<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
HOSPITALITY MARKETING CONCEPTS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 33-0806192
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
15751 ROCKFIELD BOULEVARD, SUITE 200, IRVINE, CALIFORNIA 92718
(949) 454-1800
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
MOKHTAR RAMADAN
CHAIRMAN OF THE BOARD,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
15751 ROCKFIELD BOULEVARD
SUITE 200
IRVINE, CALIFORNIA 92718
(949) 454-1800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
PAULA J. PETERS, ESQ. ROBERT M. MATTSON, JR., ESQ. PATRICK A. POHLEN, ESQ.
MICHAEL V. BALES, ESQ. TAMARA POWELL TATE, ESQ. TOMAS C. TOVAR, ESQ.
Greenberg Glusker Fields Morrison & Foerster LLP Cooley Godward LLP
Claman & Machtinger LLP 19900 MacArthur Boulevard Five Palo Alto Square
1900 Avenue of the Stars, Irvine, California 92612-2445 3000 El Camino Real
Suite 2100 (949) 251-7500 Palo Alto, CA 94306
Los Angeles, CA 90067 (650) 843-5000
(310) 553-3610
</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, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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,
check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $.001 par value................. $48,000,000 $14,160
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) of the Securities Act of 1933, as amended.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 5, 1998
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>
[LOGO]
HOSPITALITY MARKETING CONCEPTS INC.
SHARES
COMMON STOCK
------------------
All of the shares of Common Stock offered hereby are being sold by
Hospitality Marketing Concepts Inc. ("HMC" or the "Company"). 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 information relating to the
method of determining the initial public offering price. Application has been
made for listing the Common Stock on the Nasdaq National Market under the symbol
"HMCC."
------------------------
The Common Stock offered hereby involves a high degree of risk.
See "Risk Factors" beginning on page 6.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
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>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
<S> <C> <C> <C>
Per Share................................. $ $ $
Total (3)................................. $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $1,200,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of additional shares of Common Stock, solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and
$ , respectively.
------------------------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1998.
BANCAMERICA ROBERTSON STEPHENS WILLIAM BLAIR & COMPANY
The date of this Prospectus is , 1998
<PAGE>
[ARTWORK TO COME]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF,
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Summary.................................................................................................... 4
Risk Factors............................................................................................... 6
Reorganization............................................................................................. 19
Use of Proceeds............................................................................................ 20
Dividend Policy............................................................................................ 21
Capitalization............................................................................................. 21
Dilution................................................................................................... 22
Selected Consolidated Financial Data....................................................................... 23
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 24
Business................................................................................................... 32
Management................................................................................................. 43
Certain Transactions....................................................................................... 49
Principal Stockholders..................................................................................... 51
Description of Capital Stock............................................................................... 52
Shares Eligible for Future Sale............................................................................ 55
Underwriting............................................................................................... 56
Legal Matters.............................................................................................. 57
Experts.................................................................................................... 57
Additional Information..................................................................................... 58
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>
------------------------
HMC-SM-, CLUBHOTEL-TM- and Call Connect-TM- are trademarks or service marks
of the Company. Certain of the Company's marks have been registered in foreign
jurisdictions. This Prospectus includes other trademarks and service marks of
the Company and other entities.
The Company was incorporated in Delaware in May 1998 to consolidate the
operations of several entities in the same business and under common ownership
and management. See "Reorganization." The Company's principal executive offices
are located at 15751 Rockfield Boulevard, Suite 200, Irvine, California 92718,
and its telephone number is (949) 454-1800.
3
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE
INFORMATION IN THIS PROSPECTUS (I) GIVES EFFECT TO THE REORGANIZATION, (II)
REFLECTS THE CONVERSION OF THE SUBORDINATED PROMISSORY NOTE (THE "SUBORDINATED
PROMISSORY NOTE") HELD BY HOSPITALITY PARTNERS, LLC AND (III) ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. SEE "RISK FACTORS"
AND "REORGANIZATION."
THE COMPANY
Hospitality Marketing Concepts Inc. ("HMC" or the "Company") is a leading
provider of membership programs for prestigious hotels and other clients in
international and domestic markets. The Company's hotel membership programs are
designed to provide participating hotels with improved consumer loyalty,
increased patronage, an additional channel for acquiring new customers and a
more predictable recurring revenue stream from a growing base of individual
members. The Company's marketing services address the increasing need of hotels
and other businesses to increase profitability, leverage the marketing expertise
and infrastructure of outside vendors and cost-effectively offer new and
differentiated products and services to customers. As of March 31, 1998, the
Company has established hotel membership programs and on-going marketing
relationships with approximately 315 hotels in approximately 160 cities
worldwide, including New York, Rome, London, Madrid, Hong Kong, Shanghai, Warsaw
and Caracas. The Company selects prestigious, full-service hotels, which are
generally four or five-star or "best in town," and creates hotel membership
programs which offer individual members a variety of benefits, including premium
service, complimentary nights, substantial discounts off published room rates
and complimentary food and beverage privileges when dining with a guest at hotel
restaurants. Approximately 175 of the Company's top client hotels honor
reciprocal membership benefits through the Company's CLUBHOTEL-TM- program, a
unique international network including four and five-star hotels, such as the
Shangri-La Manila, Pan Pacific Kuala Lumpur, Victoria Intercontinental (Warsaw)
and Husa Palace Barcelona.
As the global market for goods and services becomes increasingly
competitive, businesses have substantially increased the use of direct marketing
methods to strengthen relationships with existing customers, attract new
customers and generate predictable recurring revenue streams from existing and
new products and services. According to the Direct Marketing Association, sales
revenue in the United States attributable to direct marketing was estimated to
be $1.2 trillion in 1997 and is estimated to reach $1.8 trillion in 2002.
Membership programs are one of the fastest growing segments of the direct
marketing industry. In the hospitality industry, hotels are increasingly
utilizing membership programs to attract customers to fill their unoccupied
rooms, utilize food and beverage services and use conference and banquet
facilities. To generate increased profitability, hotels market their facilities
to traditional customers consisting of business and vacation travelers. To
attract such customers, hotels often rely on traditional marketing methods such
as corporate and mass advertising, hotel and other travel reward programs,
sponsorship of travel organizations and word-of-mouth. These methods have had
limited success, however, at significantly increasing consumer loyalty and
retention, because they attempt to influence the initial purchasing decision of
the travelling customer and provide minimal incentives to use the hotels'
facilities on a repeated basis. Likewise, many hotels and other businesses may
lack the necessary marketing expertise and resources to focus on the needs and
demands of local and international purchasing audiences with multiple languages
and customs outside the region in which they are located.
The Company's membership programs address the needs of three constituencies:
client hotels, individual members and clients in travel-related industries whose
complementary products and services are offered through the Company's membership
programs. To address these needs, HMC designs membership programs which offer a
unique combination of products and services targeting specific purchasing
audiences. The Company's membership programs are designed to provide hotel
clients with increased patronage and consumer loyalty from both a local
membership base and the Company's domestic and international membership base and
a more predictable recurring revenue stream. Individual members of the Company's
hotel membership programs have access to enhanced services and benefits that
significantly exceed the cost of membership. The Company also provides hotel and
other clients with local access to domestic and international markets and to a
receptive purchasing audience of a growing base of individual members through an
established distribution channel of locally-staffed telemarketing offices and a
network of on-going marketing relationships with approximately 315 hotels
worldwide.
To achieve its objective of becoming a leading provider of membership
programs and marketing services to clients and customers worldwide, the Company
intends to expand its membership programs within the hotel industry, advance the
HMC-SM- and CLUBHOTEL-TM- brands, consolidate its marketing infrastructure and
expand its distribution channels, offer complementary products and services and
expand its proprietary membership database. The Company intends to capitalize on
its accumulated marketing expertise, knowledge of the hotel industry and global
marketing infrastructure to increase its active membership base, expand its
presence in the hotel industry and design, market and manage other membership
programs.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock to be offered by the
Company................................. shares (1)
Common Stock to be outstanding after the
offering................................ shares (1)(2)
Use of proceeds........................... The net proceeds of the offering will be used for distributions to
certain stockholders, payment of outstanding bank indebtedness and
working capital and other general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.... HMCC
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Revenues............................ $ 24,458 $ 23,893 $ 21,199 $ 27,297 $ 31,906 $ 7,777 $ 7,873
Gross margin........................ 7,845 7,833 7,411 9,826 11,248 2,622 2,840
General and administrative costs.... 6,580 6,813 6,316 6,396 7,304 1,477 2,005
Operating income.................... 1,265 1,020 1,095 3,430 3,944 1,145 835
Net income.......................... $ 1,142 $ 1,343 $ 995 $ 3,271 $ 3,655 $ 1,096 $ 695
Net income per share--Basic and
diluted........................... $ 0.14 $ 0.17 $ 0.12 $ 0.39 $ 0.43 $ 0.13 $ 0.08
Weighted average common shares:
Basic............................. 7,980,000 8,050,000 8,400,000 8,400,000 8,400,000 8,400,000 8,400,000
Diluted........................... 7,980,000 8,050,000 8,400,000 8,400,000 8,430,000 8,400,000 8,580,000
Pro forma data (3):
Pro forma net income.............. $ 1,604 $ 302
Pro forma net income per share--
Basic and diluted............... $ $
Weighted average common shares:
Basic...........................
Diluted.........................
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3)(4) AS ADJUSTED(5)
--------- --------------- ---------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................................. $ 1,380 $ 1,380 $
Working capital (deficit).............................................. (4,161) (3,177)
Total assets........................................................... 16,226 17,103
Long-term debt......................................................... 4,763 1,763
Distribution payable to stockholders................................... 7,000
Stockholders' deficit.................................................. (7,665) (10,681)
</TABLE>
- ------------------------------
(1) Excludes 1,500,000 shares of the Company's Common Stock, par value $0.001
per share ("Common Stock"), reserved for issuance under the Company's 1998
Stock Option Plan (the "1998 Stock Option Plan"), of which options for an
aggregate of 817,140 shares of Common Stock were issued and outstanding as
of May 31, 1998, and an option to purchase 180,000 shares of Common Stock.
See "Management--Option Plan," "Certain Transactions" and Notes 6 and 10 of
Notes to Consolidated Financial Statements.
(2) Includes 3,600,000 shares of the Company's Common Stock to be issued upon
conversion of the Subordinated Promissory Note. See Note 9 of Notes to
Consolidated Financial Statements.
(3) See Note 9 of Notes to Consolidated Financial Statements for a discussion of
pro forma income statement and balance sheet data.
(4) Reflects the estimated distribution of approximately $7.0 million to the
Principals and the assumed conversion of the Subordinated Promissory Note.
Also adjusted to reflect the recording of a net deferred tax asset of
$877,000 as if the Company's change from a limited liability company to a C
corporation had occurred March 31, 1998. See Note 9 of Notes to Consolidated
Financial Statements.
(5) Adjusted to reflect the sale of shares of the Company's Common Stock
in this offering and the application of the estimated proceeds therefrom.
------------------------------
CAPITALIZED TERMS USED IN THIS SUMMARY HAVE THE MEANINGS ASCRIBED TO SUCH
TERMS ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL
REFERENCES IN THIS PROSPECTUS TO THE "COMPANY" OR "HMC" ARE TO HOSPITALITY
MARKETING CONCEPTS INC. AND ITS SUBSIDIARIES. PRIOR TO THE REORGANIZATION, SUCH
SUBSIDIARIES WERE UNDER COMMON OWNERSHIP AND MANAGEMENT AND WERE IN THE SAME
BUSINESS. AS A RESULT, THE FINANCIAL STATEMENTS PRESENTED HEREIN HAVE BEEN
PREPARED ON A CONSOLIDATED BASIS.
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING SHARES OF COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THE MATTERS SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN
THIS PROSPECTUS. SEE "--FORWARD-LOOKING STATEMENTS" AND "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
DEPENDENCE ON HOTEL MEMBERSHIP PROGRAMS
The Company's primary line of business involves the design, marketing and
management of membership programs for hotels in international markets. The
success of the Company's hotel membership programs involves numerous risks and
uncertainties, including: the Company's ability to negotiate and enter into
favorable marketing contracts with a large number of four and five-star or other
quality hotels; the ability of the Company to attract and retain a sufficient
number of program and operation managers to manage membership programs; the
Company's ability to correctly evaluate local market conditions and demands and
offer programs that address the needs of its clients and members; a change in
the number, size or quality of hotels in the Company's hotel membership
programs; and a change in the Company's reputation. The success of the Company's
programs depends primarily on the ability of such programs to increase patronage
and produce a predictable recurring revenue stream for client hotels. There can
be no assurance that the Company's programs will continue to accomplish these
ends or that such programs will continue to generate additional customers for
the Company and its hotel clients. There also can be no assurance that the
Company will be able to enter into or retain a sufficient number of agreements
with hotels to offer membership programs. Any inability on the part of the
Company to enter into or retain agreements with new and existing hotels, offer
an increasing number of membership programs or attract members would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company may in the future enter into an
increasing number of marketing contracts to create hotel membership programs for
multiple hotels within a single hotel chain. Currently, a significant portion of
the Company's revenue is derived from a limited number of hotel chains or
corporations representing multiple hotels. For example, 2.9%, 12.5% and 11.7% of
the Company's revenues were derived from Orbis Company, Inc. in 1995, 1996 and
1997, respectively. A dependence on an increasing number of such marketing
contracts involves a number of risks, including the risk that a loss of a
marketing contract, or deterioration in the relationship, with one hotel within
the corporate entity could result in the loss of marketing contracts with the
remaining hotels within the entity. If marketing contracts with a hotel chain
were to be terminated or not renewed, the Company could experience a significant
decline in membership levels and fees resulting therefrom, and such decline
could have a material adverse effect on the Company's business.
DEPENDENCE ON MEMBERSHIP FEES
The Company derives substantially all of its revenues from membership and
other fees from its membership programs. The Company anticipates that a
substantial portion of its revenue will continue to be derived from such
membership fees. The Company's membership programs are targeted predominantly at
affluent executives and professionals within small to medium-sized businesses
and professional organizations. However, there is no assurance that the appeal
of the Company's programs to such individuals will continue. The appeal of the
Company's programs depends, in part, on its ability to evaluate local market
conditions and demands, to offer an appropriate mix of products and services to
address the preferences of such individuals and to anticipate and respond to
changes in the preferences of such individuals. If the Company is not successful
in evaluating local market conditions or if there are any changes in the
characteristics of the Company's typical member, such changes could have a
material adverse effect on the
6
<PAGE>
growth of the Company's membership base and, consequently, its revenues. The
Company typically experiences higher marketing costs in connection with initial
member procurement than for member renewals. Moreover, the ability to attract
new members and retain existing members is subject to several factors, many of
which are outside of the Company's control, including changing consumer
preferences, competitive pressures, relocation, general economic conditions and
member satisfaction. There can be no assurance that any of the Company's
existing or new products or services will generate sufficient new memberships or
membership renewals or related fees. Any significant decline in the growth of
membership levels in, or the fees resulting from, the Company's hotel membership
programs could have a material adverse effect on the Company's business,
financial condition and results of operations.
DEPENDENCE ON HOTEL INDUSTRY
The success of the Company's hotel membership programs is also dependent
upon conditions within the hotel industry and in the geographic markets in which
the Company operates, including factors outside the Company's control, such as:
regional and local economic conditions; the rate at which new hotels are
established; change of management at client hotels; changes in consumer
preferences or market acceptance of the Company's programs; a change in the
reputation of, or quality of service provided by, hotels affiliated with the
Company's programs; adequate patronage of such hotels by individual members of
the Company's programs; and changes within the hotel industry in general. The
hotel industry is sensitive to changes in economic conditions that affect
business and leisure travel and is highly susceptible to unforeseen events, such
as political instability, regional hostilities, recession, gasoline price
escalation, inflation and other adverse occurrences that may result in a
significant decline in the utilization of hotel rooms. Any adverse change in
economic or political conditions may result in decreased travel or increased
competition among hotels and may lower demand for hotel services, including food
and beverage, and could have a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, the hotel
industry recently has experienced a period of consolidation in which hotel
chains have acquired or merged with other hotel chains. Such activities may
reduce the Company's total potential client base and limit the number of hotel
membership programs which the Company can offer. If further consolidation were
to take place, the Company's clients may be acquired by third parties who
utilize alternative solutions such as membership programs created and marketed
using internal resources or other third parties. There can be no assurance that
these, or other factors, will not occur or that such factors will not cause a
decline in the number of hotel membership programs offered by the Company or
prevent the Company from attracting and retaining new and existing hotels and
members for its hotel membership programs. Any material inability to offer
additional membership programs or any significant decline in the number of
hotels and members for its membership programs would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY
The Company believes that its future operating results may be subject to
quarterly and annual fluctuations based on numerous factors, including general
economic conditions and seasonal trends associated with the hotel industry. The
Company's revenues and profits on a quarterly basis can be affected by such
factors as: the number of additional members and renewals in a period; currency
fluctuations, inflation and currency devaluation in countries with active
membership programs; the number of new membership programs and cost of
initiating and managing new membership programs, including the cost of hiring
additional personnel and starting up new telemarketing offices in international
markets; changes in the cost of, or sales cycle associated with, member
procurement; scheduled payments to or from client hotels; the mix of products
and services offered by the Company; lack of acceptance of the Company's
products and services by the Company's members and clients; holidays and
vacation patterns; the cost, timing and significance of new product and service
introductions by the Company and its competitors; the intensity of product and
price competition; changes in operating expenses; changes in the demand for
7
<PAGE>
membership programs generally; changes in the Company's sales incentive
strategy; personnel changes; unanticipated service interruptions; varying labor
costs; and telecommunications and information technology installations and
upgrades. Any one or more of these factors, many of which are beyond the
Company's control, could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, geographic
regions may experience varying periods of seasonality, based on local holidays
and customs. For example, the Company has historically experienced reduced
performance in Europe in the third quarter. Due to the Company's revenue
recognition policy, revenues from membership sales and the related membership
acquisition costs are amortized over the 12-month term of such memberships,
which may mask seasonality and other fluctuations. Increased revenues from the
sale of other products and services may increase the degree to which the Company
experiences seasonality and other fluctuations. In addition, from time to time,
the Company's revenues have remained relatively constant as management and other
resources have been allocated to the development of additional membership
programs in new geographic regions. Due to these factors, the Company believes
period-to-period comparisons of results of operations are not necessarily
meaningful and should not be relied upon as indicators of future results of
operations.
The Company has implemented hotel program fee arrangements as part of its
standard hotel membership programs. These hotel program fee arrangements
typically involve the payment of a significant percentage of individual
membership fees, after costs, to the participating hotel. Accordingly, any
significant increase in the percentage of membership fees payable to
participating member hotels, as a result of relative bargaining power, increased
competition or other factors, would reduce the Company's operating margins and
could have a material adverse effect on the Company's business, financial
condition and results of operations. In certain instances, the Company has
provided, and may in the future provide, participating client hotels with
lump-sum payments in lieu of hotel program fee arrangements. The Company may not
be able to recover such amounts from resulting membership or other fees. Any
material shortfall in anticipated or projected membership and related fees
relating to such arrangements could have an adverse effect on the Company's
business, financial condition and results of operations.
The Company's operating expenses are determined, in part, based on the
Company's expectations of future revenue growth and are substantially fixed. As
a result, unexpected changes in revenue levels will have a disproportionate
effect on net income in any given period. Future acquisitions may have an
adverse effect upon the Company's results of operation, particularly in quarters
immediately following consummation of such transactions, while the operations of
the acquired business are being integrated into the Company's operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Almost all of the Company's revenues to date have been derived from its
international operations, including operations in several developing countries,
and the Company anticipates that its international operations will continue to
constitute a substantial portion of its revenues for the foreseeable future. In
1997, the Company generated 25.0%, 28.5%, 44.8% and 1.7% of its revenues in the
American, European, Asian and Middle Eastern/North African regions. Operating in
international and developing countries involves several risks, such as
difficulties in staffing and managing foreign operations due to the limited
supply of qualified labor, foreign currency exchange fluctuations and
restrictions, currency devaluations, restrictions on currency conversion,
implementation of a unified European Union currency, the burden of complying
with a wide variety of complex foreign laws and treaties, the need for
governmental approvals, the adoption of changes in regulatory and certification
requirements, adverse changes in foreign or domestic laws and policies that
govern the Company's operations, uncertainty of enforcement of contractual
obligations, difficulty in accounts receivable collections, political and
economic instability, natural disasters and catastrophes, adverse tax
consequences, loss of revenue, property or equipment from expropriation,
nationalization, war, insurrection and terrorism or changes in political
ideologies. There can
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be no assurance that any of these factors, singularly or together, will not have
a material adverse effect on the Company's business, financial condition and
results of operations.
Foreign laws can affect the Company's operations in several respects. For
example, the labor laws of certain countries restrict the manner in which the
Company may hire or terminate local employees. As a result, the Company may be
forced to give advance notice or make payments to local employees or governments
prior to closing a program or location. In addition, foreign nationals may
require visas to work outside their home country. Difficulty in hiring or laying
off employees could have a material adverse effect on the Company's business,
financial condition and results of operations. Further, foreign laws, including
laws and regulations prohibiting telephone sales or requiring physical
signatures on credit card charges, may severely restrict the Company's
international operations. Certain countries tightly regulate the direct
marketing industry by requiring disclosure or reporting by direct marketers
about the use of customer data. In various countries, laws regulating
telemarketing activity are just beginning to be developed. There can be no
assurance that existing and future laws and regulations in the countries in
which the Company operates will not have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's operations and assets are subject to significant political,
economic, legal and other uncertainties in some of the developing countries in
which it operates, including China and Indonesia. Certain of these countries do
not have comprehensive and highly developed systems of laws, particularly with
respect to private enterprise and commercial activities, foreign investment
activities and the interpretation and enforcement of private contracts.
Enforcement of laws and private contracts in these countries is uncertain, and
implementation and enforcement may be inconsistent. A change in leadership,
social disruption or other circumstances affecting the political, economic or
social life in any of these countries could have a material adverse effect on
the Company's business, financial condition and results of operation. In
addition, the Company's operations in China and some of these other countries
are subject to administrative review and approval by various national,
provincial and local governmental agencies. There can be no assurance that such
approvals, when necessary or advisable, will be obtainable, or, if obtainable,
that they will be on terms satisfactory to the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISKS OF CURRENCY FLUCTUATIONS AND INFLATION
The Company's current revenues, operating expenses and costs are almost
entirely denominated in the functional currency of the foreign locations in
which the Company operates. Conversion of total revenues and expenses to U.S.
dollars is performed on a periodic basis. In addition, a significant portion of
the Company's liabilities are denominated in foreign currencies. Fluctuations in
the exchange rate between such foreign currencies and the U.S. dollar could
affect the Company's cost of revenues, operating expenses or liabilities and, as
a result, could materially adversely affect the Company's business, financial
condition and results of operations. Some of the foreign countries in which the
Company operates have experienced substantial, and in some periods extremely
high, rates of inflation for recent years. Inflation and rapid fluctuations in
inflation rates have had, and may continue to have, adverse effects on the
marketability of the Company's membership programs. In the past, the effects of
such inflationary pressures have adversely affected the operating results of the
Company, and in 1994 the Company terminated its operations in Turkey because of
adverse effects on membership rates caused by currency devaluation and
inflation. Similarly, rapid devaluation of currencies, such as that experienced
in Columbia, Indonesia and Venezuela, have adversely affected, and may in the
future adversely affect, the Company's business, financial condition and results
of operations. In addition, the Company typically converts into U.S. dollars
foreign revenues and expenses on a periodic basis. Fluctuations in currency
rates in connection with such conversions may affect the period to period
comparison of operating results. The Company does not presently engage in any
hedging or other transactions intended to manage the risks relating to currency
exchange rates or interest rate fluctuations. However, the Company may in the
future undertake such
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transactions if management determines that it is necessary to offset such risks.
There can be no assurance that the use of such hedging transactions will be
sufficient to manage the risk of foreign currency fluctuation. Any inability of
the Company to successfully hedge such foreign currency risk could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
POTENTIAL INABILITY TO MANAGE GROWTH
The Company has recently experienced a period of growth that has placed
significant demands on the Company's management personnel and on its operational
and financial resources. Net sales increased from approximately $21.2 million in
the year ended December 31, 1995 to $31.9 million in the year ended December 31,
1997. In addition, the number of telemarketing call centers increased from 89 to
101 during the same period offering membership programs for 144 and 257 hotels,
respectively. During this period, the Company has invested in new training
programs, hired new personnel and upgraded its management information systems.
The Company's ability to manage future growth will depend on its ability to
continue to implement and improve operation, financial and management systems on
a timely basis, to expand, train, motivate and manage its work force, hire
additional qualified personnel and minimize turnover among program and operation
managers. There can be no assurance that the Company's personnel, systems,
procedures and controls will be adequate to support the Company's operations,
and the failure to support the Company's operations effectively could have a
material adverse effect on the Company's business, financial condition and
results of operations.
In order to provide and expand its membership programs, the Company will be
required to attract and retain a sufficient number of additional highly skilled
managerial and marketing personnel, including program and operation managers who
are responsible for developing, marketing and managing the Company's membership
programs. The Company has historically experienced high rates of turnover among
its program managers, primarily as a result of the extensive travel that has
been required of such individuals. Any prolonged continuation of or increase in
program manager turnover rates could hinder the Company from developing its
marketing infrastructure and could have a material adverse effect on the
Company's business, financial condition and results of operations. Although the
Company has invested significantly in management training programs to increase
the number of qualified program and operation managers, there can be no
assurance that these managers will remain with the Company for a sufficient
period of time to allow the Company to recover the costs of training or that a
sufficient number of such managers will be trained to serve existing or new
clients effectively and establish additional membership programs. If the Company
is unable to recruit and retain a sufficient number of qualified personnel, it
may be unable to implement new and existing membership programs on a timely
basis, or at all, which could adversely affect the Company's relationship with
its clients as well as its reputation and could have a material adverse effect
on the Company's business, financial condition and results of operations.
Moreover, many of the Company's program and operation managers develop and
maintain strong business relationships with the Company's clients. The Company
depends on these relationships to contribute to the success of its existing
membership programs, to generate additional membership programs with new clients
and to attract and retain an active, loyal membership base. The loss of program
and operation managers could lead to erosion of the Company's client base and a
decline in the current number of hotel membership programs which could, in turn,
have a material adverse effect on the Company's business, financial condition
and results of operations.
DEPENDENCE ON KEY EMPLOYEES
The Company's performance has depended, and will continue to depend, to a
significant extent on the efforts and abilities of its executive officers and
certain other key employees of the Company, particularly Mokhtar Ramadan, the
Company's Chief Executive Officer. Although the Company has entered into
employment contracts with its executive officers and certain of its key
employees, there is no guarantee
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that these employees will remain with the Company. The loss of the services of
certain of these executive officers or key employees could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, a number of members of management, including Frans Van
Steenbrugge, the Company's Senior Vice President and General Manager of
Telecommunications, and Philip G. Hirsch, the Company's Senior Vice President,
Finance, and Chief Financial Officer, joined the Company in 1998. Accordingly,
the Company's management team has not had extensive experience working together.
The Company does not maintain key employee life insurance on the lives of
certain of its executive officers, including its Chief Executive Officer. See
"Management."
COMPETITION
Competition in the membership program industry is intense. The Company faces
direct and indirect competition from a number of sources and expects to
experience increased competition in the future. The Company competes with the
internal marketing programs of client hotels and prospective client hotels. For
example, certain hotels have frequent guest programs that may expand to offer
benefits to their members similar to the benefits provided by Company's hotel
membership programs. Accordingly, there can be no assurance that current and
future client hotels will not elect to conduct all, or a significant portion of,
their marketing efforts internally. The Company also competes with marketing
services companies that employ a loyalty-driven marketing model similar to the
one developed by the Company, but which focus on a broader array of membership
programs. Companies such as Cendant Corporation and MemberWorks Incorporated
provide membership programs in the travel, dining and retail industries. The
Company's other competitors include a number of smaller, regional providers,
large retailers, travel agencies, financial institutions, credit card issuers
and other organizations that offer benefit programs to their customers and may
include third-party service providers with whom the Company has established
marketing relationships. Such competitors may have greater financial, personnel
and marketing resources, greater name recognition and larger customer bases than
the Company. There can be no assurance that the Company's competitors will not
increase their emphasis on offering products and services similar to those
offered by the Company or begin offering products and services which would be in
direct competition with those which the Company may want to offer in the future.
There also can be no assurance that competitors will not develop and
successfully introduce competitive products and services, that the introduction
of such products and services will not cause a reduction in the price at which
the Company offers its products and services or that the Company will be able to
compete successfully for both members and client hotels with any of these
existing or potential competitors. Competition for clients in the calling card
product segment is highly competitive, and the technology involved is rapidly
evolving and subject to constant change. Today there are numerous companies
offering calling cards, including companies such as AT&T Corp., British Telecom,
MCI Communications Corporation, Sprint Corporation/Global One and several other
local and regional international telephone companies, which are substantially
larger than the Company and have greater financial, personnel and marketing
resources, greater name recognition and larger customer bases than the Company.
These advantages and contractual notice requirements restricting the Company's
ability to change pricing unilaterally may afford the Company's competition with
more pricing flexibility than the Company. The ability of the Company to compete
effectively in the telecommunication services market will depend upon the
Company's continued ability to provide access to high-quality service at prices
generally competitive with, or lower than, those charged by its competitors.
There is no assurance that the Company will be able to respond quickly and
efficiently to any changes in prices charged by such competitors. There can be
no assurance that competition from existing or new competitors or a decrease in
the rates charged for telecommunication services by major long distance carriers
or other competitors would not have a material adverse effect on the Company's
business, financial condition or results of operations.
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RISKS ASSOCIATED WITH NEW PRODUCT AND SERVICE INTRODUCTIONS
The Company's growth strategy includes offering complementary products and
services within travel-related industries to its members. The implementation of
new products and services may require the investment of significant resources,
which may not be offset by increased revenues. The Company's ability to
successfully introduce complementary products and services depends, among other
things, on its ability to contract with third party service providers, design
effective membership programs for such providers and discern the purchasing
preferences and demands of its members. Failure to discern such demands and
preferences of its members or failure to anticipate and respond to changes in
such demands and preferences could lead to, among other things, diminished
member loyalty, difficulty in securing and maintaining marketing relationships
with third-party service providers, lower margins and a decline in the Company's
reputation, any one of which could have a material adverse effect on the
Company's business, financial condition and results of operations. Failure to
introduce new products and services in a timely manner also could result in the
Company's competitors acquiring additional market share for a particular area of
consumer interest or in a particular geographic region. In addition, the
introduction or announcement of new products and services by the Company or
others could render existing products and services obsolete, or result in a
delay or decrease in demand for existing products and services as members
evaluate new offerings.
The Company's ability to offer complementary products and services involves
risks and uncertainties that typically accompany new product and service
offerings, including: limited management experience and expertise in designing,
marketing and managing such new products and services; acceptance by the
Company's members and clients; regulatory or legal approvals, particularly
within international jurisdictions; delays in market introduction; competition;
significant commitment of managerial resources and greater than anticipated
costs. The Company has limited experience offering new products and services to
its members and has only recently initiated its calling card and credit card
offerings. There can be no assurance that existing members and clients will be
receptive to such new products or services or that such members and clients will
be able or willing to distinguish between the Company's and competitors'
products and services. Accordingly, there can be no assurance that such new
products or services will achieve a sustainable level of market acceptance or
that the Company will be able to successfully manage or implement such new
products and services. Failure of the Company to successfully design and market
such new products and services, or the failure of such products and services to
achieve a significant level of market acceptance, could affect the Company's
relationship with existing members, prevent the Company from gaining new members
in existing and new markets and have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON THIRD-PARTY PROVIDERS
The Company's reputation, the success of its hotel membership programs and
its ability to attract and retain individual members is substantially dependent
on the quality of services provided by third parties. For example, the success
of the Company's hotel membership programs is dependent on the quality of
benefits and services provided by client hotels. Similarly, the success of the
Company's calling card and credit card products is dependent on the service
provided by third party service providers such as Sprint Corporation ("Sprint")
and Standard Chartered Bank. Additionally, some of the Company's reservation and
data gathering is provided by Anasazi Travel Resources, Inc. The Company has no
direct control over the quality of such third-party services, and there is no
assurance that third-party service providers will fulfill the Company's
expectation of providing premium products and high-quality, professional
service. Any material decline in the quality of the benefits and services
provided by client hotels or other product and service providers or an
interruption in the provision of such products and services, could affect the
ability of the Company to sustain member satisfaction and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
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DEPENDENCE ON PROPRIETARY MEMBERSHIP DATABASE
The Company's ability to design new membership programs and market them
effectively is in large part dependent on the information contained in its
membership database. In order to cost-effectively target a receptive purchasing
audience, the Company must compile and update transactional data relating to
current members' use of products and services provided through the Company's
membership programs. There can be no assurance that the Company will be able to
obtain a sufficient quantity of transactional data or, if acquired, that this
data will be complete and accurate. Moreover, transactional data about a
member's travel and purchasing preferences is, in some instances, dependent upon
the accounting and reporting services provided by third parties. For example,
data concerning members' purchase of travel, lodging, and food and beverages is
dependent, in some instances, on a client hotel's records of such transactions.
There can be no assurance that the Company's client hotels will keep such
records, that such records will be accurate or that the clients will transmit
such information to the Company in a timely fashion. Failure of third parties to
transmit such information to the Company could have a material adverse effect on
the Company's ability to discern a member's travel and purchasing preferences
and to create effective, targeted marketing promotions and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's ability to select purchasing audiences that are more likely to
respond favorably to the products and services offered by the Company is also
dependent on its database technology. The Company has only recently implemented
certain database management software and its calling card billing system. There
can be no assurance that such software or billing system will operate
efficiently, accurately, without interruption and without technical problems. In
addition, the Company anticipates that it will be necessary to continue to
update its database systems and to select, invest in and develop new and
enhanced technology on a timely basis in the future in order to maintain its
competitiveness. The failure of the Company to successfully anticipate or adapt
to technological changes or select and develop new and enhanced technology on a
timely basis could adversely affect the quality of the services the Company
provides to its clients or members, or otherwise have a material adverse effect
on the Company's business, financial condition and results of operations.
RISKS ASSOCIATED WITH GOVERNMENT REGULATION
The Company primarily markets its membership programs through its local and
regional telemarketing call centers. The telemarketing industry has become
subject to an increasing amount of foreign, federal and state regulation in
recent years, including limitations on the hours during which telemarketers may
call consumers and prohibitions on the use of automated telephone dialing
equipment to call certain telephone numbers. The Company is also subject to
various foreign, federal and state regulations concerning the collection,
distribution and use of information regarding individuals. Compliance with these
laws and regulations is generally the responsibility of the Company even where
it uses agents to conduct the telemarketing, and the Company could be subject to
a variety of enforcement or private actions for any failure to comply with such
regulations, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
In addition, growing concern about privacy and the collection, distribution
and use of information about individuals has led to self-regulation of such
practices by the direct marketing industry and to increased governmental
regulation. The Direct Marketing Association (the "DMA"), the leading trade
association of direct marketers, has adopted guidelines regarding the fair use
of such information which it recommends participants in the direct marketing
industry follow. Although the Company's compliance with the DMA's guidelines and
applicable foreign, federal and state regulations has not had a material adverse
effect on the Company, no assurance can be made that the DMA will not adopt
additional guidelines or that additional foreign, federal or state laws or
regulations (including antitrust and consumer privacy laws) will not be enacted
or applied to the Company or its clients and marketing partners. Any such
guidelines, laws or regulations could adversely affect the ability of the
Company to collect and distribute
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consumer information, increase the cost to the Company of collecting certain
kinds of information, preclude the use by direct marketers of information that
the Company could lawfully collect or otherwise have a material adverse effect
on the Company's business, financial condition and results of operations. To the
extent the Company's hotel and other clients do not comply with such guidelines,
laws or regulations, the Company may incur liabilities which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company's calling card operations are subject to foreign, federal and
state government regulation of long distance telephone services. The Company is
regulated at the federal level by the Federal Communications Commission (the
"FCC"). The Company is required to maintain an authorization, issued by the FCC,
in connection with its international calling card service, and the Company is in
the process of obtaining such an authorization. In addition, the FCC has
required carriers to maintain both domestic and international tariffs for
services containing the currently-effective rates, terms and conditions of
service. The FCC has, however, eliminated the tariffing requirement for domestic
interstate non-dominant carriers, and indeed prohibited the filing of such
tariffs, but a federal court of appeals has stayed the effectiveness of this
detariffing order pending appeal and the FCC's resolution of several petitions
for reconsideration. There can be no assurance of the outcome of these
proceedings. If the Company must negotiate individual contracts with each of its
calling card customers, it could have a material adverse effect on the Company's
business, financial condition and results of operations.
Any intrastate long distance telecommunications operations of the Company
are also subject to various state laws and regulations, including prior
certification, notification or registration requirements. Although the Company
does not intend to market its calling cards for intrastate use, there can be no
guarantee that customers will not use the calling cards for this purpose. For
any intrastate services, the Company generally must obtain and maintain
certificates of public convenience and necessity from regulatory authorities in
most states. In most of these jurisdictions, the Company must file and obtain
prior regulatory approval of tariffs for intrastate services. In addition, the
Company must update or amend the tariffs and, in some cases, the certificates of
public convenience and necessity when rates are adjusted or new products are
added to the long distance services offered by the Company. If the Company
becomes aware that intrastate calling is occurring, the Company intends to
comply with the applicable regulatory requirements. The FCC and numerous state
agencies also impose prior-approval requirements on transfers of control,
including corporate reorganizations and assignments of certain regulatory
authorizations.
If the federal and state regulations governing the fees to be charged for
the origination and termination of calls by long-distance subscribers (such as
the Company's consumers) change, particularly if such regulations are changed to
allow variable pricing of such access fees based upon volume, such changes could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The FCC recently adopted a regulation which requires interexchange carriers
to compensate payphone providers for each toll-free number call placed. The
regulation allows such carriers to seek to recover these charges from their
customers, including through future contractual provisions with customers such
as the Company. The FCC rules require that, on an interim basis through October
1997, the interexchange carriers compensate payphone providers an amount
equivalent to $0.35 per call. On July 1, 1997, the United States Court of
Appeals for the District of Columbia ("D.C. Circuit") upheld the method of
"carrier pays" for recovery of payphone compensation, but found the $0.35 per
call charge and interim payphone compensation plan was arbitrary and capricious.
The payphone compensation rules were remanded to the FCC for reconsideration and
the FCC subsequently adjusted the compensation amount to $0.284 per call. On
appeal, the D.C. Circuit again found this amount to be arbitrary and capricious
and remanded the revised rules to the FCC for further explanation. On an interim
basis, the compensation scheme adopted by the FCC remains in effect until the
FCC concludes its evaluation of these issues. The FCC and D.C. Circuit have
noted that the compensation scheme is subject to retroactive adjustment, if the
FCC considers such an adjustment appropriate. In addition, carriers such as the
Company that provide
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domestic interstate services to end users must pay a fee each month for U.S.
universal service funding, which supports telecommunications service in remote
areas of the U.S. and also certain services used by schools and libraries.
Currently, the Company must contribute approximately 4% of its annual end user
revenues (including both domestic interstate and international revenues). The
Company is unable to predict any changes in the level of this contribution or
whether any such changes could have a material adverse effect on the Company.
The Company is unable to predict whether these regulations or other potential
changes in the regulatory environment could have a material adverse effect on
the Company.
RISK OF LOSS OF DATA CENTERS AND TELEPHONIC TRANSMISSION CAPABILITY
The Company's business is highly dependent on its computer and telephone
equipment and on telephone services provided by various local and long distance
domestic and international telephone companies. Any significant interruption in
computer or telephone services could adversely affect the Company's business,
financial condition and results of operations. The Company's operations are
dependent on its ability to protect its data center against damage from fire,
earthquake, power loss, telecommunications failure or similar events. No
assurance can be given that such precautions will be adequate or that operations
will not be interrupted, even for extended periods. Any damage to the Company's
data centers could cause interruptions in the Company's operations and have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's property and business interruption
insurance may not be adequate to compensate the Company for all losses that may
occur.
The Company's operations, including its new telephone calling card product,
are also dependent on the telephone transmission capabilities of Sprint. Any
material disruption in Sprint's transmission capabilities could adversely affect
the Company's ability to receive and transmit data and, accordingly, have a
material adverse effect on the Company's business, financial condition and
results of operations. See "--Dependence on Third-Party Providers."
RISK OF LOSS FROM RETURNED TRANSACTIONS; FRAUD; BAD DEBT; THEFT OF SERVICES
The Company utilizes national credit card clearance systems for electronic
credit card settlement of its membership fees payments and calling card product.
The Company's relationships with providers of merchant card services such as
VISA and MasterCard could be adversely affected by excessive uncollectibles or
chargebacks, which are generally higher in the telephone industry than in other
industries. Credit risks arising from returned transactions caused by closed
accounts, frozen accounts, unauthorized use, disputes, theft or fraud exists
with the Company's membership fee payments, calling card product and credit card
product. There can be no assurance that the Company will be able to effectively
limit these risks, and the failure to do so could have a material adverse effect
on the Company's business, financial condition and results of operations. From
time to time, persons may obtain calling card services without rendering payment
to the Company by unlawfully utilizing the Company's access numbers and PINs.
There can be no assurance that the Company will not experience future losses due
to unauthorized use of access numbers and customized PINs and that such losses
will not be material. The Company intends to manage these risks through its
internal controls, monitoring and blocking systems. There can be no assurance
that the Company's risk management practices or reserves will be sufficient to
protect the Company from unauthorized or returned transactions or thefts of
services, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
CONTROL BY PRINCIPAL STOCKHOLDERS
Upon completion of the offering, Mokhtar Ramadan, Fadi Ramadan and Marwan
Ramadan will beneficially own approximately 7,980,000 shares or % of the
outstanding shares of Common Stock. As a result, these stockholders, if acting
together, will be able to exercise control over 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
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resulting in a change in control of the Company unless the terms are approved by
such stockholders. See "Principal Stockholders" and "Description of Capital
Stock--Certain Anti-Takeover Effects."
In addition, affiliates of the Company will continue to have certain
contractual and other business relationships with the Company and may engage in
transactions from time to time that are material to the Company. See "Certain
Transactions." Although any such material agreements and transactions would
require approval of the Company's Board of Directors, such transactions
generally will not require approval of the disinterested members of the Board of
Directors and conflicts of interest may arise in certain circumstances. There
can be no assurance that such conflicts will not from time to time be resolved
against the interests of the Company. The Company currently has three directors,
all of whom are stockholders and employees of the Company.
BROAD MANAGEMENT DISCRETION OVER USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be approximately $ million ($ million if the
Underwriter's overallotment option is exercised in full) after deducting
underwriting discounts and commissions and estimated offering expenses. The
Company intends to use the net proceeds of this offering for distributions to
certain stockholders, payment of outstanding bank indebtedness and working
capital and other general corporate purposes. Management will retain a
significant amount of discretion over the application of the net proceeds of the
offering. Because of the number and variability of factors that determine the
Company's use of the net proceeds of the offering, there can be no assurance
that such application will not vary substantially from the Company's current
intentions. Pending such utilization, the Company intends to invest the net
proceeds of the offering in short-term investment grade and interest-bearing
securities. See "Use of Proceeds."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBILITY VOLATILITY OF STOCK PRICES
Prior to the offering, there has been no public market for the 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
among the Company and the representatives of the Underwriters based on several
factors, including prevailing market conditions, certain financial information
on the Company, market valuations of other companies that the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present stage of the Company's
development and other factors deemed relevant. See "Underwriting." In addition,
the stock market in general, and membership services companies in particular,
have in the past experienced price and volume fluctuations which have sometimes
been unrelated to the operating performance of such companies. There can be no
assurance that the prices at which shares of Common Stock will trade in the
public market after the offering will not be lower than the price at which
shares of Common Stock are sold in the offering. The trading price of the Common
Stock after the offering could be subject to certain fluctuations in response to
numerous factors, including, but not limited to, quarterly variations in
operating results, competition, announcements of new or enhanced products or
services by the Company or its competition, regulation changes, any difference
in actual numbers and results expected by investors and analysts, changes in
financial estimates by securities analysts and other events or factors. In
addition, the stock market has experienced volatility that has affected the
market prices of equity securities of many companies and that has often been
unrelated to the operating performance of such companies. These broad market
fluctuations may adversely affect the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after the
offering could adversely affect the market price of the Common Stock. Upon
completion of the 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 after May 31, 1998. The holders of
12,000,000 of such shares
16
<PAGE>
and certain option holders have entered into agreements ("Lock-Up Agreements")
agreeing not to sell such shares for a period of 180 days following the date of
this Prospectus without the prior written consent of BancAmerica Robertson
Stephens. In addition, as of May 31, 1998, there were options outstanding to
purchase an aggregate of 997,140 shares of Common Stock, of which 180,000 are
vested and exercisable at such date. Following the offering, the Company intends
to file a registration statement covering the shares reserved for issuance under
the Company's employee stock option plan, 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 and the Company's Certificate of
Incorporation (the "Certificate of Incorporation") and Bylaws (the "Bylaws") may
have the effect of delaying, deterring or preventing a future takeover or change
in control of the Company unless such takeover or change in control is approved
by the Company's Board of Directors. Such provisions also may render the removal
of directors and management more difficult. Such provisions could limit the
price that certain investors might be willing to pay in the future for shares of
the Company's Common Stock. These provisions of Delaware law and the Company's
Certificate of Incorporation and Bylaws may also have the effect of discouraging
or preventing certain types of transactions involving an actual or threatened
change of control of the Company (including unsolicited takeover attempts), even
though such a transaction may offer the Company's stockholders the opportunity
to sell their stock at a price above the prevailing market price. The Company's
Certificate of Incorporation places certain restrictions on who may call a
special meeting of stockholders. In addition, the Company's Board of Directors
has the authority to issue up to 5,000,000 shares of undesignated preferred
stock (the "Undesignated Preferred Stock") and to determine the price, rights,
preferences and privileges of those shares without any further vote or actions
by the stockholders. 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
Undesignated Preferred Stock that may be issued in the future. The issuance of
such shares of Undesignated Preferred Stock, while potentially providing
desirable flexibility in connection with possible acquisitions and serving other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or may discourage a third party from attempting to
acquire, a majority of the outstanding voting stock of the Company. In addition,
the Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law (the "DGCL"), which will prohibit the Company
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder unless the business combination is approved in
a prescribed manner. The application of Section 203 of the DGCL also could have
the effect of delaying or preventing a change of control of the Company. In
addition, the Company's Certificate of Incorporation provides that the Board of
Directors will be divided into three classes of directors serving staggered
terms and that, upon consummation of the offering, all stockholder actions must
be effected at a duly called meeting and not by a consent in writing. The
classification provision and the prohibition on stockholder action by written
consent could have the effect of discouraging a third party from making a tender
offer or otherwise attempting to gain control of the Company. See
"Reorganization" and "Description of Capital Stock--Certain Anti-Takeover
Effects."
DILUTION; ABSENCE OF DIVIDENDS
The initial public offering price will be substantially higher than the pro
forma net tangible book value per share of Common Stock. At an assumed 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 pro forma net tangible book value of Common Stock. Additional
dilution will occur upon the exercise of outstanding options. The Company does
not anticipate paying cash dividends in the foreseeable future. See "Dilution"
and "Dividend Policy."
17
<PAGE>
YEAR 2000
Currently, many computer systems and software products are coded to accept
only two digit entries in the date code field. These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th century
dates. As a result, many companies' software and computer systems may need to be
upgraded or replaced in order to comply with such "Year 2000" requirements. The
Company and third parties with which the Company does business rely on numerous
computer programs in their day-to-day operations. The Company is evaluating the
Year 2000 issue as it relates to the Company's internal computer systems and
third party computer systems with which the Company interacts. The Company
expects to incur internal staff costs as well as consulting and other expenses
related to these issues; these costs will be expensed as incurred. In addition,
the appropriate course of action may include replacement or an upgrade of
certain systems or equipment at a substantial cost to the Company. There can be
no assurance that the Year 2000 issues will be resolved in 1998 or 1999. The
Company may incur significant costs in resolving its Year 2000 issues. If not
resolved, this issue could have a significant adverse impact on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
FORWARD-LOOKING STATEMENTS
The statements contained in this Prospectus that are not historical fact are
"forward-looking statements" which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should" or "anticipates," or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy that involve risks and
uncertainties. Management cautions the reader that these forward-looking
statements, including statements about the Company's dependence on membership
programs and fees, dependence on the hotel industry, seasonal and currency
fluctuations, ability to manage growing operations, competition, the Company's
ability to expand its membership programs in international operations and
dependence on third-party service providers and other matters contained in this
Prospectus regarding matters that are not historical facts, are only
predictions. No assurance can be given that the future results indicated,
whether expressed or implied, will be achieved. While sometimes presented with
numerical specificity, these forward-looking statements are based upon a variety
of assumptions relating to the business of the Company, which, although
considered reasonable by the Company, may not be realized. Because of the number
and range of the assumptions underlying the Company's projection and
forward-looking statements, many of which are subject to significant
uncertainties and contingencies that are beyond the reasonable control of the
Company, some of the assumptions inevitably will not materialize and
unanticipated events and circumstances may occur subsequent to the date of this
Prospectus. The forward-looking statements contained herein are based on current
expectations, and the Company assumes no obligation to update this information.
Therefore, the actual experience of the Company and results achieved during the
period covered by any particular projections or forward-looking statements may
differ substantially from those projected. Consequently, the inclusion of
projections and other forward-looking statements should not be regarded as a
representation by the Company or any other person that these estimates and
projections will be realized, and actual results may vary materially. There can
be no assurance that any of these expectations will be realized or that any of
the forward-looking statements contained herein will prove to be accurate.
18
<PAGE>
REORGANIZATION
The Company was incorporated in Delaware in May 1998 to consolidate the
operations of several entities in the same business and under common ownership
and management. From 1989 to July 1996, the business of the Company was
conducted through Hospitality Marketing Consultants, a general partnership (the
"Original Partnership") composed initially of Mokhtar Ramadan, Marwan Ramadan
and Fadi Ramadan. In 1994, Sandra Case was admitted to the Original Partnership
as an additional partner. The Ramadans and Ms. Case are referred to as the
"Principals." In addition, beginning in April 1989, the Company operated its
business in the U.S. and Puerto Rico through HMC Consultants Inc., a California
corporation ("HMC Inc."). Prior to the consummation of the Reorganization, all
of the capital stock of HMC Inc. was beneficially owned by the Principals. In
July 1996, the Principals organized Hospitality Marketing Consultants, LLC, a
California limited liability company ("HMC LLC"), and HMC LLC purchased from the
Original Partnership all of the Original Partnership's business and assets,
except the real property at which the Company's Irvine, California headquarters
is located. See "Certain Transactions."
As the Principals commenced business operations in certain foreign
countries, they generally established local corporations through which to
conduct those operations. Corporations conducting business (each, a "Foreign
Entity" and collectively, the "Foreign Entities") were organized in the
following countries: Australia, Canada, Colombia, France, Indonesia, Italy,
Lebanon, Malaysia, Poland, Singapore, Spain, United Kingdom and Venezuela. Prior
to consummation of the Reorganization, the Foreign Entities organized in
Australia, France, Indonesia, Malaysia, Singapore and Venezuela, were directly
or indirectly, 100% beneficially owned by HMC LLC. Prior to consummation of the
Reorganization, the Foreign Entities organized in Canada, Colombia, and United
Kingdom were 100% beneficially owned by the Principals. The Principals also
owned an 84% interest in the Foreign Entity organized in Poland, with the
remaining 16% owned by Chris Feeney, a former consultant. In addition, prior to
the consummation of the Reorganization, the Foreign Entities organized in Italy
and Spain were 100% owned by HMC (International) Ltd., a United Kingdom Foreign
Entity ("International"), which is owned by the Principals.
Prior to the consummation of the offering, the following transactions will
be effected (such transactions are referred to collectively as the
"Reorganization"):
Pursuant to a Contribution Agreement dated June 1, 1998 by and among the
Company, HMC LLC and the Principals, the Principals have agreed to contribute
all of their interests in all of the Foreign Entities owned by them, except
International, to HMC LLC along with all right, title and interest in the entity
currently being established in the Peoples Republic of China. Additionally, the
Principals will contribute all of their stock in HMC Inc. to HMC LLC. The
Principals will also contribute all of their interests in International to
Hospitality Marketing Concepts (Holdings) Limited, a newly-organized United
Kingdom Foreign Entity ("Holdings") owned by HMC LLC. Thereafter, International
will be liquidated, and its interests in the Foreign Entities organized in Italy
and Spain will be transferred to Holdings. As a result, HMC LLC will have
acquired, directly or indirectly, 100% of the equity interests in HMC Inc. and
each of the Foreign Entities, except that HMC LLC will own 84% of the equity
interest in the Foreign Entity organized in Poland. In situations where,
pursuant to the requirements of local law, it is necessary to have more than one
owner of equity interests, some ownership interests in Foreign Entities will be
held by third parties. However, in each such case, the party holding the
interest will execute an Agency Agreement confirming that the party holds that
interest for the benefit of HMC LLC, and that HMC LLC beneficially owns the
interest, including all economic and voting rights relating to that interest.
Effective prior to the closing of the offering, HMC LLC will be merged with
and into the Company, with the Company as the surviving entity (the "Merger").
As a result of the Merger, the Company will succeed to HMC LLC's ownership
interest in HMC Inc., Call Connect, Inc., a California corporation, and each of
the Foreign Entities, as described above. The Company established Call Connect,
Inc. to conduct its calling card business. The Reorganization has been
structured as a tax-free reorganization. The
19
<PAGE>
accounting for the Reorganization will be similar to the accounting for a
pooling of interests, as it represents an exchange of equity interests among
companies under common control. Prior to the Reorganization, the Company will
conduct no business and hold no assets or liabilities. Following the
Reorganization, HMC Inc., Call Connect, Inc. and each of the Foreign Entities
will be an operating subsidiary of the Company.
An aggregate of 8,400,000 shares of Common Stock will be issued by the
Company to the Principals in connection with the Merger. Accordingly, each of
Mokhtar Ramadan, Marwan Ramadan and Fadi Ramadan will receive 2,616,320 shares
of Common Stock, a trust beneficially owned by the Ramadans will receive 131,040
shares of Common Stock and Sandra Case will receive 420,000 shares of Common
Stock for their interests in HMC LLC. Following the offering, the Principals
will beneficially own approximately % of the Company's outstanding Common
Stock. See "Certain Transactions" and "Principal Stockholders."
HMC LLC is a limited liability company and, accordingly, has not paid
federal corporate income taxes. Instead, until consummation of the Merger, the
Principals are obligated to pay U.S. federal and certain state income taxes on
their allocable portion of the income of HMC LLC. HMC LLC and certain of the
Foreign Entities periodically have made various distributions to the Principals.
Distributions to the Principals totaled approximately $2.0 million, $5.1
million, $4.0 million, and $820,000 during the 1995, 1996 and 1997 fiscal years
and the three months ended March 31, 1998, respectively. The Principals will
continue to receive their normal periodic distributions prior to the
consummation of the Reorganization. See "Certain Transactions."
USE OF PROCEEDS
The net proceeds of the Company from the sale of shares of Common
Stock offered by the Company hereby are estimated to be approximately $
million ($ million if the Underwriters' overallotment option is exercised in
full), assuming a public offering price of $ and after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company.
The Company intends to use the net proceeds from this offering as follows:
(i) distributions to the Principals of approximately $5.0 to $9.0 million,
consisting of undistributed earnings of HMC LLC as of the date of the Merger,
the value of prepaid taxes accruing to the benefit of the Company and certain
foreign tax credits, (ii) payment of the Company's outstanding indebtedness
under its bank lines of credit of approximately $1.3 million and (iii) working
capital and other general corporate purposes. The Company plans to declare these
distributions to the Principals prior to the consummation of the Merger. The
Company may apply an undetermined portion of the net proceeds of this offering
towards the acquisition of complementary businesses. The Company currently has
no agreements or understandings with respect to any such acquisition. The
aggregate amount of the net proceeds to the Company that will be received by the
Principals is approximately $ million. See "Reorganization" and "Certain
Transactions."
Additional purposes of this offering are to create a public market for the
Company's Common Stock, to facilitate future access by the Company to the public
equity markets and to enhance the Company's public image and credibility,
particularly to potential clients as it continues to expand globally and attract
new products and services for sale to its members.
Management will retain a significant amount of discretion over the
application of the net proceeds of the offering. Because of the number and
variability of factors that determine the Company's use of the net proceeds of
the offering, there can be no assurance that such application will not vary
substantially from the Company's current intentions. Pending use of the net
proceeds as set forth above, the Company intends to invest the net proceeds of
the offering in short-term, investment-grade, interest bearing securities. See
"Risk Factors--Broad Management Discretion Over Use of Proceeds."
20
<PAGE>
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain all earnings for the operation and expansion of its
business and therefore does not anticipate paying any cash dividends in the
foreseeable future. The payment of any future dividends will be at the
discretion of the Company's Board of Directors and will depend upon the future
earnings, results of operations, capital requirements and general financial
condition of the Company and general business conditions, as well as such other
factors as the Board of Directors may deem relevant. As a limited liability
company, HMC LLC has made substantial cash distributions to the Principals. The
Principals will continue to receive their normal periodic distributions prior to
the consummation of the Reorganization. See "Reorganization," "Use of Proceeds,"
"Certain Transactions" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
CAPITALIZATION
The following table sets forth the combined capitalization of the Company as
of March 31, 1998 (i) on an actual basis after giving effect to the
Reorganization, (ii) on a pro forma basis to reflect the estimated distribution
of approximately $7.0 million to the Principals from the proceeds of this
offering, the assumed conversion of the Subordinated Promissory Note as well as
the recording of a net deferred tax asset of $877,000 as if the Company's change
from a limited liability company to a C corporation had occurred March 31, 1998
and (iii) on a pro forma basis as adjusted to give effect to the sale of the
shares of Common Stock being offered hereby (at an assumed public offering price
of $ per share) after deducting estimated underwriting discounts and
commissions and offering expenses and the application of the net proceeds
therefrom as described in "Use of Proceeds." This table should be read in
conjunction with the Consolidated Financial Statements and related notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- -------------- --------------
(In thousands)
<S> <C> <C> <C>
Lines of credit and current portion of notes payable........ $ 1,310 $ 1,310 $
Notes payable............................................... 4,763 1,763
Distribution payable to stockholders........................ 7,000
Stockholders' equity (deficit) (1):
Preferred Stock, $0.001 par value; 5,000,000 shares
authorized; no shares issued and outstanding............ -- -- --
Common Stock, $0.001 par value; 50,000,000 shares
authorized; 8,400,000 shares issued and outstanding;
12,000,000 shares issued and outstanding, pro forma;
shares issued and outstanding, pro forma as
adjusted................................................ 8 12
Additional paid-in capital................................ 3,103
Accumulated deficit....................................... (7,442) (13,565)
Accumulated other comprehensive income.................... (231) (231)
Total stockholders' equity (deficit).................... (7,665) (10,681)
------------- -------------- -------
Total capitalization.................................... $ (1,592) $ (608)
------------- -------------- -------
------------- -------------- -------
</TABLE>
- ------------------------
(1) Excludes 1,500,000 shares of the Company's Common Stock reserved for
issuance under the Company's 1998 Stock Option Plan, of which options for an
aggregate of 817,140 shares of Common Stock were issued and outstanding as
of May 31, 1998, and an option to purchase 180,000 shares of Common Stock.
See "Management--Option Plan," "Certain Transactions" and Notes 6 and 10 of
Notes to Consolidated Financial Statements.
21
<PAGE>
DILUTION
The pro forma net tangible book value (deficit) of the Company as of March
31, 1998, after giving effect to the conversion of the Subordinated Promissory
Note and the issuance of 3,600,000 shares of Common Stock upon such conversion,
the distribution to the Founding Stockholders of approximately $7.0 million from
the proceeds of this offering, the recording of net deferred tax assets of
$877,000 and the Reorganization, was $(11.5) million, or $(0.96) per share of
Common Stock. Pro forma net tangible book value per share represents the
Company's total pro forma tangible assets less total liabilities, divided by the
number of shares of Common Stock outstanding. Without taking into account any
changes in pro forma net tangible book value after March 31, 1998, other than to
give effect to the sale of the shares of Common Stock offered hereby (at an
assumed public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and offering expenses payable by the
Company) the net tangible book value of the Company at March 31, 1998, would
have been $ million, or $ per share of Common Stock. This represents an
immediate dilution in net tangible book value of $ per share to new investors
purchasing shares of Common Stock in the offering and an immediate increase in
net tangible book value of $ per share to existing stockholders. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $
Pro forma net tangible book value (deficit) per share
before the offering..................................... $ (0.96)
Increase per share attributable to new public investors...
---------
---------
Pro forma net tangible book value per share after the
offering..................................................
---------
---------
Dilution per share to new public investors.................. $
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1998,
the differences between existing stockholders (giving pro forma effect to the
conversion of the Subordinated Promissory Note and the Reorganization), and new
investors with respect to the number of shares of Common Stock purchased from
the Company, the total consideration paid to the Company (based upon, in the
case of new investors, an assumed public offering price of $ per share
before deducting estimated underwriting discounts and commissions and offering
expenses) and the average price per share paid:
<TABLE>
<CAPTION>
AVERAGE PRICE
PER SHARE
--------------
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- --------------------------
NUMBER PERCENT AMOUNT PERCENT
------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)...... 12,000,000 % $ 3,000,000 % $ 0.25
New investors..................
------------ --- ---
Total...................... 100% 100%
------------ --- ------------- ---
------------ --- ------------- ---
</TABLE>
- ------------------------
(1) If the Underwriters' over-allotment option is exercised in full, sales by
the Company in this offering will reduce the number of shares of Common
Stock held by existing stockholders to approximately % of the total
shares of Common Stock outstanding after this offering and will increase the
number of shares held by new investors to or approximately % of
the total shares of Common Stock outstanding after this offering. See
"Underwriting."
The foregoing table assumes no exercise of outstanding stock options after
March 31, 1998. As of May 31, 1998, there were options outstanding to purchase a
total of 997,140 shares of Common Stock, at a weighted average exercise price of
$8.79 per share. To the extent that any of these options are exercised, there
will be further dilution to new investors. See "Management--Option Plan" and
Notes 6 and 10 of Notes to Consolidated Financial Statements.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below at December 31,
1995, 1996 and 1997 and for each of the three years in the period ended December
31, 1997 have been derived from the Consolidated Financial Statements of the
Company, which statements have been audited by Price Waterhouse LLP, independent
accountants. The selected consolidated financial data at December 31, 1993 and
1994 and for each of the two years ended December 31, 1994 are derived from
unaudited financial statements not included herein. The selected consolidated
financial data at March 31, 1998 and for the three months ended March 31, 1997
and 1998 are derived from unaudited financial statements included elsewhere in
this Prospectus, which, in the opinion of management, includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations of the Company
for the unaudited interim periods. The data for the interim periods is not
necessarily indicative of results that may be expected for any other interim
period or for the year as a whole. The following data 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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Revenues................................. $ 24,458 $ 23,893 $ 21,199 $ 27,297 $ 31,906 $ 7,777 $ 7,873
Cost of revenues......................... 16,613 16,060 13,788 17,471 20,658 5,155 5,033
--------- --------- --------- --------- --------- --------- ---------
Gross margin............................. 7,845 7,833 7,411 9,826 11,248 2,622 2,840
General and administrative costs......... 6,580 6,813 6,316 6,396 7,304 1,477 2,005
--------- --------- --------- --------- --------- --------- ---------
Operating income......................... 1,265 1,020 1,095 3,430 3,944 1,145 835
Interest expense......................... (150) (88) (72) (167) (285) (58) (144)
Foreign currency transaction gain
(loss)................................. (83) 51 (46) (28) 33
Other income (expense)................... (27) 411 55 (43) 42 37 (29)
--------- --------- --------- --------- --------- --------- ---------
Net income............................... $ 1,142 $ 1,343 $ 995 $ 3,271 $ 3,655 $ 1,096 $ 695
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income per share--Basic and
diluted................................ $ 0.14 $ 0.17 $ 0.12 $ 0.39 $ 0.43 $ 0.13 $ 0.08
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average common shares:
Basic................................ 7,980,000 8,050,000 8,400,000 8,400,000 8,400,000 8,400,000 8,400,000
Diluted.............................. 7,980,000 8,050,000 8,400,000 8,400,000 8,430,000 8,400,000 8,580,000
Unaudited pro forma data (1):
Unaudited pro forma net income......... $ 1,604 $ 302
Unaudited pro forma net income per
share--Basic and diluted............. $ $
Unaudited pro forma weighted average
common shares:.......................
Basic................................
Diluted..............................
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 1,433 $ 589 $ 577 $ 1,694 $ 2,840 $ 1,380
Working capital (deficit)........................... (3,215) (4,516) (5,588) (5,534) (3,856) (4,161)
Total assets........................................ 8,162 5,904 9,252 12,389 16,498 16,226
Long-term debt...................................... 161 24 0 1,763 4,763 4,763
Stockholders' deficit............................... (2,977) (4,166) (5,254) (6,981) (7,470) (7,665)
</TABLE>
- --------------------------
(1) See Note 9 of Notes to Consolidated Financial Statements for a discussion of
pro forma income statement data.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CERTAIN STATEMENTS SET FORTH BELOW CONSTITUTE "FORWARD-LOOKING STATEMENTS"
INVOLVING KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT 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. GIVEN THESE UNCERTAINTIES, PROSPECTIVE INVESTORS ARE CAUTIONED NOT
TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. SEE "RISK FACTORS."
THIS DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS OF THE COMPANY AND NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
Hospitality Marketing Concepts Inc. is a leading provider of membership
programs for prestigious hotels and other clients in international and domestic
markets. The Company's hotel membership programs are designed to provide
participating hotels with improved consumer loyalty, increased patronage, an
additional channel for acquiring new customers and a more predictable recurring
revenue stream from a growing base of individual members. The Company's
marketing services address the growing needs of hotels and other businesses to
increase profitability, leverage the marketing expertise and infrastructure of
outside vendors and cost-effectively offer new and differentiated products and
services to customers. In marketing their facilities, many hotels and businesses
have limited resources to focus on the needs and demands of local and
international purchasing audiences with multiple languages and customs outside
the region in which they are located. The Company believes that its services
address the needs of three constituencies: client hotels, individual members and
clients in travel-related industries whose complementary products and services
are offered through the Company's membership programs. As of March 31, 1998, the
Company has established hotel membership programs and on-going marketing
relationships with approximately 315 hotels in approximately 160 cities
worldwide, including New York, Rome, London, Madrid, Hong Kong, Shanghai, Warsaw
and Caracas.
The Company derives substantially all of its revenues from the sale of
membership programs for hotels in international markets. These membership
programs typically are provided pursuant to exclusive marketing contracts with
client hotel and hotel chains. Under these contracts, the Company assumes
responsibility for the design, marketing and management of all aspects of each
membership program, utilizing the Company's own marketing infrastructure to
generate members for each program. The Company's members are typically affluent
individuals employed in top positions within small to medium-sized businesses
and professional organizations. As a general matter, individuals may cancel a
membership within ten days of initial commitment for a full refund.
Historically, the Company has not experienced a significant number of such
cancellations. Memberships are typically one year. Membership fees are typically
billed to the members' credit card.
Membership fees earned are recorded, net of cancellations. Membership fees
and related costs of acquisition are deferred and amortized as membership
revenues on a straight-line basis over the membership period in order to provide
a matching of revenue and expense with the service period. The Company's cost of
revenues consists primarily of telemarketing payroll, hotel program fees,
telephone costs, printing and distribution costs of membership materials and
processing fees. The Company has frequently entered into hotel program fee
arrangements as part of its hotel membership programs. Such arrangements
typically involve the payment of a percentage of individual membership fees,
after costs, to the participating hotel. The Company typically determines the
percentage to be payable to the hotel on a case-by-case basis. Accordingly, any
significant increase in the percentage of membership fees payable to
participating member hotels, as a result of relative bargaining power, increased
competition or other factors, would reduce the Company's operating margins and
could have a material adverse effect on the Company's business, financial
condition and results of operations. In certain instances, the Company has
provided, and
24
<PAGE>
may in the future provide, participating client hotels with lump-sum payments in
lieu of hotel program fees. The Company may not be able to recover such amounts
from resulting membership or other fees. Any material shortfall in anticipated
or projected membership and related fees relating to such arrangements could
have a material adverse effect on the Company's business, financial condition
and results of operations.
General and administrative expenses consist of management and administrative
salaries and payroll-related costs, legal and accounting fees, travel,
advertising and marketing, rent and other corporate overhead. The Company
expects general and administrative expenses to increase in the future due to the
hiring of additional personnel and the expansion of infrastructure necessary to
continue offering its membership programs, the start-up costs of new programs
and the introduction of new products and services. In certain geographic
regions, the Company recently began offering a calling card and a co-branded
credit card to members of its hotel membership programs. The Company expects the
costs associated with these new products to increase in future periods. In
addition, as a result of the reorganization, the Company expects to incur
salaries and related costs for the Principals.
In 1997, the Company generated 25.0%, 28.5%, 44.8% and 1.7% of its revenues
in the American, European, Asian and Middle Eastern/North African regions. In
all foreign operations, both revenues and expenses occur primarily in the
functional currency of the foreign location in which the Company operates.
Inflation and rapid fluctuations in inflation rates in a particular country have
had, and may continue to have, an adverse effect on the marketability of the
Company's membership programs in that country. In addition, the Company
typically converts into U.S. dollars foreign revenues and expenses on a weekly
basis. Fluctuations in currency rates in connection with such conversions may
affect the period to period comparisons of operating results. As of March 31,
1998, the Company did not engage in financial instruments intended to hedge
against such foreign exposures. However, the Company may in the future undertake
such transactions if management determines that it is necessary to offset such
risks. There can be no assurance that any use of such hedging transactions will
be sufficient to manage the risk of foreign currency fluctuations. See "Risk
Factors--Risks Associated with International Operations" and "--Risks Associated
with Currency Fluctuations and Inflation."
Effective prior to the closing of the offering, HMC LLC will be merged with,
and into, the Company, with the Company as the surviving entity. As a result of
the merger, HMC Inc., Call Connect, Inc. and each of the Foreign Entities will
be operating subsidiaries of the Company. The Reorganization has been structured
as a tax-free reorganization. The accounting for the Reorganization will be
similar to the accounting for a pooling of interests, as it represents an
exchange of equity interests among companies under common control.
Until consummation of the Reorganization, the Principals were obligated to
pay U.S. federal and certain state income taxes on their allocable portion of
the income of HMC LLC. HMC LLC has made various distributions to the Principals
totalling approximately $2.0 million, $5.1 million, $4.0 million, and $820,000
during the 1995, 1996 and 1997 fiscal years and the three months ended March 31,
1998, respectively. In connection with this offering, the Company expects to
make distributions to the Principals of approximately $5.0 to $9.0 million
consisting of undistributed earnings as of the date of the Merger, the value of
prepaid taxes accruing to the benefit of the Company and certain foreign tax
credits. The Company plans to declare these distributions to the Principals
prior to the consummation of the Merger. The Principals will continue to receive
their normal periodic distributions prior to the consummation of the
Reorganization. See "Reorganization," "Use of Proceeds," "Certain Transactions"
and Note 9 of Notes to Consolidated Financial Statements.
25
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain operating data of the Company
expressed as a percentage of revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues............................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues....................................................... 65.0 64.0 64.7 66.3 63.9
--------- --------- --------- --------- ---------
Gross margin......................................................... 35.0 36.0 35.3 33.7 36.1
General and administrative costs....................................... 29.8 23.4 22.9 19.0 25.5
Interest expense....................................................... (0.3) (0.6) (0.9) (0.7) (1.8)
Foreign currency transaction gain (loss)............................... (0.4) 0.2 (0.1) (0.4) 0.4
Other income (expense)................................................. 0.2 (0.2) 0.1 0.5 (0.4)
--------- --------- --------- --------- ---------
Net income........................................................... 4.7% 12.0% 11.5% 14.1% 8.8%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
REVENUES. Revenues increased from $7.8 million for the three months ended
March 31, 1997 to $7.9 million for the three months ended March 31, 1998. During
the quarter ended March 31, 1998, management resources were invested in building
infrastructure to address the growth experienced over the prior twelve months
and to position the Company for anticipated growth, including strategically
redeploying key operations personnel, hiring and training of additional program
and operation managers, establishing new subsidiaries and exploring sources of
additional capital for the Company.
