under the
Plan, such Options shall be terminated if not exercised prior to such event.
(c) The term "Voluntary Termination with Good Reason" in connection with a
Change in Control as described in subsection 11(b) means (i) the Optionee's
resignation, with good reason, as a Director, Employee or Consultant within one
month prior to the Change in Control or (ii) the Optionee's resignation, with
good reason, as a Director, Employee or Consultant of the surviving or acquiring
corporation which assumed the Optionee's Option or substituted a similar Option
for the Optionee's Option within 13 months after a Change in Control. "Good
reason" means any of the following to the extent applicable to the Optionee's
position as a Director, Employee or Consultant at that time:
(i) reduction of the Optionee's rate of compensation as in effect
immediately prior to the Change in Control;
(ii) failure to provide a package of benefits which, taken as a
whole, provide substantially similar benefits to those in which the Optionee
was entitled to participate immediately prior to the Change in Control;
10
<PAGE>
(iii) a change in the Optionee's responsibilities, authority,
title or office resulting in diminution of position, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad faith which
is remedied by the Company promptly after notice thereof is given by the
Optionee;
(iv) a request that the Optionee relocate to a worksite that is more
than 35 miles from the Optionee's prior worksite, unless the Optionee accept
such relocation opportunity;
(v) failure or refusal of a successor to the Company to assume the
Company's obligations under this option agreement; or
(vi) material breach by the Company or any successor to the Company of
any of the material provisions of the Optionee's option.
(d) The term "Involuntary Termination without Cause" in connection with a
Change in Control as described in subsection 11(b) means (i) the involuntary
termination, without cause, of the Optionee's Continuous Service (whether as a
Director, Employee or Consultant) by the Company within one month prior to a
Change in Control or (ii) the involuntary termination, without cause, of the
Optionee's Continuous Service by the surviving or acquiring corporation which
assumed the Optionee's Option or substituted a similar Option for the Optionee's
Option within 13 months after a Change in Control. "Cause" means any of the
following:
(i) the Optionee's theft, dishonesty, or falsification of documents
or records;
(ii) the Optionee's improper use or disclosure of the company's
confidential or proprietary information;
(iii) any action by the Optionee which has a detrimental effect on
the company's reputation or business;
(iv) The Optionee's failure or inability to perform any reasonable
assigned duties after written notice from the company of, and a reasonable
opportunity to cure, such failure or inability;
(v) any material breach by the Optionee of any service agreement
between the Optionee and the company which breach is not cured pursuant to the
terms of such agreement; or
(vi) the Optionee's conviction (including any plea of guilty or nolo
contendere) of any criminal act which impairs the Optionee's ability to perform
his or her duties with the company.
11
<PAGE>
12. AMENDMENT OF THE PLAN AND OPTIONS.
(a) The Board at any time, and from time to time, may amend the Plan.
(b) The Board may in its sole discretion submit any amendment to the Plan
for shareholder approval.
(c) Rights under any Option granted before amendment of the Plan shall not
be impaired by any amendment of the Plan unless (i) the Company requests the
consent of the person to whom the Option was granted and (ii) such person
consents in writing.
(d) The Board at any time, and from time to time, may amend the terms of
any one or more Options; provided, however, that the rights under any Option
shall not be impaired by any such amendment unless (i) the Company requests the
consent of the person to whom the Option was granted and (ii) such person
consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on August 21, 2112, which is fifteen
(15) years from the date the Plan was adopted by the Board. No Options may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Option granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the Option was granted.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on August 22, 1997, the date adopted by the
Board.
12
<PAGE>
NONSTATUTORY STOCK OPTION
(INITIAL OPTION - CONTINUING NON-EMPLOYEE DIRECTORS)
EXEMPT FROM QUALIFICATION UNDER
SECTION 25102(F) OF THE
CALIFORNIA CORPORATIONS CODE
_________________________, Optionee:
FCG Enterprises, Inc. (the "Company"), pursuant to its 1997 Non-Employee
Directors' Stock Option Plan (the "Plan"), has granted to you, the optionee
named above, an option to purchase shares of the common stock of the Company
("Common Stock"). This option is not intended to qualify as and will not be
treated as an "incentive stock option" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's
non-employee directors and is intended to comply with the provisions of Rule
701 promulgated by the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"). The grant of this
option and the issuance of shares upon the exercise of this option are also
intended to be exempt from the securities qualification requirements of the
California Corporations Code pursuant to Section 25102(f) of that code.
Defined terms not explicitly defined in this agreement but defined in the
Plan shall have the same definitions as in the Plan.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of
shares of Common Stock subject to this option is Five Thousand (5,000).
2. VESTING. Subject to the limitations contained herein, 1/5th of the
shares will vest (become exercisable) on August 22, 1998 (12 months after the
date of the grant) and 1/60th of the shares will then vest each month
thereafter until either (i) you cease to provide services to the Company for
any reason, or (ii) this option becomes fully vested.
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) EXERCISE PRICE. The exercise price of this option is Nineteen
and 03/100 Dollars ($19.03) per share, being not less than the fair market
value of the Common Stock on the date of grant of this option.
(b) METHOD OF PAYMENT. Payment of the exercise price per share is
due in full upon exercise of all or any part of each installment which has
accrued to you. You may elect, to the extent permitted by applicable
statutes and regulations, to make payment of the exercise price under one of
the following alternatives:
1
<PAGE>
(i) Payment of the exercise price per share in cash
(including check) at the time of exercise;
(ii) Provided that at the time of exercise the Company's
Common Stock is publicly traded, payment pursuant to a program developed
under Regulation T as promulgated by the Federal Reserve Board which, prior
to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds;
(iii) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly in the Wall Street
Journal, payment by delivery of already-owned shares of Common Stock, held
for the period required to avoid a charge to the Company's reported earnings,
and owned free and clear of any liens, claims, encumbrances or security
interests, which Common Stock shall be valued at its fair market value on the
date of exercise; or
(iv) Payment by a combination of the methods of payment
permitted by subsection 3(b)(i) through 3(b)(iii) above.
4. WHOLE SHARES. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Securities Act or,
if such shares are not then so registered, the Company has determined that
such exercise and issuance would be exempt from the registration requirements
of the Securities Act.
6. TERM. The term of this option commences on August 22, 1997, the
date of grant, and expires on August 21, 2007 (the "Expiration Date," which
date is ten (10) years from the date this option is granted), unless this
option expires sooner as set forth below or in the Plan. In no event may
this option be exercised on or after the Expiration Date. This option shall
terminate prior to the Expiration Date of its term as follows: twelve (12)
months after the termination of your Continuous Status as a Director with the
Company or an Affiliate of the Company unless one of the following
circumstances exists:
(a) Your termination of Continuous Status as a Director is due to
your death or your death occurs within twelve (12) months following your
termination of Continuous Status as a Director. This option will then expire
on the earlier of the Expiration Date set forth above or eighteen (18) months
after your death.
(b) If during any part of such twelve (12) month period you may not
exercise your option solely because of the condition set forth in Section 5
above, then your option will not expire until the earlier of the Expiration
Date set forth above or until this option shall have
2
<PAGE>
been exercisable for an aggregate period of twelve (12) months after your
termination of Continuous Status as a Director.
(c) If your exercise of the option within twelve (12) months after
termination of your Continuous Status as a Director with the Company or with
an Affiliate of the Company would result in liability under Section 16(b) of
the Securities Exchange Act of 1934, then your option will expire on the
earlier of (i) the Expiration Date set forth above, (ii) the tenth (10th) day
after the last date upon which exercise would result in such liability or
(iii) six (6) months and ten (10) days after the termination of your
Continuous Status as a Director with the Company or an Affiliate of the
Company.
However, this option may be exercised following termination of Continuous
Status as a Director only as to that number of shares as to which it was
exercisable on the date of termination of Continuous Status as a Director
under the provisions of Section 2 of this option.
7. REPRESENTATIONS. By executing this option agreement, you hereby
warrant and represent that you are acquiring this option for your own account
and that you have no intention of distributing, transferring or selling all
or any part of this option except in accordance with the terms of this option
agreement and Section 25102(f) of the California Corporations Code. You also
hereby warrant and represent that you have either (i) preexisting personal or
business relationships with the Company or any of its officers, directors or
controlling persons, or (ii) the capacity to protect your own interests in
connection with the grant of this option by virtue of the business or
financial expertise of any of your professional advisors who are unaffiliated
with and who are not compensated by the Company or any of its affiliates,
directly or indirectly.
8. EXERCISE.
(a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require
pursuant to the Plan.
(b) By exercising this option you agree that the Company (or a
representative of the underwriters) may, in connection with the first
underwritten registration of the offering of any securities of the Company
under the Securities Act, require that you not sell or otherwise transfer or
dispose of any shares of Common Stock or other securities of the Company
during such period (not to exceed one hundred eighty (180) days) following
the effective date (the "Effective Date") of the registration statement of
the Company filed under the Securities Act as may be requested by the Company
or the representative of the underwriters. You further agree that the
Company may impose stop-transfer instructions with respect to securities
subject to the foregoing restrictions until the end of such period.
9. TRANSFERABILITY. This option is not transferable, except (i) by
will or by the laws of descent and distribution, (ii) by written designation
which takes effect upon your death,
3
<PAGE>
(iii) by written instruction, in a form accepted by the Company, to your
spouse, children, stepchildren, or grandchildren (whether adopted or natural)
or to a trust, family partnership or limited liability company created solely
for the benefit of you or the foregoing persons or (iv) to your former spouse
(if transfer is pursuant to a judicial decree dissolving your marriage).
During your life this option is exercisable only by you or a transferee
satisfying the above conditions. The right of a transferee to exercise the
transferred portion of this option after your termination of service with the
Company shall terminate in accordance with your right of exercise under
Section 6 of this option, and after your death under subsection 6(a) of this
option (treating the transferee as a person who acquired the right to
exercise this option by bequest or inheritance). The terms of this option
shall be binding upon your transferees, executors, administrators, heirs,
successors and assigns.
10. OPTION NOT A SERVICE CONTRACT. Nothing in this option shall
obligate the Company or any Affiliate of the Company, or their respective
shareholders, Board of Directors, officers or employees to continue any
relationship which you might have as a Director for the Company or Affiliate
of the Company.
11. NOTICES. Any notices provided for in this option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the
address specified below or at such other address as you hereafter designate
by written notice to the Company.
12. GOVERNING PLAN DOCUMENT. This option is subject to all the
provisions of the Plan, a copy of which is attached hereto and its provisions
are hereby made a part of this option, including without limitation the
provisions of Section 6 of the Plan relating to option provisions, and is
further subject to all interpretations, amendments, rules and regulations
which may from time to time be promulgated and adopted pursuant to the Plan.
In the event of any conflict between the provisions of this option and those
of the Plan, the provisions of the Plan shall control.
Dated the 22nd day of August, 1997.
FCG ENTERPRISES, INC.
By
----------------------------------------
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
FCG Enterprises, Inc. 1997 Non-Employee Directors' Stock Option Plan
Notice of Exercise
4
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with
respect to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the
Company and its Affiliates regarding the acquisition of stock in the Company
and supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the
undersigned under stock option plans of the Company, and (ii) the following
agreements only:
NONE
------------
(Initial)
OTHER
------------------------------
------------------------------
------------------------------
--------------------------------------
OPTIONEE
Address:
-----------------------------
-----------------------------
5
<PAGE>
NONSTATUTORY STOCK OPTION
(INITIAL OPTION - NEW NON-EMPLOYEE DIRECTORS)
EXEMPT FROM QUALIFICATION UNDER
SECTION 25102(f) OF THE
CALIFORNIA CORPORATIONS CODE
_________________________, Optionee:
FCG Enterprises, Inc. (the "Company"), pursuant to its 1997 Non-Employee
Directors' Stock Option Plan (the "Plan"), has granted to you, the optionee
named above, an option to purchase shares of the common stock of the Company
("Common Stock"). This option is not intended to qualify as and will not be
treated as an "incentive stock option" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's
non-employee directors and is intended to comply with the provisions of Rule
701 promulgated by the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Securities Act"). The grant of this option and
the issuance of shares upon the exercise of this option are also intended to be
exempt from the securities qualification requirements of the California
Corporations Code pursuant to Section 25102(f) of that code. Defined terms not
explicitly defined in this agreement but defined in the Plan shall have the
same definitions as in the Plan.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of
shares of Common Stock subject to this option is One Thousand (1,000).
2. VESTING. Subject to the limitations contained herein, 1/12th of the
shares will vest (become exercisable) each month after the date of grant until
either (i) you cease to provide services to the Company for any reason, or (ii)
this option becomes fully vested.
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) EXERCISE PRICE. The exercise price of this option is __________
Dollars ($_________) per share, being not less than the fair market value of the
Common Stock on the date of grant of this option.
(b) METHOD OF PAYMENT. Payment of the exercise price per share is
due in full upon exercise of all or any part of each installment which has
accrued to you. You may elect, to the extent permitted by applicable statutes
and regulations, to make payment of the exercise price under one of the
following alternatives:
1.
<PAGE>
(i) Payment of the exercise price per share in cash
(including check) at the time of exercise;
(ii) Provided that at the time of exercise the Company's
Common Stock is publicly traded, payment pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board which, prior to the
issuance of Common Stock, results in either the receipt of cash (or check) by
the Company or the receipt of irrevocable instructions to pay the aggregate
exercise price to the Company from the sales proceeds;
(iii) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interests, which Common
Stock shall be valued at its fair market value on the date of exercise; or
(iv) Payment by a combination of the methods of payment
permitted by subsection 3(b)(i) through 3(b)(iii) above.
4. WHOLE SHARES. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Securities Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act.
6. TERM. The term of this option commences on ___________, 199__, the
date of grant, and expires on __________, 200__ (the "Expiration Date," which
date is ten (10) years from the date this option is granted), unless this
option expires sooner as set forth below or in the Plan. In no event may this
option be exercised on or after the Expiration Date. This option shall
terminate prior to the Expiration Date of its term as follows: twelve (12)
months after the termination of your Continuous Status as a Director with the
Company or an Affiliate of the Company unless one of the following
circumstances exists:
(a) Your termination of Continuous Status as a Director is due to
your death or your death occurs within twelve (12) months following your
termination of Continuous Status as a Director. This option will then expire on
the earlier of the Expiration Date set forth above or eighteen (18) months after
your death.
(b) If during any part of such twelve (12) month period you may not
exercise your option solely because of the condition set forth in Section 5
above, then your option will not expire until the earlier of the Expiration Date
set forth above or until this option shall have
2.
<PAGE>
been exercisable for an aggregate period of twelve (12) months after your
termination of Continuous Status as a Director.
(c) If your exercise of the option within twelve (12) months after
termination of your Continuous Status as a Director with the Company or with an
Affiliate of the Company would result in liability under Section 16(b) of the
Securities Exchange Act of 1934, then your option will expire on the earlier of
(i) the Expiration Date set forth above, (ii) the tenth (10th) day after the
last date upon which exercise would result in such liability or (iii) six (6)
months and ten (10) days after the termination of your Continuous Status as a
Director with the Company or an Affiliate of the Company.
However, this option may be exercised following termination of Continuous
Status as a Director only as to that number of shares as to which it was
exercisable on the date of termination of Continuous Status as a Director under
the provisions of Section 2 of this option.
7. REPRESENTATIONS. By executing this option agreement, you hereby
warrant and represent that you are acquiring this option for your own account
and that you have no intention of distributing, transferring or selling all or
any part of this option except in accordance with the terms of this option
agreement and Section 25102(f) of the California Corporations Code. You also
hereby warrant and represent that you have either (i) preexisting personal or
business relationships with the Company or any of its officers, directors or
controlling persons, or (ii) the capacity to protect your own interests in
connection with the grant of this option by virtue of the business or financial
expertise of any of your professional advisors who are unaffiliated with and
who are not compensated by the Company or any of its affiliates, directly or
indirectly.
8. EXERCISE.
(a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other
person as the Company may designate, during regular business hours, together
with such additional documents as the Company may then require pursuant to the
Plan.
(b) By exercising this option you agree that the Company (or a
representative of the underwriters) may, in connection with the first
underwritten registration of the offering of any securities of the Company
under the Securities Act, require that you not sell or otherwise transfer or
dispose of any shares of Common Stock or other securities of the Company during
such period (not to exceed one hundred eighty (180) days) following the
effective date (the "Effective Date") of the registration statement of the
Company filed under the Securities Act as may be requested by the Company or
the representative of the underwriters. You further agree that the Company may
impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such period.
9. TRANSFERABILITY. This option is not transferable, except (i) by will
or by the laws of descent and distribution, (ii) by written designation which
takes effect upon your death,
3.
<PAGE>
(iii) by written instruction, in a form accepted by the Company, to your
spouse, children, stepchildren, or grandchildren (whether adopted or natural)
or to a trust, family partnership or limited liability company created solely
for the benefit of you or the foregoing persons or (iv) to your former spouse
(if transfer is pursuant to a judicial decree dissolving your marriage).
During your life this option is exercisable only by you or a transferee
satisfying the above conditions. The right of a transferee to exercise the
transferred portion of this option after your termination of service with the
Company shall terminate in accordance with your right of exercise under Section
6 of this option, and after your death under subsection 6(a) of this option
(treating the transferee as a person who acquired the right to exercise this
option by bequest or inheritance). The terms of this option shall be binding
upon your transferees, executors, administrators, heirs, successors and assigns.
10. OPTION NOT A SERVICE CONTRACT. Nothing in this option shall obligate
the Company or any Affiliate of the Company, or their respective shareholders,
Board of Directors, officers or employees to continue any relationship which
you might have as a Director for the Company or Affiliate of the Company.
11. NOTICES. Any notices provided for in this option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the address
specified below or at such other address as you hereafter designate by written
notice to the Company.
12. GOVERNING PLAN DOCUMENT. This option is subject to all the provisions
of the Plan, a copy of which is attached hereto and its provisions are hereby
made a part of this option, including without limitation the provisions of
Section 6 of the Plan relating to option provisions, and is further subject to
all interpretations, amendments, rules and regulations which may from time to
time be promulgated and adopted pursuant to the Plan. In the event of any
conflict between the provisions of this option and those of the Plan, the
provisions of the Plan shall control.
Dated the __________ day of ______________, 199___.
FCG ENTERPRISES, INC.
By
----------------------------------
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
FCG Enterprises, Inc. 1997 Non-Employee Directors' Stock Option Plan
Notice of Exercise
4.
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its Affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the
undersigned under stock option plans of the Company, and (ii) the following
agreements only:
NONE _____________________
(Initial)
OTHER ______________________________
______________________________
______________________________
----------------------------------------
OPTIONEE
Address: _____________________________
_____________________________
5.
<PAGE>
NONSTATUTORY STOCK OPTION
(ANNUAL OPTION)
EXEMPT FROM QUALIFICATION UNDER
SECTION 25102(f) OF THE
CALIFORNIA CORPORATION CODE
_____________________________, Optionee:
FCG Enterprises, Inc. (the "Company"), pursuant to its 1997 Non-Employee
Directors' Stock Option Plan (the "Plan"), has granted to you, the optionee
named above, an option to purchase shares of the Company ("Common Stock"). This
option is not intended to qualify as and will not be treated as an
"incentive stock option" within the meaning of Section 422 or the Internal
Revenue Code of 1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's
non-employee directors and is intended to comply with the provisions of Rule
701 promulgated by the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"). The grant of this
option and the issuance of shares upon the exercise of this option are also
intended to be exempt from the securities qualification requirements of the
California Corporations Code pursuant to Section 25102(f) of that code.
Defined terms not explicitly defined in this agreement but defined in the
Plan shall have the same definitions as in the Plan.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number
of shares of Common Stock subject to this option is One Thousand (1,000).
2. VESTING. Subject to the limitation contained herein, 1/12the of
the shares will vest (become exercisable) each month after the date of grant
until either (i) you cease to provide services to the Company for any reason,
or (ii) this option becomes fully vested.
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) EXERCISE PRICE. The exercise price of this option is
_______________ Dollars ($___________) per share, being not less than the
fair market value of the Common Stock on the date of grant of this option.
(b) METHOD OF PAYMENT. Payment of the exercise price per share
is due in full upon exercise of all or any part of each installment which has
accrued to you. You may elect, to the extent permitted by applicable
statutes and regulations, to make payment of the exercise price under one of
the following alternatives:
1.
<PAGE>
(i) Payment of the exercise price per share in cash
(including check) at the time of exercise;
(ii) Provided that at the time of exercise the Company's
Common Stock is publicly traded, payment pursuant to a program developed
under Regulation T as promulgated by the Federal Reserve Board which, prior
to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds;
(iii) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly in the Wall Street
Journal, payment by delivery of already-owned shares of Common Stock, held
for the period required to avoid a charge to the Company's reported earnings,
and owned free and clear of any liens, claims, encumbrances or security
interests, which Common Stock shall be valued at its fair market value on the
date of exercise; or
(iv) Payment by a combination of the methods of payment
permitted by subsection 3(b)(i) through 3(b)(iii) above.
4. WHOLE SHARES. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, this option may not be exercised unless the shares
issuable upon exercise of this option are then registered under the
Securities Act or, if such shares are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the
registration requirements of the Securities Act.
6. TERM. The term of this option commences on January 1, 199__, the
date of grant, and expires on December 31, 200___(the "Expiration Date,"
which date is ten (10) years from the date this option is granted), unless
this option expires sooner as set forth below or in the Plan. In no event
may this option be exercised on or after the Expiration Date. This option
shall terminate prior to the Expiration Date of its term as follows: twelve
(12) months after the termination of your Continuous Status as a Director
with the Company or an Affiliate of the Company unless one of the following
circumstances exists:
(a) Your termination of Continuous Status as a Director is due to
your death or your death occurs within twelve (12) months following your
termination of Continuous Status as a Director. This option will then expire
on the earlier of the Expiration Date set forth above or eighteen (18) months
after your death.
(b) If during any part of such twelve (12) month period you may not
exercise your option solely because of the condition set forth in Section 5
above, then your option will not expire until the earlier of the Expiration
Date set forth above or until this option shall have
2.
<PAGE>
been exercisable for an aggregated period of twelve (12) months after your
termination of Continuous Status as a Director.
(c) If your exercise of the option within twelve (12) months after
termination of your Continuous Status as a Director with the Company or with
an Affiliate of the Company would result in liability under Section 16(b) of
the Securities Exchange Act of 1934, then your option will expire on the
earlier of (i) the Expiration Date set forth above, (ii) the tenth (10th) day
after the last date upon which exercise would result in such liability or
(iii) six (6) months and (10) days after the termination of your Continuous
Status as a Director with the Company or an Affiliate of the Company.
However, this option may be exercised following termination of
Continuous Status as a Director only as to that number of shares as to which
it was exercisable on the date of termination of Continuous Status under the
provision of Section 2 of this option.
7. REPRESENTATIONS. By executing this option agreement, you hereby
warrant and represent that you are acquiring this option for your owe account
and that you have no intention of distributing, transferring or selling all
or any part of this option except in accordance with the terms of this option
agreement and Section 25102(f) of the California Corporations Code. You
also hereby warrant and represent that you have either (i) preexisting
personal or business relationships with the Company or any of its officers,
directors or controlling persons, or (ii) the capacity to protect your own
interests in connection with the grant of this option by virtue of the
business or financial expertise of any of your professional advisors who are
unaffiliated with and who are not compensated by the Company or any of its
affiliates, directly or indirectly.
8. EXERCISE.
(a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other
person as the Company may designate, during regular business hours, together
with such additional documents as the Company may then require pursuant to
the Plan.
(b) By exercising this option you agree that the Company (or a
representative of the underwriters) may, in connection with the first
underwritten registration of the offering of any securities of the Company
under the Securities Act, require that you not sell or otherwise transfer or
dispose of any shares of Common Stock or other securities of the Company
during such period (not to exceed one hundred eighty (180) days) following
the effective date (the "Effective Date") of the registration statement of
the Company filed under the /securities Act as may be requested by the Company
or the representative of the underwriters. You further agree that the
Company may impose stop-transfer instructions with respect to securities
subject to the foregoing restrictions until the end of such period.
9. TRANSFERABILITY. This option is not transferable, except (i) by
will or by the laws of descent and distribution, (ii) by written designation
which takes effect upon your death,
3.
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with
respect to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the
Company and its Affiliates regarding the acquisition of stock in the Company
and supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the
undersigned under stock option plans of the Company, and (ii) the following
agreements only:
NONE ________________
(initial)
OTHER _______________________________
_______________________________
_______________________________
_____________________________________
OPTIONEE
Address: __________________________
__________________________
5.
<PAGE>
FCG ENTERPRISES, INC.
1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
NOTICE OF EXERCISE
FCG Enterprises, Inc.
111 W. Ocean Boulevard
4th Floor
Long Beach, CA 90802 Date of Exercise:____________________
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase the
number of shares for the price set forth below.
Stock option dated: _____________________
Number of shares as
to which option is
exercised: _____________________
Certificates to be
issued in name of: _____________________
Total exercise price: $____________________
Cash payment delivered
herewith: $____________________
By this exercise, I agree (i) to provide such additional documents as you
may require pursuant to the terms of the 1997 Non-Employee Directors' Stock
Option Plan or the stock option agreement and (ii) to provide for the payment by
me to you (in the manner designated by you) of your withholding obligation, if
any, relating to the exercise of this option.
I hereby make the following certifications and representations with respect
to the number of shares of Common Stock of the Company listed above (the
"Shares"), which are being acquired by me for my own account upon exercise of my
stock option as set forth above:
I acknowledge that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and are deemed to
constitute "restricted securities" under Rule 701 and "control securities" under
Rule 144 promulgated under the Securities Act. I warrant and represent to the
Company that I have no present intention of distributing or selling said Shares,
except as permitted under the Securities Act and any applicable state securities
laws.
1.
<PAGE>
I further acknowledge that I will not be able to resell the Shares for
at least ninety days after the stock of the Company becomes publicly traded
(I.E., subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934) under Rule 701 and that more restrictive
conditions apply to affiliates of the Company under Rule 144.
I further acknowledge that all certificates representing any of the
Shares subject to the provisions of the option shall have endorsed thereon
appropriate legends reflecting the foregoing limitations, as well as any legends
reflecting restrictions pursuant to the Company's Articles of Incorporation,
Bylaws and/or applicable securities laws.
I further agree that, if required by the Company (or a representative
of the underwriters) in connection with the first underwritten registration of
the offering of any securities of the Company under the Securities Act, I will
not sell or otherwise transfer or dispose of any Shares or other securities of
the Company held by me as provided by the terms of the Plan and my option.
Very truly yours,
_________________________________________________
2.
<PAGE>
LOAN AND PLEDGE AGREEMENT
$TotalLoan_
THIS LOAN AND PLEDGE AGREEMENT ("Agreement"), is made this 30Th day of
July, 1997, by and between FCG Enterprises, Inc., a California corporation, dba
First Consulting Group (the "Corporation") and Full_Name (the "Employee"), with
reference to the following facts:
A. Employee is a Vice President of the Corporation and is expected to or
may voluntarily purchase shares of the Corporation's Class A Common Stock
("Stock"), pursuant to the Corporation's 1994 Restricted Stock Bonus Plan, as
amended on October 1, 1996 ("Bonus Plan") and Restricted Stock Bonus Agreement,
as amended on October 1, 1996 ("Bonus Agreement").
B. Pursuant to authorization of the Board of Directors of the Corporation,
the Corporation may, in its discretion, make available to Vice Presidents, an
interest free loan in order to enable such employees to purchase the
Corporation's Stock, exercise options, or to pay taxes in connection with any
such transaction, which loan shall be subject to the terms and conditions set
forth below.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises of the parties set forth below, the parties agree as follows:
1. LOAN TO EMPLOYEE. Upon the execution of this Agreement by the
parties, the Corporation shall loan to Employee the sum of
Number_of_Acquired_Shares_Spelled ($AcquiredShares_). Said loan shall be
evidenced by a Secured Promissory Note ("Note") in the form of Exhibit "A"
attached hereto and made a part hereof. Employee acknowledges and agrees that
except in the case of default, there will be no interest charged on the Note and
that Employee may have reportable income as a consequence of the interest free
loan, and Employee will be responsible for payment of any income taxes with
respect thereto.
2. SECURITY FOR NOTE. In order to secure payment of the Note, Employee
hereby pledges and grants to the Corporation, a security interest in and to the
shares of common stock of the Corporation set forth on Exhibit "B" attached
hereto and made a part hereof (the "Collateral"). During the term of this
Agreement, all stock dividends on the stock pledged hereunder shall become part
of the Collateral. Upon signing this Agreement, Employee shall deliver to the
Corporation, the share certificate or certificates for the shares described in
Exhibit "B," along with a Stock Assignment Separate from Certificate, executed
in blank, appointing the Secretary of the Corporation as Employee's
attorney-in-fact to arrange for the transfer of the Collateral on the books of
the Corporation. Until an Event of Default (defined below), Employee shall
remain as the record owner of the Collateral, which shall nevertheless be
subject to the security interest created hereunder. Upon the occurrence of an
Event of Default, the Corporation shall have the right, without notice to
Employee, to immediately transfer record title to the Collateral to any
<PAGE>
designee selected by the Corporation, provided, however, that the Collateral
shall remain subject to the terms of this Agreement. Employee represents and
warrants that the Collateral is and shall remain free and clear of any and
all liens, claims, encumbrances and security interests, except for the
security interest granted hereunder.
3. SCOPE OF SECURITY INTEREST. This Agreement also secures: (a) any
and all extensions or renewals of the Note; (b) the repayment of all sums,
including but not limited to legal expenses, that may be advanced or incurred by
the Corporation for the maintenance, protection, preservation or sale of the
Collateral, or any part thereof; and (c) any and all other expenditures and
advances that may hereafter be made by the Corporation to Employee.
4. PLEDGE HOLDER. The parties agree that the Corporation, or its
designee, shall be the pledge holder under this Agreement.
5. EVENTS OF DEFAULT. An "Event of Default" hereunder shall exist upon
the occurrence of any one or more of the following events:
(a) Employee shall file an application for relief under the United
States Bankruptcy Code;
(b) An application for relief under the United States Bankruptcy Code
is filed against Employee and not dismissed within sixty days;
(c) Employee becomes insolvent;
(d) A receiver over all or substantially all of the property of
Employee is appointed and not removed within thirty days;
(e) Employee makes a general assignment for the benefit of creditors;
(f) A failure by Employee to perform one or more of Employee's
obligations under this Agreement, the Bonus Agreement, the Note or any other
note secured by this Agreement.
6. REMEDIES.
(a) Upon the occurrence of an Event of Default, the Corporation shall
have the right to exercise, at its option, any one or more of the rights, powers
and remedies afforded to the Corporation by virtue of this Agreement, and/or the
California Uniform Commercial Code, either concurrently or separately. Such
rights, powers and remedies are cumulative and the exercise by the Corporation
of any one or more of such rights, powers and remedies shall not preclude the
Corporation from exercising any other right or remedy available to it thereunder
or at law or in equity.
(b) Employee acknowledges and agrees that the Collateral is subject
to substantial restrictions on transfer under the Bonus Plan and Bonus
Agreement, which affect the
2
<PAGE>
marketability of the Collateral, and among things, presently prohibit the sale
of the Collateral to anyone other than the Corporation. Accordingly, Employee
agrees that the purchase price for the Collateral at any sale shall not exceed
the value determined in accordance with the Bonus Plan and the Bonus Agreement.
(c) The Corporation's notice of the time and place of sale of the
collateral or other disposition of the Collateral is reasonable, if sent to
Employee in the manner for giving notice at least five (5) days before the sale.
(d) In the event that the proceeds of the Collateral are insufficient
to pay in full all amounts owing to the Corporation under the Note and this
Agreement, including all of the Corporation's expenses incurred in foreclosing
on the collateral and all other obligations of Employee to the Corporation,
EMPLOYEE SHALL NOT BE LIABLE FOR ANY DEFICIENCY TO THE CORPORATION, IT BEING
UNDERSTOOD THAT EMPLOYEE'S LIABILITY UNDER THE NOTE IS LIMITED TO THE AMOUNT OF
THE COLLATERAL.
(e) No course of dealing between the Corporation and Employee or any
failure or delay on the part of the Corporation in exercising any of its rights
and/or remedies hereunder shall operate as a waiver of any other rights or
remedies of the Corporation and no single or partial exercise of any right or
remedy hereunder shall operate as a waiver or otherwise preclude the exercise of
any other rights or remedies hereunder. No waiver by the Corporation of any
breach or default by Employee shall be a waiver of any other breach or default
by Employee.
7. VOTING RIGHTS AND PROXY.
Until such time as an Event of Default exists under this Agreement,
Employee shall have the right to vote all of the shares pledged as Collateral
under this Agreement. At such time as an Event of Default exists or occurs under
this Agreement, Employee shall have no right to vote such shares, and Employee
irrevocably appoints the Chairman of the Board and President of the Corporation,
or other designee selected by the Board of Directors of the Corporation, and
each of them, as proxies, to vote such shares, and to give written consents in
lieu of voting, with respect to any all actions and matters, and in such manner,
as such proxies may determine, in their discretion. The parties agree that the
proxy granted hereby is coupled with an interest and is irrevocable as long as
this Agreement is in effect.
8. LEGAL ACTIONS. In the event legal action is instituted to enforce or
interpret any of the provisions of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees.
9. BINDING UPON SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, personal representatives, successors and
assigns. Provided, however, that Employee shall not assign this Agreement or any
interest herein, without the prior written consent of the Corporation. Any
assignment in violation of the foregoing sentence shall be void.
10. INTERPRETATION. This Agreement and all amendments and supplements
hereto may be
3
<PAGE>
signed in counterparts, and each shall be construed as one agreement. The
captions by which the paragraphs of this Agreement are identified and the
captions under which certain subject matter is placed are for convenience only
and shall have no affect upon the interpretation of this Agreement. This
Agreement shall be construed without regard to any presumption or other rule
requiring construction against the party or parties causing this Agreement or
any provision hereof to be drafted.
11. SEVERABILITY. If any term, provision, covenant or restriction
contained in this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants or restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
12. ARBITRATION. The parties shall submit any dispute concerning the
interpretation of or the enforcement of rights and duties under this Agreement,
including the Note, to final and binding arbitration pursuant to the Commercial
Arbitration Rules of the American Arbitration Association, in Los Angeles,
California. At the request of any party, the arbitrators, attorneys, parties to
the arbitration, witnesses, experts, court reporters, or other persons present
at the arbitration shall agree in writing to maintain the strict confidentiality
of the arbitration proceedings. Arbitration shall be conducted by a single,
neutral arbitrator, or, at the election of any party, three neutral arbitrators,
appointed in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The arbitrator(s) shall be attorneys in practice for at
least ten years, and experienced in the matter(s) being arbitrated. In any such
arbitration, California Code of Civil Procedure Section 1283.05 (Right to
Discovery; Procedure and Enforcement) shall be applicable. The award of the
arbitrator(s) shall be enforceable according to the applicable provisions of the
California Code of Civil Procedure. The arbitrator(s) shall have the same
powers as those of a judge of the superior court of the State of California, and
shall render a decision as would a judge of a superior court of the State of
California. Provided, however, the arbitrator(s) shall not have the authority or
power to award punitive or exemplary damages, and specifically shall have the
authority to grant equitable and injunctive relief. If proper notice of any
hearing has been given, the arbitrator(s) will have full power to proceed to
take evidence or to perform any other acts necessary to arbitrate the matter in
the absence of any party who fails to appear. EACH PARTY HERETO WAIVES THE RIGHT
TO A JURY TRIAL.
13. GOVERNING LAW, INTERPRETATION AND VENUE. This Agreement shall be
interpreted and enforced in accordance with the internal laws of the state of
California. The provisions of this Agreement shall be interpreted in accordance
with their plain meaning. No provision of this Agreement shall be interpreted
against a party as a consequence of that party having drafted said provision. It
is the intent of the parties, that all issues concerning this Agreement and/or
the Note be arbitrated in accordance with the provisions of Paragraph 12.
Nevertheless, should any legal action or proceeding be brought arising out of or
related to this Agreement, the parties agree and irrevocably consent to the
exclusive jurisdiction of the courts of the State of California and the federal
courts located in the State of California, County of Los Angeles, with respect
to any such legal action or proceeding. The parties waive any objection based on
FORUM NON CONVENIENS or improper venue in connection with any such action or
proceeding.
4
<PAGE>
14. AMENDMENTS. This Agreement may only be amended by a writing signed by
the parties hereto.
15. REFERENCES TO BONUS PLAN AND BONUS AGREEMENT. All references herein
to the Bonus Plan and Bonus Agreement, shall mean and include all previous and
future amendments thereto, and any successor or successors thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"CORPORATION" "EMPLOYEE"
FCG ENTERPRISES, INC.
By: _________________________________ _________________________________
Patricia A. Lowery (Signature)
Title: Vice President and Secretary
5
<PAGE>
CONSENT OF SPOUSE
I am the spouse of the Employee referred to in the above Loan and Pledge
Agreement. I have read and understood all of the provisions of the Loan and
Pledge Agreement and agree to be bound by the provisions thereof. I have been
given the opportunity to seek the advice of an independent attorney with respect
to the Loan and Pledge Agreement, and I have either done so or I have
voluntarily decided not to do so.
_____________________________
(Signature)
_____________________________
(Name Printed)
6
<PAGE>
SECURED PROMISSORY NOTE EXHIBIT "A"
(NON-RECOURSE)
$____________________ Long Beach, California
_________________, 199___
FOR VALUE RECEIVED, the undersigned ("Maker"), promises to pay to the order
of FCG Enterprises, Inc., a California corporation ("Payee"), at Long Beach,
California, the sum of __________________________________________________
($_____________) without interest, except in the case of default. In the event
of default, this note shall bear interest at the rate of ten percent (10%) per
annum until paid in full. All principal and interest (if any) shall be due and
payable on the earlier to occur of the following: (a) ten (10) years after the
date hereof; (b) upon the death of the undersigned; (c) at such time as the
undersigned is terminated, with or without cause, as an employee of Payee; and
(d) the occurrence of any event of default as specified in the Loan and Pledge
Agreement of even date herewith. Notwithstanding any provision hereof, in no
event shall the interest rate hereunder exceed the maximum rate permitted by
law.
In the event that any payment of principal or interest is not made when
due, all principal and interest hereunder shall become immediately due and
payable at the option of Payee. All payments shall be made in legal tender of
the United States.
The undersigned and every person who assumes or guarantees the obligations
of this note waive presentment, demand, notice of demand, protest, notice of
protest, notice of dishonor and notice of non-payment.
This Note shall be interpreted and enforced in accordance with the laws of
the state of California. Any dispute concerning this Note shall be subject to
binding arbitration in accordance with the provisions of Paragraph 12 of the
Loan and Pledge Agreement of even date herewith ("Agreement"), which secures
this Note. The provisions of said Paragraph 12 are incorporated herein by
reference. THE PARTIES TO THIS NOTE WAIVE THE RIGHT TO A JURY TRIAL.
In the event arbitration or any other proceeding is instituted to enforce
or interpret this Note, the undersigned agree to pay such reasonable attorneys'
fees, costs and expenses as may be incurred by the holder of this note in
connection with the collection of any sum or sums due hereunder. Attorneys' fees
incurred in enforcing any judgment shall be recoverable as a separate item,
shall be severable from the other provisions of this Note, shall survive any
judgment and shall not be deemed merged into the judgment.
In the event the property securing this Note is sold, transferred or
conveyed, without the prior written consent of Payee, all principal and interest
hereunder shall become immediately due and payable at the option of Payee. This
is a NON-RECOURSE NOTE, it being understood and agreed that in the event of a
default under this Note, Payee's recourse shall be to foreclose on the
Collateral referred to in the Loan and Pledge Agreement.
1
<PAGE>
This Note shall be interpreted and enforced in accordance with the laws of
the State of California. The parties intend that binding arbitration apply to
any dispute concerning the interpretation or enforcement of this Note.
Neverthless, if any legal action or suit is brought pertaining to this Note, it
shall be brought and maintained only in a court of competent jurisdiction within
the State of California, County of Los Angeles. Maker and Payee irrevocably
consent to the jurisdiction of the courts of the State of California or the
United States District Court, located within said county, and to venue in Los
Angeles County, California.
If more than one person signs this Note, each such person shall be jointly
and severally liable hereunder, and all references in this Note to "Maker" shall
apply to each of such persons.
"Maker"
____________________________________
(Signature)
____________________________________
(Name Printed)
______________________________________
(Signature of Spouse of Maker, if any)
____________________________________
(Name Printed)
______________________________
(Street Address)
______________________________
(City, State & Zip)
2
<PAGE>
SECURED PROMISSORY NOTE
(Non-Recourse)
$ Long Beach, California
June 30, 1997
FOR VALUE RECEIVED, the undersigned ("Maker"), promises to pay to the order
of FCG Enterprises,Inc., a California corporation ("Payee"), at Long Beach,
California, the sum of ($) without interest, except in the case of default. In
the event of default, this note shall bear interest at the rate of ten percent
(10%) per annum until paid in full. All principal and interest (if any) shall
be due and payable on the earlier to occur of the following: (a) ten (10) years
after the date hereof; (b) upon the death of the undersigned; (c) at such time
as the undersigned is terminated, with or without cause, as an employee of
Payee; and (d) the occurrence of any event of default as specified in the Loan
and Pledge Agreement dated December 19, 1995. Not withstanding any provision
hereof, in no event shall the interest rate hereunder exceed the maximum rate
permitted by law.
In the event that any payment of principal or interest is not made when
due, all principal and interest hereunder shall become immediately due and
payable at the option of Payee. All payments shall be made in legal tender of
the United States.
The undersigned and every person who assumes or guarantees the obligations
of this note waive presentment, demand, notice of demand, protest, notice of
protest, notice of dishonor and notice of non-payment.
This Note shall be interpreted and enforced in accordance with the laws of
the State of California. In the event legal action is instituted to enforce or
interpret this Note, the undersigned agree to pay such reasonable attorneys'
fees, costs and expenses as may be incurred by the holder of this note in
connection with the collection of any sum or sums due hereunder, whether by suit
or otherwise. Attorneys' fees incurred in enforcing any judgment shall be
recoverable as a separate item, shall be severable from the other provisions of
this Note, shall survive any judgment and shall not be deemed merged into the
judgment.
Maker and Payee entered into a Loan and Pledge Agreement dated December 19,
1995 ("Pledge Agreement"), in connection with a previous loan from Payee to
Maker. The Pledge Agreement is intended to secure any and all other advances by
Payee to Maker. Maker agrees that this Note shall be\ecured by the Pledge
Agreement and that a default under this Note shall be an Event of Default under
the Pledge Agreement.
This Note shall be interpreted and enforced in accordance with the laws of
the State of California. Any action or suit on this Note shall be brought and
maintained only in a court of competent jurisdiction within the State of
California, County of Los Angeles. Maker and Payee irrevocably consent to the
jurisdiction of the courts of the State of California or the United States
District Court, located within
said county, and to venue in Los Angeles County, California.
If more than one person signs this Note, each such person shall be jointly
and severally liable hereunder, and all references in this Note to "Maker" shall
apply to each of such persons.
<PAGE>
"Maker"
______________________________________________
(Signature)
______________________________________________
(Name Printed)
______________________________________________
(Signature of Spouse of Maker, if Any)
______________________________________________
(Name Printed)
<PAGE>
EXHIBIT B TO FCG
LOAN AND PLEDGE AGREEMENT
INITIAL PLEDGED SHARES
(Reference Paragraph 2)
Share Number
Certificate No. of Shares Name of Registered Owner
- --------------- --------- -------------------------
<PAGE>
FIRST CONSULTING GROUP
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Amended October 1, 1996)
THIS VP SHAREHOLDERS' SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (the "Plan")
is adopted by FCG Enterprises, Inc., a California corporation, dba First
Consulting Group, for the purpose of providing supplemental retirement benefits
to FCG VP Shareholders and their beneficiaries in consideration of services
rendered to FCG and as an inducement for their continued services in the future.
ARTICLE I
DEFINITIONS
Whenever used herein, the masculine pronoun shall be deemed to include the
feminine, and the singular to include the plural, unless the context clearly
indicates otherwise, and the following definitions shall be applicable to the
Plan:
1.1 "ACCOUNT BALANCE" means the sum of FCG Contributions, if any, plus
100% of the Participant's Deferral Amount, plus the earnings, if any, on total
FCG contributions and Participant Deferral Amounts.
1.2 "BENEFICIARY" means one, some, or all (as the context shall require)
of those persons, trusts or other entities which a Participant in his most
recent written form of beneficiary designation filed with FCG shall have
designated as a beneficiary to receive benefits which may be payable hereunder
upon a Participant's death as provided under Article VI.
1.3 "BOARD OF DIRECTORS" OR "BOARD" means the Board of Directors of FCG.
1.4 "COMMITTEE" means an independent Committee appointed by the Board to
administer this Plan and to take such other actions as may be specified herein.
If such a Committee is not in existence, references herein to the Committee
shall mean the Board.
1.5 "DEFERRAL AMOUNT" means the amount of Compensation that a Participant
elects to defer pursuant to Article IV.
1.6 "EFFECTIVE DATE" means January 1, 1994.
1.7 "ELECTION" means the voluntary deferral of a portion of a
Participant's Compensation, as expressed by the Participant on the
Participation Application attached hereto as EXHIBIT A, as it may be modified
from time to time or other such documentation acceptable to FCG.
<PAGE>
1.8 "ENTRY DATE" means the later of (a) January 1, 1994, (b) the
Participant's date of hire by FCG or (c) the date the Participant becomes an
Executive Officer of FCG.
1.9 "EXECUTIVE OFFICER" shall mean the Chairman of the Board, President,
all Vice-Presidents and the Chief Financial Officer of FCG;
1.10 "PARTICIPANT" means any Executive Officer of FCG who is in the group
of highly compensated or management employees selected by the Committee or the
Board for participation in this Plan and who, unless otherwise agreed by FCG, is
a Shareholder of FCG. All references herein to a "VP Shareholder" shall include
any other Executive Officer of FCG selected to participate in the Plan.
1.11 "INSURER" means the Pacific Mutual Life Insurance Company or other
company selected hereafter by FCG.
1.12 "NORMAL RETIREMENT AGE" means age 65.
1.13 "FCG" means FCG Enterprises, Inc., a California corporation, dba First
Consulting Group.
1.14 "PLAN" shall mean the FCG VP Shareholders' Supplemental Executive
Retirement Plan.
1.15 "PLAN YEAR" means the 12 month period commencing on January 1 and
ending on December 31.
1.16 "FCG CONTRIBUTION" means the amount which FCG voluntarily
contributes on behalf of a Participant pursuant to Article III.
1.17 "TOTAL DISABILITY" means the inability of the Participant to engage
substantially in his or her normal duties for FCG on account of physical or
mental impairment provided that such disability is determined to be long-term
and/or indefinite in duration. A Total Disability shall be determined in
accordance with the definition of disability contained in the FCG long-term
disability policy or plan then in effect.
1.18 "TRUST" means the legal entity created by the Trust Agreement.
1.19 "TRUST AGREEMENT" means that trust agreement entered into between
FCG and the Trustee, entitled First Consulting Group Irrevocable Executive
Benefit Trust, dated January 1, 1994.
1.20 "TRUSTEE" means the original Trustee(s) named in the Trust Agreement
and any duly appointed successor or successors thereto.
1.21 "YEAR OF SERVICE" means a year of service in which the Participant
<PAGE>
completes at least 1,000 hours of continuous service as an Executive Officer
in the employ of the Company, commencing on the date Participant becomes an
Executive Officer of FCG, and successive anniversaries thereof during which
the Participant is on FCG's payroll, including leaves of absence approved by
FCG.
ARTICLE II
ELIGIBILITY
2.1 Eligibility for participation in the Plan shall be limited to VP
Shareholders of FCG who are eligible for and participate in the FCG
Restricted Stock Bonus Plan, as amended from time to time, and who are
selected by the Committee, in its sole discretion, to participate in the
Plan. Individuals who are within this select group shall be notified by FCG
as to their eligibility to participate in this Plan. The Committee may permit
selected officers to defer Compensation under and subject to the Plan, for
whom no FCG Contributions will be made.
2.2 A Participant shall begin participation in the Plan upon the date
that Participant becomes an Executive Officer of FCG, subject to submission
of a signed and completed Enrollment Form. Provided, however, that if the
Participant is not a shareholder of FCG as of the end of the year in which
the Participant was hired by FCG ("Hire Year"), then any Contributions made
by FCG for the account of the Participant with respect to the Hire Year,
shall be forfeited and shall not inure to the benefit of such Participant.
