<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1998.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
CLARK/BARDES HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 6311 52-2103926
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
Incorporation or organization) classification code number) Identification No.)
</TABLE>
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2121 SAN JACINTO, SUITE 2200
DALLAS, TEXAS 75201-7906
TELEPHONE: (214) 871-8717
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
W.T. WAMBERG
CHAIRMAN OF THE BOARD
2121 SAN JACINTO, SUITE 2200
DALLAS, TEXAS 75201-7906
TELEPHONE: (214) 871-8717
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies to:
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<S> <C>
TERRY M. SCHPOK, P.C. PHYLLIS G. KORFF, ESQ.
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. SUSAN J. SUTHERLAND, ESQ.
1700 PACIFIC AVENUE, SUITE 4100 SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
DALLAS, TEXAS 75201-4675 919 THIRD AVENUE
(214) 969-2800 NEW YORK, NEW YORK 10022-3897
(212) 735-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ---------------------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------------
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par value........................ $57,500,000 $16,962.50
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</TABLE>
(1) Estimated solely for the purpose of calculating 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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 12, 1998
PROSPECTUS
SHARES
CLARK BARDES LOGO
COMMON STOCK
------------------------------
All of the shares of common stock, par value $0.01 per share (the
"Common Stock"), offered hereby (the "Offering") will be sold by Clark/Bardes
Holdings, Inc. ("CBH"). Prior to the Offering, there has been no public market
for CBH's Common Stock. It is currently anticipated that the initial public
offering price will be between $ and $ per share (the "Range"). For
a discussion of the factors to be considered in determining the initial public
offering price, see "Underwriting."
Application will be made to list the Common Stock on the New York Stock
Exchange.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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UNDERWRITING
PRICE TO PUBLIC DISCOUNTS(1) PROCEEDS TO CBH(2)
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<S> <C> <C> <C>
Per Share........................... $ $ $
- ------------------------------------------------------------------------------------------------------------
Total(3)............................ $ $ $
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</TABLE>
(1) CBH 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 CBH estimated at $750,000.
(3) W.T. Wamberg, CBH's chairman, has granted the Underwriters a 30-day option
to purchase up to additional shares of Common Stock on the
same terms and conditions as set forth above, solely to cover
over-allotments, if any. If the option is exercised in full, the total Price
to Public will be $ and the total Underwriting Discounts and
Commissions will be $ . CBH will not receive any of the proceeds
from the sale of shares by Mr. Wamberg. See "Principal Stockholders" and
"Underwriting."
------------------------------
The shares of Common Stock are offered subject to prior sale, when, as and
if delivered to, and accepted by, the Underwriters and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify the
Offering and to reject orders in whole or in part. It is expected that delivery
of the shares of Common Stock will be made on or about , 1998, at the
offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167.
BEAR, STEARNS & CO. INC.
PIPER JAFFRAY INC.
CONNING & COMPANY
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING
TRANSACTIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following is a summary of certain information contained herein and is
qualified in its entirety by, and should be read in conjunction with, the more
detailed information and financial statements, including the notes thereto,
contained elsewhere in this Prospectus. Clark/Bardes Holdings, Inc., a Delaware
corporation ("CBH"), and Clark/Bardes, Inc., a Delaware corporation and a wholly
owned subsidiary of CBH ("Clark/ Bardes"), were formed in June 1998 in
contemplation of the Offering and to effect the Reorganization (as defined
below). As a result of the Reorganization, Clark/Bardes became the successor
corporation to Clark/ Bardes, Inc., a Texas corporation (the "Predecessor
Company"). Unless the context otherwise requires, all references in this
Prospectus to the "Company" mean CBH together with its wholly owned subsidiary
Clark/ Bardes and the predecessor of Clark/Bardes, and all such references
relating to dates, periods or events prior to the Reorganization mean the
Predecessor Company. Unless otherwise indicated, this Prospectus and all pro
forma financial and statistical information set forth herein assumes the
consummation of the Reorganization and no exercise of the Underwriters'
over-allotment option. For the convenience of the reader, certain industry-
specific terms have been defined in the Glossary contained elsewhere in this
Prospectus, and any defined terms used herein and not otherwise defined shall
have the meanings given in the Glossary.
THE COMPANY
GENERAL
Since the inception of the Predecessor Company in 1967, Clark/Bardes, the
wholly owned operating subsidiary of CBH, has grown to become a leading
designer, marketer and administrator of insurance-financed employee benefit
programs to large corporations and community, regional and money center banks.
The Company's clients use these sophisticated programs primarily to offset the
costs of employee benefit liabilities and to supplement and secure benefits for
key executives. The Company's revenue is earned primarily from (i) commissions
paid to Clark/Bardes by the insurance companies that underwrite the policies
underlying the Company's programs and (ii) fees paid by clients in connection
with program design and the administrative services provided by the Company.
Such commissions and fees are usually long term and recurring and are typically
paid annually and extend over a period of ten years or more after the sale.
The Company has experienced rapid growth since December 31, 1995. Effective
September 1, 1997, the Predecessor Company acquired substantially all the
assets, the client list and the book of business of Bank Compensation
Strategies, Inc. ("BCS"), a Minnesota based company that designed, marketed and
administered insurance-financed employee benefit programs and related
compensation, salary and benefit plans for community and regional banks. Through
sales generated by a group of specialized independent producers and the
integration of the assets acquired from BCS, the Company has a customer base of
155 large corporate clients and 982 regional and community banks as of December
31, 1997. Additionally, the inforce insurance coverage underlying the Company's
programs has increased from approximately $18.3 billion as of December 31, 1995
to approximately $43.8 billion as of December 31, 1997, representing a compound
annual growth rate of 54.7%. Income from operations has grown from $2.2 million
for the year ended December 31, 1995 to $5.2 million for the year ended December
31, 1997, representing a compound annual growth rate of 53.5%.
Management believes additional growth opportunities exist and that
Clark/Bardes' reputation as an industry leader, its comprehensive in-house
expertise, sophisticated administrative systems, quality producers and strong
relationships with insurance companies provide the Company with distinct
competitive advantages. The Company intends to increase its market share by
combining these strengths with its core competencies of (i) designing
proprietary programs customized to meet clients' needs, (ii) providing
outstanding client service, and (iii) responding quickly to develop new products
and services brought about by regulatory and legislative changes. In addition,
management believes that Clark/Bardes can be a leader in the consolidation of
the highly fragmented insurance-financed employee benefit industry by offering
liquidity, proprietary benefit and program designs and administrative support to
the owners of smaller firms. Finally, management intends to leverage the
Company's core competencies by entering into related markets such as
compensation consulting and outsourcing of benefit plan administration services.
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The Company has developed the high quality administrative capabilities
necessary to service the executive benefit and insurance programs marketed by
the Company. At March 31, 1998, the Company administered approximately 180,000
benefit and insurance records for nearly 1,200 clients. At such date, the
insurance policies underlying the Company's employee benefit programs
represented a total of $44.3 billion of inforce insurance coverage. Of such
total inforce insurance coverage in effect at March 31, 1998, 94.0% of the total
dollar amount was issued by 22 insurers rated A+ or better by A.M. Best.
Management believes that its strong relationship with these insurance companies
is due to the Company's history of placing high-quality, high persistency
policies.
As of March 31, 1998, the Company was represented by 35 producers in 25
independently operated sales offices located throughout the United States. These
producers and the Company's management will own an aggregate of approximately
% of the outstanding Common Stock after giving effect to the Offering. See
"Principal Stockholders."
INDUSTRY
Beginning in the early 1980s, corporations and banks began using life
insurance to offset the costs of employee benefit liabilities with greater
frequency than in the past. Since that time, several large insurers, including
AEGON, CIGNA, General American, Great-West and Nationwide, have committed
significant resources to develop business-owned life insurance products for use
in the insurance-financed employee benefit industry.
The use of insurance to offset the costs of employee benefit liabilities
historically has been affected by legislative change, both positive and
negative. In the past, legislation has reduced the usefulness of traditional
pension plans for highly-paid executives which, in turn, has increased the
attractiveness of insurance-financed non-qualified benefit plans. On the other
hand, legislation has limited interest deductibility on policy loans and
restricted the use of business-owned life insurance to employees, officers,
directors and 20-percent owners. The insurance-financed employee benefit
industry will continue to be affected significantly by legislative change.
Consequently, the Company believes that the ability to respond quickly to
legislative initiatives is a competitive advantage to increase market share.
The Company believes that historically the insurance-financed employee
benefit industry has been dominated by a small number of successful producers
and producer groups. Management believes that many of the once-dominant
producers and producer groups have not kept pace with the numerous changes
affecting the industry, and are currently faced with a decreasing market share
and the inability to provide adequate administrative support to existing
clients. The Company believes that those producers and producer groups who have
not made the necessary and substantial investment in administrative systems and
personnel will continue to experience difficulties in satisfying their clients'
growing needs and demands and in meeting complex regulatory requirements.
Finally, the Company also believes that the ever-changing legislative and
economic environments require product development systems and personnel that are
more sophisticated and cost intensive than most producers and producer groups
are able to justify economically. Given the highly fragmented nature of the
industry, management expects significant consolidation to occur in the future.
STRATEGY
The Company's goal is to enhance its leadership role as a provider of
innovative benefit and insurance solutions to corporations and banks throughout
the United States. To accomplish this goal, the Company intends to focus on the
following:
- Leverage Market Reputation. The Company plans to leverage its reputation
as an industry leader to expand current operations and to enter into
related businesses.
- Design Innovative Programs. The Company intends to use its expertise in
program development to create and market innovative, customized programs
in order to facilitate the Company's penetration of new markets and to
satisfy the financial needs of its clients in a changing regulatory and
economic environment.
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<PAGE> 6
- Diversify Business. Management plans to identify and enter into related
businesses in which the Company's core competencies can be profitably
employed. Examples of related businesses include compensation consulting,
outsourcing of benefit plan administrative services and marketing to the
non-profit sector.
- Enhance Administrative Capabilities. The Company intends to continue
distinguishing itself from its competitors by enhancing its
administrative capabilities, providing high quality administrative
services and improving operating margins.
- Pursue Consolidating Acquisitions. The Company intends to take advantage
of the expected consolidation in the insurance-financed employee benefit
market and implement the Company's design, distribution and service model
on a wide-scale basis so as to increase market share, acquire producer
and management talent, enter into new markets and improve operating
margins through integration efficiencies.
The Company intends to use a combination of plans to encourage ownership of
CBH stock among its employees, producers and directors so as to further align
their interests with those of CBH's stockholders. Examples of such plans include
a commission reinvestment plan for producers, providing the opportunity for
employees to purchase CBH stock through the Company's 401(k) plan and
compensating the Board of Directors with CBH stock.
The principal executive office of the Company is located at 2121 San
Jacinto Street, Suite 2200, Dallas, Texas 75201-7906, and its telephone number
is (214) 871-8717.
THE OFFERING
Common Stock offered by CBH......... Shares
Common Stock to be outstanding after
the Offering........................ Shares
Use of Proceeds..................... For the payment of certain indebtedness
of the Company, extinguishment of
warrants, the consummation of a pending
acquisition, amendment of Mr. Wamberg's
Principal Office Agreement and general
corporate purposes, including working
capital and possible future
acquisitions. See "Use of Proceeds,"
"Reorganization," "Pending Acquisition"
and "Certain Relationships and Related
Transactions."
Proposed New York Stock Exchange
Symbol..............................
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact included in this
Prospectus, including without limitation statements under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," regarding the Company's financial position, business
strategy and plans and objectives of management of the Company for future
operations, are forward-looking statements. When used in this Prospectus, words
such as "anticipate," "believe," "estimate," "expect," "intend" and similar
expressions, as they relate to the Company or its management, identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of the Company's management as well as assumptions made by and
information currently available to the Company's management. Actual results
could differ materially from those contemplated by the forward-looking
statements as a result of certain factors, such as those disclosed under "Risk
Factors," including but not limited to difficulties associated with changes in
tax legislation, dependence on key producers, the Company's dependence on
persistency of existing business, credit risk related to renewal revenue,
acquisition risks, competitive factors and pricing pressures, dependence
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on certain insurance companies, changes in legal and regulatory requirements and
general economic conditions. Such statements reflect the current views of the
Company's management with respect to future events and are subject to these and
other risks, uncertainties and assumptions relating to the operations, results
of operations, growth strategy and liquidity of the Company. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by this
paragraph.
4
<PAGE> 8
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table sets forth summary historical financial information and
summary pro forma financial information of the Predecessor Company for the
periods ended and as of the dates indicated. The summary historical financial
information of the Predecessor Company set forth below as of and for each of the
years ended December 31, 1993, 1994, 1995, 1996 and 1997 was derived from the
audited financial statements of the Predecessor Company. The summary historical
financial information of the Predecessor Company set forth below as of and for
the three month periods ended March 31, 1997 and 1998 was derived from the
Predecessor Company's unaudited financial statements which, in the opinion of
management, reflect all normal recurring adjustments necessary for the fair
presentation of such financial statements. The results of operations for the
three month period ended March 31, 1998 are not necessarily indicative of the
Predecessor Company's results of operations to be expected for the full year.
The summary unaudited pro forma financial information of the Predecessor
Company set forth below gives effect to the acquisition by the Predecessor
Company of the business and substantially all the assets of BCS as if such
acquisition had occurred as of the beginning of the period presented for the
statement of income and other financial information, and as of the last day of
the period presented for the balance sheet information. The summary unaudited
pro forma financial information of the Predecessor Company set forth below does
not purport to represent what the Predecessor Company's results of operations
would have been if the BCS acquisition had actually occurred as of such dates or
what such results will be for any future periods.
The following historical and pro forma information of the Predecessor
Company should be read in conjunction with information included elsewhere
herein, including the financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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YEARS ENDED DECEMBER 31,
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1993 1994(1) 1995 1996 1997(2)
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STATEMENT OF INCOME INFORMATION:
Total revenue................... --(3) --(3) $26,972,732 $33,243,155 $49,455,419
Commission and fee expense...... --(3) --(3) 16,890,862 21,049,704 32,439,092
---------- ---------- ----------- ----------- -----------
Net revenue................... $7,913,173 $7,343,507 10,081,870 12,193,451 17,016,327
General and administrative
expense....................... 6,919,933 7,236,896 7,868,997 8,554,420 11,506,335
Amortization of intangibles..... -- -- -- -- 294,630
---------- ---------- ----------- ----------- -----------
Income from operations........ 993,240 106,611 2,212,873 3,639,031 5,215,362
Interest and dividend income.... 142,777 171,454 200,577 121,814 188,597
Interest expense................ (49,367) (29,396) (6,903) -- (1,111,995)
Miscellaneous income
(expense)..................... (1,169) (100,498) (86,292) (25,416) 1,925
---------- ---------- ----------- ----------- -----------
Total other income
(expense)................... 92,241 41,560 107,382 96,398 (921,473)
---------- ---------- ----------- ----------- -----------
Income (loss) before taxes...... 1,085,481 148,171 2,320,255 3,735,429 4,293,889
Income taxes(4)................. 70,517 9,842 102,459 181,444 60,000
---------- ---------- ----------- ----------- -----------
Net income (loss)......... $1,014,964 $ 138,329 $ 2,217,796 $ 3,553,985 $ 4,233,889
========== ========== =========== =========== ===========
HISTORICAL PER SHARE INFORMATION:
Basic earnings (loss) per
share......................... $ .17 $ .02 $ .39 $ .75 $ 1.03
Diluted earnings per share...... .17 .02 .39 .75 .99
BALANCE SHEET INFORMATION:
Cash and cash equivalents....... $2,242,595 $3,022,964 $ 3,968,307 $ 4,881,584 $ 3,782,941
Total assets.................... 10,294,798 7,152,186 9,886,651 8,525,454 36,901,890
Current portion of long-term
debt.......................... -- -- -- -- 4,325,000
Long-term debt, excluding
current portion............... -- -- -- -- 32,838,143
Total liabilities............... 4,222,603 1,991,611 4,099,197 4,714,055 42,581,510
Stockholders' equity
(deficit)..................... 6,072,195 5,160,575 5,787,454 3,811,399 (5,679,620)(5)
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------
1997 1997 1998
ACTUAL PRO FORMA ACTUAL
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<S> <C> <C> <C>
STATEMENT OF INCOME INFORMATION:
Total revenue................... $5,510,415 $9,693,682 $13,754,466
Commission and fee expense...... 3,549,809 6,396,955 9,132,248
---------- ----------- -----------
Net revenue................... 1,960,606 3,296,727 4,622,218
General and administrative
expense....................... 1,860,545 2,723,074 3,370,852
Amortization of intangibles..... -- 220,973 220,973
---------- ----------- -----------
Income from operations........ 100,061 352,680 1,030,393
Interest and dividend income.... 100,100 108,917 75,087
Interest expense................ -- (625,375) (920,604)
Miscellaneous income
(expense)..................... 146 146 300
---------- ----------- -----------
Total other income
(expense)................... 100,246 (516,312) (845,217)
---------- ----------- -----------
Income (loss) before taxes...... 200,307 (163,632) 185,176
Income taxes(4)................. -- -- 2,000
---------- ----------- -----------
Net income (loss)......... $ 200,307 $ (163,632) $ 183,176
========== =========== ===========
HISTORICAL PER SHARE INFORMATION:
Basic earnings (loss) per
share......................... $ .05 $ (.04) $ .06
Diluted earnings per share...... .05 -- .06
BALANCE SHEET INFORMATION:
Cash and cash equivalents....... $ 737,159 $1,912,793 $ 4,723,227
Total assets.................... 3,720,431 30,261,848 33,405,641
Current portion of long-term
debt.......................... -- 4,325,000 4,325,000
Long-term debt, excluding
current portion............... -- 24,000,000 31,388,143
Total liabilities............... 1,708,725 26,911,411 38,824,143
Stockholders' equity
(deficit)..................... 2,011,706 3,350,437 (5,418,502)(5)
</TABLE>
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(1) The results of operations in 1994 reflect lost renewal commissions and fees
of $1,033,521 due to the cessation of operations and subsequent
rehabilitation of Confederation Life Insurance Company. Such results
included expenses incurred by the Predecessor Company to protect clients
affected by the rehabilitation.
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(2) Includes the results of operations attributable to the assets acquired from
BCS for the period beginning September 1, 1997 (the effective date of the
BCS acquisition) and ended December 31, 1997, and reflects the consummation
of such acquisition.
(3) For the period presented, the Predecessor Company reported net revenue only
and, therefore, total revenue and commission and fee expense amounts are not
available.
(4) Income tax expense reflects the Predecessor Company's liability for state
taxes. No provision for federal income taxes has been made because the
Predecessor Company elected to be treated as an S corporation for federal
income tax purposes prior to the Reorganization.
(5) Reflects the decrease in stockholders' equity resulting from repurchases of
2.6 million shares of common stock by the Predecessor Company for aggregate
consideration of approximately $14.0 million and distributions totaling $4.3
million to stockholders in 1997.
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RISK FACTORS
The following factors, which may affect the Company's current position and
future prospects, should be considered carefully in addition to the other
information contained in this Prospectus before purchasing the Common Stock
offered hereby.
FEDERAL TAX LEGISLATION
Federal tax laws create certain advantages for the purchase of life
insurance products by individuals and corporations, and therefore the life
insurance products underlying the benefit programs marketed by the Company are
vulnerable to adverse changes in tax legislation. These life insurance products
offer certain advantages, including that (i) the cash value of life insurance
policies grow on a tax deferred basis until withdrawal and (ii) the death
benefits of life insurance policies are received tax-free. In addition, loans
can be made from insurance policies (other than modified endowment policies)
without the imposition of tax.
Amendments to the federal tax laws enacted in 1996 and 1997 have reduced
the advantages of certain purchases of business-owned life insurance. With
limited exceptions, the 1996 amendment eliminated the ability to deduct interest
on loans against the cash value of life insurance policies. In 1997, legislation
imposed an interest disallowance rule that applied to all business-owned life
insurance except for policies placed on employees, officers, directors and
20-percent owners. The effect of the 1997 legislation was to reduce otherwise
allowable interest deductions by a ratio of unborrowed cash value to all other
assets.
In February 1998, the Clinton administration proposed eliminating the
"employee, officer and director" exception to the interest disallowance rule as
a part of its budget proposal. If enacted, such proposal would significantly
reduce the attractiveness of business-owned life insurance to companies that
traditionally have high debt/equity ratios. Banks, due to the depositor/debtor
relationship with their depositors, would in particular be negatively affected
by the administration's proposal. To the extent that any tax law amendment is
made retroactive, banks and other clients of the Company may lose the economic
advantages of maintaining the policies underlying their benefit plans. This
could result in significant surrenders of policies from which the Company
currently derives commission and fee revenue. Although management believes that
the Clinton administration's proposal, which is being considered in the current
session of Congress, does not have widespread support in Congress, the Company
is unable to predict the extent to which these or other amendments to existing
laws will be adopted or the effect that any such amendments will have on the
Company's business.
No assurances can be given that the administration's proposal or other
adverse tax proposals will not be enacted in the future. If the Code were to be
amended to eliminate or reduce the tax-deferred status of the insurance programs
marketed by the Company, the market demand for such programs would be materially
adversely affected.
DEPENDENCE ON KEY PRODUCERS
During 1997, approximately 75.0% of the Company's total revenue from the
sale of business-owned life insurance was derived from the marketing activities
of five offices operated by producers of the Company. The largest of these
offices, The Wamberg Organization, accounted for approximately 23.0% of the
Company's total revenue. The producers operating these offices have entered into
producer agreements which include non-competition provisions for a period of
time after termination of the agreements. However, the producer agreements are
terminable by the producers with 90 days' written notice, and there is no
assurance that such producers will maintain their relationship with the Company
or the extent to which the non-competition provisions will be enforced in
litigation. See "Business -- Distribution."
POTENTIAL LACK OF PERSISTENCY
Companies purchase business-owned life insurance policies primarily to
offset the costs of employee benefit liabilities. These policies usually show
high persistency rates, in part because the policies contain early termination
penalties and the tax laws typically provide unfavorable tax consequences to the
corporate
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policyholders if the policies are terminated early. The high persistency rates
are also due to the purpose of the underlying life insurance policies which are
not typically used to fund benefits for specific individuals, but rather to
offset the costs of a purchaser's employee benefit costs on an aggregate basis.
Therefore, each policy is usually held to maturity (i.e., the death of the
individual insured covered by such policy), regardless of whether the insured
remains with the plan sponsor. High persistency rates are advantageous to the
Company since the Company receives a substantial portion of its revenue in the
form of renewal commissions and fees. If the business purchaser chooses to let a
policy lapse, the Company does not receive any renewal commissions and fees
after the policy lapses. Although the Company has historically experienced high
persistency rates, there can be no assurance that these high persistency rates
will continue in the future. See "Business -- Persistency."
DEPENDENCE ON KEY PERSONNEL
The Company's performance is substantially dependent on the performance of
its executive officers and key employees. The Company is dependent on the
ability to retain and motivate high quality personnel, especially its
management, producers and program development teams. The loss of the services of
any of its key employees, particularly W.T. Wamberg, Chairman of the Board of
Directors, Melvin G. Todd, President and Chief Executive Officer, and Richard C.
Chapman, Executive Vice President, could have a material adverse effect on the
Company's business, financial condition and operating results. There can be no
assurance that the Company will be successful in retaining its key personnel.
See "Business -- Competition" "-- Employees" and "Management."
CREDIT RISK RELATED TO RENEWAL REVENUE
The Company designs and markets employee benefit programs typically
financed by policies underwritten by insurance companies. The commissions
payable to the Company for the sale of the insurance policies underlying the
Company's programs are usually long term and recurring in nature, typically paid
annually and extending over a period of ten years or more after the sale. Since
the Company derives a substantial portion of its total revenue from renewal
revenue, any financial difficulties encountered by, or the bankruptcy of, an
insurance company from whom renewal revenue is due could cause the Company to
realize less than the full amount of the renewal revenue to which it is
entitled. The Company's inability to collect renewal revenue could have a
material adverse effect on the Company's business, financial condition and
results of operations.
ACQUISITION RISKS
The Company completed the BCS acquisition in September 1997 and intends to
pursue acquisitions of other complementary businesses. The Company is currently
negotiating an acquisition of the assets of Schoenke & Associates Corporation
and its affiliated companies. There can be no assurance, however, that the
Company will be able to consummate or successfully integrate the operations of
these or future acquisitions within its own operations. Acquisitions involve
significant risks, including: (i) the diversion of management's time and
attention to the negotiation of the acquisition and to the assimilation of the
businesses acquired, (ii) the need to modify financial and other systems and add
management resources, (iii) the potential liabilities of the acquired business,
(iv) unforeseen difficulties in the acquired operations and (v) the possible
adverse short-term effects on the Company's business, financial condition and
results of operations. Furthermore, there can be no assurance that any business
acquired in the future will achieve acceptable levels of revenue and
profitability or otherwise perform as expected. Other than as described
elsewhere in this Prospectus, the Company has no other arrangements or
understandings with any party with respect to any future acquisition. The
Company, however, continues to monitor further potential acquisition
opportunities. See "Pending Acquisition" and "Business -- Acquisition Strategy."
ABILITY TO GROW AND EXPAND PRODUCTS AND SERVICES
The Company's growth strategy relies in part on its ability to increase its
share of the insurance-financed employee benefit market. The Company intends to
increase its market share by (i) growing its client base in existing product
lines through superior sales, marketing, technology and administration, (ii)
developing new
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related products and services, and (iii) acquiring competitors and related
businesses. There can be no assurance that the Company will have the financial,
managerial, administrative, marketing or other resources necessary to achieve
these growth and acquisition objectives and to overcome difficulties associated
with growth. If the Company were to encounter difficulties in implementing the
growth, development or expansion of its products and services, such difficulties
could have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition, the success of the Company depends in large part on its
ability to attract and retain highly skilled managerial, sales and marketing
personnel. The Company also believes it will need to hire additional technical
personnel to further enhance and develop its programs and services. Competition
for such personnel is intense, and should the Company be unable to hire the
necessary personnel, the development and sale of new or enhanced programs and
services would likely be delayed or prevented. There can be no assurance that
the Company will be able to attract, integrate and retain such highly skilled
personnel. See "Business -- Strategy" and "Management."
COMPETITION
The marketing, design and administration of insurance-financed employee
benefit programs is highly competitive. The Company and its producers compete
with a large number of insurance agents, life insurance brokers, third party
administrators, producer groups and insurance companies, a number of whom have
greater financial resources and can offer alternative programs. The Company's
direct competitors include Compensation Resource Group, Harris Crouch Long Scott
and Miller, Management Compensation Group, Newport Group, The Benefits Group and
The Todd Organization. Furthermore, competition exists for producers and other
marketers of life insurance products who have demonstrated sales ability.
National banks, with their existing depositor bases for financial services
products, may pose increasing competition in the future to companies who sell
life insurance products, including the Company. Recent United States Supreme
Court decisions have expanded the authority of national banks to sell life
insurance products. See "Business -- Competition."
Clark/Bardes competes for clients on the basis of reputation, client
service, program and product offerings and the ability to tailor insurance
products and administrative services to the specific needs of a client. Although
certain competitors have access to proprietary programs and products unavailable
to the Company and others offer lower prices for administrative services,
management believes that the Company is in a superior competitive position in
most, if not all, of the meaningful aspects of its business. Management does not
consider its direct competitors to be its greatest competitive threat. Rather,
management believes that the Company's most serious competitive threat will
likely come either from large, diversified financial entities which are willing
to expend significant resources to gain market share or from larger competitors
that pursue an acquisition or consolidation strategy similar to that of the
Company. See "Business -- Competition."
DEPENDENCE ON INSURANCE COMPANIES
The Company depends heavily on a small number of insurance companies to
underwrite the insurance policies underlying the programs it markets. More
specifically, the Company currently utilizes approximately 14 life insurance
companies to underwrite substantially all of the business-owned life insurance
policies underlying the Company's programs. Further, eight insurance companies,
AEGON, CIGNA, General American, Great-West, Nationwide, Phoenix Home Life, TMG
Life and West Coast Life, accounted for approximately 75% of the Company's first
year commission revenue for the year ended December 31, 1997. There is no
assurance that these relationships will continue in the future or that the
Company will be able to develop relationships with other insurance companies.
PRIOR SUBCHAPTER S STATUS
Since 1989, the Predecessor Company elected to be treated for federal
income tax purposes as an S corporation under Subchapter S of the Code. As a
result, the Predecessor Company's historical earnings since 1989 have been taxed
directly to the Predecessor Company's stockholders, at their individual federal
and
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state income tax rates, rather than to the Predecessor Company (except for
certain state taxes). Further, the Predecessor Company was required to comply
with various Code provisions regarding restrictions on the issuance of classes
of stock, organizational structure, stock ownership and other matters in order
to maintain the Predecessor Company's status as an S corporation. In the event
that the Predecessor Company failed to comply with any of the applicable Code
provisions required to maintain S corporation status, the Predecessor Company
would have been subject to corporate level tax and, therefore, could be required
to incur a tax liability with respect to net income received by the Predecessor
Company during any year in which it did not qualify as an S corporation. The
Predecessor Company believes that it qualified as an S corporation since its
election and, therefore, should not be subject to corporate level income tax
(except in certain states) for any period since it filed its election. No
assurance can be given that the Internal Revenue Service would not challenge the
Predecessor Company's S corporation treatment and that a court would not sustain
such challenge. If it were determined that the Predecessor Company did not
qualify as an S corporation, the imposition of corporate income taxes on the
Predecessor Company could have a material adverse effect on the Company's
business, financial condition and results of operations. The Existing
Stockholders have agreed to indemnify the Company under certain circumstances in
the event that the Company is subject to corporate income tax liability for the
Predecessor Company's failure to qualify as an S corporation. See "The
Reorganization -- Termination of S Corporation Status".
ERRORS AND OMISSIONS
The Company markets, designs and administers sophisticated financial
products. Certain of the Company's employees provide accounting, legal,
actuarial and other professional services in connection with marketing,
designing and administering these programs. The Company's clients rely upon the
services and interpretations rendered by the employees of the Company. To the
extent any services or interpretations provided by the Company's employees prove
to be inaccurate, the Company may be liable for the damages, and such liability,
to the extent not covered by existing insurance, could have a material adverse
effect on the Company's business, financial condition and results of operations.
PROTECTION OF PROPRIETARY PROGRAMS AND SERVICES
The Company regards certain of its programs and services as proprietary.
The Company relies primarily on a combination of intellectual property laws,
confidentiality agreements and contractual provisions to protect its proprietary
rights. Trade secret and copyright laws afford the Company limited protection.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the programs or services marketed by the
Company or to obtain and use information that the Company regards as
proprietary. There can be no assurance that the obligation to maintain the
confidentiality of the Company's proprietary information will prevent disclosure
of such information or that the proprietary programs marketed by the Company
will not be independently developed by the Company's competitors.
GOVERNMENT REGULATION
The insurance-financed employee benefit industry is subject to extensive
regulation by state governments. Clark/Bardes operates in all 50 states through
licenses held by Clark/Bardes or by its producers. In addition, the Company
markets its insurance-financed employee benefit programs in the states of Ohio,
Pennsylvania and Texas through entities licensed in those states for which the
Company provides almost all services by means of administrative service
agreements. In general, state insurance laws establish supervisory agencies with
broad administrative and supervisory powers related to such matters as granting
and revoking licenses, approving individuals and entities to whom commissions
can be paid, licensing insurance agents, transacting business, approving policy
forms and regulating premium rates for some lines of business. While the Company
has not encountered regulatory problems in the past, no assurance can be given
that the Company or its producers will not encounter regulatory problems in the
future. See "Business -- Government Regulation" and "-- Ancillary Business
Arrangements."
While the federal government does not directly regulate the marketing of
most insurance products, certain products, such as variable life insurance, must
be registered under the federal securities acts and
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therefore the producers and the entities selling such products must be
registered with the NASD. The Company markets such insurance products through an
entity registered as a broker-dealer and over which the Company provides almost
all services by means of administrative service agreements. While the Company
has not encountered regulatory problems in the past, no assurance can be given
that the Company or its producers will not encounter regulatory problems in the
future. See "Business -- Government Regulation" and "Business -- Ancillary
Business Relationships."
FLUCTUATIONS IN OPERATING RESULTS
The Company may experience significant fluctuations in its results of
operations, in particular when such results are compared on a consecutive
quarterly basis. In particular, the Company recognizes a significant increase in
both first year and renewal revenue in the fourth quarter due to the seasonality
of employee benefit funding. In general, results of operations may fluctuate as
a result of a number of factors, including the introduction of new or enhanced
programs and services by the Company or its competitors, client acceptance or
rejection of new programs and services, program development expenses, timing of
significant sales, demand for the Company's administrative services,
competitive, legislative and regulatory conditions in the insurance-financed
employee benefit industry and general economic conditions. Many of these factors
are beyond the Company's control.
The sales cycles for the Company's programs and services are lengthy
(generally between twelve to eighteen months), with first year revenue being
derived from a small number of large cases and subject to a number of factors
beyond the Company's control. For these and other reasons, the revenue of the
Company is difficult to forecast, and the Company believes that comparing its
consecutive quarterly results of operations is not necessarily meaningful or
indicative of the results that the Company may achieve for any subsequent
period. Thus, past operating results should not be considered a reliable
indicator of future performance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
COMPETING PROGRAMS AND PRODUCTS
The Company's commission income and persistency rate are affected by
certain general economic conditions and market factors such as changes in
interest rates and stock prices. Interest rate fluctuations may have a
significant effect on the sale and profitability of certain insurance-financed
employee benefit programs marketed by the Company. For example, if interest
rates rise, competing products may become more attractive to potential
purchasers of the programs marketed by the Company. Further, a prolonged
decrease in stock prices may have a significant effect on the sale and
profitability of the Company's programs that are linked to stock market indices.
Thus, economic conditions and other factors may negatively affect the popularity
or economic attractiveness of the programs marketed by the Company. There can be
no assurance that the Company will be able to compete with alternative products
if economic conditions and inflationary increases make the programs marketed by
the Company economically unattractive.
RELIANCE ON INFORMATION PROCESSING SYSTEMS
The Company's ability to provide administrative services depends on its
capacity to store, retrieve, process and manage significant databases, and
expand and upgrade periodically its information processing capabilities.
Interruption or loss of the Company's information processing capabilities
through loss of stored data, breakdown or malfunctioning of computer equipment
and software systems, telecommunications failure or damage caused by fire,
tornadoes, lightning, electrical power outage or other disruption could have a
material adverse effect on the Company's business, financial condition and
results of operations. Although the Company has disaster-recovery procedures in
place and insurance to protect against such contingencies, there can be no
assurance that such insurance or services will continue to be available at
reasonable prices, cover all such losses or compensate the Company for the
possible loss of clients occurring during any period that the Company is unable
to provide services. See "Business -- Administrative Services" and
" -- Technology and Administration."
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YEAR 2000 ISSUES
There is significant uncertainty regarding the effect of the Year 2000
problem because computer systems that do not properly recognize date sensitive
information when the year changes to 2000 could generate erroneous data or
altogether fail. The Company believes that the computer equipment and software
used by the Company will function properly with respect to dates in the Year
2000 and thereafter. However, third parties that have relationships with the
Company, including insurance companies and clients, may experience significant
Year 2000 issues. These issues may have a serious adverse effect on the
operations of such third parties, including a shut-down of operations for a
period of time, which may, in turn, have a material adverse effect on the
Company's business, financial condition and results of operations.
CONCENTRATION OF STOCK OWNERSHIP
Upon completion of the Offering, Mr. Wamberg will own approximately %
of the outstanding Common Stock ( % if the Underwriters' over-allotment
option is exercised in full) assuming the exercise of all existing options and
other rights to acquire shares of Common Stock. As a result, Mr. Wamberg will be
able to exercise significant influence over all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. Such concentration of ownership may also have the effect
of delaying, preventing, or deterring a change in control of the Company. See
"Principal Stockholders."
ABSENCE OF PRIOR PUBLIC MARKET; DETERMINATION OF INITIAL PUBLIC OFFERING PRICE
Prior to the Offering, there has been no public market for the Common
Stock. Although the Company has applied to have the Common Stock approved for
listing on the New York Stock Exchange, there can be no assurance that an active
public market will develop for the Common Stock or that the Common Stock will
trade in the public market subsequent to the Offering at or above the initial
public offering price. If no active public market for the Common Stock develops,
the trading price and liquidity of the Common Stock will be materially and
adversely affected. The initial public offering price will be determined by
negotiations among the Company and the Underwriters and may not be indicative of
the trading price for the Common Stock after the Offering.
VOLATILITY OF TRADING PRICE
The trading price of the Common Stock could fluctuate significantly in
response to variations in the Company's operating results, changes in earnings
estimates by securities analysts, changes in the Company's business and changes
in general market or economic conditions. In addition, in recent years the stock
market has experienced significant price and volume fluctuations. Such market
fluctuations could have a material adverse effect on the trading price of the
Common Stock.
SUBSTANTIAL DILUTION
Based on an assumed offering price of $ per share (the assumed midpoint
of the Range), purchasers of Common Stock in the Offering will experience
immediate and substantial dilution in the net tangible book value of their
shares. Prior to the Offering, each share of Common Stock had a net tangible
book value of ($9.09) After the Offering, each share of Common Stock will have a
net tangible book value of $ and the dilution to purchasers of Common
Stock in the Offering will be $ per share. See "Dilution."
POSSIBLE DILUTIVE EFFECT OF ISSUANCE OF ADDITIONAL SHARES
After the Offering, the Company will have an aggregate of approximately
shares of Common Stock authorized but unissued and not reserved for
specific purposes. All of such shares may be issued without any action or
approval by the Company's stockholders. Management intends to pursue actively
acquisitions of competitors and related businesses and may issue shares of
Common Stock in connection with these acquisitions. In addition, 540,830 shares
of Common Stock are reserved under the Company's Stock Option Plan dated March
5, 1997 (the "Stock Option Plan"). Any shares issued in connection with future
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acquisitions, exercise of stock options or otherwise would further dilute the
percentage ownership of the Company held by the investors in the Offering. See
"Management -- Stock Option Plan" and "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the open market
after the Offering, or the perception that such sales could occur, could
adversely affect the trading price of the Common Stock. Immediately after the
Offering, Mr. Wamberg will hold 1,735,128 shares, representing % of the
outstanding shares of Common Stock ( % if the Underwriters' over-allotment
option is exercised in full) and other principal stockholders will hold
1,436,980 shares, representing % of the outstanding shares of Common Stock.
A decision by Mr. Wamberg or the other principal stockholders to sell shares of
Common Stock could adversely affect the trading price of the Common Stock. Upon
consummation of the Offering, the Company will have shares of Common
Stock outstanding. Of these shares, all shares sold in the Offering (other than
shares, if any, purchased by affiliates of the Company) will be freely tradable.
Of the remaining 3,222,010 shares, no shares will be freely transferable and no
shares may be sold unless the sale is registered under the Securities Act, or an
exemption from registration is available, including the exemption provided by
Rule 144 under the Securities Act. The executive officers, directors and
principal stockholders of the Company, including Mr. Wamberg, have agreed that,
subject to certain limitations, for a period of 180 days following the date of
this Prospectus, they will not, without the prior written consent of Bear,
Stearns & Co. Inc., offer, sell, grant any option to purchase or otherwise
dispose of Common Stock or any securities convertible into or exchangeable for
Common Stock. 540,830 shares of Common Stock have been reserved for issuance
under the Stock Option Plan, 190,830 of which are issuable upon exercise of
options outstanding at the date of this Prospectus, including options to
purchase 83,333 shares exercisable as of the date of this Prospectus or that
will become exercisable within 60 days after the date of this Prospectus. The
Company plans to register on Form S-8 under the Securities Act the offering and
sale of Common Stock issuable under the Stock Option Plan. See
"Management -- Stock Option Plan" and "Shares Eligible For Future Sale."
ANTI-TAKEOVER CONSIDERATIONS
Certain provisions of CBH's Certificate of Incorporation (the "Certificate
of Incorporation"), CBH's Bylaws (the "Bylaws") and the Delaware General
Corporation Law ("DGCL") may have the effect of discouraging unsolicited
proposals for the acquisition of CBH. Pursuant to the Certificate of
Incorporation, CBH may issue shares of preferred stock in the future without
stockholder approval and upon such terms and conditions, and having such rights,
privileges and preferences, as the Board of Directors may determine. The rights
of the holders of Common Stock will be subject to, and may be adversely affected
by, any such preferred stock. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions, financings and
other corporate transactions, could have the effect of discouraging a third
party's acquisition of a majority of the Common Stock. CBH has no present plans
to issue any shares of preferred stock. In addition, CBH has adopted a
stockholder rights plan that could further discourage attempts to acquire
control of CBH. CBH's Bylaws provide that stockholders are entitled to call a
special meeting only by a vote of holders of at least 66 2/3% of the total votes
eligible to be cast by holders of Common Stock. In addition, the ability of the
stockholders to consent in writing to the taking of any action in lieu of a
meeting is denied. Any changes to provisions of the Certificate of Incorporation
must be approved by a majority of the Board of Directors and, in certain cases,
thereafter must be approved by a vote of holders of at least 66 2/3% of the
total votes eligible to be cast by holders of Common Stock. The Bylaws may be
amended or repealed by the affirmative vote of a majority of the directors or
the affirmative vote of the holders of at least 66 2/3% of the votes eligible to
be cast by holders of Common Stock with respect to such amendment or repeal.
Finally, the DGCL restricts certain business combinations and provides that
directors serving on staggered boards of directors may be removed only for cause
unless the certificate of incorporation otherwise provides. In addition, the
Bylaws provide that directors can be removed only for cause by a vote of holders
of at least 66 2/3% of the total votes eligible to be cast by holders of Common
Stock. See "Description of Capital Stock -- Anti-Takeover Considerations" and
"-- Preferred Stock."
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ABSENCE OF DIVIDENDS
Following the Offering, CBH intends to retain any future earnings to fund
growth and does not anticipate paying any cash dividends in the foreseeable
future. See "Dividend Policy."
THE REORGANIZATION
OVERVIEW
CBH and Clark/Bardes were formed in June 1998 in contemplation of the
Offering and in order to effect the Reorganization. CBH was formed to be a
holding company of Clark/Bardes and is not engaged in any business. Clark/Bardes
was formed to be the operating company of CBH and is the successor corporation
to Clark/Bardes, Inc., a Texas corporation formed in 1967.
In connection with the Offering, each of CBH, Clark/Bardes and the
Predecessor Company entered into a reorganization agreement (the "Reorganization
Agreement") which provides for, among other things, (i) a merger of the
Predecessor Company with and into Clark/Bardes (the "Merger") with each
stockholder of the Predecessor Company (the "Existing Stockholders") receiving
one-half of one share of Common Stock for each share of Predecessor Company
common stock held by such Existing Stockholder, (ii) a restructuring of
Clark/Bardes' 10.5% Senior Secured Notes due August 2002 and 11.0% Second
Priority Senior Secured Notes due August 2004 (such notes are collectively
referred to as the "Restructured Notes"), (iii) the conversion of Clark/Bardes'
8.5% Convertible Subordinated Notes due September 2007 into 813,559 shares of
Common Stock, (iv) an extinguishment by the Company of warrants representing the
right to purchase 1,525,424 shares of common stock of the Predecessor Company
(such warrants are collectively referred to as the "Warrants"), (v) a
restructuring of a grant of the Predecessor Company's common stock to Melvin
Todd, the Company's Chief Executive Officer and President, (vi) an amendment
with respect to the amount of renewal revenue due to The Wamberg Organization
under the Principal Office Agreement between Clark/ Bardes and Mr. Wamberg,
(vii) the incorporation of a Texas entity formed for the purpose of marketing
certain insurance products within the state of Texas, and (viii) the termination
of certain agreements (all transactions specified in the Reorganization
Agreement are collectively referred to as the "Reorganization"). See "Dilution,"
"Certain Relationships and Related Transactions."
TERMINATION OF S CORPORATION STATUS
Since 1989, the Predecessor Company elected to be treated for federal
income tax purposes as an S corporation under Subchapter S of the Code and as an
S corporation for certain state corporate income tax purposes under certain
comparable state laws. As a result, the Predecessor Company's historical
earnings since 1989 have been taxed directly to the Predecessor Company's
stockholders, at their individual federal and state income tax rates, rather
than to the Predecessor Company (except for certain state taxes). Upon the
consummation of the Reorganization, Clark/Bardes became subject to federal and
state income taxation as a C corporation. At that time, Clark/Bardes recorded a
deferred tax liability on its balance sheet, the amount of which depended upon
timing differences between tax and book accounting. If the Predecessor Company's
S corporation status had terminated as of December 31, 1997, the amount of the
deferred tax liability would have been approximately $1.2 million. See
"Capitalization."
In connection with the termination of the Predecessor Company's S
corporation status, the board of directors of the Predecessor Company declared a
dividend to the stockholders of record on , 1998 in an amount equal to
$3.2 million, or $1.00 per share (the "Stockholder Distribution Amount"). The
Stockholder Distribution Amount may be (i) decreased if the amount of the
Predecessor Company's previously earned and undistributed taxable income
immediately prior to the consummation of the Reorganization (such amount, the
"AAA Amount") is less than the Stockholder Distribution Amount or (ii) increased
if the Stockholder Distribution Amount is less than 42.6% of the taxable income
for the period beginning January 1, 1998 and ending on the date the
Reorganization is consummated. It is intended that the Stockholder Distribution
Amount will be paid prior to the consummation of the Offering.
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As a part of the Reorganization, Clark/Bardes and the Existing Stockholders
entered into a tax indemnification agreement (the "Tax Agreement") relating to
their respective income tax liabilities. Because Clark/Bardes will be fully
subject to corporate income taxation after termination of the Predecessor
Company's S corporation status, any reallocation of income and deductions
between the period during which the Predecessor Company was treated as an S
corporation and the period during which Clark/Bardes will be subject to
corporate income taxation may increase the taxable income of one party while
decreasing that of another party. Accordingly, the Tax Agreement is intended to
ensure that taxes are borne either by Clark/ Bardes or the Existing Stockholders
to the extent that such parties received the related income. The Tax Agreement
generally provides that, if an adjustment is made to the taxable income of
Clark/Bardes for a year in which the Predecessor Company was treated as an S
corporation, each party will indemnify the other against any increase in the
indemnified party's income tax liability, including interest and penalties, with
respect to such tax year to the extent such increase results in a related
decrease in the income tax liability, including interest and penalties, of the
indemnifying party (whether with respect to the year of the adjustment or over
future years). Moreover, the Tax Agreement provides that the Existing
Stockholders will indemnify Clark/Bardes for any income tax liability incurred
as a result of a determination that the Predecessor Company did not qualify as
an S corporation. Such indemnification obligation is limited to the net tax
refund, if any, received by the Existing Stockholders.
Clark/Bardes will also indemnify the Existing Stockholders for all taxes
imposed upon them as the result of an indemnification payment under the Tax
Agreement. Any payment made by Clark/Bardes to the Existing Stockholders
pursuant to the Tax Agreement may be considered by the Internal Revenue Service
or state taxing authorities to be non-deductible by Clark/Bardes for income tax
purposes. None of the parties' obligations under the Tax Agreement is secured,
and, therefore, there can be no assurance that Clark/Bardes or the Existing
Stockholders will have funds available to make any payments which may become due
under the Tax Agreement.
PENDING ACQUISITION
On May 29, 1998, the Predecessor Company entered into a letter of intent
with Schoenke & Associates Corporation, Schoenke & Associates Securities
Corporation, Schoenke & Associates of Hawaii, L.P. (collectively, the "Schoenke
Companies") and Raymond F. Schoenke, Jr., which provides for, among other
things, (i) the acquisition by Clark/Bardes of the businesses and substantially
all of the assets of the Schoenke Companies, (ii) the execution of a
non-competition agreement by each of Mr. Schoenke and the Schoenke Companies,
and (iii) the Schoenke Companies' agreement to deal exclusively with
Clark/Bardes (such transactions, the "Pending Acquisition"). The purchase price
of the Pending Acquisition, which is subject to change based on Clark/Bardes'
due diligence review, is $17.0 million, of which $1.5 million was paid as a
secured refundable deposit and $15.5 million is payable in cash at the closing
of the Pending Acquisition. The consummation of the Pending Acquisition is
subject to numerous conditions, including the consummation of the Offering, the
approval of Clark/Bardes' board of directors, obtaining all requisite regulatory
approvals and the satisfactory completion of Clark/Bardes' due diligence review.
The consummation of the Pending Acquisition must occur on or prior to October 1,
1998. The letter of intent expressly allows the Predecessor Company to enter
into and consummate the Reorganization. Management believes that the
consummation of the Pending Acquisition is probable.
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USE OF PROCEEDS
The net proceeds to CBH from the sale of shares of Common Stock
offered by CBH will be approximately $ million at an assumed public
offering price of $ per share (the assumed midpoint of the Range), after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by CBH. CBH intends to apply the proceeds as follows:
(i) approximately $5.7 million to pay all amounts due under Clark/Bardes' 8.5%
Medium Term Notes due September 2001; (ii) approximately $ million to
extinguish the Warrants; (iii) approximately $15.5 million to consummate the
Pending Acquisition; (iv) approximately $7.0 million to The Wamberg Organization
as consideration for amending the Principal Office Agreement with Mr. Wamberg;
and (v) approximately $ million for general corporate purposes, including
working capital and possible future acquisitions. See "Reorganization" and
"Pending Acquisition." Pending such uses, CBH intends to invest the net proceeds
of the Offering in short-term, investment grade, interest bearing securities.
Mr. Wamberg has granted the Underwriters an over-allotment option to
purchase shares of Common Stock. CBH will not receive any proceeds from
the exercise of the over-allotment option. The net proceeds to be received by
Mr. Wamberg, if the over-allotment option is exercised in full, will be
approximately $ (assuming the midpoint of the Range) after deducting
underwriting discounts and commissions payable by Mr. Wamberg. See "Principal
Stockholders."
DIVIDEND POLICY
Following the Offering, CBH intends to retain any future earnings to fund
growth and does not anticipate paying any cash dividends in the foreseeable
future. Any future determination as to CBH's dividend policy will be made at the
discretion of the Board of Directors and will depend on a number of factors,
including restrictions on distributions imposed by the Restructured Notes and
the DGCL, future earnings, capital requirements, financial condition and future
prospects of the Company and such other factors as the Board of Directors may
deem relevant. See "Description of Capital Stock."
DILUTION
The pro forma net tangible consolidated book value of CBH as of March 31,
1998 was $ , or $
per share. "Pro forma net tangible book value per share" represents the amount
of total assets less total liabilities and intangible assets divided by the
number of shares of Common Stock outstanding. Without taking into account any
other changes in pro forma net tangible book value after March 31, 1998, other
than to give pro forma effect to (i) the payment of the Stockholder Distribution
Amount, (ii) the Reorganization and (iii) the receipt by CBH of the estimated
net proceeds from the sale of the shares of Common Stock offered hereby at an
assumed public offering price of $ per share (the assumed midpoint of the
Range), the pro forma net tangible book value of CBH as of March 31, 1998 would
have been $ , or $ per share. This represents an immediate increase of
pro forma net tangible book value of $ per share to the Existing
Stockholders and an immediate dilution of $ per share to new investors at
the assumed initial public offering price. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $
-------
Net tangible book value as of March 31, 1998.............. ($9.09)
-------
Decrease due to payment of Stockholder Distribution
Amount................................................. ( )
-------
Increase due to Reorganization............................
-------
Pro forma net tangible book value after the Offering........
-------
Dilution to new investors................................... $
=======
</TABLE>
16
<PAGE> 20
The following table summarizes, on a pro forma basis as of March 31, 1998
after giving effect to the Reorganization, the difference between the Existing
Stockholders and the investors with respect to the number of shares issued by
CBH and owned by them, the total consideration received for those shares and the
average price paid per share before deduction of the estimated underwriting
discounts and commissions and offering expenses payable by CBH:
<TABLE>
<CAPTION>
SHARES OF COMMON TOTAL
STOCK ACQUIRED CONSIDERATION AVERAGE
------------------- -------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders............... 3,222,010 % $5,062,281 % $1.57
New Investors.......................
--------- ----- ---------- ----- -----
Total..................... 100.0% $ 100.0% $
========= ===== ========== ===== =====
</TABLE>
The computations in the table set forth above assume no exercise of
outstanding stock options. On the date of this Prospectus, there were
outstanding options to purchase shares of Common Stock at a weighted
average exercise price of $ per share. To the extent outstanding options are
exercised, there will be further dilution to holders of Common Stock. See
"Management -- Stock Option Plan."
17
<PAGE> 21
CAPITALIZATION
The following table sets forth (i) the pro forma consolidated
capitalization of CBH as of March 31, 1998, after giving effect to the payment
of the Stockholder Distribution Amount and the consummation of the
Reorganization as if they had occurred on such date and (ii) the pro forma
consolidated capitalization of CBH as of such date, as adjusted to give effect
to: (a) the sale by CBH of shares of Common Stock pursuant to the
Offering at an assumed public offering price of $ per share (the midpoint of
the Range), after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by CBH; and (b) the application of the
estimated net proceeds therefrom.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt........................... $ 4,325,000 $
8.5% Medium Term Notes due September 2001................. 4,275,000
10.5% Senior Secured Notes due August 2002................ 10,150,000
11.0% Second Priority Senior Secured Notes due August
2004................................................... 8,900,000
8.5% Convertible Subordinated Notes due September
2007(1)................................................ 4,800,000
AAA Distribution Notes due November 2007.................. 3,263,143
------------
Long-term debt, excluding current portion................... 31,388,143
Stockholders' equity:
Common Stock ($.01 par value, 20,000,000 shares
authorized, 5,959,140 shares issued and outstanding and
shares issued and outstanding as
adjusted(2))........................................... 5,162,281
Retained earnings......................................... 3,371,875
Treasury stock (2,737,130 shares, at cost)................ (13,952,658)
------------ ------------
Total stockholders' equity (deficit).............. (5,418,502)
------------ ------------
Total capitalization.............................. $ 30,294,641 $
============ ============
</TABLE>
- ---------------
(1) CBH does not anticipate repaying any amounts due under the 8.5% Convertible
Subordinated Notes due September 2007. Rather, management anticipates that
such Notes will be converted into 813,559 shares of Common Stock.
(2) Excludes 540,830 shares reserved for issuance under the Stock Option Plan,
pursuant to which options covering shares are outstanding at a
weighted average exercise price of $ per share as of the date of this
Prospectus.
18
<PAGE> 22
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table sets forth selected historical financial information
and selected pro forma financial information of the Predecessor Company for the
periods ended and as of the dates indicated. The selected historical financial
information of the Predecessor Company set forth below as of and for each of the
five years ended December 31, 1993, 1994, 1995, 1996 and 1997 was derived from
the audited financial statements of the Predecessor Company. The selected
historical financial information of the Predecessor Company set forth below as
of and for the three month periods ended March 31, 1997 and 1998 was derived
from the Predecessor Company's unaudited financial statements which, in the
opinion of management, reflect all normal recurring adjustments necessary for
the fair presentation of such financial statements. The results of operations
for the three month period ended March 31, 1998 are not necessarily indicative
of the Predecessor Company's results of operations to be expected for the full
year.
The selected unaudited pro forma financial information of the Predecessor
Company set forth below gives effect to the acquisition by the Predecessor
Company of the business and substantially all the assets of BCS as if such
acquisition had occurred as of the beginning of the period presented for the
statement of income and other financial information, and as of the last day of
the period presented for the balance sheet information. The selected unaudited
pro forma financial information of the Predecessor Company set forth below does
not purport to represent what the Predecessor Company's results of operations
would have been if the BCS acquisition had actually occurred as of such dates or
what such results will be for any future periods.
The following historical and pro forma information of the Predecessor
Company should be read in conjunction with information included elsewhere
herein, including the financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1993 1994(1) 1995 1996 1997(2)
----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME INFORMATION:
Total revenue.............. --(3) --(3) $26,972,732 $33,243,155 $49,455,419
Commission and fee
expense.................. --(3) --(3) 16,890,862 21,049,704 32,439,092
----------- ---------- ----------- ----------- -----------
Net revenue.............. 7,913,173 7,343,507 10,081,870 12,193,451 17,016,327
General and administrative
expense.................. 6,919,933 7,236,896 7,868,997 8,554,420 11,506,335
Amortization of
intangibles.............. -- -- -- -- 294,630
----------- ---------- ----------- ----------- -----------
Income from operations... 993,240 106,611 2,212,873 3,639,031 5,215,362
Interest and dividend
income................... 142,777 171,454 200,577 121,814 188,597
Interest expense........... (49,367) (29,396) (6,903) -- (1,111,995)
Miscellaneous income
(expense)................ (1,169) (100,498) (86,292) (25,416) 1,925
----------- ---------- ----------- ----------- -----------
Total other income
(expense).............. 92,241 41,560 107,382 96,398 (921,473)
----------- ---------- ----------- ----------- -----------
Income (loss) before
taxes.................... 1,085,481 148,171 2,320,255 3,735,429 4,293,889
Income taxes(4)............ 70,517 9,842 102,459 181,444 60,000
----------- ---------- ----------- ----------- -----------
Net income........... $ 1,014,964 $ 138,329 $ 2,217,796 $ 3,553,985 $ 4,233,889
=========== ========== =========== =========== ===========
HISTORICAL PER SHARE INFORMATION:
Basic earnings (loss) per
share.................... $ .17 $ .02 $ .39 $ .75 $ 1.03
Diluted earnings per
share.................... .17 .02 .39 .75 .99
Dividends per share........ $ -- $ .01 $ .29 $ .36 $ 1.32
BALANCE SHEET INFORMATION:
Cash and cash
equivalents.............. $ 2,242,595 $3,022,964 $ 3,968,307 $ 4,881,584 $ 3,782,941
Total assets............... 10,294,798 7,152,186 9,886,651 8,525,454 36,901,890
Current portion of
long-term debt........... -- -- -- -- 4,325,000
Long-term debt, excluding
current portion.......... -- -- -- -- 32,838,143
Total liabilities.......... 4,222,603 1,991,611 4,099,197 4,714,055 42,581,510
Stockholders' equity
(deficit)................ 6,072,195 5,160,575 5,787,454 3,811,399 (5,679,620)(5)
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------
1997 1997 1998
ACTUAL PRO FORMA ACTUAL
---------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF INCOME INFORMATI
Total revenue.............. $5,510,415 $ 9,693,682 $13,754,466
Commission and fee
expense.................. 3,549,809 6,396,955 9,132,248
---------- ----------- -----------
Net revenue.............. 1,960,606 3,296,727 4,622,218
General and administrative
expense.................. 1,860,545 2,723,074 3,370,852
Amortization of
intangibles.............. -- 220,973 220,973
---------- ----------- -----------
Income from operations... 100,061 352,680 1,030,393
Interest and dividend
income................... 100,100 108,917 75,087
Interest expense........... -- (625,375) (920,604)
Miscellaneous income
(expense)................ 146 146 300
---------- ----------- -----------
Total other income
(expense).............. 100,246 (516,312) (845,217)
---------- ----------- -----------
Income (loss) before
taxes.................... 200,307 (163,632) 185,176
Income taxes(4)............ -- -- 2,000
---------- ----------- -----------
Net income........... $ 200,307 $ (163,632) $ 183,176
========== =========== ===========
HISTORICAL PER SHARE INFORMAT
Basic earnings (loss) per
share.................... $ .05 $ (.04) $ .06
Diluted earnings per
share.................... .05 -- .06
Dividends per share........ $ -- $ -- $ --
BALANCE SHEET INFORMATION:
Cash and cash
equivalents.............. $ 737,159 $ 1,912,793 $ 4,723,227
Total assets............... 3,720,431 30,261,848 33,405,641
Current portion of
long-term debt........... -- 4,325,000 4,325,000
Long-term debt, excluding
current portion.......... -- 24,000,000 31,388,143
Total liabilities.......... 1,708,725 26,911,411 38,824,143
Stockholders' equity
(deficit)................ 2,011,706 3,350,437 (5,418,502)(5)
</TABLE>
- ---------------
(1) The results of operations in 1994 reflect lost renewal commissions and fees
of $1,033,521 due to the cessation of operations and subsequent
rehabilitation of Confederation Life Insurance Company. Such results
included expenses incurred by the Predecessor Company to protect clients
affected by the rehabilitation.
(2) Includes the results of operations attributable to the assets acquired from
BCS for the period beginning September 1, 1997 (the effective date of the
BCS acquisition) and ended December 31, 1997, and reflects the consummation
of such acquisition.
(3) For the period presented, the Predecessor Company reported net revenue only
and, therefore, total revenue and commission and fee expense amounts are not
available.
(4) Income tax expense reflects the Predecessor Company's liability for state
taxes. No provision for federal income taxes has been made because the
Predecessor Company elected to be treated as an S corporation for federal
income tax purposes prior to the Reorganization.
(5) Reflects the decrease in stockholders' equity resulting from repurchases of
2.6 million shares of common stock by the Predecessor Company for aggregate
consideration of approximately $14.0 million and distributions totaling $4.3
million to stockholders in 1997.
19
<PAGE> 23
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following table sets forth unaudited pro forma financial information of
the Company for the periods ended and as of the dates indicated. The unaudited
pro forma financial information of the Company set forth below was derived from
the audited and unaudited financial statements of the Predecessor Company and
BCS, which are included elsewhere in this Prospectus.
The unaudited pro forma balance sheet has been prepared to give effect to
the Reorganization, the payment of the Stockholder Distribution Amount and the
Offering as though each had occurred as of March 31, 1998. The unaudited pro
forma statements of income have been prepared to give effect to (i) the payment
of the Stockholder Distribution Amount, (ii) the Reorganization, (iii) the
Offering, and (iv) for the year ended December 31, 1997, the BCS acquisition, as
if such transactions had occurred as of the beginning of each period presented.
The unaudited pro forma financial information of the Company set forth below is
based upon available information and certain assumptions that the Company
believes are reasonable. The unaudited pro forma financial information of the
Company set forth below does not purport to represent either what the Company's
financial position or results of operations actually would have been if the
transactions had actually occurred as of such dates or what such results will be
for any future periods.
The following pro forma information of the Company should be read in
conjunction with information included elsewhere herein, including, the financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
20
<PAGE> 24
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1998
ASSETS
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
PREDECESSOR STOCKHOLDER
COMPANY DISTRIBUTION
AS OF AMOUNT, THE THE COMPANY
MARCH 31, REORGANIZATION PRO FORMA
1998 AND THE OFFERING AS ADJUSTED
----------- ---------------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 4,723,227
Accounts and notes receivable:
Trade.......................................... 2,911,869
Affiliates..................................... 469,729
Notes receivable (related parties: $383,873)... 653,042
------------ -------- --------
Total accounts and notes receivable....... 4,034,640
Other current assets................................ 56,048
Accrued interest receivable......................... 67,627
------------ -------- --------
Total current assets...................... 8,881,542
Equipment and leasehold improvements, net........... 647,000
Intangible assets, net.............................. 23,867,839
Other assets........................................ 9,260
------------ -------- --------
Total assets.............................. $ 33,405,641
============ ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 583,328
Commissions and fees payable...................... 958,204
Dividends payable................................. 164,734
Accrued expenses and other liabilities............ 958,203
Accrued interest payable.......................... 446,531
Current portion of long-term debt................. 4,325,000
------------ -------- --------
Total current liabilities................. 7,436,000
Long-term debt...................................... 31,388,143
------------ -------- --------
Total liabilities......................... 38,824,143
Stockholders' equity (deficit):
Common stock:
Authorized shares -- 20,000,000; $0.01 par
value
Issued and outstanding shares -- 5,959,140 as
adjusted..................................... 5,162,281
Retained earnings................................. 3,371,875
------------ -------- --------
8,534,156
Less 2,737,130 shares of common stock in treasury,
at cost........................................ (13,952,658)
------------ -------- --------
Total stockholders' equity (deficit)...... (5,418,502)
------------ -------- --------
Total liabilities and stockholders'
equity.................................. $ 33,405,641
============ ======== ========
</TABLE>
21
<PAGE> 25
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
STOCKHOLDER
DISTRIBUTION THE
PREDECESSOR ADJUSTMENTS AMOUNT, THE COMPANY
COMPANY BCS FOR THE BCS CLARK/BARDES REORGANIZATION AND PRO FORMA
(HISTORICAL) (HISTORICAL) ACQUISITION PRO FORMA THE OFFERING AS ADJUSTED
------------ ------------ --------------- --------------- ------------------ -----------
(A) (B) (C) (E) (F)
(D) =(D)+(E)
=(A)+(B)+(C)
<S> <C> <C> <C> <C> <C> <C>
Total revenue........ $49,455,419 $12,808,974 -- $62,264,393
Commission and fee
expense............ 32,439,092 8,732,534 -- 41,171,626
----------- ----------- ----------- ----------- -------- --------
Net revenue........ 17,016,327 4,076,440 -- 21,092,767
General and
administrative
expense............ 11,506,335 2,284,691 -- 13,791,026
Amortization of
intangibles........ 294,630 -- 589,260(1) 883,890
----------- ----------- ----------- ----------- -------- --------
Income (loss) from
operations......... 5,215,362 1,791,749 (589,260) 6,417,851
Interest and dividend
income............. 188,597 28,002 -- 216,599
Interest expense..... (1,111,995) -- (1,540,000)(2) (2,651,995)
Miscellaneous income
(expense).......... 1,925 -- -- 1,925
----------- ----------- ----------- ----------- -------- --------
Total other income
(expense)........ (921,473) 28,002 (1,540,000) (2,433,471)
Income (loss) before
taxes.............. 4,293,889 1,819,751 (2,129,260) 3,984,380
Income taxes......... 60,000 -- -- 60,000
----------- ----------- ----------- ----------- -------- --------
Net income (loss).... $ 4,233,889 $ 1,819,751 $(2,129,260) $ 3,924,380
=========== =========== =========== =========== ======== ========
</TABLE>
- ---------------
(1) Amortization cost represents the pro forma cost associated with the BCS
acquisition for the period of January 1, 1997 to August 31, 1997.
(2) Interest expense represents the pro forma interest cost associated with the
BCS acquisition for the period of January 1, 1997 to August 31, 1997.
<TABLE>
<S> <C> <C>
$13.5 million X 10.5% X
Interest expense detail: 8/12 = $ 945,000
5.7 million X 8.5% X 8/12= 323,000
4.8 million X 8.5% X 8/12= 272,000
----------
Total pro forma interest = $1,540,000
==========
</TABLE>
22
<PAGE> 26
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
STOCKHOLDER
DISTRIBUTION THE
PREDECESSOR AMOUNT, THE COMPANY
COMPANY REORGANIZATION AND PRO FORMA
(HISTORICAL) THE OFFERING AS ADJUSTED
------------ ------------------ -----------
<S> <C> <C> <C>
Total revenue............................................... $13,754,466
Commission and fee expense.................................. 9,132,248
----------- -------- --------
Net revenue............................................... 4,622,218
General and administrative expense.......................... 3,370,852
Amortization of intangibles................................. 220,973
----------- -------- --------
Income from operations...................................... 1,030,393
Interest and dividend income................................ 75,087
Interest expense............................................ (920,604)
Miscellaneous income (expense).............................. 300
----------- -------- --------
Total other income (expense).............................. (845,217)
Income before taxes......................................... 185,176
Income taxes................................................ 2,000
----------- -------- --------
Net income.................................................. $ 183,176
=========== ======== ========
</TABLE>
23
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with "Selected
Historical and Pro Forma Financial Information" and the Company's financial
statements and notes thereto and other information appearing elsewhere in this
Prospectus. With the exception of historical information, certain of the matters
discussed in this Prospectus are forward-looking statements that involve risks
and uncertainties and actual results could differ materially from those
discussed. Words such as "anticipate," "believe," "estimate," "expect," "intend"
and similar expressions identify forward-looking statements. These
forward-looking statements reflect the Company's current views in respect of
future events in financial performance, but are subject to many uncertainties
and factors relating to the Company's operations and business environment that
may cause its actual results to differ materially from any future results
expressed or implied by such forward-looking statements.
GENERAL
Since the inception of the Predecessor Company in 1967, Clark/Bardes, the
wholly owned operating subsidiary of CBH, has grown to become a leading
designer, marketer and administrator of insurance-financed employee benefit
programs to large corporations and community, regional and money center banks.
The Company's clients use these sophisticated programs primarily to offset the
costs of employee benefit liabilities and to supplement and secure benefits for
key executives.
RECENT ACQUISITION
Effective September 1, 1997, the Predecessor Company acquired substantially
all the assets, the client list and the book of business of BCS, a Minneapolis,
Minnesota based company, for a total purchase price in cash equal to $24.0
million, plus acquisition related expenses of approximately $383,440. The
Predecessor Company allocated the purchase price as follows: approximately
$10,000 to tangible assets, $1.2 million to two non-competition agreements with
officers of BCS, $15.7 million to the net present value of BCS's existing in-
force revenue and book of business and $7.5 million to goodwill.
BCS was engaged in the business of designing and marketing
insurance-financed employee benefit programs and related compensation, salary
and benefit plans and providing related services to financial institutions. The
Predecessor Company's primary objective in acquiring BCS's business and assets
was to expand the Predecessor Company's capabilities and client base from large
money center banks to the community and regional bank market. For the period
beginning September 1, 1997 (the effective date of the BCS acquisition) to
December 31, 1997, the assets acquired from BCS generated total revenue of $8.5
million, which represented 17.2% of the Predecessor Company's total revenue for
the year ended December 31, 1997.
REVENUE AND EXPENSE
CBH, through its wholly owned operating subsidiary Clark/Bardes, derives
its revenue primarily from (i) commissions paid to Clark/Bardes by the insurance
companies that underwrite the policies underlying Clark/Bardes' programs and
(ii) fees paid by clients to Clark/Bardes in connection with program design and
the administrative services provided by Clark/Bardes. Such revenue is usually
long term and recurring and is typically paid annually and extends over a period
of ten years or more after the sale. Commissions paid annually or quarterly by
insurance companies vary by policy and by program and usually represent a
percentage of initial or inforce premium or a percentage of the cash surrender
value of the insurance policies underlying the Company's program. Commissions
paid by insurance companies accounted for approximately 62.7% of the Company's
total revenue for the year ended December 31, 1997. Fees are paid to
Clark/Bardes by clients in consideration for the design and administration of
employee benefit plans and the insurance products underlying such plans. The
scope of these services and fees payable are negotiated on a client-by-client
basis. Fees accounted for approximately 37.3% of the Company's total revenue for
the year ended December 31, 1997.
24
<PAGE> 28
The Company recognizes its revenue at the time the insurance premium is
paid by the client to the insurance company or the renewal premium is due to the
insurance company. After deducting the cost of servicing the benefit programs
and insurance policies, the Company retains approximately 31% of the remaining
revenue, with the producer receiving the balance.
The Company includes in total revenue both first year revenue and renewal
revenue.
- First Year Revenue. First year revenue is recognized by the Company at
the time the client is contractually committed to purchase the insurance
policies and the premiums are paid by the client to the insurance
company. First year revenue accounted for approximately 51.4% of the
Company's total revenue for the year ended December 31, 1997.
- Renewal Revenue. Renewal revenue is recognized by the Company on the date
that the renewal premium is due to the insurance company. Renewal revenue
in future periods, which is not recognized on the Company's balance sheet
(other than the $15.7 million capitalized in connection with the BCS
acquisition), is estimated by the Company to represent approximately
$167.7 million in total revenue over the next five years. However,
renewal revenue can be affected by policy surrenders or exchanges,
material contract changes, asset growth and case mortality rates. Over
the last five years, the Company has experienced a persistency rate of
approximately 98.0% of the inforce insurance underlying the Company's
programs, with the exception of revenue on Leveraged COLI business which
was affected by adverse tax law changes. Renewal revenue accounted for
approximately 48.6% of the Company's total revenue for the year ended
December 31, 1997.
Commission and fee expense comprises the portion of the total revenue paid
to the producer, approximately 69.0% of total revenue after deducting the cost
of servicing policies and other direct expenses related to sales. Commission and
fee expense as a percentage of total revenue was approximately 65.6% for the
year ended December 31, 1997.
REORGANIZATION
CBH and Clark/Bardes were formed in June 1998 in contemplation of the
Offering and in order to effect the Reorganization. CBH was formed to be a
holding company of Clark/Bardes and is not engaged in any business. Clark/Bardes
was formed to be the operating company of CBH and is the successor corporation
to Clark/Bardes, Inc., a Texas corporation formed in 1967.
In connection with the Offering, each of CBH, Clark/Bardes and the
Predecessor Company entered into the Reorganization Agreement which provides
for, among other things, (i) the Merger, (ii) a restructuring of the
Restructured Notes, (iii) the conversion of Clark/Bardes' 8.5% Convertible
Subordinated Notes due September 2007 into 813,559 shares of Common Stock, (iv)
an extinguishment by the Company of the Warrants, (v) a restructuring of a grant
of the Predecessor Company's common stock to Mr. Todd, the Company's Chief
Executive Officer and President, (vi) an amendment with respect to the amount of
renewal revenue due to The Wamberg Organization under the Principal Office
Agreement between Clark/Bardes and Mr. Wamberg, (vii) the incorporation of a
Texas entity formed for the purpose of marketing certain insurance products
within the state of Texas, and (viii) the termination of certain agreements. See
"Dilution" and "Certain Relationships and Related Transactions."