COST OF REVENUES. Cost of revenues decreased from $5.2 million for the
three months ended March 31, 1997 to $5.0 million for the three months ended
March 31, 1998 primarily as a result of operational efficiencies achieved
through consolidation of call centers as the Company continued to establish
permanent call centers to replace temporary, hotel-based, call centers in a
number of strategic locations. As of March 31, 1998, the Company had 45 such
permanent call centers as opposed to 27 at March 31, 1997.
GENERAL AND ADMINISTRATIVE COSTS. General and administrative expenses
increased from $1.5 million for the three months ended March 31, 1997 to $2.0
million for the three months ended March 31, 1998. This increase is primarily
attributable to the hiring of additional corporate personnel, increased
occupancy costs and travel costs.
INTEREST EXPENSE. Interest expense increased from $58,000 for the three
months ended March 31, 1997 to $144,000 for the three months ended March 31,
1998. This increase is primarily attributable to an increase in the Company's
outstanding indebtedness on its lines of credit.
FOREIGN CURRENCY TRANSACTION GAIN (LOSS). Foreign currency transaction
losses were $28,000 for the three months ended March 31, 1997 compared to
transaction gains of $33,000 for the three months ended March 31, 1998.
OTHER EXPENSE. Other expense increased from net income of $37,000 for the
three months ended March 31, 1997 to expense of $29,000 for the three months
ended March 31, 1998. Other expenses include the results of foreign currency
transactions, as well as nonoperating income and expenses.
26
<PAGE>
YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES. Revenues increased from $27.3 million for the year ended December
31, 1996 to $31.9 million for the year ended December 31, 1997. This increase in
revenues is primarily attributable to the commencement of additional hotel
membership programs in Asia, Italy and Lebanon resulting from contracts signed
in the prior year.
COST OF REVENUES. Cost of revenues increased from $17.5 million for the
year ended December 31, 1996 to $20.7 million for the year ended December 31,
1997. The increase is primarily attributable to the increased number of call
centers and an increase in hotel program fees resulting from the increased
number of hotel membership programs in Asia.
GENERAL AND ADMINISTRATIVE COSTS. General and administrative expenses
increased from $6.4 million for the year ended December 31, 1996 to $7.3 million
for the year ended December 31, 1997. This increase is attributable to the
addition of administrative personnel, increased travel costs due to the
Company's geographic expansion in Asia, increased advertising and marketing
costs and an increase in the provision for doubtful accounts.
INTEREST EXPENSE. Interest expense increased from $167,000 for the year
ended December 31, 1996 to $285,000 for the year ended December 31, 1997. This
increase is attributable to interest expense on the Original Partnership Note
which was outstanding for a full year in 1997, but only six months in 1996.
FOREIGN CURRENCY TRANSACTION GAIN (LOSS). Foreign currency transaction
gains were $51,000 for the year ended December 31, 1996 as compared to foreign
currency transaction losses of $46,000 for the year ended December 31, 1997.
OTHER INCOME. Other income increased from expenses of $43,000 for the year
ended December 31, 1996 to income of $42,000 for the year ended December 31,
1997.
YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues increased from $21.2 million for the year ended December
31, 1995 to $27.3 million for the year ended December 31, 1997. This increase is
attributable to the commencement of additional hotel membership programs into
new countries in Asia, including China, Singapore and Taiwan, as well as an
increase in the number of members in its programs.
COST OF REVENUES. Cost of revenues increased from $13.8 million for the
year ended December 31, 1995 to $17.5 million for the year ended December 31,
1996. This increase is attributable to the increased number of call centers and
an increase in hotel program fees resulting from the increased number of hotel
membership programs in Asia.
GENERAL AND ADMINISTRATIVE COSTS. General and administrative expenses
increased from $6.3 million for the year ended December 31, 1995 to $6.4 million
for the year ended December 31, 1996. This decrease as a percentage of revenue
is attributable to the leveraging of fixed general and administrative costs as
revenues increased from year to year.
INTEREST EXPENSE. Interest expense increased from $72,000 for the year
ended December 31, 1995 to $167,000 for the year ended December 31, 1996. This
increase in interest expense is attributable to interest expense on the Original
Partnership Note which was made on July 1, 1996, and increased borrowings on the
Company's lines of credit.
FOREIGN CURRENCY TRANSACTION GAIN (LOSS). Foreign currency transaction
losses were $83,000 for the year ended December 31, 1995 compared to transaction
gains of $51,000 for the year ended December 31, 1996.
27
<PAGE>
OTHER EXPENSE. Other expense increased from income of $55,000 for the year
ended December 31, 1995 to expense of $43,000 for the year ended December 31,
1996.
QUARTERLY RESULTS
The following tables present unaudited quarterly financial information for
the nine quarters ended March 31, 1998. The information has been prepared by the
Company on a basis consistent with the Company's audited consolidated financial
statements appearing elsewhere in this Prospectus and includes all necessary
adjustments, consisting only of normal recurring adjustments, that management
considers necessary for a fair presentation of the unaudited quarterly results
when read in conjunction with the audited consolidated financial statements of
the Company and the notes thereto appearing elsewhere in this Prospectus. These
operating results for any quarter are not necessarily indicative of results that
may be expected for any subsequent periods.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $ 6,019 $ 6,584 $ 7,130 $ 7,564 $ 7,777 $ 8,051 $ 8,038
Cost of revenues.............. 3,729 4,181 4,599 4,962 5,155 5,211 5,170
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross margin................ 2,290 2,403 2,531 2,602 2,622 2,840 2,868
General and administrative
costs....................... 1,703 1,612 1,682 1,399 1,477 1,948 1,680
Interest expense.............. (39) (40) (42) (46) (58) (55) (67)
Foreign currency transaction
gain (loss)................. 13 13 13 12 (28) 3 (27)
Other income (expense)........ 9 6 (30) (28) 37 (21) 16
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income.................... $ 570 $ 770 $ 790 $ 1,141 $ 1,096 $ 819 $ 1,110
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
DEC. 31, MARCH 31,
1997 1998
----------- -----------
<S> <C> <C>
Revenues...................... $ 8,040 $ 7,873
Cost of revenues.............. 5,122 5,033
----------- -----------
Gross margin................ 2,918 2,840
General and administrative
costs....................... 2,199 2,005
Interest expense.............. (105) (144)
Foreign currency transaction
gain (loss)................. 6 33
Other income (expense)........ 10 (29)
----------- -----------
Net income.................... $ 630 $ 695
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................. 62.0 63.5 64.5 65.6 66.3 64.7 64.3
----- ----- ----- ----- ----- ----- -----
Gross margin................ 38.0 36.5 35.5 34.4 33.7 35.3 35.7
General and administrative
costs....................... 28.3 24.5 23.6 18.5 19.0 24.2 20.9
Interest expense.............. (0.6) (0.6) (0.6) (0.6) (0.7) (0.7) (0.8)
Foreign currency transaction
gain (loss)................. 0.2 0.2 0.2 0.2 (0.4) 0.0 (0.4)
Other income (expense)........ 0.2 0.1 (0.4) (0.4) 0.5 (0.2) 0.2
----- ----- ----- ----- ----- ----- -----
Net income.................... 9.5% 11.7% 11.1% 15.1% 14.1% 10.2% 13.8%
----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- -----
<CAPTION>
DEC. 31, MARCH 31,
1997 1998
----------- -----------
<S> <C> <C>
Revenues...................... 100.0% 100.0%
Cost of sales................. 63.7 63.9
----- -----
Gross margin................ 36.3 36.1
General and administrative
costs....................... 27.4 25.5
Interest expense.............. (1.3) (1.8)
Foreign currency transaction
gain (loss)................. 0.1 0.4
Other income (expense)........ 0.1 (0.4)
----- -----
Net income.................... 7.8% 8.8%
----- -----
----- -----
</TABLE>
Beginning in 1996, the Company grew its membership base by expanding its
operations into certain Asian, European and Middle Eastern markets. As a result,
revenues increased during each of the quarters in 1996 and the first and second
quarters of 1997. For the second, third and fourth quarters of 1997, revenue
stabilized as the Company shifted its focus from membership sales in established
markets to developing programs in new markets. As the Company established
operations in these new markets, management and sales personnel resources were
repositioned from other markets to develop, strengthen operations and establish
permanent geographic presence. This caused a slight decline in revenues for the
first quarter of 1998.
Total costs of sales have generally increased in absolute dollars over the
quarters presented due to the Company's increased operations in Asia, Europe and
the Middle East and the costs associated with
28
<PAGE>
membership acquisition in these markets. As the number of membership programs in
a particular country increases, the Company typically consolidates operations in
that country by combining call centers, hiring additional managerial personnel,
and reallocating available human resources to new regions or countries. General
and administrative expenses have been generally flat in absolute dollars during
the quarters presented. However, these expenses in the fourth quarter of 1997
and the first quarter of 1998 increased primarily because of additional hiring
of key management personnel.
FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY
The Company believes that its future operating results may be subject to
quarterly and annual fluctuations based on numerous factors, including general
economic conditions and seasonal trends associated with the hotel industry. The
Company's revenues and profits on a quarterly basis can be affected by such
factors as: the number of additional members and renewals in a period; currency
fluctuations, inflation and currency devaluation in countries with active
membership programs; the number of new membership programs and cost of
initiating and managing new membership programs, including the cost of hiring
additional personnel and starting up new telemarketing offices in international
markets; changes in the cost of or sales cycle associated with member
procurement; scheduled payments to or from client hotels; the mix of products
and services offered by the Company; lack of acceptance of the Company's
products and services by the Company's members and clients; holidays and
vacation patterns; the cost, timing and significance of new product and service
introductions by the Company and its competitors; the intensity of product and
price competition; changes in operating expenses; changes in the demand for
membership programs generally; changes in the Company's sales incentive
strategy; personnel changes; unanticipated service interruptions; varying labor
costs; and telecommunications and information technology installations and
upgrades. Any one or more of these factors, many of which are beyond the
Company's control, could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, geographic
regions may experience varying periods of seasonality, based on local holidays
and customs. For example, the Company has historically experienced reduced
performance in Europe in the third quarter. Due to the Company's revenue
recognition policy, revenues from membership sales and the related costs are
amortized over the 12-month term of such memberships, which may mask seasonality
and other fluctuations. Increased revenues from the sale of other products and
services may increase the degree to which the Company experiences seasonality
and other fluctuations. Due to these factors, the Company believes
period-to-period comparisons of results of operations are not necessarily
meaningful and should not be relied upon as indicators of future results of
operations.
The Company's operating expenses are determined, in part, based on the
Company's expectations of future revenue growth and are substantially fixed. As
a result, unexpected changes in revenue levels will have a disproportionate
effect on net income in any given period. Future acquisitions may have an
adverse effect upon the Company's results of operation, particularly in quarters
immediately following consummation of such transactions, while the operations of
the acquired businesses are being integrated into the Company's operations. See
"Risk Factors--Fluctuations in Operating Results; Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has primarily funded operations through
operating activities. Net cash provided by operating activities was $586,000 for
the three months ended March 31, 1998 and $3.1 million for the year ended
December 31, 1997. In connection with the ten year renewal of a hotel group
marketing agreement, in 1997, the Company prepaid approximately $700,000 to a
hotel group in lieu of future hotel revenue sharing payments.
Deferred membership revenue, which includes cash already received or
included in accounts receivable from membership sales, $14.1 million at March
31, 1998, $14.7 million at December 31, 1997 and $14.5 million at December 31,
1996, is amortized over the related membership period. Deferred membership
acquisition costs, which include amounts already paid or included in trade
accounts payable or
29
<PAGE>
accrued liabilities, was $9.1 million at March 31, 1998, $9.6 million at
December 31, 1997 and $9.7 million at December 31, 1996 and is amortized as the
related revenue is recognized.
Capital expenditures were $66,000 for the three months ended March 31, 1998,
$218,000 in fiscal 1997, $70,000 in fiscal 1996, and $42,000 in fiscal 1995.
In November 1997, HMC LLC issued a Subordinated Promissory Note to
Hospitality Partners, LLC, an unrelated third party, for $3.0 million, which
matures on December 31, 2001. Interest is payable monthly at the applicable bank
prime rate commencing after December 31, 1999. The Company is subject to certain
financial covenants and restrictions under the terms of the Subordinated
Promissory Note, including the proscription of principal payments prior to
December 31, 1999. The Subordinated Promissory Note will be converted into
shares of Common Stock in the Merger prior to the closing of this offering. See
"Reorganization" and "Certain Transactions."
In July 1996, the Company issued a note payable due to the Original
Partnership for $1.8 million, which matures on January 1, 2002, for the purchase
of all hotel contracts and related business assets held by the Original
Partnership. Interest is payable monthly at 8% per annum. It is anticipated that
this note payable will be repaid out of the proceeds of the offering. See
"Reorganization," "Use of Proceeds" and "Certain Transactions."
In September 1995, the Company established a line of credit with a bank. The
line of credit provides for borrowings of up to $400,000, as amended, and is due
and payable April 1, 1999. Borrowings bear interest at 2% above the interest
rate earned (6.0% at December 31, 1997) by a pledged $400,000 time deposit
included in short term investments. The line of credit is secured by
substantially all of the assets of HMC Inc. and is guaranteed by three of the
Company's stockholders. Amounts outstanding under the line of credit was
$400,000 at March 31, 1998 and December 31, 1997. It is anticipated that amounts
outstanding under this line of credit will be repaid out of proceeds of this
offering. See "Use of Proceeds."
In October 1997, the Company established an additional line of credit with
the same bank for borrowings of up to $1,000,000. The line of credit bears
interest at the bank's prime rate (8.5% at December 31, 1997) plus 2% and is due
and payable on October 1, 1998. The line of credit is secured by substantially
all of the assets of HMC Inc. Amounts outstanding under the line of credit at
March 31, 1998 and December 31, 1997 were $802,000 and $702,000, respectively.
It is anticipated that amounts outstanding under this line of credit will be
repaid out of proceeds of this offering. See "Use of Proceeds."
In April 1997, the Company issued a $143,000 promissory note payable to a
bank. The note is due and payable April 1, 1999, as amended, and bears interest
at 2% plus the bank's prime rate (8.5% at December 31, 1997) per annum. The
Company is required to pay three principal payments of $25,000 plus accrued
interest quarterly commencing July 1, 1997 and, is required to pay a lump sum of
$68,300 on April 1, 1999. The note is secured by substantially all of the assets
of HMC LLC. It is anticipated that amounts outstanding under this note payable
will be repaid out of proceeds of this offering. See "Use of Proceeds."
YEAR 2000
Currently, many computer systems and software products are coded to accept
only two digit entries in the date code field. These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th century
dates. As a result, many companies' software and computer systems may need to be
upgraded or replaced in order to comply with such "Year 2000" requirements. The
Company and third parties with which the Company does business rely on numerous
computer programs in their day-to-day operations. The Company is evaluating the
Year 2000 issue as it relates to the Company's internal computer systems and
third party computer systems with which the Company interacts. The Company
expects to incur internal staff costs as well as consulting and other expenses
related to these issues; these costs will be expensed as incurred. In addition,
the appropriate course of action may include replacement
30
<PAGE>
or an upgrade of certain systems or equipment at a substantial cost to the
Company. There can be no assurance that the Year 2000 issues will be resolved in
1998 or 1999. The Company may incur significant costs in resolving its Year 2000
issues. If not resolved, this issue could have a significant adverse impact on
the Company's business, financial condition and results of operations. See "Risk
Factors--Year 2000."
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
Recent pronouncements of the Financial Accounting Standards Board ("FASB")
which are not required to be adopted until calendar 1998 and thereafter, include
the following Statements of Financial Accounting Standards ("SFAS"):
SFAS Number 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income (all changes in equity during a
period except those resulting from investments by and distributions to owners)
and its components in the financial statements. This new standard was adopted by
the Company effective January 1, 1998. The adoption of this standard did not
have a significant impact on the Company's financial statements.
SFAS Number 131, "Disclosure about Segments of an Enterprise and Related
Information," which will be effective for the Company for the year ending
December 31, 1998, establishes standards for reporting information about
operating segments in the annual financial statements, selected information
about operating segments in interim financial reports and disclosures about
products and services, geographic areas and major customers. This new standard
may require the Company to report financial information on the basis that is
used internally for evaluating segment performance and deciding how to allocate
resources to segments, which may result in more detailed information in the
notes to the Company's financial statements than is currently required and
provided. The Company has not yet determined the effects, if any, of
implementing SFAS Number 131 on its reporting of financial information.
31
<PAGE>
BUSINESS
THE FOLLOWING BUSINESS SECTION CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Hospitality Marketing Concepts Inc. is a leading provider of membership
programs for prestigious hotels and other clients in international and domestic
markets. The Company's hotel membership programs are designed to provide
participating hotels with improved consumer loyalty, increased patronage, an
additional channel for acquiring new customers and a more predictable recurring
revenue stream from a growing base of individual members. The Company's
marketing services address the growing needs of hotels and other businesses to
increase profitability, leverage the marketing expertise and infrastructure of
outside vendors and cost-effectively offer new and differentiated products and
services to customers. In marketing their facilities, many hotels and businesses
have limited resources to focus on the needs and demands of local and
international purchasing audiences with multiple languages and customs outside
the region in which they are located. The Company believes that its services
address the needs of three constituencies: client hotels, individual members and
clients in travel-related industries whose complementary products and services
are offered through the Company's membership programs. As of March 31, 1998, the
Company has established hotel membership programs and on-going marketing
relationships with approximately 315 client hotels in approximately 160 cities
worldwide, including New York, Rome, London, Madrid, Hong Kong, Shanghai, Warsaw
and Caracas.
INDUSTRY BACKGROUND
As the global market for goods and services becomes increasingly
competitive, businesses are endeavoring to strengthen relationships with
existing customers, attract new customers and generate predictable recurring
revenue streams from existing and new products and services. Accordingly,
businesses have substantially increased the use of direct marketing methods to
reach existing and potential customers. Direct marketing provides a convenient
and cost-effective method of marketing a wide variety of goods and services,
including lodging, dining, travel, telecommunications and financial products and
services. Traditional direct marketing methods include direct mail,
telemarketing, personal contact and the Internet's World Wide Web. According to
the Direct Marketing Association, sales revenue attributable to direct marketing
in the United States was estimated to be $1.2 trillion in 1997 and is estimated
to reach $1.8 trillion in 2002.
Membership programs are one of the fastest growing segments of the direct
marketing industry. Through membership programs, businesses typically offer
discounted products and services, efficient purchasing procedures, special
promotions for program members and access to customer service staffs. These
programs can provide substantial benefits to the businesses that participate in
such programs, individual members participating in the programs and other
businesses offering products and services to program members. For the business
participating in a program, the benefits can include new customers, increased
consumer loyalty and awareness, and new revenue streams from products and
services offered through the program. For the individual members, the benefits
can include enhanced service and other benefits that offset or exceed the cost
of membership. Through membership programs, other businesses can offer
additional products and services to a captive and receptive purchasing audience.
In most instances, membership programs offer businesses a cost-effective means
to attract potential customers, retain existing customers and offer
differentiated products and services.
In the hospitality industry, hotels constantly seek ways to attract
customers to fill their unoccupied rooms, utilize food and beverage services and
use conference and banquet facilities. In many markets, four and five-star
hotels offer facilities and restaurants which surpass other businesses offering
similar services.
32
<PAGE>
As most hotels must depreciate the large capital investments made in building,
acquiring or renovating new and existing properties, profitability relies on
active patronage and utilization of all operations, including room occupancy and
food and beverage purchases. To generate increased profitability, hotels market
their facilities to traditional customers consisting of business and vacation
travelers. To attract such customers, hotels often rely on traditional marketing
methods such as corporate and mass advertising, hotel and other travel reward
programs, sponsorship of travel organizations and word-of-mouth. These methods
have had limited success, however, at significantly increasing consumer loyalty
and retention because they attempt to influence the initial purchasing decision
of the travelling customer and provide minimal incentives to use the hotels'
facilities on a repeated basis. These methods have also had limited success at
generating an active customer base of local residents, particularly those
employed at small to medium-sized businesses who require access to the hotels'
food and beverage, lodging and conference facilities.
Many hotels and other businesses may lack the necessary marketing experience
and resources to cost-effectively increase distribution of their products and
services to international customers. In marketing their facilities, many hotels
and businesses have a limited understanding of the needs and demands of local
and international purchasing audiences as well as a limited knowledge of
languages and customs outside the region in which they are located. In addition,
qualified consumer information, including reliable contact, income and consumer
preference information, often is not readily available or collected for use by
third parties in international markets. This lack of qualified information often
renders it difficult and expensive to market existing and new products and
services effectively within local and international markets. In many
international markets, hotels are seeking alternative methods to attract and
retain a loyal base of customers who will frequent the hotels' facilities. These
hotels are also striving to attract and retain a larger base of local customers
to use the hotels' food and beverage facilities, book rooms for out of town
guests and use the hotels' conference and banquet facilities for meetings and
other events. Other businesses are also looking for new, cost-effective
distribution channels for both existing and new products. The Company believes
that there are significant opportunities for companies specializing in
designing, marketing and managing effective membership programs that increase
consumer loyalty and provide higher revenue for participating organizations.
THE HMC SOLUTION
HMC designs, markets and manages membership programs for prestigious hotels
and other clients in international and domestic markets. The Company's hotel
membership programs are designed to provide participating hotels with improved
consumer loyalty, increased patronage, an additional channel for acquiring new
customers and a more predictable recurring revenue stream from a growing base of
individual members. The Company's marketing services address the increasing need
of hotels and other businesses to increase profitability, leverage the marketing
expertise and infrastructure of outside vendors and cost-effectively offer new
and differentiated products and services to customers. In most instances, the
Company's membership programs produce increased patronage and a more predictable
recurring revenue stream that would be difficult for the client to achieve using
its internal resources. The Company believes that its services address the needs
of three constituencies: client hotels, individual members and clients in
travel-related industries whose complementary products and services are offered
through the Company's membership programs.
As of March 31, 1998, the Company has established hotel membership programs
and on-going marketing relationships with approximately 315 hotels in
approximately 160 cities worldwide, including Caracas, New York, Shanghai and
Warsaw. The Company selects prestigious, full-service hotels which are generally
four or five-star or "best in town" and creates hotel membership programs which
offer individual members a variety of benefits, including premium service,
complimentary nights, substantial discounts off published room rates and
complimentary food and beverage privileges when dining with a guest at hotel
restaurants. Approximately 175 of the Company's top client hotels honor
reciprocal membership benefits through the Company's CLUBHOTEL-TM- program, a
unique international network of four and five-star
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hotels such as the Shangri-La Mactan Island, Pan Pacific Kuala Lumpur, Victoria
Intercontinental (Warsaw) and Husa Palace Barcelona. To establish its membership
programs, the Company generally enters into exclusive marketing contracts with
hotels. Under these contracts, the Company assumes responsibility for the
design, marketing and management of all aspects of each membership program,
utilizing its own marketing infrastructure to generate members for each program.
The Company also provides ongoing marketing support services, including market
research, customer service and membership renewal programs.
The Company's marketing services and membership programs provide substantial
benefits to its hotel clients, individual members and clients in travel-related
industries whose products and services are offered through the Company's
membership programs. The Company's services and programs are designed to provide
hotel clients with increased patronage and consumer loyalty from both a local
membership base and the Company's domestic and international membership base and
a more predictable recurring revenue stream. Individual members of the Company's
hotel membership programs have access to enhanced services and benefits which
exceed the cost of membership. The Company also provides hotel and other clients
with local access to domestic and international markets and to a receptive
purchasing audience of a growing base of individual members through an
established distribution channel, a network of ongoing marketing relationships
with approximately 315 hotels worldwide. Each telemarketing office is staffed
with program managers who are familiar with the local language and customs. The
Company manages membership programs and provides marketing services for clients
without a significant capital investment or commitment of managerial resources
from its clients. The Company believes that its services represent a high value
alternative to membership programs created and marketed using the clients'
internal resources or to membership programs created and marketed by other third
parties.
STRATEGY
HMC's objective is to become a leading provider of membership programs and
marketing services to clients and customers worldwide. The Company's strategy
for achieving this objective includes the following key elements:
EXPAND MEMBERSHIP PROGRAMS WITHIN HOTEL INDUSTRY. HMC intends to expand its
presence in the hotel industry in selected countries within Europe,
Asia/Pacific, Middle East/Africa and the Americas by offering additional local
hotel membership programs for existing and new four and five-star hotels
worldwide. The Company intends to capitalize on its accumulated marketing
expertise, knowledge of the hotel industry and global marketing infrastructure
to increase its active membership base, expand its presence in the hotel
industry and design, market and manage other membership programs.
ADVANCE THE HMC-SM- AND CLUBHOTEL-TM- BRANDS. In all aspects of its
operations, including its membership programs, the quality of its client hotels
and its telemarketing and customer service personnel, the Company is committed
to promoting HMC-SM- and CLUBHOTEL-TM- as names that represent premium hotel and
travel-related services. The Company seeks to promote this brand image through
additional membership programs with prestigious hotels, additional marketing
relationships with leading third-party service providers offering complementary
products and services, and an emphasis on high-quality, professional service. In
addition, the Company believes that offering high-quality, complementary
products and services in association with leading financial, telecommunication
and other service providers will advance the HMC-SM- and CLUBHOTEL-TM- brands.
CONSOLIDATE MARKETING INFRASTRUCTURE AND EXPAND DISTRIBUTION CHANNELS. The
Company is committed to consolidating its marketing infrastructure and expanding
its distribution channels to increase the efficiency and effectiveness of its
marketing services, cost-effectively offer a greater number of products and
services including membership programs and provide high-quality service to its
clients and members. The Company has established a global marketing
infrastructure of locally-staffed telemarketing offices in
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approximately 30 countries worldwide. The Company intends to further develop its
marketing infrastructure by consolidating and establishing permanent call
centers, hiring additional program and operation managers in targeted geographic
regions and enhancing its marketing training programs to ensure the highest
quality of service and professionalism and to increase the number of qualified
program and operations managers within the Company. The Company intends to
develop additional distribution channels for its products and services,
including marketing partnerships with major banks, credit card issuers and
travel agencies. The Company also anticipates enhancing its technological
infrastructure, including its member database, tracking and segmenting
capabilities to provide effective solutions for its clients.
OFFER COMPLEMENTARY PRODUCTS AND SERVICES. The Company intends to offer
complementary products and services within travel-related industries, such as
telephone and financial service products, to its members. The Company believes
that its established relationship with its members, the prestige associated with
its programs and its ability to discern the purchasing preferences of its
members provide it with significant opportunities to attract and retain an
actively purchasing, loyal customer base for such products and services. The
Company also believes that its established marketing infrastructure and network
of ongoing marketing relationships with approximately 315 hotels provides it
with an effective distribution channel for such products and services. In
certain geographic regions, the Company recently began offering a
competitively-priced calling card and a co-branded credit card to members of its
hotel membership programs. The Company expects to enter additional marketing
relationships with third-party service providers to continue offering new
products and services to a growing base of individual members.
EXPAND PROPRIETARY MEMBERSHIP DATABASE. The Company intends to expand its
proprietary membership database by adding new members, collecting additional
information on existing members and identifying qualified prospects through
member and client referrals. The Company also intends to augment its database
through local research and marketing efforts and the purchase of customer lists,
which the Company screens and qualifies. The Company believes that its
membership database is among the most established and comprehensive available in
certain international markets. The Company's database tracking and segmenting
abilities allow it to discern individual member purchasing preferences and
evaluate patronage across a client's facilities, including room and food and
beverage purchases by individual members. Using this information, the Company
believes that it is capable of offering membership programs and other products
and services that address the needs of its clients and members.
HOTEL MEMBERSHIP PROGRAMS
HMC designs, markets and manages membership programs for prestigious hotels
and other clients in markets worldwide. The Company's hotel membership programs
are designed to provide participating hotels with improved consumer loyalty,
increased patronage, an additional channel for acquiring new customers and a new
and predictable recurring revenue stream from a growing base of individual
members. In most instances, hotel clients receive benefits difficult for the
clients to achieve using the clients' internal resources. The Company hotel
membership programs offer individual members a variety of benefits, including
premium service, complimentary nights, substantial discounts off published room
rates and complimentary food and beverage privileges when dining with a guest at
hotel restaurants. In certain programs, members also receive discounts on
conference and banquet facilities at participating hotels. Individual members of
the Company's hotel membership programs have access to enhanced service and
benefits which exceed the cost of membership. As of March 31, 1998, the Company
had active membership programs for approximately 315 hotels and other clients in
approximately 160 cities worldwide.
The Company's services are provided pursuant to exclusive marketing
contracts with client hotels and hotel chains. Under these contracts, the
Company assumes responsibility for the design, marketing and management of all
aspects of each membership program, utilizing its own marketing infrastructure
to generate members. The Company believes that its accumulated expertise and
success in the hotel industry
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will enable it to continue offering high-quality membership programs to hotels
and hotel chains worldwide. To establish a hotel membership program, the Company
evaluates local market conditions and demands and designs program parameters,
membership goals and prices for hotel management. Within the hotel industry, the
Company chooses hotels which are rated with four or five stars by international
hotel guides or which are "best-in-town." The benefits offered through each
membership program are established based on each client's ability to provide the
desired mix of services to members. Once the membership program has been
designed, the Company identifies a potential purchasing audience of qualified
member prospects, prepares outbound and inbound scripts, informs its
telemarketing and managerial personnel of program parameters and initiates the
sales process. The Company typically provides ongoing marketing support
services, including market research, customer service and membership renewal
programs. In certain instances, the Company assists hotels with marketing
campaigns for special events and promotions.
The Company's membership programs are designed to attract value-sensitive
executives and professionals interested in premium service at local and
international hotels. The Company's members are typically affluent individuals
employed in the top positions within small to medium-sized businesses and
professional organizations. To acquire members, the Company's marketing staff
identifies qualified affluent individuals in targeted geographic regions and
telephonically contacts such individuals to offer participation in a membership
program. In many instances, the Company establishes a program office at the
client site and may manage multi-location membership programs from a single
site. The Company expands its membership base in a particular geographic region
by establishing additional membership programs with hotels and hotel chains
within that region. In many instances, once established within a particular
region the Company will consolidate its marketing resources to establish a
permanent marketing presence and achieve higher levels of efficiency.
Upon enrollment in a membership program, a member receives a detailed
information packet outlining the benefits provided by the program and an
embossed membership card which contains the member's name and membership number.
Membership information is often encoded on a magnetic strip on the back of the
card to facilitate the efficient identification and tracking of each member. As
a general matter, individuals may cancel a membership within ten days of initial
commitment for a full refund. Memberships are typically one year. Membership
fees are typically billed to the members' credit card. Renewals are generated by
telemarketing personnel specifically trained in renewal sales. The Company also
utilizes the renewal process to assess member satisfaction, update member
information, gather additional member data and obtain referrals.
The Company emphasizes professionalism and high-quality service in all of
its programs. Each member of the Company's telemarketing and managerial staff
has been trained to meet the sophisticated needs and profiles of the Company's
members. In addition, each program office is staffed with personnel familiar
with the local language and customs. The Company believes that on-going support
and high-quality service encourages member renewals and referrals and
strengthens member loyalty to the Company and the client. The Company assigns a
local service representative to each membership program, provides customer
service and assists members with problem resolution. The Company's customer
service call centers are available to members via toll free telephone numbers.
The Company also works closely with its clients' customer service staffs to
ensure that the clients' representatives are knowledgeable in matters relating
to the program.
CLIENT HOTELS
As of March 31, 1998, the Company had established hotel membership programs
and on-going marketing relationships with approximately 315 hotels in
approximately 160 cities worldwide, including New York, Rome, London, Madrid,
Hong Kong, Shanghai, Warsaw and Caracas. These relationships provide the Company
with additional members, significant cross-marketing opportunities for products
and services within the hotel industry and a distribution channel for branded
and co-branded products and services in travel related industries.
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The Company represents individual hotels and hotels belonging to leading
hotel chains such as:
Alhambra Palace (Granada)
China World Shangri-La (Beijing)
Dusit Nikko Manila (Manila)
Eden Garden (Jahor Bahru)
Edsa Shangri-La (Manila)
Far Eastern Plaza Shangri-La (Taipei)
Halcyon (London)
Hanoi Horison (Hanoi)
Hotel Barchetta Excelsior (Como)
Hotel Michelangelo (Milan)
Husa Princesa (Madrid)
Husa Palace Barcelona (Barcelona)
Jakarta Hilton (Jakarta)
Jolly Hotel Vittorio Veneto (Rome)
Kowloon Shangri-La (Hong Kong)
Minneapolis Hilton (Minneapolis)
Oriental Singapore (Singapore)
Pacific Star Guam (Guam)
Pan Pacific Kuala Lumpur (Kuala Lumpur)
Pan Pacific Singapore (Singapore)
Real Santander (Santander)
Regina Hotel Baglioni (Rome)
Royal Carlton Hotel (Bologna)
Shanghai Hilton (Shanghai)
Shangri-La Mactan Island (Cebu Island)
Sidi Saler (Valencia)
Son Vida (Mallorca)
Victoria Intercontinental (Warsaw)
Approximately 175 of the Company's top client hotels participate in the
Company's CLUBHOTEL-TM- network, a unique international network of hotels in
approximately 30 countries worldwide. Through CLUBHOTEL-TM-, participating
hotels honor reciprocal membership benefits nationally and internationally. All
members of local hotel membership programs are automatically enrolled into the
CLUBHOTEL-TM- program. The Company also offers CLUBHOTEL-TM- memberships
directly to individuals outside of a specific hotel membership program.
CLUBHOTEL-TM- members are also provided with centralized access to worldwide
accommodations through the Company's reservation center, currently provided
through its relationship with Anasazi Travel Resources Inc. The Company believes
that its CLUBHOTEL-TM- network enhances the value and prestige of its local
hotel membership programs and encourages consumer loyalty and increased
patronage by extending local membership benefits to participating hotels of
similar quality in other markets.
OTHER PRODUCTS AND SERVICES
The Company offers complementary products and services to its members.
CALLING CARD
The Company recently began offering a competitively-priced calling card to
members of its hotel membership programs. The Company's marketing strategy for
its calling card product consists of dedicated telemarketing efforts and other
direct marketing methods to selected potential purchasers within its database.
The Company intends to continue to promote the calling card through new and
existing points of contact within its membership programs. The Company has also
identified potential distribution channels for the calling card outside of
existing membership programs, such as marketing agreements with major banks and
credit card issuers, auto clubs and international student exchange programs. The
Company plans to target the international markets because it believes that
calling cards, as opposed to prepaid telephone cards, are less familiar and
available outside North America and represent a substantial opportunity for the
Company's calling card product.
The Company provides card production, billing and marketing for its Call
Connect-TM- calling card. Calling card charges are billed to members' credit
cards and processed based on preset increments and monthly invoices. Long
distance and customer service is provided by Sprint, which provides multiple
functions in order to meet the members' international business calling needs.
The Company's agreement with Sprint Communications Corporation, LLC (a division
of Sprint) has a 33-month term from January 1998 and certain minimum usage
requirements. The Company's rates vary based on usage levels during
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specified periods. Under the Agreement, the Company must use Sprint as its
primary domestic carrier and exclusive international carrier.
CREDIT CARD
The Company recently began offering a co-branded VISA credit card with
Standard Chartered Bank in Malaysia. The Company will receive a percentage of
all card charges and promotional fees from use of the card. This credit card
will be offered to CLUBHOTEL-TM- members in Malaysia. Standard Chartered Bank
will handle all collections, bear all operation costs and retain all bad debt
exposure. The Company may also enter into similar marketing partnerships to
offer credit cards in other countries in which the Company currently operates.
MARKETING PARTNERS
The Company has recently entered into marketing agreements with several
clients offering complementary products and services in travel-related
industries, including Halcon Viajes S.A. and Standard Chartered Bank.
Historically, the Company has selected premier providers within its core hotel
industry and within industries which provide complementary products. The
industries it has selected to date offer products that the Company believes its
existing membership will find valuable and will be likely to utilize. Partners
may also have an existing, established and qualified constituency to which the
Company will offer its own products and future products. Targeting this type of
marketing partner affords the Company benefits, including: access to an
established list of potential members through the partners' databases to whom it
can market existing and future product offerings; high-quality service
providers; immediate presence in new industries and an increase in the Company's
distribution network through such partners' existing channels.
MEMBERSHIP DATABASE
As of March 31, 1998, the Company had a proprietary, qualified database of
approximately 1.9 million persons, generally consisting of affluent
professionals and executives of small to medium-sized businesses, resident
primarily in international markets, which the Company has accumulated over the
last five years. Of this database, approximately 580,000 relate to current or
former members of hotel membership programs for which the Company collects
detailed demographic and contact data, including the industry in which the
member is employed, size of business, title, income, marital status and frequent
travel destinations. The Company believes that its local hotel club members
represent a receptive purchasing audience for both existing and new products and
services.
The Company regularly augments the information in its database with
transactional data received from the use of the Company's membership cards,
member renewals and referrals, information from marketing partners and data from
its own information acquisition efforts. Transactional data is also collected by
participating hotels as members purchase food and beverage, rooms and take
advantage of other benefits at participating hotels. The information contained
in its database provides the Company with insight into the travel and purchasing
preferences of its members and allows the Company to design effective marketing
programs to offer new membership programs, products and services. The
information also allows the Company to cost-effectively target a receptive
audience within its database and offer products and services that address the
needs of its members.
In international markets, the Company accumulates demographic and
transactional consumer information not readily available from other sources.
Together with the Company's overall marketing expertise, this information allows
the Company to effectively target specific purchasing audiences and design
effective marketing and membership programs offering unique combinations of its
clients' products and services. Upon its entry into a market, the Company
acquires available information from purchased lists and business directories, if
available, which are then qualified by the Company's local or regional
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telemarketing teams. The Company's telemarketing personnel verify such
information with prospective members and obtain additional information and
member referrals. In many international markets, purchased lists and business
directories are unavailable or insufficient. In such markets, the Company
conducts local area market research, followed by screening and list
qualification. Demographic, contact and other information is also updated as
part of the Company's renewal programs. The Company believes that this database
is among the most established and extensive available for transactional profiles
of affluent persons in certain international markets.
TECHNOLOGY
The Company has invested substantially in a management information system to
allow it to operate its business more efficiently and productively. The Company
regularly receives new member information from its local and regional call
centers, and the system routes that data to other Company facilities for member
fulfillment and allows the Company to mail member information kits to new
members rapidly. The system also receives transactional data from the Company's
clients on a regular basis, permitting the Company to update the member profile
information.
The Company's telecommunications system monitors the performance quality of
its customer service representatives and other aspects of its business. In
addition, the Company's marketing staff use the Company's database to review and
analyze lists of prospective and current members, in order to determine which
are most likely to respond to the Company's products and services.
GOVERNMENT REGULATION
The Company primarily markets its membership programs through its local and
regional telemarketers. The telemarketing industry has become subject to an
increasing amount of foreign, federal and state regulation in recent years,
including limitations on the hours during which telemarketers may call consumers
and prohibitions on the use of automated telephone dialing equipment to call
certain telephone numbers. The Company is also subject to various foreign,
federal and state regulations concerning the collection, distribution and use of
information regarding individuals. Compliance with these laws and regulations is
generally the responsibility of the Company even where it uses agents to conduct
the telemarketing, and the Company could be subject to a variety of enforcement
or private actions for any failure to comply with such regulations, which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
In addition, growing concern about privacy and the collection, distribution
and use of information about individuals has led to self-regulation of such
practices by the direct marketing industry and to increased governmental
regulation. The DMA, the leading trade association of direct marketers, has
adopted guidelines regarding the fair use of such information which it
recommends participants in the direct marketing industry follow. Although the
Company's compliance with the DMA's guidelines and applicable foreign, federal
and state regulations has not had a material adverse effect on the Company, no
assurance can be made that the DMA will not adopt additional guidelines or that
additional foreign, federal or state laws or regulations (including antitrust
and consumer privacy laws) will not be enacted or applied to the Company or its
clients and marketing partners. Any such guidelines, laws or regulations could
adversely affect the ability of the Company to collect and distribute consumer
information, increase the cost to the Company of collecting certain kinds of
information, preclude the use by direct marketers of information that the
Company could lawfully collect or otherwise have a material adverse effect on
the Company's business, financial condition and results of operations. To the
extent the Company's hotel and other clients do not comply with such guidelines,
laws or regulations, the Company may incur liabilities, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
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The Company's calling card operations are subject to foreign, federal and
state government regulation of long distance telephone services. The Company is
regulated at the federal level by the FCC. The Company is required to maintain
an authorization issued by the FCC, in connection with its international calling
card service, and the Company is in the process of obtaining such an
authorization. In addition, the FCC has required carriers to maintain both
domestic and international tariffs for services containing the
currently-effective rates, terms and conditions of service. The FCC has,
however, eliminated the tariffing requirement for domestic interstate
non-dominant carriers, and indeed prohibited the filing of such tariffs, but a
federal court of appeals has stayed the effectiveness of this detariffing order
pending appeal and the FCC's resolution of several petitions for
reconsideration. There can be no assurance of the outcome of these proceedings.
If the Company must negotiate individual contracts with each of its calling card
customers, it could have a material adverse effect on the Company's business,
financial condition and results of operations.
Any intrastate long distance telecommunications operations of the Company
are also subject to various state laws and regulations, including prior
certification, notification or registration requirements. Although the Company
does not intend to market its calling cards for intrastate use, there can be no
guarantee that customers will not use the calling cards for this purpose. For
any intrastate services, the Company generally must obtain and maintain
certificates of public convenience and necessity from regulatory authorities in
most states. In most of these jurisdictions, the Company must file and obtain
prior regulatory approval of tariffs for intrastate services. In addition, the
Company must update or amend the tariffs and, in some cases, the certificates of
public convenience and necessity when rates are adjusted or new products are
added to the long distance services offered by the Company. If the Company
becomes aware that intrastate calling is occurring, the Company intends to
comply with the applicable regulatory requirements. The FCC and numerous state
agencies also impose prior-approval requirements on transfers of control,
including corporate reorganizations, and assignments of certain regulatory
authorizations.
If the federal and state regulations governing the fees to be charged for
the origination and termination of calls by long-distance subscribers (such as
the Company's consumers) change, particularly if such regulations are changed to
allow variable pricing of such access fees based upon volume, such changes could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The FCC recently adopted a regulation which requires interexchange carriers
to compensate payphone providers for each toll-free number call placed. The
regulation allows such carriers to seek to recover these charges from their
customers, including through future contractual provisions with customers such
as the Company. The FCC rules required that, on an interim basis through October
1997, the interexchange carriers compensate payphone providers an amount
equivalent to $0.35 per call. On July 1, 1997, the D.C. Circuit upheld the
method of "carrier pays" for recovery of payphone compensation, but found the
$0.35 per call charge and interim payphone compensation plan was arbitrary and
capricious. The payphone compensation rules were remanded to the FCC for
reconsideration and the FCC subsequently adjusted the compensation amount to
$0.284 per call. On appeal, the D.C. Circuit again found this amount to be
arbitrary and capricious and remanded the revised rules to the FCC for further
explanation. On an interim basis, the compensation scheme adopted by the FCC
remains in effect until the FCC concludes its evaluation of these issues. The
FCC and D.C. Circuit have noted that the compensation scheme is subject to
retroactive adjustment, if the FCC considers such an adjustment appropriate. In
addition, carriers such as the Company that provide domestic interstate services
to end users must pay a fee each month for U.S. universal service funding, which
supports telecommunications services in remote areas of the U.S. and also
certain services used by schools and libraries. Currently, the Company must
contribute approximately 4% of its annual end user revenue (including both
domestic, interstate and international revenues). The Company is unable to
predict any changes in the level of this contribution or whether any such
changes could have a material adverse effect on the Company. The Company is
unable to predict whether this
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regulation or other potential changes in the regulatory environment could have a
material adverse effect on the Company. See "Risk Factors--Risks Associated with
Government Regulation."
COMPETITION
Competition in the membership program and direct marketing industry is
intense. The Company faces direct and indirect competition from a number of
sources and expects to experience increased competition in the future. The
Company competes with the internal marketing programs of clients and prospective
client hotels. For example, certain hotels have frequent guest programs that may
expand to offer benefits to their members similar to the Company's hotel
membership programs. Accordingly, there can be no assurance that current and
future client hotels will not elect to conduct all or a significant portion of
their marketing efforts internally. The Company also competes with marketing
services companies that employ a loyalty-driven marketing model similar to the
one developed by the Company, but which focus on a broader array of membership
programs. Companies such as Cendant Corporation and MemberWorks Incorporated
provide membership programs in the travel, dining and retail industries. The
Company's other competitors include a number of smaller, regional providers,
large retailers, travel agencies, financial institutions, credit card issuers
and other organizations that offer benefit programs to their customers and may
eventually include third-party service providers with whom the Company has
established marketing relationships. Such competitors may have greater
financial, personnel and marketing resources, greater name recognition and
larger customer bases than the Company. There can be no assurance that the
Company's competitors will not increase their emphasis on offering products and
services similar to those offered by the Company or begin offering products and
services that would be in direct competition with those which the Company may
want to offer in the future. There also can be no assurance that competitors
will not develop and successfully introduce competitive products and services,
that the introduction of such products and services will not cause a reduction
in the price at which the Company offers its products and services or that the
Company will be able to compete successfully for both members and client hotels
with any of these existing or potential competitors.
Competition for clients in the calling card product segment is highly
competitive, and the technology provided is rapidly evolving and subject to
constant change. Today there are numerous companies offering calling cards,
including companies such as AT&T Corp., British Telecom, MCI Communications
Corporation, Sprint/Global One and several other local and regional
international telephone companies, which are substantially larger than the
Company and have greater financial, personnel and marketing resources, greater
name recognition, and larger customer bases than the Company. These advantages
and contractual notice requirements restricting the Company's ability to change
pricing unilaterally may afford the Company's competition with more pricing
flexibility than the Company. The ability of the Company to compete effectively
in the telecommunication services market will depend upon the Company's
continued ability to provide access to high-quality services at prices generally
competitive with, or lower than, those charged by its competitors. There is no
assurance that the Company will be able to respond quickly and efficiently to
any changes in prices charged by such competitors. There can be no assurance
that competition from existing or new competitors or a decrease in the rates
charged for telecommunication services by major long distance carriers or other
competitors would not have a material adverse effect on the Company's business,
financial condition or results of operations.
The Company's management believes that it competes in the hotel industry
primarily on the basis of its demonstrated ability to attract consumers, ability
to identify, develop and offer innovative marketing programs, reputation for
quality, cost, international presence, technological expertise and the ability
to promptly provide clients with customized solutions to their sales and
marketing needs, without diverting management from its core business focus. See
"Risk Factors--Competition."
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EMPLOYEES
As of March 31, 1998, the Company employed 144 persons on a full-time basis
and 771 on a part-time or temporary basis. In a number of foreign countries in
which the Company operates, the Company often employs personnel through
temporary agencies. None of the Company's employees are represented by a labor
union. The Company believes that its employee relations are good.
FACILITIES
The Company operates locally on-site in its client hotels' facilities in
over 30 countries and maintains regional corporate offices on leased premises in
11 countries. The on-site locations are provided by the client hotels without
charge for telemarketing and membership services. The regional offices house
membership services representatives, operations personnel and telemarketing
personnel, principally engaged in renewal solicitations. These facilities range
from approximately 100 square feet to 3,400 square feet.
The Company leases space in Irvine, California as the Company's corporate
headquarters and main computer and telecommunications systems center. See
"Certain Transactions." The Company's lease agreement is for a term of three
years expiring in 2001 and covers approximately 13,100 square feet. The Company
leases approximately 1,300 square feet for its corporate office in Singapore
pursuant to a lease agreement with a term expiring in the year 2000. The Company
also leases approximately 3,100 square feet for its corporate office in Madrid,
Spain pursuant to a lease agreement expiring August 1, 2001.
LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation or in
settlement proceedings relating to claims arising out of its operations in the
normal course of business. The Company is not currently a party to any legal
proceedings, the adverse outcome of which, individually or in the aggregate, is
likely to have a material adverse effect on the Company's business, financial
condition and results of operations.
42
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information with respect to the
directors, executive officers and certain key employees of the Company as of
April 1, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Mokhtar Ramadan....................... 42 Chairman of the Board, President and Chief Executive Officer
Philip G. Hirsch...................... 45 Senior Vice President, Finance, Chief Financial Officer, Treasurer
and Director
Frans Van Steenbrugge................. 42 Senior Vice President, General Manager--Telecom
Fadi Ramadan.......................... 37 Senior Vice President, Americas, and Director
Sandra Case........................... 36 Senior Vice President, Asia/Pacific
Marwan Ramadan........................ 39 Senior Vice President, Europe/Middle East and Africa
KEY EMPLOYEES
Edmundo Iglesias...................... 47 Vice President, Sales and Marketing, Europe
Arturo Tolasi......................... 49 Vice President, Area Director Asia/Pacific
</TABLE>
MOKHTAR RAMADAN, a co-founder of the Company, has served as Chief Executive
Officer and Director of the Company since its inception. From 1987 to 1988, Mr.
Ramadan served as Director of Sales and Marketing for Compaq Computer GmbH. From
1980 to 1986, Mr. Ramadan was Product Marketing Manager for Texas Instruments
France. Mr. Ramadan received B.A. degrees in Business Administration and
Electronic Engineering from Seattle Pacific University and a M.B.A. degree from
Pacific Lutheran University.
PHILIP G. HIRSCH has served as Chief Financial Officer, Group Vice
President, Finance, and Treasurer of the Company since April 1998 and was
promoted to Senior Vice President and Director in May 1998. From 1987 to March
1998, Mr. Hirsch was with Price Waterhouse LLP, an independent accounting firm,
most recently as Managing Partner of its Century City, California office. From
July 1990 through June 1995, he was the partner in charge of its west region
transaction support (mergers and acquisitions) practice. Mr. Hirsch received a
B.A. degree in political science from the University of Pennsylvania, a B.S.
degree in finance from The Wharton School and a Masters degree in management and
accounting from the Kellogg Graduate School of Management at Northwestern
University and is a Certified Public Accountant.
FRANS VAN STEENBRUGGE has served as Group Vice President/General
Manager--Telecom of the Company since January 1998 and was promoted to Senior
Vice President in May 1998. From 1996 to 1997, Mr. Van Steenbrugge served as
Managing Director of France Telecom Mobile Services. From 1994 to 1995, Mr. Van
Steenbrugge provided management consulting services in human resources,
telecommunications and financial services. From 1978 to 1994, Mr. Van
Steenbrugge held various senior positions for American Express, most recently
serving as Vice President and General Manager of Travel Related Services for
several European regions.
FADI RAMADAN, a co-founder of the Company, has served as Group Vice
President, Americas, since 1997 and a Director since its inception and was
promoted to Senior Vice President in May 1998. From 1992 to 1996, Mr. Ramadan
served as Group Vice President, Europe/Middle East & Africa. From 1988 to 1991,
Mr. Ramadan served as Vice President of Operations. Prior to joining the
Company, Mr. Ramadan worked for National Marketing Concepts, serving as Manager
of Sales and, later, as Director of Operations worldwide.
43
<PAGE>
SANDRA CASE has served as Group Vice President, Asia/Pacific, of the Company
since 1995 and was promoted to Senior Vice President in May 1998. From 1988 to
1993, Ms. Case served as Director of Sales and Marketing, and in 1994 she was
promoted to Vice President. Prior to joining the Company, Ms. Case worked for
Commonwealth Hospitality as a senior executive in the sales and marketing
division. Ms. Case received a B.A. degree in History from Memorial & St. Mary's
University in Canada.
MARWAN RAMADAN, a co-founder of the Company, has served as Group Vice
President, Europe/Middle East and Africa, of the Company since 1997 and was
promoted to Senior Vice President in May 1998. From 1994 to 1996, Mr. Ramadan
served as the Company's Group Vice President, Americas. From 1988 to 1993, Mr.
Ramadan led the Company's international expansion efforts, initially focusing on
Canada and Europe. Prior to joining the Company, Mr. Ramadan operated a private
consulting firm. Mr. Ramadan received his Dottore degree in economics from the
University of Bologna, Italy.
EDMUNDO IGLESIAS has served as Vice President, Sales and Marketing, Europe
of the Company since April 1997. From 1973 to 1996, Mr. Iglesias worked with
Melia Hotels, serving as general manager of various hotels and, most recently,
as director of marketing and sales of Southeast Asia. Mr. Iglesias received a
M.B.A. degree from Brussels University.
ARTURO TOLASI has served as Vice President, Area Director Asia/Pacific of
the Company since April 1998. From 1992 to 1997, Mr. Tolasi worked with
Interesidence SpA, an Italian hotel group controlled by Premafin Holding,
serving as a Managing Director. From 1971 to 1991, Mr. Tolasi held various
positions with Hilton International, most recently serving as Area Director of
Food & Beverage for South America, Central America and the Caribbean. From 1966
to 1970, Mr. Tolasi held various positions in the hotel industry in Germany.
BOARD OF DIRECTORS AND COMMITTEES
The Company's Certificate of Incorporation and Bylaws provide that the
number of members of the Company's Board of Directors shall be determined by the
Board of Directors. The number of directors is currently three. The Board of
Directors is divided into three classes, with each class to be as nearly equal
in number as possible. At each annual meeting of stockholders, the successors to
the class of directors whose term expires at that time are elected to hold
office for a term of three years and until their respective successors are
elected and qualified. The terms of office expire at the Company's annual
meeting in the year indicated: Mokhtar Ramadan--2001; Philip Hirsch--2000; and
Fadi Ramadan--1999. The Company intends to appoint two additional directors (the
"Outside Directors") within the next six months. Such Outside Directors will be
appointed to serve on the Audit and Compensation Committees and will not be
employed by the Company nor affiliated with the Company's Founding Stockholders.
All of the officers identified above serve at the discretion of the Board of
Directors of the Company. Messrs. Mokhtar Ramadan, Marwan Ramadan and Fadi
Ramadan are brothers.
Although Hospitality Partners, LLC has the right until the consummation of
the offering to elect one director of the Company under the terms of the Loan
and Investment Agreement relating to the Subordinated Promissory Note,
Hospitality Partners, LLC has waived this right.
The Company's Board of Directors has not established a Compensation
Committee or an Audit Committee, but intends to do so upon appointment of the
Outside Directors. The Compensation Committee will consist of the Outside
Directors. The principal functions of the Compensation Committee will be to
review and determine executive compensation and to administer the Company's 1998
Stock Option Plan. The Audit Committee will consist of the Outside Directors.
The Audit Committee will make recommendations to the Board concerning the
engagement of independent auditors, review the auditing engagement, its results
and the Company's internal accounting controls, and direct investigations into
matters within the scope of its functions. The Board of Directors does not have
a nominating committee. However, the Board of Directors will consider nomination
recommendations from stockholders, which should be addressed to the Company's
secretary at its principal executive offices.
44
<PAGE>
DIRECTOR COMPENSATION
Directors do not currently receive any cash compensation from the Company
for their services as members of the Board of Directors, although they are
reimbursed for out-of-pocket expenses incurred in connection with attendance at
meetings of the Board of Directors.
EXECUTIVE COMPENSATION
None of the Company's executive officers received any salary or bonus in
1997. HMC LLC, is a limited liability company of which the executive officers
who held such offices in 1997 were all members. Consequently, such persons
received equity distributions from HMC LLC instead of employment compensation.
The following table indicates the equity distributions received by the Company's
executive officers in 1997 and their salary following consummation of this
offering.
<TABLE>
<CAPTION>
1997 EQUITY 1998 SALARY
DISTRIBUTIONS (POST-
NAME AND PRINCIPAL POSITION (1) OFFERING)(2)
- --------------------------------------------------------------------------------- --------------- --------------
<S> <C> <C>
Mokhtar Ramadan,
Chairman of the Board, President and Chief Executive Officer................... $ 1,147,205 $ 300,000
Philip G. Hirsch, (3)
Senior Vice President, Finance, Treasurer and Chief Financial Officer.......... N/A $ 175,000
Frans Van Steenbrugge, (4)
Senior Vice President, General Manager--Telecom................................ N/A $ 125,000
Fadi Ramadan,
Senior Vice President, Americas................................................ $ 1,381,047 $ 250,000
Sandra Case,
Senior Vice President, Asia/Pacific............................................ $ 325,461 $ 225,000
Marwan Ramadan,
Senior Vice President, Europe/Middle East and Africa........................... $ 1,155,529 $ 250,000
</TABLE>
- ------------------------
(1) Includes the following business-related expenses: $100,521, $44,497, $23,288
and $60,651 paid in annual premiums on insurance policies for Mokhtar
Ramadan, Fadi Ramadan, Sandra Case and Marwan Ramadan; $36,341 relating to
housing in Singapore for Sandra Case, and $29,365 and $20,975 relating to
housing in France for Fadi Ramadan and Marwan Ramadan, respectively, and car
allowances of $13,494, $18,128 and $7,324, respectively, for Mokhtar
Ramadan, Fadi Ramadan and Marwan Ramadan. In addition, Ms. Case has an
option to purchase 180,000 shares of Common Stock, with an exercise price of
$1.00 per share. See "Certain Transactions."
(2) In addition to the salary amount, Mr. Hirsch is entitled to a guaranteed
bonus of $75,000 under his employment contract with the Company and Mr. Van
Steenbrugge is entitled to receive an annual bonus equal to 1% for the first
year, and 1/2% for each year thereafter, of net revenues of Call Connect,
Inc. The other executive officers are eligible for an annual bonus in the
discretion of the Company's Board of Directors. See "--Employment
Agreements."
(3) Mr. Hirsch joined the Company in April 1998.
(4) Mr. Van Steenbrugge joined the Company in January 1998.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with all of its executive
officers and key employees. The agreements with the executive officers have
three year terms. Pursuant to these agreements, the executive officers receive
base salary in the amount of $300,000, $175,000, $125,000, $250,000,
45
<PAGE>
$225,000 and $250,000, for each of Mokhtar Ramadan, Philip Hirsch, Frans Van
Steenbrugge, Fadi Ramadan, Sandra Case and Marwan Ramadan, respectively. The
executive officers will be eligible to receive annual bonuses, at the sole
discretion of the Board; provided, that Philip Hirsch will receive a minimum
bonus of $75,000, and Frans Van Steenbrugge is entitled to receive an annual
bonus equal to 1% for the first year, and 1/2% for each year thereafter, of net
revenues of Call Connect, Inc.
If any agreement is terminated prior to its expiration for cause (as
defined) or upon death or disability, the Company must pay the executive officer
accrued salary, pro rata vacation, reimbursable expenses and certain other
benefits; provided, that in the case of a Principal's termination due to
disability, the Company continues to pay base salary and medical insurance for
12 months and, provided further, that in the event of a Principal's death, his
or her dependents will continue to receive medical benefits for 12 months.
If an agreement (other than Mr. Van Steenbrugge's) is terminated without
cause or as a result of the Company's material breach of the agreement, the
executive officer also receives an amount equal to the amount of his or her
annual salary remaining for the balance of the term of the agreement, or 12
months' salary, if greater in the case of Principals. In addition, all stock
options held by the executive officer to the extent not already vested or
exercisable become immediately exercisable, and life insurance, disability
insurance and health insurance benefits for the remainder of such term or 12
months, if greater, in the case of Principals. Principals also receive partial
bonus payments in certain instances. In addition, it is deemed a termination
without cause if a Principal terminates his employment for certain reasons,
including a material diminution in the Principal's position or reduction in
compensation, and in the event a change in control, as defined, occurs.
Messrs. Hirsch and Van Steenbrugge were granted options to purchase 240,000
and 50,400 shares of Common Stock, respectively. Mr. Hirsch's options vest and
become exercisable 90 days after the date of grant as to 20% and the balance
vest in three equal installments annually. Mr. Van Steenbrugge's options vest
ratably over four years. To the extent not already vested, if the options would
terminate as a result of a change in control, then they become immediately
exercisable.
OPTION PLAN
1998 STOCK OPTION PLAN
The Company's 1998 Stock Option Plan (the "1998 Stock Option Plan") was
adopted by the Board of Directors in May 1998. A total of 1,500,000 shares of
Common Stock have been reserved for issuance under the 1998 Stock Option Plan.
As of May 31, 1998, no options to purchase shares of Common Stock had been
exercised under the 1998 Stock Option Plan and options to purchase 817,140
shares of Common Stock were outstanding. The outstanding options were
exercisable at an exercise price of $10.50 per share.
The purpose of the 1998 Stock Option Plan is to motivate, attract and retain
employees, directors and consultants of the Company and its related entities, to
provide incentives to such persons and to promote the success of the Company's
business. The 1998 Stock Option Plan provides for the granting to employees of
Incentive Stock Options and the granting of Nonqualified Stock Options ("1998
Awards").
The 1998 Stock Option Plan is administered by the Board of Directors or a
committee consisting of not less than two directors designated by the Board of
Directors and, to the extent required, constituted to permit such 1998 Awards to
be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3
thereunder. The plan administrator determines which individuals shall be granted
1998 Awards, and the provisions, terms and conditions of each 1998 Award,
including, but not limited to, the timing, exercise price and number of shares
subject to such award.
46
<PAGE>
1998 Awards are not transferable by the optionee other than by will or the
laws of descent or distribution, and each 1998 Award is exercisable during the
lifetime of the optionee only by such optionee.
The exercise price of options granted must be at least equal to the fair
market value of the Common Stock on the date of grant, and the term of the
options must not exceed ten years. With respect to an employee who owns stock
possessing more than 10% of the voting power of all classes of the Company's
outstanding capital stock, the exercise price of any Incentive Stock Option must
equal at least 110% of the fair market value of the Common Stock on the grant
date and the term of the option must not exceed five years. The consideration to
be paid for the shares of Common Stock upon exercise of a 1998 Award will be
determined by the plan administrator and may include cash or its equivalent,
shares of previously acquired Common Stock, foregoing of compensation, the
surrender of fully exercisable options or any combination of the above.
Where the 1998 Award agreement permits the exercise or purchase of the 1998
Award for a certain period of time following the recipient's termination of
service with the Company, disability, or death, the 1998 Award will terminate to
the extent not exercised or purchased on the last day of the specified period or
the last day of the original term of the 1998 Award, whichever occurs first.
Unless terminated sooner, the 1998 Stock Option Plan will terminate
automatically in 2008. The Board has the authority to amend, modify or terminate
the 1998 Stock Option Plan subject to stockholder approval of certain amendments
and provided no such action may adversely affect 1998 Awards previously granted
under the 1998 Stock Option Plan unless agreed to by the affected persons.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation and Bylaws provide that the
Company shall indemnify all directors and officers and may indemnify any
employee or agent to the fullest extent permitted by Section 145 of the DGCL, as
it now exists or as amended. The Company intends to enter into agreements to
indemnify its directors and officers, in addition to indemnification provided
for in the Company's charter documents. These agreements, among other things,
provide for the indemnification of the Company's directors and officers for
certain expenses (including attorneys' fees), judgments, fines and amounts
incurred by any such person in any action or proceeding, including any action by
or in the right of the Company, arising out of such person's services as a
director or officer of the Company, any subsidiary of the Company or any other
company or enterprise to which such person provides services at the request of
the Company to the fullest extent permitted by applicable law. The Company
believes that these provisions and agreements will assist the Company in
attracting and retaining qualified persons to serve as directors, officers,
employees and agents.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for 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 DGCL or
(iv) for any transaction from which the director derived an improper personal
benefit. The Company's Certificate of Incorporation will provide for the
elimination of personal liability of a director for breach of fiduciary duty, as
permitted by Section 102(b)(7) of the DGCL.
The Underwriting Agreement provides for indemnification by the Underwriters
under certain circumstances of directors, officers and controlling persons of
the Company against certain liabilities, including liabilities under the
Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions contained in the Certificate of Incorporation and
Bylaws of the Company, the DGCL, the Underwriting Agreement or otherwise, the
47
<PAGE>
Company 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 Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit, or proceeding) is
asserted by such director, officer or controlling person in connection with the
Common Stock being registered hereunder, the Company will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The Company intends to purchase and maintain insurance on behalf of the
officers and directors insuring them against liabilities that they may incur in
such capacities or arising out of such status.
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.
48
<PAGE>
CERTAIN TRANSACTIONS
REORGANIZATION
The Company was incorporated in Delaware in May 1998 to consolidate the
operations of several entities in the same business and under common ownership
and management. As a result of the Merger, HMC Inc., Call Connect, Inc., and
each of the Foreign Entities will be operating subsidiaries of the Company. The
Reorganization will be consummated prior to the effectiveness of the offering.
Prior to the Reorganization, each of Mokhtar Ramadan, Fadi Ramadan and Marwan
Ramadan owned 31 2/3% and Sandra Case owned 5% of the outstanding member
interests of HMC LLC. In the Merger, Mokhtar Ramadan, Fadi Ramadan, Marwan
Ramadan, a trust of which the Ramadans are beneficial owners and Sandra Case
will receive 2,616,320, 2,616,320, 2,616,320, 131,040 and 420,000 shares of
Common Stock, respectively. See "Reorganization" and "Principal Stockholders."
TAX INDEMNIFICATION AGREEMENT
Upon the closing of the offering, the Company and the Principals will enter
into a tax indemnification agreement relating to their respective tax
liabilities. The agreement will provide for indemnification by the Company of
each of the Principals against all losses, liabilities, interest, penalties,
attorneys' and accountants' fees and taxes on the receipt of such
indemnification payments, resulting from any additional foreign, federal and
state income taxes imposed upon any of the Principals because of any change in
HMC LLC's income for the period from July 1996 through consummation of the
Reorganization. The Principals will indemnify the Company, to the extent of tax
refunds received by the Principals relating to the value of prepaid taxes
accruing to the benefit of the Company, if the Company is required to pay tax on
such deferred income without receiving the benefit of the prepayments made by
the Principals.
DISTRIBUTIONS TO THE PRINCIPALS
Because of its limited liability company status, HMC LLC has not paid
federal corporate income taxes. Instead, until consummation of the Merger, the
Principals are obligated to pay U.S. federal and certain state income taxes on
their allocable portions of the income of HMC LLC. HMC LLC has made various
distributions to the Principals, including distributions which have enabled them
to pay their income taxes on their allocable portions of the income of HMC LLC.
None of the Principals has ever received a salary from the Company. Prior to the
Reorganization, HMC LLC and certain of the Foreign Entities distributed to the
Principals an aggregate of $2.0 million, $5.1 million, $4.0 million and $820,000
in dividends or partnership distributions during the 1995, 1996 and 1997 fiscal
years and the three months ended March 31, 1998, respectively. Of these amounts,
Mokhtar Ramadan received $556,991, $941,445, $1,033,190 and $253,638,
respectively; Fadi Ramadan received $733,257, $1,176,811, $1,289,057 and
$273,418, respectively; Marwan Ramadan received $528,165, $940,912, $1,066,579
and $159,797, respectively; and Sandra Case received $142,594, $242,960,
$265,832 and $89,005, respectively. The Principals will continue to receive
their normal periodic distributions prior to the consummation of the
Reorganization. The Company plans to declare additional distributions of
approximately $5.0 to $9.0 million to the Principals prior to the consummation
of the Merger. See "Reorganization" and "Use of Proceeds."
OTHER BENEFITS TO PRINCIPALS
The Company has purchased insurance policies on the lives of the Principals
in the amount of approximately $15,000,000 for each of Mokhtar Ramadan, Fadi
Ramadan and Marwan Ramadan, and $6,600,000 for Sandra Case. The Principals are
entitled to the cash surrender value of their respective policies. Upon the
closing of the offering, the Company will cease paying premiums on the policies,
and each of the Principals either will receive the cash surrender value of the
policies or have the opportunity to continue the policies at his or her own
expense. As of May 8, 1998, the estimated cash surrender receivable by the
Principals is $119,024, $83,671, $115,170 and $67,831 for Mokhtar Ramadan, Fadi
Ramadan, Marwan Ramadan and Sandra Case, respectively. In 1995, 1996 and 1997,
premiums paid by the Company on insurance policies relating to the Principals
aggregated: $28,788, $40,001 and $100,521 for Mokhtar
49
<PAGE>
Ramadan; $18,377, $27,288 and $44,497 for Fadi Ramadan; $24,496, $35,214 and
$60,651 for Marwan Ramadan; and $4,650, $13,150 and $23,288 for Sandra Case.
The Company has also provided the Principals with automobiles and, in the
case of expatriates, housing allowances. See "Management--Executive
Compensation."
Each of the Principals has entered into an employment agreement with the
Company effective upon the completion of the offering, and Mr. Hirsch and Mr.
Van Steenbrugge have received options to acquire Common Stock. See
"Management--Employment Agreements."
THE ORIGINAL PARTNERSHIP
Prior to July 1996, the Original Partnership conducted certain of the
Company's hotel membership programs in Asia, Europe and Latin America. On July
1, 1996, HMC LLC purchased the assets and assumed the liabilities associated
with those programs for a purchase price of $1,762,270, represented by a
promissory note (the "Original Partnership Note"), bearing interest at 8%, with
interest payable monthly for five years commencing in January 1997, due in full
January 1, 2002. The loan agreement with respect to the Subordinated Promissory
Note prohibits any principal payment on the Original Partnership Note prior to
consummation of the offering.
The Original Partnership owns the land and approximately 13,100 square foot
building in Irvine, California, where the Company's headquarters is located. The
Company leases the property pursuant to a triple net lease providing for a
monthly rental of $19,000. The term of the lease extends until 2001, and
contains a three-year renewable option, with rental adjustments equal to the
percentage increase, if any, in the consumer price index. The total amounts paid
by the Company to the Original Partnership for rent were $89,000 for each of
1995, 1996, and 1997, respectively. The Company believes that the terms of the
lease are at least as favorable as might be obtained from an independent third
party.
SUBORDINATED PROMISSORY NOTE
In November 1997, Hospitality Partners, LLC made a $3.0 million loan to HMC
LLC. The Subordinated Promissory Note evidencing the loan provides for interest
at prime rate payable in arrears on the last day of each calendar month
commencing December 31, 1999, due in full December 31, 2001. On or prior to
consummation of the offering, the Subordinated Promissory Note will be converted
into 3,600,000 shares of Common Stock.
Under the terms of the agreement relating to the Subordinated Promissory
Note, Hospitality Partners, LLC received a contractual right, subject to certain
conditions, to require the Company to register its shares of Common Stock for
resale under the Securities Act. See "Description of Capital Stock--
Registration Rights." Hospitality Partners, LLC has agreed for 180 days from the
effective date of the offering not to sell or otherwise dispose of its shares.
In connection with the November 1997 investment by Hospitality Partners,
LLC, Sandra Case was granted an option to purchase an approximate 2% additional
equity interest in HMC LLC, and a comparable equity interest in each of the
related entities, for $180,000. This option will be converted in the Merger into
an option to purchase 180,000 shares of the Company at an exercise price of
$1.00 per share. The option is fully vested and exercisable.
BANK LINE OF CREDIT
The Company has a $400,000 revolving line of credit with Cedars Bank. The
loan is personally guaranteed by Mokhtar, Fadi and Marwan Ramadan. The Company
intends to repay the outstanding balance of this line of credit using a portion
of the proceeds of the offering. See "Use of Proceeds" and Note 5 of Notes to
Consolidated Financial Statements.
INDEMNIFICATION AGREEMENTS
The Company intends to enter into indemnification agreements with its
officers and directors containing provisions which may require the Company,
among other things, to indemnify the officers and directors against certain
liabilities that may arise by reason of their status or service as directors or
officers, and to advance them expenses incurred as a result of any proceeding
against them as to which they could be indemnified. See "Management--Limitation
on Liability and Indemnification Matters."
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's outstanding Common Stock as of March 31, 1998 (giving
effect to the Reorganization) and as adjusted to reflect the sale of the Common
Stock offered hereby (i) each person who is known by the Company to be the
beneficial owner of more than 5% of the Company's Common Stock, (ii) each of the
Company's directors, (iii) each of the Company's executive officers, and (iv)
all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY
NUMBER OF OWNED (2)
SHARES --------------------------
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER (1) OWNED (2) OFFERING OFFERING
- ------------------------------------------------------------------------------ ----------- ------------- -----------
<S> <C> <C> <C>
Mokhtar Ramadan (3)........................................................... 2,747,360 32.7%
Philip G. Hirsch (4).......................................................... 48,000 *
Frans Van Steenbrugge......................................................... 0 *
Fadi Ramadan (5).............................................................. 2,747,360 32.7
Sandra Case (6)............................................................... 600,000 7.0
Marwan Ramadan (7)............................................................ 2,747,360 32.7
Hospitality Partners, LLC (8)................................................. 3,600,000 30.0
All current directors and executive officers as a
group (6 persons) (9)....................................................... 8,628,000 100.0%
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares of
Common Stock.