2.3 Participation in the Plan shall end when a Participant's employment
terminates for any reason and/or if the Participant is no longer an officer
or shareholder of FCG. However, if such person is still an officer, but not
a shareholder of FCG, he may be permitted to continue to elect to defer
Compensation subject to the terms of this Plan, but no Contributions to the
Plan shall be made by FCG with respect to Compensation paid to such person
after the participation termination date.
ARTICLE III
FCG CONTRIBUTIONS
3.1 In March 1994, and for each Plan Year thereafter in which this Plan
is in effect, FCG may make a voluntary Contribution. The Contribution shall
be determined by the Board of Directors, in its sole discretion. Vesting in
FCG Contributions shall be subject to the following terms and conditions:
(a) A Participant shall be 100% vested in his FCG Contributions upon
termination of employment with FCG due to a Change in Control or upon the date
that the Plan is terminated as provided in Paragraph 9.8. For purposes of this
<PAGE>
Paragraph 3.1(a), a "Change in Control" shall mean any of the following:
(i) the direct or indirect sale or exchange by the
stockholders of FCG of all or substantially all of the stock of FCG where the
existing stockholders of FCG before the sale or exchange, do not retain,
directly or indirectly, at least a majority of the beneficial interest in the
voting stock of FCG after the sale or exchange, provided, however, that the
acquisition of stock of FCG by FCG's Associate Profit Sharing 401(k) and
Stock Ownership Plan shall not be considered in determining a Change in
Control;
(ii) a merger in which FCG is a party where the existing
stockholders of FCG before such merger, do not retain, directly or
indirectly, at least a majority of the beneficial interest in the voting
stock of FCG after the merger; or
(iii) the sale, exchange, or transfer (including, without
limitation, pursuant to a liquidation or dissolution) of all or substantially
all of FCG's assets (other than a sale, exchange, or transfer to one or more
corporations where the existing stockholders of FCG before such sale,
exchange or transfer, retain, directly or indirectly, at least a majority of
the voting stock of the acquiring corporation..
(b) In the event a Participant terminates employment with FCG prior
to the date the Plan is terminated, other than in connection with a Change in
Control, his vested percentage in his FCG Contributions shall be determined as
follows:
(1) 10% per Year of Service with 100% vesting after ten
Years of Service under the Plan;
(2) For persons that were Vice Presidents on January 1,
1994, up to five Years of Service as a Vice President prior to the Effective
Date shall be credited toward vesting in the Plan.
(c) Upon death, Total Disability or reaching Normal Retirement Age, a
Participant will become 100% vested in all FCG Contributions.
ARTICLE IV
SALARY REDUCTION CONTRIBUTION
4.1 (a) As of the Entry Date through and until the time that a
Participant elects otherwise in accordance with the provisions of Paragraph
4.2, a Participant agrees to reduce his Compensation (defined below) by the
amount set forth in an Election duly executed and filed with FCG. Deferral
Amounts shall be irrevocably deferred and shall thereafter be distributed
only in accordance with this Plan.
(b) The maximum Deferral Amount in any Plan Year shall not be more
than 10% of the Participant's annual base salary in effect on the later of: the
Entry Date or the first day of each Plan Year thereafter.
<PAGE>
(c) As used herein, Compensation shall include the Participant's
annual base salary and bonuses.
4.2 (a) A Participant may at any time upon written notice to FCG cease
entirely his salary reduction, and as soon thereafter as administratively
feasible, no further salary reduction under this Plan shall be made for the
Participant until such time as a new Election may be filed pursuant to
subparagraph (b) of this Paragraph 4.2.
(b) A Participant may amend his Election, at any time, upon written
notice to FCG, to increase or decrease the amount of salary reduction, subject
to the provisions of subparagraph (b) of Paragraph 4.1, above. Any such
amendment shall be effective on the first day of the next Plan Year.
4.3 Except as otherwise provided in Paragraph 4.2. above, a Participant's
Election shall continue in effect until the earlier of the Participant's Normal
Retirement Age, Total Disability, the date the Participant terminates employment
with FCG or the date the Participant files a new Election pursuant to Paragraph
4.1(a) or amendment pursuant to Section 4.2(b).
4.4 Except as provided in Paragraphs 6.4 and 6.5 below, the Deferral
Amounts may not be withdrawn by a Participant and shall be paid only in
accordance with the provisions of this Plan.
4.5 A Participant shall always be 100% vested in his Deferral Amounts.
ARTICLE V
INVESTMENT OF FCG CONTRIBUTIONS
AND ELECTIVE DEFERRAL AMOUNTS
5.1 The Trustee shall invest FCG Contributions and Participants' Deferral
Amounts in the investment subaccounts of the Insurer's Variable Universal Life
Policies ("Policies") owned by the Trust. The Policies owned by the Trust shall
be on the lives of Participants exclusively, but no Participant shall have any
interest in any such Policies.
5.2 The benefits to which a particular Participant is entitled under this
Plan are based upon such Participant's Account Balance which will vary upward
and downward based on the crediting rates published by the Insurer for the
investment subaccounts selected by each Participant, less an annual Plan
administrative fee of one-half percent. FCG shall pay all insurance charges and
policy expenses in addition to its annual contributions, if any.
5.3 Amounts contributed to the Plan shall be invested in one or more of
the available investment subaccounts. Participants may indicate their
preferences for the allocation of FCG Contributions and Deferral Amounts
invested on their behalf. Such
<PAGE>
preferences shall be on a form provided by the Committee and shall be
accepted at least one time per quarter. The Trustee shall endeavor to
allocate amounts among the investment subaccounts in accordance with the
Participant's preference indications, but shall not be bound by such
preferences.
ARTICLE VI
PAYMENT OF BENEFITS
6.1 Upon the Participant's Normal Retirement Age or upon his Death or
Total Disability, whichever comes first, there shall be distributed to the
Participant an amount equal to the Participant's Account Balance, in monthly or
annual installments over a period of years. If the distributions commence on
account of the Participant's Total Disability, the period of years over which
installments will be made shall be 10 years and installments shall be in monthly
payments. If the distributions commence because the Participant has reached
Normal Retirement Age, the period of years over which installments will be made
shall be 15 years and installments shall be annual payments. Notwithstanding
the foregoing, a Participant may elect on his Entry Date to defer payments on
account of Total Disability until all payments under the FCG long-term
disability plan have been paid out. In the event a Participant dies after
installment payments have begun but before all of the installments are paid, the
undistributed installments shall be paid to the Participant's Beneficiary.
6.2 (a) In the event a Participant terminates employment with FCG prior
to his Normal Retirement Age for any reason except death or Total Disability,
the Participant shall be paid an amount equal to the Participant's vested
Account Balance, payable as follows:
(1) If the Participant terminates employment pursuant to a
voluntary resignation, the amount determined under Paragraph 6.2(a) shall be
distributed in a lump sum payment;
(2) If the Participant terminates employment under any
circumstances other than a voluntary termination, the amount determined under
Paragraph 6.2(a) shall be paid out in annual installments over a period of
years, such period being equal to the Participant's Years of Service, as defined
in Paragraph 1.21, or fifteen (15) years, whichever is less.
6.3 Upon the Participant's death prior to the Participant's Normal
Retirement Age, Total Disability or other termination of employment, the
Participant's Account Balance shall be paid to the Participant's Beneficiary.
On the Participant's Entry Date, he shall select the payment method for this
distribution of the Participant's Account Balance from the following options:
(i) Monthly payments over a period of years, as determined by the
<PAGE>
Participant, not to exceed the Beneficiary's life expectancy; or
(ii) A lump sum cash payment.
6.4 If on January 1, 1997, Participant has legal dependents, Participant
may, on January 1, 1997 and thereafter, elect in-service distributions for
expected college education expenses for such dependents. If subsequent to
January 1, 1997, Participant acquires new legal dependents by birth or marriage,
Participant may make such election at the next Plan Anniversary following the
acquisition of such new legal dependents. The amounts available for
distribution under this Paragraph 6.4 shall be limited to the Participant's
Deferral Amounts credited to the Participant's account after the date of the
election and any earnings included in the Participant's Account Balance.
The dates and amounts of distribution shall be fixed at the time of
election and may not be canceled or changed. This election shall be indicated
on Exhibit A attached hereto or other documentation acceptable to FCG.
6.5 All payments under this Article VI shall be subject to all applicable
withholding for state and federal income tax.
ARTICLE VII
BENEFICIARIES
7.1 A Participant shall have the right to designate on the Participation
Application attached as EXHIBIT A, a Beneficiary to receive any amounts due
under Article VI which may remain unpaid at the Participant's death.
7.2 A Participant shall have the right at any time to revoke such
designation and to substitute another such Plan Beneficiary; however, if the
beneficiary is the Participant's spouse, said spouse must agree to any change in
writing.
7.3 If, upon the death of a Participant, there is no valid designation of
Beneficiary, the Beneficiary shall be the Participant's estate.
ARTICLE VIII
OBLIGATION TO PAY SUPPLEMENTAL PLAN BENEFITS
8.1 All amounts or benefits payable to a Participant hereunder, including
the amounts payable under Article VI, shall be paid by the Trustee.
8.2 Notwithstanding the foregoing, the Trustee shall have no obligation to
pay any sums in excess of amounts held by the Trustee.
<PAGE>
8.3 Except as otherwise provided by the Trust Agreement, all Account
Balances shall be subject to the claims of creditors of FCG and neither any
Participant nor any Beneficiary shall have any legal or equitable interest in
the Trust, or any other asset of FCG. The Participant shall be a general
unsecured creditor of FCG with respect to the promises of FCG made herein,
except as otherwise expressly provided by the Trust Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 The right of any Participant, any Beneficiary, or any other person to
the payment of any benefits or amounts under this Plan shall not be voluntarily
or involuntarily assigned or transferred, or pledged or encumbered (collectively
"Assignment"). Any Assignment in violation of the previous sentence shall be
void.
9.2 Subject to Paragraph 9.1, this Plan shall be binding upon and inure to
the benefit of FCG, its successors and assigns and the Participant and his
heirs, executors, administrators, legal representatives and Beneficiary. For
purposes of this Article IX, such entities or persons are referred to
individually herein as "party" and collectively as "parties."
9.3 Nothing contained herein shall be construed as conferring upon any
Participant the right to continue in the employ of FCG.
9.4 FCG, any Participant and any Beneficiary, or a successor in interest
to any of the foregoing, shall submit any dispute concerning the
interpretation of or the enforcement of rights and duties under this Plan to
final and binding arbitration pursuant to the Commercial Arbitration Rules of
the American Arbitration Association, in Los Angeles, California. At the
request of any party, the arbitrators, attorneys, parties to the arbitration,
witnesses, experts, court reporters, or other persons present at the
arbitration shall agree in writing to maintain the strict confidentiality of
the arbitration proceedings. Arbitration shall be conducted by a single,
neutral arbitrator, or, at the election of any party, three neutral
arbitrators, appointed in accordance with the Commercial Arbitration Rules of
the American Arbitration Association. The arbitrator(s) shall be attorneys in
practice for at least ten years, and experienced in the matter(s) being
arbitrated. In any such arbitration, California Code of Civil Procedure
Section 1283.05 (Right to Discovery; Procedure and Enforcement) shall be
applicable. The award of the arbitrator(s) shall be enforceable according to
the applicable provisions of the California Code of Civil Procedure. The
arbitrator(s) shall have the same powers as those of a judge of the superior
court of the State of California, and shall render a decision as would a
judge of a superior court of the State of California. Provided, however, the
arbitrator(s) shall not have the authority or power to award punitive or
exemplary damages, and specifically shall have the authority to grant
equitable and injunctive relief. If proper notice of any hearing has been
given, the arbitrator(s) will
<PAGE>
have full power to proceed to take evidence or to perform any other acts
necessary to arbitrate the matter in the absence of any party who fails to
appear. TO THE FULLEST EXTENT PERMITTED BY LAW, AND AS SEPARATELY
BARGAINED-FOR CONSIDERATION, EACH PARTY HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY.
9.5 The prevailing party in such arbitration shall be entitled to recover
from the losing party or parties, the prevailing party's costs of such legal
action including, without limitation, reasonable fees of attorneys, and the
costs and expenses for accountants and similar advisors and expert witnesses
fees and expenses. The arbitrator(s) shall have the authority to determine
the prevailing party or parties.
9.6 This Plan shall be interpreted and enforced in accordance with the
internal laws of the state of California. The provisions of this Plan shall
be interpreted in accordance with their plain meaning. No provision of this
Plan shall be interpreted against a party as a consequence of that party
having drafted said provision. It is the intent of the parties, that all
issues concerning this Plan be arbitrated in accordance with the provisions
of Paragraph 9.4. Nevertheless, should any legal action or proceeding be
brought arising out of or related to this Plan, the parties agree and
irrevocably consent to the exclusive jurisdiction of the courts of the State
of California and the federal courts located in the State of California,
County of Los Angeles, with respect to any such legal action or proceeding.
Participant waives any objection based on FORUM NON CONVENIENS or improper
venue in connection with any such action or proceeding.
9.7 This Plan including its exhibits, and the Trust Agreement, constitutes
the entire understanding and agreement with respect to the subject matter
contained herein. There are no agreements, understandings, restrictions,
representations or warranties among any Participant and FCG pertaining to the
subject matter hereof, other than those as set forth or provided for herein.
9.8 (a) This Plan may be amended by FCG in writing, provided, however,
that no amendment may be made which would alter the irrevocable nature of any
FCG Contributions or Participant Compensation deferrals made prior thereto.
(b) Notwithstanding the foregoing paragraph or any other provision in
this Plan to the contrary, FCG reserves the right to terminate the Plan in its
entirety at any time following fifteen (15) days notice to the then
Participants. If the Plan is terminated, all benefits shall be paid as if the
Participant had voluntarily terminated employment on the date of Plan
termination, pursuant to the provisions of Paragraph 6.2. Any amounts remaining
in the Trust after all benefits have been paid shall be paid to FCG.
(c) Notwithstanding any other provision in the Plan to the contrary,
FCG reserves the right to discontinue this Plan and provide for continued
compensation deferral under the terms of a successor plan. If this Plan is
discontinued and if compensation deferral continues under a successor plan, all
amounts contributed under
<PAGE>
the Plan shall continue to be held by the Trustee and invested with payouts
in accordance with Article VI.
9.9 Any notice to be given hereunder shall be effective either by personal
delivery in writing or by mail, registered or certified, postage pre-paid, with
return receipt requested. Mailed notices shall be addressed as follows:
TO FCG: First Consulting Group
111 W. Ocean Boulevard, Suite 400
Long Beach, CA 90802
Attn: Patricia Lowery
TO TRUSTEE: City National Bank
120 South Spalding Drive
P.O. Box 1141
Beverly Hills, CA 90213-9977
TO PARTICIPANT: At the last known address
for Participant appearing
on the books of FCG
Any person may change his or its address for notices, by giving notice of change
of address in accordance with this paragraph.
9.10 The captions of the various Articles and paragraphs contained in
this Plan are provided for convenience only and shall not be used to
interpret, alter or modify the provisions hereof.
9.11 This Plan, as amended on the date set forth below, supersedes the
provisions of the Plan as adopted on January 1, 1994, as amended thereafter
but prior to the date hereof.
IN WITNESS WHEREOF, the undersigned has caused this Plan, as amended, to be
executed as of the 1st day of October, 1996, at Long Beach, California.
FCG ENTERPRISES, INC.
By:______________________________
(Authorized Officer)
Title:___________________________
<PAGE>
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of _________, 1997 by
and between FIRST CONSULTING GROUP, INC., a Delaware corporation (the
"Corporation"), and ____________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his/her
capacity as _______________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as ______________ of
the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
_______________ after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
______________ of the Corporation or as a director, officer or other fiduciary
of an affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; PROVIDED,
HOWEVER, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and the Code, as the same may be amended from time to
time (but, only to the extent that such
1.
<PAGE>
amendment permits the Corporation to provide broader indemnification rights
than the Bylaws or the Code permitted prior to adoption of such amendment).
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement and any other
amounts that Agent becomes legally obligated to pay because of any claim or
claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of the Code and Section 43
of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(b) on account of Agent's conduct that was knowingly fraudulent or
deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
2.
<PAGE>
(f) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Corporation, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers vested in the
Corporation under the Code, or (iv) the proceeding is initiated pursuant to
Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at its
own expense;
(b) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless
(i) the employment of counsel by Agent has been authorized by the Corporation,
(ii) Agent shall
3.
<PAGE>
have reasonably concluded that there may be a conflict of interest between
the Corporation and Agent in the conduct of the defense of such action or
(iii) the Corporation shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of
Agent's separate counsel shall be at the expense of the Corporation. The
Corporation shall not be entitled to assume the defense of any action, suit
or proceeding brought by or on behalf of the Corporation or as to which Agent
shall have made the conclusion provided for in clause (ii) above; and
(c) the Corporation shall not be liable to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which shall not be unreasonably withheld. The
Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all
expenses incurred by Agent in connection with such proceeding upon receipt of
an undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of
Directors or its stockholders) to have made a determination prior to the
commencement of such enforcement action that indemnification of Agent is proper
in the circumstances, nor an actual determination by the Corporation (including
its Board of Directors or its stockholders) that such indemnification is
improper shall be a defense to the action or create a presumption that Agent is
not entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote
4.
<PAGE>
of stockholders or directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office.
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.
17. HEADINGS. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given
(i) upon delivery if delivered by hand to the party to whom such communication
was directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
5.
<PAGE>
(a) If to Agent, at the address indicated on the signature page
hereof.
(b) If to the Corporation, to
First Consulting Group, Inc.
111 W. Ocean Boulevard, 4th Floor
Long Beach, CA 90802
or to such other address as may have been furnished to Agent by the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
FIRST CONSULTING GROUP, INC.
By:
---------------------------------------------
Title:
-----------------------------------------
AGENT
------------------------------------------------
Address:
------------------------------------------------
------------------------------------------------
6.
<PAGE>
Exhibit 10.8
OFFICE LEASE
LANDMARK SQUARE
LANDMARK SQUARE ASSOCIATES, L.P.,
a California limited partnership,
as Landlord,
and
FCG ENTERPRISES, INC.,
a California corporation,
dba First Consulting Group
as Tenant
<PAGE>
LANDMARK SQUARE
SUMMARY OF BASIC LEASE INFORMATION
The undersigned hereby agree to the following terms of this Summary of
Basic Lease Information (the "Summary"). Tiffs Summary is hereby incorporated
into and made a part of the attached Office Lease (this Summary and the Office
Lease to be known collectively as the "Lease") which pertains to the office
building (the "Building") which is located at 111 West Ocean Boulevard, Long
Beach, California. Each reference in the Office Lease to any term of this
Summary shall have the meaning as set forth in this Summary for such term. In
the event of a conflict between the terms of this Summary and the Office Lease,
the terms of the Office Lease shall prevail. Any capitalized terms used herein
and not otherwise defined herein shall have the meaning as set forth in the
Office Lease.
TERMS OF LEASE DESCRIPTION
(References are to the Office Lease)
1. Date: October 3, 1996
2. Landlord: LANDMARK SQUARE ASSOCIATES, L.P., a
California limited partnership.
3. Address of Landlord c/o Cushman Management Corporation
(Section 29.19): 111 West Ocean Blvd.
Suite 1717
Long Beach, California 90802
Attention: Managing Director
With a copy to:
Allen, Matkins, Leck, Gamble & Mallory
1999 Avenue of the Stars, Suite 1800
Los Angeles, California 90067-6050
Attention: Anton N. Natsis, Esq.
4. Tenant: FCG ENTERPRISES, INC., a California
corporation, dba First Consulting Group
5. Address of Tenant 111 West Ocean Boulevard
(Section 30.19): Suite 1750
Long Beach, California 90802
Attention: Ms. Patricia Lowery
(Prior to Lease Commencement Date)
and
111 West Ocean Boulevard
Suite 400
Long Beach, California 90802
Attention: Ms. Patricia Lowery
(After Lease Commencement Date)
(ii)
<PAGE>
6. Premises (Article 1): The entire fourth (4th) floor of the
Building consisting of 18,172 rentable
square feet of space (16,751 usable
square feet) ("4TH FLOOR PREMISES") and
5,664 rentable square feet of space
(4,873 usable square feet) located on
the fifteenth (15th) floor of the
Building ("15TH FLOOR PREMISES"), as set
forth in Exhibit A attached hereto;
provided, however, that the actual
number of usable square feet anti
rentable square feet of the Premises
shall be determined pursuant to the
Final Space Plans and subject to
verification pursuant to Section 1.2 of
the Office Lease.
7. Term (Article 2).
7.1 Lease Term: Five (5) years and zero (0) months.
7.2 Lease Commencement The earlier of(i) the date Tenant, or any
Date: person occupying any portion of the
Premises with Tenant's permission,
commences business operations from the
Premises, and (ii) one hundred fifty
(150) days after full execution of tiffs
Lease and delivery thereof to Tenant.
7.3 Lease Expiration Date: The last day of the month in which the
5th anniversary of the Lease Commencement
Date occurs.
8. Base Rent (Article 3) (subject to
final determination and
verification of the number of
usable square feet and rentable
square feet of the Premises):
MONTHLY ANNUAL RENTAL
MONTH OF INSTALLMENT OF RATE PER RENTABLE
LEASE TERM ANNUAL BASE RENT BASE RENT SQUARE FOOT
----------- ---------------- -------------- ----------------
4th Floor Premises
1-6 $0.00 $0.00 $0.00
7-18 $321,762.00 $26,813.50 $17.71
19-60 $381,612.00 $31,801.00 $21.00
15th Floor Premises
1-60 $132,537.00 $11,044.80 $23.40
9. Additional Rent (Article 4).
9.1 Base Year: Calendar year 1997.
9.2 Tenant's Share: Approximately 5.42% (subject to final
determination and verification of the
number of usable square feet and
rentable square feet of the Premises).
10. Security Deposit (Article 21): Waived.
11. Parking Pass Ratio (Article 28): 4 parking passes for every 1,000
rentable square
(iii)
<PAGE>
feet of the Premises.
(iv)
<PAGE>
12. Broker (Section 30.25): Matlow-Kennedy Commercial Real Estate
Services
4510 East Pacific Coast Highway
Suite 100
Long Beach, California 90804
The foregoing terms of this Summary are hereby agreed to by Landlord and Tenant.
"Landlord":
LANDMARK SQUARE ASSOCIATES, L.P.,
a California limited partnership
By: Cushman Landmark Ltd., a
California limited partnership, a
general partner
By: Cushman Investment and
Development Corporation, a
California corporation, a general
partner
By:
-----------------------------------
Name: Stuart R. Essery
Title: Vice President
"Tenant":
FCG ENTERPRISES, INC., a California
corporation, dba First Consulting Group
By:
----------------------------------
Its:
----------------------------------
By:
----------------------------------
Its:
----------------------------------
(v)
<PAGE>
LANDMARK SQUARE
INDEX
ARTICLE SUBJECT MATTER PAGE
ARTICLE 1 REAL PROPERTY, BUILDING AND PREMISES.................. 1
ARTICLE 2 LEASE TERM............................................ 5
ARTICLE 3 BASE RENT............................................. 7
ARTICLE 4 ADDITIONAL RENT....................................... 7
ARTICLE 5 USE OF PREMISES....................................... 17
ARTICLE 6 SERVICES AND UTILITIES................................ 18
ARTICLE 7 REPAIRS............................................... 20
ARTICLE 8 ADDITIONS AND ALTERATIONS............................. 21
ARTICLE 9 COVENANT AGAINST LIENS................................ 23
ARTICLE 10 INSURANCE............................................. 23
ARTICLE 11 DAMAGE AND DESTRUCTION................................ 25
ARTICLE 12 NONWAIVER............................................. 27
ARTICLE 13 CONDEMNATION.......................................... 28
ARTICLE 14 ASSIGNMENT AND SUBLETTING............................. 28
ARTICLE 15 SURRENDER OF PREMISES; REMOVAL OF TRADE FIXTURES...... 32
ARTICLE 16 HOLDING OVER.......................................... 32
ARTICLE 17 ESTOPPEL CERTIFICATES................................. 33
ARTICLE 18 SUBORDINATION......................................... 33
ARTICLE 19 DEFAULTS; REMEDIES.................................... 34
ARTICLE 20 COVENANT OF QUIET ENJOYMENT........................... 37
ARTICLE 21 INTENTIONALLY OMITTED................................. 37
ARTICLE 22 INTENTIONALLY OMITTED................................. 37
ARTICLE 23 SIGNS................................................. 37
ARTICLE 21 COMPLIANCE WITH LAW................................... 38
ARTICLE 25 LATE CHARGES.......................................... 38
ARTICLE 26 LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT.. 38
ARTICLE 27 ENTRY BY LANDLORD..................................... 39
ARTICLE 28 TENANT PARKING........................................ 39
ARTICLE 29 MISCELLANEOUS PROVISIONS.............................. 40
EXHIBITS
A OUTLINE OF FLOOR PLAN OF PREMISES
B TENANT WORK LETTER
C FORM OF NOTICE OF LEASE TERM DATES
D RULES AND REGULATIONS
E FORM OF TENANT'S ESTOPPEL CERTIFICATE
F JANITORIAL SPECIFICATIONS
G NON-DISTURBANCE AGREEMENT
H EXPANSION RIGHTS OF EXISTING TENANTS
I SECURITY SERVICES
(vi)
<PAGE>
LANDMARK SQUARE
INDEX OF MAJOR DEFINED TERMS
<TABLE>
<CAPTION>
LOCATION OF
DEFINITION IN
DEFINED TERMS OFFICE LEASE
<S> <C>
4th Floor Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
15th Floor Premises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
4th Floor Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iii
Abatement Event. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Abatement Event Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . 36
Abatement Event Termination Notice . . . . . . . . . . . . . . . . . . . . . . . . 36
Additional Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Adjustment Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
After hours. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Applicable Reassessment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Approved Working Drawings. . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Architect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Base Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Base Tax Increase Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Base Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 13
Base Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Base, Shell, and Core. . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
BOMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Business Hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Comparable Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Comparable Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Condemning Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Construction Budget. . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Construction Drawings. . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Contractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Cost Pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Cut-Off Point. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Damage Termination Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Damage Termination Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Demising Walls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Direct Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Economic Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Eligibility Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Energy Management System . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Engineers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Estimate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Estimate Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Estimated Additional Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Exclusive Portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Exercise Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Expansion Commencement Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Expansion Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Expansion Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Expansion Space. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Expansion Space Construction Period. . . . . . . . . . . . . . . . . . . . . . . . .4
Expense Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Fair Market Rental Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Final Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Final Retention. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Final Space Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Final Working Drawings . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Hazardous Material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Hazardous Materials Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
HVAC Work. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
(vii)
<PAGE>
<S> <C>
Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Landlord Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Landlord Work. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Lease Commencement Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Lease Commencement Date Delay. . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Lease Expiration Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Lease Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
On-site Parking Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Option Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Option Rent Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Option Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Outside Agreement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Over-Allowance Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Overlap Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Panelboard and Transformer . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Perimeter Drywall. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Permitted Transferees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Proposition 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Proposition 13 Protection Amount . . . . . . . . . . . . . . . . . . . . . . . . . 15
Proposition 13 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Public Corridor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit 13
Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Reassessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Recognition Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Renewal Concessions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Review Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Rules and Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Secured Areas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Service Elevator Lobby . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit 13
Specifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Sprinkler Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Square Footage Outside Agreement Date. . . . . . . . . . . . . . . . . . . . . . . .2
Standard Improvement Package . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Subject Space. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Subleasing Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Superior Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Systems and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Tax Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Tax Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Tenant Improvement Allowance . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Tenant Improvement Allowance Items . . . . . . . . . . . . . . . . . . . . .Exhibit B
Tenant Improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Tenant's Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
Tenant's Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Transfer Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Transfer Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Transferee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Trended Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Window Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibit B
</TABLE>
(viii)
<PAGE>
LANDMARK SQUARE
OFFICE LEASE
This Office Lease, which includes the preceding Summary of Basic Lease
Information (the "SUMMARY") attached hereto and incorporated herein by this
reference (the Office Lease and Summary to be known collectively as the
"LEASE"), dated as of the date set forth in Section 1 of the Summary, is made by
and between LANDMARK SQUARE ASSOCIATES, L.P., a California limited partnership
("LANDLORD"), and FCG ENTERPRISES, INC., a California corporation, dba First
Consulting Group ("TENANT").
ARTICLE 1
REAL PROPERTY, BUILDING AND PREMISES
1.1 REAL PROPERTY, BUILDING AND PREMISES. Upon and subject to the
terms, covenants and conditions hereinafter set forth in this Lease, Landlord
hereby leases to Tenant and Tenant hereby leases from Landlord the premises set
forth in Section 6 of the Summary (the "PREMISES"), which Premises are located
in the "Building," as that term is defined in this Section 1.1. The outline of
the floor plan of the Premises is set forth in Exhibit A attached hereto. The
Premises are a part of the building (the "BUILDING") located at 111 West Ocean
Boulevard, Long Beach, California. The Building contains approximately 440,032
"rentable square feet," as that term is defined in Section 1.2 of this Lease.
The outline of the Premises is set forth in Exhibit A attached hereto. Tenant's
rights to the Premises include the limited right to use and access of the
janitorial closet and the electrical and telephone rooms on the floors
containing the Premises as reasonably necessary for Tenant's effective and
efficient use of the Premises. Tenant shall also be permitted to enter such
areas to service its equipment. Tenant shall have the right to use, or access,
any ceilings or space above the ceilings within the Premises to the extent
necessary to service Tenant's equipment in the Premises and to run wires, cables
and other conduits to the Premises to the extent permitted by applicable laws.
In addition, Tenant shall be allowed to use such space as necessary for
providing utility services such as the installation of computer cable conduits.
Notwithstanding anything to the contrary set forth in this Lease, in no event
shall Tenant take any action in the Premises or the Building which may affect
the base, shell and core of the Building or the Building's systems or equipment,
without the prior written consent of Landlord. The Building, the parking
structure beneath and adjacent to the Building (the "ON-SITE PARKING AREA"), the
land upon which the Building stands, and the land, improvements and other
buildings surrounding the Building which are designated from time to time by
Landlord as appurtenant to or servicing the Building, are herein sometimes
collectively referred to as the "REAL PROPERTY." Tenant acknowledges that
Landlord has made no representation or warranty regarding the condition of the
Real Property except as specifically set forth in this Lease. Tenant is hereby
granted the right to the nonexclusive use of the common corridors and hallways,
stairwells, elevators, restrooms and other public or common areas located on the
Real Property; provided, however, that the public and common areas are to be
maintained and operated in a first-class manner, and shall be subject to
Landlord's obligations set forth in this Lease and shall be subject to the
rules, regulations and restrictions attached hereto as Exhibit D (the "RULES AND
REGULATIONS") as such may be amended from time to time, as long as such rules,
regulations and restrictions do not unreasonably interfere with the rights
granted to Tenant in this Lease and the permitted use granted under Section 5.1
of this Lease. Except when and where Tenant's right of access is specifically
excluded above and elsewhere in this Lease, Tenant shall have the right of
access to the Premises, the Building, and the On-site Parking Area twenty-four
(24) hours per day, seven (7) days per week during the "Lease Term," as that
term is defined in Section 2.1 of this Lease. Landlord reserves the right to
make alterations or additions to or to change the location of elements of the
Real Property and the common areas thereof; provided, however, notwithstanding
anything to the contrary set forth in this Section 1.1 above, Landlord shall not
take any of the foregoing actions without the prior consent of Tenant if any
such actions is likely to have a material adverse affect on Tenant's use of or
access to the Premises; provided, however, Landlord may take the foregoing
actions without the prior consent of Tenant in the event of an emergency,
repairs or compliance with laws. In the event that any action taken by Landlord
pursuant to this Section 1.1 is likely to materially adversely affect
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Tenant's use of or access to the Premises, Landlord shall provide Tenant with
two (2) business days' prior notice of any such action by Landlord except in the
event of emergency, repairs or compliance with law, in which case Landlord shall
give no notice or such notice as is appropriate under the circumstances. In the
event any action taken by Landlord pursuant to this Section 1.1 materially,
adversely affects Tenant's use of or access to the Premises, the terms of
Section 19.6.2 of this Lease shall apply as applicable. Tenant shall approve or
disapprove of such action as set forth in the notice within two (2) business
days of its receipt of the same, which approval shall not be unreasonably
withheld. Tenant's failure to approve or disapprove of such notice within the
two (2) business day period described above shall be deemed Tenant's approval of
such notice.
1.2 VERIFICATION OF RENTABLE SQUARE FEET OF PREMISES AND BUILDING.
Landlord and Tenant hereby stipulate to the square footage of the Fourth Floor
Premises specified in Section 6 of the Summary. For purposes of this Lease, the
"usable square feet" shall be calculated pursuant to Standard Method for
Measuring Floor Area in Office Buildings, ANSI Z65.1 - 1980 ("BOMA"). The
rentable square footage of the 15th Floor Premises shall not exceed the usable
square footage of the Premises as measured in accordance with BOMA multiplied by
1.1623. The rentable square feet of "Expansion Space" (as defined in
Section 1.3 of this Lease) shall be equal to the product of (i) the following
load factors: (A) 1.1462 for any Expansion Space located on the third (3rd)
floor of the Building, (B) 1.1623 for any Expansion Space located on the fifth
(5th) floor of the Building and (C) 1.1623 for any Expansion Space located on
the fifteenth (15th) floor of the Building, and (ii) the number of usable square
feet of the applicable Expansion Space as measured in accordance with BOMA. In
the event that Landlord's planner/designer determines from time to time that the
amounts thereof are different from those set forth in this Lease, all amounts,
percentages and figures based upon such incorrect amount (including, without
limitation, the amount of the Rent) shall be modified in accordance with such
determination. If Tenant disagrees as to a precise measurement of the rentable
and/or usable square feet of the Premises, Tenant must object to such
determination by delivering a written notice to Landlord within ninety (90) days
following the later of Landlord's determination of the usable square feet of the
Premises or the Lease Commencement Date or Expansion Commencement Date, as
applicable. In the event Tenant timely and appropriately objects to Landlord's
determination of the rentable and/or usable square footage of the 15th Floor
Premises and/or of applicable Expansion Space, Landlord and Tenant shall attempt
to agree upon the rentable and/or usable square footage of the 15th Floor
Premises and/or applicable Expansion Space using their best good-faith efforts.
If Landlord and Tenant fail to reach agreement within ten (10) days following
Tenant's objection to the rentable and/or usable square footage of the 15th
Floor Premises and/or applicable Expansion Space (the "SQUARE FOOTAGE OUTSIDE
AGREEMENT DATE"), then each party shall make a separate determination of the
rentable and/or usable square footage within five (5) days, and such
determinations shall be submitted to arbitration in accordance with
Sections 1.2.1 through 1.2.7 below.
1.2.1 Landlord and Tenant shall each appoint one arbitrator who
shall by profession be a space planner/designer who shall have been active over
the five (5) year period ending on the date of such appointment in the planning
and designing of commercial high-rise offices in the Long Beach, California
area. The determination of the arbitrators shall be limited solely to the issue
area of whether Landlord's or Tenant's submitted usable and rentable square
footage is the closest to the actual square footage as determined by the
arbitrators, taking into account the requirements of this Section 1.2. Each
such arbitrator shall be appointed within fifteen (15) days after the applicable
Square Footage Outside Agreement Date.
1.2.2 The two (2) arbitrators so appointed shall within ten (10)
days of the date of the appointment of the last appointed arbitrator agree upon
and appoint a third arbitrator who shall be qualified under the same criteria
set forth hereinabove for qualification of the initial two (2) arbitrators.
1.2.3 The three (3) arbitrators shall, within thirty (30) days of
the appointment of the third arbitrator, reach a decision as to whether the
parties shall use Landlord's or Tenant's submitted square footage, and shall
notify Landlord and Tenant thereof.
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1.2.4 The decision of the majority of the three (3) arbitrators
shall be binding upon Landlord and Tenant.
1.2.5 If either Landlord or Tenant fails to appoint an arbitrator
within fifteen (15) days after the applicable Square Footage Outside Agreement
Date, the arbitrator appointed by one of them shall reach a decision, notify
Landlord and Tenant thereof, and such arbitrator's decision shall be binding
upon Landlord and Tenant.
1.2.6 If the two (2) arbitrators fail to agree upon and appoint a
third arbitrator, or both parties fail to appoint an arbitrator, then the
appointment of the third arbitrator or any arbitrator shall be dismissed and the
matter to be decided shall be forthwith submitted to arbitration under the
provisions of the American Arbitration Association, but subject to the
instructions set forth in this Section 1.2.
1.2.7 The cost of arbitration shall be paid by Landlord and Tenant
equally.
In the event that the usable square feet and rentable square feet as determined
by the arbitrators are different from those set forth in this Lease, all
amounts, percentages and figures appearing or referred to in this Lease based
upon such incorrect amount (including, without limitation, the amount of the
Rent) shall be modified in accordance with such determination.
1.3 RIGHT OF FIRST REFUSAL/RIGHT OF FIRST OFFER. Landlord hereby grants
to Tenant a right of first refusal/first offer with respect to any space which
may become available for lease on the third (3rd), fifth (5th) and fifteenth
(15th) floors of the Building (the "EXPANSION SPACE"). Notwithstanding the
foregoing, (i) such first refusal/first offer right shall apply only following
the expiration or earlier termination of any then existing lease pertaining to
each such particular Expansion Space, including any renewal of such then
existing lease, and shall apply whether or not such renewal is pursuant to the
formal exercise of an express written provision in such lease, and regardless of
whether any such renewal is consummated pursuant to a lease amendment or a new
lease, and (ii) such first refusal/first offer right shall be subordinate and
secondary to all rights of expansion, first refusal, first offer or similar
rights set forth in any lease of such space which has been fully executed by
Landlord and the tenant therein as of the date of full execution and delivery of
this Lease as such rights are described on Exhibit H attached hereto (the rights
described in items (i) and (ii), above to be known collectively as "SUPERIOR
RIGHTS"). Tenant's right of first refusal/first offer shall be on the terms and
conditions set forth in this Section 1.3.
1.3.1 PROCEDURE FOR REFUSAL. Landlord shall notify Tenant (the
"EXPANSION NOTICE") from time to time when Landlord receives a proposal or a
request for a proposal which Landlord would seriously consider for all or any
portion of the Expansion Space, where no holder of a Superior Right desires to
lease such space. In addition, Landlord shall provide Tenant with the Expansion
Notice, or Tenant may request an Expansion Notice from Landlord, from time to
time when any Expansion Space becomes available for lease to third parties,
where no holder of a Superior Right desires to lease such space. The Expansion
Notice shall describe the space which is the subject of the proposal or request
for proposal and shall set Landlord's proposed economic terms and conditions
applicable to Tenant's lease of such space (collectively, the "ECONOMIC TERMS").
1.3.2 PROCEDURE FOR ACCEPTANCE. If Tenant wishes to exercise
Tenant's right of first refusal/first offer with respect to the space described
in the Expansion Notice, then within ten (10) business days of delivery of the
Expansion Notice to Tenant, Tenant shall deliver notice to Landlord of Tenant's
intention to exercise its right of first refusal/first offer with respect to the
entire space described in the Expansion Notice. In the event that concurrent
with Tenant's exercise of the first refusal/first offer right, Tenant notifies
Landlord that it does not accept the Expansion Rent set forth in the Expansion
Notice, the Expansion Rent shall be determined in accordance with the same
procedure as set forth in Section 2.2.4 of this Lease; otherwise, the Expansion
Rent shall be as set forth in the Expansion Notice. If Tenant does not exercise
its right of first refusal/first offer within the ten (10) business-day period,
then (i) Landlord shall not offer to another tenant or prospective tenant less
than the entire Expansion Space offered to Tenant and if Landlord desires to
lease less than such entire Expansion Space offered to Tenant, Tenant shall
first have a further right to lease such smaller Expansion Space pursuant to an
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additional Expansion Notice and upon the terms set forth in this Section 1.3,
and (ii) Landlord shall be free to lease the entirety of the space described in
the Expansion Notice to anyone to whom Landlord desires on any terms Landlord
desires for a period of six (6) months after delivery of the Expansion Notice to
Tenant, whereupon Tenant's right of first refusal/first offer set forth in this
Section 1.3 shall again be applicable to such Expansion Space. Notwithstanding
anything to the contrary contained herein, Tenant must elect to exercise its
right of first refusal/first offer, if at all, with respect to all of the space
offered by Landlord to Tenant at any particular time, and Tenant may not elect
to lease only a portion thereof.
1.3.3 EXPANSION RENT. The Rent payable by Tenant for the Expansion
Space (the "EXPANSION RENT") shall be equal to the Fair Market Rental Rate for
such Expansion Space, as defined in Section 2.2.2 of this Lease.
1.3.4 CONSTRUCTION OF EXPANSION SPACE. Tenant shall take the
Expansion Space in its "as-is" condition, and Tenant shall be entitled to
construct improvements in the Expansion Space in compliance with the terms of
Article 8 of this Lease; provided, however, that Tenant shall receive a tenant
improvement allowance and a period of free rent during which to construct tenant
improvements in the Expansion Space (the "EXPANSION SPACE CONSTRUCTION PERIOD")
to the extent provided as a component of the Economic Terms.
1.3.5 LEASE OF EXPANSION SPACE. If Tenant timely exercises
Tenant's right to lease the Expansion Space as set forth herein, Landlord and
Tenant shall execute an amendment adding such Expansion Space to the Lease upon
the same non-economic terms and conditions as applicable to the initial
Premises, and the Economic Terms and conditions as provided in this Section 1.3.
Tenant shall commence payment of Rent for the Expansion Space and the Lease Term
of the Expansion Space shall commence upon the date ("EXPANSION COMMENCEMENT
DATE") which is the earlier of (i) the day after expiration of the Expansion
Space Construction Period (subject to Lease Commencement Date Delays (as defined
in Section 5.1 of the Tenant Work Letter and as applicable to the Expansion
Space)), and (ii) the date that Tenant, or any person occupying any of the
Expansion Space with Tenant's permission, commences business operations from the
Expansion Space. The Lease Term for the Expansion Space shall expire on the
Lease Expiration Date, subject to extension as provided in Section 2.2 of this
Lease. Notwithstanding anything to the contrary contained in this Lease, the
terms of Section 4.3.4 of this Lease shall not apply with respect to the
Expansion Space leased by Tenant unless, and only to the extent that, the terms
of Section 4.3.4 of this Lease are granted as a component of the Economic Terms.
1.3.6 TERMINATION OF RIGHT OF FIRST REFUSAL/RIGHT OF FIRST OFFER.
Tenant shall not have the right to lease Expansion Space if, as of the date of
the attempted exercise of any right of first refusal/right of first offer by
Tenant, or, at Landlord's election, as of the scheduled date of delivery of such
Expansion Space to Tenant, Tenant is in default under this Lease after
expiration of applicable cure periods. In addition, notwithstanding anything to
the contrary contained herein, Tenant shall not have the right to exercise its
right of first refusal/right of first offer after the expiration of the
fifty-first (51st) month of the initial Lease Term or the fifty-first (51st)
month of the first Option Term unless Tenant has previously delivered an
Exercise Notice to Landlord to extend the then existing Lease Term for the
upcoming Option Term.
1.4 PERSONAL RIGHTS. Tenant's rights to lease the Expansion Space shall
be personal to the originally-named Tenant under this Lease; provided, however,
that Tenant may assign its rights to lease such space to an assignee of the
originally-named Tenant under this Lease, but only where such assignee is not
deemed a Transferee under the first sentence of Section 14.5 below ("PERMITTED
TRANSFEREES").
1.5 ALLOWANCE ON EXPANSION SPACE. If Tenant is entitled to an
improvement allowance for the improvement of any Expansion Space pursuant to
Section 1.3 above, and if Landlord fails to fund any portion of such allowance,
Tenant may deliver a factually correct written notice of such failure to
Landlord and if Landlord still fails to fund such portion of the allowance
within ten (10) days after Landlord's receipt of Tenant's notice, Tenant shall
be entitled to fund the amount of such unfunded portion of the allowance itself
and to offset against
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its next payment(s) of Base Rent for such Expansion Space, the amount of the
allowance so paid by Tenant.
ARTICLE 2
LEASE TERM
2.1 INITIAL TERM. The terms and provisions of this Lease shall be
effective as of the date of this Lease. The term of this Lease (the "LEASE
TERM") shall be as set forth in Section 7.1 of the Summary and shall commence on
the date (the "LEASE COMMENCEMENT DATE") determined pursuant to Section 7.2 of
the Summary and Section 5 of the Tenant Work Letter attached hereto as
Exhibit D, and shall terminate on the date (the "LEASE EXPIRATION DATE") set
forth in Section 7.3 of the Summary, unless this Lease is sooner terminated or
extended as provided in this Lease. For purposes of this Lease, the term "LEASE
YEAR" shall mean each consecutive twelve (12) month period during the Lease
Term; provided, however, that the first Lease Year shall commence on the Lease
Commencement Date and end on that day immediately preceding the first (1st)
anniversary of the Lease Commencement Date and the second and each succeeding
Lease Year shall commence on the anniversary of the Lease Commencement Date; and
further provided that the last Lease Year shall end on the Lease Expiration
Date. Within six (6) months following the Lease Commencement Date, Landlord
shall deliver to Tenant a factually correct notice in the form as set forth in
Exhibit C, attached hereto, which Tenant shall execute and return to Landlord
within ten (10) days of receipt thereof.
2.2 OPTION TERMS.
2.2.1 OPTION RIGHTS. Landlord hereby grants to Tenant two (2)
options to extend the Lease Term for periods of five (5) years each (the "OPTION
TERMS"), which options shall be exercisable only by written notice delivered by
Tenant to Landlord as provided below. Notwithstanding any provisions of this
Section 2.2 to the contrary, at Landlord's option, in addition to all of
Landlord's other remedies under this Lease, Tenant shall not have the right to
extend the Lease Term or first Option Term for the upcoming Option Term if as of
the date of Tenant's delivery of its exercise notice, or, at Landlord's
election, as of the commencement of the upcoming Option Term, Tenant is (i) in
default under this Lease after expiration of all applicable cure periods, or
(ii) not in occupancy of at least seventy percent (70%) of the rentable square
feet of the initial Premises. Upon the proper exercise of any such option to
extend, the then current Lease Term, as it applies to the entire Premises then
leased by Tenant, shall be extended for the Option Term. The right to extend
contained in this Section 2.2 is personal to, and may only be exercised by, the
original Tenant under this Lease and any permitted assignee under Section 14 of
this Lease (and may not be exercised by any other assignee, sublessee or
transferee of Tenant's interest in this Lease). In no event shall Tenant be
entitled to extend the Lease Term for the second (2nd) Option Term unless Tenant
has extended the initial Lease Term for the first Option Term.
2.2.2 OPTION RENT. The Rent payable by Tenant during the Option
Term (the "OPTION RENT") shall be ninety-five percent (95%) of the "Fair Market
Rental Rate" for the Premises for the Option Term. For purposes of calculating
"Tenant's Share" of Direct Expenses pursuant to Article 4 during the Option
Term, the Base Year, as defined in Section 9.1 of the Summary, shall be amended
such that the Base Year shall mean the calendar year in which the Option Term
commences. The term "FAIR MARKET RENTAL RATE" shall mean the annual amount per
rentable square foot that Landlord has accepted in current transactions between
non-affiliated parties from new, non-expansion, non-renewal and non-equity
tenants of comparable credit-worthiness for comparable space, for a comparable
use for a comparable period of time ("COMPARABLE TRANSACTIONS") in the Building,
or if there are not a sufficient number of comparable transactions in the
Building, what a willing, comparable landlord would accept, at arm's length, for
unencumbered, non-expansion space comparable to the Premises in the Building and
at The Towers at Shoreline Square and The World Trade Center in Long Beach,
California which the parties acknowledge are both first-class high-rise office
buildings in the downtown area of the City of Long Beach comparable in size,
age, location, services, amenities and quality to the Building ("COMPARABLE
BUILDINGS"), giving appropriate consideration to concessions including the
following (collectively, the "RENEWAL CONCESSIONS"): (i) rental
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abatement concessions, if any, provided in connection with such comparable
space; (ii) any operating expense and tax protection granted in connection with
such comparable space (e.g., "base year" or "expense stop" protection) as
compared to the new Base Year to be provided for the Option Term as specified in
this Section 2.2.2 above, (iii) tenant improvements or allowances provided or to
be provided for such comparable space, taking into account, and deducting the
value of, the existing improvements in the Premises (or Expansion Space, as
applicable), such value to be based upon the value of such improvements to such
third party tenants who are general office users; provided, however, that in
calculating the Option Rent (but not Expansion Rent), no consideration shall be
given to any period of rent abatement given such tenants in connection with the
construction of improvements in such comparable space, and (iv) all other
monetary and non-monetary concessions, if any, being granted such tenants in
connection with such comparable space; provided, however, that notwithstanding
anything to the contrary contained herein, no consideration shall be given to
the fact that Landlord is or is not required to pay a real estate brokerage
commission or the fact that comparable deals do or do not involve the payment of
real estate brokerage commissions, but only transactions in which tenants are
represented by a real estate broker will be considered as a comparable
transaction.