TERMINATION OF S CORPORATION STATUS AND INCOME TAXES
Since 1989, the Predecessor Company elected to be treated for federal
income tax purposes as an S corporation under Subchapter S of the Code and as an
S corporation for certain state corporate income tax purposes under certain
comparable state laws. As a result, the Predecessor Company's historical
earnings since 1989 have been taxed directly to the Predecessor Company's
stockholders, at their individual federal and state income tax rates, rather
than to the Predecessor Company (except for certain state taxes). Upon the
consummation of the Reorganization, Clark/Bardes became subject to federal and
state income taxation as a C corporation. At that time, Clark/Bardes recorded a
deferred tax liability on its balance sheet, the amount of which depended upon
timing differences between tax and book accounting. If the Predecessor Company's
S
25
<PAGE> 29
corporation status had terminated as of December 31, 1997, the amount of the
deferred tax liability would have been approximately $1.2 million. See
"Capitalization."
In connection with the termination of the Predecessor Company's S
corporation status, the board of directors of the Predecessor Company declared a
dividend to the stockholders of record on , 1998 in an amount equal to
$3.2 million, or $1.00 per share. The Stockholder Distribution Amount may be (i)
decreased if the AAA Amount is less than the Stockholder Distribution Amount or
(ii) increased if the Stockholder Distribution Amount is less than 42.6% of the
taxable income for the period beginning January 1, 1998 and ending on the date
the Reorganization is consummated. It is intended that the Stockholder
Distribution Amount will be paid prior to the consummation of the Offering.
As a part of the Reorganization, Clark/Bardes and the Existing Stockholders
entered into the Tax Agreement relating to their respective income tax
liabilities. Because Clark/Bardes will be fully subject to corporate income
taxation after termination of the Predecessor Company's S corporation status,
any reallocation of income and deductions between the period during which the
Predecessor Company was treated as an S corporation and the period during which
Clark/Bardes will be subject to corporate income taxation may increase the
taxable income of one party while decreasing that of another party. Accordingly,
the Tax Agreement is intended to ensure that taxes are borne either by
Clark/Bardes or the Existing Stockholders to the extent that such parties
received the related income. The Tax Agreement generally provides that, if an
adjustment is made to the taxable income of Clark/Bardes for a year in which the
Predecessor Company was treated as an S corporation, each party will indemnify
the other against any increase in the indemnified party's income tax liability,
including interest and penalties, with respect to such tax year to the extent
such increase results in a related decrease in the income tax liability,
including interest and penalties, of the indemnifying party (whether with
respect to the year of the adjustment or over future years). Moreover, the Tax
Agreement provides that the Existing Stockholders will indemnify Clark/Bardes
for any income tax liability incurred as a result of a determination that the
Predecessor Company did not qualify as an S corporation. Such indemnification
obligation is limited to the net tax refund, if any, received by the Existing
Stockholders.
Clark/Bardes will also indemnify the Existing Stockholders for all taxes
imposed upon them as the result of an indemnification payment under the Tax
Agreement. Any payment made by Clark/Bardes to the Existing Stockholders
pursuant to the Tax Agreement may be considered by the Internal Revenue Service
or state taxing authorities to be non-deductible by Clark/Bardes for income tax
purposes. None of the parties' obligations under the Tax Agreement is secured,
and, therefore, there can be no assurance that Clark/Bardes or the Existing
Stockholders will have funds available to make any payments which may become due
under the Tax Agreement.
QUARTERLY FLUCTUATIONS
The Company has experienced and expects to continue to experience
significant fluctuations in its results of operations, in particular when such
results are compared on a consecutive quarterly basis. Management believes these
quarterly fluctuations are attributable primarily to revenue variations since
operating expenses remain relatively constant throughout the year. Historically,
the Company recognizes a significant increase in both first year and renewal
revenue in the fourth quarter due to the seasonality of employee benefit
funding. In general, results of operations may fluctuate as a result of a number
of factors, including the introduction of new or enhanced programs and services
by the Company or its competitors, client acceptance or rejection of new
programs and services, program development expenses, timing of significant
sales, demand for the Company's administrative services, competitive,
legislative and regulatory conditions in the insurance-financed employee benefit
industry and general economic conditions. In addition, the sales cycles for the
Company's programs and services are usually lengthy (generally between twelve to
eighteen months), with first year revenue being derived from a small number of
large cases.
26
<PAGE> 30
The following table sets forth, on a quarterly basis, certain unaudited
statement of income information for the four quarters of 1996 and 1997 and the
first quarter of 1998. Such information is not necessarily indicative of results
for any full year or for any subsequent period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1996 1996 1997 1997 1997
---------- ---------- ------------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue........... $5,724,438 $7,041,337 $5,242,973 $ 15,234,407 $5,510,415 $5,772,769 $ 11,009,707
Commission and fee
expense............... 3,624,738 4,458,604 3,319,872 9,646,490 3,549,809 3,723,710 7,138,578
General and
administrative
expense............... 1,555,979 1,888,343 1,789,083 3,321,014 1,860,545 2,754,555 2,886,666
Income before taxes..... 571,277 702,163 164,929 2,297,060 200,308 (738,678) 742,681
<CAPTION>
QUARTER ENDED
--------------------------
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
<S> <C> <C>
Total revenue........... $27,162,528 $13,754,466
Commission and fee
expense............... 18,026,995 9,132,248
General and
administrative
expense............... 4,004,568 3,370,852
Income before taxes..... 4,089,578 183,176
</TABLE>
RESULTS OF OPERATIONS
The following discussion compares the results of operations for the
Predecessor Company on a pro forma basis for the three month periods ended March
31, 1998 and 1997 as if the BCS acquisition had occurred on January 1, 1997, for
the Predecessor Company on a historical basis for the three month periods ended
March 31, 1998 and 1997, and for the Predecessor Company for the years ended
December 31, 1997, 1996 and 1995 on a historical basis. The discussion of
factors affecting the changes in, and the trends related to, the results of
operations for the historical comparison of the three month periods ended March
31, 1998 and 1997 has been omitted because such factors are discussed in the pro
forma comparison of such period.
Three Month Periods Ended March 31, 1998 and March 31, 1997--Pro Forma
Comparison
The pro forma comparison of the results of operations for the three month
period ended March 31, 1998 and March 31, 1997 compares the actual results of
operations for the Predecessor Company for the three month period ended March
31, 1998 with the pro forma results of operations for the Predecessor Company
for the three month period ended March 31, 1997 after giving effect to the
acquisition by the Predecessor Company of the business and substantially all the
assets of BCS as if such acquisition had occurred on January 1, 1997. The pro
forma financial information of the Predecessor Company set forth below does not
purport to represent what the Predecessor Company's results of operations
actually would have been if the BCS acquisition had actually occurred on January
1, 1997. Solely for purposes of comparing the results of operations for the
three month periods ended March 31, 1998 and 1997 on a pro forma basis and
notwithstanding the definitions used elsewhere in this Prospectus, Clark/Bardes
means the Predecessor Company as it existed during the three month period ended
March 31, 1997, BCS means BCS as it existed during the three month period ended
March 31, 1997 and the Company means the combined entity of Clark/ Bardes and
BCS as it existed during the three month period ended March 31, 1998.
Total Revenue. Total revenue increased to $13.8 million for the three month
period ended March 31, 1998 as compared to $9.7 million for the three month
period ended March 31, 1997, representing an increase of 41.9%. This increase
reflects rapid revenue growth of both Clark/Bardes and BCS to $8.6 million and
$5.2 million, respectively, for the three month period ended March 31, 1998 as
compared to $5.6 million and $4.1 million, respectively, for the three month
period ended March 31, 1997. These increases were driven in part by the
Company's renewal revenue increasing to $6.8 million for the three month period
ended March 31, 1998 as compared to $5.6 million for the three month period
ended March 31, 1997, reflecting the Company's increasing amount of inforce
business underlying the Company's programs.
Commission and Fee Expense. Commission and fee expense increased to $9.1
million for the three month period ended March 31, 1998 as compared to $6.4
million for the three month period ended March 31, 1997, representing an
increase of 42.8%. Commission and fee expense as a percentage of total revenue
increased to 66.4% for the three month period ended March 31, 1998 as compared
to 66.0% for the three month period ended March 31, 1997.
General and Administrative Expense. General and administrative expense
increased to $3.4 million for the three month period ended March 31, 1998 as
compared to $2.7 million for the three month period ended March 31, 1997,
representing an increase of 23.8%, well below the 41.9% increase in total
revenues. General and administrative expense as a percent of total revenue was
24.5% for the three month period ended
27
<PAGE> 31
March 31, 1998 as compared to 28.1% for the three month period ended March 31,
1997. The improvement in general and administrative expense as a percentage of
total revenue was due primarily to (i) the fact that BCS's ratio of general and
administrative expense to total revenue was lower than Clark/Bardes', and (ii)
the elimination of certain expenses as a result of the BCS acquisition.
Amortization. Amortization expense equaled $220,973 for each of the three
month periods ended March 31, 1998 and 1997, reflecting the amortization of
intangible assets capitalized as a result of the BCS acquisition in September
1997.
Income from Operations. Income from operations increased to $1.0 million
for the three month period ended March 31, 1998 compared to $352,680 for the
three month period ended March 31, 1997, representing an increase of 192.2%.
Income from operations as a percentage of total revenue ("Operating Margin")
increased to 7.5% for the three month period ended March 31, 1998 as compared to
3.6% for the three month period ended March 31, 1997. The increase in income
from operations was due primarily to the increase of total revenue of $4.1
million as compared to an increase in general and administrative expense of only
$0.7 million.
Total Other Income (Expense). Other income and expense for the three month
period ended March 31, 1998 was ($845,217) as compared to ($516,312) for the
three month period ended March 31, 1997. The amount for the three month period
ended March 31, 1998 included interest expense of $920,604 as compared to
interest expense of $625,375 for the three month period ended March 31, 1997.
The interest expense was attributable to the incurrence of debt associated with
the repurchase of shares of common stock of the Predecessor Company throughout
the year and the BCS acquisition in September 1997.
Net Income (Loss). Net income increased to $183,176 for the three month
period ended March 31, 1998 compared to a net loss of $163,632 for the three
month period ended March 31, 1997, reflecting the pro forma application of
amortization of intangible assets and interest expense to the three month period
ended March 31, 1997 and the other factors discussed above. No provision for
federal income taxes was made for either period since the Company was an S
corporation prior to the Reorganization.
Three Month Periods Ended March 31, 1998 and March 31, 1997--Historical
Comparison
The historical comparison of the results of operations for the three month
periods ended March 31, 1998 and March 31, 1997 compares the actual results of
operations for the Predecessor Company for such periods. The results of
operations for the three month period ended March 31, 1998 include the results
of operations associated with the assets purchased from BCS in September 1997,
while the results of operation for the three month period ended March 31, 1997
reflect the stand-alone historical results of operations for the Predecessor
Company without giving pro forma effect to the BCS acquisition.
Total Revenue. Total revenue increased to $13.8 million for the three month
period ended March 31, 1998 as compared to $5.5 million for the three month
period ended March 31, 1997.
Commission and Fee Expense. Commission and fee expense increased to $9.1
million for the three month period ended March 31, 1998 as compared to $3.5
million for the three month period ended March 31, 1997.
General and Administrative Expense. General and administrative expense
increased to $3.4 million for the three month period ended March 31, 1998 as
compared to $1.9 million for the three month period ended March 31, 1997.
General and administrative expense as a percent of total revenue was 24.5% for
the three month period ended March 31, 1998 as compared to 33.8% for the three
month period ended March 31, 1997.
Amortization. Amortization expense was $220,973 for the three month period
ended March 31, 1998, reflecting the amortization of intangible assets
capitalized as a result of the BCS acquisition in September 1997. There was no
amortization expense for the three month period ended March 31, 1997.
Income from Operations. Income from operations increased to $1.0 million
for the three month period ended March 31, 1998 compared to $100,061 for the
three month period ended March 31, 1997. Operating
28
<PAGE> 32
Margin increased to 7.5% for the three month period ended March 31, 1998 from
1.8% for the three month period ended March 31, 1997.
Total Other Income (Expense). Other income and expense for the three month
period ended March 31, 1998 was ($845,217) as compared to $100,246 for the three
month period ended March 31, 1997. The primary factor contributing to this
decrease was $920,604 of interest expense for the three month period ended March
31, 1998. There was no interest expense for the three month period ended March
31, 1997. The interest expense was attributable to the incurrence of debt
associated with the repurchase of shares of common stock of the Predecessor
Company throughout the year and the BCS acquisition in September 1997.
Net Income. Net income decreased to $183,176 for the three month period
ended March 31, 1998 compared to $200,307 for the three month period ended March
31, 1997. No provision for federal income taxes was made for either period since
the Predecessor Company was an S corporation prior to the Reorganization.
Years Ended December 31, 1997 and 1996--Historical Comparison
Total Revenue. Total revenue increased to $49.5 million for the year ended
December 31, 1997 as compared to $33.2 million for the year ended December 31,
1996, representing an increase of 48.8%. The large increase in total revenue was
due to three primary factors. First, the first year revenue increased
significantly during 1997 to $22.3 million from $10.1 million in 1996. Second,
the Predecessor Company's renewal revenue increased to $24.0 million from $21.9
million, reflecting the increased amount of inforce business underlying the
Predecessor Company's programs. Third, $8.5 million of total revenue for the
year ended December 31, 1997 was associated with the assets acquired from BCS in
September 1997. The increase in total revenue was accomplished despite a
decrease in the renewal revenue on Leveraged COLI business to $6.1 million for
the year ended December 31, 1997 from $9.7 million for the year ended December
31, 1996, representing a decrease of 37.1%. The Company expects this trend to
continue.
Commission and Fee Expense. Commission and fee expense increased to $32.4
million for the year ended December 31, 1997 as compared to $21.0 million for
the year ended December 31, 1996, representing an increase of 54.1%. Commission
and fee expense as a percentage of total revenue increased to 65.6% for the year
ended December 31, 1997 as compared to 63.3% for the year ended December 31,
1996. Of the $11.4 million increase in commission and fee expense, $6.0 million
was attributable to the assets acquired from BCS in September 1997.
Additionally, recent sales activity has been on high margin, low administrative
cost business which has caused the cost of servicing the benefit programs and
insurance policies to decrease relative to total revenue. This decrease in the
cost of service translates into an increase in commission and fee expense as a
percentage of total revenue.
General and Administrative Expense. General and administrative expense
increased to $11.5 million for the year ended December 31, 1997 as compared to
$8.6 million for the year ended December 31, 1996, representing an increase of
34.5%. General and administrative expense as a percent of total revenue was
23.3% for the year ended December 31, 1997 as compared to 25.7% for the year
ended December 31, 1996. The improvement in general and administrative expense
as a percentage of total revenue was due partly to (i) the fact that BCS's ratio
of general and administrative expense to total revenue was lower than
Clark/Bardes', and (ii) the elimination of certain expenses as a result of the
BCS acquisition.
Amortization. Amortization expense was $294,630 for the year ended December
31, 1997, reflecting the amortization of intangible assets capitalized as a
result of the BCS acquisition in September 1997. There was no amortization
expense for the year ended December 31, 1996.
Income from Operations. Income from operations increased to $5.2 million
for the year ended December 31, 1997 compared to $3.6 million for the year ended
December 31, 1996, representing an increase of 43.3%. The increase in income
from operations was attributable primarily to the income associated with the
assets acquired from BCS in September 1997. Operating Margin decreased slightly
to 10.5% for the year ended December 31, 1997 from 10.9% for the year ended
December 31, 1996. This decrease in Operating Margin was due to amortization
expense of $294,630 incurred as a result of the BCS acquisition.
29
<PAGE> 33
Total Other Income (Expense). Other income and expense for the year ended
December 31, 1997 was ($921,473) as compared to $96,398 for the year ended
December 31, 1996. The amount for the year ended December 31, 1997 included
interest expense of $1.1 million. There was no interest expense for the year
ended December 31, 1996. The increase in interest expense was attributable to
the incurrence of debt associated with the repurchase of shares of common stock
of the Predecessor Company throughout the year and the BCS acquisition in
September 1997.
Net Income. Net income increased to $4.2 million for the year ended
December 31, 1997 compared to $3.6 million for the year ended December 31, 1996,
representing an increase of 19.1%, reflecting the factors discussed above. No
provision for federal income taxes was made for either period since the
Predecessor Company was an S corporation prior to the Reorganization.
Years Ended December 31, 1996 and 1995--Historical Comparison
Total Revenue. Total revenue increased to $33.2 million for the year ended
December 31, 1996 as compared to $27.0 million for the year ended December 31,
1995, representing an increase of 23.2%. The increase in total revenue was due
primarily to an increase in renewal revenue to $21.9 million from $16.7 million,
an increase of 31.1% which reflected the increased amount of inforce business
underlying the Predecessor Company's programs. The increase in total revenue was
accomplished despite a decrease in the renewal revenue on Leveraged COLI
business to $9.7 million for the year ended December 31, 1996 from $11.3 million
for the year ended December 31, 1995, representing a decrease of 14.2%. The
Company expects to continue.
Commission and Fee Expense. Commission and fee expense increased to $21.0
million for the year ended December 31, 1996 as compared to $16.9 million for
the year ended December 31, 1995, representing an increase of 24.6%. Commission
and fee expense as a percentage of total revenue increased to 63.3% for the year
ended December 31, 1996 as compared to 62.6% for the year ended December 31,
1995. Recent sales activity has been on high margin, low administrative cost
business which has caused the cost of servicing the benefit programs and
insurance policies to decrease relative to total revenue. This decrease in the
cost of service translates into an increase in commission and fee expense as a
percentage of total revenue.
General and Administrative Expense. General and administrative expense
increased to $8.6 million for the year ended December 31, 1996 as compared to
$7.9 million for the year ended December 31, 1995, representing a increase of
8.7%. General and administrative expense as a percent of total revenue was 25.7%
for the year ended December 31, 1996 as compared to 29.2% for the year ended
December 31, 1995. This improvement was primarily due to operating efficiencies
resulting from increased automation.
Income from Operations. Income from operations increased to $3.6 million
for the year ended December 31, 1996 compared to $2.2 million for the year ended
December 31, 1997, representing an increase of 64.4%. The increase in income
from operations was attributable primarily to the increased revenue and to
certain operating efficiencies. Operating Margin increased to 10.9% for the year
ended December 31, 1996 from 8.2% for the year ended December 31, 1995.
Total Other Income (Expense). Other income and expense for the year ended
December 31, 1996 was $96,398 as compared to $107,382 for the year ended
December 31, 1995.
Net Income. Net income increased to $3.6 million for the year ended
December 31, 1996 compared to $2.2 million for the year ended December 31, 1995,
representing an increase of 60.2%, reflecting the factors discussed above. No
provision for federal income taxes was made for either period since the
Predecessor Company was an S corporation prior to the Reorganization.
PENDING ACQUISITION
On May 29, 1998, the Predecessor Company entered into a letter of intent
with the Schoenke Companies and Mr. Schoenke, which provides for, among other
things, (i) the acquisition by Clark/Bardes of the businesses and substantially
all the assets of the Schoenke Companies, (ii) the execution of a
non-competition agreement by each of Mr. Schoenke and the Schoenke Companies,
and (iii) the Schoenke Companies'
30
<PAGE> 34
agreement to deal exclusively with Clark/Bardes. The purchase price of the
Pending Acquisition, which is subject to change based on Clark/Bardes's due
diligence review, is $17.0 million, of which $1.5 million was paid as a secured
refundable deposit and $15.5 million is payable in cash at the closing of the
Pending Acquisition. The consummation of the Pending Acquisition is subject to
numerous conditions, including the consummation of the Offering, the approval of
Clark/Bardes's board of directors, obtaining all requisite regulatory approvals
and the satisfactory completion of Clark/Bardes's due diligence review. The
consummation of the Pending Acquisition must occur on or prior to October 1,
1998. The letter of intent expressly allows the Predecessor Company to enter
into and consummate the Reorganization. Management believes that the
consummation of the Pending Acquisition is probable.
LIQUIDITY AND FINANCIAL RESOURCES
Historically, the Predecessor Company financed its operations through
internally generated funds and existing cash reserves. For the years ended
December 31, 1995, 1996 and 1997 and the three month period ended March 31, 1998
the Predecessor Company produced net cash flow from operations of $2.6 million,
$4.3 million, $1.8 million and $2.8 million, respectively.
Capital expenditures and leasehold improvements amounted to $303,260,
$131,057 and $536,983 for the years ended December 31, 1995, 1996 and 1997,
respectively. For the entire year ending December 31, 1998, the Company
anticipates spending approximately $850,000 on capital projects, including
furniture and equipment and upgrades to communication systems and management
information systems.
In 1997, the Predecessor Company (i) acquired the business and
substantially all the assets of BCS and (ii) repurchased 2.6 million shares of
common stock. To effect such transactions, the Predecessor Company used $2.2
million of cash reserves and issued an aggregate of $33.9 million of debt
consisting of 10.5% Senior Secured Notes due August 2002, 11.0% Second Priority
Senior Secured Notes due August 2004, 8.5% Medium Term Notes due September 2001
and 8.5% Convertible Subordinated Notes due September 2007.
On , 1998, a Stockholder Distribution Amount equal to $3.2
million, or $1.00 per share, was declared by the Predecessor Company. It is
intended that the Stockholder Distribution will be paid prior to the
consummation of the Offering.
As of March 31, 1998, the Predecessor Company owed an aggregate of $35.7
million under outstanding debt obligations. The Predecessor Company's
outstanding debt obligations as of March 31, 1998 included the indebtedness
mentioned above and 8.5% AAA Distribution Notes due November 2007. The Company
anticipates that upon the consummation of the Offering the 8.5% Medium Term
Notes due September 2001 will be repaid and the 8.5% Convertible Subordinated
Notes due September 2007 will be converted into shares of Common Stock. Pending
the application of the proceeds of the Offering, CBH intends to invest the net
proceeds of the Offering in short-term, investment grade, interest bearing
securities. As of March 31, 1998 and after giving effect to the Reorganization
and the Offering, the Company would have had cash and cash equivalents equal to
$ million and indebtedness outstanding equal to $25.2 million, each on
a pro forma basis.
Further expansion of the Company's business through acquisitions may
require the Company to incur additional indebtedness or issue equity securities.
There can be no assurance that additional debt or equity will be available to
the Company or, if available, will be on terms acceptable to the Company.
As the Company's business grows, its working capital and capital
expenditures will also continue to increase. Management believes that existing
resources will be sufficient to finance the Company's working capital and
capital expenditures for the next twelve months. There can be no assurance,
however, that such resources will be sufficient to meet the Company's
anticipated requirements or that the Company will not require additional debt or
equity financing within this time frame.
YEAR 2000 COMPLIANCE
Management believes that the computer equipment and software used by the
Company will function properly with respect to dates in the Year 2000 and
thereafter. However, third parties that have relationships
31
<PAGE> 35
with the Company, including insurance companies and clients, may experience
significant operational difficulties if their computer systems do not properly
recognize date sensitive information when the year changes to 2000. While these
computer malfunction issues may have a material adverse effect on the operations
of such third parties, which may, in turn, have a material adverse effect on the
Company, management presently believes that Year 2000 issues will not require
the Company to incur any material costs and do not pose significant operational
problems for the Company.
INFLATION
Inflation has not had a material effect on the Predecessor Company's
results of operations. Certain of the Company's expenses, such as compensation,
benefits and capital equipment costs, are subject to normal inflationary
pressures. However, the majority of the Company's service and administrative
agreements with clients, which generate fee income, have a cost of living
adjustment tied to the consumer price index. Management believes that future
inflationary pressures will continue to be offset because as inflation increases
investment returns will also increase, resulting in higher cash values and
higher commission revenue.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standard Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." This statement specifies the computation, presentation and disclosure
requirements for earnings per share for entities with publicly-held common stock
or potential common stock. This statement is effective for financial statements
for both interim and annual periods ending after December 15, 1997 and has been
presented in the accompanying financial statements in anticipation of the
Offering.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for reporting and displaying of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. This statement is
effective for years beginning after December 15, 1997. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required. At this time, the Company's comprehensive income is not significant.
In June 1997, the FASB issued SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information." This Statement requires public enterprises
to report selected information about operating segments in annual and interim
reports issued to shareholders. It is effective for financial statements for
fiscal years beginning after December 15, 1997, but it is not required to be
applied to interim financial statements in the initial year of its application.
If applicable, the Company will adopt SFAS 131 for the year ended December 31,
1998.
32
<PAGE> 36
BUSINESS
GENERAL
Since the inception of the Predecessor Company in 1967, Clark/Bardes, the
wholly owned operating subsidiary of CBH, has grown to become a leading
designer, marketer and administrator of insurance-financed employee benefit
programs to large corporations and community, regional and money center banks.
The Company's clients use these sophisticated programs primarily to offset the
costs of employee benefit liabilities and to supplement and secure benefits for
key executives. The Company's revenue is earned primarily from (i) commissions
paid to Clark/Bardes by the insurance companies that underwrite the policies
underlying the Company's programs and (ii) fees paid by clients in connection
with program design and the administrative services provided by the Company.
Such commissions and fees are usually long term and recurring and are typically
paid annually and extend over a period of ten years or more after the sale.
The Company has experienced rapid growth since December 31, 1995. Effective
September 1, 1997, the Predecessor Company acquired substantially all the
assets, the client list and the book of business of BCS, a Minnesota based
company that designed, marketed and administered insurance-financed employee
benefit programs and related compensation, salary and benefit plans for
community and regional banks. Through sales generated by a group of specialized
independent producers and the integration of the assets acquired from BCS, the
Company has a customer base of 155 large corporate clients and 982 regional and
community banks as of December 31, 1997. Additionally, the inforce insurance
coverage underlying the Company's programs has increased from approximately
$18.3 billion as of December 31, 1995 to approximately $43.8 billion as of
December 31, 1997, representing a compound annual growth rate of 54.7%. Income
from operations has grown from $2.2 million for the year ended December 31, 1995
to $5.2 million for the year ended December 31, 1997, representing a compound
annual growth rate of 53.5%.
Management believes additional growth opportunities exist and that
Clark/Bardes' reputation as an industry leader, its comprehensive in-house
expertise, sophisticated administrative systems, quality producers and strong
relationships with insurance companies provide the Company with distinct
competitive advantages. The Company intends to increase its market share by
combining these strengths with its core competencies of (i) designing
proprietary programs customized to meet clients' needs, (ii) providing
outstanding client service, and (iii) responding quickly to develop new products
and services brought about by regulatory and legislative changes. In addition,
management believes that Clark/Bardes can be a leader in the consolidation of
the highly fragmented insurance-financed employee benefit industry by offering
liquidity, proprietary benefit and program designs and administrative support to
the owners of smaller firms. Finally, management intends to leverage the
Company's core competencies by entering into related markets such as
compensation consulting and outsourcing of benefit plan administration services.
The Company has developed the high quality administrative capabilities
necessary to service these executive benefit and insurance programs marketed by
the Company. At March 31, 1998, the Company administered approximately 180,000
benefit and insurance records for nearly 1,200 clients. At such date, the
insurance policies underlying the Company's employee benefit programs
represented a total of $44.3 billion of inforce insurance coverage. Of such
total inforce insurance coverage in effect at March 31, 1998, 94.0% of the total
dollar amount was issued by 22 insurers rated A+ or better by A.M. Best.
Management believes that its strong relationship with these insurance companies
is due to the Company's history of placing high-quality, high persistency
policies.
As of March 31, 1998, the Company was represented by 35 producers in 25
independently operated sales offices located throughout the United States. These
producers and the Company's management will own an aggregate of approximately
% of the outstanding Common Stock after giving effect to the Offering. See
"Principal Stockholders."
INDUSTRY
Beginning in the early 1980s, corporations and banks began using life
insurance to offset the costs of employee benefit liabilities with greater
frequency than in the past. Since that time, several large insurers,
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<PAGE> 37
including AEGON, CIGNA, General American, Great-West and Nationwide, have
committed significant resources to develop business-owned life insurance
products for use in the insurance-financed employee benefit industry.
The use of insurance to offset the costs of employee benefit liabilities
historically has been affected by legislative change, both positive and
negative. In the past, legislation has reduced the usefulness of traditional
pension plans for highly-paid executives which, in turn, has increased the
attractiveness of insurance-financed non-qualified benefit plans. On the other
hand, legislation has limited interest deductibility on policy loans and
restricted the use of business-owned life insurance to employees, officers,
directors and 20-percent owners. The insurance-financed employee benefit
industry will continue to be affected significantly by legislative change.
Consequently, the Company believes that the ability to respond quickly to
legislative initiatives is a competitive advantage to increase market share.
The Company believes that historically the insurance-financed employee
benefit industry has been dominated by a small number of successful producers
and producer groups. Management believes that many of the once-dominant
producers and producer groups have not kept pace with the numerous changes
affecting the industry, and are currently faced with a decreasing market share
and the inability to provide adequate administrative support to existing
clients. The Company believes that those producers and producer groups who have
not made the necessary and substantial investment in administrative systems and
personnel will continue to experience difficulties in satisfying their clients'
growing needs and demands and in meeting complex regulatory requirements.
Finally, the Company also believes that the ever-changing legislative and
economic environments require product development systems and personnel that are
more sophisticated and cost intensive than most producers and producer groups
are able to justify economically. Given the highly fragmented nature of the
industry, management expects significant consolidation to occur in the future.
STRATEGY
The Company's goal is to enhance its leadership role as a provider of
innovative benefit and insurance solutions to corporations and banks throughout
the United States. To accomplish this goal, the Company intends to focus on the
following:
- Leverage Market Reputation. The Company plans to leverage its reputation
as an industry leader to expand current operations and to enter into
related businesses.
- Design Innovative Programs. The Company intends to use its expertise in
program development to create and market innovative, customized programs
in order to facilitate the Company's penetration of new markets and to
satisfy the financial needs of its clients in a changing regulatory and
economic environment.
- Diversify Business. Management plans to identify and enter into related
businesses in which the Company's core competencies can be profitably
employed. Examples of related businesses include compensation consulting,
outsourcing of benefit plan administrative services and marketing to the
non-profit sector.
- Enhance Administrative Capabilities. The Company intends to continue
distinguishing itself from its competitors by enhancing its
administrative capabilities, providing high quality administrative
services and improving operating margins.
- Pursue Consolidating Acquisitions. The Company intends to take advantage
of the expected consolidation in the insurance-financed employee benefit
market and implement the Company's design, distribution and service model
on a wide-scale basis so as to increase market share, acquire producer
and management talent, enter into new markets and improve operating
margins through integration efficiencies.
The Company intends to use a combination of plans to encourage ownership of
CBH stock among its employees, producers and directors so as to further align
their interests with those of CBH's stockholders. Examples of such plans include
a commission reinvestment plan for producers, providing the opportunity to
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<PAGE> 38
purchase CBH stock through the Company's 401(k) plan and compensating the Board
of Directors with CBH stock.
ACQUISITION STRATEGY
The insurance-financed employee benefit industry is highly fragmented.
Management believes that significant opportunities exist to create a more
efficient design, distribution and service system for insurance-financed
employee benefit programs. The Company intends to take advantage of these
opportunities by pursuing acquisitions on a selected basis. Management
categorizes potential acquisition targets in two groups. The first group is
comprised of smaller, less sophisticated companies that have not made the
necessary investment in technology and personnel, and are finding it
increasingly difficult to compete with the larger, more-developed firms. The
second group is comprised of viable, sophisticated firms with a solid client
base that are owned by a small number of producers who are eager to affiliate
their firm with a more established organization.
Using the successful BCS acquisition as a model, management has established
guidelines for evaluating a potential acquisition target. The Company is focused
on identifying organizations that can increase the Company's market penetration,
retain quality producers after the consummation of the acquisition, create
cross-selling opportunities, provide significant opportunity for administrative
cost savings and be effected in a manner that is accretive to the Company's
earnings. Using these guidelines, the Company will evaluate a potential
acquisition target based on factors such as the operating results and financial
condition of the target business, its growth potential, the quality of its
management and producers and the expected return in relation to other
acquisition opportunities. As of March 31, 1998, management had identified
approximately 100 companies each with annual revenue in excess of $3.0 million
that are potentially attractive acquisition targets. Management believes that
the Company's leadership, size, industry expertise and reputation,
administrative systems and support and other long-term competitive advantages
provide the Company with a decided advantage in its pursuit to acquire selected
companies.
PROGRAMS AND PRODUCTS
Clark/Bardes designs and markets a diverse array of insurance-financed
employee benefit programs and provides comprehensive administrative services to
meet the needs of its clients. Currently, the Company derives a substantial
majority of its total revenue from the sale of insurance products used to fund
the Company's proprietary programs. The Company maintains relationships with
insurance companies such as AEGON, CIGNA, General American, Great-West,
Nationwide, Phoenix Home Life, TMG Life and West Coast Life that are strategic
in nature, with both parties committed to developing and delivering creative
products with high client value. The Company, through its actuaries and legal,
accounting and other professionals, works closely with (i) clients to design
custom products that meet the unique organizational needs of such client and
(ii) selected insurance companies to develop unique policy features at
competitive pricing.
Business-owned life insurance refers to life insurance policies purchased
by a business that insure the lives of a number of employees. The business pays
the premiums on, and is the owner and beneficiary of, such policies.
Business-owned life insurance based programs are used primarily to offset a
client's cost of providing employee benefits and to supplement and secure
benefits for key executives. More specifically, the cash flow characteristics of
business-owned life insurance policies are designed to match closely the
long-term cash flow characteristics of a client's employee benefit liabilities.
Further, business-owned life insurance offers certain advantages, including (i)
the cash value of the policies grows on a tax deferred basis until withdrawal
and (ii) the policies' death benefits are received tax-free. Finally, the tax
deferred nature of the policies provides an attractive return.
Clark/Bardes' overall approach to marketing and client service is
illustrated by the business-owned life insurance marketing process. First, the
Company performs the actuarial and insurable interest calculations necessary to
determine the amount of life insurance an organization needs to purchase. Then,
the Company helps to design a program to meet that particular company's unique
organizational needs. Next, Clark/Bardes
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<PAGE> 39
arranges for the placement of the insurance coverage underlying the
Company-designed program with a financially stable insurance company. Last, the
Company provides the long-term administrative services associated with the
program and the underlying business-owned life insurance policy.
The Company markets a wide variety of business-owned life insurance based
programs, including bank-owned life insurance, deferred income plans ("DIPs"),
supplemental executive retirement plans ("SERPs") and secured offset plans
("SOPs") and also markets group term carve out plans ("GTCO").
The following table sets forth the total revenue by product category for
the year ended December 31, 1997, and the amount of first year revenue by
product category for each of the years ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
FIRST YEAR REVENUE FOR THE YEAR
TOTAL REVENUE FOR ENDED DECEMBER 31,
THE YEAR ENDED --------------------------------
DECEMBER 31, 1997 1995 1996 1997
----------------- -------- --------- ---------
<S> <C> <C> <C> <C>
Bank-owned life insurance
Large case............................. $16,361 $3,061 $ 4,870 $10,096
Small case............................. 8,451 -- -- 7,101
DIP and SERP............................. 7,307 1,718 1,016 785
SOP...................................... 3,278 151 200 3,022
GTCO..................................... 3,334 179 676 265
Discontinued products(1)................. 8,974 1,780 2,241 790
Add-on(2)................................ 1,750 672 1,090 471
------- ------ ------- -------
Total.......................... $49,455 $7,561 $10,093 $22,530
======= ====== ======= =======
</TABLE>
- ---------------
(1) Includes revenue from policies added to existing benefit plans. This is a
result of new employees entering a plan and requires minimal sales efforts.
(2) Includes renewal revenue from products used in existing plans which are no
longer marketed for new plans because of legislative changes.
Bank-Owned Life Insurance. Bank-owned life insurance refers to
business-owned life insurance purchased by a bank. The Office of the Comptroller
of the Currency provides guidelines that tie the purchase of bank-owned life
insurance to the costs of offsetting employee benefits on an aggregate basis.
Clark/Bardes was the first organization to implement large case bank-owned life
insurance programs, which are designed for, and marketed to, banks with assets
in excess of $1.0 billion. As a result of the BCS acquisition, the Company now
markets small case bank-owned life insurance programs, which are used to offset
benefit costs for executives and directors of regional and community banks with
assets of less than $1.0 billion. The Company markets a wide variety of
bank-owned life insurance, including fixed yield policies (general account
policies), variable yield policies (separate account policies) and a Protected
Equity Plan(TM) (a hybrid policy which provides the minimum return of a fixed
yield policy with the upside potential of a variable yield policy).
Deferred Income Plans. DIPs allow corporate executives to defer a portion
of their current income on a tax-deferred basis. The deferred income and
interest in a properly designed and administered DIP grows on a tax-deferred
basis until distributions are made to the executive, usually at retirement.
Corporations often purchase life insurance to create an asset in order to offset
the costs of the liability created by a DIP. DIPs can be structured in a variety
of ways, including "traditional" DIPs, which credit the deferred income amount
with a fixed rate of interest and use fixed yield life insurance products to
offset the costs of the Company's liability, and "variable" DIPs, which credit
the deferred income amount with interest based on a bond or equity index and use
variable yield life insurance products to offset the costs of the Company's
liability. In an effort to provide additional security for executives,
corporations usually create a trust to hold the related insurance policies.
As of March 31, 1998, approximately 70% of the Fortune 1000 companies
offered some form of a DIP. Because DIPs provide executives with a method to
defer income at little or no cost to the corporation,
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<PAGE> 40
management believes that the demand for these plans will continue to rise, as
corporations implement new plans or expand the availability of existing plans.
Supplemental Executive Retirement Plans. SERPs are specifically designed to
supplement the dollar limitation on benefits paid from qualified pension plans.
The 1993 Omnibus Budget Reconciliation Act (the "OBRA") lowered the maximum
dollar amount of compensation that can be used to determine the pension benefits
payable to an executive from a qualified plan to $150,000. OBRA had significant
adverse effects on defined benefit, defined contribution and 401(k) plans. As a
result, non-qualified plans such as SERPs, which are not subject to the same
stringent rules, have increased in popularity. SERPs are funded with the same
insurance products and strategies used to fund DIPs. As of March 31, 1998,
approximately 60% of the Fortune 500 companies provided some form of SERP for
their executives.
Secured Offset Plans. SOPs are designed to supplement an executive's income
by restoring retirement benefits previously limited by legislative changes.
Using a technique commonly known as "split dollar," SOPs are funded with
insurance policies. Ownership rights to an individual policy are shared between
the corporation and the executive. The corporation and the executive share in
the insurance policy's increasing cash value and death benefits. The corporation
pays the premiums, but recovers these expenditures from its share of the
policy's proceeds. The executive's interest in such policy is targeted to equal
the present value of the retirement benefits due at the time of such executive's
retirement.
Group Term Carve Out Plans. Currently, a corporation can provide its
employees with a group term life insurance policy death benefit of up to $50,000
on a tax-free basis. The cost of providing a death benefit in excess of $50,000
is currently taxed to the employee as ordinary income. GTCOs replace the taxable
portion of the group term life insurance plan with permanent life insurance.
GTCOs often provide a greater amount of insurance and post-retirement death
benefit to the employee at a competitive overall cost. The corporate plan
sponsor is not an owner or beneficiary of the permanent life insurance policies.
ADMINISTRATIVE SERVICES
Management believes that the Company is recognized as an industry leader in
providing high quality, unique services to its clients partly through the
application of internally developed technology. The Company approaches
administrative service opportunities with a differentiation strategy to generate
significant revenues and profits. The clients' unique requirements and needs are
served through customized, value-added services and intensive client support,
creating brand and client loyalty and resulting in lower sensitivity to price.
The Company further differentiates itself by employing a focused strategy for a
particular buyer group. For instance, Clark/Bardes services segments such as
banking with an insider's view of the industry which results in providing high
quality services customized to a client's needs while achieving lower costs.
Clark/Bardes offers customized enrollment and administrative services for
insurance-financed employee benefit programs, including business-owned life
insurance and non-qualified benefit plans. Due to the many complex requirements
of the administrative process, each client is assigned an account team comprised
of four account specialists who are responsible for servicing the needs of that
client. The administrative services provided by the Company's account
specialists include coordinating and managing the enrollment process,
distributing communication materials, monitoring financial, tax and regulatory
changes, providing accounting reports, performing annual reviews and reporting
historical and projected cash flow and earnings. The account specialists are
supported by the Company's in-house actuarial, legal, accounting and insurance
specialists.
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<PAGE> 41
CLARK/BARDES PLAN SERVICES
[FLOW CHART]
The Company builds its client base by fostering long-term client
relationships. To this end, the training and focus of each account team centers
on the Company's goal of delivering the highest quality program implementation
and administrative services in the industry. This benefits both the client,
through top professional support, and the producer, who can focus more closely
on the sales process. To further emphasize long-term client relationships, the
Company enters into administrative agreements with each client, in most cases
for a term greater than ten years. Finally, the Company's method of calculating
the revenue splits with its producers attempts to ensure the long-term viability
of its administrative services group. More specifically, the Company estimates
the administrative cost for the term of an administrative agreement. Thereafter,
the administrative costs are collected directly from the client or from the
producer's commission if no fees are charged to the client. The purpose of this
arrangement is to ensure that the revenue from new sales is not required to
subsidize the administrative costs of existing cases.
Management believes that the Company's commitment to providing high quality
client and administrative services is one of the primary reasons that the
Company has achieved the success it has enjoyed to date. The Company believes
that its continued focus on, and investment in, the personnel and technology
necessary to deliver this level of client service will bolster the Company's
reputation as an industry leader.
DISTRIBUTION
The Company markets its insurance-financed employee benefit programs and
related administrative services through a group of producers in independently
operated sales offices located throughout the United States. As of March 31,
1998, the Company was represented by 35 producers in 25 offices, with staffing
ranging in size from two persons to over 20 persons. The Company's producers
will own an aggregate of approximately % of the outstanding shares of
Common Stock after giving effect to the Offering. See "Principal Stockholders."
Each producer is an independent contractor and enters into an agency agreement
with the Company to market programs and services on behalf of the Company on an
exclusive basis. Each agency agreement includes a non-compete clause,
confidentiality agreement and operating guidelines and standards. As an
independent contractor, each producer is responsible for its own selling
expenses and overhead.
Clark/Bardes and its producers recognize the importance of attracting and
retaining qualified, productive sales professionals. To this end, the Company
and its producers actively recruit and develop new sales
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<PAGE> 42
professionals in order to add distribution capacity for the Company. Further,
the Company's acquisition strategy focuses on retaining the productive sales
professionals of the entity being acquired.
EMPLOYEES
As of March 31, 1998, the Company employed approximately 135 persons, of
whom approximately 60 worked in administrative services, 20 worked in program
design, 18 worked in information systems and technical support, 12 worked in
accounting, six worked in marketing, and the remainder performed various
executive and administrative functions. The majority of the Company's employees
have college degrees, with several persons holding advanced degrees in law,
business administration or actuarial science. Professional development is a
highly valued industry characteristic, and insurance and financial planning
designations such as FSA, ASA, CLU, CEBS, ChFC, CFP, and FLMI are held by a
large number of the Company's employees. The Company actively encourages
continuing education for employees through expense reimbursement and reward
plans. Due to the specialized nature of the business, Clark/Bardes often
recruits experienced persons from insurance companies, consulting firms and
related industries.
MARKETING SUPPORT
Clark/Bardes has made a substantial investment to establish a highly
qualified marketing department. The marketing department's primary focus is to
support the Company's sales efforts. To this end, the marketing department
develops and tracks sales leads for the producers, provides marketing materials
and research and performs the public relations function for the Company and its
producers. The marketing department, which includes a full time copywriter and
graphic artist, produces all the marketing materials used by the Company and its
producers. The Company, through its marketing department, distributes external
newsletters and other program update pieces to approximately 7,500 current and
prospective clients throughout the year and sponsors telephone conferences and
meetings featuring industry experts and nationally recognized speakers. Finally,
the marketing department coordinates the publication of articles written by
Clark/Bardes employees and producers and ensures that Company representatives
are quoted as information sources in major national publications. Management
believes that the efforts of the Company's marketing department have helped make
Clark/Bardes a readily identifiable leader in the insurance-financed employee
benefit industry.
PRODUCER SUPPORT
The Company's producers are supported by a design and analysis department.
The department's primary responsibility is to design a customized
insurance-financed employee benefit program that will effectively offset the
costs of a client's employee benefit liabilities. The design analyst works with
the producer to identify the needs of a prospective client. Next, the design
analyst investigates the availability and pricing of products that are
compatible with that client's needs. Finally, the analyst develops the financial
projections necessary to evaluate the benefit costs and cost recoveries for the
prospective client, together with an analysis of alternatives to assist that
client in making a decision.
TECHNOLOGY AND ADMINISTRATION
The Company has made a significant investment in developing proprietary
financial modeling and administrative systems that support the unique
characteristics of insurance-financed employee benefit programs. Both systems
are generalized and parameter-driven in order to support the special processing
needs of a diverse client base. The Unix-based administrative system utilizes a
relational database that allows the Company to access easily client,
participant, policy and benefit information. In addition, a telephonic
application allows individual plan participants access 24 hours a day to account
balance and unit price information. In 1998, management plans to begin migrating
the administrative system to a client-server based environment in order to
reduce system development time and to allow the Company to respond more quickly
to changing market and client needs.
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<PAGE> 43
Local area networks link all of the Company's personal computers. Internet
mail is utilized to communicate data with clients and the sales offices.
Management intends to continue to invest in technology and system development in
order to offer additional services to clients, support new markets, integrate
acquired operations, improve productivity and reduce costs. For example, the
Company's 1998 capital budget contemplates implementing intranet and
collaborative workgroup tools to speed communications and to allow information
to be easily shared across the organization. Further, as the Company continues
to grow internally and by acquisitions, management intends to establish a wide
area network to facilitate communications across all locations.
The Company maintains a disaster recovery plan for its local area network
and Unix environments in order to minimize downtime in the event of a major
system failure. The local area network file servers and Unix database servers
are located in a physically secure area and all systems are password-protected
to ensure access is limited to authorized individuals.
PERSISTENCY
Over the last five years, the Company has experienced a persistency rate of
approximately 98.0% of the inforce insurance underlying the Company's programs,
with the exception of commissions on Leveraged COLI business, which business was
affected by adverse tax law changes. The Company believes that this high
persistency rate is attributable to numerous factors. The first factor relates
to the underlying purpose of an insurance-financed employee benefit program,
which is to offset the costs of employee benefit liabilities and provide
long-term benefits to executives. An insurance policy is not typically used to
fund the benefits for a specific individual, but rather to offset the costs of a
client's employee benefit costs on an aggregate basis. Therefore, the policy is
usually held to maturity, regardless of whether any particular individual
insured remains with the client. Second, a client would suffer unfavorable tax
consequences upon the surrender of the underlying business-owned life insurance
policy. The cash value of the policy to the extent it represents amounts beyond
the cash premiums paid by the allowable charges against the insurance account,
or gain on insurance, is taxed immediately at ordinary income rates upon
surrender, and an additional penalty tax applies in certain instances. A client
often has the option of making a tax-free exchange to another policy. Upon the
exchange, however, the client would incur substantial insurance company-related
costs, such as premium taxes. These costs are normally waived in the event a
particular insurance company experiences a significant reduction in its credit
rating. Third, the Company's high persistency rate is partially attributable to
provisions in many interest rate sensitive products that disallow a full-scale
withdrawal or exchange. Finally, Clark/ Bardes has strategically committed
resources to provide a high degree of on-going client service. Management
believes that the quality of the Company's services enhances persistency by
distinguishing the Company from its competitors.
COMPETITION
The marketing, design and administration of insurance-financed employee
benefit programs is highly competitive. The Company and its producers compete
with a large number of insurance agents, life insurance brokers, third party
administrators, producer groups and insurance companies. The Company's direct
competitors include Compensation Resource Group, Harris Crouch Long Scott and
Miller, Management Compensation Group, Newport Group, The Benefit Group and The
Todd Organization. Furthermore, competition exists for producers and other
marketers of life insurance products who have demonstrated sales ability.
National banks, with their existing depositor bases for financial services
products, may pose increasing competition in the future to companies who sell
life insurance products, including the Company. Recent United States Supreme
Court decisions have expanded the authority of national banks to sell life
insurance products.
Clark/Bardes competes for clients on the basis of reputation, client
service, program and product offerings and the ability to tailor insurance
products and administrative services to the specific needs of a client. Although
certain competitors have access to proprietary programs and products unavailable
to the Company and others offer lower prices for administrative services,
management believes that the Company is in a superior competitive position in
most, if not all, of the meaningful aspects of its business. Management
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<PAGE> 44
does not consider its direct competitors to be its greatest competitive threat.
Rather, management believes that the Company's most serious competitive threat
will likely come either from large, diversified financial entities which are
willing to expend significant resources to gain market share or from larger
competitors that pursue an acquisition or consolidation strategy similar to that
of the Company.
GOVERNMENT REGULATION
The insurance-financed employee benefit industry is subject to extensive
regulation by state governments. Clark/Bardes operates in all 50 states through
licenses held by Clark/Bardes or by its producers. In addition, the Company
markets its insurance-financed employee benefit programs in the states of Ohio,
Pennsylvania and Texas through entities licensed in those states for which the
Company provides almost all services by means of administrative service
agreements. In general, state insurance laws generally establish supervisory
agencies with broad administrative and supervisory powers related to such
matters as granting and revoking licenses, approving individuals and entities to
whom commissions can be paid, licensing insurance agents, transacting business,
approving policy forms and regulating premium rates for some lines of business.
See "Risk Factors -- Governmental Regulation."
While the federal government does not directly regulate the marketing of
most insurance products, certain products, such as variable life insurance, must
be registered under the federal securities acts and therefore the producers and
the entities selling such products must be registered with the NASD. The Company
markets such insurance products through an entity registered as a broker-dealer
and for which the Company provides almost all services by means of
administrative service agreements. Further, the Company is subject to various
federal laws and regulations affecting matters such as pensions, age and sex
discrimination, financial services, securities and taxation. In recent years,
the Office of the Comptroller of the Currency has issued a number of rulings
which have expanded the ability of banks to sell certain insurance products.
Further, the United States House of Representatives is currently considering the
Financial Services Act (H.R.10), which would, among other things, eliminate
existing restrictions on the affiliation of insurance companies, banks and
securities firms. Such legislation and other future federal or state
legislation, if enacted, could result in increased competition, as well as new
opportunities, for the Company. See "Risk Factors -- Governmental Regulation."
ANCILLARY BUSINESS ARRANGEMENTS
Because of various federal and state licensing restrictions, the Company
markets certain products registered with the SEC and its insurance-financed
employee benefit programs in the states of Ohio, Pennsylvania and Texas through
insurance agencies for which the Company provides almost all services by means
of an administrative service agreement (an "Administrative Service Agreement").
Each of the insurance agencies, Clark/Bardes Securities, Inc., a Texas
corporation licensed as a broker/dealer, Clark/ Bardes Agency of Ohio, Inc., an
Ohio corporation, Clark Bardes, Inc. of Pennsylvania, a Pennsylvania
corporation, and Clark/Bardes of Texas, Inc., a Texas corporation, provides the
entity through which the Company's producers sell certain products and conduct
business in such states. In exchange, each of the insurance agencies is a party
to an Administrative Service Agreement pursuant to which such insurance agency
pays the Company to furnish facilities, services, personnel and assistance,
including (i) performing all bookkeeping and accounting functions, (ii)
establishing and maintaining all records required by law and by generally
accepted accounting principles, (iii) furnishing all stationery, forms, and
supplies, (iv) providing all necessary clerical and professional staff to
perform the above activities, (v) providing all computer hardware and software
capabilities and facilities, (vi) providing office space, furniture, fixtures,
equipment and supplies, (vii) assisting in the preparation of reports required
by governmental regulatory and supervisory authorities, and (viii) billing and
collection of all premiums. The charges and fees pursuant to the Administrative
Service Agreements are equal to the costs incurred by the Company in providing
the services, personnel and property, plus an additional amount equal to a
certain percentage of such cost. Each insurance agency is solely responsible for
its own activities as an insurance producer and for its relationship with the
producers or employees in the course and scope of their activities performed on
behalf of such agency. Clark/Bardes Securities, Inc. paid the Company an
aggregate of $250,000, $211,000 and $206,000 in 1995, 1996 and 1997,
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respectively. Clark/Bardes Agency of Ohio, Inc. paid the Company an aggregate of
$0, $0 and $155,000 in 1995, 1996 and 1997, respectively. Clark/Bardes, Inc. of
Pennsylvania paid the Company an aggregate of $66,019, $27,400, and $86,800 in
1995, 1996 and 1997, respectively. Clark/Bardes of Texas, Inc. paid the Company
an aggregate of $0, $0, and $0 in 1995, 1996 and 1997, respectively.
PROPERTIES
The following table sets forth certain information with respect to the
principal facilities used in the Company's operations, both of which are leased:
<TABLE>
<CAPTION>
CURRENT MONTHLY APPROXIMATE LEASE
LOCATION LEASE RATE SQUARE FOOTAGE EXPIRATION DATE
-------- --------------- -------------- ---------------
<S> <C> <C> <C>
Dallas, Texas............................... $46,632 32,000 April 2002
Minneapolis, Minnesota...................... $31,120 15,000 August 2005
</TABLE>
The aggregate monthly lease rate for the properties listed above is
$77,752. The Company subleases approximately 2,300 square feet of its
Minneapolis, Minnesota office space at a monthly rate of $4,804. Management
believes that the Company's existing facilities are adequate to meet its office
space requirements for the foreseeable future.
ADVISORY BOARD
The Company has an advisory board whose primary functions are to offer
guidance to the Company's officers and directors and to provide specific
assistance and advice regarding potential acquisitions. Currently, the advisory
board is comprised of 28 members. While the Company has no obligation to accept
or take any actions recommended by the advisory board, management believes that
the advisory board, because of its members' broad range of experience and
interests, is a valuable source of knowledge from which the Company can draw.
The advisory board meets semi-annually, and management consults with individual
members of the advisory board from time to time on an as-needed basis.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information with respect to the
executive officers, directors and key employees of CBH and Clark/Bardes:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
W.T. Wamberg.............................. 45 Chairman of the Board and Director of each
of CBH and Clark/Bardes
Lawrence H. Hendrickson................... 59 Vice Chairman and Director of each of CBH
and Clark/Bardes
Melvin G. Todd............................ 42 President, Chief Executive Officer and
Director of each of CBH and Clark/Bardes
Richard C. Chapman........................ 43 Executive Vice President of Clark/Bardes
Thomas M. Pyra............................ 46 Chief Financial Officer of each of CBH and
Clark/Bardes
James V. Meyer............................ 41 Senior Vice President of Clark/Bardes
James C. Bean............................. 45 Senior Vice President of Clark/Bardes
Larry R. Sluder........................... 50 Senior Vice President and Corporate Actuary
of Clark/Bardes
Keith L. Staudt........................... 46 Vice President, General Counsel and
Secretary of each of CBH and Clark/Bardes
Kathleen L. Cooper........................ 48 Vice President, Insurance Administrator of
Clark/Bardes
William J. Gallegos....................... 38 Vice President, Client Services of
Clark/Bardes
Kurt J. Laning............................ 37 Vice President, Research and Development of
Clark/Bardes
Sue A. Leslie............................. 51 Vice President, Technical Services of
Clark/Bardes
Chris L. Parker........................... 33 Vice President, Design and Analysis of
Clark/Bardes
Ronald A. Roth............................ 40 Vice President, Marketing of Clark/Bardes
Randolph Pohlman.......................... 55 Director of each of CBH and Clark/Bardes
L. William Seidman........................ 77 Director of each of CBH and Clark/Bardes
</TABLE>
W.T. WAMBERG has served as the Chairman of the Board of Directors and a
Director of CBH since June 1998, and became the Chairman of the Board of
Directors and a Director of Clark/Bardes upon the consummation of the
Reorganization. Mr. Wamberg's term as a Director of CBH expires in January 2001.
Mr. Wamberg served as a Director of the Predecessor Company since 1988 and
served as the Chairman of the Board of the Predecessor Company from September
1996 until the consummation of the Reorganization. Mr. Wamberg, who has been a
producer for the Company since 1976, is also President and CEO of The Wamberg
Organization, Inc., an independently operated sales office that markets the
Company's products. Mr. Wamberg graduated from Baldwin-Wallace College with a
Bachelor of Arts degree in finance. Mr. Wamberg was formerly President of the
American Association of Life Underwriters.
LAWRENCE H. HENDRICKSON has served as the Vice Chairman of the Board of
Directors and Director of CBH since June 1998, and became the Vice Chairman of
the Board of Directors and a Director of Clark/ Bardes upon the consummation of
the Reorganization. Mr. Hendrickson's term as Director of CBH expires in January
2000. From September 1996 until the consummation of the Reorganization, Mr.
Hendrickson served
43
<PAGE> 47
as the Vice Chairman of the Board of Directors and a Director of the Predecessor
Company. Mr. Hendrickson founded BCS in May 1982 and since that time and through
the date of the BCS acquisition served as its Chief Executive Officer. Prior to
founding BCS, Mr. Hendrickson was President of L.H. Hendrickson & Co., Inc.
providing investment and insurance solutions to small businesses and affluent
individuals since 1960. Mr. Hendrickson is a graduate of the University of
Minnesota with a Bachelor of Arts degree in business.
MELVIN G. TODD has served as a Director, Chief Executive Officer and
President of CBH since June 1998, and became a Director and the Chief Executive
Officer and President of Clark/Bardes upon the consummation of the
Reorganization. Mr. Todd's term as a Director of CBH expires in January 1999.
From January 1993 until the consummation of the Reorganization, Mr. Todd served
as a Director and the Chief Executive Officer and President of the Predecessor
Company. Prior to joining the Predecessor Company, Mr. Todd served as a Vice
President with Great-West Life Assurance Company. Mr. Todd graduated with honors
from the University of Manitoba with a Bachelor of Commerce degree. Mr. Todd is
also an active member of the American Academy of Actuaries and a Fellow of the
Society of Actuaries.
RICHARD C. CHAPMAN became an Executive Vice President of Clark/Bardes upon
the consummation of the Reorganization. Prior to the Reorganization, Mr. Chapman
served and served as the President and Chief Executive Officer of Bank
Compensation Strategies Group, an operating division of the Predecessor Company,
since September 1997. Prior to joining the Predecessor Company, Mr. Chapman was
a producer for BCS since 1985, served as President of BCS since January 1994 and
as Chief Executive Officer since September 1997. Prior to joining BCS, Mr.
Chapman was an officer with First Bank System, a regional bank holding company
in Minneapolis, Minnesota. Mr. Chapman graduated cum laude from Augustana
College in Sioux Falls, S.D., with a double major in mathematics and business
administration.
THOMAS M. PYRA became the Chief Financial Officer of CBH in June 1998 and
became the Chief Financial Officer of Clark/Bardes upon the consummation of the
Reorganization. Mr. Pyra served as the Chief Financial Officer for the
Predecessor Company from May 1998 until the consummation of the Reorganization.
Prior to joining the Predecessor Company, Mr. Pyra served as Vice President and
Chief Financial Officer of Geodesic Systems, L.L.C. from April 1997. Mr. Pyra
served as Chief Financial Officer for Recompute Corporation from October 1995
until January 1997 and served as Vice President and Controller of Intercraft
Company from October 1992 until September 1995. Mr. Pyra received a Bachelor of
Science degree in finance and an MBA from DePaul University.
JAMES V. MEYER became Senior Vice President of Clark/Bardes upon the
consummation of the Reorganization and has served in the same capacity for Bank
Compensation Strategies Group, an operating division of the Predecessor Company,
since September 1997. Prior to joining the Predecessor Company, Mr. Meyer served
as Senior Vice President of BCS from November 1995 to December 1996 and as
Executive Vice President of BCS from January 1997 to August 1997. Prior to
joining BCS, Mr. Meyer served as a Vice President at Blanski Peter Kronlage &
Zoch, public accountants, from May 1987 to November 1995. Mr. Meyer graduated
from the University of St. Thomas with a Bachelor of Science degree in
Accounting, and from the American College with a Masters of Science in Financial
Services. Mr. Meyer holds the designations of Certified Public Accountant and
Certified Financial Planner.
JAMES C. BEAN became the Senior Vice President of Clark/Bardes upon the
consummation of the Reorganization and served in the same capacity for Bank
Compensation Strategies Group, an operating division of the Predecessor Company,
since February 1998. From October 1990 to February 1998, Mr. Bean served as
Senior Vice President and Managing Principal of Mullin Consulting, an executive
benefits firm. Mr. Bean graduated from the University of Minnesota with a
Bachelor of Arts degree in Liberal Arts.
LARRY R. SLUDER became Senior Vice President and Corporate Actuary of
Clark/Bardes upon the consummation of the Reorganization and has served in the
same capacity for the Predecessor Company from February 1998 until the
consummation of the Reorganization. From August 1993 to February 1998, Mr.
Sluder served as a Vice President and Corporate Actuary of the Predecessor
Company. Prior to joining the Predecessor Company, Mr. Sluder served as a
Consulting Actuary in the executive benefits and compensation area for an
actuarial consulting firm. Mr. Sluder graduated from the University of North
44
<PAGE> 48
Carolina with a Bachelor of Science degree in mathematics and continued with
graduate studies at Wake Forest University.
KEITH L. STAUDT has served as the Vice President, General Counsel and
Secretary of CBH since June 1998 and became the Vice President, General Counsel
and Secretary of Clark/Bardes upon the consummation of the Reorganization. Prior
to June 1998, Mr. Staudt served the Predecessor Company as General Counsel since
March 1995, as Vice President and General Counsel since 1997, and as Vice
President, General Counsel and Secretary since April 1997. From September 1986
to March 1995, Mr. Staudt served as Vice President of Marketing Services for
Allianz Life Insurance Company in Dallas, Texas. Mr. Staudt graduated from the
University of Iowa with a Bachelor of Arts degree in Anthropology and a Juris
Doctor degree.
KATHLEEN L. COOPER became Vice President, Insurance Administrator of
Clark/Bardes upon the consummation of the Reorganization and has served in the
same capacity for Bank Compensation Strategies Group, an operating division of
the Predecessor Company, since September 1997. From November 1990 to September
1997, Ms. Cooper served as a Vice President, Insurance Administrator, for BCS.
Ms. Cooper joined BCS at the time it was founded in 1982.
WILLIAM J. GALLEGOS, JR. became Vice President, Client Services of
Clark/Bardes upon the consummation of the Reorganization and has served in the
same capacity for the Predecessor Company since May 1993. From January 1987 to
May 1993, Mr. Gallegos served the Predecessor Company in various client service
positions. Prior to joining the Predecessor Company in 1987, Mr. Gallegos held
accounting and financial analyst positions with Chevron and National Resource
Management. Mr. Gallegos graduated from Louisiana State University with a
Bachelor of Science degree in Business Administration and a Masters of Business
Administration in Finance.
KURT J. LANING became Vice President, Product Development of Clark/Bardes
upon the consummation of the Reorganization and has served in the same capacity
for the Predecessor Company since March 1998. From July 1996 to March 1998, Mr.
Laning served as an Actuarial Consultant for Laning Associates, an actuarial
services company, and from January 1994 to July 1996 served as Assistant Vice
President, International Markets with Great-West Life Assurance Company. From
June 1991 to January 1995, Mr. Laning served as Executive Vice President and
Actuary for Bancsource Insurance Services, Inc. Mr. Laning graduated from the
University of Wisconsin with a Bachelor of Science degree in Actuarial Science.
SUE A. LESLIE became Vice President, Technical Services of Clark/Bardes
upon the consummation of the Reorganization and has served in the same capacity
for the Predecessor Company since April 1991. Prior to joining the Predecessor
Company, Ms. Leslie was a consultant for system implementations at Continuum,
Inc. Ms. Leslie has more than 25 years experience developing systems for
financial services applications. Ms. Leslie graduated with honors from the
University of Texas with a Bachelor of Arts degree in mathematics.
CHRIS L. PARKER became Vice President, Design and Analysis of Clark/Bardes
upon the consummation of the Reorganization and has served in the same or
similar capacities for the Predecessor Company since February 1994. From January
1987 to January 1994, Mr. Parker served as Assistant Manager with Great-West
Life Assurance Company. Mr. Parker graduated from the University of Illinois
with a Bachelor of Science degree in Actuarial Science.
RONALD A. ROTH became Vice President, Marketing of Clark/Bardes upon the
consummation of the Reorganization and has served in the same capacity for the
Predecessor Company since March 1993. From May 1989 to March 1993, Mr. Roth was
Marketing Manager for Great-West Life Assurance Company. Mr. Roth graduated from
the University of Colorado with a Bachelor of Arts degree in Economics.
RANDOLPH POHLMAN has served as a Director of CBH since June 1998 and became
a Director of Clark/ Bardes upon the consummation of the Reorganization. Mr.
Pohlman's current term as director expires in January 2001. Since February 1996
until the consummation of the Reorganization, Mr. Pohlman served as a member of
the Predecessor Company's Advisory Board. Mr. Pohlman is currently the Dean at
the School of
45
<PAGE> 49
Business and Entrepreneurship at Nova Southeastern University in Fort
Lauderdale, Florida. Mr. Pohlman graduated from Kansas State University with a
Bachelor of Science and Master of Science degrees in Business Administration
and, in addition, earned a Ph.D. in finance and organizational behavior from
Oklahoma State University.
L. WILLIAM SEIDMAN has served as a Director of CBH since June 1998 and
became a Director of Clark/ Bardes upon the consummation of the Reorganization.
Mr. Seidman's term as Director of CBH expires in January 2000. From September
1997 until the consummation of the Reorganization, Mr. Seidman served as a
member of the Predecessor Company's Advisory Board. Mr. Seidman is the chief
commentator on NBC cable network's CNBC and publisher of Bank Director magazine.
From 1985 to 1991, Mr. Seidman served as the fourteenth chairman of the Federal
Deposit Insurance Corporation under Presidents Reagan and Bush. He became the
first chairman of the Resolution Trust Corporation in 1989 and served in that
capacity until 1991. Earlier, Mr. Seidman had served as President Reagan's
co-chair of the White House Conference on Productivity, President Ford's
Assistant of Economic Affairs and a member of the Arizona Governor's Commission
on Interstate Banking. The former dean of Arizona State's College of Business,
Mr. Seidman holds an A.B. from Dartmouth (Phi Beta Kappa), an LL.B. from Harvard
Law School and an M.B.A. (with honors) from the University of Michigan.
The directors will be divided as evenly as possible into three classes,
denominated Class I, Class II and Class III, with the terms of office of each
class expiring at the 1999, 2000 and 2001 annual meeting of stockholders,
respectively. After his initial term, each Director will serve for a term ending
following the third annual meeting following the annual meeting at which such
Director is elected and until his successor is elected an qualified, or until
his earlier death, resignation or removal. The directors in each class are as
follows: Class I--Mr. Todd, Class II--Mr. Hendrickson and Mr. Seidman, Class
III--Mr. Wamberg and Mr. Pohlman. All officers are appointed by, and serve at
the discretion of, the Board of Directors. CBH intends to add two more directors
after the Offering.
46
<PAGE> 50
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation with
respect to the Chief Executive Officer of the Company and the Company's four
most highly compensated executive officers other than the Chief Executive
Officer for services rendered to the Predecessor Company during 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1)(2) SECURITIES
------------------------------- UNDERLYING
YEAR SALARY($) BONUS($)(3) OPTIONS(#)
---- --------- ----------- ------------
<S> <C> <C> <C> <C>
Melvin G. Todd................................... 1997 $250,886 $225,007 70,833
President, Chief Executive Officer and Director 1996 250,008 200,006 --
1995 250,000 133,333 --
Richard C. Chapman(4)............................ 1997 84,191 75,000 --
Executive Vice President 1996 -- -- --
1995 -- -- --
Larry R. Sluder.................................. 1997 131,554 78,500 30,145
Senior Vice President and Corporate Actuary 1996 111,000 49,400 --
1995 105,000 28,000 --
Keith L. Staudt.................................. 1997 113,554 50,400 14,640
Vice President, General Counsel and Secretary 1996 102,750 20,550 --
1995 67,846 10,000 --
Sue A. Leslie.................................... 1997 105,000 47,250 16,667
Vice President, Technical Services 1996 100,000 40,000 --
1995 94,500 25,200 --
</TABLE>
- ---------------
(1) Does not include "Other Annual Compensation" because amounts of certain
perquisites and other noncash benefits provided by the Company did not
exceed the lesser of $50,000 or 10.0% of the total annual base salary and
bonus disclosed in this table for the respective officer.
(2) Clark/Bardes does not pay Mr. Wamberg for services other than as Chairman of
the Board and Director. Clark/Bardes pays commission splits to The Wamberg
Organization which in turn pays Mr. Wamberg's salary. See "Certain
Transactions -- Principal Office Agreement with W.T. Wamberg" and
"-- Compensation of Directors."
(3) Represents for the named executive officers incentive compensation under
employment agreements. See "Management -- Employment and Indemnification
Agreements."
(4) Represents compensation paid by the Predecessor Company for the four month
period ended December 31, 1997.
47
<PAGE> 51
The following table sets forth certain information concerning the options
granted to the named executive officers during 1997:
OPTION GRANTS IN LAST YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
------------------------------------------------------ AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS GRANTED APPRECIATION
UNDERLYING TO EMPLOYEES EXERCISE FOR OPTION TERM(2)
OPTIONS IN PRICE EXPIRATION --------------------------
NAME GRANTED YEAR(1) PER SHARE DATE 5% 10%
---- ---------- --------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Melvin G. Todd............ 20,833 10.9 $4.80 12/29/07 $ 55,132 $135,792
50,000 26.2 $7.00 12/29/07 $192,965 $475,282
Richard C. Chapman........ -- -- -- -- -- --
-- -- -- -- -- --
Larry R. Sluder........... 5,145 2.7 $4.80 12/29/07 $ 13,615 $ 33,536
25,000 13.1 $7.00 12/29/07 $ 96,482 $237,641
Keith L. Staudt........... 2,140 1.1 $4.80 12/29/07 $ 5,663 $ 13,949
12,500 6.6 $7.00 12/29/07 $ 48,241 $118,820
Sue A. Leslie............. 4,167 2.1 $4.80 12/29/07 $ 11,027 $ 27,161
12,500 6.6 $7.00 12/29/07 $ 48,241 $118,820
</TABLE>
- ---------------
(1) Options to purchase a total of 40,830 shares of common stock at an exercise
price of $4.80 per share were granted in 1997, and options to purchase a
total of 150,000 shares of common stock at an exercise price of $7.00 per
share were granted in 1997.
(2) In accordance with the rules of the SEC, the amounts shown on this table
represent hypothetical gains that could be achieved for the respective
options if exercised at the end of the option term. These gains are based on
the assumed rates of stock appreciation of 5% and 10% compounded annually
from the date the respective options were granted to their expiration date
and do not reflect the Company's estimates or projections of future Common
Stock prices. The gains shown are net of the option exercise price, but do
not include deductions for taxes or other expenses associated with the
exercise. Actual gains, if any, on stock option exercises will depend on the
future performance of the Common Stock, the option holder's continued
employment through the option period, and the date on which the options are
exercised.
The following table sets forth certain information concerning all
unexercised options held by the Named Executive Officers as of December 31,
1997. For additional information and certain terms of options see
"Management -- Stock Option Plan." No options were exercised during 1997.
AGGREGATE OPTION EXERCISES IN LAST YEAR AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN
NUMBER OF UNEXERCISED THE MONEY OPTIONS AT
SHARES OPTIONS AT YEAR-END(#) YEAR-END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Melvin G. Todd.............. -- -- 20,833 50,000 $
Richard C. Chapman.......... -- -- -- -- -- --
Larry R. Sluder............. -- -- 6,250 23,895 $
Keith L. Staudt............. -- -- 3,125 11,515 $
Sue A. Leslie............... -- -- 3,125 13,542 $
</TABLE>
- ---------------
(1) Value for "in-the-money" options represents the positive spread between the
respective exercise prices of outstanding options and an assumed initial
public offering price of $ per share (the mid-point of the Range).
48
<PAGE> 52
COMMITTEES OF THE BOARD OF DIRECTORS
Upon the consummation of the Offering, the Board of Directors will
establish an audit committee (the "Audit Committee"), which will consist of
Messrs. and , a compensation committee (the
"Compensation Committee"), which will consist of Messrs. Pohlman and Seidman,
and an executive committee (the "Executive Committee"), which will consist of
Messrs. and .
The Audit Committee will review the scope and approach of the annual audit,
the annual financial statements of the Company and the auditors' report thereon
and the auditors' comments relative to the adequacy of the Company's system of
internal controls and accounting systems. The Audit Committee will also
recommend to the Board of Directors the appointment of independent public
accountants for the following year. The Audit Committee will consist of at least
two members, both of whom will be independent directors.