(1) The address of all persons on the list set forth above is: 15751 Rockfield
Boulevard, Suite 200, Irvine, California 92718.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The persons named in this table have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws
where applicable and except as indicated in the other footnotes to this
table. Percentage of beneficial ownership prior to the offering is based on
8,400,000 shares of Common Stock outstanding at March 31, 1998. Percentage
of beneficial ownership after the offering is based on total
shares outstanding, which includes the shares outstanding prior to the
offering identified above and 3,600,000 shares of Common Stock issuable upon
conversion by the Subordinated Promissory Note, plus shares of
Common Stock to be sold pursuant to the offering.
(3) Includes 416,640 shares held by Mokhtar Ramadan and Christine Ramadan,
Trustees of The Mokhtar and Christine Ramadan Children's Trust of 1998 and
131,400 shares held by Mokhtar Ramadan, Fadi Ramadan and Marwan Ramadan,
Trustees of The Ramadan Brothers Trust of 1998.
(4) Represents an option exercisable for 48,000 shares of Common Stock
exercisable within 60 days.
(5) Includes 416,640 shares held by Fadi Ramadan and Jane Ramadan, Trustees of
The Fadi and Jane Ramadan Children's Trust of 1998 and 131,400 shares held
by Mokhtar Ramadan, Fadi Ramadan and Marwan Ramadan, Trustees of The Ramadan
Brothers Trust of 1998.
(6) Includes 63,000 shares held by Sandra Case, Trustee of The Sandra Case
Children's Trust of 1998 and an option exercisable for 180,000 shares of
Common Stock exercisable within 60 days.
(7) Includes 416,640 shares held by Marwan Ramadan and Nikolitsa Ramadan,
Trustees of The Marwan and Nikolitsa Ramadan Children's Trust of 1998 and
131,400 shares held by Mokhtar Ramadan, Fadi Ramadan and Marwan Ramadan,
Trustees of The Ramadan Brothers Trust of 1998.
(8) Represents shares issuable upon conversion of the Subordinated Promissory
Note. See "Certain Transactions."
(9) Includes options and shares issuable upon conversion of the Subordinated
Promissory Note described in notes (3)-(7), above.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and certain
provisions of the Company's Certificate of Incorporation and Bylaws is a summary
and is qualified in its entirety by the provisions of the Certificate of
Incorporation and Bylaws, which have been filed as exhibits to the Company's
Registration Statement of which this Prospectus is a part.
Upon the completion of the offering, the authorized capital stock of the
Company after giving effect to the Reorganization and conversion of the
Subordinated Promissory Note into Common Stock will be 50,000,000 shares of
Common Stock, par value $.001 per share, and 5,000,000 shares of Preferred
Stock, par value $.001 per share.
COMMON STOCK
Prior to the offering, after giving effect to the Reorganization and
conversion of the Subordinated Promissory Note, there will be 12,000,000 shares
of Common Stock outstanding held of record by five holders. The holders of
Common Stock are entitled to one vote for each share held of record on all
matters submitted to a vote of stockholders. Stockholders do not have the right
to cumulate their votes in the election of directors. Subject to the preferences
that may be applicable to any outstanding shares of preferred stock, 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 for the payment of
dividends. See "Dividend Policy." Holders of Common Stock have no preemptive
rights. 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 the offering will be, fully
paid and nonassessable. In the event of a liquidation, dissolution or winding up
of the Company, holders of Common Stock are entitled to share ratably in all
assets remaining after payment of debts and liabilities and the liquidation
preferences of any outstanding shares of preferred stock, if any. The rights of
holders of Common Stock are subject to and qualified by, and may be adversely
affected by, the rights of any series of preferred stock which the Company may
issue in the future.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of Undesignated
Preferred Stock. The Board of Directors will have the authority to (i) issue the
Undesignated Preferred Stock in one or more series and to determine the powers,
preferences and rights and the qualifications, limitations or restrictions
granted to or imposed upon any wholly unissued series of Undesignated Preferred
Stock and (ii) fix the number of shares constituting any series and the
designation of such series without any further vote or action by the
stockholders. The issuance of such preferred stock may have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the voting and other
rights of the holders of Common Stock. See "Risk Factors--Control by Principal
Stockholders" and "--Anti-Takeover Effects of Delaware Law and Certain Charter
Provisions." At present, the Company has no plans to issue any shares of
preferred stock.
CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Certificate of Incorporation and Bylaws,
summarized in the following paragraphs, may be considered to have an
anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest or other takeover attempt that a stockholder might consider to be in
such stockholder's best interest, including such an attempt as might result in
payment of a premium over the market price for shares held by stockholders.
The Certificate of Incorporation and Bylaws provide for the Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the
52
<PAGE>
Board of Directors will be elected each year. Classification of the Board of
Directors expands the time required to change the composition of a majority of
directors and may tend to discourage a proxy contest or other takeover bid for
the Company. Moreover, under the DGCL, in the case of a corporation having a
classified board of directors, the stockholders may remove a director only for
cause.
The Certificate of Incorporation provides that special meetings of
stockholders may be called by the President and Chief Executive Officer or at
the request of a majority of the Board of Directors of the Company.
The Bylaws provide that stockholders seeking to bring business before a
meeting of stockholders, or to nominate candidates for election as directors at
a meeting of stockholders, must provide timely notice thereof in writing. To be
timely, a stockholder's notice to bring business before a meeting must be
delivered to, or mailed and received at, the principal executive office of the
Company not less than 60 days nor more than 90 days prior to the scheduled
meeting (or, if a special meeting, not later than the close of business on the
tenth day following the earlier of (i) the day on which such notice of the date
of the meeting was mailed, or (ii) the day on which public disclosure of the
date of the special meeting was made). The Bylaws also specify certain
requirements pertaining to the form and substance of a stockholder's notice.
These provisions may preclude some stockholders from making nominations for
directors at an annual or special meeting or from bringing other matters before
the stockholders at a meeting.
The Certificate of Incorporation does not allow the stockholders of the
Company to take action by written consent following completion of the offering.
Section 203 of the DGCL ("Section 203") prohibits a public 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 such person became an interested stockholder unless: (i) prior to such
date, the Board of Directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; or (ii) upon becoming an interested stockholder, the stockholder
then owned at least 85% of the voting stock, as defined in Section 203; or (iii)
subsequent to such date, the business combination is approved by both the Board
of Directors and by holders of at least 66 2/3% of the corporation's outstanding
voting stock, excluding shares owned by the interested stockholder. For these
purposes, the term "business combination" includes mergers, asset sales and
other similar transactions with an "interested stockholder." An "interested
stockholder" is a person who, together with affiliates and associates, owns (or,
within the prior three years, did own) 15% or more of the corporation's voting
stock.
The Certificate of Incorporation contains a provision that is designed to
limit the directors' liability to the extent permitted by the DGCL and any
amendments thereto. Specifically, directors will not be held liable to the
Company or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability as a result of: (i) any breach of the
duty of loyalty to the Company or its stockholders; (ii) actions or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) payment of an improper dividend or improper repurchase of HMC's
stock under Section 174 of the DGCL; or (iv) actions or omissions pursuant to
which the director received an improper personal benefit. The principal effect
of the limitation of liability provision is that a stockholder is unable to
prosecute an action for monetary damages against a director of the Company
unless the stockholder can demonstrate one of the specified bases for liability.
The provision, however, does not eliminate or limit director liability arising
in connection with causes of action brought under the federal securities laws.
The Certificate of Incorporation does not eliminate a director's duty of care.
The inclusion of this provision in the Certificate of Incorporation may,
however, discourage or deter stockholders or management from bringing a lawsuit
against directors for a breach of their fiduciary duties, even though such an
action, if successful, might otherwise have benefited HMC and its stockholders.
This provision should not affect the availability of equitable remedies such as
injunction or rescission based upon a director's breach of the duty of care.
53
<PAGE>
The Certificate of Incorporation and Bylaws also provide that the Company
will indemnify its directors and officers, and may indemnify any of its
employees and agents, to the fullest extent permitted by Delaware law. HMC is
generally required to indemnify its directors and officers for all judgments,
fines, penalties, settlements, legal fees and other expenses incurred in
connection with pending, threatened or completed legal proceedings because of
the director's or officer's position with HMC or another entity that the
director or officer serves at the Company's request, subject to certain
conditions and to advance funds to its directors and officers to enable them to
defend against such proceedings.
REGISTRATION RIGHTS
After the offering, Hospitality Partners, LLC will be entitled to certain
rights with respect to the registration of 3,600,000 shares under the Securities
Act. Under the terms of the agreement between the Company and the holder of such
registrable securities, if the Company proposes to register any of its
securities under the Securities Act, either for its own account or for the
account of other securityholders exercising registration rights, such holder is
entitled to notice of such registration and is entitled to include shares of
such Common Stock therein. Subject to certain limitations in the agreement, the
holder of registrable shares may require, on one occasion, that the Company use
its best efforts to register such shares for public resale, subject to certain
limitations. These rights are subject to certain conditions and limitations,
among them the right of the underwriters of an offering to limit the number of
shares included in such registration in certain circumstances. Hospitality
Partners, LLC has agreed not to exercise these registration rights for 180 days
following the effective date of the offering.
TRANSFER AGENT
The Transfer Agent and Registrar for the Common Stock is Norwest Trust Co.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the 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 prevailing prices and the ability of the
Company to raise equity capital in the future.
Upon completion of the offering, the Company will have outstanding
shares of Common Stock and options exercisable for 997,140 shares of
Common Stock, based on the number of shares of Common Stock and options
outstanding as of May 31, 1998 and giving effect to the conversion of the
Subordinated Promissory Note. Of these shares, the shares sold in
the offering will be freely tradable without restriction or further registration
under the Securities Act unless purchased by "affiliates" of the Company as that
term is defined in Rule 144 of the Securities Act. The remaining 12,000,000
shares will be "restricted securities" as that term is defined under Rule 144
(the "Restricted Shares"). Registered securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 promulgated under the Securities Act, which rules
are summarized below. Sales of Restricted Shares in the public market, or the
availability of such shares for sale, could adversely affect the market price of
the Common Stock.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year would be entitled to sell within any three-month period a number
of shares that does not exceed the greater of one percent of the number of
shares of Common Stock then outstanding or the average weekly trading volume of
the Common Stock as reported through the Nasdaq National Market during the four
calendar weeks preceding the filing of a Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
the Company. In addition, a person who is not deemed to have been an "affiliate"
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned for at least two years the shares proposed to be sold, would
be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. In general, Rule 701 permits resale of shares
issued pursuant to certain compensatory benefit plans and contracts commencing
90 days after the issuer becomes subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended, in reliance upon Rule 144 but
without compliance with certain restrictions, including the holding period
requirements, contained in Rule 144.
Upon completion of the offering none of the Restricted Shares of Common
Stock (all of which are subject to the Lock-Up Agreements) held by current
stockholders will be immediately eligible for sale in the public market pursuant
to Rule 144 of the Securities Act. In addition, 3,600,000 Restricted Shares of
Common Stock (all of which are subject to the lock-up agreements described
below) will be eligible for sale beginning 90 days after the date of this
Prospectus pursuant to Rule 144 and the remaining 8,400,000 will be eligible for
sale under Rule 144 beginning one year after the date of the Reorganization.
All directors, officers and stockholders holding in the aggregate 12,000,000
shares of Common Stock have agreed that for a period of 180 days after the date
of this Prospectus (the "Lockup Period") they will not, without the prior
written consent of BancAmerica Robertson Stephens, offer, sell, contract to sell
or otherwise dispose of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for any shares of Common Stock. See
"Underwriting."
The Company has granted registration rights to one of its securityholders.
See "Description of Capital Stock--Registration Rights."
55
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), acting through their
representatives,
BancAmerica Robertson Stephens and William Blair & Company (the
"Representatives"), have severally agreed with the Company, subject to the terms
and conditions of the Underwriting Agreement, to purchase from the Company the
number of shares of Common Stock set forth opposite their respective names
below. The Underwriters are committed to purchase and pay for all such shares if
any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
BancAmerica Robertson Stephens...................................................
William Blair & Company, L.L.C...................................................
----------
Total........................................................................
----------
----------
</TABLE>
The Company has been advised by the Representatives that the Underwriters
proposed to offer the shares of Common Stock 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, of
which $ may be reallowed to other dealers. After the initial public
offering, the public offering price, concession and reallowance to dealers may
be reduced by the Representatives. No such reduction shall change the amount of
proceeds to be received by the Company as set forth on the cover page of this
Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the same price per share as the Company
will receive for the shares that the Underwriters have agreed to purchase.
To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of the
shares offered hereby. If purchased, such additional shares will be sold
by the Underwriters on the same terms as those on which the shares are
being sold. The Company will be obligated, pursuant to the option, to sell
shares 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 Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the Underwriting Agreement.
Each officer, director and stockholder of the Company, together holding
approximately 12,000,000 shares of Common Stock, have agreed in writing with the
Representatives (the "Lock-Up Agreements") that, until 180 days after the
Registration Statement is declared effective by the Commission, subject to
certain limited exceptions, they will not, directly or indirectly, sell, offer,
contract to sell, pledge, grant any option to purchase or otherwise dispose of
any shares of Common Stock, any options or warrants to purchase any shares of
Common Stock, or any securities convertible into or exchangeable for, or any
other rights to purchase or acquire, Common Stock owned directly by them or
acquired by them after the date of the Lock-Up Agreements, or which may be
deemed to be beneficially owned by them, without the prior written consent of
BancAmerica Robertson Stephens. BancAmerica Robertson Stephens may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to the Lock-Up Agreements. In addition, the Company has
agreed that, until 180 days after the Registration Statement is declared
effective by the Commission, the Company will not, without the prior written
consent of BancAmerica Robertson Stephens, subject to certain limited
exceptions, sell, offer, contract to sell, pledge,
56
<PAGE>
grant any option to purchase or otherwise dispose of any shares of Common Stock,
any options or warrants to purchase any shares of Common Stock, or any
securities convertible into or exchangeable for, or any other rights to purchase
or acquire, shares of Common Stock, other than the Company's sale of shares in
this offering, the issuance of Common Stock upon the exercise of the outstanding
convertible securities or options, or the Company's grant of options and
issuance of stock under existing employee stock option or stock purchase plans.
See "Shares Eligible for Future Sale."
The Underwriters do not intend to confirm sales to any account over which
they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock offered hereby will be determined through negotiations among the Company
and the Representatives. Among the factors to be considered in such negotiation
are prevailing market conditions, certain financial information of the Company,
market valuations of other companies that the Company and the Representatives
believe to be comparable to the Company, estimates of the business potential of
the Company, the present stage of the Company's development and other factors
deemed relevant.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock. A "syndicate covering transaction"
is the bid for or the purchase of the Common Stock on behalf of the Underwriters
to reduce a short position incurred by the Underwriters in connection with the
offering. A "penalty bid" is an arrangement permitting the Representatives to
reclaim the selling concession otherwise accruing to an Underwriter or syndicate
member in connection with the offering if the Common Stock originally sold by
such Underwriter or syndicate member is purchased by the Representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such Underwriter or syndicate member. The Representatives have advised the
Company that such transactions may be effected on the Nasdaq National market or
otherwise and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Greenberg Glusker Fields Claman & Machtinger LLP, Los Angeles,
California. Certain legal matters relating to the offering will be passed upon
for the Underwriters by Cooley Godward LLP, Palo Alto, California.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
57
<PAGE>
ADDITIONAL INFORMATION
As permitted by the rules and regulations of the Securities and Exchange
Commission, this Prospectus omits certain information, exhibits, schedules and
undertakings set forth elsewhere in the Registration Statement on Form S-1 of
which this Prospectus forms a part. For further information pertaining to the
Company and the securities offered hereby, reference is made to such
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents or provisions of any documents
referred to herein are not necessarily complete, and in each instance, reference
is made to the copy of the document filed as an exhibit to this Registration
Statement. The Company will issue annual and quarterly reports. Annual reports
will include audited financial statements prepared in accordance with accounting
principles generally accepted in the United States and a report of its
independent auditors with respect to the examination of such financial
statements. In addition, the Company will issue to its securityholders such
other unaudited quarterly or other interim reports as it deems appropriate.
This Registration Statement may be inspected without charge at the office of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies may be
obtained from the Commission at prescribed rates from the Public Reference
Section of the Commission at such address, and at the Commission's regional
offices located at 7 World Trade center, 13th Floor, New York, New York 10048,
and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. In addition, registration statements and certain other filings
made with the Commission through its Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system are publicly available through the Commission's site
on the Internet's World Wide Web, located at http:\\www.sec.gov.
58
<PAGE>
HOSPITALITY MARKETING CONCEPTS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheet................................................................................. F-3
Consolidated Income Statement.............................................................................. F-4
Consolidated Statement of Stockholders' Deficit............................................................ F-5
Consolidated Statement of Cash Flows....................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Hospitality Marketing Concepts Inc.
THE REORGANIZATION DESCRIBED IN NOTE 1 TO THE CONSOLIDATED FINANCIAL
STATEMENTS HAS NOT BEEN CONSUMMATED. WHEN IT HAS BEEN CONSUMMATED, WE WILL BE IN
A POSITION TO FURNISH THE FOLLOWING REPORT:
"In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, stockholders' deficit and of cash flows
present fairly, in all material respects, the financial position of
Hospitality Marketing Concepts Inc. and its subsidiaries at December 31,
1997 and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above."
Price Waterhouse LLP
Costa Mesa, California
, 1998
F-2
<PAGE>
HOSPITALITY MARKETING CONCEPTS INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998
------------ ------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 1,694,000 $ 2,840,000 $ 1,380,000 $ 1,380,000
Short-term investments................................. 1,500,000 2,717,000 2,717,000
Trade receivables, net of allowance for doubtful
accounts of $100,000, $215,000 and $265,000 at
December 31, 1996 and 1997 and March 31, 1998,
respectively......................................... 539,000 1,026,000 1,586,000 1,586,000
Other current assets................................... 136,000 403,000 211,000 211,000
Deferred income taxes.................................. 877,000
Membership acquisition and other deferred costs........ 9,704,000 9,580,000 9,073,000 9,073,000
------------ ------------ ------------ -------------
Total current assets................................. 12,073,000 15,349,000 14,967,000 15,844,000
Fixed assets, net...................................... 252,000 378,000 419,000 419,000
Other assets........................................... 64,000 771,000 840,000 840,000
------------ ------------ ------------ -------------
$ 12,389,000 $ 16,498,000 $ 16,226,000 $ 17,103,000
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Lines of credit and current portion of notes payable... $ 300,000 $ 1,183,000 $ 1,310,000 $ 1,310,000
Trade accounts payable................................. 1,310,000 1,808,000 1,595,000 1,595,000
Accrued liabilities.................................... 1,227,000 940,000 1,681,000 1,574,000
Other current liabilities.............................. 249,000 614,000 436,000 436,000
Deferred membership revenues........................... 14,521,000 14,660,000 14,106,000 14,106,000
------------ ------------ ------------ -------------
Total current liabilities............................ 17,607,000 19,205,000 19,128,000 19,021,000
------------ ------------ ------------ -------------
Convertible note payable............................... 3,000,000 3,000,000
Note payable to stockholders........................... 1,763,000 1,763,000 1,763,000 1,763,000
Distribution payable to stockholders................... 7,000,000
------------ ------------ ------------ -------------
Total liabilities.................................... 19,370,000 23,968,000 23,891,000 27,784,000
------------ ------------ ------------ -------------
Commitments and contingencies (Note 7)
Stockholders' deficit:
Preferred stock, $0.001 par value; 5,000,000 shares
authorized; no shares issued and outstanding......... -- -- -- --
Common stock, $0.001 par value; 50,000,000 shares
authorized; 8,400,000 (12,000,000 pro forma) shares
issued and outstanding............................... 8,000 8,000 8,000 12,000
Additional paid-in capital............................. 3,103,000
Accumulated deficit.................................... (6,974,000) (7,317,000) (7,442,000) (13,565,000)
Accumulated other comprehensive income................. (15,000) (161,000) (231,000) (231,000)
------------ ------------ ------------ -------------
Total stockholders' deficit.......................... (6,981,000) (7,470,000) (7,665,000) (10,681,000)
------------ ------------ ------------ -------------
$ 12,389,000 $ 16,498,000 $ 16,226,000 $ 17,103,000
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
HOSPITALITY MARKETING CONCEPTS INC.
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------- ---------------------------
1995 1996 1997 1997 1998
------------- ------------- ------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.............................. $ 21,199,000 $ 27,297,000 $ 31,906,000 $ 7,777,000 $ 7,873,000
Cost of revenues...................... 13,788,000 17,471,000 20,658,000 5,155,000 5,033,000
------------- ------------- ------------- ------------ -------------
Gross margin.......................... 7,411,000 9,826,000 11,248,000 2,622,000 2,840,000
General and administrative costs...... 6,316,000 6,396,000 7,304,000 1,477,000 2,005,000
------------- ------------- ------------- ------------ -------------
Operating income...................... 1,095,000 3,430,000 3,944,000 1,145,000 835,000
Other income and expenses:
Interest expense.................... (72,000) (167,000) (285,000) (58,000) (144,000)
Foreign currency transaction gain
(loss)............................ (83,000) 51,000 (46,000) (28,000) 33,000
Other income (expense).............. 55,000 (43,000) 42,000 37,000 (29,000)
------------- ------------- ------------- ------------ -------------
Income before provision for income
taxes................................ 995,000 3,271,000 3,655,000 1,096,000 695,000
Provision for income taxes............
------------- ------------- ------------- ------------ -------------
Net income............................ $ 995,000 $ 3,271,000 $ 3,655,000 $ 1,096,000 $ 695,000
------------- ------------- ------------- ------------ -------------
------------- ------------- ------------- ------------ -------------
Net income per share--Basic and
diluted.............................. $ 0.12 $ 0.39 $ 0.43 $ 0.13 $ 0.08
------------- ------------- ------------- ------------ -------------
------------- ------------- ------------- ------------ -------------
Weighted average common shares:.......
Basic............................... 8,400,000 8,400,000 8,400,000 8,400,000 8,400,000
------------- ------------- ------------- ------------ -------------
------------- ------------- ------------- ------------ -------------
Diluted............................. 8,400,000 8,400,000 8,430,000 8,400,000 8,580,000
------------- ------------- ------------- ------------ -------------
------------- ------------- ------------- ------------ -------------
Unaudited pro forma data:
Unaudited pro forma net income (Note
9)................................ $ 1,604,000 $ 302,000
------------- -------------
------------- -------------
Unaudited pro forma net income per
share--Basic and diluted.......... $ $
------------- -------------
------------- -------------
Unaudited pro forma weighted average
common shares:
Basic.............................
------------- -------------
------------- -------------
Diluted...........................
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HOSPITALITY MARKETING CONCEPTS INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
--------------------- ACCUMULATED COMPREHENSIVE
SHARES AMOUNT DEFICIT INCOME TOTAL
---------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994................... 8,400,000 $ 8,000 $ (4,129,000) $ (45,000) $ (4,166,000)
Stockholder distributions.................... (2,011,000) (2,011,000)
Comprehensive income:
Foreign currency translation............... (74,000) (74,000)
Net income................................. 995,000 995,000
-------------
Comprehensive income......................... 921,000
---------- --------- ------------- ------------- -------------
Balance, December 31, 1995................... 8,400,000 8,000 (5,145,000) (119,000) (5,256,000)
Stockholder distributions.................... (5,100,000) (5,100,000)
Comprehensive income:
Foreign currency translation............... 104,000 104,000
Net income................................. 3,271,000 3,271,000
-------------
Comprehensive income......................... 3,375,000
---------- --------- ------------- ------------- -------------
Balance, December 31, 1996................... 8,400,000 8,000 (6,974,000) (15,000) (6,981,000)
Stockholder distributions.................... (3,998,000) (3,998,000)
Comprehensive income:
Foreign currency translation............... (146,000) (146,000)
Net income................................. 3,655,000 3,655,000
-------------
Comprehensive income......................... 3,509,000
---------- --------- ------------- ------------- -------------
Balance, December 31, 1997................... 8,400,000 8,000 (7,317,000) (161,000) (7,470,000)
Unaudited:
Stockholder distributions.................... (820,000) (820,000)
Comprehensive income:
Foreign currency translation............... (70,000) (70,000)
Net income................................. 695,000 695,000
-------------
Comprehensive income......................... 625,000
---------- --------- ------------- ------------- -------------
Balance, March 31, 1998 (unaudited).......... 8,400,000 $ 8,000 $ (7,442,000) $ (231,000) $ (7,665,000)
---------- --------- ------------- ------------- -------------
---------- --------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
HOSPITALITY MARKETING CONCEPTS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------- ---------------------------
1995 1996 1997 1997 1998
------------- ------------- ------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 995,000 $ 3,271,000 $ 3,655,000 $ 1,096,000 $ 695,000
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Deferred membership acquisition costs..... (234,000) (2,665,000) 124,000 258,000 507,000
Deferred membership revenues.............. 1,209,000 3,268,000 139,000 100,000 (554,000)
Depreciation and amortization............. 113,000 82,000 92,000 20,000 25,000
Changes in assets and liabilities affecting
operating cash flows:
Trade receivables......................... (578,000) 535,000 (487,000) (562,000) (560,000)
Other current assets...................... (9,000) 92,000 (267,000) (92,000) 192,000
Other assets.............................. (29,000) (35,000) (707,000) 15,000 (69,000)
Trade accounts payable.................... 464,000 (145,000) 498,000 246,000 (213,000)
Accrued liabilities....................... 214,000 (59,000) (287,000) (476,000) 741,000
Other current liabilities................. (30,000) (264,000) 365,000 (35,000) (178,000)
------------- ------------- ------------- ------------ -------------
Net cash provided by operating activities....... 2,115,000 4,080,000 3,125,000 570,000 586,000
------------- ------------- ------------- ------------ -------------
Cash flows from investing activities:
Acquisition of fixed assets................... (42,000) (70,000) (218,000) (75,000) (66,000)
Disposal of fixed assets...................... 40,000
Increase in short-term investments............ (1,500,000) (1,217,000)
------------- ------------- ------------- ------------ -------------
Net cash used in investing activities........... (42,000) (30,000) (1,718,000) (75,000) (1,283,000)
------------- ------------- ------------- ------------ -------------
Cash flows from financing activities:
Net proceeds from lines of credit and notes
payable..................................... 300,000 883,000 89,000 127,000
Proceeds from convertible note payable........ 3,000,000
Stockholder distributions..................... (2,011,000) (3,337,000) (3,998,000) (901,000) (820,000)
------------- ------------- ------------- ------------ -------------
Net cash used in financing activities........... (2,011,000) (3,037,000) (115,000) (812,000) (693,000)
------------- ------------- ------------- ------------ -------------
Effect of exchange rates on cash................ (74,000) 104,000 (146,000) (66,000) (70,000)
------------- ------------- ------------- ------------ -------------
Net increase (decrease) in cash and cash
equivalents................................... (12,000) 1,117,000 1,146,000 (383,000) (1,460,000)
Cash and cash equivalents at beginning of
period........................................ 589,000 577,000 1,694,000 1,694,000 2,840,000
------------- ------------- ------------- ------------ -------------
Cash and cash equivalents at end of period...... $ 577,000 $ 1,694,000 $ 2,840,000 $ 1,311,000 $ 1,380,000
------------- ------------- ------------- ------------ -------------
------------- ------------- ------------- ------------ -------------
Supplemental cash flow information:
Cash paid for interest........................ $ 24,000 $ 89,000 $ 18,000 $ 29,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
HOSPITALITY MARKETING CONCEPTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND REORGANIZATION
NATURE OF BUSINESS
Hospitality Marketing Concepts Inc. ("HMC" or the "Company") is involved in
the design, marketing and management of hotel membership programs for hotels in
approximately 30 countries throughout the world. Specifically, HMC promotes and
sells hotel membership programs which grant members the right to certain
discounts on hotel rooms and food and beverage services. Hospitality Marketing
Concepts Inc. was formed in Delaware in May 1998.
REORGANIZATION
Beginning in 1989, the business of the Company was conducted through
Hospitality Marketing Consultants, a general partnership (the "Original
Partnership") composed initially of three partners. In 1994, an additional
partner was admitted to the Original Partnership. These partners are referred to
as the "Principals." The business in the U.S. and Puerto Rico was conducted
through HMC Consultants Inc., formerly known as Hospitality Marketing Concepts,
Inc., a California corporation ("HMC Inc."), all of the capital stock of which
is beneficially owned by the Principals. In July 1996, the Principals organized
Hospitality Marketing Consultants LLC, a California limited liability company
("HMC LLC"), and HMC LLC purchased from the Original Partnership all of the
Original Partnership's business and assets, except the real property at which
the Company's Irvine, California headquarters is located. The operations of the
Original Partnership, excluding the real property, are included in the accounts
of the Company from inception.
As described below, the Company effected a reorganization in ,
1998. An aggregate of 8,400,000 shares of common stock were issued by the
Company to the Principals in connection with the reorganization. All share and
per share amounts in these consolidated financial statements have been
retroactively restated to reflect the shares of common stock issued in the
reorganization. The reorganization has been structured as a tax-free
reorganization. The Company accounted for the reorganization similar to the
accounting for a pooling of interests, as it represented an exchange of equity
interests among companies under common control. The ownership interests of each
of the entities is proportionately identical.
As the Principals commenced business operations in certain foreign
countries, they generally established local legal entities through which to
conduct those operations. The entities organized in Australia, France,
Indonesia, Malaysia, Singapore and Venezuela, directly or indirectly, were 100%
beneficially owned by HMC LLC. The entities in Canada, Colombia, and United
Kingdom were 100% beneficially owned by the Principals, and the Principals also
owned an 84% interest in the entity organized in Poland, with the remaining 16%
owned by Chris Feeney, a former consultant. The entities organized in Italy and
Spain were 100% owned by HMC (International) Ltd., a United Kingdom entity
("International"), which is owned by the Principals.
Pursuant to a Contribution Agreement dated June 1, 1998 by and among the
Company, HMC LLC and the Principals, the Principals have agreed to contribute
all of their interests in all of the Foreign Entities owned by them, except
International, to HMC LLC. Additionally, the Principals will contribute all of
their stock in HMC Inc. to HMC LLC. The Principals will also contribute all of
their interests in International to Hospitality Marketing Concepts (Holdings)
Limited, a newly-organized United Kingdom entity ("Holdings") owned by HMC.
Thereafter, International will be liquidated and its interests in the entities
organized in Italy and Spain will be transferred to Holdings. As a result, HMC
LLC will have
F-7
<PAGE>
HOSPITALITY MARKETING CONCEPTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND REORGANIZATION (CONTINUED)
acquired, directly or indirectly, 100% of the equity interests in HMC Inc. and
each of the foreign entities except that HMC LLC will own 84% of the interest in
the entity organized in Poland.
Effective prior to the closing of the proposed public offering (Note 10),
HMC LLC will be merged with and into the Company, with the Company as the
surviving entity. As a result of the merger, the Company will succeed to HMC
LLC's ownership interest in HMC Inc. and each of the foreign entities, as
described above.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of HMC and its
wholly and majority owned subsidiaries after the reorganization described in
Note 1. All significant intercompany accounts and transactions have been
eliminated.
USE OF ESTIMATES
The preparation of theses consolidated financial statements in conformity
with generally accepted accounting principles requires the management of the
Company to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
FOREIGN EXCHANGE
The financial statements of all foreign entities were prepared in their
respective local currencies and translated into U.S. dollars based on the
current exchange rate at the end of the period for the balance sheet and a
weighted-average rate for the period on the consolidated income statements.
Translation adjustments are reflected as foreign currency translation
adjustments in Stockholders' Deficit.
Transaction adjustments for all foreign entities are included in net income.
The Company has, in the past, experienced material losses as a result of
currency exchange rate fluctuations and has not engaged in hedging transactions
to reduce its exposure to such fluctuations. The Company's inability to
successfully hedge such foreign currency risk could have a material adverse
effect on the Company's financial condition, results of operations and cash
flows.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
initial maturity of 90 days or less to be cash equivalents and investments with
original maturities of greater than 90 days to be short term investments. As of
December 31, 1997, the Company had a short term investment which comprised a
bank time deposit of $1,500,000. The bank time deposit has a contractual
maturity of one year, was recorded at cost which approximates fair value and was
classified as available-for-sale.
FAIR VALUE OF FINANCIAL INSTRUMENTS
All current assets and liabilities are carried at cost, which approximates
fair value because of the short-term maturity of those instruments. The recorded
amounts of the Company's long-term obligations also approximate fair value as
current interest rates offered to the Company for debts of similar maturities
are substantially the same.
F-8
<PAGE>
HOSPITALITY MARKETING CONCEPTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration
of credit risk consists primarily of accounts receivable. For the most part,
membership fees are billed by the Company to major credit card issuers. However,
certain of the Company's membership fees are billed through clients of the
Company to credit card holders. Amounts collected by these clients are remitted
to the Company after deduction of certain costs incurred and are received in
U.S. dollars. The Company maintains an allowance for uncollectible accounts
receivable based upon expected collectibility of all accounts receivable.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets, generally 3 to 7 years. Maintenance and repair
expenses are charged to operations as incurred.
REVENUE RECOGNITION
Membership fees earned are recorded, net of cancellations incurred during
the ten day trial period, and are deferred and amortized as membership revenues
on a straight-line basis, over the membership period, generally twelve months.
MEMBERSHIP ACQUISITION AND OTHER DEFERRED COSTS
In accordance with the provisions of AICPA Statement of Position 93-7,
"Reporting on Advertising Costs," membership acquisition costs directly related
to the sales of memberships are deferred and charged to cost of revenues as
revenues from membership fees are recognized. Membership acquisition costs
consist of costs incurred directly related to telemarketing payroll and
telephone costs. Other deferred costs consists of hotel program fees, printing
and distribution costs of membership materials and processing fees which relate
to the same revenue streams as the membership acquisition costs and are also
charged to income over the membership period.
INCOME TAXES
The Company accounts for income taxes under the liability method. Deferred
income taxes are provided for temporary differences between financial and income
tax reporting. The Company has not recorded any deferred tax assets or
liabilities at December 31, 1996 and 1997 as prior to the reorganization
discussed in Note 1, HMC LLC was a limited liability company treated as a
partnership for federal and California income tax purposes. As a result, federal
and California income tax attributes passed to the HMC LLC members. Deferred tax
assets and liabilities of HMC Inc. were not material at December 31, 1996 and
1997.
STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, the Company accounts for its stock-based
compensation arrangements pursuant to APB Opinion No. 25. In accordance with the
provisions of SFAS No. 123, the Company discloses the pro forma effects of
accounting for these arrangements using the minimum value method to determine
fair value.
F-9
<PAGE>
HOSPITALITY MARKETING CONCEPTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE
Basic net income per share ("Basic EPS") is computed by dividing net income
available to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted net income per share ("Diluted EPS")
gives effect to all dilutive potential common shares outstanding during a
period. In computing Diluted EPS, the treasury stock method is used in
determining the number of shares assumed to be purchased from the conversion of
common stock equivalents. The number of shares have been retroactively restated
to reflect the shares of common stock issued in the reorganization (Note 1).
The following is a reconciliation of the weighted average common shares
outstanding used for the Basic and Diluted EPS computations for the periods
presented below:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
<S> <C> <C>
Weighted average common shares--Basic..................... 8,400,000 8,400,000
Stock options............................................. 30,000 180,000
----------------- --------------
Weighted average common shares--Diluted................... 8,430,000 8,580,000
----------------- --------------
----------------- --------------
</TABLE>
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting comprehensive income,
defined as all changes in equity from nonowner sources. Adoption of SFAS 130 did
not have a material effect on the Company's financial position or results of
operations.
UNAUDITED INTERIM INFORMATION
The information presented as of March 31, 1998, and for the three month
periods ended March 31, 1997 and 1998, has not been audited. In the opinion of
management, the unaudited interim financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
Company's financial position as of March 31, 1998, and the results of its
operations and its cash flows for the three months ended March 31, 1997 and
1998, and the stockholders' deficit for the three months ended March 31, 1998.
F-10
<PAGE>
HOSPITALITY MARKETING CONCEPTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. FIXED ASSETS
Fixed assets comprised the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- ------------
<S> <C> <C>
Computer and office equipment...................................... $ 292,000 $ 429,000
Furniture and fixtures............................................. 425,000 525,000
Vehicles........................................................... 73,000 54,000
----------- ------------
790,000 1,008,000
Accumulated depreciation........................................... (538,000) (630,000)
----------- ------------
$ 252,000 $ 378,000
----------- ------------
----------- ------------
</TABLE>
4. LINES OF CREDIT
In September 1995, the Company established a line of credit with a bank. The
line of credit provides for borrowings of up to $400,000, as amended, and is due
and payable April 1, 1999. Borrowings bear interest at the interest rate earned
(6.0% at December 31, 1997) by the pledged $400,000 time deposit included in
short term investments plus 2%. The line of credit is secured by substantially
all of the assets of HMC Inc. and is guaranteed by three of the Company's
stockholders. Amounts outstanding under the line of credit were $300,000 and
$400,000 at December 31, 1996 and 1997, respectively.
In October 1997, the Company established an additional line of credit with
the same bank for borrowings of up to $1,000,000. The line of credit bears
interest at the bank's prime rate (8.5% at December 31, 1997) plus 2% and is due
and payable on October 1, 1998. The line of credit is secured by substantially
all of the assets of HMC Inc. Amounts outstanding under the line of credit at
December 31, 1997 were $702,000.
5. NOTES PAYABLE
In conjunction with HMC LLC's purchase of assets from Hospitality Marketing
Consultants as described in Note 1, Hospitality Marketing Consultants was issued
an unsecured note payable in the amount of $1,763,000. The note is due and
payable on January 1, 2002 and bears interest at 8% per annum. Interest charged
to interest expense totaled $71,000 in 1996 and $141,000 in 1997.
In April 1997, the Company issued a $143,000 promissory note payable to a
bank. The note is due and payable April 1, 1999, as amended, and bears interest
at the bank's prime rate (8.5% at December 31, 1997) plus 2% per annum. The
Company is required to pay three principal payments of $25,000 plus accrued
interest quarterly commencing July 1, 1997 and, is required to pay a lump sum of
$68,300 on April 1, 1999. The note is secured by substantially all of the assets
of HMC Inc.
In November 1997, the Company issued a $3 million subordinated convertible
unsecured note to Hospitality Partners, LLC, an unrelated party. The note
payable is due in full on December 31, 2001. Interest at the bank's prime rate
(8.5% at December 31, 1997) per annum is payable in arrears on the last day of
each month commencing December 31, 1999. Imputed interest charges for the year
ended December 31, 1997 aggregated $43,000. The note is convertible only upon
closing of an initial public offering or other qualified transaction into a
maximum of 30% of the total capitalization of the Company as defined in the loan
agreement. The Company is subject to certain covenants and restrictions under
the terms of the note, including the proscription of principal payments prior to
December 31, 1999 as well as
F-11
<PAGE>
HOSPITALITY MARKETING CONCEPTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. NOTES PAYABLE (CONTINUED)
proscription of principal payments on the note payable to Hospitality Marketing
Consultants discussed above.
6. STOCK OPTION
In November 1997, the Principals granted one of the Principals, who is an
officer of the Company, an option to buy an approximate 2% ownership interest in
HMC LLC, HMC Inc. and each of the foreign entities for an aggregate price of
$180,000. In connection with the reorganization this option was converted to an
option to purchase 180,000 shares of the Company. Had compensation cost for
these options granted been determined consistent with the minimum value method
pursuant to SFAS No. 123, the difference between the Company's net income as
reported and as adjusted for the compensation cost for the year ended December
31, 1997 was not material.
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain of its facilities under non-cancelable operating
lease arrangements. The leases expire at various dates through 2007. Rent
expense under all operating leases was $520,000, $593,000 and $679,000 for the
years ended December 31, 1995, 1996 and 1997, respectively. The future minimum
lease payments required under non-cancelable operating leases at December 31,
1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ----------------------------------------------------------------------------------
<S> <C>
1998.............................................................................. $ 138,000
1999.............................................................................. 112,000
2000.............................................................................. 56,000
2001.............................................................................. 30,000
2002.............................................................................. 9,000
Thereafter........................................................................ 35,000
----------
$ 380,000
----------
----------
</TABLE>
The Company's headquarters in Irvine, California is leased from an affiliate
on a month to month basis. Rent paid under the lease was $89,000 for each of the
three years ended December 31, 1995, 1996 and 1997. In June 1998, the Company
executed a lease agreement with the affiliate. The agreement expires in 2001 and
requires annual rental payments of $228,000 plus annual adjustments for
increases in the consumer price index.
MARKETING AGREEMENT
In February 1997, the Company entered into a 10 year marketing agreement
with a chain of hotels in Spain. In accordance with the agreement, the Company
paid approximately $700,000 and is no longer required to pay program fees to the
hotels. The amount is being amortized over the term of the agreement and the
related expense is charged to cost of revenues. In addition, the Company
purchased a 0.5% equity share of the hotel chain for $70,000 and, may purchase
up to 21,260 additional shares over the next four years representing a current
equity share of an additional 1.0%. As such, the Company is required to pay
F-12
<PAGE>
HOSPITALITY MARKETING CONCEPTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
10,000,000 Pesetas each year over the next four years commencing September 1,
1998. The price of exercising the right to purchase the 21,260 shares at
December 31, 1997 was approximately $263,000 based on current exchange rates.
8. REVENUES
Membership revenues by geographic area were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Americas (primarily United States).............. $ 7,805,000 $ 8,542,000 $ 7,973,000
Europe.......................................... 12,023,000 11,221,000 9,105,000
Asia............................................ 1,371,000 7,534,000 14,297,000
Middle East/North Africa........................ 531,000
------------- ------------- -------------
$ 21,199,000 $ 27,297,000 $ 31,906,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
For the years ended December 31, 1996 and 1997, one client accounted for
12.5% and 11.7% of the Company's revenues, respectively.
9. PRO FORMA INFORMATION (UNAUDITED)
PRO FORMA BALANCE SHEET
The unaudited pro forma balance sheet at March 31, 1998 reflects the
estimated distribution of $7,000,000 to the Principals and the conversion of the
$3,000,000 note payable and related accrued interest (Note 5) in connection with
the initial public offering (Note 10). The unaudited pro forma balance sheet
also reflects the deferred tax assets and liabilities for the Company's change
for federal and state income tax purposes from a limited liability company to a
C corporation as if it occurred March 31, 1998 resulting in the recording of a
net deferred tax asset of $877,000. The pro forma balance sheet does not give
effect to distributions that may be paid and the tax effect of earnings
generated subsequent to March 31, 1998.
PRO FORMA INCOME STATEMENT DATA
The unaudited pro forma net income reflects changes to net income for
eliminating the interest expense related to the note payable to be converted in
connection with the proposed public offering (Notes 5 and 10), recording pro
forma compensation for the founding stockholders based upon their employment
contracts and the recording of a pro forma income tax provision. The unaudited
pro forma net income per share reflects the changes to net income mentioned
above and an increase to the weighted average common shares outstanding for the
conversion of the note payable and the incremental shares for the distributions
to stockholders in excess of net income. The income tax provisions for the year
ended December 31, 1997 and the three months ended March 31, 1998, respectively,
reflect an effective income tax rate of 40% for the Company's change for federal
and state income tax purposes from a limited liability company to a C
corporation. Pursuant to the requirements of the Securities and Exchange
Commission, the pro forma basic weighted average common shares outstanding
includes the effects of the incremental number of shares required to fund
distributions to the stockholders of the Company in excess of earnings for the
preceding 12 months (including the estimated distribution of $7,000,000). The
pro forma net income per share does not give effect to distributions that may be
paid from earnings generated subsequent to March 31, 1998. The following is a
reconciliation of net income to unaudited pro forma net
F-13
<PAGE>
HOSPITALITY MARKETING CONCEPTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. PRO FORMA INFORMATION (UNAUDITED) (CONTINUED)
income and the weighted average common shares outstanding used for the Basic and
Diluted and pro forma Basic and Diluted EPS computations for the periods
presented below:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------- -------------
<S> <C> <C>
Net income.......................................................................... $ 3,655,000 $ 695,000
Unaudited pro forma adjustments:
Interest expense related to convertible note payable.............................. 43,000 64,000
Compensation for the Principals................................................... (1,025,000) (256,000)
------------- -------------
Unaudited income before provision for income taxes................................ 2,673,000 503,000
Provision for income taxes........................................................ (1,069,000) (201,000)
------------- -------------
Unaudited pro forma net income.................................................... $ 1,604,000 $ 302,000
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE MONTHS ENDED
31, 1997 MARCH 31, 1998
---------------------- ----------------------
BASIC DILUTED BASIC DILUTED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common shares................................ 8,400,000 8,430,000 8,400,000 8,580,000
Conversion of note payable.................................... 600,000 3,600,000 3,600,000 3,600,000
Stockholder distributions.....................................
---------- ---------- ---------- ----------
Pro forma weighted average common shares......................
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
10. SUBSEQUENT EVENTS (UNAUDITED)
PROPOSED PUBLIC OFFERING
In June 1998, the Company entered into an agreement in principle with two
underwriters (the "Underwriters"), whereby the Underwriters have agreed in
principle to act as underwriters in an initial public offering (the "Offering")
of up to shares of newly-issued Company common stock ( shares
intended to be offered to the public and shares which the Underwriters
have the option to purchase to cover over-allotments, if any).
STOCK OPTION PLAN
In May 1998, the Company's stockholders approved the 1998 Stock Option Plan
(the "Plan") which permits the grant of incentive stock options and nonqualified
stock options to purchase up to 1,500,000 shares of common stock to employees,
officers, directors and consultants of the Company. The Plan is administered by
a committee appointed by the Company's Board of Directors. In May 1998, the
Company granted options to purchase 817,140 shares of common stock at an
exercise price of $10.50 per share. Options granted to the Company's chief
financial officer to purchase 240,000 shares of common stock vest and become
exercisable 90 days after the date of grant as to 20% and the balance vest in
three equal installments annually. The remaining options granted vest ratably
over four years. All options granted expire within ten years of the grant date.
F-14
<PAGE>
[COMPANY MEMBERSHIP BROCHURES AND CARDS.]
<PAGE>
[LOGO]
HOSPITALITY MARKETING CONCEPTS INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Other expenses in connection with the issuance and distribution of the
securities to be registered hereunder, all of which will be paid by the
registrant, will be substantially as follows:
<TABLE>
<CAPTION>
ITEM AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
SEC registration fee............................................................ $ 14,249
NASD filing fee................................................................. $ 6,020
Nasdaq National Market fee*..................................................... $ 90,500
Printing and engraving expenses*................................................ $ 200,000
Legal fees and expenses*........................................................ $ 500,000
Blue Sky fees and expenses (including legal fees)*.............................. $ 5,000
Accounting fees and expenses*................................................... $ 350,000
Registrar and Transfer Agent fees and expenses*................................. $ 5,000
Miscellaneous expenses*......................................................... $ 29,231
------------
Total....................................................................... $ 1,200,000
------------
------------
</TABLE>
- ------------------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation provides that an officer or
director of the Company 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 for: (i) any breach of such person's duty of
loyalty to the Company or its stockholders; (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) liability for payments of dividends or stock purchases or redemptions in
violation of Section 174 of the Delaware General Corporation Law; or (iv) any
transaction from which such person derived an improper personal benefit. In
addition, the Company's Certificate of Incorporation provides that the Company
shall to the fullest extent authorized by the Delaware General Corporation Law,
as the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the corporation to
provide broader indemnification rights than such law permitted the corporation
to provide prior to such amendment), indemnify and hold harmless any person who
was or is a party, or is threatened to be made a party to or is otherwise
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that such person 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,
including service with respect to an employee benefit plan (hereinafter an
"Indemnitee") against expenses, liabilities and losses (including attorneys'
fees, judgments, fines and penalties paid in connection with the Employee
Retirement Income Security Act of 1974, as amended, and amounts paid in
settlement) reasonably incurred or suffered by such Indemnitee in connection
therewith; provided, however, that except as otherwise provided with respect to
proceedings to enforce rights to indemnification, the Company shall indemnify
any such Indemnitee in connection with a proceeding (or part thereof) initiated
by such Indemnitee only if such proceeding or part thereof was authorized by the
board of directors of the Company.
The right to indemnification set forth above includes the right to be paid
by the Company the expenses (including attorneys' fees) incurred in defending
any such proceeding in advance of its final disposition; provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an Indemnitee in his capacity as a director or officer (and
not in any other capacity
II-1
<PAGE>
in which service was or is rendered by such Indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Company of an undertaking, by or on behalf of such Indemnitee,
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is not further right to appeal that such
Indemnitee is not entitled to be indemnified for such expenses under this
section or otherwise. The rights to indemnification and to the advancement of
expenses conferred herewith are contract rights and continue as to an Indemnitee
who has ceased to be a director, officer, employee or agent and inures to the
benefit of the Indemnitee's heirs, executors and administrators.
The Delaware General Corporation Law provides that indemnification is
permissible only when the director, officer, employee, or agent acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful. The
Delaware General Corporation Law also precludes indemnification in respect of
any claim, issue, or matter as to which an officer, director, employee, or agent
shall have been adjudged to be liable to the Company unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine that, despite such adjudication of liability but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
The Company has agreed to indemnify the Underwriters and their controlling
persons, and the Underwriters have agreed to indemnify the Company and its
controlling persons, against certain liabilities, including liabilities under
the Securities Act. Reference is made to the Underwriting Agreement filed as
part of the Exhibits hereto.
For information regarding the Company's undertaking to submit to
adjudication the issue of indemnification for violation of the securities laws,
see Item 17 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
1. In connection with the Reorganization, the Company will issue an
aggregate of 8,400,000 shares of Common Stock to the Principals effective
concurrent with the closing of the offering. The transaction is exempt from
registration pursuant to Section 4(2) of the Securities Act.
2. In November 1997, HMC LLC issued a $3.0 million Subordinated Promissory
Note to Hospitality Partners, LLC, which is convertible into up to 30% of the
total number of shares of Common Stock outstanding prior to the shares offered
in the offering. This transaction was exempt from registration pursuant to
Section 4(2) of the Securities Act.
3. As of November 1997, the entities comprising the Company issued an
option to purchase an additional interest in such entities, which will be
exchanged in the Reorganization for an option to purchase 180,000 shares of the
Company to a Principal. This transaction was exempt from registration pursuant
to Section 4(2) of the Securities Act.
4. On May 6, 1998, the Company granted options to its employees exercisable
into an aggregate of 817,140 shares of Common Stock. The Company issued 454,740
shares to employees in reliance on Rule 701 promulgated under the Securities Act
and 362,400 shares to executive officers and key employees which were exempt
from registration pursuant to Section 4(2) of the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company.
3.2 Bylaws of the Company.
4.1* Specimen Stock Certificate of the Company.
5.1* Opinion of Greenberg Glusker Fields Claman & Machtinger LLP.
10.1 Loan and Investment Agreement, dated November 7, 1997, between Hospitality Partners, LLC, HMC LLC and
the Principals.
10.2 Customer Network Service Agreement, dated January 15, 1998, between HMC LLC and Sprint Communications
Company L.P. [Confidential treatment requested for portions of this exhibit. Omitted portions have
been filed separately with the Commission.]
10.3 Form of Indemnification Agreement.
10.4 1998 Stock Option Plan.
10.5 Form of Incentive Stock Option Agreement.
10.6 Form of Nonqualified Stock Option Agreement (Employee).
10.7 Form of Nonqualified Stock Option Agreement (Non-employee).
10.8 Option Agreement, dated as of November 7, 1997, between Sandra Case and HMC LLC.
10.9 Promissory Note, dated July 1, 1996, in the principal amount of $1,762,270 in favor of Hospitality
Marketing Consultants, LLC.
10.10 Employment Agreement, dated March 5, 1998, between HMC LLC and Philip Hirsch.
10.11 Form of Employment Agreement (Partners).
10.12 Employment Agreement, dated as of February 1, 1998, between Frans Van Steenbrugge and Hospitality
Marketing Concepts Limited.
10.13 Cedars Bank Credit Line Agreement, dated September 1, 1995, and amendments thereto.
10.14 Lease between Hospitality Marketing Consultants, a general partnership, and Hospitality Marketing
Consultants, LLC, dated June 1, 1998.
21 List of subsidiaries.
23.1* Consent of Price Waterhouse LLP, independent accountants.
23.2* Consent of Greenberg Glusker Fields Claman & Machtinger LLP (included in Exhibit 5.1).
24 Power of Attorney (see page S-1).
27 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denomination and registered in such names 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 foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(i) For the 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(b) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(ii) For the 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, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irvine, State of
California, on June 4, 1998.
<TABLE>
<S> <C> <C>
HOSPITALITY MARKETING CONCEPTS INC.
By: /s/ MOKHTAR RAMADAN
-----------------------------------------
Mokhtar Ramadan
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mokhtar Ramadan and Philip G. Hirsch, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitutions and resubstitution, for him or her and in his or her name, place,
and stead, in any and all capacities, to sign any and all amendments to this
Form S-1 Registration Statement and to sign any registration statement for the
same offering that is to be effective upon filing pursuant to Rule 462(b) of the
Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith with the Securities and Exchange
Commission, granting under 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 and to all
intents and purposes as he might or could do in person hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his 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.
NAME AND SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board,
/s/ MOKHTAR RAMADAN President and Chief
- ------------------------------ Executive Officer June 4, 1998
Mokhtar Ramadan (Principal Executive
Officer)
Senior Vice President,
/s/ PHILIP G. HIRSCH Finance, Chief Financial
- ------------------------------ Officer and Director June 4, 1998
Philip G. Hirsch (Principal Financial and
Accounting Officer)
/s/ FADI RAMADAN
- ------------------------------ Senior Vice President, June 4, 1998
Fadi Ramadan Americas, and Director
II-5
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBIT NUMBERED PAGE
- ----------- ------------------------------------------------------------------------------------------- -------------
<S> <C> <C>
1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company.
3.2 Bylaws of the Company.
4.1* Specimen Stock Certificate of the Company.
5.1* Opinion of Greenberg Glusker Fields Claman & Machtinger LLP.
10.1 Loan and Investment Agreement, dated November 7, 1997, between Hospitality Partners, LLC,
HMC LLC and the Principals.
10.2 Customer Network Service Agreement, dated January 15, 1998, between HMC LLC and Sprint
Communications Company L.P. [Confidential treatment requested for portions of this
exhibit. Omitted portions have been filed separately with the Commission.]
10.3 Form of Indemnification Agreement.
10.4 1998 Stock Option Plan.
10.5 Form of Incentive Stock Option Agreement.
10.6 Form of Nonqualified Stock Option Agreement (Employee).
10.7 Form of Nonqualified Stock Option Agreement (Non-employee).
10.8 Option Agreement, dated as of November 7, 1997, between Sandra Case and HMC LLC.
10.9 Promissory Note, dated July 1, 1996, in the principal amount of $1,762,270 in favor of
Hospitality Marketing Consultants, LLC.
10.10 Employment Agreement, dated March 5, 1998, between HMC LLC and Philip Hirsch.
10.11 Form of Employment Agreement (Partners).
10.12 Employment Agreement, dated as of February 1, 1998, between Frans Van Steenbrugge and
Hospitality Marketing Concepts Limited.
10.13 Cedars Bank Credit Line Agreement, dated September 1, 1995, and amendments thereto.
10.14 Lease between Hospitality Marketing Consultants, a general partnership, and Hospitality
Marketing Consultants, LLC, dated June 1, 1998.
21 List of subsidiaries.
23.1* Consent of Price Waterhouse LLP, independent accountants.
23.2* Consent of Greenberg Glusker Fields Claman & Machtinger LLP (included in Exhibit 5.1).
24 Power of Attorney (see page S-1).
27 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1(a)
CERTIFICATE OF INCORPORATION
OF
MARKTECH INTERNATIONAL INC.
1. NAME.
The name of this corporation is Marktech International Inc. (the
"Corporation").
2. REGISTERED OFFICE AND AGENT.
The address of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, Wilmington, Delaware 19805 in the County of New
Castle. The registered agent of the Corporation at such address shall be
Corporation Service Company.
3. PURPOSE AND POWERS.
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
4. CAPITAL STOCK.
4.1. AUTHORIZED SHARES.
The total number of shares of all classes of stock that the Corporation
shall have the authority to issue is 55,000,000 shares, of which 5,000,000
shares shall be Preferred Stock, having a par value of $0.001 per share
("Preferred Stock"), and 50,000,000 shares shall be classified as Common
Stock, having a par value of $0.001 per share ("Common Stock"). A description
of the respective classes of stock and a statement of designations, powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof, are set forth below.
4.2. COMMON STOCK.
(a) RELATIVE RIGHTS.
The Common Stock shall be subject to and qualified by all of the rights,
privileges, preferences and priorities of the Preferred Stock. Each share of
Common Stock shall have the same relative rights as and be identical in all
respects to all the other shares of Common Stock.
(b) VOTING RIGHTS.
<PAGE>
Each holder of shares of Common Stock shall be entitled to attend all
special and annual meetings of the stockholders of the Corporation and, share
for share and without regard to class, to cast one vote for each outstanding
share of Common Stock so held upon any matter or thing (including, without
limitation, the election of one or more directors) properly considered and
acted upon by the stockholders. Except as otherwise provided in this
Certificate of Incorporation or by applicable law, holders of shares of
Common Stock shall vote together as a single class on all matters with the
holders of any other class or series of stock of the Corporation. The
holders of Common Stock shall have no right to cumulate votes in the
election of directors of the Corporation.
(c) DIVIDENDS.
The holders of record of the Common Stock shall be entitled to receive
dividends in equal amounts per share, when, as, and if declared by the Board
of Directors, out of any assets legally available for the payment of
dividends thereon, subject to any preferential rights of any other class of
stock of the Corporation.
(d) DISSOLUTION, LIQUIDATION, WINDING UP.
In the event of any dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of record of the
Common Stock then outstanding, and all holders of any class or series of
stock entitled to participate therewith, in whole or in part, as to
distribution of assets, shall become entitled to participate in the ratable
distribution of any assets of the Corporation remaining after the Corporation
shall have paid, or set aside for payment, to the holders of any class of
stock having preference over the Common Stock in the event of dissolution,
liquidation or winding up, the full preferential amounts (if any) to which
they are entitled, and shall have paid or provided for payment of all debts
and liabilities of the Corporation.
4.3. PREFERRED STOCK.
The Board of Directors is expressly authorized, subject to limitations
prescribed by the Delaware General Corporation Law and the provisions of this
Certificate of Incorporation, to provide, by resolution and by filing a
certificate of designations pursuant to the Delaware General Corporation Law,
for the issuance from time to time of the shares of Preferred Stock in one or
more series, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and other rights of each such series and to fix the qualifications,
limitations and restrictions thereof, including, but without limiting the
generality of the foregoing, the following:
(a) the number of shares constituting that series and the
distinctive designation of that series;
2
<PAGE>
(b) the dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of
that series;
(c) whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;
(d) whether that series shall have conversion privileges,
and, if so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(e) whether or not the shares of that series shall be
redeemable and, if so, the terms and conditions of such redemption, including
the dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(f) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
(g) the rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of
shares of that series; and
(h) any other relative powers, preferences, and rights of
that series, and qualifications, limitations or restrictions on that series.
4.4. ADJUSTMENTS OF AUTHORIZED STOCK.
Except as provided to the contrary in the provisions establishing a
class or series of stock, the number of shares of the authorized stock of the
Corporation of any class or classes may be increased or decreased (but not
below the number then outstanding) by the affirmative vote of a majority of
the outstanding shares of capital stock of the Corporation.
5. INCORPORATOR.
The name and mailing address of the incorporator (the "Incorporator") is
Michael V. Bales, c/o Greenberg Glusker Fields Claman & Machtinger LLP, 1900
Avenue of the Stars, Suite 2100, Los Angeles, CA 90067-4590.
6. BOARD OF DIRECTORS.
6.1. CLASSIFICATION.
3
<PAGE>
Except as otherwise provided in this Certificate of Incorporation or a
certificate of designations relating to the rights of the holders of any
class or series of Preferred Stock, voting separately by class or series, to
elect additional directors under specified circumstances, the number of
directors of the Corporation shall be as fixed from time to time by or
pursuant to the Bylaws of the Corporation. Elections of directors need not
be by written ballot unless the Bylaws of the Corporation shall so provide.
The directors, other than those who may be elected by the holders of any
class or series of Preferred Stock voting separately by class or series,
shall be classified, with respect to the time for which they severally hold
office, into three classes, Class I, Class II and Class III, which shall be
as nearly equal in number as possible, and shall be adjusted from time to
time in the manner specified in the Bylaws of the Corporation to maintain
such proportionality. Each initial director in Class I shall hold office for
a term expiring at the 2001 annual meeting of stockholders, each initial
director in Class II shall hold office initially for a term expiring at the
2000 annual meeting of stockholders, and each initial director in Class III
shall hold office for a term expiring at the 1999 annual meeting of
stockholders. Notwithstanding the foregoing provisions of this Section 6.1,
each director shall serve until such director's successor is duly elected and
qualified or until such director's earlier death, resignation or removal. At
each annual meeting of stockholders, the successors to the class of directors
whose term expires at that meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year
following the year of their election and until their successors have been
duly elected and qualified or until any such director's earlier death,
resignation or removal.
6.2. CHANGE OF AUTHORIZED NUMBER.
In the event of any increase or decrease in the authorized number of
directors, the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to maintain such classes as nearly equal as
possible. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
6.3. DIRECTORS ELECTED BY HOLDERS OF PREFERRED STOCK.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation or a certificate of designations
applicable thereto, and such directors so elected shall not be divided into
classes pursuant to this Section 6 unless expressly provided by the
certificate of designations.
4
<PAGE>
6.4. LIMITATION OF LIABILITY.
To the extent permitted by the Delaware General Corporation Law, no
director of the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty as a
director, provided that this provision shall not eliminate or limit the
liability of a director: (a) for any breach of the director's duty of loyalty
to the Corporation or its stockholders; (b) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law; (c)
for the types of liability set forth in Section 174 of the Delaware General
Corporation Law; or (d) for any actions or omissions from which the director
received any improper personal benefit. Any repeal or modification of this
Section 6.4 by the stockholders of the Corporation shall be prospective only,
and shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification with respect to
acts or omissions occurring prior to such repeal or modification.
7. INDEMNIFICATION.
To the extent permitted by law, the Corporation shall fully indemnify
any person who was or is a party or is threatened to be made a party to or is
otherwise involved in any threatened, pending or completed action, suit or
proceeding (whether civil, criminal, administrative or investigative) by
reason of the fact that such person 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, employee benefit plan or other enterprise, against expenses,
liabilities and losses (including attorneys' fees, judgments, fines,
penalties and amounts paid in settlement) actually and reasonably incurred by
such person in connection with such action, suit or proceeding.
To the extent permitted by law, the Corporation may fully indemnify any
person who was or is a party or is threatened to be made a party or is
otherwise involved in to any threatened, pending or completed action, suit or
proceeding (whether civil, criminal, administrative or investigative) by
reason of the fact that such person is or was an employee or agent of the
Corporation, or is or was serving at the request of the Corporation as an
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses, liabilities and
losses (including attorneys' fees, judgments, fines, penalties and amounts
paid in settlement) actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
The Corporation may advance expenses (including attorneys' fees)
incurred by a director or officer in advance of the final disposition of such
action, suit or proceeding upon the receipt of an undertaking by or on behalf
of the director or officer to repay such amount if it shall ultimately be
determined, by final judicial decision from which there is no further right
to appeal, that such director or officer is not entitled to indemnification.
The Corporation may advance expenses (including attorneys' fees) incurred by
an employee or agent in advance of the final disposition of such action, suit
or proceeding upon such terms and conditions, if any, as the Board of
Directors deems appropriate.
5
<PAGE>
8. ACTIONS BY STOCKHOLDERS.
Following the effectiveness of the registration of any class of stock of
the Corporation pursuant to the requirements of the Securities Act of 1933,
as amended, any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special
meeting of stockholders, and may not be effected by any consent in writing by
such stockholders.
9. SPECIAL MEETINGS OF STOCKHOLDERS.
Special meetings of the stockholders of the Corporation may be called at
any time but only by (a) the President and Chief Executive Officer of the
Corporation or (b) a majority of the directors in office, although less than
a quorum.
6
<PAGE>
10. COMPROMISE OR ARRANGEMENT CLAUSE.
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the 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 the
Corporation or of any creditor or stockholder thereof or on the application
of any receiver or receivers appointed for the Corporation under Section 291
of the Delaware General Corporation Law or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation
under Section 279 of the Delaware General Corporation Law order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as such 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 the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, such
compromise or arrangement and such reorganization shall, if sanctioned by the
court to which such application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of the Corporation, as the case may be, and also on the
Corporation.
11. AMENDMENT OF CERTIFICATE OF INCORPORATION.
Notwithstanding other provision of this Certificate of Incorporation or
the Bylaws of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation or the
Bylaws of the Corporation), the affirmative vote of 66-2/3% of the total
number of votes of the then outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend or repeal, or to adopt
any provision inconsistent with the purpose or intent of Sections 6, 7, 8 and
9 hereof, and this Section 11. Notice of any such proposed amendment, repeal
or adoption shall be contained in the notice of the meeting at which it is to
be considered. Subject to the provisions set forth herein, the Corporation
reserves the right to amend, alter, repeal or rescind any provision contained
in this Certificate of Incorporation in the manner now or hereafter
prescribed by law.
12. AMENDMENT OF BYLAWS.
In furtherance and not in limitation of the powers conferred by the
Delaware General Corporation Law, the Board of Directors is expressly
authorized and empowered to adopt, amend and repeal the Bylaws of the
Corporation, subject to the right of the stockholders entitled to vote with
respect thereto to amend or repeal Bylaws adopted by the Board of Directors
as provided for in this Certificate of Incorporation or in the Bylaws of the
Corporation.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the Incorporator hereinabove
named, for the purpose of forming a corporation pursuant to the Delaware General
Corporation Law, hereby certifies that the facts hereinabove stated are truly
set forth, and accordingly executes this Certificate of Incorporation this 14th
day of May, 1998.
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Michael V. Bales, Incorporator
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EXHIBIT 3.2
BYLAWS
OF
HOSPITALITY MARKETING CONCEPTS INC.,
A DELAWARE CORPORATION
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TABLE OF CONTENTS
ARTICLE I - Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Registered Office. . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Offices. . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - Stockholders' Meetings. . . . . . . . . . . . . . . . . . . . . 1
Section 2.1 Place of Meetings. . . . . . . . . . . . . . . . . . . . 1
Section 2.2 Annual Meetings. . . . . . . . . . . . . . . . . . . . . 1
Section 2.3 Special Meetings . . . . . . . . . . . . . . . . . . . . 1
Section 2.4 Notice of Meetings . . . . . . . . . . . . . . . . . . . 2
Section 2.5 Quorum and Voting. . . . . . . . . . . . . . . . . . . . 2
Section 2.6 Voting Rights. . . . . . . . . . . . . . . . . . . . . . 3
Section 2.7 Voting Procedures and Inspectors of Elections. . . . . . 4
Section 2.8 List of Stockholders.. . . . . . . . . . . . . . . . . . 5
Section 2.9 Stockholder Proposals at Annual Meetings.. . . . . . . . 5
Section 2.10 Nominations of Persons for Election to the Board of
Directors. . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.11 Action Without Meeting . . . . . . . . . . . . . . . . . 7
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ARTICLE III - Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.1 Number and Term of Office. . . . . . . . . . . . . . . . 7
Section 3.2 Powers . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.3 Vacancies. . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.4 Resignations and Removals. . . . . . . . . . . . . . . . 9
Section 3.5 Meetings.. . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.6 Quorum and Voting. . . . . . . . . . . . . . . . . . . .10
Section 3.7 Action Without Meeting . . . . . . . . . . . . . . . . .10
Section 3.8 Fees and Compensation. . . . . . . . . . . . . . . . . .10
Section 3.9 Committees . . . . . . . . . . . . . . . . . . . . . . .11
ARTICLE IV - Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Section 4.1 Officers Designated. . . . . . . . . . . . . . . . . . .12
Section 4.2 Tenure and Duties of Officers. . . . . . . . . . . . . .12
ARTICLE V - Execution of Corporate Instruments, and Voting of Securities
Owned by the Corporation. . . . . . . . . . . . . . . . . . . . . . . .13
Section 5.1 Execution of Corporate Instruments.. . . . . . . . . . .13
Section 5.2 Voting of Securities Owned by Corporation. . . . . . . .14
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ARTICLE VI - Shares of Stock . . . . . . . . . . . . . . . . . . . . . . . .14
Section 6.1 Form and Execution of Certificates.. . . . . . . . . . .14
Section 6.2 Lost Certificates. . . . . . . . . . . . . . . . . . . .15
Section 6.3 Transfers. . . . . . . . . . . . . . . . . . . . . . . .15
Section 6.4 Fixing Record Dates. . . . . . . . . . . . . . . . . . .15
Section 6.5 Registered Stockholders. . . . . . . . . . . . . . . . .16
ARTICLE VII - Other Securities of the Corporation. . . . . . . . . . . . . .16
ARTICLE VIII - Corporate Seal. . . . . . . . . . . . . . . . . . . . . . . .17
ARTICLE IX - Indemnification . . . . . . . . . . . . . . . . . . . . . . . .17
Section 9.1 Indemnification in Actions, Suits or Proceedings Other
Than Those by or in Right of the Corporation . . . . . .17
Section 9.2 Indemnification in Actions, Suits or Proceedings by
or in the Right of the Corporation.. . . . . . . . . . .18
Section 9.3 Authorization of Indemnification . . . . . . . . . . . .19
Section 9.4. Advancement of Expenses. . . . . . . . . . . . . . . . .19
Section 9.5 Provisions Nonexclusive. . . . . . . . . . . . . . . . .19
Section 9.6 Authority to Insure. . . . . . . . . . . . . . . . . . .20
Section 9.7 Survival of Rights . . . . . . . . . . . . . . . . . . .20
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Section 9.8 Settlement of Claims . . . . . . . . . . . . . . . . . .20
Section 9.9 Effect of Amendment. . . . . . . . . . . . . . . . . . .20
ARTICLE X - Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
ARTICLE XI - Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . .21
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BYLAWS
OF
HOSPITALITY MARKETING CONCEPTS INC.,
A DELAWARE CORPORATION
ARTICLE I
OFFICES
SECTION 1.1 REGISTERED OFFICE.
The registered office of the corporation in the State of Delaware
shall be in the City of Wilmington, County of New Castle.
SECTION 1.2 OTHER OFFICES.
The corporation may also have offices at such other places, both
within and without the State of Delaware, as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
STOCKHOLDERS' MEETINGS
SECTION 2.1 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.
SECTION 2.2 ANNUAL MEETINGS.
The annual meetings of the stockholders of the corporation,
commencing with the year 1999, 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.
SECTION 2.3 SPECIAL MEETINGS.
Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by the President and Chief Executive
Officer or by a majority of the Board of Directors
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at any time.
SECTION 2.4 NOTICE OF MEETINGS.
(a) Except as otherwise provided by law or the Certificate of Incorporation,
written notice of each meeting of stockholders, specifying the place, date
and hour and purpose or purposes of the meeting, shall be given not less
than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote thereat, directed to his address as it appears
upon the books of the corporation; except that where the matter to be acted
on is a merger or consolidation of the corporation or a sale, lease or
exchange of all or substantially all of its assets, such notice shall be
given not less than twenty (20) nor more than sixty (60) days prior to such
meeting.
(b) If at any meeting action is proposed to be taken which, if taken, would
entitle shareholders fulfilling the requirements of Section 262(d) of the
Delaware General Corporation Law to an appraisal of the fair value of their
shares, the notice of such meeting shall contain a statement of that
purpose and to that effect and shall be accompanied by a copy of that
statutory section.
(c) 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 unless the adjournment is
for more than thirty days, or unless after the adjournment a new record
date is fixed for the adjourned meeting, in which event a notice of the
adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
(d) Notice of the time, place and purpose of any meeting of stockholders may be
waived in writing, either before or after such meeting, and to the extent
permitted by law, will be waived by any stockholder by his attendance
thereat, in person or by proxy. 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.
(e) Unless and until voted, every proxy shall be revocable at the pleasure of
the person who executed it or of his legal representatives or assigns,
except in those cases where an irrevocable proxy permitted by statute has
been given.
SECTION 2.5 QUORUM AND VOTING.
(a) At all meetings of stockholders, except where otherwise provided by law,
the Certificate of Incorporation, or 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. Shares, the voting of which at said meeting
have been enjoined, or which for any reason cannot be lawfully voted at
such meeting, shall not be counted to determine a quorum at said meeting.
In the absence of a quorum, any meeting
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of stockholders may be adjourned, from time to time, by vote of the holders
of a majority of the shares represented thereat, but no other business
shall be transacted at such meeting. At such adjourned meeting at which a
quorum is present or represented any business may be transacted which might
have been transacted at the original 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.