2.2.3 EXERCISE OF OPTIONS. The options contained in this
Section 2.2 shall be exercised by Tenant, if at all, only in the following
manner: (i) Tenant shall deliver written notice to Landlord not less than
twelve (12) months prior to the expiration of the initial Lease Term or first
Option Term (as applicable), stating that Tenant may be interested in exercising
its option, (ii) Landlord, after receipt of Tenant's notice, shall deliver
notice (the "OPTION RENT NOTICE") to Tenant not later than the later of (A)
thirty (30) days after Landlord's receipt of such notice from Tenant, or
(B) eleven (11) months prior to the expiration of the initial Lease Term or
first Option Term (as applicable), which Option Rent Notice shall set forth
Landlord's initial determination of the "Option Rent," as that term is defined
in Section 2.2.2 above, which shall be applicable to this Lease during the
Option Term; and (iii) if Tenant wishes to exercise such option, Tenant shall,
on or before the date which is nine (9) months prior to the expiration of the
initial Lease Term or first Option Term (as applicable), exercise the option by
delivering written notice ("EXERCISE NOTICE") thereof to Landlord, and upon, and
concurrent with, such exercise, Tenant may, at its option, object in writing to
the Option Rent contained in the Option Rent Notice, in which case the parties
shall follow the procedure, and the Option Rent shall be determined, as set
forth in Section 2.2.4 below. If Tenant fails to provide the notice of interest
pursuant to (i) above, Tenant shall not lose its rights pursuant to (iii) above
and Landlord shall not have to provide the Option Rent Notice pursuant to
(ii) above, and instead, if Tenant exercises its rights pursuant to (iii) above,
the Option Rent shall be determined pursuant to Section 2.2.4 below (in which
case the "OUTSIDE AGREEMENT DATE" shall be the date which is thirty (30) days
following Tenant's exercise of such option).
2.2.4 DETERMINATION OF OPTION RENT AND EXPANSION RENT. In the
event Tenant timely objects in writing to the Option Rent or Expansion Rent (as
applicable) initially determined by Landlord, Landlord and Tenant shall attempt
to agree upon the Option Rent or Expansion Rent (as applicable) using their best
good-faith efforts. If Landlord and Tenant fail to reach agreement within
thirty (30) days following Tenant's objection to the Option Rent or Expansion
Rent (as applicable) (the "OUTSIDE AGREEMENT DATE"), then each party shall
submit to the other party a separate written determination of the Option Rent or
Expansion Rent (as applicable) within five (5) days after the Outside Agreement
Date (provided, however, in no event shall Landlord's determination of the
Option Rent be for an amount greater than Landlord's Option Rent Determination
set forth in the Option Rent Notice), and such determinations shall be submitted
to arbitration in accordance with Sections 2.2.4.1 through 2.2.4.7 below.
Failure of Tenant or Landlord to submit a written determination of the Option
Rent or Expansion Rent within such five (5) day period shall conclusively be
deemed to be the non-determining party's approval of the Option Rent or
Expansion Rent (as applicable) submitted within such five (5) day period by the
other party.
2.2.4.1 Landlord and Tenant shall each appoint one
arbitrator who shall by profession be an independent real estate broker who
shall have been active over the five (5) year period ending on the date of such
appointment in the leasing of commercial high-rise properties in the Central
Business District of the City of Long Beach, California. The determination of
the arbitrators shall be limited solely to the issue of whether Landlord's or
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Tenant's submitted Option Rent or Expansion Rent (as applicable) is the closest
to the actual Option Rent or Expansion Rent (as applicable) as determined by the
arbitrators, taking into account the requirements of Section 2.2.2 of this
Lease. Each such arbitrator shall be appointed within fifteen (15) days after
the Outside Agreement Date.
2.2.4.2 The two (2) arbitrators so appointed shall within
ten (10) days of the date of the appointment of the last appointed arbitrator
agree upon and appoint a third arbitrator who shall be qualified under the same
criteria set forth above for qualification of the initial arbitrators.
2.2.4.3 The three (3) arbitrators shall within thirty (30)
days after the appointment of the third arbitrator reach a decision as to
whether the parties shall use Landlord's or Tenant's submitted Option Rent or
Expansion Rent (as applicable) and shall notify Landlord and Tenant thereof.
2.2.4.4 The decision of the majority of the three (3)
arbitrators shall be binding upon Landlord and Tenant.
2.2.4.5 If either Landlord or Tenant fails to appoint an
arbitrator within thirty (30) days after the applicable Outside Agreement Date,
the arbitrator appointed by one of them shall reach a decision, notify Landlord
and Tenant thereof, and such arbitrator's decision shall be binding upon
Landlord and Tenant.
2.2.4.6 If the two (2) arbitrators fail to agree upon and
appoint a third arbitrator within the time period provided in Section 2.2.4.2
above, then the parties shall mutually select the third arbitrator. If Landlord
and Tenant are unable to agree upon the third arbitrator within ten (10) days,
then either party may, upon at least five (5) days prior written notice to the
other party, request the Presiding Judge of the Los Angeles County Superior
Court to appoint the third arbitrator. Following the appointment of the third
arbitrator, the panel of arbitrators shall within thirty (30) days thereafter
reach a decision as to whether Landlord's or Tenant's submitted Option Rent or
Expansion Rent (as applicable) shall be used and shall notify Landlord and
Tenant thereof.
2.2.4.7 The cost of arbitration shall be paid by Landlord
and Tenant equally.
ARTICLE 3
BASE RENT
Tenant shall pay, without notice or demand, to Landlord or Landlord's agent
at the management office of the Building, or at such other place as Landlord may
from time to time designate in writing, in the form of a check (which is drawn
upon a bank which is located in the United States) or currency which, at the
time of payment, is legal tender for private or public debts in the United
States of America, base rent ("BASE RENT") as set forth in Section 8 of the
Summary, payable in equal monthly installments as set forth in Section 8 of the
Summary in advance on or before the first day of each and every month during
the Lease Term, without any setoff or deduction whatsoever, except as
specifically provided in this Lease to the contrary. The Base Rent for the
first full month of the Lease Term, shall be paid by Tenant at the time of
Tenant's execution of this Lease. If any "Rent" (as that term is defined in
Section 4.1, below) payment date (including the Lease Commencement Date) falls
on a day of a calendar month other than the first day of such calendar month or
if any Rent payment is for a period which is shorter than one calendar month
such as during the last month of the Lease Term, the Rent for any fractional
calendar month shall accrue on a daily basis for the period from the date such
payment is due to the end of such calendar month or to the end of the Lease Term
at a rate per day which is equal to 1/365 of the Rent. All other payments or
adjustments required to be made under the terms of this Lease that require
proration on a time basis shall be prorated on the same basis.
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ARTICLE 4
ADDITIONAL RENT
4.1 ADDITIONAL RENT. In addition to paying the Base Rent specified in
Article 3 of this Lease, Tenant shall pay as additional rent "Tenant's Share" of
the annual "Direct Expenses," as those terms are defined in Sections 4.2.7 and
4.2.2 of this Lease, respectively, which are in excess of the amount of Direct
Expenses applicable to the "Base Year," as that term is defined in Section 4.2.1
of this Lease. Such additional rent, together with any and all other amounts
payable by Tenant to Landlord, as additional rent or otherwise, pursuant to the
terms of this Lease, shall be hereinafter collectively referred to as the
"ADDITIONAL RENT." The Base Rent and Additional Rent are herein collectively
referred to as the "RENT." Without limitation on other obligations of Tenant
which shall survive the expiration of the Lease Term, the obligations of Tenant
to pay the Additional Rent provided for in this Article 4 shall survive the
expiration of the Lease Term, to the extent the same is attributable to the time
period prior to the expiration of the Lease Term. If Tenant disputes that an
amount is due and owing by it pursuant to this Lease, Tenant shall have the
right, without waiving any rights held by it at law or in equity, to pay any
such amount under protest and thereafter to seek recovery of all or any part
thereof from Landlord.
4.2 DEFINITIONS. As used in this Article 4, the following terms shall
have the meanings hereinafter set forth:
4.2.1 "BASE YEAR" shall mean the period set forth in Section 9.1 of
the Summary.
4.2.2 "DIRECT EXPENSES" shall mean "Operating Expenses" and "Tax
Expenses."
4.2.3 "EXPENSE YEAR" shall mean each calendar year in which any
portion of the Lease Term falls, including the Base Year, through and including
the calendar year in which the Lease Term expires.
4.2.4 "OPERATING EXPENSES" shall mean all expenses, costs and
amounts of every kind and nature which Landlord shall pay or incur during any
Expense Year because of or in connection with the ownership, management,
maintenance, repair, replacement, restoration or operation of the Real Property,
all as determined in accordance with generally accepted accounting principles
consistently applied, including, without limitation, any amounts paid or
incurred for (i) the cost of supplying all utilities, the cost of operating,
maintaining, repairing, replacing and managing the utility systems, mechanical
systems, sanitary and storm drainage systems, and escalator and elevator
systems, and the cost of supplies, tools and equipment and maintenance and
service contracts in connection therewith; (ii) the cost of licenses,
certificates, permits and inspections and the reasonable cost of contesting the
validity or applicability of any governmental enactments which may affect
Operating Expenses, and the reasonable personnel costs and expenses incurred in
connection with the implementation and operation of a governmentally mandated
transportation system management program or similar program; (iii) the cost of
insurance carried by Landlord; (iv) fees, charges and other costs, including
management fees (or amounts in lieu thereof), consulting fees (including but not
limited to any consulting fees incurred in connection with the procurement of
insurance), legal fees and accounting fees, of all persons engaged by Landlord
or otherwise reasonably incurred by Landlord in connection with the management,
operation, maintenance and repair of the Real Property and the fair rental value
of any office space used in connection with the management of the Real Property
to the extent such office space is not larger than that provided or used by
other landlords of Comparable Buildings in connection with the management of
such buildings; (v) the cost of parking area repair, restoration, and
maintenance, including, but not limited to, resurfacing, repainting, restriping,
and cleaning; (vi) wages, salaries and other compensation and benefits of all
persons engaged in the operation, maintenance or security of the Real Property,
and employer's Social Security taxes, unemployment taxes or insurance, and any
other taxes which may be levied on such wages, salaries, compensation and
benefits; provided, that if any employees of Landlord provide services for more
than one building of Landlord, then a prorated portion of such employees' wages,
benefits and taxes shall be included in Operating Expenses
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based on the portion of their working time devoted to the Real Property, and
provided further, that no portion of any employee's wages, benefits, or taxes
allocable to time spent on the development or marketing of the Real Property
shall be included in Operating Expenses; (vii) payments under any easement,
license, operating agreement, declaration, restrictive covenant, or instrument
pertaining to the sharing of costs by the Building; (viii) amortization
(including interest on the unamortized cost at the "Interest Rate") of the cost
of acquiring or the rental expense of personal property used in the maintenance,
operation and repair of the Building and Real Property; and (ix) the cost of
capital improvements or other costs incurred in connection with the Real
Property (A) of a personal-property nature which are capitalized and which
relate to the operation, repair, maintenance and replacement of all systems,
equipment or facilities which serve the Real Property in the whole or in part,
(B) which are intended, immediately or over time, as a labor-saving device or to
effect other economies in the operation or maintenance of the Real Property, or
any portion thereof to the extent of cost savings reasonably anticipated by
Landlord, or (C) that are required under any governmental law or regulation that
was not enacted prior to the date this Lease was fully executed and delivered or
that was not applicable to the Building on the date this Lease was fully
executed and delivered; provided, however, that each such permitted capital
expenditure shall be amortized (including interest on the unamortized cost) over
its useful life and provided further that the amortized amount of all capital
improvements permitted pursuant to (ix)(A) in any Expense Year for the entire
Building shall not exceed Twenty Thousand Dollars ($20,000.00). If the Building
is not fully occupied during all or a portion of any Expense Year, Landlord
shall make an appropriate adjustment to the variable components of Operating
Expenses for such Expense Year as reasonably determined by Landlord employing
sound accounting and management principles, to determine the amount of Operating
Expenses that would have been paid had the Building been ninety-five percent
(95%) occupied, and the amount so determined shall be deemed to have been the
amount of Operating Expenses for such Expense Year. For purposes of such gross
up, any utilities supplied to a tenant in the Building which are separately
payable by such tenant shall be treated for such line item cost, as if such
tenant's space was unoccupied. The percentage of revenues used for calculating
the management fee which is included in Operating Expenses for any Expense Year
shall not exceed the percentage utilized for purposes of calculating the
management fee which is included in Operating Expenses for the 1997 Base Year.
In addition, to the extent that the cost of any repairs or maintenance performed
during the Base Year is covered by warranties or guaranties, the cost thereof
shall be included in the Base Year for purposes of computing Tenant's
obligations under this Lease with respect to the payment of Additional Rent.
Landlord (x) shall not collect or be entitled to collect from Tenant an amount
in excess of Tenant's Share of one hundred percent (100%) of the Operating
Expenses actually paid or incurred by Landlord; and (y) shall reduce the amount
of the Operating Expenses by any refund or discount received by Landlord in
connection with any expenses previously included in Operating Expenses.
Notwithstanding the foregoing, for purposes of this Lease, Operating Expenses
shall not, however, include:
(A) bad debt expenses and interest, principal, points and
fees on debts (except in connection with the financing of items which may
be included in Operating Expenses) or amortization on any mortgage or
mortgages or any other debt instrument encumbering the Building or the Real
Property (including the land on which the Building is situated);
(B) marketing costs, including, without limitation,
leasing commissions, attorneys' fees in connection with the negotiation and
preparation of letters, deal memos, letters of intent, leases, subleases
and/or assignments, space planning costs, and other costs and expenses
incurred in connection with lease, sublease and/or assignment negotiations
and transactions with present or prospective tenants or other occupants of
the Building, including attorneys' fees and other costs and expenditures
incurred in connection with disputes and/or lawsuits with present or
prospective tenants or other occupants of the Building and any foreclosure
proceedings;
(C) real estate brokers' leasing commissions;
(D) costs, including permit, license and inspection costs,
incurred with respect to the installation of other tenants' or occupants'
improvements made for tenants
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or other occupants in the Building or incurred in renovating or otherwise
improving, decorating, painting or redecorating vacant space for tenants or
other occupants in the Building;
(E) the cost of providing any service directly to and paid
directly by any tenant;
(F) any costs expressly excluded from Operating Expenses
elsewhere in this Lease;
(G) costs of any items (including, but not limited to,
costs incurred by Landlord for the repair of damage to the Building) to the
extent Landlord receives reimbursement from insurance proceeds (such
proceeds to be deducted from Operating Expenses in the year in which
received) or from a third party (such proceeds to be credited to Operating
Expenses in the year in which received, except that any deductible amount
under any insurance policy shall be included within Operating Expenses);
(H) costs of capital improvements, except those set forth
in Section 4.2.4(ix) above;
(I) rentals and other related expenses for leasing a HVAC
system, elevators, or other items (except when needed in connection with
normal repairs and maintenance of the Building) which if purchased, rather
than rented, would constitute a capital improvement not includable in
Operating Expenses pursuant to this Lease;
(J) depreciation, amortization and interest payments,
except as specifically included in Operating Expenses pursuant to the terms
of this Lease and except on materials, tools, supplies and vendor-type
equipment purchased by Landlord to enable Landlord to supply services
Landlord might otherwise contract for with a third party, where such
depreciation, amortization and interest payments would otherwise have been
included in the charge for such third party's services, all as determined
in accordance with generally accepted accounting principles, consistently
applied, and when depreciation or amortization is permitted or required,
the item shall be amortized over its reasonably anticipated useful life;
(K) costs incurred by Landlord for alterations (including
structural additions), repairs (including, without limitation, capital
repairs resulting from casualty), equipment and tools which are of a
capital nature and/or which are considered capital improvements or
replacements under generally accepted accounting principles, consistently
applied, except as specifically includable in Operating Expenses pursuant
to the terms of this Lease;
(L) expenses in connection with services or other benefits
which are not offered to Tenant or for which Tenant is charged for directly
but which are provided to another tenant or occupant of the Building,
without charge;
(M) costs incurred by Landlord due to the violation by
Landlord or any tenant of the terms and conditions of any lease of space in
the Building;
(N) overhead and profit increment paid to Landlord or to
subsidiaries or affiliates of Landlord for goods and/or services in the
Building to the extent the same exceeds the costs of such by unaffiliated
third parties on a competitive basis;
(O) Landlord's general corporate overhead and general and
administrative expenses;
(P) advertising and promotional expenditures, and costs of
signs in or on the Building identifying the owner of the Building or other
tenants' signs;
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(Q) electric power costs or other utility costs for which any
tenant directly contracts with the local public service company (but
Landlord shall have the right to "gross up" as if the floor was vacant);
(R) tax penalties incurred as a result of Landlord's
negligence, inability or unwillingness to make payments or file returns
when due;
(S) costs arising from Landlord's charitable or political
contributions;
(T) costs of installing, maintaining and operating any
specialty service operated by Landlord including without limitation, any
luncheon club or athletic facility, or the repair thereof;
(U) the amounts of the management fee paid or charged by
Landlord in connection with the management of the Building and the common
areas to the extent such management fee is in excess of management fees
customarily paid or charged by landlords of other first-class office
buildings in the downtown Long Beach, California area;
(V) costs necessitated by or resulting from the negligence
of Landlord, or any of its agents, employees or independent contractors
including, but not limited to, tax penalties incurred as a result of
Landlord's negligence, inability or unwillingness to make payments or file
returns when due;
(W) the amounts of the parking management fee paid by
Landlord in connection with the management of the On-site Parking Area to
the extent such parking management fee is in excess of parking management
fees customarily paid by landlords of Comparable Buildings;
(X) any ground lease rental;
(Y) costs of capital acquisition of sculptures, paintings
or other objects of art, but specifically excluding any type of art program
being operated in the Building by Landlord; and
(Z) any compensation paid to clerks, attendants or other
persons in the parking garage of the Building or wherever Tenant is granted
its parking privileges (provided if Landlord provides such parking free of
charge to Tenant, these expenses may be included as part of Operating
Expenses).
Landlord agrees that since the intent of the gross up provision is
to allow the Landlord to require the Tenant to pay for increases in Operating
Expenses over Operating Expenses for the Base Year and not for variations in
Operating Expenses resulting from the fluctuation in tenant occupancy rates,
Landlord will not collect or be entitled to collect Operating Expenses from all
of its tenants in an amount which is in excess of 100% of Operating Expenses.
The term "gross-up" as used in this Lease shall mean and refer to that method of
calculating variable Operating Expenses which is designed to most reasonably
approximate the actual cost of providing a variable Operating Expense service
(e.g., electricity or gas) to the Building's rentable area receiving such
service. Further, in the event that Landlord elects to require earthquake
insurance as an Operating Expense, and if earthquake insurance premiums were not
included in Operating Expenses during the Base Year, then during such periods
that earthquake insurance premiums are so included in a comparison year,
Operating Expenses for the Base Year shall be deemed to be increased by the
amount of the premium for comparable coverage which would have been payable had
the coverage been carried during the Base Year. Further, the same treatment
shall be applied to material elements of the Operating Expenses which are added
by Landlord to Operating Expenses on or after January 1, 1998, but only if such
elements were customarily and typically included in operating expenses during
the Base Year for office buildings or office building projects located in the
downtown Long Beach, California area which are comparable in size, age and
quality to the Building, but only in such amounts as Landlord would have
incurred had such items been included in Operating Expenses during the Base
Year, with any increases being an additional Operating Expenses payable by
Tenant.
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4.2.5 "SYSTEMS AND EQUIPMENT" shall mean any plant, machinery,
transformers, duct work, cable, wires, and other equipment, facilities, and
systems designed to supply heat, ventilation, air conditioning and humidity or
any other services or utilities, or comprising or serving as any component or
portion of the electrical, gas, steam, plumbing, sprinkler, communications,
alarm, security, or fire/life safety systems or equipment, or any other
mechanical, electrical, electronic, computer or other systems or equipment which
serve the Building in whole or in part.
4.2.6 "TAX EXPENSES" shall mean all federal, state, county, or
local governmental or municipal taxes, fees, charges or other impositions of
every kind and nature, whether general, special, ordinary or extraordinary,
(including, without limitation, real estate taxes, general and special
assessments, transit taxes, leasehold taxes or taxes based upon the receipt of
rent, including gross receipts or sales taxes applicable to the receipt of rent,
unless required to be paid by Tenant, personal property taxes imposed upon the
fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances,
furniture and other personal property used in connection with the Building),
which Landlord shall pay or incur during any Expense Year (without regard to any
different fiscal year used by such governmental or municipal authority) because
of or in connection with the ownership, leasing and operation of the Real
Property. For purposes of this Lease, Tax Expenses shall be calculated as if
the tenant improvements in the Building were fully constructed and the Real
Property, the Building, the On-site Parking Area and all tenant improvements in
the Building were fully assessed for real estate tax purposes, and accordingly,
during any Expense Year, Tax Expenses shall be deemed to be increased
appropriately.
4.2.6.1 Tax Expenses shall include, without limitation:
(i) Except as otherwise provided in Section 4.3.4
below, any assessment, tax, fee, levy or charge in addition to, or in
substitution, partially or totally, of any assessment, tax, fee, levy or
charge previously included within the definition of real property tax, it
being acknowledged by Tenant and Landlord that Proposition 13 was adopted
by the voters of the State of California in the June 1978 election
("PROPOSITION 13") and that assessments, taxes, fees, levies and charges
may be imposed by governmental agencies for such services as fire
protection, street, sidewalk and road maintenance, conservation, refuse
removal and for other governmental services formerly provided without
charge to property owners or occupants, and, in further recognition of the
decrease in the level and quality of governmental services and amenities as
a result of Proposition 13, Tax Expenses, except as otherwise provided
below, shall also include any governmental or private assessments or the
Project's contribution towards a governmental or private cost-sharing
agreement for the purpose of augmenting or improving the quality of
services and amenities normally provided by governmental agencies. It is
the intention of Tenant and Landlord that all such new and increased
assessments, taxes, fees, levies, and charges and all similar assessments,
taxes, fees, levies and charges be included within the definition of Tax
Expenses for purposes of this Lease;
(ii) Any assessment, tax, fee, levy, or charge
allocable to or measured by the area of the Premises or the rent payable
hereunder, including, without limitation, any gross income tax with respect
to the receipt of such rent, or upon or with respect to the possession,
leasing, operating, management, maintenance, alteration, repair, use or
occupancy by Tenant of the Premises, or any portion thereof;
(iii) Any assessment, tax, fee, levy or charge, upon
this transaction or any document to which Tenant is a party, creating or
transferring an interest or an estate in the Premises; provided, however,
that in no event will Tenant be liable for any assessment, tax, fee, levy
or charge (including without limitation any documentary transfer tax or
other tax applicable thereto) with respect to the recording of any
memorandum of lease or assignment of lease unless Tenant requests the
recording thereof; and
(iv) Any possessory taxes charged or levied in lieu
of real estate taxes.
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4.2.6.2 Any expenses incurred by Landlord in its reasonable
attempts to protest, reduce or minimize Tax Expenses shall be included in Tax
Expenses in the Expense Year such expenses are paid.
Tax refunds shall be credited against Tax Expenses, and
refunded to Tenant, regardless of when received, based on the year to which the
refund is applicable. All special assessments which may be paid in installments
shall be paid by Landlord in the maximum number of installments permitted by law
and not included in Operating Expenses except in the year in which the
assessment is actually paid; provided, however, that if the prevailing practice
in Comparable Buildings is to pay such assessments on an early basis, and
Landlord pays the same on such basis, such assessments shall be included in
Operating Expenses in the year paid by Landlord. The amount of Tax Expenses for
the Base Year attributable to the valuation of the Real Property inclusive of
tenant improvements, shall be known as "BASE TAXES." If in any comparison year
subsequent to the Base Year, the amount of Base Taxes decreases, then for
purposes of all subsequent comparison years, the Tax Expenses for the Base Year
shall be decreased by a amount equal to the decrease in Tax Expenses in such
comparison year.
4.2.6.3 Notwithstanding anything to the contrary contained
in this Section 4.2.6 (except as set forth in Section 4.2.6.1, above), there
shall be excluded from Tax Expenses (i) all excess profits taxes, franchise
taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate
taxes, federal and state income taxes, and other taxes to the extent applicable
to Landlord's general or net income (as opposed to rents, receipts or income
attributable to operations at the Building), (ii) any items included as
Operating Expenses, (iii) any items paid by Tenant under Section 4.5 of this
Lease, and (iv) taxes attributable to leasehold improvements in excess of the
"Cut-Off Point," as that term is defined in Section 4.5.1 of this Lease.
4.2.6.4 The term "BASE TAXES" shall mean the amount of Tax
Expenses for the Base Year, taking into consideration any Proposition 8
reduction of Tax Expenses (if any), as adopted by the voters of the State of
California, attributable to the valuation of the Real Property inclusive of
tenant improvements. Notwithstanding the provisions of Section 4.2.6 of this
Lease, if, in any comparison year subsequent to calendar year 1997 (the
"ADJUSTMENT YEAR"), the amount of Tax Expenses decreases below the amount of
Base Taxes for any reason, then for purposes of calculating Tax Expenses for
that Adjustment Year, the Base Taxes shall be decreased by an amount equal to
the additional decrease in Tax Expenses in the Adjustment Year (as compared to
the Base Year). Conversely, if the Tax Expenses are increased during any
Adjustment Year as a result of Landlord's failure to secure a Proposition 8
reduction in an amount greater than or equal to any Proposition 8 reduction
secured during the Base Year, then for purposes of calculating Tax Expenses for
that Adjustment Year, the Base Taxes shall be increased by an amount ("BASE TAX
INCREASE AMOUNT") equal to the increase in Tax Expenses during such Adjustment
Year which resulted from Landlord's failure to secure a Proposition 8 reduction
in an amount greater than or equal to the amount of the Proposition 8 reduction
secured during the Base Year, less the "Exclusive Portion," as that term is
defined below. The term "EXCLUSIVE PORTION" shall mean an amount that will be
deducted from the Base Tax Increase Amount and shall be equal to the difference
between (i) the product of (A) Tax Expenses incurred for the calendar year 1997
Base Year without taking into consideration any Proposition 8 reduction (the
"TRENDED AMOUNT") multiplied by (B) 1.02n, where n is the number of years after
the calendar year 1997 Base Year in which the Adjustment Year occurs, less
(ii) the Trended Amount. By way of example only, and not as a limitation upon
the foregoing, if as a result of a Proposition 8 reduction, Base Taxes are Five
Hundred Thousand Dollars ($500,000.00) and if as a result of a smaller
Proposition 8 reduction for calendar year 1999, Tax Expenses for calendar year
1999 are Eight Hundred Thousand Dollars ($800,000.00), and if the Trended Amount
is Nine Hundred Thousand Dollars ($900,000.00), then for calendar year 1999, the
Exclusive Portion shall be $36,360.00 (i.e., 900,000 x 1.022) - $900,000), and
Base Taxes shall increase by $263,640.00 (i.e., the Base Tax Increase Amount of
Three Hundred Thousand Dollars ($300,000) - the Exclusive Portion).
4.2.7 "TENANT'S SHARE" shall, with respect to the Premises
initially demised to Tenant hereunder and described in Section 6.2 of the
Summary, mean the percentage set forth in
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Section 9.2 of the Summary. Tenant's Share was calculated by dividing the
number of rentable square feet of the Premises by the total rentable square feet
in the Building. In the event either the Premises and/or the Building is
physically expanded or reduced, Tenant's Share shall be appropriately adjusted,
and, as to the Expense Year in which such change occurs, Tenant's Share for such
year shall be determined on the basis of the number of days during such Expense
Year that each such Tenant's Share was in effect.
4.3 CALCULATION AND PAYMENT OF ADDITIONAL RENT.
4.3.1 CALCULATION AND PAYMENTS OF ADDITIONAL RENT. Following the
expiration of the Base Year, for every Expense Year ending or commencing within
the Lease Term, Tenant shall pay to Landlord, in the manner set forth in
Section 4.3.2, below, and as Additional Rent, an amount equal to Tenant's Share
of Direct Expenses for such Expense Year in excess of Tenant's Share of Direct
Expenses for the Base Year.
4.3.2 STATEMENT OF ACTUAL DIRECT EXPENSES AND PAYMENT BY TENANT.
Landlord shall give to Tenant, on or before the first day of April following the
end of each Expense Year (including without limitation the Base Year), a
statement (the "STATEMENT") which Statement shall be itemized on a line-item
basis and shall state the Direct Expenses incurred or accrued for such preceding
Expense Year, and which shall indicate the amount, if any, of Tenant's Share of
Direct Expenses in excess of Tenant's Share of Direct Expenses for the Base
Year. Upon receipt of the Statement for each Expense Year ending during the
Lease Term, Tenant shall pay, upon the later to occur of its next installment of
Base Rent due or within thirty (30) days after receipt of the Statement, the
full amount of Tenant's Share of Direct Expenses in excess of Tenant's Share of
Direct Expenses for the Base Year for such Expense Year, less the amounts, if
any, paid during such Expense Year as "Estimated Additional Rent," as that term
is defined in Section 4.3.3, below. If the amount of Tenant's Share of Direct
Expenses in excess of Tenant's Share of Direct Expenses for the Base Year is
less than the amount paid by the Tenant as Estimated Additional Rent during the
applicable period of the Expense Year (but not including any period of the
Expense Year which occurred after the Lease has terminated), Landlord shall
forthwith pay the difference to Tenant together with the applicable Statement,
even if the Lease has terminated or expired. The failure of Landlord to timely
furnish the Statement for any Expense Year shall not prejudice Landlord from
enforcing its rights under this Article 4; provided, however, the failure of
Landlord (or any successor to Landlord in the event the Building is conveyed to
a new owner during the Lease Term) to deliver to Tenant the Statement for any
Expense Year by that date which is two (2) years after the last day of such
Expense Year shall preclude Landlord (or any successor to Landlord in the event
the Building is conveyed to a new owner during the Lease Term) from enforcing
its rights under this Article 4 against Tenant only with respect to those
Operating Expenses for which Landlord or Landlord's employees, agents or
contractors (including without limitation any person or entity that manages the
Building for Landlord) was solely responsible for the determination and
calculation thereof. Even though the Lease Term has expired and Tenant has
vacated the Premises, when the final determination is made of Tenant's Share of
the Direct Expenses for the Expense Year in which this Lease terminates, if
Tenant's Share of Direct Expenses for the Expense Year in which this Lease
terminates is in excess of Tenant's Share of Direct Expenses for the Base Year
Tenant shall, subject to the provisions of the preceding sentence, within thirty
(30) days of receipt of a Statement setting forth Tenant's Share of Direct
Expenses in excess of Tenant's Share of Direct Expenses for the Base Year, pay
to Landlord an amount as calculated pursuant to the provisions of Section 4.3.3
of this Lease, less any amounts owed from Landlord to Tenant. The provisions of
this Section 4.3.2 shall survive the expiration or earlier termination of the
Lease Term.
4.3.3 STATEMENT OF ESTIMATED DIRECT EXPENSES. In addition,
Landlord shall give Tenant a yearly expense estimate statement (the "ESTIMATE
STATEMENT") which Estimate Statement shall be itemized on a line-item basis and
shall set forth Landlord's reasonable estimate (the "ESTIMATE") of what the
total amount of Direct Expenses for the then-current Expense Year shall be and
the estimated amount of Tenant's Share of Direct Expenses in excess of Tenant's
Share of Direct Expenses for the Base Year (the "ESTIMATED ADDITIONAL RENT").
The failure of Landlord to timely furnish the Estimate Statement for any Expense
Year shall not, subject to the two (2) year limitation set forth in
Section 4.3.2 above, preclude Landlord from enforcing its rights to collect any
Estimated Additional Rent under this Article 4. If pursuant to
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the Estimate Statement (or a revision thereof) an Estimated Additional Rent is
calculated for the then-current Expense Year, Tenant shall pay, upon the later
to occur of (i) the date upon which its next installment of Base Rent is due,
and (ii) the date which is thirty (30) days after Tenant's receipt of the
Statement, a fraction of the Estimated Additional Rent (or the increase in the
Estimated Additional Rent if pursuant to a revised Estimated Statement) for the
then-current Expense Year (reduced by any amounts paid pursuant to the last
sentence of this Section 4.3.3). Such fraction shall have as its numerator the
number of months which have elapsed in such current Expense Year to the month of
such payment, both months inclusive, and shall have twelve (12) as its
denominator. Until a new Estimate Statement is furnished, Tenant shall pay
monthly, with the monthly Base Rent installments, an amount equal to one-twelfth
(1/12) of the total Estimated Additional Rent set forth in the previous Estimate
Statement delivered by Landlord to Tenant.
4.3.4 TENANT'S PAYMENT OF CERTAIN TAX EXPENSES. Notwithstanding
anything to the contrary contained in this Lease, in the event that at any time
during the initial Lease Term, any sale, refinancing, or change in ownership of
the Real Property is consummated, and as a result thereof and to the extent
that in connection therewith, the Real Property is reassessed (the
"REASSESSMENT") for real estate tax purposes by the appropriate governmental
authority pursuant to the terms of Proposition 13 or any successor law or
proposition, then the terms of this Section 4.3.4 shall apply to such
Reassessment of the Real Property.
4.3.4.1 THE TAX INCREASE. For purposes of this Article 4,
the term "TAX INCREASE" shall mean that portion of the Tax Expenses, as
calculated immediately following the Reassessment, which is attributable solely
to the Reassessment; provided, however, that the term Tax Increase shall not
include any portion of the Tax Expenses, as calculated immediately following the
Reassessment, which (i) is attributable to the initial assessment of the value
of the land upon which the Building is located, the base, shell and core of the
Building or the leasehold improvements located in the Building, (ii) is
attributable to assessments pending immediately prior to the Reassessment which
assessments were conducted during, and included in, such Reassessment, or which
assessments were otherwise rendered unnecessary following the Reassessment, or
(iii) is attributable to the annual inflationary increase of real estate taxes
permitted to be assessed annually under Proposition 13.
4.3.4.2 INITIAL LEASE TERM. During the initial Lease Term,
Tenant shall not be obligated to pay any portion of the Tax Increase, except as
may otherwise be applicable to the Expansion Space pursuant to Section 1.3.5 of
this Lease above.
4.3.4.3 AFTER INITIAL LEASE TERM. After the initial Lease
Term (during any Option Term), any Tax Increase shall be included in Tax
Expenses, except as may otherwise be applicable to the Expansion Space pursuant
to Section 1.3.5 of this Lease above.
4.3.4.4 LANDLORD'S RIGHT TO PURCHASE THE PROPOSITION 13
PROTECTION AMOUNT ATTRIBUTABLE TO A PARTICULAR REASSESSMENT. The amount of Tax
Expenses which Tenant is not obligated to pay or will not be obligated to pay
during the Lease Term in connection with a particular Reassessment pursuant to
the terms of this Section 4.3.4, shall be sometimes referred to hereafter as a
"PROPOSITION 13 PROTECTION AMOUNT." If the occurrence of a Reassessment is
reasonably foreseeable by Landlord and the Proposition 13 Protection Amount
attributable to such Reassessment can be reasonably quantified or estimated for
each Lease Year commencing with the Lease Year for which the Reassessment first
applies, the terms of this Section 4.3.4.4 shall apply to each such
Reassessment. At any time during the first ten (10) Lease Years of the Lease
Term, upon thirty (30) days' prior notice to Tenant, Landlord shall have the
right to purchase the Proposition 13 Protection Amount relating to the
applicable Reassessment (the "APPLICABLE REASSESSMENT"), by paying to Tenant an
amount equal to the "Proposition 13 Purchase Price," as that term is defined
below, for the Applicable Reassessment, provided that the right of any successor
of Landlord to exercise its right of repurchase hereunder shall not apply to any
Reassessment which results from the event or transaction (or series of events or
transactions) pursuant to which such successor of Landlord became the Landlord
under this Lease. As used herein, the term "successor of Landlord" shall
include, without limitation, any new or different entity that succeeds to the
interest of Landlord under this Lease. As used herein, "PROPOSITION 13 PURCHASE
PRICE" for the Applicable Reassessment shall mean the present value
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of the Proposition 13 Protection Amount for the Applicable Reassessment
remaining during the Lease Term, as of the date of payment of such Proposition
13 Purchase Price by Landlord. Such present value shall be calculated (i) by
using the portion of the Proposition 13 Protection Amount for the Applicable
Reassessment attributable to each remaining Lease Year (assuming for purposes of
the computation that the amount of such Proposition 13 Protection Amount
benefited Tenant at the middle of each Lease Year), as the amounts to be
discounted, and (ii) by using a discount rate equal to the Prime Interest Rate
as reported in the Wall Street Journal (or any comparable publication reasonably
selected by Landlord if the Wall Street Journal no longer exists) as of the date
of such calculation, plus two percent (2%). Upon payment of such Proposition 13
Purchase Price, the provisions of Section 4.3.4.2 of this Lease shall not apply
to any Tax Increase attributable to the Applicable Reassessment. Since Landlord
is estimating the Proposition 13 Purchase Price because a Reassessment has not
yet occurred, when such Reassessment occurs, if Landlord has underestimated the
Proposition 13 Purchase Price, then Tenant's Rent next due shall be credited
with the amount of such underestimation and Landlord shall pay Tenant, on the
next due date for Rent, the amount of any underestimation to the extent it
exceeds the Rent next due hereunder, and if Landlord overestimates the
Proposition 13 Purchase Price, then upon thirty (30) days' prior notice by
Landlord to Tenant, Rent next due shall be increased by the amount of the
overestimation. The amount of any such underestimate or overestimate shall be
calculated by taking the difference between the Proposition 13 Purchase Price
for the Applicable Reassessment actually paid to Tenant and the Proposition 13
Purchase Price for the Applicable Reassessment as it should have been computed
had all relevant facts concerning the Applicable Reassessment been known at the
time such Purchase Price was originally computed.
4.4 ALLOCATION OF DIRECT EXPENSES. Landlord shall have the right, from
time to time, to equitably allocate some or all of the Direct Expenses among
different tenants of the Building (the "COST POOLS"). Such Cost Pools may
include, but shall not be limited to, the office space tenants of the Building
and the retail space tenants of the Building. Notwithstanding anything to the
contrary set forth in this Article 4, when calculating Direct Expenses for the
Base Year, such Direct Expenses shall not include any increase in Tax Expenses
attributable to special assessments, charges, costs or fees, or due to
modifications or changes in governmental laws or regulations, including but not
limited to the institution of a split tax roll, and Direct Expenses shall
exclude market wide labor rate increases due to extraordinary circumstances
including but not limited to conservation surcharges, boycotts, embargoes or
other shortages and amortized costs relating to capital improvements.
4.5 TAXES AND OTHER CHARGES FOR WHICH TENANT IS DIRECTLY RESPONSIBLE.
Tenant shall reimburse Landlord, as Additional Rent, upon demand for any and all
taxes required to be paid by Landlord (except to the extent included in Tax
Expenses by Landlord), excluding state, local and federal personal or corporate
income taxes measured by the net income of Landlord from all sources and estate
and inheritance taxes, whether or not now customary or within the contemplation
of the parties hereto, when:
4.5.1 Said taxes are measured by or reasonably attributable to the
cost or value of Tenant's equipment, furniture, fixtures and other personal
property located in the Premises, or by the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant, to the extent the cost
or value of such leasehold improvements exceeds Thirty Five Dollars ($35.00) per
usable square foot contained within the Premises (the "CUT-OFF POINT"); provided
that (i) any amounts of real estate taxes attributable to tenant improvements
that are in excess of the Cut-Off Point shall not be included in Tax Expenses
and (ii) the leasehold improvements existing in the initial Premises as of the
date of this Lease as may be supplemented by the Tenant Improvement Allowance
applicable to the Premises as provided in the Tenant Work Letter shall in no
event be deemed to constitute a value in excess of the Cut-Off Point;
4.5.2 Said taxes are assessed upon or with respect to the
possession, leasing, operation, management, maintenance, alteration, repair, use
or occupancy by Tenant of the Premises, any portion of the Real Property or the
parking facility used by Tenant in connection with this Lease; or
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4.5.3 Said taxes are assessed upon this transaction or any document
to which Tenant is a party creating or transferring an interest or an estate in
the Premises; provided, however, that Tenant shall not be liable for any such
taxes (including, without limitation, any documentary transfer tax or other tax
applicable thereto) assessed with respect to the recording of any memorandum of
lease or assignment of lease unless Tenant was the party who requested the
recording thereof.
4.6 LANDLORD'S BOOKS AND RECORDS. Within two (2) years after receipt of
a Statement by Tenant ("REVIEW PERIOD"), if Tenant disputes the amount of
Additional Rent set forth in the Statement, Tenant or an independent certified
public accountant (which accountant is a member of a recognized accounting
firm), designated by Tenant, may, after reasonable notice to Landlord and at
reasonable times, inspect and photocopy Landlord's records at Landlord's
offices, provided that Tenant is not then in default in the payment of Base Rent
after expiration of the applicable cure period under Section 19.1.1 of this
Lease, provided further that Tenant and such accountant shall, and each of them
shall use their commercially reasonable efforts to cause their respective agents
and employees to, maintain all information contained in Landlord's records in
strict confidence. Notwithstanding the foregoing, Tenant shall only have the
right to review Landlord's records one (1) time during any twelve (12) month
period. Tenant's failure to dispute the amount of Additional Rent set forth in
any Statement within two (2) years of Tenant's receipt of such Statement shall
be deemed to be Tenant's approval of such Statement and Tenant, thereafter,
waives the right or ability to dispute the amounts set forth in such Statement.
If after such inspection, Tenant still disputes such Additional Rent, a
certification as to the proper amount shall be made, at Tenant's expense, by an
independent certified public accountant mutually selected by Landlord and
Tenant. Landlord shall cooperate in good faith with Tenant and the accountant
to show Tenant and the accountant the information upon which the certification
is to be based; provided that if such certification by the accountant proves
that the Direct Expenses set forth in the Statement were overstated by more than
three percent (3%), then the cost of the accountant and the cost of such
certification shall be paid for by Landlord. Promptly following the parties
receipt of such certification, the parties shall make such appropriate payments
or reimbursements, as the case may be, to each other, as are determined to be
owing pursuant to such certification, together with interest at the Interest
Rate from the date due until paid, in the case of payments by Tenant to
Landlord, or from the date paid until reimbursed, in the case of reimbursements
by Landlord to Tenant. Landlord shall be required to maintain records of all
Direct Expenses set forth in each Statement delivered to Tenant for the entirety
of the two (2)-year period following Landlord's delivery of the applicable
Statement. The payment by Tenant of any amounts pursuant to this Article 4
shall not preclude Tenant from questioning the correctness of any Statement
delivered by Landlord, provided that the failure of Tenant to object thereto
prior to the expiration of the Review Period shall be conclusively deemed
Tenant's approval of the applicable Statement.
ARTICLE 5
USE OF PREMISES
5.1 PERMITTED USE. Tenant shall use the Premises solely for general
office purposes and any other legally permitted use consistent with the
character of the Building as a first-class office building, and Tenant shall not
use or permit the Premises to be used for any other purpose or purposes
whatsoever without the prior written consent of Landlord, which consent may be
withheld in Landlord's sole and absolute discretion.
5.2 PROHIBITED USES. Tenant further covenants and agrees that it shall
not use, or suffer or permit any person or persons to use, the Premises or any
part thereof for any use or purpose contrary to the Rules and Regulations, or in
violation of the laws of the United States of America, the State of California,
or the ordinances, regulations or requirements of the local municipal or county
governing body or other lawful authorities having jurisdiction over the
Building; provided, however, that Landlord agrees that the Rules and Regulations
shall not be (i) modified or enforced in any way by Landlord so as to interfere
with the permitted use set forth in Section 5.1, above, or (ii) discriminatorily
enforced against Tenant. Landlord agrees that nothing in the Rules and
Regulations of the Building shall be used to prohibit the conduct of any
business from the Premises which Tenant is permitted to conduct. Tenant shall
faithfully
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observe and comply with the Rules and Regulations. Landlord shall not be
responsible to Tenant for the nonperformance of any of such Rules and
Regulations by or otherwise with respect to the acts or omissions of any other
tenants or occupants of the Building. However, in the event any other tenant or
occupant of the Building fails to comply with the Rules and Regulations, and
such non-compliance unreasonably interferes with Tenant's use of the Premises,
Landlord shall use reasonable efforts to cause such other tenants and/or
occupants to comply with the Rules and Regulations. Tenant shall comply with
all recorded covenants, conditions, and restrictions now or hereafter affecting
the Real Property. Tenant shall not use or allow another person or entity to
use any part of the Premises for the storage, use, treatment, manufacture or
sale of "Hazardous Materials," as that term is defined in Article 21 of this
Lease. Landlord acknowledges, however, that Tenant will maintain products in
the Premises which are incidental to the operation of its offices, such as
photocopy supplies, secretarial supplies and limited janitorial supplies, which
products contain chemicals which are categorized as hazardous materials.
Landlord agrees that the use of such products in the Premises in compliance with
all applicable laws and in the manner in which such products are designed to be
used shall not be a violation by Tenant of this Section 5.2.
5.3 LABOR HARMONY. Tenant shall not use (and upon notice from Landlord
shall cease using) contractors, services, workmen, labor, materials or equipment
that, in Landlord's reasonable judgment, would disturb labor harmony with the
workforce or trades engaged in performing other work, labor or services in or
about the Building or the common area based on Landlord's past experience with
such entity or person.
ARTICLE 6
SERVICES AND UTILITIES
6.1 STANDARD TENANT SERVICES. Landlord shall provide the following
services and utilities twenty-four (24) hours per day during the Lease Term,
unless otherwise stated below.
6.1.1 Subject to all governmental rules, regulations and guidelines
applicable thereto, Landlord shall provide heating and air conditioning when
necessary for normal comfort for normal office use in the Premises, from Monday
through Friday, during the period from 8:00 a.m. to 6:00 p.m., and on Saturdays
during the period from 9:00 a.m. to 1:00 p.m., except for Sundays and New Year's
Day, President's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. The daily time periods identified hereinabove are
sometimes hereinafter referred to as the "BUSINESS HOURS" and the holidays
identified hereinabove are sometimes hereinafter referred to as the "HOLIDAYS."
6.1.2 Landlord shall provide adequate electrical wiring, facilities
and power for normal general office use as reasonably determined by Landlord.
Tenant may use, for all combined electrical usage in the Premises (but not
including lighting), up to seven and one-half (7.5) watts connected load per
usable square foot of the Premises, on an annualized basis ("MAXIMUM CAPACITY"),
to the extent permitted under applicable laws and regulations (including Title
24) and provided that such electrical usage, to the extent the same exceeds the
greater of (a) 4 watts connected load per usable square foot of the Premises, on
an annualized basis, and (b) the number of watts per usable square foot which
Landlord applies on a uniform basis to charge tenants in the Building for
over-standard electrical usage, shall be deemed excess consumption and shall be
subject to the terms of Section 6.2, below. Initial bulbs, lamps, starters and
ballasts for the Premises shall be a charge to the Tenant Improvement Allowance;
with regard to replacement, Tenant shall bear the cost of replacement of bulbs,
lamps, starters and ballasts for non-standard lighting fixtures within the
Premises, but replacement of such items for standard lighting fixtures shall be
a charge to Operating Expenses. Standard lighting fixtures shall be those
described in item 4 of Schedule 2 to Exhibit B. Subject to Tenant's obligation
to pay for extra usage, Landlord shall cause the Building at all times to have
in place, and accessible by Tenant from floors of the Building upon which any
portion of the Premises is located, equipment sufficient to provide the Maximum
Capacity to the Premises; provided that the horizontal distribution of such
Maximum Capacity shall be at Tenant's sole cost and expense, including the cost
of any additional transformers or panelboards for the floors upon which portions
of the Premises are located. Tenant shall have the right to install its own
supplemental
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air-conditioning unit, subject to the terms of Article 8 of this Lease, provided
that the same does not interfere with the operation of the Building's Systems
and Equipment, including without limitation, the Building's heating, ventilation
and air-conditioning systems; provided, however, Tenant shall (i) be solely
responsible for all costs relating to the installation and operation of such
unit, (ii) upon Landlord's request, remove such unit upon the expiration or
earlier termination of the Lease Term, (iii) cause such unit to be separately
metered at Tenant's expense, and (iv) supply Landlord with a copy of the
maintenance agreement entered into by Tenant for any and all units so installed.
Under no circumstance shall Tenant have access to the chilled water system of
the Building.