The Compensation Committee will review management compensation levels and
provide recommendations to the Board of Directors regarding salaries and other
compensation for the Company's executive officers, including bonuses and
incentive plans, and will administer the Stock Option Plan.
The Executive Committee will have the power and authority of the Board of
Directors to manage the affairs of the Company between meetings. The Executive
Committee will also regularly review significant corporate matters and recommend
action as appropriate to the Board of Directors. However, the Executive
Committee may not .
COMPENSATION OF DIRECTORS
Directors of the Company who are also employees receive no additional
compensation for their services as a director. Mr. Seidman is compensated
$ . Mr. Hendrickson and Mr. Wamberg receive approximately $75,000 and
$100,000, respectively, each year to cover the costs of their services as
Directors of each of CBH and Clark/Bardes.
EMPLOYEE BENEFIT AND RETIREMENT PLANS
The Company maintains a defined contribution plan for its employees that is
qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended
(the "401(k) Plan"). Clark/Bardes matches 50.0% of the first 6.0% of an eligible
participant's contributions to the 401(k) Plan.
STOCK OPTION PLAN
Prior to the consummation of the Offering, a total of 540,830 shares of
Common Stock has been reserved for issuance pursuant to the CBH Stock Option
Plan. The Stock Option Plan will be administered by the Compensation Committee,
who will have full authority to determine the individuals to whom, and the time
at which, the options may be granted and the number of shares covered by each
option. The option price per share is determined by the Board but may not be
less than fair market value. Both nonqualified stock options and incentive stock
options (as defined in the Code) may be granted under the Stock Option Plan.
Options may be granted to officers, key employees (including officers who are
also directors) or consultants of Clark/ Bardes or any of its subsidiaries.
Options are not transferable or assignable by an optionee other than by will or
the laws of descent and distribution.
KEY EXECUTIVE LIFE INSURANCE
The Company maintains and is the sole beneficiary of key man life insurance
policies of $11.0 million on Mr. Wamberg and $7.0 million on Mr. Hendrickson. In
addition, the Company currently maintains and is the sole beneficiary of key man
life insurance policies ranging from $150,000 to $4.0 million on each of Messrs.
Blaha, Briggs, Cochlan, Hoffman, Kelly, Marsh, Todd and Chapman. See "Risk
Factors -- Dependence on Key Personnel."
49
<PAGE> 53
PRINCIPAL STOCKHOLDERS
The following table sets forth the number and percentage of the outstanding
shares of Common Stock owned beneficially as of the date of this Prospectus by:
(i) each person or "group" (as that term is defined in Section 13(d)(3) of the
Exchange Act) known by the Company to beneficially own more than 5% of the
Common Stock, (ii) each director of the Company, (iii) each executive officer of
the Company and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF COMMON STOCK BENEFICIAL OWNERSHIP
PRIOR TO THE OF COMMON STOCK
OFFERING(1) AFTER THE OFFERING(1)
--------------------- ---------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT SHARES PERCENT
------------------------ ---------- -------- --------- ---------
<S> <C> <C> <C> <C>
W.T. Wamberg(2)(3)...................................... 1,735,128 39.6% 1,735,128
Lawrence H. Hendrickson................................. 545,678 12.5% 545,678
Richard C. Chapman...................................... 367,203 8.4% 367,203
Melvin G. Todd(4)....................................... 264,166 6.0% 264,166
Randolph Pohlman........................................ 100,000 2.3% 100,000
William J. Gallegos, Jr. ............................... 23,895 * 23,895 *
Sue A. Leslie(5)........................................ 30,833 * 30,833 *
Chris L. Parker......................................... 16,368 * 16,368 *
Ronald A. Roth.......................................... 27,912 * 27,912 *
Larry R. Sluder(6)...................................... 37,723 * 37,723 *
Keith L. Staudt(7)...................................... 23,202 * 23,202 *
All directors and executive officers as a group (11
individuals).......................................... 3,172,110 72.4% 3,172,110 %
</TABLE>
- ---------------
* Less than 1%
(1) In computing the number of shares of Common Stock beneficially owned by a
person, shares of Common Stock subject to options and warrants or
convertible debt held by that person that are currently exercisable or that
become exercisable within 60 days of the date of this Prospectus are deemed
outstanding for such person but are not deemed to be outstanding for
purposes of computing the ownership percentage for any other person.
(2) Mr. Wamberg has granted the Underwriters an over-allotment option to
purchase shares of Common Stock exercisable at any time during the
30-day period after the date of this Prospectus. After giving effect to the
Offering and if the over-allotment is exercised in full, Mr. Wamberg would
own shares of Common Stock representing % of the outstanding shares
of Common Stock.
(3) Mr. Wamberg has granted Mr. Pyra, CBH's and Clark/Bardes' Chief Financial
Officer, an option to purchase 25,000 shares of Common Stock exercisable on
or after at an exercise price of $8.00 per share. Further, Mr.
Wamberg has granted to certain employees of The Wamberg Organization options
to purchase an aggregate of 132,608 shares of Common Stock at varying
exercise prices per share. After giving effect to the Offering and if the
foregoing options (excluding the over-allotment option described above) are
exercised in full, Mr. Wamberg would own shares of Common Stock
representing % of the outstanding shares of Common Stock.
(4) Includes 70,833 shares of Common Stock issuable upon exercise of outstanding
stock options exercisable within 60 days of the date of this Prospectus.
(5) Includes 16,667 shares of Common Stock issuable upon exercise of outstanding
stock options exercisable within 60 days of the date of this Prospectus.
(6) Includes 30,145 shares of Common Stock issuable upon exercise of outstanding
stock options exercisable within 60 days of the date of this Prospectus.
(7) Includes 14,640 shares of Common Stock issuable upon exercise of outstanding
stock options exercisable within 60 days of the date of this Prospectus.
50
<PAGE> 54
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PRINCIPAL OFFICE AGREEMENT WITH W.T. WAMBERG
The Company and Mr. Wamberg are the parties to a Principal Office Agreement
dated July 29, 1993, pursuant to which the Wamberg Organization markets, on
behalf of the Company, life insurance and administrative and consulting
services, and the Company furnishes to The Wamberg Organization marketing
materials and concepts, program design ideas, selected life insurance products,
specimen plan documents and administrative services. Upon request, the Company
will provide to the Wamberg Organization life insurance and benefit plan
illustrations, technical support personnel and such other services as are
reasonably necessary for the sale of the Company's programs. The agreement can
be terminated by either party upon 90 days' written notice. The Wamberg
Organization's commissions range between 65.0% and 70.0% of total revenue
depending on the amount of total revenue generated from a case. Commissions and
fees payable to The Wamberg Organization are net of any of the Company's
administrative costs as determined by the Board of Directors. Pursuant to the
terms of the Principal Office Agreement, the Company paid the Wamberg
Organization, $4,690,299, $5,849,310, and $8,285,940 in 1995, 1996 and 1997,
respectively, for commissions and fees earned. The terms and conditions of Mr.
Wamberg's Principal Office Agreement are similar in all material respects to the
terms and conditions of such agreements with other producers designated as
principals.
AMENDMENT TO THE PRINCIPAL OFFICE AGREEMENT WITH W.T. WAMBERG
In June 1998, the Predecessor Company and The Wamberg Organization entered
into an agreement which provides for, among other things, an amendment of the
Principal Office Agreement with Mr. Wamberg in exchange for a cash payment of
approximately $7.0 million. The amendment allows Clark/Bardes to retain
additional commission and fee revenue for the ten year period following the
Reorganization. The additional revenue equates to approximately 20.0% of the
commission and fee revenue, net of servicing costs, related to renewal revenue
on The Wamberg Organization's inforce business as of June 30, 1998. This
amendment will be effective as of the consummation of the Reorganization.
RESTRUCTURING OF THE GRANT OF STOCK TO MELVIN TODD
In January 1993, the Predecessor Company granted to Mr. Todd 52,500 shares
of the Predecessor Company's common stock effective July 1, 1998 if Mr. Todd is
employed as the Company's CEO at that time. In June 1998, this agreement was
altered to provide that if Mr. Todd is employed as CEO on July 1, 1998 he will
receive shares of Common Stock valued at $315,700 (approximately shares
based on the mid-point of the Range), $234,300 in cash and a fully vested option
to purchase shares of Common Stock exercisable at the initial public
offering price.
STOCK PURCHASE AGREEMENTS
In September 1997, the Predecessor Company purchased from Henry J. Smith,
former Chairman of the Board of Directors of the Predecessor Company, 702,152
shares of the Predecessor Company's common stock, which represents all of the
shares of common stock owned by Mr. Smith. The purchase price equaled $4.80 per
share for an aggregate of $3,370,332 and consisted of the payment of cash in the
amount of $3,033,290 and the issuance of a Promissory Note in the principal
amount of $337,042, which amount has been paid in full.
In September 1997, the Predecessor Company purchased an aggregate of
1,396,571 shares of the Predecessor Company's common stock, representing 75% of
the shares of the Predecessor Company's common stock owned by a group of
stockholders consisting of Malcolm N. Briggs, Steven J. Cochlan, G.F. Pendleton,
III and Don R. Teasley. The purchase price equalled $6.00 per share for an
aggregate of $8,379,429 and consisted of the payment of cash in the amount of
$7,541,486 and the issuance of Subordinated Promissory Notes in the aggregate
principal amount of $837,943, which amount has been paid in full. Each seller
agreed to vote all shares of capital stock then owned, or thereafter acquired,
in the manner specified or directed by the board of directors.
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In November 1997, the Predecessor Company purchased from Don Teasley an
aggregate of 52,000 shares of the Predecessor Company's common stock. The
purchase price equalled $4.20 per share for an aggregate of $218,400 and was
paid in cash.
PHANTOM STOCK AGREEMENT
The Predecessor Company entered into a Phantom Stock Agreement, dated
September 5, 1997, with Steven J. Cochlan, a producer of the Company. Under this
agreement, Mr. Cochlan is entitled to receive a payment expressed in units based
upon certain levels of revenue received by the Company on sales of certain
products by Mr. Cochlan. Mr. Cochlan will be entitled to receive payments
beginning April 1, 2003 and every year thereafter until April 1, 2008.
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, the authorized capital stock of CBH
consists of 20,000,000 shares of Common Stock, par value $0.01 per share, of
which shares will be outstanding immediately following the Offering,
and 1,000,000 shares of Preferred Stock, par value $0.01 per share (the
"Preferred Stock"), of which no shares will be outstanding immediately following
the Offering. The following summary of CBH's capital stock is qualified in its
entirety by reference to CBH's Certificate of Incorporation and its Bylaws.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors, and do
not have cumulative voting rights. Subject to the rights of holders of any then
outstanding shares of Preferred Stock, the holders of the Common Stock are
entitled to such dividends as may be declared in the discretion of the Board of
Directors out of funds legally available therefor. Holders of Common Stock are
entitled to share ratably in the net assets of CBH upon liquidation after
payment or provision for all liabilities and any preferential liquidation rights
of the Preferred Stock then outstanding. The holders of Common Stock have no
preemptive rights to purchase shares of stock in CBH. The shares of Common Stock
are not subject to any redemption provisions and are not convertible into any
other securities of CBH. All outstanding shares of Common Stock are, and the
shares of Common Stock to be issued by CBH in the Offering will be, upon payment
therefor, fully paid and nonassessable. The rights, preferences and privileges
of holders of Common Stock will be subject to those of the holders of any shares
of Preferred Stock the Company may issue in the future. See "Risk
Factors -- Anti-Takeover Considerations"
PREFERRED STOCK
The Board of Directors may from time to time authorize the issuance of one
or more classes or series of Preferred Stock without stockholder approval.
Subject to the provisions of the Certificate of Incorporation and limitations
prescribed by law, the Board of Directors is authorized to adopt resolutions to
issue the shares, establish the number of shares, change the number of shares
constituting any series, and provide or change the voting powers, designations,
preferences and relative, participating, optional or other special rights,
qualifications, limitations or restrictions on shares of Preferred Stock,
including dividend rights (including whether dividends are cumulative), dividend
rates, terms of redemption (including sinking fund provisions), redemption
prices, conversion rights and liquidation preferences, in each case without any
action or vote by the stockholders. CBH has no current plans to issue any shares
of Preferred Stock of any class or series.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to discourage an attempt to obtain control of CBH by means of
a tender offer, proxy contest, merger or otherwise, and thereby protect CBH's
management. The issuance of Preferred Stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of
Common Stock. For example, Preferred Stock issued by CBH may rank prior to the
Common Stock as to dividend rights, liquidation preference or both, may have
full or limited voting rights and may be convertible into shares of Common
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<PAGE> 56
Stock. Accordingly, the issuance of shares of Preferred Stock may discourage
bids for the Common Stock or may otherwise adversely affect the trading price of
the Common Stock. See "Risk Factors -- Anti-Takeover Considerations."
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Upon completion of the Offering there will be shares of Common Stock
(excluding an aggregate of 540,830 shares reserved for issuance under the Stock
Option Plan) and shares of Preferred Stock available for future issuance
without stockholder approval. These additional shares may be utilized for a
variety of corporate purposes, including to facilitate acquisitions or future
public offerings to raise additional capital. CBH does not currently have any
plans to issue additional shares of Common Stock or Preferred Stock (other than
shares of Common Stock issuable under the Stock Option Plan).
ANTI-TAKEOVER CONSIDERATIONS AND SPECIAL PROVISIONS OF THE CERTIFICATE OF
INCORPORATION, BYLAWS AND DELAWARE LAW
Certificate of Incorporation and Bylaws. A number of provisions of the
Certificate of Incorporation and Bylaws concern matters of corporate governance
and the rights of stockholders. Certain of these provisions, including those
which provide for the classification of the Board of Directors and which grant
the Board of Directors the ability to issue shares of Preferred Stock and to set
the voting rights, preferences and other terms thereof, may be deemed to have an
anti-takeover effect and may discourage takeover attempts not first approved by
the Board of Directors (including takeovers which certain stockholders may deem
to be in their best interests). To the extent takeover attempts are discouraged,
temporary fluctuations in the market price of the Common Stock, which may result
from actual or rumored takeover attempts, may be inhibited. Certain of these
provisions also could delay or frustrate the removal of incumbent directors or
the assumption of control by stockholders, even if such removal or assumption
would be beneficial to the stockholders of CBH. These provisions also could
discourage or make more difficult a merger, tender offer or proxy contest, even
if they could be favorable to the interests of stockholders, and could
potentially depress the market price of the Common Stock. The Board of Directors
believes that these provisions are appropriate to protect the interests of CBH
and its stockholders.
Classified Board of Directors. The Certificate of Incorporation provides
for a Board of Directors that is divided into three classes. The directors in
Class I hold office until the first annual meeting of stockholders following the
Offering, the directors in Class II hold office until the second annual meeting
of stockholders following the Offering, and the directors in Class III hold
office until the third annual meeting of stockholders following the Offering
(or, in each case, until their successors are duly elected and qualified or
until their earlier resignation, removal from office for cause or death), and,
after each such election, the directors in each such class will then serve in
succeeding terms of three years and until their successors are duly elected and
qualified. The classification system of electing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of CBH and may maintain the incumbency of the Board of Directors,
as the classification of the Board of Directors and such other provisions
generally increase the difficulty of, or may delay, replacing a majority of the
directors. The Bylaws provide that directors may only be removed for cause by a
vote of holders of at least 66 2/3% of the total votes eligible to be cast by
holders of Common Stock. Vacancies and newly created directorships may only be
filled by a majority of the directors.
Meetings of Stockholders. The Bylaws provide that annual meetings of
stockholders shall be held at such hour on such day and at such place within or
without the State of Delaware as may be fixed by the Board of Directors. A
special meeting of the stockholders may be called only by the Chairman of the
Board, the President, the Board of Directors or by the written request by a vote
of holders of at least 66 2/3% of the total votes eligible to be cast by holders
of Common Stock.
Advance Notice Provisions. The Bylaws provide that nominations for
directors may not be made by stockholders at any annual or special meeting
thereof unless the stockholder intending to make a nomination notifies CBH of
its intention a specified number of days in advance of the meeting and furnishes
to CBH certain information regarding itself and the intended nominee. The Bylaws
also require a stockholder to
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provide to the Secretary of CBH advance notice of business to be brought by such
stockholder before any annual or special meeting of stockholders as well as
certain information regarding such stockholder and others known to support such
proposal and any material interest they may have in the proposed business. These
provisions could delay stockholder actions that are favored by the holders of at
least a majority of the outstanding stock of CBH until the next stockholders'
meeting.
No Stockholder Action by Written Consent. The Certificate of Incorporation
provides that any action required or permitted to be taken by the stockholders
of CBH at an annual or special meeting of stockholders must be effected at a
duly called meeting and may not be taken or effected by a written consent of
stockholders in lieu thereof.
Amendment of the Certificate of Incorporation and Bylaws. The Certificate
of Incorporation provides that an amendment thereof must first be approved by a
majority of the Board of Directors and (with certain exceptions) thereafter must
be approved by a vote of the holders of at least 66 2/3% of the total votes
eligible to be cast by holders of Common Stock with respect to such amendment or
repeal.
The Certificate of Incorporation and Bylaws provide that the Bylaws may be
amended or repealed by the Board of Directors or by the stockholders. Such
action by the Board of Directors requires the affirmative vote of a majority of
the directors then in office. Such action by the stockholders requires the
affirmative vote of the holders of at least 66 2/3% of the total votes eligible
to be cast by holders of Common Stock with respect to such amendment or repeal.
Delaware Statutory Business Combination Provision. CBH is subject to
Section 203 ("Section 203") of the DGCL, which, subject to certain exceptions,
prohibits a publicly held Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the time that such stockholder became an interested stockholder,
unless: (i) prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder; (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85.0% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares owned
(x) by persons who are directors and also officers and (y) by employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) at or subsequent to such time, the business
combination is approved by the board of directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the affirmative
vote of at least two-thirds of the outstanding voting stock which is not owned
by the interested stockholder. The application of Section 203 may limit the
ability of stockholders to approve a transaction that they may deem to be in
their best interests.
Section 203 defines "business combination" to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation to or with the interested stockholder; (iii) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation which has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation.
Section 203 defines an "interested stockholder" as a person who, together with
affiliates and associates, owns (or within the prior three years did own) 15% or
more of the outstanding voting stock of the corporation.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws by action of
its stockholders to exempt itself from coverage, provided that, with certain
limited exceptions, such bylaw or charter amendment shall not become effective
until 12 months after the date it is adopted. Neither the Certificate of
Incorporation nor the Bylaws contains any such exclusion.
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Indemnification and Limitation Of Liability. The Certificate of
Incorporation provides that a director shall not be liable to CBH or its
stockholders for monetary damages for breach of fiduciary duty as a director, to
the fullest extent permitted by the DGCL, as it now exists or may hereafter be
amended. The Certificate of Incorporation and the Bylaws also provide that CBH
shall indemnify any and all persons whom it shall have the power to indemnify,
including directors, officers and agents (as determined at the discretion of the
Board of Directors), against any and all expenses, liabilities or other matters,
to the fullest extent permitted by the DGCL. At the present time, there is no
pending litigation or proceeding involving any director, officer, employee or
agent of CBH in which indemnification will be required or permitted. CBH is not
aware of any threatened litigation or proceeding which may result in a claim for
such indemnification.
Preferred Stock. The Certificate of Incorporation permits the Company's
Board of Directors to issue Preferred Stock at any time without stockholder
approval. See "Description of Capital Stock -- Preferred Stock."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is the Bank of New
York.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of a substantial number of shares of Common Stock in the
public market could adversely affect trading prices prevailing from time to
time.
Upon completion of the Offering, CBH will have outstanding shares
of Common Stock. The shares sold in the Offering will be freely tradeable
without restriction under the Securities Act, unless purchased by "affiliates"
of CBH as that term is defined in Rule 144 under the Securities Act ("Rule
144"), which is summarized below. Of the remaining shares,
shares are freely transferable and shares are "restricted securities"
as that term is defined in Rule 144 ("Restricted Shares"). Restricted Shares may
be sold in the public market only if such sale is registered under the
Securities Act or if such sale qualifies for an exemption from registration,
such as the one provided by Rule 144. Sales of the Restricted Shares in the open
market, or the availability of such shares for sale, could adversely affect the
trading 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 following the later of the date of the acquisition of such shares
from the issuer or an affiliate of the issuer would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
(i) 1.0% of the number of shares of Common Stock then outstanding (approximately
shares immediately after the Offering) or (ii) the average weekly trading
volume of the Common Stock 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 the
availability of current public information about the Company. Under Rule 144(k),
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 the shares
proposed to be sold for at least two years following the later of the date of
the acquisition of such shares from the issuer or an affiliate of the issuer, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
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UNDERWRITING
The underwriters of the Offering named below (the "Underwriters"), for whom
Bear, Stearns & Co. Inc., Piper Jaffray Inc. and Conning & Company are acting as
representatives, have severally agreed with CBH, subject to the terms and
conditions of the Underwriting Agreement (the form of which has been filed as an
exhibit to the Registration Statement on Form S-1 of which this Prospectus is a
part), to purchase from CBH the aggregate number of Shares set forth opposite
their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Bear, Stearns & Co. Inc. ...................................
Piper Jaffray Inc. .........................................
Conning & Company...........................................
--------
Total.............................................
========
</TABLE>
The nature of the obligations of the Underwriters is such that all of the
Common Stock must be purchased if any is purchased. Those obligations are
subject, however, to various conditions, including the approval of certain
matters by counsel. CBH has agreed to indemnify the Underwriters against certain
liabilities, including under the Securities Act, and, where such indemnification
is unavailable, to contribute to payments that the Underwriters may be required
to make in respect of such liabilities.
CBH has been advised that the Underwriters propose to offer the Common
Stock directly to the public initially at the public offering price set forth on
the cover page of this Prospectus and to certain selected dealers at such price
less a concession not to exceed $ per share, that the Underwriters may
allow, and such selected dealers may reallow, a concession to certain other
dealers not to exceed $ per share, and that after the commencement of the
Offering, the public offering price and the concessions may be changed.
Mr. Wamberg has granted to the Underwriters an option to purchase in the
aggregate up to additional shares of Common Stock solely to cover
over-allotments, if any. The option may be exercised in whole or in part at any
time within 30 days after the date of this Prospectus. To the extent the option
is exercised, the Underwriters will be severally committed, subject to certain
conditions, including the approval of certain matters by counsel, to purchase
the additional shares of Common Stock in proportion to their respective purchase
commitments as indicated in the preceding table.
CBH, its executive officers, directors and principal stockholders,
including Mr. Wamberg, have agreed that, subject to certain limited exceptions,
for a period of at least 180 days after the date of this Prospectus, without the
prior written consent of Bear, Stearns & Co. Inc., they will not, directly or
indirectly, offer or agree to sell, sell or otherwise dispose of any shares of
Common Stock (or securities convertible into, exchangeable for or evidencing the
right to purchase shares of Common Stock).
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined
through negotiations among CBH and the representatives of the Underwriters.
Among the factors to be considered in making such determination will be CBH's
financial and operating history and condition, its prospects and prospects for
the industry in which it does business, the management of CBH, prevailing equity
market conditions and the demand for securities considered comparable to those
of CBH.
In order to facilitate the Offering, certain persons participating in the
Offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Common Stock during and after the Offering. Specifically, the
Underwriters may over-allot or otherwise create a short position in the Common
Stock for
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their own account by selling more shares than have been sold to them by CBH. The
Underwriters may elect to cover any such short position by purchasing shares in
the open market or by exercising the over-allotment option granted to the
Underwriters. In addition, such persons may stabilize or maintain the price of
the Common Stock by bidding for or purchasing shares in the open market and may
impose penalty bids under which selling concessions allowed to syndicate members
or other broker-dealers participating in the Offering are reclaimed if shares
previously distributed in the Offering are repurchased in connection with
stabilization transactions or otherwise. The effect of these transactions may be
to stabilize or maintain the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. The imposition of a
penalty bid may also affect the price of the Common Stock to the extent that it
discourages resales thereof. No representation is made as to the magnitude or
effect of any such stabilization or other transactions. Such transactions may be
effected on the New York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.
Certain of the Underwriters and their affiliates have from time to time
provided, and may continue to provide, investment banking services and general
financing and banking services to CBH and certain of its affiliates for which
such Underwriters or affiliates have received and will receive fees and
commissions.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for CBH by Akin, Gump, Strauss, Hauer & Feld, L.L.P., Dallas, Texas.
Certain matters will be passed upon for the Underwriters by Skadden, Arps,
Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
The financial statements of the Predecessor Company at December 31, 1997
and for the year then ended appearing in this Prospectus and the Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firms as experts in
accounting and auditing. The financial statements of the Predecessor Company at
December 31, 1996 and 1995, and for each of the two years in the period ended
December 31, 1996, appearing in this Prospectus and the Registration Statement
have been audited by Lane Gorman Trubitt, LLP ("Lane Gorman"), independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firms
as experts in accounting and auditing. The financial statements of Bank
Compensation Strategies, Inc. at December 31, 1996 and 1995, and for each of the
two years in the period ended December 31, 1996, appearing in this Prospectus
and the Registration Statement have been audited by McGladrey & Pullen LLP,
independent auditors, as set forth in their report therein appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firms as experts in accounting and auditing.
During 1997, the Predecessor Company changed its independent accountants
from Lane Gorman to Ernst & Young LLP. There were no disagreements between the
Predecessor Company and Lane Gorman on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure that if
not resolved to the satisfaction of Lane Gorman would have caused such firm to
make reference thereto in connection with its reports on the financial
statements of the Predecessor Company. The Predecessor Company's decision to
change to Ernst & Young LLP was approved by the Board of Directors of the
Predecessor Company.
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AVAILABLE INFORMATION
CBH has filed with the SEC, a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act with respect to the offering
and sale of Common Stock. This Prospectus does not contain all the information
set forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to CBH and the Common Stock, reference is
made to the Registration Statement and to the exhibits and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. A copy of the Registration Statement may be
inspected and copied at the public reference facilities maintained by the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
following regional offices: Northwestern Atrium Center, 500 W. Madison Street,
Suite 1400, Chicago, Illinois 60621-2511; and 7 World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, or at the SEC's Internet world wide web
site at http://www.sec.gov. In addition, the Common Stock will be listed on the
New York Stock Exchange and copies of the foregoing materials and other
information concerning the Company can be inspected at the offices of the New
York Stock Exchange at 11 Wall Street, 18th Floor, New York, New York
10005-1905.
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GLOSSARY
"AAA Amount" has the meaning set forth in "The
Reorganization -- Termination of S Corporation Status."
"Actuary" means a person who performs the statistical and mathematical
calculations necessary to compute insurance risks and premiums.
"Administrative agreement" means an arrangement under which the sponsor of
a benefit plan pays a fee in exchange for administrative services provided by
the Company, an insurance company or a third-party administrator.
"Administrative Service Agreement" has the meaning set forth in
"Business -- Ancillary Business Arrangements."
"AEGON" means AEGON USA, Inc., a wholly owned subsidiary of AEGON N.V., an
international insurance organization.
"Audit Committee" has the meaning set forth in "Management -- Committees of
the Board of Directors."
"Beneficiary" means the person or party who is named by the owner of an
insurance policy to receive the policy benefit upon the occurrence of the event
against which the policy insured. Any person (relative, non-relative) or entity
(charity, corporation, trustee, partnership) can be named a beneficiary.
"Bank-owned life insurance" means business-owned life insurance purchased
by a bank. See "Business -- Programs and Products."
"BCS" means Bank Compensation Strategies, Inc., a Minnesota based company
whose assets were acquired by the Predecessor Company effective September 1,
1997.
"Board of Directors" has the meaning set forth in "Risk
Factors -- Anti-Takeover Considerations."
"Broker" means a sales agent who sells insurance products of more than one
insurance company.
"Business-owned life insurance" means life insurance policies purchased by
a business that insure the lives of a number of employees. The business pays the
premiums on, and is the owner and beneficiary of, such policies. Business-owned
life insurance is used primarily to offset a business' cost of providing
employee benefits and to supplement and secure benefits for key executive. The
cash values of the life insurance policies are usually listed as an asset on a
company's balance sheet. See "Business -- Programs and Products."
"Bylaws" has the meaning set forth in "Risk Factors -- Anti-Takeover
Considerations."
"Cash value" means the amount of money, before adjustments for factors such
as policy loans, that a policyholder will receive if a permanent life insurance
policy does not remain inforce until the insured's death. Also know as cash
surrender value.
"CBH" means Clark/Bardes Holdings, Inc., a Delaware corporation. CBH owns
all the issued and outstanding shares of capital stock of Clark/Bardes, Inc., a
Delaware corporation.
"Certificate of Incorporation" has the meaning set forth in "Risk
Factors -- Anti-Takeover Considerations."
"Clark/Bardes" means Clark/Bardes, Inc., a Delaware corporation, and its
predecessors. All the issued and outstanding shares of capital stock of
Clark/Bardes, Inc. is owned by Clark/Bardes Holdings, Inc., a Delaware
corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the shares of common stock, par value $0.01 per share,
of CBH.
"Company" means Clark/Bardes Holdings, Inc., a Delaware corporation,
together with its wholly owned subsidiary Clark/Bardes, Inc. and the predecessor
of such wholly owned subsidiary.
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"Compensation Committee" has the meaning set forth in
"Management -- Committees of the Board of Directors."
"CIGNA" means Connecticut General Life Insurance Company, a wholly owned
subsidiary of CIGNA Corporation.
"DIP" means deferred income plan. See "Business -- Programs and Plans."
"Distribution system" means a method of providing products from an
insurance company to consumers.
"DGCL" has the meaning set forth in "Risk Factors -- Anti-Takeover
Considerations."
"Employee benefit plan" means a formal arrangement by which by an employer
provides for the economic and social welfare of its employees. Examples of
employee benefit plans include: (i) pension plans for retirement; (ii) group
life insurance; (iii) group health insurance for illness and accident; (iv)
group disability income insurance for the loss of income due to illness and
accident; (v) accidental death and dismemberment; and (vi) dental insurance,
eyeglass insurance, and legal expense insurance. These plans are established for
the reasons of morale, to reduce turnover, and for certain tax benefits.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended. ERISA is a federal law established to govern private pension plans,
including vesting requirements, funding mechanisms and general plan design and
descriptions.
"Executive Committee" has the meaning set forth in
"Management -- Committees of the Board of Directors."
"Existing Stockholders" has the meaning set forth in "The
Reorganization -- Overview."
"401(k) Plan" has the meaning set forth in "Management -- Employee and
Retirement Plans."
"Funding mechanism" means a method by which a group insurance plan's claim
costs and administrative expenses are paid.
"General account product" means a life insurance product that is structured
with investments that are held within the insurance company's general account,
as opposed to a separate account. General account products are usually fixed
rate life insurance products with yields that are reset annually based upon the
investments within the general account.
"General American" means Great American Life Insurance Company, an indirect
wholly owned subsidiary of General American Mutual Holding Company.
"Great-West" means Great-West Life & Annuity Insurance Company.
"Group insurance policy" means an insurance policy that is issued to an
organization that is purchasing insurance coverage for a specific group of
people.
"GTCO" means group term carve out plan. See "Business -- Programs and
Plans."
"Inforce" means insurance policies that have not expired.
"Leveraged COLI" means leveraged corporate-owned life insurance. Leveraged
COLI is an insurance product that allows a policyholder to borrow against the
cash value of the policy and to deduct a portion of the interest expense.
Narrowly viewed, these borrowings minimize the cash investment in the policy
while the cash values continue to grow at the declared rate of interest. The
result is an increased or leveraged net yield to the policy. Leveraged COLI was
effectively eliminated by changes in the federal tax laws.
"Merger" has the meaning set forth in "The Reorganization -- Overview."
"NASD" means the National Association of Securities Dealers, Inc. which is
an organization of brokers and securities dealers in the over-the-counter market
operation under the auspices of the Securities and Exchange Commission. The
NASD's purpose is to enforce, on a self-regulation basis, the rules of the
Securities and Exchange Commission which are designed to protect investors
against fraud and market
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manipulation of stocks. Insurance agents selling variable life insurance,
variable annuities and mutual funds are required to be licensed by the NASD.
"Nationwide" means Nationwide Life Insurance Company, a wholly owned
subsidiary of Nationwide Insurance Enterprise.
"OBRA" has the meaning set forth in "Business -- Programs and Products."
"OCC" means Office of the Comptroller of the Currency which was created as
a result of the national Currency Act of 1863 and the National Banking Act of
1964. The OCC is the prime regulator for all U.S. nationally chartered banks and
is the organization that performs examinations and rulings on the national
banks.
"Offering" means the offer of Common Stock made pursuant to the Prospectus.
"Operating Margin" has the meaning set forth in "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Results of
Operations."
"Pending Acquisition" has the meaning set forth in "Pending Acquisition."
"Pension plan" means an agreement under which an employer establishes an
employee benefit plan to provide its employees with a lifetime monthly income
benefit that begins at an individual employee's retirement. To qualify, an
employee must have met minimum age and service requirements. Benefit formulas
can be either the defined contribution pension (money purchase plan) or the
defined benefit plan.
"Persistency" means the maintenance of insurance policies inforce until
completion of the term for which the policy was written.
"Phoenix Home Life" means Phoenix Home Life Mutual Insurance Company.
"Plan administrator" means the person or entity responsible for all the
administrative functions of an employee benefit plan, including ensuring that an
employee benefit plan complies with ERISA's disclosure and reporting
requirements.
"Plan participant" means an employee who is covered by a private employee
benefit plan established by its employer.
"Plan sponsor" means an employer that establishes a private employee
benefit plans.
"Policy loan" means a loan, the amount of which is based on the cash value
of a life insurance policy. Usually, the policyholder does not have to repay the
loan until the policy matures or until the loan and any outstanding interest
equals the cash value.
"Predecessor Company" means Clark/Bardes, Inc., a Texas corporation. The
Predecessor Company was founded in 1967 and merged with and into Clark/Bardes,
Inc., a Delaware corporation, in connection with the Reorganization.
"Premium" means the specified amount of money that an insurance company
receives in exchange for its promise to provide a policy benefit when a specific
loss occurs. Premiums are calculated by combining expectation of loss and
expense and profit loading.
"Producer" means an individual who has contracted with the Company to
market the Company's programs and services on an exclusive basis. Each producer
is an independent contractor and is designated by the Company as either a
principal, representative or associate depending upon such producer's sales
volume.
"Producer agreement" means an agreement which creates a legal relationship
by which one party -- the agent -- is authorized to perform certain acts for
another party -- the principal. In the case of Clark/Bardes, each producer is an
agent of the Company.
"Protected Equity Plan" ("PEP") means a hybrid form of business-owned life
insurance incorporating the features of annual fixed yield insurance and
variable yield insurance. PEP usually involves an investment participation in
the S&P 500 index. The PEP yield is guaranteed to the greater of a percentage
participation in
61
<PAGE> 65
the S&P 500 index annual increase with a set maximum ceiling yield and a minimum
set floor yield. Further, PEP offers the features of a tax-free yield, a
guaranteed minimum yield and a guarantee of principal and liquidity. It is the
first life insurance product to receive patent pending protection.
"Qualified plan" means a private employee retirement plan established by a
plan sponsor that meets certain legal requirements and as a result receives
favorable tax treatment.
"Range" means the spread between the upper and lower values of initial
public offering prices which are anticipated or estimated for the Offering. It
is currently anticipated that the initial public offering price will be
$ per share, the midpoint of the Range of $ and $ per
share.
"Registered product" means an investment product, such as an annuity or a
variable life insurance policy, which must be registered with the Securities and
Exchange Commission or a state securities commission before such product can be
offered or sold in a particular jurisdiction. If an investment product is not
exempt from the registration requirement, the product is called a nonexempt
security.
"Registration Statement" has the meaning set forth in "Available
Information."
"Reorganization" has the meaning set forth in "The
Reorganization -- Overview."
"Reorganization Agreement" has the meaning set forth in "The
Reorganization -- Overview."
"Restricted Shares" has the meaning set forth in "Shares Eligible for
Future Sale."
"Restructured Notes" has the meaning set forth in "The
Reorganization -- Overview."
"Rule 144" has the meaning set forth in "Shares Eligible for Future Sale."
"Sales office" means a field office that is established and maintained by a
producer.
"Schoenke Companies" has the meaning set forth in "Pending Acquisition."
"SEC" mean the Securities and Exchange Commission, which is a federal
agency empowered to regulate and supervise the selling of securities, to prevent
unfair practices on security exchanges and over-the-counter markets and to
maintain fair and orderly markets for investors.
"Section 203" has the meaning set forth in "Description of Capital
Stock -- Anti-Takeover Considerations and Special Provisions of the Certificate
of Incorporation, Bylaws and Delaware Law."
"Separate account" means an investment account maintained separately from
an insurance company's general investment account that is established to manage
the funds placed in variable rate products. Variable rate products, such as
variable life insurance policies and variable annuity policies, have fluctuating
yields based upon the investments within the separate account.
"SERP" means supplemental executive retirement plan. See
"Business -- Programs and Plans."
"SOP" means secured offset plan. See "Business -- Programs and Plans."
"Split dollar life insurance" means an employee benefit plan under which
the employer and its employees split the cost, cash value and insurance coverage
of the life insurance policy. The employee usually pays a small amount of the
premium, typically tied to a one year term insurance cost, and the employer will
pay the remaining premium. The employer is usually entitled to the policy's cash
value and death proceeds in an amount equal to the sum of its premium payments.
The excess of the policy's cash value and death proceeds are payable to the
employee. Split dollar plans may exist solely as an additional employee benefit,
or may be used to offset employee benefit liabilities.
"Stock Option Plan" has the meaning set forth in "Risk Factors -- Possible
Dilutive Effect of Issuance of Additional Shares."
"Stock Transfer Agreement" has the meaning set forth in
"Business -- Ancillary Business Arrangements."
"Stockholder Distribution Amount" has the meaning set forth in "The
Reorganization -- Termination of S Corporation Status."
62
<PAGE> 66
"Tax Agreement" has the meaning set forth in "The
Reorganization -- Termination of S Corporation Status."
"The Wamberg Organization" means The Wamberg Organization, Inc., an
Illinois corporation. W.T. Wamberg, the Chairman of the Board of CBH and
Clark/Bardes, owns all the issued and outstanding capital stock of The Wamberg
Organization.
"Third-party administrator" means an organization other than an insurance
company that provides administrative services to the plan sponsors of group
benefit plans.
"TMG Life" means TMG Life Insurance Company, a subsidiary of The Mutual
Group (U.S.), Inc.
"Underwriters" has the meaning set forth in "Underwriting."
"Underwriting" means the process of identifying and classifying the degree
of risk represented by a proposed insured.
"Variable life insurance" means an investment-oriented life insurance
policy that provides a return linked to an underlying portfolio of securities.
The portfolio is typically a group of mutual funds established by the insurance
company as a separate account, with the policyholder given some investment
discretion in choosing the mix of assets. Variable life insurance offers fixed
premiums and a minimum death benefit. Usually, the higher the total return on
the investment portfolio, the higher the death benefit or surrenders value of
the variable life policy.
"Warrants" has the meaning set forth in "The Reorganization -- Overview."
"West Coast Life" means West Coast Life Insurance Company, a wholly owned
subsidiary of Protective Life Insurance Company.
63
<PAGE> 67
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Clark/Bardes, Inc., Reports of Independent Auditors......... F-2
Clark/Bardes, Inc., Balance Sheets at December 31, 1996 and
1997 and at March 31, 1998 (unaudited).................... F-4
Clark/Bardes, Inc., Statements of Income for the years ended
December 31, 1995, 1996 and 1997 and the three months
ended March 31, 1997 and 1998 (unaudited)................. F-5
Clark/Bardes, Inc., Statements of Stockholders' Equity
(Deficit) for the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1998
(unaudited)............................................... F-6
Clark/Bardes, Inc., Statements of Cash Flows for the years
ended December 31, 1995, 1996 and 1997 and the three
months ended March 31, 1997 and 1998 (unaudited).......... F-7
Notes to Clark/Bardes, Inc. Financial Statements............ F-8
Bank Compensation Strategies Group, Unaudited Balance Sheet
at August 31, 1997........................................ F-20
Bank Compensation Strategies Group, Unaudited Statement of
Income for the eight months ended August 31, 1997......... F-21
Bank Compensation Strategies Group, Unaudited Statement of
Shareholders' Equity for the eight months ended August 31,
1997...................................................... F-21
Bank Compensation Strategies Group, Unaudited Statement of
Cash Flows for the eight months ended August 31, 1997..... F-22
Bank Compensation Strategies Group, Footnote to Unaudited
Financial Statements...................................... F-23
Bank Compensation Strategies Group, Independent Auditor's
Report.................................................... F-24
Bank Compensation Strategies Group, Balance Sheets at
December 31, 1996 and 1995................................ F-25
Bank Compensation Strategies Group, Statements of Income for
the years ended December 31, 1996 and 1995................ F-26
Bank Compensation Strategies Group, Statements of
Stockholder's Equity for the years ended December 31, 1996
and 1995.................................................. F-27
Bank Compensation Strategies Group, Statements of Cash Flows
for the years ended December 31, 1996 and 1995............ F-28
Notes to Bank Compensation Strategies Group Financial
Statements................................................ F-29
</TABLE>
F-1
<PAGE> 68
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Clark/Bardes, Inc.
We have audited the balance sheet of Clark/Bardes, Inc. as of December 31,
1997, and the related statements of income, stockholders' equity (deficit), and
cash flows for the year then ended. 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 audit. The financial
statements of Clark/Bardes, Inc. for the years ended December 31, 1996 and 1995,
were audited by other auditors whose report dated February 7, 1997 expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1997 financial statements referred to above present
fairly, in all material respects, the financial position of Clark/Bardes, Inc.
at December 31, 1997, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
Dallas, Texas
February 18, 1998, except for
Note 15, as to which the
date is June , 1998
The foregoing report is in the form that will be signed upon completion of
the transactions described in Note 15.
ERNST & YOUNG LLP
Dallas, Texas
June 12, 1998
F-2
<PAGE> 69
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Clark/Bardes, Inc.
We have audited the accompanying balance sheets of Clark/Bardes, Inc. as of
December 31, 1996, and the related statements of income, stockholders' equity,
and cash flows for each of the two years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Clark/Bardes, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for each
of the two years then ended, in conformity with generally accepted accounting
principles.
Dallas, Texas
February 7, 1997
LANE GORMAN TRUBITT, L.L.P.
F-3
<PAGE> 70
CLARK/BARDES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA AT
-------------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998 - NOTE 15
----------- ------------ ------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.................... $ 4,881,584 $ 3,782,941 $ 4,723,227 $ 1,501,217
Accounts and notes receivable:
Trade...................................... 2,667,751 7,720,444 2,911,869 2,911,869
Affiliates................................. 122,996 10,636 469,729 469,729
Notes receivable (Related parties:
$110,887, $205,658 and $383,873 at
December 31, 1996 and 1997 and March 31,
1998, respectively)...................... 434,181 477,779 653,042 653,042
----------- ------------ ------------ ------------
Total accounts and notes receivable... 3,224,928 8,208,859 4,034,640 4,034,640
Other current assets........................... -- -- 56,048 56,048
Accrued interest receivable.................... 26,423 45,811 67,627 67,627
----------- ------------ ------------ ------------
Total current assets.................. 8,132,935 12,037,611 8,881,542 5,659,532
Equipment and leasehold improvements, net...... 376,850 715,854 647,000 647,000
Intangible assets (less accumulated
amortization of approximately $295,000 and
$516,000 at December 31, 1997 and March 31,
1998, respectively).......................... -- 24,088,811 23,867,839 23,867,839
Other assets................................... 15,669 59,614 9,260 9,260
----------- ------------ ------------ ------------
Total assets.......................... $ 8,525,454 $ 36,901,890 $ 33,405,641 $ 30,183,631
=========== ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 312,612 $ 1,142,218 $ 583,328 $ 583,328
Commissions and fees payable................. 1,346,486 1,944,490 958,204 958,204
Dividends payable............................ 1,720,967 333,915 164,734 164,734
Accrued expenses and other liabilities....... 1,333,990 1,521,419 958,203 958,203
Accrued interest payable..................... -- 476,325 446,531 446,531
Current portion of long-term debt............ -- 4,325,000 4,325,000 4,325,000
----------- ------------ ------------ ------------
Total current liabilities............. 4,714,055 9,743,367 7,436,000 7,436,000
Long-term debt................................. -- 32,838,143 31,388,143 31,388,143
----------- ------------ ------------ ------------
Total liabilities..................... 4,714,055 42,581,510 38,824,143 38,824,143
Stockholders' equity (deficit):
Common stock:
Authorized shares -- 20,000,000; no par
value
Issued and outstanding shares -- 5,957,344;
5,959,140; and 5,959,140 at December 31,
1996, 1997 and March 31, 1998,
respectively............................. 5,053,663 5,162,281 5,162,281 5,162,281
Retained earnings............................ 3,213,332 3,188,699 3,371,875 149,865
----------- ------------ ------------ ------------
8,266,995 8,350,980 8,534,156 5,312,146
Less 1,203,291, 2,737,130 and 2,737,130 shares
of common stock in treasury at December 31,
1996, 1997 and March 31, 1998, respectively,
at cost...................................... (4,455,596) (14,030,600) (13,952,658) (13,952,658)
----------- ------------ ------------ ------------
Total stockholders' equity
(deficit)........................... 3,811,399 (5,679,620) (5,418,502) (8,640,512)
----------- ------------ ------------ ------------
Total liabilities and stockholders'
equity.............................. $ 8,525,454 $ 36,901,890 $ 33,405,641 $ 30,183,631
=========== ============ ============ ============
</TABLE>
See notes to financial statements.
F-4
<PAGE> 71
CLARK/BARDES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Commission and service fees..... $25,685,588 $32,353,355 $47,870,880 $5,411,272 $13,430,574
Other........................... 1,287,144 889,800 1,584,539 99,143 323,892
----------- ----------- ----------- ---------- -----------
Total revenue........... 26,972,732 33,243,155 49,455,419 5,510,415 13,754,466
Commission and fee expense........ 16,890,862 21,049,704 32,439,092 3,549,809 9,132,248
----------- ----------- ----------- ---------- -----------
10,081,870 12,193,451 17,016,327 1,960,606 4,622,218
General and administrative
expense......................... 7,868,997 8,554,420 11,506,335 1,860,545 3,370,852
Amortization of intangibles....... -- -- 294,630 -- 220,973
----------- ----------- ----------- ---------- -----------
Income from operations............ 2,212,873 3,639,031 5,215,362 100,061 1,030,393
Other income (expense):
Interest income................. 148,482 119,691 188,597 100,100 75,087
Dividend income................. 52,095 2,123 --
Interest expense................ (6,903) -- (1,111,995) -- (920,604)
Miscellaneous income
(expense).................... (86,292) (25,416) 1,925 146 300
----------- ----------- ----------- ---------- -----------
Total other income
(expense)............. 107,382 96,398 (921,473) 100,246 (845,217)
----------- ----------- ----------- ---------- -----------
Income before state taxes......... 2,320,255 3,735,429 4,293,889 200,307 185,176
State taxes....................... 102,459 181,444 60,000 -- 2,000
----------- ----------- ----------- ---------- -----------
Net income........................ $ 2,217,796 $ 3,553,985 $ 4,233,889 $ 200,307 $ 183,176
=========== =========== =========== ========== ===========
Dividends per share:.............. $ .29 $ .36 $ 1.32 -- --
=========== =========== =========== ========== ===========
Pro Forma Data (Unaudited):
Pro forma tax expense (Note
12):......................... $ 1,700,000 $ 74,000
=========== ===========
Pro forma earnings per share
(Note 12):
Basic........................ $ .62 $ .03
=========== ===========
Diluted...................... $ .60 $ .03
=========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 72
CLARK/BARDES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NET
UNREALIZED
LOSS ON COMMON STOCK
COMMON STOCK SECURITIES IN TREASURY
---------------------- RETAINED AVAILABLE -------------------------
SHARES AMOUNT EARNINGS FOR SALE SHARES AMOUNT TOTAL
--------- ---------- ----------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995......... 5,957,344 $5,053,663 $ 1,078,114 $(52,254) (229,737) $ (918,948) $ 5,160,575
Changes in net unrealized loss on
securities available for
sale........................... -- -- -- 47,179 -- -- 47,179
Net income....................... -- -- 2,217,796 -- -- -- 2,217,796
Dividends........................ -- -- (1,638,096) -- -- -- (1,638,096)
--------- ---------- ----------- -------- ---------- ------------ ------------
Balance at December 31, 1995....... 5,957,344 5,053,663 1,657,814 (5,075) (229,737) (918,948) 5,787,454
Purchase of common stock for
treasury....................... -- -- -- -- (1,123,554) (4,136,648) (4,136,648)
Sale/Grant of treasury stock..... -- -- (277,500) -- 150,000 600,000 322,500
Changes in net unrealized loss on
securities available for
sale........................... -- -- -- 5,075 -- -- 5,075
Net income....................... -- -- 3,553,985 -- -- -- 3,553,985
Dividends........................ -- -- (1,720,967) -- -- -- (1,720,967)
--------- ---------- ----------- -------- ---------- ------------ ------------
Balance at December 31, 1996....... 5,957,344 5,053,663 3,213,332 -- (1,203,291) (4,455,596) 3,811,399
Sale of common stock............. 1,796 8,618 -- -- -- -- 8,618
Issuance of common stock
warrants....................... -- 100,000 -- -- -- -- 100,000
Purchase of common stock for
treasury....................... -- -- -- -- (2,567,650) (13,969,259) (13,969,259)
Notes receivable for treasury
stock issued, net of
distribution of $606,280....... -- -- -- -- 244,649 (568,036) (568,036)
Sale/Grant of treasury stock..... -- -- -- -- 789,162 4,962,291 4,962,291
Net income....................... -- -- 4,233,889 -- -- -- 4,233,889
Dividends........................ -- -- (4,258,522) -- -- -- (4,258,522)
--------- ---------- ----------- -------- ---------- ------------ ------------
Balance at December 31, 1997....... 5,959,140 5,162,281 3,188,699 -- (2,737,130) (14,030,600) (5,679,620)
Net income (unaudited)........... -- -- 183,176 -- -- -- 183,176
Payments on notes receivable
(unaudited).................... -- -- -- -- -- 77,942 77,942
--------- ---------- ----------- -------- ---------- ------------ ------------
Balance at March 31, 1998
(unaudited)...................... 5,959,140 $5,162,281 $ 3,371,875 $ -- (2,737,130) $(13,952,658) $ (5,418,502)
========= ========== =========== ======== ========== ============ ============
</TABLE>
See notes to financial statements.
F-6
<PAGE> 73
CLARK/BARDES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................................ $ 2,217,796 $ 3,553,985 $ 4,233,889 $ 200,307 $ 183,176
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 182,143 187,577 492,609 34,484 286,944
(Gain) loss on disposition of assets............ 86,292 25,416 (1,925) -- --
Provision for losses on notes receivable........ -- 78,000 -- -- --
Grant of treasury stock......................... -- 172,500 -- -- --
Change in assets and liabilities:
(Increase) decrease in accounts and notes
receivable.................................. (1,115,137) 412,495 (4,983,931) (1,575,697) 4,427,486
Increase in accrued interest receivable....... (15,328) (10,781) (19,388) (62,276) (21,816)
Increase in other assets...................... -- -- -- -- 16,630
Increase (decrease) in accounts payable....... 91,560 101,773 829,606 10,545 (558,890)
Increase (decrease) in accrued expenses and
other liabilities........................... 292,651 417,469 187,429 (765,615) (563,216)
Increase (decrease) in accrued interest
payable..................................... -- -- 476,325 -- (29,794)
Increase (decrease) in commissions and
fees payable................................ 835,587 (628,747) 598,004 (589,329) (986,286)
----------- ----------- ------------ ----------- -----------
Net cash provided by (used in) operating
activities...................................... 2,575,564 4,309,687 1,812,618 (2,747,581) 2,754,234
INVESTING ACTIVITIES
Purchases of marketable securities available for
sale............................................ (253,131) (1,720) -- -- --
Purchase of business.............................. -- (24,383,440) -- --
Issuance of notes receivable...................... (768,710) (350,793) -- -- (253,205)
Payments received on notes receivable............. 444,726 574,072 -- -- 77,942
Purchases of equipment and leasehold
improvements.................................... (303,260) (131,057) (536,983) -- --
Proceeds from sale of marketable securities....... -- 1,507,639 -- -- --
Other............................................. 462 (11,299) (42,020) (75,878) (19,504)
----------- ----------- ------------ ----------- -----------
Net cash (used in) provided by investing
activities...................................... (879,913) 1,586,842 (24,962,443) (75,878) (194,767)
FINANCING ACTIVITIES
Principal payments under capital lease
obligations..................................... (108,816) -- -- -- --
Principal payments on debt........................ -- -- -- -- (1,450,000)
Proceeds from issuance of debt.................... -- -- 33,900,000 -- --
Proceeds from issuance of common stock and
warrants........................................ -- 150,000 108,618 400,001 --
Treasury stock issued for notes receivable........ -- -- (1,171,306) -- --
Dividends paid.................................... (641,492) (996,604) (1,779,162) (1,720,967) (169,181)
Purchase of common stock for treasury............. -- (4,136,648) (13,969,259) -- --
Proceeds from sale of treasury stock.............. -- -- 4,962,291 -- --
----------- ----------- ------------ ----------- -----------
Net cash provided by (used in) financing
activities...................................... (750,308) (4,983,252) 22,051,182 (1,320,966) (1,619,181)
----------- ----------- ------------ ----------- -----------
(Decrease) increase in cash....................... 945,343 913,277 (1,098,643) (4,144,425) 940,286
Cash and cash equivalents at beginning of
period.......................................... 3,022,964 3,968,307 4,881,584 4,881,584 3,782,941
----------- ----------- ------------ ----------- -----------
Cash and cash equivalents at end of period........ $ 3,968,307 $ 4,881,584 $ 3,782,941 $ 737,159 $ 4,723,227
=========== =========== ============ =========== ===========
Supplemental disclosures of cash flow information:
Interest paid................................... $ 6,903 $ -- $ 635,670 $ -- $ 987,184
State income taxes paid......................... -- 102,459 181,965 -- 2,000
</TABLE>
See notes to financial statements.
F-7
<PAGE> 74
CLARK/BARDES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Clark/Bardes, Inc. (the Company) is a designer, marketer and administrator
of business-owned life insurance products to large corporations and bank-owned
life insurance to banks in the United States. The Company assists its clients in
using customized life insurance products to generate capital to finance
long-term benefit liabilities and to supplement and secure benefits for key
employees. In addition, the Company provides long-term administrative services
for executive benefits and insurance.
Basis of Presentation
The accompanying financial statements of the Company have been prepared in
conformity with generally accepted accounting principles (GAAP). Certain
reclassifications have been made to the prior years' financial statements to
conform to the current year presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. The Company has cash
balances at two financial institutions in excess of the $100,000 limit insured
by the Federal Deposit Insurance Corporation. Uninsured cash in bank balances
aggregate to approximately $632,000, $384,300 and $787,025 at December 31, 1996,
1997, and March 31, 1998 (unaudited), respectively. The Company has not
experienced any losses in such accounts and believes it is not exposed to any
significant credit risk on cash and cash equivalents.
Fair Value of Financial Instruments
The book values of cash, accounts and notes receivable, accounts payable,
commissions and fees payable and other financial instruments approximate their
fair values principally because of the short-term nature of these instruments.
The carrying value of the Company's long-term debt would not differ
significantly from its fair value.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are carried at cost less accumulated
depreciation. Depreciation expense is provided in amounts sufficient to relate
the cost of assets to operations over the estimated service lives using the
straight-line method. The Company depreciates furniture and equipment over
periods of three to five years while leasehold improvements are amortized over
their useful lives.
Intangible Assets
The Company capitalized intangible assets as a result of the acquisition of
the assets and business of Bank Compensation Strategies Group (BCS) (see Note
2). Intangible assets consist of goodwill, the value of BCS' existing book of
business on the acquisition date and non-compete agreements with the former
owners of BCS. The amortization periods for the non-compete agreements are 5
years and 10 years while the in-force revenue and goodwill will be amortized
over 30 and 40 year periods, respectively, on a straight-line basis.
Amortization expense related to these amounts totaled $294,630 during 1997 and
$220,973 for the three months ended
F-8
<PAGE> 75
CLARK/BARDES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
March 31, 1998 (unaudited), respectively. Management's policy, in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting
for the Impairment of Long-Lived Assets is to review intangible and other
long-lived assets for impairment whenever changes in circumstances indicate that
the carrying amount of the asset may not be recoverable.
Revenue
First year commissions are recognized as revenue at the time the policy
application is completed, the premium is paid and the insured party is
contractually committed to purchase the insurance policy. Renewal commissions
are recognized as revenue at the policy anniversary date. Generally, service
fees are recognized as revenue when the services are performed which is
typically at the policy anniversary date.
The Company generated in excess of 25% of its revenue in 1995 from 3
clients, in 1996 from 2 clients and in 1997 from 3 clients. Approximately 22%,
23% and 23% of the Company's revenue in 1995, 1996, and 1997, respectively, was
generated by the Wamberg Organization, which is wholly-owned by the Company's
Chairman. Substantially all of the policies underlying the programs marketed by
the Company are underwritten by 14 life insurance companies, seven of whom
generated approximately 75% of the Company's first-year revenue in 1997.
Commissions and Fee Expense
Commissions and fee expense comprise the portion of the total commission
revenue that is earned by and paid to agents.
Advertising
Advertising and marketing costs provided by third parties are charged to
operations when incurred. Total expenses for 1995, 1996, and 1997 were $52,395,
$55,352, and $70,299, respectively, and $10,343 and $45,977 for the three months
ended March 31, 1997 and 1998 (unaudited), respectively.
Stock Compensation
The Company adopted SFAS No. 123, Accounting for Stock-Based Compensation
(SFAS 123) effective January 1, 1996. SFAS 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans. The Company
elected to continue to account for employee stock-based compensation as
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees and
to provide pro forma disclosures in the Notes to Financial Statements of the
effects of SFAS 123 on net income (See Note 8). There was no effect on net
income as a result of adopting SFAS 123.
Earnings Per Share
In February 1997, the Financial Accounting Standard Board ("FASB") issued
SFAS No. 128, Earnings Per Share. This Statement specifies the computation,
presentation and disclosure requirements for earnings per share for entities
with publicly-held common stock. This Statement is effective for financial
statements for both interim and annual periods ending after December 15, 1997
and has been adopted by the Company and is presented for all periods in the
accompanying financial statements in anticipation of the planned public offering
described in Note 15.
Comprehensive Income
As of January 1, 1998, the Company adopted SFAS 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components. Statement 130 requires
unrealized gains or losses on available-for-sale securities and certain other
items,
F-9
<PAGE> 76
CLARK/BARDES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
which prior to adoption were reported separately in shareholders' equity, to be
included in other comprehensive income. The adoption of this Statement had no
impact on the Company's net income or shareholders' equity. The Company's
comprehensive income is not significant.
Segment Reporting
In June 1997, the FASB issued SFAS 131, Disclosures About Segments of an
Enterprise and Related Information. This Statement requires public enterprises
to report selected information about operating segments in annual and interim
reports issued to shareholders. It is effective for financial statements for
fiscal years beginning after December 15, 1997, but it is not required to be
applied to interim financial statements in the initial year of its application.
If applicable, the Company will adopt SFAS 131 for the year ended December 31,
1998.
2. ACQUISITION OF BANK COMPENSATION STRATEGIES GROUP
On September 1, 1997 (the acquisition date), the Company acquired
substantially all of the assets, the client list and the book of business of
Bank Compensation Strategies Group (BCS), a Minneapolis, Minnesota based life
insurance agency engaged in the business of designing and marketing life
insurance policies and related compensation, salary and benefit plans and
providing related services to financial institutions. The Company accounted for
the acquisition as a purchase and has included the operating results of BCS
commencing from the acquisition date in the financial statements.
The purchase price of the acquisition was $24.0 million plus acquisition
related expenses of approximately $383,440. The purchase price was comprised of
$13.5 million in cash as well as two promissory notes of $5.7 million and $4.8
million (see Note 6). The Company allocated approximately $10,000 of the
purchase price to tangible assets acquired, $1.2 million to two non-compete
agreements with officers of BCS, $15.7 million to the net present value of the
existing in-force revenue and book of business and the remaining $7.5 million to
goodwill.
The pro forma information below presents the results of the Company and BCS
combined as if the acquisition had occurred at the beginning of the respective
period shown (excluding any effects of the transactions described in Note 15):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Pro Forma:
Revenues................................................. $48,491,000 $62,264,000
Net income............................................... $ 2,942,000 $ 3,924,000
Diluted earnings per share............................... $ 0.62 $ 0.92
</TABLE>
F-10
<PAGE> 77
CLARK/BARDES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note receivable -- Related party; secured by first
year and renewal commissions; interest accrues at
prime plus 1%; due on demand...................... $ -- $ 75,000 $ 43,690
Note receivable -- Secured by collateral assignment
of insurance commissions/compensation; due in full
plus interest at prime plus 2% on demand.......... 130,478 130,478 130,478
Note receivable -- Secured by collateral assignment
of insurance commissions/compensation; due in full
plus interest at prime plus 4% on demand.......... 270,816 219,643 216,692
Note receivable -- Related party; secured by renewal
commissions; interest accrues at 12%; due on
demand............................................ -- -- 30,000
Note receivable -- Related party; secured by renewal
commissions; due on demand; interest accrues at
12%. ............................................. -- 60,000 38,278
Note receivable -- Related party; secured by renewal
commissions; due on demand; interest accrues at
prime plus 2%..................................... 100,000 70,658 69,071
Note receivable -- Related party; secured by renewal
commissions and tax distributions; interest
accrues at 12%; due on demand. ................... -- -- 202,833
Notes receivable -- Related parties and employees;
unsecured; non-interest bearing. ................. 10,887 -- --
-------- -------- --------
512,181 555,779 731,042
Less allowance for uncollectible notes receivable... (78,000) (78,000) (78,000)
-------- -------- --------
$434,181 $477,779 $653,042
======== ======== ========
</TABLE>
The Company recorded interest income from related parties of $4,865, $690,
and $46,106 for the years ended December 31, 1995, 1996, and 1997, respectively,
and $43,174 and $20,014 for the three months ended March 31, 1997 and 1998
(unaudited), respectively. The Company also has accrued interest receivable of
$626, $12,664, and $27,755 from related parties at December 31, 1996, 1997, and
at March 31, 1998 (unaudited), respectively.
4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Major classifications of equipment and leasehold improvements are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Office furniture and equipment............... $ 1,397,877 $ 2,133,005 $ 2,139,930
Leasehold improvements....................... 57,387 96,116 100,297
----------- ----------- -----------
1,455,264 2,229,121 2,240,227
Accumulated depreciation and amortization.... (1,078,414) (1,513,267) (1,593,227)
----------- ----------- -----------
$ 376,850 $ 715,854 $ 647,000
=========== =========== ===========
</TABLE>
F-11
<PAGE> 78
CLARK/BARDES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. STATE TAXES
The Company has elected by consent of its shareholders to be taxed under
the provisions of subchapter S of the Internal Revenue Code. Under those
provisions, the Company does not pay Federal or state corporate income taxes on
its taxable income. Instead, the stockholders are liable for individual Federal
and state income tax on the Company's taxable income as determined under the
cash method of accounting. State taxes, as shown in the accompanying financial
statements, consists primarily of franchise taxes. At December 31, 1997 the net
tax bases of the Company's assets and liabilities was approximately $2.9 million
lower than the financial statement bases (See Note 15).
6. FINANCING ARRANGEMENTS
Senior Secured Notes. During 1997, the Company issued $14.5 million of
10.5% secured promissory notes maturing August 9, 2002; principal is payable
semi-annually beginning February 9, 1998 and interest is payable quarterly.
Interest expense was $473,667 and $351,021 and interest paid was $253,750 and
$380,625 for the year ended December 31, 1997 and for the three months ended
March 31, 1998, respectively. The Company must comply with certain restrictive
covenants related to maintaining certain financial ratios, limitations on
payments and additional indebtedness, limitations on mergers and liens,
restrictions pertaining to the maintenance of material contracts, maintenance of
insurance, restrictions on distributions to shareholders, and limitations on
issuances of common stock; in addition, the Company must provide the lenders
with various financial reports.
Second Priority Senior Secured Notes. During 1997, the Company issued $8.9
million of 11% Second Priority Senior Secured Notes maturing in three equal
annual installments beginning August 9, 2002; interest is payable quarterly.
Interest expense was $304,577 and $244,750 and interest paid was $163,167 and
$244,750 for the year ended December 31, 1997 and for the three months ended
March 31, 1998, respectively. These notes possess identical restrictive
covenants as the Senior Secured Notes. In connection with the issuance of these
notes, the Company authorized the issuance of warrants evidencing rights to
purchase 1,525,426 shares of the Company's no par value common stock at $5.90
per share subject to terms, conditions and adjustments set forth in the warrant
agreement, at any time prior to August 9, 2004 (see Note 15). If the Company
defaults in the payment of the principal of the notes, the expiration date of
the warrants is extended to August 9, 2007. The common shares issuable upon the
exercise of the warrants must be reserved and kept available out of the
authorized common stock.
Medium Priority Term Notes. During 1997, in connection with the purchase of
BCS, the Company issued $5.7 million of Medium Priority Term Notes maturing in
four equal annual installments of $1.425 million beginning August 15, 1998;
interest is payable quarterly at the corporate base rate of the First Bank of
Minnesota which was 8.5% at December 31, 1997. Interest expense was $150,733 and
$121,125 and interest paid was $88,825 and $121,125 in 1997 and for the three
months ended March 31, 1998, respectively.
Convertible Subordinated Notes. During 1997, in connection with the
purchase of BCS, the Company issued $4.8 million of 8.5% Convertible
Subordinated Notes maturing in one installment on September 15, 2007; interest
is payable quarterly. Interest expense was $126,933 and $102,000 and interest
paid was $108,800 and $102,000 in 1997 and for the three months ended March 31,
1998, respectively. These notes are convertible into 813,559 shares of common
stock, at $5.90 per share. The conversion feature is available to the creditors
until these notes are paid in full by the Company.
AAA Distribution. The Company made a special dividend distribution of
$3,866,412 to shareholders of record on November 15, 1997 in the form of notes
payable. The notes outstanding at December 31, 1997 of $3,263,144, mature
November 15, 2007 and interest accrues quarterly at 8.5%. Interest expense
incurred was $34,956 and $68,391 and interest paid was $0 and $69,342 in 1997
and for the three months ended March 31, 1998, respectively.
F-12
<PAGE> 79
CLARK/BARDES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1997, payments outstanding under all financing arrangements
are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 4,325,000
1999........................................................ 4,325,000
2000........................................................ 4,325,000
2001........................................................ 4,325,000
2002........................................................ 5,867,000
Thereafter.................................................. 13,996,143
-----------
$37,163,143
===========
</TABLE>
7. STOCKHOLDERS' EQUITY
During 1997, the Company repurchased common stock from certain principals
and other stockholders. Under these agreements, 2,567,650 shares were
repurchased at prices ranging from $4.20 to $6.00 per share. These shares are
being held in treasury.
The Company approved a financing arrangement in 1997 which allows certain
key associates to purchase shares of common stock. During the year, pursuant to
this arrangement, the Company issued 174,653 shares of common stock at $4.80 per
share. The notes receivable under this arrangement are collateralized by the
shares sold. Amounts due to the Company at December 31, 1997 for stock purchases
were $465,588. Outstanding principal balances pay interest at 8.5% and mature in
2000 and 2003.
In 1996, the Company negotiated an agreement to redeem 204,211 shares of
common stock at a price of $4.50 per share in exchange for an agreement for
provision of administrative services on certain life insurance policies which
are administered by the Company on behalf of an affiliate. The shares were
redeemed on January 4, 1996.
A 1996 stock purchase agreement between the Company and a stockholder
provided for the purchase of 919,343 shares at a price of $3.50 per share, which
were redeemed on January 16, 1996.
8. BENEFIT PLANS
Associate Stock Bonus/Stock Purchase Plan. The Associate Stock Bonus/Stock
Purchase Plan for selected associates of the Company provides to each
participant (i) a grant of 25,000 shares of stock and (ii) an option to purchase
another 25,000 shares at a fixed price of $2.00 per share, after three years
from the date of the agreement if certain criteria under the terms of the plan
are satisfied. During 1997 and 1996, the Company issued 50,000 shares and
150,000 shares, respectively, and has recorded compensation expense of $190,000
and $172,500, respectively, in relation to the stock grants and options. As of
December 31, 1997, this Plan is no longer available.
Incentive Stock Option Plan. The Incentive Stock Option Plan provides
certain employees options to purchase shares for $4.80 and $7.00 per share;
540,830 shares of common stock have been reserved for issuance under this plan
and 190,830 shares had been granted under this program at December 31, 1997. The
$7.00 options vest during the period from December 30, 1997 to March 1, 2000
while the $4.80 options vest during the period from March 1, 2000 to March 1,
2002. The options expire ten years from the grant date. In addition, the options
are voided within 90 days of the employee's termination or one year from the
date of death.
Under this plan, participants purchased stock at $4.80 per share and
receive a matching option with an exercise price of $4.80 per share in exchange
for a promissory note and a security agreement; during 1997, 69,997 shares were
issued under this program but none of the options were vested at December 31,
1997. Principal on the notes matures March 1, 2001, is due in four equal annual
installments beginning March 1,
F-13
<PAGE> 80
CLARK/BARDES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1998 and accrues interest at the Wall Street Journal Base corporate loan rate
plus 1.5%. Total notes receivable outstanding under this program are $102,448.
In addition to the Incentive Stock Option Plan, the Company granted stock
options to a consultant in 1997 for the purchase of 100,000 shares at an
exercise price of $4.80; no options were exercised during 1997 or vested at
December 31, 1997.
If the fair value of the stock compensation granted had been accounted for
under SFAS 123, the proforma net income and diluted earnings per share for the
year ended December 31, 1997 would have been approximately $4,190,000 and $0.98
per share. The effect of options on 1996 net income was not significant and no
options were granted during the three month period ended March 31, 1998. For
purposes of proforma disclosures, the estimated fair value of the options was
determined using the Black-Scholes pricing model using assumptions for the
expected life of the options (2.25 and 4.25 years), a risk-free interest rate of
6.5%, a volatility factor of 25% and no dividends. The effect on net income of
the stock compensation expense for the year presented above is likely not
representative of the effects on reported net income for future years.
A summary of option activity is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS TOTAL
------------------- --------
<S> <C>
Outstanding at January 1, 1995.............................. --
Granted..................................................... --
Exercised................................................... --
Forfeited or canceled....................................... --
--------
Outstanding at December 31, 1995............................ --
--------
Granted..................................................... 200,000
Exercised................................................... (150,000)
Forfeited or canceled....................................... --
--------
Outstanding at December 31, 1996............................ 50,000
Granted..................................................... 290,830
Exercised................................................... (50,000)
Forfeited or canceled....................................... --
--------
Outstanding at December 31, 1997............................ 290,830
========
</TABLE>
Stock options outstanding and exercisable at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------ -----------------------------
NUMBER WEIGHTED-AVG. WEIGHTED-AVG. NUMBER WEIGHTED-AVG.
OUTSTANDING @ REMAINING EXERCISE EXERCISABLE @ EXERCISE
12/31/97 CONTRACTUAL LIFE PRICE 12/31/97 PRICE
- ------------- ---------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
140,830 10 $4.80 20,833 $4.80
150,000 10 $7.00 25,000 $7.00
</TABLE>
Phantom Stock Agreement. The Company entered into a Phantom Stock
Agreement, dated September 5, 1997 with a Principal of the Company. Under this
agreement, the Principal is entitled to receive an award expressed in units
("Incentive Units") based upon the level of revenue received by the Company on
certain sales generated by the Principal. The Principal will first be entitled
to receive payments for the value of his Incentive Units on April 1, 2003 and
every year thereafter until April 1, 2008. It is unlikely that the Principal
will be entitled to any payments under the Phantom Stock Agreement because he
has not achieved the required revenue performance levels.
F-14
<PAGE> 81
CLARK/BARDES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Savings Investment Plan. The Savings Investment Plan is a defined
contribution profit sharing Plan qualifying under Section 401(k) of the Internal
Revenue Code covering substantially all employees. Contributions are determined
at the Company's discretion. Company contributions to the Plan were $75,282,
$84,121, and $108,293 for the years ended December 31, 1995, 1996, and 1997,
respectively, and $31,313 and $74,030 for the three months ended March 31, 1997
and 1998 (unaudited), respectively.
Key Executive Life Insurance. The Company maintains and is the sole
beneficiary of key man life insurance policies of $11 million and $7 million on
its Chairman and Vice-Chairman, respectively, and policies ranging from $150,000
to $4 million on certain other key executives.
9. COMMITMENTS
Leases
The Company conducts operations from leased office facilities. Management
expects that, in the normal course of business, leases that expire will be
renewed or replaced by other leases; thus it is anticipated that future minimum
lease commitments will not be less than the amount shown for the year ended
December 31, 1997.