(b) Except as otherwise provided by law, the Certificate of Incorporation or
these Bylaws, all action taken by the holders of a majority of the voting
power represented at any meeting at which a quorum is present shall be
valid and binding upon the corporation.
(c) Where a separate vote by a class or classes is required, a majority of the
outstanding shares of such class or classes, present in person or
represented by proxy, shall constitute a quorum entitled to take action
with respect to that vote on that matter and the affirmative vote of the
majority of shares of such class or classes present in person or
represented by proxy at the meeting shall be the act of such class.
SECTION 2.6 VOTING RIGHTS.
(a) Except as otherwise provided by law, only persons in whose names shares
entitled to vote stand on the stock records of the corporation on the
record date for determining the stockholders entitled to vote at said
meeting shall be entitled to vote at such meeting. Shares standing in the
names of two or more persons shall be voted or represented in accordance
with the determination of the majority of such persons, or, if only one of
such persons is present in person or represented by proxy, such person
shall have the right to vote such shares and such shares shall be deemed to
be represented for the purpose of determining a quorum.
(b) Every person entitled to vote or execute consents shall have the right to
do so either in person or by an agent or agents authorized by a written
proxy executed by such person or his duly authorized agent, which proxy
shall be filed with the Secretary of the corporation at or before the
meeting at which it is to be used. Said proxy so appointed need not be a
stockholder. No proxy shall be voted on after three years from its date
unless the proxy provides for a longer period.
(c) Without limiting the manner in which a stockholder may authorize another
person or persons to act for him as proxy pursuant to subsection (b) of
this section, the following shall constitute a valid means by which a
stockholder may grant such authority:
(1) A stockholder may execute a writing authorizing another person or
persons to act for him as proxy. Execution may be accomplished by the
stockholder or his authorized officer, director, employee or agent
signing such writing or causing his or her signature to be affixed to
such writing by any reasonable means including, but not
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limited to, by facsimile signature.
(2) A stockholder may authorize another person or persons to act for him
as proxy by transmitting or authorizing the transmission of a
telegram, cablegram, or other means of electronic transmission to the
person who will be the holder of the proxy or to a proxy solicitation
firm, proxy support service organization or like agent duly authorized
by the person who will be the holder of the proxy to receive such
transmission, provided that any such telegram, cablegram or other
means of electronic transmission must either set forth or be submitted
with information from which it can be determined that the telegram,
cablegram or other electronic transmission was authorized by the
stockholder. Such authorization can be established by the signature
of the stockholder on the proxy, either in writing or by a signature
stamp or facsimile signature, or by a number or symbol from which the
identity of the stockholder can be determined, or by any other
procedure deemed appropriate by the inspectors or other persons making
the determination as to due authorization.
If it is determined that such telegrams, cablegrams or other electronic
transmissions are valid, the inspectors or, if there are no inspectors,
such other persons making that determination shall specify the information
upon which they relied.
(d) Any copy, facsimile telecommunication or other reliable reproduction of the
writing or transmission created pursuant to subsection (c) of this section
may be substituted or used in lieu of the original writing or transmission
for any and all purposes for which the original writing or transmission
could be used, provided that such copy, facsimile telecommunication or
other reproduction shall be a complete reproduction of the entire original
writing or transmission.
SECTION 2.7 VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.
(a) The corporation shall, in advance of any meeting of stockholders, appoint
one or more inspectors to act at the meeting and make a written report
thereof. The corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the person presiding
at the meeting shall appoint one or more inspectors to act at the meeting.
Each inspector, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares outstanding and the
voting power of each, (ii) determine the shares represented at a meeting
and the validity of proxies and ballots, (iii) count all votes and ballots,
(iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors,
and (v) certify their determination of the number of shares represented at
the meeting, and their
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count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of the
duties of the inspectors.
(c) The date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be
announced at the meeting. No ballot, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the Inspectors after the
closing of the polls unless the Court of Chancery upon application by a
stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and ballots, the
inspectors shall be limited to an examination of the proxies, any envelopes
submitted with those proxies, any information provided in accordance with
Section 212(c)(2) of the Delaware General Corporation Law, ballots and the
regular books and records of the corporation, except that the inspectors
may consider other reliable information for the limited purpose of
reconciling proxies and ballots submitted by or on behalf of banks,
brokers, their nominees or similar persons which represent more votes than
the holder of a proxy is authorized by the record owner to cast or more
votes than the stockholder holds of record. If the inspectors consider
other reliable information for the limited purpose permitted herein, the
inspectors at the time they make their certification pursuant to subsection
(b)(v) of this section shall specify the precise information considered by
them including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
SECTION 2.8 LIST OF STOCKHOLDERS.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held and which place shall
be specified in the notice of the meeting, or, if not specified, at the place
where said meeting is to be held, and 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 2.9 STOCKHOLDER PROPOSALS AT ANNUAL MEETINGS.
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 specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, otherwise properly brought before the meeting by or at
the direction of the Board of Directors or otherwise properly brought before the
meeting by a stockholder. In addition to any other applicable requirements, for
business to be properly brought
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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 less than 60 days nor
more than 90 days prior to the meeting; provided, however, that in the event
that less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the 10th
day following the day on which such notice of the date of the annual meeting
was mailed or such public disclosure was made. 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 record address of the
stockholder proposing such business, (iii) the class and number of shares of
the corporation which are beneficially owned by the stockholder, and (iv) any
material interest of the stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 2.9, provided, however, that nothing in
this Section 2.9 shall be deemed to preclude discussion by any stockholder of
any business properly brought before the annual meeting in accordance with
such procedure.
The Chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 2.9, and if he
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
SECTION 2.10 NOMINATIONS OF PERSONS FOR ELECTION TO THE BOARD OF DIRECTORS.
In addition to any other applicable requirements, only persons who are
nominated in accordance with the following procedures 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, by any nominating committee or
person appointed by the Board of Directors or by any stockholder of the
corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 2.10. 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. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
corporation not less than 30 days nor more than 60 days prior to the meeting;
provided, however, that in the event that less than 40 days' notice or prior
public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which
such notice of the date of the meeting was mailed or such public disclosure
was made. Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or re-election as a
director, (i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the person, (iii) the
class and number of shares of the
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corporation which are beneficially owned by the person, and (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Rule 14a
under the Securities Exchange Act of 1934; and (b) as to the stockholder
giving the notice, (i) the name and record address of the stockholder, and
(ii) the class and number of shares of the corporation which are beneficially
owned by the stockholder. The corporation may require any proposed nominee
to furnish such other information as may reasonably be required by the
corporation to determine the eligibility of such proposed nominee to serve as
a director of the corporation. No person shall be eligible for election as a
director of the corporation unless nominated in accordance with the
procedures set forth herein. These provisions shall not apply to nomination
of any persons entitled to be separately elected by holders of preferred
stock.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to
the meeting and the defective nomination shall be disregarded.
SECTION 2.11 ACTION WITHOUT MEETING.
Unless otherwise provided in the Certificate of Incorporation, any
action required by statute to be taken at any annual or special meeting of
stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, are 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. To be effective, a
written consent must be delivered to the corporation by delivery to its
registered office in 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. 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 days of the earliest dated consent delivered in the manner required by
this Section to the corporation, written consents signed by a sufficient
number of holders to take action are delivered to the corporation in
accordance with this Section. 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.
Notwithstanding the foregoing, following the effectiveness of the
registration of any class of stock of the corporation pursuant to the
requirements of the Securities Act of 1933, as amended, any action required
or permitted to be taken by the stockholders of the corporation must be
effected at a duly called annual or special meeting of stockholders, and may
not be effected by any consent in writing of such stockholders.
ARTICLE III
DIRECTORS
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SECTION 3.1 NUMBER AND TERM OF OFFICE.
The number of directors of the corporation shall not be less than three
(3) nor more than eleven (11) until changed by amendment of the Certificate
of Incorporation or by a Bylaw amending this Section 3.1 duly adopted by the
vote or written consent of holders of a majority of the outstanding shares or
by the Board of Directors. The exact number of directors shall be fixed from
time to time, within the limits specified in the Certificate of Incorporation
or in this Section 3.1, by resolution of the Board of Directors.
With the exception of the initial Board of Directors, which shall be
elected by the incorporator, and except as provided in Section 3.3 of this
Article III, the directors shall be elected by a plurality vote of the shares
represented in person or by proxy, at the stockholders' annual meeting in
each year and entitled to vote on the election of directors. Elected
directors shall hold office until the next annual meeting for the years in
which their terms expire and until their successors shall be duly elected and
qualified. Directors need not be stockholders. If, for any reason, the Board
of 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.
The directors shall be divided into three classes, designated Class I,
Class II, and Class III, as nearly equal in number as the then total number
of directors permits. Each initial director in Class I shall hold office for
a term expiring at the 2001 annual meeting of stockholders, each initial
director in Class II shall hold office for a term expiring at the 2000 annual
meeting of stockholders, and each initial director in Class III shall hold
office for a term expiring at the 1999 annual meeting of stockholders. At
each succeeding annual meeting of stockholders beginning in 1999, successors
to the class of directors whose terms expire at that annual meeting shall be
elected for a three-year term. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain
the number of directors in each class as nearly equal as possible, and any
additional directors of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with
the remaining term of that class, but in no case will a decrease in the
number of directors shorten the term of any incumbent director.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the corporation shall have the
right, voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of these Bylaws applicable thereto, and such directors so elected shall
not be divided into classes pursuant to this Section 3.1 unless expressly
provided by such terms.
Any amendment, change or repeal of this Section 3.1, or any other
amendment to these Bylaws that will have the effect of permitting
circumvention of or modifying this Section 3.1, shall require the affirmative
vote, at a stockholders' meeting, of the holders of at least 66 2/3% of the
then outstanding shares of stock of the corporation entitled to vote.
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SECTION 3.2 POWERS.
The powers of the corporation shall be exercised, its business conducted
and its property controlled by or under the direction of the Board of
Directors.
SECTION 3.3 VACANCIES.
Vacancies and newly created directorships resulting from any increase in
the authorized number of directors may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director, and each director so elected shall hold office for the unexpired
portion of the term of the director whose place shall be vacant, and until
his successor shall have been duly elected and qualified. A vacancy in the
Board of Directors shall be deemed to exist under this section in the case of
the death, removal or resignation of any director, or if the stockholders
fail at any meeting of stockholders at which directors are to be elected
(including any meeting referred to in Section 3.4 below) to elect the number
of directors then constituting the whole Board.
SECTION 3.4 RESIGNATIONS AND REMOVALS.
(a) 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, 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.
(b) At a special meeting of stockholders called for the purpose in the manner
herein above provided, the Board of Directors, or any individual director,
may be removed from office, with or without cause, and a new director or
directors elected by a vote of stockholders holding a majority of the
outstanding shares entitled to vote at an election of directors.
SECTION 3.5 MEETINGS.
(a) The annual meeting of the Board of Directors shall be held immediately
after the annual stockholders' meeting and at the place where such meeting
is held or at the place announced by the Chairman at such meeting. 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 of the Board of Directors may be held at any place within
or without the State of Delaware which has been designated by resolutions
of the Board of Directors or the
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written consent of all directors.
(c) 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 or, if there is no Chairman of the Board, by the
President and the Chief Executive Officer, or by any of the directors.
(d) Written notice of the time and place of all regular and special meetings of
the Board of Directors shall be delivered personally to each director or
sent by telegram or facsimile transmission at least 48 hours before the
start of the meeting, or sent by first class mail at least 120 hours before
the start 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.
SECTION 3.6 QUORUM AND VOTING.
(a) A quorum of the Board of Directors shall consist of a majority of the exact
number of directors fixed from time to time in accordance with Section 3.1
of Article III of these Bylaws, but not less than one; 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 at which a quorum is present, all questions
and business shall be determined by a vote of a majority of the directors
present, unless a different vote be required by law, the Certificate of
Incorporation, or these Bylaws.
(c) Any member of the Board of Directors, or of any committee thereof, may
participate in a meeting by means of conference telephone or similar
communication 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.
(d) The transactions of 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, or a consent
to holding such meeting, or an approval of the minutes thereof. All such
waivers, consents or approvals shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 3.7 ACTION WITHOUT MEETING.
Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof may be taken without a meeting, if all
members of the Board or of such committee, as the
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case may be, consent thereto in writing, and such writing or writings are
filed with the minutes of proceedings of the Board or committee.
SECTION 3.8 FEES AND COMPENSATION.
Directors and members of committees may receive such compensation, if
any, for their services, and such reimbursement for expenses, as may be fixed
or determined by resolution of the Board of Directors.
SECTION 3.9 COMMITTEES.
(a) EXECUTIVE COMMITTEE: The Board of Directors may appoint an Executive
Committee of not less than one member, each of whom shall be a
director. The Executive Committee, to the extent permitted by law,
shall have and may exercise when the Board of Directors is not in
session all powers of the Board in the management of the business and
affairs of the corporation, except such committee shall not have the
power or authority to amend these Bylaws or to approve or recommend to
the stockholders any action which must be submitted to stockholders
for approval under the Delaware General Corporation Law.
(b) OTHER COMMITTEES: The Board of Directors may, by resolution passed by
a majority of the whole Board, from time to time appoint such other
committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall have such powers and perform
such duties as may be prescribed by the resolution or resolutions
creating such committee, but in no event shall any such committee have
the powers denied to the Executive Committee in these Bylaws.
(c) TERM: The members of all committees of the Board of Directors shall
serve a term coexistent with that of the Board of Directors which
shall have appointed such committee. The Board, subject to the
provisions of subsections (a) or (b) of this Section 3.9, may at any
time increase or decrease the number of members of a committee or
terminate the existence of a committee; provided, that no committee
shall consist of less than one member. The membership of a committee
member shall terminate on the date of his death or voluntary
resignation, but the Board may at any time for any reason remove any
individual committee member and the Board 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 3.9 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
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regular meetings need be given thereafter; special meetings of any
such committee may be held at any place which has been designated
from time to time by resolution of such committee or by written
consent of all members thereof, 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 after the meeting and will be
waived by any director by attendance thereat. 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.
ARTICLE IV
OFFICERS
SECTION 4.1 OFFICERS DESIGNATED.
The officers of the corporation shall be a President and Chief Executive
Officer, a Secretary, and a Treasurer. The Board of Directors or the
President and Chief Executive Officer may also appoint a Chairman of the
Board, one or more Vice-Presidents, assistant secretaries, assistant
treasurers, and such other officers and agents with such powers and duties as
it or he shall deem necessary. The order of the seniority of the Vice-
Presidents shall be in the order of their nomination, unless otherwise
determined by the Board of Directors. The Board of Directors may assign such
additional titles to one or more of the officers as they shall deem
appropriate. Any one 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 4.2 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. Nothing in these Bylaws shall be
construed as creating any kind of contractual right to employment with the
corporation.
(b) DUTIES OF THE CHAIRMAN OF THE BOARD OF DIRECTORS: The Chairman of the
Board of Directors (if there be such an officer appointed), when present,
shall preside at all meetings of the stockholders and the Board of
Directors. The Chairman of the Board of Directors shall perform such other
duties and have such other powers as the Board of Directors shall designate
from time to time.
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(c) DUTIES OF PRESIDENT AND CHIEF EXECUTIVE OFFICER: The President and Chief
Executive Officer shall be the chief executive officer of the corporation
and 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 at such meetings. The President and
Chief Executive Officer shall perform such other duties and have such other
powers as the Board of Directors shall designate from time to time.
(d) DUTIES OF VICE-PRESIDENTS: The Vice-Presidents, in the order of their
seniority, may assume and perform the duties of the President and Chief
Executive Officer in the absence or disability of the President or whenever
the office of the President and Chief Executive Officer is vacant. The
Vice-President shall perform such other duties and have such other powers
as the Board of Directors or the President and Chief Executive Officer
shall designate from time to time.
(e) DUTIES OF SECRETARY: The Secretary shall attend all meetings of the
shareholders and of the Board of Directors and any committee thereof, 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 such other duties and have such other powers as the
Board of Directors shall designate from time to time. The President and
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 such other duties and
have such other powers as the Board of Directors or the President and Chief
Executive Officer shall designate from time to time.
(f) DUTIES OF TREASURER: The Treasurer 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 President
and Chief Executive Officer. The Treasurer, subject to the order of the
Board of Directors, shall have the custody of all funds and securities of
the corporation. The Treasurer shall perform all other duties commonly
incident to his office and shall perform such other duties and have such
other powers as the Board of Directors or the President and Chief Executive
Officer shall designate from time to time. The President and Chief
Executive Officer may direct any Assistant Treasurer to assume and perform
the duties of the Treasurer in the absence or disability of the Treasurer,
and each Assistant Treasurer shall perform such other duties and have such
other powers as the Board of Directors or the President and Chief Executive
Officer shall designate from time to time.
ARTICLE V
EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING OF SECURITIES OWNED BY THE
CORPORATION
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SECTION 5.1 EXECUTION OF CORPORATE INSTRUMENTS.
(a) 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 any corporate instrument or document, or to sign the corporate name
without limitation, except where otherwise provided by law, and such
execution or signature shall be binding upon the corporation.
(b) Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, formal contracts of the corporation, 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 (if there be such an officer appointed) or by the President and Chief
Executive Officer; such documents may also be executed by 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.
(c) All checks and drafts drawn on banks or other depositories 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.
SECTION 5.2 VOTING OF SECURITIES OWNED BY 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 (if there be such
an officer appointed), or by the President and Chief Executive Officer.
ARTICLE VI
SHARES OF STOCK
SECTION 6.1 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 (if there be such an officer appointed), or by the President and
Chief Executive Officer or any Vice-President and by the Treasurer or
Assistant Treasurer or the Secretary or Assistant Secretary, certifying the
number of shares owned by him in the corporation. Any or all of the
signatures on the certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be
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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. If the corporation shall be
authorized to issue more than one class of stock or more than one series of
any class, the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate which the corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided in Section 202
of the Delaware General Corporation Law, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock,
a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights.
SECTION 6.2 LOST CERTIFICATES.
The Board of Directors may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by
the corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost
or destroyed certificate or certificates, or his legal representative, to
indemnify the corporation in such manner as it shall require and/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 or destroyed.
SECTION 6.3 TRANSFERS.
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 certificate or certificates for a
like number of shares, properly endorsed.
SECTION 6.4 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 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 record date shall not be
more than sixty nor less than ten 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 date on which the meeting is held.
A determination of stockholders of record entitled notice of or to vote at
a meeting of stockholders shall apply
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to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which date shall not be more than ten days after
the date upon which the resolution fixing the record date is adopted by the
Board of Directors. If no record date has been fixed by the Board of
Directors, 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 the Delaware General Corporation 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 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. 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 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
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 6.5 REGISTERED STOCKHOLDERS.
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends,
and to vote as such owner, and shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of any
other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Delaware.
ARTICLE VII
OTHER SECURITIES OF THE CORPORATION
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All bonds, debentures and other corporate securities of the corporation,
other than stock certificates, may be signed by the Chairman of the Board (if
there be such an officer appointed), or the President and Chief Executive
Officer 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 Treasurer or an Assistant
Treasurer; provided, however, that where any such bond, debenture or other
corporate security shall be authenticated by the manual signature of a
trustee under an indenture pursuant to which such bond, debenture or other
corporate security shall be issued, the signature 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 pertaining to any such bond, debenture or other corporate
security, so authenticated by a trustee, 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 before the bond, debenture or other
corporate security so signed or attested shall have been delivered, ceases to
be an officer of the corporation, 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 VIII
CORPORATE SEAL
The corporate seal shall consist of a die bearing the name of the
corporation and the state and date of its incorporation. Such seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 INDEMNIFICATION IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN THOSE
BY OR IN RIGHT OF THE CORPORATION.
(a) To the extent permitted by law, the corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding") (other than an
action by or in the right of the corporation) by reason of the fact that
such person 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, employee benefit
plan or other enterprise, against expenses, liabilities and losses
(including attorneys' fees, judgments, fines, penalties and amounts paid in
settlement, and any interest,
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assessments or other charges imposed thereon, and any federal, state, local
or foreign taxes imposed on any person as a result of payment received
under this Article) actually and reasonably incurred by such person in
connection with such Proceeding, if such person acted in good faith and
in a manner which such person reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
Proceeding, had no reasonable cause to believe that such conduct was
unlawful. The termination of any Proceeding by judgment, order,
settlement, conviction, or upon a plea of NOLO CONTENDERE or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal Proceeding, had reasonable cause to believe that
such conduct was unlawful.
(b) To the extent permitted by law, the corporation may indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed Proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that such person is or was an
employee or agent of the corporation, or is or was serving at the request
of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses, liabilities and losses (including attorneys'
fees, judgments, fines, penalties and amounts paid in settlement, and any
interest, assessments or other charges imposed thereon and any federal,
state, local or foreign taxes imposed on any person as a result of payment
received under this Article) actually and reasonably incurred by such
person in connection with such Proceeding, if such person acted in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal Proceeding, had no reasonable cause to believe that such conduct
was unlawful. The termination of any Proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contenders or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal Proceeding, had reasonable cause to believe that
such conduct was unlawful.
SECTION 9.2 INDEMNIFICATION IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE
RIGHT OF THE CORPORATION.
(a) To the extent permitted by law, the corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed Proceeding by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that
such person 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, employee benefit
plan or other enterprise, against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the
defense or settlement of such Proceeding if such person acted in good faith
and in a manner
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which such person reasonably believed to be in or not opposed to the best
interests of the corporation. No such indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent
that the court in which such Proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
(b) To the extent permitted by law, the corporation may indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed Proceeding by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that
such person is or was an employee or agent of the corporation, or is or was
serving at the request of the corporation as an employee or agent of
another corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise, against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the
defense or settlement of such Proceeding if such person acted in good faith
and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the corporation. No such indemnification
shall be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the Corporation unless and
only to the extent that the court in which such Proceeding was brought
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such
court shall deem proper.
SECTION 9.3 AUTHORIZATION OF INDEMNIFICATION.
Any indemnification under this Article 9 shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because such person or persons have met the applicable standard
of conduct set forth in Sections 9.1 and 9.2 hereof. Such determination
shall be made (a) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to Proceeding, or (b) if such a
quorum is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or
(c) by a majority of the stockholders entitled to vote generally in the
election of directors.
SECTION 9.4. ADVANCEMENT OF EXPENSES.
The Corporation may advance expenses (including attorneys' fees)
incurred by a director or officer (acting in his or her capacity as such) in
advance of the final disposition of such Proceeding upon the receipt of an
undertaking by or on behalf of the director or officer to repay such amount
if it shall ultimately be determined, by final judicial decision from which
there is no further right to appeal, that such director or officer is not
entitled to indemnification.
The Corporation may advance expenses (including attorneys' fees) incurred
by an employee or
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agent in advance of the final disposition of such Proceeding upon such terms
and conditions, if any, as the Board of Directors deems appropriate.
SECTION 9.5 PROVISIONS NONEXCLUSIVE.
The rights conferred on any person by this Article shall not be
exclusive of any other rights that such person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, agreement,
vote of stockholders or disinterested directors, or otherwise, both as to
action in an official capacity and as to action in another capacity while
holding such office. To the extent that any provision of the Certificate of
Incorporation, agreement or vote of the stockholders or disinterested
directors is inconsistent with these bylaws, the provision, agreement, or
vote shall take precedence.
SECTION 9.6 AUTHORITY TO INSURE.
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the
corporation (or is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise) against liability asserted against or incurred by such
person in such capacity or arising from such person's status as such (whether
or not the corporation would have the power to indemnify such person against
such liability).
SECTION 9.7 SURVIVAL OF RIGHTS.
The rights provided by this Article shall continue as to a person who
has ceased to be a director, officer, employee or agent of the corporation
(or has ceased serving at the request of the corporation as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust employee benefit plan or other enterprise)
and shall inure to the benefit of the heirs, executors, and administrators of
such a person.
SECTION 9.8 SETTLEMENT OF CLAIMS.
The corporation shall not be liable to indemnify any person under this
Article (a) for any amounts paid in settlement of any action or claim
effected without the corporation's written consent, which consent shall not
be unreasonably withheld; or (b) for any judicial award if the corporation
was not given a reasonable and timely opportunity, at its expense, to
participate in the defense of such action.
SECTION 9.9 EFFECT OF AMENDMENT.
Any amendment, repeal, or modification of this Article shall not adversely
affect any right or protection of any person covered by this Article existing at
the time of such amendment, repeal, or modification.
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ARTICLE X
NOTICES
Whenever, under any provisions of these Bylaws, notice is required to be
given to any stockholder, the same 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. Any notice required to be given to any
director may be given by the method herein above stated, or by telegram or
other means of electronic transmission, except that such notice other than
one which is delivered personally, shall be sent to such address or (in the
case of facsimile telecommunication) facsimile telephone number as such
director shall have filed in writing with the Secretary of the corporation,
or, in the absence of such filing, to the last known post office address of
such director. 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, director or
directors, to whom any such notice or notices was or were given, and the time
and method of giving the same, shall be conclusive evidence of the statements
therein contained. 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
telegram or other means of electronic transmission shall be deemed to have
been given as at the sending time recorded by the telegraph company or other
electronic transmission equipment operator transmitting the same. It shall
not be necessary that the same method of giving 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. 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 b affected or extended in
any manner by the failure of such a stockholder or such director to receive
such notice. Whenever any notice is required to be given under the
provisions of the Delaware statutes or of the Certificate of Incorporation,
or of these Bylaws, a waiver thereof in writing signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. 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.
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ARTICLE XI
AMENDMENTS
The Board of Directors shall have the authority to repeal, alter or
amend these Bylaws or adopt new Bylaws by unanimous written consent or at any
annual, regular, or special meeting by the affirmative vote of a majority of
the whole number of directors, provided that the Board of Directors shall not
make or alter any Bylaws fixing the qualifications, classifications, or term
of office of directors. If stockholders are entitled to vote with respect
thereto to amend or repeal Bylaws adopted by the Board of Directors as may be
provided in the Certificate of Incorporation or by law, then the affirmative
vote of 66-2/3% of the total number of votes of the then outstanding shares
of capital stock of the corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required
for the amendment or repeal of Bylaws by the stockholders of the corporation.
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EXHIBIT 10.1
LOAN AND INVESTMENT AGREEMENT
The parties to this Loan and Investment Agreement (the "Agreement") are:
LENDER
Hospitality Partners, LLC,
a Delaware limited liability company
3 Civic Plaza
Suite 170
Newport Beach, CA 92660
BORROWER
Hospitality Marketing Consultants, LLC,
a California limited liability company
15751 Rockfield Boulevard
Suite 2000
Irvine, CA 92718
MEMBERS
Mokhtar Ramadan
Fadi Ramadan
Marwan Ramadan
Sandra Case
The Members join in this Agreement solely for purposes of confirming their
agreement to Section 2.3(a).
RECITALS
A. The Members own all of the membership interests of Borrower.
B. Lender has agreed to loan to Borrower $3,000,000 (the "Loan"), which
shall be evidenced by a convertible subordinated promissory note in the form
attached hereto as Exhibit "A" (the "Note").
C. As provided in Section 2.3(b), the Note is convertible into a minimum
of 10% and up to a maximum of 30% of the equity interests of Borrower
immediately prior to the closing of an initial public offering of Borrower's
successor-in-interest as contemplated by this Agreement and as provided in the
Note.
D. Lender is willing to make the Loan to Borrower based on the
representations, warranties and covenants of Borrower contained in this
Agreement.
<PAGE>
ARTICLE
1
DEFINED TERMS/PRINCIPLES OF CONSTRUCTION
SECTION 1.1. DEFINITIONS
As used in this Agreement, the following terms will have the following
meanings:
AFFILIATE shall mean, with respect to any Person, any other Person (i)
directly or indirectly controlling (including, but not limited to, all
directors, officers, partners and members of such Person), controlled by, or
under direct or indirect common control with, such Person; (ii) that directly or
indirectly owns more than 5% of the voting securities of such Person; or (iii)
who is related to such person by blood, marriage or adoption (a "Family
Member"). A Person shall be deemed to control a corporation, partnership,
limited liability company or other legal entity if such Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such corporation, partnership, or other legal entity
whether through the ownership of voting securities, partnership interests,
membership interests, by contract or otherwise.
DISCLOSURE SCHEDULE is defined in Article 3.
EVENTS OF DEFAULT is defined in Article 7.
FINANCIAL STATEMENTS means the financial statements of Borrower, as may be
required by Lender from time to time, including operating statements, income
statements, balance sheets, cash flow statements, statements of changes in
financial condition and any other financial reports and information that Lender
may require.
FUNDING DATE is defined in Section 2.2.
LOAN is defined in Recital A.
LOAN MATURITY DATE means December 31, 2001.
LOAN PROCEEDS means funds disbursed by Lender pursuant to the Loan in
accordance with this Agreement.
NOTE is defined in Recital A.
PERMITTED LIENS is defined in Section 6.1.
PERSON shall mean any individual, partnership, joint venture, limited
liability company, firm, corporation, association, trust or
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other enterprise or any government or political subdivision or any agency,
department or instrumentality thereof.
SENIOR INDEBTEDNESS is defined in Section 10.1.
TRANSACTION DOCUMENTS means the Note and this Agreement.
ARTICLE 2
MAKING OF LOAN
SECTION 2.1. LOAN.
Lender agrees to lend to Borrower, and Borrower agrees to borrow from
Lender, $3,000,000 pursuant to the Loan, subject to the terms, conditions,
representations, warranties, and covenants in this Agreement.
SECTION 2.2. DISBURSEMENTS.
Lender agrees to disburse the Loan Proceeds to Borrower upon execution and
delivery of this Agreement (the "Funding Date"). Interest will accrue on
disbursed Loan Proceeds as described in the Note. All Loan Proceeds will be
evidenced by the Note.
SECTION 2.3. INVESTMENT CONSIDERATIONS
2.3.(a) REORGANIZATION. It is contemplated by Lender and Borrower
that Borrower will close an initial registered public offering (an "IPO") with
an underwriter selected by Borrower (the "Underwriter") prior to December 31,
1999. In order for Borrower to issue shares to the public in the IPO, Borrower
will be required to reorganize as a corporation ("Reorganized Borrower") taxable
under Subchapter C of the Internal Revenue Code of 1986, as amended (the
"Reorganization"). Attached to this Agreement as Exhibit "B" and incorporated
herein by this reference is an organizational chart (the "Organizational Chart")
depicting Borrower and its affiliated companies (the "Group").
Contemporaneously with the closing of the IPO, the Reorganization shall be
effected so that Borrower is reorganized as a corporation on a tax-free basis
and succeeds directly or indirectly to the ownership of the business of the
other members of the Group, other than Hospitality Marketing Consultants, a
general partnership, which shall be excluded from the Reorganization. Borrower
and Lender understand and acknowledge that the Reorganization is extremely
complicated and complex and involves extensive planning to ensure that it can be
accomplished on a tax-free basis to the Members and without Material Adverse
Effect on the Group's business. As part of the Reorganization, Reorganized
Borrower shall indemnify Borrower's Members from all then current and
preexisting liabilities, including tax liabilities. Borrower and Lender
acknowledge and agree that the precise structure and exact manner of the
Reorganization have not
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at present been determined, and that therefore the manner and form of the
Reorganization shall be subject to Lender's reasonable approval. Borrower
understands and agrees that in granting or withholding its approval, Lender
may take into account its own tax and securities requirements. The Members
agree to take all actions required, including without limitation,
contributing their equity interests in the other companies in the Group to
Borrower, as shall be necessary to accomplish the Reorganization as devised
by Borrower and approved by Lender as contemplated by this Section 2.3(a).
2.3.(b) CONVERSION OF NOTE. Pursuant to the Note, prior to December
31, 1999 (the "Cut-Off Date") and (i) from and after the execution and delivery
of a firm commitment underwriting/purchase agreement with the Underwriter (the
"Signing Date") and conditioned on the subsequent closing of the IPO in the case
of a public offering, and (ii) from and after the execution and delivery of an
agreement for the sale of all or substantially all of the business of the Group
or equity interests of the Group (a "Private Sale"), and conditioned on the
subsequent closing of the Private Sale in the case of a sale, Lender shall have
the right to convert the principal balance of the Note into membership interests
of Borrower or capital stock in the case of Reorganized Borrower (the "Shares")
in an amount equal to a minimum of 10% and a maximum of 30% of the total
capitalization of Borrower on a fully diluted basis (except for dilution
resulting from the adoption of a stock option plan not to exceed 10% of
Borrower's total capitalization) calculated prior to the dilution resulting from
the issuance of shares to the public in the IPO, all calculated in accordance
with the formula described below. In other words, Lender's equity interest
shall be diluted along with the other Members of Borrower by the sale of stock
to the public and by the Borrower's membership interests reserved for issuance
pursuant to the stock option plan. If the valuation ascribed to the Reorganized
Borrower for the IPO and on which the price per share to the public is
calculated or the sale price to be paid by the buyer for the Group in a Private
Sale (the "Valuation") is $50,000,000, Lender shall be entitled to convert the
Note into 10% of Borrower's membership interests or capital stock in the case of
Reorganized Borrower. The percentage of Borrower's membership interests or
capital stock in the case of Reorganized Borrower into which the Note shall be
converted shall increase thereafter by 1% for each $2,500,000 in Valuation up to
a maximum of 30% of Borrower's membership interests or capital stock in the case
of Reorganized Borrower at a Vauation of $100,000,000 or more. Lender shall
have the right by written notice to Borrower to surrender its conversion rights
by accelerating the Cut-Off Date to any month-end date from, after and including
December 31, 1998. If Borrower has an active Registration Statement on file with
the Securities and Exchange Commission on the Cut-Off Date, the Cut-Off Date
shall be automatically extended for a period of time expiring one hundred eighty
(180) days after the Registration Statement is
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declared effective or the Registration Statement is withdrawn by Borrower,
whichever is earlier.
2.3.(c) INVESTMENT REPRESENTATIONS. Lender is acquiring the Note
and any Shares into which the Note is converted for its own account and not with
a view to, or for sale in connection with, any distribution thereof in violation
of the Securities Act of 1933, as amended (the "Securities Act"). Lender
understands that neither the Note nor the Shares will be registered under the
Securities Act or qualified with any state securities agency for the reason that
the sale provided for in this Agreement is exempt pursuant to Section 4 of the
Securities Act and similar provisions of applicable state law, and that the
reliance of Borrower on such exemptions is predicated in part on Lender's
representations set forth herein. Lender further represents that (i) it and
each of its members except for one person is an "Accredited Investor" in the
meaning of Rules 501-506 under the Securities Act and is an "Excluded Purchaser"
within the meaning of Regulation 260.102.13 under the California General
Corporation Law, or (ii) by reason of its financial experience or the financial
experience of those persons that Lender has retained to advise it (none of whom
are Affiliated with or compensated by Borrower), Lender and each of its members
except for one person, together with such advisors has such knowledge,
sophistication and experience in business and financial matters that it and they
are capable of evaluating the merits and risks of an investment in the Shares,
that it and they are able to bear the economic risk of such investment, and that
it and they are able to afford a complete loss of such investment.
SECTION 2.4. DELIVERY OF NOTE AND CERTIFICATE.
Concurrently with execution and delivery of this Agreement, Borrower shall
take the following actions:
2.4.(a) EXECUTION OF NOTE. Borrower shall execute and deliver the
Note to Lender in the form attached hereto.
2.4.(b) ORGANIZATIONAL DOCUMENTS. Borrower shall deliver to Lender
a Certificate, dated the Funding Date, signed by the Manager of Borrower,
authorizing the issuance of the Note and the execution and delivery of the
Transaction Documents, together with copies of the Operating Agreement, as
amended, and Articles of Organization (Form LLC-1) as filed, of Borrower.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BORROWER
Except as disclosed on the schedule annexed hereto as Exhibit "C" and
incorporated herein by this reference (the "Disclosure
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Schedule"), as a material inducement to Lender to enter into this Agreement,
to make the Loan to Borrower, Borrower unconditionally represents and
warrants to Lender as of the Funding Date as follows:
SECTION 3.1. FORMATION.
Borrower is duly organized, validly existing and in good standing as a
limited liability company, and has not taken any action to dissolve, under the
laws of California, is duly qualified to do business in California and in each
other jurisdiction (and is in good standing in each such jurisdiction) where it
is required to be qualified to transact business as a foreign entity, in which
the failure to be so qualified would have a material adverse effect on the
business, operations, property, assets or condition (financial or otherwise) (a
"Material Adverse Effect") on Borrower, and has full power and authority to
consummate the transactions contemplated by this Agreement. The other members
of the Group are duly organized, validly existing and in good standing under the
laws of their respective jurisdiction of organization and are qualified to
transact business in each other jurisdiction where they are required to be
qualified to transact business as a foreign entity, in which the failure to be
so qualified would have a Material Adverse Effect on the Group as a whole.
SECTION 3.2. CAPITALIZATION.
Borrower does not have outstanding any securities convertible into or
exchangeable for its membership interests or outstanding any rights to subscribe
for or to purchase, or any options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to, its membership interests.
SECTION 3.3. OWNERSHIP.
The Members are the owners, beneficially and of record, of all membership
interests of Borrower in the respective amounts set forth in the Disclosure
Schedule, free and clear of all liens, encumbrances, security agreements,
equities, options, claims and charges. The ownership of the other companies in
the Group is as set forth in the Organizational Chart.
SECTION 3.4. NO SUBSIDIARIES.
Except as shown in the Organizational Chart or disclosed in the Financial
Statements, the Group does not own, directly or indirectly, any interest or
investment (whether equity or debt) in any corporation, partnership, limited
liability company, business, trust or other entity.
6
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SECTION 3.5. BORROWER'S POWERS.
Borrower has full authority to execute this Agreement and the Note, to
undertake and consummate the contemplated transactions, and to pay, perform, and
observe all of the conditions, covenants, agreements, and obligations contained
in the Transaction Documents, and has taken all necessary actions pursuant to
its Operating Agreement to authorize the foregoing.
SECTION 3.6. BINDING OBLIGATION.
This Agreement and the Note have been duly executed and delivered by
Borrower and the Members [solely with respect to Section 2.3(a)] and constitute
a legal and binding obligation of, and are valid and enforceable against
Borrower and the Members [solely with respect to Section 2.3(a)] in accordance
with the terms of each.
SECTION 3.7. LITIGATION.
There are no actions, suits, or proceedings pending or, to the best
knowledge of Borrower, threatened against or affecting the Group in which the
amount in controversy exceeds $500,000 or involving the validity or
enforceability of the Transaction Documents, at law or in equity, or before or
by any governmental authority. The Group is in material compliance with all
applicable statutes, regulations and orders of, and all applicable restrictions
imposed by, all governmental bodies, domestic or foreign, in respect of the
conduct of its business and the ownership of its property (including applicable
statutes, regulations, orders and restrictions relating to environmental
standards and controls), except for such noncompliance as would not, in the
aggregate, have a Material Adverse Effect on the Group taken as a whole.
Neither Borrower nor any other member of the Group is in default with respect to
any order, writ, injunction, decree, or demand of any court or other
Governmental Authority.
SECTION 3.8. NO VIOLATION.
The consummation of the transactions covered by this Agreement and the
payment and performance of all of the obligations in the Transaction Documents,
will not (i) contravene any provision of any law, statute, rule, regulation or
order, writ, injunction or decree of any court or governmental instrumentality,
except for such of the foregoing as would not have a Material Adverse Effect on
the Group as a whole, (ii) result in any breach of, or constitute a default
under, any material mortgage, deed of trust, lease, contract, loan or credit
agreement, corporate charter, bylaws, partnership agreement, operating
agreement, trust agreement, or other instrument to which the members of the
Group are parties or by which they may be bound or affected except for such of
the
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foregoing as would not have a Material Adverse Effect on the Group as a
whole, or (iii) violate Borrower's Articles of Organization or Operating
Agreement.
SECTION 3.9. NO DEFAULT.
There is no Event of Default on the part of Borrower under this Agreement
or the other Transaction Documents, and no event has occurred and is continuing
which with notice or the passage of time or both would constitute a default or
an Event of Default thereunder.
SECTION 3.10. GOVERNMENTAL APPROVALS.
No material order, consent, approval, license, authorization or
validation of, or filing, recording or registration with (except as have been
obtained or made), or exemption by, any governmental or public body or
authority, or any subdivision thereof, is required to authorize, or is required
in connection with, (i) the execution, delivery and performance of any
Transaction Document or (ii) the legality, validity, binding effect or
enforceability of any such Transaction Document.
SECTION 3.11. LABOR RELATIONS.
3.11.(a) The Group is not a party to any employment contract not
entered into in the ordinary course of business or unusual in duration,
collective bargaining agreement, or pension, bonus, profit sharing, stock option
or other agreement providing for employee remuneration or benefits.
3.11.(b) The Group is not engaged in any unfair labor practice that
could have a Material Adverse Effect on the Group as a whole. There is (i) no
significant unfair labor practice complaint pending against the Group or, to
Borrower's best knowledge, threatened against the Group before the National
Labor Relations Board, and no significant grievance or significant arbitration
proceeding arising out of or under any collective bargaining agreement is so
pending against the Group or, to Borrower's best knowledge, threatened against
the Group (ii) no significant strike, labor dispute, slowdown or stoppage is
pending against the Group or, to Borrower's best knowledge, threatened against
the Group, and (iii) to Borrower's best knowledge, there is no union
representation question existing with respect to the employees of the Group and,
to Borrower's best knowledge, no union organizing activities are taking place.
SECTION 3.12. TRADEMARKS, LICENSES AND FRANCHISES.
The Group owns or has the right to use all of the material trademarks,
permits, service marks, trade names, copyrights,
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licenses, franchises, or rights with respect to the foregoing, utilized in
the operation of its business, without any known conflict with the rights of
others which, or the failure to obtain which, as the case may be, would
result in a Material Adverse Effect on the Group as a whole.
SECTION 3.13. NO USURY.
The Loan is not usurious under California or Federal law.
SECTION 3.14. TAXES.
The Group has filed all required Federal, State, County, and City tax
returns and has paid all taxes due and required to be paid. Borrower knows of
no reasonable basis for additional assessments with respect to any material
taxes. The Group has paid, or has provided adequate reserves (in the good faith
judgment of the management of Borrower) for the payment of, all federal and
state income taxes applicable for all prior fiscal years and for the current
fiscal year to the date hereof.
SECTION 3.15. FINANCIAL STATEMENTS.
The Financial Statements of the Group at August 30, 1997 (the "Financial
Statement Date") including the balance sheet and the related statements of
income and retained earnings for the eight (8)-month period ended on such date
and heretofore furnished to Lender are unaudited, internally prepared
compilations, based on the Group's historical accounting practices consistently
applied, which present fairly the financial condition of the Group at the date
of such Financial Statements and the results of the operations of Borrower for
such eight (8)-month period.
SECTION 3.16. ABSENCE OF SPECIFIED CHANGES.
Since the Financial Statement Date, there has not been any:
3.16.(a) Transaction by the Group, other than this transaction,
except in the ordinary course of business as conducted on that date;
3.16.(b) Material adverse change in the Group's financial condition,
finances, income, debts, liabilities or assets;
3.16.(c) Destruction, damage to, or loss of any asset of the Group
(whether or not covered by insurance) that materially and adversely affects the
financial condition of the Group as a whole;
3.16.(d) Change in accounting methods or practices of the Group;
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3.16.(e) Re-evaluation by the Group of any of its material assets;
3.16.(f) Sale or transfer, including without limitation, any
mortgage, pledge or other encumbrance, of any of the Group's material assets,
except in the ordinary course of business;
3.16.(g) Waiver or release of any material right or a claim of the
Group in connection with its business, except in the ordinary course of
business;
3.16.(h) Amendment or termination of any material contract, agreement
or license, except in the ordinary course of business that materially and
adversely affects the financial condition of the Group as a whole;
3.16.(i) Other events or condition of any character, that is or might
reasonably have a Material Adverse Effect on the financial condition or assets
of the Group as a whole; or
3.16.(j) Agreement by the Group to do any of the things described in
this Section 3.16.
SECTION 3.17. BUSINESS USE OF LOAN PROCEEDS.
Borrower shall use the Loan Proceeds solely for the ongoing and legitimate
business needs of the Group in its ordinary course of business. No portion of
the Loan Proceeds will be disbursed to the Members or the Affiliates of Borrower
or the Members (other than companies in the Group), directly or indirectly, or
loaned to the Members or to any Affiliates of Borrower or the Members (other
than companies in the Group). Borrower shall not use the Loan Proceeds to pay
or fund distributions to the members of Borrower, or to redeem or repurchase
membership interests of Borrower. Borrower shall not use the Loan Proceeds to
repay loans to the Members, or pay salaries to the Members or Affiliates of
Borrower or Members, unless Lender expressly consents to the contrary.
Notwithstanding anything herein to the contrary, the foregoing shall not
prohibit Borrower from repaying personal loans secured by certain Members' homes
in the aggregate principal amount of $600,000 which loans were used to fund
Group operations or from making distributions (other than of the Loan Proceeds)
to Members pursuant to Borrower's Operating Agreement.
SECTION 3.18. OTHER CONTRACTS.
The Disclosure Schedule contains a true and complete list of all agreements
to which the Group is a party which are material to the Group or its business,
having a value or cost in excess of $500,000, copies of which have been
furnished to or made available to Lender. To Borrower's knowledge, there is no
default or event
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that, with notice or lapse of time or both, would constitute a default by any
party to any of these agreements. Borrower has not received notice, and
Borrower does not have any knowledge, that any party to any of these
agreements intends to cancel or terminate any of these agreements or to
exercise or not exercise any options under any of these agreements. The
Group is not a party to, nor is its property bound by, any agreement not
entered into in the ordinary course of business, any agreement that is
unusual in nature, duration, or amount, or any agreement that is materially
adverse to the business, properties or financial condition of the Group taken
as a whole.
SECTION 3.19. NATURE OF REPRESENTATIONS
AND WARRANTIES.
Borrower certifies to Lender that as of the Funding Date, all
representations and warranties made in this Agreement and all other Transaction
Documents are true and correct in all material respects and do not contain any
untrue statement of a material fact or omit any material fact necessary to make
the representations and warranties not misleading. The representations and
warranties will survive so long as the Loan or any part of it remains
outstanding. Each representation and warranty made in this Agreement and in any
other Transaction Document, and in any other document delivered to Lender by
Borrower, will be deemed to have been relied on by Lender, regardless of any
investigation, inspection, or inquiry made by Lender. The representations and
warranties that are made to the best knowledge of Borrower have been made after
diligent inquiry calculated to ascertain the truth and accuracy of the subject
matter of each representation and warranty.
SECTION 3.20. RELATED-PARTY TRANSACTIONS.
Except as disclosed in the Financial Statements and except for intercompany
transactions among the companies in the Group, no employee, officer or Member of
the Borrower or members of his or her immediate family is materially indebted to
the Borrower or the other companies in the Group, nor is the Borrower indebted
(or committed to make loans or extend or guarantee credit) to any of them, other
than (a) for payment of salary for services rendered or distributions to Members
in accordance with Borrower's Operating Agreement, (b) reimbursement for
reasonable expenses incurred on behalf of the Borrower, and (c) for other
standard employee benefits made generally available to all employees. To the
best of the Borrower's knowledge, none of such persons have any direct or
indirect ownership interest in any firm or corporation that competes with the
Borrower. To the best of the Borrower's knowledge, no officer, director or
Member or any member of their immediate families is, directly or indirectly,
interested in any material contract with the Borrower. "Material" for purposes
of
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this Section 3.20 means having a value or cost in excess of $500,000.
SECTION 3.21. LIMITATIONS.
3.21.(a) No representation or warranty is made by Borrower except as
expressly set forth herein.
3.21.(b) The maximum amount of Borrower's liability for breach of the
representations and warranties set forth in this Agreement will not exceed the
unpaid amounts due pursuant to the Note. In no event will Borrower have any
liability in excess of actual damages incurred and resulting from any such
breach. Lender hereby waives all claims for consequential, special, expectancy
or similar loss or damages.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF LENDER
Lender hereby represents and warrants to Borrower as follows:
SECTION 4.1. FORMATION
Lender is duly organized, validly existing and in good standing under the
laws of Delaware, is duly qualified to do business in Delaware which is the only
jurisdiction in which such qualification is required, and has full power and
authority to consummate the transactions contemplated by this Agreement.
SECTION 4.2. LENDER'S POWERS
Lender has full authority to execute this Agreement, to undertake and
consummate the contemplated transactions and to pay, perform and observe all the
conditions, covenants, agreements and obligations applicable to it contained in
the Transaction Documents, and has taken all necessary action to authorize the
foregoing.
SECTION 4.3. BINDING OBLIGATION
This Agreement and the other documents to which Lender is a party have been
duly executed and delivered by Lender and constitute legal and binding
obligations of, and are valid and enforceable against, Lender in accordance with
the terms of each such document.
SECTION 4.4. LITIGATION
There are no actions, suits or proceedings pending, or to the best
knowledge of Lender threatened, against or affecting Lender
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which involve the validity or enforceability of the Transaction Documents, at
law or in equity, or for or by any governmental authority. Lender is in
material compliance with all applicable statutes, regulations and orders of,
and all applicable restrictions imposed by all governmental bodies, domestic
or foreign, in respect of the conduct of its business and the ownership of
its property (including applicable statutes, regulations, orders and
restrictions relating to environmental standards and controls), except for
such noncompliance that would not have a Material Adverse Effect. Lender is
not in default with respect to any order, writ, injunction, decree or demand
of any court or other governmental authority.
SECTION 4.5. CONTROL OF LENDER
Lender hereby represents that Amre Youness is the sole manager of Lender.
ARTICLE 5
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that:
SECTION 5.1. INFORMATION COVENANTS
Borrower will furnish to Lender:
5.1.(a) MONTHLY OPERATING STATEMENTS. Within 45 days after the end
of each month, a monthly written report of the operating results and material
events occurring in such month which report shall also contain such other
information as is reasonably requested by Lender and shall be in a form
reasonably satisfactory to Lender.
5.1.(b) QUARTERLY FINANCIAL STATEMENTS. Within 45 days (or 90 days
in the case of the fourth fiscal quarter) after the close of each quarterly
accounting period in each fiscal year, the balance sheet of Borrower as at the
end of such quarterly period and the related statements of income and retained
earnings and cash flow statement for such quarterly period, and for the elapsed
portion of the fiscal year ended with the last day of such quarterly period all
prepared in accordance with generally accepted accounting principles applied on
a consistent basis, in each case setting forth comparative figures for the
related periods in the prior fiscal year, all of which shall be certified by
Borrower's chief financial officer, subject to normal year-end audit
adjustments.
5.1.(c) ANNUAL FINANCIAL STATEMENTS. Within 90 days after the close
of each fiscal year, the balance sheet of Borrower
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as at the end of such fiscal year and the related statements of income and
retained earnings and cash flow statement for such fiscal year all prepared
in accordance with generally accepted accounting principles applied on a
consistent basis, in each case setting forth comparative figures for the
preceding fiscal year and certified by independent certified public
accountants of recognized national standing satisfactory to Lender, in each
case together with a report of such accounting firm stating that in the
course of its regular audit of Borrower's financial statements, which audit
was conducted in accordance with generally accepted auditing standards,
except as noted in such report, such accounting firm obtained no knowledge of
any litigation, breach or default of Borrower to third Persons or Event of
Default which has occurred and is continuing or, if in the opinion of such
accounting firm such has occurred and is continuing, a statement as to the
nature thereof.
5.1.(d) MANAGEMENT LETTERS. Promptly after Borrower's receipt
thereof, a copy of any "management letter" received by Borrower from its
certified public accountants.
5.1.(e) BUDGETS. Within 60 days after the first day of each fiscal
year of Borrower, a budget in form reasonably satisfactory to the Lender
(including budgeted statements of income and sources and uses of cash and a
balance sheet) prepared by Borrower for each of the four fiscal quarters
immediately following the last day of such fiscal year accompanied by the
statement of the chief financial officer of Borrower to the effect that, to the
best of his or her knowledge, the budget is as of the date of its preparation, a
reasonable estimate for the period covered thereby.
5.1.(f) OFFICER'S CERTIFICATES. At the time of the delivery of the
monthly operating report and Financial Statements provided for in Sections
5.1(a), (b) and (c), a certificate of the chief financial officer of Borrower to
the effect that, to the best of his or her knowledge, no default or breach of
any material agreement with a third Person or Event of Default has occurred and
is continuing or, if such has occurred and is continuing, specifying the nature
and extent thereof.
5.1.(g) NOTICE OF DEFAULT OR LITIGATION. Promptly, and in any event
within 3 business days after an officer of Borrower obtains knowledge thereof,
notice of (i) the occurrence of any event which constitutes a default or breach
of any material agreement with a third Person or Event of Default, (ii) any
litigation or governmental proceeding pending (x) against Borrower which could
materially and adversely affect the business, operations, property, assets, or
condition (financial or otherwise) of Borrower or (y) with respect to any
Transaction Document and (iii) any other event which is likely to materially and
adversely affect the business, operations, property, assets, or condition
(financial or otherwise) of Borrower.
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5.1.(h) OTHER INFORMATION. From time to time, such other information
or documents (financial or otherwise) as Lender may reasonably request.
5.1.(i) TERMINATION OF REPORTING OBLIGATION. The provisions of
Sections 5.1.(a) through (h) shall terminate upon the consummation of an initial
public offering by Borrower or its successor-in-interest, and thereafter, to the
extent all or any portion of the Loan remains outstanding Lender shall receive
copies of all documents filed by Borrower or its successor-in-interest with the
Securities and Exchange Commission.
SECTION 5.2. BOOKS, RECORDS AND INSPECTIONS.
Borrower will keep proper books of record and account in which full, true
and correct entries in conformity with generally accepted accounting principles
and all requirements of law shall be made of all dealings and transactions in
relation to its business and activities. Borrower will permit designated
representatives of Lender subject to reasonable confidentiality arrangements to
visit and inspect, under guidance of officers of Borrower, any of the properties
of Borrower, and to examine the books of account of Borrower and discuss the
affairs, finances and accounts of Borrower with, and be advised as to the same
by, its officers, all at such reasonable times and intervals and to such
reasonable extent as Lender may request.
SECTION 5.3. MAINTENANCE OF PROPERTY, INSURANCE.
Borrower shall, in accordance with prudent industry practices, (i) keep all
property useful and necessary in its business in good working order and
condition, (ii) maintain with financially sound and reputable insurance
companies insurance which is reasonable and customary in nature and amounts for
businesses such as Borrower's, and (iii) furnish to Lender, upon written
request, full information as to the insurance carried.
SECTION 5.4. CORPORATE FRANCHISES.
Borrower will, in accordance with prudent industry practices, do, or cause
to be done, all things reasonably necessary to preserve and keep in full force
and effect its existence and its material rights, franchises, licenses and
leases.
SECTION 5.5. COMPLIANCE WITH STATUTES, ETC.
Borrower will, in accordance with prudent industry practices, comply with
all applicable statutes, regulations and orders of, and all applicable
restrictions imposed by, all governmental bodies, domestic or foreign, in
respect of the conduct of its
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business and the ownership of its property (including applicable statutes,
regulations, orders and restrictions relating to environmental standards and
controls), except such noncompliance as could not, in the aggregate, have a
Material Adverse Effect.
SECTION 5.6. PERFORMANCE OF OBLIGATIONS.
Borrower will perform all of its obligations under the terms of each
mortgage, indenture, security agreement and other debt instrument by which it is
bound, except such non-performances as could not in the, aggregate, have a
Material Adverse Effect.
SECTION 5.7. FINANCIAL STATEMENTS.
Borrower shall have prepared audited Financial Statements for the fiscal
years of Borrower ended December 31, 1995, December 31, 1996, and December 31,
1997, by a date mutually agreed by Borrower and Lender.
SECTION 5.8. LENDER'S REPRESENTATION.
Lender acknowledges that Borrower does not have a formal Board of
Directors, but rather that the Members operate collectively by consensus.
Nonetheless, Lender shall be entitled to have a representative attend all
meetings of the Members (whether held telephonically or in person) and to
participate therein to the same extent as if the representative were an outside
director. Once Reorganized Borrower has been formed, Lender shall be entitled
to designate one member of Reorganized Borrower's Board of Directors.
ARTICLE 6
NEGATIVE COVENANTS
Except to the extent the Lender otherwise consents in writing, which
consent, so long as no Event of Default exists and is continuing, will not be
unreasonably withheld, Borrower covenants and agrees that:
SECTION 6.1. LIENS.
Borrower will not create, incur, assume or suffer to exist any lien or
security interest upon or with respect to any property or assets (real or
personal, tangible or intangible) of Borrower, whether now owned or hereafter
acquired, or sell any such property or assets subject to an understanding or
agreement, contingent or otherwise, to repurchase such property or assets
(including sales of accounts receivable with recourse to Borrower, or assign any
right to receive income or permit the filing of any financing statement under
the UCC or any other similar notice of lien or security under any similar
recording or notice statute; provided that the provisions of this Section 6.1
shall not prevent the
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creation, incurrence, assumption or existence of the following (collectively,
the "Permitted Liens"):
6.1.(a) liens for taxes, governmental assessments or claims not yet
due or delinquent, or that are being contested in good faith and by appropriate
proceedings for which adequate reserves have been established;
6.1.(b) liens in respect of property or assets of Borrower imposed by
law, which were incurred in the ordinary course of business, such as carriers',
warehousemen's and mechanics' liens and other similar liens arising in the
ordinary course of business, and (x) which do not in the aggregate materially
detract from the value of such property or assets or materially impair the use
thereof in the operation of the business of Borrower or (y) which are being
contested in good faith by appropriate proceedings, which proceedings have the
effect of preventing the forfeiture or sale of the property or assets subject to
any such lien;
6.1.(c) liens which are listed, and the property subject thereto
described in the Disclosure Schedule;
6.1.(d) utility deposits and pledges or deposits in connection with
worker's compensation, unemployment insurance and other social security
legislation.
6.1.(e) liens in respect of Permitted Indebtedness or any extension,
renewal, refunding or refinancing of any Permitted Indebtedness;
6.1.(f) liens to secure the performance of statutory obligations,
surety or appeal bonds in the ordinary course of business;
6.1.(g) liens on property of a Person existing at the time such
Person is merged into, acquired or consolidated with Borrower; and
6.1.(h) liens incurred in the ordinary course of business with
respect to obligations that do not exceed $1,000,000 at any time outstanding,
excluding liens to secure Permitted Indebtedness.
SECTION 6.2. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
Except as contemplated by this Agreement with respect to the
Reorganization, an IPO or a Private Sale, and except for inter-company
transactions among the companies within the Group, Borrower will not (a) wind
up, liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, (b) convey, sell, lease or otherwise dispose of (or agree to do
any of the foregoing at any future time) all or any material part of its
property or
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assets, or (c) purchase or otherwise acquire (in one or a series of related
transactions) any part of the property or assets (other than purchases or
other acquisitions of inventory, materials and equipment in the ordinary
course of business) of any Person, except that (i) Borrower may sell and
lease inventory, materials and equipment in the ordinary course of business,
(ii) investments may be acquired to the extent expressly permitted by Section
6.5 and (iii) capital expenditures shall be permitted to the extent not in
violation of Section 6.7. Notwithstanding the foregoing to the contrary,
Borrower may enter into a transaction of merger or consolidation in which it
is the surviving corporation and consummate purchase transactions as
described in clause (c), provided that Borrower's financial condition will
not be impaired as reasonably determined by Lender and provided, further,
that the total consideration for such transactions in cash, stock value, and
debt assumed does not exceed One Million Dollars ($1,000,000) in the
aggregate in any fiscal year.
SECTION 6.3. LEASES.
Borrower will not permit the aggregate payments (including, without
limitation, any property taxes paid as additional rent or lease payments) by
Borrower under agreements to rent or lease any real or personal property
(excluding capitalized lease obligations and office base rent) to exceed
$500,000, in any fiscal year.
SECTION 6.4. INDEBTEDNESS.
Borrower will not contract, create, incur, assume or suffer to exist any
indebtedness, except (i) indebtedness incurred under this Agreement, (ii)
indebtedness listed on the Disclosure Schedule, including any renewal or
refinancing thereof ("Existing Indebtedness"), (iii) accrued expenses and trade
accounts payable incurred and satisfied in the ordinary course of business, and
obligations under trade letters of credit incurred by Borrower in the ordinary
course of business, which are to be repaid in full not more than 18 months after
the date on which such indebtedness is originally incurred to finance the
purchase of goods by Borrower, (iv) obligations under letters of credit incurred
by Borrower in the ordinary course of business in support of amounts owing to
utilities from time to time and/or obligations incurred in connection with
worker's compensation, unemployment insurance and other social security
legislation, (v) indebtedness to any Person (other than Affiliates) providing
credit to Borrower pursuant to the terms of a credit facility, including any
guarantee thereof, (vi) indebtedness to finance purchases of equipment or to
make capital expenditures not in excess of Five Hundred Thousand Dollars
($500,000) at any time outstanding, and (vii) indebtedness not otherwise
permitted hereunder not in excess of One Million Dollars ($1,000,000) at any
time outstanding (collectively, "Permitted Indebtedness").
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SECTION 6.5. ADVANCES, INVESTMENTS AND LOANS.
Except for intercompany transactions among the companies in the Group and
the Members to the extent disclosed in the Disclosure Schedule, Borrower will
not lend money or credit or make advances to any Person (excluding loans to
employees not in excess of $50,000), or purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, any other Person, except that the following shall be permitted:
6.5.(a) Borrower may acquire and hold receivables owing to it, if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms;
6.5.(b) Borrower may acquire and hold cash equivalents; and
6.5.(c) Borrower may make such purchases and acquisitions as are
permitted by Section 6.2.
SECTION 6.6. TRANSACTIONS WITH AFFILIATES.
Other than the Reorganization as described in Section 2.3.(a), Borrower
will not enter into any transaction or series of related transactions, whether
or not in the ordinary course of business, with any Affiliate of Borrower or the
Members other than intercompany transactions within the Group, other than on
terms and conditions substantially as favorable to Borrower as would be
obtainable by Borrower at the time in a comparable arm's length transaction with
a Person other than an Affiliate.
SECTION 6.7. CAPITAL EXPENDITURES.
Borrower will not make any expenditure for fixed or capital assets
(including, without limitation, expenditures for maintenance and repairs which
should be capitalized in accordance with generally accepted accounting
principles and including capitalized lease obligations) during any fiscal year
(taken as one accounting period) which exceeds $500,000.
SECTION 6.8. MODIFICATIONS OF ORGANIZATIONAL DOCUMENTS
Borrower will not amend or modify, or permit the amendment or modification
of, its Articles of Organization or Operating Agreement, without Lender's
consent.
SECTION 6.9. LIMITATION ON ISSUANCES OF EQUITY INTERESTS.
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Borrower shall not issue any membership interests or any options or
warrants to purchase, or securities convertible into, membership interests or
other equity interests in Borrower.
SECTION 6.10. RETENTION OF PROFESSIONALS.
Lender shall have the right to approve any investment banker or underwriter
engaged by Borrower to represent Borrower in an initial public offering, merger,
acquisition or other significant corporate transaction and any accountant
engaged by Borrower.
ARTICLE 7
EVENTS OF DEFAULT
At the option of Lender, the occurrence and continuation of any of the
following events will unless and until cured within any applicable cure period
or waived, constitute a default (each an "Event of Default"):
(a) PAYMENTS. Borrower shall default in the payment when due of any
principal or interest on the Loan which default is not cured within ninety (90)
days after written notice from Lender to Borrower; or
(b) REPRESENTATIONS, ETC. Any representation or warranty made by
Borrower in Article 3 of this Agreement or in any other Transaction Document or
in any certificate delivered pursuant hereto or thereto shall prove to be untrue
in any material respect on the date as of which made and such representation or
warranty shall remain untrue from and after a period of 90 days after written
notice from Lender to Borrower; provided, no Event of Default shall be deemed to
have occurred if such breach is susceptible of being cured, during such period
Borrower diligently and in good faith commences curing any such breach, such
breach is cured within said ninety (90)-day period and during such cure period
the financial condition of Borrower is not materially impaired thereby; or
(c) COVENANTS. Borrower shall default in the due performance or
observance by it of any term, covenant or agreement contained in this Agreement
(other than those referenced to in Sections 7(a) and (b), and such default shall
continue unremedied for a period of ninety (90) days after written notice to the
Borrower by Lender; provided, however, no Event of Default shall be deemed to
have occurred if such breach is susceptible of being cured, during such period
Borrower diligently and in good faith commences curing any such default, such
default is cured within said ninety (90)-day period, and during such cure period
the financial condition of Borrower is not materially impaired thereby; or
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(d) DEFAULT UNDER OTHER AGREEMENTS. Borrower shall (i) default in
any payment of any indebtedness for borrowed money in excess of $1,000,000
(other than the Note) beyond the period of grace if any, provided in the
instrument or agreement under which such indebtedness for borrowed money in
excess of $1,000,000 was created, (ii) default in the observance or
performance of any agreement or condition relating to any indebtedness for
borrowed money in excess of $1,000,000 (other than the Note) or contained in
any instrument or agreement evidencing, securing or relating thereto, or any
other event shall occur or condition exist, the effect of which default or
other event or condition is to cause, or to permit the holder or holders of
such indebtedness for borrowed money in excess of $1,000,000 (or a trustee or
agent on behalf of such holder or holders) to cause (determined without
regard to whether any notice is required), any such indebtedness for borrowed
money in excess of $1,000,000 to become due prior to its stated maturity or
(iii) any indebtedness for borrowed money in excess of $1,000,000 of Borrower
shall be declared to be due and payable, or required to be prepaid other than
by a regularly scheduled required prepayment, prior to the stated maturity
thereof; or
(e) BANKRUPTCY, ETC. Borrower shall commence a voluntary case
concerning itself under Title 11 of the United States Code entitled
"Bankruptcy," as now or hereafter in effect, or any successor thereto (the
"Bankruptcy Code"); or an involuntary case is commenced against Borrower, and
the petition is not controverted within 30 days, or is not dismissed within
90 days, after commencement of the case; or a custodian (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or substantially
all of the property of Borrower, or Borrower commences any other proceeding
under any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to Borrower, or there is
commenced against Borrower any such proceeding which remains undismissed for
a period of 90 days, or Borrower is adjudicated insolvent or bankrupt; or any
order of relief or other order approving any such case or proceeding is
entered; or Borrower suffers any appointment of any custodian or the like for
it or any substantial part of its property to continue undischarged or
unstayed for a period of 90 days; or Borrower makes a general assignment for
the benefit of creditors; or any corporate action is taken by Borrower for
the purpose of effecting any of the foregoing; or
(f) JUDGMENTS. One or more judgments or decrees shall be entered
against Borrower involving in the aggregate a liability (not paid and to the
extent not covered by insurance) of $1,000,000 or more, and all such
judgments or decrees shall not have been vacated, discharged or stayed or
bonded pending appeal within ninety (90) days from the entry thereof; or
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(g) CROSS-DEFAULT. Any Event of Default under any Transaction
Document shall constitute an Event of Default under all Transaction Documents.
ARTICLE 8
REMEDIES
SECTION 8.1. OPTION TO ACT.
On the occurrence of any Event of Default, in addition to its other
rights in this Agreement or in any of the other Transaction Documents, at
law, or in equity, Lender may, without prior demand, exercise any one or more
of the following rights and remedies:
8.1.(a) ACCELERATION. Declare the Note and all other sums owing to
Lender with respect to the other Transaction Documents immediately due and
payable without presentment, demand, protest or other notice, any and all of
which are hereby waived by Borrower.
8.1.(b) LEGAL AND EQUITABLE REMEDIES. Proceed as authorized at
law or in equity with respect to the Event of Default, and in connection
therewith, remain entitled to exercise all other rights and remedies
described in this Agreement or the other Transaction Documents.
SECTION 8.2. RIGHTS CUMULATIVE, NO WAIVER.
All of Lender's rights and remedies provided in this Agreement or in any
of the other Transaction Documents are cumulative and may be exercised by
Lender at any time and in any order. Lender's exercise of any right or
remedy will not constitute a cure of any Event of Default unless all sums
then due to Lender under the Transaction Documents are repaid and Borrower
has cured all other Events of Default. No waiver will be implied from
Lender's failure to take, or delay in taking, any action concerning any Event
of Default or from any previous waiver of any similar or unrelated Event of
Default. Any waiver under any of the Transaction Documents must be in
writing and will be limited to its specific terms.
SECTION 8.3. DISCLAIMER.
Whether Lender elects to employ any of the remedies available to it in
connection with an Event of Default, Lender will not be liable for the
performance or nonperformance of any other obligation of Borrower.
ARTICLE 9
MISCELLANEOUS
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SECTION 9.1. NO WAIVER.
No failure or delay on the part of Lender in exercising any right or
remedy under the Transaction Documents will operate as a waiver nor will
Lender be estopped to exercise any right or remedy at any future time because
of any failure or delay. No express waiver will affect any matter other than
the matter expressly waived and that waiver will be operative only for the
time and to the extent stated. Waivers of any covenant, term, or condition
in this Agreement will not be construed to waive any subsequent breach of the
same covenant, term, or condition.
SECTION 9.2. NO THIRD PARTIES BENEFITED.
This Agreement is made and entered into for the sole protection and
benefit of the parties and their permitted successors and assigns.
SECTION 9.3. NOTICES.
Notice shall be given as follows:
IF TO LENDER:
Hospitality Partners, LLC
3 Civic Plaza
Suite 170
Newport Beach, CA 92660
By fax to (714) 721-8102
IF TO BORROWER OR MEMBERS:
Hospitality Marketing Consultants, LLC
15751 Rockfield Boulevard
Suite 2000
Irvine, CA 92718
By fax to: (714) 454-1764
Service shall be effected either: (1) by fax when the fax transmission is
completed, provided a hard copy is deposited in the U.S. Mail within 24 hours
of fax notice; or (2) by personal service when a copy is personally delivered
to the person being served. If for any reason a party cannot readily serve
the other either by fax or by personal delivery, service shall be proper if
mailed to the party to be served at the address set forth above, certified
mail, return receipt requested, in which event, service shall be deemed
effective on the third business day after deposit in the mails. A party's
failure or refusal to sign a return receipt shall not
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invalidate the notice. Any party may change his, her or its address by
notifying the other party in writing and supplying a new fax number.
SECTION 9.4. ASSIGNMENT.
The terms of this Agreement will be binding on and inure to the benefit
of the successors and assigns of the parties. Neither Borrower nor Lender
will assign this Agreement, any other Transaction Document or any interest
therein or rights thereunder without the prior written consent of the other
party; provided, however, that upon the occurrence and continuance of an
Event of Default, Lender may enter into such assignments without Borrower's
consent. Lender may at any time assign the Transaction Documents to any
Affiliate of Lender. In that case, the provisions of this Agreement will
continue to apply to the Loan, and the assignee will be substituted in the
place and stead of Lender, with all rights, obligations, and remedies of
Lender, including, without limitation, the right to further assign the
Transaction Documents and its interest in the Loan.
SECTION 9.5. TIME.
Time is of the essence.
SECTION 9.6. BORROWER'S RESPONSIBILITIES.
Borrower shall, at Borrower's expense, defend, indemnify, save, and hold
Lender harmless against all claims, demands, losses, expenses, liabilities,
damages (general, punitive, or otherwise), judgments, costs, reasonable
attorneys' fees and causes of action (whether legal or equitable)
("Liabilities") asserted by any Person which Lender may incur (a) as a direct
or indirect consequence of (i) the making of the Loan, (ii) Borrower's
failure to perform any obligations as and when required by this Agreement or
any of the other Transaction Documents, (iii) the failure at any time of any
of Borrower's representations or warranties to be true and correct; or (b)
which (i) are related to the Transaction Documents, (ii) arise out of the
transactions contemplated hereby, or (iii) arise out of the use of the Loan
Proceeds, except to the extent that any such Liabilities arise solely from or
relate solely to the negligence or willful misconduct of Lender. The
provisions of this Section 9.6 will survive the termination of this Agreement
and the repayment of the Loans.
SECTION 9.7. NONLIABILITY FOR NEGLIGENCE, LOSS, OR DAMAGE.
Borrower acknowledges, understands, and agrees that the relationship
between Borrower and Lender is, and will at all times remain, solely that of
borrower and lender, and there is no other
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relationship between the parties except as is expressly set forth in a
written agreement signed by the party to be charged.
SECTION 9.8. CONTROLLING LAW; APPROVALS.
9.8.(a) The Transaction Documents will be governed by and construed in
accordance with California law, excluding the rules on conflicts of law.