6.1.3 Landlord shall provide city water from the regular Building
outlets for drinking, lavatory and toilet purposes. Subject to the terms of
Article 8 of this Lease, Tenant shall have the right to add to or access the
water systems for the Building and/or provide supplemental water systems in
order to service the Premises.
6.1.4 Landlord shall provide janitorial services with respect to
each Monday through Friday, except the date of observation of the Holidays, in
and about the Premises and window washing services pursuant to the janitorial
specifications attached hereto as Exhibit F as may be subsequently revised by
Landlord from time to time provided such revisions thereto are consistent with
the janitorial services provided for other first-class office buildings in the
downtown Long Beach, California area.
6.1.5 Landlord shall provide nonexclusive automatic elevator
service at all times.
6.1.6 Landlord shall provide twenty-four (24) hours per day, seven
(7) days per week, reasonable security and supervision of the Building and
common areas, in a manner consistent with Comparable Buildings. As of the date
of this Lease, Landlord provides the security services described in Exhibit I
attached hereto; provided, however, that Landlord makes no representation or
warranty that any such services will continue to be provided throughout the
Lease Term except that in any event Landlord shall comply with the requirements
of the first sentence of this Section 6.1.6. Tenant shall have the right to
install its own security system, subject to the terms of Article 8 of this Lease
or the Tenant Work Letter, as the case may be, and/or to have its own security
personnel in the Premises provided that the same does not interfere with the
operation of the Building security system.
6.1.7 Landlord shall operate and maintain the Building and the
common areas in a first-class manner and condition in accordance with the
standards of maintenance and operation as are customary for other Comparable
Buildings.
6.2 OVERSTANDARD TENANT USE. Tenant shall not, without Landlord's prior
written consent, which consent shall not be unreasonably withheld, use
heat-generating machines, machines other than normal fractional horsepower
office machines, or equipment or lighting other than building standard lights in
the Premises, which may adversely and materially affect the temperature
otherwise maintained by the air conditioning system or significantly increase
the water normally furnished for the Premises by Landlord pursuant to the terms
of Section 6.1 of this Lease. If such consent is given, Landlord shall have the
right to install supplementary air conditioning units or other facilities in the
Premises, including supplementary or additional metering devices, and the cost
thereof, including the cost of installation, operation and maintenance,
increased wear and tear on existing equipment and other similar charges, shall
be paid by Tenant to Landlord within thirty (30) days of receipt of written
notice. If Tenant uses water or electricity in excess of that supplied by
Landlord pursuant to Section 6.1 of this Lease, Tenant shall pay to Landlord,
within thirty (30) days of receipt of written notice, all actual, reasonable and
documented costs incurred by Landlord in connection with the provision of such
excess consumption and the installation, operation, and maintenance of equipment
which is installed in order to supply such excess consumption, as such costs are
reasonably determined by Landlord, including a reasonable amount attributable to
increased wear and tear on existing equipment caused by such excess consumption;
and Landlord may install devices to separately meter any increased use and in
such event Tenant shall pay the increased cost directly to Landlord, within
thirty (30) days of receipt of written notice, including the cost of such
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additional metering devices in the event such metering devices indicate that
there has been excess consumption. If Tenant desires to use heat, ventilation
or air conditioning during hours other than those for which Landlord is
obligated to supply such utilities pursuant to the terms of Section 6.1 of this
Lease ("AFTER HOURS HVAC"), Tenant shall give Landlord reasonable prior notice
of Tenant's desired use and Landlord shall supply such After Hours HVAC to
Tenant. Tenant shall pay to Landlord, Landlord's actual cost to provide such
after-hours utilities (including, without limitation, After Hours HVAC,
electricity and other utilities or services consumed or used in operating
Tenant's supplemental air conditioning unit, if any), as reasonably determined
by Landlord, including a reasonable amount attributable to increased wear and
tear on existing equipment caused by such use of after-hours utilities and to
Landlord's general administrative expense to the extent same is actually
incurred and not otherwise included in, and charged against, Operating Expenses,
but otherwise without profit to Landlord. Landlord's After-Hours HVAC rate is
$55.00 per hour as of the date of this Lease. Notwithstanding the foregoing,
during the initial Lease Term, the first fifteen (15) hours per month of After
Hours HVAC shall be provided to Tenant at fifty percent (50%) of Landlord's then
current After Hours HVAC rate; Tenant shall not be entitled to any credit for
any portion of such fifteen (15) hour allotment not utilized by Tenant in any
such month. Amounts payable by Tenant to Landlord for such use of additional
utilities shall be deemed Additional Rent hereunder and shall be billed on a
monthly basis.
6.3 INTERRUPTION OF USE. Except as provided in Section 19.6 of this
Lease, Tenant agrees that Landlord shall not be liable for damages, by abatement
of Rent or otherwise, for failure to furnish or delay in furnishing any service
(including telephone and telecommunication services), or for any diminution in
the quality or quantity thereof, when such failure or delay or diminution is
occasioned, in whole or in part, by repairs, replacements, or improvements, by
any strike, lockout or other labor trouble, by inability to secure electricity,
gas, water, or other fuel at the Building after reasonable effort to do so, by
any accident or casualty whatsoever, by act or default of Tenant or other
parties, or by any other cause beyond Landlord's reasonable control; and such
failures or delays or diminution shall never be deemed to constitute an eviction
or disturbance of Tenant's use and possession of the Premises or relieve Tenant
from paying Rent or performing any of its obligations under this Lease.
Furthermore, except as provided in Section 19.6 of this Lease, Landlord shall
not be liable under any circumstances for a loss of, or injury to, property or
for injury to, or interference with, Tenant's business, including, without
limitation, loss of profits, however occurring, through or in connection with or
incidental to a failure to furnish any of the services or utilities as set forth
in this Article 6. Except as provided in Section 19.6 of this Lease, if any
governmental entity promulgates or revises any statute, ordinance, building
code, fire code or other code or imposes mandatory or voluntary controls or
guidelines on Landlord or the Real Property or any part thereof, relating to the
use or conservation of energy, water, gas, light or electricity or the reduction
of automobile or other emissions or the provision of any other utility or
service provided with respect to this Lease or if Landlord is required to make
alterations to the Building or any other part of the Real Property in order to
comply with such mandatory or voluntary controls or guidelines, then Landlord
may, in its sole discretion, comply with such mandatory or voluntary controls or
guidelines or make such alterations to the Building or any other part of the
Real Property related thereto without creating any liability of Landlord to
Tenant under this Lease, provided that the Premises are not thereby rendered
untenantable and, in connection with voluntary action undertaken by Landlord,
such action does not unduly interfere with Tenant's permitted use of the
Premises, and further provided that Landlord will not voluntarily reduce the
level of services provided to the Premises unless Landlord is motivated to do so
by anticipated costs savings and efficiencies of operation consistent with the
first class character of the Building; provided, however, that Landlord shall
not voluntarily reduce the level of services provided to the Premises to a level
that would unduly interfere with Tenant's permitted use of the Premises. Except
as provided in Section 19.6 of this Lease, such compliance and the making of
such permitted alterations shall in no event entitle Tenant to any damages,
relieve Tenant of the obligation to pay the full Rent reserved hereunder or
constitute or be construed as a constructive or other eviction of Tenant. In
addition, the actual, reasonable and documented cost of such compliance and
alterations shall, subject to the terms of Article 4 of this Lease, be included
in Operating Expenses.
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6.4 ADDITIONAL SERVICES. Landlord shall also have the exclusive right,
but not the obligation, to provide any additional services which may be required
by Tenant, including, without limitation, locksmithing, non-standard lamp
replacement, additional janitorial service, and additional repairs and
maintenance, provided that Tenant shall pay to Landlord within thirty (30) days
of receipt of notice, the sum of all actual costs to Landlord of such additional
services; provided, however, if Landlord does not exercise its right to
exclusively provide any service, Tenant may contract with a third party
reasonably approved by Landlord to perform such service so long as such third
party is performing comparable services in Comparable Buildings. Charges for
any service for which Tenant is required to pay from time to time hereunder
shall be deemed Additional Rent hereunder and shall be billed on a monthly
basis.
ARTICLE 7
REPAIRS
7.1 DUTIES TO REPAIR. Landlord shall repair and maintain, in
first-class condition, any and all structural (including foundation,
floor/ceiling slabs, roof, curtain wall, exterior glass and mullions, columns,
beams, shafts (including elevator shafts), stairs, stairwells, escalators, if
any, elevator cabs, plazas and all common and public areas) and/or latent
defects in the Building, other than with respect to tenant improvements
constructed by or for the benefit of tenants of the Building, which repair and
maintenance obligations shall include the basic plumbing, heating, ventilating,
air-conditioning and electrical systems installed or furnished by Landlord and
not located within the Premises. Except as set forth above, which shall be the
obligation of Landlord, Tenant shall, at Tenant's own expense, pursuant to the
terms of this Lease, including without limitation Article 8 hereof, keep the
non-structural portions of the Premises, including all improvements, fixtures
and furnishings therein, in good order, repair and condition at all times during
the Lease Term. In addition, except as provided as part of Landlord's repair
obligations set forth above and except as caused by Landlord's gross negligence,
Tenant shall, at Tenant's own expense, pursuant to the terms of this Lease,
including without limitation Article 8 hereof, promptly and adequately repair
all damage to the non-structural non-base Building portions of the Premises and
replace or repair all damaged or broken fixtures and appurtenances; provided
however, that, at Landlord's option, or if Tenant fails to make such repairs,
Landlord may, but need not, make such repairs and replacements, and Tenant shall
pay Landlord the cost thereof, including a percentage of the cost thereof (to be
uniformly established for the Building) sufficient to reimburse Landlord for all
overhead, general conditions, fees and other costs or expenses arising from
Landlord's involvement with such repairs and replacements forthwith upon being
billed for same. Subject to the notice provisions of Article 27 of this Lease,
Landlord may, but shall not be required to, enter the Premises at all reasonable
times to make such repairs, alterations, improvements and additions to the
Premises or to the Building or to any equipment located in the Building as
Landlord shall desire or deem necessary or as Landlord may be required to do by
governmental or quasi-governmental authority or court order or decree. Tenant
hereby waives and releases its right to make repairs at Landlord's expense under
Sections 1941 and 1942 of the California Civil Code or under any similar law,
statute or ordinance now or hereafter in effect.
7.2 TENANT'S RIGHT TO MAKE REPAIRS. If Tenant provides notice to
Landlord of an event or circumstance which requires the action of Landlord with
respect to the provision of utilities and/or services and/or repairs and/or
maintenance as set forth in Sections 6.1 and 7.1 of this Lease, and Landlord
fails to provide such action as required by the terms of this Lease, then Tenant
may proceed to take the required action upon delivery of an additional eight (8)
business days notice to Landlord specifying that Tenant is taking such required
action, and if such action was required under the terms of this Lease to be
taken by Landlord, then Tenant shall be entitled to prompt reimbursement by
Landlord of Tenant's reasonable costs and expenses in taking such action plus
interest at the Interest Rate. In the event Tenant takes such action, and such
work will affect the Building's Systems and Equipment, structural integrity of
the Building or exterior appearance of the Building, Tenant shall use only those
contractors used by Landlord in the Building for such work unless such
contractors are unwilling or unable to perform such work, in which event Tenant
may utilize the services of any other qualified contractor which normally and
regularly performs similar work in Comparable Buildings. Further, if Landlord
does not deliver a detailed written objection to Tenant, within thirty (30) days
after receipt of an invoice by
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Tenant of its costs of taking action which Tenant claims should have been taken
by Landlord, and if such invoice from Tenant sets forth a reasonably
particularized breakdown of its costs and expenses in connection with taking
such action on behalf of Landlord, then Tenant shall be entitled to deduct from
Rent payable by Tenant under this Lease, the amount set forth in such invoice
together with interest at the Interest Rate. If, however, Landlord delivers to
Tenant within thirty (30) days after receipt of Tenant's invoice, a written
objection to the payment of such invoice, setting forth with reasonable
particularity Landlord's reasons for its claim that such action did not have to
be taken by Landlord pursuant to the terms of this Lease or that the charges are
excessive (in which case Landlord shall pay the amount it contends would not
have been excessive), then Tenant shall not be entitled to such deduction from
Rent, but as Tenant's sole remedy, Tenant may proceed to institute legal
proceedings against Landlord to collect the amount set forth in the subject
invoice. In the event Tenant prevails in such legal proceedings against
Landlord and receives a final judgment against Landlord, then Landlord shall pay
such judgment to Tenant within thirty (30) days of such judgment being entered.
If such judgment is not so paid when due, then Tenant shall be entitled to
deduct from Rent next due and payable by Tenant the amount of such final
judgment, together with interest, at the Interest Rate from the date of entry of
such judgment until the date of such deduction.
ARTICLE 8
ADDITIONS AND ALTERATIONS
8.1 LANDLORD'S CONSENT TO ALTERATIONS. Tenant may make any
improvements, alterations, additions or changes to the Premises (collectively,
the "ALTERATIONS") which do not affect the Building's Systems and Equipment,
exterior appearance of the Building, or structural aspects of the Building, by
providing Landlord with notice not less than fifteen (15) days prior to the
commencement thereof. Tenant may not make any Alterations which may affect the
Building's Systems and Equipment, exterior appearance of the Building, or
structural aspects of the Building, without first procuring the prior written
consent of Landlord to such Alterations, which consent shall be requested by
Tenant not less than thirty (30) days prior to commencement thereof, and which
consent may be withheld by Landlord in its reasonable discretion. Any time
Tenant proposes to make Alterations which require the consent of Landlord
pursuant to this Section 8.1, Tenant's notice regarding the proposed Alterations
shall be provided together with the plans and specifications for the
Alterations, and Landlord shall approve or disapprove of the same within ten
(10) days after its receipt of the same. The construction of the initial
improvements to the Premises shall be governed by the terms of the Tenant Work
Letter, attached hereto as Exhibit B, and not the terms of this Article 8.
8.2 MANNER OF CONSTRUCTION. Landlord may impose, as a condition of its
consent to all Alterations or repairs of the Premises or about the Premises,
such requirements as Landlord in its reasonable discretion may deem desirable,
including, but not limited to, the requirement that upon Landlord's request made
at the time such consent is granted, Tenant shall, at Tenant's expense, remove
such Alterations upon the expiration or any early termination of the Lease Term
(provided however, in no event will Tenant be required to remove any such
Alterations unless they involve penetrations to the base, shell or core of the
Building, would require extraordinary demolition costs or include the
installation of a riser), and/or the requirement that Tenant utilize for such
purposes only contractors, materials, mechanics and materialmen approved by
Landlord, provided that Tenant shall utilize a contractor of Landlord's
selection to perform all work that may affect the Building's Systems and
Equipment, structural aspects of the Building, or exterior appearance of the
Building. Landlord shall cause such contractor selected by Landlord to charge
Tenant for such work an amount equal to the costs that comparable first-class,
reputable and reliable contractors would have charged Tenant if selected
pursuant to competitive bidding procedures. Tenant shall construct such
Alterations and perform such repairs in conformance with any and all applicable
rules and regulations of any federal, state, county or municipal code or
ordinance and pursuant to a valid building permit, issued by the City of Long
Beach, in conformance with Landlord's construction rules and regulations. All
work with respect to any Alterations must be done in a good and workmanlike
manner and diligently prosecuted to completion to the end that the Premises
shall at all times be a complete unit except during the period of work. In
performing the work of any such Alterations, Tenant shall have the work
performed in such manner as not to obstruct access to the Building or the common
areas for any
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other tenant of the Building, and as not to obstruct the business of Landlord or
other tenants in the Building, or interfere with the labor force working in the
Building. Upon completion of any Alterations, Tenant agrees to timely cause a
Notice of Completion to be recorded in the office of the Recorder of the County
of Los Angeles in accordance with the terms of Section 3093 of the Civil Code of
the State of California or any successor statute, and Tenant shall deliver to
the Building management office a reproducible copy of the "as built" drawings of
the Alterations; provided, however, that if Tenant does not cause a timely
Notice of Completion to be recorded, such failure shall not constitute a default
under this Lease but Tenant shall protect, defend, indemnify and hold Landlord
harmless from any loss, cost, damage, claim or expense incurred by Landlord in
connection with Tenant's failure to record the Notice of Completion.
8.3 PAYMENT FOR IMPROVEMENTS. In the event Tenant orders any
Alterations or repair work directly from Landlord, or from the contractor
selected by Landlord, the charges for such work shall be deemed Additional Rent
under this Lease, payable within thirty (30) days after Tenant's receipt of
billing therefor, either periodically during construction or upon the
substantial completion of such work, at Landlord's option. Upon completion of
any work not ordered directly from Landlord, Tenant shall deliver to Landlord,
evidence of payment, contractors' affidavits and full and final waivers of all
liens for labor, services or materials. In addition, Tenant shall pay to
Landlord a percentage of the cost of any such work (such percentage to be
established on a uniform basis for the Building and shall not exceed five
percent (5%)) to compensate Landlord for all overhead, general conditions, fees
and other costs and expenses arising from Landlord's involvement with such work,
and if Tenant does not order any work directly from Landlord, Tenant shall
reimburse Landlord for Landlord's reasonable, actual, out-of-pocket costs and
expenses actually incurred in connection with Landlord's review of such work but
otherwise shall not be liable to Landlord for any fees for supervision or
otherwise.
8.4 CONSTRUCTION INSURANCE. In the event that Tenant makes any
Alterations, Tenant agrees to carry "Builder's All Risk" insurance in an amount
approved by Landlord covering the construction of such Alterations, and such
other insurance as Landlord may reasonably require, it being understood and
agreed that all of such Alterations shall be insured by Tenant pursuant to
Article 10 of this Lease immediately upon completion thereof. In addition,
Landlord may, in its reasonable discretion, require any Transferee, but not the
Tenant originally named in this Lease to obtain a lien and completion bond or
some alternate form of security satisfactory to Landlord in an amount sufficient
to ensure the lien-free completion of such Alterations and naming Landlord as a
co-obligee.
8.5 LANDLORD'S PROPERTY. All Alterations, improvements, fixtures and/or
equipment which may be permanently installed in or about the Premises, and all
signs installed in, on or about the Premises, from time to time, shall be at the
sole cost of Tenant and shall be and become the property of Landlord, except
that Tenant may remove any Alterations, improvements, fixtures and/or equipment
which are not permanently installed, provided Tenant repairs any damage to the
Premises and Building caused by such removal. Furthermore, if Landlord
requires, at the time Landlord approves of the Alteration, that Tenant remove
any Alteration upon the expiration or early termination of the Lease Term,
Landlord may, by written notice to Tenant prior to the end of the Lease Term, or
given upon any earlier termination of this Lease, require Tenant at Tenant's
expense to remove such Alterations and to repair any damage to the Premises and
Building caused by such removal (provided, however, in no event will Tenant be
required to remove any such Alterations unless they involve penetrations to the
base, shell or core of the Building, would require extraordinary demolition
costs or include the installation of a riser). If Tenant fails to complete such
removal and/or to repair any damage caused by the removal of any Alterations,
Landlord may do so upon three (3) days notice to Tenant and if Tenant fails to
complete such removal and/or repair the damage, Landlord may charge the actual,
reasonable and documented cost thereof to Tenant.
ARTICLE 9
COVENANT AGAINST LIENS
Tenant has no authority or power to cause or permit any lien or encumbrance
of any kind whatsoever, whether created by act of Tenant, operation of law or
otherwise, to attach to or be
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placed upon the Real Property, Building or Premises, and any and all liens and
encumbrances created by Tenant shall attach to Tenant's interest only. Landlord
shall have the right at all times to post and keep posted on the Premises any
notice which it deems necessary for protection from such liens. Tenant
covenants and agrees not to suffer or permit any lien of mechanics or
materialmen or others to be placed against the Real Property, the Building or
the Premises with respect to work or services claimed to have been performed for
or materials claimed to have been furnished to Tenant or the Premises, and, in
case of any such lien attaching or notice of any lien, Tenant covenants and
agrees to cause it to be released and removed of record within fifteen (15)
business days after its receipt of notice from Landlord regarding the existence
of such lien. Notwithstanding anything to the contrary set forth in this Lease,
in the event that such lien is not released and removed on or before the date
occurring fifteen (15) business days after notice of such lien is delivered by
Landlord to Tenant, Landlord, at its sole option, may immediately take all
action necessary to release and remove such lien, without any duty to
investigate the validity thereof, and all sums, costs and expenses, including
reasonable attorneys' fees and costs, actually incurred by Landlord in
connection with such lien shall be deemed Additional Rent under this Lease and
shall be due and payable by Tenant within thirty (30) days of receipt of an
invoice therefor.
ARTICLE 10
INSURANCE
10.1 INDEMNIFICATION AND WAIVER. Tenant agrees that all personal
property upon the Real Property, shall be at the risk of Tenant only, and that
Landlord shall not be liable for any loss or damage thereto or theft thereof.
Tenant shall indemnify, defend, protect, and hold harmless Landlord and
Landlord's partners, subpartners and their respective officers, agents,
employees and contractors (collectively, "LANDLORD PARTIES") from any and all
loss, cost, damage, expense and liability (including without limitation court
costs and reasonable attorneys' fees) incurred in connection with or arising
from any cause in, on or about the Premises, including, without limiting the
generality of the foregoing: (i) the use or occupancy of the Premises by Tenant
or Tenant's agents, contractors, employees or licensees; (ii) the condition of
the Premises or any occurrence or happening on the Premises from any cause
whatsoever; or (iii) any acts, omissions or negligence of Tenant or of the
agents, servants, employees, visitors or licensees of Tenant, in, on or about
the Premises or the Real Property, either prior to, during, or after the
expiration of the Lease Term, including, without limitation, any acts, omissions
or negligence in the making or performance of any Alterations; provided that
Tenant shall not be required to indemnify and hold Landlord harmless from any
loss, cost, liability, damage or expense, including, but not limited to,
penalties, fines, attorneys' fees or costs (collectively, "CLAIMS"), to any
person, property or entity resulting from the alleged negligence or willful
misconduct of Landlord or its agents, contractors, servants, employees or
licensees, in connection with Landlord's activities in the Building (except for
damage to the Tenant Improvements and Tenant's personal property, fixtures,
furniture and equipment in the Premises, to the extent Tenant is required to
obtain the requisite insurance coverage pursuant to this Lease) or the Real
Property, and Landlord hereby so indemnifies and holds Tenant harmless from any
such Claims; provided further that because Landlord is required to maintain
insurance on the Building and Tenant compensates Landlord for such insurance as
part of Tenant's Share of Direct Expenses and because of the existence of
waivers of subrogation set forth in Section 10.5 of this Lease, Landlord hereby
indemnifies and holds Tenant harmless from any Claims to any property outside of
the Premises to the extent such Claim is covered by such insurance, even if
resulting from the negligent acts, omissions, or willful misconduct of Tenant or
those of its agents, servants, employees or licensees. Similarly, since Tenant
must carry insurance pursuant to this Article 10 to cover its personal property
within the Premises and the Tenant Improvements, Tenant hereby indemnifies and
holds Landlord harmless from any Claim to any property within the Premises, to
the extent such Claim is covered by such insurance, even if resulting from the
negligent acts, omissions or willful misconduct of Landlord or those of its
agents, servants, employees or licensees. Should Landlord be named as a
defendant in any suit brought against Tenant in connection with or arising out
of Tenant's occupancy of the Premises, Tenant shall pay to Landlord its costs
and expenses incurred in such suit, including without limitation, its reasonable
professional fees such as appraisers', accountants' and attorneys' fees. The
provisions of this
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Section 10.1 shall survive the expiration or sooner termination of this Lease
with respect to any claims or liability occurring prior to such expiration or
termination. Notwithstanding anything to the contrary contained in this Lease,
nothing in this Lease shall impose any obligations on Tenant or Landlord to be
responsible or liable for, and each hereby releases the other from all liability
for, consequential damages other than those consequential damages incurred by
Landlord in connection with a holdover of the Premises by Tenant after the
expiration or earlier termination of this Lease or incurred by Landlord in
connection with any repair, physical construction or improvement work performed
by or on behalf of Tenant in the Real Property.
10.2 TENANT'S COMPLIANCE WITH LANDLORD'S FIRE AND CASUALTY INSURANCE.
The coverage and amounts of insurance carried by Landlord in connection with the
Building shall be at a minimum comparable to the coverage and amounts of
insurance which are carried by reasonably prudent landlords of Comparable
Buildings. Upon inquiry by Tenant, from time to time, Landlord shall inform
Tenant of such coverage carried by Landlord. Tenant shall, at Tenant's expense,
comply as to the Premises with all insurance company requirements pertaining to
the use of the Premises. If Tenant's conduct or use of the Premises causes any
increase in the premium for any insurance policies carried by Landlord, then
Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant's
expense, shall comply with all rules, orders, regulations or requirements of the
American Insurance Association (formerly the National Board of Fire
Underwriters) and with any similar body.
10.3 TENANT'S INSURANCE. Tenant shall maintain the following coverages
in the following amounts.
10.3.1 Commercial General Liability Insurance covering the insured
against claims of bodily injury, personal injury and property damage arising out
of Tenant's operations, assumed liabilities or use of the Premises, for limits
of liability not less than: (i) Bodily Injury and Property Damage Liability -
$3,000,000 each occurrence and $3,000,000 annual aggregate, and (ii) Personal
Injury Liability - $3,000,000 each occurrence and $3,000,000 annual aggregate.
10.3.2 Physical Damage Insurance covering (i) all office furniture,
trade fixtures, office equipment, merchandise and all other items of Tenant's
property on the Premises installed by, for, or at the expense of Tenant,
(ii) the "Tenant Improvements," as that term is defined in the Tenant Work
Letter, and (iii) all other improvements, alterations and additions to the
Premises. Such insurance shall be written on an "all risks" of physical loss or
damage basis, for the full replacement cost value new without deduction for
depreciation of the covered items and in amounts that meet any co-insurance
clauses of the policies of insurance and shall include a vandalism and malicious
mischief endorsement, sprinkler leakage coverage and earthquake sprinkler
leakage coverage, provided that the sprinkler leakage coverage and earthquake
sprinkler leakage coverage shall be for at least ninety percent (90%) of the
full replacement cost value new without deduction for depreciation, and Tenant
shall only be required to purchase earthquake sprinkler leaking coverage if such
coverage is available at commercially reasonable rates.
10.4 FORM OF POLICIES. The minimum limits of policies of insurance
required of Tenant under this Lease shall in no event limit the liability of
Tenant under this Lease. Such insurance shall (i) name Landlord, and any
property manager or lender it so specifies, as an additional insured; (ii) be
issued by an insurance company having a rating of not less than A-X in Best's
Insurance Guide or which is otherwise reasonably acceptable to Landlord and
authorized to do business in the State of California; (iii) be primary insurance
as to all claims thereunder and provide that any insurance carried by Landlord
is excess and is non-contributing with any insurance requirement of Tenant;
(iv) provide that said insurance shall not be canceled or coverage reduced
unless thirty (30) days' prior written notice shall have been given to Landlord
and any mortgagee of Landlord whose names and addresses shall have been provided
by Landlord; and (v) contain a cross-liability endorsement or severability of
interest clause acceptable to Landlord. Tenant shall deliver said policy or
policies or certificates thereof to Landlord on or before the Lease Commencement
Date and at least thirty (30) days before the expiration dates thereof.
10.5 SUBROGATION; FAILURE TO CARRY INSURANCE. Landlord and Tenant agree
to have their respective insurance companies issuing property damage insurance
waive any rights of
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subrogation that such companies may have against Landlord or Tenant, as the case
may be, so long as the insurance carried by Landlord and Tenant, respectively,
is not invalidated thereby. As long as such waivers of subrogation are
contained in their respective insurance policies, or would have been contained
in such insurance policies had the responsible party used commercially
reasonable efforts to obtain such waivers and such waivers are routinely and
customarily available, Landlord and Tenant hereby waive any right that either
may have against the other on account of any loss or damage to their respective
property to the extent such loss or damage is insurable under policies of
insurance for fire and all risk coverage, theft, or other similar insurance. If
either party fails to carry the amounts and types of insurance required to be
carried by it pursuant to this Article 10, such failure shall be deemed to be a
covenant and agreement by such party to self-insure with respect to the type and
amount of insurance which such party so failed to carry, with full waiver of
subrogation with respect thereto.
10.6 ADDITIONAL INSURANCE OBLIGATIONS. Tenant shall carry and maintain
during the entire Lease Term, at Tenant's sole cost and expense, increased
amounts of the insurance required to be carried by Tenant pursuant to this
Article 10, and such other reasonable types of insurance coverage and in such
reasonable amounts covering the Premises and Tenant's operations therein, as may
be reasonably requested by Landlord, but in no event shall (i) such increased
amounts of insurance or such other reasonable types of insurance be in excess of
that required by landlords of Comparable Buildings, nor (ii) Landlord require an
increase in the insurance limits described in Section 10.3.1 during the initial
Lease Term. Notwithstanding anything to the contrary contained in this Lease,
in the event of any termination of this Lease pursuant to Article 11 or
Article 13 below, Tenant shall assign and deliver to Landlord (or to any party
designated by Landlord) all insurance proceeds payable to Tenant under Tenant's
insurance required under Section 10.3 of this Lease relating to any Tenant
Improvements paid for by Landlord.
ARTICLE 11
DAMAGE AND DESTRUCTION
11.1 REPAIR OF DAMAGE TO PREMISES BY LANDLORD. Tenant shall promptly
notify Landlord of any damage to the Premises resulting from fire or any other
casualty. If the Premises or any common areas of the Building serving or
providing access to the Premises shall be damaged by fire or other casualty,
Landlord shall promptly and diligently, subject to reasonable delays for
insurance adjustment or other matters beyond Landlord's reasonable control, and
subject to all other terms of this Article 11, restore the Base, Shell, and Core
of the Premises and such common areas. Such restoration shall be to
substantially the same condition of the Base, Shell, and Core of the Premises
and common areas prior to the casualty, except for modifications required by
zoning and building codes and other laws or by the holder of a mortgage on the
Building or any other modifications to the common areas reasonably deemed
desirable by Landlord, provided access to the Premises and any common restrooms
serving the Premises shall not be materially impaired. Notwithstanding any other
provision of this Lease, upon the occurrence of any damage to the Premises,
Tenant shall assign to Landlord (or to any party designated by Landlord) all
insurance proceeds payable to Tenant under Tenant's insurance required under
Section 10.3 of this Lease for the sole purpose and to the extent necessary to
reimburse Landlord for all out-of-pocket costs and expenses incurred by Landlord
in connection with the repair of any such damage to the Tenant Improvements, and
Landlord shall repair any injury or damage to the Tenant Improvements installed
in the Premises and shall return such Tenant Improvements to their original
condition unless otherwise mutually agreed by Landlord and Tenant; provided that
if the cost of such repair by Landlord exceeds the amount of insurance proceeds
received by Landlord from Tenant's insurance carrier, as assigned by Tenant,
plus the amount of insurance proceeds received by Landlord from Landlord's
insurance carrier to the extent allocable to damage of the Tenant Improvements,
the cost of such repair shall be paid by Tenant on a progress-payment basis, but
only after exhaustion of Tenant's and Landlord's insurance proceeds received by
Landlord and allocable to the damage of the Tenant Improvements. In connection
with such repairs and replacements, Tenant shall, prior to the commencement of
construction, submit to Landlord, for Landlord's review and approval, all plans,
specifications and working drawings relating thereto, and Tenant and Landlord
shall select the contractors to perform such improvement work. The cost of
preparing such plans,
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specifications and working drawings shall be paid from the insurance proceeds
payable to Tenant under Tenant's insurance required under Section 10.3 of this
Lease; provided, however, that if such proceeds are insufficient, Tenant shall
be responsible for payment of any such excess costs. Such submittal of plans
and construction of improvements shall be performed in accordance with a
procedure reasonably specified by Landlord. Landlord shall not be liable for
any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant's
business resulting in any way from such damage or the repair thereof; provided
however, that if such fire or other casualty shall have damaged the Premises or
common areas necessary to Tenant's occupancy, Landlord shall allow Tenant
proportionate abatement of Rent during the time and to the extent such portion
of the Premises is unfit for occupancy for the purposes permitted under this
Lease, and not occupied by Tenant as a result thereof or during the period it
would be unreasonable for Tenant to use such portion of the Premises (with
reference to the standards specified in Section 19.6.2 below); provided,
further, if the Premises are damaged such that the remaining portion thereof is
not sufficient to allow Tenant to conduct its business operations from such
remaining portion and Tenant does not conduct its business operations therefrom,
Landlord shall allow Tenant a total abatement of Rent during the time and to the
extent the Premises are unfit for occupancy for the purposes permitted under
this Lease, and not occupied by Tenant as a result of the subject damage.
11.2 LANDLORD'S OPTION TO REPAIR. Notwithstanding the terms of
Section 11.1 of this Lease, Landlord may elect not to rebuild and/or restore the
Premises and/or Building and instead terminate this Lease by notifying Tenant in
writing of such termination within sixty (60) days after the date Landlord
learns of the damage, such notice to include a termination date giving Tenant
ninety (90) days to vacate the Premises, but Landlord may so elect only if the
Building shall be damaged by fire or other casualty or cause, whether or not the
Premises are affected, and one or more of the following conditions is present:
(i) repairs cannot reasonably be completed within two hundred ten (210) days
after the date Landlord learns of the damage (when such repairs are made without
the payment of overtime or other premiums); (ii) the holder of any mortgage on
the Building or ground lessor with respect to the Real Property shall require
that the insurance proceeds or any portion thereof be used to retire the
mortgage debt (and Landlord does not otherwise elect to commence to repair such
damage within two hundred ten (210) days after Landlord learns of such damage),
or shall terminate the ground lease, as the case may be; or (iii) the damage is
not fully covered, except for deductible amounts, by Landlord's insurance
policies; provided, however, that if Landlord does not elect to terminate this
Lease pursuant to Landlord's termination right as provided above, and the
repairs cannot, in the reasonable opinion of Landlord, be completed within two
hundred ten (210) days after being commenced (which 210-day period shall not be
subject to extension as a result of any Force Majeure), Tenant may elect, no
earlier than sixty (60) days after the date of the damage and not later than
ninety (90) days after the date of such damage, to terminate this Lease by
written notice to Landlord effective as of the date specified in the notice,
which date shall not be more than sixty (60) days after the date such notice is
given by Tenant. Furthermore, if neither Landlord nor Tenant have terminated
this Lease, and the repairs are not actually completed within such 210-day
period, Tenant shall have the right to terminate this Lease within five (5)
business days of the end of such period and thereafter during the first five (5)
business days of each calendar month following the end of such period until such
time as the repairs are complete, by notice to Landlord (the "DAMAGE TERMINATION
NOTICE"), effective as of a date set forth in the Damage Termination Notice (the
"DAMAGE TERMINATION DATE"), which Damage Termination Date shall not be less than
five (5) business days following the end of such period or each such month, as
the case may be. Notwithstanding the foregoing, if Tenant delivers a Damage
Termination Notice to Landlord, then Landlord shall have the right to suspend
the occurrence of the Damage Termination Date for a period ending thirty (30)
days after the Damage Termination Date set forth in the Damage Termination
Notice by delivering to Tenant, within five (5) business days of Landlord's
receipt of the Damage Termination Notice, a certificate of Landlord's contractor
responsible for the repair of the damage certifying that it is such contractor's
good faith judgment that the repairs shall be substantially completed within
thirty (30) days after the Damage Termination Date. If repairs shall be
substantially completed prior to the expiration of such thirty-day period, then
the Damage Termination Notice shall be of no force or effect, but if the repairs
shall not be substantially completed within such thirty-day period, then this
Lease shall terminate upon the expiration of such thirty-day period. At any
time, from time to time, after the
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date occurring forty-five (45) days after the date of the damage, Tenant may
request that Landlord inform Tenant of Landlord's reasonable opinion of the date
of completion of the repairs and Landlord shall respond to such request within
five (5) business days.
11.3 WAIVER OF STATUTORY PROVISIONS. The provisions of this Lease,
including this Article 11, constitute an express agreement between Landlord and
Tenant with respect to any and all damage to, or destruction of, all or any part
of the Premises, the Building or any other portion of the Real Property, and any
statute or regulation of the State of California, including, without limitation,
Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any
rights or obligations concerning damage or destruction in the absence of an
express agreement between the parties, and any other statute or regulation, now
or hereafter in effect, shall have no application to this Lease or any damage or
destruction to all or any part of the Premises, the Building or any other
portion of the Real Property.
11.4 DAMAGE NEAR END OF TERM. In the event that the Premises or the
Building is destroyed or damaged to any substantial extent during the last
eighteen (18) months of the Lease Term and Tenant has not previously or
currently therewith exercised its option to extend the Lease Term pursuant to
Section 2.2 of this Lease, then notwithstanding anything contained in this
Article 11, either Landlord or Tenant shall have the option to terminate this
Lease by giving written notice to the other party of the exercise of such option
within sixty (60) days after such damage or destruction, in which event this
Lease shall cease and terminate as of the date of such notice, Tenant shall pay
the Base Rent and Additional Rent, properly apportioned up to such date of
damage, and both parties hereto shall thereafter be freed and discharged of all
further obligations hereunder, except as provided for in provisions of this
Lease which by their terms survive the expiration or earlier termination of the
Lease Term.
ARTICLE 12
NONWAIVER
No waiver of any provision of this Lease shall be implied by (i) any
failure of either party to insist in any instance on the strict keeping,
observance or performance of any covenant or agreement contained in this Lease
or exercise any election contained in the Lease or (ii) any failure of either
party to enforce any remedy on account of the violation of such provision, even
if such violation shall continue or be repeated subsequently. Any waiver by
either party of any provision of this Lease may only be in writing, and no
express waiver shall affect any provision other than the one specified in such
waiver and that one only for the time and in the manner specifically stated. No
receipt of monies by Landlord from Tenant after the termination of this Lease
shall in any way alter the length of the Lease Term or of Tenant's right of
possession hereunder or after the giving of any notice shall reinstate, continue
or extend the Lease Term or affect any notice given Tenant prior to the receipt
of such monies, it being agreed that after the service of notice or the
commencement of a suit or after final judgment for possession of the Premises,
Landlord may receive and collect any Rent due, and the payment of said Rent
shall not waive or affect said notice, suit or judgment. No payment by Tenant
or receipt or acceptance by Landlord of a lesser amount than the correct Rent
due shall be deemed to be other than a payment on account, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment be deemed an accord and satisfaction, and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance, treat
such partial payment as a default or pursue any other remedy provided in this
Lease or at law or in equity.
ARTICLE 13
CONDEMNATION
13.1 PERMANENT TAKING. If ten percent (10%) or more of the Premises or
Building shall be taken by power of eminent domain or condemned by any competent
authority for any public or quasi-public use or purpose, or if Landlord shall
grant a deed or other instrument in lieu of such taking by eminent domain or
condemnation, Landlord shall have the option to terminate this Lease upon one
hundred eighty (180) days' notice, provided such notice is given no later than
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one hundred eighty (180) days after the date of such taking, condemnation,
reconfiguration, vacation, deed or other instrument. If so much of the Premises
is taken so as to substantially interfere with the conduct of Tenant's business
from the Premises, or if access to the Premises is substantially impaired,
Tenant shall have the option to terminate this Lease upon one hundred eighty
(180) days' notice, provided such notice is given no later than one hundred
eighty (180) days after the date of such taking. Landlord and Tenant shall each
be entitled to receive fifty percent (50%) of the "bonus value" of the leasehold
estate in connection therewith, which bonus value shall be equal to the sum paid
by the condemning authority as the award for compensation for taking the
leasehold created by this Lease. Tenant shall have the right to file any
separate claim available to Tenant for any taking of Tenant's personal property
and fixtures belonging to Tenant and removable by Tenant upon expiration of the
Lease Term pursuant to the terms of this Lease, and for moving expenses, so long
as such claim is payable separately to Tenant. All Rent shall be apportioned as
of the date of such termination, or the date of such taking, whichever shall
first occur. If any part of the Premises shall be taken, and this Lease shall
not be so terminated, the Rent shall be proportionately abated. Tenant hereby
waives any and all rights it might otherwise have pursuant to Section 1265.130
of the California Code of Civil Procedure.
13.2 TEMPORARY TAKING. Notwithstanding anything to the contrary
contained in this Article 13, in the event of a temporary taking of all or any
portion of the Premises for a period of one hundred and eighty (180) days or
less, then this Lease shall not terminate but the Base Rent and the Additional
Rent shall be abated for the period of such taking in proportion to the ratio
that the amount of rentable square feet of the Premises taken bears to the total
rentable square feet of the Premises. Landlord shall be entitled to receive the
entire award made in connection with any such temporary taking.
ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1 TRANSFERS. Tenant shall not, without the prior written consent of
Landlord, except as provided herein to the contrary, assign, mortgage, pledge,
hypothecate, encumber, or permit any lien to attach to, or otherwise transfer,
this Lease or any interest hereunder, permit any assignment or other such
foregoing transfer of this Lease or any interest hereunder by operation of law,
sublet the Premises or any part thereof, or permit the use of the Premises by
any persons other than Tenant and its employees (all of the foregoing are
hereinafter sometimes referred to collectively as "TRANSFERS" and any person to
whom any Transfer is made or sought to be made is hereinafter sometimes referred
to as a "TRANSFEREE"). If Tenant shall desire Landlord's consent to any
Transfer, Tenant shall notify Landlord in writing, which notice (the "TRANSFER
NOTICE") shall include (i) the proposed effective date of the Transfer, which
shall not be less than twenty (20) days nor more than one hundred eighty (180)
days after the date of delivery of the Transfer Notice, (ii) a description of
the portion of the Premises to be transferred (the "SUBJECT SPACE"), (iii) all
of the terms of the proposed Transfer and the consideration therefor, in
connection with such Transfer, the name and address of the proposed Transferee,
and a copy of all existing and/or proposed documentation pertaining to the
proposed Transfer, including all existing operative documents to be executed to
evidence such Transfer or the agreements incidental or related to such Transfer,
(iv) current financial statements of the proposed Transferee certified by an
officer, partner or owner thereof, and any other information reasonably
requested by Landlord, which will enable Landlord to determine the financial
responsibility, character, and reputation of the proposed Transferee, nature of
such Transferee's business and proposed use of the Subject Space, (v) an
executed estoppel certificate from Tenant in the form attached hereto as
Exhibit E, and (vi) such other information as Landlord may reasonably require.
Landlord shall approve or disapprove of the proposed Transfer within twenty (20)
days after Landlord's receipt of the applicable Transfer Notice. Any Transfer
made without Landlord's prior written consent shall, at Landlord's option, be
null, void and of no effect. Whether or not Landlord shall grant consent,
Tenant shall within ten (10) business days after written request by Landlord,
reimburse Landlord for all reasonable costs and expenses incurred by Landlord in
connection with its review of a proposed Transfer which costs and expenses shall
not exceed One Thousand Dollars ($1,000) per proposed Transfer.
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14.2 LANDLORD'S CONSENT. Landlord shall not unreasonably withhold its
consent to any proposed Transfer of the Subject Space to the Transferee on the
terms specified in the Transfer Notice, provided such Transferee is comparable
in quality to other tenants in the Building or in Comparable Buildings and will
use the Premises in a manner generally comparable to the use of comparable space
in the Building by the then tenants of the Building. The parties hereby agree
that it shall be deemed to be reasonable under this Lease for Landlord to
withhold consent to any proposed Transfer where one or more of the following
apply, without limitation as to other reasonable grounds for withholding
consent:
14.2.1 The Transferee is of a character or reputation or engaged in
a business which is not consistent with the quality of the Building;
14.2.2 The Transferee is either a governmental agency or
instrumentality thereof (i) which is that of a foreign country, (ii) which is of
a character or reputation, is engaged in a business, or is of, or is associated
with, a political orientation or faction, which is inconsistent with the quality
of the Building, or which would otherwise reasonably offend a landlord of a
Comparable Building, (iii) which is capable of exercising the power of eminent
domain or condemnation (the "CONDEMNING AUTHORITY"), unless, and only to the
extent, Landlord has voluntarily and directly leased space in the Building to a
Condemning Authority, provided that the Condemning Authority proposed by Tenant
is of comparable prestige, character, and reputation and comparable or smaller
in size (based on the aggregate number of voluntarily and directly leased
rentable square feet voluntarily and directly leased by Landlord to Condemning
Authorities);
14.2.3 The Transferee's intended use of the Premises is
inconsistent with the Permitted Use;
14.2.4 The Transferee is not a party of reasonable financial worth
and/or financial stability in light of the responsibilities involved under the
Transfer on the date consent is requested; or
14.2.5 The proposed Transfer would cause Landlord to be in
violation of another lease or agreement to which Landlord is a party, or would
give an occupant of the Building a right to cancel its lease.
If Landlord consents to any Transfer pursuant to the terms of this
Section 14.2 (and does not exercise any recapture rights Landlord may have under
Section 14.3 of this Lease), Tenant may within six (6) months after Landlord's
consent, but not later than the expiration of said six-month period, enter into
such Transfer of the Premises or portion thereof, upon substantially the same
terms and conditions as are set forth in the Transfer Notice furnished by Tenant
to Landlord pursuant to Section 14.1 of this Lease, provided that if there are
any changes in the terms and conditions from those specified in the Transfer
Notice (i) such that Landlord would initially have been entitled to refuse its
consent to such Transfer under this Section 14.2, or (ii) which would cause the
proposed Transfer to be more favorable in a material manner to the Transferee
than the terms set forth in Tenant's original Transfer Notice, Tenant shall
again submit the Transfer to Landlord for its approval and other action under
this Article 14 (including Landlord's right of recapture, if any, under
Section 14.3 of this Lease).
14.3 LANDLORD'S OPTION AS TO SUBJECT SPACE. Notwithstanding anything to
the contrary contained in this Article 14, except for an assignment described in
Section 14.5 below, Landlord shall have the option, by giving written notice to
Tenant within ten (10) business days after receipt of any Transfer Notice where
the Subject Space consists of fifty percent (50%) or more of the Premises, to
recapture the Subject Space from Tenant. Such recapture shall cancel and
terminate this Lease with respect to the Subject Space and release Tenant from
any further liability in connection with the Subject Space so recaptured by
Landlord as of the date stated in the Transfer Notice as the effective date of
the proposed Transfer until the last day of the term of the Transfer as set
forth in the Transfer Notice. In the event of a recapture by Landlord, if this
Lease shall be canceled with respect to less than the entire Premises, the Rent
reserved herein shall be prorated on the basis of the number of rentable square
feet retained by Tenant in proportion to the number of rentable square feet
contained in the Premises, and this Lease as so
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amended shall continue thereafter in full force and effect, and upon request of
either party, the parties shall execute written confirmation of the same. If
Landlord declines, or fails to elect in a timely manner to recapture the Subject
Space under this Section 14.3, then, provided Landlord has consented to the
proposed Transfer, Tenant shall be entitled to proceed to transfer the Subject
Space to the proposed Transferee, subject to provisions of the last paragraph of
Section 14.2 of this Lease.
14.4 EFFECT OF TRANSFER. If Landlord consents to a Transfer, (i) the
terms and conditions of this Lease shall in no way be deemed to have been waived
or modified, (ii) such consent shall not be deemed consent to any further
Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to
Landlord, promptly after execution, an original executed copy of all
documentation pertaining to the Transfer, (iv) no Transfer relating to this
Lease or agreement entered into with respect thereto, whether with or without
Landlord's consent, shall relieve Tenant from liability under this Lease (except
as set forth above in Section 14.3), and (v) such Transfer shall at all times be
subject and subordinate to the terms of this Lease. Landlord or its authorized
representatives shall have the right upon prior reasonable notice and at all
reasonable times to audit the books, records and papers of Tenant relating to
any Transfer, and shall have the right to make copies thereof.
14.5 NON-TRANSFERS. Notwithstanding anything to the contrary contained
in this Lease, neither (i) an assignment to a transferee of all or substantially
all of the assets of Tenant, (ii) an assignment of the Premises to a transferee
which is the resulting entity of a merger, reorganization or consolidation of
Tenant with another entity, nor (iii) an assignment or subletting of all or a
portion of the Premises to an affiliate of Tenant (an entity which is controlled
by, controls, or is under common control with, Tenant), shall be deemed a
Transfer under Article 14 of this Lease, provided that Tenant notifies Landlord
of any such assignment or sublease and promptly supplies Landlord with any
documents or information reasonably requested by Landlord regarding such
transfer or transferee as set forth in items (i) through (iii) above, and that
such assignment or sublease is not a subterfuge by Tenant to avoid its
obligations under this Lease. "Control," as used in this Section 14.5, shall
mean the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person or entity, whether through
ownership of voting securities, by contract or otherwise. Notwithstanding
anything to the contrary set forth in this Article 14, Tenant shall not be
permitted to assign or sublease all or any portion of the Premises to an
affiliate of Tenant if such assignment or sublease would cause a violation of
another lease for space in the Real Property or would give an occupant of the
Real Property a right to cancel its lease. Landlord represents that as of the
date of this Lease, there are no covenants in other leases for the Building
applicable to the fourth (4th) and fifteenth (15th) floors of the Building which
could prohibit an assignment or sublease pursuant to the immediately preceding
sentence.