Rental expense for the years ended December 31, 1995, 1996, and 1997 was
$442,266, $476,750, and $476,033, respectively, and $108,466 and $188,607 for
the three months ended March 31, 1997 and 1998 (unaudited), respectively.
At December 31, 1997, approximate minimum rental commitments under all
non-cancelable leases having terms in excess of a year are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 451,806
1999........................................................ 445,787
2000........................................................ 446,737
2001........................................................ 148,430
----------
$1,492,760
==========
</TABLE>
10. RELATED PARTY TRANSACTIONS
The Company had accounts receivable of $122,996, $603,118, and $469,729,
accounts payable of $1,893, $5,277, and $30,210 and accrued expenses of
$996,460, $2,621,523, and $1,366,437 to related parties at December 31, 1996,
1997, and at March 31, 1998 (unaudited), respectively.
The Company has entered into compensation and employment agreements with
certain key employees. The agreements provide for an indefinite employment term,
compensation, stock bonuses, expense reimbursements and participation in benefit
plans and are subject to the employees' compliance with certain provisions. In
addition an employee will be granted 52,500 shares of common stock if certain
conditions are met.
The Company and its Chairman are the parties to a certain agreement whereby
the Chairman markets on behalf of the Company life insurance and administrative
and consulting services. This agreement can be terminated by either party upon
90 days' written notice. The terms and conditions of this agreement are similar
in all material respects to the terms and conditions of such agreements with
other principal producers.
The Company has transactions with affiliated entities. The Company provides
services for affiliates and is reimbursed for these services at the Company's
respective costs.
F-15
<PAGE> 82
CLARK/BARDES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. JOINT VENTURE
During 1994, the Company entered into an agreement to jointly develop,
implement, distribute and market certain products for the corporate owned life
insurance market. All of the joint venture's net cash flow is distributed
quarterly, as provided in the agreement. Cumulative distributions by the joint
venture to the Company through December 31, 1997 exceed cumulative contributions
made by the Company. Accordingly, quarterly distributions received by the
Company have been recorded as other revenues in the accompanying statement of
operations in the amount of $22,178, $40,392, and $310,293 in 1995, 1996, and
1997, respectively, and $54,143 and $63,646 for the three months ended March 31,
1997 and 1998 (unaudited), respectively.
12. EARNINGS PER SHARE
The following table sets forth the computation of historical basic and
diluted earnings per share:
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------------
DECEMBER 31, MARCH 31,
------------------------------------ -------------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income................. $2,217,796 $3,553,985 $4,233,889 $ 200,307 $ 183,176
Effect of dilutive
securities:
Interest on convertible
debt (net of tax)....... -- -- 125,036 -- *
---------- ---------- ---------- ---------- ----------
Numerator for diluted
earnings per share......... $2,217,796 $3,553,985 $4,358,925 $ 200,307 $ 183,176
Denominator:
Denominator for basic
earnings per share --
weighted-average
shares.................. 5,727,607 4,709,252 4,119,387 4,350,443 3,222,010
Effect of dilutive
securities:
Stock options........... -- -- 4,299 26,528 --
Convertible debt........ -- -- 271,929 -- *
---------- ---------- ---------- ---------- ----------
Denominator for diluted
earnings per share --
adjusted
weighted-average shares
and assumed
conversions............. 5,727,607 4,709,252 4,395,615 4,376,971 3,222,010
========== ========== ========== ========== ==========
Basic earnings per
share................. $ 0.39 $ 0.75 $ 1.03 $ 0.05 $ 0.06
========== ========== ========== ========== ==========
Diluted earnings per
share................. $ 0.39 $ 0.75 $ 0.99 $ 0.05 $ 0.06
========== ========== ========== ========== ==========
</TABLE>
- ---------------
* The effects of debt conversion have not been included as such effects would be
antidilutive.
The weighted average shares presented gives retroactive effect to a reverse
stock split ( 1/2 share for 1 share) that occurred on , 1998. (See Note
15).
F-16
<PAGE> 83
CLARK/BARDES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the computation of pro forma basic and
diluted earnings per share (unaudited), giving effect to the S corporation to C
corporation conversion described in Note 15:
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
DECEMBER 31, MARCH 31,
1997 1998
------------ ----------
(UNAUDITED)
<S> <C> <C>
Numerator:
Numerator for basic earnings per share:
Net income -- historical.................................. $ 4,233,889 $ 183,176
Proforma adjustment:
Income tax expense -- C corporation....................... (1,700,000) (74,000)
----------- ----------
Numerator for pro forma basic earnings per share............ 2,533,889 109,176
Effect of dilutive securities:
Interest on convertible debt (net of tax)................. 125,036 *
----------- ----------
Numerator for pro forma diluted earnings per share.......... $ 2,658,925 $ 109,176
Denominator:
Denominator for basic earnings per share -- historical...... 4,119,387 3,222,010
Effect of dilutive securities:
Stock options............................................. 4,299 --
Convertible debt.......................................... 271,929 *
----------- ----------
Denominator for diluted earnings per share.................. 4,395,615 3,222,010
----------- ----------
Pro forma basic earnings per share.......................... $ .62 $ .03
=========== ==========
Pro forma diluted earnings per share........................ $ .60 $ .03
=========== ==========
</TABLE>
- ---------------
* The effects of debt conversion have not been included as such effects would be
antidilutive.
Pro forma earnings per share reflect net income as if the Company had been
a C corporation for the year ended December 31, 1997 and the three months ended
March 31, 1998 and income taxes have been computed on that basis. (See Note 15).
13. SIGNIFICANT RISKS AND UNCERTAINTIES
The United States Congress passed the Health Insurance Portability and
Accountability Act of 1996 (the "1996 Act"), which contained provisions on
interest deductions on loans under leveraged Corporate Owned Life Insurance
(COLI) policies. With limited exceptions under the 1996 Act, no deduction is
allowed for interest paid or accrued on any indebtedness with respect to COLI
policies. The major provisions of the 1996 Act include (a) grandfathering of
contracts issued prior to June 21, 1986 with an interest rate cap; (b) a key
person exemption with an interest rate cap; and (c) a three-year phase-out for
other leveraged COLI policies (those not within the pre-1986 or key person
exemptions) beginning in 1996. The Company receives a significant amount of
revenue from leveraged COLI policies. The Company projects that operations will
not be materially impacted in spite of the loss of leveraged COLI revenues,
because it has significantly diversified its products.
The Clinton Administration's 1999 budget proposal, issued in February 1998,
contains a provision that would subject all business-owned life insurance to the
interest disallowance rule by removing the employee exception. Although the
Company believes this to be an adverse market condition, it believes all of its
existing business would be fully grandfathered in the event the proposal moves
into the legislative process. The Company believes, at the very least, a key
person exemption would be included in future legislation.
F-17
<PAGE> 84
CLARK/BARDES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
14. INTERIM FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
----------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
----- ------ ------ ------ -----
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Summary of Quarterly Results:
Revenue.......................................... 1997 $ 5.5 $ 5.8 $ 11.0 $27.1 $49.4
1996 5.7 7.0 5.3 15.2 33.2
1995 5.6 4.8 3.4 13.2 27.0
Pre-tax income (loss)............................ 1997 0.2 (0.7) 0.7 4.1 4.3
1996 0.6 0.7 0.2 2.2 3.7
1995 0.5 0.0 (0.7) 2.5 2.3
Net income (loss)................................ 1997 0.2 (0.7) 0.7 4.0 4.2
1996 0.6 0.7 0.2 2.1 3.6
1995 0.5 0.0 (0.7) 2.4 2.2
Basic earnings (loss) per share (historical)..... 1997 0.05 (0.16) 0.20 0.94 1.03
1996 0.12 0.15 0.04 0.44 0.75
1995 0.10 0.00 (0.12) 0.42 0.39
Diluted earnings (loss) per share (historical)... 1997 0.05 (0.16) 0.19 0.81 0.99
1996 0.12 0.15 0.04 0.44 0.75
1995 0.10 0.00 (0.12) 0.42 0.39
</TABLE>
15. SUBSEQUENT EVENTS
Planned Initial Public Offering
On June , 1998, the Board of Directors authorized the registration of up
to shares of the Company's common stock to be offered in a planned
initial public offering of such stock. The proceeds from this offering are
expected to be used to a) pay all amounts due under the 8.5% Medium Term Notes,
b) to extinguish warrants under the 11% Second Priority Senior Secured Notes, c)
to consummate the pending acquisition (see below), d) to amend the Principal
Office Agreement with the Company's Chairman, and e) for general corporate
purposes, including working capital and possible future acquisitions.
Reorganization
In connection with the aforementioned planned Offering, the Company formed
Clark/Bardes Holdings, Inc. (CBH) and Clark/Bardes, both Delaware corporations,
in June 1998 to effect a reorganization. CBH was formed to be the holding
company of Clark/Bardes (the successor corporation to Clark/Bardes, Inc.). CBH,
Clark/Bardes and Clark/Bardes, Inc. (the Predecessor Company) entered into a
Reorganization Agreement which provides for, among other things, (i) a merger of
the Predecessor Company with and into Clark/Bardes with each stockholder of the
Predecessor Company (the "Existing Stockholders") receiving one-half of one
share of common stock for each share of Predecessor Company common stock held by
such Existing Stockholder, (ii) a restructuring of Clark/Bardes' 10.5% Senior
Secured Notes due August 2002 and 11.0% Second Priority Senior Secured Notes due
August 2004 (such notes are collectively referred to as the "Restructured
Notes"), (iii) the conversion of Clark/Bardes' 8.5% Convertible Subordinated
Notes due September 2007 into 813,559 shares of common stock of the Predecessor
Company common stock, (iv) an extinguishment by the Company of warrants
representing the right to purchase 1,525,424 shares of common stock of the
Predecessor Company, (v) a restructuring of a grant of the Predecessor Company's
common stock to the Company's Chief Executive Officer and President, (vi) an
amendment with respect to the amount of renewal revenue due to The Wamberg
Organization under the Principal Office Agreement between Clark/Bardes and its
Chairman, (vii) the incorporation of a Texas entity formed for the purpose of
marketing certain insurance products within the state of Texas, and (viii) the
termination of certain agreements.
F-18
<PAGE> 85
CLARK/BARDES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Termination of S Corporation Status and Stockholder Distribution
Upon the consummation of the Reorganization described above, the Company
will cease to be taxed as an S corporation and will become subject to federal
and state income taxation as a C corporation. As an S corporation, the Company's
income, whether or not distributed, was taxed at the stockholder level for
federal and certain state tax purposes. At the effective date of change in tax
status, the Company will record deferred taxes on its balance sheet for the
difference between the tax bases and book bases of its assets and liabilities.
If the Company's S corporation status had terminated as of December 31, 1997,
the amount of the deferred tax liability would have been approximately $1.2
million. Pro forma earnings per share (see Note 12) includes the effects of this
conversion. The Company and its existing stockholders also entered into a tax
indemnification agreement.
In connection with the termination of the Predecessor Company's S
corporation status, the board of directors of the Predecessor Company declared a
dividend to the stockholders of record on , 1998 in an amount equal to
approximately $3.2 million, or $1.00 per share (the "Stockholder Distribution
Amount"). The Stockholder Distribution Amount may be (i) decreased if the amount
of the Predecessor Company's "AAA Amount" is less than the Stockholder
Distribution Amount or (ii) increased if the Stockholder Distribution Amount is
less than 42.6% of the taxable income for the period beginning January 1, 1998
and ending on the date the Reorganization is consummated. The pro forma balance
sheet at March 31, 1998 reflects the declaration of this stockholder dividend
which is expected to be paid prior to the effectiveness of the Registration
Statement filed in connection with the planned public offering discussed above.
Stock Grant Restructuring
The Company's President and CEO has an agreement whereby he will be granted
52,500 shares of the Predecessor Company's common stock if he is employed as the
Company's CEO on July 1, 1998. As described above, in June 1998, this agreement
was amended to provide that if he is employed as CEO on July 1, 1998, he will
receive shares of common stock of CBH valued at $315,700 (estimated to be
approximately 52,500 shares), $234,000 in cash and a fully vested option to
purchase shares of CBH common stock exercisable at the initial public
offering price.
Pending Acquisition
On May 29, 1998, the Predecessor Company entered into a letter of intent to
acquire the business and substantially all of the assets of an unrelated party.
The purchase price of the pending acquisition is $17 million of which $1.5
million was paid as a refundable deposit and $15.5 is a payable in cash at the
closing. The consummation of the acquisition is subject to numerous conditions
including consummation of the aforementioned offering and obtaining regulatory
approvals, among others. The consummation of this pending acquisition must occur
on or prior to October 1, 1998.
F-19
<PAGE> 86
BANK COMPENSATION STRATEGIES GROUP
BALANCE SHEET
AUGUST 31, 1997
UNAUDITED
ASSETS
<TABLE>
<S> <C>
Current Assets
Cash...................................................... $1,630,651
Accounts receivable:
Commissions............................................ 773,608
Related parties........................................ 40,022
Prepaid expenses.......................................... 30,544
----------
2,474,825
Furniture and Fixtures, less accumulated depreciation of
$302,362.................................................. 189,325
----------
$2,664,150
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable.......................................... $ 368,369
Accrued expenses.......................................... 1,640,318
Amount payable under consulting agreement................. 361,598
Due to related parties.................................... 65,877
Earnest money deposit..................................... 500,000
----------
2,936,162
----------
Stockholders' Equity
Common stock, par value $0.01 per share; 1,000,000 shares
authorized; 10,000 shares issued and outstanding....... 100
Additional paid-in capital................................ 9,900
Accumulated deficit....................................... (282,012)
----------
(272,012)
----------
$2,664,150
==========
</TABLE>
F-20
<PAGE> 87
BANK COMPENSATION STRATEGIES GROUP
STATEMENT OF INCOME
EIGHT MONTHS ENDED AUGUST 31, 1997
UNAUDITED
<TABLE>
<S> <C>
Commissions earned.......................................... $12,808,974
Commissions expense......................................... 8,732,534
-----------
Net commission revenue.................................... 4,076,440
General and administrative expense.......................... 3,460,270
-----------
Operating income.......................................... 616,170
-----------
Nonoperating income:
Other income.............................................. 28,003
-----------
Net income........................................ $ 644,173
===========
</TABLE>
STATEMENT OF SHAREHOLDERS' EQUITY
EIGHT MONTHS ENDED AUGUST 31, 1997
UNAUDITED
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1996.................... 10,000 $100 $9,900 $ -- $ 10,000
Net income................................... -- -- -- 644,173 644,173
Distribution declared........................ -- -- -- (926,185) (926,185)
------ ---- ------ --------- ---------
Balance August 31, 1997...................... 10,000 $100 $9,900 $(282,012) $(272,012)
====== ==== ====== ========= =========
</TABLE>
F-21
<PAGE> 88
BANK COMPENSATION STRATEGIES GROUP
STATEMENT OF CASH FLOWS
EIGHT MONTHS ENDED AUGUST 31, 1997
UNAUDITED
<TABLE>
<S> <C>
Cash Flows From Operating Activities
Net income................................................ $ 644,173
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 48,824
Changes in operating assets and liabilities:
Decrease in commissions and related-party
receivable.......................................... 403,360
Increase in prepaid expenses......................... (12,125)
Increase in accounts payable and accrued expenses.... 1,318,490
-----------
Net cash provided by operating activities......... 2,402,722
-----------
Cash Flows From Investing Activities
Purchases of furniture and fixtures....................... (106,315)
-----------
Net cash (used in) investing activities........... (106,315)
-----------
Cash Flows From Financing Activities
Principal payments on notes payable....................... (461,687)
Distributions paid to stockholders........................ (926,185)
-----------
Net cash used in financing activities............. (1,387,872)
-----------
Increase in cash and cash equivalents............. 908,535
Cash and Cash Equivalents
Beginning................................................. 722,116
-----------
Ending.................................................... $ 1,630,651
===========
</TABLE>
F-22
<PAGE> 89
BANK COMPENSATION STRATEGIES GROUP
FOOTNOTE TO UNAUDITED FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1997
The financial statements as of August 31, 1997 and for the eight months
then ended have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position as of August 31, 1997 and the
results of operations and cash flows for the eight months ended August 31, 1997
have been made. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or eliminated.
The results of operations for the eight months ended August 31, 1997 are
not necessarily indicative of the results to be expected for any future interim
period or for the year ending December 31, 1997.
F-23
<PAGE> 90
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Bank Compensation Strategies Group
Bloomington, Minnesota
We have audited the accompanying balance sheets of Bank Compensation
Strategies Group as of December 31, 1996 and 1995, and the related statements of
income, stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bank Compensation Strategies
Group as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
McGLADREY & PULLEN, LLP
St. Paul, Minnesota
February 18, 1997
F-24
<PAGE> 91
BANK COMPENSATION STRATEGIES GROUP
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current Assets
Cash and cash equivalents (Note 3)........................ $ 722,114 $ 165,195
Accounts receivable:
Commissions............................................ 1,324,431 694,605
Related parties (Note 4)............................... 3,002 68,964
Prepaid expenses.......................................... 18,419 8,047
---------- ----------
2,067,966 936,811
Furniture and Fixtures, less accumulated depreciation
1996 -- $253,836; 1995 -- $197,474........................ 131,837 114,253
---------- ----------
$2,199,803 $1,051,064
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to stockholders (Note 2).................... $ 461,687 $ 279,599
Accounts payable.......................................... 488,134 222,931
Accrued expenses:
Compensation........................................... 956,452 309,695
Other.................................................. 190,365 105,599
Due to related parties (Note 4)........................... 93,165 123,240
---------- ----------
$2,189,803 $1,041,064
---------- ----------
Commitments, Contingencies, and Credit Risk (Notes 3, 5, and
6)
Stockholders' Equity (Notes 5 and 6)
Common stock. par value $0.01 per share; 1,000,000 shares
authorized; 10,000 shares issued and outstanding.......... 100 100
Additional paid-in capital................................ 9,900 9,900
---------- ----------
10,000 10,000
---------- ----------
$2,199,803 $1,051,064
========== ==========
</TABLE>
See Notes to Financial Statements.
F-25
<PAGE> 92
BANK COMPENSATION STRATEGIES GROUP
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Commissions earned (Note 3)................................. $15,248,629 $11,293,822
Commissions expense......................................... 10,183,581 7,107,506
----------- -----------
Net commission revenue.................................... 5,065,048 4,186,316
General and administrative expense (Notes 4 and 5).......... 3,535,573 2,897,264
----------- -----------
Operating income.......................................... 1,529,475 1,289,052
Nonoperating income (expense):
Interest income........................................... 29,567 22,372
Interest expense.......................................... -- (4,688)
Other expense, net........................................ (2,119) (2,137)
----------- -----------
Net income........................................ $ 1,556,923 $ 1,304,599
=========== ===========
</TABLE>
See Notes to Financial Statements.
F-26
<PAGE> 93
BANK COMPENSATION STRATEGIES GROUP
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1994............... 10,000 $100 $9,900 $ -- $ 10,000
Net income............................ -- -- -- 1,304,599 1,304,599
Distributions declared................ -- -- -- (1,304,599) (1,304,599)
------ ---- ------ ----------- -----------
Balance, December 31, 1995.............. 10,000 100 9,900 -- 10,000
Net income............................ -- -- -- 1,556,923 1,556,923
Distributions declared................ -- -- -- (1,556,923) (1,556,923)
------ ---- ------ ----------- -----------
Balance December 31, 1996............... 10,000 $100 $9,900 $ -- $ 10,000
====== ==== ====== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-27
<PAGE> 94
BANK COMPENSATION STRATEGIES GROUP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities
Net Income................................................ $ 1,556,923 $ 1,304,599
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 56,362 49,957
Changes in operating assets and liabilities:
Increase in commissions and related-party
receivable.......................................... (563,864) (259,018)
Increase in prepaid expenses......................... (10,372) (4,641)
Increase in accounts payable and accrued expenses.... 996,726 40,766
Increase (decrease) in due to related parties........ (30,075) 19,306
Decrease in deferred compensation.................... -- (69,678)
----------- -----------
Net cash provided by operating activities......... 2,005,700 1,081,291
----------- -----------
Cash Flows From Investing Activities
Purchases of furniture and fixtures....................... (73,946) (62,565)
Decrease in cash value of life insurance.................. -- 63,661
----------- -----------
Net cash provided by (used in) investing
activities...................................... (73,946) 1,096
----------- -----------
Cash Flows From Financing Activities
Principal payments on notes payable....................... (279,599) (468,474)
Distributions paid to stockholders........................ (1,095,236) (1,025,000)
----------- -----------
Net cash used in financing activities............. (1,374,835) (1,493,474)
----------- -----------
Increase (decrease) in cash and cash
equivalents..................................... 556,919 (411,087)
Cash and Cash Equivalents
Beginning................................................. 165,195 576,282
----------- -----------
Ending.................................................... $ 722,114 $ 165,195
=========== ===========
Supplemental Schedule of Noncash Financing Activities
Distributions to stockholders in the form of notes payable
(Note 2)............................................... $ 461,687 $ 279,599
=========== ===========
</TABLE>
See Notes to Financial Statements.
F-28
<PAGE> 95
BANK COMPENSATION STRATEGIES GROUP
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: Bank Compensation Strategies Group (Company) is engaged
in the business of designing and marketing insurance-funded executive
compensation plans in the banking industry. The Company also provides
administrative support for those plans once in place.
Basis of financial statement presentation and accounting estimates: The
financial statements have been prepared in conformity with generally accepted
accounting principles. In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ from those estimates.
Fair value of financial instruments: The book value of cash, accounts
receivable, accounts payable, and other financial instruments approximate their
fair value principally because of the short-term nature of these instruments.
The carrying value of the Company's Notes payable would not differ significantly
from its fair value.
Cash, cash equivalents, and cash flows: For purposes of reporting cash
flows, cash and cash equivalents includes cash on hand and in banks and money
market funds.
Depreciation: Depreciation is provided using the straight-line method over
two to five years.
Income tax status: The Company, with the consent of its stockholders, has
elected to be taxed under sections of the federal and state income tax laws (S
Corporation), which provide that, in lieu of corporation income taxes, the
stockholders separately account for their pro rata shares of the Company's
income, deductions, losses, and credits. Therefore, these statements do not
include any provision for corporate income taxes.
Commissions: Commissions on new compensation plans are recognized as
revenue upon successful completion of the individual plans. This generally
occurs when the banking organization implementing the plan transfers funds to
the insurance company for the purchase of a life insurance contract. Revenue is
recognized on plan renewals on the anniversary dates of the life insurance
contract. The Company is only required to recognize a liability upon the
cancellation of an insurance contract if it occurs within the first year of the
contract.
Salary reduction 401(k) plan: The Company sponsors a 401(k) plan which
covers substantially all the employees who are eligible as to age and length of
service. A participant may elect to make contributions of up to 5 percent of the
participant's annual compensation. The Company makes matching contributions of
25 percent of each participant's contribution. The participants may elect to
make additional contributions up to 10 percent of their annual compensation
without matching contributions by the Company.
Distributions: Because of its S Corporation election, the liability for
federal and state taxes on the Company's income rests with its stockholders. The
Company has in the past and intends in the future to make distributions to fund
the stockholders' income tax obligations applicable to the aforementioned
federal and state taxes.
2. NOTES PAYABLE TO STOCKHOLDERS
The Company has noninterest-bearing unsecured notes payable to stockholders
of $461,687 and $279,599 at December 31, 1996 and 1995, respectively.
F-29
<PAGE> 96
BANK COMPENSATION STRATEGIES GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. COMMITMENTS, CONTINGENCIES, AND CREDIT RISK
Lease commitments: The Company leases its facility under a noncancelable
four-year operating lease which is personally guaranteed by the majority
stockholder. Included in the minimum lease payments is the Company's pro rata
share of estimated real estate taxes and operating expenses, which are subject
to change each year based on the actual amount of these expenses. Future minimum
rental payments on the lease are as follows:
<TABLE>
<S> <C>
Years ending December 31:
1997...................................................... $157,500
1998...................................................... 65,600
--------
$223,100
========
</TABLE>
Rent expense for the years ended December 31, 1996 and 1995 approximated
$133,000 and $121,000. respectively.
Financial instruments with concentrations of credit risk:
Concentration over insured limits: The nature of the Company's business
requires that it maintain amounts due from banks which, at times, may exceed
federally insured limits. The Company has not experienced any losses in such
accounts.
The executive compensation plans sold by the Company are underwritten
primarily by five insurance companies. Substantially all of the commission
revenues earned and receivables due are from these companies.
4. RELATED-PARTY TRANSACTIONS
The Company has various transactions with stockholders and LHH & Co.
throughout the year. LHH & Co. is related through common ownership. These
transactions include payments for sales representative bonuses, consulting fees,
and employee compensation.
Amounts due to and from related parties at December 31, 1996, are
summarized as follows:
<TABLE>
<CAPTION>
DUE FROM DUE TO
-------- -------
<S> <C> <C>
LHH & Co.................................................... $3,002 $
Stockholders................................................ -- 93,165
------ -------
$3,002 $93,165
====== =======
</TABLE>
Payments to LHH & Co. for consulting fees amounted to $36,000 in both 1996
and 1995.
5. INCOME AND APPRECIATION RIGHTS AGREEMENT AND STOCK PURCHASE AGREEMENT
In 1991, the Company entered into an agreement with an individual which
granted certain income and appreciation rights to this individual in exchange
for his continued service to the Company. This agreement is cancelable by either
party at any time. The income and appreciation rights for this individual became
vested as of January 1, 1996, and expense of $77,848. attributable to 1996, was
recorded.
F-30
<PAGE> 97
BANK COMPENSATION STRATEGIES GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCK OPTION AGREEMENT
On January 1, 1994, a 12-year stock option agreement was entered into
between the Company, its majority stockholders, and one of its minority
stockholders. This agreement requires the Company to pay a bonus of 50 percent
of its earnings in excess of $750,000 a year to a minority stockholder
(purchasing stockholder) in exchange for services to the Company. In 1996 and
1995, the purchasing stockholder waived this provision in the agreement in
exchange for an adjusted purchase price on the acquisition of stock from the
majority stockholder (the selling stockholder). In addition, the terms of the
agreement provide that in the event the purchasing stockholder desires to sell
his shares, the selling stockholder has the right of first refusal but is not
required to purchase the shares.
F-31
<PAGE> 98
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 1
Risk Factors........................... 7
The Reorganization..................... 14
Pending Acquisition.................... 15
Use of Proceeds........................ 16
Dividend Policy........................ 16
Dilution............................... 16
Capitalization......................... 18
Selected Historical and Pro Forma
Financial Information................ 19
Unaudited Pro Forma Financial
Information.......................... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 24
Business............................... 33
Management............................. 43
Principal Stockholders................. 50
Certain Relationships and Related
Transactions......................... 51
Description of Capital Stock........... 52
Shares Eligible for Future Sale........ 55
Underwriting........................... 56
Legal Matters.......................... 57
Experts................................ 57
Available Information.................. 58
Glossary............................... 59
Financial Statements................... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS 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.
======================================================
======================================================
SHARES
CLARK BARDES LOGO
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
BEAR, STEARNS & CO. INC.
PIPER JAFFRAY INC.
CONNING & COMPANY
, 1998
======================================================
<PAGE> 99
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and distribution of
the securities being registered, other than underwriting discounts and
commissions are set forth in the following table. The Company will pay all
expenses of issuance and distribution. Each amount, except for the SEC, NYSE and
NASD fees, is estimated.
<TABLE>
<S> <C>
SEC registration fees....................................... $16,962
NASD filing fees............................................ $ 6,250
New York Stock Exchange application and listing fees........ $ *
Transfer agent's and registrar's fees and expenses.......... $ *
Printing and engraving expenses............................. $ *
Legal fees and expenses..................................... $ *
Accounting fees and expenses................................ $ *
Blue sky fees and expenses.................................. $ *
Miscellaneous............................................... $ *
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
CBH's Certificate of Incorporation provides that CBH shall, to the fullest
extent permitted by Section 145 of the DGCL, as amended from time to time,
indemnify all persons whom it may indemnify pursuant thereto.
Section 145 of the DGCL permits a corporation, under specified
circumstances, to indemnify its directors, officers, employees or agents against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by third parties by reason of the fact that
they were or are directors, officers, employees or agents of the corporation, if
such directors, officers, employees or agents acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reason to believe their conduct was unlawful. In a derivative action, i.e., one
by or in the right of the corporation, indemnification may be made only for
expenses actually and reasonably incurred by directors, officers, employees or
agents in connection with the defense or settlement of an action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant directors, officers, employees or
agents are fairly and reasonably entitled to indemnity for such expenses despite
such adjudication of liability.
CBH's Bylaws provide for indemnification by CBH of its directors, officers
and certain non-officer employees under certain circumstances against expenses
(including attorneys fees, judgments, fines and amounts paid in settlement)
reasonably incurred in connection with the defense or settlement of any
threatened, pending or completed legal proceeding in which any such person is
involved by reason of the fact that such person is or was an officer or employee
of CBH if such person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of CBH, and, with respect
to criminal actions or proceedings, if such person had no reasonable cause to
believe his or her conduct was unlawful. CBH's Certificate of Incorporation also
provides that, to the fullest extent permitted by the DGCL, no
II-1
<PAGE> 100
director shall be personally liable to CBH or its stockholders for monetary
damages resulting from breaches of their fiduciary duty as directors.
Expenses for the defense of any action for which indemnification may be
available may be advanced by CBH under certain circumstances. The general effect
of the foregoing provisions may be to reduce the circumstances which an officer
or director may be required to bear the economic burden of the foregoing
liabilities and expenses. CBH's directors and officers will be covered by
liability insurance indemnifying them against damages arising out of certain
kinds of claims which might be made against them based on their negligent acts
or omissions while acting in their capacity as such.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1995, the Predecessor Company issued and sold the following
unregistered securities:
(1) On November 17, 1997, the Predecessor Company issued 1.1 million
shares of Common Stock for $ . This issuance was exempt from
registration under Section 4(2) of the Securities Act.
(2) [OPTION GRANTS] On , the Predecessor Company
granted options to purchase an aggregate of 381,659 shares of Common Stock
to employees and officers of the Company under its Stock Option Plan.
Options to purchase 81,659 and 300,000 shares of Common Stock were granted
at an exercise price of $2.40 per share and $3.50 per share respectively.
These issuance were exempt from registration under Section 4(2) of, and
Rule 701 promulgated under, the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
*1.1 -- Form of Underwriting Agreement.
*2.1 -- Reorganization Agreement
2.2 -- Letter of Intent, dated May 29, 1998, from Clark/Bardes,
Inc. and the Schoenke Companies.
2.3 -- Asset Purchase Agreement, dated September 5, 1997, among
Clark/Bardes, Inc., Bank Compensation Strategies, Inc.
et.al.
3.1 -- Certificate of Incorporation of CBH.
3.2 -- Bylaws of CBH.
*4.1 -- Specimen Certificate for shares of Common Stock of the
Company.
*5 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
10.1 -- Clark/Bardes Holdings, Inc. Stock Option Agreement
10.2 -- Administration and Services Agreement, by and between
Clark/Bardes, Inc. and Clark/Bardes Agency of Ohio, Inc.
10.3 -- Administration and Services Agreement, by and between
Clark/Bardes, Inc. and Clark/Bardes Securities, Inc.
10.4 -- Administration and Services Agreement, by and between
Clark/Bardes, Inc. and Clark/Bardes, Inc. of Pennsylvania
10.5 -- Principal Office Agreement, dated July 29, 1993, by and
between W.T. Wamberg and Clark/Bardes, Inc.
10.6 -- Buy-Sell Agreement for Clark/Bardes Agency of Ohio, Inc.,
dated April 1996, by and between Clark/Bardes Securities,
Inc., Clark/Bardes Agency of Ohio, Inc. and Robert
Kelleher.
</TABLE>
II-2
<PAGE> 101
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
10.7 -- Note and Warrant Purchase Agreement, dated September 8,
1997, by and between Clark/Bardes, Inc. and Great-West,
AEGON and Nationwide.
10.8 -- Note Agreement, dated September 8, 1997, by and between
Clark/Bardes, Inc., Great-West, AEGON and Nationwide.
10.9 -- Form of Common Stock Purchase Warrant, dated September 8,
1997
10.10 -- Form of 11.00% Secured Priority Senior Secured Note Due
August 2004.
10.11 -- Form of 10.50% Senior Secured Note Due August 2004.
10.12 -- Convertible Subordinated Note, dated September 1997
10.13 -- Medium Term Note, dated September 1997
10.14 -- Stock Purchase Agreement, dated August 22, 1997, by and
among Clark/Bardes, Inc., Malcolm N. Briggs, Stephen J.
Cochlan, G.F. Pendleton, and Don R. Teasley
10.15 -- Stock Purchase Agreement, dated August 1997, by and among
Clark/Bardes, Inc. and Henry J. Smith.
10.16 -- Lease Agreement, dated April 24, 1998, by and between
Northland Center Limited Partnership and Clark/Bardes,
Inc.
10.17 -- Lease Agreement, dated December 30, 1994, by and between
C-W#5, Ltd. and Clark/Bardes, Inc.
10.18 -- Clark/Bardes, Inc. Stock Option Plan
16 -- Letter regarding Change in Certifying Accountant.
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Lane Gorman Trubitt, L.L.P.
23.3 -- Consent of McGladrey & Pullen, LLP
*23.4 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in its opinion filed as Exhibit 5 hereto).
24 -- Power of Attorney (included on signature page of the
Registration Statement as initially filed).
27 -- Financial Information Schedule (included in SEC-filed
copy only).
</TABLE>
- ---------------
* To be filed by amendment
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to Item 14 herein, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 102
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery to each purchaser.
II-4
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on June , 1998.
CLARK/BARDES ORGANIZATION, INC.
By: /s/ MELVIN G. TODD
----------------------------------
Melvin G. Todd, President and
Chief Executive Officer
POWER OF ATTORNEY
The undersigned directors and officers of Clark Bardes hereby constitute
and appoint Melvin G. Todd and Thomas M. Pyra, with full power to act and with
full power of substitution and resubstitution, our true and lawful
attorney-in-fact and agent with full power to execute in our name and behalf in
the capacities indicated below any and all amendments (including post-effective
amendments and amendments thereto) to this Registration Statement and to file
the same, with all exhibits and other documents relating thereto and any
registration statement relating to any offering made pursuant to this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act with the Securities and Exchange Commission and
hereby ratify and confirm all that such attorney-in-fact or his substitute shall
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act this Registration
Statement has been signed by the following persons in the capacities indicated
on June , 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ W. T. WAMBERG Chairman of the Board and Director
- -----------------------------------------------------
W. T. Wamberg
/s/ MELVIN G. TODD President, Chief Executive Officer
- ----------------------------------------------------- (principal executive officer)
Melvin G. Todd and Director
/s/ THOMAS M. PYRA Chief Financial Officer
- ----------------------------------------------------- (principal Accounting officer)
Thomas M. Pyra
/s/ LAWRENCE H. HENDRICKSON Director
- -----------------------------------------------------
Lawrence H. Hendrickson
Director
- -----------------------------------------------------
Randolph Pohlman
Director
- -----------------------------------------------------
L. William Seidman
</TABLE>
II-5
<PAGE> 104
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
*1.1 -- Form of Underwriting Agreement.
*2.1 -- Reorganization Agreement
2.2 -- Letter of Intent, dated May 29, 1998, from Clark/Bardes,
Inc. and the Schoenke Companies.
2.3 -- Asset Purchase Agreement, dated September 5, 1997, among
Clark/Bardes, Inc., Bank Compensation Strategies, Inc.,
et. al.
3.1 -- Certificate of Incorporation of CBH.
3.2 -- Bylaws of CBH.
*4.1 -- Specimen Certificate for shares of Common Stock of the
Company.
*5 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
10.1 -- Clark/Bardes Holdings, Inc. Stock Option Agreement
10.2 -- Administration and Services Agreement, by and between
Clark/Bardes, Inc. and Clark/Bardes Agency of Ohio, Inc.
10.3 -- Administration and Services Agreement, by and between
Clark/Bardes, Inc. and Clark/Bardes Securities, Inc.
10.4 -- Administration and Services Agreement, by and between
Clark/Bardes, Inc. and Clark/Bardes, Inc. of Pennsylvania
10.5 -- Principal Office Agreement, dated July 29, 1993, by and
between W.T. Wamberg and Clark/Bardes, Inc.
10.6 -- Buy-Sell Agreement for Clark/Bardes Agency of Ohio, Inc.,
dated April 1996, by and between Clark/Bardes Securities,
Inc., Clark/Bardes Agency of Ohio, Inc. and Robert
Kelleher.
10.7 -- Note and Warrant Purchase Agreement, dated September 8,
1997, by and between Clark/Bardes, Inc. and Great-West,
AEGON and Nationwide.
10.8 -- Note Agreement, dated September 8, 1997, by and between
Clark/Bardes, Inc., Great-West, AEGON and Nationwide.
10.9 -- Form of Common Stock Purchase Warrant, dated September 8,
1997
10.10 -- Form of 11.00% Secured Priority Senior Secured Note Due
August 2004.
10.11 -- Form of 10.50% Senior Secured Note Due August 2004.
10.12 -- Convertible Subordinated Note, dated September 1997
10.13 -- Medium Term Note, dated September 1997
10.14 -- Stock Purchase Agreement, dated August 22, 1997, by and
among Clark/Bardes, Inc., Malcolm N. Briggs, Stephen J.
Cochlan, G.F. Pendleton, and Don R. Teasley
10.15 -- Stock Purchase Agreement, dated August 1997, by and among
Clark/Bardes, Inc. and Henry J. Smith.
10.16 -- Lease Agreement, dated April 24, 1998, by and between
Northland Center Limited Partnership and Clark/Bardes,
Inc.
10.17 -- Lease Agreement, dated December 30, 1994, by and between
C-W#5, Ltd., and Clark/Bardes, Inc.
10.18 -- Letter of Agreement to Purchase Warrants, dated June 11,
1998 to Nationwide
10.19 -- Letter of Agreement to Purchase Warrants, dated June 11,
to AEGON
</TABLE>
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
------- --------
<C> <S>
10.20 -- Letter of Agreement to Purchase Warrants, dated June 11,
1998 to Great-West
16 -- Letter regarding Change in Certifying Accountant.
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Lane Gorman Trubitt, L.L.P.
23.3 -- Consent of McGladrey & Pullen, LLP
*23.4 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in its opinion filed as Exhibit 5 hereto).
24 -- Power of Attorney (included on signature page of the
Registration Statement as initially filed).
Registration Statement as initially filed).
27 -- Financial Information Schedule (included in SEC-filed
copy only).
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 2.2
May 29, 1998
Raymond F. Schoenke, Jr.
Schoenke & Associates Corporation
Schoenke & Associates Securities Corporation
Schoenke & Associates of Hawaii, L.P.
20250 Century Blvd., 4th Floor
Germantown, Maryland 20874
Gentlemen:
This letter is to confirm our recent discussions with respect to the proposed
acquisition by Clark/Bardes, Inc. or its affiliates or assigns ("CBI"), of
certain assets as described in the attached Term Sheet (collectively, the
"Purchased Assets") of Schoenke & Associates Corporation ("SAC"), Schoenke &
Associates Securities Corporation ("SAS") and Schoenke & Associates of Hawaii,
L.P. ("SAH") (SAC, SAS and SAH shall collectively be referred to as the
"Companies"), on the terms and conditions set forth in this letter and in the
Term Sheet attached hereto and made a part hereof (the "Acquisition"). CBI and
the Companies are collectively referred to herein as the "Parties".
The Parties wish to commence negotiating a definitive written acquisition
agreement providing for the Acquisition (a "Definitive Agreement"). The
execution of any such Definitive Agreement would be subject to the satisfactory
completion of CBI's ongoing investigation of the Companies' businesses, would
be subject to the approval by CBI's lenders and the successful completion of
the renegotiation of certain loan terms with such lenders, would be subject to
CBI's successful completion of an initial public offering, would be subject to
approval by CBI's Board of Directors, would be subject to CBI's financing of
the Acquisition and would be subject to any other conditions referred to in the
attached Term Sheet.
The Parties agree to the following provisions which shall be binding agreements
whether or not a Definitive Agreement is entered into or the Acquisition is
consummated:
A. Confidentiality Agreement
The Confidentiality Agreement dated April 16, 1998 executed by CBI and accepted
and agreed to by the Companies on April 21, 1998, remains in full force and
effect and shall expire two years from the date hereof. The parties hereto
further agree that the Companies, CBI, and Raymond F. Schoenke, Jr. (the
"Principal") will not, and, as applicable, will direct their directors,
officers, employees, affiliates and advisors not to, disclose to any person the
terms of this transaction except as necessary to implement and conclude the
transactions contemplated hereby.
<PAGE> 2
May 29, 1998
Page 2
B. Exclusive Dealing
(i) Unless negotiations among CBI, the Companies and the Principal are
terminated (it being understood that the Companies and the Principal will
not unilaterally terminate negotiations as long as CBI is proceeding
expeditiously in good faith), the Companies, their officers and directors,
and the Principal shall not, directly or indirectly, through any
representative or otherwise, solicit or entertain offers from, negotiate
with or in any manner encourage, discuss, accept, or consider any proposal
from any other person relating to the Acquisition or the sale of the
ownership interest in the Companies, in whole or in part, through purchase,
merger, consolidation or otherwise.
(ii) The Principal and Companies will immediately notify CBI regarding any
contact between the Principal, any of the Companies or their respective
representatives and any other person regarding any such offer or proposal
or any related inquiry.
C. Due Diligence
From and after the execution of this letter, the Companies and the Principal
shall afford to CBI and its accountants, counsel and other representatives
reasonable access to the Companies and shall furnish to CBI all information
concerning the business, assets and properties of the Companies for the purpose
of making such review and examination.
D. Expenses
Each party shall bear its own costs and expenses (including all legal,
accounting, investment banking and other costs) with respect to this
transaction, whether the transaction is consummated or not, and the Definitive
Agreement shall so provide.
E. Conduct of Business
During the period from the date hereof through the closing of the transaction,
the Companies agree and the Principal shall cause the Companies to operate
their business solely in the ordinary and normal course.
F. Counterparts
This letter may be executed in one or more counterparts, each of which will be
deemed to be an original copy of this letter and all of which, when taken
together, will be deemed to constitute one and the same agreement.
<PAGE> 3
May 29, 1998
Page 3
G. Deposit
The parties have agreed that CBI will deposit with the Companies the sum of One
Million Five Hundred Thousand Dollars ($1,500,000) (the "Deposit") as a good
faith deposit. The Companies shall repay the Deposit to CBI if the Acquisition
has not been consummated on or before October 1, 1998 in accordance with the
attached Term Sheet, such Deposit to be repaid upon the earlier of (i) October
1, 1998 or (ii) such date that the parties acknowledge that the Acquisition
will not be consummated prior to October 1, 1998. The Companies' obligation to
repay the Deposit to CBI shall be secured pursuant to that certain Security
Agreement dated the date hereof among the Companies and CBI.
The Parties shall proceed immediately and in good faith to complete the
contemplated transaction. Although CBI represents to the Companies and the
Companies represent to CBI that each such party intends in good faith to carry
out the contemplated transaction, if no transaction occurs on or before October
1, 1998, or such other mutually agreed upon date, this letter and the Term
Sheet shall be of no further force and effect, except that the provisions of
Paragraphs A, D and G of this letter, and the related provisions of the Term
Sheet, shall remain in full force and effect.
If you are in agreement with the foregoing, please sign and return one copy of
this letter, which thereupon will constitute our agreement with respect to its
subject matter.
Very truly yours,
CLARK/BARDES, INC.
By:
----------------------------
W.T. Wamberg
Chairman of the Board
AGREED AND ACCEPTED THIS
29th DAY OF MAY, 1998
SCHOENKE & ASSOCIATES CORPORATION
By: /s/ RAYMOND F. SCHOENKE, JR.
----------------------------
Its: Chairman of the Board
Raymond F. Schoenke, Jr.
<PAGE> 4
May 29, 1998
Page 4
SCHOENKE & ASSOCIATES SECURITIES CORPORATION
By: /s/ RAYMOND F. SCHOENKE, JR.
-------------------------------
Its: Chairman of the Board
------------------------------
SCHOENKE & ASSOCIATES OF HAWAII, L.P.
By: /s/ RAYMOND F. SCHOENKE, JR.
-------------------------------
Its: Chairman of the Board
------------------------------
The undersigned is the owner of not less than 100% of the issued and outstanding
voting shares or other voting ownership interests of the Companies and agrees to
this letter and further agrees to proceed in good faith toward the consummation
of the Acquisition upon the above terms and conditions.
Date: May 29, 1998 By: /s/ RAYMOND F. SCHOENKE, JR.
---------------------------- --------------------------------
Raymond F. Schoenke, Jr.
<PAGE> 1
EXHIBIT 2.3
ASSET PURCHASE AGREEMENT
AMONG
CLARK/BARDES, INC.,
BANK COMPENSATION STRATEGIES, INC.
AND
CERTAIN INDIVIDUALS
SEPTEMBER 5, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
1. Definitions.....................................................................................1
2. Purchase and Sale of Assets.....................................................................6
(a) Basic Transaction.............................................................6
(i) Purchased Assets.............................................6
(ii) Excluded Assets..............................................9
(iii) Assumption of Liabilities...................................10
(iv) Retained Liabilities........................................11
(b) Purchase Price.......................................................13
(c) Payment of the Purchase Price................................................13
(d) Procedures for Final Determination of Seller's Net Assets....................13
(e) Seller's Net Assets Definition...............................................14
(f) Allocation of Purchase Price.................................................14
(g) The Closing..................................................................15
(h) Deliveries at the Closing....................................................15
(i) Legend on Medium Term Notes and Convertible Notes............................15
3. Representations and Warranties Concerning the Transaction......................................15
(a) Representations and Warranties of the Seller.................................15
(i) Authorization of Transaction................................16
(ii) Noncontravention............................................16
(iii) Brokers' Fees...............................................16
(iv) Investment Undertakings of Seller and the
Shareholders. ..............................................16
(b) Representations and Warranties of the Buyer..................................17
(i) Organization of the Buyer...................................18
(ii) Authorization of Transaction................................18
(iii) Noncontravention............................................18
(iv) Brokers' Fees...............................................18
4. Representations and Warranties Concerning the Seller...........................................18
(a) Organization, Qualification, and Corporate Power.............................19
(b) Title to Assets..............................................................19
(c) Subsidiaries; Other Interests................................................20
(d) Financial Statements.........................................................20
(e) Events Subsequent to Most Recent Fiscal Year End.............................20
(f) Undisclosed Liabilities......................................................22
(g) Legal Compliance.............................................................22
(h) Tax Matters..................................................................23
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
(i) Real Property................................................................24
(j) Intellectual Property........................................................25
(k) Tangible Assets..............................................................28
(l) Contracts....................................................................28
(m) Notes and Accounts Receivable................................................30
(n) Powers of Attorney...........................................................30
(o) Insurance....................................................................30
(p) Litigation...................................................................30
(q) Employees....................................................................31
(r) Employee Benefits............................................................31
(s) Guaranties...................................................................33
(t) Environment, Health, and Safety..............................................33
(u) Certain Business Relationships with the Seller...............................33
(v) Sales Representatives........................................................33
(w) Disclosure. ................................................................33
5. Representations and Warranties Concerning the Buyer............................................34
(a) Organization, Qualification, and Corporate Power.............................34
(b) Financial Statements.........................................................34
(c) Events Subsequent to Buyer's Most Recent Fiscal Year End.....................35
(d) Undisclosed Liabilities......................................................35
(e) Legal Compliance.............................................................35
(f) Litigation...................................................................36
(g) Capitalization...............................................................36
(h) Disclosure...................................................................36
6. Pre-Closing Covenants..........................................................................37
(a) General......................................................................37
(b) Notices and Consents.........................................................37
(c) Name Change; Operation of Business...........................................37
(d) Preservation of Business.....................................................37
(e) Full Access..................................................................37
(f) Notice of Developments.......................................................38
(g) Exclusivity..................................................................38
(h) Confidentiality Agreement: October 17, 1996. ...............................38
7. Post-Closing Covenants.........................................................................38
(a) General. ...................................................................38
(b) Unassigned Insurance Contracts: Other Unassigned
Contracts....................................................................39
(c) Other Receipts...............................................................40
(d) Transition...................................................................40
(e) Confidentiality..............................................................40
(f) Covenant Not to Compete; Non-Solicitation....................................41
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
(g) Board of Directors...........................................................42
8. Conditions to Obligation to Close..............................................................42
(a) Conditions to Obligation of the Buyer........................................42
(b) Conditions to Obligation of the Seller.......................................44
9. Remedies for Breaches of This Agreement........................................................45
(a) Survival of Representations and Warranties...................................45
(b) Indemnification Provisions for Benefit of the Buyer..........................45
(c) Indemnification Provisions for Benefit of the Seller or the
Shareholders.................................................................46
(d) Matters Involving Third Parties..............................................46
(e) Determination of Adverse Consequences........................................47
(f) Limitations Upon Indemnification.............................................48
(g) Recoupment Under the Medium Term Note and
Convertible Note.............................................................48
(h) Exclusive Remedy. ..........................................................48
10. Termination....................................................................................49
(a) Termination of Agreement.....................................................49
(b) Effect of Termination........................................................49
11. Miscellaneous..................................................................................49
(a) Nature of Certain Obligations................................................49
(b) Press Releases and Public Announcements......................................50
(c) No Third-Party Beneficiaries.................................................50
(d) Entire Agreement.............................................................50
(e) Succession and Assignment....................................................50
(f) Counterparts.................................................................50
(g) Headings.....................................................................50
(h) Notices......................................................................50
(i) Governing Law................................................................52
(j) Amendments and Waivers.......................................................52
(k) Severability.................................................................52
(l) Expenses.....................................................................52
(m) Construction.................................................................52
(n) Incorporation of Exhibits, Annexes, and Disclosure
Schedules....................................................................53
(o) Specific Performance.........................................................53
</TABLE>
iii
<PAGE> 5
INDEX OF
EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
EXHIBITS
Exhibit A - Form of Buyer's Medium Term Promissory Note
Exhibit B - Form of Buyer's Convertible Promissory Note
Exhibit C - Sellers Most Recent Fiscal Year-End Balance Sheet
Exhibit D - Allocation of Purchase Price
Exhibit E - Financial Statements
Exhibit F - Opinion of Seller's Counsel
Exhibit G - Form of Employment Agreement
Exhibit H - Form of Seller and Shareholder Release
Exhibit I - Opinion of Buyer's Counsel
Exhibit J - Employment Agreements - Richard C. Chapman, James Meyer
</TABLE>
<TABLE>
<CAPTION>
SECTION NOS.
DISCLOSURE SCHEDULES
<S> <C>
Accounts Receivable Schedule.................................. 2(a)(i)(C)
Additional Assumed Liabilities Schedule....................... 2(a)(iii)(G)
Adjustment Schedule ................................... 2(e)
Bonus Schedule ................................... 2(a)(iii)(B)
Capitalization Schedule ................................... 5(g)
Contracts Schedule ................................... 2(a)(i)(I), 2(a)(iii)(C), 4(l)
Employee Benefit Plan Schedule...................................... 2(a)(iii)(E), 4(r)
Excluded Assets Schedule............................................ 2(a)(ii)(D)
Insurance License Schedule.......................................... 4(a)(ii)
Insurance Schedule ......................................... 2(a)(i)(H), 4(o)
Intellectual Property Schedule...................................... 2(a)(i)(B), 2(a)(i)(K),
2(a)(i)(N), 2(a)(i)(M),
4(j)(i), 4(j)(iii), 4(j)(iv)
Litigation Schedule ......................................... 4(p)
Long-Term Debt Schedule............................................. 2(a)(iii)(F)
Real Estate Schedule ......................................... 2(a)(i)(F), 2(a)(iii)(C), 4(l),
4(i)(ii)
Tangible Property Schedule.......................................... 2(a)(i)(G)
Tax Matters Schedule ......................................... 2(a)(iv)(F), 4(h)(iii), 6(c)
</TABLE>
iv
<PAGE> 6
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (this "Agreement") entered into as of
September 5, 1997, by and among Clark/Bardes, Inc., a Texas corporation (the
"Buyer"), Bank Compensation Strategies, Inc., a Minnesota corporation (the
"Seller"), and Lawrence H. Hendrickson, Richard C. Chapman and Walter Hilgenberg
(collectively, the "Shareholders"). The Buyer, the Seller and the Shareholders
are referred to collectively herein as the "Parties."
WHEREAS, the Seller is engaged in the business of marketing life
insurance policies, and related compensation, salary and benefit plans and
providing related services to financial institutions (the "Business"); and
WHEREAS, on the terms and subject to the conditions of this Agreement,
Buyer desires to acquire from the Seller, subject to certain related
liabilities, and the Seller desires to sell to Buyer, subject to Buyer assuming
certain related liabilities, substantially all of the assets, properties and
Business of the Seller as a going concern.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
1. Definitions.
"Additional Assumed Liabilities" has the meaning set forth in
Section 2(a)(iii).
"Adverse Change" means an adverse change in the business, financial
condition, operations, results of operations or future prospects of a party.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504(a).
"Applicable Rate" means the corporate base rate of interest publicly
announced from time to time by First Bank Minnesota, or its successors.
<PAGE> 7
"Assumed Liabilities" has the meaning set forth in Section 2(a)(iii).
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"Business" has the meaning set forth in the preface above.
"Buyer" has the meaning set forth in the preface above.
"Buyer Share" means any share of the Common Stock, no par value, of the
Buyer.
"Closing" has the meaning set forth in Section 2 below.
"Closing Balance Sheet" has the meaning set forth in Section 2(d)
below.
"Closing Date" has the meaning set forth in Section 2(g) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the
businesses and affairs of the Seller and the Buyer, as the context requires or
specifies, that is not already generally available to the public.
"Contracts" has the meaning set forth in Section 2(a).
"Convertible Notes" has the meaning set forth in Section 2(c)(ii).
"Disclosure Schedules" has the meaning set forth in Section 4 below.
"Employee Benefit Plan" means any employee benefit plan, within the
meaning of Section 3(3) of ERISA, which the Seller or any ERISA Affiliate
maintains or has ever maintained, contributes to or has ever contributed to, or
under which any current or former employee, officer, director or shareholder of
the Seller or any ERISA Affiliate is covered or has benefit rights, and each
other arrangement, program or plan pursuant to which any benefit is or shall be
provided by the Seller or any ERISA Affiliate to any current or former employee,
officer, director or shareholder of the Seller or any ERISA Affiliate, whether
formal or informal, including, without limitation, those providing any form of
medical, health or dental insurance, life, disability or accidental death and
disability insurance, severance pay or benefits continuation, deferred
compensation, relocation assistance, vacation pay, tuition aid or matching gifts
for charitable contributions to educational or cultural institutions.
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<PAGE> 8
"Endorsement Contracts" means the Agreement dated March 1, 1993,
between Seller and the Corporation for American Banking, a subsidiary of the
American Bankers Association, as amended, and similar endorsement contracts
between Seller and any state banking association pursuant to which Seller is
appointed the exclusive supplier and marketer of benefit and salary plans for
financial institutions.
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976 and the Occupational Safety and Health Act
of 1970, each as amended, together with all other laws (including statutes,
rules, regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof) relating to fines, injunctions,
penalties, damages, liability, contribution, cost recovery, compensation losses
or injuries concerning pollution or protection of the environment, natural
resources, public health and safety, or employee health and safety, or the
protection of human, plant or animal welfare or health, including laws relating
to use, emissions, discharges, releases, or threatened releases of Hazardous
Materials, Extremely Hazardous Substances, pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes into or onto
ambient air, surface water, ground water, or lands or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of Hazardous Materials, Extremely Hazardous Substances,
pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any trade or business whether or not
incorporated that is or was affiliated with the Seller within the meaning of
Section 414(b), (c) or (m) of the Code.
"Estimated Purchase Price" has the meaning set forth in Section 2(b)
below.
"Excluded Assets" has the meaning set forth in Section 2(a)(iii).
"Extremely Hazardous Substance" has the meaning set forth in Section
302 of the Emergency Planning and Community Right-to-Know Act of 1986, as
amended.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statements" has the meaning set forth in Section 4(g) below.
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<PAGE> 9
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"General Agent's Contracts" means the agreements between Seller and
insurance companies for the purpose of soliciting applications for insurance and
recruiting producers to solicit applications for insurance.
"Good Faith Deposit" means the $500,000 good faith deposit from Buyer
delivered to the Seller pursuant to the May 14, 1997 Letter Agreement.
"Hazardous Materials" means any dangerous, toxic or hazardous
pollutant, contaminant, chemical, waste, material or substance as defined in,
regulated by or governed by any Environmental, Health, and Safety Laws, federal,
state, local or foreign law, statute, code, ordinance, regulation, rule or other
requirement relating to such substance or otherwise relating to the environment
or human health or safety, including without limitation any waste, material,
substance, pollutant or contaminant that might cause any injury to human health
or safety or to the environment or might subject the Seller to any imposition of
penalties, fines, orders, decrees, licenses, permits, judgments, costs or
liability under any Environmental, Health or Safety Laws.
"Indemnified Party" has the meaning set forth in Section 8(d) below.
"Indemnifying Party" has the meaning set forth in Section 8(d) below.
"Insurance Contracts" means the Endorsement Contracts, the General
Agent's Contracts, the Producer's Contracts, the Representative Agreements and
the Servicing Agreements.
"Insurance Licenses" shall mean any license, certificate of authority,
permit or other authorization granted to Seller, its directors, officers or
employees by any governmental authority to engage in the life insurance
brokerage or agency business.
"Intellectual Property" means the property and assets identified in
Sections 2(a)(i)(B), (K), (L), (M), (N), (O) and (P) below.
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
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<PAGE> 10
"May 14, 1997 Letter Agreement" means the letter agreement dated May
14, 1997 by and among Buyer, Seller and certain of the Shareholders.
"Medium Term Notes" has the meaning set forth in Section 2(c)(ii)
below.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section
4(g) below.
"Most Recent Fiscal Period End" has the meaning set forth in Section
4(g) below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 4(g)
below.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Non-Compete Period" has the meaning set forth in Section 6(d)(i)
below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Producer's Contracts" means the agreements entered into between the
Seller and insurance companies for the procurement or submission of insurance
policies and variable annuity contracts.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406
and Code Section 4975.
"Purchase Order" has the meaning set forth in Section 2(a).
"Purchase Price" has the meaning set forth in Section 2(b) below.
"Representative Agreements" means the agreements entered into between
the Seller and independent representatives for the marketing of compensation and
benefit plans to financial institutions.
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<PAGE> 11
"Retained Liabilities" has the meaning set forth in Section 2(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
"Seller's Long-Term Debt at Closing" has the meaning set forth in
Section 2(a).
"Seller's Net Assets" has meaning set forth in Section 2(e).
"Seller's Notes to Shareholders" means the Seller's notes payable to
Shareholders as reflected on Seller's Closing Balance Sheet, payable in full
within ninety (90) days after the Closing Date with interest at the Applicable
Rate from the Closing Date until the date of payment with right of prepayment in
whole or in part at any time without penalty.
"Seller's Shares" means shares of Common Stock, par value $0.01 per
share of the Seller.
"Servicing Agreements" means the servicing agreements between Seller
and insureds with respect to the servicing of insurance contracts.
"Shareholders" has the meaning set forth in the preface above.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental
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<PAGE> 12
(including, without limitation, taxes under Code Section 59A), customs duties,
capital stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Territory" has the meaning set forth in Section 6(d)(i) below.
"Third Party Claim" has the meaning set forth in Section 8(d) below.
"Threshold" has the meaning set forth in Section 8(f) below.
"Vendor Orders" has the meaning set forth in Section 2(a).
2. Purchase and Sale of Assets
(a) Basic Transaction.
(i) Purchased Assets. On the terms and subject to the
conditions of this Agreement, on the Closing Date (as defined
in paragraph (g) below), Buyer shall purchase from the Seller,
and the Seller shall sell, convey, assign, transfer and
deliver or shall cause to be sold, conveyed, assigned,
transferred and delivered to Buyer, all properties, assets,
rights and interests of every kind and nature, whether real or
personal, tangible or intangible, and wherever located and by
whomever possessed, of Seller as of the Closing Date related
to or used in, or otherwise associated with, the Business,
including, without limitation, all of the following assets
(but excluding all Excluded Assets as defined in paragraph
(ii) below):
(A) the name "Bank Compensation Strategies,"
"Bank Compensation Strategies Group," "BCS," "BCS
Consulting Services" and all trademarks, service
marks, trade dress, logos, trade names (including
"Bank Plan") and corporate names of Seller, together
with all translations, adaptions, derivations and
combinations thereof and including all goodwill
associated therewith, and all applications,
registrations and renewals in connection therewith,
and all interests in and to telephone numbers and all
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<PAGE> 13
listings pertaining to Seller in all telephone books
and other directories, a complete list of which as of
the date hereof is set forth on the "Intellectual
Property Schedule" delivered herewith to Buyer;
(B) all prepayments and prepaid expenses
(including, without limitation, prepaid insurance
premiums) to the extent Buyer shall obtain the
benefit thereof;
(C) all inventories and related supplies;
(D) all interests in real estate (including,
without limitation, land, buildings and
improvements), whether owned in fee, leased or
otherwise including, without limitation, the
interests listed on the "Real Estate Schedule",
delivered herewith to Buyer;
(E) all interests in equipment, fixtures,
furniture, automobiles, and other vehicles and
supplies and other tangible personal property,
whether owned, leased or otherwise (including,
without limitation, items which have been fully
depreciated or expensed), a substantially complete
list of all of the more significant items as of the
date hereof is set forth on the "Tangible Property
Schedule" delivered herewith to Buyer;
(F) all insurance, insurance reserves and
deposits (including, without limitation, reserves and
deposits relating to workmen's compensation)
including, without limitation, the insurance listed
on the "Insurance Schedule" delivered herewith to
Buyer;
(G) all rights existing under contracts,
leases, licenses, permits, supply and distribution
arrangements, sales and purchase agreements and
orders, employee benefit plans, trusts and other
arrangements, employment and consulting agreements,
consignment arrangements, warranties, consents,
orders, registrations, privileges, franchises,
memberships, certificates, approvals or other similar
rights and all other agreements, arrangements and
understandings, including, without limitation, all
rights existing under the Insurance Contracts and
insurance agency licenses, a complete list of which
as of the date hereof is set forth on the "Contracts
Schedule" delivered herewith to Buyer;
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<PAGE> 14
(H) the right to receive mail and other
communications addressed to Seller (including,
without limitation, mail and communications from
customers, suppliers, distributors, agents and others
and accounts receivable payments);
(I) all lists and records pertaining to
customers, including past, present and prospective
customers solicited over the past five (5) years, as
referenced in the Intellectual Property Schedule
delivered herewith to Buyer;
(J) all lists and records pertaining to
suppliers, distributors, personnel and agents and all
other books, ledgers, files, documents,
correspondence, and business analysis, illustrations,
proposals and records of every kind and nature;
(K) all business and marketing plans and
proposals and pricing and cost information, a
complete list of which as of the date hereof is set
forth on the Intellectual Property Schedule delivered
herewith to Buyer;
(L) all computer software and systems,
proprietary or otherwise, including related source
codes, data and documentation, a substantially
complete list of all of the more significant items as
of the date hereof is set forth on the Intellectual
Property Schedule delivered herewith to Buyer;
(M) all creative materials (including,
without limitation, photographs, films, art work,
color separations and the like), advertising and
promotional materials and all other printed or
written materials;
(N) all inventions (whether patentable or
unpatentable and whether or not reduced to practice),
all improvements thereto, and all patents, patent
applications, and patent disclosures, together with
all reissuances, continuations,
continuations-in-part, revisions, extensions, and
reexaminations thereof; all copyrightable works, all
copyrights, and all applications, registrations, and
renewals in connection therewith; all mask works and
all applications, registrations, and renewals in
connection therewith; all trade secrets and
confidential business information (including ideas,
research and development, know-how, formulas,
compositions, processes and techniques, technical
data, designs, drawings, specifications, all other
proprietary rights; and all copies and tangible
embodiments thereof (in whatever form or medium);
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<PAGE> 15
(O) all claims, refunds, causes of action,
choses in action, rights of recovery and rights of
set-off of every kind and nature, except with respect
to Seller's or any Shareholder's Taxes, Excluded
Assets or Retained Liabilities;
(P) all goodwill as a going concern and all
other intangible property;
(Q) all issued and outstanding shares of
capital stock of BCS Service Corporation; and
(R) all other property not referred to above
which is either (1) represented on the Most Recent
Financial Statements or acquired by Seller thereafter
(except for such property which has been sold or
otherwise disposed of in the ordinary course of
business or constitutes Excluded Assets) or (ii)
shall be represented on Seller's Closing Balance
Sheet.
For purposes of the Agreement, the term "Purchased Assets" means all properties,
assets and rights which the Seller shall convey to Buyer or shall be obligated
to convey to Buyer under this Agreement.
(ii) Excluded Assets. Notwithstanding the foregoing,
the following assets (the "Excluded Assets") are expressly
excluded from the purchase and sale contemplated hereby and,
as such, are not included in the Purchased Assets:
(A) all cash (including, without limitation,
time deposits) and marketable securities;
(B) all accounts and notes receivable
(whether current or noncurrent), a list and
description of which as of the date hereof is set
forth on the "Accounts Receivable Schedule" delivered
herewith to Buyer;
(C) the right to receive mail and other
communications addressed to the Seller relating to
any of the Excluded Assets or the Retained
Liabilities (as defined in paragraph (iv) below);
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<PAGE> 16
(D) the minute books, capital stock records,
articles of incorporation, by-laws and corporate seal
of Seller, together with annual and other corporate
reports filed with the State of Minnesota and other
states and jurisdictions in which the Seller is
qualified to do business, other documents and
correspondence that relate to Seller's corporate
organization and maintenance thereof, and tax returns
and records relating to state and federal income and
other taxes;
(E) all monies to be received by the Seller
from Buyer and all other rights of the Seller and the
Shareholders under this Agreement;
(F) the Good Faith Deposit;
(G) all claims, refunds, causes of action,
choses in action, rights of recovery and rights of
set-off pertaining to Taxes of Seller or any
Shareholder; and
(H) all other assets set forth on the
"Excluded Assets Schedule" delivered herewith and
approved by Buyer.
(iii) Assumption of Liabilities. Subject to the
conditions specified in this Agreement, on the Closing Date,
Buyer shall assume and agree to pay, defend, discharge and
perform as and when due all the Liabilities of the Seller (the
"Assumed Liabilities") including, without limitation, all of
the following Liabilities (but excluding all Retained
Liabilities as defined in paragraph (iv) below):
(A) all accounts payable and current
liabilities insofar as such amounts are accrued or
become payable with respect to any period prior to
the Closing as reflected on the Adjustment Schedule;
(B) all liabilities and obligations arising
after the Closing Date under the agreements, leases,
contracts and commitments listed on the "Real Estate
Schedule" or the "Contracts Schedule," other than
liabilities or obligations under the agreements,
leases, contracts and commitments listed on the
Excluded Assets Schedule;
(C) obligations of continued performance
under executory vendor purchase orders for the
purchase of supplies, equipment or services entered
into in the Ordinary Course of Business and under
which the
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<PAGE> 17
supplies, equipment or services subject thereto have
not been received by the Seller prior to the Closing
Date (the "Vendor Orders");
(D) accrued payroll, vacation and other
benefits of employees of the Seller generated in the
Ordinary Course of Business, including obligations
under Employee Benefit Plans as specified on the
Employee Benefit Plan Schedule;
(E) the liabilities or obligations
specifically listed on the "Additional Assumed
Liabilities Schedule" delivered herewith and approved
by Buyer; and
(F) all other liabilities within the
Ordinary Course of Business prior to the Closing.
(iv) Retained Liabilities. Notwithstanding anything
to the contrary contained in this Agreement, Buyer shall not
assume or be liable for any of the following liabilities or
obligations of the Seller (the "Retained Liabilities") and
none of the following liabilities or obligations shall be
Assumed Liabilities for purposes of this Agreement (and the
Seller agrees to retain, remain liable for and to fully and
timely discharge, and to hold Buyer harmless from such
Retained Liabilities):
(A) any of the Seller's liabilities or
obligations under this Agreement;
(B) any of the Seller's liabilities or
obligations for expenses, taxes or fees incident to
or arising out of the negotiation, preparation,
approval or authorization of this Agreement or the
consummation of the transactions contemplated hereby,
including, without limitation, all attorneys' and
accountants' fees, sales, use and transfer taxes and
brokers' and finders' fees;
(C) any of the Seller's obligations or
liabilities which relate to or arise out of the Bank
Compensation Strategies, Inc. Savings and Investment
(401(k)) Plan;
(D) any amounts accrued or to become payable
to Seller's employees under or with respect to the
1997 Bank Compensation
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<PAGE> 18
Strategies, Inc. Employee Bonus Plan, and any amounts
accrued or to become payable to independent
representatives under or with respect to the 1997
Qualified Representative Bonus Plan, or under or with
respect to any other incentive compensation plan for
Seller's employees or Seller's independent
representatives whether or not they are parties to
any Representative Agreement with Seller, insofar as
such amounts are accrued or become payable with
respect to any period prior to the Closing;
(E) all accounts payable and current
liabilities insofar as such amounts are accrued or
become payable with respect to any period prior to
the Closing as reflected on the Adjustment Schedule;
(F) any of the Seller's liabilities or
obligations with respect to any amount of federal,
state, local or foreign taxes, including interest,
penalties and additions to such taxes, which are
imposed on or measured by the Seller's income or
gross receipts for any period, including, without
limitation, those matters listed on the "Tax Matters
Schedule" delivered herewith to Buyer;
(G) any of the Seller's obligation to
indemnify any of the Shareholders by reason of the
fact that such Shareholder was a director, officer,
employee, or agent of the Seller or was serving at
the request of any such entity as a partner, trustee,
director, officer, employee, or agent of another
entity (whether such indemnification is for
judgments, damages, penalties, fines, costs, amounts
paid in settlement, losses, expenses, or otherwise
and whether such indemnification is pursuant to any
statute, charter document, bylaw, agreement, or
otherwise);
(H) any liabilities or obligations of any
nature to any past or present stockholder of the
Seller excluding accrued payroll compensation or
other employment related expenses that are provided
for on the Seller's Closing Balance Sheet;
(I) any obligation of Seller under or with
respect to any agreement with Dennis Christiansen,
including without limitation, the Phantom Stock
Agreement, dated October 2, 1991, and the Consulting
Agreement, dated May 13, 1997; and
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<PAGE> 19
(J) any obligation under or with respect to
any agreement or contract listed on the Excluded
Asset Schedule.
(b) Purchase Price. In addition to the assumption of the
Assumed Liabilities, the aggregate purchase price for the Purchased
Assets (the "Purchase Price") paid by Buyer to the Seller shall be
equal to $24,000,000 including the amount of the Good Faith Deposit,
subject to adjustment pursuant to this Section 2. The Purchase Price
before adjustment shall be $24,000,000. The Purchase Price shall be
increased or decreased, on a dollar-for-dollar basis, to the extent of
any increase or decrease in Seller's Net Assets, as determined in
accordance with paragraphs (c) and (d) below.
(c) Payment of the Purchase Price.
(i) At Closing, Buyer shall pay to the Seller the
balance of $24,000,000, by delivery of:
(A) immediately available funds or certified
checks in an amount of $13,000,000;
(B) Buyer's medium term promissory note (the
"Medium Term Note") in the form of Exhibit A attached
hereto in the principal amount of $5,700,000; and
(C) Buyer's subordinated convertible
promissory note (the "Convertible Note") in the Form
of Exhibit B attachment hereto in the principal
amount of $4,800,000.
(ii) At the Closing, Buyer shall pay the cash portion
of Estimated Purchase Price by wire transfer to an account
designated by the Seller at least one (1) day prior to the
Closing.
(iii) Upon the final determination of Seller's Net
Assets pursuant to paragraph (d) below, Buyer and the Seller
shall recompute the Purchase Price based upon Seller's Net
Assets as finally determined is less than Ten Thousand Dollars
($10,000), the Purchase Price shall be reduced by the amount
of the deficit, and Seller shall pay the amount of such
reduction to Buyer in cash within three (3) business days
after such final determination. If Seller's Net Assets as
finally determined is greater than Ten Thousand Dollars
($10,000), the Purchase Price shall be increased by the amount
of the excess, and Buyer shall pay the
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<PAGE> 20
amount of such excess to Seller in cash within three (3)
business days after such final determination. If Seller's Net
Assets as finally determined equal to Ten Thousand Dollars
($10,000), there shall be no adjustment to the Purchase Price.
(d) Procedures for Final Determination of Seller's Net Assets.