9.8.(b) All consents and approvals by Lender required or permitted by
any provision of this Agreement must be in writing, Lender's consent to or
approval of any act by Borrower requiring further consent or approval will
not be deemed to waive or render unnecessary the consent or approval to or of
any subsequent similar act.
SECTION 9.9. SURVIVAL OF WARRANTIES AND COVENANTS.
The warranties, representations, conditions, covenants, and agreements
in this Agreement and in the other Transaction Documents will survive the
making of the Loan and the execution and delivery of the Note and will
continue in full force until the Loan has been paid in full or the Note has
been converted into Shares of Borrower. Nothing in this Section 9.9 is
intended to limit any other provision of the Transaction Documents that by
their stated terms survive the repayment of the Loans or the termination of
any Transaction Document.
SECTION 9.10. NO REPRESENTATIONS BY LENDER.
By accepting or approving anything required to be observed, performed,
or fulfilled, or to be given to Lender pursuant to this Agreement or pursuant
to the Transaction Documents, including, but not limited to, any officer's
certificate, Financial Statement, survey, appraisal, or insurance policy,
Lender will not be deemed to have warranted or represented the sufficiency,
legality, effectiveness, or legal effect of it or of any particular term,
provision, or condition of it, and any acceptance or approval will not be or
constitute any warranty or representation by Lender.
SECTION 9.11. AMENDMENT.
The Transaction Documents and the terms of each of them may not be
modified, waived, discharged, or terminated except by a written instrument
signed by the party against whom enforcement of the modification, waiver,
discharge, or termination is asserted.
SECTION 9.12. COUNTERPARTS.
The Transaction Documents may be executed in any number of counterparts
and by different parties in separate counterparts,
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each of which when executed and delivered will be deemed an original and all
of which counterparts taken together will constitute one and the same
instrument. They may be executed by facsimile.
SECTION 9.13. SEVERABILITY.
If any terms, provision, covenant, or condition or any application is
held by a court of competent jurisdiction to be invalid, void, or
unenforceable, all terms, provisions, covenants, and conditions and all
applications not held invalid, void, or unenforceable will continue in full
force and will in no way be affected, impaired, or invalidated.
SECTION 9.14. CAPTIONS.
All Article and Section headings in this Agreement are inserted for
convenience of reference only and do not constitute a part of this Agreement
for any other purpose.
SECTION 9.15. COSTS
Each party shall bear its own costs and attorney fees related to the
preparation and filing of the documents for the Loans.
SECTION 9.16. FURTHER ASSURANCES.
At Lender's request and at Borrower's expense, Borrower will execute,
acknowledge, and deliver all other instruments and perform all other acts
necessary, desirable, or proper to carry out the purposes of the Transaction
Documents.
SECTION 9.17. INTEGRATION AND INTERPRETATION.
The Transaction Documents contain or expressly incorporate by reference
the entire agreement between Lender, on the hand, and Borrower and the
Members, on the other hand, with respect to the covered matters and supersede
all prior negotiations. Any reference to the Transaction Documents
themselves in any of the Transaction Documents will include all amendments,
renewals, or extensions approved by Lender. There are no oral agreements or
promises of any kind, and the only understandings of the parties are those
set forth in the written agreements signed by the parties. No modification
or obligation of any kind shall be binding or enforceable unless in writing
and signed by the party to be charged.
SECTION 9.18. NUMBER.
26
<PAGE>
When the context and construction so require, all words used in the
singular will be deemed to have been used in the plural and vice versa.
ARTICLE 10
SUBORDINATION
The indebtedness evidenced by this Loan and Investment Agreement and the
Note is hereby expressly subordinated, to the extent and in the manner
hereinafter set forth, in right of payment to the prior payment in full of
all the Borrower's Senior Indebtedness, as hereinafter defined.
SECTION 10.1. SENIOR INDEBTEDNESS.
As used in this Loan and Investment Agreement, the term "Senior
Indebtedness" shall mean the principal of and unpaid accrued interest on: (i)
all indebtedness of the Borrower to banks, insurance companies or other
financial institutions regularly engaged in the business of lending money,
which is for money borrowed by the Borrower (whether or not secured), (ii)
all indebtedness of the Borrower to unaffiliated lenders which is for money
borrowed by the Borrower and secured by the Borrower's accounts receivable,
and (iii) any such indebtedness or any debentures, notes or other evidence of
indebtedness issued in exchange for Senior Indebtedness.
SECTION 10.2. DEFAULT ON SENIOR INDEBTEDNESS.
Unless and until a bankruptcy proceeding is filed, if any Senior
Indebtedness shall be declared due and payable prior to its stated maturity
upon the occurrence of an event of default thereunder, then no amount shall
be paid by the Borrower in respect of the principal of or interest on the
Note at the time outstanding unless and until the principal of and interest
on the Senior Indebtedness then outstanding shall be paid in full or such
event of default shall have been cured or waived.
SECTION 10.3. EFFECT OF SUBORDINATION.
Subject to the rights, if any, of the holders of Senior Indebtedness
under this Article 10 to receive cash, securities or other properties
otherwise payable or deliverable to the Lender, nothing contained in this
Article 10 shall impair, as between the Borrower and the Lender, the
obligation of the Borrower, subject to the terms and conditions hereof, to
pay to the Lender the principal of and interest on the Note as and when the
same become due and payable, or shall prevent the Lender, upon default under
the Note, from exercising all rights, powers and remedies otherwise provided
herein, therein or by applicable law.
27
<PAGE>
SECTION 10.4. SUBROGATION.
Subject to the payment in full of all Senior Indebtedness and until the
Note shall be paid in full, the Lender shall be subrogated to the rights of
the holders of Senior Indebtedness (to the extent of payments or
distributions previously made to such holders of Senior Indebtedness pursuant
to the provisions of Section 10.2 above) to receive payments or distributions
of assets of the Borrower applicable to the Senior Indebtedness; shall, as
between the Borrower and its creditors, other than the holders of Senior
Indebtedness and the Lender, be deemed to be a payment by the Borrower to or
on account of the Note; and for the purposes of such subrogation, no payments
or distributions to the holders of Senior Indebtedness to which the Lender
would be entitled except for the provisions of this Article 10 shall, as
between the Borrower and its creditors, other than the holders of Senior
Indebtedness and the Lender, be deemed to be a payment by the Borrower to or
on account of the Senior Indebtedness.
SECTION 10.5. UNDERTAKING.
By its acceptance of the Note, the Lender agrees to execute and deliver
such documents as may be reasonably requested from time to time by the
Borrower or the lender of any Senior Indebtedness in order to implement the
foregoing provisions of this Article 10.
LENDER
Hospitality Partners, LLC
Dated: November 7, 1997 By:_____________________________
Amre Youness, Manager
BORROWER
Hospitality Marketing Consultants, LLC
Dated: November 7, 1997 By:_____________________________
Mokhtar Ramadan, President
[The Members join in this Agreement solely for the purpose of confirming
their agreement to the provisions of Section 2.3(a).]
MEMBERS
28
<PAGE>
Dated: November 7, 1997 ______________________________
Mokhtar Ramadan
Dated: November 7, 1997 ______________________________
Fadi Ramadan
Dated: November 7, 1997 ______________________________
Marwan Ramadan
Dated: November 7, 1997 ______________________________
Sandra Case
29
<PAGE>
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$3,000,000.00 Irvine, California November 7, 1997
FOR VALUE RECEIVED, the undersigned, Hospitality Marketing Consultants,
LLC, a California limited liability company ("Borrower"), hereby
unconditionally promises to pay to Hospitality Partners, LLC, a Delaware
limited liability company ("Lender"), or order, at 3 Civic Plaza, Suite 170,
Newport Beach, California 92660, or at such other place as Lender may
designate in writing, the principal sum of Three Million Dollars
($3,000,000), in lawful money of the United States of America, together with
interest on the unpaid principal balance from time to time outstanding from
and after the Cut-Off Date (as defined in the "Loan Agreement" as hereinafter
defined) at a rate per annum equal to the Prime Rate established by Cedars
Bank, as adjusted from time to time. Interest only shall be due and payable
in arrears on the last day of each calendar month, commencing on the last day
of the month following the Cut-Off Date until and including that date which
is two years after the Cut-Off Date but in no event later than December 31,
2001 (the "Maturity Date") upon which date the entire unpaid principal
balance hereunder, together with any accrued but unpaid interest thereon,
shall be due and payable in full.
This Note has been executed and delivered pursuant to that certain Loan
and Investment Agreement between Borrower and Lender of even date herewith
(the "Loan Agreement"), and shall be subject to subordination as provided in
Article 10 thereof. Until such time as there occurs and is continuing an
Event of Default, this Note (and any interest therein) shall not be
transferred or assigned, except to an Affiliate of Lender.
Lender shall have the right to convert the principal balance of this
Note into membership interests or capital stock [in the case of Reorganized
Borrower (as defined in the Loan Agreement)] of Borrower as provided in
Section 2.3(b) of the Loan Agreement. This Note may be so converted by
written notice of Lender's election to so convert the Note and by surrender
of this Note to Borrower at Borrower's principal office. If Lender
exercises this conversion option, it shall have the Registration Rights set
forth in that certain Registration Rights Addendum attached hereto as
Exhibit "A" and incorporated herein by this reference.
Prior to the Cut-Off Date, Borrower shall not be permitted to prepay
principal on this Note, in whole or in part. Thereafter, Borrower may, at
any time or from time to time, from and after the Cut-Off Date prepay
principal on this Note, in whole or in part, without penalty or bonus. Each
payment shall be credited first to
<PAGE>
late charges, fees or other sums to be paid by Borrower to Lender; second to
accrued and unpaid interest; and third, to principal. Interest shall cease on
principal so credited.
Upon the occurrence of an Event of Default as defined in the Loan
Agreement, Lender shall have the right, without further notice or demand, to
declare the entire balance of this Note, including interest, immediately due
and payable.
No waiver by Lender of any of its rights or remedies under this Note or
under any other document evidencing this Note or otherwise shall be a waiver
of any other right or remedy of Lender; no delay or omission in the exercise
or enforcement by Lender of any right or remedy shall be construed as a
waiver of any right or remedy of Lender; and no exercise or enforcement of
any such right or remedy shall be held to exhaust any right or remedy of
Lender.
Borrower waives presentment for payment, demand, notice of non-payment
and protest; and any endorsers, guarantors or sureties of this Note agree
that the time for payment may be extended without notice to or consent by
them.
This Note is being executed and delivered, and is intended to be
performed, in the State of California. Any controversy or claim arising out
of or relating to this Note, or the making, performance, breach or
interpretation of it, including tort claims, shall be adjudicated in the
courts located in Orange County, California, which shall be the exclusive
venue and jurisdiction for all claims arising out of or related to this Note.
If any suit or other proceeding is brought to enforce this Note, or to
collect all or any portion of it, including interest, or because of an
alleged dispute, breach, default or misrepresentation in connection with any
of the provisions of this Note, or if the holder of this Note sues to
protect, preserve or enforce its rights or position, the prevailing party
shall recover reasonable attorneys' fees and other costs incurred in that
action or proceeding, in addition to any other relief to which it may be
entitled.
"Borrower"
Hospitality Marketing Consultants, LLC, a
California limited liability company
By: _____________________________
Mokhtar Ramadan, President
2
<PAGE>
EXHIBIT 10.2
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
SPRINT
CUSTOM NETWORK SERVICE AGREEMENT
This Custom Network Service Arrangement by and between SPRINT COMMUNICATIONS
COMPANY L.P., a Delaware limited partnership, 8140 Ward Parkway, Kansas City,
Missouri 64114 ("Sprint") and Hospitality Marketing Consultants, LLC
("Customer") establishes certain interstate and international Discounts as
well as related terms and conditions governing Sprint's provision of
telecommunications services to Customer. The Discounts ("Discounts") set
forth in this Agreement apply to Customer's Network Services and other
services eligible to receive Discounts as specified herein.
Sprint is a telecommunications common carrier providing interstate and
international services pursuant to tariffs on file with the Federal
Communications Commission (F.C.C.) and intrastate services pursuant to
tariffs on file with the various state regulatory commissions (collectively
referred to as "Tariff(s)") and from time to time Sprint amends the Tariffs.
Sprint provides enhanced voice and data telecommunications services pursuant
to written agreements. Sprint and Customer are referred to collectively
herein as the "Parties" and individually as a "Party".
1. TERM. The term ("Initial Term") of this Agreement is [REDACTED*],
commencing on the first day of the first complete billing month following
execution of this Agreement by both parties ("Commencement Date"). At the
conclusion of the Initial Term, Customer may renew the Agreement for
[REDACTED*] prior to the conclusion of the Initial Term or prior to the
conclusion of the then current Renewal Term, as the case my be. The Initial
Term and, if applicable, the Renewal Term(s) will be referred to
collectively hereinafter as the Term. Upon the expiration or other
termination of this Agreement Sprint will provide services to Customer at
then current Tariff rates.
2. NETWORK SERVICE CHARGES. Subject to all of the conditions and limitations
set forth in this Agreement and Sprint F.C.C. Tariff No. 12, Customer will
receive the Network Service charges set forth in Attachment A to the
Agreement.
3. SERVICE COMMITMENT.
a. During each Contract Year of the Term Customer [REDACTED*]. Contract
Year is defined as the twelve month billing, period starting on the
Commencement Date and any anniversary thereof. MSC Contributory
Services are defined as [REDACTED*] calculated after all available
Discounts. If Customer fails to satisfy the Minimum Annual Commitment;
in addition to all other applicable charges, [REDACTED*].
b. If Customer terminates this Agreement or ceases to use Network
Services to any material extent, except as provided in Section 5.f.
below,
SPRINT PROPRIETARY INFORMATION - RESTRICTED
1
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
[REDACTED*]. Sprint will bill Customer for such amount on its
next regular invoice and such amount will be due and payable according
to the payment terms contained in the Tariff.
c. Beginning with the first month following [REDACTED*], Customer
[REDACTED*]. Second MAC Contract Year is defined as the twelve month
billing period starting on the day following [REDACTED*] and any
anniversary thereof Second MAC Contributory Services are defined as
[REDACTED*]. Customer's Second MAC Contributory Services Usage Charges
during [REDACTED*] shall contribute to Customer's Second MAC for
Contract Year One. If Customer fails to satisfy the Second MAC, in
addition to all other applicable charges, Customer [REDACTED*].
SECOND MAC CONTRACT YEAR ONE:
Actual Second MAC
Contributory Services
USAGE MINUTES SHORTFALL LIABILITY
[REDACTED*] [REDACTED*]
*If, during Second MAC Contract Year One, Customer's Actual Second MAC
Contributory Services Usage Minutes [REDACTED*].
SECOND MAC CONTRACT YEAR TWO:
Actual Second MAC
Contributory Services
USAGE MINUTES SHORTFALL LIABILITY
[REDACTED*] [REDACTED*]
**If, during Second MAC Contract Year Two, Customer's Actual Second
MAC Contributory Services Usage Minutes are [REDACTED*].
d. If Customer terminates this Agreement or ceases to use Network
Services to any material extent in Second MAC Contract Year One,
except as provided in Section 5.f. below, Customer will pay to Sprint
a termination liability calculated as follows: [REDACTED*]. Sprint
will bill Customer for such amount on its next regular invoice and
such amount will be due and payable according to the payment terms
contained in the Tariff.
e. If Customer terminates the Agreement or ceases to use Network Services
to any material extent in Second MAC Contract Year Two, except as
provided in Section 5.f. below, Customer will pay to Sprint a
termination liability calculated as follows: [REDACTED*]. Sprint will
bill Customer
SPRINT PROPRIETARY INFORMATION - RESTRICTED
2
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
for such amount on its next regular invoice and such amount will be
due and payable according to the payment terms contained in the
Tariff.
f. If Customer elects to purchase a new Service offering made available
by Sprint during the Term as a direct substitute and replacement
Service for any MSC Contributory Service, Customer's Service Usage
Charges for its use of the new Service will contribute toward
Customer's Minimum Service Commitment.
4. PAYMENT TERMS.
All amounts stated on each monthly invoice will be due and payable upon
receipt. The cost of services provided is exclusive of any applicable
sales, use, excise and like taxes, which will be separately stated and
included on each monthly invoice. All valid charges for services provided
that remain unpaid by Customer for a period of sixty (60) days or more
after the date of the invoice will be subject to interest from the date of
the invoice at a rate of [REDACTED*], or the maximum rate allowable by
applicable law. If Customer fails to pay for services in accordance with
the terms of the Tariffs and the terms set forth in this Section, Customer
will not receive Discounts.
In the event Customer, in good faith, disputes Sprint's computation of
amounts due and owing within all applicable legal periods of limitation,
Customer may withhold payment of the disputed amount. Customer must pay all
charges which are not in dispute in accordance with the payment terms set
forth in this Section. An amount will not be considered "in dispute" until
Customer has provided Sprint with written documentation explaining the
disputed amount. Customer must cooperate with Sprint to resolve any dispute
expeditiously. All disputed amounts are payable immediately upon Sprint's
written denial of the dispute.
5. OTHER TERMS AND CONDITIONS.
a. Terms used in this Agreement are defined in Sprint F.C.C. Tariff
No. 12. All Standard Custom Network Service Arrangement terms and
conditions in Sprint F.C.C. Tariff No. 12 apply to this Agreement.
Rates, charges and discounts for call types, service elements,
features and other products and services not in this Agreement will be
those provided under the applicable Sprint base service tariff or
public price list. Additional terms and conditions relating to
services provided to Customer are contained in the applicable tariffs.
The terms and conditions of any Tariff and/or other discount or
incentive programs apply to the services and discounts or incentives
available under such Tariff or program. In order to receive Term Plan
or other incentive discounts Customer must execute the applicable
agreements. Any terms and conditions applicable to such discounts
and/or programs which Customer elects to participate in are in
addition to the terms and conditions applicable to the Discounts.
SPRINT PROPRIETARY INFORMATION - RESTRICTED
3
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
b. This Agreement and any information concerning its terms, conditions
and/or Discounts are the confidential and proprietary information of
Sprint and shall be governed by the Agreement for Use and
Nondisclosure of Confidential Information executed by Customer and
Sprint, dated ____________________, the term of which is extended to
be coterminous with the Term of this Agreement.
c. All notices, requests or other communications arising out of disputes
hereunder shall be in writing to the addresses of the parties shown
below the parties' signatures at the end of the Agreement.
d. Customer must satisfy the following conditions during the Term:
(i) Sprint must be Customer's "Primary Carrier" and, as such,
award (1) [REDACTED*]. If, during any billing month of the
Term, Customer [REDACTED*], Sprint may, upon prior written
notice to Customer, revise Customer's Network Service charges
under this Agreement. If, during any billing month of the
Term, Customer [REDACTED*], Sprint may, at its option,
[REDACTED*] as detailed in Sections 3.d. and 3.e. above.
(ii) At least [REDACTED*] usage must be switched Service usage. If
Customer fails to satisfy this condition during any billing
month of the Term, Sprint may, upon prior written notice to
Customer, revise Customer's Network Service charges under this
Agreement.
(iii) At least [REDACTED*] usage must be Off-Peak Service usage. If
Customer fails to satisfy this condition during any billing
month of the Term, Sprint may, upon prior written notice to
Customer, revise Customer's Network Service charges under this
Agreement.
(iv) Customer's average completed call duration for its Sprint
International Access Service [REDACTED*]. If Customer fails to
satisfy this condition during any billing month of the Term,
Sprint may, upon prior written notice to Customer, revise
Customer's Network Service charges under this Agreement.
(v) During any Second MAC Contract Year, a [REDACTED*]. If
Customer fails to satisfy this condition during any Second MAC
Contract Year, the Credits for which Customer is eligible will
be reduced as set forth in Section 6 of Attachment A.
e. Neither party may assign any of its rights or delegate any of its
obligations under this Agreement without the prior written consent of
the other party, which the other party may grant or withhold in its
sole discretion.
SPRINT PROPRIETARY INFORMATION - RESTRICTED
4
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
Notwithstanding the foregoing, the parties may assign their rights and
benefits and delegate their duties and obligations under this
Agreement without the consent of the other party to, in the case of
Customer, any Customer Affiliate, PROVIDED THAT the performance of
any Customer Affiliate assignee is guaranteed by Customer, and in the
case of Sprint, to any entity one hundred percent (100%) owning, owned
by or under common ownership with Sprint, PROVIDED THAT the
performance of any Sprint assignee is guaranteed by Sprint. Any
prohibited assignment or delegation shall be null and void.
f. Customer agrees to provide prompt written notice to Sprint of any
material failure by Sprint to provide Network Services as set forth in
the tariffs. If Sprint fails to cure such failure within a reasonable
time, Customer may terminate this Agreement on thirty (30) days'
written notice to Sprint. A material failure by Sprint shall not
include a failure caused by the local exchange carrier, Customer
premise equipment, Customer or any other cause beyond the control of
Sprint.
g. During [REDACTED*], Sprint and Customer will meet to review the status
of Customer's Minimum Service Commitment, growth of its MSC
Contributory Services Usage Charges and the rates provided under this
Agreement. If Sprint and Customer agree that revisions to this
Agreement would be advantageous to both parties, then Sprint and
Customer will cooperate in efforts to develop a mutually agreeable
amendment that will satisfy the concerns of both parties and comply
with all applicable legal and regulatory requirements.
6. ENTIRE AGREEMENT. This Agreement shall constitute the entire understanding
between Sprint and Customer regarding Discounts on Network Services and
shall supersede all prior proposals, agreements, understandings,
negotiations and discussions, whether oral or written, between the parties
relating to the Network Services. Customer is not relying upon any
representations or promises made by or on behalf of Sprint in entering into
this Agreement.
In order to become effective this Agreement must be duly executed by an
authorized officer of Customer and delivered to Sprint on or January 15,
1997, and thereafter executed by an officer of Sprint. All modifications,
interlineations, additions, supplements and/or other changes to this
Agreement are subject to written acceptance at Sprint Corporate Headquarters.
HOSPITALITY MARKETING SPRINT COMMUNICATIONS
CONSULTANTS, LLC COMPANY L.P.
By: _____________________________ By: ____________________________
Name: ____________________________ Name: __________________________
(Print/Type) (Print/Type)
SPRINT PROPRIETARY INFORMATION - RESTRICTED
5
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
Title: ____________________________ Title: __________________________
Date: ____________________________ Date: __________________________
Address for Notice: __________________ Address for Notice:
___________________________________ 3100 Cumberland Circle
___________________________________ Atlanta, GA 30339
SPRINT PROPRIETARY INFORMATION - RESTRICTED
6
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
ATTACHMENT A
NETWORK SERVICE CHARGES
The following rates, charges and discounts are in lieu of and supersede any
promotions or discounts which may be available under applicable Tariffs,
including any applicable Tariff Term Plan discount. Consistent with FCC and
other regulatory requirements, Sprint will file in its Tariffs a Customer
Specific Tariff Option ("CNSA Option") accurately reflecting these rates and
charges. Rates and charges for service elements not specified herein, shall
be the applicable tariffed rate.
Except for those Services specified as "fixed", Sprint reserves the right to
modify the underlying tariffed rates (or list price in the case of a
non-tariffed service) against which a specified discount may be applied.
Additionally, Sprint reserves the right to pass on to Customer any tax, levy,
or other surcharge which Sprint is obligated to pay to a governmental
authority or other third-party (e.g. foreign P.T.T.), where: (1) such
obligation is imposed by valid and lawful legislation or other regulation,
and (2) such obligation arises directly out of the use of Sprint's Services
pursuant to this Agreement.
1. VPN PREMIERE DISCOUNT. During each billing month of the Term Customer will
receive the following Net Effective Usage rates and Discounts on its VPN
Premiere Service:
a. Customer will be charged a fixed Net Effective Usage rate in the
applicable amount from the table below for its interstate VPN Premiere
(including VPN Premiere FONCARD) Service Usage Charges.
RATE PER MINUTE
ON-ON ON-OFF OFF-ON OFF-OFF
[REDACTED*]
b. Customer will be charged a fixed Net Effective Usage rate in the
applicable amount from the table below for its intrastate VPN
Premiere (including VPN Premiere FONCARD) Service Usage Charges in the
following states.
RATE PER MINUTE
STATE ON-ON ON-OFF OFF-ON OFF-OFF
[REDACTED*]
c. Customer will receive [REDACTED*], on its intrastate VPN Premiere
(including VPN Premiere FONCARD) Service Usage Charges, except in
those states listed in 1.b. above.
SPRINT PROPRIETARY INFORMATION - RESTRICTED
7
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
d. Customer will receive [REDACTED*], on its domestic and international
(domestic origination) VPN Premiere FONCARD per call surcharge.
e. Customer will be charged a fixed Net Effective Usage rate in the
applicable amount from the table below on its international (domestic
origin) VPN Premiere (including VPN Premiere FONCARD) Service Usage
Charges to the following countries.
COUNTRY RATE PER MINUTE
Albania [REDACTED*]
Algeria [REDACTED*]
American Samoa [REDACTED*]
Andorra [REDACTED*]
Angola [REDACTED*]
Anguilla [REDACTED*]
Antigua [REDACTED*]
Argentina [REDACTED*]
Armenia [REDACTED*]
Aruba [REDACTED*]
Ascension Island [REDACTED*]
Australia [REDACTED*]
Austria [REDACTED*]
Azerbaijan [REDACTED*]
Bahamas [REDACTED*]
Bahrain [REDACTED*]
Bangladesh [REDACTED*]
Barbados [REDACTED*]
Belarus [REDACTED*]
Belgium [REDACTED*]
Belize [REDACTED*]
Benin [REDACTED*]
Bermuda [REDACTED*]
Bhutan [REDACTED*]
Bolivia [REDACTED*]
Bosnia-Herzegovinia [REDACTED*]
Botswana [REDACTED*]
Brazil [REDACTED*]
British Virgin Island [REDACTED*]
Brunei [REDACTED*]
Bulgaria [REDACTED*]
Burkina Faso [REDACTED*]
Burundi [REDACTED*]
Cambodia [REDACTED*]
Cameroon [REDACTED*]
Canada [REDACTED*]
SPRINT PROPRIETARY INFORMATION - RESTRICTED
8
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
Cape Verde Islands [REDACTED*]
Cayman Islands [REDACTED*]
Central African Rep [REDACTED*]
Chad Republic [REDACTED*]
Chile [REDACTED*]
China [REDACTED*]
Colombia [REDACTED*]
Comoros [REDACTED*]
Congo Republic [REDACTED*]
Cook Island [REDACTED*]
Costa Rica [REDACTED*]
Croatia [REDACTED*]
Cuba [REDACTED*]
Cyprus [REDACTED*]
Czechoslovakia [REDACTED*]
Denmark [REDACTED*]
Diego Garcia [REDACTED*]
Djibouti [REDACTED*]
Dominican Republic [REDACTED*]
Dominica [REDACTED*]
Ecuador [REDACTED*]
Egypt [REDACTED*]
El Salvador [REDACTED*]
Equatorial Guinea [REDACTED*]
Eritrea [REDACTED*]
Estonia [REDACTED*]
Ethiopia [REDACTED*]
Faeroe Islands [REDACTED*]
Falkland Islands [REDACTED*]
Fiji Islands [REDACTED*]
Finland [REDACTED*]
France [REDACTED*]
French Guiana [REDACTED*]
French Polynesia [REDACTED*]
Gabon [REDACTED*]
Gambia [REDACTED*]
Georgia [REDACTED*]
Germany [REDACTED*]
Ghana [REDACTED*]
Gibraltar [REDACTED*]
Greece [REDACTED*]
Greenland [REDACTED*]
Grenada [REDACTED*]
Guadeloupe [REDACTED*]
Guam [REDACTED*]
Guantanamo [REDACTED*]
SPRINT PROPRIETARY INFORMATION - RESTRICTED
9
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
Guatemala [REDACTED*]
Guinea [REDACTED*]
Guinea-Bissau [REDACTED*]
Guyana [REDACTED*]
Haiti [REDACTED*]
Honduras [REDACTED*]
Hong Kong [REDACTED*]
Hungary [REDACTED*]
Iceland [REDACTED*]
India [REDACTED*]
Indonesia [REDACTED*]
Iran [REDACTED*]
Iraq [REDACTED*]
Ireland [REDACTED*]
Israel [REDACTED*]
Italy [REDACTED*]
Ivory Coast [REDACTED*]
Jamaica [REDACTED*]
Japan [REDACTED*]
Jordan [REDACTED*]
Kazakhstan [REDACTED*]
Kenya [REDACTED*]
Kiribati [REDACTED*]
Kuwait [REDACTED*]
Kyrgyzstan [REDACTED*]
Laos [REDACTED*]
Latvia [REDACTED*]
Lebanon [REDACTED*]
Lesotho [REDACTED*]
Liberia [REDACTED*]
Libya [REDACTED*]
Liechtenstein [REDACTED*]
Lithuania [REDACTED*]
Luxembourg [REDACTED*]
Macao [REDACTED*]
Macedonian [REDACTED*]
Madagascar [REDACTED*]
Malawi [REDACTED*]
Malaysia [REDACTED*]
Maldives [REDACTED*]
Mali Republic [REDACTED*]
Malta [REDACTED*]
Marshall Islands [REDACTED*]
Mauritania [REDACTED*]
Mauritius [REDACTED*]
Mayotte Island [REDACTED*]
SPRINT PROPRIETARY INFORMATION - RESTRICTED
10
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
Mexico [REDACTED*]
Micronesia [REDACTED*]
Moldavia [REDACTED*]
Monaco [REDACTED*]
Mongolia [REDACTED*]
Montserrat [REDACTED*]
Morocco [REDACTED*]
Mozambique [REDACTED*]
Myanmar [REDACTED*]
Namibia [REDACTED*]
Nauru [REDACTED*]
Nepal [REDACTED*]
Netherlands [REDACTED*]
Netherlands Antilles [REDACTED*]
Nevis Island [REDACTED*]
New Caledonia [REDACTED*]
New Zealand [REDACTED*]
Nicaragua. [REDACTED*]
Niger Republic [REDACTED*]
Nigeria [REDACTED*]
Niue Island [REDACTED*]
North Korea [REDACTED*]
Norway [REDACTED*]
Oman [REDACTED*]
Pakistan [REDACTED*]
Palau Republic [REDACTED*]
Panama [REDACTED*]
Papua New Guinea [REDACTED*]
Paraguay [REDACTED*]
Peru [REDACTED*]
Philippines [REDACTED*]
Poland [REDACTED*]
Portugal [REDACTED*]
Qatar [REDACTED*]
Reunion Island [REDACTED*]
Romania [REDACTED*]
Russia [REDACTED*]
Rwanda [REDACTED*]
Saint Helena [REDACTED*]
Saint Kitts [REDACTED*]
Saint Lucia [REDACTED*]
Saint Pierre [REDACTED*]
Saint Vincent [REDACTED*]
Saipan [REDACTED*]
San Marino [REDACTED*]
Sao Tome [REDACTED*]
SPRINT PROPRIETARY INFORMATION - RESTRICTED
11
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
Saudi Arabia [REDACTED*]
Senegal [REDACTED*]
Seychelles Island [REDACTED*]
Sierra Leone [REDACTED*]
Singapore [REDACTED*]
Slovakia [REDACTED*]
Slovenia [REDACTED*]
Solomon Island [REDACTED*]
Somalia [REDACTED*]
South Africa [REDACTED*]
South Korea [REDACTED*]
Spain [REDACTED*]
Sri Lanka [REDACTED*]
Sudan [REDACTED*]
Suriname [REDACTED*]
Swaziland [REDACTED*]
Sweden [REDACTED*]
Switzerland [REDACTED*]
Syria [REDACTED*]
Taiwan [REDACTED*]
Tajikstan [REDACTED*]
Tanzania [REDACTED*]
Thailand [REDACTED*]
Togo [REDACTED*]
Tonga [REDACTED*]
Trinidad & Tobago [REDACTED*]
Tunisia [REDACTED*]
Turkey [REDACTED*]
Turkmenistan [REDACTED*]
Turks & Caicos [REDACTED*]
Tuvalu [REDACTED*]
Uganda [REDACTED*]
Ukraine [REDACTED*]
United Arab Emirates [REDACTED*]
United Kingdom [REDACTED*]
Uruguay [REDACTED*]
Uzbekistan [REDACTED*]
Vanuatu [REDACTED*]
Vatican City [REDACTED*]
Venezuela [REDACTED*]
Vietnam [REDACTED*]
Wallis & Futuna [REDACTED*]
Western Samoa [REDACTED*]
Yemen Arab Republic [REDACTED*]
Yugoslavia [REDACTED*]
Zaire [REDACTED*]
SPRINT PROPRIETARY INFORMATION - RESTRICTED
12
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
Zambia [REDACTED*]
Zimbabwe [REDACTED*]
f. FPN Premiere FONCARD Service Usage is considered off-net originating.
2. TOLL FREE DISCOUNT. During each billing month of the Term Customer will
receive the following Net Effective Usage rates and Discounts on its
Premiere Toll Free Service:
a. Customer will be charged a fixed Net Effective Usage rate in the
applicable amount from the table below for its interstate Premiere
Toll Free Service Usage Charges.
RATE PER MINUTE
DEDICATED SWITCHED
[REDACTED*] [REDACTED*]
b. Customer will be charged a fixed Net Effective Usage rate in the
applicable amount from the table below for its intrastate Premiere
Toll Free Service Usage Charges in the following states.
RATE PER MINUTE
STATE DEDICATED SWITCHED
[REDACTED*]
c. Customer will receive [REDACTED*], on its intrastate Premiere Toll
Free Service Usage Charges, except in those states listed in 2.b.
above:
3. INTERNATIONAL TOLL FREE SERVICE DISCOUNT. Customer will receive
[REDACTED*], on its International Toll Free Service Usage Charges.
4. SPRINT INTERNATIONAL ACCESS DISCOUNT.
a. Customer will be charged a fixed Net Effective Usage Rate based on the
sum of (i) the applicable rate from Table A for the country from which
a particular call is made and (ii) the applicable rate from Table B
for the country to which a particular call is made for its Sprint
International Access Service Usage Charges.
SPRINT PROPRIETARY INFORMATION - RESTRICTED
13
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
TABLE A
COUNTRY RATE PER MINUTE
Antigua [REDACTED*]
Australia [REDACTED*]
Bahamas [REDACTED*]
Bahrain [REDACTED*]
Barbados [REDACTED*]
Belgium [REDACTED*]
Bermuda [REDACTED*]
Bolivia [REDACTED*]
Brazil [REDACTED*]
Canada [REDACTED*]
Cayman Islands [REDACTED*]
Chile [REDACTED*]
China [REDACTED*]
Colombia [REDACTED*]
Costa Rica [REDACTED*]
Cyprus [REDACTED*]
Denmark [REDACTED*]
Dominican Republic [REDACTED*]
Ecuador [REDACTED*]
El Salvador [REDACTED*]
Finland [REDACTED*]
France [REDACTED*]
Germany [REDACTED*]
Guam [REDACTED*]
Guatemala [REDACTED*]
Hong Kong [REDACTED*]
Indonesia [REDACTED*]
Ireland [REDACTED*]
Israel [REDACTED*]
Italy [REDACTED*]
Japan [REDACTED*]
Liechtenstein [REDACTED*]
Luxembourg [REDACTED*]
Malaysia [REDACTED*]
Mexico [REDACTED*]
Monaco [REDACTED*]
Netherlands [REDACTED*]
Netherlands Antilles [REDACTED*]
New Zealand [REDACTED*]
Nicaragua [REDACTED*]
Norway [REDACTED*]
Panama [REDACTED*]
Philippines [REDACTED*]
SPRINT PROPRIETARY INFORMATION - RESTRICTED
14
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
Portugal [REDACTED*]
Saipan [REDACTED*]
San Marino [REDACTED*]
Singapore [REDACTED*]
South Africa [REDACTED*]
South Korea [REDACTED*]
Spain [REDACTED*]
Sweden [REDACTED*]
Switzerland [REDACTED*]
Taiwan [REDACTED*]
Thailand [REDACTED*]
Trinidad & Tobago [REDACTED*]
Turkey [REDACTED*]
United Kingdom [REDACTED*]
United States [REDACTED*]
Vatican City [REDACTED*]
Venezuela [REDACTED*]
TABLE B
COUNTRY RATE PER MINUTE
Albania [REDACTED*]
Algeria [REDACTED*]
American Samoa [REDACTED*]
Andorra [REDACTED*]
Angola [REDACTED*]
Anguilla [REDACTED*]
Antigua [REDACTED*]
Argentina [REDACTED*]
Armenia [REDACTED*]
Aruba [REDACTED*]
Ascension Island [REDACTED*]
Australia [REDACTED*]
Austria [REDACTED*]
Azerbaijan [REDACTED*]
Bahamas [REDACTED*]
Bahrain [REDACTED*]
Bangladesh [REDACTED*]
Barbados [REDACTED*]
Belarus [REDACTED*]
Belgium [REDACTED*]
Belize [REDACTED*]
Benin [REDACTED*]
Bermuda [REDACTED*]
Bhutan [REDACTED*]
SPRINT PROPRIETARY INFORMATION - RESTRICTED
15
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
Bolivia [REDACTED*]
Bosnia-Herzegovinia [REDACTED*]
Botswana [REDACTED*]
Brazil [REDACTED*]
British Virgin Islands [REDACTED*]
Brunei [REDACTED*]
Bulgaria [REDACTED*]
Burkina Faso [REDACTED*]
Burundi [REDACTED*]
Cambodia [REDACTED*]
Cameroon [REDACTED*]
Canada [REDACTED*]
Cape Verde Islands [REDACTED*]
Cayman Islands [REDACTED*]
Central African Rep [REDACTED*]
Chad Republic [REDACTED*]
Chile [REDACTED*]
China [REDACTED*]
Colombia [REDACTED*]
Comoros [REDACTED*]
Congo Republic [REDACTED*]
Cook Island [REDACTED*]
Costa Rica [REDACTED*]
Croatia [REDACTED*]
Cuba [REDACTED*]
Cyprus [REDACTED*]
Czechoslovakia [REDACTED*]
Denmark [REDACTED*]
Diego Garcia [REDACTED*]
Djibouti [REDACTED*]
Dominican Republic [REDACTED*]
Dominica [REDACTED*]
Ecuador [REDACTED*]
Egypt [REDACTED*]
El Salvador [REDACTED*]
Equatorial Guinea [REDACTED*]
Eritrea [REDACTED*]
Estonia [REDACTED*]
Ethiopia [REDACTED*]
Faeroe Islands [REDACTED*]
Falkland Islands [REDACTED*]
Fiji Islands [REDACTED*]
Finland [REDACTED*]
France [REDACTED*]
French Guiana [REDACTED*]
French Polynesia [REDACTED*]
SPRINT PROPRIETARY INFORMATION - RESTRICTED
16
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
Gabon [REDACTED*]
Gambia [REDACTED*]
Georgia [REDACTED*]
Germany [REDACTED*]
Ghana [REDACTED*]
Gibraltar [REDACTED*]
Greece [REDACTED*]
Greenland [REDACTED*]
Grenada [REDACTED*]
Guadeloupe [REDACTED*]
Guam [REDACTED*]
Guantanamo [REDACTED*]
Guatemala [REDACTED*]
Guinea [REDACTED*]
Guinea-Bissau [REDACTED*]
Guyana [REDACTED*]
Haiti [REDACTED*]
Honduras [REDACTED*]
Hong Kong [REDACTED*]
Hungary [REDACTED*]
Iceland [REDACTED*]
India [REDACTED*]
Indonesia [REDACTED*]
Iran [REDACTED*]
Iraq [REDACTED*]
Ireland [REDACTED*]
Israel [REDACTED*]
Italy [REDACTED*]
Ivory Coast [REDACTED*]
Jamaica [REDACTED*]
Japan [REDACTED*]
Jordan [REDACTED*]
Kazakhstan [REDACTED*]
Kenya [REDACTED*]
Kiribati [REDACTED*]
Kuwait [REDACTED*]
Kyrgyzstan [REDACTED*]
Laos [REDACTED*]
Latvia [REDACTED*]
Lebanon [REDACTED*]
Lesotho [REDACTED*]
Liberia [REDACTED*]
Libya [REDACTED*]
Liechtenstein [REDACTED*]
Lithuania [REDACTED*]
Luxembourg [REDACTED*]
SPRINT PROPRIETARY INFORMATION - RESTRICTED
17
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
Macao [REDACTED*]
Macedonian [REDACTED*]
Madagascar [REDACTED*]
Malawi [REDACTED*]
Malaysia [REDACTED*]
Maldives [REDACTED*]
Mali Republic [REDACTED*]
Malta [REDACTED*]
Marshall Islands [REDACTED*]
Mauritania [REDACTED*]
Mauritius [REDACTED*]
Mayotte Island [REDACTED*]
Mexico [REDACTED*]
Micronesia [REDACTED*]
Moldavia [REDACTED*]
Monaco [REDACTED*]
Mongolia [REDACTED*]
Montserrat [REDACTED*]
Morocco [REDACTED*]
Mozambique [REDACTED*]
Myanmar [REDACTED*]
Namibia [REDACTED*]
Nauru [REDACTED*]
Nepal [REDACTED*]
Netherlands [REDACTED*]
Netherlands Antilles [REDACTED*]
Nevis Island [REDACTED*]
New Caledonia [REDACTED*]
New Zealand [REDACTED*]
Nicaragua [REDACTED*]
Niger Republic [REDACTED*]
Nigeria [REDACTED*]
Niue Island [REDACTED*]
North Korea [REDACTED*]
Norway [REDACTED*]
Oman [REDACTED*]
Pakistan [REDACTED*]
Palau Republic [REDACTED*]
Panama [REDACTED*]
Papua New Guinea [REDACTED*]
Paraguay [REDACTED*]
Peru [REDACTED*]
Philippines [REDACTED*]
Poland [REDACTED*]
Portugal [REDACTED*]
Qatar [REDACTED*]
SPRINT PROPRIETARY INFORMATION - RESTRICTED
18
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
Reunion Island [REDACTED*]
Romania [REDACTED*]
Russia [REDACTED*]
Rwanda [REDACTED*]
Saint Helena [REDACTED*]
Saint Kitts [REDACTED*]
Saint Lucia [REDACTED*]
Saint Pierre [REDACTED*]
Saint Vincent [REDACTED*]
Saipan [REDACTED*]
San Marino [REDACTED*]
Sao Tome [REDACTED*]
Saudi Arabia [REDACTED*]
Senegal [REDACTED*]
Seychelles Island [REDACTED*]
Sierra Leone [REDACTED*]
Singapore [REDACTED*]
Slovakia [REDACTED*]
Slovenia [REDACTED*]
Solomon Island [REDACTED*]
Somalia [REDACTED*]
South Africa [REDACTED*]
South Korea [REDACTED*]
Spain [REDACTED*]
Sri Lanka [REDACTED*]
Sudan [REDACTED*]
Suriname [REDACTED*]
Swaziland [REDACTED*]
Sweden [REDACTED*]
Switzerland [REDACTED*]
Syria [REDACTED*]
Taiwan [REDACTED*]
Tajikstan [REDACTED*]
Tanzania [REDACTED*]
Thailand [REDACTED*]
Togo [REDACTED*]
Tonga [REDACTED*]
Trinidad & Tobago [REDACTED*]
Tunisia [REDACTED*]
Turkey [REDACTED*]
Turkmenistan [REDACTED*]
Turks & Caicos [REDACTED*]
Tuvalu [REDACTED*]
Uganda [REDACTED*]
Ukraine [REDACTED*]
United Arab Emirates [REDACTED*]
SPRINT PROPRIETARY INFORMATION - RESTRICTED
19
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
United Kingdom [REDACTED*]
United States [REDACTED*]
Uruguay [REDACTED*]
Uzbekistan [REDACTED*]
Vanuatu [REDACTED*]
Vatican City [REDACTED*]
Venezuela [REDACTED*]
Vietnam [REDACTED*]
Wallis & Futuna [REDACTED*]
Western Samoa [REDACTED*]
Yemen Arab Republic [REDACTED*]
Yugoslavia [REDACTED*]
Zaire [REDACTED*]
Zambia [REDACTED*]
Zimbabwe [REDACTED*]
b. Customer will receive [REDACTED*] for its Sprint International Access
Service Usage Charges.
c. Customer will receive [REDACTED*], on its Sprint International Access
per call surcharges.
d. Customer will not be issued actual FONCARDs that would typically be
issued with this Service. Instead, Customer will create and distribute
its own card and carrier ("Customer Card") which shall contain the
appropriate toll free numbers required to utilize this Service. The
Customer Card must contain the Sprint logo in conformity with Sprint's
written guidelines, and Customer must obtain Sprint's written approval
of the Customer Card prior to its production and distribution. Sprint
is not liable for any costs associated with the Customer Cards,
including but not limited to, any costs associated with production
costs necessary to correct or change any toll free number printed
thereon. Customer's members to whom the Customer Cards are distributed
are the sole and exclusive customers of Customer. For the Term of
this Agreement and the two years thereafter, Sprint will not solicit
Customer's customers as a result of Sprint identifying such customers
by virtue of the relationship of the parties in this Agreement.
e. The rates described in subsection 4.a. above are [REDACTED*].
However, as stated herein, Sprint reserves the right to pass on to
Customer any tax, levy, or other surcharge which Sprint is obligated
to pay to a governmental authority or other third-party (e.g. foreign
P.T.T.), where: (1) such obligation is imposed by valid and lawful
legislation or other regulation, and (2) such obligation arises
directly out of the use of Sprint's Services pursuant to this
Agreement.
SPRINT PROPRIETARY INFORMATION - RESTRICTED
20
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
f. Using its standard fraud detection capabilities, Sprint shall set
detection parameters for calling card abuse in consultation with
Customer. [REDACTED*]. Customer agrees that unauthorized use of a card
code resulting from calling card abuse by a Customer employee, an
authorized card holder, or any other person (such as a relative or
acquaintance) to whom access to a card code is intentionally permitted
or facilitated by a Customer employee or authorized card holder, does
not constitute fraudulent use. During the Term Sprint's total
liability for fraud under this subsection [REDACTED*].
5. INSTALL WAIVERS. Sprint will waive:
a. [REDACTED*] on Sprint provided, domestic, voice service T-1access
lines installed during the Term.
Access lines installed under subsection a. above are subject to a 24
month continuous use requirement. If Customer disconnects any access
line receiving an installation waiver prior to the conclusion of the
minimum required continuous use period, Customer must pay a prorated
portion of the waived installation charges based upon the number of
months remaining in the period.
6. CREDITS
a. Following the conclusion of the Second MAC Contract Year One, Sprint
will issue an INCREMENTAL Credit as set forth in the table below based
upon Customer's Second MAC Contributory Services Usage Minutes and
Customer's compliance with Section 5.d.v) of the Agreement. The Credit
will be applied in the billing month following the conclusion of the
Second MAC Contract Year One.
Actual Second MAC Contributory
SERVICES USAGE MINUTES INCREMENTAL USAGE CREDIT
[REDACTED*] [REDACTED*]
If Customer's Second MAC Contributory Services Usage is not in
compliance with Section 5.d.v) of the Agreement, Sprint will issue an
INCREMENTAL Credit as set forth in the table below based upon
Customer's Second MAC Contributory Services Usage Charges. The Credit
will be applied in the billing month following the conclusion of the
Second MAC Contract Year One.
Actual Second MAC Contributory
SERVICES USAGE MINUTES INCREMENTAL USAGE CREDIT
[REDACTED*] [REDACTED*]
SPRINT PROPRIETARY INFORMATION - RESTRICTED
21
<PAGE>
[*CERTAIN INFORMATION ON THIS PAGE HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.]
b. Following the conclusion of the Second MAC Contract Year Two and each
Second MAC Contract Year during a Renewal Term, Sprint will issue an
INCREMENTAL Credit as set forth in the table below based upon
Customer's Second MAC Contributory Services Usage Minutes and
Customer's compliance with Section 5.d.v) of the Agreement. The Credit
will be applied in the billing month following the conclusion of the
Second MAC Contract Year Two.
Actual Second MAC Contributory
SERVICES USAGE MINUTES INCREMENTAL USAGE CREDIT
[REDACTED*] [REDACTED*]
If Customer's Second MAC Contributory Services Usage is not in
compliance with Section 5.d.v) of the Agreement, Sprint will issue an
INCREMENTAL Credit as set forth in the table below based upon
Customer's Second MAC Contributory Services Usage Charges. The Credit
will be applied in the billing month following the conclusion of the
Second MAC Contract Year Two.
Actual Second MAC Contributory
SERVICES USAGE MINUTES INCREMENTAL USAGE CREDIT
[REDACTED*] [REDACTED*]
7. ACCESS.
a. Customer will receive [REDACTED*], on its monthly recurring Sprint
provided, domestic, voice service T-1 access line charges (not
including ACF, COC and other access related charges) for access lines
installed for a two year or longer order term during the Term.
b. Sprint will [REDACTED*].
c. Sprint will [REDACTED*].
SPRINT PROPRIETARY INFORMATION - RESTRICTED
22
<PAGE>
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement) is made as of ____________,
1998 by and between Hospitality Marketing Concepts Inc. a Delaware corporation
(the "Corporation"), and _________________ (the "Indemnitee"),
_________________________________________ _________________ of the Corporation.
R E C I T A L S
A. The Corporation and the Indemnitee recognize that the
interpretation of statutes, regulations, court opinions and the Corporation's
Certificate of Incorporation, as amended, and bylaws in certain circumstances
may not provide the Corporation's officers and directors with adequate
guidance with respect to the legal risks and potential liabilities to which
they may become personally exposed as a result of performing their duties in
good faith for the Corporation.
B. The Corporation and the Indemnitee are aware of the substantial
increase in the number of lawsuits filed against corporate officers and
directors.
C. The Corporation and the Indemnitee recognize that the cost of
defending against such lawsuits, whether or not meritorious, may impose
substantial economic hardship upon the Corporation's officers and directors.
D. The Corporation and the Indemnitee recognize that the legal risks,
potential liabilities and expenses of defense associated with litigation against
officers and directors arising or alleged to arise from the conduct of the
affairs of the Corporation are frequently excessive in view of the amount of
compensation received by the Corporation's officers and directors, and thus may
act as a significant deterrent to the ability of the Corporation to obtain
experienced and capable officers and directors.
E. Section 145 of the General Corporation Law of the State of Delaware,
which sets forth certain provisions relating to the indemnification of officers
and directors (among others) of a Delaware corporation by such corporation, is
specifically not exclusive of other rights to which those indemnified thereunder
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
F. In order to induce capable persons such as the Indemnitee to serve or
continue to serve as officers or directors of the Corporation and to enable them
to perform their duties to the Corporation secure in the knowledge that certain
expenses and liabilities that may be incurred by them will be borne by the
Corporation, the Board of Directors of the Corporation has determined, after due
consideration and investigation of the terms and provisions of this Agreement
and the various other options available to the Corporation and the Indemnitee in
lieu of this Agreement, that the following Agreement is in the best interests of
the Corporation and its stockholders.
<PAGE>
G. The Corporation desires to have the Indemnitee serve or continue to
serve as an officer and/or director of the Corporation, and the Indemnitee
desires to serve or continue to serve as an officer and/or director of the
Corporation provided, and on the express condition, that he is furnished with
the indemnity set forth below.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below, the Corporation and the Indemnitee agree as follows:
1. CONTINUED SERVICE. Subject to the terms of any written employment
agreement between the Indemnitee and the Company, the Indemnitee agrees to serve
or continue to serve as a director and/or officer of the Corporation for so long
as he is duly elected or appointed or until such time as he resigns in writing.
2. DEFINITIONS.
(a) The term "Proceeding" shall include any threatened, pending or
completed action, suit or proceeding, whether brought in the name of the
Corporation or otherwise and whether of a civil, criminal or administrative or
investigative nature, including, but not limited to, actions, suits or
proceedings brought under or predicated upon the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, their respective state
counterparts or any rule or regulation promulgated thereunder, in which the
Indemnitee may be or may have been involved as a party or otherwise by reason of
the fact that the Indemnitee is or was a director and/or officer of the
Corporation, by reason of any action taken by him or of any inaction on his part
while acting as such director and/or officer, or by reason of the fact that he
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, whether or not he is serving in such capacity at the time any
indemnified liability or reimbursable expense is incurred.
(b) The term "Expenses" shall include, but shall not be limited to,
damages, judgments, fines, settlements and charges, costs, expenses of
investigation and expenses of defense of legal actions, suits, proceedings or
claims and appeals therefrom, and expenses of appeal, attachment or similar
bonds. "Expenses" shall not include any judgments, fines or penalties actually
levied against the Indemnitee which the Corporation is prohibited by applicable
law from paying.
3. INDEMNIFICATION IN THIRD-PARTY PROCEEDINGS. Subject to Paragraph 8,
the Corporation shall indemnify the Indemnitee in accordance with the provisions
of this Paragraph 3 if the Indemnitee is a party to, threatened to be made a
party to or otherwise involved in, any Proceeding (other than a Proceeding by
the Corporation itself to procure a judgment in its favor), by reason of the
fact that the Indemnitee is or was a director and/or officer of the Corporation
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against all Expenses actually and reasonably incurred by the
Indemnitee in connection with the defense or settlement of such Proceeding,
provided it is determined, pursuant to Paragraph 7 or by the court before which
such action was brought, that
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the Indemnitee acted in good faith and in a manner that he reasonably
believed to be in or not opposed to the best interests of the Corporation
and, in the case of a criminal proceeding, had no reasonable cause to believe
that his conduct was unlawful. The termination of any such Proceeding by
judgment, order of court, settlement, conviction or upon a plea of NOLO
CONTENDERE or its equivalent shall not, of itself, create a presumption that
the Indemnitee did not act in good faith or in a manner that he reasonably
believed to be in or not opposed to the best interests of the Corporation,
and with respect to any criminal proceeding, that such person had reasonable
cause to believe that his conduct was unlawful.
4. INDEMNIFICATION IN PROCEEDINGS BY OR IN THE NAME OF THE CORPORATION.
Subject to Paragraph 8, the Corporation shall indemnify the Indemnitee against
all Expenses actually and reasonably incurred by the Indemnitee in connection
with the defense or settlement of any Proceeding by or in the name of the
Corporation to procure a judgment in its favor by reason of the fact that the
Indemnitee was or is a director and/or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, but only if he acted in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of the
Corporation; provided, however, that no indemnification for Expenses shall be
made under this Paragraph 4 with respect to any claim, issue or matter as to
which the Indemnitee shall have been adjudged to be liable to the Corporation,
unless and only to the extent that the Court of Chancery or the court in which
such Proceeding is brought shall determine upon application that despite the
adjudication of liability, but in view of all the circumstances of the case, the
Indemnitee is fairly and reasonably entitled to indemnity for such expenses as
such court shall deem proper.
5. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY. Notwithstanding any
other provisions of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding or in defense
of any claim, issue or matter therein, including the dismissal of an action
without prejudice, the Indemnitee shall be indemnified against all Expenses
incurred in connection therewith.
6. ADVANCES OF EXPENSES. Expenses incurred by the Indemnitee pursuant to
Paragraphs 3 and 4 in any Proceeding shall be paid by the Corporation in advance
of the determination of such Proceeding at the written request of the
Indemnitee, if the Indemnitee shall undertake to repay such amount to the extent
that it is ultimately determined that the Indemnitee is not entitled to
indemnification and shall agree that the Corporation shall be entitled to the
right to offset, subject to applicable law, such amounts owed to the Corporation
against any salary or other compensation that the Corporation is obligated to
pay Indemnitee.
7. RIGHT OF INDEMNITEE TO INDEMNIFICATION UPON APPLICATION; PROCEDURE
UPON APPLICATION. Any indemnification or advance under Paragraph 3, 4 or 6
shall be made no later than 30 days after receipt of the written request of the
Indemnitee therefor, unless a determination is made within said 30-day period by
(a) the Board of Directors of the Corporation by a majority vote of a quorum
thereof consisting of directors who were not parties to such Proceedings, (b)
independent legal counsel in a written opinion (which counsel shall be appointed
if such a quorum is not
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obtainable), or (c) the stockholders of the Corporation, that the Indemnitee
has not met the relevant standards for indemnification set forth in
Paragraphs 3 and 4.
The right to indemnification or advances as provided by this Agreement
shall be enforceable by the Indemnitee in any court of competent jurisdiction.
The Corporation shall bear the burden of proving that indemnification or
advances are not appropriate. The failure of the Corporation to have made a
determination that indemnification or advances are proper in the circumstances
shall not be a defense to the action or create a presumption that the Indemnitee
has not met the applicable standard of conduct. The Indemnitee's Expenses
incurred in connection with successfully establishing his right to
indemnification or advances, in whole or in part, in any such Proceeding shall
also be indemnified by the Corporation.
8. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The right to indemnification
provided by this Agreement shall not be exclusive of any other rights to which
the Indemnitee may be entitled under the Corporation's Certificate of
Incorporation, as amended, bylaws, any agreement, any vote of stockholders or
disinterested directors, the General Corporation Law of the State of Delaware or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office. The indemnification under this
Agreement shall continue as to the Indemnitee even though he may have ceased to
be a director or officer, and shall inure to the benefit of the heirs and
personal representatives of the Indemnitee.
9. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Corporation for a portion
of his Expenses actually and reasonably incurred by him in any Proceeding but
not, however, for the total amount thereof, the Corporation shall nevertheless
indemnify the Indemnitee for the portion of such Expenses to which the
Indemnitee is entitled.
10. NO DUPLICATION OF PAYMENTS. The Corporation shall not be liable under
this Agreement to make any payment in connection with any claim made against the
Indemnitee to the extent the Indemnitee has otherwise actually received payment
(under any insurance policy, the Corporation's Certificate of Incorporation, as
amended, bylaws or otherwise) of the amounts otherwise indemnifiable hereunder.
11. SETTLEMENT OF CLAIMS. The Corporation shall not be liable to
indemnify the Indemnitee under this Agreement for any amounts paid in settlement
of any action or claim effected without the Corporation's written consent. The
Corporation shall not settle any action or claim in any manner which would
impose any penalty or limitation on the Indemnitee without the Indemnitee's
written consent. Neither the Corporation nor the Indemnitee will unreasonably
withhold their consent to any proposed settlement. The Corporation shall not be
liable to indemnify the Indemnitee under this Agreement with regard to any
judicial award if the Corporation was not given a reasonable and timely
opportunity, at its expense, to participate in the defense of such action.
12. SEVERABILITY. If any provision of this Agreement or the application
of any provision hereof to any person or circumstance is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not
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be affected, and the provision so held to be invalid, unenforceable or
otherwise illegal shall be revised to the extent (and only to the extent)
necessary to make it enforceable, valid and legal.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflict of laws thereof.
14. NOTICES. The Indemnitee shall, as a condition precedent to his right
to be indemnified under this Agreement, give to the Corporation written notice
as soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to the Corporation shall be
directed to15751 Rockfield Boulevard, Suite 200, Irvine, California 92718,
Attention: Chairman of the Board (or at such other address or to the attention
of such other person as the Corporation shall designate in writing to the
Indemnitee). Notices to the Indemnitee shall be sent to the Indemnitee at the
address set forth after his name on the signature page of this Agreement (or at
such other addresses the Indemnitee shall designate in writing to the
Corporation).
HOSPITALITY MARKETING CONCEPTS INC.
By:____________________________
Name:________________________
INDEMNITEE
_______________________________
______________________
INDEMNITEE'S ADDRESS:
_______________________________
_______________________________
_______________________________
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EXHIBIT 10.4
HOSPITALITY MARKETING CONCEPTS INC.
1998 STOCK OPTION PLAN
<PAGE>
HOSPITALITY MARKETING CONCEPTS INC.
1998 STOCK OPTION PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. On May 15, 1998 the Directors of
Hospitality Marketing Concepts Inc. (the "Company") adopted, subject to the
approval of shareholders, a stock option plan known as the "1998 Stock Option
Plan" (hereinafter referred to as the "Plan"), which permits the grant of
Incentive Stock Options and Nonqualified Stock Options. The Plan is designed
to comply with the exemption for performance-based compensation provided for
in Internal Revenue Code Section 162(m) and the Treasury Regulations
promulgated thereunder.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to promote the
success of the Company and its Subsidiaries by providing incentives to
Eligible Individuals that will link their personal interests to the long-term
financial success of the Company and its Subsidiaries and to growth in
shareholder value. The Plan is designed to provide flexibility to the Company
and its Subsidiaries in their ability to motivate, attract, and retain the
services of Eligible Individuals upon whose judgment, interest, and special
effort the successful conduct of their operations is largely dependent.
1.3 DURATION OF THE PLAN. The Plan commences on the date on which
shareholders first approve the Plan, and shall remain in effect, subject to
the right of the Board of Directors to terminate the Plan at any time
pursuant to Article 10 herein, until all Stock subject to it shall have been
purchased or acquired according to the provisions herein. However, in no
event may an Option be granted under the Plan on or after the tenth
anniversary of the commencement date of the Plan.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. Whenever used in the Plan, the following terms
shall have the meanings set forth below and, when the meaning is intended,
the initial letter of the word is capitalized:
(a) "Beneficial Owner" shall have the meaning ascribed to
such term in Rule 13d-3 of the General Rules and Regulations under the
Exchange Act.
(b) "Board" or "Board of Directors" means the Board of
Directors of the Company.
(c) "Cause" means the occurrence of any one of the following:
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(i) The willful and continued failure by a Participant
to substantially perform his/her duties (other than any such failure
resulting from the Participant's disability), after a written demand for
substantial performance is delivered to the Participant that specifically
identifies the manner in which the Company or any of its Subsidiaries, as the
case may be, believes that the Participant has not substantially performed
his/her duties, and the Participant has failed to remedy the situation within
ten (10) business days of receiving such notice; or
(ii) The Participant's conviction for committing a
felony in connection with the employment or service relationship; or
(iii) The willful engaging by the Participant in gross
misconduct materially and demonstrably injurious to the Company or any of its
Subsidiaries. However, no act, or failure to act, on the Participant's part
shall be considered "willful" unless done, or omitted to be done, by the
Participant not in good faith and without reasonable belief, that his/her
action or omission was in the best interest of the Company or any of its
Subsidiaries; or
(iv) Any event constituting termination for cause in an
employment or consulting agreement between the Company or any of its
Subsidiaries and the Participant.
(d) "Change in Control" shall be deemed to have occurred if
the conditions set forth in any one of the following paragraphs shall have
been satisfied:
(i) Any Person (other than (1) the Persons who are
shareholders of the Company on the date of adoption of the Plan, (2) the
Persons who hold options to acquire Stock on such date, (3) a trustee or
other fiduciary holding securities under an employee benefit plan of the
Company or any of its Subsidiaries, or (4) a corporation owned directly or
indirectly by the shareholders of the Company in substantially the same
proportions as their ownership of Stock of the Company), is or becomes the
Beneficial Owner, directly or indirectly, of 20% or more of the Voting
Securities of the Company;
(ii) The Board shall at any time consist of a majority
of individuals (the "New Majority") who where elected or appointed Directors
of the Company without the approval of a majority of the Directors either (A)
in office prior to the election or appointment of the first of the Directors
comprising the New Majority, or (B) appointed by or elected with the approval
of such Directors; or
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(iii) The shareholders of the Company approve (A) a plan
of complete liquidation of the Company, or (B) an agreement for the sale or
disposition of all or substantially all the Company's assets; or (C) a merger
or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity), at least 50% of the combined voting power of the Voting
Securities of the Company (or such surviving entity) outstanding immediately
after such merger or consolidation. However, in no event shall a Change in
Control be deemed to have occurred, with respect to a Participant, if the
Participant is part of a purchasing group which consummates the Change in
Control transaction. The Participant shall be deemed "part of a purchasing
group" for purposes of the preceding sentence if the Participant is an equity
participant or has agreed to become an equity participant in the purchasing
company or group (except for (i) passive ownership of less than 5% of the
combined voting power of the purchasing company or (ii) ownership of equity
participation in the purchasing company or group which is otherwise not
deemed to be significant, as determined prior to the Change in Control by a
majority of the nonemployee continuing members of the Board).
(e) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(f) "Committee" means the committee appointed by the Board to
administer the Plan pursuant to Article 3 herein.
(g) "Common Stock" or "Stock" means the shares of common
stock, par value $.001 per share, of the Company.
(h) "Company" means Hospitality Marketing Concepts Inc., a
Delaware corporation, or any successor thereto.
(i) "Eligible Individual" means an employee of the Company or
any of its Subsidiaries, including an employee who is an officer or a
Director of the Company or any of its Subsidiaries, a Director of the Company
or a member of the board of directors or other governing body of any of its
Subsidiaries who is not an employee of the Company or any of its
Subsidiaries, or a consultant or service provider to the Company or any of
its Subsidiaries who, in the opinion of the Committee, can contribute
significantly to the growth and profitability of the Company and its
Subsidiaries. "Eligible Individual" also may include any other employee,
consultant or service provider, identified by the Committee, in special
situations involving extraordinary performance, promotion, retention, or
recruitment.
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(j) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time.
(k) "Fair Market Value" means the closing price of the Stock
on a securities exchange, or if the Stock is not traded on an exchange, the
average of the highest price and lowest price at which the Stock was traded,
as reported on the Nasdaq National Market, on the relevant date, or on the
most recent date on which the Stock was traded prior to such date.
(l) "Incentive Stock Option" or "ISO" means an Option to
purchase Stock, granted to a Participant pursuant to Article 6 herein, which
is designated as an incentive stock option and is intended to meet the
requirements of Section 422 of the Code.
(m) "Nonqualified Stock Option" or "NQSO" means an Option to
purchase Stock, granted to a Participant pursuant to Article 6 herein, which
is not intended to be an Incentive Stock Option.
(n) "Option" or "Options" means an Incentive Stock Option or
a Nonqualified Stock Option.
(o) "Option Agreement" means an Agreement evidencing an
Option granted under Article 6 herein.
(p) "Option Value" means, with respect to any Option, the
product of (1) the number of shares of Common Stock subject to such Option
and (2) the difference between (A) the Fair Market Value of one (1) share of
the Stock and (B) the exercise price for such share provided for in the
Option Agreement evidencing such Option.
(q) "Outside Director" means any Director who qualifies as an
"outside director" as that term is defined in Code Section 162(m) and the
Treasury Regulations promulgated thereunder.
(r) "Participant" means an Eligible Individual who has been
granted an Option under the Plan.
(s) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) thereof.
(t) "Plan" means this 1998 Stock Option Plan of the Company,
as herein described and as hereafter from time to time amended.
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(u) "Pooling Transaction" means an acquisition of the Company
in a transaction which is intended to be treated as a "pooling of interests"
under generally accepted accounting principles.
(v) "Subsidiary" means any (1) corporation of which more than
50% (by number of votes) of the combined voting power of outstanding
securities is owned, directly or indirectly, by the Company, or (2) any
partnership, limited partnership, limited liability company or other
unincorporated legal entity in which more than 50% of both the capital
interests and the profits interests are owned, directly or indirectly, by the
Company. For purposes of the preceding sentence, the term "corporation"
shall include any business entity specified in Section 301.7701-2(b)(8) of
the Treasury Regulations, as amended from time to time, and any business
entity which elects to be classified as a corporation pursuant to Treasury
Regulations Section 301.7701-3(a).
(w) "Stock" means the Common Stock.
(x) "Director" means a member of the Board.
(y) "Voting Securities" means the Common Stock or securities
of any class or classes of securities of the Company, the holders of which
are ordinarily, in the absence of contingencies, entitled to elect a majority
of the Directors.
2.2 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine, the
plural shall include the singular, and the singular shall include the plural.
2.3 SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be construed
and enforced as if the illegal or invalid provision had not been included.
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Board or by
a committee (the "Committee") consisting of not less than two Directors who
shall be appointed from time to time by, and shall serve at the discretion
of, the Board. To the extent required to comply with Rule 16b-3 under the
Exchange Act, each member of the Committee shall qualify as a "Non-Employee
Director" as defined in Rule 16b-3 or any successor definition adopted by the
Securities and Exchange Commission or grants of Options made under the Plan
will be made in accordance with another available exception, including
approval by the full Board or the shareholders. To the extent required to
comply with Code Section
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162(m), each member of the Committee also shall be an Outside Director.
3.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions of the
Plan, the Committee shall have full power to construe and interpret the Plan;
to establish, amend or waive rules and regulations for its administration; to
accelerate the exercisability of any Option; and (subject to the provisions
of Article 10 herein) to amend the terms and conditions of any outstanding
Option to the extent such terms and conditions are within the discretion of
the Committee as provided in the Plan. Notwithstanding the foregoing, the
Committee shall have no authority to take any action to the extent that such
action or the Committee's ability to take such action would cause any Option
under the Plan to fail to qualify as "performance-based compensation" within
the meaning of Code Section 162(m)(4) and the Treasury Regulations
promulgated thereunder. Also notwithstanding the foregoing, no action of the
Committee (other than pursuant to Section 4.3 hereof) may, without the
consent of the person or persons entitled to exercise any outstanding Option
adversely affect the rights of such person or persons.
3.3 SELECTION OF PARTICIPANTS. The Committee shall have the
authority to grant Options under the Plan, from time to time, to such
Eligible Individuals as may be selected by it. The Committee shall select
Participants from among those who they have identified as being Eligible
Individuals.
3.4 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board shall be final, conclusive and binding on all
persons, including the Company and its Subsidiaries, its shareholders,
employees, and Participants and their estates and beneficiaries, and such
determinations and decisions shall not be reviewable.
3.5 DELEGATION OF CERTAIN RESPONSIBILITIES. The Committee may, in
its sole discretion, delegate to an officer or officers of the Company the
administration of the Plan under this Article 3; provided, however, that no
such delegation by the Committee shall be made with respect to the
administration of the Plan as it affects officers of the Company or its
Subsidiaries and provided further that the Committee may not delegate its
authority to correct errors, omissions or inconsistencies in the Plan. The
Board or the Committee may delegate to the Chief Executive Officer of the
Company its authority under this Article 3 to grant Options to Eligible
Individuals who are not officers or Directors of the Company or its
Subsidiaries subject to the reporting requirements of Section 16(a) of the
Exchange Act. All authority delegated by the Board or the Committee under
this Section 3.5 shall be exercised in accordance with the provisions of the
Plan and any
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guidelines for the exercise of such authority that may from time to time be
established by the Board or the Committee.
3.6 PROCEDURES OF THE BOARD OR THE COMMITTEE. All determinations of
the Board or the Committee with respect to this Plan shall be made by not
less than a majority of its members present at the meeting (in person or
otherwise) at which a quorum is present. A majority of the entire Board or
the Committee shall constitute a quorum for the transaction of business. Any
action required or permitted to be taken at a meeting of the Board or the
Committee may be taken without a meeting if a unanimous written consent,
which sets forth the action, is signed by each member of the Board or the
Committee and filed with the minutes for proceedings of the Board or the
Committee. Service on the Board or the Committee shall constitute service as
a Director of the Company so that members of the Board or the Committee shall
be entitled to indemnification, limitation of liability and reimbursement of
expenses with respect to their services as members of the Board or the
Committee to the same extent that they are entitled under the Company's
Certificate of Incorporation and Delaware law for their services as Directors
of the Company.
3.7 OPTION AGREEMENTS. Each Option under the Plan shall be evidenced
by an Option Agreement which shall be signed by an authorized officer of the
Company and by the Participant, and shall contain such terms and conditions
as may be approved by the Board or the Committee. Such terms and conditions
need not be the same in all cases.
3.8 RULE 16B-3 REQUIREMENTS. Notwithstanding any other provision of
the Plan, the Board or the Committee may impose such conditions on any Option
(including, without limitation, the right of the Board or the Committee to
limit the time of exercise to specified periods) as may be required to
satisfy the requirements of Rule 16b-3 (or any successor rule) under the
Exchange Act ("Rule 16b-3").
ARTICLE 4. STOCK SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. The maximum number of shares of Stock that may
be made the subject of Options granted under the Plan is One Million Five
Hundred Thousand (1,500,000); provided, however, that the maximum number of
shares of Stock that may be the subject of Options granted to any Eligible
Individual during the term of the Plan may not exceed 250,000 shares. Upon a
change in capitalization or authorized shares (as described in Section 4.3)
the maximum number of shares shall be adjusted in number and kind pursuant to
Section 4.3. The Company shall reserve for the purposes of the Plan, out of
its authorized but unissued Common Stock or out of Common Stock held in the
Company's treasury, or partly out of each, the number of shares as shall be
determined by
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the Board. Upon the granting of an Option, the number of shares available
under Section 4.1 for the granting of further Options shall be reduced by the
number of shares in respect of which the Option is granted or denominated.