14.6 TRANSFER PREMIUM.
14.6.1 DEFINITION OF TRANSFER PREMIUM. If Landlord consents to a
Transfer, as a condition thereto which the parties hereby agree is reasonable,
Tenant shall pay to Landlord fifty percent (50%) of the amount of any "Transfer
Premium," as that term is defined in this Section 14.6, received by Tenant from
such Transferee. "TRANSFER PREMIUM" shall mean all rent, additional rent or
other consideration payable by such Transferee in excess of the Rent and
Additional Rent payable by Tenant under this Lease on a per rentable square foot
basis if less than all of the Premises is transferred, after deducting the
reasonable expenses incurred by Tenant for (i) any changes, alterations and
improvements to the Premises in connection with the Transfer, (ii) any brokerage
commissions in connection with the Transfer, (iii) any cost to buy-out or
takeover the previous lease of a Transferee, (iv) reasonable legal fees incurred
in connection with the Transfer including those fees and costs reimbursed to
Landlord pursuant to Section 14.1 above, (v) the amount of any Rent paid by
Tenant to Landlord with respect to the Subject Space during the period
commencing on the later of (a) the date Tenant contracts with a reputable broker
to market the Subject Space and (b) the date Tenant vacates the Subject Space,
until the commencement of the term of the Transfer, and (vi) any other
out-of-pocket monetary concessions reasonably provided in connection with the
Transfer including, but not limited to, tenant improvement or decorating
allowances (collectively, the "SUBLEASING COSTS"). "Transfer Premium" shall
also include, but not be limited to, key money and bonus money paid by
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Transferee to Tenant in connection with such Transfer, and any payment in excess
of fair market value for services rendered by Tenant to Transferee or for
assets, fixtures, inventory, equipment, or furniture transferred by Tenant to
Transferee in connection with such Transfer. Notwithstanding the foregoing,
Tenant may convey, in connection with the Transfer, but pursuant to a separate
legally binding agreement, at a cost not to exceed fair market value, Tenant
Improvements installed by or for the benefit of Tenant to the extent paid for by
Tenant (and not by any allowance provided by Landlord) and Tenant shall be
entitled to retain any and all consideration received in connection with such
conveyance (not in excess of fair market value), provided that such conveyance
shall be subject to Landlord's rights to such Tenant Improvements upon the
expiration or earlier termination of this Lease as provided in this Lease.
14.6.2 PAYMENT OF TRANSFER PREMIUMS. The determination of the
amount of the Transfer Premium shall be made on an annual basis in accordance
with the terms of this Section 14.6.2, but an estimate of the amount of the
Transfer Premium shall be made each month and one-twelfth of such estimated
amount shall be paid to Landlord promptly, but in no event later than the next
date for payment of Base Rent hereunder, subject to an annual reconciliation on
each anniversary date of the Transfer. If the payments to Landlord under this
Section 14.6.2 during the twelve (12) months preceding each annual
reconciliation exceed the amount of Transfer Premium determined on an annual
basis, then Landlord shall credit the overpayment against Tenant's future
obligations under this Section 14.6.2 or if the overpayment occurs during the
last year of the Transfer in question, refund the excess to Tenant. If Tenant
has underpaid Landlord's share of the Transfer Premium, as determined by such
annual reconciliation, Tenant shall pay the amount of such deficiency to
Landlord promptly, but in no event later than the next date for payment of Basic
Rent hereunder. For purposes of calculating the Transfer Premium on an annual
basis, Tenant's Subleasing Costs shall be deemed to be expended by Tenant in
equal monthly amounts over the entire term of the Transfer.
14.6.3 CALCULATIONS OF RENT. In the calculations of the Rent (as
it relates to the Transfer Premium calculated under Section 14.6.1 of this
Lease) the Rent paid during each annual period for the Subject Space by Tenant
shall be computed after adjusting such rent to the actual effective rent to be
paid, taking into consideration any and all leasehold concessions granted in
connection therewith, including, but not limited to, any rent credit and tenant
improvement allowance. For purposes of calculating any such effective rent, all
such concessions shall be amortized on a straight-line basis over the relevant
term.
14.7 LANDLORD'S RECOGNITION OF TRANSFERS UPON LEASE TERMINATION. Tenant
may request, as part of its Transfer Notice, that a Transferee receive a
recognition agreement (the "RECOGNITION AGREEMENT") from Landlord which provides
that in the event this Lease is terminated, Landlord shall recognize the
Transfer, provided that Landlord shall only be obligated to execute a
Recognition Agreement with such Transferee under the following conditions (which
conditions must be reflected in the Recognition Agreement): (i) such Transfer
is made upon the same terms and conditions set forth in this Lease (including,
without limitation, the same Base Year and the same Base Rent (per rentable
square foot)), subject to equitable modifications based on the number of
rentable square feet contained in the Subject Space; provided, however, the
economic terms of such Transfer may be more favorable to Landlord than those set
forth in this Lease, (ii) the Subject Space contains only full floors in the
Building (i.e., Landlord shall have no obligation to execute a Recognition
Agreement as to any space which does not constitute a full floor), (iii) all
Subject Space is contiguous, (iv) the Transferee is, as of the date this Lease
is terminated, a party of reasonable financial worth and/or financial stability
in light of the responsibilities involved under the subject Transfer,
(v) Landlord shall not be liable for any act or omission of Tenant,
(vi) Landlord shall not be subject to any offsets or defenses which the
Transferee might have as to Tenant or to any claims for damages against Tenant,
(vii) Landlord shall not be required or obligated to credit the Transferee with
any rent or additional rent paid by the Transferee to Tenant, (viii) Landlord
shall not be bound by any terms or conditions of the Transfer which are
inconsistent with the terms and conditions of this Lease, (ix) Landlord shall be
responsible for performance of only those covenants and obligations of Tenant
pursuant to the Transfer accruing after the termination of this Lease, and
(x) the Transferee shall make full and complete attornment to Landlord, as
lessor, pursuant to a written agreement executed by Landlord and the Transferee,
so as to establish direct privity of contract between Landlord and the
Transferee with the same force and effect as though the Transfer was originally
made directly
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between Landlord and the Transferee. Upon Landlord's written request given any
time after the termination of this Lease, the Transferee shall execute a lease
for the space subject to the applicable Transfer upon the same terms and
conditions as set forth in the Recognition Agreement.
ARTICLE 15
SURRENDER OF PREMISES;
REMOVAL OF TRADE FIXTURES
15.1 SURRENDER OF PREMISES. No act or thing done by Landlord or any
agent or employee of Landlord during the Lease Term shall be deemed to
constitute an acceptance by Landlord of a surrender of the Premises unless such
intent is specifically acknowledged in a writing signed by Landlord. The
delivery of keys to the Premises to Landlord or any agent or employee of
Landlord shall not constitute a surrender of the Premises or effect a
termination of this Lease, whether or not the keys are thereafter retained by
Landlord, and notwithstanding such delivery Tenant shall be entitled to the
return of such keys at any reasonable time upon request until this Lease shall
have been terminated. The voluntary or other surrender of this Lease by Tenant,
whether accepted by Landlord or not, or a mutual termination hereof, shall not
work a merger, and at the option of Landlord shall operate as an assignment to
Landlord of all subleases or subtenancies affecting the Premises.
15.2 REMOVAL OF TENANT PROPERTY BY TENANT. All articles of personal
property and all business and trade fixtures, machinery and equipment, furniture
and movable partitions owned by Tenant or installed by Tenant at its expense in
the Premises, which items are not a part of the tenant improvements installed in
the Premises, shall remain the property of Tenant, and may be removed by Tenant
at any time during the Lease Term. Upon the expiration of the Lease Term, or
upon any earlier termination of this Lease, Tenant shall, subject to the
provisions of this Article 15, quit and surrender possession of the Premises to
Landlord in as good order and condition as when Tenant took possession and as
thereafter improved by Landlord and/or Tenant, reasonable wear and tear,
casualty (not caused by Tenant) and repairs which are specifically made the
responsibility of Landlord hereunder excepted. Upon such expiration or
termination, Tenant shall, without expense to Landlord, remove or cause to be
removed from the Premises all debris and rubbish, and such items of furniture,
equipment, free-standing cabinet work, and other articles of personal property
owned by Tenant or installed or placed by Tenant in the Premises, and such
similar articles of any other persons claiming under Tenant, as Landlord has
required to be removed at the time Tenant installed such items, and Tenant shall
repair at its own expense all damage to the Premises and Building resulting from
such removal.
ARTICLE 16
HOLDING OVER
If Tenant holds over after the expiration of the Lease Term hereof, or any
extension thereof pursuant to Section 2.2 of this Lease, with or without the
express or implied consent of Landlord, such tenancy shall be from
month-to-month only, and shall not constitute a renewal hereof or an extension
for any further term, and in such case Rent shall be payable at a monthly rate
equal to one hundred twenty-five percent (125%) of the Rent applicable during
the last rental period of the Lease Term under this Lease for the first two (2)
months of such holdover and at a monthly rental rate equal to one hundred fifty
percent (150%) of the Rent applicable during the last rental period of the Lease
Term under this Lease for the third (3rd) month of such holdover, and at a
monthly rental rate equal to two hundred percent (200%) of the Rent applicable
during the last rental period of the Lease Term under this Lease thereafter.
Such month-to-month tenancy shall be subject to every other term, covenant and
agreement contained herein. Except as specifically provided above, nothing
contained in this Article 16 shall be construed as consent by Landlord to any
holding over by Tenant, and Landlord expressly reserves the right to require
Tenant to surrender possession of the Premises to Landlord as provided in this
Lease upon the expiration or other termination of this Lease. The provisions of
this Article 16 shall not be deemed to limit or constitute a waiver of any other
rights or remedies of Landlord provided herein or at law. Tenant acknowledges
that if Tenant holds over without Landlord's consent,
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such holding over may compromise or otherwise affect Landlord's ability to enter
into new leases with prospective tenants regarding the Premises. Therefore, if
Tenant fails to surrender the Premises upon the termination or expiration of
this Lease, in addition to any other liabilities to Landlord accruing therefrom,
Tenant shall protect, defend, indemnify and hold Landlord harmless from all
loss, costs (including reasonable attorneys' fees) and liability resulting from
such failure, including, without limiting the generality of the foregoing, any
claims made by any succeeding tenant founded upon such failure to surrender, and
any losses suffered by Landlord, including lost profits, resulting from such
failure to surrender.
ARTICLE 17
ESTOPPEL CERTIFICATES
Within twenty (20) days following a request in writing by Landlord, Tenant
shall execute and deliver to Landlord an estoppel certificate, which, as
submitted by Landlord, shall be substantially in the form of Exhibit E, attached
hereto, (or such other commercially reasonable form as may be required by any
prospective mortgagee or purchaser of the Building, or any portion thereof),
indicating therein any exceptions thereto that may exist at that time, and shall
also contain any other information reasonably requested by Landlord or
Landlord's mortgagee or prospective mortgagee or purchasers. Tenant shall
execute and deliver whatever other instruments may be reasonably required for
such purposes. Failure of Tenant to timely execute and deliver such estoppel
certificate or other instruments shall constitute an acceptance of the Premises
and an acknowledgment by Tenant that statements included in the estoppel
certificate are true and correct, without exception. In connection with a
proposed assignment or sublease by Tenant, Landlord hereby agrees to provide to
Tenant an estoppel certificate signed by Landlord, containing the same types of
information, and within the same period of time, as set forth above, with such
changes as are reasonably necessary to reflect that the estoppel certificate is
being granted and signed by Landlord to Tenant, rather than from Tenant to
Landlord or a lender. If Landlord materially deviates from the form of estoppel
certificate attached as Exhibit E, Landlord shall, within thirty (30) days of
Landlord's receipt of an invoice therefor, pay Tenant's actual legal fees to
renew such certificate, not to exceed Two Hundred Fifty Dollars ($250.00) per
hour for a maximum of two (2) hours.
ARTICLE 18
SUBORDINATION
This Lease is subject and subordinate to all present and future ground or
underlying leases of the Real Property and to the lien of any mortgages or trust
deeds, now or hereafter in force against the Real Property and the Building, if
any, and to all renewals, extensions, modifications, consolidations and
replacements thereof, and to all advances made or hereafter to be made upon the
security of such mortgages or trust deeds, unless the holders of such mortgages
or trust deeds, or the lessors under such ground lease or underlying leases,
require in writing that this Lease be superior thereto. In consideration of,
and as a condition precedent to, Tenant's agreement to permit its interest
pursuant to this Lease to be subordinated to any particular future ground or
underlying lease of the Building or the Real Property or to the lien of any
mortgage or trust deed, hereafter enforced against the Building or the Real
Property and to any renewals, extensions, modifications, consolidations and
replacements thereof, Landlord shall deliver to Tenant a commercially reasonable
non-disturbance agreement executed by the landlord under such ground lease or
underlying lease or the holder of such mortgage or trust deed. Tenant covenants
and agrees in the event any proceedings are brought for the foreclosure of any
such mortgage, to attorn, without any deductions or set-offs whatsoever, to the
purchaser upon any such foreclosure sale if so requested to do so by such
purchaser, and to recognize such purchaser as the lessor under this Lease.
Tenant shall, within five (5) days of request by Landlord, execute such further
instruments or assurances as Landlord may reasonably deem necessary to evidence
or confirm the subordination or superiority of this Lease to any such mortgages,
trust deeds, ground leases or underlying leases. Landlord represents and
warrants that, as of the execution and delivery of this Lease, there are no
liens of any mortgages or trust deeds now in force against the Real Property and
the Building, except for the deed of trust in favor of Wells Fargo Bank, N.A.
Concurrently with the parties' execution and delivery of this Lease, Landlord,
Tenant and
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Wells Fargo Bank, N.A. shall execute and deliver a subordination,
non-disturbance and attornment agreement substantially in the form of Exhibit G
attached hereto and made a part hereof.
ARTICLE 19
DEFAULTS; REMEDIES
19.1 DEFAULTS. The occurrence of any of the following shall constitute a
default of this Lease by Tenant:
19.1.1 Any failure by Tenant to pay any Rent or any other charge
required to be paid under this Lease, or any part thereof, within five (5)
business days of notice that the same is due, which notice shall be in addition
to and not in lieu of any notice required under California Code of Civil
Procedure Section 1161 or any similar or successor law; or
19.1.2 Any failure by Tenant to observe or perform any other
provision, covenant or condition of this Lease to be observed or performed by
Tenant where such failure continues for thirty (30) days after written notice
thereof from Landlord to Tenant; provided however, that any such notice shall be
in addition to and not in lieu of, any notice required under California Code of
Civil Procedure Section 1161 or any similar or successor law; and provided
further that if the nature of such default is such that the same cannot
reasonably be cured within a thirty (30)-day period, Tenant shall not be deemed
to be in default if it diligently commences such cure within such period and
thereafter diligently proceeds to rectify and cure said default, as soon as
reasonably possible.
19.2 REMEDIES UPON DEFAULT. Upon the occurrence of a default by Tenant,
Landlord shall have, in addition to any other remedies available to Landlord at
law or in equity, the option to pursue any one or more of the following
remedies, each and all of which shall be cumulative and nonexclusive.
19.2.1 Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, 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, without being liable for prosecution or any claim
or damages therefor; and Landlord may recover from Tenant the following:
(i) The worth at the time of award of any unpaid rent
which has been earned at the time of such termination; plus
(ii) The worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that Tenant proves
could have been reasonably avoided; plus
(iii) The worth at the time of award of the amount by which
the unpaid rent for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iv) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease as allowed by applicable law; and
(v) At Landlord's election, such other amounts in addition
to or in lieu of the foregoing as may be permitted from time to time by
applicable law.
The term "rent" as used in this Section 19.2 shall be deemed to be and to mean
all sums of every nature required to be paid by Tenant pursuant to the terms of
this Lease, whether to Landlord or to others. As used in Paragraphs
19.2.1(i) and (ii), above, the "worth at the time of award" shall be computed by
allowing interest at the Interest Rate. As used in Paragraph 19.2.1(iii) above,
the
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"worth at the time of award" shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%).
19.2.2 Landlord shall have the remedy described in California Civil
Code Section 1951.4 (lessor may continue lease in effect after lessee's breach
and abandonment and recover Rent as it becomes due, if lessee has the right to
sublet or assign, subject only to reasonable limitations). Accordingly, if
Landlord does not elect to terminate this Lease on account of any default by
Tenant, Landlord may, from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease, including the right to recover
all rent as it becomes due.
19.3 SUBLEASES OF TENANT. In the event that Landlord elects to terminate
this Lease on account of any default by Tenant, as set forth in this Article 19,
Landlord shall, subject to the provisions of Section 14.7 of this Lease, have
the right to terminate any and all subleases, licenses, concessions or other
consensual arrangements for possession entered into by Tenant and affecting the
Premises or may, in Landlord's sole discretion, succeed to Tenant's interest in
such subleases, licenses, concessions or arrangements. In the event of
Landlord's election to succeed to Tenant's interest in any such subleases,
licenses, concessions or arrangements, Tenant shall, as of the date of notice by
Landlord of such election, have no further right to or interest in the rent or
other consideration receivable thereunder.
19.4 FORM OF PAYMENT AFTER DEFAULT. Following the occurrence of two (2)
or more defaults by Tenant, Landlord shall have the right to require that any or
all subsequent amounts paid by Tenant to Landlord hereunder, whether in the cure
of the default in question or otherwise, be paid in the form of cash, money
order, cashier's or certified check drawn on an institution acceptable to
Landlord, or by other means reasonably approved by Landlord, notwithstanding any
prior practice of accepting payments in any different form.
19.5 EFFORTS TO RELET. For the purposes of this Article 19, Tenant's
right to possession shall not be deemed to have been terminated by efforts of
Landlord to relet the Premises, by its acts of maintenance or preservation with
respect to the Premises, or by appointment of a receiver to protect Landlord's
interests hereunder. The foregoing enumeration is not exhaustive, but merely
illustrative of acts which may be performed by Landlord without terminating
Tenant's right to possession.
19.6 LANDLORD DEFAULT.
19.6.1 GENERAL. Notwithstanding anything to the contrary set forth
in this Lease, Landlord shall not be in default in the performance of any
obligation required to be performed by Landlord pursuant to this Lease unless
Landlord fails to perform such obligation within thirty (30) days after the
receipt of notice from Tenant specifying in detail Landlord's failure to
perform; provided, however, if the nature of Landlord's obligation is such that
more than thirty (30) days are required for its performance, then Landlord shall
not be in default under this Lease if it shall commence such performance within
such thirty (30) day period and shall thereafter diligently pursue the same to
completion. Upon any such default by Landlord under this Lease, Tenant may,
except as otherwise specifically provided in this Lease to the contrary,
exercise any of its rights provided at law or in equity.
19.6.2 ABATEMENT OF RENT. In the event that Tenant is prevented
from using, and does not use, the Premises or a portion thereof, as a result of
(i) any repair, maintenance or alteration performed by Landlord, or which
Landlord failed to perform, after the Lease Commencement Date and required by
the Lease, which substantially interferes with Tenant's use of the Premises,
(ii) any failure to provide services, utilities or access to the Premises, or
(iii) the presence of Hazardous Materials in, on or around the Building or the
Real Property in violation of any applicable law (each such set of circumstances
as set forth in items (i), (ii), or (iii) above, to be known as an "ABATEMENT
EVENT"), then Tenant shall give Landlord notice of such Abatement Event, and if
such Abatement Event continues for four (4) consecutive business days after
Landlord's receipt of any such notice or eight (8) business days after
Landlord's receipt of any such notice in any twelve (12) month period (the
"ELIGIBILITY PERIOD"), then the Base Rent and Tenant's Share of Direct Expenses
and Tenant's obligation to pay for parking shall be abated
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or reduced, as the case may be, after expiration of the Eligibility Period for
such time that Tenant continues to be so prevented from using, and does not use,
the Premises or a portion thereof, in the proportion that the rentable area of
the portion of the Premises that Tenant is prevented from using, and does not
use, bears to the total rentable area of the Premises; provided, however, in the
event that Tenant is prevented from using, and does not use, a portion of the
Premises for a period of time in excess of the Eligibility Period and the
remaining portion of the Premises is not sufficient to allow Tenant to
effectively conduct its business therein, and if Tenant does not conduct its
business from such remaining portion, then for such time after expiration of the
Eligibility Period during which Tenant is so prevented from effectively
conducting its business therein, the Base Rent and Tenant's Share of Direct
Expenses and Tenant's obligation to pay for parking for the entire Premises
shall be abated for such time as Tenant continues to be so prevented from using,
and does not use, the Premises. If, however, Tenant reoccupies any portion of
the Premises during such period, the rent allocable to such reoccupied portion,
based on the proportion that the rentable area of such reoccupied portion of the
Premises bears to the total rentable area of the Premises, shall be payable by
Tenant from the date Tenant reoccupies such portion of the Premises. If
Tenant's right to abatement occurs during a free rent period which arises after
the Lease Commencement Date, Tenant's free rent period shall be extended for the
number of days that the abatement period overlapped the free rent period (the
"OVERLAP PERIOD"). Landlord shall have the right to extend the expiration date
of the Lease for a period of time equal to the Overlap Period if Landlord sends
a notice to Tenant of such election within ten (10) days following the end of
the extended free rent period. Such right to abate Base Rent and Tenant's Share
of Direct Expenses and Tenant's parking charges shall be Tenant's sole and
exclusive remedy at law or in equity for an Abatement Event; provided, however,
that if Landlord has not cured such Abatement Event within one hundred eighty
(180) days after receipt of notice from Tenant, Tenant shall have the right to
terminate this Lease during the first five (5) business days of each calendar
month following the end of such 180-day period until such time as Landlord has
cured the Abatement Event, which right may be exercised only by delivery of
notice to Landlord (the "ABATEMENT EVENT TERMINATION NOTICE") during such five
business-day period, and shall be effective as of a date set forth in the
Abatement Event Termination Notice (the "ABATEMENT EVENT TERMINATION DATE"),
which Abatement Event Termination Date shall not be less than ten (10) business
days, and not more than six (6) months, following the delivery of the Abatement
Event Termination Notice. If Tenant's right to abatement occurs because of an
eminent domain taking and/or because of damage or destruction to the Premises,
Tenant's abatement period shall continue until Tenant has been given sufficient
time and sufficient access to the Premises to rebuild that portion of the
Premises, if any, which it is required to rebuild pursuant to this Lease and to
install its property, furniture, fixtures, and equipment and to move in over a
weekend. To the extent Tenant is entitled to abatement without regard to the
Eligibility Period, because of an event described in Articles 11 or 13 of this
Lease, then the Eligibility Period shall not be applicable. Notwithstanding the
foregoing, Tenant shall not have the right to terminate this Lease pursuant to
the terms of this Section 19.6, if, as of the date of delivery by Tenant of the
Abatement Event Termination Notice, (A) the first trust deed holder of the Real
Property (the "BANK") has recorded a notice of default on the Real Property or
filed a notice evidencing a legal action by the Bank against Landlord on the
Real Property, and (B) the Bank diligently proceeds to gain possession of the
Premises and, to the extent Bank does gain possession of the Premises, Bank
shall diligently proceed to cure such Abatement Event. Except as provided in
this Section 19.6.2, nothing contained herein shall be interpreted to mean that
Tenant is excused from paying Rent due hereunder.
19.6.3 LANDLORD BANKRUPTCY PROCEEDING. In the event that the
obligations of Landlord under this Lease are not performed during the pendency
of a bankruptcy or insolvency proceeding involving the Landlord as the debtor,
or following the rejection of this Lease in accordance with Section 365 of the
United States Bankruptcy Code and the election of the Tenant to remain in the
possession of the Premises in a bankruptcy or insolvency proceeding involving
the Landlord as the debtor, then notwithstanding any provision of this Lease to
the contrary, Tenant shall have the right to set off against Rents next due and
owing under this Lease (i) any and all damages that it demonstrates to the
Bankruptcy Court or to any other court, in legal proceedings against Landlord
for which Tenant receives a final judgment against Landlord, were caused by such
nonperformance of the Landlord's obligations under this Lease by Landlord,
debtor-in-possession, or the bankruptcy trustee, and (ii) any and all damages
caused by the
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nonperformance of Landlord's obligations under this Lease following any
rejection of this Lease in accordance with Section 365 of the United States
Bankruptcy Code.
ARTICLE 20
COVENANT OF QUIET ENJOYMENT
Landlord covenants that Tenant, on paying the Rent, charges for services
and other payments herein reserved and on keeping, observing and performing all
the other terms, covenants, conditions, provisions and agreements herein
contained on the part of Tenant to be kept, observed and performed, shall,
during the Lease Term, peaceably and quietly have, hold and enjoy the Premises
subject to the terms, covenants, conditions, provisions and agreements hereof
without interference by any persons lawfully claiming by or through Landlord.
The foregoing covenant is in lieu of any other covenant express or implied.
ARTICLE 21
INTENTIONALLY OMITTED
ARTICLE 22
INTENTIONALLY OMITTED
ARTICLE 23
SIGNS
23.1 FULL FLOOR TENANTS. Subject to Landlord's prior written approval,
in its reasonable discretion, and provided all signs are in keeping with the
quality, design and style of the Building, Tenant, if the Premises (or any
portion thereof) contain an entire floor of the Building, at its sole cost and
expense, may install identification signage anywhere on any full floor contained
in the Premises including in the elevator lobby of any full floor, provided that
such signs must not be visible from the exterior of the Building and such signs
need not be consistent with the Building's signage program.
23.2 MULTI-TENANT FLOOR TENANTS. If other tenants occupy space on the
floor on which any portion of the Premises is located, Tenant's identifying
signage shall be provided by Landlord, as a charge to the Tenant Improvement
Allowance, and such signage shall be comparable to that used by Landlord for
other similar floors in the Building and shall comply with Landlord's Building
standard signage program. Notwithstanding the foregoing, Tenant shall be
entitled to construct, as a part of the Tenant Improvements, identifying signage
within the interior of the Premises; provided, however, that the graphics,
materials, color, design, lettering, lighting and exact location of such signage
shall be subject to the reasonable approval of Landlord.
23.3 PROHIBITED SIGNAGE AND OTHER ITEMS. Any signs, notices, logos,
pictures, names or advertisements which are installed and that have not been
individually approved by Landlord may, upon notice to Tenant, be removed by
Landlord at the sole expense of Tenant. Except as otherwise provided in this
Article 23, Tenant may not install any signs on the exterior or roof of the
Building or the common areas of the Building or the Real Property. Any signs,
window coverings, or blinds or other items visible from the exterior of the
Premises or Building are subject to the prior written approval of Landlord, in
its sole discretion. Tenant shall, prior to the expiration or earlier
termination of the Lease Term, remove all of its signs and repair any damage
caused by the removal of such signs.
23.4 DIRECTORY BOARD. Landlord shall provide Tenant with signage on the
Building directory located in the main Building lobby in an amount equal to one
(1) line per 1,000 rentable square feet in the Premises. The initial strips
shall be at Landlord's sole cost and expense; provided, however, that any
revisions shall be made by Landlord at Tenant's sole cost and expense at the
rate generally charged by Landlord.
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ARTICLE 24
COMPLIANCE WITH LAW
Tenant shall not do anything or suffer anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
other governmental rule, regulation or requirement now in force or which may
hereafter be enacted or promulgated. Should any standard or regulation now or
hereafter be imposed on Landlord or Tenant by a state, federal or local
governmental body charged with the establishment, regulation and enforcement of
occupational, health or safety standards for employers, employees, landlords or
tenants, then Tenant agrees, at its sole cost and expense, to comply promptly
with such standards or regulations. Tenant shall be responsible, at is sole
cost and expense, to make all alterations to the Premises as are required to
comply with governmental rules, regulations, requirements or standards described
in this Article 24, other than the making of structural changes or changes to
the Building's "Base, Shell and Core," as that term is defined in Section 1.1 of
the Tenant Work Letter. Landlord shall be responsible (as an Operating Expense
to the extent permitted under Article 4) for making all alterations to the
Common Areas, the Building's lifesafety system and the Base, Shell and Core of
the Building which are required to comply with governmental rules, regulations,
requirements or standards (including without limitation, the Americans With
Disabilities Act of 1990).
ARTICLE 25
LATE CHARGES
If any installment of Rent or any other sum due from Tenant shall not be
received by Landlord or Landlord's designee within five (5) business days after
notice of Tenant's failure to pay such amounts, then Tenant shall pay to
Landlord a late charge equal to two percent (2%) of the overdue amount;
provided, however, that Tenant shall not be obligated to pay the first late
charge that would otherwise be payable in any twelve (12) month period during
the Lease Term. The late charge shall be deemed Additional Rent and the right
to require it shall be in addition to all of Landlord's other rights and
remedies hereunder or at law and shall not be construed as liquidated damages or
as limiting Landlord's remedies in any manner. In addition to the late charge
described above, any Rent or other amounts owing hereunder which are not paid
within five (5) business days after notice of such failure to pay such amounts
shall thereafter bear interest until paid at a rate per annum equal to the
Interest Rate.
ARTICLE 26
LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT
26.1 LANDLORD'S CURE. All covenants and agreements to be kept or
performed by Tenant under this Lease shall be performed by Tenant at Tenant's
sole cost and expense and without any reduction of Rent, except as expressly
provided in this Lease. If Tenant shall fail to perform any of its obligations
under this Lease, within a reasonable time after such performance is required by
the terms of this Lease, Landlord may, but shall not be obligated to, after
reasonable prior notice to Tenant, make any such payment or perform any such act
on Tenant's part without waiving its right based upon any default of Tenant and
without releasing Tenant from any obligations hereunder.
26.2 TENANT'S REIMBURSEMENT. Except as may be specifically provided to
the contrary in this Lease, Tenant shall pay to Landlord, within thirty (30)
days after delivery by Landlord to Tenant of documented statements therefor:
sums equal to expenditures reasonably made and obligations incurred by Landlord
in connection with the remedying by Landlord of Tenant's defaults pursuant to
the provisions of Section 26.1. Tenant's obligations under this Section 26.2
shall survive the expiration or sooner termination of the Lease Term.
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ARTICLE 27
ENTRY BY LANDLORD
Landlord reserves the right at all reasonable times and upon reasonable
prior notice to the Tenant to enter the Premises to (i) inspect them; (ii) show
the Premises to prospective purchasers, mortgagees or ground or underlying
lessors, or, during the last nine (9) months of the Lease Term (or Option Terms,
as applicable), to prospective tenants; (iii) post notices of nonresponsibility;
or (iv) alter, improve or repair the Premises or the Building if necessary to
comply with current building codes or other applicable laws, or for structural
alterations, repairs or improvements to the Building. Notwithstanding anything
to the contrary contained in this Article 27, but subject to the last two (2)
sentences of this Article 27, Landlord may enter the Premises at any time to (A)
perform services required of Landlord; and (B) perform any covenants of Tenant
which Tenant fails to perform. Landlord may make any such entries without the
abatement of Rent except as otherwise expressly provided in Section 19.6.2 of
this Lease, and may take such steps as required to accomplish the stated
purposes; provided, however, that any such entry shall be accomplished as
expeditiously as reasonably possible and in a manner so as to cause as little
interference to Tenant as reasonably possible. Tenant hereby waives any claims
for damages or for any injuries or inconvenience to or interference with
Tenant's business, lost profits, any loss of occupancy or quiet enjoyment of the
Premises, and any other loss occasioned thereby. For each of the above
purposes, Landlord shall at all times have a key with which to unlock all the
doors in the Premises, excluding Tenant's vaults, safes and special security
areas designated in advance by Tenant. In an emergency, Landlord shall have the
right to use any means that Landlord may deem proper to open the doors in and to
the Premises so long as Landlord timely repairs any damage caused thereby. Any
entry into the Premises by Landlord in the manner hereinbefore described shall
not be deemed to be a forcible or unlawful entry into, or a detainer of, the
Premises, or an actual or constructive eviction of Tenant from any portion of
the Premises. Notwithstanding anything to the contrary contained in this
Article 27, and upon notice to Landlord, Tenant may designate certain areas of
the Premises as "SECURED AREAS" should Tenant require such areas for the purpose
of securing certain valuable property or confidential information. Landlord may
only enter such Secured Areas upon two (2) business days' notice to Tenant which
notice shall specify the date and time of such entry by Landlord; provided,
however, that Landlord may enter the Secured Areas without notice to Tenant in
the event of an emergency, in which case Landlord shall provide Tenant with
notice of such entry promptly thereafter.
ARTICLE 28
TENANT PARKING
28.1 TENANT PARKING. Tenant shall have the right to rent parking passes
on a monthly basis throughout the Lease Term in the total amount set forth in
Section 11 of the Summary, which parking passes shall pertain to the On-site
Parking Area. Up to six (6) of such parking passes may, at Tenant's option, be
for reserved parking spaces in the On-site Parking Area at a location designated
by Landlord and the remainder of such parking passes shall be for unreserved
parking in the On-site Parking Area. Tenant shall provide Landlord with at
least thirty (30) days prior written notice if Tenant desires to decrease or
increase the actual number of parking passes rented by Tenant, subject to the
maximum amount set forth in Section 11 of the Summary. Tenant shall pay to
Landlord monthly parking charges for such parking passes at the prevailing rate
charged by Landlord from time to time for parking in the On-site Parking Area,
plus all applicable taxes and governmental charges. Tenant shall abide by all
rules and regulations which are prescribed from time to time for the orderly
operation and use of the On-site Parking Area and Tenant shall use its good
faith efforts to cause its employees and visitors to comply with such rules and
regulations. Landlord specifically reserves the right to change the size,
configuration, design, layout and all other aspects of the On-site Parking Area
at any time and Tenant acknowledges and agrees that Landlord may, without
incurring any liability to Tenant and without any abatement of Rent under this
Lease, from time to time, temporarily close-off or restrict access to the
On-site Parking Area for purposes of permitting or facilitating any such
construction, alteration or improvements so long as Landlord provides reasonably
adequate substitute parking (and if the market parking charges for such
substitute parking are less than the
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parking charges to be paid by Tenant for the On-site Parking Area as provided in
this Section 28.1, Tenant shall be entitled to such reduced rate). Landlord may
delegate its responsibilities hereunder to a parking operator in which case such
parking operator shall have all the rights of control attributed hereby to the
Landlord. The parking passes rented by Tenant pursuant to this Article 28 are
provided to Tenant solely for use by Tenant's own personnel and such passes may
not be transferred, assigned, subleased or otherwise alienated by Tenant without
Landlord's prior approval; provided, however, that Tenant may transfer all or a
portion of the parking passes rented by Tenant pursuant to this Article 28 to a
Transferee permitted under Article 14 of this Lease. For each Lease Year during
the initial Lease Term, Tenant shall be entitled to purchase up to Twenty
Thousand Dollars ($20,000) of visitor parking validations at a twenty-five
percent (25%) discount from Landlord's normal rate charged to the other tenants
in the Building for such parking validations; provided, however, that such
discounted parking validations may only be used by Tenant's visitors to the
Building and shall not be transferable to any other parkers.
ARTICLE 29
MISCELLANEOUS PROVISIONS
29.1 TERMS. The necessary grammatical changes required to make the
provisions hereof apply either to corporations or partnerships or individuals,
men or women, as the case may require, shall in all cases be assumed as though
in each case fully expressed.
29.2 BINDING EFFECT. Each of the provisions of this Lease shall extend
to and shall, as the case may require, bind or inure to the benefit not only of
Landlord and of Tenant, but also of their respective successors or assigns,
provided this clause shall not permit any assignment by Tenant contrary to the
provisions of Article 14 of this Lease.
29.3 NO AIR RIGHTS. No rights to any view or to light or air over any
property, whether belonging to Landlord or any other person, are granted to
Tenant by this Lease. If at any time any windows of the Premises are
temporarily darkened or the light or view therefrom is obstructed by reason of
any repairs, improvements, maintenance or cleaning in or about the Building, the
same shall be without liability to Landlord and without any reduction or
diminution of Tenant's obligations under this Lease.
29.4 MODIFICATION OF LEASE. Should any current or prospective mortgagee
or ground lessor for the Building require a modification or modifications of
this Lease, which modification or modifications will not cause an increased cost
or expense to Tenant or in any other way materially and adversely change the
rights and obligations of Tenant hereunder, then and in such event, Tenant
agrees that this Lease may be so modified and agrees to execute whatever
documents are required therefor and deliver the same to Landlord within fifteen
(15) business days following the request therefor. Landlord shall reimburse
Tenant for all actual and reasonable out-of-pocket costs and expenses, up to
Fifteen Hundred Dollars ($1,500.00) incurred by Tenant in connection with its
execution of any such documents. Should Landlord or any such prospective
mortgagee or ground lessor require execution of a short form of Lease for
recording, containing, among other customary provisions, the names of the
parties, a description of the Premises and the Lease Term, Tenant agrees to
execute such short form of Lease and to deliver the same to Landlord within
thirty (30) days following the request therefor.
29.5 TRANSFER OF LANDLORD'S INTEREST. Tenant acknowledges that Landlord
has the right to transfer all or any portion of its interest in the Real
Property and Building and in this Lease, and Tenant agrees that in the event of
any such transfer, Landlord shall automatically be released from all liability
under this Lease, other than with respect to obligations of Landlord which arose
prior to the date of such transfer, and Tenant agrees to look solely to such
transferee for the performance of Landlord's obligations hereunder after the
date of transfer, provided that any such transferee agrees in writing to be
bound by this Lease and to assume all of Landlord's obligations hereunder. The
liability of any transferee of Landlord shall be limited to the interest of such
transferee in the Real Property and Building and such transferee shall be
without personal liability under this Lease, and Tenant hereby expressly waives
and releases such personal liability on behalf of itself and all persons
claiming by, through or under Tenant. Tenant further
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acknowledges that Landlord may assign its interest in this Lease to a mortgage
lender as additional security and agrees that such an assignment shall not
release Landlord from its obligations hereunder and that Tenant shall continue
to look to Landlord for the performance of its obligations hereunder.
29.6 PROHIBITION AGAINST RECORDING. Except as provided in Section 29.4
of this Lease, neither this Lease, nor any memorandum, affidavit or other
writing with respect thereto, shall be recorded by Tenant or by anyone acting
through, under or on behalf of Tenant, and the recording thereof shall be deemed
to be a default under Section 19.1.2 of this Lease at Landlord's election.
29.7 CAPTIONS. The captions of Articles and Sections are for convenience
only and shall not be deemed to limit, construe, affect or alter the meaning of
such Articles and Sections.
29.8 RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall be
deemed or construed by the parties hereto or by any third party to create the
relationship of principal and agent, partnership, joint venturer or any
association between Landlord and Tenant, it being expressly understood and
agreed that neither the method of computation of Rent nor any act of the parties
hereto shall be deemed to create any relationship between Landlord and Tenant
other than the relationship of landlord and tenant.
29.9 TIME OF ESSENCE. Time is of the essence of this Lease and each of
its provisions.
29.10 PARTIAL INVALIDITY. If any term, provision or condition contained
in this Lease shall, to any extent, be invalid or unenforceable, the remainder
of this Lease, or the application of such term, provision or condition to
persons or circumstances other than those with respect to which it is invalid or
unenforceable, shall not be affected thereby, and each and every other term,
provision and condition of this Lease shall be valid and enforceable to the
fullest extent possible permitted by law.
29.11 EXCULPATION. It is expressly understood and agreed that
notwithstanding anything in this Lease to the contrary, and notwithstanding any
applicable law to the contrary, the liability of Landlord Parties hereunder
(including any successor landlord) and any recourse by Tenant against Landlord
shall be limited solely and exclusively to the interest of Landlord in and to
the Real Property and Building, and neither Landlord, nor any of its constituent
partners, shall have any personal liability therefor, and Tenant hereby
expressly waives and releases such personal liability on behalf of itself and
all persons claiming by, through or under Tenant. It is further expressly
understood and agreed that, notwithstanding anything in this Lease to the
contrary, and notwithstanding any applicable law to the contrary, the
obligations of Tenant under this Lease do not constitute personal obligations of
the individual partners, directors, officers or shareholders of Tenant, and
Landlord will not seek recourse against the individual partners, directors,
officers or shareholders of Tenant or any of their personal assets for
satisfaction of any liability of Tenant in respect of this Lease.
29.12 ENTIRE AGREEMENT. It is understood and acknowledged that there are
no oral agreements between the parties hereto affecting this Lease and this
Lease supersedes and cancels any and all previous negotiations, arrangements,
brochures, agreements and understandings, if any, between the parties hereto or
displayed by Landlord to Tenant with respect to the subject matter thereof, and
none thereof shall be used to interpret or construe this Lease. This Lease, the
exhibits and schedules attached hereto, and any side letter or separate
agreement executed by Landlord and Tenant in connection with this Lease and
dated of even date herewith contain all of the terms, covenants, conditions,
warranties and agreements of the parties relating in any manner to the rental,
use and occupancy of the Premises, shall be considered to be the only agreement
between the parties hereto and their representatives and agents, and none of the
terms, covenants, conditions or provisions of this Lease can be modified,
deleted or added to except in writing signed by the parties hereto. All
negotiations and oral agreements acceptable to both parties have been merged
into and are included herein. There are no other representations or warranties
between the parties, and all reliance with respect to representations is based
totally upon the representations and agreements contained in this Lease.
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29.13 RIGHT TO LEASE. Subject to the provisions of Section 23.5 above,
Landlord reserves the absolute right to effect such other tenancies in the
Building as Landlord in the exercise of its sole business judgment shall
determine to best promote the interests of the Building. Tenant does not rely
on the fact, nor does Landlord represent, that any specific tenant or type or
number of tenants shall, during the Lease Term, occupy any space in the
Building.
29.14 FORCE MAJEURE. Any prevention, delay or stoppage due to strikes,
lockouts, labor disputes, acts of God, inability to obtain services, labor, or
materials or reasonable substitutes therefor, governmental actions, civil
commotions, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform (collectively, the "FORCE MAJEURE"),
except with respect to (i) the obligations imposed with regard to Rent and other
charges to be paid by Tenant or any monetary obligations to be paid by Landlord
pursuant to this Lease, (ii) Tenant's obligations under Articles 5 and 24 of
this Lease, and (iii) Landlord's obligations to make timely payments of the
Tenant Improvement Allowance pursuant to the Tenant Work Letter, notwithstanding
anything to the contrary contained in this Lease, shall excuse the performance
of such party for a period equal to any such prevention, delay or stoppage and,
therefore, if this Lease specifies a time period for performance of an
obligation of either party, that time period shall be extended by the period of
any delay in such party's performance caused by a Force Majeure.
29.15 WAIVER OF REDEMPTION BY TENANT. Tenant hereby waives for Tenant and
for all those claiming under Tenant all right now or hereafter existing to
redeem the Premises after termination of Tenant's right of occupancy by order or
judgment of any court or by any legal process or writ pursuant to California
Code of Civil Procedure Section 729.010 through 729.090, but nothing in this
Lease shall be deemed to constitute Tenant's waiver of its right to petition for
relief from a forfeiture pursuant to California Code of Civil Procedure
Section 1179 or California Civil Code Section 3275.
29.16 NOTICES. All notices, demands, statements, approvals or
communications (collectively, "NOTICES") given or required to be given by either
party to the other hereunder shall be in writing, shall be sent by United States
certified or registered mail, postage prepaid, return receipt requested, or
delivered personally (i) to Tenant at the appropriate address set forth in
Section 5 of the Summary, or to such other place as Tenant may from time to time
designate in a Notice to Landlord; or (ii) to Landlord at the addresses set
forth in Section 3 of the Summary, or to such other firm or to such other place
as Landlord may from time to time designate in a Notice to Tenant. Any Notice
will be deemed given on the third (3rd) business day after the date it is mailed
as provided in this Section 29.16 or upon the date personal delivery is made.
If Tenant is notified of the identity and address of Landlord's mortgagee or
ground or underlying lessor, Tenant shall give to such mortgagee or ground or
underlying lessor written notice of any default by Landlord under the terms of
this Lease by registered or certified mail.
29.17 AUTHORITY. If Tenant is a corporation or partnership, each
individual executing this Lease on behalf of Tenant hereby represents and
warrants that Tenant is a duly formed and existing entity qualified to do
business in California and that Tenant has full right and authority to execute
and deliver this Lease and that each person signing on behalf of Tenant is
authorized to do so. Furthermore, if Landlord is a corporation or partnership,
each individual executing this Lease on behalf of Landlord hereby represents and
warrants that Landlord is a duly formed and existing entity qualified to do
business in California and that Landlord has full right and authority to execute
and deliver this Lease and that each person signing on behalf of Landlord is
authorized to do so.
29.18 ATTORNEYS' FEES. If either party commences litigation against the
other for the specific performance of this Lease, for damages for the breach
hereof or otherwise for enforcement of any remedy hereunder, the parties hereto
agree to and hereby do waive any right to a trial by jury and, in the event of
any such commencement of litigation, the prevailing party shall be entitled to
recover from the other party such costs and reasonable attorneys' fees as may
have been incurred.
29.19 GOVERNING LAW. This Lease shall be construed and enforced in
accordance with the laws of the State of California.
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29.20 SUBMISSION OF LEASE. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or an option for
lease, and it is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant.
29.21 BROKERS. Landlord and Tenant hereby warrant to each other that they
have had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease, excepting only the real estate brokers or agents
specified in Section 12 of the Summary (the "BROKERS"), and that they know of no
other real estate broker or agent who is entitled to a commission in connection
with this Lease. Landlord shall pay the brokerage commissions owing to the
Brokers in connection with the transaction contemplated by this Lease pursuant
to the terms of a separate written agreement between Landlord and the Brokers.
Each party agrees to indemnify and defend the other party against and hold the
other party harmless from any and all claims, demands, losses, liabilities,
lawsuits, judgments, and costs and expenses (including without limitation
reasonable attorneys' fees) with respect to any leasing commission or equivalent
compensation alleged to be owing on account of the indemnifying party's dealings
with any real estate broker or agent other than the Brokers.
29.22 INDEPENDENT COVENANTS. This Lease shall be construed as though the
covenants herein between Landlord and Tenant are independent and not dependent
and Tenant hereby expressly waives the benefit of any statute to the contrary
and agrees that if Landlord fails to perform its obligations set forth herein,
Tenant shall not, except as expressly provided in this Lease, be entitled to
make any repairs or perform any acts hereunder at Landlord's expense or to any
setoff of the Rent or other amounts owing hereunder against Landlord; provided,
however, that the foregoing shall in no way impair the right of Tenant to
commence a separate action against Landlord for any violation by Landlord of the
provisions hereof so long as notice is first given to Landlord and any holder of
a mortgage or deed of trust covering the Building, Real Property or any portion
thereof, of whose address Tenant has theretofore been notified.
29.23 BUILDING NAME AND SIGNAGE. Subject to the provisions of
Section 23.5 above, Landlord shall have the right at any time to change the name
of the Building and to install, affix and maintain any and all signs on the
exterior and on the interior of the Building as Landlord may, in Landlord's sole
discretion, desire. Tenant shall not use the name of the Building or use
pictures or illustrations of the Building in advertising or other publicity,
without the prior written consent of Landlord.
29.24 TRANSPORTATION MANAGEMENT. With regard to all present or future
programs which are the obligation of the Building as imposed by a governmental
entity or authority, which programs are intended to manage parking,
transportation or traffic in and around the Building, Tenant shall comply with
such programs to the extent that the requirement applies to Tenant's employees
and Tenant shall take responsible action for the transportation planning and
management of all employees located at the Premises by working directly with
Landlord, any governmental transportation management organization or any other
transportation-related committees or entities.
29.25 SUCCESSORS. Except as otherwise expressly provided herein, the
obligations of this Lease shall bind and benefit the successors and assigns of
the parties hereto; provided, however, that no assignment, sublease or other
transfer in violation of the provisions of Article 14 shall operate to vest any
rights in any putative assignee, subtenant or transferee of Tenant.
29.26 BUSINESS DAYS. Notwithstanding anything in this Lease to the
contrary, all references in this Lease to any number of days of ten (10) or less
shall mean business days.
29.27 WHEN PAYMENT IS DUE. Whenever a payment is required to be made by
one party to the other under this Lease, but a specific date for payment or a
specific number of days within which payment is to be made is not set forth in
this Lease, or the words "immediately," "promptly" and/or "on demand," or their
equivalent, are used to specify when such payment is due, then such payment
shall be due thirty (30) days after the party which is entitled to such payment
sends written notice to the other party demanding such payment.