Within 15 business days after the Closing Date, Seller shall prepare
and deliver to the Buyer at Seller's expense a balance sheet for the
Seller as of the opening of business on the Closing Date, audited by
Seller's independent certified public accountants, McGladrey & Pullen,
L.L.P., together with a statement setting forth Seller's determination
of Seller's Net Assets at Closing. Within 21 days after receipt of such
items, the Buyer shall deliver to Seller a detailed written statement
describing its objections, if any, to such balance sheet and
determination of Seller's Net Assets at Closing. If the Buyer does not
raise any objections within the 21-day period, the audited balance
sheet and Seller's determination of the Seller's Net Assets at Closing
shall become final and binding upon all parties. Upon request by the
Buyer at any time after receipt of the aforementioned balance sheet and
statement, Seller shall make available to the Buyer and its accountants
and other representatives the work papers used in preparing the balance
sheet and in determining Seller's calculation of Seller's Net Assets at
Closing and such other documents as the Buyer may reasonably request in
connection with its review of Seller's Net Assets at Closing. If the
Buyer raises any objections, Buyer and the Seller shall use reasonable
efforts to resolve any such disputes. If a final resolution is not
obtained within 21 days after the Buyer shall have submitted its
objections to Seller, any remaining disputes shall be resolved by an
accounting firm mutually agreeable to Buyer and the Seller. If Buyer
and the Seller are unable to mutually agree on such an accounting firm
within 5 days after the expiration of said 21-day period, a "big-six"
accounting firm, which has not within the last year performed services
for either Buyer or Seller, shall be selected by lot after elimination
of one firm by Buyer and one firm by the Seller. The determination of
the accounting firm so selected shall be set forth in writing and shall
be conclusive and binding upon the parties, and the fees and expenses
of such accounting firm shall be paid one-half by Buyer and one-half by
the Seller. The final balance sheet prepared in accordance with this
paragraph (d) and paragraph (e) below and the related statement setting
forth the final determination of Seller's Net Assets at Closing are
referred to as the "Seller's Closing Balance Sheet."
(e) Seller's Net Assets Definition. "Seller's Net Assets"
shall be determined as of the opening of business on the Closing Date
and shall be equal to the total assets of the Seller less the total
liabilities of the Seller as reflected on Seller's Closing Balance
Sheet, but excluding Excluded Assets and Retained Liabilities. The
Seller's Closing Balance Sheet shall be prepared, and Seller's Net
Assets at Closing shall be determined, in
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<PAGE> 21
accordance with generally accepted accounting principles applied in a
manner consistent with those used in preparing the Seller's balance
sheet as of December 31, 1996 (the "Most Recent Fiscal Year End Balance
Sheet"), which is attached hereto as Exhibit C; provided that assets
shall not include commissions, renewals, servicing fees or other
revenues that have not been received except for first year commissions
and implementation fees receivable on cases for which the initial
premium has been fully paid (which shall be subject to reversal and
charge-back if, for any reason and to the extent that, the related
policies are not duly issued or are later rejected or revoked), and
including such other adjustments, if any, as are contained in the
attached Adjustment Schedule.
(f) Allocation of Purchase Price. The Purchase Price for the
Purchased Assets shall be preliminarily allocated to and among the
Purchased Assets in the manner set forth on Exhibit D attached hereto.
Upon the final determination of the Purchase Price in accordance with
this paragraph (d), the Seller and Buyer shall revise the allocation to
reflect the adjusted Purchase Price. Any such revision shall be
consistent with the preliminary allocation as set forth on Exhibit D
and Exhibit D shall be revised to reflect such revision. Each party
shall report or cause to be reported the sale and purchase of the
Purchased Assets contemplated by this Agreement on all applicable
federal, state, local and foreign income, franchise, excise and sales
tax returns in accordance with such allocation. The Parties agree to
provide such cooperation and information as may be required by the
other for the purpose of preparing such reports.
(g) The Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of
Buyer, 2121 San Jacinto Street, Suite 200, Dallas, Texas 75201
commencing at 1:00 p.m. local time on September 5, 1997, or such other
date or place as the Buyer and the Seller may mutually determine (the
"Closing Date").
(h) Deliveries at the Closing. At the Closing, (i) the Seller
will deliver to the Buyer the various certificates, instruments, and
documents referred to in Section 8(a) below, and (ii) the Buyer will
deliver to the Seller the various certificates, instruments, and
documents referred to in Section 8(b) below.
(i) Legend on Medium Term Notes and Convertible Notes. The
promissory notes or other documents evidencing the Medium Term Notes
and Convertible Notes issued to Seller under this Agreement (including
those issued at any time in exchange or substitution thereof) shall be
subject to stop transfer instructions and shall bear a legend
substantially in the following form:
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"The securities represented hereby have not been
registered under the Securities Act of 1933 or under
the securities laws of any state or other
jurisdiction (together, the "Securities Laws") and
may not be offered for sale, sold or otherwise
transferred or encumbered in the absence of
compliance with such Securities Laws and until the
issuer thereof shall have received from counsel
acceptable to it a written opinion reasonably
satisfactory to it that the proposed disposition will
not violate any applicable Securities Laws."
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Seller. The Seller
and each of the Shareholders, jointly and severally, represent and
warrant to the Buyer that the statements contained in this Section 3(a)
are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3(a)), except as set forth in the related
disclosure schedules delivered by Seller to the Buyer on the date
hereof and initialed by the Parties ("Disclosure Schedules"). Nothing
in the Disclosure Schedules shall be deemed adequate to disclose an
exception to a representation or warranty made herein, however, unless
the Disclosure Schedules identifies the exception with reasonable
particularity and describes the relevant facts in reasonable detail.
Without limiting the generality of the foregoing, the mere listing (or
inclusion of a copy) of a document or other item shall not be deemed
adequate to disclose an exception to a representation or warranty made
herein (unless the representation or warranty has to do with the
existence of the document or other item itself).
(i) Authorization of Transaction. The Seller and
each of the Shareholders has full power and authority to
execute and deliver this Agreement and to perform it, his or
her obligations hereunder. This Agreement constitutes the
valid and legally binding obligation of the Seller,
enforceable in accordance with its terms and conditions,
subject to laws generally affecting the enforcement of
creditors' rights, the enforcement of which will not result in
any material Liability to Buyer as a result of, or an
impediment to the consummation by Seller of, the transactions
contemplated by this Agreement. Neither Seller nor any of the
Shareholders are required to give any notice to, make any
filing with, or obtain any authorization, consent, or approval
of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
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(ii) Noncontravention. Neither the execution and the
delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (A) violate any
statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Seller
or any Shareholder is subject or (B) conflict with, result in
a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other
arrangement to which the Seller or any Shareholder is a party
or by which he is bound or to which any of it, his or her
assets is subject. The Seller does not need to give any notice
to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency
in order for the Parties to consummate the transactions
contemplated by this Agreement.
(iii) Brokers' Fees. Neither the Seller nor any
Shareholder has any Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which the
Buyer could become liable or obligated.
(iv) Investment Undertakings of Seller and the
Shareholders.
(A) The Seller and each Shareholder has been
informed, acknowledges and agrees that the Medium
Term Notes and Convertible Notes to be issued to
Seller under this Agreement have not been registered
under the Securities Act, or under the securities
laws of the State of Minnesota or of any other
jurisdiction (collectively with the 1933 Act, the
"Securities Laws"); and that the Medium Term Notes
and Convertible Notes must be held by Seller (or the
Shareholder upon distribution of the Medium Term
Notes and Convertible Notes by the Seller)
indefinitely unless they are subsequently registered
under the Securities Laws or unless an exemption from
such registration is available.
(B) The Seller is acquiring the Medium Term
Notes and Convertible Notes not with a view to, or
for sale in connection with, any public distribution
thereof; Seller has no current intention of selling
or otherwise distributing the Medium Term Notes and
Convertible Notes to
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<PAGE> 24
any person or persons (other than the Shareholders);
and the Medium Term Notes and Convertible Notes shall
be acquired for Seller's own account for investment
and not on behalf of any other person or persons and
not with a view to, or for sale in connection with,
any further distribution thereof. Further, the Seller
agrees not to offer for sale, sell or otherwise
transfer the Medium Term Notes or Convertible Notes
in the absence of compliance with the Securities Laws
and until Buyer has received from counsel acceptable
to Buyer an opinion of such counsel that the proposed
disposition shall not violate any Securities Laws.
(C) The Seller and each Shareholder is
knowledgeable and experienced in financial and
business matters, and capable of evaluating the
merits and risks of an investment in the Buyer
Shares; Seller has had access to or received as much
information with respect to Buyer and the Medium Term
Notes or Convertible Notes, as Seller deems advisable
in making a decision to invest in the Medium Term
Notes or Convertible Notes; and Seller has had the
opportunity to ask questions and receive answers from
representatives of Buyer with respect to investing in
the Medium Term Notes and to obtain additional
information to verify the accuracy of the information
to which it or he has had access or which has been
furnished to it or him.
(D) On the date hereof and on the Closing
Date, the Seller and each Shareholder shall be an
"accredited investor" as defined in paragraph (a) of
Rule 501 of the general rules and regulations under
the 1933 Act.
(b) Representations and Warranties of the Buyer. The
Buyer represents and warrants to the Seller and each of the
Shareholders that the statements contained in this Section 3(b) are
correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3(b)).
(i) Organization of the Buyer. The Buyer is a
corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its
incorporation.
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(ii) Authorization of Transaction. The Buyer has full
power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to
perform its obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of the Buyer,
enforceable in accordance with its terms and conditions,
subject to laws generally affecting the enforcement of
creditors' rights, the enforcement of which will not result in
any material Liability to Buyer as a result of, or an
impediment to the consummation by Buyer
of, the transactions contemplated by this Agreement. The Buyer
need not give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions
contemplated by this Agreement.
(iii) Noncontravention. Neither the execution and the
delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (A) violate any
constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Buyer
is subject or any provision of its charter or bylaws or (B)
except for the senior secured financing arrangements being
entered into by Buyer with certain insurance companies, to the
completion of which this transaction is subject, conflict
with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right
to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Buyer is a party
or by which it is bound or to which any of its assets is
subject. The Buyer does not need to give any notice to, make
any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for
the Parties to consummate the transactions contemplated by
this Agreement.
(iv) Brokers' Fees. The Buyer has no Liability or
obligation to pay any fees or commissions to any broker,
finder, or agent with respect to the transactions contemplated
by this Agreement for which Seller could become liable or
obligated.
4. Representations and Warranties Concerning the Seller. The
Seller and each of the Shareholders, jointly and severally, represent and
warrant to the Buyer that the statements contained in this Section 4 are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4), except as
set forth in the related disclosure schedules delivered by the Seller to the
Buyer on the date hereof and initialed by the Parties (the "Disclosure
Schedules"). Nothing in the Disclosure Schedules shall be deemed
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<PAGE> 26
adequate to disclose an exception to a representation or warranty made herein,
however, unless the Disclosure Schedules identifies the exception with
reasonable particularity and describes the relevant facts in reasonable detail.
Without limiting the generality of the foregoing, the mere listing (or inclusion
of a copy) of a document or other item shall not be deemed adequate to disclose
an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
item itself).
(a) Organization, Qualification, and Corporate Power.
(i) The Seller is a corporation duly organized,
validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. The Seller is duly
authorized to conduct business and is in good standing under
the laws of
each jurisdiction where such qualification is required, except
for such jurisdiction in which the failure to do so will not
result in material Adverse Consequences or adversely affect
the ability of the Buyer to carry on the Business in any
material respect. The Seller has full corporate power and
authority and all licenses, permits, and authorizations
necessary to carry on the Businesses and any business in which
it presently proposes to engage and to own and use the
properties owned and used by it, except where the failure to
obtain such licenses, permits and authorizations will not
result in material Adverse Consequences or adversely affect
the ability of the Buyer to carry on the Business in any
material respect. The Seller has delivered to the Buyer
correct and complete copies of the charter and bylaws of the
Seller (as amended to date). The minute book (containing the
records of meetings of the stockholders, the board of
directors, and any committees of the board of directors), the
stock certificate books, and the stock record books of the
Seller are correct and complete. The Seller is not in default
under or in violation of any provision of its charter or
bylaws.
(ii) All Insurance Licenses of the Seller and any
Shareholder, director, officer or (to the Knowledge of Seller
or any of the Shareholders) employee of Seller are listed on
the "Insurance License Schedule" and are in full force and
effect. No proceeding or, to the Knowledge of Seller or any of
the Shareholders, customer complaint, has been filed with
insurance regulatory authorities which could reasonably be
expected to lead to revocation, failure to renew, limitation,
suspense or restriction of any such Insurance License.
(b) Title to Assets. The Seller has good and marketable title
to, or a valid leasehold interest in, the properties and assets used by
it, located on its premises, or shown on the Most Recent Balance Sheet
or acquired after the date thereof, free and clear of all
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Security Interests, except for properties and assets disposed of in the
Ordinary Course of Business since the date of the Most Recent Balance
Sheet.
(c) Subsidiaries; Other Interests. The Seller currently does
not have nor has it ever had any Subsidiaries or any interests
in partnerships or limited liability companies, except BCS
Consulting Services, Inc. which is a corporation organized
after January 1, 1997, and in good standing under the laws of
Minnesota, having no issued and outstanding stock or
securities other than Common Stock all of which is owned by
Seller and to which no other person or entity has any
interest. No other person or entity has a right to acquire any
stock or securities of said subsidiary.
(d) Financial Statements. Attached hereto as Exhibit E are the
following financial statements (collectively the "Financial
Statements"): (i) audited consolidated balance sheets and statements of
income, changes in stockholders' equity, and cash flow as of and for
the fiscal years ended December 31, 1994, December 31, 1995, and
December 31, 1996 (the "Most Recent Fiscal Year End") for the Seller;
and (ii) unaudited balance sheets and statements of income, changes in
stockholders' equity, and cash flow (the "Most Recent Financial
Statements") as of and for the seven-month period ended July 31, 1997
(the "Most Recent Fiscal Period End") for the Seller. The Financial
Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of the
Seller as of such dates and the results of operations of the Seller for
such periods, are correct and complete in all material respects, and
are consistent with the books and records of the Seller (which books
and records are correct and complete in all material respects);
provided, however, that the Most Recent Financial Statements are
subject to normal year-end adjustments (which will not be material
individually or in the aggregate) and lack footnotes and other
presentation items.
(e) Events Subsequent to Most Recent Fiscal Year End. Since
the Most Recent Fiscal Year End, there has not been any material
adverse change in the Business, financial condition, operations,
results of operations, or future prospects of the Seller and Seller has
operated the Business only in the Ordinary Course of Business. Without
limiting the generality of the foregoing, since that date:
(i) the Seller has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than
for a fair consideration in the Ordinary Course of Business;
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(ii) the Seller has not entered into any agreement,
contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) either involving more than
$20,000 or outside the Ordinary Course of Business;
(iii) no party (including the Seller) has
accelerated, terminated, modified, or canceled any agreement,
contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) involving more than $20,000
to which the Seller is a party or by which any of them is
bound;
(iv) the Seller has not imposed any Security Interest
upon any of its assets, tangible or intangible;
(v) the Seller has not made any capital expenditure
(or series of related capital expenditures) either involving
more than $10,000 or outside the Ordinary Course of Business;
(vi) the Seller has not made any capital investment
in, any loan to, or any acquisition of the securities or
assets of, any other Person (or series of related capital
investments, loans, and acquisitions) either involving more
than $10,000 or outside the Ordinary Course of Business;
(vii) the Seller has not issued any note, bond, or
other debt security or created, incurred, assumed, or
guaranteed any indebtedness for borrowed money or capitalized
lease obligation either involving more than $10,000 singly or
$20,000 in the aggregate;
(viii) the Seller has not delayed or postponed the
payment of accounts payable and other Liabilities outside the
Ordinary Course of Business;
(ix) the Seller has not canceled, compromised,
waived, or released any right or claim (or series of related
rights and claims) either involving more than $10,000 or
outside the Ordinary Course of Business;
(x) the Seller has not granted any license or
sublicense of any rights under or with respect to any
Intellectual Property;
(xi) the Seller has not redeemed, purchased, or
otherwise acquired any of its capital stock and, except as
reflected in the Most Recent Financial Statements, has not
declared, set aside, or paid any dividend or made any
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distribution with respect to its capital stock (whether in
cash or in kind) other than in the Ordinary Course of Business
and consistent with past practice;
(xii) the Seller has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to
its property;
(xiii) the Seller has not made any loan to, or
entered into any other transaction with, any of its directors,
officers, and employees outside the Ordinary Course of
Business;
(xiv) the Seller has not entered into any employment
contract or collective bargaining agreement, written or oral,
or modified the terms of any existing such contract or
agreement;
(xv) the Seller has not granted any increase in the
base compensation of any of its directors, officers, and
employees outside the Ordinary Course of Business;
(xvi) the Seller has not adopted, amended, modified,
or terminated any bonus, profit-sharing, incentive, severance,
or other plan, contract, or commitment for the benefit of any
of its directors, officers, and employees (or taken any such
action with respect to any other Employee Benefit Plan);
(xvii) the Seller has not made any other change in
employment terms for any of its directors, officers, and
employees outside the Ordinary Course of Business;
(xviii) the Seller has not made or pledged to make
any charitable or other capital contribution;
(xix) there has not been any other material
occurrence, event, incident, action, failure to act, or
transaction outside the Ordinary Course of Business involving
the Seller; and
(xx) the Seller has not committed to any of the
foregoing.
(f) Undisclosed Liabilities. The Seller does not have any
material Liability (and neither Seller nor any of the Shareholders has
Knowledge of any Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim,
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or demand against any of them giving rise to any material Liability),
except for (i) Liabilities set forth on the face of the Most Recent
Balance Sheet and disclosed in any notes thereto and (ii) Liabilities
which have arisen after the Most Recent Fiscal Period End in the
Ordinary Course of Business (none of which results from, arises out of,
relates to, is in the nature of, or was caused by any material breach
of contract, breach of warranty, tort, infringement, or violation of
law).
(g) Legal Compliance.
(i) The Seller, the Shareholders and the director and
executive officers and employees of Seller have complied with
all applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof) except where the
failure to so comply would not have a material adverse effect
on the business, operations or financial condition of the
Seller, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has
been filed or commenced against any of them alleging any
failure so to comply.
(ii) Seller and each of the Shareholders, its
officers and employees, and to the Knowledge of Seller and
each of the Shareholders, its independent contractors,
subagents, and consultants who are required by reason of the
nature of their employment by the Seller to be registered or
appointed as an insurance agent, insurance broker or insurance
producer with the insurance department of any state or any
self-regulatory body or other governmental entity, is duly
registered or appointed as such and such registration or
appointment is in full force and effect, and none of the
Seller or, to the Knowledge of Seller and each of the
Shareholders, any of such other Persons has been enjoined,
indicted, convicted or made the subject of any consent decree
or administrative order on account of any material violation
of applicable law in connection with such Person's actions in
any of the foregoing capacities or, any enforcement or
disciplinary proceeding alleging any such violation.
(h) Tax Matters.
(i) The Seller has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and
complete in all respects. All Taxes owed by the Seller or
claimed in writing to be due from the Seller or imposed on the
Seller (whether or not shown on any Tax Return) have been
paid. The Seller is not
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currently the beneficiary of any extension of time within
which to file any Tax Return. No claim has ever been made by
an authority in a jurisdiction where the Seller does not file
Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the
assets of the Seller that arose in connection with any failure
(or alleged failure) to pay any Tax.
(ii) The Seller has (A) withheld and paid all Taxes
required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party and (B) collected
any and all amounts required from customers or other third
parties in the form of sales, use, or similar Taxes and paid,
when due, such Taxes to the appropriate governmental
authority.
(iii) Neither the Seller, Shareholders, any director
nor officer (or employee responsible for Tax matters) of the
Seller expects any authority to assess any additional Taxes
for any period for which Tax Returns have been filed. There is
no dispute or claim concerning any Tax Liability of the Seller
either (A) claimed or raised by any authority in writing or
(B) as to which any of the directors and officers (and
employees responsible for Tax matters) of the Seller or the
Shareholders has Knowledge based upon personal contact with
any agent of such authority. The Tax Matters Schedule lists
all federal, state, local, and foreign income Tax Returns
filed with respect to the Seller for taxable periods ended on
or after December 31, 1994, indicates those Tax Returns that
have been audited, and indicates those Tax Returns that
currently are the subject of audit. The Seller has delivered
to the Buyer correct and complete copies of all federal, state
and local income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by
the Seller since December 31, 1994.
(iv) The Seller has not waived any statute of
limitations in respect of Taxes or agreed to any extension of
time with respect to a Tax assessment or deficiency. The
Seller does not have in effect any power of attorney or
authorization to anyone to represent it with respect to any
Taxes.
(v) The Seller has not filed a consent under Code
Section 341(f) concerning collapsible corporations. The Seller
has not made any payments, is not obligated to make any
payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments
that will not be deductible under Code Section 280G. The
Seller has not been a United States real property holding
corporation within the meaning of Code Section 897(c)(2)
during the applicable period
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specified in Code Section 897(c)(1)(A)(ii). The Seller has not
acquired any United States real property interest, as defined
in Code Section 897(c), from a foreign person without
complying with the withholding requirements contained in Code
Section 1445. The Seller has disclosed on its federal income
Tax Returns all positions taken therein that could give rise
to a substantial understatement of federal income Tax within
the meaning of Code Section 6662. The Seller is not now and
never has been a party to any Tax allocation or sharing
agreement. The Seller is not now and never has been (A) a
member of an Affiliated Group filing a consolidated federal
income Tax Return or (B) responsible for any Liability for the
Taxes of any Person (other than the Seller) as a transferee or
successor, by contract, by operation of law, or otherwise.
(i) Real Property.
(i) The Seller does not currently own and never
has owned any real property.
(ii) The Real Estate Schedule lists and describes
briefly all real property leased or subleased to the Seller.
The Seller has delivered to the Buyer correct and complete
copies of the leases and subleases listed in the Real Estate
Schedule (as amended to date). With respect to each lease and
sublease listed in the Real Estate Schedule:
(A) the lease or sublease is legal, valid,
binding, enforceable, and in full force and effect;
(B) the lease or sublease will continue to
be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the
consummation of the transactions contemplated hereby;
(C) neither Seller, nor to the Knowledge of
Seller or any of the Shareholders, any other party to
the lease or sublease, is in breach or default, and
no event has occurred which, with notice or lapse of
time, would constitute a breach or default or permit
termination, modification, or acceleration thereunder
as against Seller;
(D) no party to the lease or sublease has
repudiated any provision thereof;
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(E) there are no disputes, oral agreements,
or forbearance programs in effect as to the lease or
sublease;
(F) with respect to each sublease, the
representations and warranties set forth in
subsections (A) through (E) above are true and
correct with respect to the underlying lease;
(G) the Seller has not assigned,
transferred, conveyed, mortgaged, deeded in trust, or
encumbered any interest in the leasehold or
subleasehold;
(H) Seller has received all approvals of
governmental authorities (including licenses and
permits) required in connection with the operation of
Seller's facilities and Seller's facilities have been
operated and maintained in accordance with applicable
laws, rules, and regulations, except where failure to
do so will not result in material Adverse
Consequences or adversely affect the ability of the
Buyer to carry on the Business in any material
respect;
(I) all facilities leased or subleased
thereunder are supplied with utilities and other
services necessary for the operation of said
facilities;
(j) Intellectual Property.
(i) The Seller owns or has the right to use pursuant
to license, sublicense, agreement, or permission all
Intellectual Property necessary or desirable for the operation
of the Business as presently conducted and as presently
proposed to be conducted, including but not limited to that
listed on the Intellectual Property Schedule. Each item of
Intellectual Property owned or used by the Seller immediately
prior to the Closing hereunder will be owned or available for
use by the Buyer on identical terms and conditions immediately
subsequent to the Closing hereunder. The Seller has taken all
reasonably necessary action to maintain and protect each item
of Intellectual Property that it owns or uses.
(ii) The Seller has, to the Knowledge of Seller or
any of the Shareholders, not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and neither the
Seller, the Shareholders nor the directors and officers (and
employees with responsibility for Intellectual Property
matters) of the Seller has ever received any
28
<PAGE> 34
charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation
(including any claim that the Seller must license or refrain
from using any Intellectual Property rights of any third
party). To the Knowledge of Seller and any of the Shareholders
and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the
Seller, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Seller.
(iii) The Intellectual Property Schedule identifies
each patent or registration which has been issued to the
Seller with respect to any of its Intellectual Property,
identifies each pending patent application or application for
registration which the Seller has made with respect to any of
its Intellectual Property, and identifies each license,
agreement, or other permission which the Seller has granted to
any third party with respect to any of its Intellectual
Property (together with any exceptions). The Seller has
delivered to the Buyer correct and complete copies of all such
patents, registrations, applications, licenses, agreements,
and permissions (as amended to date) and have made available
to the Buyer correct and complete copies of all other written
documentation evidencing ownership and prosecution (if
applicable) of each such item. The Intellectual Property
Schedule also makes reference to and shall be deemed to
include each trade name or unregistered trademark used by the
Seller in connection with any of its businesses. The
Intellectual Property Schedule also identifies Seller's
customer lists and all of Seller's computer software and
systems, whether or not proprietary, including source codes,
data and documentation relating thereto. With respect to each
item of Intellectual Property required to be identified,
whether specifically or generally, in the Intellectual
Property Schedule:
(A) the Seller possesses all right, title,
and interest in and to the item, free and clear of
any Security Interest, license, or other restriction;
(B) the item is not subject to any
outstanding injunction, judgment, order, decree,
ruling, or charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is
pending or, to the Knowledge of any of the
Shareholders and the directors and officers (and
employees with responsibility for Intellectual
Property matters) of the Seller, is threatened which
challenges the legality, validity, enforceability,
use, or ownership of the item; and
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(D) the Seller has never agreed to indemnify
any Person for or against any interference,
infringement, misappropriation, or other conflict
with respect to the item.
(iv) The Intellectual Property Schedule
identifies each item of Intellectual Property that any third
party owns and that the Seller uses pursuant to license,
sublicense, agreement, or permission. The Seller has delivered
to the Buyer correct and complete copies of all such licenses,
sublicenses, agreements, and permissions (as amended to date).
With respect to each item of Intellectual Property required to
be identified in the Intellectual Property Schedule:
(A) the license, sublicense, agreement, or
permission covering the item is legal, valid,
binding, enforceable, and in full force and effect;
(B) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding,
enforceable, and in full force and effect on
identical terms following the consummation of the
transactions contemplated hereby (including the
assignments and assumptions referred to in Section 2
above);
(C) neither Seller nor, to the Knowledge of
Seller or any Shareholder, any other party to the
license, sublicense, agreement, or permission is in
breach or default, and no event has occurred which
with notice or lapse of time would constitute a
breach or default or permit termination,
modification, or acceleration thereunder as against
Seller;
(D) no party to the license, sublicense,
agreement, or permission has repudiated any provision
thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in
subsections (A) through (D) above are true and
correct with respect to the underlying license;
(F) the underlying item of Intellectual
Property is not subject to any outstanding
injunction, judgment, order, decree, ruling, or
charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is
pending or, to the Knowledge of any of the
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Shareholders and the directors and officers (and
employees with responsibility for Intellectual
Property matters) of the Seller, is threatened which
challenges the legality, validity, or enforceability
of the underlying item of Intellectual Property; and
(H) the Seller has not granted any
sublicense or similar right with respect to the
license, sublicense, agreement, or permission.
(v) To the Knowledge of Seller, any of the
Shareholders and the directors and officers (and employees
with responsibility for Intellectual Property matters) of the
Seller, the Buyer will not interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of third parties as a result of
the continued operation of the Business as presently conducted
and as presently proposed to be conducted.
(vi) To the Knowledge of Seller, any of the
Shareholders (and the employees of Seller responsible for such
matters), none of the electronic or computer software
programs, systems, data bases, information systems, formats or
illustrations used by Seller in the operation of the Business,
including all source codes with respect thereto, will become
inoperative or unusable on account of or with respect to the
occurrence of the year 2000.
(k) Tangible Assets. The Seller owns or leases all
buildings, machinery, equipment, and other tangible assets necessary
for the conduct of its business as presently conducted and as presently
proposed to be conducted. Each such tangible asset has been maintained
in accordance with normal industry practice, is in good operating
condition and repair (subject to normal wear and tear), and is suitable
for the purposes for which it presently is used and presently is
proposed to be used.
(l) Contracts. Except as set forth in the Contracts
Schedule and the Real Estate Schedule, the Seller is not a party to, or
bound by:
(i) any agreement (or group of related agreements)
for the lease of personal property to or from any Person
providing for lease payments in excess of $20,000 per annum;
(ii) any agreement (or group of related agreements)
for the purchase or sale of supplies, products, or other
personal property, or for the furnishing or receipt of
services, the performance of which will extend over a period
of more
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than one year, result in a material loss to the Seller, or
involve consideration in excess of $25,000;
(iii) any agreement concerning a partnership or
joint venture;
(iv) any agreement (or group of related
agreements) under which it has created, incurred, assumed, or
guaranteed any indebtedness for borrowed money, or any
capitalized lease obligation, or under which it has imposed a
Security Interest on any of its assets, tangible or intangible
except for Seller's Notes to Shareholders;
(v) any agreement concerning confidentiality or
noncompetition other than with the Buyer;
(vi) any agreement or arrangement with any of the
Shareholders;
(vii) any profit sharing, stock option, stock
purchase, stock appreciation, deferred compensation,
severance, or other material plan or arrangement for the
benefit of its current or former directors, officers, and
employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any
individual on a full-time, part-time, consulting, or other
basis providing annual compensation in excess of $50,000 or
providing severance benefits or which is not terminable at the
will of the Seller;
(x) any agreement or arrangement under which it
has advanced or loaned any amount to any of its directors,
officers, and employees;
(xi) any agreement under which the consequences
of a default or termination could have a material adverse
effect on the business, financial condition, operations,
results of operations, or future prospects of the Seller; or
(xii) any other agreement (or group of related
agreements), including Vendors' Orders, the performance of
which involves consideration in excess of $10,000.
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The Seller has delivered to the Buyer a correct and complete copy of
each written agreement listed in the Contracts Schedule and a written
summary setting forth the terms and conditions of each oral agreement
referred to in the Contracts Schedule. With respect to each such
agreement: (A) the agreement is legal, valid, binding, enforceable, and
in full force and effect; (B) the agreement will continue to be legal,
valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated
hereby; (C) neither Seller, nor to the Knowledge of Seller or any of
the Shareholders, any other party, is in breach or default, and no
event has occurred which with notice or lapse of time would constitute
a breach or default, or permit termination, modification, or
acceleration, under the agreement; and (D) neither Seller, nor to the
Knowledge of Seller or any of the Shareholders, any other party, has
repudiated any provision of the agreement.
(m) Notes and Accounts Receivable. All notes and accounts
receivable of the Seller are reflected properly on their books and
records, are valid receivables subject to no set-offs or counterclaims,
are current and collectible, and will be collected in accordance with
their terms at their recorded amounts, subject only to the reserve for
bad debts set forth on the face of the Most Recent Balance Sheet and in
any notes thereto as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the
Seller.
(n) Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of the Seller.
(o) Insurance. The Insurance Schedule sets forth the following
information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which the Seller has been
a party, a named insured, or otherwise the beneficiary of coverage at
any time within the past 5 years:
(i) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
(ii) the policy number and the period of coverage;
With respect to each such insurance policy: (A) to the Knowledge of
Seller and each of the Shareholders, the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) neither the Seller, nor to the
Knowledge of Seller and each of the
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<PAGE> 39
Shareholders, any other party to the policy, is in breach or default
(including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy as to Seller; and (D)
no party to the policy has repudiated any provision thereof. The Seller
has been covered during the past 5 years by insurance in scope and
amount customary and reasonable for the businesses in which it has
engaged during the aforementioned period. The Insurance Schedule
describes any self-insurance arrangements affecting the Seller.
(p) Litigation. The Litigation Schedule sets forth each
instance in which the Seller (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, duty to report or charge
or (ii) is a party or, to the Knowledge of Seller, any of the
Shareholders or the directors and officers (and employees with
responsibility for litigation matters) of the Seller, is threatened to
be made a party to, or there is, to the Knowledge of Seller, any of the
Shareholders or the directors and officers (and employees with
responsibility for litigation matters) of the Seller, a Basis for, any
action, suit, proceeding, hearing, or investigation of, in, or before
any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator. To the
Knowledge of Seller and each of its Shareholders, none of the actions,
suits, proceedings, hearings, and investigations set forth in the
Litigation Schedule could result in any material Liability or material
Adverse Change in the Business, financial condition, operations,
results of operations, or future prospects of the Business of Seller
being acquired by Buyer under this Agreement. Neither the Seller, the
directors and officers (and employees with responsibility for
litigation matters) of the Seller nor the Shareholders have any reason
to believe that there is any Basis for any such action, suit,
proceeding, hearing, or investigation or that any such action, suit,
proceeding, hearing or investigation may be brought or threatened
against the Seller that could result in any material Liability or
material Adverse Change in the business, financial condition,
operations, results of operations, or future prospects of Buyer.
(q) Employees. Seller, the Shareholders and the directors and
officers (and employees with responsibility for employment matters) of
the Seller have no reason to believe that all executives, key
employees, or group of employees will, upon an offer by Buyer, not
accept employment with Buyer after the Closing. The Seller has not
committed any unfair labor practice. None of Seller, the Shareholders
and the directors and officers (and employees with responsibility for
employment matters) of the Seller have any Knowledge of any
organizational effort presently being made or threatened by or on
behalf of any labor union with respect to employees of the Seller.
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(r) Employee Benefits.
(i) Employee Benefits Plan Schedule lists each
Employee Benefit Plan. Except as set forth in the Employee
Benefits Plan Schedule:
(A) Each such Employee Benefit Plan (and
each related trust, insurance contract, or fund)
complies in form and in operation in all material
respects with the applicable requirements of ERISA,
the Code, and other applicable laws, rules and
regulations. Each such Employee Benefit Plan that is
intended to be a "qualified plan" under Code
Section 401(a) has been amended to comply in all
material respects with all current requirements and
has either obtained a favorable determination letter
with respect to all amendments or the remedial
amendment period for any such amendment under Code
Section 401(b) has not expired.
(B) All required reports and descriptions
have been filed or distributed appropriately with
respect to each such Employee Benefit Plan to the
extent required by Title I of ERISA. The requirements
of Part 6 of Subtitle B of Title I of ERISA and of
Code Section 4980B, if applicable, have been met in
all material respects with respect to each such
Employee Benefit Plan.
(C) All contributions (including all
employer contributions and employee salary reduction
contributions) which are due have been paid to each
such Employee Benefit Plan and all contributions for
any period ending on or before the Closing Date which
are not yet due either have been paid to each such
Employee Benefit Plan or accrued on the Closing
Balance Sheet in accordance with GAAP and consistent
with the past custom and practice of the Seller and
its ERISA Affiliates.
(D) The Seller has delivered to the Buyer
correct and complete copies of the plan documents and
summary plan descriptions, the most recent
determination letter received from the Internal
Revenue Service, the most recent Form 5500 Annual
Report, employee communications, correspondence with
the Department of Labor, Internal Revenue Service or
other governmental agency, and all related trust
agreements, insurance contracts, and other funding
agreements which currently implement each such
Employee Benefit Plan.
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<PAGE> 41
(E) There have been no material Prohibited
Transactions (excluding events for which the
governing agency has waived notice) with respect to
any such Employee Benefit Plan that could reasonably
be expected to have a material Adverse Consequence
with respect to the Seller. No Fiduciary has any
Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the
administration or investment of the assets of any
such Employee Benefit Plan that could reasonably be
expected to have material Adverse Consequence with
respect to the Seller.
(F) Neither the Seller nor any ERISA
Affiliate maintains or ever has maintained or
contributes to, ever has contributed to, or ever has
been required to contribute to any Employee Benefit
Plan providing medical, health, or life insurance or
other welfare-type benefits for current or future
retired or terminated employees, their spouses, or
their dependents (other than in accordance with Code
Section 4980B).
(G) Neither the Seller nor any ERISA
Affiliate is required to contribute to an Employee
Benefit Plan that is a Multiemployer Plan nor has
been so required during the five-year period ending
on the Closing Date.
(H) Neither the Seller nor any ERISA
Affiliate maintains or has ever maintained,
contributes to, has ever contributed to, or is or has
ever been obligated to contribute to, any Employee
Benefit Plan subject to the requirements of Section
412 of the Code or subject to Title IV of ERISA.
(s) Guaranties. The Seller is not a guarantor or
otherwise is liable for any Liability or obligation (including
indebtedness) of any other Person.
(t) Environment, Health, and Safety.
(i) Seller, the Shareholders and the directors,
officers and, to the Knowledge of Seller and each of the
Shareholders, employees of Seller have complied with, and are
currently in compliance, in all material respects, with all
Environmental, Health, and Safety Laws where failure to so
comply could reasonably be expected to have a material Adverse
Consequence with respect to the Seller, to the Knowledge of
Seller and each of the Shareholders, no condition exists or
event has occurred which, with or without notice or the
passage of time,
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<PAGE> 42
would constitute a violation of or give rise to a lien under
any Environmental, Health, and Safety Laws where such
violation or lien could reasonably be expected to have a
material Adverse Consequence with respect to the Seller.
(ii) All properties and equipment used in the
business of the Seller have been free of asbestos, PCB's,
methylene chloride, trichloroethylene,
1,2-trans-dichloroethylene, dioxins, dibenzofurans, and
Extremely Hazardous Substances; provided, however, this
Seller's representation shall not include the building of
which Seller's leased premises is a part, and as to Seller's
leased premises, Seller's representation shall be limited to
the period it occupied its leased premises and to its and its
Shareholders' Knowledge.
(u) Certain Business Relationships with the Seller. None of
the Shareholders have been involved in any business arrangement or
relationship with the Seller within the past 12 months, and none of the
Shareholders owns any asset, tangible or intangible, which is used in
the Business.
(v) Sales Representatives. To the Knowledge of Seller, the
Shareholders and directors and officers (and employees with
responsibility for sales matters) of the Seller, all sales
representatives currently marketing Seller's insurance products under
Representative Agreements are expected to continue to perform such
services after the Closing, and none has expressed an intention or
desire to cease such sales activities.
(w) Disclosure. Neither this Agreement nor any of the
Disclosure Schedules, attachments or exhibits hereto or, to the
Knowledge of any Shareholder or James Meyer any financial information
provided to Buyer, contain any untrue statement of a material fact or
omit a material fact necessary to make the statements contained herein
or therein, in light of the circumstances in which they were made, not
misleading. There is no material fact which has not been disclosed in
writing to Buyer of which any officer, director or the Seller or any
Shareholder or James Meyer is aware and which materially adversely
affects or could reasonably be anticipated to affect materially
adversely the Business or any of the Purchased Assets.
5. Representations and Warranties Concerning the Buyer. The Buyer
represents and warrants to the Seller that the statements contained in this
Section 5 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Section 5).
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(a) Organization, Qualification, and Corporate Power. The
Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation. The
Buyer is duly authorized to conduct business and is in good standing
under the laws of each jurisdiction where such qualification is
required except for such jurisdiction in which the failure to do so
will not result in material Adverse Consequences or adversely affect
the ability of the Buyer to carry on its business in any material
respect. The Buyer has full corporate power and authority and all
licenses, permits, and authorizations necessary to carry on the
Businesses and any business in which it presently proposes to engage
and to own and use the properties owned and used by it except where the
failure to obtain such licenses, permits and authorizations will not
result in material Adverse Consequences or adversely affect the ability
of the Buyer to carry on the Business in any material respect. The
Seller is not in default under or in violation of any provision of its
charter or bylaws. The Buyer has delivered to the Seller correct and
complete copies of the charter and bylaws of the Seller as amended to
date and as contemplated to be amended upon consummation of the
transaction contemplated herein.
(b) Financial Statements. Buyer has delivered to Seller:
(collectively "Buyer's Financial Statements"): (i) audited consolidated
balance sheets and statements of income, changes in stockholders'
equity, and cash flow as of and for the fiscal years ended December 31,
1994, December 31, 1995, and December 31, 1996 (the "Buyer's Most
Recent Fiscal Year End") for the Buyer; and (ii) unaudited balance
sheets and statements of income, changes in stockholders' equity, and
cash flow (the "Buyer's Most Recent Financial Statements") as of and
for the seven-month period ended July 31, 1997 for the Buyer. The
Financial Statements (including the notes thereto) have been prepared
in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of the
Buyer as of such dates and the results of operations of the Buyer for
such periods, are correct and complete in all material respects, and
are consistent with the books and records of the Buyer (which books and
records are correct and complete in all material respects); provided,
however, that Buyer's Most Recent Financial Statements are subject to
normal year-end adjustments (which will not be material individually or
in the aggregate) and lack footnotes and other presentation items.
(c) Events Subsequent to Buyer's Most Recent Fiscal Year End.
Since Buyer's Most Recent Fiscal Year End, there has not been any
material adverse change in its business, financial condition,
operations, results of operations, or future prospects of the Buyer and
Seller has operated its business only in the Ordinary Course of
Business, other than and except for (i) the potential impact of certain
provisions of the Tax Reform Act of 1997, (ii) certain secured
financing transactions, including the issuance of debt and
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warrant instruments, aggregating $23.5 Million, to purchase the assets
of Seller hereunder and to purchase certain shares of Buyer's Common
Stock under an agreement with Henry J. Smith and an agreement
(including certain related agreements) with Steven J. Cochlan, Malcolm
N. Briggs, G.F. Pendleton, III and Don R. Teasley, (iii) a certain
secured financing transaction to provide $3 Million for working capital
purposes, and (iv) concluding arrangements with William Chatfield and
Bennett Meyer concerning intellectual property matters relating to MCPP
and Cash Value products.
(d) Undisclosed Liabilities. The Buyer does not have any
material Liability (and, to the Knowledge of its employees responsible
for litigation matters, there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any material
Liability), except for (i) Liabilities set forth on the face of Buyer's
Most Recent Balance Sheet and disclosed in any notes thereto and (ii)
Liabilities which have arisen after Buyer's Most Recent Fiscal Period
End in the Ordinary Course of Business (none of which results from,
arises out of, relates to, is in the nature of, or was caused by any
material breach of contract, breach of warranty, tort, infringement, or
violation of law).
(e) Legal Compliance.
(i) The Buyer and its predecessors have complied with
all applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof) except where the
failure to so comply would not have a material adverse effect
on the business, operations or financial condition of the
Buyer, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has
been filed or commenced against any of them alleging any
failure so to comply.
(ii) Buyer and each of its officers and employees,
and, to the Knowledge of Buyer's key employees who are
responsible for such matters, its independent contractors,
subagents and consultants, who are required by reason of the
nature of their employment by the Buyer to be registered or
appointed as an insurance agent, insurance broker or insurance
producer with the insurance department of any state or any
self-regulatory body or other governmental entity, is duly
registered or appointed as such and such registration or
appointment is in full force and effect, and none of the Buyer
or, to the Knowledge of Buyer's key employees who are
responsible for such matters, any of such other Persons has
been enjoined, indicted, convicted or made the subject of any
consent decree or
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administrative order on account of any material violation of
applicable law in connection with such Person's actions in any
of the foregoing capacities or, any enforcement or
disciplinary proceeding alleging any such violation.
(f) Litigation. Buyer is not (i) subject to any outstanding
injunction, judgment, order, decree, ruling, duty to report or charge
or (ii) a party or, to the Knowledge of Buyer, or the directors and
officers (and employees with responsibility for litigation matters) of
the Buyer, is threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator; except for the action
filed in the 44th Judicial District of Dallas County, Texas as Cause
No. 97-03623 by Steven J. Cochlan as a shareholder derivative action on
behalf of Buyer against W.T. Wamberg, Melvin G. Todd and Henry J.
Smith, which was not served on any defendants and which has been
settled in connection with the related transactions referred to in
sub-paragraph (c) of this Section 5. Neither the Buyer, the directors
and officers (and employees with responsibility for litigation matters)
of the Buyer have any reason to believe that there is any Basis for any
such action, suit, proceeding, hearing, or investigation or that any
such action, suit, proceeding, hearing or investigation may be brought
or threatened against the Buyer that could result in any material
Liability or material Adverse Change in the business, financial
condition, operations, results of operations, or future prospects of
Buyer.
(g) Capitalization. The authorized stock of Buyer consists of
20,000,000 shares of Common Stock, without par value, of which, after
giving effect to certain transactions with various shareholders of
Buyer to be concluded contemporaneously with the Closing and the
contemplated immediate sale of up to 1,400,000 shares of Common Stock,
approximately 6,903,038 shares will be issued and outstanding. All of
said resulting issued and outstanding shares are or will be validly
issued, fully paid and nonassessable (except to the extent properly
issued in exchange for promissory notes), and are or will not have been
issued in violation of or subject to any preemptive rights. The
attached Capitalization Schedule reflects the grants, options and
warrants outstanding after giving effect to the transactions reflected
therein and subject to the exceptions indicated. Additional shares of
capital stock will or may be issued or purchased by Buyer under
existing or future transactions, including without limitation, the
transactions referred to in Section 5(c) and nothing herein shall
constitute or be construed as a limitation of any kind or in any
respect on Buyer's ability to issue or deal freely with respect to the
capital stock of Buyer.
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(h) Disclosure. Neither this Agreement nor, to the Knowledge
of Buyer's key employees responsible for such matters any financial
information provided to Seller, contain any untrue statement of a
material fact or omit a material fact necessary to make the statements
contained herein or therein, in light of the circumstances in which
they were made, not misleading.
6. Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use all of his or its
reasonable efforts to take all action and to do all things necessary,
proper, or advisable in order to consummate and make effective the
transactions contemplated by this Agreement (including satisfaction,
but not waiver, of the closing conditions set forth in Section 8
below). Without limiting the foregoing, the Seller and each Shareholder
agrees to take all actions necessary, proper, or advisable to perform
and comply with all of its agreements and obligations hereunder which
are to be performed or complied with at or prior to the Closing.
(b) Notices and Consents. If and to the extent specifically
requested by Buyer, Seller will (i) give any notices to third parties,
and use its best efforts to obtain any third party consents in
connection with any matters referred to in Section 3(a)(ii) above, and
(ii) give any notices to, make any filings with, and use all of its
reasonable efforts to obtain any authorizations, consents, and
approvals of governments and governmental agencies in connection with
the matters referred to in Section 3(a)(ii) and Section 3(b)(ii) above.
(c) Name Change; Operation of Business. Seller shall change
its corporate name from "Bank Compensation Strategies, Inc." Sellers
new corporate name shall have been approved in writing by Buyer. The
Seller will not engage in any practice, take any action, or enter into
any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing, the Seller will not (i)
declare, set aside, or pay any dividend or make any distribution with
respect to its capital stock (other than distribution of cash and notes
to Shareholders consistent with past practice and the projected
Seller's Net Assets as referred to in paragraph 2), or (ii) redeem,
purchase, or otherwise acquire any of its capital stock, or (iii)
otherwise engage in any practice, take any action, or enter into any
transaction of the sort described in Section 4 above.
(d) Preservation of Business. The Seller will make all
reasonable efforts to keep its Business and properties substantially
intact, including its present operations, physical facilities, working
conditions, and relationships with lessors, licensors, suppliers,
customers, and employees.
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(e) Full Access. The Seller will permit representatives of the
Buyer to have full access to all premises, properties, personnel,
books, records (including Tax records), contracts, and documents of or
pertaining to the Seller at all reasonable times.
(f) Notice of Developments. The Seller will give prompt
written notice to the Buyer of any material adverse development causing
a breach of any of the representations and warranties in Section 4
above. Buyer will give prompt written notice to Seller of any material
adverse development causing a breach of any of the representations and
warranties in Section 5 above. Each Party will give prompt written
notice to the others of any material adverse development causing a
breach of any of his or its own representations and warranties in
Section 3 above. No disclosure by any Party pursuant to this Section
6(f), however, shall be deemed to amend or supplement the Disclosure
Schedules or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant.
(g) Exclusivity. Unless and until this Agreement is terminated
in accordance with its terms, neither the Seller nor any of the
Shareholders will (i) solicit, initiate, or encourage the submission of
any proposal or offer from any Person relating to the acquisition of
any capital stock or other voting securities, or any substantial
portion of the assets of, the Seller (including any acquisition
structured as a merger, consolidation, or share exchange) or (ii)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in
any other manner any effort or attempt by any Person to do or seek any
of the foregoing. Unless and until this Agreement is terminated in
accordance with its terms, none of the Shareholders will vote their
Seller Shares in favor of any such acquisition structured as a merger,
consolidation, or share exchange and the Shareholders will notify the
Buyer immediately if any Person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing. Notwithstanding anything
to the contrary stated herein, the Shareholders may transfer Seller
Shares among themselves.
(h) Confidentiality Agreement: October 17, 1996. The
Confidentiality Agreement between Buyer and Seller dated October 17,
1996, executed by Buyer and accepted and agreed to by Seller on
November 17, 1996, shall remain in full force and effect until Closing
and if no Closing occurs, such Confidentiality Agreement shall survive
the termination of this Agreement.
7. Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing.
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<PAGE> 48
(a) General. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including
the execution and delivery of such further instruments and documents)
as any other Party reasonably may request, all at the sole cost and
expense of the requesting Party (unless the requesting Party is
entitled to indemnification therefor under Section 9 below or receipt
thereof as expressly provided under any other provisions of this
Agreement). Seller and the Shareholders acknowledge and agree that from
and after the Closing the Buyer will be entitled to possession of all
documents, books, records (including Tax records), agreements, and
financial data of any sort belonging to or reasonably related to the
Purchased Assets. Buyer will retain Seller's records which Buyer
receives for the same periods that Buyer retains similar records
relating to Buyer, and will allow Seller or any of the Shareholders
access to such records of Seller from time to time if required in
connection with tax audits, matters arising under this Agreement or
litigation purposes.
(b) Unassigned Insurance Contracts: Other Unassigned
Contracts. If Seller is unable or fails to provide the third party
notices or obtain the third party consents required under any Insurance
Contract (herein referred to as the "Unassigned Insurance Contracts")
or any other contract to be acquired by Buyer (herein referred to as
"Other Unassigned Contracts") to effect the assignment thereof pursuant
to this Agreement, Seller shall submit to Buyer three (3) days prior to
the Closing Date a list of all such Unassigned Insurance Contracts and
Other Unassigned Contracts. If Buyer agrees in writing that Seller may
satisfy any outstanding condition to the effective assignment of any
Unassigned Insurance Contracts or Other Unassigned Contracts after the
Closing, Seller shall take such action as is necessary to assign the
Unassigned Insurance Contracts or Other Unassigned Contracts as soon as
practicable after the Closing but in no event no later than six (6)
months after the Closing Date. In addition, until such time as the
Unassigned Insurance Contracts and Other Unassigned Contracts are
assigned to Buyer and Buyer receives directly any all payments of
commissions or fees under such agreements, Seller and each Shareholder
agrees as follows:
(i) Seller shall hold the Unassigned Insurance
Contracts and Other Unassigned Contracts , and any and all
monies received thereunder by Seller or any Shareholder, in
trust for the benefit of Buyer;
(ii) Prior to Closing Date, Seller shall establish a
lockbox account at a banking institution mutually agreed to by
Buyer and Seller in Seller's name but authorizing only the
Buyer to withdraw funds from such account;
43
<PAGE> 49
(iii) Within three (3) days of the Closing Date,
Seller shall notify all third parties responsible for payments
under the Unassigned Insurance Contracts and Other Unassigned
Contracts to remit all monies due thereunder to Buyer; and
(iv) Any monies received by Seller or any Shareholder
under the Unassigned Insurance Contracts and Other Unassigned
Contracts shall, within one (1) day of receipt by Seller or
any Shareholder, be transferred and conveyed to the Buyer.
Seller and each of the Shareholders agree to use all commercially
reasonable efforts to provide Buyer all income, proceeds and other
benefits under or with respect to any Unassigned Insurance Contracts
and/or Other Unassigned Contracts as to which Seller, despite diligent
effort, is unable to obtain the consent or approval required to
complete an effective assignment.
(c) Other Receipts. Seller and each Shareholder agree that any
amounts received by Seller or any of the Shareholders with respect to
or attributable to any asset to be acquired by Buyer under this
Agreement or to which Buyer is entitled, including but not limited to
receipts under or with respect to Unassigned Insurance Contracts or
Other Unassigned Contracts:
(i) Shall be held in trust for the benefit of Buyer;
and
(ii) Shall, within one (1) day of receipt by Seller
or any Shareholder, be transferred and conveyed to Buyer.
(d) Transition. Neither the Sellers nor the Shareholders will
take any action that is designed or intended to have the effect of
discouraging any lessor, licensor, customer, supplier, or other
business associate of the Seller from maintaining the same business
relationships with the Seller after the Closing as it maintained with
the Seller prior to the Closing. Each of Seller and the Shareholders
will refer all customer inquiries relating to the businesses of the
Seller to the Buyer from and after the Closing.
(e) Confidentiality. Seller and each of the Shareholders will
treat and hold as such all of the Confidential Information, refrain
from using any of the Confidential Information except in connection
with this Agreement, and deliver promptly to the Buyer or destroy, at
the request and option of the Buyer, all tangible embodiments (and all
copies) of the Confidential Information which are in his or its
possession. In the event that any of Seller or any of the Shareholders
is requested or required (by oral question or request for information
or documents in any legal proceeding, interrogatory, subpoena,
44
<PAGE> 50
civil investigative demand, or similar process) to disclose any
Confidential Information, that Seller will notify the Buyer promptly of
the request or requirement so that the Buyer may seek an appropriate
protective order or waive compliance with the provisions of this
Section 6(d). If, in the absence of a protective order or the receipt
of a waiver hereunder, any of Seller or any of the Shareholders is, on
the advice of counsel, compelled to disclose any Confidential
Information to any tribunal or else stand liable for contempt, that
Seller or the Shareholder may disclose the Confidential Information to
the tribunal; provided, however, that the disclosing Seller or
Shareholder shall use all of its or his reasonable efforts to obtain,
at the request and at the expense of the Buyer, an order or other
assurance that confidential treatment will be accorded to such portion
of the Confidential Information required to be disclosed as the Buyer
shall designate. The foregoing provisions shall not apply to any
Confidential Information which is generally available to the public
immediately prior to the time of disclosure.
(f) Covenant Not to Compete; Non-Solicitation.
(i) Seller and each Shareholder covenants and agrees
that for a period of five (5) years in the case of Chapman and
Hilgenberg, ten (10) years in the case of Hendrickson, and
twenty (20) years in the case of Seller (each, a "Non-Compete
Period"), from the Closing Date it, or he shall not, in the
United States or Canada and in any other countries in which
the Seller has done Business within five (5) years preceding
the date of this Agreement (collectively, the "Territory"),
directly or indirectly, either alone or in partnership or
jointly or in conjunction with any person or persons, firm,
association, syndicate, company or corporation as principal,
agent, employee, director, shareholder or in any other manner
whatsoever (x) carry on or be
engaged in the Business or any other business which is in
competition with the Business as existing on the date hereof,
or the business of Buyer relating to non-qualified benefit
plans funded with corporate owned life insurance as existing
on the date hereof, except on behalf of the Buyer, or (y)
except on behalf of the Buyer, solicit business relating to
non-qualified benefit plans of any kind funded with life
insurance, from, or sell non-qualified benefit plans of any
kind funded with life insurance to, any of the Seller's
customers in the Territory or any other person, firm or
corporation in the Territory to whom the Seller, directly or
indirectly through representatives, has made an offer,
proposal or any solicitation to sell or has sold any life
insurance policy within five (5) years preceding the date of
this Agreement. Nothing herein shall prohibit a Shareholder
from being an owner of not more than 1% of the outstanding
stock of any class of a corporation which engages in such
prohibited activity, so long as such corporation is publicly
traded and listed on a national securities exchange or
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<PAGE> 51
quoted on a national automated quotation system, provided that
the Shareholder has no active participation in the business of
such corporation.
(ii) Seller and each Shareholder agree that during
the Non-Compete Period, it, he or she will not directly or
indirectly offer employment to or hire any person who is
currently or was within the 12 full months immediately
preceding the Closing Date employed by the Seller, except with
the prior written consent of the Buyer.
(iii) If the final judgment of a court of competent
jurisdiction declares that any term or provision of this
Section 7(e) is invalid or unenforceable, the Parties hereto
agree that the court making the determination of invalidity or
unenforceability shall have the power, and the Parties shall
request the court, to reduce the scope, duration, or area of
the term or provision, to delete specific words or phrases, or
to replace any invalid or unenforceable term or provision with
a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time
within which the judgment may be appealed.
(g) Board of Directors.
(i) Upon Closing, Lawrence H. Hendrickson or, if he
is unavailable, Richard Chapman, shall be duly elected as a
member of the Board of Directors of Buyer and shall serve in
such capacity until the Medium Term Note has been paid in
full; and
(ii) Upon the payment in full of the Medium Term
Note, the above director shall immediately resign if requested
to do so by resolution adopted by the Board of Directors (with
such director abstaining from voting). If such director fails
to resign if so requested by the Board of Directors, he may be
removed from the Board of Directors of Buyer in accordance
with the Articles of Incorporation and the Bylaws of Buyer.
8. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of
the Buyer to consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions, except as otherwise permitted under Section 7
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<PAGE> 52
and subject to full compliance therewith by Seller and each of the
Shareholders:
(i) the representations and warranties set forth in
Section 3(a) and Section 4 above shall be true and correct in
all material respects at and as of the Closing Date;
(ii) the Seller and the Shareholders shall have
performed and complied in all material respects with all of
their covenants hereunder through the Closing;
(iii) the Seller shall have effected the full and
effective assignment of the Insurance Contracts to Buyer prior
to Closing;
(iv) no action, suit, or proceeding shall be pending
or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded
following consummation, or (C) affect adversely the right of
the Seller to own its assets and to operate its businesses
(and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(v) the Seller shall have delivered to the Buyer or
officer's certificate to the effect that each of the
conditions specified above in Section 8(a)(i)-(iv) is
satisfied in all respects;
(vi) the Parties shall have received all
authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3(a)(ii) and
Section 3(b)(ii);
(vii) the Buyer shall have received from counsel to
the Seller an opinion in form and substance as set forth in
Exhibit F attached hereto, addressed to the Buyer, and dated
as of the Closing Date with letters of reliance in favor of
Buyer's secured lenders referred to in sub-paragraph (c) of
Section 5;
(viii) UCC Financing Statements in favor of Buyer as
the secured party shall be ready to be filed in all
appropriate jurisdictions with respect to all Unassigned
Insurance Contracts and accounts and notes receivable relating
thereto;
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<PAGE> 53
(ix) Richard C. Chapman and James Meyer shall have
executed and delivered employment agreements in substantially
the form of Exhibit G attached hereto, and the same shall be
in full force and effect;
(x) Buyer shall have obtained on terms and conditions
satisfactory to it all of the financing it needs in order to
consummate the transactions contemplated hereby and fund the
working capital requirements of the Business following the
Closing;
(xi) the receipt of all necessary or appropriate
insurance regulatory approvals of this Agreement and the
transactions contemplated herein;
(xii) the receipt of all necessary or appropriate
insurance company approvals of this Agreement and the
transactions contemplated herein;
(xiii) the receipt from Seller and each Shareholder
of an executed Release in the form of Exhibit H attached
hereto; and
(xiv) all actions to be taken by the Seller or any of
Shareholders in connection with consummation of the
transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect
the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Buyer.
(xv) Buyer shall have received signed notices,
directions and requests for approval from Seller to all
appropriate insurance carriers, other parties to contracts to
be acquired by Buyer, or other third parties and governmental
agencies referred to in Section 3(a)(ii), as requested by
Buyer, in form and substance reasonably satisfactory to Buyer;
The Buyer may waive any condition specified in this Section 8(a) if it
executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Seller. The obligation of
the Seller to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Section 3(b) and Section 5 above shall be true and correct in
all material respects at and as of the Closing Date;
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<PAGE> 54
(ii) the Buyer shall have performed and complied with
all of its covenants hereunder in all material respects
through the Closing;
(iii) no action, suit, or proceeding shall be pending
or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions
contemplated by this Agreement or (B) cause any of the
transactions contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(iv) the Buyer shall have delivered to the Seller a
certificate to the effect that each of the conditions
specified above in Section 8(b)(i)-(iii) is satisfied in all
respects;
(v) the Parties, shall have received all other
authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3(a)(ii) and
Section 3(b)(ii) above;
(vi) the Seller shall have received from counsel to
the Buyer an opinion in form and substance as set forth in
Exhibit I attached hereto, addressed to the Seller, and dated
as of the Closing Date; and
(vii) Buyer shall have executed and delivered the
employment agreements of Richard C. Chapman and James Meyer,
copies of which are attached hereto as Exhibit J.
(viii) all actions to be taken by the Buyer in
connection with consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated
hereby will be reasonably satisfactory in form and substance
to the Seller.
(ix) UCC Financing Statements in favor of Seller
shall be ready to be filed in all appropriate jurisdictions
with respect to the third and subsequent year commission
renewals specified as security under the Medium Term Notes.
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<PAGE> 55
(x) Seller shall have received notices and directions
from Buyer to all appropriate insurance carriers, in form and substance
reasonably satisfactory to Seller.
9. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. The
representations and warranties contained in Section 4(h) and any other
representation or warranty of Seller or the Shareholders arising out
of, or in connection with, or pertaining to Taxes, Tax Returns or tax
reports of the Seller and of the Shareholders shall survive, with
respect to a particular tax year, until the applicable limitations
period shall have barred any assessment of tax deficiencies for such
tax year plus 30 days. The representations and warranties contained in
Section 3(a) and Section 3(b) shall survive the Closing hereof and
continue until the running of any applicable statute of limitation
relating thereto. Except as aforesaid or as otherwise herein provided,
all representations and warranties of Seller and the Shareholders and
Buyer contained in this Agreement or any writing delivered in
connection herewith shall survive the Closing hereof and any
investigations made by or on behalf of any of the parties hereto for a
period of three years after the Closing. After the expiration of the
applicable survival period, such representations and warranties shall
expire and be of no further force and effect unless written notice of a
claim with respect to any such representation and warranty, stating
with specificity the nature of the claim, shall have been given to the
party which made the same prior to the expiration thereof. All
covenants of the parties which are not fully performed as of the
Closing shall survive the Closing.
(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event Seller or any of the Shareholders
breaches (or in the event any third party alleges facts that,
if true, would mean Seller or any of the Shareholders has
breached) any of their representations, warranties, and
covenants contained herein or in any writing delivered in
connection herewith, including, but not limited to, those
representations, warranties and covenants relating to
Environmental, Health, and Safety Laws, then the Seller and
each of the Shareholders agrees to jointly and severally
indemnify the Buyer from and against the entirety of any
Adverse Consequences the Buyer may suffer through and after
the date of the claim for indemnification (including any
Adverse Consequences the Buyer may suffer after the end of any
applicable survival period) resulting from, arising out of,
relating to, in the nature of, or caused by the breach (or the
alleged breach), subject to the limitations set forth below.
50
<PAGE> 56
(ii) The Seller and each of the Shareholders agrees
to indemnify the Buyer from and against the entirety of any
Adverse Consequences the Buyer may suffer resulting from,
arising out of, relating to, in the nature of, or caused by:
(A) Liabilities retained by Seller
pursuant to Section 2(a)(iv);
(B) Charge-back of commissions or other
revenues pursuant to Section 2(e)
(this shall pertain only to the
Seller's pro-rata share of any
Charge-back and not to chargebacks
for which the Seller's agents are
liable); and
(C) Intentional misrepresentation by
Seller or any Shareholder.
(c) Indemnification Provisions for Benefit of the Seller or
the Shareholders. In the event the Buyer breaches (or in the event any
third party alleges facts that, if true, would mean the Buyer has
breached) any of its representations, warranties, and covenants
contained herein or in any writing delivered in connection herewith,
and, other than with respect to Buyer's obligations concerning the
Liabilities Assumed pursuant to Section 2(a)(iii), provided such breach
or misrepresentation is intentional, then the Buyer agrees to indemnify
Seller and each of the Shareholders from and against the entirety of
any Adverse Consequences the Seller or the Shareholder may suffer
through and after the date of the claim for indemnification (including
any Adverse Consequences the Seller or the Shareholder may suffer after
the end of any applicable survival period) resulting from, arising out
of, relating to, in the nature of, or caused by the breach (or the
alleged breach), subject to the limitations set forth below.
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third
Party Claim") which may give rise to a claim for
indemnification against any other Party (the "Indemnifying
Party") under this Section 9, then the Indemnified Party shall
promptly notify each Indemnifying Party thereof in writing;
provided, however, that no delay on the part of the
Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder
unless (and then solely to the extent) the Indemnifying Party
thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim
with counsel of its choice reasonably satisfactory to the
Indemnified Party so long as (A) the Indemnifying
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<PAGE> 57
Party notifies the Indemnified Party in writing within 20 days
after the Indemnified Party has given notice of the Third
Party Claim that the Indemnifying Party will indemnify the
Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by
the Third Party Claim, (B) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the
Indemnified Party that the Indemnifying Party will have the
financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C) the
Third Party Claim involves only money damages and does not
seek an injunction or other equitable relief, (D) settlement
of, or an adverse judgment with respect to, the Third Party
Claim is not, in the good faith judgment of the Indemnified
Party, likely to establish a precedential custom or practice
materially adverse to the continuing business interests of the
Indemnified Party, and (E) the Indemnifying Party conducts the
defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting
the defense of the Third Party Claim in accordance with
Section 9(d)(ii) above, (A) the Indemnified Party may retain
separate co-counsel at its sole cost and expense and
participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C)
the Indemnifying Party will not consent to the entry of any
judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in Section
9(d)(ii) above is or becomes unsatisfied, however, (A) the
Indemnified Party may defend against, and consent to the entry
of any judgment or enter into any settlement with respect to,
the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with,
or obtain any consent from, any Indemnifying Party in
connection therewith), (B) the Indemnifying Parties will
reimburse the Indemnified Party promptly and periodically for
the costs of defending against the Third Party Claim
(including reasonable attorneys' fees and expenses), and (C)
the Indemnifying Parties will remain responsible for any
Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of,
or caused by the Third Party Claim to the fullest extent
provided in this Section 9.
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(e) Determination of Adverse Consequences. The Parties shall
take into account the time cost of money (using the Applicable Rate as
the discount rate) in determining the Adverse Consequences for purposes
of this Section 9. All indemnification payments under this Section 9
shall be deemed adjustments to the Purchase Price. Any determination of
Adverse Consequences suffered or incurred by Shareholders shall be made
on an aggregate net basis taking into account all Shareholders, rather
than on an individual Seller basis.
(f) Limitations Upon Indemnification. Notwithstanding the
foregoing provisions of this Section 9 of the Agreement to the
contrary, any Indemnifying Party shall not be liable for any amounts
under this Section 9 unless the Adverse Consequences suffered by the
Indemnified Party from all claims for indemnification by such
Indemnified Party exceed $25,000 (the "Threshold"), in which event such
Indemnifying Party shall be liable to indemnify the Indemnified Party
from and against all such Adverse Consequences relating back to the
first dollar; provided, however, the indemnification provided for in
Section 9(b)(ii) and 9(c) shall not be subject to the Threshold; and
further provided that the indemnification provided in Section 9(b)(i)
shall include Adverse Consequences arising out of the Benmark matter
disclosed in the Litigation Schedule, and shall be subject to the
following aggregate limitations:
<TABLE>
<CAPTION>
Amount of Adverse
Consequences-Cumulative Indemnification Percentage
----------------------- --------------------------
<S> <C>
First $250,000 None
Next $1,000,000 50%
Above $1,250,000 None
</TABLE>
Notwithstanding the foregoing, the limitations of this Section 9(f) shall not
apply to any claim based upon fraud, intentional misrepresentation or willful
breach.
(g) Recoupment Under the Medium Term Note and Convertible
Note. The Buyer shall have the option of recouping all or any part of
any Adverse Consequences it may suffer (in lieu of seeking
indemnification to which it is entitled under this Section 9) by
notifying Seller or the Shareholders that the Buyer is reducing the
principal amount outstanding under the outstanding Medium Term Note.
This shall affect the timing and amount of payments required under the
Medium Term Note in the same manner as if the
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<PAGE> 59
Buyer had made a permitted prepayment (without premium or penalty)
thereunder. The exercise of such right of recoupment by Buyer in good
faith, whether or not ultimately determined to be justified, will not
constitute an event of default under the Medium Term Note.
(h) Exclusive Remedy. The rights of the Seller, Buyer and
Shareholders to indemnification under this Paragraph 9 shall be their
sole and exclusive remedy under this Agreement and shall preclude the
assertion of any other right or remedy against any such person or any
of its affiliates by any other party hereto arising from or in
connection with this Agreement or any other document referred to herein
or executed or delivered in connection herewith, other than actions for
specific performance, injunctive relief or in connection with fraud,
intentional misrepresentation or willful breach.
10. Termination.
(a) Termination of Agreement. Certain of the Parties may
terminate this Agreement as provided below:
(i) the Buyer and the Seller may terminate this
Agreement by mutual written consent at any time prior to the
Closing;
(ii) the Buyer may terminate this Agreement by giving
written notice to Seller at any time prior to the Closing (A)
in the event Seller or any of the Shareholders has breached
any material representation, warranty, or covenant contained
in this Agreement in any material respect or failed to perform
any condition precedent to the Buyer's obligations, the Buyer
has notified Seller of the breach, and the breach has
continued without cure for a period of 15 days after the
notice of breach or the failure of any condition precedent,
provided that such breach is subject to cure or (B) if the
Closing shall not have occurred on or before September 9,
1997; and
(iii) the Seller may terminate this Agreement by
giving written notice to the Buyer at any time prior to the
Closing (A) in the event the Buyer has breached any material
representation, warranty, or covenant contained in this
Agreement in any material respect or failed to perform any
condition precedent to the Seller's obligations, Seller has
notified the Buyer of the breach, and the breach has continued
without cure for a period of 15 days after the notice of
breach or the failure of any condition precedent, provided
that such breach is subject to cure or (B) if the Closing
shall not have occurred on or before September 9, 1997.
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(b) Effect of Termination. If any Party terminates this
Agreement pursuant to Section 10(a) above, all rights and obligations
of the Parties hereunder shall terminate without any Liability of any
Party to any other Party, except for any Liability of any Party then in
breach.
11. Miscellaneous.
(a) Nature of Certain Obligations.
(i) The representations and warranties of Seller and
each of the Shareholders in Section 3(a) above concerning the
transaction are several obligations. This means that the
Seller or the particular Shareholder making the
representation, warranty, or covenant will be solely
responsible to the extent provided in Section 9 above for any
Adverse Consequences the Buyer may suffer as a result of any
breach thereof.
(ii) The remainder of the representations,
warranties, and covenants in this Agreement are joint and
several obligations. This means that Seller and each
Shareholder will be responsible to the extent provided in
Section 9 above for the entirety of any Adverse Consequences
the Buyer may suffer as a result of any breach thereof.
(b) Press Releases and Public Announcements. No Party shall
issue any press release or make any public announcement relating to the
subject matter of this Agreement prior to the Closing without the prior
written approval of the Buyer and the Seller;
(c) No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties
and their respective successors and permitted assigns (and as third
party beneficiaries, the holders of the debt and warrant instruments
issued in connection with the financing arrangements referred to in
Section 5(c).
(d) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties
and supersedes any prior understandings, agreements, or representations
by or among the Parties, written or oral, to the extent they related in
any way to the subject matter hereof, including, without limitation,
the May 14, 1997 Letter Agreement; provided, however, the
Confidentiality Agreement dated October 17, 1996 executed by Buyer and
accepted and agreed to by Seller on November 17, 1996 shall remain in
full force and effect and shall survive and shall be governed by
Section 6(h) hereof.
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(e) Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either
this Agreement or any of his or its rights, interests, or obligations
hereunder without the prior written approval of the Buyer and the
Seller; provided, however, that the Buyer may change its state of
incorporation by way of merger or otherwise.
(f) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly
given if (and then two business days after) it is sent by registered or
certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient as set forth below:
If to the Seller:
Bank Compensation Strategies, Inc.
3600 West 80th Street
Suite 200
Bloomington, Minnesota 55431-4598
If to the Shareholders:
Bank Compensation Strategies, Inc.
3600 West 80th Street
Suite 200
Bloomington, Minnesota 55431-4598
56
<PAGE> 62
Copy to:
Joseph Alexander, Esq.
Maslon Edelman Borman & Brand, LLP
3300 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-4140
If to the Buyer:
Clark/Bardes, Inc.
2121 San Jacinto Street, Suite 2200
Dallas, Texas 75201
Attn: Mel G. Todd, President
Copy to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street, Suite 2600
Chicago, Illinois 60601-1003
Attn: Stan Block, Esq.
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set
forth above using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail,
or electronic mail), but no such notice, request, demand, claim, or
other communication shall be deemed to have been duly given unless and
until it actually is received by the intended recipient. Any Party may
change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of [Texas]
without giving effect to any choice or conflict of law provision or
rule (whether of the State of [Texas] or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than
the State of Texas.
57
<PAGE> 63
(j) Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and
signed by the Buyer, the Seller and the Shareholders. No waiver by any
Party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach
of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall
not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other jurisdiction.
(l) Expenses. Each of the Parties and the Seller will bear his
or its own costs and expenses (including legal fees and expenses)
incurred in connection with this Agreement and the transactions
contemplated hereby.