4.2 LAPSED OPTIONS. If any Option granted under this Plan
terminates, expires, or lapses for any reason, any Stock subject to such
Option again shall be available for the grant of an Option under the Plan.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation,
share dividend, split-up, share combination, or other change in or affecting
the Company's Common Stock, such adjustment shall be made in the number and
class of shares which may be delivered under the Plan, and in the number and
class of and/or price of shares subject to outstanding Options, granted under
the Plan, as may be determined to be appropriate and equitable by the Board
or the Committee, in its sole discretion, to prevent dilution or enlargement
of rights; and provided that the number of shares subject to any Option shall
always be a whole number. Any adjustment of an Incentive Stock Option under
this Section 4.3 shall be made in such a manner so as not to constitute a
modification within the meaning of Section 425(h)(3) of the Code.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Persons eligible to participate in this Plan
include all individuals who, in the opinion of the Board or the Committee,
are Eligible Individuals.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Board or the Committee may from time to time select those Eligible
Individuals to whom Options shall be granted and determine the nature and
amount of each Option. No individual shall have any right to be granted an
Option under this Plan even if previously granted an Option.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the
Plan, Options may be granted to Eligible Individuals at any time and from
time to time as shall be determined by the Board or the Committee. The Board
or the Committee shall have the sole discretion, subject to the requirements
of the Plan, to determine the actual number of shares subject to Options
granted to any Participant. The Board or the Committee may grant any type of
option that is permitted by law at the time of grant including, but not
limited to, ISOs and NQSOs; provided, however, ISOs may only be granted to
Eligible Individuals who are employees or the
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Company or a Subsidiary at the time of grant. Unless otherwise expressly
provided at the time of grant, Options granted under the Plan will be NQSOs.
6.2 LIMITATION ON EXERCISABILITY. The aggregate Fair Market Value
(determined as of the date of grant) of the shares of Common Stock issuable
pursuant to an ISO under this Plan and under any other plan of the Company,
any parent corporation or any Subsidiary of the Company, which are
exercisable for the first time by any employee during any calendar year,
shall not exceed $100,000. Options for shares of Common Stock which are
exercisable for the first time by any employee during any calendar year in
excess of $100,000 shall be treated as NQSOs, in accordance with Section
422(d)(i) of the Code.
6.3 OPTION AGREEMENT. Each Option grant shall be evidenced by an
Option Agreement that shall specify the type of Option granted, the Option
price, the duration of the Option, the number of shares of Common Stock to
which the Option pertains, and such other provisions as the Board or the
Committee shall determine. The Option Agreement shall specify whether the
Option is intended to be an Incentive Stock Option within the meaning of
Section 422 of the Code, or a Nonqualified Stock Option whose grant is not
intended to be subject to the provisions of Code Section 422.
6.4 OPTION PRICE. The purchase price per share of an Option shall be
determined by the Board or the Committee but shall not be less than the Fair
Market Value of the shares of Common Stock on the date the Option is granted.
An Incentive Share Option granted to an employee, who at the time of grant,
owns (within the meaning of Section 425(d) of the Code) shares possessing
more than 10% of the total combined voting power of all classes of shares of
the Company, shall have an exercise price which is at least 110% of the Fair
Market Value of the shares of Common Stock subject to the Option.
6.5 DURATION OF OPTIONS. Each Option shall expire at such time as
the Board or the Committee shall determine at the time of grant, provided,
however, that no Option shall be exercisable later than the tenth (10th)
anniversary date of its grant, and no ISO granted to any individual who owns
more than 10% of the Voting Securities of the Company shall be exercisable
later than the fifth (5th) anniversary date of its grant.
6.6 EXERCISE OF OPTIONS. Subject to Section 3.8 herein, Options
granted under the Plan shall be exercisable at such times and be subject to
such restrictions and conditions as the Board or the Committee shall in each
instance approve, which need not be the same for all Participants.
6.7 PAYMENT. Options shall be exercised by the delivery of
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a written notice to the Company setting forth the number of shares of Common
Stock with respect to which the Option is to be exercised, accompanied by
full payment for the Stock. The purchase price upon exercise of any Option
shall be payable to the Company in full either (a) in cash or its equivalent,
(b) by tendering previously acquired Stock having a Fair Market Value at the
time of exercise equal to the total purchase price, (c) by foregoing
compensation under rules established by the Board or the Committee, (d) by
surrendering fully exerciseable Options having an Option Value at the time of
exercise equal to the total purchase price, or (e) by a combination of (a),
(b), (c) or (d). The proceeds from such a payment shall be added to the
general funds of the Company and shall be used for general purposes. As soon
as practicable, after receipt of written notification and payment, the
Company shall deliver to the Participant share certificates in an appropriate
amount based upon the number of Options exercised, issued in the
Participant's name.
6.8 RESTRICTIONS ON SHARE TRANSFERABILITY. The Board or the
Committee shall impose such restrictions on any Stock acquired pursuant to
the exercise of an Option under the Plan as it may deem advisable, including,
without limitation, restrictions under applicable Federal securities law,
under the requirements of any securities exchange upon which such Stock is
then listed and under any applicable blue sky or state securities laws.
6.9 TERMINATION OF EMPLOYMENT OR SERVICE DUE TO DEATH, DISABILITY, OR
RETIREMENT. In the event the employment or service of a Participant is
terminated by reason of death, the Participant's outstanding Options may be
exercised at any time prior to the expiration date of the Options or within
one year after such date of termination of employment or service, whichever
period is shorter, but only to the extent that the Participant was entitled
to exercise the Options at the date of his termination, by such person or
persons as shall have acquired the Participant's rights under the Option
pursuant to Article 7 hereof or by will or by the laws of descent and
distribution. In the event the employment of a Participant is terminated by
reason of disability (as defined under the then established rules of the
Company or any of its Subsidiaries, as the case may be), the Participant's
outstanding Options may be exercised at any time prior to the expiration date
of the Options or within one year after such date of termination of
employment or service, whichever period is shorter but only to the extent
that the Participant was entitled to exercise the Options on the date of his
termination. In the event the employment or service of a Participant who is
an employee is terminated by reason of retirement, the Participant's
outstanding Options may be exercised (subject to Section 3.8 herein) at any
time prior to the expiration date of the Options or within 90 days after such
date of termination of employment or service, whichever period is shorter,
but only to the extent that
10
<PAGE>
the Participant was entitled to exercise the Options on the date of his
termination. In the case of Incentive Stock Options, the favorable tax
treatment prescribed under Section 422 of the Code may not be available if
the Options are not exercised within the Code Section 422 prescribed time
period after termination of employment for death, disability, or retirement.
6.10 TERMINATION OF EMPLOYMENT OR SERVICE FOR OTHER REASONS. If the
employment or service of a Participant shall terminate for any reason other
than death, disability, retirement (in the case of an employee) or for Cause,
the Participant shall have the right to exercise outstanding Options at any
time prior to the expiration date of the Options or within the 90 days after
the date of his termination, whichever period is shorter, but only to the
extent that the Participant was entitled to exercise the Options at the date
of his termination of employment or service. In its sole discretion, the
Company may extend the 90 days to up to one year, but in no event beyond the
expiration date of the Option. If the employment or service of the
Participant shall terminate for Cause, all of the Participant's outstanding
Options shall be immediately forfeited back to the Company.
6.11 NONTRANSFERABILITY OF OPTIONS. No Option granted under the Plan
may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, otherwise than by will or by the laws of descent and
distribution. Further, all Options granted to a Participant under the Plan
shall be exercisable during his lifetime only by such Participant.
ARTICLE 7. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively
and who may include a trustee under a will or living trust) to whom any
Option under the Plan is to be transferred in case of his death before such
Option is fully exercised. Each designation will revoke all prior
designations by the same Participant, shall be in a form prescribed by the
Board or the Committee, and will be effective only when filed by the
Participant in writing with the Board or the Committee during his lifetime.
In the absence of any such designation or if all designated beneficiaries
predecease the Participant, the Participant's Options outstanding at death
shall be transferred to the Participant's estate.
ARTICLE 8. RIGHTS OF EMPLOYEES
8.1 EMPLOYMENT OR SERVICE. Nothing in the Plan shall interfere with
or limit in any way the right of the Company or any of its Subsidiaries to
terminate any Participant's employment or service at any time, nor confer
upon any Participant any right to
11
<PAGE>
continue in the employ or service of the Company or any of its Subsidiaries.
8.2 PARTICIPATION. No individual shall have the right to be selected
as a Participant, or, having been so selected, to be selected again as a
Participant.
8.3 NO IMPLIED RIGHTS; RIGHTS ON TERMINATION OF SERVICE. Neither the
establishment of the Plan nor any amendment thereof shall be construed as
giving any Participant, beneficiary, or any other person any legal or
equitable right unless such right shall be specifically provided for in the
Plan or conferred by specific action of the Board or the Committee in
accordance with the terms and provisions of the Plan. Except as expressly
provided in this Plan, neither the Company nor any of its Subsidiaries shall
be required or be liable to make any payment under the Plan.
8.4 NO RIGHT TO COMPANY ASSETS. Neither the Participant nor any
other person shall acquire, by reason of the Plan, any right in or title to
any assets, funds or property of the Company or any of its Subsidiaries
whatsoever including, without limiting the generality of the foregoing, any
specific funds, assets, or other property which the Company or any of its
Subsidiaries, in its sole discretion, may set aside in anticipation of a
liability hereunder.
ARTICLE 9. CHANGE IN CONTROL
9.1 OPTIONS. Notwithstanding any other provisions of the Plan, in
the event of a Change in Control, all Options granted under this Plan shall
immediately vest 100% in each Participant (subject to Section 3.8 herein).
9.2 POOLING TRANSACTIONS. Notwithstanding anything contained in the
Plan or any agreement to the contrary, in the event of a Change in Control
which is also intended to constitute a Pooling Transaction, the Board or the
Committee shall take such actions, if any, which are specifically recommended
by an independent accounting firm retained by the Company to the extent
reasonably necessary in order to assure that the Pooling Transaction will
qualify as such, including but not limited to (a) deferring the vesting,
exercise, payment or settlement with respect to any Option, (b) providing
that the payment or settlement in respect of any Option be made in the form
of cash, Stock or securities of a successor or acquired of the Company, or a
combination of the foregoing and (c) providing for the extension of the term
of any Option to the extent necessary to accommodate the foregoing, but not
beyond the maximum term permitted for any Option.
ARTICLE 10. AMENDMENT, MODIFICATION AND TERMINATION
12
<PAGE>
10.1 AMENDMENT, MODIFICATION AND TERMINATION. At any time and from
time to time, the Board may terminate, amend, or modify the Plan, subject to
the approval of the shareholders of the Company if, but only if, required by
the Code, by the insider trading rules of Section 16 of the Exchange Act, by
any securities exchange or system on which the Stock is then listed or
reported or by any regulatory body having jurisdiction with respect hereto.
10.2 OPTIONS PREVIOUSLY GRANTED. No termination, amendment or
modification of the Plan other than pursuant to Section 4.3 hereof shall in any
manner adversely affect any Option theretofore granted under the Plan, without
the written consent of the Participant.
13
<PAGE>
ARTICLE 11. WITHHOLDING
11.1 TAX WITHHOLDING. The Company and any of its Subsidiaries shall
have the power and the right to deduct or withhold, or require a Participant
to remit to the Company or any of its Subsidiaries, an amount sufficient to
satisfy Federal, state, local and applicable foreign taxes (including the
Participant's FICA obligations) required by law to be withheld with respect
to any grant or exercise of an Option made under or as a result of this Plan.
11.2 STOCK DELIVERY OR WITHHOLDING. With respect to withholding
required upon the exercise of Nonqualified Stock Options, Participants may
elect, subject to the approval of the Board or the Committee, to satisfy the
withholding requirement, in whole or in part, by tendering to the Company
previously acquired Stock, by having the Company withhold Stock, or by
surrendering to the Company fully exerciseable Options in each such case in
an amount having a Fair Market Value (in the case of Stock) or Option Value
(in the case of Options) equal to the amount required to be withheld to
satisfy the tax withholding obligations described in Section 11.1. The value
of the Stock or Options to be tendered or withheld is to be based on the Fair
Market Value of the Stock or Option Value of the Options on the date that the
amount of tax to be withheld is to be determined. All Stock withholding
elections shall be irrevocable and made in writing, signed by the Participant
on forms approved by the Board or the Committee in advance of the day that
the transaction becomes taxable. Stock withholding elections made by
Participants who are subject to the short-swing profit restrictions of
Section 16 of the Exchange Act must comply with the additional restrictions
of Section 16 and Rule 16b-3 in making their elections.
ARTICLE 12. EFFECT OF CERTAIN TRANSACTIONS
EFFECT OF CERTAIN TRANSACTIONS. Subject to Article 9, or as otherwise
provided in any Option Agreement, in the event of (a) the liquidation or
dissolution of the Company or (b) a merger, consolidation or combination of
the Company (a "Transaction"), the Plan and the Options issued hereunder
shall continue in effect in accordance with their respective terms except
that following a Transaction each Participant shall be entitled to receive in
respect of each share of Common Stock subject to any outstanding Options upon
exercise of any Option the same number and kind of securities, cash, property
or other consideration that each holder of a share of Common Stock was
entitled to receive in the Transaction in respect of such share; provided,
however, that such securities, cash, property, or other consideration shall
remain subject to all of the conditions, restrictions and performance
criteria which were applicable to the Options prior to such Transaction.
14
<PAGE>
ARTICLE 13. REQUIREMENTS OF LAW
13.1 REQUIREMENTS OF LAW. The granting of Options and the issuance of
shares of Common Stock under this Plan shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any governmental
agencies or securities exchanges as may be required.
13.2 GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of Delaware.
15
<PAGE>
EXHIBIT 10.5
Employee:____________________
Grant Date:__________________
No. Shares:__________________
FMV Per Share on Date
of Grant:__________________
Exercise Price
Per Share:_________________
INCENTIVE STOCK OPTION AGREEMENT PURSUANT
TO THE HOSPITALITY MARKETING CONCEPTS INC. 1998 STOCK OPTION PLAN
I. IDENTIFICATION. This Incentive Stock Option Agreement (the
"Agreement") is made by and between Hospitality Marketing Concepts Inc., a
Delaware corporation (the "Company"), and ___________________________ (the
"Employee") as of ____________, 199_.
2. RECITALS.
2.1 On __________, ___, 1998, the Board of Directors of the
Company adopted the Hospitality Marketing Concepts Inc. 1998 Stock Option
Plan (the "Plan") providing for the grant of incentive stock options and
nonqualified stock options to key employees, directors, consultants and
service providers of the Company or any of its Subsidiaries (as defined in
the Plan).
2.2 The shareholders of the Company approved the Plan on
____________.
2.3 Employee is a key employee of the Company and/or one or more
of its Subsidiaries to whom options may be granted under the Plan.
2.4 The Stock Option and Compensation Committee (the "Committee")
of the Board of Directors of the Company has authorized the grant to Employee
of an option to purchase the Company's Common Stock upon the terms and
conditions hereinafter set forth.
3. GRANT OF OPTION. Pursuant to the action of the Committee, and
subject to the terms and conditions of this Agreement and the terms and
conditions of the Plan, the Company grants to Employee an option to purchase
________ (___) shares of the Company's authorized and unissued Common Stock
from the Company at the price of __________________ Dollars ($______) per
share (the "Option"). The Option will be an incentive stock option, and will
comply with all of the requirements of
<PAGE>
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
4. TERM OF OPTION. The Option was granted on ______________, 199_ (the
"Grant Date"). Unless previously exercised pursuant to Section 5, the Option
shall terminate on, and shall not be exercisable after, the expiration of
(_____) years after the Grant Date [not to exceed ten (10) years].
5. EXERCISE.
5.1 EXERCISABILITY. Subject to the terms and conditions of this
Agreement, the Option shall become exercisable in _______________ equal
cumulative installments of _________ shares of the Company's Common Stock
(individually an "Installment" and collectively the "Installments").
Employee may exercise the Option with respect to each Installment on or after
each successive annual anniversary of the Grant Date according to the
following schedule:
Installment Exercise Date
(number of -------------
shares becoming
exercisable)
----------------
First
Anniversary _________________ ________________
Second
Anniversary _________________ ________________
Third
Anniversary _________________ ________________
Fourth
Anniversary _________________ ________________
Fifth
Anniversary _________________ ________________
Sixth
Anniversary _________________ ________________
Seventh
Anniversary _________________ ________________
Eighth
Anniversary _________________ ________________
Ninth
- 2 -
<PAGE>
Anniversary _________________ ________________
5.2 NOTICE OF EXERCISE. Employee shall exercise the Option by (i)
notifying the Secretary of the Company of Employee's election to exercise the
Option and (ii) paying in full the purchase price as provided in Section 5.3.
5.3 PAYMENT OF PURCHASE PRICE. The purchase price for any shares
of Common Stock with respect to which Employee exercises the Option shall be
paid in full promptly after Employee gives notice of exercise as provided in
Section 5.2. The purchase price shall be paid: (a) in cash or by check in
United States dollars, or (b) if, and only if, the Committee so authorizes in
its sole discretion, at the time Employee gives notice of exercise, (i) by
transferring to the Company for redemption, Common Stock of the Company at
its "Fair Market Value" (as defined in the Plan), with share certificates
duly endorsed and accompanied by instruments of transfer with signatures
guaranteed, or (ii) by surrendering to the Company for cancellation one or
more Options granted to Employee under the Plan at their respective Option
Values (as defined in the Plan), or (c) if, and only if, the Committee so
authorizes in its sole discretion, a combination of (a), (b)(i) and/or
(b)(ii). If Employee desires to pay all or a portion of the purchase price
for the shares by transferring to the Company Common Stock for redemption, or
surrendering Options for cancellation, Employee shall so notify the Secretary
of the Company with the notice of Employee's election to exercise the Option
in accordance with Section 5.2. Promptly after receipt of Employee's notice
of exercise and request for payment by redemption or cancellation, the
Company shall notify Employee of its decision as to whether it will permit
Employee to pay the purchase price by transferring the Company's Common Stock
to it for redemption or transferring Options to it for cancellation. If the
Committee does not authorize the proposed payment by redemption or
cancellation, Employee shall pay the purchase price in cash or by check in
United States dollars as provided above. Employee acknowledges that, if
payment is made by transfer of Common Stock acquired by exercise of an Option
which was intended to be an incentive stock option, or by surrender of an
Option which is intended to be an incentive stock option, the favorable tax
treatment accorded to incentive Stock Options under the Code will not apply
to such transferred Common Stock or such surrendered Option.
6. ISSUANCE OF SHARES. Promptly after the Company's receipt of
notification of exercise provided for in Section 5.2 and Employee's payment in
full of the purchase price, the Company shall deliver, or cause to be delivered,
to Employee a certificate
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<PAGE>
for the whole number of shares with respect to which the Option is being
exercised by Employee. Shares shall be registered in the name of Employee.
If any law or regulation of the Securities and Exchange Commission or of any
other federal or state governmental body having jurisdiction shall require
the Company or Employee to take any action prior to the issuance to Employee
of the shares of Common Stock of the Company specified in the written notice
of election to exercise, the date for the delivery of such shares shall be
adjourned until the completion of such action.
7. TERMINATION OF EMPLOYMENT; DEATH; PERMANENT DISABILITY. If
Employee's employment with the Company (including for this purpose any
Subsidiary) is terminated for any reason (other than permanent disability or
dismissal for Cause as defined in the Plan) while Employee is still living,
the Option or any unexercised Installments, to the extent the Option would
have been exercisable by Employee on the date on which he ceases to be an
employee (the "Termination Date"), may be exercised by Employee within ____
months [not to exceed three (3) months] from the Termination Date (the
"Post-Termination Period"), but in any event not later than the expiration
date of the Option. If Employee dies or becomes "permanently disabled" (a
physical or mental impairment as defined in Section 22(e)(3) of the Code)
while he is employed by the Company or during the Post-Termination Period (if
the Employee's termination was for any reason other than Cause), the Option
or any unexercised Installment, to the extent exercisable by him on the date
of death or permanent disability, may be exercised by Employee, or if
Employee is then deceased or legally incapacitated, by Employee's personal
representative, heirs, or legatees, at any time prior to the expiration of
____ months [not to exceed twelve (12) months] from the Termination Date, but
in any event, not later than the expiration date of the Option. In the
Committee's sole discretion, all or any unexercisable Options or Installments
may become exercisable on the date of Employee's death, so that such Options
or Installments may be exercised pursuant to this Section 7 even though they
would not otherwise have been exercisable had Employee not died.
Unexercisable Options or Installments [shall (__)] [shall not (__)] become
exercisable on the date of Employee's death. Notwithstanding the foregoing,
if Employee's employment with the Company is terminated for Cause as
determined by the Committee in its sole discretion, the Option shall expire
on the Termination Date and thereafter shall not be exercisable in whole or
in part.
8. ASSIGNMENT OR TRANSFER. The Option is not assignable or transferable
except by will or by the laws of descent and distribution and during Employee's
lifetime the Option may be exercised only by Employee. No transfer of the
Option by will or by the laws of descent and distribution shall be effective,
nor shall any designation of a person who may exercise the Option
- 4 -
<PAGE>
after Employee's death be effective to bind the Company unless the Company is
furnished with a written notice thereof and a copy of the will or such other
evidence as the Company deems necessary to establish the validity of the
transfer and the acceptance of the terms and conditions of the Option by the
transferee or designee.
9. NO RIGHTS AS SHAREHOLDER. Employee shall have no rights as a
shareholder with respect to shares of the Common Stock covered by this Option
until the date of the issuance of a stock certificate or stock certificates
evidencing issuance of such shares pursuant to Employee's exercise of the
Option. No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date such stock certificate is issued,
except as provided in Section 10 hereof.
10. MODIFICATION AND TERMINATION.
10.1 The rights of Employee under this Agreement are subject to
modification and termination as provided in the Plan.
10.2 If the number of issued and outstanding shares of Common
Stock changes as a result of a stock split, reverse stock split, stock
dividend, recapitalization, or any other change in the capital structure of
the Company, the Committee, subject to approval by the Board, may
appropriately adjust (a) the maximum number of shares which may be issued
under the Plan, (b) the number of shares subject to each outstanding option,
and (c) the price per share of each Option (but not the total price thereof),
so that upon exercise of the Option, Employee will receive the same number of
shares he would have received had he been the holder of all shares subject to
his outstanding Options immediately before the effective date of the change
in the number of issued shares of Common Stock. The adjustment shall not
result in the issuance of fractional shares.
10.3 If the Company liquidates, merges, reorganizes, or
consolidates with any other corporation in which the Company is not the
surviving corporation or the Company becomes a wholly-owned subsidiary of
another corporation, any unexercised option previously granted under the Plan
shall be deemed canceled unless the surviving corporation in any merger,
reorganization or consolidation elects to assume the options under the Plan
or to issue substitute options in place thereof. If options are to be
canceled in accordance with the foregoing, Employee shall have the right,
exercisable during a thirty (30)-day period, ending on the fifth day prior to
the liquidation, merger, reorganization or consolidation, to exercise
Employee's Options, in whole or in
- 5 -
<PAGE>
part, without regard to any installment exercise provisions in this Agreement.
10.4 No incentive stock option granted pursuant to the Plan shall
be adjusted in any manner that causes it to fail to continue to qualify as an
"incentive stock option" within the meaning of the Section 422 of the Code.
10.5 The grant of the Option pursuant to the Plan shall not affect
in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations, or changes in its capital structure; to
merger, consolidate, or dissolve; to change its business structure; or to
liquidate, sell or transfer all or any part of its business or assets.
11. NO RIGHT TO EMPLOYMENT. Nothing in this Agreement, the Plan, or
any instrument executed pursuant to the Plan shall confer upon Employee the
right to continue to be employed by the Company or any Subsidiary, affect the
right of the Company or any Subsidiary to terminate the employment of
Employee with or without Cause, or be evidence of any agreement or
understanding, express or implied, that the Company or any Subsidiary will
employ or continue to employ Employee in a particular position or at a
particular rate of remuneration.
12. COMPLIANCE WITH SECURITIES LAWS. At the time the Option is
exercised, the Company may require Employee to execute any documents or take
any action which may be then necessary to comply with the Securities Act of
1933, as amended, and the rules and regulations adopted thereunder, or any
other applicable federal or state laws for the purpose of regulating the sale
and issuance of securities. The Company reserves the right to change its
requirements with respect to enforcing compliance with federal and state
securities laws, including the request for, and enforcement of, letters of
investment intent, such requirements to be determined by the Company in its
judgment as necessary to assure compliance with such laws. Such changes may
be made, with respect to this Option, upon exercise hereof, or prior to or
after the exercise of this Option. The Company shall not be obligated to
issue any shares upon the exercise of this Option unless the issuance, in the
judgment of the Board, is in full compliance with all applicable laws,
governmental rules and regulations, undertakings of the Company made under
the Securities Act of 1933, as amended, any state securities laws, and stock
exchange agreements of the Company.
13. GENERAL PROVISIONS.
13.1 SUBJECT TO PLAN. This Agreement shall conform with, and be
subject to, all of the terms and conditions of the
- 6 -
<PAGE>
Plan. Any conflict or inconsistency between this Agreement and the Plan
shall be resolved in conformity with, and shall be governed by, the Plan.
The Plan is attached hereto as Exhibit "A" and incorporated herein by this
reference.
13.2 FURTHER ACTS. Employee agrees to perform all further acts
and to execute and deliver any other and additional documents as may be
reasonably necessary to carry out the provisions of this Agreement.
IN WITNESS WHEREOF, this Agreement is executed by the parties on the
date and at the place indicated below.
"COMPANY"
HOSPITALITY MARKETING CONCEPTS INC.,
a Delaware corporation
Executed on _________, 199_
at __________, ____________. By:___________________________
Its________________________
"EMPLOYEE"
Executed on _________, 199_
at __________, ____________. ______________________________
Employee's Name
- 7 -
<PAGE>
EXHIBIT 10.6
Employee:____________________
Grant Date:__________________
No. Shares:__________________
FMV Per Share on Date
of Grant:__________________
Exercise Price
Per Share:_________________
NONQUALIFIED STOCK OPTION AGREEMENT PURSUANT
TO THE HOSPITALITY MARKETING CONCEPTS INC. 1998 STOCK OPTION PLAN
I. IDENTIFICATION. This Nonqualified Stock Option Agreement (the
"Agreement") is made by and between Hospitality Marketing Concepts Inc., a
Delaware corporation (the "Company"), and ___________________________ (the
"Employee") as of ____________, 199_.
2. RECITALS.
2.1 On __________, ___, 1998, the Board of Directors of the Company
adopted the Hospitality Marketing Concepts Inc. 1998 Stock Option Plan (the
"Plan") providing for the grant of incentive stock options and nonqualified
stock options to key employees, directors, consultants and service providers of
the Company or any of its Subsidiaries (as defined in the Plan).
2.2 The shareholders of the Company approved the Plan on
____________.
2.3 Employee is a key employee of the Company and/or one or more of
its Subsidiaries to whom options may be granted under the Plan.
2.4 The Stock Option and Compensation Committee (the "Committee") of
the Board of Directors of the Company has authorized the grant to Employee of an
option to purchase the Company's Common Stock upon the terms and conditions
hereinafter set forth.
3. GRANT OF OPTION. Pursuant to the action of the Committee, and subject
to the terms and conditions of this Agreement and the terms and conditions of
the Plan, the Company grants to Employee an option to purchase ________ (___)
shares of the Company's authorized and unissued Common Stock from the Company at
the price of __________________ Dollars ($______) per share (the "Option"). The
Option will be a nonqualified stock option and not an incentive stock option
pursuant to Section 422
<PAGE>
of the Internal Revenue Code of 1986, as amended (the "Code").
4. TERM OF OPTION. The Option was granted on ______________, 199_ (the
"Grant Date"). Unless previously exercised pursuant to Section 5, the Option
shall terminate on, and shall not be exercisable after, the expiration of
(_____) years after the Grant Date [not to exceed ten (10) years or five (5)
years in the case of any person who owns more than 10% of the Voting Securities
of the Company, as defined in the Plan.].
5. EXERCISE.
5.1 EXERCISABILITY. Subject to the terms and conditions of this
Agreement, the Option shall become exercisable in _______________ equal
cumulative installments of _________ shares of the Company's Common Stock
(individually an "Installment" and collectively the "Installments"). Employee
may exercise the Option with respect to each Installment on or after each
successive annual anniversary of the Grant Date according to the following
schedule:
Installment Exercise Date
(number of
shares becoming
exercisable)
First
Anniversary _________________ ________________
Second
Anniversary _________________ ________________
Third
Anniversary _________________ ________________
Fourth
Anniversary _________________ ________________
Fifth
Anniversary _________________ ________________
Sixth
Anniversary _________________ ________________
Seventh
Anniversary _________________ ________________
Eighth
Anniversary _________________ ________________
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<PAGE>
Ninth
Anniversary _________________ ________________
5.2 NOTICE OF EXERCISE. Employee shall exercise the Option by (i)
notifying the Secretary of the Company of Employee's election to exercise the
Option and (ii) paying in full the purchase price as provided in Section 5.3.
5.3 PAYMENT OF PURCHASE PRICE. The purchase price for any shares of
Common Stock with respect to which Employee exercises the Option shall be paid
in full promptly after Employee gives notice of exercise as provided in
Section 5.2. The purchase price shall be paid: (a) in cash or by check in
United States dollars, or (b) if, and only if, the Committee so authorizes in
its sole discretion, at the time Employee gives notice of exercise, (i) by
transferring to the Company for redemption, Common Stock of the Company at its
"Fair Market Value" (as defined in the Plan), with share certificates duly
endorsed and accompanied by instruments of transfer with signatures guaranteed,
or (ii) by surrendering to the Company for cancellation one or more Options
granted to Employee under the Plan at their respective Option Values (as defined
in the Plan), or (c) by foregoing compensation payable to Employee as set forth
on Schedule 1 attached hereto, or (d) if, and only if, the Committee so
authorizes in its sole discretion, a combination of (a), (b)(i), (b)(ii), and/or
(c). If Employee desires to pay all or a portion of the purchase price for the
shares by transferring to the Company Common Stock for redemption, or
surrendering Options for cancellation, Employee shall so notify the Secretary of
the Company with the notice of Employee's election to exercise the Option in
accordance with Section 5.2. Promptly after receipt of Employee's notice of
exercise and request for payment by redemption or cancellation, the Company
shall notify Employee of its decision as to whether it will permit Employee to
pay the purchase price by transferring the Company's Common Stock to it for
redemption or transferring Options to it for cancellation, or by foregoing
compensation payable. If the Committee does not authorize the proposed payment
by redemption or cancellation or by foregoing compensation payable, Employee
shall pay the purchase price in cash or by check in United States dollars as
provided above. Employee acknowledges that, if payment is made by transfer of
Common Stock acquired by exercise of an Option which was intended to be an
incentive Stock Option, or by surrender of an Option which is intended to be an
incentive Stock Option, the favorable tax treatment accorded to incentive stock
options under the Code will not apply to such transferred Common Stock or such
surrendered Option.
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<PAGE>
6. ISSUANCE OF SHARES. Promptly after the Company's receipt of
notification of exercise provided for in Section 5.2 and Employee's payment in
full of the purchase price, the Company shall deliver, or cause to be delivered,
to Employee a certificate for the whole number of shares with respect to which
the Option is being exercised by Employee. Shares shall be registered in the
name of Employee. If any law or regulation of the Securities and Exchange
Commission or of any other federal or state governmental body having
jurisdiction shall require the Company or Employee to take any action prior to
the issuance to Employee of the shares of Common Stock of the Company specified
in the written notice of election to exercise, the date for the delivery of such
shares shall be adjourned until the completion of such action.
7. TERMINATION OF EMPLOYMENT; DEATH; PERMANENT DISABILITY. If Employee's
employment with the Company (including for this purpose any Subsidiary) is
terminated for any reason (other than permanent disability or dismissal for
Cause as defined in the Plan) while Employee is still living, the Option or any
unexercised Installments, to the extent the Option would have been exercisable
by Employee on the date on which he ceases to be an employee (the "Termination
Date"), may be exercised by Employee within ____ months from the Termination
Date (the "Post-Termination Period"), but in any event not later than the
expiration date of the Option. If Employee dies or becomes "permanently
disabled" (a physical or mental impairment as defined in Section 22(e)(3) of the
Code) while he is employed by the Company or during the Post-Termination Period
(if the Employee's termination was for any reason other than Cause), the Option
or any unexercised Installment, to the extent exercisable by him on the date of
death or permanent disability, may be exercised by Employee, or if Employee is
then deceased or legally incapacitated, by Employee's personal representative,
heirs, or legatees, at any time prior to the expiration of ____ months from the
Termination Date, but in any event, not later than the expiration date of the
Option. In the Committee's sole discretion, all or any unexercisable Options or
Installments may become exercisable on the date of Employee's death, so that
such Options or Installments may be exercised pursuant to this Section 7 even
though they would not otherwise have been exercisable had Employee not died.
Unexercisable Options or Installments [shall (__)] [shall not (__)] become
exercisable on the date of Employee's death. Notwithstanding the foregoing, if
Employee's employment with the Company is terminated for Cause as determined by
the Committee in its sole discretion, the Option shall expire on the Termination
Date and thereafter shall not be exercisable in whole or in part.
8. ASSIGNMENT OR TRANSFER. The Option is not assignable or transferable
except by will or by the laws of descent and
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<PAGE>
distribution and during Employee's lifetime the Option may be exercised only
by Employee. No transfer of the Option by will or by the laws of descent and
distribution shall be effective, nor shall any designation of a person who
may exercise the Option after Employee's death be effective to bind the
Company unless the Company is furnished with a written notice thereof and a
copy of the will or such other evidence as the Company deems necessary to
establish the validity of the transfer and the acceptance of the terms and
conditions of the Option by the transferee or designee.
9. NO RIGHTS AS SHAREHOLDER. Employee shall have no rights as a
shareholder with respect to shares of the Common Stock covered by this Option
until the date of the issuance of a stock certificate or stock certificates
evidencing issuance of such shares pursuant to Employee's exercise of the
Option. No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date such stock certificate is issued,
except as provided in Section 10 hereof.
10. MODIFICATION AND TERMINATION.
10.1 The rights of Employee under this Agreement are subject to
modification and termination as provided in the Plan.
10.2 If the number of issued and outstanding shares of Common Stock
changes as a result of a stock split, reverse stock split, stock dividend,
recapitalization, or any other change in the capital structure of the Company,
the Committee, subject to approval by the Board, may appropriately adjust
(a) the maximum number of shares which may be issued under the Plan, (b) the
number of shares subject to each outstanding option, and (c) the price per share
of each Option (but not the total price thereof), so that upon exercise of the
Option, Employee will receive the same number of shares he would have received
had he been the holder of all shares subject to his outstanding Options
immediately before the effective date of the change in the number of issued
shares of Common Stock. The adjustment shall not result in the issuance of
fractional shares.
10.3 If the Company liquidates, merges, reorganizes, or consolidates
with any other corporation in which the Company is not the surviving corporation
or the Company becomes a wholly-owned subsidiary of another corporation, any
unexercised option previously granted under the Plan shall be deemed canceled
unless the surviving corporation in any merger, reorganization or consolidation
elects to assume the options under the Plan or to issue substitute options in
place thereof. If options are to be
-5-
<PAGE>
canceled in accordance with the foregoing, Employee shall have the right,
exercisable during a thirty (30)-day period, ending on the fifth day prior to
the liquidation, merger, reorganization or consolidation, to exercise
Employee's Options, in whole or in part, without regard to any installment
exercise provisions in this Agreement.
10.4 The grant of the Option pursuant to the Plan shall not affect in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations, or changes in its capital structure; to
merger, consolidate, or dissolve; to change its business structure; or to
liquidate, sell or transfer all or any part of its business or assets.
11. NO RIGHT TO EMPLOYMENT. Nothing in this Agreement, the Plan, or any
instrument executed pursuant to the Plan shall confer upon Employee the right to
continue to be employed by the Company, affect the right of the Company or any
Subsidiary to terminate the employment of Employee with or without Cause, or be
evidence of any agreement or understanding, express or implied, that the Company
or any Subsidiary will employ or continue to employ Employee in a particular
position or at a particular rate of remuneration.
12. COMPLIANCE WITH SECURITIES LAWS. At the time the Option is exercised,
the Company may require Employee to execute any documents or take any action
which may be then necessary to comply with the Securities Act of 1933, as
amended, and the rules and regulations adopted thereunder, or any other
applicable federal or state laws for the purpose of regulating the sale and
issuance of securities. The Company reserves the right to change its
requirements with respect to enforcing compliance with federal and state
securities laws, including the request for, and enforcement of, letters of
investment intent, such requirements to be determined by the Company in its
judgment as necessary to assure compliance with such laws. Such changes may be
made, with respect to this Option, upon exercise hereof, or prior to or after
the exercise of this Option. The Company shall not be obligated to issue any
shares upon the exercise of this Option unless the issuance, in the judgment of
the Board, is in full compliance with all applicable laws, governmental rules
and regulations, undertakings of the Company made under the Securities Act of
1933, as amended, any state securities laws, and stock exchange agreements of
the Company.
13. GENERAL PROVISIONS.
13.1 SUBJECT TO PLAN. This Agreement shall conform with, and be
subject to, all of the terms and conditions of the Plan. Any conflict or
inconsistency between this Agreement and
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<PAGE>
the Plan shall be resolved in conformity with, and shall be governed by, the
Plan. The Plan is attached hereto as Exhibit "A" and incorporated herein by
this reference.
13.2 FURTHER ACTS. Employee agrees to perform all further acts and
to execute and deliver any other and additional documents as may be reasonably
necessary to carry out the provisions of this Agreement.
IN WITNESS WHEREOF, this Agreement is executed by the parties on the date
and at the place indicated below.
"COMPANY"
HOSPITALITY MARKETING CONCEPTS INC.,
a Delaware corporation
Executed on _________, 199_
at __________, ____________. By:___________________________
Its________________________
"EMPLOYEE"
Executed on _________, 199_
at __________, ____________. ______________________________
Employee's Name
-7-
<PAGE>
EXHIBIT 10.7
Optionee:____________________
Grant Date:__________________
No. Shares:__________________
FMV Per Share on Date
of Grant:__________________
Exercise Price
Per Share:_________________
NONQUALIFIED STOCK OPTION AGREEMENT PURSUANT
TO THE HOSPITALITY MARKETING CONCEPTS INC. 1998 STOCK OPTION PLAN
I. IDENTIFICATION. This Nonqualified Stock Option Agreement (the
"Agreement") is made by and between Hospitality Marketing Concepts Inc., a
Delaware corporation (the "Company"), and ___________________________ (the
"Optionee") as of ____________, 199_.
2. RECITALS.
2.1 On __________, ___, 1998, the Board of Directors of the
Company adopted the Hospitality Marketing Concepts Inc. 1998 Stock Option
Plan (the "Plan") providing for the grant of incentive stock options and
nonqualified stock options to key employees, directors, consultants and
service providers of the Company or any of its Subsidiaries (as defined in
the Plan).
2.2 The shareholders of the Company approved the Plan on
____________.
2.3 Optionee is a (______) director (_______) consultant or
service provider of the Company and/or one or more of its Subsidiaries to
whom options may be granted under the Plan.
2.4 The Stock Option and Compensation Committee (the "Committee")
of the Board of Directors of the Company has authorized the grant to Optionee
of an option to purchase the Company's Common Stock upon the terms and
conditions hereinafter set forth.
3. GRANT OF OPTION. Pursuant to the action of the Committee, and
subject to the terms and conditions of this Agreement and the terms and
conditions of the Plan, the Company grants to Optionee an option to purchase
________ (___) shares of the Company's authorized and unissued Common Stock
from the Company at the price of __________________ Dollars ($______) per
share (the "Option"). The Option will be a nonqualified stock option and not
an incentive stock option pursuant to Section 422
<PAGE>
of the Internal Revenue Code of 1986, as amended (the "Code").
4. TERM OF OPTION. The Option was granted on ______________, 199_ (the
"Grant Date"). Unless previously exercised pursuant to Section 5, the Option
shall terminate on, and shall not be exercisable after, the expiration of
(_____) years after the Grant Date [not to exceed ten (10) years or five (5)
years in the case of any person who owns more than 10% of the Voting Securities
of the Company, as defined in the Plan.].
5. EXERCISE.
5.1 EXERCISABILITY. Subject to the terms and conditions of this
Agreement, the Option shall become exercisable in _______________ equal
cumulative installments of _________ shares of the Company's Common Stock
(individually an "Installment" and collectively the "Installments").
Optionee may exercise the Option with respect to each Installment on or after
each successive annual anniversary of the Grant Date according to the
following schedule:
Installment Exercise Date
(number of -------------
shares becoming
exercisable)
----------------
First
Anniversary _________________ ________________
Second
Anniversary _________________ ________________
Third
Anniversary _________________ ________________
Fourth
Anniversary _________________ ________________
Fifth
Anniversary _________________ ________________
Sixth
Anniversary _________________ ________________
Seventh
Anniversary _________________ ________________
Eighth
Anniversary _________________ ________________
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<PAGE>
Ninth
Anniversary _________________ ________________
5.2 5.3 NOTICE OF EXERCISE. Optionee shall exercise the Option
by (i) notifying the Secretary of the Company of Optionee's election to
exercise the Option and (ii) paying in full the purchase price as provided in
Section 5.3.
5.4 PAYMENT OF PURCHASE PRICE. The purchase price for any shares
of Common Stock with respect to which Optionee exercises the Option shall be
paid in full promptly after Optionee gives notice of exercise as provided in
Section 5.2. The purchase price shall be paid: (a) in cash or by check in
United States dollars, or (b) if, and only if, the Committee so authorizes in
its sole discretion, at the time Optionee gives notice of exercise, (i) by
transferring to the Company for redemption, Common Stock of the Company at
its "Fair Market Value" (as defined in the Plan), with share certificates
duly endorsed and accompanied by instruments of transfer with signatures
guaranteed, or (ii) by surrendering to the Company for cancellation one or
more Options granted to Optionee under the Plan at their respective Option
Values (as defined in the Plan), or (c) by foregoing compensation payable to
Optionee as set forth on Schedule 1 attached hereto, or (d) if, and only if,
the Committee so authorizes in its sole discretion, a combination of (a),
(b)(i), (b)(ii), and/or (c). If Optionee desires to pay all or a portion of
the purchase price for the shares by transferring to the Company Common Stock
for redemption, or surrendering Options for cancellation, Optionee shall so
notify the Secretary of the Company with the notice of Optionee's election to
exercise the Option in accordance with Section 5.2. Promptly after receipt
of Optionee's notice of exercise and request for payment by redemption or
cancellation, the Company shall notify Optionee of its decision as to whether
it will permit Optionee to pay the purchase price by transferring the
Company's Common Stock to it for redemption or transferring Options to it for
cancellation, or by foregoing compensation payable. If the Committee does
not authorize the proposed payment by redemption or cancellation or by
foregoing compensation payable, Optionee shall pay the purchase price in cash
or by check in United States dollars as provided above.
6. ISSUANCE OF SHARES. Promptly after the Company's receipt of
notification of exercise provided for in Section 5.2 and Optionee's payment
in full of the purchase price, the Company shall deliver, or cause to be
delivered, to Optionee a certificate for the whole number of shares with
respect to which the Option is being exercised by Optionee. Shares shall be
registered in the
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<PAGE>
name of Optionee. If any law or regulation of the Securities and Exchange
Commission or of any other federal or state governmental body having
jurisdiction shall require the Company or Optionee to take any action prior
to the issuance to Optionee of the shares of Common Stock of the Company
specified in the written notice of election to exercise, the date for the
delivery of such shares shall be adjourned until the completion of such
action.
7. TERMINATION OF SERVICE; DEATH; PERMANENT DISABILITY. If Optionee's
service with the Company is terminated for any reason (other than permanent
disability or dismissal for Cause as defined in the Plan) while Optionee is
still living, the Option or any unexercised Installments, to the extent the
Option would have been exercisable by Optionee on the date on which he ceases
to be in service (the "Termination Date"), may be exercised by Optionee
within ____ months from the Termination Date (the "Post-Termination Period"),
but in any event not later than the expiration date of the Option. If
Optionee dies or becomes "permanently disabled" (a physical or mental
impairment as defined in Section 22(e)(3) of the Code) while he is in service
with the Company or during the Post-Termination Period (if the Optionee's
termination was for any reason other than Cause), the Option or any
unexercised Installment, to the extent exercisable by him on the date of
death or permanent disability, may be exercised by Optionee, or if Optionee
is then deceased or legally incapacitated, by Optionee's personal
representative, heirs, or legatees, at any time prior to the expiration of
____ months from the Termination Date, but in any event, not later than the
expiration date of the Option. In the Committee's sole discretion, all or
any unexercisable Options or Installments may become exercisable on the date
of Optionee's death, so that such Options or Installments may be exercised
pursuant to this Section 7 even though they would not otherwise have been
exercisable had Optionee not died. Unexercisable Options or Installments
[shall (__)] [shall not (__)] become exercisable on the date of Optionee's
death. Notwithstanding the foregoing, if Optionee's service with the Company
is terminated for Cause as determined by the Committee in its sole
discretion, the Option shall expire on the Termination Date and thereafter
shall not be exercisable in whole or in part.
8. ASSIGNMENT OR TRANSFER. The Option is not assignable or
transferable except by will or by the laws of descent and distribution and
during Optionee's lifetime the Option may be exercised only by Optionee. No
transfer of the Option by will or by the laws of descent and distribution
shall be effective, nor shall any designation of a person who may exercise
the Option after Optionee's death be effective to bind the Company unless the
Company is furnished with a written notice thereof and a copy of
- 4 -
<PAGE>
the will or such other evidence as the Company deems necessary to establish
the validity of the transfer and the acceptance of the terms and conditions
of the Option by the transferee or designee.
9. NO RIGHTS AS SHAREHOLDER. Optionee shall have no rights as a
shareholder with respect to shares of the Common Stock covered by this Option
until the date of the issuance of a stock certificate or stock certificates
evidencing issuance of such shares pursuant to Optionee's exercise of the
Option. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 10 hereof.
10. MODIFICATION AND TERMINATION.
10.1 The rights of Optionee under this Agreement are subject to
modification and termination as provided in the Plan.
10.2 If the number of issued and outstanding shares of Common
Stock changes as a result of a stock split, reverse stock split, stock
dividend, recapitalization, or any other change in the capital structure of
the Company, the Committee, subject to approval by the Board, may
appropriately adjust (a) the maximum number of shares which may be issued
under the Plan, (b) the number of shares subject to each outstanding option,
and (c) the price per share of each Option (but not the total price thereof),
so that upon exercise of the Option, Optionee will receive the same number of
shares he would have received had he been the holder of all shares subject to
his outstanding Options immediately before the effective date of the change
in the number of issued shares of Common Stock. The adjustment shall not
result in the issuance of fractional shares.
10.3 If the Company liquidates, merges, reorganizes, or
consolidates with any other corporation in which the Company is not the
surviving corporation or the Company becomes a wholly-owned subsidiary of
another corporation, any unexercised option previously granted under the Plan
shall be deemed canceled unless the surviving corporation in any merger,
reorganization or consolidation elects to assume the options under the Plan
or to issue substitute options in place thereof. If options are to be
canceled in accordance with the foregoing, Optionee shall have the right,
exercisable during a thirty (30)-day period, ending on the fifth day prior to
the liquidation, merger, reorganization or consolidation, to exercise
Optionee's Options, in whole or in part, without regard to any installment
exercise provisions in this Agreement.
- 5 -
<PAGE>
10.4 The grant of the Option pursuant to the Plan shall not affect
in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations, or changes in its capital structure; to
merger, consolidate, or dissolve; to change its business structure; or to
liquidate, sell or transfer all or any part of its business or assets.
11. NO RIGHT TO EMPLOYMENT. Nothing in this Agreement, the Plan, or
any instrument executed pursuant to the Plan shall confer upon Optionee the
right to continue to be employed or retained by the Company or any
Subsidiary, affect the right of the Company or any Subsidiary to terminate
the employment or service of Optionee with or without Cause, or be evidence
of any agreement or understanding, express or implied, that the Company or
any Subsidiary will employ or retain or continue to employ or retain Optionee
in a particular position or at a particular rate of remuneration.
12. COMPLIANCE WITH SECURITIES LAWS. At the time the Option is
exercised, the Company may require Optionee to execute any documents or take
any action which may be then necessary to comply with the Securities Act of
1933, as amended, and the rules and regulations adopted thereunder, or any
other applicable federal or state laws for the purpose of regulating the sale
and issuance of securities. The Company reserves the right to change its
requirements with respect to enforcing compliance with federal and state
securities laws, including the request for, and enforcement of, letters of
investment intent, such requirements to be determined by the Company in its
judgment as necessary to assure compliance with such laws. Such changes may
be made, with respect to this Option, upon exercise hereof, or prior to or
after the exercise of this Option. The Company shall not be obligated to
issue any shares upon the exercise of this Option unless the issuance, in the
judgment of the Board, is in full compliance with all applicable laws,
governmental rules and regulations, undertakings of the Company made under
the Securities Act of 1933, as amended, any state securities laws, and stock
exchange agreements of the Company.
13. GENERAL PROVISIONS.
13.1 SUBJECT TO PLAN. This Agreement shall conform with, and be
subject to, all of the terms and conditions of the Plan. Any conflict or
inconsistency between this Agreement and the Plan shall be resolved in
conformity with, and shall be governed by, the Plan. The Plan is attached
hereto as Exhibit "A" and incorporated herein by this reference.
13.2 FURTHER ACTS. Optionee agrees to perform all further acts and
to execute and deliver any other and additional
- 6 -
<PAGE>
documents as may be reasonably necessary to carry out the provisions of this
Agreement.
IN WITNESS WHEREOF, this Agreement is executed by the parties on the date
and at the place indicated below.
"COMPANY"
HOSPITALITY MARKETING CONCEPTS INC.,
a Delaware corporation
Executed on _________, 199_
at __________, ____________. By:___________________________
Its________________________
"OPTIONEE"
Executed on _________, 199_
at __________, ____________. ______________________________
Optionee's Name
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<PAGE>
HOSPITALITY MARKETING CONSULTANTS, LLC
15751 ROCKFIELD BOULEVARD, SUITE 200
IRVINE, CALIFORNIA 92718
Dated as of November 7, 1997
Ms. Sandra Case
51 Merchant Road
03-09 Merchant Square
Singapore 058283
Re: OWNERSHIP OF BORROWER AND GROUP
Dear Sandra:
This letter summarizes the agreement among all of the Members of
Hospitality Marketing Consultants, LLC, a California limited liability company
("Borrower"), Borrower and Hospitality Partners, LLC, a Delaware limited
liability company ("Lender") with respect to the Loan and Investment Agreement
dated as of the date hereof among Lender, and the Members (the "Loan
Agreement"). Capitalized terms used herein without definition have the meanings
assigned to them in the Loan Agreement.
Pursuant to the Loan Agreement, Lender will make a $3,000,000 loan to
Borrower to be evidenced by the Note provided for therein. The Note is
convertible into membership interests in Borrower on the terms and conditions
set forth in Section 2.3.(b) of the Loan Agreement.
You presently have a 5% Percentage Interest (as that term is defined in the
Operating Agreement of Borrower) in Borrower. All of the Members and Lender
have agreed that you shall have the right, at your option, to purchase
additional membership interests so that you will not be diluted by the
conversion of the Note and will retain approximately the same Percentage
Interest after the conversion of the Note.
Accordingly, Borrower hereby grants to you an option, exercisable
immediately, for the purchase price of $180,000 and otherwise on the same
terms and conditions that
<PAGE>
the Note is convertible pursuant to Section 2.3.(b) of the Loan Agreement, to
purchase Membership Interests, equal to 5% of the maximum number of
Membership Interests into which the Note is convertible.
As you know, we conduct business through a number of entities including
Borrower, which are not entirely owned directly, or indirectly, by Borrower,
which entities along with Borrower are referred to in the Loan Agreement as
the "Group." The Loan Agreement requires that a reorganization be effected
in which a Reorganized Borrower succeeds to the ownership of the Group. This
letter will confirm that if and to the extent that any member of the Group is
not, directly or indirectly, wholly owned by Borrower or Reorganized Borrower
at the time that you exercise your option, you shall automatically, and
without further action on your part, acquire a like interest in such member
of the Group.
The option granted hereby shall terminate on December 31, 1999.
Very truly yours,
HOSPITALITY MARKETING CONSULTANTS, LLC
By: Mokhtar Ramadan, President
By their execution hereof, all of the Members of Hospitality Marketing
Consultants, LLC and Hospitality Partners, LLC, as Lender, hereby consent to
the foregoing action and the option granted thereby.
________________________________________
Mokhtar Ramadan, Member
[Signatures continued on the following page]
<PAGE>
________________________________________
Fadi Ramadan, Member
________________________________________
Marwan Ramadan, Member
________________________________________
Sandra Case, Member
Hospitality Partners, LLC
By: ___________________________________
Amre Youness, Manager
<PAGE>
EXHIBIT 10.9
PROMISSORY NOTE
Orange County, California July 1, 1996
FOR VALUE RECEIVED, Hospitality Marketing Consultants, LLC, hereby
promises to pay to the order of Hospitality Marketing Consultants, or order,
the sum of One Million Seven Hundred Sixty-two Thousand Two Hundred Seventy
Dollars and ($1,762,270.00), in lawful money of the United States of America,
together with interest thereon at the rate of eight percent (8%) per annum on
the unpaid balance. Said sum shall be paid in the manner following: interest
only shall be due and payable in arrears on the last day of each calendar
month, commencing on January 1, 1997 for five (5) years, upon which date the
entire unpaid principal balance hereunder, together with any accrued but
unpaid interest thereon, shall be due and payable in full.
This Note may be prepaid at any time, in whole or in part, without
penalty. Upon default in payment of any interest hereon when due, the whole
of the principal sum shall, at the option of the holder hereof, become due
and payable, without demand or notice. In case payment hereof shall not be
made at maturity, the undersigned further promises to pay all costs of
collection and reasonable attorney's fees. This Note shall take effect as a
sealed instrument and shall be construed, governed and enforced in accordance
with the laws of the State of California.
Hospitality Marketing Consultants
By: /s/ MOKHTAR RAMADAN
--------------------------------
Mokhtar Ramadan, General Partner
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
1. IDENTIFICATION
This Employment Agreement (the "Agreement"), dated for identification
purposes only March 5, 1998, is entered into by and between Hospitality
Marketing Consultants, LLC, a California limited liability company
("Company") and Philip G. Hirsch, an individual ("Executive").
2. RECITALS
2.1. Company is engaged in the data-based information services
business.
2.2. Executive has special skills and abilities in accounting and
financial management and administration.
2.3. Company desires to employ Executive and Executive is willing to
undertake such employment on the terms and conditions set forth in this
Agreement.
3. EMPLOYMENT, DUTIES AND COVENANTS
3.1. EMPLOYMENT. During the "Term" (as hereinafter defined), (i)
Company shall employ Executive as its Vice President-Finance and
Treasurer/Chief Financial Officer with powers and duties consistent with such
position, and (ii) Company shall also employ Executive, and Executive shall
so serve, in such substitute or additional offices or positions with Company
or any subsidiary or affiliate of Company (consistent with the position named
above) as may, from time to time, be determined by Company's Board of
Directors (the "Board") or President.
3.2. DUTIES. Executive hereby accepts employment in such capacity on
the terms and conditions set forth herein. The powers, duties and
responsibilities to be held or performed by Executive hereunder shall be such
as inhere in the position of Vice President-Finance and Treasurer/Chief
Financial Officer and such other powers, duties and responsibilities as may
be delegated or assigned to Executive by the President or the Board;
provided, however, that such other powers, duties and responsibilities shall
be consistent with Executive's position, experience and level of
compensation.
3.3. PERFORMANCE OF DUTIES. Executive shall discharge the duties
described herein in a diligent and professional manner. Executive shall
render services incidental to his position,
<PAGE>
during normal business hours, primarily, at Company's present place of
business in Irvine, California, or at such other premises as may be occupied
by Company or where Company may conduct its business during the Term.
Company agrees that, notwithstanding that Executive may be required to
temporarily travel to other places in the course of performing his duties, in
the absence of Executive's consent, he shall not be required to move his
permanent residence outside of the Southern California area.
3.4. EXTENT OF SERVICES. Executive shall devote his full and
exclusive productive time, energy, effort, attention and ability solely to
the performance of his duties as set forth above, and to the proper and
efficient management and development of the business and operations of
Company. Executive shall perform industriously and to the best of his
ability, experience and talents all of the duties which may be required of
him from time to time, pursuant to the terms hereof, to Company's full and
complete satisfaction. During the Term, Executive shall not engage in any
other occupation, and without Company's prior written consent, Executive
shall not, directly or indirectly, at any time during the Term, render
services of a business, professional or commercial nature to any other
person, firm or entity whether without compensation or for any form of
compensation whatsoever. Notwithstanding the foregoing, Executive may act
for his own account in passive-type investments, or as a member of other
boards of directors, or engage in charitable activities, where the time
allocated for those activities does not materially interfere with the
discharge of his duties for Company.
3.5. COMPANY'S AUTHORITY. Executive shall observe and comply at all
times with the directions of the Board or the President regarding Executive's
performance of his duties and with Company's business policies, rules and
regulations as adopted by the Board. Executive shall carry out and perform
any and all orders, directions, and policies, consistent with Executive's
position, as may be so stated by the Board or President from time to time,
either orally or in writing.
3.6. RESULTS AND PROCEEDS. Company owns all right, title and interest
to all of the results and proceeds arising out of or as a result of all
services performed by Executive on behalf of Company.
3.7. NONSOLICITATION OF GIFTS. Without Company's prior written
consent in each instance, Executive shall not solicit or accept, for himself
or for the benefit of any third party or entity, any contribution, donation,
gift, discount or rebate or the like of material value or in violation of
applicable law from any person, firm or entity with whom Company maintains
any business relationship.
3.8. COMPETITIVE ACTIVITIES PROHIBITED. During the Term, Executive
shall not, directly or indirectly (unless disclosed to Company and approved
by Company in its sole and absolute
2
<PAGE>
discretion):
3.8.(a) engage in any activity competitive with or adverse to
the business, activities or welfare of Company, whether alone, as an agent,
as a lender, as a general or limited partner of a partnership, as a member or
manager of a limited liability company, or as an officer, director or holder
of the outstanding shares of capital stock of any corporation;
3.8.(b) engage in any conduct or activity which would cause
Company or Executive to be in a position of conflict of interest or cause
Company to be in violation of any law, regulation, policy, statement or rule
of any applicable governmental authority; or
3.8.(c) undertake planning for or organization of any business
activity competitive with Company's business.
4. TERM AND TERMINATION OF AGREEMENT
4.1. TERM OF EMPLOYMENT. Executive's employment under this Agreement
shall be for three (3) years, commencing on April 1, 1998 and ending on March
31, 2001 (the "Term"). The Term shall automatically be extended for one (1)
additional year, unless either Executive or Company gives notice to the other
at least three (3) months prior to expiration of the Term that the Term shall
not be so extended.
4.2. TERMINATION.
4.2.(a) Executive's employment may be terminated without cause
or grounds therefor by Company or Executive upon thirty (30) days' prior
written notice from the terminating party. In addition, Company may
terminate Executive's employment for "Cause" as provided in Section 4.2(b) at
any time without prior notice.
4.2.(b) Company may terminate Executive for "Cause". Any
termination of Executive's employment hereunder shall be deemed to be for
"Cause" if:
4.2.(b)(i) Executive has materially breached a
provision of this Agreement, and if such breach is curable, Executive has
been provided written notice from Company identifying the alleged material
breach, and Executive has failed within ten (10) days thereafter to cure the
material breach;
4.2.(b)(ii) Executive is convicted of or pleads
guilty to a felony charge involving financial misconduct or moral turpitude;
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4.2.(b)(iii) Executive has misappropriated any funds
or property of Company;
4.2.(b)(iv) Executive fails to comply with the
reasonable oral or written directions of the Board or the President
consistent with Executive's position and such failure is not cured within
five (5) days after written notice from Company;
4.2.(b)(v) Executive is incompetent in performing
his assigned duties or responsibilities; or
4.2.(b)(vi) Executive commits any other act or fails
to take any action which a court or arbitrator of competent jurisdiction
could justify as grounds for dismissal for "Cause".
4.3. DEATH. In the event of Executive's death during the Term,
Executive's employment with Company shall terminate.
4.4. DISABILITY. If during the Term of this Agreement Executive
becomes "Totally Disabled" (which for the purposes of this Agreement shall be
deemed to occur if Executive is unable to perform his services and engage in
his regular occupation pursuant to this Agreement due to physical or mental
disability for a period of ninety (90) consecutive days, or for ninety (90)
days during any three hundred sixty five (365) day period, Company shall have
the right to terminate Executive's employment.
4.5. LEGAL OBLIGATIONS FOLLOWING TERMINATION.
4.5.(a) If Executive's employment hereunder is terminated by
Executive as provided in Section 4.2(a) or as provided in Sections 4.2(b),
4.3 or 4.4, then Company shall be liable to pay Executive ONLY the following
amounts: (i) Executive's salary through and including the "Effective Date of
Termination", which for purposes of this Agreement shall be the last day on
which Executive performed services pursuant to the terms of this Agreement,
unless the notice of termination of this Agreement provides for payment
through a later date; (ii) Executive's salary for the pro rata portion of any
vacation to which he was entitled but which he has not taken; (iii)
reimbursement of any expenses previously incurred pursuant to Section 5.4;
and (iv) any benefits to which Executive is actually entitled under Article 5
hereof. If Executive's employment hereunder is terminated prior to the end
of the Term of this Agreement by Company pursuant to Section 4.2(a) or as a
result of Company's material breach, in addition Executive shall be paid the
amount of his annual salary remaining for the balance of the Term of this
Agreement pursuant to Section 5.1, all stock options held by Executive, to
the extent not already vested or exercisable, shall become immediately
exercisable, and Executive shall be
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provided the life insurance, disability insurance and health insurance
benefits pursuant to Section 5.6 for the remainder of the Term. Executive
shall have an obligation to mitigate and seek other employment and the
payments required to be made hereunder shall be offset by any amounts
received in mitigation or as a result of other employment obtained by
Executive. All such benefits shall cease upon Executive obtaining other
employment.
4.5.(b) If Executive's employment is terminated, the vacation
to which Executive would be entitled for his last year of service shall be
prorated. If Executive has already taken more vacation than that to which he
is entitled, Company shall be entitled to offset any sums owed by it to
Executive against the amount of salary received by Executive for the number
of vacation days taken in excess of vacation days which he was entitled to
take.
4.5.(c) The termination of this Agreement and Executive's
employment hereunder shall not affect Executive's right to exercise any
vested stock options in accordance with the terms of Company's Stock Option
Plan, and shall not relieve either party from any liability or damage
directly or indirectly arising out of any breach of or default under this
Agreement or any failure to comply with or perform any obligations under this
Agreement, and termination of Executive's employment shall not affect
Company's rights under Article 6.
5. COMPENSATION AND OTHER BENEFITS
5.1. ANNUAL SALARY. As compensation for services rendered by
Executive to Company, Company shall pay Executive an annual salary in the
amount of One Hundred Seventy-Five Thousand Dollars ($175,000) for each year
of the Term, prorated for any partial period. The annual salary shall be
payable in accordance with Company's regular payroll practices.
5.2. EMPLOYMENT TAXES. All compensation shall be subject to the
customary withholding tax and other employment taxes as required with respect
to compensation paid by a company to an employee.
5.3. BONUS. As additional compensation for services rendered by
Executive to Company, Executive shall receive a bonus of at least
Seventy-Five Thousand Dollars ($75,000) but not more than One Hundred
Thousand Dollars ($100,000), the exact amount of which shall be determined by
the Board in its sole and absolute discretion, and paid within thirty (30)
days following Company's closing of its initial public offering. Company may
pay Executive such other discretionary bonuses as may be determined by the
Board in its sole and absolute discretion.
5.4. EXPENSES. Company and Executive hereby acknowledge that
Executive may be required, during the Term, to incur certain expenses in
connection with his employment
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hereunder including, but not limited to, parking, travel, entertainment, and
other expenses. Company shall reimburse Executive for ordinary and necessary
business expenses incurred by Executive in the performance of his duties
hereunder if such expenses have previously been approved by Company or if
reimbursement is otherwise appropriate in accordance with Company's
established policies and if Company receives such verification thereof as
Company may require.
5.5. LIFE INSURANCE. Executive currently owns a life insurance policy
on his life in the face amount of One Million Dollars ($1,000,000) issued by
Minnesota Mutual Life, Policy No. 50014-G (the "Life Insurance Policy"). The
monthly premium for such Life Insurance Policy is Four Hundred Twenty Dollars
($420). During the Term, Company shall pay the premiums on such Life
Insurance Policy, or shall reimburse Executive if Executive pays such
premiums himself.
5.6. STOCK OPTIONS. Executive understands that Company is currently
in the process of designing and implementing a stock option program for its
executives and employees. Upon adoption of such plan, Company shall grant to
Executive stock options, conditioned on the closing of the Company's initial
public offering, to purchase that number of shares of Common Stock of the
Company which are equal to two percent (2%) of the Company's issued and
outstanding prepublic offering capitalization on a fully diluted basis at the
lowest purchase price for which options are to be granted under the Company's
stock option plan prior to the initial public offering. Twenty percent (20%)
of the stock options granted to Executive will automatically vest and become
exercisable on that date which is ninety (90) days after the commencement
date of the Term. The balance of the stock options shall vest in three (3)
equal cumulative installments on the first anniversary date, second
anniversary date and third anniversary date, respectively, of Executive's
employment hereunder. If, Executive's unvested stock options would be
terminated as a result of a "Change in Control" then, all of Executive's
unvested options, if any, shall become immediately exercisable. For purposes
of this Agreement, the term "Change in Control" means: (a) the obtaining of
control by any person or "group" (other than the persons who own five percent
(5%) or more of the shares of the Company as identified in the Company's
Registration Statement on Form S-1 filed in connection with the Company's
initial public offering) within the meaning of Section 13(d) or Section
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of beneficial ownership (within the meaning of the Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of voting
securities of the Company representing 50% or more of the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally in the election of directors; or (b) such time as a majority of the
Board shall be comprised of persons who were not elected to such offices as
part of the "Company nominated slate" of directors (i.e. the slate of
nominees proposed by the Board in office immediately prior to the election;
provided, however, that this clause shall not apply in the event one or more
directors voluntarily
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resign from the Board. All other terms and conditions of Executive's stock
options shall be in accordance with the terms of the Company's stock option
plan.
5.7. OTHER BENEFITS. During the Term of this Agreement, Executive
shall receive such other life insurance, pension, disability insurance,
health insurance, holiday, vacation and sick pay benefits which Company
extends, as a matter of policy, to its executive employees and, except as
otherwise provided herein, shall be entitled to participate in all deferred
compensation and other incentive plans of Company on the same basis as other
like employees of Company. Without limiting the generality of the foregoing,
Executive shall be entitled to three (3) weeks vacation during each year of
the Term of this Agreement, which shall be scheduled in Executive's
discretion, subject to and taking into account the business exigencies of
Company. Unused vacation may be accrued for one (1) year only. Vacation in
excess of two (2) consecutive weeks shall be subject to the reasonable
approval of the Board.
6. TRADE SECRETS; CONFIDENTIALITY
6.1. "CONFIDENTIAL INFORMATION". "Confidential Information" is all
information, data and knowledge of a business, professional or technical
nature relating to Company; its subsidiaries and affiliates; and Company's,
its subsidiaries' and affiliates' business, finances, operations, properties,
services and clients; information which is not generally known outside of
Company or information entrusted to Company by third parties; and includes
information known to Executive as confidential or secret or which Executive
shall have reason to know or reasonably should know is confidential or
secret, to the extent that such information derives potential or actual
independent economic value from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain
economic value from this disclosure or use and is the subject of efforts
reasonable under the circumstances to maintain its secrecy. Confidential
Information may relate, for example, to trade secrets, client lists, clients'
names and requirements, client businesses, client profiles, client finances,
client accounts, employees, business methods, business or marketing plans,
personnel information, credit information, financial information, the names
and locations of vendors and suppliers, equipment, equipment design,
research, development, engineering, manufacturing, purchasing, accounting,
selling, marketing, contractors, compositions, computer software, computer
hardware, technology, research, infrastructures, products, procedures,
calculations, specifications, developments, formulae, compilations,
inventions, designs, plans, databases, database structure, data, accounts,
billing methods, pricing, costs, business methods, systems, plans, internal
affairs, legal affairs, security methods, creative ideas and concepts,
projects, advertising, merchandising techniques and any and all information
entrusted to the Company by third parties. This information may be contained
in materials ("Materials") such as books, records, files, notes, lists,
computer rograms, tapes, cd roms, hard disc and soft disc drive mechanisms,
other mechanisms
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for electronic or digital storage of information, computer printouts, data
input to computers, drawings, documents, data, reports, customer, price and
supplier lists, specifications, or other miscellaneous embodiments, or may be
in the nature of, or consist of, verbal communication or unwritten knowledge,
techniques, formulas, processes, practices or know-how.
6.2. ACKNOWLEDGMENT BY EXECUTIVE. Executive acknowledges that
Company will be required hereunder to make Confidential Information available
to Executive which has been developed at great expense and effort by Company
because knowledge of such Confidential Information will be essential to the
performance of Executive's duties under this Agreement. Executive
recognizes that Company has expert knowledge in its field and that many of
its methods, and much of its know-how is expert and unique and its customer
and potential customer contracts are of substantial commercial value.
Executive further acknowledges, without limiting the generality of the
foregoing, that the identity, business needs, desires and peculiarities of
customers and suppliers of Company constitutes valuable Confidential
Information. Executive also acknowledges that prior to or during his
employment with Company he may be given access to or become acquainted with
Confidential Information. Executive acknowledges that such Confidential
Information is a valuable, special, unique asset of Company's business.
6.3. NO USE OR DISCLOSURE. Without Company's prior written
authorization, Executive shall not communicate, use, divulge, or disclose to
any other person, firm or entity any Confidential Information or any copy,
reproduction or summary thereof, in any manner, at any time, whether during
the Term or after Executive's Employee's employment with Company has
terminated, other than as required by Company in Executive's work for Company.
6.4. RESTRICTION ON REMOVAL AND REPRODUCTION. Executive agrees that
all Confidential Information, and the tangible or intangible embodiments
thereof including, without limitation, all Materials relating to Company's
business, whether or not prepared or conceived by Executive during his
employment with Company or by another, or which may be in Executive's
possession or control, are and shall remain Company's exclusive property, and
Executive shall not copy, summarize or remove from Company's premises such
Confidential Information or Materials in whole or in part at any time prior
to or after termination, except as otherwise permitted by Company in
accordance with Company's rules and regulations. Executive shall not permit
such Confidential Information or Materials to be used in any way for the
benefit of Executive or any other person or business entity. Executive
shall immediately return all such Confidential Information and Materials, and
any and all copies or summaries thereof to Company when they are no longer
required by Executive in order for Executive to perform his services for
Company, when Executive's employment with Company terminates for any reason,
or whenever Company may require that they be returned.
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6.5. OWNERSHIP. Executive acknowledges and agrees that all results
and proceeds of Executive's services hereunder, including all Confidential
Information, Materials, work product and other materials of any kind or
character which Executive has made or conceived, either solely or with
others, during his employment by the Company which are applicable directly or
indirectly to any phase of the Company's business shall automatically become
the Company's sole and exclusive property and the Company shall be the owner
and author thereof. Executive further acknowledges that all such results and
proceeds shall constitute "works made for hire" within the meaning of the
copyright laws of the United States. Executive hereby irrevocably assigns to
the Company all rights, title and interest in and to all such results and
proceeds including, without limitation, all copyrights and patents pertaining
thereto and all renewals, extensions, subdivisions and
continuations-in-interest thereof. Except as required in order to enable
Executive to perform his job duties, no such results and proceeds, Materials
or Confidential Information will be made available by Executive to others
during or following his employment with the Company without the advance
written permission of an officer of the Company.
6.6. NO SOLICITATION. While employed by the Company and for a period
of one (1) year thereafter, without the express prior written approval of an
officer of the Company, Executive shall not: (a) solicit or attempt to
solicit any clients of Company, either for himself or for any other person,
firm or corporation; (b) employ, attempt to employ, entice, encourage or
solicit for employment by others, any of the Company's employees; (c) induce
or attempt to induce a consultant, independent contractor, licensee or other
third party to sever his, her or its relationship with the Company; or (d)
assist any other person, firm or entity in the solicitation of any of the
Company's consultants, independent contractors, licensees, or employees.
6.7. RETURN OF CONFIDENTIAL INFORMATION. Executive shall return
immediately to the Company all Confidential Information and Materials,
including copies, duplicates, summaries or reproductions thereof when he
leaves its employ or whenever Company may otherwise require that such
Confidential Information or Materials be returned.