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<PAGE>
29.28 INTEREST RATE. As used herein, the term "INTEREST RATE" means the
lesser of (i) the "Prime Rate" or "Reference Rate" announced from time to time
by Bank of America (or such reasonable comparable national banking institution
as is selected by Landlord in the event Bank of America ceases to exist or to
publish a Prime Rate or Reference Rate), plus two percent (2%), or (ii) the
maximum rate permitted by law.
29.29 NO DISCRIMINATION. Tenant covenants by and for itself, its heirs,
executors, administrators and assigns, and all persons claiming under or through
Tenant, and this Lease is made and accepted upon and subject to the following
conditions of this Section 29.29: that there shall be no discrimination against
or segregation of any person or group of persons, on account of race, color,
creed, sex, religion, marital status, ancestry or national origin in the
leasing, subleasing, transferring, use, or enjoyment of the Premises, nor shall
Tenant itself, or any person claiming under or through Tenant, establish or
permit such practice or practices of discrimination or segregation with
reference to the selection, location, number, use or occupancy, of tenants,
lessees, sublessees, subtenants or vendees in the Premises.
29.30 CONFIDENTIALITY. Tenant acknowledges that the content of this Lease
and any related documents are confidential information. Tenant shall keep such
confidential information strictly confidential and shall not disclose such
confidential information to any person or entity other than Tenant's financial,
legal, and space planning consultants.
29.31 REASONABLE CONSENT. Except for matters for which there is a
standard of consent or approval specifically set forth in this Lease (other than
a reasonableness standard), and except for matters which could affect (i) the
Building systems and equipment, (ii) the structural aspects of the Building or
(iii) the exterior appearance of the Building, in which case Landlord shall have
the right to act in its sole and absolute discretion (but at all times in good
faith), any time the consent or approval of Landlord or Tenant is required under
this Lease, such consent or approval shall not be unreasonably withheld,
conditioned or delayed. Whenever this Lease grants Landlord or Tenant the right
to take action, exercise discretion, establish rules and regulations or make
allocations or other determinations, Landlord and Tenant shall act reasonably
and in good faith.
29.32 AMERICANS WITH DISABILITIES ACT. Landlord warrants to Tenant that
Landlord has taken or is in the process of completing the necessary steps to
reasonably comply with what Landlord reasonably believes are the requirements of
the Americans With Disabilities Act in effect as of the date of this Lease as it
pertains to the common areas of the Building and the Real Property. Landlord
further represents to Tenant that the Operating Expenses shall not include any
cost incurred by Landlord in connection with upgrading the Building to comply
with the requirements of the Americans With Disabilities Act which Landlord
reasonably believes are in effect as of the date of this Lease, including
penalties or damages incurred due to such noncompliance. Landlord shall
indemnify, defend, protect and hold harmless Tenant and its agents, contractors
and employees from any and all loss, cost, damage, expense and liability
(including, without limitation, reasonable court costs and reasonable attorneys'
fees) incurred in connection with or arising from the noncompliance of the
Common Areas of the Building and the Real Property (excluding the Premises) with
the Americans With Disabilities Act.
29.33 HAZARDOUS MATERIALS.
29.33.1 DEFINITION. As used herein, the term "HAZARDOUS MATERIAL"
means any hazardous or toxic substance, material or waste which is or becomes
regulated by, or is dealt with in, any local governmental authority, the State
of California or the United States Government. Accordingly, the term "Hazardous
Material" includes, without limitation, any material or substance which is
(i) defined as a "hazardous waste," "extremely hazardous waste" or "restricted
hazardous waste" under Sections 25115, 25117 or 25122.7, or listed pursuant to
Section 25140 of the California Health and Safety Code, Division 20, Chapter 6.5
(Hazardous Waste Control Law), (ii) defined as a "hazardous substance" under
Section 25316 of the California Health and Safety Code, Division 20, Chapter
6.95 (Hazardous Materials Release Response Plans and Inventory), (iii) defined
as a "hazardous substance" under Section 25281 of the California Health and
Safety Code, Division 20, Chapter 6.7 (Underground Storage of Hazardous
Substances), (iv) petroleum, (v) asbestos, (vi) listed under Article 9 or
defined as hazardous or extremely
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<PAGE>
hazardous pursuant to Article 11 of Title 22 of the California Administrative
Code, division 4, Chapter 20, (vii) designated as a "hazardous substance"
pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C.
1317), (viii) defined as a "hazardous waste" pursuant to Section 1004 of the
Federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6902 et seq.
(42 U.S.C. Section 6903), or (ix) defined as a "hazardous substance" pursuant to
Section 101 of the Compensation and Liability Act, 42 U.S.C. Section 9601 et
seq. (42 U.S.C. Section 9601).
29.33.2 COMPLIANCE COST. Tenant acknowledges that Landlord may
incur costs (A) for complying with laws, codes, regulations or ordinances
relating to Hazardous Material, or (B) otherwise in connection with Hazardous
Material including, without limitation, the following: (i) Hazardous Material
present in soil or ground water; (ii) Hazardous Material that migrates, flows,
percolates, diffuses or in any way moves onto or under the Real Property;
(iii) Hazardous Material present on or under the Real Property as a result of
any discharge, dumping or spilling (whether accidental or otherwise) on the Real
Property by other tenants of the Real Property or their agents, employees,
contractors or invitees, or by others; and (iv) material which becomes Hazardous
Material due to a change in laws, codes, regulations or ordinances which relate
to hazardous or toxic material, substances or waste. Except as provided below,
Tenant agrees that the costs incurred by Landlord with respect to, or in
connection with, the Real Property for complying with laws, codes, regulations
or ordinances relating to Hazardous Material shall be an Operating Expense,
unless the cost of such compliance, as between Landlord and Tenant, is made
the responsibility of Tenant under this Lease. Notwithstanding the foregoing,
the following costs shall not be included in Operating Expenses and shall not be
the obligation of Tenant: (A) costs incurred to comply with laws relating to the
removal of Hazardous Material which was in existence on the Real Property prior
to the Lease Commencement Date, and was of such a nature that a federal, state
or municipal governmental authority, if it had then had knowledge of the
presence of such Hazardous Material, in the state, and under the conditions that
it existed on the Real Property, would have then required the removal of such
Hazardous Material or other remedial or containment action with respect thereto;
and (B) costs incurred to remove, remedy, contain, or treat Hazardous Material,
which Hazardous Material is brought onto the Real Property after the date hereof
by Landlord or any other tenant of the Real Property and is of such a nature, at
that time, that a federal, state or municipal governmental authority, if it had
then had knowledge of the presence of such Hazardous Material, in the state, and
under the conditions, that it exists on the Real Property, would have then
required the removal of such Hazardous Material or other remedial or containment
action with respect thereto. To the extent any such Operating Expense relating
to Hazardous Material is subsequently recovered or reimbursed through insurance,
or from responsible third parties, or other action, Tenant shall be entitled to
its proportionate share of such Operating Expense to which such recovery or
reimbursement relates.
29.33.3 REPRESENTATION BY LANDLORD. Landlord hereby represents and
warrants to Tenant that, to the best of Landlord's actual present knowledge, as
of the date upon which this Lease was fully executed, the Premises are in
compliance with all laws, rules, regulations, orders and requirements of all
federal, state, county and local governmental authorities with respect to
Hazardous Materials ("HAZARDOUS MATERIALS LAWS") and the presence, use,
treatment, storage, removal and handling thereof. Landlord shall indemnify,
defend, protect and hold harmless Tenant from any and all loss, cost, damage,
expense and liability (including, without limitation, reasonable attorneys'
fees) incurred by Tenant in connection with or arising from (a) the breach by
Landlord of the representation set forth in this Section 29.33.3 above, and
(b) Landlord's introduction of Hazardous Materials in, on or about the Real
Property in violation of Hazardous Materials Laws at the time of such
introduction.
29.34 STORAGE SPACE. Effective as of the Lease Commencement Date, and
continuing throughout the Lease Term, including the Option Terms (if
applicable), Landlord shall lease to Tenant approximately five hundred (500)
usable square feet of storage space to be located in the On-site Parking Area of
the Building at a location designated by Landlord. Said storage space shall be
delivered to Tenant on an "AS-IS" basis, except that Landlord shall provide
fencing around such storage area with a gate and an entrance to such storage
space (provided that Tenant shall be required to furnish its own lock to such
gate and to provide Landlord with a key to such lock); if Tenant desires make
any alterations to such storage area, such alterations shall be made subject to,
and in accordance with, Article 8 of this Lease. In consideration of Tenant's
right to
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<PAGE>
use such storage space, Tenant shall pay to Landlord, as additional rent, One
Dollar ($1.00) per rentable square foot contained within the storage space per
month during each month of the Lease Term (on a gross basis with no additional
obligation for Operating Expenses as a result of Tenant's use of such storage
space). The rate payable for such storage space during the Option Terms (if
applicable) shall be determined as a component of the Option Rent. Such storage
area shall be considered to be a portion of the Premises for purposes of
Article 10 of this Lease. Tenant agrees not to store any flammable or highly
combustible materials in the storage area. Tenant agrees that Landlord and its
agents may enter and inspect the storage area and any goods stored therein at
any time during regular business hours upon giving twenty-four (24) hours prior
notice to Tenant and so long as accompanied by a representative of Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed the day and date first above written.
"Landlord":
LANDMARK SQUARE ASSOCIATES, L.P.
a California limited partnership
By: Cushman Landmark Ltd., a California
limited partnership, a general
partner
By: Cushman Investment and
Development Corporation, a
California corporation, a
general partner
By:
-----------------------
Name: Stuart R. Essery
Title: Vice President
"Tenant":
FCG ENTERPRISES, INC., a California
corporation, dba First Consulting Group
By:
-------------------------------------
Its:
---------------------------------
By:
-------------------------------------
Its:
---------------------------------
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<PAGE>
EXHIBIT A
LANDMARK SQUARE
OUTLINE OF FLOOR PLAN OF PREMISES
EXHIBIT A - Page 1
<PAGE>
EXHIBIT B
LANDMARK SQUARE
TENANT WORK LETTER
This Tenant Work Letter shall set forth the terms and conditions relating
to the construction of the Premises. This Tenant Work Letter is essentially
organized chronologically and addresses the issues of the construction of the
Premises, in sequence, as such issues will arise during the actual construction
of the Premises. All references in this Tenant Work Letter to Articles or
Sections of "this Lease" shall mean the relevant portions of Articles 1 through
29 of this Lease to which this Tenant Work Letter is attached as Exhibit B, and
all references in this Tenant Work Letter to Sections of "this Tenant Work
Letter" shall mean the relevant portions of Sections 1 through 6 of this Tenant
Work Letter.
SECTION 1
LANDLORD'S INITIAL CONSTRUCTION IN THE PREMISES
1.1 BASE, SHELL AND CORE OF THE PREMISES AS CONSTRUCTED BY LANDLORD.
Landlord shall construct, at its sole cost and expense, the base, shell, and
core (i) of the Premises and (ii) of the floor of the Building on which the
Premises is located (collectively, the "BASE, SHELL, AND CORE") in accordance
with the plans and specifications for the Base, Shell, and Core and in full
compliance with all local building codes ("CODE") applicable on an unoccupied
basis including, without limitation, the existing requirements of the Americans
With Disabilities Act. The Base, Shell and Core shall include only the
following items.
1.1.1 CORE IMPROVEMENTS.
1.1.1.1 TOILET ROOMS. The men's and women's toilets shall be
complete with countertops, ceramic tile walls and floors, lavatory mirrors,
lighting in ceilings, toilet partitions and high quality fixtures.
1.1.1.2 PASSENGER ELEVATOR LOBBY. The passenger elevator lobby
shall be complete with (i) fire/smoke doors, installed complete with hardware
and metal frames, (ii) interior core walls, which will be drywall, taped and
sanded ready for paint, and (iii) elevator doors and frames, and call button
face plates.
1.1.1.3 TELEPHONE ROOM AND ELECTRICAL ROOM. The telephone and
electrical rooms will include a telephone backboard, and electrical distribution
panelboard and transformer (the "PANELBOARD AND TRANSFORMER") for lighting and
power for each full floor Tenant occupies (to the extent Tenant only partially
occupies a floor, a portion of the Panelboard and Transformer on such floor,
based upon the proportionate amount of area occupied on such floor occupied by
Tenant, shall be available to Tenant). In addition, if required, Landlord shall
provide an additional electrical distribution panelboard for power on the
fifteenth (15th) floor.
1.1.1.4 LIFESAFETY. The lifesafety system shall be completed in
accordance with applicable Codes and on an open-plan, unoccupied basis within
the service elevator lobby area, the stairwells, the passenger elevator lobby
area, the toilet rooms, and the areas outside the core.
1.1.1.5 BALANCE OF CORE. All exposed core doors shall be
completed with hollow metal frames, and hardware, and all exterior/ exposed wall
surfaces of the core shall be drywall, taped and sanded ready for paint. The
balance of the core shall also include exit signs and fire extinguishers as
required by Code for unoccupied space.
1.1.1.6 HVAC. The main distribution loop and pneumatic lines
for the heating, ventilation and air conditioning system (collectively, the
"HVAC WORK").
EXHIBIT B
<PAGE>
1.1.1.7 SPRINKLER. The sprinkler system, which shall include
main floor shut-off valves, alarms, heads installed with deflectors and the
primary loop piping and distribution piping (collectively, the "SPRINKLER
WORK").
1.1.1.8 SERVICE ELEVATOR LOBBY. The service elevator lobby
shall be complete with vinyl composition tile floors, resilient base, painted
walls, painted gypsum board ceiling and lighting (collectively, the "SERVICE
ELEVATOR LOBBY").
1.1.1.9 PERIMETER DRYWALL. The inside face of perimeter wall
(nonglass surfaces), window sill, and column covers shall be drywall, screwed in
place (collectively, the "PERIMETER DRYWALL").
1.1.2 BASE AND SHELL IMPROVEMENTS. The structural frame of the
Building shall be complete, including fireproofing and finished slab ready for
floor coverings.
1.2 LANDLORD WORK. Landlord shall, at Tenant's sole cost and expense,
construct, install and/or stockpile (as set forth below in this Section 1.2) the
following items on the floor or floors of the Building containing the Premises
(collectively, the "LANDLORD WORK"), which Landlord Work (as well as the Base,
Shell and Core work and Building standard mechanical and electrical engineering,
and lifesafety work) shall be installed or constructed, unless otherwise
indicated, in compliance with, and only to the extent required by, Code and on
an open-plan, unoccupied basis. Tenant may not change or alter the Landlord
Work. The unit pricing for the Landlord Work is set forth in Schedule 1,
attached hereto.
1.2.1 WINDOW COVERINGS. Window coverings shall be stockpiled and
subsequently installed (collectively, the "WINDOW COVERINGS").
1.2.2 ENERGY MANAGEMENT SYSTEM. Consists of lighting and HVAC
controls to allow for individual tenant use during non-building hours and when
the systems are not normally in use (collectively, the "ENERGY MANAGEMENT
SYSTEM").
1.2.3 PUBLIC CORRIDOR (ONLY AS TO THAT PORTION OF THE PREMISES, IF
ANY, WHICH OCCUPIES A PARTIAL FLOOR, RATHER THAN A FULL FLOOR, OF THE BUILDING).
The public corridor wall ready on tenant side for finish and any necessary
penetrations, fire dampers, and sound traps (the "PUBLIC CORRIDOR").
1.2.4 DEMISING WALLS BETWEEN TENANTS (ONLY AS TO THAT PORTION OF
THE PREMISES, IF ANY, WHICH OCCUPIES A PARTIAL FLOOR, RATHER THAN A FULL FLOOR,
OF THE BUILDING). The demising partitions between tenants ready for finish on
tenant side only and any necessary penetrations, fire dampers, and sound traps
(the "DEMISING WALLS").
1.2.5 ADDITIONAL PANELBOARDS AND TRANSFORMERS. The total cost of
additional electrical distribution panelboards and/or transformers, as required
by Tenant, in excess of the existing Panelboard and Transformer and the
additional panelboard described in Section 1.1.1.3 above (if necessary).
SECTION 2
TENANT IMPROVEMENTS
2.1 TENANT IMPROVEMENT ALLOWANCE. Tenant shall be entitled to a one-time
tenant improvement allowance (the "TENANT IMPROVEMENT ALLOWANCE") in the amount
of $35.00 per usable square foot of the Premises for the costs relating to the
initial design and construction of Tenant's improvements, including the Landlord
Work, which are permanently affixed to the Premises (the "TENANT IMPROVEMENTS").
In no event shall Landlord be obligated to make disbursements pursuant to this
Tenant Work Letter in a total amount which exceeds the Tenant Improvement
Allowance. In the event the cost of the Tenant Improvement Allowance Items is
less than the total Tenant Improvement Allowance, Tenant shall be entitled to
use up to One Dollar ($1.00) per usable square foot of the Premises of such
unused portion of the Tenant Improvement Allowance to reimburse Tenant for costs
incurred by Tenant in connection with moving its personal property to the
Premises and fifty percent (50%) of any remaining unused
EXHIBIT B - Page 2
<PAGE>
portion of the Tenant Improvement Allowance shall be applied as a credit against
Tenant's first obligations to pay Base Rent for the Premises under the Lease, up
to a maximum such credit of One Dollar ($1.00) per usable square foot of the
Premises. Tenant shall not be entitled to any credit for any unused portion of
the Tenant Improvement Allowance to the extent such unused portion exceeds the
One Dollar ($1.00) per usable square foot of the Premises for moving costs and
the One Dollar ($1.00) per usable square foot of the Premises for a Base Rent
credit as provided above. All Tenant Improvements for which the Tenant
Improvement Allowance has been made available shall be deemed Landlord's
property under the terms of Section 8.5 of the Lease.
2.2 DISBURSEMENT OF THE TENANT IMPROVEMENT ALLOWANCE.
2.2.1 TENANT IMPROVEMENT ALLOWANCE ITEMS. Except as otherwise set
forth in this Tenant Work Letter, the Tenant Improvement Allowance shall be
disbursed by Landlord only for the following items and costs (collectively the
"TENANT IMPROVEMENT ALLOWANCE ITEMS"):
2.2.1.1 Payment of the fees of the "Architect" and the
"Engineers," as those terms are defined in Section 3.1 of this Tenant Work
Letter, which fees shall, notwithstanding anything to the contrary contained in
this Tenant Work Letter, not exceed an aggregate amount equal to $4.00 per
usable square foot of the Premises, and payment of the fees incurred by, and the
cost of documents and materials supplied by, Landlord and Landlord's consultants
in connection with the preparation and review of the "Construction Drawings," as
that term is defined in Section 3.1 of this Tenant Work Letter;
2.2.1.2 The payment of plan check, permit and license fees
relating to construction of the Tenant Improvements;
2.2.1.3 The cost of construction of the Tenant Improvements,
including, without limitation, testing and inspection costs, and trash removal
costs, and contractors' fees and general conditions;
2.2.1.4 The cost of any changes in the Base, Shell and Core work
or the Landlord Work when such changes are required by the Construction Drawings
(including if such changes are due to the fact that such work is prepared on an
unoccupied basis), such cost to include all direct architectural and/or
engineering fees and expenses incurred in connection therewith;
2.2.1.5 The cost of any changes to the Construction Drawings,
Tenant Improvements or Landlord's Work required by Code;
2.2.1.6 Sales and use taxes and Title 24 fees;
2.2.1.7 The cost of the Landlord Work; and
2.2.1.8 All other costs to be expended by Landlord in connection
with the construction of the Tenant Improvements.
2.2.2 DISBURSEMENT OF TENANT IMPROVEMENT ALLOWANCE. During the
construction of the Tenant Improvements, Landlord shall make monthly
disbursements of the Tenant Improvement Allowance for Tenant Improvement
Allowance Items for the benefit of Tenant and shall authorize the release of
monies for the benefit of Tenant as follows.
2.2.2.1 MONTHLY DISBURSEMENTS. On or before the twentieth
(20th) day of each calendar month during the construction of the Tenant
Improvements (or such other date as Landlord may designate), Tenant shall
deliver to Landlord: (i) a request for payment of the "Contractor," as that
term is defined in Section 4.1 of this Tenant Work Letter, approved by Tenant
and Tenant's Architect, in a form to be provided by Landlord, showing the
schedule, by trade, of percentage of completion of the Tenant Improvements in
the Premises, detailing the portion of the work completed and the portion not
completed, and demonstrating that the relationship between the cost of the work
completed and the cost of the work to be completed
EXHIBIT B - Page 3
<PAGE>
complies with the terms of the "Construction Budget," as that term is defined in
Section 4.2.1 of this Tenant Work Letter; (ii) invoices from all of "Tenant's
Agents," as that term is defined in Section 4.1.2 of this Lease, for labor
rendered and materials delivered to the Premises; (iii) executed mechanic's lien
releases from all of Tenant's Agents which shall comply with the appropriate
provisions, as reasonably determined by Landlord, of California Civil Code
Section 3262(d); and (iv) all other information reasonably requested by
Landlord. Tenant's request for payment shall be deemed Tenant's acceptance and
approval of the work furnished and/or the materials supplied as set forth in
Tenant's payment request. On or before the twenty-first (21st) day of the
following calendar month, Landlord shall deliver a check to Contractor in
payment of the lesser of: (A) the amounts so requested by Tenant, as set forth
in this Section 2.2.2.1, above, less a ten percent (10%) retention (the
aggregate amount of such retentions to be known as the "FINAL RETENTION"), and
(B) the balance of any remaining available portion of the Tenant Improvement
Allowance (not including the Final Retention), provided that Landlord does not
dispute any request for payment based on non-compliance of any work with the
"Approved Working Drawings", as that term is defined in Section 3.4 below, or
due to any substandard work, or for any other reason. Landlord's payment of
such amounts shall not be deemed Landlord's approval or acceptance of the work
furnished or materials supplied as set forth in Tenant's payment request.
2.2.2.2 FINAL RETENTION. Subject to the provisions of this
Tenant Work Letter, a check for the Final Retention payable to Contractor shall
be delivered by Landlord to Contractor following the completion of construction
of the Premises, provided that (i) Tenant delivers to Landlord properly executed
mechanics lien releases in compliance with both California Civil Code
Section 3262(d)(2) and either Section 3262(d)(3) or Section 3262(d)(4), and
(ii) Landlord has determined that no substandard work exists which adversely
affects the mechanical, electrical, plumbing, heating, ventilating and air
conditioning, life-safety or other systems of the Building, the curtain wall of
the Building, the structure or exterior appearance of the Building, or any other
tenant's use of such other tenant's leased premises in the Building.
2.2.2.3 OTHER TERMS. Landlord shall only be obligated to make
disbursements from the Tenant Improvement Allowance to the extent costs are
incurred by Tenant for Tenant Improvement Allowance Items. All Tenant
Improvement Allowance Items for which the Tenant Improvement Allowance has been
made available shall be deemed Landlord's property under the terms of
Section 8.5 of this Lease.
2.3 STANDARD TENANT IMPROVEMENT PACKAGE. Landlord has established
specifications (the "SPECIFICATIONS") for the Building standard components to be
used in the construction of the Tenant Improvements in the Premises
(collectively, the "STANDARD IMPROVEMENT PACKAGE"), which Specifications are set
forth on Schedule 2, attached hereto. The quality of Tenant Improvements shall
be equal to or of greater quality than the quality of the Specifications,
provided that Landlord approves any deviation from the Specifications. Landlord
may make changes to the Specifications for the Standard Improvement Package from
time to time.
SECTION 3
CONSTRUCTION DRAWINGS
3.1 SELECTION OF ARCHITECT/CONSTRUCTION DRAWINGS. Tenant shall retain the
architect/space planner designated by Landlord (the "ARCHITECT") to prepare the
"Construction Drawings," as that term is defined in this Section 3.1. Tenant
shall retain the engineering consultants designated by Landlord (the
"ENGINEERS") to prepare all plans and engineering working drawings relating to
the structural, mechanical, electrical, plumbing, HVAC, lifesafety, and
sprinkler work in the Premises, which work is not part of the Base, Shell and
Core work or Landlord Work. The plans and drawings to be prepared by Architect
and the Engineers hereunder shall be known collectively as the "CONSTRUCTION
DRAWINGS." All Construction Drawings shall comply with the drawing format and
specifications determined by Landlord as set forth on Schedule 3, attached
hereto, and shall be subject to Landlord's approval. In connection therewith,
Landlord shall supply Tenant with blue-line or sepia floorplate backgrounds and
EXHIBIT B - Page 4
<PAGE>
building standard details. Tenant and Architect shall verify, in the field, the
dimensions and conditions as shown on the relevant portions of the base building
plans (including the Landlord Work), and Tenant and Architect shall be solely
responsible for the same, and Landlord shall have no responsibility in
connection therewith. Landlord's review of the Construction Drawings as set
forth in this Section 3, shall be for its sole purpose and shall not imply
Landlord's review of the same, or obligate Landlord to review the same, for
quality, design, Code compliance or other like matters. Accordingly,
notwithstanding that any Construction Drawings are reviewed by Landlord or its
space planner, architect, engineers and consultants, and notwithstanding any
advice or assistance which may be rendered to Tenant by Landlord or Landlord's
space planner, architect, engineers, and consultants, Landlord shall have no
liability whatsoever in connection therewith and shall not be responsible for
any omissions or errors contained in the Construction Drawings, and Tenant's
waiver and indemnity set forth in Section 10.1 of this Lease shall specifically
apply to the Construction Drawings.
3.2 FINAL SPACE PLAN. Tenant shall supply Landlord with four (4) copies
signed by Tenant of its final space plan for the Premises before any
architectural working drawings or engineering drawings have been commenced. The
final space plan (the "FINAL SPACE PLAN") shall include a layout and designation
of all offices, rooms and other partitioning, their intended use, and equipment
to be contained therein. Landlord may request clarification or more specific
drawings for special use items not included in the Final Space Plan. Landlord
shall advise Tenant within five (5) business days after Landlord's receipt of
the Final Space Plan for the Premises if the same is unsatisfactory or
incomplete in any respect. If Tenant is so advised, Tenant shall promptly cause
the Final Space Plan to be revised to correct any deficiencies or other matters
Landlord may reasonably require.
3.3 FINAL WORKING DRAWINGS. After the Final Space Plan has been approved
by Landlord, Tenant shall supply the Engineers with a complete listing of
standard and non-standard equipment and specifications, including, without
limitation, Btu calculations, electrical requirements and special electrical
receptacle requirements for the Premises, to enable the Engineers and the
Architect to complete the "Final Working Drawings" (as that term is defined
below) in the manner as set forth below. Upon the approval of the Final Space
Plan by Landlord and Tenant, Tenant shall promptly cause the Architect and the
Engineers to complete the architectural and engineering drawings for the
Premises, and Architect shall compile a fully coordinated set of architectural,
structural, mechanical, electrical and plumbing working drawings in a form which
is complete to allow subcontractors to bid on the work and to obtain all
applicable permits (collectively, the "FINAL WORKING DRAWINGS") and shall submit
the same to Landlord for Landlord's approval. Tenant shall supply Landlord with
four (4) copies signed by Tenant of such Final Working Drawings. Landlord shall
advise Tenant within five (5) business days after Landlord's receipt of the
Final Working Drawings for the Premises if the same is unsatisfactory or
incomplete in any respect. If Tenant is so advised, Tenant shall immediately
revise the Final Working Drawings in accordance with such review and any
disapproval of Landlord in connection therewith.
3.4 APPROVED WORKING DRAWINGS. The Final Working Drawings shall be
approved by Landlord (the "APPROVED WORKING DRAWINGS") prior to the commencement
of construction of the Premises by Tenant. Concurrently with Landlord's review
and approval of the Final Working Drawings, Tenant may submit the same to the
appropriate governmental authorities for all applicable building permits.
Tenant hereby agrees that neither Landlord nor Landlord's consultants shall be
responsible for obtaining any building permit or certificate of occupancy for
the Premises and that obtaining the same shall be Tenant's responsibility;
provided, however, that Landlord shall cooperate with Tenant in executing permit
applications and performing other ministerial acts reasonably necessary to
enable Tenant to obtain any such permit or certificate of occupancy. No
changes, modifications or alterations in the Approved Working Drawings may be
made without the prior written consent of Landlord, which consent may not be
unreasonably withheld.
EXHIBIT B - Page 5
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SECTION 4
CONSTRUCTION OF THE TENANT IMPROVEMENTS
4.1 TENANT'S SELECTION OF CONTRACTORS.
4.1.1 THE CONTRACTOR. A general contractor shall be retained by
Tenant to construct the Tenant Improvements. Such general contractor
("CONTRACTOR") shall be selected by Tenant from among Innerspace, Johnston and
Turelk and a fourth (4th) contractor to be mutually agreed upon by Landlord and
Tenant. Landlord's representative shall be entitled to receive a copy of each
bid at the time of bid presentation and to participate in the reconciliation to
adjust inconsistent or incorrect assumptions so that a like-kind comparison can
be made a low bidder determined. The Contractor selected by Tenant shall be
subject to Landlord's reasonable approval and Tenant shall deliver to Landlord
notice of its selection of the Contractor.
4.1.2 TENANT'S AGENTS. All subcontractors, laborers, materialmen,
and suppliers used by Tenant (such subcontractors, laborers, materialmen, and
suppliers, and the Contractor to be known collectively as "TENANT'S AGENTS")
must be approved in writing by Landlord prior to submittal to bid, which
approval shall not be unreasonably withheld or delayed; provided that, in any
event, Tenant must contract with Landlord's base building subcontractors for any
mechanical, electrical, life safety, structural, heating, ventilation, and
air-conditioning work in the Premises. Additionally, prior to any of Tenant's
Agents delivering materials to the Premises or performing work in the Building,
such Tenant's Agents must execute and deliver to Landlord's representative an
appropriately executed version of the Building standard hold harmless agreement,
as set forth in Schedule 4, attached hereto.
4.2 CONSTRUCTION OF TENANT IMPROVEMENTS BY TENANT'S AGENTS.
4.2.1 CONSTRUCTION CONTRACT; COST BUDGET. Prior to Tenant's
execution of the construction contract and general conditions with Contractor
(the "CONTRACT"), Tenant shall submit the Contract to Landlord for its approval,
which approval shall not be unreasonably withheld or delayed. Prior to the
commencement of the construction of the Tenant Improvements, and after Tenant
has accepted all bids for the Tenant Improvements, Tenant shall provide Landlord
with a detailed breakdown, by trade, of the final costs to be incurred or which
have been incurred in connection with the design and construction of the Tenant
Improvements to be performed by or at the direction of Tenant or the Contractor
(which costs form a basis for the amount of the Contract, if any (the "FINAL
COSTS"). Within five (5) business days of the receipt of the Final Costs by
Landlord, Landlord shall deliver to Tenant a construction budget (the
"CONSTRUCTION BUDGET"), the amount of which Construction Budget shall be equal
to (i) the Final Costs plus (ii) the other costs of design and construction of
the Premises as determined by Landlord (to the extent not already included in
the Final Costs), which costs shall include, but not be limited to, the cost of
the Landlord Work, the cost of any Standard Improvement Package items to be used
by Tenant, and the costs of the Architect and Engineers fees. Prior to the
commencement of construction of the Tenant Improvements, Tenant shall supply
Landlord with cash in an amount (the "OVER-ALLOWANCE AMOUNT") equal to the
difference between the amount of the Construction Budget and the amount of the
Tenant Improvement Allowance (less any portion thereof already disbursed by
Landlord, or in the process of being disbursed by Landlord, on or before the
commencement of construction of the Tenant Improvements). The Over-Allowance
Amount shall be disbursed by Landlord prior to the disbursement of any of the
then remaining portion of the Tenant Improvement Allowance, and such
disbursement shall be pursuant to the same procedure as the Tenant Improvement
Allowance. In the event that, after the Construction Budget has been delivered
by Landlord to Tenant, the costs relating to the design and construction of the
Tenant Improvements shall change, any additional costs necessary to such design
and construction in excess of the Construction Budget, shall be paid by Tenant
to Landlord immediately as an addition to the Over-Allowance Amount or at
Landlord's option, Tenant shall make payments for such additional costs out of
its own funds, but Tenant shall continue to provide Landlord with the documents
described in Sections 2.2.2.1 (i), (ii), (iii) and (iv) of this Tenant work
letter, above, for Landlord's approval, prior to Tenant paying such costs.
EXHIBIT B - Page 6
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4.2.2 TENANT'S AGENTS.
4.2.2.1 LANDLORD'S GENERAL CONDITIONS FOR TENANT'S AGENTS AND
TENANT IMPROVEMENT WORK. Tenant's and Tenant's Agent's construction of the
Tenant Improvements shall comply with the following: (i) the Tenant
Improvements shall be constructed in strict accordance with the Approved Working
Drawings; (ii) Tenant and Tenant's Agents shall not, in any way, interfere with,
obstruct, or delay, the work of Landlord's base building contractor and
subcontractors with respect to the Base, Shell and Core, the Landlord Work, or
any other work in the Building; (iii) Tenant's Agents shall submit schedules of
all work relating to the Tenant's Improvements to Contractor and Contractor
shall, within five (5) business days of receipt thereof, inform Tenant's Agents
of any changes which are necessary thereto, and Tenant's Agents shall adhere to
such corrected schedule; and (iv) Tenant shall abide by all rules made by
Landlord's Building contractor or Landlord's Building manager with respect to
the use of freight, loading dock and service elevators, storage of materials,
coordination of work with the contractors of other tenants, and any other matter
in connection with this Tenant Work Letter, including, without limitation, the
construction of the Tenant Improvements.
4.2.2.2 INTENTIONALLY OMITTED.
4.2.2.3 INDEMNITY. Tenant's indemnity of Landlord as set forth
in Section 10.1 of this Lease shall also apply with respect to any and all
costs, losses, damages, injuries and liabilities related in any way to any act
or omission of Tenant or Tenant's Agents, or anyone directly or indirectly
employed by any of them, or in connection with Tenant's non-payment of any
amount arising out of the Tenant Improvements and/or Tenant's disapproval of all
or any portion of any request for payment. Such indemnity by Tenant, as set
forth in Section 10.1 of this Lease, shall also apply with respect to any and
all costs, losses, damages, injuries and liabilities related in any way to
Landlord's performance of any ministerial acts reasonably necessary (i) to
permit Tenant to complete the Tenant Improvements, and (ii) to enable Tenant to
obtain any building permit or certificate of occupancy for the Premises.
4.2.2.4 REQUIREMENTS OF TENANT'S AGENTS. Each of Tenant's
Agents shall guarantee to Tenant and for the benefit of Landlord that the
portion of the Tenant Improvements for which it is responsible shall be free
from any defects in workmanship and materials for a period of not less than one
(1) year from the date of completion thereof. Each of Tenant's Agents shall be
responsible for the replacement or repair, without additional charge, of all
work done or furnished in accordance with its contract that shall become
defective within one (1) year after the later to occur of (i) completion of the
work performed by such contractor or subcontractors and (ii) the Lease
Commencement Date. The correction of such work shall include, without
additional charge, all additional expenses and damages incurred in connection
with such removal or replacement of all or any part of the Tenant Improvements,
and/or the Building and/or common areas that may be damaged or disturbed
thereby. All such warranties or guarantees as to materials or workmanship of or
with respect to the Tenant Improvements shall be contained in the Contract or
subcontract and shall be written such that such guarantees or warranties shall
inure to the benefit of both Landlord and Tenant, as their respective interests
may appear, and can be directly enforced by either. Tenant covenants to give to
Landlord any assignment or other assurances which may be necessary to effect
such right of direct enforcement.
4.2.2.5 INSURANCE REQUIREMENTS.
4.2.2.5.1 GENERAL COVERAGES. All of Tenant's Agents shall
carry worker's compensation insurance covering all of their respective
employees, and shall also carry public liability insurance, including property
damage, all with limits, in form and with companies as are required to be
carried by Tenant as set forth in Article 10 of this Lease.
4.2.2.5.2 SPECIAL COVERAGES. Tenant shall carry "Builder's
All Risk" insurance in an amount approved by Landlord covering the construction
of the Tenant Improvements, and such other insurance as Landlord may reasonably
require, it being understood and agreed that the Tenant Improvements shall be
insured by Tenant pursuant to Article 10 of this Lease immediately upon
completion thereof. Such insurance shall be in amounts and shall include such
extended coverage endorsements as may be reasonably required by Landlord
EXHIBIT B - Page 7
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including, but not limited to, the requirement that all of Tenant's Agents shall
carry excess liability and Products and Completed Operation Coverage insurance,
each in amounts not less than $500,000 per incident, $1,000,000 in aggregate,
and in form and with companies as are required to be carried by Tenant as set
forth in Article 10 of this Lease.
4.2.2.5.3 GENERAL TERMS. Certificates for all insurance
carried pursuant to this Section 4.2.2.5 shall be delivered to Landlord before
the commencement of construction of the Tenant Improvements and before the
Contractor's equipment is moved onto the site. All such policies of insurance
must contain a provision that the company writing said policy will give Landlord
thirty (30) days prior written notice of any cancellation or lapse of the
effective date or any reduction in the amounts of such insurance. In the event
that the Tenant Improvements are damaged by any cause during the course of the
construction thereof, Tenant shall immediately repair the same at Tenant's sole
cost and expense. Tenant's Agents shall maintain all of the foregoing insurance
coverage in force until the Tenant Improvements are fully completed and accepted
by Landlord, except for any Products and Completed Operation Coverage insurance
required by Landlord, which is to be maintained for ten (10) years following
completion of the work and acceptance by Landlord and Tenant. All policies
carried under this Section 4.2.2.5 shall insure Landlord and Tenant, as their
interests may appear, as well as Contractor and Tenant's Agents, and shall name
as additional insureds Cushman Landmark Ltd., Asahi Urban (U.S.A.) Development
Corporation, Landmark Square Investors Ltd., Cushman Realty Corporation, Cushman
Investment and Development Corporation, Cushman Management Corporation, and all
mortgagees of the Real Property. All insurance, except Workers' Compensation,
maintained by Tenant's Agents shall preclude subrogation claims by the insurer
against anyone insured thereunder. Such insurance shall provide that it is
primary insurance as respects the owner and that any other insurance maintained
by owner is excess and noncontributing with the insurance required hereunder.
The requirements for the foregoing insurance shall not derogate from the
provisions for indemnification of Landlord by Tenant under Section 4.2.2.3 of
this Tenant Work Letter.
4.2.3 GOVERNMENTAL COMPLIANCE. The Tenant Improvements shall
comply in all respects with the following: (i) the Code and other state,
federal, city or quasi-governmental laws, codes, ordinances and regulations, as
each may apply according to the rulings of the controlling public official,
agent or other person; (ii) applicable standards of the American Insurance
Association (formerly, the National Board of Fire Underwriters) and the National
Electrical Code; and (iii) building material manufacturer's specifications.
4.2.4 INSPECTION BY LANDLORD. Landlord shall have the right to
inspect the Tenant Improvements at all times, provided however, that Landlord's
failure to inspect the Tenant Improvements shall in no event constitute a waiver
of any of Landlord's rights hereunder nor shall Landlord's inspection of the
Tenant Improvements constitute Landlord's approval of the same. Should Landlord
disapprove any portion of the Tenant Improvements, Landlord shall notify Tenant
in writing of such disapproval and shall specify the items disapproved. Any
defects or deviations in, and/or disapproval by Landlord of, the Tenant
Improvements shall be rectified by Tenant at no expense to Landlord, provided
however, that in the event Landlord determines that a defect or deviation exists
or disapproves of any matter in connection with any portion of the Tenant
Improvements and such defect, deviation or matter might adversely affect the
mechanical, electrical, plumbing, heating, ventilating and air conditioning or
life-safety systems of the Building, the structure or exterior appearance of the
Building or any other tenant's use of such other tenant's leased premises,
Landlord may, take such action as Landlord deems necessary, at Tenant's expense
and without incurring any liability on Landlord's part, to correct any such
defect, deviation and/or matter, including, without limitation, causing the
cessation of performance of the construction of the Tenant Improvements until
such time as the defect, deviation and/or matter is corrected to Landlord's
satisfaction.
4.2.5 MEETINGS. Commencing upon the execution of this Lease,
Tenant shall hold weekly meetings at a reasonable time, with the Architect and
the Contractor regarding the progress of the preparation of Construction
Drawings and the construction of the Tenant Improvements, which meetings shall
be held at a location designated by Landlord, and Landlord and/or its agents
shall receive prior notice of, and shall have the right to attend, all such
meetings, and, upon Landlord's request, certain of Tenant's Agents shall attend
such meetings. In addition,
EXHIBIT B - Page 8
<PAGE>
minutes shall be taken at all such meetings, a copy of which minutes shall be
promptly delivered to Landlord. One such meeting each month shall include the
review of Contractor's current request for payment.
4.3 NOTICE OF COMPLETION; COPY OF "AS BUILT" PLANS. Within ten (10) days
after completion of construction of the Tenant Improvements, Tenant shall cause
a Notice of Completion to be recorded in the office of the Recorder of the
County of Los Angeles in accordance with Section 3093 of the Civil Code of the
State of California or any successor statute, and shall furnish a copy thereof
to Landlord upon such recordation. If Tenant fails to do so, Landlord, after
providing Tenant with two (2) days notice, may execute and file the same on
behalf of Tenant as Tenant's agent for such purpose, at Tenant's sole cost and
expense. At the conclusion of construction, (i) Tenant shall cause the
Architect and Contractor (A) to update the Approved Working Drawings as
necessary to reflect all changes made to the Approved Working Drawings during
the course of construction, (B) to certify to the best of their knowledge that
the "record-set" of as-built drawings are true and correct, which certification
shall survive the expiration or termination of this Lease, and (C) to deliver to
Landlord two (2) sets of sepias of such as-built drawings within ninety (90)
days following issuance of a certificate of occupancy for the Premises, and
(ii) Tenant shall deliver to Landlord a copy of all warranties, guaranties, and
operating manuals and information relating to the improvements, equipment, and
systems in the Premises.
4.4 COORDINATION BY TENANT'S AGENTS WITH LANDLORD. Upon Tenant's delivery
of the Contract to Landlord under Section 4.2.1 of this Tenant Work Letter,
Tenant shall furnish Landlord with a schedule setting forth the projected date
of the completion of the Tenant Improvements and showing the critical time
deadlines for each phase, item or trade relating to the construction of the
Tenant Improvements. After receipt of such schedule, Landlord shall inform
Tenant of the anticipated schedule of Landlord's completion of any Base, Shell,
and Core work or Landlord Work which was not completed prior to the execution of
this Lease.
SECTION 5
DELAY OF LEASE COMMENCEMENT DATE
5.1 LEASE COMMENCEMENT DATE DELAYS. The Lease Commencement Date shall
occur as provided in Section 7.2 of the Summary, provided that the date
described in the Section 7.2(ii) component of the definition of Lease
Commencement Date shall be delayed by the number of days of delay of the
"substantial completion of the Tenant Improvements," as that term is defined
below in this Section 5, in the Premises which is caused solely by a "Lease
Commencement Date Delay." As used herein, the term "LEASE COMMENCEMENT DATE
DELAY" shall mean only an actual delay resulting from fire, earthquake,
explosion, flood, hurricane, the elements, acts of God or the public enemy, war,
invasion, insurrection, rebellion, riots, industry-wide labor strikes or
lockouts (which objectively preclude Tenant from obtaining from any source union
labor or substitute materials necessary for completing the Tenant Improvements),
or governmental acts (which do not specifically relate to the construction of
the Tenant Improvements and which objectively preclude construction of tenant
improvements in the Building by any person).
5.2 DETERMINATION OF LEASE COMMENCEMENT DATE DELAY. If Tenant contends
that a Lease Commencement Date Delay has occurred, Tenant shall notify Landlord
in writing within two (2) business days of each of (i) the date upon which such
Lease Commencement Date Delay becomes known or should have become known to
Tenant or Tenant's Agents, and (ii) the date upon which such Lease Commencement
Date Delay ends. Tenant's failure to deliver either or both of such notices to
Landlord within the required time period shall be deemed to be a waiver by
Tenant of the contended Lease Commencement Date Delay to which such notices
would have related. Promptly following receipt by Landlord of the notice
described in item (ii), above, Landlord shall notify Tenant of Landlord's
determination, which determination shall be conclusive and binding on Tenant, of
(A) the aggregate period of the Lease Commencement Date Delay, and (B) the
revised Lease Commencement Date.
5.3 DEFINITION OF SUBSTANTIAL COMPLETION OF THE TENANT IMPROVEMENTS. For
purposes of this Section 5, "substantial completion of the Tenant Improvements"
shall mean completion of
EXHIBIT B - Page 9
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construction of the Tenant Improvements in the Premises pursuant to the
"Approved Working Drawings," with the exception of any punch list items, any
furniture, fixtures, work-stations, built-in furniture or equipment (even if the
same requires installation or electrification by Tenant's Agents), and any
tenant improvement finish items and materials which are selected by Tenant but
which are not available within a reasonable time (given the date of the Lease
Commencement Date).
SECTION 6
MISCELLANEOUS
6.1 TENANT'S REPRESENTATIVE. Tenant has designated Patricia Lowery as its
sole representative with respect to the matters set forth in this Tenant Work
Letter, who shall have full authority and responsibility to act on behalf of the
Tenant as required in this Tenant Work Letter.
6.2 LANDLORD'S REPRESENTATIVE. Landlord has designated its director of
management services as its sole representatives with respect to the matters set
forth in this Tenant Work Letter, who, until further notice to Tenant, shall
have full authority and responsibility to act on behalf of the Landlord as
required in this Tenant Work Letter.
6.3 TIME OF THE ESSENCE IN THIS TENANT WORK LETTER. Unless otherwise
indicated, all references herein to a "number of days" shall mean and refer to
calendar days. If any item requiring approval is timely disapproved by
Landlord, the procedure for preparation of the document and approval thereof
shall be repeated until the document is approved by Landlord.
6.4 TENANT'S LEASE DEFAULT. Notwithstanding any provision to the contrary
contained in this Lease, if an event of default as described in Section 19.1 of
Lease or this Tenant Work Letter has occurred at any time on or before the
Substantial Completion of the Premises, then (i) in addition to all other rights
and remedies granted to Landlord pursuant to this Lease, Landlord shall have the
right to withhold payment of all or any portion of the Tenant Improvement
Allowance and/or Landlord may cause Contractor to cease the construction of the
Premises (in which case, Tenant shall be responsible for any delay in the
substantial completion of the Premises caused by such work stoppage and such
delay shall not be deemed a Lease Commencement Date Delay), and (ii) all other
obligations of Landlord under the terms of this Tenant Work Letter shall be
forgiven until such time as such default is cured pursuant to the terms of this
Lease (in which case, Tenant shall be responsible for any delay in the
substantial completion of the Premises caused by such inaction by Landlord and
such delay shall not be deemed a Lease Commencement Date Delay).
6.5 MISCELLANEOUS CHARGES. During the construction and move-in period,
the Contractor and Tenant's Agents shall not be charged for commercially
reasonable use of the freight elevator and electricity nor for parking in the
On-site Parking Area.
EXHIBIT B - Page 10
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SCHEDULE 1
LANDLORD WORK
1. WINDOW COVERINGS: $45.00 per window
2. ENERGY MANAGEMENT $.43 per usable square
SYSTEM: foot of the Premises
3. PUBLIC CORRIDOR: Per Landlord approved
construction bid
4. DEMISING WALLS: Per Landlord approved
construction bid
5. ADDITIONAL ELECTRICAL
DISTRIBUTION PANELBOARD: Per Landlord approved
construction bid
6. ADDITIONAL ELECTRICAL
TRANSFORMER Per Landlord approved
construction bid
SCHEDULE 1 - Page 1
<PAGE>
SCHEDULE 2
STANDARD TENANT IMPROVEMENT PACKAGE
SCHEDULE 2 - Page 1
<PAGE>
SCHEDULE 3
CONSTRUCTION DRAWINGS
FORMAT AND SPECIFICATIONS
FINAL SPACE PLAN REQUIREMENTS
1. FINAL SPACE PLAN. The Final Space Plan shall include floor plans (not less
than 1/8" scale) indicating:
1.1 Quantity, location and type of all partitions.
1.2 Quantity, location and type of all doors.
1.3 Quantity, location and type of glass partitions and windows.
1.4 Size and location of telephone equipment room.
1.5 Critical dimensions necessary for construction.
1.6 Quantity and location of all electrical items (i.e., a reflected
ceiling plan and power plan) including outlets, switches, telephone
outlets, separate circuit or isolated ground outlets, floor corings
and lighting, etc.
1.7 Quantity, location and type of equipment that will require special
electrical requirements.
1.8 Quantity and location, including weight per square foot and
description, of any exceptionally heavy equipment or filling system
exceeding 50 pounds per square foot liveload.