(m) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity
or question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the Parties and no presumption or
burden of proof shall arise favoring or disfavoring any Party by virtue
of the authorship of any of the provisions of this Agreement. Any
reference to any federal, state, local, or foreign statute or law shall
be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including"
shall mean including without limitation. The Parties intend that each
representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that
there exists another representation, warranty, or covenant relating to
the same subject matter (regardless of the relative levels of
specificity) which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
(n) Incorporation of Exhibits, Annexes, and Disclosure
Schedules. The Exhibits, Annexes, and Disclosure Schedules identified
in this Agreement are incorporated herein by reference and made a part
hereof.
(o) Specific Performance. Each of the Parties acknowledges and
agrees that the other Parties would be damaged irreparably in the event
any of the provisions of this Agreement are not performed in accordance
with their specific terms or otherwise are breached. Accordingly, each
of the Parties agrees that the other Parties shall be entitled to
58
<PAGE> 64
an injunction or injunctions to prevent breaches of the provisions of
this Agreement and to enforce specifically this Agreement and the terms
and provisions hereof in any action instituted in any court of the
United States or any state thereof having jurisdiction over the Parties
and the matter, in addition to any other remedy to which they may be
entitled, at law or in equity.
*****
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
BUYER:
CLARK/BARDES, INC.
By:
-----------------------------------
Title:
--------------------------------
Seller:
BANK COMPENSATION STRATEGIES, INC.
By:
-----------------------------------
Title:
--------------------------------
Shareholders:
- ---------------------------------------
Lawrence H. Hendrickson
- ---------------------------------------
Richard C. Chapman
- ---------------------------------------
Walter Hilgenberg
59
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
CLARK/BARDES ORGANIZATION, INC.
THE UNDERSIGNED, acting as the incorporator of a corporation under and
in accordance with the General Corporation Law of the State of Delaware, hereby
adopts the following Certificate of Incorporation for such corporation:
I.
The name of the corporation is Clark/Bardes Organization, Inc.
II.
The street address of the initial registered office of the corporation
is 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, and the
name of its initial registered agent at such address is The Corporation Trust
Company.
III.
The purpose for which the corporation is organized is the transaction
of any or all lawful acts and activities for which corporations may be
incorporated under the General Corporation Law of the State of Delaware.
IV.
The aggregate number of shares of capital stock which the corporation
shall have authority to issue is 21,000,000, of which (1) 20,000,000 shares
shall be common stock, par value $0.01 per share; and (2) 1,000,000 shares
shall be preferred stock, par value $0.01 per share. Unless specifically
provided otherwise herein, the holders of such shares shall be entitled to one
vote for each share held in any stockholder vote in which any of such holders
is entitled to participate.
V.
The board of directors may determine the powers, designations,
preferences and relative, participating, optional or other special rights,
including voting rights, and the qualifications, limitations or restrictions
thereof, of each class of capital stock and of each series within any such
class and may increase or decrease the number of shares within each such class
or series; provided, however, that the board of directors may not decrease the
number of shares within a class or series to less than the number of shares
within such class or series that are then issued and may not increase the
number of shares within a series above the total number of authorized shares of
the applicable class for which the powers, designations, preferences and rights
have not otherwise been set forth herein.
<PAGE> 2
VI.
The name and address of the incorporator is as follows:
Name Address
---- -------
Alex Frutos Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4618
VII.
The board of directors shall be divided into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors constituting the entire
board of directors. The term of the initial Class I directors shall terminated
on the date of the 1999 annual meeting; the term of the initial Class II
directors shall terminate on the date of the 2000 annual meeting; and the term
of the initial Class III directors shall terminate on the date of the 2001
annual meeting. At each succeeding annual meeting of stockholders beginning in
1999, successors to the class of directors whose term expires 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.
The powers of the incorporator shall terminate upon the filing of this
Certificate of Incorporation, and the following persons shall thereupon serve
as directors of the corporation in the designated class until the first annual
meeting of stockholders or until their successors are duly elected and
qualified:
<TABLE>
<CAPTION>
Name Address Class
---- ------- -----
<S> <C> <C>
W.T. Wamberg 2121 San Jacinto, Suite 2200 Class III
Dallas, Texas 75201-7906
Lawrence H. Hendrickson 2121 San Jacinto, Suite 2200 Class II
Dallas, Texas 75201-7906
Melvin G. Todd 2121 San Jacinto, Suite 2200 Class I
Dallas, Texas 75201-7906
Randolph Pohlman 2121 San Jacinto, Suite 2200 Class III
Dallas, Texas 75201-7906
L. William Seidman 2121 San Jacinto, Suite 2200 Class II
Dallas, Texas 75201-7906
</TABLE>
2
<PAGE> 3
VIII.
To the fullest extent permitted by the General Corporation Law of the
State of Delaware, as the same exists or may hereafter be amended, a director
of the corporation shall not be liable to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director. Any repeal or
amendment of this Article by the stockholders of the corporation or by changes
in applicable law shall, to the extent permitted by applicable law, be
prospective only, and shall not adversely affect any limitation on the personal
liability of any director of the corporation at the time of such repeal or
amendment.
IX.
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, arbitrative or
investigative, any appeal in such an action, suit or proceeding and any inquiry
or investigation that could lead to such an action, suit or proceeding (whether
or not by or in the right of the corporation), by reason of the fact that he is
or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of
another corporation, partnership, joint venture, sole proprietorship, trust,
nonprofit entity, employee benefit plan or other enterprise, against all
judgments, penalties (including excise and similar taxes), fines, settlements
and expenses (including attorneys' fees and court costs) actually and
reasonably incurred by him in connection with such action, suit or proceeding
to the fullest extent permitted by any applicable law, and such indemnity shall
inure to the benefit of the heirs, executors and administrators of any such
person so indemnified pursuant to this Article. The right to indemnification
under this Article shall be a contract right and shall include, with respect to
directors and officers, the right to be paid by the corporation the expenses
incurred in defending any such proceeding in advance of its disposition;
provided, however, that, if the General Corporation Law of the State of
Delaware requires, the payment of such expenses incurred by a director or
officer in advance of the final disposition of a proceeding shall be made only
upon delivery to the corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified
under this Article or otherwise. The corporation may, by action of its board
of directors, pay such expenses incurred by employees and agents of the
corporation upon such terms as the board of directors deems appropriate. The
indemnification and advancement of expenses provided by, or granted pursuant
to, this Article shall not be deemed exclusive of any other right to which
those seeking indemnification may be entitled under any law, bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office. Any repeal or amendment of this Article by the stockholders of
the corporation or by changes in applicable law shall, to the extent permitted
by applicable law, be prospective only, and not adversely affect the
indemnification of any person who may be indemnified at the time of such repeal
or amendment.
3
<PAGE> 4
X.
No contract or other transaction between the corporation and any other
corporation and no other acts of the corporation with relation to any other
corporation shall, in the absence of fraud, in any way be invalidated or
otherwise affected by the fact that any one or more of the directors or
officers of the corporation are pecuniarily or otherwise interested in, or are
directors or officers of, such other corporation. Any director or officer of
the corporation individually, or any firm or association of which any director
or officer may be a member, may be a party to, or may be pecuniarily or
otherwise interested in, any contract or transaction of the corporation,
provided that the fact that he individually or as a member of such firm or
association is such a party or is so interested shall be disclosed or shall
have been known to the board of directors or a majority of such members thereof
as shall be present at any meeting of the board of directors at which action
upon any such contract or transaction shall be taken; and any director of the
corporation who is also a director or officer of such other corporation or who
is such a party or so interested may be counted in determining the existence of
a quorum at any meeting of the board of directors which shall authorize any
such contract or transaction and may vote thereat to authorize any such
contract or transaction, with like force and effect as if he were not such a
director or officer of such other corporation or not so interested. Any
director of the corporation may vote upon any contract or any other transaction
between the corporation and any subsidiary or affiliated corporation without
regard to the fact that he is also a director or officer of such subsidiary or
affiliated corporation.
Any contract, transaction, act of the corporation or of the directors,
which shall be ratified at any annual meeting of the stockholders of the
corporation, or at any special meeting of the stockholders of the corporation,
or at any special meeting called for such purpose, shall, insofar as permitted
by law, be as valid and as binding as though ratified by every stockholder of
the corporation; provided, however, that any failure of the stockholders to
approve or ratify any such contract, transaction or act, when and if submitted,
shall not be deemed in any way to invalidate the same or deprive the
corporation, its directors, officers or employees, of its or their right to
proceed with such contract, transaction or act.
Subject to any express agreement which may from time to time be in
effect, any stockholder, director or officer of the corporation may carry on
and conduct in his own right and for his own personal account, or as a partner
in any partnership, or as a joint venturer in any joint venture, or as an
officer, director or stockholder of any corporation, or as a participant in any
syndicate, pool, trust or association, any business which competes with the
business of the corporation and shall be free in all such capacities to make
investments in any kind of property in which the corporation may make
investments.
XI.
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 of the corporation, and the ability of the stockholders to consent
in writing to the taking of any action is hereby specifically denied.
4
<PAGE> 5
XII.
Election of directors need not be by written ballot. In furtherance
and not in limitation of the powers conferred by statute, the board of
directors of the corporation is expressly authorized to adopt the original
bylaws of the corporation, to amend or repeal the bylaws or to adopt new
bylaws, subject to any limitations which may be contained in such bylaws. The
affirmative vote of at least a majority of the entire board of directors shall
be required to adopt, amend, alter or repeal the bylaws. The bylaws may also
be adopted, amended, altered or repealed by the affirmative vote of the holders
of at least 66 2/3% of the voting power of the shares entitled to vote at an
election of directors.
XIII.
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation in the manner now
or hereafter prescribed in this certificate of incorporation, the bylaws, or
the Delaware General Corporation Law, and all rights herein conferred upon
stockholders are granted subject to such reservation; provided, however, that,
notwithstanding any other provision of this certificate of incorporation (and
in addition to any other vote that may be required by law), the affirmative
vote of the holders of at least 66 2/3% of the voting power of the shares
entitled to vote at an election of directors shall be required to amend, alter,
change or repeal, or to adopt any provision as part of this certificate of
incorporation inconsistent with the purpose and intent of Articles VII, XI and
XII of this certificate of incorporation or this Article XIII.
[SIGNATURE PAGE FOLLOWS]
5
<PAGE> 6
IN WITNESS WHEREOF, the incorporator has executed this Certificate of
Incorporation on the 9th day of June, 1998.
INCORPORATOR
/s/ ALEX FRUTOS
-----------------------------------
Alex Frutos
6
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
CLARK/BARDES HOLDINGS, INC.
A DELAWARE CORPORATION
(THE "COMPANY")
(ADOPTED AS OF JUNE 10, 1998)
<PAGE> 2
BYLAWS
OF
CLARK/BARDES HOLDINGS, INC.
ARTICLE I.
OFFICES
Section 1.1 Registered Office. The registered office of the
Company within the State of Delaware shall be located at either (i) the
principal place of business of the Company in the State of Delaware or (ii) the
office of the corporation or individual acting as the Company's registered
agent in Delaware.
Section 1.2 Additional Offices. The Company may, in addition to
its registered office in the State of Delaware, have such other offices and
places of business, both within and without the State of Delaware, as the Board
of Directors of the Company (the "Board") may from time to time determine or as
the business and affairs of the Company may require.
ARTICLE II.
STOCKHOLDERS MEETINGS
Section 2.1 Annual Meetings. Annual meetings of stockholders
shall be held at a place and time on any weekday which is not a holiday as
shall be designated by the Board and stated in the notice of the meeting, at
which the stockholders shall elect the directors of the Company and transact
such other business as may properly be brought before the meeting.
Section 2.2 Special Meetings. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by law
or by the certificate of incorporation, (i) may be called by the chairman of
the board or the president and (ii) shall be called by the president or
secretary at the written request of a majority of the Board or at the request
in writing by stockholders owning capital stock of the Company representing 66
2/3% of the votes of all capital stock of the Company entitled to vote thereat.
Such request shall state the purpose or purposes of the proposed meeting. At a
special meeting of stockholders, only such business shall be conducted as shall
be specified in the notice of meeting.
Section 2.3 Notices. Written notice of each stockholders'
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote thereat by or at the direction of the officer
calling such meeting not less than ten (10) nor more than sixty (60) days
before the date of the meeting. If said notice is for a stockholders meeting
other than an annual meeting, it shall in addition state the purpose or
purposes for which said meeting is called, and the business transacted at such
meeting shall be limited to the matters so stated in said notice and any
matters reasonably related thereto.
Section 2.4 Quorum. The presence at a stockholders' meeting of
the holders, present in person or represented by proxy, of capital stock of the
Company representing a majority of the votes of all capital stock of the
Company entitled to vote thereat shall constitute a quorum at such
<PAGE> 3
meeting for the transaction of business except as otherwise provided by law,
the certificate of incorporation or these Bylaws. If a quorum shall not be
present or represented at any meeting of the stockholders, a majority of the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At such reconvened meeting at which a quorum shall be present
or represented, any business may be transacted which might have been transacted
at the meeting as originally notified. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for
the reconvened meeting, a notice of said meeting shall be given to each
stockholder entitled to vote at said meeting. The stockholders present at a
duly convened meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
Section 2.5 Voting of Shares.
Section 2.5.1. Voting Lists. The officer or agent who has
charge of the stock ledger of the Company shall prepare, at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote thereat arranged in alphabetical order and showing the address
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any such stockholder, for any purpose
germane to the meeting, during ordinary business hours for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The original stock transfer books shall be prima facie evidence as to
who are the stockholders entitled to examine such list or transfer books or to
vote at any meeting of stockholders. Failure to comply with the requirements
of this section shall not affect the validity of any action taken at said
meeting.
Section 2.5.2. Votes Per Share. Unless otherwise provided
in the certificate of incorporation, each stockholder shall be entitled to one
vote in person or by proxy at every stockholders meeting for each share of
capital stock held by such stockholder.
Section 2.5.3. Proxies. Every stockholder entitled to vote
at a meeting or to express consent or dissent without a meeting or a
stockholder's duly authorized attorney-in-fact may authorize another person or
persons to act for him by proxy. Each proxy shall be in writing, executed by
the stockholder giving the proxy or by his duly authorized attorney. No proxy
shall be voted on or after three (3) years from its date, unless the proxy
provides for a longer period. Unless and until voted, every proxy shall be
revocable at the pleasure of the person who executed it, or his legal
representatives or assigns, except in those cases where an irrevocable proxy
permitted by statute has been given.
Section 2.5.4. Required Vote. When a quorum is present at
any meeting, the vote of the holders, present in person or represented by
proxy, of capital stock of the Company representing a majority of the votes of
all capital stock of the Company entitled to vote thereat shall decide any
question brought before such meeting, unless the question is one upon which, by
2
<PAGE> 4
express provision of law or the certificate of incorporation or these Bylaws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
Section 2.5.5. Consents in Lieu of Meeting. 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 of the
corporation, and the ability of the stockholders to consent in writing to the
taking of any action is hereby specifically denied.
ARTICLE III.
DIRECTORS
Section 3.1 Purpose. The business of the Company shall be
managed by or under the direction of the Board, which may exercise all such
powers of the Company and do all such lawful acts and things as are not by law,
the certificate of incorporation or these Bylaws directed or required to be
exercised or done by the stockholders. Directors need not be stockholders or
residents of the State of Delaware.
Section 3.2 Number. The number of directors constituting the
Board shall never be less than one and shall be determined by resolution of the
Board.
Section 3.3 Election. The directors shall be divided into three
classes as provided in the certificate of incorporation. Each director,
including a director elected to fill a vacancy, shall hold office until the
expiration of the term for which elected and until a successor has been elected
and qualified. No decrease in the number of directors shall have the effect of
shortening the term of any incumbent director.
Section 3.4 Vacancies. Vacancies and newly-created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
their successors are duly elected and qualified. If there are no directors in
office, then an election of directors may be held in the manner provided by
law. If, at the time of filling any vacancy or any newly-created directorship,
the directors then in office shall constitute less than a majority of the whole
Board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent (10%) of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly-created directorships,
or to replace the directors chosen by the directors then in office. No
decrease in the size of the Board shall serve to shorten the term of an
incumbent director.
Section 3.5 Removal. Unless otherwise restricted by law or the
certificate of incorporation or these Bylaws, any director or the entire Board
may be removed only for cause, by a 66 2/3% vote of the shares entitled to vote
at an election of directors, if notice of the intention to act upon such matter
shall have been given in the notice calling such meeting.
3
<PAGE> 5
Section 3.6 Compensation. Unless otherwise restricted by the
certificate of incorporation or these Bylaws, the Board shall have the
authority to fix the compensation of directors. The directors may be
reimbursed their expenses, if any, of attendance at each meeting of the Board
and may be paid either a fixed sum for attendance at each meeting of the Board
or a stated salary as director. No such payment shall preclude any director
from serving the Company in any other capacity and receiving compensation
therefor. Members of committees of the Board may be allowed like compensation
for attending committee meetings.
ARTICLE IV.
BOARD MEETINGS
Section 4.1 Annual Meetings. The Board shall meet as soon as
practicable after the adjournment of each annual stockholders' meeting at the
place of the stockholders' meeting. No notice to the directors shall be
necessary to legally convene this meeting, provided a quorum is present.
Section 4.2 Regular Meetings. Regularly scheduled, periodic
meetings of the Board may be held without notice at such times and places as
shall from time to time be determined by resolution of the Board and
communicated to all directors.
Section 4.3 Special Meetings. Special meetings of the Board (i)
may be called by the chairman of the board or president and (ii) shall be
called by the president or secretary on the written request of two directors or
the sole director, as the case may be. Notice of each special meeting of the
Board shall be given, either personally or as hereinafter provided, to each
director at least 24 hours before the meeting if such notice is delivered
personally or by means of telephone, telegram, telex or facsimile transmission
and delivery; two days before the meeting if such notice is delivered by a
recognized express delivery service; and three days before the meeting if such
notice is delivered through the United States mail. Any and all business may
be transacted at a special meeting which may be transacted at a regular meeting
of the Board. Except as may be otherwise expressly provided by law, the
certificate of incorporation or these Bylaws, neither the business to be
transacted at, nor the purpose of, any special meeting need be specified in the
notice or waiver of notice of such meeting.
Section 4.4 Quorum, Required Vote. A majority of the directors
shall constitute a quorum for the transaction of business at any meeting of the
Board, and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board, except as may be
otherwise specifically provided by law, the certificate of incorporation or
these Bylaws. If a quorum shall not be present at any meeting, a majority of
the directors present may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present.
Section 4.5 Consent In Lieu of 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 or any committee
thereof may be taken without a meeting, if all members of the Board or
4
<PAGE> 6
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
ARTICLE V.
COMMITTEES OF DIRECTORS
Section 5.1 Establishment; Standing Committees. The Board may by
resolution establish, name or dissolve one or more committees, each committee
to consist of one or more of the directors. Each committee shall keep regular
minutes of its meetings and report the same to the Board when required. There
shall exist the following standing committees, which committees shall have and
may exercise the following powers and authority:
Section 5.1.1. Finance Committee. The Finance Committee
shall, from time to time, meet to review the Company's consolidated operating
and financial affairs, both with respect to the Company and all of its
subsidiaries, and to report its findings and recommendations to the Board for
final action. The Finance Committee shall not be empowered to approve any
corporate action, of whatever kind or nature, and the recommendations of the
Finance Committee shall not be binding on the Board, except when, pursuant to
the provisions of Section 5.2 hereof, such power and authority have been
specifically delegated to such committee by the Board by resolution. In
addition to the foregoing, the specific duties of the Finance Committee shall
be determined by the Board by resolution.
Section 5.1.2. Audit Committee. The Audit Committee shall,
from time to time, but no less than two times per year, meet to review and
monitor the financial and cost accounting practices and procedures of the
Company and all of its subsidiaries and to report its findings and
recommendations to the Board for final action. The Audit Committee shall not
be empowered to approve any corporate action, of whatever kind or nature, and
the recommendations of the Audit Committee shall not be binding on the Board,
except when, pursuant to the provisions of Section 5.2 hereof, such power and
authority have been specifically delegated to such committee by the Board by
resolution. In addition to the foregoing, the specific duties of the Audit
Committee shall be determined by the Board by resolution.
Section 5.1.3. Compensation Committee. The Compensation
Committee shall, from time to time, meet to review the various compensation
plans, policies and practices of the Company and all of its subsidiaries and to
report its findings and recommendations to the Board for final action. The
Compensation Committee shall not be empowered to approve any corporate action,
of whatever kind or nature, and the recommendations of the Compensation
Committee shall not be binding on the Board, except when, pursuant to the
provisions of Section 5.2 hereof, such power and authority have been
specifically delegated to such committee by the Board by resolution. In
addition to the foregoing, the specific duties of the Compensation Committee
shall be determined by the Board by resolution.
Section 5.2 Available Powers. Any committee established pursuant
to Section 5.1 hereof, including the Finance Committee, the Audit Committee and
the Compensation Committee, but only to the extent provided in the resolution
of the Board establishing such committee or
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otherwise delegating specific power and authority to such committee and as
limited by law, the certificate of incorporation and these Bylaws, shall have
and may exercise all the powers and authority of the Board in the management of
the business and affairs of the Company, and may authorize the seal of the
Company to be affixed to all papers which may require it. Without limiting the
foregoing, such committee may, but only to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board as provided in Section 151(a) of the General Corporation Law of
the State of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the Company or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other
class or classes of stock of the Company.
Section 5.3 Unavailable Powers. No committee of the Board shall
have the power or authority to amend the certificate of incorporation (except
in connection with the issuance of capital stock as provided in the previous
section); adopt an agreement of merger or consolidation; recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
Company's property and assets, a dissolution of the Company or a revocation of
such a dissolution; amend the Bylaws of the Company; or, unless the resolution
establishing such committee or the certificate of incorporation expressly so
provides, declare a dividend, authorize the issuance of stock or adopt a
certificate of ownership and merger.
Section 5.4 Alternate Members. The Board may designate one or
more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of such committee. In the absence
or disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board
to act at the meeting in the place of any such absent or disqualified member.
Section 5.5 Procedures. Time, place and notice, if any, of
meetings of a committee shall be determined by such committee. At meetings of
a committee, a majority of the number of members designated by the Board shall
constitute a quorum for the transaction of business. The act of a majority of
the members present at any meeting at which a quorum is present shall be the
act of the committee, except as otherwise specifically provided by law, the
certificate of incorporation or these Bylaws. If a quorum is not present at a
meeting of a committee, the members present may adjourn the meeting from time
to time, without notice other than an announcement at the meeting, until a
quorum is present.
ARTICLE VI.
OFFICERS
Section 6.1 Elected Officers. The Board shall elect a chairman
of the Board, a president, a treasurer and a Secretary (collectively, the
"Required Officers") having the respective duties enumerated below and may
elect such other officers having the titles and duties set forth below which
are not reserved for the Required Officers or such other titles and duties as
the Board may by resolution from time to time establish:
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Section 6.1.1. Chairman of the Board. The chairman of the
board, or in his absence, the president, shall preside when present at all
meetings of the stockholders and the Board. The chairman of the board shall
advise and counsel the president and other officers and shall exercise such
powers and perform such duties as shall be assigned to or required of him from
time to time by the Board or these Bylaws. The chairman of the board may
execute bonds, mortgages and other contracts requiring a seal under the seal of
the Company, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board to some other officer or agent of the Company.
The chairman of the board may delegate all or any of his powers or duties to
the president, if and to the extent deemed by the chairman of the board to be
desirable or appropriate.
Section 6.1.2. President. The president shall be the chief
executive officer of the Company, shall have general and active management of
the business of the Company and shall see that all orders and resolutions of
the Board are carried into effect. In the absence of the chairman of the board
or in the event of his inability or refusal to act, the president shall perform
the duties and exercise the powers of the chairman of the board.
Section 6.1.3. Vice Presidents. In the absence of the
president or in the event of his inability or refusal to act, the vice
president (or in the event there be more than one vice president, the vice
presidents in the order designated by the Board, or in the absence of any
designation, then in the order of their election or appointment) shall perform
the duties of the president, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the president. The vice presidents
shall perform such other duties and have such other powers as the Board may
from time to time prescribe.
Section 6.1.4. Secretary. The secretary shall attend all
meetings of the stockholders, the Board and (as required) committees of the
Board and shall record all the proceedings of such meetings in books to be kept
for that purpose. He shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board and shall perform such
other duties as may be prescribed by the Board or the president. He shall have
custody of the corporate seal of the Company and he, or an assistant secretary,
shall have authority to affix the same to any instrument requiring it, and when
so affixed, it may be attested by his signature or by the signature of such
assistant secretary. The Board may give general authority to any other officer
to affix the seal of the Company and to attest the affixing thereof by his
signature.
Section 6.1.5. Assistant Secretaries. The assistant
secretary, or if there be more than one, the assistant secretaries in the order
determined by the Board (or if there be no such determination, then in the
order of their election or appointment) shall, in the absence of the secretary
or in the event of his inability or refusal to act, perform the duties and
exercise the powers of the secretary and shall perform such other duties and
have such other powers as the Board may from time to time prescribe.
Section 6.1.6. Treasurer. Unless the Board by resolution
otherwise provides, the treasurer shall be the chief accounting and financial
officer of the Company. The Treasurer shall have the custody of the corporate
funds and securities, shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Company and shall deposit all moneys
and
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other valuable effects in the name and to the credit of the Company in such
depositories as may be designated by the Board. He shall disburse the funds of
the Company as may be ordered by the Board, taking proper vouchers for such
disbursements, and shall render to the president and the Board, at its regular
meetings, or when the Board so requires, an account of all his transactions as
treasurer and of the financial condition of the Company.
Section 6.1.7. Assistant Treasurers. The assistant
treasurer, or if there shall be more than one, the assistant treasurers in the
order determined by the Board (or if there be no such determination, then in
the order of their election or appointment) shall, in the absence of the
treasurer or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the treasurer and shall perform such other
duties and have such other powers as the Board may from time to time prescribe.
Section 6.1.8. Divisional Officers. Each division of the
Company, if any, may have a president, secretary, treasurer or controller and
one or more vice presidents, assistant secretaries, assistant treasurers and
other assistant officers. Any number of such offices may be held by the same
person. Such divisional officers will be appointed by, report to and serve at
the pleasure of the Board and such other officers that the Board may place in
authority over them. The officers of each division shall have such authority
with respect to the business and affairs of that division as may be granted
from time to time by the Board, and in the regular course of business of such
division may sign contracts and other documents in the name of the division
where so authorized; provided that in no case and under no circumstances shall
an officer of one division have authority to bind any other division of the
Company except as necessary in the pursuit of the normal and usual business of
the division of which he is an officer.
Section 6.2 Election. All elected officers shall serve until
their successors are duly elected and qualified or until their earlier death,
disqualification, retirement, resignation or removal from office.
Section 6.3 Appointed Officers. The Board may also appoint or
delegate the power to appoint such other officers, assistant officers and
agents, and may also remove such officers and agents or delegate the power to
remove same, as it shall from time to time deem necessary, and the titles and
duties of such appointed officers may be as described in Section 6.1 hereof for
elected officers; provided that the officers and any officer possessing
authority over or responsibility for any functions of the Board shall be
elected officers.
Section 6.4 Multiple Officeholders, Stockholder and Director
Officers. Any number of offices may be held by the same person, unless the
certificate of incorporation or these Bylaws otherwise provide. Officers need
not be stockholders or residents of the State of Delaware. Officers, such as
the chairman of the board, possessing authority over or responsibility for any
function of the Board must be directors.
Section 6.5 Compensation, Vacancies. The compensation of elected
officers shall be set by the Board. The Board shall also fill any vacancy in
an elected office. The compensation of appointed officers and the filling of
vacancies in appointed offices may be delegated by the Board to the same extent
as permitted by these Bylaws for the initial filling of such offices.
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Section 6.6 Additional Powers and Duties. In addition to the
foregoing especially enumerated powers and duties, the several elected and
appointed officers of the Company shall perform such other duties and exercise
such further powers as may be provided by law, the certificate of incorporation
or these Bylaws or as the Board may from time to time determine or as may be
assigned to them by any competent committee or superior officer.
Section 6.7 Removal. Any officer may be removed, either with or
without cause, by a majority of the directors at the time in office, at any
regular or special meeting of the Board.
ARTICLE VII.
SHARE CERTIFICATES
Section 7.1 Entitlement to Certificates. Every holder of the
capital stock of the Company, unless and to the extent the Board by resolution
provides that any or all classes or series of stock shall be uncertificated,
shall be entitled to have a certificate, in such form as is approved by the
Board and conforms with applicable law, certifying the number of shares owned
by him.
Section 7.2 Multiple Classes of Stock. If the Company shall be
authorized to issue more than one class of capital stock or more than one
series of any class, a statement of the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualification, limitations or restrictions of
such preferences and/or rights shall, unless the Board shall by resolution
provide that such class or series of stock shall be uncertificated, be set
forth in full or summarized on the face or back of the certificate which the
Company shall issue to represent such class or series of stock; provided that,
to the extent allowed by law, in lieu of such statement, the face or back of
such certificate may state that the Company will furnish a copy of such
statement without charge to each requesting stockholder.
Section 7.3 Signatures. Each certificate representing capital
stock of the Company shall be signed by or in the name of the Company by (1)
the chairman of the board, the president or a vice president; and (2) the
treasurer, an assistant treasurer, the secretary or an assistant secretary of
the Company. The signatures of the officers of the Company may be facsimiles.
In case any officer who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to hold such office before such
certificate is issued, it may be issued by the Company with the same effect as
if he held such office on the date of issue.
Section 7.4 Issuance and Payment. Subject to the provisions of
the law, the certificate of incorporation or these Bylaws, shares may be issued
for such consideration and to such persons as the Board may determine from time
to time. Shares may not be issued until the full amount of the consideration
has been paid, unless upon the face or back of each certificate issued to
represent any partly paid shares of capital stock there shall have been set
forth the total amount of the consideration to be paid therefor and the amount
paid thereon up to and including the time said certificate is issued.
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Section 7.5 Lost Certificates. The Board may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Company alleged to have been lost,
stolen or destroyed upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board may, in
its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the Company a bond in such sum as it may direct as indemnity
against any claim that may be made against the Company with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 7.6 Transfer of Stock. Upon surrender to the Company or
its transfer agent, if any, of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer and of the payment of all taxes applicable to the transfer of said
shares, the Company shall be obligated to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon
its books; provided, however, that the Company shall not be so obligated unless
such transfer was made in compliance with applicable state and federal
securities laws.
Section 7.7 Registered Stockholders. The Company shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, vote and be held liable for calls
and assessments 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 person other
than such registered owner, whether or not it shall have express or other
notice thereof, except as otherwise provided by law.
ARTICLE VIII.
INDEMNIFICATION
Section 8.1 General. The Company shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Company), by reason of the fact that he is or was a director, officer, employee
or agent of the Company, or is or was serving at the request of the Company as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, have reasonable cause to believe that his conduct was
unlawful.
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Section 8.2 Actions by or in the Right of the Company. The
Company shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in
the right of the Company to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the Company,
or is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture or trust
or other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Company and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable 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 upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 8.3 Indemnification Against Expenses. To the extent that
a present or former director or officer of the Company has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred
to in Sections 8.1 and 8.2 hereof, or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.
Section 8.4 Board Determinations. Any indemnification under
Sections 8.1 and 8.2 hereof (unless ordered by a court) shall be made by the
Company only as authorized in the specific case upon a determination that
indemnification of the present or former director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in Sections 8.1 and 8.2 hereof. Such determination shall be
made, with respect to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who were not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such disinterested directors
or if such directors so direct, by independent legal counsel in a written
opinion, or (4) by the stockholders.
Section 8.5 Advancement of Expenses. Expenses incurred by an
officer or director in defending a civil or criminal action, suit or proceeding
may be paid by the Company in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that such person is not entitled to be indemnified by the Company as authorized
by law or in this section. Such expenses incurred by former directors and
officers or other employees and agents may be so paid upon such terms and
conditions, if any, as the Company deems appropriate.
Section 8.6 Nonexclusive. The indemnification and advancement of
expenses provided by, or granted pursuant to, this section shall not be deemed
exclusive of any other rights to which any director, officer, employee or agent
of the Company seeking indemnification or advancement of expenses may be
entitled under any other Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to
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action in another capacity while holding such office, and shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent of the Company and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 8.7 Insurance. The Company may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Company, or is or was serving at the request of the Company as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted
against such person and incurred by such person in any such capacity or arising
out of such person's status as such, whether or not the Company would have the
power to indemnify such person against such liability under the provisions of
the statutes, the Certificate of Incorporation or this section.
Section 8.8 Certain Definitions. For purposes of this Section
8.8, (a) references to "the Company" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the
provisions of this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued; (b) references to "other
enterprises" shall include employee benefit plans; (c) references to "fines"
shall include any excise taxes assessed on a person with respect to an employee
benefit plan; and (d) references to "serving at the request of the Company"
shall include any service as a director, officer, employee or agent of the
Company which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to any employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Company" as
referred to in this section.
Section 8.9 Change in Governing Law. In the event of any
amendment or addition to Section 145 of the General Corporation Law of the
State of Delaware or the addition of any other section to such law which shall
limit indemnification rights thereunder, the Company shall, to the extent
permitted by the General Corporation Law of the State of Delaware, indemnify to
the fullest extent authorized or permitted hereunder, 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 (including an action by or in the right of the corporation),
by reason of the fact that he is or was a director, officer, employee or agent
of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding.
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ARTICLE IX.
INTERESTED DIRECTORS, OFFICERS AND STOCKHOLDERS
Section 9.1 Validity. Any contract or other transaction between
the Company and any of its directors, officers or stockholders (or any
corporation or firm in which any of them are directly or indirectly interested)
shall be valid for all purposes notwithstanding the presence of such director,
officer or stockholder at the meeting authorizing such contract or transaction,
or his participation or vote in such meeting or authorization.
Section 9.2 Disclosure, Approval. The foregoing shall, however,
apply only if the material facts of the relationship or the interest of each
such director, officer or stockholder is known or disclosed:
(A) to the Board and it nevertheless in good faith authorizes or
ratifies the contract or transaction by a majority of the directors present,
each such interested director to be counted in determining whether a quorum is
present but not in calculating the majority necessary to carry the vote; or
(B) to the stockholders and they nevertheless in good faith
authorize or ratify the contract or transaction by a majority of the shares
present, each such interested person to be counted for quorum and voting
purposes.
Section 9.3 Nonexclusive. This provision shall not be construed
to invalidate any contract or transaction which would be valid in the absence
of this provision.
ARTICLE X.
MISCELLANEOUS
Section 10.1 Place of Meetings. All stockholders, directors and
committee meetings shall be held at such place or places, within or without the
State of Delaware, as shall be designated from time to time by the Board or
such committee and stated in the notices thereof. If no such place is so
designated, said meetings shall be held at the principal business office of the
Company.
Section 10.2 Fixing Record Dates.
(a) In order that the Company may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board may fix, in advance, a record date, which shall
not precede the date upon which the resolution fixing the record date is
adopted by the Board, and which record date shall not be more than sixty (60)
nor less than ten (10) days prior to any such action. If no record date is
fixed by the Board, 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 notice is given or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to
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any adjournment of the meeting; provided, however, that the Board may fix a new
record date for the adjourned meeting.
(b) In order that the Company may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
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, 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. If no record date has been fixed by
the Board, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the
Board is otherwise required, 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 Company by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Company having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Company'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 and prior action by the Board is required, 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 adopts the resolution taking such prior action.
(c) In order that the Company 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 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 (60) days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board adopts the resolution relating thereto.
Section 10.3 Means of Giving Notice. Whenever under law, the
certificate of incorporation or these Bylaws, notice is required to be given to
any director or stockholder, such notice may be given in writing and delivered
personally, through the United States mail, by a recognized express delivery
service (such as Federal Express) or by means of telegram, telex or facsimile
transmission, addressed to such director or stockholder at his address or telex
or facsimile transmission number, as the case may be, appearing on the records
of the Company, with postage and fees thereon prepaid. Such notice shall be
deemed to be given at the time when the same shall be deposited in the United
States mail or with an express delivery service or when transmitted, as the
case may be. Notice of any meeting of the Board may be given to a director by
telephone and shall be deemed to be given when actually received by the
director.
Section 10.4 Waiver of Notice. Whenever any notice is required to
be given under law, the certificate of incorporation or these Bylaws, a written
waiver of such notice, signed before or after the date of such meeting by the
person or persons entitled to said notice, shall be deemed equivalent to such
required notice. All such waivers shall be filed with the corporate records.
Attendance at a meeting shall constitute a waiver of notice of such meeting,
except where a person attends for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
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Section 10.5 Attendance via Communications Equipment. Unless
otherwise restricted by law, the certificate of incorporation or these Bylaws,
members of the Board, any committee thereof or the stockholders may hold a
meeting by means of conference telephone or other communications equipment by
means of which all persons participating in the meeting can effectively
communicate with each other. Such participation in a meeting shall constitute
presence in person at the meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
Section 10.6 Dividends. Dividends on the capital stock of the
Company, paid in cash, property, or securities of the Company and as may be
limited by applicable law and applicable provisions of the certificate of
incorporation (if any), may be declared by the Board at any regular or special
meeting.
Section 10.7 Reserves. Before payment of any dividend, there may
be set aside out of any funds of the Company available for dividends such sum
or sums as the Board from time to time, in its absolute discretion, think
proper as a reserve or reserves to meet contingencies, for equalizing
dividends, for repairing or maintaining any property of the Company or for such
other purpose as the Board shall determine to be in the best interest of the
Company; and the Board may modify or abolish any such reserve in the manner in
which it was created.
Section 10.8 Reports to Stockholders. The Board shall present at
each annual meeting of stockholders, and at any special meeting of stockholders
when called for by vote of the stockholders, a statement of the business and
condition of the Company.
Section 10.9 Contracts and Negotiable Instruments. Except as
otherwise provided by law or these Bylaws, any contract or other instrument
relative to the business of the Company may be executed and delivered in the
name of the Company and on its behalf by the chairman of the board or the
president; and the Board may authorize any other officer or agent of the
Company to enter into any contract or execute and deliver any contract in the
name and on behalf of the Company, and such authority may be general or
confined to specific instances as the Board may by resolution determine. All
bills, notes, checks or other instruments for the payment of money shall be
signed or countersigned by such officer, officers, agent or agents and in such
manner as are permitted by these Bylaws and/or as, from time to time, may be
prescribed by resolution (whether general or special) of the Board. Unless
authorized so to do by these Bylaws or by the Board, no officer, agent or
employee shall have any power or authority to bind the Company by any contract
or engagement, or to pledge its credit, or to render it liable pecuniarily for
any purpose or to any amount.
Section 10.10 Fiscal Year. The fiscal year of the Company shall be
fixed by resolution of the Board.
Section 10.11 Seal. The seal of the Company shall be in such form
as shall from time to time be adopted by the Board. The seal may be used by
causing it or a facsimile thereof to be impressed, affixed or otherwise
reproduced.
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Section 10.12 Books and Records. The Company shall keep correct
and complete books and records of account and shall keep minutes of the
proceedings of its stockholders, Board and committees and shall keep at its
registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its stockholders, giving the names and
addresses of all stockholders and the number and class of the shares held by
each.
Section 10.13 Resignation. Any director, committee member, officer
or agent may resign by giving written notice to the chairman of the board, the
president or the secretary. The resignation shall take effect at the time
specified therein, or immediately if no time is specified. Unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 10.14 Surety Bonds. Such officers and agents of the
Company (if any) as the president or the Board may direct, from time to time,
shall be bonded for the faithful performance of their duties and for the
restoration to the Company, in case of their death, resignation, retirement,
disqualification or removal from office, of all books, papers, vouchers, money
and other property of whatever kind in their possession or under their control
belonging to the Company, in such amounts and by such surety companies as the
president or the Board may determine. The premiums on such bonds shall be paid
by the Company and the bonds so furnished shall be in the custody of the
Secretary.
Section 10.15 Proxies in Respect of Securities of Other
Corporations. The chairman of the board, the president, any vice president or
the secretary may from time to time appoint an attorney or attorneys or an
agent or agents for the Company to exercise, in the name and on behalf of the
Company, the powers and rights which the Company may have as the holder of
stock or other securities in any other corporation to vote or consent in
respect of such stock or other securities, and the chairman of the board, the
president, any vice president or the secretary may instruct the person or
persons so appointed as to the manner of exercising such powers and rights; and
the chairman of the board, the president, any vice president or the secretary
may execute or cause to be executed, in the name and on behalf of the Company
and under its corporate seal or otherwise, all such written proxies or other
instruments as he may deem necessary or proper in order that the Company may
exercise such powers and rights.
Section 10.16 Amendments. These Bylaws may be altered, amended,
repealed or replaced by the stockholders, or by the Board when such power is
conferred upon the Board by the certificate of incorporation, at any annual
stockholders meeting or annual or regular meeting of the Board, or at any
special meeting of the stockholders or of the Board in the manner provided for
in the certificate of incorporation if notice of such alteration, amendment,
repeal or replacement is contained in the notice of such special meeting. If
the power to adopt, amend, repeal or replace these Bylaws is conferred upon the
Board by the certificate of incorporation, the power of the stockholders to so
adopt, amend, repeal or replace these Bylaws shall not be divested or limited
thereby.
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EXHIBIT 10.1
CLARK/BARDES INC.
STOCK OPTION PLAN
1. Purpose. The Clark/Bardes Inc. Stock Option Plan (the "Plan")
is intended to advance the interests of Clark/Bardes Inc., a Texas corporation
(the "Company"), and its stockholders, by encouraging and enabling selected
officers, directors, consultants, agents and employees, upon whose judgment,
initiative and effort the Company is largely dependent for the successful
conduct of its business, to acquire and retain a proprietary interest in the
Company by ownership of its stock. It is intended that options which may
qualify for treatment as "incentive stock options" under Section 422 (formerly
Section 422A) of the Internal Revenue Code of 1986, as amended, and applicable
regulations and rulings promulgated thereunder (collectively, the "Code"), as
well as options which may not so qualify, may be granted under the Plan.
2. Definitions
(a) "Board" means the Board of Directors of the Company
or a Committee of the Board to whom its authority has been delegated.
(b) "Common Stock" means the Company's Common Stock, no
par value per share.
(c) "Date of Grant" means the date on which an Option is
granted under the Plan, which will be the date the Board authorizes
the Option unless the Board specifies a later date.
(d) "Date of Exercise" means the date on which an Option
is validly exercised pursuant to the Plan.
(e) "Fair Market Value" of the Company's Common Stock
means, at any time that the Common Stock is not publicly traded, the
value of the Common Stock as determined
<PAGE> 2
by the Board, based on any reasonable valuation method; at any time
the Common Stock is traded on the NASDAQ over-the-counter market, the
closing interdealer bid quotation for the Common Stock (without retail
mark-up, mark-down or conversion) on such date; or at any time the
Common Stock is traded on a national securities exchange or the NASDAQ
National Market System, the closing price of such stock on such
exchange or system on such date (or, in each case, if such date is not
a trading day, on the last trading day immediately preceding such
date).
(f) "Option" means an option granted under the Plan.
(g) "Optionee" means a person to whom an Option, which
has not expired, has been granted under the Plan.
(h) "Subsidiary" or "Subsidiaries" means a subsidiary
corporation or corporations of the Company as defined in Section 425(f)
of the Code.
(i) "Successor" means the legal representative of the
estate of a deceased Optionee or the person or persons who acquire the
right to exercise an Option by bequest or inheritance or by reason of
the death of an Optionee.
(j) "Incentive Stock Option" means an option that
qualifies as an incentive stock option under all of the requirements
of the Code.
(k) "Incentive Stock Option Agreement" means the
agreement between the Company and the Optionee, in such form as may
from time to time be adopted by the Board, under which the Optionee
may purchase Common Stock pursuant to the terms of an Incentive Stock
Option granted under the Plan.
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(l) "Non-Qualified Stock Option" means an option to
purchase Common Stock granted pursuant to the provisions of the Plan
that does not qualify as an Incentive Stock Option.
(m) "Non-Qualified Stock Option Agreement" means the
agreement between the Company and the Optionee, in such form as may
from time to time be adopted by the Board, under which the Optionee
may purchase Common Stock pursuant to the terms of a Non-Qualified
Stock Option granted under the Plan.
3. Administration and Interpretation of Plan. The Plan shall be
administered by the Board. The Board shall have full and final authority in its
discretion, subject to the provisions of the Plan: (i) to determine the
individuals to whom, and the time or times at which, Options shall be granted
and the number of shares of Common Stock covered by each Option; (ii) to
construe and interpret the Plan; and (iii) to make all other determinations and
take all other actions deemed necessary or advisable for the proper
administration of the Plan. All such actions and determinations by the Board
shall be final and conclusively binding for all purposes and upon all persons.
4. Common Stock Subject to Options. The aggregate number of
shares of the Company's Common Stock which may be issued upon the exercise of
Options granted under the Plan shall not exceed 1,081,659, subject to
adjustment by the Board to reflect, as deemed appropriate by the Board, any
stock dividend, stock split, reverse stock split, share combination,
extraordinary cash dividend, warrants or rights offerings to purchase Common
Stock, exchange of shares, reorganization, recapitalization or the like, of or
by the Company that affect the Common Stock, such that an adjustment is
necessary to maintain the benefits or potential benefits intended to be
provided under the Plan. The shares of Common Stock to be issued upon the
exercise of Options
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may be authorized but unissued shares, shares issued and reacquired by the
Company or shares bought on the open market for the purposes of the Plan. In
the event any Option shall, for any reason, terminate or expire or be canceled
or surrendered without having been exercised in full, the shares subject to
such Option, but not purchased thereunder, shall again be available for Options
to be granted under the Plan.
5. Participants. Options may be granted under the Plan to any
person who is an officer or other key employee (including officers and
employees who are also directors) or a consultant of the Company or any of its
Subsidiaries.
6. Terms and Conditions of Options. Any Option granted under the
Plan shall be evidenced by either an Incentive Stock Option Agreement or a
Non-Qualified Stock Option Agreement executed by the Company and the Optionee.
Such agreement shall be subject to the following limitations and conditions:
(a) Option Price. The option price per share with respect
to each Option shall be determined by the Board but in no instance
shall the option price for any Option be less than 100% of the Fair
Market Value of a share of the Common Stock on the Date of Grant.
However, nothing contained herein shall prohibit the Board, in its
discretion, from canceling any outstanding options and reissuing a new
Option at a lower exercise price in the event that the Fair Market
Value per share of Common Stock at any time prior to the date of
exercise falls below the exercise price of any Option granted pursuant
to the Plan.
(b) Payment of Option Price. Full payment for shares
purchased upon exercising an Option shall be made in cash or by check,
or by delivery of previously owned shares of Common Stock, or partly
in cash or by check and partly in such stock. The value of shares
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of Common Stock delivered in connection with the payment of the option
price shall be the Fair Market Value of such shares on the Date of
Exercise of the Option.
(c) Term of Option. The expiration date of each Option
shall not be more than ten (10) years from the Date of Grant.
(d) Vesting. Options may vest either on the Date of Grant
or on such vesting schedule as may be specified by the Board. Neither
an Optionee nor his Successor shall have any of the rights of a
stockholder of the Company until the certificate or certificates
evidencing the shares purchased pursuant to the exercise of an Option
are properly delivered to such Optionee or his Successor.
(e) Exercise of an Option. Each Option shall be
exercisable at any time, and from time to time, and in no particular
order if the Optionee holds more than one Option, throughout a period
commencing on or after the Date of Grant, or vesting date as specified
by the Board, and ending upon the earliest of the expiration,
cancellation, surrender or termination of the Option; provided
however, that no Option shall be exercisable in whole or in part prior
to the date of stockholder approval of the Plan. Furthermore, the
exercise of each Option shall be subject to the condition that if at
any time the Company shall determine in its discretion that the
satisfaction of withholding tax or other withholding liabilities, or
that the listing, registration, or qualification of any share
otherwise deliverable upon such exercise upon any securities exchange
or under any state or federal law, or that the report to, or consent
or approval of, any regulatory body, is necessary or desirable as a
condition of, or in connection with, such exercise or the delivery or
purchase of shares pursuant thereto, then in any such event, such
exercise shall not be effective unless such withholding, listing,
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registration, qualification, report, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the
Company.
(f) Nontransferability of Option. No Option shall be
transferable or assignable by an Optionee, voluntarily, or by
operation of law, other than by will or the laws of descent and
distribution. Each Option shall be exercisable, during the Optionee's
lifetime, only by the Optionee. No Option or the shares covered
thereby shall be pledged or hypothecated in any way and no Option or
the shares covered thereby shall be subject to execution, attachment,
or similar process except with the prior express written consent of
the Board.
(g) Termination of Employment. Upon termination of an
Optionee's employment with the Company or with any of its Subsidiaries
by reason of voluntary or involuntary termination, retirement, or
permanent disability, but excluding his death, his option privileges
shall be as specified by the Board and shall expire unless exercised
prior to the date of its expiration or within ninety (90) days after
said termination of employment, whichever occurs first. For the
purposes of the Plan, "retirement" shall mean termination of an
Optionee's employment with the Company or with any of its Subsidiaries
on or after the date Optionee attains "early retirement age" as
defined in 42 USC Section 416(1)(2) and "permanent disability" shall
mean disability as defined in 42 USC Section 423(d). Neither the
adoption of this Plan nor the grant of an Option to an eligible person
shall alter in any way the Company's or the relevant Subsidiary's
rights to terminate such person's employment or directorship at any
time with or without cause nor does it confer upon such person any
rights or privileges to continued employment, or any other rights and
privileges, except as specifically provided in the Plan.
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(h) Death of Optionee. If an Optionee dies while in the
employ of the Company or any Subsidiary, his option privileges shall
be as specified by the Board and such option privileges shall expire
unless exercised by his Successor prior to the date of its expiration
or one (1) year from the date of the Optionee's death, whichever
occurs first.
(i) Ten Percent Stockholders. Notwithstanding anything
herein to the contrary, an Option which is intended to qualify as an
Incentive Stock Option shall be granted hereunder to any Optionee who,
immediately before such Option is granted, beneficially owns, directly
or indirectly, more than 10% of the total voting power of all classes
of stock of the Company only if both of the following conditions are
met:
(i) The option price per share shall be no less
than 110% of the Fair Market Value of a share of Common Stock
on the Date of Grant; and
(ii) The expiration date of the Option shall be
not more than five (5) years from the Date of Grant.
(j) Aggregate Fair Market Value. Notwithstanding anything
herein to the contrary, with respect to an Option which is intended to
qualify as an Incentive Stock Option, the aggregate Fair Market Value
(determined as of the time the option is granted) of the Common Stock
with respect to which Incentive Stock Options are exercisable for the
first time by an Optionee during any calendar year (under all
incentive stock option plans of the Company, and its parent and
Subsidiary corporations) shall not exceed $100,000.
(k) Other Terms. Each Incentive Stock Option Agreement or
Non-Qualified Stock Option Agreement, as the case may be, may contain
such other provisions (not
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inconsistent herewith) as the Board in its discretion may determine,
including, without limitation:
(i) in the event that an Option shall be
immediately exercisable, any provision which shall provide
that the shares acquired pursuant thereto shall not be deemed
to have been issued pursuant to a fully vested stock option
and thereby subject to repurchase rights (if any) contained in
the shareholder's agreement with the Optionee, entered into
pursuant to Paragraph 11 hereof;
(ii) any provision which shall condition the
exercise of all or part of an Option upon such matters as the
Board may deem appropriate (if any) such as the passage of
time, or the attainment of certain performance goals
appropriate to reflect the contribution of the Optionee to the
performance of the Company;
(iii) any provision which would give the Board the
discretionary authority to accelerate the exercisability of an
Option in spite of any provision contained in an Option
pursuant to clause (ii) above, under such circumstances as the
Board may deem appropriate; and
(iv) the manner in which an Option is to be
exercised.
7. No Entitlement or Disqualification. The grant of an Option
shall not be deemed either to entitle the Optionee to, or disqualify the
Optionee from, participation in any other grant of options under this Plan or
any other stock option plan of the Company.
8. Allotment of Shares. The Board shall, in its discretion,
determine the number of shares of Common Stock to be offered from time to time
by grant of Options to officers, key employees and consultants of the Company
or its Subsidiaries; provided that the aggregate Fair
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<PAGE> 9
Market Value (determined as of the time the option is granted) of the Common
Stock with respect to which Options which are intended to qualify as Incentive
Stock Options are exercisable for the first time by such Optionee during any
calendar year (under all such plans of the Optionee's employer corporation and
its parent and subsidiary corporations) shall not exceed $100,000.
9. Adjustments. The number of shares of Common Stock covered by
each outstanding Option granted under the Plan and the option price shall be
adjusted to reflect, as deemed appropriate by the Board in its discretion, any
stock dividend, stock split, reverse stock split, share combination, exchange
of shares, recapitalization, merger, consolidation, separation, reorganization,
liquidation or the like of or by the Company. Decisions by the Board as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive for all purposes and upon all persons.
10. Designation of Incentive Stock Options. The Board shall cause
each Option granted hereunder to be clearly designated in the agreement
evidencing such Option, at the time of grant, as to whether or not it is
intended to qualify as an Incentive Stock Option.
11. Execution of Shareholder's Agreement. Options may only be
exercised hereunder by employees who have executed a Shareholder's Agreement in
such form as the Board may adopt from time to time.
12. Notices. Whenever any notice is required or permitted
hereunder, such notice must be in writing and personally delivered or sent by
mail. Any notice required or permitted to be delivered hereunder shall be
deemed to be delivered on the date which it is personally delivered, or,
whether actually received or not, on the third business day after it is
deposited in the United States mail, certified or registered, postage prepaid,
addressed to the person who is to receive it at the address which such person
has theretofore specified by written notice delivered in accordance
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herewith. The Company or an Optionee may change, at any time and from time to
time, by written notice to the other, the address which it or he had
theretofore specified for receiving notices. Until changed in accordance
herewith, the Company and each Optionee shall specify as its and his address
for receiving notices the address set forth in the option agreement pertaining
to the shares to which such notice relates.
13. Amendment or Discontinuance. The Plan and any Option
outstanding hereunder may be amended or discontinued by the Board without the
approval of the stockholders of the Company, except that the Board may not,
except as expressly provided in the Plan, increase the aggregate number of
shares which may be issued under Options granted pursuant to the plan,
materially amend the eligibility requirements of the Plan or materially
increase the benefits which may accrue to participants under the Plan, without
such approval.
14. Effect of the Plan. Neither the adoption of this Plan nor any
action of the Board shall be deemed to give any officer or employee any right
to be granted an option to purchase Common Stock of the Company or any of its
Subsidiaries, or any other rights except as may be evidenced by a stock option
agreement, or any amendment thereto, duly authorized by the Board and executed
on behalf of the Company and then only to the extent and on the terms and
conditions expressly set forth therein.
15. Grant of Incentive Stock Options. No Incentive Stock Options
shall be granted pursuant to this Plan after February 28, 2007.
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EXHIBIT 10.2
ADMINISTRATION AND SERVICES AGREEMENT
This Administration and Services Agreement effective as of the date
written below is entered into by and between Clark/Bardes, Inc., having its
principal place of business at Dallas, Texas (hereinafter called "CBI"), and
Clark/Bardes Agency of Ohio, Inc., having its principal place of business at
Perrysburg, Ohio (hereinafter called "Agency").
RECITALS:
WHEREAS, CBI is a corporation organized and existing under the laws of
the State of Texas;
WHEREAS, Agency is a corporation organized and existing under the laws
of the State of Ohio and authorized to act as a licensed life insurance agent
pursuant to the provisions of the Ohio Insurance Code;
WHEREAS, CBI has available the personnel, services, expertise, and
other amenities necessary to carry out certain functions beneficial to and for
the proper operation of an Insurance Agent;
WHEREAS, Agency desires to have available to it such services and
assistance to permit Agency to expeditiously and efficiently carry out its
duties and functions as a corporation licensed to act as an Insurance Agent in
the State of Ohio;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and other valuable consideration herein expressed, the parties hereto
agree and state as follows:
ARTICLE I.
TERM OF AGREEMENT
The initial term of the Agreement shall be for a period of three (3)
months and shall be automatically extended for additional three (3) month terms
thereafter unless thirty (30) days prior to the expiration of any extension
either CBI or Agency gives the other written notice that this Agreement is to
terminated at the end of such three (3) month term.
ARTICLE II.
DUTIES AND OBLIGATIONS OF CBI
Section 2.01 CBI shall furnish to Agency the materials, services, and
assistance set forth in this Section. The facilities, services, personnel, and
assistance to be provided by CBI shall include, but are not limited to the
following:
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(a) perform all bookkeeping and accounting functions;
(b) establish and maintain all records required by law and by
generally accepted accounting principles;
(c) furnish all stationery, forms, and supplies;
(d) provide all necessary clerical and professional staff to
perform the above activities in accordance with the standards
set forth in this Agreement;
(e) provide all computer hardware and software capabilities and
facilities to expeditiously and efficiently carry out the
services to be performed hereunder;
(f) provide office space, furniture, fixtures, equipment and
supplies;
(g) assist Agency in preparing reports required by governmental
regulatory and supervisory authorities;
(h) bill and collect all premiums.
Section 2.02. It is expressly understood that none of the foregoing
services, assistance, or amenities furnished by CBI shall be deemed to be
services or activities of an Insurance Agent which would require a license from
the Ohio Department of Insurance before such act may be performed. Furthermore,
and in this same connection, CBI shall be prohibited from performing any actions
for which licensure as an Insurance Agent is required.
ARTICLE III.
COMPENSATION
Agency agrees to pay CBI a sum agreed upon by the parties pursuant to
Addendum "A" of this Agreement. The consideration payable pursuant to this
Agreement shall be on a flat fee basis and shall not be based on a percentage of
revenues of Agency. Because of possible fluctuations in the nature and extent of
services rendered by CBI, the agreed upon consideration is subject to
renegotiation of the parties on a quarterly basis. For any particular period in
which the consideration is not renegotiated by the parties hereto, the
consideration paid for that period shall be the same as the amount paid for the
previous period. Any renegotiation of the consideration under Addendum "A" of
this Agreement shall be evidenced by written document attached to and made a
part of this Agreement. The consideration set out in Addendum "A" of this
Agreement shall be payable at the principal offices of CBI; neither the failure
by Agency to pay the entire amount of the consideration set out in Addendum "A,"
nor the failure of CBI to demand payment thereof, shall otherwise operate as a
waiver of any portion of the consideration required to be paid to CBI pursuant
to this Agreement. It is expressly agreed and understood by and between CBI and
Agency that no part of the service fee payable under this Agreement shall
constitute, directly or indirectly, payment by Agency to CBI for any
compensation, remuneration or other valuable consideration for services as an
Insurance Agent. It is further acknowledged and understood by
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and between CBI and Agency that the consideration payable under this Agreement
shall be reasonable in relationship to the duties performed or facilities
provided by CBI. No officer, director or shareholder of Agency, shall be
personally liable with respect to the compensation paid to CBI by Agency; the
compensation paid to CBI pursuant to this Article shall be the sole
responsibility of Agency.
ARTICLE IV.
DUTIES AND OBLIGATIONS OF AGENCY
Section 4.01 Agency is solely responsible for the activities of Agency
as an Insurance Agent and for the activities of its producers, solicitors,
agents, sub-agents, or employees in the course and scope of their activities
performed on behalf of Agency.
Section 4.02 Agency is responsible for securing and maintaining any
license required in order to act as an Insurance Agent in the State of Ohio or
any other jurisdiction and for assuring that producers, solicitors, agents,
sub-agents or employees secure the appropriate agents license. Agency is
ultimately responsible for the preparation and filing on a timely basis with the
appropriate governmental authority any and all reports required by such
governmental authority as respects the operation of Agency as an Insurance
Agent.
ARTICLE V.
MISCELLANEOUS PROVISIONS
Section 5.01. The parties agree to cooperate fully with each other with
respect to any governmental investigation, or administrative or judicial
proceeding, or consumer complaint with respect to the transaction of an
insurance agency business by Agency. Each party shall consult with any other
party hereto before responding to any such investigation, administrative or
judicial proceeding, or consumer complaint, and each party shall keep the other
fully advised as to the status thereof.
Section 5.02. This Agreement constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes any
prior written or oral understanding between the parties with respect to the
subject matter hereof. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective subsidiaries, affiliates, successors and assigns of the parties
hereto. Neither this Agreement nor any of the rights, obligations, or
liabilities hereunder shall be assigned by CBI or Agency without the prior
written consent of the other party; any such assignment shall be evidenced by a
written document attached hereto and made a part of this Agreement. Any
assignment in violation of this Section shall be null and void at the
non-assigning party's option.
Section 5.03. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
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Section 5.04. If any act at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorney's fees, court costs, and necessary disbursements in addition
to any other relief to which such party may be entitled.
Section 5.05. Any notices to be given hereunder by one party to the
other may be affected by personal delivery in writing or by mail, registered or
certified, postage pre-paid with return receipt requested. Mailed notices shall
be addressed to the parties at the addresses appearing in the introductory
paragraph of this Agreement, but each party may change its address by written
notice in accordance with this paragraph. Notices delivered personally shall be
deemed communicated upon actual receipt; mailed notices shall be deemed
communicated as of five (5) days after deposit in the mail.
Section 5.06 Agency shall indemnify CBI to the maximum extent permitted
by applicable law against all costs, charges and expenses incurred or sustained
by CBI in connection with any third party action, suit or proceeding in which
CBI may be made a party by reason of this Agreement, save and except for acts of
willful or wanton misconduct by CBI.
Section 5.07 CBI shall indemnify Agency to the maximum extent permitted
by applicable law against costs, charges and expenses incurred or sustained by
Agency in connection with any third party action, suit or proceeding in which
Agency may be made a party by reason of this Agreement, save and except for acts
of willful or wanton miscount by Agency.
Section 5.08. This Agreement may be amended from time to time by the
parties hereto; provided, however, any such amendment shall be evidenced by
written instrument which is attached hereto and made a part of this Agreement.
Section 5.09. Should any portion of this Agreement be void or invalid,
the remaining portion of this Agreement shall be of full force and effect as if
the void or invalid portion was severable and not in this Agreement.
Section 5.10. Nothing herein shall be construed to permit CBI,
directly or indirectly, to act as an Insurance Agent in the State of Ohio
without securing the appropriate license.
Section 5.11. This Agreement may be executed in two (2) or more
counterparts each of which shall be deemed a duplicate original.
Section 5.12. Nothing in this Agreement is intended to nor does it
create the relationship of joint venturer or partner between CBI and Agency.
VI.
TERMINATION
Section 6.01. This Agreement shall terminate upon the occurrence of any
on the following events.
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(a) Effective immediately upon breach of any provision of this
Agreement by CBI or Agency;
(b) Effective upon written notice to a party because of fraud or
dishonesty by such party, provided that such notice shall be
given promptly upon discovery of such fraud or dishonesty;
(c) Effective immediately if any party at any time becomes
insolvent or goes into liquidation or bankruptcy either
voluntarily or compulsorily;
(d) Effective on the first day of the month following the month in
which any party shall discontinue operating its business or
cease operations; or
(e) By delivery through U.S. mail, or by hand, a written notice of
termination giving at least sixty (60) days notice of
termination of this Agreement by any party.
Section 6.02. Anything contained herein to the contrary
notwithstanding, in the event of termination of this Agreement, CBI shall be
entitled to compensation earned to date of termination as provided in this
Agreement computed pro rata up to and including such date and shall further be
entitled to perform such additional services or functions, which CBI, in its
sole discretion, shall deem necessary in order to wind up affairs relating to
this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Administration and Services Agreement which is effective as of the _____________
day of _________________, 199_.
CLARK/BARDES, INC.
By: /s/ [ILLEGIBLE]
------------------------------------
, President
--------------------
--------------------
Date
CLARK/BARDES AGENCY OF OHIO, INC.
By: /s/ [ILLEGIBLE]
------------------------------------
, President
--------------------
--------------------
Date
5
<PAGE> 6
ADDENDUM "A"
This Addendum "A" is hereby attached to and made a part of that certain
Administration and Services Agreement ("Agreement") by and between Clark/Bardes,
Inc. (hereinafter referred to as "CBI") and Clark/Bardes Agency of Ohio, Inc.
(hereinafter referred to as "Agency").
This Addendum "A" more specifically sets out the compensation due CBI
by Agency pursuant to Article III of the Administration and Services Agreement
to which this Addendum is attached and made a part thereof. The parties hereto
agree that Agency shall compensate CBI for performance of CBI's duties under the
Agreement to which this Addendum is attached and made a part as follows:
The charges and fees pursuant to this Agreement shall be an amount
equal to the cost incurred by CBI in providing the services, personnel and
property hereunder, determined by generally accepted accounting principles and
allocated on a reasonable and equitable basis, plus an amount equal to _________
percent (_____%) of such cost.
The above consideration is subject to renegotiation in accordance with
the provisions of Article III of the Agreement to which this Addendum is
attached and made a part there of. Any renegotiation of the consideration set
out in this Addendum "A" shall be evidenced by written document to be attached
and made a part of the Administration and Services Agreement.
EXECUTED on this _________ day of _________, 199__ and effective as of
the date of the Agreement.
CLARK/BARDES, INC.
By: /s/ [ILLEGIBLE]
------------------------------------
, President
--------------------
CLARK/BARDES AGENCY OF OHIO, INC.
By:
------------------------------------
, President
--------------------
6
<PAGE> 1
EXHIBIT 10.3
ADMINISTRATION AND SERVICES AGREEMENT
This Administration and Services Agreement effective as of the date
written below is entered into by and between Clark/Bardes, Inc., having its
principal place of business at Dallas, Texas (hereinafter called "CBI"), and
Clark/Bardes Securities, Inc., having its principal place of business at Dallas,
Texas (hereinafter called "Agency").
RECITALS:
WHEREAS, CBI is a corporation organized and existing under the laws of
the State of Texas;
WHEREAS, Agency is a corporation organized and existing under the laws
of the State of Texas and authorized to act as a securities broker dealer;
WHEREAS, CBI has available the personnel, services, expertise, and
other amenities necessary to carry out certain functions beneficial to and for
the proper operation of an organization licensed as a securities broker dealer;
WHEREAS, Agency desires to have available to it such services and
assistance to permit Agency to expeditiously and efficiently carry out its
duties and functions as a corporation licensed to act as a securities broker
dealer;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and other valuable consideration herein expressed, the parties hereto
agree and state as follows:
ARTICLE I.
TERM OF AGREEMENT
The initial term of the Agreement shall be for a period of three (3)
months and shall be automatically extended for additional three (3) month terms
thereafter unless thirty (30) days prior to the expiration of any extension
either CBI or Agency gives the other written notice that this Agreement is to
terminated at the end of such three (3) month term.
ARTICLE II.
DUTIES AND OBLIGATIONS OF CBI
SECTION 2.01 CBI shall furnish to Agency the materials, services, and
assistance set forth in this Section. The facilities, services, personnel, and
assistance to be provided by CBI shall include, but are not limited to the
following:
(a) perform all bookkeeping and accounting functions;
(b) establish and maintain all records required by law and by
generally accepted accounting principles;
1
<PAGE> 2
(c) furnish all stationery, forms, and supplies;
(d) provide all necessary clerical and professional staff to
perform the above activities in accordance with the standards
set forth in this Agreement;
(e) provide all computer hardware and software capabilities and
facilities to expeditiously and efficiently carry out the
services to be performed hereunder;
(f) provide office space, furniture, fixtures, equipment and
supplies;
(g) prepare all reports required by governmental regulatory and
supervisory authorities;
(h) bill and collect all premiums;
(i) develop and maintain manuals for all Agency's internal
operations, including but not limited to accounting records.
Section 2.02. It is expressly understood that none of the foregoing
services, assistance, or amenities furnished by CBI shall be deemed to be
services or activities of a securities broker dealer.
ARTICLE III.
COMPENSATION
Agency agrees to pay CBI a sum agreed upon by the parties pursuant to
Addendum "A" of this Agreement. The consideration payable pursuant to this
Agreement shall be on a flat fee basis and shall not be based on a percentage of
revenues of Agency. Because of possible fluctuations in the nature and extent of
services rendered by CBI, the agreed upon consideration is subject to
renegotiation of the parties on a quarterly basis. For any particular period in
which the consideration is not renegotiated by the parties hereto, the
consideration paid for that period shall be the same as the amount paid for the
previous period. Any renegotiation of the consideration under Addendum "A" of
this Agreement shall be evidenced by written document attached to and made a
part of this Agreement. The consideration set out in Addendum "A" of this
Agreement shall be payable at the principal offices of CBI; neither the failure
by Agency to pay the entire amount of the consideration set out in Addendum "A,"
nor the failure of CBI to demand payment thereof, shall otherwise operate as a
waiver of any portion of the consideration required to be paid to CBI pursuant
to this Agreement. It is expressly agreed and understood by and between CBI and
Agency that no part of the service fee payable under this Agreement shall
constitute, directly or indirectly, payment by Agency to CBI for any
compensation, remuneration or other valuable consideration for services as a
securities broker dealer. Provided, however, that no such charges or fees shall
be due or payable until or unless Agency shall have sufficient income to pay
such charges or fees without violating SEC Rules 17a-11 or 15c 3-1. Moreover
and notwithstanding any other provisions or conditions of this Agreement, to the
extent any such charges or fees may become due or payable in contravention of
SEC Rules l7a-11 or 15c-3-1, then such obligation of Agency to pay fees or
charges shall be solely at the discretion of Agency and will not be deemed a
contractual obligation or other liability of Agency. It is further acknowledged
and understood by
2
<PAGE> 3
and between CBI and Agency that the consideration payable under this Agreement
shall be reasonable in relationship to the duties performed or facilities
provided by CBI. No officer, director or shareholder of Agency, shall be
personally liable with respect to the compensation paid to CBI by Agency; the
compensation paid to CBI pursuant to this Article shall be the sole
responsibility of Agency.
ARTICLE IV.
DUTIES AND OBLIGATIONS OF AGENCY
Section 4.01 Agency is solely responsible for the activities of Agency
as a securities broker dealer and for the activities of its producers,
solicitors, agents, sub-agents, or employees in the course and scope of their
activities performed on behalf of Agency.
Section 4.02 Agency is responsible for securing and maintaining any
license required in order to act as a securities broker dealer. Agency is
ultimately responsible for the preparation and filing on a timely basis with the
appropriate governmental authority any and all reports required by such
governmental authority as respects the operation of Agency as a securities
broker dealer.
ARTICLE V.
MISCELLANEOUS PROVISIONS
Section 5.01. The parties agree to cooperate fully with each other with
respect to any governmental investigation, or administrative or judicial
proceeding, or consumer complaint with respect to the transaction of business by
Agency. Each party shall consult with any other party hereto before responding
to any such investigation, administrative or judicial proceeding, or consumer
complaint, and each party shall keep the other fully advised as to the status
thereof.
Section 5.02. This Agreement constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes any
prior written or oral understanding between the parties with respect to the
subject matter hereof. Except as otherwise provided herein, the terms and
conditions of this Agreement shall insure to the benefit of and be binding upon
the respective subsidiaries, affiliates, successors and assigns of the parties
hereto. Neither this Agreement nor any of the rights, obligations, or
liabilities hereunder shall be assigned by Agency or CBI without the prior
written consent of the other party; any such assignment shall be evidenced by a
written document attached hereto and made a part of this Agreement. Any
assignment in violation of this Section shall be null and void at the
non-assigning party's option.
Section 5.03. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
Section 5.04. If any act at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorney's fees, court costs, and necessary disbursements in addition
to any other relief to which such party may be entitled.
3
<PAGE> 4
Section 5.05. Any notices to be given hereunder by one party to the
other may be affected by personal delivery in writing or by mail, registered or
certified, postage pre-paid with return receipt requested. Mailed notices shall
be addressed to the parties at the addresses appearing in the introductory
paragraph of this Agreement, but each party may change its address by written
notice in accordance with this paragraph. Notices delivered personally shall be
deemed communicated upon actual receipt; mailed notices shall be deemed
communicated as of five (5) days after deposit in the mail.
Section 5.06 Agency shall indemnify CBI to the maximum extent permitted
by applicable law against all costs, charges and expenses incurred or sustained
by CBI in connection with any third party action, suit or proceeding in which
CBI may be made a party by reason of this Agreement, save and except for acts of
willful or wanton misconduct by CBI.
Section 5.07 CBI shall indemnify Agency to the maximum extent permitted
by applicable law against costs, charges and expenses incurred or sustained by
Agency in connection with any third party action, suit or proceeding in which
Agency may be made a party by reason of this Agreement, save and except for acts
of willful or wanton miscount by Agency.
Section 5.08. This Agreement may be amended from time to time by the
parties hereto; provided, however, any such amendment shall be evidenced by
written instrument which is attached hereto and made a part of this Agreement.
Section 5.09. Should any portion of this Agreement be void or invalid,
the remaining portion of this Agreement shall be of full force and effect as if
the void or invalid portion was severable and not in this Agreement.
Section 5.10. Nothing herein shall be construed to permit CBI,
directly or indirectly, to act as a securities broker dealer without securing
the appropriate license.
Section 5.11. This Agreement may be executed in two (2) or more
counterparts each of which shall be deemed a duplicate original.