7. SPECIFIC PERFORMANCE; SURVIVABILITY.
7.1. SPECIFIC PERFORMANCE. Without in any manner limiting the
provisions of Article 6, Executive recognizes and acknowledges that all of
the Confidential Information, as it may exist from time to time, is a
valuable, special and unique trade secret asset of Company. Executive
agrees that the remedy at law for a breach of the covenants contained in
Article 6 is inadequate and that therefore in the event of a breach, or
threatened breach by Executive of the provisions of Article 6, Company shall
be entitled to an injunction or restraining order restraining Executive from
disclosing in whole or in part any Confidential Information, or from
rendering
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any services to any person, firm, corporation, association or other entity to
whom such Confidential Information, in whole or in part, may have been
disclosed or is threatened to be disclosed or from breaching the covenants
contained in Article 6. Nothing herein shall be construed as prohibiting
Company from pursuing any other remedies available to Company for such breach
or threatened breach, including the recovery of damages from Executive. To
the extent permissible by law, Executive specifically waives the necessity
for Company to post bond in any injunctive or similar proceeding, and in any
event, consents to the posting of the smallest bond allowed by law.
7.2. REASONABLENESS OF RESTRICTIONS. Executive acknowledges that
his covenants contained in Article 6 are a material part of the consideration
for this Agreement, are reasonably necessary to protect legitimate interests
of Company, are reasonable in scope and duration and are not unduly
restrictive.
7.3. SURVIVABILITY. All covenants and agreements contained in Article
6 shall survive the termination of this Agreement and Executive's employment
with Company.
80 INDEMNIFICATION
Company shall, to the maximum extent permitted by law, indemnify and
hold Executive harmless from and against all claims, actions, causes of
actions, judgments, liabilities, obligations and expenses, including without
limitation, attorneys' fees, court costs, judgments, fines, settlements, and
other amounts actually incurred arising out of, relating to or in connection
with Executive's employment by Company, his services as an officer of
Company, or the discharge of his duties hereunder; provided, however, that
the foregoing indemnity shall not apply to any activity which is beyond the
scope of his employment or agency authority. Company shall advance to
Executive any expenses incurred in defending any such proceeding to the
maximum extent permitted by law.
90 ARBITRATION
Any controversy or claim arising out of or relating to this Agreement
including, but not limited to, any claim relating to its validity,
interpretation, enforceability or breach, or any other claim or controversy
arising out of the employment relationship or the commencement or termination
of that relationship, including, but not limited to, claims for breach of
covenant, breach of an implied covenant or intentional infliction of
emotional distress, which are not settled by agreement between the parties,
shall be settled by final and binding arbitration to be heard on an expedited
basis by a retired California Superior Court or Appellate Court judge in
Orange County, California in accordance with the employment dispute
resolution rules of the American
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Arbitration Association ("AAA") in effect at the time a claim is filed. In
consideration of each party's agreement to submit to arbitration all disputes
with regard to this Agreement or with regard to any alleged contract or tort
or other claim arising out of the employment relationship or the commencement
or termination of that employment relationship, and in consideration of the
anticipated expedition and the minimizing of expense of this arbitration
remedy, each party agrees that the arbitration provisions of this Agreement
shall provide it with its exclusive remedy and each party expressly waives
any right it might have to seek redress in any other forum except as provided
in Article 7 and Section 10.1. The parties agree that this means that they
are giving up their right to a jury trial and to trial in a court of law in
favor of the right to arbitrate. The parties further agree that the
arbitrators acting hereunder shall be empowered to assess any remedy
including, but not limited to, injunctive orders (including temporary,
preliminary and permanent relief) when appropriate. It is specifically
contemplated and agreed by the parties hereto that discovery may be conducted
by any party pursuant to the provisions of Section 1283.05 of the California
Code of Civl Procedure which are hereby incorporated into, and made a part
of, and made applicable to this Agreement, and the arbitrators shall have the
full power of a Court of the State of California to issue and enforce
subpoenas. A judgment upon any award rendered by the arbitrator may be
entered in any court having jurisdiction. In reaching a decision, the
arbitrator shall be required to apply substantive California and federal law
and, shall have no authority to change, extend, modify or suspend any of the
terms of this Employment Agreement.
100 GENERAL PROVISIONS.
10.1. INJUNCTIVE RELIEF. In the event of a breach by Executive of any
of his undertakings hereunder, Executive agrees that in addition to any other
rights or remedy provided by law or equity, a restraining order or an
injunction may issue against Executive to enforce compliance with this
Agreement.
10.2. NO PERSONAL INTEREST. Executive shall not have any personal
interest, direct or indirect, in any supplier of, or in any transaction
between, any supplier and Company.
10.3. ASSIGNMENT. Neither this Agreement nor any rights or benefits
hereunder shall be subject to execution, attachment or similar process and
Executive may not assign, transfer, pledge or hypothecate this Agreement or
any rights or benefits hereunder without the prior written consent of
Company. Any such assignment, transfer, pledge or hypothecation hereof by
Executive in violation of this provision shall be null, void and of no
effect. Subject to the foregoing, this Agreement and all of the terms and
conditions hereof shall benefit and bind Company and its successors and
assigns and shall benefit and bind Executive and his successors. Company's
rights hereunder shall accrue to the benefit of any person, firm, or
corporation which
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may succeed to its business by merger, purchase of stock or assets, or
otherwise.
10.4. INTEGRATION. Neither of the parties hereto have made any
representations, statements, warranties or other agreements other than those
expressed herein. This Agreement embodies the entire understanding of the
parties with respect to the subject matter contained in it and supersedes all
prior and contemporaneous agreements, representations, or understandings,
written or oral, between the parties. This Agreement may be amended or
modified only by a written agreement, signed by the parties hereto.
10.5. NOTICES.
10.5.(a) All notices, requests, payments, statements, demands or
other communications given under this Agreement (collectively
"Communications") shall be in writing. Notice shall be sufficiently given
for all purposes as follows:
(1) PERSONAL DELIVERY. When personally delivered
to the recipient. Notice is effective on delivery.
(2) FIRST-CLASS MAIL. When mailed first class to
the last address of the recipient known to the party giving notice. Notice
is effective three (3) mail delivery days after deposit in a United States
Postal Service office or mailbox.
(3) CERTIFIED MAIL. When mailed certified mail,
return receipt requested. Notice is effective on receipt, if delivery is
confirmed by a return receipt.
(4) OVERNIGHT DELIVERY. When delivered by
(overnight delivery Federal Express/Airborne/United Parcel Service/DHL
WorldWide Express), charges prepaid or charged to the sender's account.
Notice is effective on delivery, if delivery is confirmed by the delivery
service.
(5) TELEX OR FACSIMILE TRANSMISSION. When sent by
telex or fax to the last telex or fax number of the recipient known to the
party giving notice. Notice is effective on receipt, provided that (a) a
duplicate copy of the notice is promptly given by first-class or certified
mail or by overnight delivery, or (b) the receiving party delivers a written
confirmation of receipt. ; Any notice given by telex or fax shall be deemed
received on the next business day if it is received after 5:00 p.m.
(recipient's time) or on a nonbusiness day.
10.5.(b) Addresses for purpose of giving notice are as follows:
If to Company: Hospitality Marketing Consultants,
LLC
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15751 Rockfield Blvd., Suite 200
Irvine, CA 92618
Attention: Mokhtar Ramadan,
President
Fax: (714) 747 454-1888
If to Executive: Philip G. Hirsch
121 29th Street
Newport Beach, CA 92663
10.5.(c) Any correctly addressed notice that is refused,
unclaimed, or undeliverable because of an act or omission of the party to be
notified shall be deemed effective as of the first date that said notice was
refused, unclaimed, or deemed undeliverable by the postal authorities,
messenger, or overnight delivery service.
10.5.(d) Either party may change its address or telex or fax
number for purposes of this Section 10.5 by notifying the other party of its
new address in the manner set forth in this Section 10.5.
10.6. GOVERNING LAW; SEVERABILITY. This Agreement is made under and
shall be construed in accordance with the laws of the State of California.
Nothing in this Agreement shall be construed to require the commission of any
act contrary to law, and wherever there is any conflict between any provision
of this Agreement and any present or future statute, law, ordinance or
regulation contrary to which the parties have no legal right to contract, the
latter shall prevail, but in such event the provision of this Agreement so
affected shall be curtailed and limited only to the extent necessary to bring
it within the requirement of the law. If any term or provision of this
Agreement is determined by a Court of competent jurisdiction to be illegal,
invalid, or unenforceable for any reason whatsoever, such illegality,
invalidity, or unenforceability shall not affect the remaining terms and
provisions of this Agreement, which remaining terms and provisions shall
remain in full force and effect.
10.7. WAIVER. A waiver of any of the terms and conditions hereof by
Company or Executive shall not constitute a waiver of any other term or
condition hereof, nor shall it constitute a general waiver by the waiving
party, and the waiving party shall be free to reinstate any such term or
condition without notice to the other party.
10.8. HEADINGS. The Article and Section headings used herein are for
convenience only and are not a part of this Agreement.
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10.9. GENDER. Whenever required by the context hereof, the singular
shall be deemed to include the plural and the plural to include the singular,
and the masculine, feminine and neuter gender shall each be deemed to include
the others.
10.10. COUNTERPARTS. This instrument may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and at the place indicated opposite their respective signatures
below.
"COMPANY"
HOSPITALITY MARKETING CONSULTANTS,
LLC
a California limited liability
company
Executed at ____________,
this ____ day of ________. By:_________________________
Its:________________________
"EXECUTIVE"
Executed at ____________,
this ____ day of ________. ____________________________
Philip G. Hirsch
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and entered into as of
July 1, 1998, by and between , an individual ("EMPLOYEE"), and
Hospitality Marketing Concepts Inc., a Delaware corporation ("EMPLOYER").
R E C I T A L S:
A. Employer desires to employ Employee and Employee desires to be
employed by Employer, upon the terms and conditions set forth herein.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the premises and mutual agreements, and
upon the terms and subject to the conditions contained set forth below, the
parties agree as follows:
SECTION 1 TERM.
Employer agrees to employ Employee, and Employee agrees to serve Employer,
in accordance with the terms of this Agreement, for a term of three (3) years,
commencing on July 1, 1998 and ending on June 30, 2001, unless this Agreement is
earlier terminated in accordance with its provisions.
SECTION 2 SERVICES AND EXCLUSIVITY OF SERVICES.
So long as this Agreement shall continue in effect, Employee shall (i)
devote his full business time, energy and ability exclusively to the business,
affairs and interests of Employer and its subsidiaries and matters related
thereto, (ii) use Employee's best efforts and abilities to faithfully and
diligently promote the business, affairs and interests of Employer and its
subsidiaries, if any, and (iii) shall perform the services contemplated by this
Agreement in accordance with policies established by, and under the direction
of, the Board or Directors of the Employer (the "Board"). Employer and Employee
acknowledge that Employee will be required to perform services outside of the
United States.
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SECTION 3 SPECIFIC POSITION; DUTIES AND RESPONSIBILITIES.
Employer and Employee agree that, subject to the provisions of this
Agreement, Employer will employ Employee and Employee will serve Employer as a
senior officer for the duration of this Agreement. The specific position in
which Employee shall initially serve shall be ______________________________
___________________________. Employee agrees to observe and comply with the
rules and regulations of Employer as adopted by the Board respecting the
performance of Employee's duties and agrees to carry out and perform orders,
directions and policies of Employer and its Board as they may be, from time to
time, stated either orally or in writing. Employer agrees that the duties which
may be assigned to Employee shall be usual and customary duties of the office(s)
or position(s) to which he may from time to time be appointed or elected and
shall not be inconsistent with the provisions of the charter documents of
Employer or applicable law. Employee shall have such corporate power and
authority as shall reasonably be required to enable the discharge of duties in
any office that may be held.
SECTION 4 COMPENSATION.
(a) BASE SALARY. During the term of this Agreement, Employer
agrees to pay Employee a base salary of _____________ Thousand Dollars
($______) per year, or such other amount as may be determined upon a review
of Employee's performance to be undertaken by the Board at least once
annually for such things a cost of living adjustments, changes in
responsibilities and duties, and Employer's success and performance ("BASE
SALARY"). The Base Salary shall be paid in installments on the same dates
the other senior officers of Employer are paid.
(b) BONUS. Employer agrees to negotiate with Employee an incentive
bonus based upon the performance targets mutually agreed to by the Board and
Employee from time to time but at least annually, in advance of the
applicable year (and as soon as practicable with respect to the year
commencing January 1, 1998). In the event such targets are established and
the bonus amounts are so negotiated and agreed, such other terms and
conditions shall be set forth in a letter to be signed by Employer and
Employee.
(c) ADDITIONAL BENEFITS. Employee shall also be entitled to all
rights and benefits under the Employer's 1998 Stock Option Plan, as amended,
and any other stock option,
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bonus, incentive, participation or extra compensation plan, pension plan,
profit-sharing plan, life, medical, dental, disability, or insurance plan or
policy or other plan or benefit that Employer or its subsidiaries may provide
for Employee (provided Employee is eligible to participate therein) or other
employees of Employer generally as from time to time in effect during the
term of this Agreement (the "PLANS"). The life, medical and dental plans
shall also cover all dependents of Employee at Employer's sole expense. In
any event, Employer shall provide Employee with (i) term life insurance equal
to five (5) times the Base Salary and (ii) long-term disability insurance
provided for Employer's executive employees generally. Employee shall also be
entitled to fringe benefits in accordance with the plans, practices, programs
and policies as in effect generally with respect to other peer executives of
Employer.
(d) PERQUISITES.
(i) VACATION. Employee shall be entitled to four (4) weeks of
paid vacation each twelve (12)-month period, which shall accrue on a monthly
basis. Vacation time will continue to accrue so long as Employee's total
accrued vacation does not exceed twelve (12) weeks. Should Employee's
accrued vacation time reach twelve (12) weeks, Employee will cease to accrue
further vacation until Employee's accrued vacation time falls below this
level. Such vacation shall be taken at such time or times as shall not
unduly disrupt the orderly conduct of the business of Employer and the duties
of Employee.
(ii) VEHICLE ALLOWANCE. During the term of this Agreement,
Employer shall provide Employee an automobile reasonably acceptable to
Employee and Employer shall bear all expenses associated with the automobile
including, without limitation, lease or purchase payments, insurance, taxes
and license fees, gasoline and all maintenance expenses.
(iii) TAX PREPARATION AND ADVICE. During the term of this
Agreement, Employer shall provide Employee an annual allowance for personal
tax preparation and professional advice in the amount of Ten Thousand Dollars
($10,000) payable on April 15 of each year.
(iv) POSTING OUTSIDE OF UNITED STATES. Should Employee be
based at a location outside of the United States, Employer shall reimburse
Employee for all extraordinary expenses associated with maintaining a
residence outside of the United States including, without limitation: the
provision of a
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housing allowance sufficient to provide housing to Employee reasonably equal
to the housing which Employee would maintain or has maintained in the United
States; the costs of education for every dependent under the age of eighteen
(18) years residing with Employee; all reasonable costs of moving furniture
and other personal belongings to and from the location outside of the United
States (including, without limitation, the costs of returning to the United
States at the end of the term or upon the earlier termination (with or
without cause) of this Agreement); the cost of two (2) roundtrip, first class
airplane tickets to the United States per year for Employee, Employee's
spouse and dependents under the age of eighteen (18) years; the excess, if
any, of the amount of taxes paid by the Employee to any local, provincial,
state, national or other governmental entity located outside of the United
States, over what the Employee would have paid had the Employee resided in
the United States; and a reasonable "hardship" allowance to be agreed upon by
Employer and Employee. The housing allowance shall include, without
limitation, the costs of renting or purchasing a residence (as agreed upon by
Employer and Employee), utilities, and local taxes, if any.
(e) OVERALL QUALIFICATION. Employer reserves the right to modify,
suspend or discontinue any and all practices, policies and programs at any
time (whether before or after termination of employment) without notice to or
recourse by Employee. However, Employer shall not amend the perquisites set
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forth in Section 4(d) to reduce Employee's benefits thereunder during the term
of this Agreement.
SECTION 5 TERMINATION.
The compensation and other benefits provided to Employee pursuant to
this Agreement, and the employment of Employee by Employer, shall be
terminated prior to expiration of the term of this Agreement only as provided
in this Section 5.
(a) DISABILITY. In the event that Employee shall fail, because of
illness, incapacity or injury which is determined to be a total disability
("DISABILITY") by a physician selected by Employer or its insurers and
acceptable to Employee or Employee's legal representative (such agreement as
to acceptability not to be withheld unreasonably), to render for three
consecutive months or for shorter periods aggregating ninety (90) or more
business days in any twelve (12)-month period, the services contemplated by
this Agreement, Employee's employment pursuant to this Agreement may be
terminated by sixty (60) days' prior written notice of termination from
Employer to Employee. Thereafter, Employer shall continue to (i) pay the Base
Salary to Employee for a period of twelve (12) months after the date of
termination, subject to adjustments referenced in the following paragraph,
and (ii) to provide medical insurance as in effect prior to such termination
for a period of twelve (12) months following the date of termination.
Thereafter, no further salary shall be paid or medical insurance be provided.
Employee's rights under the Plans subsequent to termination of employment
pursuant to this paragraph shall be determined under the applicable
provisions of the respective Plans unless otherwise expressly stated in this
Agreement. This Agreement in all other respects will terminate upon the
termination of employment pursuant to this paragraph.
The amount of compensation to be paid to Employee pursuant to the
preceding paragraph shall be adjusted in the event Employee becomes entitled to
and receives disability benefits under any disability payment plan, including
disability insurance, by reducing the amount of Employee's compensation
otherwise payable by Employer pursuant to the preceding paragraph shall be
reduced, on a dollar-for-dollar basis, but not to less than zero, by the amount
of any such disability benefits received by Employee, but only to the extent
such benefits are attributable to payments made by Employer.
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(b) DEATH. In the event of Employee's death during the term of
this Agreement, Employee's Base Salary shall immediately terminate and
Employer shall pay to the estate of Employee the Base Salary accrued to the
date of Employee's death to the extent not theretofore paid. If Employee's
death occurs while receiving payments under Section 5(a), such payments shall
cease. Employee's rights under the Plans subsequent to his death shall be
determined under the applicable provisions of the respective Plans, PROVIDED
that, notwithstanding any provisions to the contrary therein, Employer shall
continue to provide medical insurance to the dependents of Employee for a
period of twelve (12) months following the death of Employee. This Agreement
in all other respects will terminate upon the death of Employee.
(c) FOR CAUSE. Employee's employment hereunder shall be
terminable upon a determination by the Board, acting in good faith based upon
actual knowledge at such time, that Employee (i) is or has been engaging in a
willful or grossly negligent conduct which has resulted in a failure to
perform his duties hereunder or as an employee or officer of Employer, (ii)
has committed an act of dishonesty, gross carelessness, or other misconduct,
or (iii) has committed any act or series of acts which have a direct,
substantial and adverse effect on Employer, its business or reputation.
Notwithstanding the foregoing, Employee shall not be terminated
for cause pursuant to the first paragraph of this Section 5(c) unless and
until Employee has received notice of a proposed termination for cause and
Employee has had an opportunity to be heard by the Board. Employee shall be
deemed to have had such opportunity if given written or telephonic notice by
any director at least ninety-six (96) hours in advance of a meeting.
In the event of Employee's termination pursuant to this
Section 5(c), Employee's rights to receive Base Salary shall immediately
terminate and Employer shall pay to Employee his Base Salary accrued to the
date of such termination to the extent not theretofore paid and the bonus
which would otherwise have become payable pursuant to the terms established
under Section 4(b) subject to the following provisions. If Employee is
terminated with cause, Employee shall be entitled to receive a payment (the
"PARTIAL BONUS SEVERANCE") equal to a portion of the bonus which would
otherwise have become payable to Employee pursuant to the terms established
under Section 4(b) (the "TOTAL POTENTIAL BONUS") if he had not been
terminated. The amount of
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such Partial Bonus Severance shall be equal to (X) the Total Potential Bonus
multiplied by (Y) a fraction, the numerator of which shall be the days
elapsed between the first day of the fiscal year and the date of Employee's
termination, and the denominator of which shall be 365. The Partial Bonus
Severance shall be calculated and paid only after the close of the fiscal
year in which Employee was terminated, and then only at the times and in the
proportions as bonuses are distributed generally by Employer. Employee's
rights under the Plans subsequent to termination shall be determined under
the applicable provisions of the respective Plans. Except as expressly set
forth to the contrary, this Agreement in all other respects will terminate
upon such termination.
(d) WITHOUT CAUSE. Notwithstanding any other provision of this
Section 5, the Board shall have the right to terminate Employee's employment
with Employer without cause at any time upon at least thirty (30) days' prior
written notice to Employee ("WITHOUT CAUSE TERMINATION"). In addition, it
shall be deemed for all purposes to be a Without Cause Termination if
Employee terminates his employment by reason of (i) any action by Employer
which results in a material diminution in Employee's then position (including
status, titles and reporting requirements), authority, duties or
responsibilities, but excluding, for this purpose, an isolated, insubstantial
and inadvertent action not taken in bad faith and which is remedied by
Employer promptly after receipt of written notice from Employee, (ii) any
repeated failure of Employer to comply with any of the provisions of this
Agreement and which is not remedied by Employer in a reasonable period of
time after receipt of written notice from Employee, (iii) a reduction in the
Employee's level of compensation (including Base Salary, fringe benefits and
any non-discretionary and objective standard incentive payment, but not
including the bonus referred to in Section 4(b) unless the performance
targets referred to have been met and such bonus is not paid by the
Employer), (iv) Employer requiring Employee to be based at any office or
location more than thirty-five (35) miles from the Employee's current place
of employment, or (v) a "change in control" shall occur. A "change in
control" shall be deemed to occur upon the occurrence of any of the following
events: (i) the acquisition by any person or entity of more than twenty-five
percent (25%) of the combined voting power of the Employer's outstanding
securities; or (ii) Employer stockholder approval of any consolidation or
merger of the Employer with another corporation if, following the
consolidation or merger, stockholders of the
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Employer immediately prior to such consolidation or merger would not
beneficially own securities representing at least sixty percent (60%) of the
combined voting power of the outstanding voting securities of the surviving
or continuing corporation; or (iii) during any period of twenty-four (24)
consecutive months individuals who at the beginning of such period constitute
the Board and qualified replacements cease for any reason to constitute a
majority of the board. A director shall be a "qualified replacement" if the
election or nomination for election by the Employer's stockholders of the
director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period; or (iv)
stockholder approval of any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all
of the assets of the Employer other than to an entity (or entities) of which
the Employer or the stockholders of the Employer immediately prior to such
transactions beneficially own securities representing at least sixty percent
(60%) of the combined voting power of the outstanding voting securities. The
following conditions shall thereupon become applicable upon the occurrence of
a Without Cause Termination:
(i) SEVERANCE PAY. Employer shall continue to pay Employee
the Base Salary on a monthly basis for (X) the remainder of the term of this
Agreement as it may be extended from time to time in the event such
termination occurs before the second anniversary of this Agreement or (Y) a
period of twelve (12) months in the event such termination occurs after the
second anniversary of this Agreement.
(ii) MEDICAL INSURANCE CONTINUATION. Employer shall continue
to provide medical insurance as in effect prior to such termination for (X)
the remainder of the term of this Agreement as it may be extended from time
to time in the event such termination occurs before the second anniversary of
this Agreement or (Y) twelve (12) months in the event such termination occurs
after the second anniversary of this Agreement, PROVIDED that Employee's
right to such benefits shall cease immediately upon the commencement of
employment with a new employer.
(iii) BONUS PAYMENT. If a Without Cause Termination occurs,
Employee shall be entitled to receive a payment in lieu of the bonus which
would otherwise have become payable to Employee pursuant to the terms
established under Section 4(b) for the year when the termination occurs and
for
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each subsequent year for which Employee is entitled to receive Severance Pay
pursuant to Section 5(d)(i) above which such payment shall be equal to: for
the year of termination without cause, the Total Potential Bonus; and for
each subsequent year, an amount equal to the highest amount paid to Employee
pursuant to Section 4(b) in any prior year (including the year of the Without
Cause Termination).
(iv) OTHER PLANS. Except as set forth above, Employee's
rights under the other Plans subsequent to termination shall be determined
under the provisions of the other Plans. The foregoing to the contrary
notwithstanding, Employee shall upon any such termination be deemed to be one
hundred percent (100%) vested in any options, warrants, stock appreciation
rights, or the like, previously granted to Employee pursuant to any Plan or
otherwise.
(e) VOLUNTARY TERMINATION. At any time during the term of this
Agreement, Employee shall have the right, upon thirty (30) days' prior
written notice to Employer, to terminate his employment with Employer. Upon
termination of Employee's employment pursuant to this Section 5(e), (i)
Employee's right to receive Base Salary shall immediately terminate and
Employer shall pay to Employee his Base Salary accrued to the date of such
termination to the extent not theretofore paid, and (ii) Employee's rights
under the Plans subsequent to such termination shall be determined under the
applicable provisions of the respective Plans. This Agreement in all other
respects will terminate upon such termination.
(f) NO LIMITATION. Employer's exercise of its right to terminate
shall be without prejudice to any other right or remedy to which it or any of
its affiliates may be entitled a law, in equity or under this Agreement.
(g) EXCLUSIVE REMEDY. Employee agrees that the payments expressly
required by this Agreement shall constitute the sole and exclusive obligation
of Employer in respect of Employee's employment with and relationship to
Employer and that the payment thereof shall be the sole and exclusive remedy
for any termination of Employee's employment. Employee covenants not to
assert or pursue any other remedies, at law or in equity, with respect to any
termination of employment.
(h) TAX TREATMENT. The parties intend that the compensation to be
provided pursuant to this Agreement not exceed the limit imposed by Section
280(g) of the Internal
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Revenue Code as it may be amended from time to time. The parties agree to
limit the compensation payable pursuant to this Agreement as necessary from
time to time in order to avoid exceeding such limit.
SECTION 6 BUSINESS EXPENSES.
During the term of this Agreement, to the extent that such expenditures
satisfy the criteria under the Internal Revenue Code for deductibility by
Employer (whether or not fully deductible by Employer) for federal income tax
purposes as ordinary and necessary business expenses. Employer shall
reimburse Employee promptly for reasonable business expenditures, including
travel entertainment, parking, business meetings, and professional dues but
not the costs of (or dues associated with) maintaining club membership, made
and substantiated in accordance with policies, practices and procedures
established from time to time by the Board and incurred in pursuit and
furtherance of Employer's business and good will.
SECTION 7 MISCELLANEOUS.
(a) SUCCESSION; SURVIVAL. This Agreement shall inure to the
benefit of and shall be binding upon Employer, its successors and assigns,
but without the prior written consent of Employee this Agreement may not be
assigned other than in connection with a merger or sale of substantially all
the assets of Employer or a similar transaction in which the successor or
assignee assumes (whether by operation of law or express assumption) all
obligations of Employer hereunder. The obligations and duties of Employee
hereunder are personal and otherwise not assignable. Employee's obligations
and representations under this Agreement will survive the termination of
Employee's employment, regardless of the manner of such termination.
(b) NOTICES. Any notice or other communication provided for in
this Agreement shall be in writing and sent, if to Employer, to its office at:
Hospitality Marketing Concepts Inc.
15751 Rockfield Boulevard, Suite 200
Irvine, California 92718
(949)454-1888 (facsimile)
Attention: Chief Financial Officer
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with a copy to: Greenberg Glusker Fields
Claman & Machtinger LLP
1900 Avenue of the Stars, Suite 2100
Los Angeles, California 90067
(310)553-0687 (facsimile)
Attention: Michael Bales, Esq.
or at such other address as Employer may from time to time in writing
designate, and if to Employee at the address set forth below his signature to
this agreement or such other address as Employee may from time to time in
writing designate (or Employee's business address of record in the absence of
such designation). Each such notice or other communication shall be
effective (i) if given by telecommunication, when transmitted to the
applicable number so specified in (or pursuant to) this Section 7 and an
appropriate answer back is received, (ii) if given by mail, three (3) days
after such communication is deposited in the mails with first class postage
prepaid, addressed as aforesaid unless such address is outside the
continental United States, in which case it shall be deemed effective when
actually delivered at such address or (iii) if given by any other means, when
actually delivered at such address.
(c) ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the
entire agreement of the parties relating to the subject matter of this
Agreement and it supersedes any prior agreements, undertakings, commitments
and practices relating to Employee's employment by Employer. No amendment or
modification of the terms of this Agreement shall be valid unless made in
writing and signed by Employee and, on behalf of Employer, by an officer
expressly so authorized by the Board.
(d) WAIVER. No failure on the part of any party to exercise or
delay in exercising any right hereunder shall be deemed a waiver thereof or
of any other right, nor shall any single or partial exercise preclude any
further or other exercise of such right or any other right.
(e) CHOICE OF LAW. This Agreement, the legal relations between
the parties and any action, whether contractual or non-contractual,
instituted by any party with respect to matters arising under or growing out
of or in connection with or in respect of this Agreement, the relationship of
the parties or the subject matter of this
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Agreement shall be governed by and construed in accordance with the laws of
the State of California, applicable to contracts made and performed in such
State and without regard to conflicts of law doctrines, to the extent
permitted by law.
(f) ARBITRATION. Any dispute, controversy or claim arising out of
or in respect of this Agreement (or its validity, interpretation or
enforcement), the employment relationship or the subject matter of this
Agreement shall at the request of either party be submitted to and settled by
arbitration conducted in Santa Ana, California in accordance with the Labor
and Employment Arbitration Rules of the American Arbitration Association.
The arbitration shall be governed by the Federal Arbitration Act (9 U.S.C.
Sections 1-16). The arbitration of such issues, include the determination of
any amount of damages suffered, shall be final and binding upon the parties
to the maximum extent permitted by law. The arbitrator in such action shall
not be authorized to change or modify any provision of this Agreement.
Judgment upon the award rendered by the arbitrator may be entered by any
court having jurisdiction. The arbitrator shall award reasonable expenses
(including reimbursement of the assigned arbitration costs and legal fees) to
the prevailing party upon application.
(g) CONFIDENTIALITY; PROPRIETARY INFORMATION. Employee agrees to
not make use of, divulge or otherwise disclose, directly or indirectly, any
trade secret or other confidential or proprietary information concerning the
business (including but not limited to its products, employees, services,
practices or policies) of Employer or any of its affiliates of which Employee
may learn or be aware as a result of Employee's employment during the term of
this Agreement or prior thereto as stockholder, employee, officer or director
of or consultant to Employer, except to the extent such use or disclosure is
(i) necessary to the performance of this Agreement and in furtherance of
Employer's best interests, (ii) required by applicable law, (iii) lawfully
obtainable from other public sources, or (iv) authorized in writing by
Employer. The provisions of this Section 7(g) shall survive the expiration,
suspension or termination, for any reason, of this Agreement.
(h) SEVERABILITY. If this Agreement shall for any reason be or
become unenforceable in any material respect by any party, this Agreement
shall thereupon terminate and become unenforceable by the other party as
well. In all other respects, if any provision of this Agreement is held
invalid or unenforceable, the remainder of this Agreement shall
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nevertheless remain in full force and effect, and if any provision is held
invalid or unenforceable with respect to particular circumstances, it shall
nevertheless remain in full force and effect in all other circumstances, to
the fullest extent permitted by law.
(i) WITHHOLDING; DEDUCTIONS. All compensation payable hereunder,
including salary and other benefits, shall be subject to applicable taxes,
withholding and other required, normal or elected employee deductions.
(j) SECTION HEADINGS. Section and other headings contained in
this Agreement are for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
[SIGNATURE PAGE FOLLOWS]
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(k) COUNTERPARTS. This Agreement and any amendment hereto may be
executed in one or more counterparts. All of such counterparts shall
constitute one and the same agreement and shall become effective when a copy
signed by each party has been delivered to the other party.
Entered into as of the date set forth above.
"EMPLOYER"
HOSPITALITY MARKETING CONCEPTS INC.
By:_______________________________
Its: _____________________________
"EMPLOYEE"
_______________________
__________________________________
Address: _________________________
_________________________
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EMPLOYMENT AGREEMENT
1. IDENTIFICATION
This Employment Agreement (the "Agreement"), dated for identification
purposes only February 1, 1998, is entered into by and between Hospitality
Marketing Concepts Limited, a company incorporated in the United Kingdom
("Company"), and Frans Van Steenbrugge, an individual ("Executive").
2. RECITALS
2.1. Company is engaged in the business of providing membership programs
and direct marketing services and is introducing a telephone calling card
product for distribution to its members and others.
2.2. Executive has special skills and abilities in marketing and
telecommunication services.
2.3. Company desires to employ Executive as Group Vice President/General
Manager-Telecom and Executive is willing to undertake such employment on the
terms and conditions set forth in this Agreement. Therefore, Company and
Executive agree as follows:
3. TERM OF THE AGREEMENT
Executive's employment under this Agreement shall be for three (3)
years, commencing on February 1, 1998 and continuing through January 31, 2001
(the "Term"), subject, however, to prior termination as provided in Section 6.
4. EMPLOYMENT, DUTIES AND COVENANTS
4.1. EMPLOYMENT. Executive shall be employed during the Term as Group
Vice President/General Manager-Telecom or in such other capacities, offices
or positions with Company or any subsidiary or affiliate of Company as
Company's Board of Directors (the "Board") or President may prescribe from
time to time. All references to Company herein shall include its subsidiaries
and affiliates.
<PAGE>
4.2. DUTIES. The powers, duties and responsibilities to be held or
performed by Executive hereunder shall include, without limitation, overall
supervision of the Company's marketing and telecommunications operations and
such other powers, duties and responsibilities typically held or performed by
direct marketing and telecommunications executives. Executive agrees that
Company, the Board and the President retain the sole discretion to modify, add
to, or subtract from Executive's powers, duties and responsibilities at any
time, provided, however, that any such modifications or additions shall be
consistent with Executive's position, experience and level of compensation.
4.3. PERFORMANCE OF DUTIES. Executive shall discharge the duties described
herein in a diligent and professional manner. Executive shall render services
incidental to Executive's position, primarily during normal business hours at
the Company's locations as may be required by Company during the Term. Company
will consult with Executive prior to effecting any permanent relocation
decision. Executive understands that Executive shall be required to travel to
offices managed by affiliates of the Company in the course of performing
Executive's duties.
4.4. EXTENT OF SERVICES. Executive shall devote Executive's full and
exclusive productive time, energy, effort, attention and ability solely to the
performance of Executive's duties as set forth herein, and to the proper and
efficient management and development of the business and operations of Company.
Executive shall perform industriously and to the best of Executive's ability,
experience and talents all of the duties which may be required of Executive from
time to time. During the Term, Executive shall not, directly or indirectly,
render services of a business, professional or commercial nature to any other
person, firm or entity, whether with or without compensation, without Company's
prior written consent. Notwithstanding the foregoing, Executive may act for
Executive's own account in passive-type investments, or engage in charitable
activities, provided any such activities do not interfere with the discharge of
Executive's duties for Company.
4.5. COMPANY'S AUTHORITY. Executive shall observe and comply at all times
with the orders, directives and policies as may be issued from time to time,
either orally of in writing, by Company, the Board or the President.
4.6. NONSOLICITATION OF GIFTS. Without Company's prior written consent
in each instance, Executive shall not solicit or accept, for Executive or for
the benefit of any third party or entity, any contribution, donation, gift,
discount or rebate or the like of material value or in violation of
applicable law from any person, firm or entity with whom Company maintains
any business relationship.
4.7. NO PERSONAL INTEREST. Executive shall not have any personal interest,
direct or indirect, in any supplier of, or in any transaction between, any
supplier and Company.
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<PAGE>
4.8. COMPETITIVE ACTIVITIES PROHIBITED. During the Term, Executive shall
not, directly or indirectly (unless disclosed to Company and approved by
Company in its sole and absolute discretion):
4.8.(a) engage in or have any interest in any activity or
enterprise which is competitive with or adverse to the business, activities
or welfare of Company or any affiliate or subsidiary of Company, whether
alone or as an agent, employee, consultant, advisor, promoter, lender,
general or limited partner, officer, director, owner or shareholder;
provided, however, that nothing in this Section 4.8 shall prohibit Executive
from owning less than 2% of the stock of any publicly traded company;
4.8.(b) engage in any conduct or activity which would cause Company
or any affiliate or subsidiary of Company or Executive to be in a position of
conflict of interest or cause Company or any affiliate or subsidiary of
Company to be in violation of any law, regulation, policy, statement or rule
of any applicable governmental authority; or
4.8.(c) plan for or organize, or assist any other person, firm or
entity in planning for or organizing, any business activity which is
competitive with the business of Company or any affiliate or subsidiary of
Company.
5. COMPENSATION AND OTHER BENEFITS
5.1. ANNUAL BASE SALARY. As compensation for all of the services rendered
by Executive during the Term, Company shall pay Executive an annual salary in
the amount of One Hundred Twenty Five Thousand Dollars ($125,000). Such base
salary shall be subject to all normal withholding, including, without
limitation, state and federal income taxes, state disability insurance and FICA,
and shall be paid to Executive in accordance with Company's normal payroll
practices.
5.2. BONUS. In addition to the annual base salary described in Section
5.1 above, Executive shall be entitled to a bonus ("Bonus") in an amount
equal to one percent (1%) of the net revenues, i.e. gross collected billings
less chargebacks, fraud, etc. ("Net Revenue") of Call Connect Inc., a
California corporation, ("CCI") for CCI's fiscal year ending December 31,
1998, calculated in accordance with U.S. generally accepted accounting
principles, as determined by the independent public accounting firm engaged
by the Company's affiliate Hospitality Marketing Consultants, LLC or its
successors, if any ("HMC"). The Bonus shall be payable no later than ten (10)
days after the calculation of such Bonus amount. For each fiscal year
threreafter during the Term (pro rated for any partial year), Executive shall
be entitled to a Bonus in an amount equal to one-half of one percent (1/2%)
of CCI's Net Revenue for such fiscal year.
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<PAGE>
5.3. EXPENSES. Company and Executive hereby acknowledge that Executive may
be required to incur certain expenses in connection with Executive's employment
hereunder including, but not limited to, parking, travel, entertainment and
other expenses. Company shall reimburse Executive for ordinary and necessary
business expenses incurred by Executive in the performance of Executive's duties
hereunder in accordance with Company's policies and procedures for making such
reimbursements if:
5.3.(a) Each such expenditure is of a nature qualifying it as a
proper deduction on the federal and state income tax returns of Company as a
business expense and not as deductible compensation to Executive; and
5.3.(b) Executive furnishes Company with adequate records and
other documentary evidence required by either federal or state statutes or
regulations issued by appropriate taxing authorities for the substantiation
of such expenditures as deductible business expenses of Company and not as
deductible compensation to Executive.
In addition, Executive shall be reimbursed for reasonable
relocation expenses, including without limitation, shipping of household and
personal items (at a cost not to exceed $10,000) and hotel accommodations for
Executive and his family for a two-week period.
5.4. LEASED AUTOMOBILE. The Company shall pay for, or reimburse Executive
for the cost of, a leased automobile during the Term, in an amount not to exceed
$600 per month. In addition, the Company shall reimburse Executive for
insurance, gasoline and reasonable maintenance expenses in connection with such
leased automobile.
5.5. STOCK OPTIONS. Executive understands that HMC is currently in the
process of designing and implementing a stock option program for executives
and employees of HMC and its subsidiaries, including Company. Upon HMC's
adoption of such plan, Company shall cause HMC to grant to Executive stock
options, conditioned upon the closing of HMC's initial public offering, to
purchase that number of shares of common stock of HMC which are equal to
6/10ths of 1% of HMC's issued and outstanding prepublic offering
capitalization at the lowest purchase price for which options are to be
granted under HMC's stock option plan prior to the initial public offering.
The stock options shall vest in four equal cumulative installments on the
first anniversary date, second anniversary date, third anniversary date and
fourth anniversary date, respectively, of the Term (if the Term is extended).
5.6. VACATION. Executive shall accrue a total of four (4) weeks of vacation
for each full year of the Term. If Executive's earned but unused vacation time
reaches four (4) weeks, Executive will not continue to accrue additional
vacation time until Executive uses enough vacation to fall below this maximum
amount.
4
<PAGE>
5.7. OTHER BENEFITS. During the Term of this Agreement, Executive shall
receive such other life insurance, pension, disability insurance, health
insurance, holiday and sick pay benefits which Company extends, as a matter of
policy, to its executive employees and, except as otherwise provided herein,
shall be entitled to participate in all deferred compensation and other
incentive plans of Company on the same basis as other similarly situated
executives of Company.
6. TERMINATION OF THE AGREEMENT.
6.1. TERMINATION WITHOUT CAUSE. Notwithstanding anything in this Agreement
to the contrary, Company may terminate Executive's employment without cause upon
ninety (90) days' prior written notice.
6.2. TERMINATION FOR GOOD CAUSE BY COMPANY. Notwithstanding anything in
this Agreement to the contrary, Company may terminate Executive's employment
for Good Cause without prior notice. For purposes of this Agreement, Good
Cause for termination of Executive's employment shall be deemed to exist if:
6.2.(a) In the subjective judgment of Company, Executive breaches a
material obligation under this Agreement;
6.2.(b) Executive is convicted of or pleads guilty or nolo
contendere to a misdemeanor charge involving financial misconduct or moral
turpitude or any felony;
6.2. (c) Executive misappropriates funds or property of Company,
HMC or any of their respective subsidiaries or affiliates;
6.2.(d) Executive fails to comply with the reasonable oral or
written orders, directives or policies of Company, the Board or the President;
6.2.(e) In the subjective judgment of Company, Executive is
incompetent in performing his assigned duties, neglects his duties or
performs his duties in a grossly negligent or malfeasant manner; or
6.2. (f) Executive violates Company's policies regarding unfair
competition, trade secrets or confidentiality;
6.2. (g) Executive commits any other act or fails to take any
action which an arbitrator of competent jurisdiction deems to constitute Good
Cause for dismissal.
6.3. DEATH. Executive's employment with Company shall terminate
immediately in the event of Executive's death.
5
<PAGE>
6.4. DISABILITY. Company shall have the right to immediately terminate
this Agreement in the event of Executive's "Disability". For purposes of this
Agreement, "Disability" shall mean that because of a physical or mental
disability, Executive is unable to perform the essential functions of
Executive's job, even when Company provides such reasonable accommodations as
it can without incurring undue hardship, and Executive has exhausted all
leave allowances available to Executive pursuant to state and federal laws.
In the event Executive is granted a leave of absence due to Executive's
physical or mental disability, Company shall have no obligation to pay
Executive any salary and/or bonus compensation for the period of the leave of
absence except as required by law or as provided for pursuant to any
disability insurance plans Company may carry.
6.5. LEGAL OBLIGATIONS FOLLOWING TERMINATION.
6.5. (a) If this Agreement is terminated by Company as provided in
Sections 6.1, 6.2, 6.3 or 6.4, Company's sole obligation shall be the
following: (i) payment of Executive's base salary through and including the
effective date of termination; (ii) payment of the salary equivalent of all
accrued and unused vacation time; and (iii) reimbursement of any ordinary and
necessary business expenses previously incurred by Executive pursuant to
Sections 5.3 and 5.4 within thirty (30) days of Executive's termination. Any
stock options which have not vested at the time of termination shall lapse.
Nothing in this Section 6.5. (a) is intended to affect Executive's rights in
any stock options which, at the time of any termination hereunder, have
already vested pursuant to Section 5.5.
6.5. (b) The termination of this Agreement and Executive's
employment hereunder shall not affect Executive's right to exercise any
vested stock options in accordance with the terms of HMC's stock option
program nor shall it relieve either party from any liability or damage
directly or indirectly arising out of any breach of or default under this
Agreement or any failure to comply with or perform any obligations under this
Agreement.
7. TRADE SECRETS; CONFIDENTIALITY
7.1. "CONFIDENTIAL INFORMATION". "Confidential Information" is all
information, data and knowledge of a business, professional or technical nature
relating to Company, HMC, and/or their respective subsidiaries and affiliates;
and Company's, HMC's, and/or their subsidiaries' and affiliates' business,
finances, operations, properties, services and clients; information which is not
generally known outside of Company, HMC, or their respective subsidiaries and
affiliates; and includes information known to Executive as confidential or
secret or which Executive shall have reason to know or reasonably should know is
confidential or secret, to the extent that such information derives potential or
actual independent economic value from not being generally known to, and not
being readily ascertainable by proper means by, other persons who can obtain
economic value from this disclosure or use and is the subject of efforts
reasonable under the circumstances to maintain its secrecy. Confidential
Information may
6
<PAGE>
relate, for example, to trade secrets, client lists, clients' names and
requirements, client businesses, client profiles, client finances, client
accounts, employees, business methods, business or marketing plans, personnel
information, credit information, financial information, the names and locations
of vendors and suppliers, equipment, equipment design, development, engineering,
manufacturing, purchasing, accounting, selling, marketing, contractors,
compositions, computer software, computer hardware, technology, research,
infrastructures, products, procedures, calculations, specifications, formulae,
compilations, inventions, designs, plans, databases, database structure, data,
accounts, billing methods, pricing, costs, systems, internal affairs, legal
affairs, security methods, creative ideas and concepts, projects, advertising,
merchandising techniques and any and all information entrusted to Company, HMC
or their respective subsidiaries or affiliates by third parties. This
information may be contained in materials ("Company Materials") such as books,
records, files, notes, lists, computer programs, tapes, cd roms, hard disk and
soft disk drive mechanisms, other mechanisms for electronic or digital storage
of information, computer printouts, data input to computers, drawings,
documents, data, reports, customer, price and supplier lists, specifications, or
other miscellaneous embodiments, or may be in the nature of, or consist of,
verbal communication or unwritten knowledge, techniques, formulas, processes,
practices or know-how.
7.2. NO DISCLOSURE. In consideration of Executive's employment by Company,
Executive agrees that, unless Executive has received the prior written consent
of Company in each instance, Executive shall not use Confidential Information
for any purpose not related to the business interests of Company, and shall not
directly or indirectly disclose or communicate any Confidential Information to
any person except as required to perform Executive's duties for Company. If any
Confidential Information or Company Materials are sought by legal process,
Executive agrees to notify Company promptly in writing and to cooperate with
Company to preserve the confidentiality of such information in connection with
any legal proceeding. If Executive becomes aware of any unauthorized use,
disclosure or communication of Confidential Information by anyone, Executive
agrees to inform Executive's supervisor immediately.
7.3. OWNERSHIP RIGHTS. Executive acknowledges and agrees that all
Confidential Information and Company Materials, and all results and proceeds of
Executive's services hereunder which Executive makes or conceives, either solely
or with others, during Executive's employment by Company which are applicable
directly or indirectly to any phase of Company's business shall automatically
become Company's sole and exclusive property and Company shall be the owner and
author thereof. Executive further acknowledges that all such results and
proceeds shall constitute "works made for hire" within the meaning of the
copyright laws of the United States. Executive hereby irrevocably assigns to
Company, in perpetuity, all rights, title and interest of any kind or character
in and to all such results and proceeds including, without limitation, all
copyrights and patents pertaining thereto and all renewals, extensions,
subdivisions and continuations-in-interest thereof.
7
<PAGE>
7.4. NO REMOVAL OR DUPLICATION. Without Company's prior written consent in
each instance, or except as expressly required by Company in connection with
Executive's duties as an employee of Company, Executive shall not at any time,
whether prior to or after Executive's employment with Company ends, remove,
reproduce, summarize or copy any Confidential Information, or authorize,
participate in, aid or abet such removal, reproduction, summarizing or copying.
Executive shall immediately return to Company all Confidential Information and
Company Materials, including all copies and summaries thereof, when Executive's
employment by Company ends for any reason or at any time when Company may
otherwise require that such Confidential Information or Company Materials be
returned.
7.5. NO SOLICITATION. While employed by Company and for a period of one (1)
year thereafter, without the express prior written approval of an officer of
Company, Executive shall not: (a) solicit or attempt to solicit any clients of
Company, HMC or their respective subsidiaries and affiliates, either for
Executive or for any other person, firm or corporation; (b) employ, attempt to
employ, entice, encourage or solicit for employment by others, any employees of
the Company, HMC or their respective subsidiaries and affiliates; (c) induce or
attempt to induce a consultant, independent contractor, licensee or other third
party to sever their relationship with Company, HMC or their respective
subsidiaries or affiliates; or (d) assist any other person, firm or entity in
the solicitation of any consultants, independent contractors, licensees, or
employees of the Company, HMC or their respective subsidiaries and affiliates.
7.6. NO EMPLOYMENT REQUIRING DISCLOSURE. Without Company's prior written
approval, Executive shall not, either during or after Executive's employment by
Company, accept employment with, acquire any financial interest in, or perform
any services for a business or entity in which Executive's interest, duties or
activities would explicitly or inherently require Executive to disclose or
communicate any Confidential Information.
7.7. MATERIAL TERM. Executive acknowledges that maintaining the
confidentiality of such Confidential Information is necessary to the successful
conduct of the business of Company and its goodwill, and that any breach of any
term of this Section 7 shall be a material breach of this Agreement.
7.8. INDEMNIFICATION. Executive agrees to indemnify and hold harmless
Company, HMC, their respective subsidiaries, affiliates and joint ventures, and
any current or former officer, director or employee of any of them, against any
claim, loss, liability, damage or expense (including, without limitation,
attorneys' fees) they may incur as a result of any breach by Executive of the
terms of this Section 7.
7.9. SURVIVAL OF OBLIGATION. Executive's obligation to maintain the
confidentiality of Confidential Information shall survive the ending of
Executive's employment by Company, AND SUCH OBLIGATION SHALL CONTINUE FOR ALL
TIME, regardless of whether such Confidential Information
8
<PAGE>
was obtained before, during or after the Term of this Agreement. Executive
and Company agree that this Section 7 shall be specifically enforceable in
accordance with its terms.
8. ARBITRATION.
8.1. ARBITRABLE CLAIMS. Except as otherwise provided in this Section 8,
Executive and Company agree to settle by final and binding arbitration any claim
or controversy arising out of or in any way relating to this Agreement, the
breach or termination thereof, Executive's employment by Company or the ending
of such employment, that Company may have against Executive or that Executive
may have against Company or any of its subsidiaries, parents, joint ventures or
affiliated entities, or against any then current or former officer, director,
owner, employee, member or agent of any of them, in their capacity as such or
otherwise. The claims covered by this arbitration provision include, without
limitation: claims for wages or other forms of compensation; claims for
misrepresentation; claims for breach of contract; tort claims; and claims for
discrimination or harassment under any local, state or federal statutory or
common law, based on race, sex, religion, national origin, age, marital status,
medical condition, physical or mental disability, sexual orientation or any
other protected characteristic. Notwithstanding the foregoing, this Section 8
does not apply to claims by Executive for workers' compensation benefits, claims
by Executive for unemployment compensation benefits or claims by Executive based
upon an employee pension or benefit plan which contains an arbitration or other
dispute resolution procedure, in which case the arbitration or other dispute
resolution provision of such plan shall control.
8.2. PROCEDURE. All arbitrable claims shall be settled by final and
binding arbitration in accordance with the National Rules for the Resolution
of Employment Disputes of the American Arbitration Association ("AAA") in
effect at the time the claim is made. Such arbitration shall be filed with
the AAA and shall be heard on an expedited basis in Irvine, California. The
arbitrator shall apply, as applicable, California or federal substantive law
and law of remedies. Executive and Company agree that discovery may be
conducted by any party pursuant to the provisions of Section 1283.05 of the
California Code of Civil Procedure which are hereby incorporated into, and
made a part of, this Agreement. Any arbitrator acting hereunder shall have
the full power of a court of the State of California to issue and enforce
subpoenas. A judgment upon any award rendered by the arbitration may be
entered in any court having jurisdiction. In reaching a decision, the
arbitrator shall have no authority to change, extend, modify or suspend any
of the terms of this Agreement. The parties agree that any arbitrator acting
hereunder shall be empowered to assess any remedy including, but not limited
to, injunctive orders (including temporary, preliminary and permanent relief)
when appropriate. Either Executive or Company may bring an action in any
court of competent jurisdiction, if necessary, to compel arbitration under
this arbitration provision, to obtain preliminary relief in support of claims
to be prosecuted in arbitration or to enforce an arbitration award. EXECUTIVE
AND COMPANY UNDERSTAND AND ACKNOWLEDGE THAT BY
9
<PAGE>
SIGNING THIS AGREEMENT, EXECUTIVE AND COMPANY ARE GIVING UP THE RIGHT TO A
JURY TRIAL AND TO A TRIAL IN A COURT OF LAW.
9. GENERAL PROVISIONS.
9.1. ASSIGNMENT. Neither this Agreement nor any rights or benefits
hereunder shall be subject to execution, attachment or similar process and
Executive may not assign, transfer, pledge or hypothecate this Agreement or any
rights or benefits hereunder without the prior written consent of Company. Any
such assignment, transfer, pledge or hypothecation hereof by Executive in
violation of this provision shall be null, void and of no effect. Subject to the
foregoing, this Agreement and all of the terms and conditions hereof shall
benefit and bind Company and its successors and assigns and shall benefit and
bind Executive and Executive's successors. Company's rights hereunder shall
accrue to the benefit of any person, firm, or corporation which may succeed to
its business by merger, purchase of stock or assets, or otherwise.
9.2. NOTICES.
9.2. (a) All notices, requests, payments, statements, demands or
other communications given under this Agreement (collectively
"Communications") shall be in writing. Notice shall be sufficiently given for
all purposes as follows:
(1) PERSONAL DELIVERY. When personally delivered to the
recipient. Notice is effective on delivery.
(2) FIRST-CLASS MAIL. When mailed first class to the last
address of the recipient known to the party giving notice. Notice is
effective three (3) mail delivery days after deposit in a United States
Postal Service office or mailbox.
(3) CERTIFIED MAIL. When mailed certified mail, return
receipt requested. Notice is effective on receipt, if delivery is confirmed
by a return receipt.
(4) OVERNIGHT DELIVERY. When delivered by overnight
delivery, charges prepaid or charged to the sender's account. Notice is
effective on delivery, if delivery is confirmed by the delivery service.
(5) TELEX OR FACSIMILE TRANSMISSION. When sent by telex or
fax to the last telex or fax number of the recipient known to the party
giving notice. Notice is effective on receipt, provided that (a) a duplicate
copy of the notice is promptly given by first-class or certified mail or by
overnight delivery, or (b) the receiving party delivers a written
confirmation of receipt. Any notice given by telex or fax shall be deemed
received on the next business day if it is received after 5:00 p.m.
(recipient's time) or on a nonbusiness day.
10
<PAGE>
9.2.(b) Addresses for purpose of giving notice are as follows:
If to Company:
Hospitality Marketing Concepts Limited
--------------------------------------
--------------------------------------
--------------------------------------
Attention:
----------------------------
Fax:
----------------------------------
If to Executive:
--------------------------------------
--------------------------------------
--------------------------------------
Fax:
----------------------------------
9.2. (c) Any correctly addressed notice that is refused, unclaimed,
or undeliverable because of an act or omission of the party to be notified
shall be deemed effective as of the first date that said notice was refused,
unclaimed, or deemed undeliverable by the postal authorities, messenger, or
overnight delivery service.
9.2. (d) Either party may change its address or telex or fax number
for purposes of this Section 9.2. by notifying the other party of its new
address in the manner set forth in this Section 9.2.
9.3. GOVERNING LAW. This Agreement is made under and shall be construed in
accordance with the laws of the State of California.
9.4. SEVERABILITY. Nothing in this Agreement shall be construed to
require the commission of any act contrary to law, and wherever there is any
conflict between any provision of this Agreement and any present or future
statute, law, ordinance or regulation contrary to which the parties have no
legal right to contract, the latter shall prevail, but in such event the
provision of this Agreement so affected shall be curtailed and limited only
to the extent necessary to bring it within the requirement of the law. If any
term or provision of this Agreement is determined by a court of competent
jurisdiction to be illegal, invalid, or unenforceable for any reason
whatsoever, such illegality, invalidity, or unenforceability shall not affect
the remaining terms and provisions of this Agreement, which remaining terms
and provisions shall remain in full force and effect.
11
<PAGE>
9.5. WAIVER. A waiver of any of the terms and conditions hereof by Company
or Executive shall not constitute a waiver of any other term or condition
hereof, nor shall it constitute a general waiver by the waiving party, and the
waiving party shall be free to reinstate any such term or condition without
notice to the other party.
9.6. INTEGRATION. Neither of the parties hereto have made any
representations, statements, warranties or other agreements other than those
expressed herein. This Agreement embodies the entire understanding of the
parties with respect to the subject matter contained in it and supersedes all
prior and contemporaneous agreements, representations, or understandings,
written or oral, between the parties. This Agreement may be amended or
modified only by a written agreement, signed by the parties hereto.
9.7. HEADINGS. The Section headings used herein are for convenience only
and are not a part of this Agreement.
9.8. SURVIVAL. THE COVENANTS, REPRESENTATIONS AND WARRANTIES IN SECTIONS 7,
8, 9.4 AND 9.8 OF THIS AGREEMENT SHALL SURVIVE AND CONTINUE AFTER THE
TERMINATION OF THIS AGREEMENT FOR ANY REASON WHATSOEVER.
9.9. COUNTERPARTS. This agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth below.
"COMPANY"
HOSPITALITY MARKETING CONCEPTS
LIMITED
Dated: , 1998 By:
--------------- ----------------------------
Its:
---------------------
"EXECUTIVE"
Dated: , 1998
--------------- -------------------------------
Frans Van Steenbrugge
13
<PAGE>
[LETTERHEAD]
MODIFICATION OF CREDIT LINE AGREEMENT
November 14, 1997
Hospitality Marketing Concepts
15751 Rockfield Blvd., #200
Irvine, CA 92718
Re: Loan #1864
Dear Sirs,
This document shall serve as a modification of the Credit Line Agreement dated
September 1, 1995 and all its subsequent modifications, ("Modification") between
Cedars Bank (the "Bank") and Hospitality Marketing Concepts, a California
Corporation (hereinafter called the "Borrower").
ARTICLE I "THE LINE OF CREDIT"
1.3 INTEREST shall be amended to read:
Effective November 14, 1997, interest shall be payable on the outstanding
principal balance of the Loan at a rate per annum equal to TWO percent (2.0%)
above the rate earned by the pledged time deposit #2000010560 with any and all
subsequent modifications, extensions, or renewals thereof. Interest shall accrue
during the course of the month and shall be charged monthly to the Borrower's
account #6123944031 on the first banking day of each month.
ARTICLE II "SECURITY"
2.1 COLLATERAL shall be amended to read:
As security for this facility, the Borrower shall grant to the Bank the
following collateral:
Pledged Time Deposit in the name of Hospitality Marketing Consultants,
LLC, account #2000010560, in the amount of $400,000.00.
<PAGE>
Except as set forth above, this facility shall be subject to the same terms and
conditions as set forth in the Credit Line Agreement dated September 1, 1995 and
all its subsequent modifications ("Agreement"). This Modification is hereby
included in this Agreement and made a full part thereof.
Accepted and agreed to this Sincerely,
____day of _______,1997. Cedars Bank
Hospitality Marketing Concepts,
a California Corporation
By: /s/ [Illegible] By: /s/ [Illegible]
------------------------------ -------------------------------
Title
By: /s/ [Illegible]
-------------------------------
-2-
<PAGE>
Except as set forth above, this facility shall be subject to the same terms and
conditions as set forth in the Credit Line Agreement dated September 1, 1995 and
all its subsequent modifications ("Agreement"). This Modification is hereby
included in this Agreement and made a full part thereof.
Accepted and agreed to this Sincerely,
____day of _______,1997. Cedars Bank
Hospitality Marketing Concepts, Inc.,
a California Corporation
By: /s/ Mokhtar Ramadan By: /s/ [Illegible]
----------------------------- -------------------------------
Mokhtar Ramadan
President
By: /s/ Marwan Ramadan By: /s/ [Illegible]
----------------------------- -------------------------------
Marwan Ramadan
Secretary
By: /s/ Fadi Ramadan
-----------------------------
Fadi Ramadan
CFO
-2-
<PAGE>
[LETTERHEAD]
MODIFICATION OF PROMISSORY NOTE
November 14, 1997
Hospitality Marketing Concepts, a California Corporation, (hereinafter called
the "Borrower"), and Cedars Bank (the "Bank") hereby agree to modify the
terms of the Promissory Note dated September 1, 1995 and all its subsequent
modifications between Borrower and Bank, as follows:
The Borrower hereby unconditionally promises to pay to the order of
Cedars Bank on April 1, 1998, in lawful money of the United States
of America, the lesser of, (i) the principal sum of FOUR HUNDRED
THOUSAND AND NO/100 DOLLARS ($400,000.00), or (ii) the aggregate
unpaid principal amount of all advances made pursuant to the
Credit Line Agreement dated September 1, 1995 and all its
subsequent modifications.
Interest shall be payable on the outstanding principal balance of the Loan at
a rate per annum equal to TWO percent (2.0%) above the rate earned by a
pledged time deposit. Interest shall accrue during the course of the month and
shall be charged monthly to the Borrower's account on the first banking day
of each month, pending reimbursement by the Borrower.
The Note shall be secured by a Pledged Time Deposit in the name of Hospitality
Marketing Consultants, LLC, account #2000010560, in the amount of $400,000.00.
DEFAULT FEE PROVISION:
Upon the happening of any Event of Default or upon an occurrence of an
Event of Default as set forth in the Promissory Note dated September 1,
1995 the whole of the principal set forth herein then remaining unpaid
and all interest accrued thereon, shall at the option of the Bank
become immediately due and payable, and in any such event, the Borrower
agrees to pay a default rate of 5% above the Applicable Rate, plus all
such costs and attorney's fees as may be incurred by the Bank in the
collection of such sum.
<PAGE>
LATE FEE PROVISION:
If any payment is overdue more than fourteen (14) calendar days, an
additional charge will be due by Borrower. Borrower shall be assessed
a late fee of 6% of the total payment due, or a minimum of $15.00,
whichever is greater. Bank reserves the right to assess the highest
rate permitted by applicable law as default interest, by notice to
Borrower.
All other terms and conditions as stated in original Promissory Note shall
remain the same.
Accepted and agreed to this __ day of _____ 1997.
Borrower Cedars Bank
Hospitality Marketing Concepts, By: /s/ [Illegible]
a California Corporation ----------------------
By: /s/ [Illegible] By: /s/ [Illegible]
---------------------- ----------------------
Title
<PAGE>
[LETTERHEAD]
MODIFICATION OF PROMISSORY NOTE
September 2, 1996
Hospitality Marketing Concepts, Inc., a California Corporation, (hereinafter
called the "Borrower"), and Cedars Bank (the "Lender") hereby agree to modify
the terms of the Promissory Note dated September 1, 1995 and all its
subsequent modifications, hereby attached as Exhibit A, between Borrower and
Lender, as follows:
The Borrower hereby unconditionally promises to pay to the order of
Cedars Bank on April 1, 1998, in lawful money of the United States of
America, the lesser of, (i) the principal sum of FOUR HUNDRED THOUSAND
AND NO/100 DOLLARS ($400,000.00), or (ii) the aggregate unpaid
principal amount of all advances made pursuant to the Credit Line
Agreement dated September 1, 1995 and all its subsequent
modifications.
The Note shall be secured by an Assignment and UCC-1 financing
statement filed with the Secretary of State of California on
inventory, receivables, and general assets of Borrower, as evidenced
by a UCC-1 financing statement and Security Agreement filed on
9/20/1995 as file #9526960425, as modified by a UCC-2 form and
Security Agreement filed 4/1/96 as file #96093C0751, as modified by a
UCC-2 form and Security Agreement of even date herewith."
All other terms and conditions as stated in original Promissory Note shall
remain the same.
Accepted and agreed to this ________ day of ___________ 1997.
Borrower Cedars Bank
Hospitality Marketing Concepts, Inc.,
a California Corporation
By: /s/ Mokhtar Ramadan By: /s/ [Illegible]
--------------------------------- -------------------------------
Mokhtar Ramadan
President
By: /s/ Marwan Ramadan By: /s/ [Illegible]
--------------------------------- -------------------------------
Marwan Ramadan
Secretary
By: /s/ Fadi Ramadan
---------------------------------
Fadi Ramadan
CFO
<PAGE>
[LETTERHEAD]
MODIFICATION OF CREDIT LINE AGREEMENT
February 5, 1996
Hospitality Marketing Concepts, Inc.
15751 Rockfield Blvd. #200
Irvine, CA 92718
Re: Loan #1864
Dear Sirs,
This document shall serve as a modification of the Credit Line Agreement
dated September 1, 1995 and all its subsequent modifications,
("Modification") between Cedars Bank (the "Bank") and Hospitality Marketing
Corporation, a California Corporation (hereinafter called the "Borrower").
The Bank is pleased to advise the Borrower that the facility in the amount of
$125,000.00 granted to you on September 1, 1995, has been increased by an
amount of $175,000.00 (the "Increase") for a total aggregate facility of
$300,000.00.
As consideration for granting this facility, the Borrower shall pay a closing
fee of EIGHT HUNDRED SEVENTY FIVE AND NO/100 Dollars ($875.00), being ONE
HALF OF ONE PERCENT (0.5%) of the total increase. In addition, the Borrower
shall pay a documentation fee of $150. These fees are due upon execution of
this Agreement and shall be debited from the Borrower's account no. 612394.
As a condition of renewal, Borrower shall furnish Bank a signed current
financial statement, and a signed copy of 1995 tax returns.
<PAGE>
Except as set forth above, this facility shall be subject to the same terms
and conditions as set forth in the Credit Line Agreement dated September 1,
1996 and all its subsequent modifications ("Agreement"). This modification is
hereby included in this Agreement and made a full part thereof.
Accepted and agreed to this Sincerely,
___ day of ___________, 1996. Cedars Bank
Hospitality Marketing Concepts, Inc.,
a California Corporation
By: /s/ Mokhtar Ramadan By: /s/ [Illegible]
--------------------------------- ------------------------------
Mokhtar Ramadan
President
By: /s/ Marwan Ramadan By: /s/ [Illegible]
--------------------------------- ------------------------------
Marwan Ramadan
Secretary
By: /s/ Fadi Ramadan By:
--------------------------------- ------------------------------
Fadi Ramadan
CFO
-2-
<PAGE>
[LETTERHEAD]
MODIFICATION OF PROMISSORY NOTE
February 5, 1996
Hospitality Marketing Concepts, Inc., a California Corporation, (hereinafter
called the "Borrower"), and Cedars Bank (the "Lender") hereby agree to modify
the terms of the Promissory Note dated September 1, 1995 and all its
subsequent modifications, hereby attached as Exhibit A, between Borrower and
Lender, as follows:
The Borrower hereby unconditionally promises to pay to the order of
Cedars Bank on September 1, 1996, in lawful money of the United
States of America, the lesser of, (i) the principal sum of THREE
HUNDRED THOUSAND AND NO/100 DOLLARS ($300,000.00), or (ii) the
aggregate unpaid principal amount of all advances made pursuant to
the Credit Line Agreement dated September 1, 1995 and all its
subsequent modifications.
All other terms and conditions as stated in original Promissory Note shall
remain the same.
Accepted and agreed to this ____ day of _________________ 1996.
Borrower Cedars Bank
Hospitality Marketing Concepts, Inc.,
a California Corporation
By: /s/ [Illegible]
---------------------------------
By: /s/ Mokhtar Ramadan
-------------------------------
Mokhtar Ramadan By: /s/ [Illegible]
President --------------------------------
By: /s/ Marwan Ramadan
-------------------------------
Marwan Ramadan
Secretary
By: /s/ Fadi Ramadan
-------------------------------
Fadi Ramadan
CEO
<PAGE>
[LOGO]
CREDIT LINE AGREEMENT
September 1, 1995
Hospitality Marketing Concepts, Inc.
15751 Rockfield Blvd. #200
Irvine, CA 92718
Loan #1864
Dear Sirs,
Cedars Bank (the "Bank") is pleased to advise Hospitality Marketing
Concepts, Inc., a California Corporation, (hereinafter called the "Borrower")
of its agreement to grant the Borrower a Line of Credit in the amount of ONE
HUNDRED TWENTY FIVE THOUSAND AND NO/100 Dollars ($125,000.00) (the "Line") to
be used as set forth below. This Line of Credit is subject to the following
terms and conditions:
ARTICLE I "THE LINE OF CREDIT"
1.1 THE LINE OF CREDIT The Bank hereby agrees to grant a Line of
Credit (the "Line") to the Borrower and the Borrower hereby agrees to borrow
from the Bank an amount not to exceed at any time the sum of ONE HUNDRED
TWENTY FIVE THOUSAND AND NO/100 Dollars ($125,000.00) to be used for
overdraft protection.
1.2 THE NOTE The Line shall be evidenced by a note signed by the
Borrower (the "Note") payable to the order of the Bank. This Note and the
books of the Bank shall constitute sufficient evidence of the indebtedness of
the Borrower to the Bank.
1.3 INTEREST Interest shall be payable on the outstanding principal
balance of the Line at a rate per annum equal to THREE percent (3%) above the
rate announced by the Bank from time to time as its prime rate, calculated on
the basis of actual days elapsed in a year of 360 days. Interest shall accrue
during the course of the month and shall be charged monthly to the Borrower's
account on the first banking day of each month. If the Line is fully
utilized, interest shall be paid directly by the Borrower each month.
<PAGE>
1.4 MATURITY AND PREPAYMENT The outstanding principal balance of the
Line plus any accrued interest, shall be payable in full on or before the 2nd
day of September, 1996 unless renewed at the mutual option of the Borrower
and the Bank. There will be no penalties or premium payable in the event of
prepayment of all or any part of the Note.
1.5 CLOSING FEES As consideration for granting this facility, the
Borrower shall pay a closing fee of ONE THOUSAND TWO HUNDRED FIFTY AND NO/100
Dollars ($1,250.00) being ONE percent (1%) of the total facility. In
addition, the Borrower shall pay a documentation fee of $250.00. These fees
shall be payable upon execution of this Agreement and shall be debited from
the Borrower's Line account unless the Bank is otherwise advised.
ARTICLE II "SECURITY"
2.1 COLLATERAL As security for this facility, the Borrower shall grant
to the Bank the following collateral:
-- Assignment and UCC-1 financing statement filed with the Secretary
of State of California on inventory, receivables and general assets
of Borrower, as evidenced by a UCC-1 financing statement and
Security Agreement of even date herewith.
2.2 GUARANTEES The Bank shall receive and hold the personal and
irrevocable guarantees of Mokhtar Ramadan, Marwan Ramadan and Fadi Ramadan
("Guarantors").
ARTICLE III "CONDITIONS TO CREDIT"
3.1 DOCUMENTS The Bank's agreement to lend, contained herein, shall be
effective only upon receipt by the Bank, of the following duly executed
documents in a form satisfactory to the Bank: this Agreement, Promissory
Note, UCC-1 and Security Agreement, Corporate Resolution to Borrow,
Continuing Guaranty, and any and all other documents which shall be required
by the Bank's counsel to secure the Bank's interest.
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<PAGE>
ARTICLE IV "REPRESENTATIONS AND WARRANTIES"
The Borrower represents and warrants the following:
1) That during the term of this agreement, the provisions herein
contained shall continue to be true and correct;
2) That all due taxes of the Borrower have been paid;
3) That no legal or court action of adverse significance is in
force or pending.
ARTICLE V "AFFIRMATIVE COVENANTS"
During the term of this agreement, and so long as any indebtedness of the
Borrower to the Bank shall remain unpaid, including any indebtedness for fees
and expenses, the Borrower and Guarantors shall furnish to the Bank annually
and upon request financial statements and signed current tax returns.
ARTICLE VI "NEGATIVE COVENANTS"
During the term of this agreement, and so long as any indebtedness of the
Borrower to the Bank shall remain unpaid, including any indebtedness for fees
and expenses, the Borrower shall not encumber or grant any other liens on the
collateral.
ARTICLE VII "EVENTS OF DEFAULT"
The occurrence of any one or more of the following events shall
constitute an Event of Default:
1) If the Borrower defaults in payment of interest or principal as
agreed upon hereinbefore;
2) Any default in the observance of any of the covenants or agreements of
the Borrower contained in this agreement, or any other agreement connected
or delivered with respect to this Line; or
3) The institution of any proceeding in bankruptcy, reorganization or
insolvency against or by the Borrower or the appointment of a trustee or
receiver of the Borrower's property.
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<PAGE>
Upon the happening of any Event of Default described above and if not
remedied, the Bank shall be entitled to terminate this agreement and declare
the Line to be due and payable without presentment, demand or protest, which
are hereby expressly waived.