1.9 Requirements of special air conditioning or ventilation.
1.10 Type of floor coverings.
1.11 Quantity, location and type of wall coverings.
1.12 Quantity, location and type of plumbing.
1.13 Quantity, location and type of appliances and kitchen equipment.
1.14 Quantity, location and type of millwork.
1.15 Location and size of any floor openings required.
FINAL WORKING DRAWINGS REQUIREMENTS
2. ARCHITECTURAL FLOOR PLAN. The Architectural floor plan shall include floor
plans (not less than 1/8" scale) indicating:
2.1 Room numbers and room descriptions.
2.2 Keyed partition types with complete dimensioned location. Notations
indicating that partition locations must be determined at the time
of construction are not acceptable.
2.3 Keyed door types and hardware sets sufficient to determine all of
the required details of construction and all hardware components.
2.4 Keyed architectural sections, elevations, and details of
construction for such items as millwork, control joints, hanging
rods, shelving, soffits, and special gyp board assemblies, etc.
SCHEDULE 3 - Page 1
<PAGE>
2.5 All required materials, finishes, and assembly support
relationships.
2.6 All required dimensional information, especially note that the
excessive use of field verified dimensions will extend the
construction period of custom tenant improvements which is a
schedule extension attributable to the Tenant's custom requirements.
2.7 All detailed items should be coordinated and cross referenced with
the plan drawings, especially such items as rough blocking and
attachment locations. Cross references requiring the Architect's
presence at the jobsite are unacceptable to the Landlord since the
reliance on this field technique has proven to be ineffective in
expediting construction.
2.8 Location of soffits and special ceiling construction should be
dotted to show relationships to plan elements.
3. ELECTRICAL LOCATION FLOOR PLAN. The Electrical location floor plan shall
include floor plans (not less than 1/8" scale) indicating:
3.1 Room numbers and room descriptions.
3.2 Location of all telephone, data, and electrical outlets. Location
of these items should be dimensioned only if final placement is
critical. Unless specifically noted, the final placement of these
items will be approximately to scale and to the nearest stud
location. Dimension all floor mounted telephone and electrical
outlets.
SCHEDULE 3 - Page 2
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4. ARCHITECTURAL REFLECTED CEILING PLAN. The architectural reflected ceiling
plan shall indicate (in not less than 1/8" scale):
4.1 Room numbers and designations.
4.2 Location of all fixed ceiling elements such as fluorescent lighting
fixtures, custom tenant lighting fixtures, exit signs, emergency
lighting fixtures, emergency communication speakers, tenant sound
and paging speakers, special integrated ceiling assemblies or
details, etc.
4.3 Complete indication of the tile grid pattern in order to precisely
locate all of these ceiling elements. Dimensions should be
indicated only where the relationship to the tile grid pattern is
not maintained or is ambiguous.
4.4 Indicate any special assemblies which either contact the ceiling or
come within 1'6" of the ceiling such as full-height millwork
assemblies, file or library shelving, etc.
4.5 Indicate all drywall ceilings, lightcoves, drapery pockets, soffits,
etc., and keyed to details of work.
4.6 Indicate all doors and door swings.
4.7 Indicate all ceiling heights that are not standard (8'9").
5. THE FINISH PLAN. The Final Plan (not less than 1/8" scale) shall indicate:
5.1 Room numbers and room descriptions.
5.2 Wall finish plan indicating location, color and type of wall
covering and paint.
5.3 Floor finish plan indicating location and color of carpeting, vinyl
flooring and any special flooring materials.
6. MILLWORK DETAILS.
6.1 The architect shall prepare drawings in sufficient detail for
construction or fabrication of all millwork components.
6.2 If required, a separate 1/8" = 1'0" plan showing location of
millwork shall be prepared.
7. CUSTOM DETAIL SHEETS. The Architect shall prepare drawings in sufficient
detail for construction or fabrication of any non-standard or custom
treatments for leasehold improvements.
SCHEDULE 3 - Page 3
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8. FURNITURE PLAN (OPTIONAL). The furniture plan (not less than 1/8" scale)
shall indicate:
8.1 Room numbers and room descriptions.
8.2 All furniture and equipment should be shown including seating
arrangements.
8.3 Equipment with special electrical and environmental characteristics
must be labeled and cross-referenced to the equipment schedule on
the electrical engineered drawings.
8.4 Any areas with special environmental or structural design
considerations should be shown as a means of highlighting these
requirements.
9. TENANT-ENGINEERED DRAWINGS.
9.1 The Architect will be responsible for providing structural,
mechanical, and electrical input for special conditions. Particular
reference is made to the voltage and amperage requirements for
special outlets. In addition, dedicated circuits must be clearly
identified and heat load of office copiers, etc., must also be
identified.
9.2 The Architect will be responsible to submit mylar reproducibles of
each of the following drawings to the Engineers:
9.2.1 Electrical Power plan locating all telephone, data and
electrical outlets. Location of these items should be
dimensioned only if placement is critical. Dimension all
floor mounted telephone and electrical outlets. Submit one
mylar reproducible for electrical circuiting.
9.2.2 Reflected ceiling plan. Layout of the building ceiling grid
and location of all light fixtures and light fixtures.
Submit two mylar reproducibles for electrical circuiting and
HVAC layout.
9.2.3 Plumbing plan. A copy of the floor plan indicating all
locations of all items requiring water or waste. Submit one
mylar reproducible for plumbing layout.
9.2.4 Structural loading plan. For tenant spaces with
concentrated loads, a plan indicating location, type weight
and other information required by the structural engineer
will be submitted for review. This information will be
required for file rooms, libraries, or other heavy equipment
or loading conditions.
SCHEDULE 3 - Page 4
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SCHEDULE 4
CONTRACTOR'S HOLD HARMLESS AGREEMENT
The undersigned [Name and type of entity of contractor or subcontractor]
(the "CONTRACTOR") hereby agrees to protect, defend, indemnify and hold harmless
Landmark Square Associates, L.P., Cushman Landmark Ltd., Landmark Square
Investors Ltd., Cushman Realty Corporation, Cushman Investment and Development
Corporation, Cushman Management Corporation, and Asahi Urban (U.S.A.)
Development Corporation (collectively, the "INDEMNITEES"), the Indemnitees'
partners and affiliates, and each of their respective officers, agents,
servants, employees and independent contractors from and against any and all
loss, cost, expense, liability, claim and demand incurred in connection with or
arising from any cause relating to the performance of [Identify Contract] (the
"CONTRACT") by the Contractor, its agents, servants, or employees,
(collectively, the "CONTRACTOR'S AGENTS"), or the presence on the property of
Landmark Square Associates, L.P., by Contractor or Contractor's Agents,
including, without limiting the generality of the foregoing, any default in the
observance or performance of any of the terms, covenants or conditions of the
Contract, any injury to persons, including death, or damage to property in
connection with the performance of the Contract, or any acts, omissions or
negligence of Contractor or Contractor's Agents or any person claiming by,
through or under Contractor or Contractor's Agents. Contractor hereby agrees
that Contractor shall, at Contractor's sole cost and expense, defend any and all
actions brought against Indemnitees based upon any of the foregoing and shall
pay any and all cost and expense incurred in such actions, including, without
limitation, court costs and actual professional fees such as appraisers',
accountants' and attorneys' fees, and promptly discharge any judgments arising
therefrom. This covenant by Contractor shall survive the expiration or sooner
termination of the Contract with respect to any demand, claim or liability
occurring prior to the expiration or termination of the lease in connection with
which lease Contractor performed the Contract. To the extent not prohibited by
law, Indemnitees, their partners and affiliates, and each of their respective
officers, agents, servants, employees and independent contractors shall not be
liable for any damage either to person, including death, or property, which is
sustained by Contractor or Contractor's Agents or by any other person or entity
claiming through Contractor or Contractor's Agents in connection with
Contractor's or Contractor's Agents' performance of the Contract or presence on
the premises or real property identified in the Contract. All of the foregoing
provisions shall also apply to any subcontracted operations and Contractor
hereby agrees to insert the foregoing provisions in any subcontract relating to
Landmark Square Associates, L.P.'s property.
Contractor hereby further agrees that Contractor will perform the work and
services in connection with the Contract as an independent contractor and not as
an employee or agent of Indemnitees.
IN WITNESS WHEREOF, the undersigned has executed this Contractor's Hold
Harmless Agreement as of the ____ day of _______________, 199_.
"Contractor:"
__________________________________,
a _________________________________
By: ______________________________
Its:__________________________
SCHEDULE 4 - Page 1
<PAGE>
EXHIBIT C
LANDMARK SQUARE
NOTICE OF LEASE TERM DATES
To: __________________________
__________________________
__________________________
__________________________
Re: Office Lease dated ________________________, 19__, between
_________________________________ ("LANDLORD"), and
_____________________________, a _____________________ ("TENANT")
concerning Suite _______ on floor(s) _______ of the office building located
at __________________________, California.
Gentlemen:
In accordance with the Office Lease (the "LEASE"), we wish to advise you
and/or confirm as follows:
1. The Lease Term commenced on ________________ for a term of
_______________ ending on _______________.
2. Rent commenced to accrue on _______________________, in the amount
of _________________.
3. If the Lease Commencement Date is other than the first day of the
month, the first billing will contain a pro rata adjustment. Each
billing thereafter, with the exception of the final billing, shall
be for the full amount of the monthly installment as provided for in
the Lease.
4. Your rent checks should be made payable to
__________________________________ at
_______________________________________.
5. The exact number of rentable square feet within the Premises is
_______ square feet.
6. Tenant's Share is _______%.
7. The period within which Tenant, if at all, must deliver notice to
Landlord of Tenant's exercise of its option to extend the Lease Term
is from ____________, to ________________________.
"Landlord":
__________________________________
a ________________________________
By: _____________________________
Its: ________________________
By: _____________________________
Its: ________________________
EXHIBIT C - Page 1
<PAGE>
Agreed to and Accepted as
of _____________, 19__.
"Tenant":
By: _____________________________
Its:_________________________
EXHIBIT C - Page 2
<PAGE>
EXHIBIT D
LANDMARK SQUARE
RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the following Rules and
Regulations. Landlord shall not be responsible to Tenant for the nonperformance
of any of said Rules and Regulations by or otherwise with respect to the acts or
omissions of any other tenants or occupants of the Real Property; provided,
however, in the event any other tenant or occupant of the Building fails to
comply with the Rules and Regulations, and such non-compliance unreasonably
interferes with Tenant's use of the Premises, Landlord shall use reasonable
efforts to cause such other tenants and/or occupants to comply with the Rules
and Regulations.
1. Tenant shall not alter any lock or install any new or additional locks
or bolts on any doors or windows of the Premises without obtaining Landlord's
prior written consent. Tenant shall bear the cost of any lock changes or
repairs required by Tenant. Four keys will be furnished by Landlord for the
Premises, and any additional keys required by Tenant must be obtained from
Landlord at a reasonable cost to be established by Landlord.
2. All doors opening to public corridors shall be kept closed at all
times except for normal ingress and egress to the Premises.
3. Landlord reserves the right to close and keep locked all entrance and
exit doors of the Building during such hours as are customary for comparable
buildings in the greater Long Beach area. Tenant, its employees and agents must
be sure that the doors to the Premises are securely closed and locked when
leaving the Premises if it is after the normal hours of business for the
Building. Any tenant, its employees, agents or any other persons entering or
leaving the Building at any time after Business Hours for the Building, may be
required to sign the Building register when so doing. Access to the Building
may be refused unless the person seeking access has proper identification or has
a previously arranged pass for access to the Building. Landlord and his agents
shall in no case be liable for damages for any error with regard to the
admission to or exclusion from the Building of any person. In case of invasion,
mob, riot, public excitement, or other commotion, Landlord reserves the right to
prevent access to the Building or the Real Property during the continuance
thereof by any means it deems appropriate for the safety and protection of life
and property.
4. No bulk furniture, freight or equipment shall be brought into the
Building without prior notice to Landlord. All moving activity into or out of
the Building shall be scheduled with Landlord and done only at such time and in
such manner as Landlord reasonably designates. No service deliveries (other
than messenger services) will be allowed between the hours of 4:00 p.m. to 6:00
p.m., Monday through Friday. Landlord shall have the right to prescribe the
weight, size and position of all safes and other extraordinarily heavy property
brought into the Building and also the times and manner of moving the same in
and out of the Building. Safes and other heavy objects shall, if directed by
Landlord, stand on supports of such thickness as is necessary to properly
distribute the weight. Landlord will not be responsible for loss of or damage
to any such safe or property in any case. Any damage to any part of the
Building, its contents, occupants or visitors by moving or maintaining any such
safe or other property shall be the sole responsibility and expense of Tenant
except to the extent that the cost of any such damage is covered by Landlord's
insurance.
5. No furniture, packages, supplies, equipment or merchandise will be
received in the Building or carried up or down in the elevators, except between
such hours and in such specific elevator as shall be reasonably designated by
Landlord.
6. The requirements of Tenant will be attended to only upon application
at the management office for the Real Property or at such office location
designated by Landlord. Employees of Landlord shall not perform any work or do
anything outside their regular duties unless under special instructions from
Landlord.
EXHIBIT D - Page 1
<PAGE>
7. Tenant shall not disturb, solicit, or canvass any occupant of the Real
Property and shall cooperate with Landlord and agents of Landlord to prevent the
same.
8. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein. The expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the tenant who, or whose employees or agents, shall have
caused it.
9. Tenant shall not overload the floor of the Premises.
10. Except for vending machines intended for the sole use of Tenant's
employees and invitees, no vending machine or machines other than fractional
horsepower office machines shall be installed, maintained or operated upon the
Premises without the written consent of Landlord.
11. Tenant shall not use or keep in or on the Premises, the Building, or
the Real Property any kerosene, gasoline or other inflammable or combustible
fluid or material except normal quantities of such materials incidental to the
normal and customary operation of general business offices.
12. Tenant shall not, without the prior written consent of Landlord, use
any method of heating or air conditioning other than that supplied by Landlord.
13. Tenant shall not use, keep or permit to be used or kept, any foul or
noxious gas or substance in or on the Premises, except normal quantities of such
materials incidental to the normal and customary operation of general business
offices, or permit or allow the Premises to be occupied or used in a manner
unreasonably offensive or objectionable to Landlord or other occupants of the
Real Property by reason of noise, odors, or vibrations, or unreasonably
interfere in any way with other tenants or those having business therein.
14. Tenant shall not bring into or keep within the Real Property, the
Building or the Premises any animals (except seeing-eye dogs accompanied by
their masters), birds, bicycles or other vehicles.
15. No cooking shall be done or permitted on the Premises, nor shall the
Premises be used for the storage of merchandise, for lodging or for any
improper, objectionable or immoral purposes. Notwithstanding the foregoing,
Underwriters' laboratory-approved equipment and microwave ovens may be used in
the Premises for heating food and brewing coffee, tea, hot chocolate and similar
beverages for employees and visitors, provided that such use is in accordance
with all applicable federal, state and city laws, codes, ordinances, rules and
regulations.
16. Landlord will approve where and how telephone and telegraph wires are
to be introduced to the Premises. No boring or cutting for wires shall be
allowed without the consent of Landlord. The location of telephone, call boxes
and other office equipment affixed to the Premises shall be subject to the
approval of Landlord. All such wires, borings and/or cuttings in connection
with the construction and installation of the initial Tenant Improvements and as
shown on the Final Construction Drawings are hereby consented to by Landlord.
17. Landlord reserves the right to exclude or expel from the Real Property
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of these Rules and Regulations.
18. Tenant, its employees and agents shall not loiter in or on the
entrances, corridors, sidewalks, lobbies, halls, stairways, elevators, or any
common areas of the Building for the purpose of smoking tobacco products or for
any other purpose, nor in any way obstruct such areas, and shall use them only
as a means of ingress and egress for the Premises.
19. Tenant agrees to cooperate reasonably with Landlord to ensure the most
effective operation of the Building's heating and air conditioning system, and
shall refrain from attempting to adjust any controls.
EXHIBIT D - Page 2
<PAGE>
20. Tenant shall store all its trash and garbage within the interior of
the Premises. No material shall 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 in the vicinity of the
Building without violation of any law or ordinance governing such disposal. All
trash, garbage and refuse disposal shall be made only through entry-ways and
elevators provided for such purposes at such times as Landlord shall designate.
21. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations reasonably established by Landlord or any
governmental agency.
22. Tenant shall assume any and all responsibility for protecting the
Premises from theft, robbery and pilferage, which includes keeping doors locked
and other means of entry to the Premises closed.
23. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenants, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of any other
tenant, nor prevent Landlord from thereafter enforcing any such Rules or
Regulations against any or all tenants of the Building.
24. No awnings or other projection shall be attached to the outside walls
of the Building without the prior written consent of Landlord. No curtains,
blinds, shades or screens, which may be visible from the exterior of the
Premises, shall be attached to or hung in, or used in connection with, any
window or door of the Premises without the prior written consent of Landlord.
All electrical ceiling fixtures hung in offices or spaces along the perimeter of
the Building must be fluorescent and/or of a quality, type, design and bulb
color approved by Landlord. Tenant shall abide by Landlord's regulations
concerning the opening and closing of window coverings which are attached to the
windows in the Premises, if any, which have a view of any interior portion of
the Building or the common areas of the Building.
25. The sashes, sash doors, skylights, windows, and doors that reflect or
admit light and 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 windowsills.
26. Tenant must comply with reasonable requests by Landlord concerning the
informing of their employees of items of importance to Landlord with respect to
the operation and maintenance of the Building.
27. Tenant shall not use in any space or in the public halls of the
Building any hand trucks except those equipped with rubber tires and side guards
or such other material-handling equipment as Landlord may approve. Tenant shall
not bring any other vehicles of any kind into the Building.
28. Without the written consent of Landlord, Tenant shall not use the name
of the Building in connection with or in promoting or advertising the business
of Tenant except as Tenant's address.
30. The washing and/or detailing of or, the installation of windshields,
radios or telephones in or general work on, automobiles shall not be allowed on
the Real Property.
30. Food vendors shall be allowed in the Building upon receipt of a
written request from the Tenant. The food vendor shall service only the tenants
that have a written request on file in the Building Management Office. Under no
circumstance shall the food vendor display its products in a public or common
area including corridors and elevator lobbies. Any failure to comply with this
rule shall result in immediate permanent withdrawal of the vendor from the
Building.
31. The helipad on the roof of the Building is for emergency use only. If
Tenant requires access to the helipad, Tenant must obtain the prior consent from
the Landlord for such access.
EXHIBIT D - Page 3
<PAGE>
32. Landlord reserves the right at any time to change or rescind any one
or more of these Rules and Regulations, or to make such other and further
reasonable Rules and Regulations as in Landlord's judgment may from time to time
be reasonably necessary for the management, safety, care and cleanliness of the
Premises, Building, and the Real Property, and for the preservation of good
order therein, as well as for the convenience of other occupants and tenants
therein; provided, however, that no such change, rescission, addition or
amendment shall prevent Tenant's use of the Premises in accordance with
Section 5.1 of the Lease. To the extent these Rules and Regulations are
inconsistent with, or contrary to, the express provisions of the Lease, the
Lease shall control. Tenant shall be deemed to have read these Rules and
Regulations and to have agreed to abide by them as a condition of its occupancy
of the Premises.
EXHIBIT D - Page 4
<PAGE>
EXHIBIT E
LANDMARK SQUARE
FORM OF TENANT'S ESTOPPEL CERTIFICATE
The undersigned as Tenant under that certain Office Lease (the "LEASE")
made and entered into as of _________________, 19__ and between LANDMARK SQUARE
ASSOCIATES, L.P., a California limited partnership, as Landlord, and the
undersigned as Tenant, for Premises on the ___________ floor(s) of the Office
Building located at 111 West Ocean Boulevard, Long Beach, California, certifies
as follows:
1. Attached hereto as Exhibit A is a true and correct copy of the Lease
and all amendments and modifications thereto. The documents contained in
Exhibit A represent the entire agreement between the parties as to the Premises.
2. The undersigned has commenced occupancy of the Premises described in
the Lease, currently occupies the Premises, and the Lease Term commenced on
_________.
3. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as provided in Exhibit A.
4. Tenant has not transferred, assigned, or sublet any portion of the
Premises nor entered into any license or concession agreements with respect
thereto except as follows:
5. Tenant shall not modify the documents contained in Exhibit A or prepay
any amounts owing under the Lease to Landlord in excess of thirty (30) days
without the prior written consent of Landlord's mortgagee.
6. Base Rent became payable on _______________.
7. The Lease Term expires on _________________.
8. To the best of Tenant's knowledge, as of the date hereof, all
conditions of the Lease to be performed by Landlord necessary to the
enforceability of the Lease have been satisfied and Landlord is not in default
thereunder, except as follows: _____________________.
9. To the best of Tenant's knowledge, as of the date hereof, all work
required to be performed by Landlord under the Lease has been performed, except
as follows:____________________________________________________________________.
10. No rental has been paid in advance and no security has been deposited
with Landlord except as provided in the Lease.
11. To the best of Tenant's knowledge, as of the date hereof, there are no
existing defenses or offsets that the undersigned has, which preclude
enforcement of the Lease by Landlord.
12. All monthly installments of Base Rent, all Additional Rent and all
monthly installments of estimated Additional Rent have been paid when due
through _________________. The current monthly installment of Base Rent is
$__________.
13. The undersigned acknowledges that this Estoppel Certificate may be
delivered to Landlord's prospective mortgagee, or a prospective purchaser, and
acknowledges that it recognizes that if same is done, said mortgagee,
prospective mortgagee, or prospective purchaser
EXHIBIT E - Page 1
<PAGE>
will be relying upon the statements contained herein in making the loan or
acquiring the property of which the Premises are a part, and in accepting an
assignment of the Lease as collateral security, and that receipt by it of this
certificate is a condition of making of the loan or acquisition of such
property.
14. If Tenant is a corporation or partnership, each individual executing
this Estoppel Certificate on behalf of Tenant hereby represents and warrants
that Tenant is a duly formed and existing entity qualified to do business in
California and that Tenant has full right and authority to execute and deliver
this Estoppel Certificate and that each person signing on behalf of Tenant is
authorized to do so.
Executed at __________________ on the _____ day of ______________, 19___.
"Tenant":
___________________________, a
_____________________________________
By: ________________________________
Its:____________________________
By: ________________________________
Its:____________________________
EXHIBIT E - Page 2
<PAGE>
EXHIBIT F
LANDMARK SQUARE
CLEANING SPECIFICATIONS
1. GENERAL OFFICE AREAS
Nightly:
a. Spot mop all stone ceramic tile, terrazzo and other types of unwaxed
flooring.
b. Sweep all vinyl asbestos, asphalt, rubber and similar types of
flooring using an approved chemically treated cloth.
c. Vacuum all rugs and carpeted areas. Sweep all private stairways and
vacuum if carpeted.
d. Hand dust and wipe clean with damp or chemically treated cloth all
furniture, file cabinets, fixtures, window sills, convector enclosure
tops and wash said sills and tops if necessary.
e. Dust all telephones.
f. Dust all chair rails, trim, etc.
g. Remove all gum and foreign matter on sight. Spot clean carpeting and
resilient floor nightly.
h. Empty and clean all waste receptacles and remove wastepaper and waste
materials to a designated area.
i. Damp dust interiors of all waste disposal receptacles.
j. Empty and wipe clean all ash trays and screen all sand urns. Sand
provided by Tenant.
k. Wash clean all water fountains and water coolers.
l. Clean all glass furniture tops.
m. Remove hand marks on elevator hatchway doors.
n. Wipe clean all bright work.
Periodic:
a. Hand dust all door louvers and other ventilating louvers within reach
once per week.
b. Dust all baseboards once per week.
c. Remove finger marks from all painted surfaces near light switches,
entrance doors, etc., once per week.
d. Dust all lamp shades weekly.
e. Dust clothes closets, shelving and coat racks weekly.
f. Twice monthly wash, as necessary, flooring in traffic and pivot
points.
g. Wash floors in public and private stairwells throughout the building
monthly.
h. Wash telephones monthly.
EXHIBIT F - Page 1
<PAGE>
i. Dust all picture frames, charts and similar hangings which were not
reached in nightly cleaning quarterly.
j. Dust all vertical surfaces such as partitions, doors and other
surfaces not reached in nightly cleaning quarterly.
k. Dust exterior of lighting fixtures quarterly.
l. Dust all Venetian blinds quarterly.
m. Dust all air conditioning louvers, grills, etc., not reached in
nightly cleaning quarterly.
n. Damp wipe all interior window metal and other unpainted interior metal
surfaces of the perimeter walls once per year.
2. LAVATORIES
Nightly:
a. Wash and disinfect all floors and base.
b. Wash all mirrors and powder shelves.
c. Wash all bright work.
d. Wash all plumbing fixtures.
e. Wash and disinfect all toilet seats, both sides.
f. Scour, wash and disinfect all basins, bowls, and urinals.
g. Empty paper towel receptacles and remove paper to designated areas.
h. Fill toilet tissue holders.
i. Fill soap, sanitary napkin and paper towel dispensers.
j. Empty and clean sanitary disposal receptacles.
k. Clean and wash waste receptacles and dispensers.
l. Remove finger marks from painted surfaces.
m. Remove all graffiti.
n. Dust and clean partitions and walls.
o. Inspect all ladies toilets and restrooms during the day and keep same
in neat and clean condition at all times.
p. Wash tile wall surfaces subject to splashing.
Periodic:
a. Clean and wash all partitions once a week.
b. Scrub floors as necessary but not less than once every two (2) weeks.
c. Hand dust, clean and wash all tile walls once each month, more often
if necessary.
d. High dusting to be done once each month which includes lights, walls
and grills.
e. Wash toilet lighting fixtures as often as necessary but not less than
twice per year.
EXHIBIT F - Page 2
<PAGE>
3. WINDOW CLEANING
a. Clean all windows on the outside two times per year and inside once
per year. Window frames and associated metal to be wiped clean
concurrently.
b. Glass doors to be cleaned nightly.
c. Clean directory glass daily.
EXHIBIT F - Page 3
<PAGE>
EXHIBIT G
LANDMARK SQUARE
SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT
NOTICE: THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT
RESULTS IN YOUR LEASEHOLD ESTATE IN THE PROPERTY BECOMING SUBJECT TO AND OF
LOWER PRIORITY THAN THE LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT.
THIS AGREEMENT, is entered into as of October 3, 1996, by and among FCG
Enterprises, Inc., a California corporation, dba First Consulting Group
("TENANT"), Landmark Square Associates, L.P., a California limited partnership
("LANDLORD"), and Wells Fargo Bank, NA, a national banking association
("BENEFICIARY").
R E C I T A L S :
This Agreement is entered into with reference to the following facts:
A. The terms "Beneficiary", "Premises", "Lease", "Property", "Loan",
"Note", and "Mortgage" are defined in the Schedule of Definitions attached
hereto as Exhibit "A".
B. Landlord and Tenant have entered into the Lease covering the Premises
in the Property.
C. Beneficiary will not make or continue the Loan to Landlord evidenced
by the Note, which Note is secured by the Mortgage covering the Property, unless
the Lease is subordinated to the lien of the Mortgage.
D. The parties hereto desire expressly to confirm the subordination of
the Lease to the lien of the Mortgage, it being a condition precedent to
Beneficiary's obligation to make or continue the Loan that the lien of the
Mortgage be at all times prior and superior to the leasehold interests and
estates created by the Lease.
E. Tenant has requested that Beneficiary agree not to disturb Tenant's
possessory and leasehold rights in the Premises in the event Beneficiary should
foreclose the Mortgage and, provided that Tenant is not then in default under
the Lease and provided further that Tenant attorns to Beneficiary or the
purchaser at any foreclosure or trustee's sale of the Property, Beneficiary is
willing to agree to such request.
A G R E E M E N T :
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and of other good and valuable consideration, the parties agree as follows:
1. SUBORDINATION: Notwithstanding anything contained to the contrary in
the Lease, the leasehold estate created thereby, and all of Tenant's rights
thereunder, are and shall be and shall at all times remain subject, subordinate
and inferior to the Mortgage and the lien thereof, and all rights of Beneficiary
thereunder and to any and all renewals, revisions, modifications,
consolidations, replacements and extensions thereof.
2. ACKNOWLEDGMENT AND AGREEMENT BY TENANT.
2.1 Tenant acknowledges and agrees that:
(i) Tenant consents to the Mortgage and the agreements
evidencing and securing the Loan; and
EXHIBIT G - Page 1
<PAGE>
(ii) Beneficiary, in making or having made any disbursements
to Landlord, is or was under no obligations or duty to oversee or
direct the application or the proceeds of such disbursements, and such
proceeds may be or may have been used by Landlord for the purposes
other than improvement of the Property.
2.2 From and after the date hereof, in the event of any act or
omission by Landlord which would give Tenant the right, either immediately
or after the lapse of time, to terminate the Lease or to claim a partial or
total eviction, Tenant will not exercise any such right:
(i) Until it has given written notice of such act or
omission to Beneficiary; and
(ii) Until the same period of time as is given to Landlord
under the Lease and an additional period of time of thirty (30) days
is given Beneficiary to cure such act or omission.
2.3 Tenant has notice that the Lease and the rent and all other sums
due thereunder have been assigned or are to be assigned to Beneficiary as
security for the Loan secured by the Mortgage. In the event that
Beneficiary notifies Tenant of a default under the Mortgage and demands
that Tenant pay its rent and all other sums due under the Lease directly to
Beneficiary, Tenant shall honor such demand and pay its rent and all other
sums due under the Lease directly to Beneficiary or as otherwise required
pursuant to such notice.
2.4 Tenant shall send a copy of any notices related to a default by
Landlord under the Lease to Beneficiary at the same time such notice is
sent to Landlord.
2.5 Tenant has no right or option of any nature whatsoever, whether
pursuant to the Lease or otherwise, to purchase the Premises or the
Property, or any portion thereof, or any interest therein, and to the
extent that Tenant has had, or hereafter acquired, any such right or
option, the same is hereby acknowledged to be the subject and subordinate
to the Mortgage and is hereby waived and released as against Beneficiary.
2.6 Within ten (10) days after Beneficiary's request, Tenant shall
deliver to Beneficiary and to any person designated by Beneficiary estoppel
certificates executed by Tenant certifying (if such be the case) that the
Lease is in full force and effect, the date and amount of Tenant's most
recent payment of rent, that there are no defenses or offsets outstanding
under the Lease (or stating those claimed by Tenant, as the case may be)
and such other information about Tenant or the Lease as Beneficiary may
reasonably request.
2.7 This Agreement satisfies any condition or requirement in the
Lease relating to the granting of a nondisturbance agreement from this
Beneficiary.
2.8 Tenant shall not execute any amendment or modification of the
Lease (except if made pursuant to the specific terms of the Lease, such as
an expansion of the Premises or renewal of the Lease term) without
Beneficiary's prior written consent which consent may be given or withheld
at Beneficiary's absolute discretion.
2.9 Tenant agrees that during the term of the Lease, without
Beneficiary's consent, Tenant shall not assign or sublet any portion of the
Lease or Premises, except as expressly provided in the Lease.
3. NONDISTURBANCE, ATTORNMENT AND NEW LEASE. In the event of foreclosure
of the Mortgage, or upon a sale of the Property pursuant to the trustee's power
of sale contained therein, or upon a transfer of the Property by conveyance in
lieu of foreclosure, then the terms of this Section 3 shall apply.
EXHIBIT G - Page 2
<PAGE>
3.1 NONDISTURBANCE AND ATTORNMENT. So long as Tenant complies with
this Agreement and is not in material default under any of the terms,
covenants, or conditions of the Lease, the Lease shall continue in full
force and effect as between the succeeding owner of the Property and
Tenant, upon and subject to all of the terms, covenants, and conditions of
the Lease for the balance of the term of the Lease, including renewals or
extensions thereof, if any. Tenant hereby agrees to attorn to and accept
any such successor owner as landlord under the Lease, and to be bound by
and perform all of the obligations imposed on Tenant by the Lease.
Beneficiary and any such successor owner of the Property will not disturb
the possession of Tenant, and will be bound by all of the obligations
imposed on the Landlord by the Lease during the period of time Beneficiary
or any such successor owner is the owner of the Property; provided,
however, that Beneficiary or any purchaser at a trustee's or sheriff's sale
or any successor owner of the Property shall not be:
(i) liable for any act or omission of a prior landlord
(including Landlord);
(ii) subject to any offsets or defenses which Tenant might
have against any prior landlord (including Landlord). Notwithstanding
any other provision of this Agreement, if Beneficiary or Beneficiary's
successor succeeds to the interest of Landlord under the Lease,
Beneficiary or Beneficiary's successor, as the case may be, shall be
liable for the payment or provision, to the extent not paid or
provided previously, of (a) the cost of the design and construction of
Tenant Improvements pursuant to Exhibit "B" to the Lease and
(b) brokerage commissions to be paid by Landlord to the "Brokers," as
that term is defined in the Lease, pursuant to a separate agreement
between Landlord and such Brokers;
(iii) bound by any rent or additional rent which Tenant might
have paid in advance to any prior landlord (including Landlord) for a
period in excess of one month or by any security deposit, cleaning
deposit or other prepaid charge which Tenant might have paid in
advance to any prior landlord (including Landlord) not actually
received by Beneficiary or such successor owner, as the case may be;
or
(iv) bound by any amendment or modification of the Lease
made without Beneficiary's written consent, which consent shall not be
unreasonably withheld, conditioned or delayed, other than an amendment
or modification made pursuant to the terms of the Lease, such as an
expansion of the Premises or renewal of the term of the Lease.
3.2 NEW LEASES. Upon Beneficiary's written request of Tenant given
at any time after any foreclosure, trustee's sale or conveyance in lieu
thereof, Tenant (as tenant) agrees to execute a lease of the Premises with
Beneficiary or its successor (as landlord) upon the same terms and
conditions as the Lease between Landlord and Tenant, which lease shall
cover any unexpired term of the Lease existing at the time of such
foreclosure, trustee's sale or conveyance in lieu of foreclosure; provided
that the priority of such new lease, as between the parties thereto, is the
same as the priority of the Lease, as between Tenant and Beneficiary.
3.3 NO LIABILITY. Beneficiary shall have no liability to Tenant or
any other party for any conflict between the provisions of the Lease and
the provisions of any other lease or agreement affecting the Property which
was effective before Beneficiary became landlord, including, but not
limited to, any provisions relating to renewal options and options to
extend. In the event of such a conflict, Tenant has, and will have, no
right to cancel the Lease or take any other remedial action against
Beneficiary or action against any other party for which Beneficiary would
be liable, except for declaratory or equitable relief.
EXHIBIT G - Page 3
<PAGE>
4. ACKNOWLEDGMENT AND AGREEMENT BY LANDLORD: Landlord as landlord under
the Lease and mortgagor or trustor under the Mortgage, acknowledges and agrees
for itself and its heirs, successors and assigns, that:
4.1 This agreement does not: (i) constitute a waiver by Beneficiary
of any of its rights under the Mortgage; and/or (ii) in any way release
Landlord from its obligations to comply with the terms, provisions,
conditions, covenants, agreements and clauses of the Mortgage;
4.2 The provisions of the Mortgage remain in full force and effect
and must be complied with by Landlord; and
4.3 In the event Beneficiary notifies Tenant of a default under the
Mortgage, Tenant may pay all rent and all other sums due under the Lease
directly to Beneficiary or as otherwise required pursuant to Beneficiary's
notice, and any and all claims for such rent and other sums by Landlord
against Tenant are hereby waived and released.
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED AND DELIVERED THIS AGREEMENT
AT LOS ANGELES COUNTY, CALIFORNIA, AS OF THE DAY AND YEAR FIRST ABOVE WRITTEN.
NOTICE. THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT
CONTAINS PROVISIONS WHICH ALLOWS THE PERSON OBLIGATED ON THE LEASE TO OBTAIN OR
CONTINUE A LOAN, A PORTION OF WHICH MAY BE EXPENDED FOR PURPOSES OTHER THAN
IMPROVEMENT OF THE PROPERTY.
"Beneficiary" WELLS FARGO BANK, NA, a national banking
association
By: ___________________________________
Name:___________________________________
Title:_____________________________
"Tenant" FCG ENTERPRISES, INC., a California
corporation, dba First Consulting Group
By: ___________________________________
Its:_______________________________
By: ___________________________________
Its:_______________________________
"Landlord" LANDMARK SQUARE ASSOCIATES, L.P., a
California limited partnership
By: Cushman Landmark Ltd., a California
limited partnership, a general
partner
By: Cushman Investment and
Development Corporation, a
California corporation, a
general partner
By: _________________________
Name: Stuart R. Essery
Title: Vice President
EXHIBIT G - Page 4
<PAGE>
EXHIBIT "A" TO EXHIBIT "G"
SCHEDULE OF DEFINITIONS
"BENEFICIARY" means Wells Fargo Bank, NA. All notices to Beneficiary shall
be delivered or mailed to:
Wells Fargo Bank, NA
Real Estate Group
333 South Grand Avenue
Suite 900
Los Angeles, California 90071
AU#2852
"MORTGAGE" means, collectively, the First Mortgage and the Second Mortgage.
"First Mortgage" means a Deed of Trust encumbering the Property, executed by
Landlord, as Trustor, in favor of Beneficiary, securing repayment of the First
Loan evidenced by the First Note and securing certain other obligations,
recorded in the Official Records of Los Angeles County, California. "Second
Mortgage" means a Deed of Trust encumbering the Property, executed by Landlord
as Trustor, in favor of Beneficiary (as the assignee of the original
beneficiary), securing repayment of the Second Loan evidenced by the Second Note
and securing certain other obligations, recorded in the Official Records of
Los Angeles County, California.
"LEASE" means a certain lease entered into by and between Landlord and
Tenant dated as of October 3, 1996, covering the Premises.
"LOAN" means, collectively, the First Loan and the Second Loan. "First
Loan" means a first mortgage loan in an amount not to exceed $10,000,000 from
Beneficiary to Landlord. "Second Loan" means a second mortgage loan (by virtue
of a subordination agreement subordinating the Second Loan to the First Loan) in
an amount not to exceed $80,000,000 from Beneficiary (as the assignee of the
original beneficiary) to Landlord.
"NOTE" means, collectively, the First Note and the Second Note. "First
Note" means that certain promissory note executed by Landlord in favor of
Beneficiary in the amount of $10,000,000. "Second Note" means, collectively,
those certain two promissory notes executed by Landlord in favor of Beneficiary
(as the assignee of the original beneficiary) each in the amount of
$40,000,000).
"PREMISES" means certain space consisting of a total of 23,836 rentable
square feet of space in the improvements located in and upon the Property.
"PROPERTY" means the real property commonly known as Landmark Square in
Long Beach, California.
EXHIBIT "A" TO EXHIBIT "G" - Page 1
<PAGE>
EXHIBIT H
LANDMARK SQUARE
SUPERIOR EXPANSION RIGHTS OF EXISTING TENANTS
THIRD FLOOR
Wells Fargo Bank: Right of first refusal for any space on the third floor
of the Building during Wells Fargo Bank's initial lease
term and any extended lease term(s).
FIFTH FLOOR
Kusar & Harris: Kusar & Harris has a right of first offer with respect
to all of the remaining rentable square feet of space
located on the fifth (5th) floor of the Building, other
than its initial Premises.
M&M Aerospace M&M Aerospace maintains a right of first offer with
Hardware, Inc.: respect to space which becomes available for lease and
which is contiguous to M&M Aerospace's initial Premises.
M&M Aerospace's right of first offer is subordinate to
Kusar & Harris' right of first offer for the subject
space.
FIFTEENTH FLOOR None.
EXHIBIT H - Page 1
<PAGE>
EXHIBIT I
LANDMARK SQUARE
SECURITY SERVICES
Landmark Square utilizes a combination of interrelated security systems and
a well-trained security staff to detect, monitor and control the movement of
tenants, visitors and potential intruders as they progress through public and
semi-public areas of the project such as the garage, lobby, stairwells, and
other selected areas of the office building. All security systems are
controlled and monitored twenty-four (24) hours a day by our on-site security
staff via our lobby security console. Tenants who wish to enter the building
after normal business hours must be listed on a pre-approved access list,
provide proper identification and log themselves in at our lobby security
console.
An automated security system includes a closed circuit television
assessment system which permits rapid alarm and display from physically remote
locations. In addition, an access control system utilizes cards and card
readers to permit tenant access into the parking garage. The system provides
anti-pass back protection to prevent cards from being used for two (2)
successive entries or exits from the project as well as means to enforce time
zone restrictions. The system is computer based and operated by a receptor
central processor as installed by Douglas Roesch Communications. The system
includes closed circuit television monitoring and door monitoring/alarms.
EXHIBIT I - Page 1
<PAGE>
OFFICE LEASE
LANDMARK SQUARE
LANDMARK SQUARE ASSOCIATES, L.P.,
a California limited partnership,
as Landlord,
and
FCG ENTERPRISES, INC.,
a California corporation,
dba First Consulting Group
as Tenant.
<PAGE>
LANDMARK SQUARE
SUMMARY OF BASIC LEASE INFORMATION
The undersigned hereby agree to the following terms of this Summary of
Basic Lease Information (the "SUMMARY"). This Summary is hereby incorporated
into and made a part of the attached Office Lease (this Summary and the Office
Lease to be known collectively as the "LEASE") which pertains to the office
building (the "BUILDING") which is located at 111 West Ocean Boulevard, Long
Beach, California. Each reference in the Office Lease to any term of this
Summary shall have the meaning as set forth in this Summary for such term. In
the event of a conflict between the terms of this Summary and the Office Lease,
the terms of the Office Lease shall prevail. Any capitalized terms used herein
and not otherwise defined herein shall have the meaning as set forth in the
Office Lease.
TERMS OF LEASE
(References are to the Office Lease) DESCRIPTION
----------------------------------- -----------
1. Date: October 3, 1996
2. Landlord: LANDMARK SQUARE ASSOCIATES, L.P., a
California limited partnership.
3. Address of Landlord c/o Cushman Management Corporation
(Section 29.19): 111 West Ocean Blvd.
Suite 1717
Long Beach, California 90802
Attention: Managing Director
With a copy to:
Allen, Matkins, Leck, Gamble & Mallory
1999 Avenue of the Stars, Suite 1800
Los Angeles, California 90067-6050
Attention: Anton N. Natsis, Esq.
4. Tenant: FCG ENTERPRISES, INC., a California
corporation, dba First Consulting Group
5. Address of Tenant 111 West Ocean Boulevard
(Section 30.19): Suite 1750
Long Beach, California 90802
Attention: Ms. Patricia Lowery
(Prior to Lease Commencement Date)
and
111 West Ocean Boulevard
Suite 400
Long Beach, California 90802
Attention: Ms. Patricia Lowery
(After Lease Commencement Date)
(ii)
<PAGE>
6. Premises (Article 1): The entire fourth (4th) floor of the
Building consisting of 18,172 rentable
square feet of space (16,751 usable
square feet) ("4TH FLOOR PREMISES") and
5,664 rentable square feet of space
(4,873 usable square feet) located on
the fifteenth (15th) floor of the
Building ("15TH FLOOR PREMISES"), as set
forth in Exhibit A attached hereto;
provided, however, that the actual
number of usable square feet and
rentable square feet of the Premises
shall be determined pursuant to the
Final Space Plans and subject to
verification pursuant to Section 1.2 of
the Office Lease.
7. Term (Article 2).
7.1 Lease Term: Five (5) years and zero (0) months.
7.2 Lease Commencement Date: The earlier of (i) the date Tenant, or
any person occupying any portion of the
Premises with Tenant's permission,
commences business operations from the
Premises, and (ii) one hundred fifty
(150) days after full execution of this
Lease and delivery thereof to Tenant.
7.3 Lease Expiration Date: The last day of the month in which the
5th anniversary of the Lease
Commencement Date occurs.
8. Base Rent (Article 3) (subject
to final determination and
verification of the number of
usable square feet and rentable
square feet of the Premises):
Monthly Annual
Month of Annual Installment of Rental Rate per
Lease Term Base Rent Base Rent Rentable Square Foot
---------- --------- -------------- --------------------
4th Floor Premises
1-6 $0.00 $.0.00 $0.00
7-18 $321,762.00 $26,813.50 $17.71
19-60 $381,612.00 $31,801.00 $21.00
15th Floor Premises
1-60 $132,537.60 $11,044.80 $23.40
9. Additional Rent (Article 4).
9.1 Base Year: Calendar year 1997.
9.2 Tenant's Share: Approximately 5.42% (subject to final
determination and verification of the
number of usable square feet and
rentable square feet of the Premises).
10. Security Deposit (Article 21): Waived.
(iii)
<PAGE>
11. Parking Pass Ratio (Article 28): 4 parking passes for every 1,000
rentable square feet of the Premises.
12. Broker (Section 30.25): Matlow-Kennedy Commercial Real Estate
Services
4510 East Pacific Coast Highway
Suite 100
Long Beach, California 90804
The foregoing terms of this Summary are hereby agreed to by Landlord and
Tenant.