Section 5.12. No thing in this Agreement is intended to nor does it
create the relationship of joint venturer or partner between CBI and Agency.
VI.
TERMINATION
Section 6.01. This Agreement shall terminate upon the occurrence of any
on the following events.
(a) Effective immediately upon breach of any provision of this
Agreement by CBI or Agency;
4
<PAGE> 5
(b) Effective upon written notice to a party because of fraud or
dishonesty by such party, provided that such notice shall be
given promptly upon discovery of such fraud or dishonesty;
(c) Effective immediately if any party at any time becomes
insolvent or goes into liquidation or bankruptcy either
voluntarily or compulsorily;
(d) Effective on the first day of the month following the month in
which any party shall discontinue operating its business or
cease operations; or
(e) By delivery through U.S. mail, or by hand, a written notice of
termination giving at least sixty (60) days notice of
termination of this Agreement by any party.
Section 6.02. Anything contained herein to the contrary
notwithstanding, in the event of termination of this Agreement, CBI shall be
entitled to compensation earned to date of termination as provided in this
Agreement computed pro rata up to and including such date and shall further be
entitled to perform such additional services or functions, which CBI, in its
sole discretion, shall deem necessary in order to wind up affairs relating to
this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Administration and Services Agreement which is effective as of the
________________ day of _________________ 199_ .
CLARK/BARDES, INC.
By: /s/ [ILLEGIBLE]
------------------------------------
,President
--------------------
--------------------
Date
CLARK/BARDES SECURITIES, INC.
By: /s/ [ILLEGIBLE]
------------------------------------
,President
--------------------
--------------------
Date
5
<PAGE> 6
ADDENDUM "A"
This Addendum "A" is hereby attached to and made a part of that certain
Administration and Services Agreement ("Agreement") by and between Clark/Bardes,
Inc. (hereinafter referred to as "CBI") and Clark/Bardes, Securities
(hereinafter referred to as "Agency").
This Addendum "A" more specifically sets out the compensation due CBI
by Agency pursuant to Article III of the Administration and Services Agreement
to which this Addendum is attached and made a part thereof. The parties hereto
agree that Agency shall compensate CBI for performance of CBI's duties under the
Agreement to which this Addendum is attached and made a part as follows:
The charges and fees pursuant to this Agreement shall be an amount
equal to the cost incurred by CBI in providing the services, personnel and
property hereunder, determined by generally accepted accounting principles and
allocated on a reasonable and equitable basis, plus an amount equal _______ to
percent (_____%) of such cost.
The above consideration is subject to renegotiation in accordance with
the provisions of Article III of the Agreement to which this Addendum is
attached and made a part thereof. Any renegotiation of the consideration set out
in this Addendum "A" shall be evidenced by written document to be attached and
made a part of the Administration and Services Agreement.
EXECUTED on this _____________ day of ________________, 199_ and
effective as of the date of the Agreement.
CLARK/BARDES, INC.
By: /s/ [ILLEGIBLE]
------------------------------------
,President
--------------------
CLARK/BARDES SECURITIES, INC.
By: /s/ [ILLEGIBLE]
------------------------------------
,President
--------------------
6
<PAGE> 1
EXHIBIT 10.4
ADMINISTRATION AND SERVICES AGREEMENT
This Administration and Services Agreement effective as of the date
written below is entered into by and between Clark/Bardes, Inc., having its
principal place of business at Dallas, Texas (hereinafter called "CBI"), and
Clark Bardes, Inc. of Pennsylvania, having its principal place of business at
Allentown, Pennsylvania (hereinafter called "Agency").
RECITALS:
WHEREAS, CBI is a corporation organized and existing under the laws of the
State of Texas;
WHEREAS, Agency is a corporation organized and existing under the laws of
the State of Pennsylvania and authorized to act as a licensed life insurance
agent pursuant to the provisions of the Pennsylvania Insurance Code;
WHEREAS, CBI has available the personnel, services, expertise, and other
amenities necessary to carry out certain functions beneficial to and for the
proper operation of an Insurance Agent;
WHEREAS, Agency desires to have available to it such services and
assistance to permit Agency to expeditiously and efficiently carry out its
duties and functions as a corporation licensed to act as an Insurance Agent in
the State of Pennsylvania;
NOW THEREFORE, for and in consideration of the mutual promises, covenants
and other valuable consideration herein expressed the parties hereto agree and
state as follows:
ARTICLE I.
TERM OF AGREEMENT
The initial term of the Agreement shall be for a period of three (3)
months and shall be automatically extended for additional three (3) month terms
thereafter unless thirty (30) days prior to the expiration of any extension
either CBI or Agency gives the other written notice that this Agreement is to be
terminated at the end of such three (3) month term. Under no circumstances
shall this Agreement extend beyond June 30, 1998.
ARTICLE II.
DUTIES AND OBLIGATIONS OF CBI
Section 2.01. CBI shall furnish to Agency the materials, services, and
assistance set forth in this Section. The facilities, services, personnel, and
assistance to be provided by CBI shall include, but are not limited to the
following:
(a) perform all bookkeeping and accounting functions;
(b) establish and maintain all records required by law and by generally
accepted accounting principles;
(c) furnish all stationery, forms and supplies;
1
<PAGE> 2
(d) provide all necessary clerical and professional staff to perform
the above activities in accordance with the standards set forth
in this Agreement;
(e) provide all computer hardware and software capabilities and
facilities to expeditiously and efficiently carry out the
services to be performed hereunder;
(f) provide office space, furniture, fixtures, equipment and
supplies;
(g) assist Agency in preparing reports required by governmental
regulatory and supervisory authorities;
(h) bill and collect all premiums.
Section 2.02. It is expressly understood that none of the foregoing
services, assistance, or amenities furnished by CBI shall be deemed to be
services or activities of an Insurance Agent which would require a license from
the Pennsylvania Department of Insurance before such act may be performed.
Furthermore, and in this same connection, CBI shall be prohibited from
performing any actions for which licensure as an Insurance Agent is required.
ARTICLE III.
COMPENSATION
Agency agrees to pay CBI a sum agreed upon by the parties pursuant to
Addendum "A" of this Agreement. The consideration payable pursuant to this
Agreement shall be on a flat fee basis and shall not be based on a percentage of
revenues of Agency. Because of possible fluctuations in the nature and extent of
services rendered by CBI, the agreed upon consideration is subject to
renegotiation of the parties on a quarterly basis. For any particular period in
which the consideration is not renegotiated by the parties hereto, the
consideration paid for that period shall be the same as the amount paid for the
previous period. Any renegotiation of the consideration under Addendum "A" of
this Agreement shall be evidenced by written document attached to and made a
part of this Agreement. The consideration set out in Addendum "A" of this
Agreement shall be payable at the principal offices of CBI; neither the failure
by Agency to pay the entire amount of the consideration set out in Addendum A",
nor the failure of CBI to demand payment thereof, shall otherwise operate as a
waiver of any portion of the consideration required to be paid to CBI pursuant
to this Agreement. It is expressly agreed and understood by and between CBI and
Agency that no part of the service fee payable under this Agreement shall
constitute, directly or indirectly, payment by Agency to CBI for any
compensation, remuneration or other valuable consideration for services as an
Insurance Agent. It is further acknowledged and understood by and between CBI
and Agency that the consideration payable under this Agreement shall be
reasonable in relationship to the duties performed or facilities provided by
CBI. No officer, director or shareholder of Agency, shall be personally liable
with respect to the compensation paid to CBI by Agency; the compensation paid to
CBI pursuant to this Article shall be the sole responsibility of Agency.
2
<PAGE> 3
ARTICLE IV.
DUTIES AND OBLIGATIONS OF AGENCY
Section 4.01. Agency is solely responsible for the activities of Agency as
an Insurance Agent and for the activities of its producers, solicitors, agents,
sub-agents, or employees in the course and scope of their activities performed
on behalf of Agency.
Section 4.02. Agency is responsible for securing and maintaining any
license required in order to act as an Insurance Agent in the State of
Pennsylvania or any other jurisdiction and for assuring that producers,
solicitors, agents, sub-agents, or employees secure the appropriate agents
license. Agency is ultimately responsible for the preparation and filing on a
timely basis with the appropriate governmental authority any and all reports
required by such governmental authority as respects the operation of Agency as
an Insurance Agent.
ARTICLE V.
MISCELLANEOUS PROVISIONS
Section 5.01. The parties agree to cooperate fully with each other with
respect to any governmental investigation, or administrative or judicial
proceeding, or consumer complaint with respect to the transaction of an
insurance agency business by Agency. Each party shall consult with any other
party hereto before responding to any such investigation, administrative or
judicial proceeding, or consumer complaint, and each party shall keep the other
fully advised as to the status thereof.
Section 5.02. This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes any
prior written or oral understanding between the parties with respect to the
subject matter hereof. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective subsidiaries, affiliates, successors and assigns of the parties
hereto. Neither this Agreement nor any of the rights, obligations, or
liabilities hereunder shall be assigned by CBI or Agency without the prior
written consent of the other party; any such assignment shall be evidenced by a
written document attached hereto and made a part of this Agreement. Any
assignment in violation of this Section shall be null and void at the
non-assigning party's option.
Section 5.03. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
Section 5.04. If any act at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorney's fees, court costs, and necessary disbursements in addition
to any other relief to which such party may be entitled.
Section 5.05. Any notices to be given hereunder by one party of the other
may be affected by personal delivery in writing or by mail, registered or
certified, postage pre-paid with return receipt requested. Mailed notices shall
be addressed to the addresses appearing in the introductory paragraph of this
Agreement, but each party may change its address by written notice in accordance
with this paragraph. Notices delivered personally shall be deemed communicated
upon actual receipt; mailed notices shall be deemed communicated as of five (5)
days after deposit in the mail.
<PAGE> 4
Section 5.06. CBI shall indemnify Agency to the maximum extent
permitted by applicable law against all costs, charges and expenses incurred or
sustained by Agency in connection with any third party action, suit or
proceeding in which Agency, its producers, solicitors, agents, sub-agents,
officers and employees may be made a party by reason of this Agreement, save
and except for acts of willful or wanton misconduct by Agency.
Section 5.07. This Agreement may be amended from time to time by the
parties hereto; provided, however, any such amendment shall be evidenced by
written instrument which is attached hereto and made a part of this Agreement.
Section 5.08. Should any portion of this Agreement be void or
invalid, the remaining portion of this Agreement shall be of full force and
effect as if the void or invalid portion was severable and not in this
Agreement.
Section 5.09. Nothing herein shall be construed to permit CBI,
directly or indirectly, to act as an Insurance Agent in the State of
Pennsylvania without securing the appropriate license.
Section 5.10. This Agreement may be executed in two (2) or more
counterparts each of which shall be deemed a duplicate original.
Section 5.11. Nothing in this Agreement is intended to nor does it
create the relationship of joint venturer or partner between CBI and Agency.
VI.
TERMINATION
Section 6.01. This Agreement shall terminate upon the occurrence of
any of the following events.
(a) Effective immediately upon breach of any provision of this
Agreement by CBI or Agency;
(b) Effective upon written notice to a party because of fraud or
dishonesty by such party, provided that such notice shall be
given promptly upon discovery of such fraud or dishonesty;
(c) Effective immediately, if any party at any time becomes insolvent
or goes into liquidation or bankruptcy either voluntarily or
compulsorily;
(d) Effective on the first day of the month following the month in
which any party shall discontinue operating its business or cease
operations; or
(e) By delivery through U.S. mail, or by hand, a written notice of
termination giving at least sixty (60) days notice of termination
of this Agreement by any party.
(f) No later than June 30, 1998.
Section 6.02. Anything contained herein to the contrary
notwithstanding, in the event of termination of this Agreement, CBI shall be
entitled to compensation earned to date of termination as provided in this
Agreement computed pro rata up to and including such date and shall further be
<PAGE> 5
entitled to perform such additional services or functions, which CBI, in its
sole discretion, shall deem necessary in order to wind up affairs relating to
this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Administration and Services Agreement which is effective as of the 3rd day of
February, 1998.
CLARK/BARDES, INC.
By:
------------------------------------
, President
--------------------
--------------------
Date
CLARK/BARDES, INC. OF PENNSYLVANIA
By: /s/ MALCOLM N. BRIGGS
------------------------------------
, President
--------------------
--------------------
Date
5
<PAGE> 6
ADDENDUM "A"
This Addendum "A" is hereby attached to and made a part of that certain
Administration and Services Agreement ("Agreement") by and between Clark/Bardes,
Inc. (hereinafter referred to as "CBI") and Clark/Bardes, Inc. of Pennsylvania
(hereinafter referred to as "Agency").
This Addendum "A" more specifically sets out the compensation due CBI
by Agency pursuant to Article III of the Administration and Services Agreement
to which this Addendum is attached and made a part thereof. The parties hereto
agree that Agency shall compensate CBI for performance of CBI's duties under the
Agreement to which this Addendum is attached and made a part as follows:
The charges and fees pursuant to this Agreement shall be an amount
equal to the cost incurred by CBI in providing the services, personnel and
property hereunder, determined by generally accepted accounting principles and
allocated on a reasonable and equitable basis.
The above consideration is subject to renegotiation in accordance with
the provisions of Article III of the Agreement to which this Addendum is
attached and made a part thereof. Any renegotiation of the consideration set out
in this Addendum "A" shall be evidenced by written document to be attached and
made a part of the Administration and Services Agreement.
EXECUTED on this 3rd day of February, 1998 and effective as of the date
of the Agreement.
CLARK/BARDES, INC.
By: /s/ MEL TODD
------------------------------------
Mel Todd , President
--------------------
CLARK/BARDES, INC. OF PENNSYLVANIA
By: /s/ MALCOLM N. BRIGGS
------------------------------------
Malcolm N. Briggs , President
--------------------
6
<PAGE> 1
EXHIBIT 10.5
PRINCIPAL OFFICE AGREEMENT
This agreement, effective as of the date written below, is entered into by
and between Tom Wamberg ("Principal") of Barrington, Illinois, and Clark/Bardes,
Inc. ("CBI"), a Texas Corporation with headquarters in Dallas, Texas.
PREMISES
A. Principal is a shareholder in CBI and a successful insurance producer who
markets executive benefit and insurance plans to large corporations.
B. CBI is one of the major life insurance brokerage organizations in the
United States and possesses software, hardware, administrative systems and
technical expertise necessary and valuable in the sale and marketing of
insurance and executive benefit plans to large corporations.
C. Principal and CBI believe that they can mutually profit and enhance their
respective business interests by association with each other.
D. Principal expects to receive from CBI: sophisticated technical support,
competitive insurance products, plan design and illustration capacity,
marketing ideas and marketing advantages from use of the CBI name and
client list, as well as the benefits of association with other CBI
producers working in the large corporate market.
E. CBI expects to benefit from the skill and ideas which Principal will bring
to CBI and its other producers and by having the commitment of Principal to
bring and share with CBI all of its sales of insurance funded plans of a
certain size and complexity.
THEREFORE, in furtherance of the goals and desires set forth above and in
consideration of those values and of the mutual covenants and promises contained
herein, Principal and CBI state and agree as follows:
ARTICLE 1
COVERED BUSINESS
Section 1.01 Covered Business. This agreement relates to Covered Business
which means the sale of life insurance or administrative or consulting services
made by Principal where a corporation is either the owner of life insurance
policies or, directly or indirectly, the payor of the majority of the premium or
administrative or consulting fees and the purpose or result of the sale is to
fund, finance, study or administer an executive or employee benefit plan.
<PAGE> 2
Covered Business does not include group term life insurance or sales to
qualified plans.
Section 1.02 Primary Business. Primary Business is Covered Business which
involves one or more of the following:
1. $250,000 or more of premium and administrative fees paid on a case in any
one year,
2. Principal and CBI elect to involve CBI employees in the sales process.
3. Principal uses CBI illustrations or plan administration.
4. $25,000 or more of consulting fees paid on a case in any one year.
5. Additional sales to plans which were Primary Business when originally
sold.
In exceptional circumstances, the President and Chairman of CBI shall have the
authority to determine that Covered Business which otherwise qualifies as
Primary Business shall instead, be Secondary Business. Such determination if
granted, shall be expressed in writing after a written request for such
determination by Principal but before CBI becomes involved in the sale.
Section 1.03 Secondary Business. Secondary Business is all Covered Business
not described in Section 1.02.
ARTICLE 2
WHAT EACH PARTY WILL DO
Section 2.01 Principal. Principal will solicit, sell and implement Covered
Business.
Section 2.02 CBI. CBI shall furnish Principal marketing materials and
concepts, plan design ideas, selected life insurance products, specimen plan
documents and administrative services for the Primary Business which Principal
sells or attempts to sell. Upon request by Principal, CBI shall furnish
Principal with life insurance and benefit plan illustrations, technical support
personnel and such other services as are reasonably necessary for the sale of
Primary Business.
ARTICLE 3
COMMISSIONS AND FEES
Section 3.01 Division of Commissions and Fees. Commissions and Fees net of
any CBI Administrative Costs as determined from time to time by the Board of
Directors, (Exhibit B shows Administrative Costs as of 6/l/93) which result from
Covered Business shall be divided pursuant to the attached Exhibit A. CBI shall
be under no obligation to administer a case unless total revenues from the case
are sufficient to cover Administrative Costs. Costs of
2
<PAGE> 3
Administration may be amended from time to time by the Clark/Bardes Board of
Directors to reflect changes in cost; however, once established for a particular
case, such fees shall not increase in any subsequent plan year, as a percentage,
by more than the increase in the Consumer Price Index for the preceding calendar
year.
Principal will be provided an administrative manual which will specify in
detail the implementation and administrative aspects of this Section 3.01.
Section 3.02 Vesting. Any commissions and fees divided pursuant to Sec.
3.01 shall be vested in the parties for the entire period of time such
commissions and fees are paid and shall inure to the benefit of their heirs and
assigns.
Section 3.03 Payment of Commissions and Fees. The parties agree to assign
the respective percentage of commissions received pursuant to Section 3.01 so
that the insurance company pays each party directly in those instances where an
assignment of commissions can be made. Such assignment shall be in the form of
an absolute irrevocable assignment. If there is no assignment of commissions,
then CBI shall be the receiving party for all Primary Business and shall pay
the other party its share of the commissions within seven (7) days after its
receipt of the commissions from the respective insurer.
Any charge back or debit of compensation to CBI (including commissions and
bonuses), paid under the preceding sentence, shall be shared by CBI and
Principal in the same proportion as the compensation (to which such charge back
or debit relates) was divided when paid.
Fees for servicing an administration agreement or the performance of other
insurance-related services by CBI and/or Principal shall be paid to CBI. CBI
shall pay the Principal's share of such fees to Principal within seven (7) days
of receipt of the fees.
Section 3.04 Termination. This agreement shall continue until terminated by
either party upon 90 days' written notice. The division of commissions and fees,
and the obligations of Clark/Bardes and Principal to administer the benefit and
insurance plans, which have been undertaken pursuant to this agreement, shall
continue, notwithstanding termination of this agreement by either party.
ARTICLE 4
NON-COMPETITION
For purposes of this Section, there will be different types of clients,
each subject to different noncompetitive agreements:
3
<PAGE> 4
a.) "Separate Clients" are those clients which CBI or Principal has
obtained separately from the involvement or assistance of the other party and
for which there is no joint participation in ongoing service of the business,
even though these clients may have been merged or used together on client lists.
For a period of three years following termination of this agreement, whether
such termination is voluntary or involuntary, with or without cause, neither
party will, with respect to the separate clients of the other, call on, solicit,
or sell insurance or administrative services or perform insurance related
services.
b.) "Joint Clients" are those clients which have become clients through the
joint efforts of the parties and for which commissions and fees are being
divided pursuant to Sec. 3.01 or in accordance with some revenue sharing
agreement which preceded this Agreement. With respect to these clients, for a
period of two years following termination of this agreement, commission or fee
revenue resulting from any sales or from solicitations made during the one year
period shall be treated as if made pursuant to Sec. 3.01 of this Agreement.
Further, with respect to administration of the plan for joint clients being
administered by CBI as of the date of termination, for a period of five years
Principal agrees not to take any action or participate directly or indirectly in
any solicitation which would attempt to induce the joint client to change from
CBI to another plan administrator.
c.) "Prospective Clients" are those for which Principal has used
illustrations or proposals supplied by CBI or in which CBI personnel have met
with the client in the marketing process. Any commissions or fees received from
these clients within two years following the date of termination of this
agreement shall be divided as Primary Business.
ARTICLE 5
BOOKS AND RECORDS AND CONFIDENTIALITY
Section 5.01 Books and Records. All books, records, sales materials, notes,
files, client lists and other similar data and information furnished by CBI to
Principal during the term of this agreement are the property of CBI. All such
property and documents shall be returned to CBI upon termination of the
Agreement.
Section 5.02 Confidentiality. During and after the term of this agreement,
Principal shall not make known or divulge to others any confidential information
obtained during the term of this agreement relating to the business or sales of
CBI or to clients of CBI unless Principal was directly involved in a sale to
such client. Principal agrees to obtain a confidentiality agreement from each
Associate associated with his office in a form approved by CBI.
4
<PAGE> 5
ARTICLE 6
ADVERTISING
No advertisement referring to or using the name of Clark/Bardes, Inc., CBI
or Clark/Bardes Organization which is to be used in a publication of general
circulation, shall be printed, published or used in any way by Principal without
the written approval of CBI.
ARTICLE 7
EXPENSES
Each party shall be responsible for and pay all expenses incurred by it in
connection with the performance of its services under this agreement, including,
but not limited to, travel, entertainment of customers, office supplies,
telephone, postage, messenger or delivery services, personnel, equipment, office
rent, finders, fees and licensing fees.
ARTICLE 8
INDEPENDENT CONTRACTOR
The relationship between Principal and CBI is that of an independent
contractor. Principal shall have total control and discretion as to how he
fulfills his duties hereunder and shall not be deemed an employee or agent of
CBI for any purpose.
ARTICLE 9
SERVICEMARK AND TRADENAME
Section 9.01 Ownership of Servicemark and Tradename. CBI is the licensee or
owner of the servicemark and tradenames "Clark/Bardes, inc.," "CBI", and
"Clark/Bardes Organization." Nothing herein contained shall be construed as
conferring upon Principal any ownership in such servicemarks, trademarks, any
designs, copyrights, patents, tradenames, signs, emblems, insignia, symbols,
slogans, or other marks used in connection with the services and products of
CBI. CBI reserves the right to specify the terms and conditions under which the
names Clark/Bardes, inc., CBI and Clark/Bardes Organization may be used.
Section 9.02 Termination of Principal's Use of Marks. Immediately upon
termination of this agreement, however caused, the Principal will eliminate the
words Clark/Bardes
5
<PAGE> 6
Organization from its company or firm name, if it is there, and will cease using
in any manner whatsoever, CBI's servicemarks, trademarks, dragomans, symbols,
slogans, emblems, insignia, or other designs.
ARTICLE 10
LIMITATION OF AUTHORITY
Without the prior written consent of the parties hereto, neither CBI nor
Principal shall:
a.) Incur any expense, indebtedness or liability on behalf of the other;
b.) Make any promise or agreement or enter into any contract for the other;
or
c.) Exercise any authority or act on behalf of the other, except as
expressly provided for in this agreement.
No agreement shall be binding on CBI unless the agreement originated from
or is approved by CBI and is signed by a duly authorized corporate officer.
Principal acknowledges that he is not such an officer.
ARTICLE 11
DISPUTES
CBI shall have the right to resolve disputes between Principals in the
marketing or sale of life insurance policies or administration agreements in
connection with any insurance plans, including the division of compensation
payable thereon. Principal acknowledges and agrees that the decision of CBI on
such matters shall be final and conclusive.
ARTICLE 12
GENERAL PROVISIONS
Section 12.01 Notices. Any notices to be given hereunder by either party to
the other shall be by personal delivery in writing or by mail, registered or
certified, postage prepaid with return receipt requested.
Section 12.02 Venue and Law Governing Agreement. This agreement shall be
governed by and construed in accordance with the laws of the State of Texas and
venue shall lie in Dallas County, Texas.
Section 12.03 Attorney's Fees and Costs. If any action, at law or in
equity, is necessary to enforce or interpret the terms of this agreement, the
prevailing party shall be entitled to
6
<PAGE> 7
reasonable attorney's fees, costs and necessary disbursements in addition to any
other relief to which it may be entitled.
Section 12.04 Liability Insurance. Principal shall maintain at its expense
general liability and errors and omissions insurance coverage. The errors and
omissions coverage shall be for the maximum amount available from any insurance
industry trade association of which Principal is a member, but in no event less
than $1,000,000. Principal shall furnish evidence of such insurance coverage to
CBI upon request.
Section 12.05 Assignment. This agreement for services is personal; it
cannot be transferred, assigned, pledged, made subject to a security interest,
or otherwise disposed of by Principal or CBI in whole or in part.
Section 12.06 Amendment. This agreement may only be amended by the written
consent of the parties.
Section 12.07 Entire Agreement. This agreement contains the entire
understanding between the parties hereto concerning the subject matter contained
herein and replaces all prior agreements between them. There are no
representations, oral or written, between or among the parties hereto relating
to the subject matter of this agreement which are not fully expressed herein.
This agreement may be executed in any number of counterparts, each of which
shall serve as an original.
EXECUTED on the 29th day of July, 1993 and effective 1/1/93.
CLARK/BARDES, inc.
By: /s/ [ILLEGIBLE] By: /s/ WARREN T. WAMBERG, PRINCIPAL
---------------------------- ---------------------------------
President Tom Wamberg, Principal
7
<PAGE> 8
EXHIBIT A
COMMISSION AND FEE DIVISION
A. PRIMARY BUSINESS
<TABLE>
<CAPTION>
SPLIT OF TOTAL REVENUE
TOTAL REVENUE PRODUCER CBI
<S> <C> <C>
First $600,000 65.0% 35.0%
Next $1,900,000 67.5% 32.5%
Excess over $2,500,000 70.0% 30.0%
</TABLE>
B. SECONDARY BUSINESS
All Revenue 90.0% 10.0%
Notes:
1. Total Revenue is all commissions and fees before any CBI Administrative Costs
as per Section 3.01.
2. Total Revenue is cumulative new case revenue for the calendar year generated
by all producers affiliated with a Principal Office.
3. For the purpose of this Exhibit, total revenue shall be the present value of
total revenues for a ten year period discounted at an 8% annual rate.
4. Policy Date determines the calendar year for which revenues are to be
credited.
5. Revenue credit is not given for Secondary Business for purposes of
determining the appropriate breakpoints for Primary Business.
6. Revenue credit will be applied according to the case split if two or more
Principal Offices are involved in a case.
8
<PAGE> 9
EXHIBIT B
ADMINISTRATIVE COSTS
<TABLE>
<CAPTION>
Number of Covered Lives
-----------------------
Annual Fixed Costs 1-9 10 or More
- ------------------ ------- ----------
<S> <C> <C>
Per Client $2000 $3000
Per Benefit Plan $1000 $2000
Per Insurance Plan $1000 $3000
Annual Per Unit Costs
- ---------------------
Insurance Plans
First 5000 Policies $9
Policies over 5000 $6
Benefit Plans
162 Bonus Plan $12
Participants
All Other (deferred $50
Comp., Split $ etc.,)
Participants
First Year Multiplier 2
- ---------------------
Cost of Living Adjustment Yes
- -------------------------
</TABLE>
Notes:
1. Annual fixed costs may include more than one category.
2. Annual per unit costs are charged for each type of policy and
benefit unit.
3. The first year multiplier means that all first year costs are
doubled to reflect additional set up and enrollment costs. The
multiplier may be reduced in situations where enrollment services
are handled by others. Any agreement to reduce such costs must be
agreed to in advance in writing by the President and Vice
President of Client Services.
9
<PAGE> 1
EXHIBIT 10.6
BUY-SELL AGREEMENT
FOR
CLARK/BARDES AGENCY OF OHIO, INC.
This Buy-Sell Agreement (this "Agreement") is made by and among
Clark/Bardes Securities, Inc. (hereinafter referred to as "C/B Securities"),
Robert Kelleher (hereinafter referred to as "Shareholder") and Clark/Bardes
Agency of Ohio, Inc. (hereinafter referred to as the "Company") with respect to
all of the issued and outstanding shares of common stock, par value $1.00 per
share, of the Company presently or hereafter owned by the Shareholder
(hereinafter referred to as "Shares").
WHEREAS, the parties to this Agreement are desirous that there be
continuity in the operation of the Company, and in order to do so the parties
have herein provided for the purchase, sale or transfer of the Shareholder's
interests in the Company upon the occurrence of specified events enumerated
herein and which will be binding upon the Shareholder in lifetime transfers as
well as transfers taking effect at death.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth in this Agreement, the parties agree and state as follows:
ARTICLE 1.
RESTRICTIONS AGAINST TRANSFERS AND VOTING RIGHTS
Section 1.01 Prohibited Transfers. Shareholder agrees that he will not
sell, transfer, assign, hypothecate, mortgage, pledge, encumber, bequeath, or
in any way alienate or dispose of any of the Shares, or any right or interest
therein, whether voluntarily or by operation of law, or by gift or otherwise,
without the prior written consent of C/B Securities and the Company, except
with respect to a transfer which meets the requirements of this Agreement. Any
purported transfer in violation of any provision of this Agreement
shall be void and ineffectual, and shall not operate to transfer any interest
or title in the Shares to the purported transferee.
<PAGE> 2
Shareholder further agrees that he shall not vote in favor of a sale of
substantially all of the assets of the Company or for a dissolution of the
Company without the prior written consent of C/B Securities.
Section 1.02 Assignment of Rights by C/B Securities. C/B Securities may
at any time transfer or assign any or all of its rights and obligations under
this Agreement, including but not limited to, any purchase obligations, any
option rights, or any other rights to acquire the Shares, without obtaining the
permission or consent of any other party hereto.
ARTICLE 2.
EXCLUSIVE OPTION
Section 2.01 Option to Purchase. Shareholder hereby grants to C/B
Securities or its designee the exclusive right and option (the "Option") to
purchase all of the Shares of the Company owned by the Shareholder at any time
upon the terms and conditions provided in this Agreement. The Option may be
exercised at any time by C/B Securities (without regard to whether the
Shareholder has given notice of intent to transfer or sell the Shares) by
giving written notice to the Shareholder that C/B Securities exercises the
Option to purchase the Shares owned by the Shareholder.
Section 2.02 Proposed Transfers. Should Shareholder desire to transfer
or sell his Shares in the Company, C/B Securities or its designee shall have
the absolute and exclusive right to purchase such Shares from the Shareholder
or his representative within 60 days of termination of such agreement or within
60 days of the President of C/B Securities receiving written notice of the
Shareholder's desire to transfer or sell his Shares. If such purchase is of
voting common stock, such designee of C/B Securities shall either (i) be a
resident of the State of Ohio at the time of such purchase, or (ii) tender to
the Ohio Department of Insurance for cancellation all insurance agent licenses
held by the Company within five days of such purchase.
2
<PAGE> 3
ARTICLE 3.
DEATH
Section 3.01 Purchase of Deceased Employee-Shareholder's Interests.
Upon the death of Shareholder, C/B Securities or its designee shall purchase
and the legal representative of the estate of the deceased Shareholder shall
sell, the Shares of such deceased Shareholder in the manner and on the terms
and conditions provided herein. In the event of the death of an Shareholder,
the executor or administrator of such deceased Shareholder shall within 10 days
of his appointment as executor or administrator give written notice of such
death to C/B Securities.
ARTICLE 4.
CHANGE IN MARITAL RIGHTS
Section 4.01 Marital Rights. In the event of a change in the marital
rights of the Shareholder, pursuant to any divorce decree, property settlement
or otherwise, the Shareholder agrees that such instrument or action shall
include provisions or actions whereby the Shareholder who is a party to such
change in marital rights, without regard to fault therein, shall purchase from
his Spouse and Spouse shall sell, all of such interest in the Shares in the
manner and on the terms and conditions provided herein. Any other transfer or
assignment effected by said change in marital rights, unless consented to by
C/B Securities, shall be null and void.
ARTICLE 5.
OTHER TRANSFERS
Section 5.01 Transfer. The involuntary transfer or transfer by operation
of law of any Shares, or of any right or interest therein, including, but not
limited to, a transfer to the trustee in bankruptcy or receiver of any
Shareholder, shall give C/B Securities or its designee the option to purchase
such transferred Shares in the manner and on the terms and conditions provided
3
<PAGE> 4
herein. In the event of a transfer or purported transfer of shares as provided
above, Shareholder shall, within ten days of such transfer or purported
transfer, give written notice of such transfer to C/B Securities. The option
granted herein shall be exercised by C/B Securities giving written notice to the
Shareholder that it exercises its option to purchase the Shares owned by such
Shareholder. In the event that C/B Securities does not give notice of its
exercise of the option to purchase such Shares within 30 days after the receipt
of the notice of a transfer or purported transfer as provided above, Shareholder
shall use his best efforts to cause the person or persons acquiring such Shares
to execute and become a party to this Agreement and shall hold such Shares
subject to all of the terms and conditions provided herein, and no further
transfer of such Shares may be made except in accordance with the terms and
conditions provided herein.
ARTICLE 6.
DETERMINATION OF PURCHASE PRICE
Section 6.01 Purchase Price for All Transfers. The purchase price of the
Shares transferred pursuant to this Agreement shall be One Dollar ($1.00) per
Share. The purchase price of the Shares of the Company shall be inclusive of
the value of any goodwill. The purchase price relating to any transfer of an
undivided fractional interest in the Shares shall be based upon the
proportionate interest in each Share.
ARTICLE 7.
PAYMENT OF PURCHASE PRICE AND DEPOSIT OF SHARES
Section 7.01 Change in Marital Rights. In the event of a purchase and sale
of the Shares pursuant to Article 4 hereof, the purchase price shall be paid as
follows: The Shareholder who is a party to such an agreement or action
resulting in a change of his marital rights shall transfer in consideration of
the purchase price to his Spouse so much of his property as is necessary to
vest complete title of the Spouse's interest in the Shares in the Shareholder.
If the property so
4
<PAGE> 5
transferred fails to satisfy the full purchase price of the Spouse's interest,
then such transfer of property shall be considered as a down payment. Any
balance of the purchase price shall be paid in 5 equal monthly installments,
the first to be due 30 days after the date of execution of any agreement or
final action in the dissolution of the marriage.
Section 7.02 All Other Transfers. In the event of a purchase and sale of
the Shares pursuant to Articles 2, 3 or 5 hereof, the purchase price shall be
paid as follows: C/B Securities or its designee or the Shareholder purchasing
such Shares shall pay the full amount of the purchase price in cash at the
closing of such sale and purchase. On payment thereof, the Shareholder or other
person or persons holding such Shares shall execute and deliver the
certificates, evidencing such Shares, or stock powers relating thereto, to the
purchaser.
Section 7.03 Deposit of Shares. In order to facilitate the closing of the
sale and purchase of the Shares pursuant to any provision of this Agreement,
the Shareholder hereby deposits with C/B Securities the stock certificate
evidencing the Shares together with stock power for assignment of the Shares
duly endorsed by the Shareholder in blank. Notwithstanding the deposit of the
Shares with C/B Securities by the Shareholder, the Shareholder shall at all
times prior to any transfer of the Shares be deemed for all purposes as the
record and beneficial owner of the Shares entitled to vote the Shares as
provided in this Agreement and the Articles of Incorporation and Bylaws of the
Company.
ARTICLE 8.
CLOSING DATE OF SALE AND PURCHASE OF SHARES
Section 8.01 Closing. The closing date to the sale and purchase of the
Shares as provided for in this Agreement shall be at the option of C/B
Securities or its designee, but in all events said closing shall be within 90
days after the date C/B Securities or its designee gives notice that it
exercises its option to purchase the Shares for purchases under Articles 2 and
5,
5
<PAGE> 6
within 90 days after the date of death of a Shareholder for purchases under
Article 3, and on the effective date of any agreement or final action resulting
in a change in the marital rights of the Shareholder for purchases under
Article 4.
ARTICLE 9.
RESTRICTION OF CERTIFICATES
Section 9.01 Legend. The Company and the Shareholder agree that all
certificates representing Shares of the common stock of the Company shall have
endorsed upon them the following legend:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
BUY-SELL AGREEMENT, WITH AN EFFECTIVE DATE OF APRIL __, 1996, A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION, AND SAID
SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, MORTGAGED, PLEDGED,
HYPOTHECATED, ENCUMBERED, OR OTHERWISE DISPOSED OF EXCEPT IN STRICT
ACCORDANCE WITH THE TERMS OF THAT AGREEMENT. A COPY OF SAID BUY-SELL
AGREEMENT WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF THIS
CERTIFICATE UPON RECEIPT BY THE CORPORATION AT ITS PRINCIPAL PLACE OF
BUSINESS OR REGISTERED OFFICE OF A WRITTEN REQUEST FROM THE HOLDER
REQUESTING SUCH A COPY.
Section 9.02 Transferee. Under no circumstances shall any sale or other
transfer of any Shares subject hereto be valid until the proposed transferee
thereof shall have executed and become a party to this Agreement and thereby
shall have become subject to all of the provisions hereof, unless the
requirement is waived by written consent of the parties to this Agreement; and
notwithstanding any other provisions of this Agreement, no such sale or other
transfer of any kind shall in any event result in the nonapplicability of the
provisions hereof at any time to any of the Shares subject hereto.
6
<PAGE> 7
ARTICLE 10.
MISCELLANEOUS PROVISIONS
Section 10.01 Notices. All notices required to be given hereunder must be
given by personally delivering such notice or by mailing it, via certified or
registered mail, return receipt requested, to the parties at the addresses set
forth on the signature page hereto. The above addresses may only be changed by
giving written notice of such change of address, via certified or registered
mail, return receipt requested, to all of the other parties hereto.
Section 10.02 Construction. As used in this Agreement, whenever the
context so indicates, the masculine, feminine, or neuter gender, and the
singular or plural number, shall each be deemed to include the others.
Section 10.03 Governing Law. This Agreement shall be governed by the laws
of the State of Ohio.
Section 10.04 Inurement. Subject to the restrictions against transfer or
assignment of Shares as herein contained, the provisions of this Agreement
shall inure to the benefit of and shall be binding on the assigns, successors
in interest, personal representatives, estates, heirs, and legatees of each of
the parties hereto.
Section 10.05 Amendment. This Agreement may only be amended by the
written consent of all of the parties to this Agreement at the time of such
amendment.
Section 10.06 Entire Agreement. This Agreement contains the entire
understanding between the parties hereto concerning the subject matter
contained herein. There are no representations, agreements, arrangements, or
understandings, oral or written, between or among the parties hereto, relating
to the subject matter of this Agreement, which are not fully expressed herein.
7
<PAGE> 8
Section 10.07 Further Assurances. Each party hereto agrees to perform any
further acts and to execute and deliver any further documents which may be
reasonably necessary to carry out the provisions of this Agreement.
Section 10.08 Severability. In the event that any of the provisions, or
portions thereof, of this Agreement are held to be unenforceable or invalid by
any court of competent jurisdiction, the validity and enforceability of the
remaining provisions, or portions thereof, shall not be affected thereby.
Section 10.09 Remedies for Breach. The Shares are unique chattels, and
each party to this Agreement shall have the remedies which are available to
him, her or it for the violation of any of the terms of this Agreement,
including, but not limited to, the equitable remedy of specific performance.
Section 10.10 Execution in Counterparts. This instrument may be executed
in multiple counterparts, each individually, and all of which together, shall
constitute a binding contract. The counterpart instruments shall be treated as
a binding contract.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the _____ day of April 1996.
ADDRESS: CLARK/BARDES SECURITIES, INC.
2121 San Jacinto Street
Suite 2200 By:
Dallas, TX 75201 -------------------------------
, President
c/o Clark/Bardes, Inc. CLARK/BARDES AGENCY OF OHIO, INC.
2121 San Jacinto Street
Suite 2200 By:
Dallas, TX 75201 -------------------------------
Ronald Roth, President
- ------------------------- SHAREHOLDER:
- -------------------------
- ------------------------- -----------------------------------
Robert Kelleher
- -------------------------
8
<PAGE> 1
EXHIBIT 10.7
EXECUTION COPY
=================================================================
CLARK/BARDES, INC.
$8,900,000
11.00% SECOND PRIORITY SENIOR SECURED
NOTES DUE AUGUST 9, 2004
AND
COMMON STOCK PURCHASE WARRANTS
---------------
NOTE AND WARRANT PURCHASE AGREEMENT
---------------
DATED AS OF SEPTEMBER 8, 1997
=================================================================
<PAGE> 2
TABLE OF CONTENTS
(Not Part of Agreement)
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. AUTHORIZATION OF ISSUE OF SECURITIES ...........................................1
1A. Authorization of Issues of Notes ...........................................1
1B. Authorization of Issues of Warrants ..................................1
2. PURCHASE AND SALE OF SECURITIES ....................................................2
2A. Purchase and Sale of Notes ...........................................2
2B. Purchase and Sale of Warrants ...........................................2
2C. Allocation of Total Consideration ...........................................2
3. CONDITIONS PRECEDENT .............................................................3
3A. Conditions to Closing ....................................................3
3B. Certain Documents ....................................................3
3C. Representations and Warranties; No Default; No Material Adverse Change .......5
3D. Purchase Permitted By Applicable Laws ..................................6
3E. Completion of Due Diligence ...........................................6
3F. Information with Respect to Contemplated Sale of Common Stock ........6
3G. Other Information ....................................................6
3H. Related Proceedings ....................................................6
3I. Consummation of Acquisition, Share Repurchases and Settlement of Litigation;
Satisfaction of Conditions Precedent to the Shareholders' Agreement ........7
3J. Repurchase of Common Stock ...........................................7
3K. Termination of Existing Bank Facility ..................................7
3L. Sale of Securities to Other Purchasers ..................................7
3M. Proceedings .............................................................7
3N. Fees .....................................................................8
4. PREPAYMENTS .....................................................................8
4A. Required Prepayments ....................................................8
4B. Optional Prepayment of Notes without Yield Maintenance Amount ........8
4C. Offer to Prepay Notes in the Event of a Change in Control or a Revenue
Maintenance Event .........................................................9
4D. Partial Payments Pro Rata ...................................................10
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
4E. Retirement of Notes ...................................................10
5. AFFIRMATIVE COVENANTS ............................................................11
5A. Financial Statements ...................................................11
5B. Information Required by Rule 144A ..........................................14
5C. Inspection of Property ...................................................14
5D. Covenant to Secure Notes Equally ..........................................14
5E. Corporate Existence, Licenses and Permits; Maintenance of Properties .......15
5F. Maintenance of Material Contracts ..........................................15
5G. Maintenance of Insurance ...................................................15
5H. Payment of Taxes and Other Claims ..........................................15
5I. ERISA Compliance ............................................................16
5J. Compliance with Laws ...................................................16
5K. Collateral ............................................................16
5L. Enforcement of Acquisition Documents, Share Repurchase Documents, the
Settlement Agreement and the Shareholders' Agreement ......................16
5M. Lockbox Account ............................................................17
5N. Performance of Obligations ..........................................17
5O. Maintenance of Key Sales Force ..........................................17
5P. Pledge of Notes Payable ...................................................17
5Q. Offering of Common Stock ...................................................17
5R. Maintenance of Key Man and Shareholder Life Insurance Policies .......17
5S. Creation and Maintenance of Working Capital Facility ................18
5T. Reincorporation Merger ...................................................18
5U. Conversion to a C Corporation. ..........................................18
5V. Certain Redemptions of Common Stock .................................18
5W. BCS Service Corporation ...................................................18
5X. Matters Related to Qualification and Licensure .............................18
6. NEGATIVE COVENANTS ............................................................18
6A. Total Debt to Annualized Cash Flow Ratio .................................19
6B. Limitation on Restricted Payments ..........................................19
6C. Maintenance of Minimum Consolidated Net Worth and Consolidated Net Income ...19
6D. Discounted Commission Fees to Total Debt Ratio ........................19
6E. Interest Coverage Ratio ...................................................19
6F. Fixed Charge Coverage Ratio ..........................................20
6G. Liens, Indebtedness, and Other Restrictions ........................20
6H. Change of Fiscal Year ...................................................24
6I. Change of Business ...................................................24
6J. Certificates of Incorporation; Bylaws; Trade Names ........................24
6K. Other Agreements ............................................................24
6L. Limitation on Certain Restrictive Agreements ........................25
6M. ERISA Matters ............................................................25
6N. Only One Class of Capital Stock ..........................................25
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
6O. Prohibition Against Payments and Prepayments of Certain Indebtedness ........25
6P. AAA Distribution ...................................................25
6Q. No Subsidiaries ............................................................26
6R. Restrictions on Issuances of Common Stock .................................26
6S. Restrictions Upon the Amendment of Certain Documents ................26
6T. Limitation on Amount of S Corporation Tax Distributions ................27
6U. Prohibition Against Phantom Stock ..........................................27
6V. Reincorporation Merger ...................................................27
6W. Restrictions Upon Stock Options ..........................................27
7. EVENTS OF DEFAULT ............................................................27
7A. Acceleration ............................................................27
7B. Rescission of Acceleration ..........................................31
7C. Notice of Acceleration or Rescission .................................31
7D. Right of Set-off ............................................................31
7E. Notice to Holders of Subordinated Debt; Payment Block ................32
7F. Other Remedies ............................................................32
8. REPRESENTATIONS, COVENANTS AND WARRANTIES ..........................................32
8A. Organization and Qualification ..........................................32
8B. Financial Statements ...................................................33
8C. Actions Pending ............................................................33
8D. Outstanding Indebtedness ...................................................34
8E. Title to Properties ...................................................34
8F. Possession of Franchises, Licenses, Patents and Trademarks ................34
8G. Taxes ....................................................................34
8H. Conflicting Agreements and Other Matters .................................35
8I. Authorized Capital Stock ...................................................36
8J. Offering of the Securities ..........................................36
8K. Use of Proceeds ............................................................36
8L. ERISA ....................................................................37
8M. Governmental Consent ...................................................37
8N. Environmental Compliance ...................................................38
8O. Fiscal Year ............................................................38
8P. Disclosure ............................................................38
8Q. Investment Company Act ...................................................38
8R. Other Regulation ............................................................38
8S. Acquisition, Share Repurchase, Settlement Agreement and Shareholders'
Agreement Representations and Warranties ................................38
8T. Solvency ....................................................................39
8U. Employment Agreements, Non-Competition Agreements and Principal Office
Agreements ...............................................................39
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
8V. Insurance Licenses ...................................................39
8W. Undisclosed Liabilities ..........................................39
8X. Legal Compliance ...................................................39
8Y. Certain Tax Matters ...................................................39
8Z. Sales Representatives ...................................................39
8AA. Contracts ............................................................40
8BB. Assignment of Insurance Contracts .................................41
8CC. Satisfaction of Conditions Precedent to the Acquisition, the Share
Repurchases, the Settlement Agreement and the Shareholders' Agreement .......41
8DD. Compliance with Laws ...................................................41
8EE. Condition of Property ...................................................41
8FF. Books and Records ...................................................41
8GG. Issuance and Exercise of the Warrants .................................41
8HH. Additional Disclosure ...................................................42
8II. Reincorporation Merger ...................................................42
8JJ. Satisfaction of Conditions Precedent .................................42
8KK. Certain Affiliates ...................................................42
9. REPRESENTATIONS OF EACH PURCHASER ...................................................42
9A. Nature of Purchase ...................................................42
9B. Source of Funds ............................................................43
10. DEFINITIONS ....................................................................44
10A. Yield Maintenance Terms ...................................................44
10B. Other Terms ............................................................45
10C. Accounting Principles, Terms and Determinations ........................61
11. MISCELLANEOUS ....................................................................61
11A. Note Payments ............................................................61
11B. Expenses ....................................................................62
11C. Consent to Amendments ...................................................62
11D. Form, Registration, Transfer and Exchange of Notes; Lost Notes .......63
11E. Persons Deemed Owners; Participations .................................63
11F. Survival of Representations and Warranties; Entire Agreement .......63
11G. Successors and Assigns ...................................................64
11H. Disclosure to Other Persons ..........................................64
11I. Notices ....................................................................64
11J. Payments Due on Non-Business Days ..........................................65
11K. Satisfaction Requirement ...................................................65
11L. Governing Law ............................................................65
11M. Waiver of Jury Trial; Consent to Jurisdiction; Limitation of Remedies ......65
11N. Indemnification ............................................................66
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
11O. Release ....................................................................68
11P. Relationship of the Parties ..........................................68
11Q. Final Agreement ............................................................69
11R. Construction ............................................................69
11S. Severability ............................................................69
11T. Descriptive Headings ...................................................69
11U. Maximum Interest Payable ...................................................69
11V. Counterparts ............................................................70
11W. Severalty of Obligations ...................................................70
11X. Adjustments Related to Number of Shares of Common Stock ................70
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
PURCHASER SCHEDULE
<S> <C>
SCHEDULE 3I - SELLING STOCKHOLDERS PURSUANT TO SHARE REPURCHASES
SCHEDULE 6G(4) - CERTAIN LOANS, ADVANCES AND INVESTMENTS
SCHEDULE 6M - DESCRIPTION OF BENEFITS PROVIDED BY PLANS
SCHEDULE 8C - LITIGATION
SCHEDULE 8D - INDEBTEDNESS
SCHEDULE 8H(1) - AGREEMENTS RESTRICTING INDEBTEDNESS
SCHEDULE 8I - RIGHTS TO PURCHASE OR ACQUIRE COMMON STOCK
SCHEDULE 8U - MATERIAL EMPLOYMENT AGREEMENTS, NON-COMPETITION
AGREEMENTS AND PRINCIPAL OFFICE AGREEMENTS
SCHEDULE 8V - INSURANCE LICENSES
SCHEDULE 8AA - CONTRACTS
SCHEDULE 8HH(1) - PERFORMANCE BONUSES
SCHEDULE 8HH(2) - PLANS AND MULTIEMPLOYER PLANS
SCHEDULE 8HH(3) - INTELLECTUAL PROPERTY
SCHEDULE A - COMPETITORS
EXHIBIT A - FORM OF NOTE
EXHIBIT B - FORM OF WARRANT
EXHIBIT C-1 - FORM OF OPINION OF COMPANY'S COUNSEL
EXHIBIT C-2 - FORM OF OPINION OF COMPANY'S GENERAL COUNSEL
EXHIBIT D - FORM OF OFFICER'S CERTIFICATE
EXHIBIT E - FORM OF COMPLIANCE CERTIFICATE
EXHIBIT F - FORM OF PARTICIPATION RIGHTS AGREEMENT
EXHIBIT G - FORM OF PUT RIGHTS AGREEMENT
EXHIBIT H - FORM OF REGISTRATION RIGHTS AGREEMENT
</TABLE>
<PAGE> 8
CLARK/BARDES, INC.
2121 SAN JACINTO, SUITE 2200
DALLAS, TEXAS 75201
As of September 8, 1997
To Each of the Purchasers
Named on the Purchaser Schedule
Attached Hereto
$8,900,000 11.00% SECOND PRIORITY SENIOR SECURED NOTES DUE 2004
COMMON STOCK PURCHASE WARRANTS
Ladies and Gentlemen:
The undersigned, Clark/Bardes, Inc., a Texas corporation (the
"COMPANY"), hereby agrees with the purchasers named in the Purchaser Schedule
attached hereto (the "PURCHASERS") as follows:
1. AUTHORIZATION OF ISSUE OF SECURITIES.
A. AUTHORIZATION OF ISSUES OF NOTES. The Company will authorize
the issue of its 11.00% second priority senior secured promissory notes in the
aggregate principal amount of $8,900,000, to be dated the date of issue thereof,
to mature August 9, 2004, to bear interest on the unpaid balance thereof from
the date thereof until the principal thereof shall have become due and payable
at a rate of 11.00% per annum and on overdue payments at the rate specified
therein; such 11.00% second priority senior secured promissory notes shall be
substantially in the form of Exhibit A attached hereto. The term "NOTES" as used
herein shall include each such 11.00% second priority senior secured promissory
note delivered pursuant to any provision of this Agreement and each such 11.00%
second priority senior secured promissory note delivered in substitution or
exchange for any other Note pursuant to any such provision. Capitalized terms
used herein have the meanings specified in paragraph 10.
B. AUTHORIZATION OF ISSUES OF WARRANTS. The Company will also
authorize the issue of its Common Stock Purchase Warrants (any such Common Stock
Purchase Warrants which have been issued pursuant to this Agreement, and any
such Common Stock Purchase Warrants which may be issued in substitution or
exchange therefor, herein collectively called the "WARRANTS") evidencing rights
to purchase from the Company an aggregate of 3,050,847 shares of the Company's
common stock, no par value
<PAGE> 9
per share (the "COMMON STOCK"), at an initial exercise price per share of $2.95,
at any time or from time to time after the Date of Closing and prior to 5:00
p.m., New York City time, on August 9, 2004 or August 9, 2007, as provided in
the Warrants, all subject to the terms, conditions and adjustments set forth in
the Warrants; such Warrants shall be substantially in the form of Exhibit B
attached hereto.
2. PURCHASE AND SALE OF SECURITIES.
A. PURCHASE AND SALE OF NOTES. The Company hereby agrees to sell
to each Purchaser and, subject to the terms and conditions herein set forth,
each Purchaser agrees to purchase from the Company the aggregate principal
amount of Notes set forth opposite such Purchaser's name in the Purchaser
Schedule attached hereto at 100% of such aggregate principal amount. The Company
will deliver to each Purchaser, at the offices of Baker & Botts, L.L.P. at 2001
Ross Avenue, Dallas, Texas 75201, one or more Notes registered in such
Purchaser's name, evidencing the aggregate principal amount of Notes to be
purchased by such Purchaser and in the denomination or denominations specified
with respect to each Purchaser in the Purchaser Schedule attached hereto,
against payment of the purchase price thereof by transfer of immediately
available funds for credit to the Company's account no. 7831016873 at Comerica
Bank - Texas, Dallas, Texas, ABA No. 111000753, Attn: Bill Rolley, (214)
818-2113, on the date of closing, which shall be September 8, 1997 or any other
date on or before September 11, 1997 upon which the Company and the Purchasers
may mutually agree (the "CLOSING" or the "DATE OF CLOSING").
B. PURCHASE AND SALE OF WARRANTS. The Company hereby agrees to
sell to each Purchaser and, subject to the terms and conditions herein set
forth, each Purchaser agrees to purchase from the Company Warrants evidencing
rights to purchase the aggregate number of shares of Common Stock set forth
opposite such Purchaser's name in the Purchaser Schedule. The aggregate purchase
price for the Warrants shall be $100,000. The Company will deliver to each
Purchaser, at the offices of Baker & Botts, L.L.P. at 2001 Ross Avenue, Dallas,
Texas 75201 one or more Warrants, registered in such Purchaser's name,
evidencing rights to purchase the aggregate number of shares of Common Stock to
be purchased by such Purchaser, such Warrant or Warrants to evidence rights to
purchase the number of shares of Common Stock specified with respect to such
Purchaser in the Purchaser Schedule attached hereto, against payment of the
purchase price for the Warrants by transfer of immediately available funds for
credit to the Company's account no. 7831016873 at Comerica Bank - Texas, Dallas,
Texas, ABA No. 111000753, Attn: Bill Rolley, (214) 818-2113, on the Date of
Closing.
C. ALLOCATION OF TOTAL CONSIDERATION. The Company and each of the
Purchasers agree that the relative aggregate fair market values of the Notes and
the Warrants are $8,900,000 and $100,000, respectively. The Company and each of
the Purchasers further agree (i) for tax and financial accounting reporting
purposes, $8,900,000 of the total purchase price to be paid by the Purchasers
hereunder is properly allocable to the Notes and the remaining $100,000 of the
total purchase price is properly
<PAGE> 10
allocable to the Warrants, (ii) to file their respective tax returns in a manner
consistent with the treatment described in clause (i) above and in the preceding
sentence, and (iii) that they will not file any amended tax return or refund
claim, or take any position in any contest, which is inconsistent with the
treatment described in this paragraph 2C.
3. CONDITIONS PRECEDENT.
A. CONDITIONS TO CLOSING. Each Purchaser's obligation to
purchase and pay for the Securities to be purchased by such Purchaser hereunder
is subject to the satisfaction, on or before the Date of Closing, of the
following conditions:
B. CERTAIN DOCUMENTS. Each Purchaser shall have received the
following, each dated the Date of Closing (unless a different date is indicated
below), and each in form, scope and substance satisfactory to such Purchaser:
a) the Notes to be purchased by such Purchaser, duly executed
and delivered by the Company;
b) the Warrants to be purchased by such Purchaser, duly
executed and delivered by the Company;
c) a certified copy of the resolutions of the Board of
Directors of the Company approving each of the Second Priority Note
Documents to which it is a party, and certified copies of all documents
evidencing other necessary corporate action and governmental approvals,
if any, with respect to each of the Second Priority Note Documents to
which it is a party;
d) a certificate of the Secretary or an Assistant Secretary of
the Company certifying the names and true signatures of the officers of
the Company authorized to sign the Second Priority Note Documents to
which it is a party and the other documents to be delivered hereunder
by the Company;
e) a certified copy of the Articles of Incorporation
(certified by the Secretary of State of the State of Texas) and bylaws,
each as amended to date, of the Company;
f) favorable opinions of Vedder, Price, Kaufman & Kammholz,
counsel to the Company, and Keith Staudt, General Counsel to the
Company, substantially in the form of Exhibit C-1 and Exhibit C-2
attached hereto, respectively;
g) a favorable opinion of Baker & Botts, L.L.P., who are
acting as special counsel for the Purchasers in connection with this
transaction, as to such matters incident to the matters herein
contemplated as such Purchaser may reasonably request;
<PAGE> 11
h) reliance letters in respect of any other legal opinions
(such legal opinions to be in form, scope and substance satisfactory to
such Purchaser) delivered in connection with the Acquisition, the Share
Repurchases, the settlement of the Litigation and the other
transactions related thereto;
i) certified copies of Requests for Information or Copies
(Form UCC-11) or equivalent reports listing all effective financing
statements which name the Company or the Acquired Company (under any of
their present names and any previous names) as debtor and which are
filed in all jurisdictions in which the Company or the Acquired Company
owns property or conducts business, together with copies of such
financing statements;
j) the Collateral Agency Agreement, duly executed and
delivered by the Collateral Agent, the Company and the holders of the
Medium Term Notes;
k) the Registration Rights Agreement, duly executed and
delivered by the Company;
l) the Put Rights Agreement, duly executed and delivered by
the Company;
m) the Participation Rights Agreement, duly executed and
delivered by the Company and the Company's stockholders listed in
Schedule I thereto;
n) the Non-Compete Agreement, duly executed and delivered by
W.T. Wamberg, the terms and conditions of which shall be in full force
and effect and shall not have been amended, modified or waived except
with such Purchaser's prior written consent;
o) the Perfection Certificate, duly executed and delivered by
the Company;
p) the Assignment of Life Insurance Policy, each duly executed
and delivered by the Company and W. T. Wamberg;
q) the Letters of Intent, duly executed and delivered by each
of Richard C. Chapman and Larry Hendricksen;
r) an Officer's Certificate substantially in the form of
Exhibit D attached hereto, duly executed and delivered by the Company;
<PAGE> 12
s) certified copies of each of the Acquisition Documents and
the Share Repurchase Documents, the terms and conditions of which shall
be in full force and effect and shall not have been amended, modified
or waived except with such Purchaser's prior written consent;
t) certified copies of the Shareholders' Agreement and the
Settlement Agreement, the terms and conditions of which shall be in
full force and effect and shall not have been amended, modified or
waived except with such Purchaser's prior written consent;
u) a certified schedule of the stockholders of the Company
both prior to and after giving effect to the Share Repurchases;
v) copies of (a) (i) a pro forma balance sheet and pro forma
statements of income, changes in shareholders' equity and cash flow for
each of the Company and each division thereof for the fiscal year ended
December 31, 1996 (giving effect to the Acquisition and the Share
Repurchases) and (ii) a pro forma balance sheet as at June 30, 1997 and
pro forma statements of income, changes in shareholders' equity and
cash flow for the three month period ended on such date for each of the
Company and each division thereof (giving effect to the Acquisition and
the Share Repurchases), certified by an authorized financial officer of
the Company and (b) good-faith, projected, pro forma financial
statements (including, without limitation, balance sheets and
statements of income, changes in shareholders' equity and cash flow)
for each of the Company and each division thereof for fiscal years 1997
through 2001 (giving effect to the Acquisition and the Share
Repurchases);
w) the Security Documents, duly executed and delivered by the
Company;
x) all Uniform Commercial Code financing statements deemed
necessary or appropriate by such Purchaser to perfect the Liens in
favor of the Collateral Agent arising under the Security Documents,
duly executed and delivered by the Company, to be recorded with the
appropriate filing offices;
y) certificates of insurance naming the Collateral Agent as
loss payee and the Collateral Agent and all holders of Notes as
additional insureds, as required by paragraph 5G;
z) certified copies of the Tax Advisory Memorandum and the
Special Audit prepared by Ernst & Young LLP;
aa) written instructions from a Responsible Officer of the
Company, set forth on the Company's letterhead, authorizing and
directing such Purchaser to pay the purchase price of the Securities by
transfer of immediately available funds
<PAGE> 13
for credit to the bank account of the Company identified in paragraphs
2A and 2B; and
bb) additional documents, lien and judgment searches,
certificates of officers of the Company and the Acquired Company,
certificates of public officials and opinions of counsel to the Company
and the Acquired Company with respect to legal matters or corporate or
other proceedings related to the transactions contemplated hereby or by
the Acquisition, the Share Repurchases, the settlement of the
Litigation or the Shareholders' Agreement as may be requested by such
Purchaser.
C. REPRESENTATIONS AND WARRANTIES; NO DEFAULT; NO MATERIAL
ADVERSE CHANGE. The representations and warranties contained in this Agreement,
the other Second Priority Note Documents, the Acquisition Documents, the Share
Repurchase Documents, the Shareholders' Agreement and the Settlement Agreement
shall be true on and as of the Date of Closing, except to the extent of changes
caused by the transactions herein contemplated; there shall exist on the Date of
Closing no Event of Default or Default; there shall exist or have occurred no
condition, event or act which could have a material adverse effect on the
business, condition (financial or other), assets, properties, operations or
prospects of the Company and the Company shall have delivered to such Purchaser
an Officer's Certificate, dated the Date of Closing, to such effects.
D. PURCHASE PERMITTED BY APPLICABLE LAWS. The offer by the
Company of, and the purchase of and payment for the Securities, to be purchased
by such Purchaser on the Date of Closing on the terms and conditions herein
provided (including the use of the proceeds of such Securities by the Company),
and any subsequent exercise of the Warrants shall not violate any applicable law
or governmental regulation (including, without limitation, section 5 of the
Securities Act or Regulation G or X of the Board of Governors of the Federal
Reserve System) (other than Art. 21.07-1 of the Texas Insurance Code (but only
with respect to the issuance of shares of Common Stock upon the exercise of the
Warrants) the violation of which the Company represents and warrants will be
cured by the satisfaction of the covenant contained in paragraph 5T) and shall
not subject such Purchaser to any tax, penalty, liability or other onerous
condition under or pursuant to any applicable law or governmental regulation,
and such Purchaser shall have received such certificates or other evidence as it
may request to establish compliance with this condition.
E. COMPLETION OF DUE DILIGENCE. The Company shall have completed
its due diligence investigation with respect to the business and assets of the
Acquired Company, and such Purchaser shall have received such information,
analyses and documentation with respect thereto (including, without limitation,
the projected revenues of the Acquired Company and analyses thereof (both
historical and prospective) by geographical area, agent and office and client or
prospective client) as it may request.
<PAGE> 14
F. INFORMATION WITH RESPECT TO CONTEMPLATED SALE OF COMMON STOCK.
Such Purchaser shall have received information (in reasonable detail) with
respect to the Company's contemplated sale during September 1997 of
approximately 1,400,000 shares of Common Stock, at a price of not less than
$2.40 per share, to Richard Chapman, Larry Hendrickson and certain other
individuals.
G. OTHER INFORMATION. Such Purchaser shall have received all
documentation and information relating to the business, assets and capital
structure of the Company and the Acquired Company as it may reasonably request,
and such Purchaser shall have had an opportunity to review such documentation
and information and discuss the same with the management of the Company and the
Acquired Company.
H. RELATED PROCEEDINGS. All corporate and other proceedings taken
or to be taken in connection with (i) the Acquisition, (ii) the Share
Repurchases, (iii) the settlement of the Litigation, (iv) the Company's
execution, delivery, issuance and sale to such Purchaser of the Senior Notes
pursuant to the Senior Note Agreement, (v) the Shareholders' Agreement and (vi)
the other transactions contemplated thereby, and all documents incident thereto,
shall be satisfactory in form, scope and substance to such Purchaser (including,
without limitation, the terms and conditions of the conversion of the
Convertible Subordinated Notes and the subordination of (a) the Convertible
Subordinated Notes and (b) any promissory note payable by the Acquired Company
or the Company to any stockholder of the Acquired Company), and such Purchaser
shall have received all such counterpart originals or certified or other copies
of such documents as it may reasonably request.
I. CONSUMMATION OF ACQUISITION, SHARE REPURCHASES AND SETTLEMENT
OF LITIGATION; SATISFACTION OF CONDITIONS PRECEDENT TO THE SHAREHOLDERS'
AGREEMENT. Such Purchaser shall have received satisfactory evidence that the
Acquisition, the Share Repurchases and the settlement of the Litigation have
been consummated prior to or concurrently with the issuance of the Securities
and the Senior Notes, pursuant to and in accordance with the terms and
conditions of the Acquisition Documents, the Share Repurchase Documents and the
Settlement Agreement (no terms thereof having been amended, supplemented, waived
or otherwise modified without such Purchaser's prior written consent). Such
Purchaser shall have received satisfactory evidence that the conditions
precedent to the effectiveness of the Shareholders' Agreement have been
satisfied prior to or concurrently with the issuance of the Securities and the
Senior Notes (no terms thereof having been amended, supplemented, waived or
otherwise modified without such Purchaser's prior written consent).
J. REPURCHASE OF COMMON STOCK. Such Purchaser shall have received
evidence that the Company has repurchased in the Share Repurchases from the
stockholders listed on Schedule 3I at least 4,197,483 shares of Common Stock and
has retired, or is holding in treasury, at least 2,793,143 shares of Common
Stock prior to or concurrently with the issuance of the Securities and the
Senior Notes pursuant to the Senior Note Agreement on terms and conditions and
subject to documentation (including,
<PAGE> 15
without limitation, subordination of the Shareholder Notes, non-competition
agreements and settlements and releases of all claims related to the
Litigation), satisfactory in all respects to such Purchaser. Such Purchaser
shall have received evidence that W.T. Wamberg has purchased 450,000 shares of
Common Stock from certain stockholders of the Company prior to or concurrently
with the Share Repurchases.
K. TERMINATION OF EXISTING BANK FACILITY. Such Purchaser shall
have received evidence that the Existing Bank Facility has been terminated, all
amounts outstanding thereunder have been satisfied in full and all liens related
thereto have been released.
L. SALE OF SECURITIES TO OTHER PURCHASERS. The Company shall
have sold to the other Purchasers the Securities to be purchased by them at the
closing and shall have received payment in full therefor.
M. PROCEEDINGS. All corporate and other proceedings taken or to
be taken in connection with the transactions contemplated hereby and all
documents incident thereto shall be satisfactory in substance and form to such
Purchaser, and such Purchaser shall have received all such counterpart originals
or certified or other copies of such documents as it may reasonably request.
N. FEES. Without limiting the provisions of paragraph 11B, such
Purchaser's special counsel shall have received its fees, charges and
disbursements to the extent reflected in a statement of such special counsel
rendered to the Company at least one Business Day prior to the Closing.
4. PREPAYMENTS. The Notes shall be subject to prepayment only
with respect to the prepayments specified in paragraphs 4A, 4B and 4C.
A. REQUIRED PREPAYMENTS. Until the Notes shall be paid in full,
the Company shall apply to the prepayment of the Notes, without premium, the sum
of $2,967,000 on August 9th in each of the years 2002 and 2003, and such
principal amounts of the Notes, together with interest thereon to the prepayment
dates, shall become due on such prepayment dates. The remaining outstanding
principal amount of the Notes, together with interest accrued thereon, shall
become due on the maturity date of the Notes.
<PAGE> 16
B. OPTIONAL PREPAYMENT OF NOTES WITHOUT YIELD MAINTENANCE AMOUNT.
a) The Notes shall be subject to prepayment in whole at any
time or from time to time in part (in integral multiples of $600,000 or
such lesser amount necessary to permit compliance with paragraph 5V),
at the option of the Company, at 100% of the principal amount so
prepaid plus interest thereon to the prepayment date, provided that the
Company may not prepay the Notes pursuant to this paragraph 4B unless
(i) the Company is not making the prepayment for the purpose of
refunding the Notes by the application, directly or indirectly, of
borrowed funds and (ii) the Company does not contemplate replacing the
funds applied to such prepayments by other borrowed funds. Any partial
prepayment of the Notes pursuant to this paragraph 4B shall be applied
in satisfaction of required payments of principal in inverse order of
their scheduled due dates.
b) The Company shall give the holder of each Note irrevocable
written notice of any prepayment pursuant to this paragraph 4B not less
than ten Business Days prior to the prepayment date, specifying such
prepayment date and the principal amount of the Notes, and of the Notes
held by such holder, to be prepaid on such date and stating that such
prepayment is to be made pursuant to this paragraph 4B and complies
with the proviso of paragraph 4B(i). Notice of prepayment having been
given as aforesaid, the principal amount of the Notes specified in such
notice, together with interest thereon to the prepayment date, shall
become due and payable on such prepayment date. The Company shall, on
or before the day on which it gives written notice of any prepayment
pursuant to this paragraph 4B, give telephonic notice of the principal
amount of the Notes to be prepaid and the prepayment date to each
holder which shall have designated a recipient of such notices in the
Purchaser Schedule attached hereto or by notice in writing to the
Company.
C. OFFER TO PREPAY NOTES IN THE EVENT OF A CHANGE IN CONTROL OR
A REVENUE MAINTENANCE EVENT.
a) Notice of Impending Change in Control. The Company will not
take any action that consummates or finalizes a Change in Control
unless at least 30 days prior to such action it shall have given to
each holder of Notes written notice of such impending Change in
Control.
b) Notice of Occurrence of Change in Control or Revenue
Maintenance Event. The Company will, within five Business Days after
any Responsible Officer has knowledge of the occurrence of any Change
in Control or Revenue Maintenance Event, give written notice of such
Change in Control or such Revenue Maintenance Event to each holder of
Notes. If a Change in Control or Revenue Maintenance Event has
occurred, such notice shall contain and constitute an offer to prepay
the Notes as described in clause (iii) of this paragraph 4C and shall
be accompanied by the certificate described in clause (vi) hereof.
c) Offer to Prepay Notes. The offer to prepay Notes
contemplated by the foregoing clause (ii) shall be an offer to prepay,
in accordance with and subject to this paragraph 4C, all, but not less
than all, the Notes held by each holder (in this case only, "HOLDER" in
respect of any Note registered in the
<PAGE> 17
name of a nominee for a disclosed beneficial owner shall mean such
beneficial owner) on a date specified in such offer (the "PROPOSED
PREPAYMENT DATE"). Such Proposed Prepayment Date shall be not less
than 30 days and not more than 60 days after the date of such offer
(if the Proposed Prepayment Date shall not be specified in such offer,
the Proposed Prepayment Date shall be the 30th day after the date of
such offer).
d) Rejection; Acceptance. A holder of Notes may accept the
offer to prepay made pursuant to this paragraph 4C by causing a notice
of such acceptance to be delivered to the Company at least five days
prior to the Proposed Prepayment Date. A failure by a holder of Notes
to respond to an offer to prepay made pursuant to this paragraph 4C
shall be deemed to constitute an acceptance of such offer by such
holder.
e) Prepayment; Reduction of Required Prepayments. Prepayment
of the Notes to be prepaid pursuant to this paragraph 4C shall be at
100% of the principal amount of such Notes, plus the Yield Maintenance
Amount determined for the date of prepayment with respect to such
principal amount, together with interest on such Notes accrued to the
date of prepayment. On the Business Day preceding the date of
prepayment, the Company shall deliver to each holder of Notes being
prepaid a statement showing the Yield Maintenance Amount due in
connection with such prepayment and setting forth the details of the
computation of such amount. The prepayment shall be made on the
Proposed Prepayment Date. Upon any partial prepayment of Notes pursuant
to this paragraph 4C, the principal amount of the required prepayment
of the Notes becoming due under paragraph 4A on or after the date of
such prepayment shall be reduced in the same proportion as the
aggregate unpaid principal amount of Notes is reduced as a result of
such prepayment.
f) Officer's Certificate. Each offer to prepay the Notes
pursuant to this paragraph 4C shall be accompanied by a certificate,
executed by a Responsible Officer of the Company and dated the date of
such offer, specifying: (a) the Proposed Prepayment Date; (b) that such
offer is made pursuant to this paragraph 4C; (c) the principal amount
of each Note offered to be prepaid; (d) the estimated Yield Maintenance
Amount due in connection with such prepayment (calculated as if the
date of such notice were the date of the prepayment) and the details of
such calculation; (e) the interest that would be due on each Note
offered to be prepaid, accrued to the Proposed Prepayment Date; (f)
that the conditions of this paragraph 4C have been fulfilled; and (g)
in reasonable detail, the nature and date of the Change in Control or
Revenue Maintenance Event, as the case may be.