ARTICLE VIII "EXPENSES"
The Borrower shall reimburse the Bank or the Bank shall debit the
Borrower's account for all of its out-of-pocket expenses including, but not
limited to, attorney's fees, including actual attorney's fees incident to the
enforcement of any provision of this agreement, UCC filing, messenger fees, etc.
ARTICLE IX "MISCELLANEOUS"
9.1 SUCCESSORS AND ASSIGNS The Borrower, and the Bank as used herein,
shall include the legal representatives or assigns of those parties.
9.2 GOVERNING LAW This agreement, the transaction described herein and
obligations of the Bank and the Borrower, shall be construed and interpreted in
accordance with the laws of the State of California.
9.3 COURSE DEALING Any delay or failure by the Bank at any time or times
in enforcing its rights under the provisions set forth in this agreement in
strict accordance with their terms shall not be construed as having created a
course of dealing or performance modifying or waiving the specific provisions of
this agreement.
9.4 OTHER ACTS The Borrower shall execute and deliver, or cause to be
delivered to the Bank all further documents and perform all other acts and
things which the Bank deems necessary or appropriate to protect the indebtedness
of the Borrower to the Bank.
9.5 NOTICE The address for service of process upon the Borrower is:
15751 Rockfield Blvd., #200
Irvine, CA 92718
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<PAGE>
9.6 CREDIT INQUIRIES The Bank shall have the right at any time, to make
all credit inquiries it deems necessary and obtain all credit information it
considers relevant, at its sole and absolute discretion.
This Agreement shall not be changed or altered in any way by the Borrower.
Any change or alteration to this agreement without the prior and express
agreement of the Bank will render this Agreement null and void.
The Bank's commitment shall remain open until October 2, 1995 and shall
take effect upon your signing this Line Agreement and the Note and returning
them to us. Funds shall be disbursed upon full execution and delivery to the
Bank of all documents necessary to secure the Collateral in form satisfactory to
the Bank's counsel.
We would like to add that Cedars Bank is delighted to have had the
opportunity to be of service to you and we look forward to a mutually rewarding
relationship.
Accepted and agreed to this Very truly yours,
8th day of September, 1995 Cedars Bank
Hospitality Marketing Concepts, Inc.,
a California Corporation
By: /s/ Mokhtar Ramadan By: /s/ [Illegible]
--------------------------------- -------------------------------
Mokhtar Ramadan
President
By: /s/ [Illegible]
-------------------------------
By: /s/ Marwan Ramadan
---------------------------------
Marwan Ramadan
Secretary
By: /s/ Fadi Ramadan
---------------------------------
Fadi Ramadan
CFO
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<PAGE>
[LOGO]
PROMISSORY NOTE
($125,000.00) September 1, 1995
FOR VALUE RECEIVED,
Hospitality Marketing Concepts, Inc., a California Corporation (hereinafter
called the "Borrower") promises to pay to the order of Cedars Bank,
(hereinafter called the "Bank"), at the Bank's office located at 444 South
Flower Street, 14th Floor, Los Angeles, California 90071, or at such other
place as the Bank may from time to time designate in writing, in lawful money
of the United States of America, the lesser of, (i) the principal sum of ONE
HUNDRED TWENTY FIVE THOUSAND AND NO/100 Dollars ($125,000.00), or (ii) the
aggregate unpaid principal amount of all advances made pursuant to the
Agreement (as defined below) on or before September 2, 1996. Interest shall
be payable from the date hereof on the principal amount remaining unpaid from
time to time at the fluctuating rate per annum equal to THREE percent (3%)
above the rate announced by the Bank from time to time as its prime rate
(hereinafter called "Applicable Rate"). Such interest shall be payable
monthly on the first banking day of each month during the time this Note is
outstanding and on the date of payment of this Note.
Interest on this Note shall accrue during the course of the month and
shall be calculated on the basis of actual days elapsed in a year of 360
days. The principal of and interest on this Note shall be payable at the
Bank's address set forth hereinbefore or at such other address as the Bank
shall from time to time designate in writing.
If this Note is collected by suit through probate or bankruptcy court,
or any other judicial proceedings, or if this Note is not paid at maturity,
however such maturity may be brought about, and is placed in the hands of an
attorney for collection, then the Borrower promises to pay all fees and costs
incurred in connection with such collection.
This Note is being issued pursuant to and in full accordance with, and
is entitled to the benefits and subject to the provisions of the Agreement
dated the 1st day of September, 1995 (the "Agreement"), and implementing and
supplementing agreements, as the same may be amended, modified or
supplemented from time to time. Reference is hereby made to the Agreement for
the description of the provisions, among others with respect to the rights,
duties and obligations of the Borrower and the rights and remedies of the
Bank.
<PAGE>
This Note is secured by an Assignment and UCC-1 financing statement
filed with the Secretary of State of California on inventory, receivables and
general assets of Borrower, as evidenced by a UCC-1 financing statement and
Security Agreement of even date herewith.
This Note is further secured by the personal guarantees of Mokhtar
Ramadan, Marwan Ramadan and Fadi Ramadan.
The occurrence of any one or more of the following events shall
constitute an Event of Default:
(1) If the Borrower defaults in payment of interest or principal as
agreed upon hereinbefore.
(2) Any default in the observance of any of the covenants or agreements
of the Borrower contained in this Note.
(3) The institution of any proceeding in bankruptcy, reorganization or
insolvency against or by the Borrower or the appointment of a
trustee or receiver of the Borrower's property.
Upon the happening of any Event of Default described above or upon an
occurrence of an Event of Default as set forth above the whole of the
principal set forth herein then remaining unpaid and all interest accrued
thereon, shall at the option of the Bank become immediately due and payable,
and in any such event, the Borrower agrees to pay such costs and attorney's
fees as may be incurred by the Bank in the collection of such sum.
After default or maturity, or if any payment is overdue more than ten
(10) calendar days, an additional charge will be due by Borrower. Principal
and past-due interest shall bear interest at the highest rate permitted by
applicable law or, if no such maximum rate is established by applicable law,
then at the Applicable Rate plus FIVE PERCENT (5%) per annum.
The Borrower shall have the right, at any time or from time to time,
without penalty or premium, to prepay all or part of the unpaid principal
amount of the advances outstanding under this Note. The Borrower hereby
waives presentment, protest, demand of payment and notice of non-payment or
protest on this Note.
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<PAGE>
This Note shall be governed by and construed in accordance with the laws
of the State of California.
IN WITNESS WHEREOF, the Borrower has signed this Note as of the 8th day
of September, 1995.
BORROWER
HOSPITALITY MARKETING CONCEPTS, INC.,
A CALIFORNIA CORPORATION
By: /s/ Mokhtar Ramadan
-----------------------------------
MOKHTAR RAMADAN
President
By: /s/ Marwan Ramadan
-----------------------------------
MARWAN RAMADAN
Secretary
By: /s/ Fadi Ramadan
-----------------------------------
FADI RAMADAN
CFO
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<PAGE>
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only
June 1, 1998, is made by and between Hospitality Marketing Consultants, a
general partnership ("LESSOR") and Hospitality Marketing Consultants, LLC, a
California limited liability company ("LESSEE"), (collectively the "PARTIES,"
or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and
commonly known as 15751 Rockfield Boulevard, Irvine located in the County of
Orange, State of California 92718, and generally described as (describe
briefly the nature of the property and, if applicable, the "PROJECT", if the
property is located within a Project) ("PREMISES"). (See also Paragraph 2)
1.3 TERM: Three (3) years and No months ("ORIGINAL TERM") commencing
July 1, 1998 ("COMMENCEMENT DATE") and ending June 30, 2001 ("EXPIRATION
DATE"). (See also Paragraph 3)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (See also
Paragraphs 3.2 and 3.3)
1.5 BASE RENT: $19,000 per month ("BASE RENT"), payable on the First
(1st) day of each month commencing July 1, 1998 (See also Paragraph 4)
/ / If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $ None as Base Rent for the
period.
1.7 SECURITY DEPOSIT: $ None ("SECURITY DEPOSIT"). (See also
Paragraph 5)
1.8 AGREED USE: Any use permitted by law. (See also Paragraph 6)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY" unless otherwise
stated herein. (See also Paragraph 8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction (check applicable boxes):
/ / None represents Lessor exclusively ("LESSOR'S BROKER");
/ / None represents Lessee exclusively ("LESSEE'S BROKER"); or
/ / None represents both Lessor and Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this Lease
by both Parties, Lessor shall pay to the Broker the fee agreed to in their
separate written agreement (or if there is no such agreement, the sum of N/A%
of the total Base Rent for the brokerage services rendered by said Broker).
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by None ("GUARANTOR"). (See also Paragraph 37)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs N/A through N/A and Exhibits None, all of which
constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may
have been used in calculating rental, is an approximation which the Parties
agree is reasonable and the rental based thereon is not subject to revision
whether or not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom clean
and free of debris on the Commencement Date or the Early Possession Date,
whichever first occurs ("START DATE"), and, so long as the required service
contracts described in Paragraph 7.1(b) below are obtained by Lessee within
thirty (30) days following the Start Date, warrants that the existing
electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air
conditioning system ("HVAC"), loading doors, if any, and all other such
elements in the Premises, other than those constructed by Lessee, shall be in
good operating condition on said date and that the structural elements of the
roof, bearing walls and foundation of any buildings on the Premises (the
"BUILDING") shall be free of material defects. If a non-compliance with said
warranty exists as of the Start Date, Lessor shall, as Lessor's sole
obligation with respect to such matter, except as otherwise provided in this
Lease, promptly after receipt of written notice from Lessee setting forth
with specificity the nature and extent of such non-compliance, rectify same
at Lessor's expense. If, after the Start Date, Lessee does not give Lessor
written notice of any non-compliance with this warranty within: (i) one year
as to the surface of the roof and the structural portions of the roof,
foundations and bearing walls, (ii) six (6) months as to the HVAC systems,
(iii) thirty (30) days as to the remaining systems and other elements of the
Building, correction of such non-compliance shall be the obligation of Lessee
at Lessee's sole cost and expense.
2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises
comply with all applicable laws, covenants or restrictions of record,
building codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in
effect on the Start Date. Said warranty does not apply to the use to which
Lessee will put the Premises or to any Alterations or Utility Installations
(as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee
is responsible for determining whether or not the zoning is appropriate for
Lessee's intended use, and acknowledges that past uses of the Premises may no
longer be allowed. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided, promptly after receipt of written notice
from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify the same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within six (6)
months following the Start Date, correction of that non-compliance shall be
the obligation of Lessee at Lessee's sole cost and expense. If the Applicable
Requirements are hereafter changed (as opposed to being in existence at the
Start Date, which is addressed in Paragraph 6.2(e) below) so as to require
during the term of this Lease the construction of an addition to or an
alteration of the Building, the remediation of any Hazardous Substance, or
the reinforcement or other physical modification of the Building ("CAPITAL
EXPENDITURE"), Lessor and Lessee shall allocate the cost of such work as
follows:
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FORM 204N-R-2/97
- -Copyright- 1997 - AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
<PAGE>
(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures
are required as a result of the specific and unique use of the Premises by
Lessee as compared with uses by tenants in general, Lessee shall be fully
responsible for the cost thereof, provided, however that if such Capital
Expenditure is required during the last two (2) years of this Lease and the
cost thereof exceeds six (6) months' Base Rent, Lessee may instead terminate
this Lease unless Lessor notifies Lessee, in writing, within ten (10) days
after receipt of Lessee's termination notice that Lessor has elected to pay
the difference between the actual cost thereof and the amount equal to six
(6) months' Base Rent. If Lessee elects termination, Lessee shall immediately
cease the use of the Premises which requires such Capital Expenditure and
deliver to Lessor written notice specifying a termination date at least
ninety (90) days thereafter. Such termination date shall, however, in no
event be earlier than the last day that Lessee could legally utilize the
Premises without commencing such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific
and unique use of the Premises by Lessee (such as, governmentally mandated
seismic modifications), then Lessor and Lessee shall allocate the obligation
to pay for such costs pursuant to the provisions of Paragraph 7.1(c);
provided, however, that if such Capital Expenditure is required during the
last two years of this Lease or if Lessor reasonably determines that it is
not economically feasible to pay its share thereof, Lessor shall have the
option to terminate this Lease upon ninety (90) days prior written notice to
Lessee unless Lessee notifies Lessor, in writing, within ten (10) days after
receipt of Lessor's termination notice that Lessee will pay for such Capital
Expenditure. If Lessor does not elect to terminate, and fails to tender its
share of any such Capital Expenditure, Lessee may advance such funds and
deduct same, with Interest, from Rent until Lessor's share of such costs have
been fully paid. If Lessee is unable to finance Lessor's share, or if the
balance of the Rent due and payable for the remainder of this Lease is not
sufficient to fully reimburse Lessee on an offset basis, Lessee shall have
the right to terminate this Lease upon thirty (30) days written notice to
Lessor.
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in
intensity of use, or modification to the Premises then, and in that event,
Lessee shall be fully responsible for the cost thereof, and Lessee shall not
have any right to terminate this Lease.
2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been advised
by Lessor and/or Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical, HVAC and fire
sprinkler systems, security, environmental aspects, and compliance with
Applicable Requirements), and their suitability for Lessee's intended use,
(b) Lessee has made such investigation as it deems necessary with reference
to such matters and assumes all responsibility therefor as the same relate to
its occupancy of the Premises, and (c) neither Lessor, Lessor's agents, nor
any Broker has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease. In addition,
Lessor acknowledges that: (a) Broker has made no representations, promises or
warranties concerning Lessee's ability to honor the Lease or suitability to
occupy the Premises, and (b) it is Lessor's sole responsibility to
investigate the financial capability and/or suitability of all proposed
tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent
shall be abated for the period of such early possession. All other terms of
this Lease (including but not limited to the obligations to pay Real Property
Taxes and insurance premiums and to maintain the Premises) shall, however, be
in effect during such period. Any such early possession shall not affect the
Expiration Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver the
possession as agreed, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease. Lessee shall not,
however, be obligated to pay Rent or perform its other obligations until it
receives possession of the Premises. If possession is not delivered within
sixty (60) days after the Commencement Date, Lessee may, at its option, by
notice in writing within ten (10) days after the end of such sixty (60) day
period, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder. If such written notice is not received by
Lessor within said ten (10) day period, Lessee's right to cancel shall
terminate. Except as otherwise provided, if possession is not tendered to
Lessee by the Start Date and Lessee does not terminate this Lease, as
aforesaid, any period of rent abatement that Lessee would otherwise have
enjoyed shall run from the date of delivery of possession and continue for a
period equal to what Lessee would otherwise have enjoyed under the terms
hereof, but minus any days of delay caused by the acts or omissions of
Lessee. If possession of the Premises is not delivered within four (4) months
after the Commencement Date, this Lease shall terminate unless other
agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender
possession of the Premises to Lessee until Lessee complies with its
obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery
of such evidence, Lessee shall be required to perform all of its obligations
under this Lease from and after the Start Date, including the payment of
Rent, notwithstanding Lessor's election to withhold possession pending
receipt of such evidence of insurance. Further, if Lessee is required to
perform any other conditions prior to or concurrent with the Start Date, the
Start Date shall occur but Lessor may elect to withhold possession until such
conditions are satisfied.
4. RENT.
4.1. RENT DEFINED. All monetary obligations of Lessee to Lessor under
the terms of this Lease (except for the Security Deposit) are deemed to be
rent ("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States, without offset or deduction
(except as specifically permitted in this Lease), on or before the day on
which it is due. Rent for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual
number of days of said month. Payment of Rent shall be made to Lessor at its
address stated herein or to such other persons or place as Lessor may from
time to time designate in writing. Acceptance of a payment which is less than
the amount then due shall not be a waiver of Lessor's rights to the balance
of such Rent, regardless of Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise
Defaults under this Lease, Lessor may use, apply or retain all or any portion
of said Security Deposit for the payment of any amount due Lessor or to
reimburse or compensate Lessor for any liability, expense, loss or damage
which Lessor may suffer or incur by reason thereof. If Lessor uses or applies
all or any portion of said Security Deposit, Lessee shall within ten (10)
days after written request therefor deposit monies with Lessor sufficient to
restore said Security Deposit to the full amount required by this Lease. If
the Base Rent increases during the term of this Lease, Lessee shall, upon
written request from Lessor, deposit additional moneys with Lessor so that
the total amount of the Security Deposit shall at all times bear the same
proportion to the increased Base Rent as the initial Security Deposit bore to
the initial Base Rent. Should the Agreed Use be amended to accommodate a
material change in the business of Lessee or to accommodate a sublessee or
assignee, Lessor shall have the right to increase the Security Deposit to the
extent necessary, in Lessor's reasonable judgment, to account for any
increased wear and tear that the Premises may suffer as a result thereof. If
a change in control of Lessee occurs during this Lease and following such
change the financial condition of Lessee is, in Lessor's reasonable judgment,
significantly reduced, Lessee shall deposit such additional monies with
Lessor as shall be sufficient to cause the Security Deposit to be at a
commercially reasonable level based on said change in financial condition.
Lessor shall not be required to keep the Security Deposit separate from its
general accounts. Within fourteen (14) days after the expiration or
termination of this Lease, if Lessor elects to apply the Security Deposit
only to unpaid Rent, and otherwise within thirty (30) days after the Premises
have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return
that portion of the Security Deposit not used or applied by Lessor. No part
of the Security Deposit shall be considered to be held in trust, to bear
interest or to be prepayment for any monies to be paid by Lessee under this
Lease.
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<PAGE>
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the Agreed
Use, or any other legal use which is reasonably comparable thereto, and for
no other purpose. Lessee shall not use or permit the use of the Premises in a
manner that is unlawful, creates damage, waste or a nuisance, or that
disturbs owners and/or occupants of, or causes damage to neighboring
properties. Lessor shall not unreasonably withhold or delay its consent to
any written request for a modification of the Agreed Use, so long as the same
will not impair the structural integrity of the improvements on the Premises
or the mechanical or electrical systems therein, is not significantly more
burdensome to the Premises. If Lessor elects to withhold consent, Lessor
shall within five (5) business days after such request give written
notification of same, which notice shall include an explanation of Lessor's
objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE"
as used in this Lease shall mean any product, substance, or waste whose
presence, use, manufacture, disposal, transportation, or release, either by
itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substances' shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, and/or crude oil or any products,
by-products or fractions thereof. Lessee shall not engage in any activity in
or on the Premises which constitutes a Reportable Use of Hazardous Substances
without the express prior written consent of Lessor and timely compliance (at
Lessee's expense) with all Applicable Requirements. "REPORTABLE USE" shall
mean (i) the installation or use of any above or below ground storage tank,
(ii) the generation, possession, storage, use, transportation, or disposal of
a Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with,
any governmental authority, and/or (iii) the presence at the Premises of a
Hazardous Substance with respect to which any Applicable Requirements
requires that a notice be given to persons entering or occupying the Premises
or neighboring properties. Notwithstanding the foregoing, Lessee may use any
ordinary and customary materials reasonably required to be used in the normal
course of the Agreed Use, so long as such use is in compliance with all
Applicable Requirements, is not a Reportable Use, and does not expose the
Premises or neighboring property to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may
condition its consent to any Reportable Use upon receiving such additional
assurances as Lessor reasonably deems necessary to protect itself, the
public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
modifications (such as concrete encasements) and/or increasing the Security
Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on, under
or about the Premises, other than as previously consent to by Lessor, Lessee
shall immediately give written notice of such fact to Lessor, and provide
Lessor with a copy of any report, notice, claim or other documentation which
it has concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any
Hazardous Substance brought onto the Premises during the term of this Lease,
by or for Lessee, or any third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, harmless
from and against any and all loss of rents and/or damages, liabilities,
judgments, claims, expenses, penalties, and attorneys' and consultants' fees
arising out of or involving any Hazardous Substance brought onto the Premises
by or for Lessee, or any third party (provided, however, that Lessee shall
have no liability under this Lease with respect to underground migration of
any Hazardous Substance under the Premises from adjacent properties).
Lessee's obligations shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment created or
suffered by Lessee, and the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination
of this Lease. NO TERMINATION, CANCELLATION OR RELEASE AGREEMENT ENTERED INTO
BY LESSOR AND LESSEE SHALL RELEASE FROM ITS OBLIGATIONS UNDER THIS LEASE WITH
RESPECT TO HAZARDOUS SUBSTANCES, UNLESS SPECIFICALLY SO AGREED BY LESSOR IN
WRITING AT THE TIME OF SUCH AGREEMENT.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and
lenders, harmless from and against any and all environmental damages,
including the cost of remediation, which existed as a result of Hazardous
Substances on the Premises prior to the Start Date or which are caused by the
gross negligence or willful misconduct of Lessor, its agents or employees.
Lessor's obligations, as and when required by the Applicable Requirements,
shall include, but not be limited to, the cost of investigation, removal,
remediation, restoration and/or abatement, and shall survive the expiration
or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures
required by governmental entities having jurisdiction with respect to the
existence of Hazardous Substances on the Premises prior to the Start Date,
unless such remediation measure is required as a result of Lessee's use
(including "Alterations", as defined in paragraph 7.3(a) below) of the
Premises, in which event Lessee shall be responsible for such payment. Lessee
shall cooperate fully in any such activities at the request of Lessor,
including allowing Lessor and Lessor's agents to have reasonable access to the
Premises at reasonable times in order to carry out Lessor's investigative and
remedial responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue
in full force and effect, but subject to Lessor's rights under Paragraph
6.2(d) and Paragraph 13), Lessor may, at Lessor's option, either (i)
investigate and remediate such Hazardous Substance Condition, if required,
as soon as reasonably possible at Lessor's expense, in which event this Lease
shall continue in full force and effect, or (ii) if the estimated cost to
remediate such condition exceeds twelve (12) times the then monthly Base Rent
or $100,000, whichever is greater, give written notice to Lessee, within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of
such Hazardous Substance Condition, of Lessor's desire to terminate this
Lease as of the date sixty (60) days following the date of such notice. In
the event Lessor elects to give a termination notice, Lessee may, within ten
(10) days thereafter, give written notice to Lessor of Lessee's commitment to
pay the amount by which the cost of the remediation of such Hazardous
Substance Condition exceeds an amount equal to twelve (12) times the then
monthly Base Rent or $100,000, whichever is greater. Lessee shall provide
Lessor with said funds or satisfactory assurance thereof within thirty (30)
days following such commitment. In such event, this Lease shall continue in
full force and effect, and Lessor shall proceed to make such remediation as
soon as reasonably possible after the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the time provided, this Lease shall terminate as of the date specified
in Lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole expense,
fully, diligently and in a timely manner, materially comply with all
Applicable Requirements, the requirements of any applicable fire insurance
underwriter or rating bureau, and the recommendations of Lessor's engineers
and/or consultants which relate in any manner to the Premises, without regard
to whether said requirements are now in effect or become effective after the
Start Date. Lessee shall, within ten (10) days after receipt of Lessor's
written request, provide Lessor with copies of all permits and other
documents, and other information evidencing Lessee's compliance with any
Applicable Requirements specified by Lessor, and shall immediately upon
receipt, notify Lessor in writing (with copies of any documents involved) of
any threatened or actual claim, notice, citation, warning, complaint or
report pertaining to or involving the failure of Lessee or the Premises to
comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined in
Paragraph 30 below) and consultants shall have the right to enter into
Premises at any time, in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease. The cost of any such
inspections shall be paid by Lessor, unless a violation of Applicable
Requirements, or a contamination is found to exist or be imminent, or the
inspection is requested or ordered by a governmental authority. In such case,
Lessee shall upon request reimburse Lessor for the cost of such inspections,
so long as such inspection is reasonably related to the violation of
contamination.
PAGE 3 Initials ________________
FORM 204N-R-2/97
<PAGE>
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises,
Utility Installations, and Alterations in good order, condition and repair
(whether or not the portion of the Premises requiring repairs, or the means
of repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use,
any prior use, the elements or the age of such portion of the Premises),
including, but not limited to, all equipment or facilities, such as plumbing,
heating, ventilating, air-conditioning, electrical, lighting facilities,
boilers, pressure vessels, fire protection system, fixtures, walls (interior
and exterior), foundations, ceilings, roofs, floors, windows, doors, plate
glass, skylights, landscaping, driveways, parking lots, fences, retaining
walls, signs, sidewalks and parkways located in, on, or adjacent to the
Premises. Lessee, in keeping the Premises in good order, condition and
repair, shall exercise and perform good maintenance practices, specifically
including the procurement and maintenance of the service contracts required
by Paragraph 7.1(b) below. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair. Lessee shall, during the term of this Lease, keep the exterior
appearance of the Building in a first-class condition consistent with the
exterior appearance of other similar facilities of comparable age and size in
the vicinity, including, when necessary, the exterior repainting of the
Building.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements, if any, if and when
installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure
vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke
detection, (iv) landscaping and irrigation systems, (v) roof covering and
drains, (vi) driveways and parking lots, (vii) clarifiers (viii) basic
utility feed to the perimeter of the Building, and (ix) any other equipment,
if reasonably required by Lessor.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as
set forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Basic Elements described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of
replacing such Basic Elements, then such Basic Elements shall be replaced by
Lessor, and the cost thereof shall be prorated between the Parties and Lessee
shall only be obligated to pay, each month during the remainder of the term
of this Lease, on the date on which Base Rent is due, an amount equal to the
product of multiplying the cost of such replacement by a fraction, the
numerator of which is one, and the denominator of which is the number of
months of the useful life of such replacement as such useful life is
specified pursuant to Federal income tax regulations or guidelines for
depreciation thereof (including interest on the unamortized balance as is
then commercially reasonable in the judgment of Lessor's accountants), with
Lessee reserving the right to prepay its obligation at any time.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14
(Condemnation), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, or
the equipment therein, all of which obligations are intended to be that of
the Lessee. It is the intention of the Parties that the terms of this Lease
govern the respective obligations of the Parties as to maintenance and repair
of the Premises, and they expressly waive the benefit of any statute now or
hereafter in effect to the extent it is inconsistent with the terms of this
Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS"
refers to all floor and window coverings, air lines, power panels, electrical
distribution, security and fire protection systems, communication systems,
lighting fixtures, HVAC equipment, plumbing, and fencing in or on the
Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and
equipment that can be removed without doing material damage to the Premises.
The term "ALTERATIONS" shall mean any modification of the improvements, other
than Utility Installations or Trade Fixtures, whether by addition or
deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined
as Alterations and/or Utility Installations made by Lessee that are not yet
owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any
Alterations or Utility Installations to the Premises without Lessor's prior
written consent. Lessee may, however, make non-structural Utility
installations to the interior of the Premises (excluding the roof) without
such consent but upon notice to Lessor, as long as they are not visible from
the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during this Lease as
extended does not exceed $50,000 in the aggregate or $10,000 in any one year.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. Consent shall be
deemed conditioned upon Lessee's: (i) acquiring all applicable governmental
permits, (ii) furnishing Lessor with copies of both the permits and the plans
and specifications prior to commencement of the work, and (iii) compliance
with all conditions of said permits and other Applicable Requirements in a
prompt and expeditious manner. Any Alterations or Utility Installations shall
be performed in a workmanlike manner with good and sufficient materials.
Lessee shall promptly upon completion furnish Lessor with as-built plans and
specifications. For work which costs an amount equal to the greater of one
month's Base Rent, or $10,000, Lessor may condition its consent upon Lessee
providing a lien and completion bond in an amount equal to one and one-half
times the estimated cost of such Alteration or Utility Installation and/or
upon Lessee's posting an additional Security Deposit with Lessor.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by
any mechanic's or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in, on or about the Premises, and Lessor
shall have the right to post notices of non-responsibility. If Lessee shall
contest the validity of any such lien, claim or demand, then Lessee shall, at
its sole expense defend and protect itself, Lessor and the Premises against
the same and shall pay and satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof. If Lessor shall require,
Lessee shall furnish a surety bond in an amount equal to one and one-half
times the amount of such contested lien, claim or demand, indemnifying Lessor
against liability for the same, If Lessor elects to participate in any such
action, Lessee shall pay Lessor's attorneys' fees and costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or
elect ownership as hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered
a part of the Premises. Lessor may, at any time, elect in writing to be the
owner of all or any specified part of the Lessee Owned Alterations and
Utility Installations. Unless otherwise instructed per Paragraph 7.4(b)
hereof, all Lessee Owned Alterations and Utility Installations shall, at the
expiration or termination of this Lease, become the property of Lessor and be
surrendered by Lessee with the Premises.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor
not earlier than ninety (90) and not later than thirty (30) days prior to the
end of the term of this Lease, Lessor may require that any or all Lessee
Owned Alterations or Utility Installations be removed by the expiration or
termination of this Lease. Lessor may require the removal at any time of all
or any part of any Lessee Owned Alterations or Utility Installations made
without the required consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom clean and free of debris, and
in good operating order, condition and state of repair, ordinary wear and
tear excepted. "Ordinary wear and tear" shall not include any damage or
deterioration that would have been prevented by good maintenance practice.
Lessee shall repair any damage occasioned by the installation, maintenance or
removal of Trade Fixtures, Lessee Owned Alterations and/or Utility
Installations, furnishings, and equipment as well as the removal of any
storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or groundwater contaminated by Lessee.
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee. The failure by Lessee to timely vacate the Premises pursuant to this
Paragraph 7.4(c) without the express written consent of Lessor shall
constitute a holdover under the provisions of Paragraph 26 below.
PAGE 4 Initials
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<PAGE>
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance required
under Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per
occurrence. Premiums for policy periods commencing prior to or extending beyond
the Lease term shall be prorated to correspond to the Lease term. Payment shall
be made by Lessee to Lessor within ten (10) days following receipt of an
invoice.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and Lessor
against claims for bodily injury, personal injury and property damage based
upon or arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be on an
occurrence basis providing single limit coverage in an amount not less than
$2,000,000 per occurrence with an "ADDITIONAL INSURED-MANAGERS OR LESSORS OF
PREMISES ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION
ENDORSEMENT" for damage caused by heat, smoke or fumes from a hostile fire.
The Policy shall not contain any intra-insured exclusions as between insured
persons or organizations, but shall include coverage for liability assumed
under this Lease as an "insured contract" for the performance of Lessee's
indemnity obligations under this Lease. The limits of said insurance shall
not, however, limit the liability of Lessee nor relieve Lessee of any
obligation hereunder. All insurance carried by Lessee shall be primary to and
not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability insurance as
described in Paragraph 8.2(a), in addition to, and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as
an additional insured therein.
8.3 PROPERTY INSURANCE -- BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force a policy or policies in the name of Lessor, with loss payable
to Lessor, any groundlessor, and to any Lender(s) insuring loss or damage to
the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time,
or the amount required by any Lenders, but in no event more than the
commercially reasonable and available insurable value thereof. If Lessor is
the Insuring Party, however, Lessee Owned Alterations and Utility
Installations, Trade Fixtures, and Lessee's personal property shall be
insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage
is available and commercially appropriate, such policy or policies shall
insure against all risks of direct physical loss or damage (except the perils
of flood and/or earthquake unless required by a Lender), including coverage
for debris removal and the enforcement of any Applicable Requirements
requiring the upgrading, demolition, reconstruction or replacement of any
portion of the Premises as the result of a covered loss. Said policy or
policies shall also contain an agreed valuation provision in lieu of any
coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a
factor of not less than the adjusted U.S. Department of Labor Consumer Price
Index for All Urban Consumers for the city nearest to where the Premises are
located. If such insurance coverage has a deductible clause, the deductible
amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for
such deductible amount in the event of an Insured Loss.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in force
a policy or policies in the name of Lessor with loss payable to Lessor and
any Lender, insuring the loss of the full Rent for one (1) year. Said
insurance shall provide that in the event the Lease is terminated by reason
of an insured loss, the period of indemnity for such coverage shall be
extended beyond the date of the completion of repairs or replacement of the
Premises, to provide for one full year's loss of Rent from the date of any
such loss. Said insurance shall contain an agreed valuation provision in lieu
of any coinsurance clause, and the amount of coverage shall be adjusted
annually to reflect the projected Rent otherwise payable by Lessee, for the
next twelve (12) month period. Lessee shall be liable for any deductible
amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or of a group of buildings owned by Lessor which are adjacent to
the Premises, the Lessee shall pay for any increase in the premiums for the
property insurance of such building or buildings if said increase is caused
by Lessee's acts, omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee
Owned Alterations and Utility Installations. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property, Trade Fixtures and Lessee Owned
Alterations and Utility Installations. Lessee shall provide Lessor with
written evidence that such insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss of
income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly
insured against by prudent lessees in the business of Lessee or attributable
to prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by companies
duly licensed or admitted to transact business in the state where the
Premises are located, and maintaining during the policy term a "General
Policyholders Rating" of at least B+, V, as set forth in the most current
issue of "Best's Insurance Guide", or such other rating as may be required by
a Lender. Lessee shall not do or permit to be done anything which invalidates
the required insurance policies. Lessee shall, prior to the Start Date,
deliver to Lessor certified copies of policies of such insurance or
certificates evidencing the existence and amounts of the required insurance.
No such policy shall be cancelable or subject to modification except after
thirty (30) days prior written notice to Lessor. Lessee shall, at least
thirty (30) days prior to the expiration of such policies, furnish Lessor
with evidence of renewals or "insurance binders" evidencing renewal thereof,
or Lessor may order such insurance and charge the cost thereof to Lessee,
which amount shall be payable by Lessee to Lessor upon demand. Such policies
shall be for a term of at least one year, or the length of the remaining term
of this Lease, whichever is less. If either Party shall fail to procure and
maintain the insurance required to be carried by it, the other Party may, but
shall not be required to, procure and maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and
waive their entire right to recover damages against the other, for loss of or
damage to its property arising out of or incident to the perils required to
be insured against herein. The effect of such releases and waivers is not
limited by the amount of insurance carried or required, or by any deductibles
applicable hereto. The Parties agree to have their respective property damage
insurance carriers waive any right to subrogation that such companies may
have against Lessor or Lessee, as the case may be, so long as the insurance
is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence or willful
misconduct, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or
damages, liens, judgments, penalties, attorneys' and consultants' fees,
expenses and/or liabilities arising out of, involving, or in connection with,
the use and/or occupancy of the Premises by Lessee. If any action or
proceeding is brought against Lessor by reason of any of the foregoing
matters, Lessee shall upon notice defend the same at Lessee's expense by
counsel reasonably satisfactory to Lessor and Lessor shall cooperate with
Lessee in such defense. Lessor need not have first paid any such claim in
order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property
of Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by
or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, HVAC or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the Building of which the Premises are
a part, or from other sources or places. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall
under no circumstances be liable for injury to Lessee's business or for any
loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, which can reasonably be repaired in six (6) months or
less from the date of the damage or destruction.
PAGE 5 Initials
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<PAGE>
Lessor shall notify Lessee in writing within thirty (30) days from the date
of the damage or destruction as to whether or not the damage is Partial or
Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which cannot reasonably be repaired in six
(6) months or less from the date of the damage or destruction. Lessor shall
notify Lessee in writing within thirty (30) days from the date of the damage
or destruction as to whether or not the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which was caused by an event required to be
covered by the insurance described in Paragraph 8.3(a), irrespective of any
deductible amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of Applicable Requirements, and without
deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is
an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect; provided, however, that Lessee shall, at
Lessor's election, make the repair of any damage or destruction the total
cost to repair of which is $10,000 or less, and, in such event, Lessor shall
make any applicable insurance proceeds available to Lessee on a reasonable
basis for that purpose. Notwithstanding the foregoing, if the required
insurance was not in force or the insurance proceeds are not sufficient to
effect such repair, the Insuring Party shall promptly contribute the shortage
in proceeds (except as to the deductible which is Lessee's responsibility) as
and when required to complete said repairs. In the event, however, such
shortage was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or
adequate assurance thereof, within ten (10) days following receipt of written
notice of such shortage and request therefor. If Lessor receives said funds
or adequate assurance thereof within said ten (10) day period, the party
responsible for making the repairs shall complete them as soon as reasonably
possible and this Lease shall remain in full force and effect. If such funds
or assurance are not received, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to: (i) make such
restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect, or have this Lease terminate thirty (30) days thereafter. Lessee
shall not be entitled to reimbursement of any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood
or earthquake shall be subject to Paragraph 9.3, notwithstanding that there
may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee
within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage. Such termination shall be effective sixty (60)
days following the date of such notice. In the event Lessor elects to
terminate this Lease, Lessee shall have the right within ten (10) days after
receipt of the termination notice to give written notice to Lessor of
Lessee's commitment to pay for the repair of such damage without
reimbursement from Lessor. Lessee shall provide Lessor with said funds or
satisfactory assurance thereof within thirty (30) days after making such
commitment. In such event this Lease shall continue in full force and effect,
and Lessor shall proceed to make such repairs as soon as reasonably possible
after the required funds are available. If Lessee does not make the required
commitment, this Lease shall terminate as of the date specified in the
termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs, this Lease shall terminate sixty (60) days
following such Destruction. If the damage or destruction was caused by the
gross negligence or willful misconduct of Lessee, Lessor shall have the right
to recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether or not an Insured Loss, Lessor may terminate
this Lease effective sixty (60) days following the date of occurrence of such
damage by giving a written termination notice to Lessee within thirty (30)
days after the date of occurrence of such damage. Notwithstanding the
foregoing, if Lessee at that time has an exercisable option to extend this
Lease or to purchase the Premises, then Lessee may preserve this Lease by,
(a) exercising such option and (b) providing Lessor with any shortage in
insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or
(ii) the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds,
Lessor shall, at Lessor's commercially reasonable expense, repair such damage
as soon as reasonably possible and this Lease shall continue in full force
and effect. If Lessee fails to exercise such option and provide such funds or
assurance during such period, then this Lease shall terminate on the date
specified in the termination notice and Lessee's option shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or Premises
Total Destruction or a Hazardous Substance Condition for which Lessee is not
responsible under this Lease, the Rent payable by Lessee for the period
required for the repair, remediation or restoration of such damage shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired, but not to exceed the proceeds received from the Rental Value
insurance. All other obligations of Lessee hereunder shall be performed by
Lessee, and Lessor shall have no liability for any such damage, destruction,
remediation, repair or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore the
Premises and does not commence, in a substantial and meaningful way, such
repair or restoration within ninety (90) days after such obligation shall
accrue, Lessee may, at any time prior to the commencement of such repair or
restoration, give written notice to Lessor and to any Lenders of which Lessee
has actual notice, of Lessee's election to terminate this Lease on a date not
less than sixty (60) days following the giving of such notice. If Lessee
gives such notice and such repair or restoration is not commenced within
thirty (30) days thereafter, this Lease shall terminate as of the date
specified in said notice. If the repair or restoration is commenced within
said thirty (30) days, this Lease shall continue in full force and effect.
"COMMENCE" shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever first occurs.
9.7 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by
Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of
Lessee's Security Deposit as has not been, or is not then required to be,
used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL
PROPERTY TAXES" shall include any form of assessment; real estate, general,
special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or
license fee imposed upon or levied against any legal or equitable interest of
Lessor in the Premises, Lessor's right to other income therefrom, and/or
Lessor's business of leasing, by any authority having the direct or indirect
power to tax and where the funds are generated
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with reference to the Building address and where the proceeds so generated
are to be applied by the city, county or other local taxing authority of a
jurisdiction within which the Premises are located. The term "REAL PROPERTY
TAXES" shall also include any tax, fee, levy, assessment or charge, or any
increase therein, imposed by reason of events occurring during the term of
this Lease, including but not limited to, a change in the ownership of the
Premises.
10.2
(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of this Lease. Subject to
Paragraph 10.2(b), all such payments shall be made at least ten (10) days
prior to any delinquency date. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes shall
cover any period of time prior to or after the expiration or termination of
this Lease, Lessee's share of such taxes shall be prorated to cover only that
portion of the tax bill applicable to the period that this Lease is in
effect, and Lessor shall reimburse Lessee for any overpayment. If Lessee
shall fail to pay any required Real Property Taxes, Lessor shall have the
right to pay the same, and Lessee shall reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on
any Rent payment, Lessor may, at Lessor's option, estimate the current Real
Property Taxes, and require that such taxes be paid in advance to Lessor by
Lessee, either: (i) in a lump sum amount equal to the installment due, at
least twenty (20) days prior to the applicable delinquency date, or (ii)
monthly in advance with the payment of the Base Rent. If Lessor elects to
require payment monthly in advance, the monthly payment shall be an amount
equal to the amount of the estimated installment of taxes divided by the
number of months remaining before the month in which said installment becomes
delinquent. When the actual amount of the applicable tax bill is known, the
amount of such equal monthly advance payments shall be adjusted as required
to provide the funds needed to pay the applicable taxes. If the amount
collected by Lessor is insufficient to pay such Real Property Taxes when due,
Lessee shall pay Lessor, upon demand, such additional sums as are necessary
to pay such obligations. All moneys paid to Lessor under this Paragraph may
be intermingled with other moneys of Lessor and shall not bear interest. In
the event of a Breach by Lessee in the performance of its obligations under
this Lease, then any balance of funds paid to Lessor under the provisions of
this Paragraph may at the option of Lessor, be treated as an additional
Security Deposit.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property
Taxes for all of the land and improvements included within the tax parcel
assessed, such proportion to be conclusively determined by Lessor from the
respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency,
all taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal
property of Lessee. When possible, Lessee shall cause such property to be
assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee's property
within ten (10) days after receipt of a written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent.
(b) A change in the control of Lessee shall constitute an
assignment requiring consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment
or hypothecation of this Lease or Lessee's assets occurs, which results or
will result in a reduction of the Net Worth of Lessee by an amount greater
than twenty-five percent (25%) of such Net Worth as it was represented at the
time of the execution of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior
to said transaction or transactions constituting such reduction, whichever
was or is greater, shall be considered an assignment of this Lease to which
Lessor may withhold its consent. "NET WORTH OF LESSEE" shall mean the net
worth of Lessee (excluding any guarantors) established under generally
accepted accounting principles.
(d) An assignment or subletting without consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1(c), or a
noncurable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unapproved assignment or subletting as a
noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon
thirty (30) days written notice, increase the monthly Base Rent to one
hundred ten percent (110%) of the Base Rent then in effect. Further, in the
event of such Breach and rental adjustment, (i) the purchase price of any
option to purchase the Premises held by Lessee shall be subject to similar
adjustment to one hundred ten percent (110%) of the price previously in
effect, and (ii) all fixed and non-fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased to One Hundred Ten Percent
(110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any
other obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for Lessee's Default or
Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible
for the performance of Lessee's obligations under this Lease, including any
assignee or sublessee, without first exhausting Lessor's remedies against any
other person or entity responsible therefore to Lessor, or any security held
by Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination
as to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a fee of
$1,000 or ten percent (10%) of the current monthly Base Rent applicable to
the portion of the Premises which is the subject of the proposed assignment
or sublease, whichever is greater, as consideration for Lessor's considering
and processing said request. Lessee agrees to provide Lessor with such other
or additional information and/or documentation as may be reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed
to have assumed and agreed to conform and comply with each and every term,
covenant, condition and obligation herein to be observed or performed by
Lessee during the term of said assignment or sublease, other than such
obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented to in
writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all Rent payable on any sublease, and Lessor may collect such
Rent and apply same toward Lessee's obligations under this Lease; provided,
however, that until a Breach shall occur in the performance of Lessee's
obligations, Lessee may collect said Rent. Lessor shall not, by reason of the
foregoing or any assignment of such sublease, nor by reason of the collection
of Rent, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee. Lessee
hereby irrevocably authorizes and directs any such sublessee, upon receipt of
a written notice
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from Lessor stating that a Breach exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor all Rent due and to become due
under the sublease. Sublessee shall rely upon any such notice from Lessor and
shall pay all Rents to Lessor without any obligation or right to inquire as
to whether such Breach exists, notwithstanding any claim from Lessee to the
contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option,
require sublessee to attorn to Lessor, in which event Lessor shall undertake
the obligations of the sublessor under such sublease from the time of the
exercise of said option to the expiration of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to such sublessor or for any prior Defaults or
Breaches of such sublessor.
(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the Lessee
to comply with or perform any of the terms, covenants, conditions or rules
under this Lease. A "BREACH" is defined as the occurrence of one or more of
the following Defaults, and the failure of Lessee to cure such Default within
any applicable grace period:
(a) The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of security, or
where the coverage of the property insurance described in Paragraph 8.3 is
jeopardized as a result thereof, or without providing reasonable assurances
to minimize potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any
Security Deposit required to be made by Lessee hereunder, whether to Lessor
or to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of
three (3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service
contracts, (iii) the rescission of an unauthorized assignment or subletting,
(iv) a Tenancy Statement, (v) a requested subordination, (vi) evidence
concerning any guaranty and/or Guarantor, (vii) any document requested under
Paragraph 42 (easements), or (viii) any other documentation or information
which Lessor may reasonably require of Lessee under the terms of this Lease,
where any such failure continues for a period of ten (10) days following
written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraphs 13.1 (a), (b) or (c), above,
where such Default continues for a period of thirty (30) days after written
notice; provided, however, that if the nature of Lessee's Default is such
that more than thirty (30) days are reasonably required for its cure, then it
shall not be deemed to be a Breach if Lessee commences such cure within said
thirty (30) day period and thereafter diligently prosecutes such cure to
completion.
(e) The occurrence of any of the following events: (i) the making
of any general arrangement or assignment for the benefit of creditors; (ii)
becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days); (iii) the appointment of a trustee
or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where such seizure is not discharged within thirty (30) days;
provided, however, in the event that any provision of this subparagraph (e)
is contrary to any applicable law, such provision shall be of no force or
effect, and not affect the validity of the remaining provisions.
(f) The discovery that any financial statement of Lessee or of any
Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance
with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or
the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory basis, and Lessee's failure, within sixty (60) days following
written notice of any such event, to provide written alternative assurance or
security, which, when coupled with the then existing resources of Lessee,
equals or exceeds the combined financial resources of Lessee and the
Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties
or obligations, within ten (10) days after written notice (or in case of an
emergency, without notice), Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses,
permits or approvals. The costs and expenses of any such performance by
Lessor shall be due and payable by Lessee upon receipt of invoice therefor.
If any check given to Lessor by Lessee shall not be honored by the bank upon
which it is drawn, Lessor, at its option, may require all future payments to
be made by Lessee to be by cashier's check. In the event of a Breach, Lessor
may, with or without further notice or demand, and without limiting Lessor in
the exercise of any right or remedy which Lessor may have by reason of such
Breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (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 the Lessee
proves could have been reasonably avoided; (iii) the worth at the time of
award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of such rental loss that the
Lessee proves could be reasonably avoided; and (iv) any other amount
necessary to compensate Lessor for all the detriment proximately caused by
the Lessee's failure to perform its obligations under this Lease or which in
the ordinary course of things would be likely to result therefrom, including
but not limited to the cost of recovering possession of the Premises,
expenses of reletting, including necessary renovation and alteration of the
Premises, reasonable attorneys' fees, and that portion of any leasing
commission paid by Lessor in connection with this Lease applicable to the
unexpired term of this Lease. The worth at the time of award of the amount
referred to in provision (iii) of the immediately preceding sentence shall be
computed by discounting such amount at the discount rate of the Federal
Reserve Bank of the District within which the Premises are located at the
time of award plus one percent (1%). Efforts by Lessor to mitigate damages
caused by Lessee's Breach of this Lease shall not waive Lessor's right to
recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the
right to recover in such proceeding any unpaid Rent and damages as are
recoverable therein, or Lessor may reserve the right to recover all or any
part thereof in a separate suit. If a notice and grace period required under
Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to
perform or quit given to Lessee under the unlawful detainer statute shall
also constitute the notice required by Paragraph 13.1. In such case, the
applicable grace period required by Paragraph 13.1 and the unlawful detainer
statute shall run concurrently, and the failure of Lessee to cure the Default
within the greater of the two such grace periods shall constitute both an
unlawful detainer and a Breach of this Lease entitling Lessor to the remedies
provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession and recover
the Rent as it becomes due, in which event Lessee may sublet or assign,
subject only to reasonable limitations. Acts of maintenance, efforts to
relet, and/or the appointment of a receiver to protect the Lessor's
interests, shall not constitute a termination OF the Lessee's right to
possession.
(c) Pursue any other remedy now or hereafter available under the
laws or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's
right to possession shall not relieve Lessee from liability
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under any indemnity provisions of this Lease as to matters occurring or
accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or
other charges, or for the giving or paying by Lessor to or for Lessee of any
cash or other bonus, inducement or consideration for Lessee's entering into
this Lease, all of which concessions are hereinafter referred to as
"INDUCEMENT PROVISIONS," shall be deemed conditioned upon Lessee's full and
faithful performance of all of the terms, covenants and conditions of this
Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision
shall automatically be deemed deleted from this Lease and of no further force
or effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Lessor under such an Inducement
Provision shall be immediately due and payable by Lessee to Lessor,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance
by Lessor of rent or the cure of the Breach which initiated the operation of
this paragraph shall not be deemed a waiver by Lessor of the provisions of
this paragraph unless specifically so stated in writing by Lessor at the time
of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee of Rent will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain.
Such costs include, but are not limited to, processing and accounting
charges, and late charges which may be imposed upon Lessor by any Lender.
Accordingly, if any Rent shall not be received by Lessor within five (5) days
after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a one-time late charge equal to ten
percent (10%) of each such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of such late payment. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's Default or Breach
with respect to such overdue amount, nor prevent the exercise of any of the
other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding any provision of this Lease
to the contrary, Base Rent shall, at Lessor's option, become due and payable
quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than
late charges, not received by Lessor, when due as to scheduled payments (such
as Base Rent) or within thirty (30) days following the date on which it was
due for non-scheduled payment, shall bear interest from the date when due, as
to scheduled payments, or the thirty-first (31st) day after it was due as to
non-scheduled payments. The interest ("INTEREST") charged shall be equal to
the prime rate reported in the Wall Street Journal as published closest prior
to the date when due plus four percent (4%), but shall not exceed the maximum
rate allowed by law. Interest is payable in addition to the potential late
charge provided for in Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a
reasonable time shall in no event be less than thirty (30) days after receipt
by Lessor, and any Lender whose name and address shall have been furnished
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days are
reasonably required for its performance, then Lessor shall not be in breach
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said notice, or if having commenced said cure they do not
diligently pursue it to completion, then Lessee may elect to cure said breach
at Lessee's expense and offset from Rent an amount equal to the greater of
one month's Base Rent or the Security Deposit, and to pay an excess of such
expense under protest, reserving Lessee's right to reimbursement from Lessor.
Lessee shall document the cost of said cure and supply said documentation to
Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said
power (collectively "CONDEMNATION"), this Lease shall terminate as to the
part taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than ten percent (10%) of any building
portion of the premises, or more than twenty-five percent (25%) of the land
area portion of the premises not occupied by any building, is taken by
Condemnation, Lessee may, at Lessee's option, to be exercised in writing
within ten (10) days after Lessor shall have given Lessee written notice of
such taking (or in the absence of such notice, within ten (10) days after the
condemning authority shall have taken possession) terminate this Lease as of
the date the condemning authority takes such possession, If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the Base Rent shall be reduced in proportion to the reduction in
utility of the Premises caused by such Condemnation. Condemnation awards
and/or payments shall be the property of Lessor, whether such award shall be
made as compensation for diminution in value of the leasehold, the value of
the part taken, or for severance damages; provided, however, that Lessee
shall be entitled to any compensation for Lessee's relocation expenses, loss
of business goodwill and/or Trade Fixtures, without regard to whether or not
this Lease is terminated pursuant to the provisions of this Paragraph. All
Alterations and Utility Installations made to the Premises by Lessee, for
purposes of Condemnation only, shall be considered the property of the Lessee
and Lessee shall be entitled to any and all compensation which is payable
therefor. In the event that this Lease is not terminated by reason of the
Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.
15. BROKERS' FEE.
15.1 ADDITIONAL COMMISSION, In addition to the payments owed pursuant to
Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in
writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if
Lessee acquires any rights to the Premises or other premises owned by Lessor
and located within the same Project, if any, within which the Premises is
located, (c) if Lessee remains in possession of the Premises, with the
consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is
increased, whether by agreement or operation of an escalation clause herein,
then, Lessor shall pay Brokers a fee in accordance with the schedule of said
Brokers in effect at the time of the execution of this Lease.
15.2 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligation
hereunder. Each Broker shall be a third party beneficiary of the provisions
of Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to a Broker any
amounts due as and for commissions pertaining to this Lease when due, then
such amounts shall accrue Interest. In addition, if Lessor fails to pay any
amounts to Lessee's Broker when due, Lessee's Broker may send written notice
to Lessor and Lessee of such failure and if Lessor fails to pay such amounts
within ten (10) days after said notice, Lessee shall pay said monies to its
Broker and offset such amounts against Rent. In addition, Lessee's Broker
shall be deemed to be a third party beneficiary of any commission agreement
entered into by and/or between Lessor and Lessor's Broker.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee and
Lessor each represent and warrant to the other that it has had no dealings
with any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason
of any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
16. ESTOPPEL CERTIFICATES.
(a) Each Party (as "RESPONDING PARTY") shall within ten (10) days
after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in
form similar to the then most current "ESTOPPEL CERTIFICATE" form published
by the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
(b) If the Responding Party shall fail to execute or deliver the
Estoppel Certificate within such ten day period, the Requesting Party may
execute an Estoppel Certificate stating that: (i) the Lease is in full force
and effect without modification except as may be represented by the
Requesting Party, (ii) there are no uncured defaults in the Requesting
Party's performance, and (iii) if Lessor is the Requesting Party, not more
than one month's rent has been paid in advance. Prospective purchasers and
encumbrancers may rely upon the Requesting Party's Estoppel Certificate, and
the Responding Party shall be estopped from denying the truth of the facts
contained in said Certificate.
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(c) If Lessor desires to finance, refinance, or sell the Premises,
or any part thereof, Lessee and all Guarantors shall deliver to any potential
lender or purchaser designated by Lessor such financial statements as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or,
if this is a sublease, of the Lessee's interest in the prior lease. In the
event of a transfer of Lessor's title or interest in the Premises or this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor. Except as provided in
Paragraph 15, upon such transfer or assignment and delivery of the Security
Deposit, as aforesaid, the prior Lessor shall be relieved of all liability
with respect to the obligations and/or covenants under this Lease thereafter
to be performed by the Lessor. Subject to the foregoing, the obligations
and/or covenants in this Lease to be performed by the Lessor shall be binding
only upon the Lessor as hereinabove defined. Notwithstanding the above, and
subject to the provisions of Paragraph 20 below, the original Lessor under
this Lease, and all subsequent holders of the Lessor's interest in this Lease
shall remain liable and responsible with regard to the potential duties and
liabilities of Lessor pertaining to Hazardous Substances as outlined in
Paragraph 6 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17 above,
the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall
look to the Premises, and to no other assets of Lessor, for the satisfaction
of any liability of Lessor with respect to this Lease, and shall not seek
recourse against the individual partners of Lessor, or its or their
individual partners, directors, officers or shareholders, or any of their
personal assets for such satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this
Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the nature, quality and character of the Premises.
Brokers have no responsibility with respect thereto or with respect to any
default or breach hereof by either Party. The liability (including court
costs and Attorneys' fees), of any Broker with respect to negotiation,
execution, delivery or performance by either Lessor or Lessee under this
Lease or any amendment or modification hereto shall be limited to an amount
up to the fee received by such Broker pursuant to this Lease; provided,
however, that the foregoing limitation on each Broker's liability shall not
be applicable to any gross negligence or willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
courier) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile
transmission, and shall be deemed sufficiently given if served in a manner
specified in this Paragraph 23. The addresses noted adjacent to a Party's
signature on this Lease shall be that Party's address for delivery or mailing
of notices. Either Party may by written notice to the other specify a
different address for notice, except that upon Lessee's taking possession of
the Premises, the Premises shall constitute Lessee's address for notice. A
copy of all notices to Lessor shall be concurrently transmitted to such party
or parties at such addresses as Lessor may from time to time hereafter
designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown
on the receipt card, or if no delivery date is shown, the postmark thereon.
If sent by regular mail the notice shall be deemed given forty-eight (48)
hours after the same is addressed as required herein and mailed with postage
prepaid. Notices delivered by United States Express Mail or overnight courier
that guarantee next day delivery shall be deemed given twenty-four (24) hours
after delivery of the same to the Postal Service or courier. Notices
transmitted by facsimile transmission or similar means shall be deemed
delivered upon telephone confirmation of receipt, provided a copy is also
delivered via delivery or mail. If notice is received on a Saturday, Sunday
or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof.
Lessor's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. The acceptance of Rent by Lessor shall not be a waiver of any
Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor
an account of moneys or damages due Lessor, notwithstanding any qualifying
statements or conditions made by Lessee in connection therewith, which such
statements and/or conditions shall be of no force or effect whatsoever unless
specifically agreed to in writing by Lessor at or before the time of deposit
of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this
Lease. In the event that Lessee holds over, then the Base Rent shall be
increased to one hundred fifty percent (150%) of the Base Rent applicable
during the month immediately preceding the expiration or termination. Nothing
contained herein shall be construed as consent by Lessor to any holding over
by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the
plural and vice versa. This Lease shall not be construed as if prepared by
one of the parties, but rather according to its fair meaning as a whole, as
it both parties had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be
initiated in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "SECURITY DEVICE"), now
or hereafter placed upon the Premises, to any and all advances made on the
security thereof, and to all renewals, modifications, and extensions thereof.
Lessee agrees that the holders of any such Security Devices (in this Lease
together referred to as "Lessor's Lender") shall have no liability or
obligation to perform any of the obligations of Lessor under this Lease. Any
Lender may elect to have this Lease and/or any Option granted hereby superior
to the lien of its Security Device by giving written notice thereof to
Lessee, whereupon this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device,
and that in the event of such foreclosure, such new
PAGE 10 Initials
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owner shall not: (i) be liable for any act or omission of any prior lessor or
with respect to events occurring prior to acquisition of ownership; (ii) be
subject to any offsets or defenses which Lessee might have against any prior
lessor, or (iii) be bound by prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which
Non-Disturbance Agreement provides that Lessee's possession of the Premises,
and this Lease, including any options to extend the term hereof, will not be
disturbed so long as Lessee is not in Breach hereof and attorns to the record
owner of the Premises. Further, within sixty (60) days after the execution of
this Lease, Lessor shall use its commercially reasonable efforts to obtain a
Non-Disturbance Agreement from the holder of any pre-existing Security Device
which is secured by the Premises. In the event that Lessor is unable to
provide the Non-Disturbance Agreement within said sixty (60) days, then
Lessee may, at Lessee's option, directly contact Lessor's lender and attempt
to negotiate for the execution and delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection
with a sale, financing or refinancing of the Premises, Lessee and Lessor
shall execute such further writings as may be reasonably required to
separately document any subordination, attornment and/or Non-Disturbance
Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such
proceeding, action, or appeal thereon, shall be entitled to reasonable
attorneys' fees. Such fees may be awarded in the same suit or recovered in a
separate suit, whether or not such action or proceeding is pursued to
decision or judgment. The term, "PREVAILING PARTY" shall include, without
limitation, a Party or Broker who substantially obtains or defeats the relief
sought, as the case may be, whether by compromise, settlement, judgment, or
the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fees award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred. In addition, Lessor shall be entitled to attorneys'
fees, costs and expenses incurred in the preparation and service of notices
of Default and consultations in connection therewith, whether or not a legal
action is subsequently commenced in connection with such Default or resulting
Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises as Lessor may
deem necessary. All such activities shall be without abatement of rent or
liability to Lessee. Lessor may at any time place on the Premises any
ordinary "FOR SALE" signs and Lessor may during the last six (6) months of
the term hereof place on the Premises any ordinary "FOR LEASE" signs. Lessee
may at any time place on or about the Premises any ordinary "FOR SUBLEASE" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor
shall not be obligated to exercise any standard of reasonableness in
determining whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, that Lessor may elect to continue any one
or all existing subtenancies. Lessor's failure within ten (10) days following
any such event to elect to the contrary by written notice to the holder of
any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease the
consent of a Party is required to an act by or for the other Party, such
consent shall not be unreasonably withheld or delayed. Lessor's actual
reasonable costs and expenses (including but not limited to architects',
attorneys', engineers' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent,
including but not limited to consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee upon
receipt of an invoice and supporting documentation therefor. Lessor's consent
to any act, assignment or subletting shall not constitute an acknowledgment
that no Default or Breach by Lessee of this Lease exists, nor shall such
consent be deemed a waiver of any then existing Default or Breach, except as
may be otherwise specifically stated in writing by Lessor at the time of such
consent. The failure to specify herein any particular condition to Lessor's
consent shall not preclude the imposition by Lessor at the time of consent of
such further or other conditions as are then reasonable with reference to the
particular matter for which consent is being given. In the event that either
Party disagrees with any determination made by the other hereunder and
reasonably requests the reasons for such determination, the determining party
shall furnish its reasons in writing and in reasonable detail within ten (10)
business days following such request.
37. GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty in
the form most recently published by the American Industrial Real Estate
Association, and each such Guarantor shall have the same obligations as
Lessee under this Lease.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any
Guarantor fails or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, including the authority of the party signing on
Guarantor's behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements,
(c) a Tenancy Statement, or (d) written confirmation that the guaranty is
still in effect.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and
performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession and quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the term
of or renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (b) the right of first refusal or first offer to
lease either the Premises or other property of Lessor; (c) the right to
purchase or the right of first refusal to purchase the Premises or other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee
in this Lease is personal to the original Lessee, and cannot be assigned or
exercised by anyone other than said original Lessee and only while the
original Lessee is in full possession of the Premises and, if requested by
Lessor, with Lessee certifying that Lessee has no intention of thereafter
assigning or subletting.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT AN OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during
the period commencing with the giving of any notice of Default and continuing
until said Default is cured, (ii) during the period of time any Rent is
unpaid (without regard to whether notice thereof is given Lessee), (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that
Lessee has been given three (3) or more notices of separate Default, whether
or not the Defaults are cured, during the twelve (12) month period
immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise
an Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or effect,
notwithstanding Lessee's due and timely exercise of the Option, if, after
such exercise and prior to the commencement of the extended term, (i) Lessee
fails to pay Rent for a period of thirty (30) days after such Rent becomes
due (without any necessity of Lessor to give notice thereof), (ii) Lessor
gives to Lessee three (3) or more notices of separate Default during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including
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the care and cleanliness of the grounds and including the parking, loading
and unloading of vehicles, and that Lessee will pay its fair share of common
expenses incurred in connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide
same. Lessee assumes all responsibility for the protection of the Premises,
Lessee, its agents and invitees and their property from the acts of third
parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of
parcel maps and restrictions, so long as such easements, rights, dedications,
maps and restrictions do not unreasonably interfere with the use of the
Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay.
44. AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each party
shall, within thirty (30) days after request, deliver to the other party
satisfactory evidence of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease
to the other Party. This Lease is not intended to be binding until executed
and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this Lease / / IS /X/ IS NOT attached to this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
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ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION
OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND
THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
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The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures,
Executed at: Executed at:
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on: on:
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By LESSOR: By LESSEE:
HOSPITALITY MARKETING CONSULTANTS, HOSPITALITY MARKETING CONSULTANTS, LLC
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a general partnership a California limited liability company
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By: By:
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Name Printed: Name Printed:
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Title: Title:
-------------------------------- ---------------------------------
By: By:
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Name Printed: Name Printed:
------------------------- --------------------------
Title: Title:
-------------------------------- ---------------------------------
Address: Address:
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Telephone: Telephone:
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Facsimile: ( ) Facsimile: ( )
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Federal ID No. Federal ID No.
------------------------ -------------------------
NOTE: These forms are often modified to meet changing requirements of
law and industry needs. Always write or call to make sure you are
utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 700 So. Flower Street, Suite 600, Los Angeles,
California 90017. (213) 687-8777. Fax No. (213) 687-8616
FORM 204N-R-2/97
PAGE 12
-C-COPYRIGHT 1997 - BY AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION. ALL
RIGHTS RESERVED. NO PART OF THESE WORKS MAY BE REPRODUCED IN ANY FORM
WITHOUT PERMISSION IN WRITING.
<PAGE>
[LOGO]
OPTION(S) TO EXTEND
STANDARD LEASE ADDENDUM
Dated June 1, 1998
----------------------------------------------------------
BY AND BETWEEN (LESSOR) Hospitality Marketing Consultants, a
---------------------------------------
general partnership
(LESSEE) Hospitality Marketing Consultants, LLC,
---------------------------------------
a California limited liability company
ADDRESS OF PREMISES: 15751 Rockfield Boulevard
-------------------------------------------
Irvine, California 92718
Paragraph
-----
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this Lease
for one (1) additional thirty-six (36) month period(s) commencing when the prior
term expires upon each and all of the following terms and conditions:
(i) In order to exercise an option to extend, Lessee must give
written notice of such election to Lessor and Lessor must receive the same at
least 6 but not more than 12 months prior to the date that the option period
would commence, time being of the essence. If proper notification of the
exercise of an option is not given and/or received, such option shall
automatically expire. Options (if there are more than one) may only be
exercised consecutively.
(ii) The provisions of paragraph 39, including those relating to
Lessee's Default set forth in paragraph 39.4 of this Lease, are conditions of
this Option.
(iii) Except for the provisions of this Lease granting an option or
options to extend the term, all of the terms and conditions of this Lease
except where specifically modified by this option shall apply.
(iv) This Option is personal to the original Lessee, and cannot be
assigned or exercised by anyone other than said original Lessee and only
while the original Lessee is in full possession of the Premises and without
the intention of thereafter assigning or subletting.
(v) The monthly rent for each month of the option period shall be
calculated as follows, using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
/X/ I. COST OF LIVING ADJUSTMENT(S) (COLA)
a. On (Fill in COLA Dates): The first day of the option period the
Base Rent shall be adjusted by the change, if any, from the Base Month
specified below, in the Consumer Price Index of the Bureau of Labor
Statistics of the U.S. Department of Labor for (select one): / / CPI W (Urban
Wage Earners and Clerical Workers) or /X/ CPI U (All Urban Consumers), for
(Fill in Urban Area): Los Angeles/Anaheim/Riverside All Items (1982-1984 =
100), herein referred to as "CPI"
b. The monthly rent payable in accordance with paragraph A.I.a. of
this Addendum shall be calculated as follows: the Base Rent set forth in
paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the
numerator of which shall be the CPI of the calendar month two months prior to
the month(s) specified in paragraph A.I.a. above during which the adjustment
is to take effect, and the denominator of which shall be the CPI of the
calendar month which is two months prior to (select one): / / the first month
of the term of this Lease as set forth in paragraph 1.3 ("Base Month") or / /
(Fill in Other "Base Month"): two (2) months prior to the first month of the
initial term of this Lease. The sum so calculated shall constitute the new
monthly rent hereunder, but in no event, shall any such new monthly rent be
less than the rent payable for the month immediately preceding the rent
adjustment.
c. In the event the compilation and/or publication of the CPI shall be
transferred to any other governmental department or bureau or agency or shall
be discontinued, then the index most nearly the same as the CPI shall be used
to make such calculation. In the event that the Parties cannot agree on such
alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in accordance with the then rules of said
Association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitration shall be paid equally by the Parties.
/ / II. MARKET RENTAL VALUE ADJUSTMENT(S) (MRV)
a. On (Fill in MRV Adjustment Date(s))
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- --------------------------------------------------------------------------------
the Base Rent shall be adjusted to the "Market Rental Value" of the property as
follows:
1) Four months prior to each Market Rental Value Adjustment Date
described above, the Parties shall attempt to agree upon what the new MRV
will be on the adjustment date. If agreement cannot be reached, within thirty
days, then:
(a) Lessor and Lessee shall immediately appoint a mutually
acceptable appraiser or broker to establish the new MRV within the next
thirty days. Any associated costs will be split equally between the Parties,
or
(b) Both Lessor and Lessee shall each immediately make a
reasonable determination of the MRV and submit such determination, in
writing, to arbitration in accordance with the following provisions:
(i) Within fifteen days thereafter, Lessor and Lessee
shall each select an / / appraiser or / / broker ("CONSULTANT"--check one) of
their choice to act as an arbitrator. The two arbitrators so appointed shall
immediately select a third mutually acceptable Consultant to act as a third
arbitrator.
Initials: Initials:
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Page 1 of 2
FOR THIS FORM, WRITE: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700
S. FLOWER STREET, SUITE 600, LOS ANGELES, CALIF. 90017
- -C-1997 -- AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM
<PAGE>
(ii) The three arbitrators shall within thirty days of
the appointment of the third arbitrator reach a decision as to what the
actual MRV for the Premises is, and whether Lessor's or Lessee's submitted
MRV is the closest thereto. The decision of a majority of the arbitrators
shall be binding on the Parties. The submitted MRV which is determined to be
the closest to the actual MRV shall thereafter be used by the Parties.
(iii) If either of the Parties fails to appoint an
arbitrator within the specified fifteen days, the arbitrator timely appointed
by one of them shall reach a decision on his or her own, and said decision
shall be binding on the Parties.
(iv) The entire cost of such arbitration shall be paid
by the party whose submitted MRV is not selected, ie. the one that is NOT the
closest to the actual MRV.
2) Notwithstanding the foregoing, the new MRV shall not be less
than the rent payable for the month immediately preceding the rent adjustment.
b. Upon the establishment of each New Market Rental Value:
1) the new MRV will become the new "Base Rent" for the purpose of
calculating any further Adjustments, and
2) the first month of each Market Rental Value term shall become
the new "Base Month" for the purpose of calculating any further Adjustments.
/ / III. FIXED RENTAL ADJUSTMENT(S) (FRA)
The Base Rent shall be increased to the following amounts on the dates set
forth below:
On (Fill in FRA Adjustment Date(s)): The New Base Rent shall be:
$
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$
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$
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$
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B. NOTICE:
Unless specified otherwise herein, notice of any rental adjustments,
other than Fixed Rental Adjustments, shall be made as specified in paragraph
23 of the Lease.
C. BROKER'S FEE:
The Brokers specified in paragraph 1.10 shall be paid a Brokerage Fee
for each adjustment specified above in accordance with paragraph 15 of the
Lease.
Initials: Initials:
------- -------
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OPTION(S) TO EXTEND
PAGE 2 OF 2
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the most
current form: American Industrial Real Estate Association, 700 S. Flower Street,
Suite 600, Los Angeles, CA 90017 (213) 687-8777. Fax No. (213) 687-8616.
- -C-1997 -- AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
--------------------
NAME COUNTRY OR STATE OF
---- INCORPORATION
-------------------
Hospitality Marketing Concepts Pty. Limited Australia
Call Connect Inc. California
HMC Consultants Inc. California
HMC-International Marketing Concepts Inc. Canada
Hospitality Marketing Concepts de Colombia, S.A. Colombia
Hospitality Marketing Concepts sarl France
Hospitality Management Consultant Indonesia Indonesia
Hospitality Marketing Concepts Italia S.R.L. Italy
Hotel Marketing Company (HMC) Lebanon
Hospitality Marketing Consultants SDN BHD Malaysia
HMC Consulting (Shanghai) Co., Ltd. Peoples Republic of
China
Hospitality Marketing Concepts [Poland] Sp. zoo. Poland
Hospitality Marketing Concepts (Asia Pacific) Singapore
Pte Ltd.
Hospitality Marketing Concepts (Espana), S.L. Spain
Hospitality Marketing Concepts (Holdings) Limited United Kingdom
Hospitality Marketing Concepts Limited United Kingdom
Hospitality Marketing Consultants 2000 de Venezuela
Venezuela, C.A.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 2,840,000 1,380,000
<SECURITIES> 1,500,000 2,717,000
<RECEIVABLES> 1,026,000 1,586,000
<ALLOWANCES> 215,000 265,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 15,349,000 14,967,000
<PP&E> 378,000 419,000
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 16,498,000 16,226,000
<CURRENT-LIABILITIES> 19,205,000 19,128,000
<BONDS> 0 0
0 0
0 0
<COMMON> 8,000 8,000
<OTHER-SE> (7,478) (7,673)
<TOTAL-LIABILITY-AND-EQUITY> 16,498,000 16,226,000
<SALES> 31,906,000 7,873,000
<TOTAL-REVENUES> 31,906,000 7,873,000
<CGS> 20,658,000 5,033,000
<TOTAL-COSTS> 7,304,000 2,005,000
<OTHER-EXPENSES> 4,000 (4,000)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 285,000 144,000
<INCOME-PRETAX> 3,655,000 695,000
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,655,000 695,000
<EPS-PRIMARY> 0.43 0.08
<EPS-DILUTED> 0.43 0.08
</TABLE>