"Landlord":
LANDMARK SQUARE ASSOCIATES, L.P., a California
limited partnership
By: Cushman Landmark Ltd., a California limited
partnership, a general partner
By: Cushman Investment and Development
Corporation, a California corporation, a
general partner
By: ___________________________________
Name: Stuart R. Essery
Title: Vice President
"Tenant":
FCG ENTERPRISES, INC., a California corporation,
dba First Consulting Group
By: _____________________________________________
Its:_________________________________________
By: _____________________________________________
Its:_________________________________________
(iv)
<PAGE>
LANDMARK SQUARE
INDEX
ARTICLE SUBJECT MATTER PAGE
- ------- -------------- ----
ARTICLE 1 REAL PROPERTY, BUILDING AND PREMISES . . . . . . . . . . . . .1
ARTICLE 2 LEASE TERM . . . . . . . . . . . . . . . . . . . . . . . . . .5
ARTICLE 3 BASE RENT. . . . . . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE 4 ADDITIONAL RENT. . . . . . . . . . . . . . . . . . . . . . . .8
ARTICLE 5 USE OF PREMISES. . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 6 SERVICES AND UTILITIES . . . . . . . . . . . . . . . . . . . 18
ARTICLE 7 REPAIRS. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 8 ADDITIONS AND ALTERATIONS. . . . . . . . . . . . . . . . . . 22
ARTICLE 9 COVENANT AGAINST LIENS . . . . . . . . . . . . . . . . . . . 24
ARTICLE 10 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 11 DAMAGE AND DESTRUCTION . . . . . . . . . . . . . . . . . . . 26
ARTICLE 12 NONWAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 13 CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 14 ASSIGNMENT AND SUBLETTING. . . . . . . . . . . . . . . . . . 29
ARTICLE 15 SURRENDER OF PREMISES; REMOVAL OF TRADE FIXTURES . . . . . . 33
ARTICLE 16 HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 17 ESTOPPEL CERTIFICATES. . . . . . . . . . . . . . . . . . . . 34
ARTICLE 18 SUBORDINATION. . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 19 DEFAULTS; REMEDIES . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 20 COVENANT OF QUIET ENJOYMENT. . . . . . . . . . . . . . . . . 38
ARTICLE 21 INTENTIONALLY OMITTED. . . . . . . . . . . . . . . . . . . . 38
ARTICLE 22 INTENTIONALLY OMITTED. . . . . . . . . . . . . . . . . . . . 38
ARTICLE 23 SIGNS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 24 COMPLIANCE WITH LAW. . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 25 LATE CHARGES . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 26 LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT . . . . 40
ARTICLE 27 ENTRY BY LANDLORD. . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 28 TENANT PARKING . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 29 MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . 41
EXHIBITS
A OUTLINE OF FLOOR PLAN OF PREMISES
B TENANT WORK LETTER
C FORM OF NOTICE OF LEASE TERM DATES
D RULES AND REGULATIONS
E FORM OF TENANT'S ESTOPPEL CERTIFICATE
F JANITORIAL SPECIFICATIONS
G NON-DISTURBANCE AGREEMENT
H EXPANSION RIGHTS OF EXISTING TENANTS
I SECURITY SERVICES
(v)
<PAGE>
LANDMARK SQUARE
INDEX OF MAJOR DEFINED TERMS
LOCATION OF
DEFINITION IN
DEFINED TERMS OFFICE LEASE
- ------------- ------------
4th Floor Premises...........................................................iii
15th Floor Premises..........................................................iii
4th Floor Premises...........................................................iii
Abatement Event...............................................................36
Abatement Event Termination Date..............................................36
Abatement Event Termination Notice............................................36
Additional Rent................................................................8
Adjustment Year...............................................................13
After Hours HVAC..............................................................19
Alterations...................................................................21
Applicable Reassessment.......................................................15
Approved Working Drawings..............................................EXHIBIT B
Architect..............................................................EXHIBIT B
Bank..........................................................................36
Base Rent......................................................................7
Base Tax Increase Amount......................................................13
Base Taxes................................................................12, 13
Base Year......................................................................8
Base, Shell, and Core..................................................EXHIBIT B
BOMA...........................................................................2
Brokers.......................................................................43
Building.......................................................................1
Business Hours................................................................18
Claims........................................................................24
Code...................................................................EXHIBIT B
Comparable Buildings...........................................................5
Comparable Transactions........................................................5
Condemning Authority..........................................................29
Construction Budget....................................................EXHIBIT B
Construction Drawings..................................................EXHIBIT B
Contract...............................................................EXHIBIT B
Contractor.............................................................EXHIBIT B
Cost Pools....................................................................16
Cut-Off Point.................................................................16
Damage Termination Date.......................................................27
Damage Termination Notice.....................................................27
Demising Walls.........................................................EXHIBIT B
Direct Expenses................................................................8
Economic Terms.................................................................3
Eligibility Period............................................................36
Energy Management System...............................................EXHIBIT B
Engineers..............................................................EXHIBIT B
Estimate......................................................................14
Estimate Statement............................................................14
Estimated Additional Rent.....................................................14
Exclusive Portion.............................................................13
Exercise Notice................................................................6
Expansion Commencement Date....................................................4
Expansion Notice...............................................................3
Expansion Rent.................................................................4
Expansion Space................................................................3
Expansion Space Construction Period............................................4
Expense Year...................................................................8
Fair Market Rental Rate........................................................5
Final Costs............................................................EXHIBIT B
Final Retention........................................................EXHIBIT B
Final Space Plan.......................................................EXHIBIT B
Final Working Drawings.................................................EXHIBIT B
Force Majeure.................................................................42
Hazardous Material............................................................44
Hazardous Materials Laws......................................................45
Holidays......................................................................18
HVAC Work..............................................................EXHIBIT B
(vi)
<PAGE>
Interest Rate.................................................................43
Landlord.......................................................................1
Landlord Parties..............................................................23
Landlord Work..........................................................EXHIBIT B
Lease..........................................................................1
Lease Commencement Date........................................................5
Lease Commencement Date Delay..........................................EXHIBIT B
Lease Expiration Date..........................................................5
Lease Term.....................................................................5
Lease Year.....................................................................5
Notices.......................................................................42
On-site Parking Area...........................................................1
Operating Expenses.............................................................8
Option Rent....................................................................5
Option Rent Notice.............................................................6
Option Terms...................................................................5
Outside Agreement Date.........................................................6
Over-Allowance Amount..................................................EXHIBIT B
Overlap Period................................................................36
Panelboard and Transformer.............................................EXHIBIT B
Perimeter Drywall......................................................EXHIBIT B
Permitted Transferees..........................................................4
Premises.......................................................................1
Proposition 13................................................................12
Proposition 13 Protection Amount..............................................15
Proposition 13 Purchase Price.................................................15
Public Corridor........................................................EXHIBIT B
Real Property..................................................................1
Reassessment..................................................................14
Recognition Agreement.........................................................31
Renewal Concessions............................................................5
Rent...........................................................................8
Review Period.................................................................16
Rules and Regulations..........................................................1
Secured Areas.................................................................39
Service Elevator Lobby.................................................EXHIBIT B
Specifications.........................................................EXHIBIT B
Sprinkler Work.........................................................EXHIBIT B
Square Footage Outside Agreement Date..........................................2
Standard Improvement Package...........................................EXHIBIT B
Statement.....................................................................13
Subject Space.................................................................29
Subleasing Costs..............................................................31
Summary........................................................................1
Superior Rights................................................................3
Systems and Equipment.........................................................11
Tax Expenses..................................................................11
Tax Increase..................................................................15
Tenant.........................................................................1
Tenant Improvement Allowance...........................................EXHIBIT B
Tenant Improvement Allowance Items.....................................EXHIBIT B
Tenant Improvements....................................................EXHIBIT B
Tenant's Agents........................................................EXHIBIT B
Tenant's Share................................................................13
Transfer Notice...............................................................28
Transfer Premium..............................................................31
Transferee....................................................................28
Transfers.....................................................................28
Trended Amount................................................................13
Window Coverings.......................................................EXHIBIT B
(vii)
<PAGE>
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of July 3, 1996, by and between FCG
ENTERPRISES, INC., a California corporation ("Borrower"), and WELLS FARGO
BANK, NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodations described
below (each, a "Credit" and collectively, the "Credits"), and Bank has agreed
to provide the Credits to Borrower on the terms and conditions contained
herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
THE CREDITS
SECTION 1.1 LINE OF CREDIT.
(a) LINE OF CREDIT. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to continue to make advances to Borrower from
time to time up to and including July 3, 1997, not to exceed at any time the
aggregate principal amount of Three Million Dollars ($3,000,000.00) ("Line of
Credit"), the proceeds of which shall be used for working capital purposes.
Borrower's obligation to repay advances under the Line of Credit shall be
evidenced by a promissory note substantially in the form of Exhibit A
attached hereto ("Line of Credit Note"), all terms of which are incorporated
herein by this reference. Subject to the terms and conditions of this
Agreement, Bank hereby confirms that the Line of Credit remains in full force
and effect. Any reference in the Line of Credit to any prior loan agreement
between Bank and Borrower shall be deemed a reference to this Agreement.
(b) BORROWING AND REPAYMENT. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at
any time exceed the maximum principal amount available thereunder, as set
forth above. Notwithstanding the foregoing, Borrower shall maintain a zero
balance on advances under the Line of Credit for a period of at least thirty
(30) consecutive days during the term of the Line of Credit.
<PAGE>
SECTION 1.2. TERM LOAN.
(a) TERM LOAN. Bank has made a loan to Borrower in the original
principal amount of Four Million Dollars ($4,000,000.00) ("Term Loan"), on
which the outstanding principal balance as of the date hereof is
$3,666,664.00. Borrower's obligation to repay the Term Loan is evidenced by a
promissory note substantially in the form of Exhibit B attached hereto ("Term
Note"), all terms of which are incorporated herein by this reference. Subject
to the terms and conditions of this Agreement, Bank hereby confirms that the
Term Loan remains in full force and effect. Any reference in the Term Note to
any prior loan agreement between Bank and Borrower shall be deemed a
reference to this Agreement.
(b) REPAYMENT. The principal amount of the Term Loan shall be repaid
in accordance with the provisions of the Term Note.
(c) PREPAYMENT. Borrower may prepay principal on the Term Loan at any
time, in any amount and without penalty. All prepayments of principal shall
be applied on the most remote principal installment or installments then
unpaid.
SECTION 1.3. STANDBY LETTER OF CREDIT.
(a) STANDBY LETTER OF CREDIT. Bank has issued a standby letter of
credit for the account of Borrower and for the benefit of Metropolitan
Transportation Authority as security for Borrower's office location in New
York (the "Standby Letter of Credit") in the principal amount of Seventeen
Thousand Three Hundred Forty-Four Dollars ($17,344.00). The Standby Letter of
Credit has an expiration date of March 2, 1997, with automatic annual
renewals through March 2, 1998, and is subject to the additional terms of the
Application and Agreement for Standby Letter of Credit required by Bank in
connection with the issuance thereof (the "Letter of Credit Agreement").
Subject to the terms and conditions of this Agreement, Bank hereby confirms
that the Standby Letter of Credit remains in full force and effect.
(b) REPAYMENT OF DRAFTS. Each draft paid by Bank under the Standby
Letter of Credit shall be repaid by Borrower in accordance with the
provisions of the Letter of Credit Agreement.
SECTION 1.4. INTEREST/FEES.
(a) INTEREST. The outstanding principal balances of the Line of Credit
and the Term Loan shall bear interest at the rates of interest set forth in
the Line of Credit Note and the Term Note, respectively. The amount of each
draft paid by Bank under the Standby Letter of Credit shall bear interest
from the date such draft is paid by Bank to the date such amount is fully
repaid by Borrower at a rate per annum one-half percent (0.50%) above the
Prime Rate in effect from time to time.
-2-
<PAGE>
(b) PRIME RATE. The term "Prime Rate" shall mean at any time the rate
of interest most recently announced within Bank at its principal office in
San Francisco as its Prime Rate, with the understanding that the Prime Rate
is one of Bank's base rates and serves as the basis upon which effective
rates of interest are calculated for those loans making reference thereto,
and is evidenced by the recording thereof in such internal publication or
publications as Bank may designate. Each change in the rate of interest shall
become effective on the date each Prime Rate change is announced within Bank.
(c) COMPUTATION AND PAYMENT. Interest shall be computed on the basis
of a 360-day year, actual days elapsed. Interest shall be payable at the
times and place set forth in the Line of Credit Note and the Term Note
(collectively, the "Notes").
(d) COMMITMENT FEE. Borrower shall pay to Bank a nonrefundable
commitment fee for the Line of Credit equal to $500.00, which fee shall be
due and payable in full upon execution of this Agreement.
(e) LETTER OF CREDIT FEES. Borrower shall pay to Bank fees upon the
issuance of each Letter of Credit, upon the payment or negotiation by Bank of
each draft under any Letter of Credit and upon the occurrence of any other
activity with respect to any Letter of Credit (including without limitation,
the transfer, amendment or cancellation of any Letter of Credit) determined
in accordance with Bank's standard fees and charges then in effect for such
activity.
SECTION 1.5. COLLECTION OF PAYMENTS. Borrower authorizes Bank to
collect all principal, interest and fees due under each Credit by charging
Borrower's demand deposit account number 4624-028767 with Bank, or any other
demand deposit account maintained by Borrower with Bank, for the full amount
thereof. Should there be insufficient funds, in any such demand deposit
account to pay all such sums when due, the full amount of such deficiency
shall be immediately due and payable by Borrower.
SECTION 1.6. COLLATERAL.
As security for all indebtedness of Borrower to Bank, Borrower hereby
grants to Bank security interests of first priority in all Borrower's
accounts receivable and other rights to payment, general intangibles and
equipment.
All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements, deeds of trust and other
documents as Bank shall reasonably require, all in form and substance
satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand
for all costs and expenses incurred by Bank in connection with any of the
foregoing security, including without limitation, filing and
-3-
<PAGE>
recording fees and costs of appraisals, audits and title insurance.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to
Bank subject to this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized
and existing and in good standing under the laws of the State of California,
and is qualified or licensed to do business (and is in good standing as a
foreign corporation, if applicable) in all jurisdictions in which such
qualification or licensing is required or in which the failure to so qualify
or to be so licensed could have a material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Notes,
and each other document, contract and instrument required hereby or at any
time hereafter delivered to Bank in connection herewith (collectively, the
"Loan Documents") have been duly authorized, and upon their execution and
delivery in accordance with the provisions hereof will constitute legal,
valid and binding agreements and obligations of Borrower or the party which
executes the same, enforceable in accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any
law or regulation, or contravene any provision of the Articles of
Incorporation or By-Laws of Borrower, or result in any breach of or default
under any contract, obligation, indenture or other instrument to which
Borrower is a party or by which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial
statement of Borrower dated December 31, 1995, a true copy of which has been
delivered by Borrower to Bank prior to the date hereof, (a) is complete and
correct and presents fairly the financial condition of Borrower, (b)
discloses all liabilities of Borrower that are required to be reflected or
reserved against
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under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance
with generally accepted accounting principals consistently applied. Since
the date of such financial statement there has been no material adverse
change in the financial condition of Borrower, nor has Borrower mortgaged,
pledged, granted a security interest in or otherwise encumbered any of its
assets or properties except in favor of Bank or as otherwise permitted by
Bank in writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to
any year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may
be bound that requires the subordination in right of payment of any of
Borrower's obligations subject to this Agreement to any other obligation of
Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter
possess, all permits, franchises and licenses required and rights to all
trademarks, trade names, patents, and fictitious names, if any, necessary to
enable it to conduct the business in which it is now engaged in compliance
with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended or recodified from time to time ("ERISA"); Borrower has
not at any time maintained or been obligated to contribute to a defined
benefit pension plan (as defined in ERISA).
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable Federal or state environmental,
hazardous waste, health and safety statutes, and any rules or regulations
adopted pursuant thereto, which govern or affect any of Borrower's operations
and/or properties, including without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act of 1986, the Federal Resource
Conservation and Recovery Act of 1976, the Federal Toxic Substances Control
Act and the California Health and Safety Code, as any of the same may be
amended, modified or supplemented from time to time. None of the operations
of Borrower is the subject of any Federal or state investigation evaluating
whether any remedial action involving a
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material expenditure is needed to respond to a release of any toxic or
hazardous waste or substance into the environment. Borrower has no material
contingent liability in connection with any release of any toxic or hazardous
waste or substance into the environment.
SECTION 2.12. LEGAL STATUS OF THE ASOP. ASOP is a plan qualified
under Sections 401 (a) and (k) of the Internal Revenue Code (the "Code") and
an employee stock ownership plan as described in Section 4975 (e)(7) of the
Code and Section 407 (d)(6) of ERISA and has been duly established by the
Board of Directors of Borrower.
SECTION 2.13. EXEMPT TRANSACTIONS. Neither the sale of stock to ASOP
under the Associate Profit Sharing 401 (k) and Stock Ownership Plan dated
December 1, 1995, ("ASOP Agreement"), nor the financing of such purchase
pursuant to the ASOP Loan Agreement ("ASOP Loan Agreement"), dated December
18, 1995, by and between Borrower and ASOP and the related promissory note
("ASOP Note") constitute prohibited transactions under Section 4975(c) of the
Code, Sections 406 and 407 of ERISA, or the regulations thereunder. The loan
evidenced by the ASOP Loan Agreement will constitute an "exempt loan" under
Treasury Reg. Section 54.4975-7(b)(1)(iii). The use of the proceeds of the
Term Loan by Borrower will not violate any federal or state tax, labor,
securities of other law, including, but not limited to, the provisions of
the Code or ERISA or any regulations thereunder.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to grant any of the Credits is subject to the fulfillment to Bank's
satisfaction of all of the following conditions:
(a) APPROVAL OF BANK COUNSEL. All legal matters incidental to the
granting of each of the Credits shall be satisfactory to Bank's counsel.
(b) DOCUMENTATION. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Notes.
(ii) Corporate Borrowing Resolution.
(iii) Certificate of Incumbency.
(iv) Continuing Security Agreement: Rights to Payment.
(v) Security Agreement: Equipment.
(vi) Uniform Commercial Code - Financing Statements.
(vii) Opinion from Borrower's outside ESOP counsel as to the legality and
enforceability of the ASOP Loan.
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(viii) ASOP Loan Agreement and Stock Purchase Agreement.
(ix) Resolution of the ASOP's ASOP Committee approving the transactions
involving ASOP described herein.
(x) Executed copies of ASOP and related documents.
(xi) Financial opinion from ASOP's valuation adviser.
(xii) Such other documents as Bank may require under any other Section of
this Agreement.
(c) FINANCIAL CONDITION. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower, nor any material decline, as determined by Bank, in the market
value of any collateral required hereunder or a substantial or material
portion of the assets of Borrower.
(d) INSURANCE. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies satisfactory to Bank, and where
required by Bank, with loss payable endorsements in favor of Bank.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
bank to make each extension of credit requested by Borrower hereunder shall
be subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) COMPLIANCE. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of
the signing of this Agreement and on the date of each extension of credit by
Bank pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date,
no Event of Default as defined herein, and no condition, event or act which
with the giving of notice or the passage of time or both would constitute
such an Event of Default, shall have occurred and be continuing or shall
exist.
(b) DOCUMENTATION. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all
obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise
consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of
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the Loan Documents at the times and place and in the manner specified therein.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records
in accordance with generally accepted accounting principles consistently
applied, and permit any representative of Bank, at any reasonable time, to
inspect, audit and examine such books and records, to make copies of the same,
and to inspect the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail satisfactory to Bank:
(a) not later than 90 days after and as of the end of each fiscal year,
an audited financial statement of Borrower, prepared by an independent
certified public accountant reasonably acceptable to Bank, to include
balance sheet, income statement, statement of cash flow, and source and
application of funds statement;
(b) not later than 45 days after and as of the end of each fiscal
quarter, a financial statement of Borrower, prepared by Borrower, to include
balance sheet and income statement;
(c) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's
continued existence and with the requirements of all laws, rules, regulations
and orders of any governmental authority applicable to Borrower and/or its
business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that
of Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank form time to time at Bank's request schedules setting forth
all insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due
any and all indebtedness, obligations, assessments and taxes, both real or
personal, including without
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limitation Federal and state income taxes and state and local property taxes
and assessments, except such (a) as Borrower may in good faith contest or as
to which a bona fide dispute may arise, and (b) for which Borrower has made
provision, to Bank's satisfaction, for eventual payment thereof in the event
Borrower is obligated to make such payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of
any litigation pending or threatened against Borrower.
SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial condition
as follows using generally accepted accounting principles consistently
applied and used consistently with prior practices (except to the extent
modified by the definitions herein):
(a) Current Ratio not at any time less than 1.5 to 1.0, with "Current
Ratio" defined as total current assets divided by total current liabilities.
(b) Tangible Net Worth not at any time less than $9,000,000.00, with
"Tangible Net Worth" defined as the aggregate of total stockholders' equity
plus subordinated debt less any intangible assets.
(c) Total Liabilities divided by Tangible Net Worth not at any time
greater than 1.60 to 1.0, with "Total Liabilities" defined as the aggregate
of current liabilities and non-current liabilities less subordinated debt, and
with "Tangible Net Worth" as defined above.
(d) Net income after taxes not less than $1,500,000.00 on an annual
basis, determined as of each fiscal year end, and pre-tax profit not less
than $250,000.00 on a quarterly basis, determined as of each fiscal quarter
end.
(e) EBITDA Coverage Ratio not less than 3.5 to 1.0 as of each fiscal year
end, with "EBITDA" defined as net profit before tax plus interest expense
(net of capitalized interest expense), depreciation expense and amortization
expense, and with "EBITDA Coverage Ratio" defined as EBITDA divided by the
aggregate of total interest expense plus the prior period current maturity of
long-term debt and the prior period current maturity of subordinated debt.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written
notice to Bank in reasonable detail of: (a) the occurrence of any Event of
Default, or any condition, event or act which with the giving of notice or the
passage of time or both would constitute an Event of Default; (b) any change
in the name or the organizational structure of Borrower; (c) the
occurrence and nature of any Reportable Event or Prohibited Transaction, each
as defined in ERISA, or any funding deficiency
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with respect to any Plan, or any investigation or audit of the ASOP by the
Department of Labor or the Internal Revenue Service; or (d) any termination
or cancellation of any insurance policy which Borrower is required to
maintain, or any uninsured or partially uninsured loss through liability or
property damage, or through fire, theft or any other cause affecting
Borrower's property. For purposes of this Agreement, "Business Day" means any
day except a Saturday, Sunday or any other day designated as a holiday under
Federal or California statute or regulation.
SECTION 4.11. EXISTENCE AND QUALIFICATION OF ASOP. Preserve and maintain
the existence and qualified status of the ASOP under Sections 401(a) and (k)
and 4975(e)(7) of the Code, and comply in all material respects with the
applicable requirements of ERISA. Borrower shall file complete Applications
for Determination (on Forms 5300 and 5309) with the Internal Revenue Service
("IRS") on or before the due date for filing Borrower's tax return (including
extensions) for the fiscal year ending December 31, 1995, and, with respect
to ASOP shall amend the provisions of the ASOP in such manner as the IRS may
require in order to obtain a favorable determination letter. Borrower shall
supply Bank with a copy of such determination letter within ten days of
receipt by Borrower.
SECTION 4.12. ASOP CONTRIBUTIONS. Borrower shall cause the ASOP to
promptly use all cash contributed to the ASOP to make payments on the loan
under the ASOP Loan Agreement, unless Borrower shall have first obtained
Bank's written consent.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank reamins committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct
or contingent, liquidated or unliquidated) of Borrower to Bank under any of
the Loan Documents remain outstanding, and until payment in full of all
obligations of Borrower subject hereto, Borrower will not without Bank's
prior written consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the
Credits except for the purposes stated in Article I hereof.
SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to
Bank, and (b) any other liabilities of Borrower existing as of, and disclosed
to Bank prior to, the date hereof.
SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any
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substantial change in the nature of Borrower's business as conducted as of
the date hereof; acquire all or substantially all of the assets of any other
entity; nor sell, lease, transfer or otherwise dispose of all or a
substantial or material portion of Borrower's assets except in the ordinary
course of its business.
SECTION 5.4. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for
deposit or collection in the ordinary course of business), accommodation
endorser or otherwise for, nor pledge or hypothecate any assets of Borrower
as security for, any liabilities or obligations of any other person or
entity, except any of the foregoing in favor of Bank.
SECTION 5.5. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances
to or investments in any person or entity, except for loans or advances to
employees not to exceed an aggregate of $100,000.00; and except for loans to
stockholders to finance stock purchases, not to exceed an aggregate of
$3,000,000.00.
SECTION 5.6. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock
now or hereafter outstanding, nor redeem, retire, repurchase or otherwise
acquire any shares of any class of Borrower's stock now or hereafter
outstanding.
SECTION 5.7. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of Borrower's
assets now owned or hereafter acquired, except any of the foregoing in favor
of Bank or which is existing as of, and disclosed to Bank in writing prior
to, the date hereof.
SECTION 5.8. DEFINED BENEFIT PENSION PLAN. Adopt or become obligated
to contribute to a defined benefit pension plan (as defined in ERISA).
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees or
other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by Borrower or any
other party under this Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when furnished or made.
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(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured, such default
shall continue for a period of thirty (30) days from its occurrence.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument
(other than any of the Loan Documents) pursuant to which Borrower has
incurred any debt or other liability to any person or entity, where the total
of such obligations and/or face amount of such contracts or instruments
exceeds an aggregate of $50,000.00.
(e) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument
(other than any of the Loan Documents) pursuant to which Borrower has
incurred any debt or other liability to Bank.
(f) The filing of a notice of judgment lien against Borrower; or the
recording of any abstract of judgment against Borrower in any county in which
Borrower has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against
the assets of Borrower; or the entity of a judgment against Borrower.
(g) Borrower shall become insolvent, or shall suffer or consent to or
apply for the appointment of a receiver, trustee, custodian or liquidator of
itself or any of its property, or shall generally fail to pay its debts as
they become due, or shall make a general assignment for the benefit of
creditors; Borrower shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors
or any other relief under the Bankruptcy Reform Act, Title 11 of the United
States Code, as amended or recodified from time to time ("Bankruptcy Code"),
or under any state or Federal law granting relief to debtors, whether now or
hereafter in effect; or any involuntary petition or proceeding pursuant to
the Bankruptcy Code or any other applicable state or Federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or commenced
against Borrower and is not dismissed within 30 days following date of filing
thereof, or Borrower shall file an answer admitting the jurisdiction of the
court and the material allegations of any involuntary petition; or Borrower
shall be adjudicated a bankrupt, or an order for relief shall be entered
against Borrower by any court of competent jurisdiction under the Bankruptcy
Code or any other applicable state or Federal law relating to bankruptcy,
reorganization or other relief for debtors which such adjudication or order
for relief is not reversed, vacated or dismissed within 30 days following the
date of filing thereof.
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(h) There shall exist or occur any event or condition which Bank in good
faith believes impairs, or is substantially likely to impair, the prospect of
payment or performance by Borrower of its obligations under any of the Loan
Documents.
(i) The dissolution or liquidation of Borrower; or Borrower, or any of
its directors, stockholders or members, shall take action seeking to effect
the dissolution or liquidation of Borrower.
(j) Any change in ownership during the term of this Agreement of an
aggregate of twenty-five percent (25%) or more of the common stock of
Borrower; provided however, that the initial purchase of shares of Borrower's
stock by ASOP as set forth in the ASOP Loan Agreement shall be excluded
hereunder.
(k) Any violation of the Code, ERISA, any regulations thereunder or any
laws or regulations applicable to the ASOP which is deemed by Bank, in the
good faith exercise of its discretion, to have a material adverse effect upon
Borrower or ASOP, including, but not limited to, the occurrence of a
prohibited transaction within the meaning of Section 4975(c) of the Code or
Sections 406 or 407 of ERISA.
(l) The determination by any court or governmental agency or authority
that ASOP is not a qualified plan under Sections 401 (a) or (k) of the Code
or an ESOP under Section 4975(e)(7) of the Code or that the Term Loan or any
of the related transactions violate the Code, ERISA or any regulation
thereunder, or constitute a prohibited transaction within the meaning of
Section 4975(c) of the Code or Section 406 or 407 of ERISA.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default:
(a) all indebtedness of Borrower under each of the Loan Documents, any term
thereof to the contrary notwithstanding, shall at Bank's option and without
notice become immediately due and payable without presentment, demand,
protest or notice of dishonor, all of which are hereby expressly waived by
Borrower; (b) the obligation, if any, of Bank to extend any further credit
under any of the Loan Documents shall immediately cease and terminate; and
(c) Bank shall have all rights, powers and remedies available under each of
the Loan Documents, or accorded by law, including without limitation the
right to resort to any or all security for any of the Credits and to exercise
any or all of the rights of a beneficiary or secured party pursuant to
applicable law. All rights, powers and remedies of Bank may be exercised at
any time by Bank and from time to time after the occurrence of an Event of
Default, are cumulative and not exclusive, and shall be in addition to any
other rights, powers or remedies provided by law or equity.
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ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive
or otherwise affect any other or further exercise thereof or the exercise of
any other right, power or remedy. Any waiver, permit, consent or approval of
any kind by Bank of any breach of or default under any of the Loan Documents
must be in writing and shall be effective only to the extent set forth in
such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any
party is required or may desire to give to any other party under any
provision of this Agreement must be in writing delivered to each party at the
following address:
BORROWER: FCG ENTERPRISES, INC.
100 E. Wardlow Road
Long Beach, California 90807
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
South Bay Regional Commercial Banking Office
111 West Ocean Boulevard, Suite 300
Long Beach, California 90802
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit
in the U.S. mail, first class and postage prepaid; and (c) if sent by
telecopy, upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay
to Bank immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of Bank's in-house counsel),
incurred by Bank in connection with (a) the negotiation and preparation of
this Agreement and the other Loan Documents, Bank's continued administration
hereof and thereof, and the preparation of any amendments and waivers hereto
and thereto, (b) the enforcement of Bank's rights and/or the collection of
any amounts which become due to Bank under any of the Loan Documents, and (c)
the prosecution or defense of any action in any way related to any of the
Loan Documents, including without limitation, any action for declaratory
relief, and including any of the foregoing incurred in connection with any
bankruptcy proceeding relating to Borrower.
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SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however,
that Borrower may not assign or transfer its interest hereunder without
Bank's prior written consent. Bank reserves the right to sell, assign,
transfer, negotiate or grant participations in all or any part of, or any
interest in, Bank's rights and benefits under each of the Loan Documents. In
connection therewith, Bank may disclose all documents and information which
Bank now has or may hereafter acquire relating to any of the Credits, Borrower
or its business, or any collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to the Credits and supersede all prior negotiations, communications,
discussions and correspondence concerning the subject matter hereof. This
Agreement may be amended or modified only by a written instrument executed by
each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and
their respective permitted successors and assigns, and no other person or
entity shall be a third party beneficiary of, or have any direct or indirect
cause otion-v or claim in connection with, this Agreement or any other of the
Loan Documents to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision
of this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
SECTION 7.9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 7.11. ARBITRATION.
(a) ARBITRATION. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in
accordance with the terms of this Agreement. A "Dispute" shall mean any
action, dispute, claim or controversy of any kind, whether in contract or
tort, statutory or common law, legal or equitable, now existing or hereafter
arising under or in connection with, or in any way pertaining to, any of the
Loan Documents, or any past, present or future extensions of credit
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and other activities, transactions or obligations of any kind related
directly or indirectly to any of the Loan Documents, including without
limitation, any of the foregoing arising in connection with the exercise of
any self-help, ancillary or other remedies pursuant to any of the Loan
Documents. Any party may by summary proceedings bring an action in court to
compel arbitration of a Dispute. Any party who fails or refuses to submit to
arbitration following a lawful demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
Dispute.
(b) GOVERNING RULES. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as
the parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States
Code), notwithstanding any conflicting choice of law provision in any of the
Loan Documents. The arbitration shall be conducted at a location in
California selected by the AAA or other administrator. If there is any
inconsistency between the terms hereof and any such rules, the terms and
procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly relevant
to the Dispute being arbitrated. Judgment upon any award rendered in an
arbitration may be entered in any court having jurisdiction; provided
however, that nothing contained herein shall be deemed to be a waiver by any
party that is a bank of the protections afforded to it under 12 U.S.C.
Section 91 or any similar applicable state law.
(c) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary
remedies, including without limitation injunctive relief, sequestration,
attachment, garnishment or the appointment of a receiver, from a court of
competent jurisdiction before, after or during the pendency of any
arbitration or other proceeding. The exercise of any such remedy shall not
waive the right of any party to compel arbitration or reference hereunder.
(d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may
grant any remedy or relief that a court of the state of California could
order or grant within the scope
-16-
<PAGE>
hereof and such ancillary relief as is necessary to make effective any award,
and (iii) shall have the power to award recovery of all costs and fees, to
impose sanctions and to take such other actions as they deem necessary to
the same extent a judge could pursuant to the Federal Rules of Civil
Procedures, the California Rules of Civil Procedure or other applicable law.
Any Dispute in which the amount in controversy is $5,000,000 or less shall be
decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) JUDICIAL REVIEW. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds $25,000,000,
the arbitrators shall be required to make specific, written findings of fact
and conclusions of law. In such arbitrations (A) the arbitrators shall not
have the power to make any award which is not supported by substantial
evidence or which is based on legal error, (B) an award shall not be binding
upon the parties unless the findings of fact are supported by substantial
evidence and the conclusions of law are not erroneous under the substantive
law of the state of California, and (C) the parties shall have in addition to
the grounds referred to in the Federal Arbitration Act for vacating,
modifying or correcting an award the right to judicial review of (1) whether
the findings of fact rendered by the arbitrators are supported by substantial
evidence, and (2) whether the conclusions of law are erroneous under the
substantive law of the state of California. Judgment confirming an award in
such a proceeding may be entered only if a court determines the award is
supported by substantial evidence and not based on legal error under the
substantive law of the state of California.
(f) REAL PROPERTY COLLATERAL; JUDICIAL REFERENCE. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to arbitration
if the Dispute concerns indebtedness secured directly or indirectly, in whole
or in part, by any real property unless (i) the holder of the mortgage, lien
or security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or
benefits that might accrue to them by virtue of the single action rule
statute of California, thereby agreeing that all indebtedness and obligations
of the parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If
any such Dispute is not submitted to arbitration, the Dispute shall be
referred to a referee in accordance with California Code of Civil Procedure
Section 638 et seq., and this general reference agreement is intended to be
-17-
<PAGE>
specifically enforceable in accordance with said Section 638. A referee with
the qualifications required herein for arbitrators shall be selected pursuant
to the AAA's selection procedures. Judgment upon the decision rendered by a
referee shall be entered in the court in which such proceeding was commenced
in accordance with California Code of Civil Procedure Sections 644 and 645.
(g) MISCELLANEOUS. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose
the existence, content or results thereof, except for disclosures of
information by a party required in the ordinary course of its business, by
applicable law or regulation, or to the extent necessary to exercise any
judicial review rights set forth herein. If more than one agreement for
arbitration by or between the parties potentially applies to a Dispute, the
arbitration provision most directly related to the Loan Documents or the
subject matter of the Dispute shall control. This arbitration provision shall
survive termination, amendment or expiration of any of the Loan Documents or
any relationship between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
WELLS FARGO BANK,
FCG ENTERPRISES, INC. NATIONAL ASSOCIATION
By: /s/ Thomas A. Reep By: /s/ John R. Randall
--------------------------------- -------------------------
Title: Vice President, Finance John R. Randall
------------------------------ Vice President
-18-
<PAGE>
"EXHIBIT A"
WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE
- --------------------------------------------------------------------------------
$3,000,000.00 LONG BEACH, CALIFORNIA
JULY 3, 1996
FOR VALUE RECEIVED, the undersigned FCG ENTERPRISES, INC. ("Borrower")
promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank") at its office at SOUTH BAY RCBO, 111 WEST OCEAN BLVD SUITE 300, LONG
BEACH, CA 90802, or at such other place as the holder hereof may designate,
in lawful money of the United States of America and in immediately available
funds, the principal sum of $3,000,000.00, or so much thereof as may be
advanced and be outstanding, with interest thereon, to be computed on each
advance from the date of its disbursement as set forth herein.
INTEREST:
(a) INTEREST. The outstanding principal balance of this Note shall bear
interest at a rate per annum (computed on the basis of a 360-day year, actual
days elapsed) .50000% above the Prime Rate in effect from time to time. The
"Prime Rate" is a base rate that Bank from time to time establishes and which
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto. Each change in the rate of interest
hereunder shall become effective on the date each Prime Rate change is
announced within Bank.
(b) PAYMENT OF INTEREST. Interest accrued on this Note shall be payable
on the 3RD day of each MONTH, commencing AUGUST 3, 1996.
(c) DEFAULT INTEREST. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note
shall bear interest until paid in full at an increased rate per annum
(computed on the basis of a 360-day year, actual days elapsed) equal to 4%
above the rate of interest from time to time applicable to this Note.
BORROWING AND REPAYMENT:
(a) BORROWING AND REPAYMENT. Borrower may from time to time during the
term of this Note borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions of this Note and of the Credit Agreement between Borrower and Bank
defined below; provided however, that the total outstanding borrowings under
this Note shall not at any time exceed the principal amount stated above. The
unpaid principal balance of this obligation at any time shall be the total
amounts advanced hereunder by the holder hereof less the amount of principal
payments made hereon by or for any Borrower, which balance may be endorsed
hereon from time to time by the holder. The outstanding principal balance of
this Note shall be due and payable in full on JULY 3, 1997.
(b) ADVANCES. Advances hereunder, to the total amount of the principal
sum available hereunder, may be made by the holder at the oral or written
request of (i) JAMES A. REEP OR THOMAS A. REEP OR LUTHER J. NUSSBAUM, any one
acting alone, who are authorized to request advances and direct the
disposition of any advances until written notice of the revocation of such
authority is received by the holder at the office designated above, or
(ii) any person, with respect to advances deposited to the credit of any
account of any Borrower with the holder, which advances, when so deposited,
shall be conclusively presumed to have been made to or for the benefit of
each Borrower regardless of the fact that persons other than those authorized
to request advances may have authority to draw against such account. The
holder shall have no obligation to determine whether any person requesting an
advance is or has been authorized by any Borrower.
(c) APPLICATION OF PAYMENTS. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.
EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms and conditions
of that certain Credit Agreement between Borrower and Bank dated as of JULY
3, 1996, as amended from time to time (the "Credit Agreement"). Any default
in the payment or performance of any obligation under this Note, or any
defined event of default under the Credit Agreement, shall constitute an
"Event of Default" under this Note.
MISCELLANEOUS:
(a) REMEDIES. Upon the occurrence of any Event of Default as defined in
the Credit Agreement, the holder of this Note, at the holder's option, may
declare all sums of principal and interest outstanding hereunder to be
immediately due and payable without presentment, demand, protest or notice of
dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder
shall immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel),
incurred by the holder in connection with the enforcement of the holder's
rights and/or the collection of any amounts which become due to the holder
under this Note, and the prosecution or defense of any action in any way
related to this Note, including without limitation, any action for
declaratory relief, and including any of the foregoing incurred in connection
with any bankruptcy
REVOLVING LINE OF CREDIT NOTE, PAGE 1
<PAGE>
proceeding relating to any Borrower.
(b) OBLIGATIONS JOINT AND SEVERAL. Should more than one person or
entity sign this Note as a Borrower, the obligations of each such Borrower
shall be joint and several.
(c) GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of California, except to the extent
Bank has greater rights or remedies under Federal law, whether as a national
bank or otherwise, in which case such choice of California law shall not be
deemed to deprive Bank of any such rights and remedies as may be available
under Federal law.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
date first written above.
FCG ENTERPRISES, INC.
By: /s/ Thomas A. Reep
-----------------------------
Title: Vice President
--------------------------
REVOLVING LINE OF CREDIT NOTE, PAGE 2
<PAGE>
"EXHIBIT B"
WELLS FARGO BANK TERM NOTE
- --------------------------------------------------------------------------------
$4,000,000.00 Long Beach, California
December 4, 1995
FOR VALUE RECEIVED, the undersigned FCG ENTERPRISES, INC. ("Borrower")
promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank") at its office at South Bay RCBO, 111 West Ocean Blvd Suite 300, Long
Beach, CA 90802, or at such other place as the holder hereof may designate,
in lawful money of the United States of America and in immediately available
funds, the principal sum of $4,000,000.00, with interest thereon as set forth
herein.
INTEREST:
(a) INTEREST. The outstanding principal balance of this Note shall bear
interest at a rate per annum (computed on the basis of a 360-day year, actual
days elapsed) .50000% above the Prime Rate in effect from time to time. The
"Prime Rate" is a base rate that Bank from time to time establishes and which
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto. Each change in the rate of interest
hereunder shall become effective on the date each Prime Rate change is
announced within Bank.
(b) PAYMENT OF INTEREST. Interest accrued on this Note shall be payable
on the 4th day of each month, commencing January 4, 1996.
(c) DEFAULT INTEREST. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note
shall bear interest until paid in full at an increased rate per annum
(computed on the basis of a 360-day year, actual days elapsed) equal to 4%
above the rate of interest from time to time applicable to this Note.
REPAYMENT AND PREPAYMENT:
(a) REPAYMENT. Principal shall be payable on the 4th day of each month
in installments of $55,556.00 each, commencing January 4, 1996, and
continuing up to and including November 4, 2001, with a final installment
consisting of all remaining unpaid principal due and payable in full on
December 4, 2001.
(b) APPLICATION OF PAYMENTS. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.
(c) PREPAYMENT. Borrower may prepay principal on this Note at any time,
in any amount and without penalty. All prepayments of principal shall be
applied on the most remote principal installment or installments then unpaid.
EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms and conditions
of that certain Credit Agreement between Borrower and Bank dated as of
December 4, 1995, as amended from time to time (the "Credit Agreement"). Any
default in the payment or performance of any obligation under this Note, or
any defined event of default under the Credit Agreement, shall constitute an
"Event of Default" under this Note.
MISCELLANEOUS:
(a) REMEDIES. Upon the occurrence of any Event of Default as defined in
the Credit Agreement, the holder of this Note, at the holder's option, may
declare all sums of principal and interest outstanding hereunder to be
immediately due and payable without presentment, demand, protest or notice of
dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder
shall immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel),
incurred by the holder in connection with the enforcement of the holder's
rights and/or the collection of any amounts which become due to the holder
under this Note, and the prosecution or defense of any action in any way
related to this Note, including, without limitation, any action for
declaratory relief, and including any of the foregoing incurred in connection
with any bankruptcy proceeding relating to any Borrower.
(c) GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of California, except to the extent
Bank has greater rights or remedies under Federal law, whether as a national
bank or otherwise, in which case such choice of California law shall not be
deemed to deprive Bank of any such rights and remedies as may be available
under Federal law.
TERM NOTE-PRINCIPAL/INTEREST SEPARATE, PAGE 1
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
date first written above.
FCG ENTERPRISES, INC.
By: /s/ Thomas A. Reep
-----------------------------
Title: Vice President Finance
--------------------------
TERM NOTE-PRINCIPAL/INTEREST SEPARATE, PAGE 2
<PAGE>
[LETTERHEAD]
November 19, 1997
FCG ENTERPRISES, INC.
111 W. Ocean Boulevard, Suite 400
Long Beach, CA 90802
Gentlemen:
This letter is to confirm that Wells Fargo Bank, National Association
("Bank") has agreed to extend the maturity date of that certain credit
accommodation granted by Bank to FCG ENTERPRISES, Inc. ("Borrower") in the
maximum principal amount of Three Million Dollars ($3,000,000.00) pursuant to
the terms and conditions of that certain Credit Agreement between Bank and
Borrower dated as of July 3, 1996, as amended from time to time (the
"Agreement").
The maturity date of said credit accommodation is hereby extended until
December 31, 1997. Until such date, all terms and conditions of the Agreement
which pertain to said credit accommodation shall remain in full force and
effect, except as expressly modified hereby. The promissory note dated as of
July 3, 1996, executed by Borrower and payable to the order of Bank which
evidences said credit accommodation, a copy of which is attached hereto as
EXHIBIT A (the "Note"), shall be deemed modified as of the date this letter
is acknowledged by Borrower to reflect the new maturity date set forth above.
All other terms and conditions of the Note remain in full force and effect,
without waiver or modification.
Borrower acknowledges that Bank has not committed to make any renewal or
further extension of the maturity date of the above-described credit
accommodation beyond the new maturity date specified herein, and that any
such renewal or further extension remains in the sole discretion of Bank.
This letter constitutes the entire agreement between Bank and Borrower with
respect to the maturity date extension for the above-described credit
accommodation, and supersedes all prior negotiations, discussions and
correspondence concerning said extension.
<PAGE>
FCG ENTERPRISES, INC.
November 19, 1997
Page 2
Please acknowledge your acceptance of the terms and conditions contained
herein by dating and signing one copy below and returning it to my attention
at the above address on or before November 30, 1997.
Very truly yours,
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ Joelle Martin
---------------------------------
Joelle Martin
Relationship Manager
Acknowledged and accepted as of November 20, 1997:
FCG ENTERPRISES, INC.
By: /s/ Thomas A. Reep
-----------------------------------
Title: Vice President, CFO
--------------------------------
<PAGE>
[LOGO] "EXHIBIT A" Page 1 of 2
WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE
- --------------------------------------------------------------------------------
$3,000,000.00 Long Beach, California
July 3, 1998
FOR VALUE RECEIVED, the undersigned FCG ENTERPRISES, INC. ("Borrower")
promises to pay to the order of WELLS FARGO BANK NATIONAL ASSOCIATION
("Bank") at its office at South Bay RCBO, 111 West Ocean Blvd., Suite 300,
Long Beach, CA 90802, or at such other place as the holder hereof may
designate, in lawful money of the United States of America and in immediately
available funds, the principal sum of $3,000,000.00, or so much thereof as
may be advanced and be outstanding, with interest thereon, to be computed on
such advance from the date of its disbursement as set forth herein.
INTEREST:
(a) INTEREST. The outstanding principal balance of this Note shall bear
interest at a rate per annum (computed on the basis of a 365-day year,
actual days elapsed) .80000% above the Prime Rate in effect from time to
time. The "Prime Rate" is a base rate that Bank from time to time establishes
and which serves as the basis upon which effective rates of interest are
calculated for those loans making reference thereto. Each change in the rate
of interest hereunder shall become effective on the date each Prime Rate
change is announced within Bank.
(b) PAYMENT OF INTEREST. Interest accrued on this Note shall be payable on
the 3rd day of each month, commencing August 3, 1998.
(c) DEFAULT INTEREST. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note
shall bear interest until paid in full at an increased rate per annum
(computed on the basis of a 365-day year, actual days elapsed) equal to 4%
above the rate of interest from time to time applicable to this Note.
BORROWING AND REPAYMENT:
(a) BORROWING AND REPAYMENT. Borrower may from time to time during the
term of this Note borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions of this Note and of the Credit Agreement between Borrower and Bank
defined below; provided however, that the total outstanding borrowings under
this Note shall not at any time exceed the principal amount stated above. The
unpaid principal balance of this obligation at any time shall be the total
amounts advanced hereunder by the holder hereof less the amount of principal
payments made hereon by or for any Borrower, which balance may be endorsed
hereon from time to time by the holder. The outstanding principal balance of
this Note shall be due and payable in full on July 3, 1997.
(b) ADVANCES. Advances hereunder, to the total amount of the principal sum
available hereunder, may be made by the holder at the oral or written request
of (i) JAMES A. REEP or THOMAS A. REEP or LUTHER J. NUSSBAUM, any one acting
alone, who are authorized to request advances and direct the disposition of
any advances until written notice of the revocation of such authority is
received by the holder at the office designated above, or (ii) any person,
with respect to advances deposited to the credit of any account of any
Borrower with the holder, which advances, when so deposited, shall be
conclusively presumed to have been made to or for the benefit of each
Borrower regardless of the fact that persons other then those authorized to
request advances may have authority to draw against such account. The holder
shall have no obligation to determine whether any person requesting an
advance is or has been authorized by any Borrower.
(c) APPLICATION OF PAYMENTS. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.
EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms and conditions
of that certain Credit Agreement between Borrower and Bank dated as of July
3, 1998, as amended from time to time (the "Credit Agreement"). Any default
in the payment or performance of any obligation under this Note, or any
defined event of default under the Credit Agreement, shall constitute an
"Event of Default" under this Note.
MISCELLANEOUS:
(a) REMEDIES. Upon the occurrence of any Event of Default as defined in
the Credit Agreement, the holder of this Note, at the holder's option, may
declare all sums of principal and interest outstanding hereunder to be
immediately due and payable without presentment, demand, protest or notice of
dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder
shall immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel),
incurred by the holder in connection with the enforcement of the holder's
rights and/or the collection of any amounts which become due to the holder
under this Note, and the prosecution or defense of any action in any way
related to this Note, including without limitation, any action for
declaratory relief, and including any of the foregoing incurred in connection
with any bankruptcy
REVOLVING LINE OF CREDIT NOTE, PAGE 1
<PAGE>
Page 2 of 2
proceeding relating to any Borrower.
(b) OBLIGATIONS JOINT AND SEVERAL. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of California, except to the extent
Bank has greater rights or remedies under Federal law, whether as a national
bank or otherwise, in which case such choice of California law shall not be
deemed to deprive Bank of any such rights and remedies as may be available
under Federal law.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
FCG ENTERPRISES, INC.
By: /s/ Thomas A. Reep
-------------------------
Title: Vice President
---------------------
REVOLVING LINE OF CREDIT NOTE, PAGE 2
<PAGE>
EXHIBIT 11.1
<TABLE>
<CAPTION>
(amounts in thousands)
Nine Months
Ended September 30, Year Ended December 31,
-------------------- ------------------------------------
1997 1996 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net income 1,323 33 393 1,883 1,684
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Weighted average common shares
(excludes unreleased ASOP shares) 2,450 2,191 2,202 1,864 2,208
Effect of stock options using
treasury stock method -- 31 41 5 16
Effect of applying rules pursuant
to Staff Accounting Bulletin
No. 83 for 1997 stock issuances
and option grants using the
treasury stock method 179 332 332 332 332
------ ------ ------ ------ ------
Weighted average common and common
equivalent outstanding 2,629 2,554 2,575 2,201 2,556
------ ------ ------ ------ ------
Net income per share $ 0.50 $ 0.01 $ 0.15 $ 0.86 $ 0.66
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
<PAGE>
SUBSIDIARIES OF
FIRST CONSULTING GROUP, INC.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
NAME JURISDICTION OF OTHER NAMES
INCORPORATION/ORGANIZATION
- -------------------------------------------------------------------------------------
<S> <C> <C>
The Scottsdale Informatics Institute Delaware The Scottsdale
Institute
- -------------------------------------------------------------------------------------
First Consulting Group (Ireland) Ltd. Ireland
- -------------------------------------------------------------------------------------
First Consulting Group (UK) Ltd. England
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
1.
<PAGE>
CONSENT OF GRANT THORNTON LLP
EXHIBIT 23.1
We have issued our report dated November 21, 1997, accompanying the consolidated
financial statements of FCG Enterprises, Inc. and Subsidiaries (d.b.a. First
Consulting Group) contained in the Registration Statement and Prospectus. We
consent to the use of the aforementioned report in the Registration Statement
and Prospectus, and to the use of our name as it appears under the captions
"Experts" and "Selected Consolidated Financial Data".
/s/ GRANT THORNTON LLP
Los Angeles, California
November 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,473
<SECURITIES> 0
<RECEIVABLES> 20,432
<ALLOWANCES> 500
<INVENTORY> 0
<CURRENT-ASSETS> 25,679
<PP&E> 10,159
<DEPRECIATION> 4,981
<TOTAL-ASSETS> 34,343
<CURRENT-LIABILITIES> 15,378
<BONDS> 0
8,099
0
<COMMON> 9,747
<OTHER-SE> (4,066)
<TOTAL-LIABILITY-AND-EQUITY> 34,343
<SALES> 0
<TOTAL-REVENUES> 66,304
<CGS> 0
<TOTAL-COSTS> 39,513
<OTHER-EXPENSES> 23,871
<LOSS-PROVISION> 417
<INTEREST-EXPENSE> 224
<INCOME-PRETAX> 2,972
<INCOME-TAX> 1,649
<INCOME-CONTINUING> 1,323
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,323
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