D. PARTIAL PAYMENTS PRO RATA. Upon any partial prepayment of
Notes pursuant to paragraph 4A or 4B, the principal amount so prepaid shall be
allocated to all Notes at the time outstanding (including, for the purpose of
this paragraph 4D only, all such Notes prepaid or otherwise retired or purchased
or otherwise acquired by the
<PAGE> 18
Company or any of its Subsidiaries or Affiliates other than by prepayment
pursuant to paragraph 4A, 4B or 4C) in proportion to the respective outstanding
principal amounts thereof. Upon any partial prepayment of Notes pursuant to
paragraph 4C, the principal amount so prepaid shall be allocated to all Notes at
the time outstanding and held by holders who have accepted the Company's offer
of prepayment made pursuant to paragraph 4C (including, for the purpose of this
paragraph 4D only, all such Notes prepaid or otherwise retired or purchased or
otherwise acquired by the Company or any of its Subsidiaries or Affiliates other
than by prepayment pursuant to paragraph 4A 4B or 4C) in proportion to the
respective outstanding principal amounts thereof.
E. RETIREMENT OF NOTES. The Company shall not, and shall not
permit any of its Subsidiaries or Affiliates to, prepay or otherwise retire in
whole or in part prior to their stated final maturity (other than by prepayment
pursuant to paragraph 4A, 4B or 4C or upon acceleration of such final maturity
pursuant to paragraph 7A), or purchase or otherwise acquire, directly or
indirectly, Notes held by any holder unless the Company or such Subsidiary or
Affiliate shall have offered to prepay or otherwise retire or purchase or
otherwise acquire, as the case may be, the same proportion of the aggregate
principal amount of Notes held by each other holder of Notes at the time
outstanding upon the same terms and conditions. Any Notes so prepaid or
otherwise retired or purchased or otherwise acquired by the Company or any of
its Subsidiaries or Affiliates shall not be deemed to be outstanding for any
purpose under this Agreement, except as provided in paragraph 4D.
5. AFFIRMATIVE COVENANTS.
So long as any Note shall remain unpaid (or, with respect to the
covenants of the Company set forth in paragraphs 5A, 5B, 5C, 5T, 5U and 5X, so
long as any Note shall remain unpaid, any Warrant shall remain outstanding or
any Purchaser shall hold, directly or indirectly, any Common Stock) the Company
covenants that:
A. FINANCIAL STATEMENTS. The Company will deliver to each holder
in duplicate:
a) as soon as practicable and in any event within 45 days
after the end of each quarterly period (other than the last quarterly
period) in each fiscal year, consolidating and consolidated statements
of income, shareholders' equity and cash flows of the Company and its
Subsidiaries for the period from the beginning of the current fiscal
year to the end of such quarterly period, and a consolidating and
consolidated balance sheet of the Company and its Subsidiaries as at
the end of such quarterly period, setting forth in each case in
comparative form figures for the corresponding period in the preceding
fiscal year, all in reasonable detail (including, without limitation, a
breakdown by each division of the Company and its Subsidiaries) and
satisfactory in form to the Required
<PAGE> 19
Holder(s) and certified by an authorized financial officer of the
Company, subject to changes resulting from year-end adjustment;
provided, that delivery pursuant to clause (vi) below of copies of the
Quarterly Report on Form 10Q of the Company for such quarterly period
filed with the Securities and Exchange Commission shall be deemed to
satisfy the requirements of this clause (i) with respect to
consolidated financial statements if such financial statements are
included in such report;
b) as soon as practicable and in any event within 90 days
after the end of each fiscal year, consolidating and consolidated
statements of income and cash flows and a consolidated statement of
stockholders' equity of the Company and its Subsidiaries for such year,
and a consolidating and consolidated balance sheet of the Company and
its Subsidiaries as at the end of such year, setting forth in each case
in comparative form corresponding consolidated figures from the
preceding annual audit, all in reasonable detail and satisfactory in
form to the Required Holder(s) and, as to the consolidated statements,
reported on by the Independent Accountant whose report shall be without
limitation as to the scope of the audit and satisfactory in substance
to the Required Holder(s) and, as to the consolidating statements,
certified by an authorized financial officer of the Company; provided,
that delivery pursuant to clause (vi) below of copies of the Annual
Report on Form 10-K of the Company for such fiscal year filed with the
Securities and Exchange Commission shall be deemed to satisfy the
requirements of this clause (ii) with respect to consolidated financial
statements if such financial statements are included in such report;
c) as soon as practicable and in any event within 90 days
after the end of each fiscal year, good faith, projected consolidating
and consolidated balance sheets and good faith, projected consolidating
and consolidated statements of income, cash flows and stockholders'
equity of the Company and its Subsidiaries as at the end of each of the
next five fiscal years, all in reasonable detail (including, without
limitation, a breakdown by each division of the Company and its
Subsidiaries and an enumeration of the assumptions underlying such
balance sheets and financial statements) and substantially in the form
of the projections delivered pursuant to paragraph 3A(xviii), certified
by an authorized financial officer of the Company (such certification
to contain, among other things, a representation and warranty that such
projected financial statements are reasonable based on the assumptions
stated therein and the best information available to the officers of
the Company);
d) as soon as practicable and in any event within 30 days
after the end of each fiscal quarter, accounts receivable reports,
commission renewal reports, business reports, policy cancellation
reports and reports detailing the composition of the Commission Fees of
the Company and its Subsidiaries for or as of, as the case may be, such
quarter, certified by an authorized financial officer of
<PAGE> 20
the Company, all in reasonable detail and satisfactory in form, scope
and substance to the Required Holder(s);
e) as soon as practicable and in any event within 30 days
after the end of each calendar month, a list of the shareholders and
principals of each of the Company and its Subsidiaries, certified by a
Responsible Officer, all in reasonable detail and satisfactory in form,
scope and substance to the Required Holder(s);
f) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it shall
send to its stockholders and copies of all registration statements
(without exhibits) and all reports which it files with the Securities
and Exchange Commission (or any governmental body or agency succeeding
to the functions of the Securities and Exchange Commission);
g) promptly upon receipt thereof, a copy of each other report
submitted to the Company or any Subsidiary by independent accountants
in connection with any annual, interim or special audit made by them of
the books of the Company or any Subsidiary;
h) as soon as practicable and in any event within five days
after any officer of the Company obtaining knowledge (a) of any
condition or event which, in the opinion of management of the Company,
could reasonably be expected to have a material adverse effect on the
business, condition (financial or other), assets, properties,
operations or prospects of the Company and its Subsidiaries, (b) that
any Person has given any notice from any Person to the Company or any
of its Subsidiaries or taken any other action with respect to a claimed
default or event or condition of the type referred to in clause (iii)
of paragraph 7A, (c) of the institution of any litigation involving
claims against the Company or any of its Subsidiaries equal to or
greater than $100,000 with respect to any single cause of action or of
any adverse determination in any court proceeding in any litigation
involving a potential liability to the Company or any of its
Subsidiaries equal to or greater than $100,000 with respect to any
single cause of action which makes the likelihood of an adverse
determination in such litigation against the Company or such Subsidiary
substantially more probable, (d) of any regulatory proceeding which
could reasonably be expected to have a material adverse effect on the
Company or any of its Subsidiaries, an Officer's Certificate specifying
the nature and period of existence of any such condition or event, or
specifying the notice given or action taken by such Person and the
nature of any such claimed default, event or condition, or specifying
the details of such proceeding, litigation or dispute and what action
the Company or any of its Subsidiaries has taken, is taking or proposes
to take with respect thereto;
<PAGE> 21
i) promptly after the filing or receiving thereof, copies of
all reports and notices which the Company or any of its Subsidiaries
files under ERISA with the Internal Revenue Service or the PBGC or the
U.S. Department of Labor or which the Company or any of its
Subsidiaries receives from such corporation;
j) promptly upon receipt or distribution thereof, as the case
may be, a copy of each notice received or delivered, as the case may
be, pursuant to Section 6(f) of the Acquisition Agreement and each
claim received or delivered, as the case may be, with respect to a
breach of the representations and warranties of any party to the
Acquisition Agreement;
k) with reasonable promptness, budgets and financial plans of
the Company and any of its Subsidiaries (including, without limitation,
balance sheets and statements of income, shareholders' equity and cash
flows) as such holder may request;
l) with reasonable promptness, such other information
respecting the condition or operations, financial or otherwise, of the
Company or any of its Subsidiaries as such holder may reasonably
request; and
m) promptly upon transmission thereof, copies of all
appraisals and valuations of the Company and its Subsidiaries or the
Common Stock as it shall send to any Person in connection with any
Share Repurchase Document or the Shareholders' Agreement;
Together with each delivery of financial statements required by clauses (i) and
(ii) above, the Company will deliver to each holder a Compliance Certificate
substantially in the form of Exhibit E attached hereto. Together with each
delivery of financial statements required by clause (ii) above, the Company will
deliver to the holder of each Note (i) a certificate of such accountants stating
that, in making the audit necessary for their report on such financial
statements, they have obtained no knowledge of any Event of Default or Default,
or, if they have obtained knowledge of any Event of Default or Default,
specifying the nature and period of existence thereof, provided, however, such
accountants shall not be liable to anyone by reason of their failure to obtain
knowledge of any Event of Default or Default which would not be disclosed in the
course of an audit conducted in accordance with generally accepted auditing
standards and (ii) a report, in reasonable detail and in form satisfactory to
the Required Holder(s), containing a breakdown by each division of the Company
and its Subsidiaries of the financial information contained in the financial
statements described in clause (ii) above, certified by an authorized financial
officer of the Company.
The Company also covenants that immediately after any Responsible
Officer obtains knowledge of an Event of Default or Default, it will deliver to
each holder an
<PAGE> 22
Officer's Certificate specifying the nature and period of existence thereof and
what action the Company proposes to take with respect thereto.
B. INFORMATION REQUIRED BY RULE 144A. The Company will, upon the
request of the holder of any Note or Warrant, provide such holder, and any
Qualified Institutional Buyer designated by such holder, such financial and
other information as such holder may reasonably determine to be necessary in
order to permit compliance with the information requirements of Rule 144A under
the Securities Act in connection with the resale of Notes or Warrants, except at
such times as the Company is subject to the reporting requirements of section 13
or 15(d) of the Exchange Act.
C. INSPECTION OF PROPERTY. The Company will permit any Person
designated by any holder in writing, at the Company's expense during the
continuance of a Default or Event of Default and otherwise at such holder's
expense, to visit and inspect any of the properties of the Company and its
Subsidiaries, to examine the corporate books and financial records of the
Company and its Subsidiaries and make copies thereof or extracts therefrom and
to discuss the affairs, finances and accounts of any of such corporations with
the principal officers of the Company and its independent public accountants
(and by this provision the Company authorizes such accountants to discuss the
affairs, finances and accounts of such corporations), all at such reasonable
times and as often as such holder may reasonably request, provided that, in the
absence of a Default or an Event of Default, such holder shall provide the
Company at least five days' advance notice of its intent to exercise its rights
pursuant to this paragraph 5C.
D. COVENANT TO SECURE NOTES EQUALLY. The Company will, if it or
any Subsidiary shall create or assume any Lien upon any of its property or
assets, whether now owned or hereafter acquired, other than Liens permitted by
the provisions of paragraph 6G(1) (unless prior written consent to the creation
or assumption thereof shall have been obtained pursuant to paragraph 11C), make
or cause to be made effective provision whereby the Notes will be secured by
such Lien equally and ratably with any and all other Indebtedness thereby
secured so long as any such other Indebtedness shall be so secured pursuant to
such agreements and instruments as shall be approved by the Required Holder(s),
and the Company will cause to be delivered to the holder of each Note an opinion
of independent counsel to the effect that such agreements and instruments are
enforceable in accordance with their terms and that the Notes are equally and
ratably secured with such other Indebtedness.
E. CORPORATE EXISTENCE, LICENSES AND PERMITS; MAINTENANCE OF
PROPERTIES. The Company will at all times do or cause to be done all things
necessary to maintain, preserve and renew its existence as a corporation
organized under the laws of a state of the United States of America, will
preserve and keep in force and effect, and cause each of its Subsidiaries to
preserve and keep in force and effect, all licenses and permits necessary to the
conduct of its and their respective businesses and will maintain and keep, and
will cause each of its Subsidiaries to maintain and keep, its and their
respective properties in good repair, working order and condition, and from time
to time make all
<PAGE> 23
necessary and proper repairs, renewals and replacements, so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times in the normal course of business as conducted prior to the date of
repair; provided, however, that nothing contained in this paragraph 5E shall
prevent the Company or any Subsidiary from ceasing or omitting to exercise any
right, license or permit or to make any repair, renewal or replacement that (i)
in the reasonable judgment of the Company or such Subsidiary is no longer in the
best interests of the Company or such Subsidiary and (ii) such cessation or
omission could not reasonably be expected to result in a material adverse effect
on the business, condition (financial or other), assets, properties, operations
or prospects of the Company and its Subsidiaries taken as a whole.
F. MAINTENANCE OF MATERIAL CONTRACTS. The Company will, and will
causes its Subsidiaries to, maintain all contracts necessary to the conduct of
its and their respective businesses (including, without limitation, employment
contracts, non-competition agreements and principal office agreements);
provided, however, that nothing contained in this paragraph 5F shall prevent the
Company or any Subsidiary from terminating any contract that (i) in the
reasonable judgment of the Company or such Subsidiary is no longer in the best
interests of the Company or such Subsidiary and (ii) such termination could not
reasonably be expected to result in a material adverse effect on the business,
condition (financial or other), assets, properties, operations or prospects of
the Company and its Subsidiaries taken as a whole.
G. MAINTENANCE OF INSURANCE. The Company will carry and
maintain, and cause each Subsidiary to carry and maintain, insurance (subject to
customary deductibles and retentions) in at least such amounts and against such
liabilities and hazards and by such methods as customarily maintained by other
companies operating similar businesses. The Collateral Agent and all holders of
Securities shall be named as additional insureds, and the Collateral Agent shall
be named as loss payee, on each insurance policy obtained or maintained by the
Company and its Subsidiaries with respect to their properties and businesses.
H. PAYMENT OF TAXES AND OTHER CLAIMS. The Company will and will
cause each of its Subsidiaries to file all income tax or similar tax returns
required to be filed in any jurisdiction and to pay and discharge all taxes
shown to be due and payable on such returns and all other taxes, assessments,
governmental charges, levies, trade accounts payable and claims for work, labor
or materials (all the foregoing being referred to collectively as "CLAIMS")
payable by any of them, to the extent such Claims have become due and payable
and before they have become delinquent; provided that neither the Company nor
any Subsidiary need pay any Claim if (i) the amount, applicability or validity
thereof is contested by the Company or such Subsidiary on a timely basis in good
faith and in appropriate proceedings, and the Company or a Subsidiary has
established adequate reserves therefor to the extent required by GAAP on the
books of the Company or such Subsidiary or (ii) the nonpayment of all such
Claims in the aggregate could not result in a material adverse change in the
business, condition (financial or other), assets, properties, operations or
prospects of the Company and its Subsidiaries taken as a whole.
<PAGE> 24
I. ERISA COMPLIANCE. The Company will, and will cause each ERISA
Affiliate to, at all times:
a) with respect to each Plan, make timely payments of
contributions required to meet the minimum funding standard set forth
in ERISA or the Code with respect thereto and, with respect to any
Multiemployer Plan, make timely payment of contributions required to be
paid thereto as provided by Section 515 of ERISA, and
b) comply with all other provisions of ERISA,
except for such failures to make contributions and failures to comply as could
not have a material adverse effect on the business, condition (financial or
other), assets, properties, operations or prospects of the Company and its
Subsidiaries taken as a whole.
J. COMPLIANCE WITH LAWS. The Company will comply, and will cause
each of its Subsidiaries to comply, with all applicable laws, rules, regulations
and orders (including those relating to protection of the environment) except,
in any such case, where failure to comply could not have a material adverse
effect on the business, condition (financial or otherwise), operations or
prospects of the Company and its Subsidiaries taken as a whole.
K. COLLATERAL. The Company shall execute, and shall cause its
Subsidiaries to execute, any and all documents, financing statements, agreements
and instruments, and take all action (including filing Uniform Commercial Code
and other financing statements, mortgages and deeds of trust), that may be
required under applicable law, or which the Required Holder(s) or the Collateral
Agent may reasonably request in order to effectuate the transactions
contemplated by the Second Priority Note Documents and in order to grant,
preserve, protect and perfect the validity and priority of the security
interests and Liens created or purported to be created by the Security Documents
(it being understood that it is the intent of the parties that the obligations
of the Company and its Subsidiaries under the Second Priority Note Documents
shall be secured by, among other things, substantially all the property and
assets of the Company and its Subsidiaries (now or hereafter acquired or
created), including, without limitation, real and other properties acquired
subsequent to the Date of Closing). The Company agrees to provide from time to
time such evidence as the Required Holder(s) or the Collateral Agent shall
request as to the perfection and priority status of each such security interest
and Lien.
L. ENFORCEMENT OF ACQUISITION DOCUMENTS, SHARE REPURCHASE
DOCUMENTS, THE SETTLEMENT AGREEMENT AND THE SHAREHOLDERS' AGREEMENT. The Company
will enforce, and will cause each of its Subsidiaries parties thereto to
enforce, all covenants, agreements and other obligations contained in the
Acquisition Documents, the Share Repurchase Documents, the Settlement Agreement
and the Shareholders' Agreement which are binding upon the other parties thereto
and which survive the
<PAGE> 25
consummation of the Acquisition or the Share Repurchases, as the case may be,
including, without limitation, all indemnification obligations.
M. LOCKBOX ACCOUNT. No later than the earlier of (a) 90 days
after the Date of Closing and (b) the occurrence of a Default or an Event of
Default, the Company and each of its Subsidiaries shall have executed and
delivered the Lockbox Agreements and the Collateral Assignment of Deposit
Accounts. Upon the creation of the Lockbox Accounts, the Company and each of its
Subsidiaries shall maintain such Lockbox Accounts pursuant to the Lockbox
Agreements.
N. PERFORMANCE OF OBLIGATIONS. The Company will pay the Notes
according to the reading, tenor and effect thereof. The Company will, and will
cause its Subsidiaries to, do and perform every act and discharge all of the
obligations provided to be performed and discharged by the Company or such
Subsidiary, as the case may be, under the Second Priority Note Documents to
which it is a party (including, without limitation, this Agreement) at the time
or times and in the manner specified.
O. MAINTENANCE OF KEY SALES FORCE. The Company will maintain, at
all times, a full time sales force equal to the greater of twenty individuals
and 80% of the number of sales representatives and agents as of the end of the
immediately preceding fiscal year.
P. PLEDGE OF NOTES PAYABLE. The Company will, and will cause its
Subsidiaries to, promptly deliver to the Collateral Agent pursuant to the
Security Documents all promissory notes payable to the Company or any of its
Subsidiaries, together with any necessary endorsements or instruments of
transfer, other than promissory notes in an aggregate principal amount, at any
time, not to exceed $2,000,000.
Q. OFFERING OF COMMON STOCK. On or prior to September 30, 1997,
the Company shall offer to sell approximately 1,400,000 shares of Common Stock,
at a price of not less than $2.40 per share, to Richard Chapman, Larry
Hendrickson and certain other individuals.
R. MAINTENANCE OF KEY MAN AND SHAREHOLDER LIFE INSURANCE
POLICIES. The Company shall maintain in full force and effect at all times
policies of insurance in such form and issued by such financially sound and
reputable insurers rated at least A by A.M. Best as shall be acceptable to the
Required Holder(s) insuring the life of W.T. Wamberg in an aggregate amount
equal to $15,000,000. Such policies of insurance shall name the Company as
beneficiary and shall be collaterally assigned to the Collateral Agent. The
Company shall use its best efforts to maintain in full force and effect at all
times policies of insurance in such form and issued by such financially sound
and reputable insurers rated at least A by A.M. Best as shall be acceptable to
the Required Holder(s) insuring the lives of certain shareholders of the Company
to fund certain redemption obligations of the Company pursuant to the
Shareholders' Agreement.
<PAGE> 26
S. CREATION AND MAINTENANCE OF WORKING CAPITAL FACILITY. Within
180 days after the Date of Closing, the Company will enter into a revolving
working capital facility upon terms and conditions and pursuant to documentation
in all respects satisfactory to the holders of the Notes, provided that the
aggregate principal amount of the Indebtedness outstanding under such facility
may not at any time exceed $3,000,000, such Indebtedness may not mature later
than three years after the creation of such facility and such Indebtedness may
be secured as provided in the Security Documents. Subject to the restrictions
contained in this Agreement and the other Second Priority Note Documents, the
Company will at all times maintain such revolving working credit facility and
will maintain its ability to satisfy all conditions precedent to its ability to
obtain advances thereunder.
T. REINCORPORATION MERGER. The Company will consummate the
Reincorporation Merger no later than March 9, 1999.
U. CONVERSION TO A C CORPORATION. After the earlier of March 9,
1999 and the date upon which the Reincorporation Merger is consummated, the
Company will, upon 30 days written notice from the holder of any Warrant,
convert from an S Corporation to a C Corporation.
V. CERTAIN REDEMPTIONS OF COMMON STOCK. With respect to the
redemptions of Common Stock described in clause (d) of the second sentence of
the definition of "Restricted Payments," the Company shall promptly furnish the
holders of the Notes a valuation (in reasonable detail and based upon the most
recent valuation prepared for the Company) of the shares of Common Stock being
redeemed and, to the extent that the life insurance proceeds attributable to the
deceased shareholder exceed the amount needed to redeem such deceased
shareholder's shares, the Company shall promptly prepay the Notes by the amount
of such excess pursuant to paragraph 4B.
W. BCS SERVICE CORPORATION. The Company will liquidate and
dissolve BCS Service Corporation within 180 days of the Date of Closing.
X. MATTERS RELATED TO QUALIFICATION AND LICENSURE. If the Company
is in any way unable to qualify to do business and be licensed as a "life
insurance agent" or similar entity under the laws of any state in which it
desires to conduct business (whether because of restrictions upon having
corporate shareholders or otherwise), it will take all necessary steps to
create, or cause the creation of, an Affiliate that is qualified and licensed
under the laws (including the insurance code or other similar statute) of such
state and will enter into and maintain in effect a management and service
agreement or similar arrangement between itself and the Affiliate (which shall
comply with paragraph 6G(8)) under which the net revenues of the Affiliate are
paid to the Company in consideration for services, administration and other
maintenance activities related to the business of the Affiliate.
<PAGE> 27
6. NEGATIVE COVENANTS. So long as any Note shall remain
unpaid the Company covenants that:
A. TOTAL DEBT TO ANNUALIZED CASH FLOW RATIO. The Company will
not permit the ratio of Total Debt to Annualized Cash Flow at any time during
any period specified below to exceed the ratio set forth opposite such period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
From the Date of Closing
through and including December 31,
1998 5.0 to 1.0
From January 1, 1999 through and
including December 31, 1999 4.0 to 1.0
and thereafter 3.0 to 1.0
</TABLE>
B. LIMITATION ON RESTRICTED PAYMENTS. The Company will not and
will not permit any Subsidiary to directly or indirectly declare, order, pay,
make or set apart any sum for any Restricted Payment.
C. MAINTENANCE OF MINIMUM CONSOLIDATED NET WORTH AND CONSOLIDATED
NET INCOME.
a) The Company will not permit, at any time, Consolidated Net
Worth to be less than the sum of (a) $1,500,000 and (b) an aggregate
amount equal to 100% of its Consolidated Net Income (on an after-tax
basis or, as long as the Company is an S Corporation, after giving
effect to any S Corporation Tax Distributions, but, in each case, only
if a positive number) for each completed fiscal year beginning with the
fiscal year ending December 31, 1997, minus (A) amounts expended for
Share Repurchases and (B) the aggregate principal amount of the AAA
Distribution Notes; and
b) The Company will not, for any fiscal quarter, permit
Consolidated Net Income to be a negative number the absolute value of
which exceeds $1,200,000 and will not, for the four most recently ended
fiscal quarters, permit Consolidated Net Income to be a negative
number.
D. DISCOUNTED COMMISSION FEES TO TOTAL DEBT RATIO. The Company
will not permit, at any time, the ratio of Discounted Commission Fees to Total
Debt to be less than 1.0 to 1.0.
E. INTEREST COVERAGE RATIO. The Company will not permit the
Interest Coverage Ratio at any time during any period specified below to be less
than the ratio set forth opposite such period:
<PAGE> 28
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
From the Date of Closing through and 1.25 to 1.0
including December 31, 1998
From January 1, 1999 through and 1.60 to 1.0
including December 31, 1999
and thereafter 3.0 to 1.0
</TABLE>
F. FIXED CHARGE COVERAGE RATIO. The Company will not permit the Fixed
Charge Coverage Ratio at any time during any period specified below to be less
than the ratio set forth opposite such period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
From the Date of Closing through and .90 to 1.0
including December 31, 1999
From January 1, 2000 through and 1.10 to 1.0
including December 31, 2000
and thereafter 1.25 to 1.0
</TABLE>
G. LIENS, INDEBTEDNESS, AND OTHER RESTRICTIONS. The Company will
not and will not permit any Subsidiary to:
1. LIENS. Create, assume or suffer to exist (upon the happening
of a contingency or otherwise) any Lien upon any of its properties or
assets (including, without limitation, any documents or instruments in
respect of goods or accounts receivable), whether now owned or
hereafter acquired, or any income or profits therefrom (whether or not
provision is made for the equal and ratable securing of the Notes in
accordance with the provisions of paragraph 5D) or assign or otherwise
convey any right to receive income or profits therefrom, except:
a) Liens in favor of the Collateral Agent securing the
Indebtedness evidenced by the Notes and the payment, performance
and observance of the other obligations under this Agreement and
the other Second Priority Note Documents;
b) Liens in favor of the Collateral Agent securing the
Indebtedness evidenced by the Medium Term Notes and addressed in
the Security Documents;
c) Liens in favor of the Collateral Agent securing the
Indebtedness evidenced by the Senior Notes and the payment,
performance and observance of the other obligations under the
Senior Note Agreement and the other Senior Note Documents and
addressed in the Security Documents;
<PAGE> 29
d) Liens in favor of the Collateral Agent securing the
Indebtedness evidenced by the Working Capital Notes and addressed
in the Security Documents; and
e) Liens incidental to the conduct of business or the
ownership of properties of the Company and its Subsidiaries
(including Liens in connection with worker's compensation,
unemployment insurance and other like laws (other than ERISA
Liens), warehousemen's and mechanic's liens and statutory
landlord's liens) and Liens to secure the performance of bids,
tenders or purchase, construction or sales contracts, or to
secure statutory obligations, property taxes and assessments or
governmental charges, surety or appeal bonds or other Liens of
like general nature which in each case are incurred in the
ordinary course of business and not in connection with the
borrowing of money, the obtaining of advances or credit or the
payment of the deferred purchase price of property and which do
not in any event materially impair the value or use of the
property encumbered thereby in the operation of the business of
the Company and its Subsidiaries; provided in each case, that the
obligation secured is not overdue, or, if overdue, the amount or
validity thereof is being contested by the Company or such
Subsidiary on a timely basis in good faith and in appropriate
proceedings, and the Company or a Subsidiary has established
adequate reserves therefor to the extent required by GAAP on the
books of the Company or such Subsidiary;
2. LIMITATION ON INDEBTEDNESS. Create, incur, assume or permit
to exist any Indebtedness other than, without duplication:
a) Indebtedness incurred pursuant to this Agreement, as
evidenced by the Notes, and the guaranty obligations of the
Company's Subsidiaries with respect thereto;
b) Indebtedness incurred pursuant to the Senior Note
Agreement, as evidenced by the Senior Notes, and the guaranty
obligations of the Company's Subsidiaries with respect thereto;
c) Indebtedness incurred pursuant to the Working Capital
Note Documents, as evidenced by the Working Capital Notes,
provided that the aggregate principal amount of the Working
Capital Notes shall not, at any time, exceed $3,000,000;
d) Indebtedness incurred pursuant to the Acquisition
Agreement, as evidenced by the Seller Notes;
e) Indebtedness evidenced by the Shareholder Notes;
<PAGE> 30
f) Indebtedness consisting of unsecured trade payables
incurred in the ordinary course or business and maturing not more
than 90 days from the date of creation thereof; and
g) Indebtedness of the type described in clause (iii) of
the definition of "Indebtedness," provided that such Indebtedness
is incurred in connection with the leasing of office equipment
and the aggregate amount of such Indebtedness shall not, at any
time, exceed $500,000.
3. CLEAN-UP OF INDEBTEDNESS REPRESENTED BY WORKING CAPITAL
NOTES. Have, at any time, any Indebtedness outstanding under the
Working Capital Notes unless there shall have been during the
immediately preceding twelve months a period of at least 45 consecutive
days during which there shall have been no Indebtedness outstanding
under the Working Capital Notes.
4. LOANS, ADVANCES, INVESTMENTS AND CONTINGENT LIABILITIES.
Except as set forth on Schedule 6G(4), make or permit to remain
outstanding any loan or advance (including, without limitation,
advances of commission fees) to, or extend credit (other than trade
credit extended in the normal course of business to any Person that is
not a Subsidiary of the Company) to, or make or permit to remain
outstanding any Guarantee in connection with the obligations, stock or
dividends of, or own, purchase or acquire any stock, obligations or
securities of, or any other interest in, or make any capital
contribution to, any Person (any of the foregoing, an "INVESTMENT"),
except that the Company or any Subsidiary may:
a) endorse negotiable instruments for collection in the
ordinary course of business;
b) provide Guarantees with respect to the Indebtedness and
other obligations of the Company and its Subsidiaries under the
Senior Note Documents and the Second Priority Note Documents;
c) own, purchase or acquire (a) certificates of deposit of
commercial banks organized under the laws of the United States or
any state thereof (having capital resources in excess of
$100,000,000) (provided that neither the Company nor any
Subsidiary may own, purchase, or acquire more than $1,000,000 (in
face amount) of such certificates of deposit from any such
commercial bank) due within one year from the date of purchase
and payable in the United States in United States dollars which
are rated "A" or better by at least two nationally recognized
rating agencies and (b) obligations of the United States
Government, of any state, territory or possession of the United
States of America or any agency thereof maturing within three
years after the acquisition thereof which are rated in one of the
two highest rating classifications by at least one nationally
recognized rating agency;
<PAGE> 31
d) make loans and advances to employees and salespersons
of the Company (who are not shareholders of the Company or any
Subsidiary) granted in the normal and customary course of the
Company's business and not to finance the acquisition of shares
of Common Stock of the Company, provided that loans and advances
in the normal and customary course of the Company's business
shall not at any time exceed $400,000;
e) acquire promissory notes of shareholders of the Company
in an aggregate principal amount not to exceed $1,320,000
executed in connection with such shareholders' purchase of up to
approximately 1,400,000 shares of Common Stock repurchased by the
Company from H.G. Smith, provided that such promissory notes are
pledged to the Collateral Agent to the extent required by
paragraph 5P; and
f) make non-cash recourse loans to shareholders of the
Company in an aggregate principal amount not to exceed, at any
time, $300,000, provided that such loans may not mature more than
three years after the making thereof and the promissory note(s)
representing such loans are pledged to the Collateral Agent to
the extent required by paragraph 5P.
5. CONSOLIDATION, MERGER, TRANSFER OF ASSETS, ACQUISITION, ETC.
Except in connection with the Acquisition and the Reincorporation
Merger, (i) merge or consolidate with or into any Person, (ii) convey,
transfer, lease or otherwise dispose of all or substantially all of its
assets to any Person, (iii) acquire all or substantially all of the
assets or capital stock of any other Person or division thereof, (iv)
adopt or effect any plan of reorganization, recapitalization,
liquidation or dissolution except as contemplated by paragraph 5W in
the case of BCS Service Corporation or (v) acquire any properties or
assets other than in the ordinary course of business.
6. LIMITATION ON ASSET DISPOSITIONS. Except as permitted under
paragraph 6G(5), make or permit to be made any Asset Disposition, other
than the following:
a) any Asset Disposition involving worthless or obsolete
equipment which is promptly replaced with equipment of comparable
suitability; and
b) any Asset Disposition involving inventory sold in the
ordinary course of business pursuant to customary trade terms.
<PAGE> 32
7. SALE OR DISCOUNT OF RECEIVABLES. Sell with recourse, discount
(other than to the extent of finance and interest charges included
therein) or otherwise sell for less than face value thereof, any of its
notes or accounts receivable, except notes or accounts receivable the
collection of which is doubtful in accordance with general accepted
accounting principles.
8. TRANSACTIONS WITH AFFILIATES. Directly or indirectly,
purchase, acquire or lease any property from, or sell, transfer or
lease any property to, or otherwise deal with, in the ordinary course
of business or otherwise (i) any Affiliate, (ii) any Person owning,
beneficially or of record, directly or indirectly, either individually
or together with all other Persons to whom such Person is related by
blood, adoption or marriage, stock of the Company (of any class having
ordinary voting power for the election of directors) aggregating 5% or
more of such voting power or (iii) any Person related by blood,
adoption or marriage to any Person described or coming within the
provisions of clause (i) or (ii) of this paragraph 6G(8), except in the
ordinary course and pursuant to the reasonable requirements of the
Company's or such Subsidiary's business and upon fair and reasonable
terms no less favorable to the Company or such Subsidiary than would be
obtainable in a comparable arm's-length transaction with a Person not
an Affiliate.
9. LIMITATION ON SALE-LEASEBACK TRANSACTIONS. Enter into any
arrangement with any lender or investor or to which such lender or
investor is a party providing for the leasing by the Company or any
Subsidiary of real or personal property which has been or is to be sold
or transferred by the Company or any Subsidiary to such lender or
investor or to any Person to whom funds have been or are to be advanced
by such lender or investor on the security of such property or rental
obligations of the Company or any Subsidiary (each such arrangement, a
"SALE-LEASEBACK TRANSACTION").
H. CHANGE OF FISCAL YEAR. The Company will not and will not
permit any Subsidiary to change its fiscal year from its present fiscal year
(fiscal year end of December 31).
I. CHANGE OF BUSINESS. The Company will not and will not permit
any Subsidiary to change the general character of its business activities or
operations from its current business activities or operations or to engage in
any business activity or operation not reasonably related to its current
business activities or operations as normally conducted as of the Date of
Closing.
J. CERTIFICATES OF INCORPORATION; BYLAWS; TRADE NAMES. The
Company will not and will not permit any Subsidiary to amend, alter, modify or
restate its articles or certificate of incorporation or bylaws in any way which
would (i) change its corporate name or adopt a trade name, or (ii) in any manner
adversely affect the
<PAGE> 33
obligations or covenants of the Company and its Subsidiaries hereunder or under
any of the other Second Priority Note Documents.
K. OTHER AGREEMENTS. The Company will not and will not permit
any of its Subsidiaries to enter into or permit to exist any agreement (i) which
would cause a Default or Event of Default hereunder or (ii) which contains any
provision which would be violated or breached by the performance of the
obligations of the Company and its Subsidiaries hereunder or under any of the
other Second Priority Note Documents.
L. LIMITATION ON CERTAIN RESTRICTIVE AGREEMENTS. The Company
will not, and will not permit any of its Subsidiaries to, enter into or suffer
to exist any contractual obligation, other than the Senior Note Documents and
the Second Priority Note Documents, which in any way restricts the ability of
the Company or any of its Subsidiaries to (i) create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, (ii) make any
prepayments or purchases of the Notes required under this Agreement, (iii) make
any dividends or distributions, or any payments required under this Agreement or
any other Second Priority Note Document or (iv) transfer any of its property or
assets to the Company or a Wholly Owned Subsidiary of the Company.
M. ERISA MATTERS. The Company will not, and will not permit any
Subsidiary or ERISA Affiliate to, adopt a Plan or amend an existing Plan in a
manner that materially increases the total dollar amount of the benefits
provided by the Plans described in Schedule 6M. The Company will not, and will
not permit any Subsidiary or ERISA Affiliate to, permit any Plan maintained by
the Company, any Subsidiary or any ERISA Affiliate (a) to engage in any
"PROHIBITED TRANSACTION" (as defined in ERISA), (b) to incur an "ACCUMULATED
FUNDING DEFICIENCY" (as defined in section 302 of ERISA and section 412 of the
Code), or (c) to terminate such Plan in a manner which could result in the
imposition of a Lien on the property or assets of the Company or any of its
Subsidiaries.
N. ONLY ONE CLASS OF CAPITAL STOCK. The Company will not, and
will not permit any Subsidiary to, have any class of capital stock other than
its Common Stock or common stock, as the case may be.
O. PROHIBITION AGAINST PAYMENTS AND PREPAYMENTS OF CERTAIN
INDEBTEDNESS. The Company will not, and will not permit any of its Subsidiaries
to, prepay any Subordinated Debt or any Indebtedness evidenced by the Medium
Term Notes. Upon the occurrence and during the continuance of any Default or
Event of Default, the Company will not, and will not permit any Subsidiary to,
pay any principal of or interest or premium on any Subordinated Debt.
P. AAA DISTRIBUTION. The Company will not consummate the AAA
Distribution unless (i) the aggregate amount of the AAA Distribution does not
exceed $4,143,623 and (ii) all recipients of any portion of the AAA Distribution
agree to, and
<PAGE> 34
concurrently with the AAA Distribution do, lend their respective portions of the
AAA Distribution to the Company, provided that such loans mature no earlier than
October 31, 2007, are not subject to prepayment other than at maturity, bear
interest at a rate not to exceed 8.50% per annum, are subject to subordination
provisions acceptable in form, scope and substance, to the holders of the Notes
and are not offset (other than on a non-cash basis) by any obligation of any
recipient of any portion of the AAA Distribution to the Company or any of its
Subsidiaries.
Q. NO SUBSIDIARIES. Notwithstanding anything in this Agreement
or any other Second Priority Note Document to the contrary, the Company will not
create any Subsidiaries (other than the Wholly Owned Subsidiary described in the
definition of "Reincorporation Merger"); provided, however, that, if the holders
of the Notes consent to the creation of a Subsidiary pursuant to paragraph 11C
or the Company creates the Wholly Owned Subsidiary described in the definition
of "Reincorporation Merger," at the cost and expense of the Company, the Company
will (i) execute and deliver a pledge agreement in favor of the holders of the
Securities and in form, scope and substance satisfactory to the Required
Holder(s), (ii) cause each subsequently acquired or organized Subsidiary
(contemporaneously with such acquisition or organization) to execute and deliver
a guaranty agreement in favor of the holders of Securities and in form, scope
and substance satisfactory to the Required Holder(s), (iii) deliver or cause
such Subsidiary to deliver to the Collateral Agent a certificate representing
all capital stock of, or other equity interests in, such subsequently acquired
or organized Subsidiary, together with an undated stock power or assignment,
executed in blank by a Responsible Officer (or take or cause a Subsidiary to
take such other actions as are necessary to provide the Collateral Agent with a
perfected pledge of or security interest in such capital stock or other equity
interests), and (iv) cause such Subsidiary to secure payment of the Securities
and performance and observance of all other obligations of the Company and its
Subsidiaries under the Second Priority Note Documents by pledging or creating,
or causing to be pledged or created, perfected security interests and Liens with
respect to such of its assets and properties as the Required Holder(s) shall
designate (it being understood that it is the intent of the parties that such
obligations shall be secured by, among other things, substantially all the
property and assets of the Company and its Subsidiaries (now or hereafter
acquired or created), including, without limitation, real and other properties
acquired subsequent to the Date of Closing). The aforementioned security
interests and Liens will be created under the Security Documents and other
security agreements, mortgages, deeds of trust and other instruments and
documents in form, scope and substance satisfactory to the Required Holder(s)
and the Collateral Agent, and the Company will deliver or cause to be delivered
to the Collateral Agent, all such instruments and documents (including, without
limitation, legal opinions, title insurance policies, surveys and lien searches)
as the Required Holder(s) or the Collateral Agent shall request to evidence
compliance with this paragraph 6Q.
<PAGE> 35
R. RESTRICTIONS ON ISSUANCES OF COMMON STOCK. Except for the
transactions contemplated by paragraph 5Q, the Company will not issue more than
1,300,000 shares (including the 786,659 shares issuable pursuant to options
outstanding prior to January 1, 1997), on a fully diluted basis, of Common Stock
pursuant to current or future profit sharing, stock option, stock purchase,
stock appreciation or deferred compensation plans of the Company.
S. RESTRICTIONS UPON THE AMENDMENT OF CERTAIN DOCUMENTS. The
Company will not, and will not permit any Subsidiary to, amend any principal
office agreement (including, without, limitation, the provisions related to the
sharing of commissions), any employment agreement, any Acquisition Document, any
Share Repurchase Document, the Shareholders' Agreement, the Settlement
Agreement, the Non-Compete Agreement or any Working Capital Note Document in any
manner that (i) could result in a material adverse change in the business,
condition (financial or otherwise), prospects or operations of the Company and
its Subsidiaries taken as a whole, (ii) could result in a material adverse
effect on the Company and its Subsidiaries as a going concern or (iii) could in
any manner materially adversely affect the obligations or covenants of the
Company and its Subsidiaries hereunder or under any of the other Second Priority
Note Documents.
T. LIMITATION ON AMOUNT OF S CORPORATION TAX DISTRIBUTIONS.
Notwithstanding any provision in this Agreement to the contrary, (i) no S
Corporation Tax Distributions may be made for any tax period during which the
Company is not an S Corporation and (ii) the aggregate amount of S Corporation
Tax Distributions that may be made by the Company for any period during which
the Company is an S Corporation shall not exceed the product of (A) the maximum
marginal federal income tax rate applicable to individuals under Section 1 of
the Code, plus 3% and (B) the net taxable income and gain of the Company for
such period, less the aggregate amount of unrecovered net taxable losses of the
Company for all prior periods.
U. PROHIBITION AGAINST PHANTOM STOCK. The Company will not, and
will not permit any Subsidiary to, create any "phantom stock" or any equivalent
thereto (other than pursuant to the Cochlan Phantom Stock Agreement).
V. REINCORPORATION MERGER. The Company will not amend, and will
not permit its board of directors to consent to the amendment of, its Articles
of Incorporation or its bylaws or any agreement or document to which the Company
is a party in any manner which could require the affirmative vote of the holders
of more than two-thirds of the issued and outstanding shares of Common Stock to
approve the Reincorporation Merger. The Company will not permit its board of
directors to require the affirmative vote of the holders of more than two-thirds
of the issued and outstanding shares of Common Stock to approve the
Reincorporation Merger. Notwithstanding any provision of this Agreement or any
other Second Priority Note Document to the contrary, prior to or
contemporaneously with the consummation of the Reincorporation Merger, the
Company will not issue shares of Common Stock if the result of such issuance
would be
<PAGE> 36
that the holders of at least two-thirds of the issued and outstanding shares of
Common Stock, after giving effect to such issuance, were not parties to the
Shareholders' Agreement as of its effective date.
W. RESTRICTIONS UPON STOCK OPTIONS. The Company will not issue
any stock option with respect to Common Stock with an exercise price (on a per
share basis) less than the greater of $2.95 and the Market Price (as defined in
the Warrants).
7. EVENTS OF DEFAULT.
A. ACCELERATION. If any of the following events shall occur and
be continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
a) the Company defaults in the payment of any principal of
or Yield Maintenance Amounts payable with respect to any Note
when the same shall become due, either by the terms thereof or
otherwise as herein provided; or
b) the Company defaults in the payment of any interest on
any Note for more than five days after the date due; or
c) the Company or any Subsidiary (a) defaults (whether as
primary obligor or as guarantor or other surety) in any payment
of principal of or interest on any other Indebtedness (or any
obligation under notes payable or drafts accepted representing
extensions of credit) beyond any period of grace provided with
respect thereto, (b) fails to perform or observe any other
agreement, term or condition contained in any agreement under
which any such obligation is created (or if any other event
thereunder or under any such agreement shall occur and be
continuing) and the effect of such failure or other event is to
cause such obligation to become due (or to be repurchased by the
Company or any Subsidiary) prior to any stated maturity;
provided, that the aggregate amount of all obligations as to
which such a payment default shall occur and be continuing or
such a failure or other event causing acceleration (or sale to
the Company or any Subsidiary) shall occur and be continuing
exceeds $100,000; or
d) the Company defaults in the payment of any principal
of, premium payable with respect to or interest on any Seller
Note, any Working Capital Note or any Shareholder Note when the
same shall become due, either by the terms thereof or otherwise
as provided in the Acquisition Agreement, the Working Capital
Documents or the Share Repurchase Agreements;
e) any representation or warranty made by the Company or
any of its Subsidiaries herein or in any of the other Second
Priority Note Documents, or by
<PAGE> 37
the Company or any of its officers in any writing furnished in
connection with or pursuant to this Agreement shall be false in
any material respect on the date as of which made; or
f) the Company fails to perform or observe any term,
covenant or agreement contained in paragraph 5M, 5P, 5R, 5S, 5T,
5U or 6 or Section 7 or 8 of the Security Agreement or Section 5
of the Collateral Assignment of Deposit Accounts; or
g) the Company or any Subsidiary fails to perform or
observe any other agreement, covenant, term or condition
contained herein or in any of the other Second Priority Note
Documents and such failure shall not be remedied (a) within 30
days after any Responsible Officer obtains (or should have
obtained) knowledge thereof or (b) within 15 days after the
Company receives written notice of such failure from any holder;
or
h) the Company or any Subsidiary makes an assignment for
the benefit of creditors or is generally not paying its debts as
such debts become due; or
i) any decree or order for relief in respect of the
Company or any Subsidiary is entered under any bankruptcy,
reorganization, compromise, arrangement, insolvency, readjustment
of debt, dissolution or liquidation or similar law, whether now
or hereafter in effect (the "BANKRUPTCY LAW"), of any
jurisdiction; or
j) the Company or any Subsidiary petitions or applies to
any Tribunal for, or consents to, the appointment of, or taking
possession by, a trustee, receiver, custodian, liquidator or
similar official of the Company or any Subsidiary, or of any
substantial part of the assets of the Company or any Subsidiary,
or commences a voluntary case under the Bankruptcy Law of the
United States or any proceedings (other than proceedings for the
voluntary liquidation and dissolution of a Subsidiary) relating
to the Company or any Subsidiary under the Bankruptcy Law of any
other jurisdiction; or
k) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any Subsidiary
and the Company or such Subsidiary by any act indicates its
approval thereof, consent thereto or acquiescence therein, or an
order, judgment or decree is entered appointing any such trustee,
receiver, custodian, liquidator or similar official, or approving
the petition in any such proceedings, and such order, judgment or
decree remains unstayed and in effect for more than 60 days; or
l) any order, judgment or decree is entered in any
proceedings against the Company decreeing the dissolution of the
Company and such order, judgment or decree remains unstayed and
in effect for more than 30 days; or
<PAGE> 38
m) any order, judgment or decree is entered in any
proceedings against the Company or any Subsidiary decreeing a
split-up of the Company or such Subsidiary which requires the
divestiture of assets representing a substantial part, or the
divestiture of the stock of a Subsidiary whose assets represent a
substantial part, of the consolidated assets of the Company and
its Subsidiaries (determined in accordance with generally
accepted accounting principles) or which requires the divestiture
of assets, or stock of a Subsidiary, which shall have contributed
a substantial part of the Consolidated Net Income for any of the
three fiscal years then most recently ended, and such order,
judgment or decree remains unstayed and in effect for more than
30 days; or
n) any final judgment or order, or series of final
judgments or orders, in an amount in excess of $100,000, is
rendered against the Company or any Subsidiary and either (i)
enforcement proceedings have been commenced by any creditor upon
such judgment or order or (ii) within 30 days after entry
thereof, such judgment is not discharged or execution thereof
stayed pending appeal, or within 30 days after the expiration of
any such stay, such judgment is not discharged; or
o) any Termination Event with respect to a Plan shall have
occurred and, within 30 days after the occurrence thereof, (a)
such Termination Event (if correctable) shall not have been
corrected and (b) the then present value of such Plan's vested
benefits exceeds the then current value of assets accumulated in
such Plan by more than the amount of $100,000 (or in the case of
a Termination Event involving the withdrawal of a "substantial
employer" (as defined in Section 4001(a) (2) of ERISA), the
withdrawing employer's proportionate share of such excess shall
exceed such amount); or
p) the Company or any of its ERISA Affiliates as employer
under a Multiemployer Plan shall have made a complete or partial
withdrawal from such Multiemployer Plan and the plan sponsor of
such Multiemployer Plan shall have notified such withdrawing
employer that such employer has incurred a withdrawal liability
in an aggregate amount exceeding $100,000; or
q) any two of W.T. Wamberg, Mel Todd and Richard Chapman
shall no longer continue to be executive officers of the Company
or engaged in the day-to-day management of the affairs of the
Company and its Subsidiaries; or
r) after July 31, 1998, any two of W.T. Wamberg, Mel Todd,
Richard Chapman and the chief financial officer or chief
operating officer of the Company, as the case may be, shall no
longer continue to be executive officers of the Company or
engaged in the day-to-day management of the affairs of the
Company and its Subsidiaries, provided that the absence of the
chief financial officer or the chief operating officer shall not
result in a Default or an Event of
<PAGE> 39
Default pursuant to this clause (xviii) unless the chief
financial officer or the chief operating officer is not replaced
within 180 days;
then (a) if such event is an Event of Default specified in clause (i) or (ii) of
this paragraph 7A, the holder of any Note (other than the Company or any of its
Subsidiaries or Affiliates) may at its option, by notice in writing to the
Company, declare such Note to be, and such Note shall thereupon be and become,
immediately due and payable at par together with interest accrued thereon,
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Company, (b) if such event is an Event of Default
specified in clause (ix), (x) or (xi) of this paragraph 7A, all of the Notes at
the time outstanding shall automatically become immediately due and payable
together with interest accrued thereon and together with the Yield Maintenance
Amount, if any, with respect to each Note, without presentment, demand, protest
or notice of any kind, all of which are hereby waived by the Company, and (c) if
such event is not an Event of Default specified in clause (ix), (x) or (xi) of
this paragraph 7A, the holder(s) of 100% of the aggregate principal amount of
the Notes at the time outstanding may at its or their option, by notice in
writing to the Company, declare all of the Notes to be, and all of the Notes
shall thereupon be and become, immediately due and payable together with
interest accrued thereon and together with the Yield Maintenance Amount, if any,
with respect to each Note, without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Company.
The Company acknowledges, and the parties hereto agree, that each
holder of a Note has the right to maintain its investment in the Notes free from
repayment by the Company (except as herein specifically provided for) and that
the provisions for payment of the Yield Maintenance Amount by the Company in the
event that the Notes are prepaid or accelerated as a result of an Event of
Default are intended to provide compensation for the deprivation of such right
under such circumstances.
B. RESCISSION OF ACCELERATION. At any time after any or all of
the Notes shall have been declared immediately due and payable pursuant to
paragraph 7A, the holder(s) of 100% of the aggregate principal amount of the
Notes at the time outstanding may, by notice in writing to the Company, rescind
and annul such declaration and its consequences if (i) the Company shall have
paid all overdue interest on the Notes, the principal of the Notes which has
become due otherwise than by reason of such declaration, and the Yield
Maintenance Amount, if any, with respect to any Notes which has become due
otherwise than by reason of such declaration, and interest on such overdue
interest, overdue principal and Yield Maintenance Amount at the rate specified
in the Notes, (ii) the Company shall not have paid any amounts which have become
due solely by reason of such declaration, (iii) all Events of Default and
Defaults, other than non-payment of amounts which have become due solely by
reason of such declaration, shall have been cured or waived pursuant to
paragraph 11C, and (iv) no judgment or decree shall have been entered for the
payment of any amounts due pursuant to the Notes or this Agreement. No such
rescission or annulment shall extend to or affect any subsequent Event of
Default or Default or impair any right arising therefrom.
<PAGE> 40
C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall
be declared immediately due and payable pursuant to paragraph 7A or any such
declaration shall be rescinded and annulled pursuant to paragraph 7B, the
Company shall forthwith give written notice thereof to the holder of each Note
at the time outstanding.
D. RIGHT OF SET-OFF. In addition to any rights and remedies of
the holders of the Notes provided by law (including, without limitation, other
rights of set-off, recoupment or appropriation and application) and upon the
occurrence and continuance of an Event of Default, each holder of a Note shall
have the right, without prior notice to the Company or any of its Subsidiaries,
any such notice being expressly waived by the Company and its Subsidiaries to
the extent permitted by applicable law, upon any amount becoming due and payable
by the Company or any of its Subsidiaries hereunder or under the other Second
Priority Note Documents or the Senior Note Documents (whether at the stated
maturity, by acceleration or otherwise) to set-off, recoup or appropriate and
apply, at any time and from time to time, against such amount, to the extent
permitted by applicable law, any and all commission fees and revenues and any
other credits, indebtedness or claims, in each case whether direct or indirect,
absolute or contingent, matured or unmatured, at any time held or owing or to
become owing by such holder or any affiliate thereof to or for the credit or the
account of the Company or any of its Subsidiaries, whether or not the Collateral
Agent or any holder of a Note has made any demand for payment. Any Person to
whom the holder of any Note has granted a participation pursuant to paragraph
11E of this Agreement shall, to the maximum extent permitted by applicable law,
also have the rights of set-off, recoupment or appropriation and application
provided for in this paragraph 7D in respect of its participating interest, to
the same extent as if the amount of its participating interest were owing
directly to it as a holder of a Note. Each holder of a Note agrees promptly to
notify the Company or any Subsidiary, as applicable, and the Collateral Agent
after any such set-off, recoupment or appropriation and application made by such
holder, or, to its knowledge, by a Person to whom such holder has granted such a
participation, provided that, to the extent permitted by applicable law, the
failure to give such notice shall not affect the validity of such set-off,
recoupment or appropriation and application.
E. NOTICE TO HOLDERS OF SUBORDINATED DEBT; PAYMENT BLOCK. Upon
the occurrence and continuance of any Default or any Event of Default, the
Company shall promptly notify each holder of any Subordinated Debt of such
Default and Event of Default. The Company will not, and will not permit any
Subsidiary to, pay any principal of or interest or premium on any Subordinated
Debt during the continuance of any Default or any Event of Default.
F. OTHER REMEDIES. If any Event of Default or Default shall
occur and be continuing, (i) the holder of any Note may proceed to protect and
enforce its rights under this Agreement, such Note and the other Second Priority
Note Documents by exercising such remedies as are available to such holder in
respect thereof under applicable law, either by suit in equity or by action at
law, or both, whether for specific performance
<PAGE> 41
of any covenant or other agreement contained in this Agreement or the other
Second Priority Note Documents or in aid of the exercise of any power granted in
this Agreement or the other Second Priority Note Documents, and (ii) both the
Collateral Agent and the holders of the Notes may exercise any rights or
remedies in their respective capacities under the Security Documents in
accordance with the provisions thereof. No remedy conferred in this Agreement or
the other Second Priority Note Documents upon the holder of any Note or the
Collateral Agent is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to every other
remedy conferred herein or now or hereafter existing at law or in equity or by
statute or otherwise.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company
represents, covenants and warrants (giving effect to the Acquisition and the
Share Repurchases) as follows:
A. ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly organized and validly existing in good standing under the laws of the State
of Texas, and is duly licensed and in good standing as a foreign corporation in
each jurisdiction in which the nature of the business transacted or the property
owned is such as to require licensing or qualification as a foreign corporation.
The Company has no Subsidiaries (other than BCS Service Corporation). BCS
Service Corporation is engaged in the collection of consulting and
administrative service fees relating to nonqualified benefit plans and has total
liabilities (absolute and contingent) of less than $30,000. The execution,
delivery and performance by the Company of the Notes, this Agreement, the other
Second Priority Note Documents, the Share Repurchase Documents, the Acquisition
Documents, the Settlement Agreement and the Shareholders' Agreement to which it
is a party are within the Company's corporate powers and have been duly
authorized by all necessary corporate action.
B. FINANCIAL STATEMENTS. The Company has furnished each
Purchaser with the following financial statements, identified by a principal
financial officer of the Company: (a) (i) a balance sheet of the Company as at
December 31 in each of the years 1992 to 1996, inclusive, and statements of
income, stockholders' equity and cash flows of the Company for each such year,
all reported on by Lane, Gorman and Trubitt, (ii) a balance sheet of the Company
as at June 30 in each of the years 1996 and 1997 and statements of income,
stockholders' equity and cash flows for the three-month period ended on each
such date, prepared by the Company and (iii) a balance sheet of the Acquired
Company as at June 30, 1997 and statements of income, stockholders' equity and
cash flows for the three-month period ended on such date, prepared by the
Acquired Company and (b) (i) a pro forma balance sheet of the Company (after
giving effect to the Acquisition and the Share Repurchases and including a
breakdown by each division of the Company) as at December 31, 1996 and pro forma
statements of income, stockholder's
<PAGE> 42
equity and cash flows of the Company (after giving effect to the Acquisition and
the Share Repurchases and including a breakdown by each division of the Company)
for such year, prepared by the Company, and (ii) a pro forma balance sheet of
the Company (after giving effect to the Acquisition and the Share Repurchases
and including a breakdown by each division of the Company) as at June 30, 1997
and pro forma statements of income, stockholders' equity and cash flow of the
Company (after giving effect to the Acquisition and the Share Repurchases and
including a breakdown by each division of the Company) for the three-month
period ended on such date, prepared by the Company. Such financial statements
(including any related schedules and/or notes) are true and correct in all
material respects (subject, as to interim statements, to changes resulting from
audits and year-end adjustments), have been prepared in accordance with
generally accepted accounting principles consistently followed throughout the
periods involved and show all liabilities, direct and contingent, of the Company
required to be shown in accordance with such principles. The balance sheets
fairly present the historical or pro forma, as the case may be, condition of the
Company or the Acquired Company, as the case may be, as at the dates thereof,
and the statements of income, stockholders' equity and cash flows fairly present
the, historical or pro forma, as the case may be, results of the operations of
the Company or the Acquired Company, as the case may be, and its cash flows for
the periods indicated. There has been no material adverse change in the
business, condition (financial or otherwise), prospects or operations of the
Company since December 31, 1996.
C. ACTIONS PENDING. Other than as described on Schedule 8C,
there is no action, suit, investigation or proceeding pending or, to the
knowledge of the Company, threatened against the Company, or any properties or
rights of the Company, by or before any court, arbitrator or administrative or
governmental body which, if adversely determined, might result in a liability of
greater than $100,000 or might otherwise result in any material adverse change
in the business, condition (financial or otherwise), prospects or operations of
the Company. There is no action, suit, investigation or proceeding pending or
threatened against the Company which purports to affect the validity or
enforceability of this Agreement, any Note, any Warrant, any of the other Second
Priority Note Documents, any of the Acquisition Documents, any of Share
Repurchase Documents, the Settlement Agreement or the Shareholders' Agreement.
D. OUTSTANDING INDEBTEDNESS. The Company does not have
outstanding any Indebtedness except as permitted by paragraphs 6A, 6D and 6G(2)
and all of which is described in Schedule 8D attached hereto. There exists no
default under (and no waiver of default is currently in effect with respect to)
the provisions of any instrument evidencing such Indebtedness or of any
agreement relating thereto, and no event or condition exists with respect to any
Indebtedness of the Company that would permit (or that with notice or the lapse
of time, or both, would permit) one or more Persons to cause such Indebtedness
to become due and payable before its stated maturity or before its regularly
scheduled dates of payment.
E. TITLE TO PROPERTIES. The Company has good and marketable
title to its real property (other than property which it leases) and good title
to all of its other
<PAGE> 43
properties and assets, including the properties and assets reflected in the pro
forma balance sheet as at June 30, 1997 referred to in paragraph 8B(b)(ii)
(other than properties and assets disposed of in the ordinary course of
business), subject to no Lien of any kind except Liens permitted by paragraph
6G(1). All leases necessary in any material respect for the conduct of the
business of the Company are valid and subsisting and are in full force and
effect.
F. POSSESSION OF FRANCHISES, LICENSES, PATENTS AND TRADEMARKS.
The Company possesses all franchises, certificates, licenses, permits and other
authorizations from governmental political subdivisions or regulatory
authorities, free from burdensome restrictions, that are necessary in any
material respect for the ownership, maintenance and operation of its properties
and assets, and the Company is not in violation of any thereof in any material
respect. The Company owns or possesses all licenses, permits, franchises,
authorizations, patents, copyrights, service marks, trademarks, trade dress,
logos, corporate names and trade names and rights thereto, that individually or
in the aggregate are material, without known conflict with the rights of others.
To the best knowledge of the Company, no product of the Company infringes in any
material respect any license, permit, franchise, authorization, patent,
copyright, service mark, trademark, trade name, trade dress, logo, corporate
name or other right owned by any other Person. To the best knowledge of the
Company, there is no material violation by any Person of any right of the
Company with respect to any patent, copyright, service mark, trademark, trade
name, trade dress, logo, corporate name or other right owned or used by the
Company.
G. TAXES. The Company has filed all federal, state and other
income tax returns which, to the knowledge of the officers of the Company, are
required to be filed, and has paid all taxes as shown on such returns and on all
assessments received by it, and has paid, collected and withheld all other taxes
which are otherwise required to be paid, collected or withheld on or prior to
the date hereof, except such taxes as are being contested in good faith by
appropriate proceedings and for which adequate reserves have been established in
accordance with generally accepted accounting principles. There are no
unsatisfied actual or proposed adjustments or assessments for taxes against the
Company or, to the knowledge of the Company, any basis for any such assessment
or adjustment. There are no pending audits, actions, proceedings, disputes,
claims or, to the Company's knowledge, investigations with respect to any taxes
payable by or asserted against the Company. The Company has not received notice
from any governmental authority of its intent to examine or audit any tax
returns of the Company. The Company has been subject to a valid and effective
election to be an S corporation, within the meaning of section 1361(a)(1) of the
Code from the date of its organization to the date hereof, and such S
corporation election has not been terminated (within the meaning of section
1362(d) of the Code) at any time on or prior to the date hereof. As of the date
hereof, the Company does not have any amounts of "net unrealized built-in gain"
(within the meaning of section 1374(d) of the Code) on which the Company would
be required to pay taxes under Section 1374(a) of the Code if the Company were
to sell any of its assets at any time on or after the date hereof.
<PAGE> 44
H. CONFLICTING AGREEMENTS AND OTHER MATTERS. The Company is not
a party to any contract or agreement or subject to any charter or other
corporate restriction which materially and adversely affects its business,
property or assets, prospects or financial condition. The execution and delivery
of this Agreement, the Notes, the Warrants, the Registration Rights Agreement,
the Participation Rights Agreement, the Put Rights Agreement, the Security
Documents (collectively, the "NOTE DOCUMENTS"), the Acquisition Documents, the
Share Repurchase Documents, the Settlement Agreement and the Shareholders'
Agreement (the Note Documents, the Acquisition Documents, the Share Repurchase
Documents, the Settlement Agreement and the Shareholders' Agreement are
collectively, the "TRANSACTION DOCUMENTS") by the Company, the offering,
issuance and sale of the Notes, the Warrants, the Seller Notes, the Working
Capital Notes and the Shareholder Notes (as defined in clauses (a) and (c) of
the definition of Shareholder Notes) by the Company and the issuance of the
shares of Common Stock upon the exercise of the Warrants and the conversion of
the Convertible Subordinated Notes and the fulfillment of and compliance with
the respective provisions of the Transaction Documents by the Company do not and
will not conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under, or result in any violation of, or
result in the creation of any Lien (except Liens created under the Security
Documents and any Liens created pursuant to Section 3 of the Medium Term Notes)
upon any of the properties or assets of the Company (including Purchased Assets,
as such term is defined in the Acquisition Agreement) pursuant to, or require
any authorization, consent, approval, exemption or other action by or notice to
or filing with any court, administrative or governmental body or other Person
(other than (a) routine filings after the date hereof with the Securities and
Exchange Commission and/or state Blue Sky authorities in connection with the
Registration Rights Agreement, (b) those recordations and filings with respect
to the Security Documents as are set forth in the opinion of Keith Staudt,
General Counsel of the Company, delivered pursuant to paragraph 3A(vi)hereof,
(c) the registration of Common Stock under the circumstances contemplated by the
Registration Rights Agreement and (d) other consents and approvals required by
the assignment of various licenses and contracts pursuant to the Acquisition
Agreement) or result in the revocation, suspension, limitation or imposition of
any material condition upon the license of the Company to act as a life
insurance agent in the State of Texas pursuant to the Texas Insurance Code
(other than pursuant to Art. 21.07-1 of the Texas Insurance Code (but only with
respect to the issuance of the shares of Common Stock upon the exercise of the
Warrants) or any similar license required or granted by any administrative or
governmental body or other Person pursuant to, the Articles of Incorporation or
bylaws of the Company, any applicable law (including, without limitation, any
insurance, securities or Blue Sky law), statute, rule or regulation or any
agreement (including, without limitation, (i) any Acquisition Document, any
Share Repurchase Document, the Shareholders' Agreement or the Settlement
Agreement, (ii) any agreement referred to in Schedule 8AA or any other material
agreement of the Company or the Acquired Company, if any, and (iii) any
agreement (other than the Note Documents) set forth or listed in any schedule or
exhibit to, or specifically referred to in, any Acquisition Document, any Share
Repurchase Document, the Shareholders'
<PAGE> 45
Agreement or the Settlement Agreement) or any instrument, order, judgment or
decree to which the Company is a party or otherwise subject (including, without
limitation, by virtue of its assumption of liabilities under the Acquisition
Agreement). The Company is not a party to, or otherwise subject to any provision
contained in, any instrument evidencing Indebtedness of the Company, any
agreement relating thereto or any other contract or agreement (including its
charter) which limits the amount of, or otherwise imposes restrictions on the
incurring of, Indebtedness of the Company of the type to be evidenced by the
Notes except as set forth in the agreements listed in Schedule 8H(1).
I. AUTHORIZED CAPITAL STOCK. The authorized capital stock of the
Company consists of 20,000,000 shares of Common Stock, no par value per share.
The outstanding capital stock of the Company consists of 5,501,698 shares of
Common Stock. 1,404,340 shares of Common Stock are held in treasury. All of the
outstanding shares of Common Stock are duly authorized, validly issued, fully
paid and nonassessable. Except as set forth on Schedule 8I and in the Cochlan
Phantom Stock Agreement, the Company does not have outstanding any warrants,
options, convertible securities or other rights for the purchase or acquisition
of shares of its capital stock other than the Warrants. The Warrants and the
shares of Common Stock issuable upon the exercise of the Warrants have been duly
and validly authorized, and such shares of Common Stock have been duly reserved
for issuance upon exercise of the Warrants. No shareholder of the Company or any
other Person is entitled to preemptive or similar rights with respect to the
shares of Common Stock which are issuable upon exercise of the Warrants and, if
and when issued upon exercise of the Warrants in accordance with the provisions
thereof, such shares will be validly issued, fully paid and nonassessable
shares.
J. OFFERING OF THE SECURITIES. Neither the Company nor any agent
acting on its behalf has, directly or indirectly, offered the Securities or any
similar security of the Company for sale to, or solicited any offers to buy the
Securities or any similar security of the Company from, or otherwise approached
or negotiated with respect thereto with, any Person other than institutional
investors, and neither the Company nor any agent acting on its behalf has taken
or will take any action which would subject the issuance or sale of the
Securities to the provisions of section 5 of the Securities Act or to the
provisions of any securities or Blue Sky law of any applicable jurisdiction.
K. USE OF PROCEEDS. The Company does not own or have any present
intention of acquiring any "MARGIN STOCK" as defined in Regulation G (12 CFR
Part 207) of the Board of Governors of the Federal Reserve System ("MARGIN
STOCK"). The proceeds of sale of the Securities will be used to repurchase and
retire Common Stock of the Company pursuant to the Share Repurchases. None of
such proceeds will be used, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any margin stock or
for the purpose of maintaining, reducing or retiring any Indebtedness which was
originally incurred to purchase or carry any stock that is currently a margin
stock or for any other purpose which might constitute this transaction a
"PURPOSE CREDIT" within the meaning of such Regulation G. Neither the Company
nor any agent acting on its behalf has taken or will take any action which might
<PAGE> 46
cause this Agreement or the Securities to violate Regulation G or any other
regulation of the Board of Governors of the Federal Reserve System or to violate
the Exchange Act, in each case as in effect now or as the same may hereafter be
in effect.
L. ERISA. No accumulated funding deficiency (as defined in
section 302 of ERISA and section 412 of the Code), whether or not waived, exists
with respect to any Plan (other than a Multiemployer Plan). No liability to the
PBGC has been or is expected by the Company or any ERISA Affiliate to be
incurred with respect to any Plan (other than a Multiemployer Plan) by the
Company or any ERISA Affiliate which is or would be materially adverse to the
business, condition (financial or otherwise), prospects or operations of the
Company. Neither the Company nor any ERISA Affiliate has incurred or presently
expects to incur any withdrawal liability under Title IV of ERISA with respect
to any Multiemployer Plan which is or would be materially adverse to the
business, condition (financial or otherwise), prospects or operations of the
Company. The execution and delivery of this Agreement and the issuance and sale
of the Securities will be exempt from, or will not involve any transaction which
is subject to, the prohibitions of section 406 of ERISA and will not involve any
transaction in connection with which a penalty could be imposed under section
502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the Code.
The representation by the Company in the next preceding sentence is made in
reliance upon and subject to the accuracy of the representation of each
Purchaser in paragraph 9B as to the source of funds to be used by it to purchase
any Security.
M. GOVERNMENTAL CONSENT. Neither the nature of the Company, nor
any of its businesses or properties, nor any relationship between the Company
and any other Person, nor any circumstance in connection with the offering,
issuance, sale or delivery of the Securities is such as to require any
authorization, consent, approval, exemption or other action by or notice to or
filing with any court or administrative or governmental or regulatory body
(other than routine filings after the Date of Closing with the Securities and
Exchange Commission and/or state Blue Sky authorities) in connection with the
execution and delivery of this Agreement, the other Second Priority Note
Documents, the Share Repurchase Documents, the Acquisition Documents, the
Settlement Agreement or the Shareholders' Agreement and the offering, issuance,
sale or delivery of the Securities or fulfillment of or compliance with the
terms and provisions of this Agreement, the Registration Rights Agreement, the
Put Rights Agreement or the Participation Rights Agreement or of the Securities.
N. ENVIRONMENTAL COMPLIANCE. The Company and all of its
properties and facilities have complied at all times and in all respects with
all federal, state, local and regional statutes, laws, ordinances and judicial
or administrative orders, judgments, rulings and regulations relating to
protection of the environment except, in any such case, where failure to comply
could not result in a material adverse effect on the business, condition
(financial or otherwise) or operations of the Company.
<PAGE> 47
O. FISCAL YEAR. The fiscal year of the Company ends as of
December 31 of each year.
P. DISCLOSURE. Neither this Agreement, the other Second Priority
Note Documents nor any other document, certificate or statement furnished to any
Purchaser by or on behalf of the Company in connection herewith contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein and therein not misleading.
There is no fact peculiar to the Company which materially adversely affects or
in the future may (so far as the Company can now foresee) materially adversely
affect the business, property or assets, or financial condition of the Company
and which has not been set forth in this Agreement, the other Second Priority
Note Documents or in the other documents, certificates and statements furnished
to any Purchaser by or on behalf of the Company prior to the date hereof in
connection with the transactions contemplated hereby. The pro forma financial
projections dated as of September 3, 1997 and previously delivered to the
Purchasers by the Company are reasonable based on the assumptions stated therein
and the best information available to the officers of the Company. The Company
and the Acquired Company have disclosed the material terms of all existing
transactions with Affiliates to the Purchasers.
Q. INVESTMENT COMPANY ACT. Neither the Company nor any Person
controlling the Company is an "INVESTMENT COMPANY," or a company "CONTROLLED" by
an "INVESTMENT COMPANY," within the meaning of the Investment Company Act of
1940, as amended.
R. OTHER REGULATION. Neither the Company nor any Person
controlling the Company is subject to regulation under any federal or state
statute or regulation, as amended from time to time, which limits the ability of
(i) the Company to issue the Securities or (ii) the Company to perform its
respective obligations under this Agreement, the other Second Priority Note
Documents, the Share Repurchase Documents, the Acquisition Documents, the
Settlement Agreement or the Shareholders' Agreement.
S. ACQUISITION, SHARE REPURCHASE, SETTLEMENT AGREEMENT AND
SHAREHOLDERS' AGREEMENT REPRESENTATIONS AND WARRANTIES. To induce the Purchasers
to enter into this Agreement and to purchase the Securities, the Company agrees
that the Purchasers shall be entitled to rely upon each of the representations
and warranties set forth in any of the Acquisition Documents, any of the Share
Repurchase Documents, the Settlement Agreement and the Shareholders' Agreement,
as fully as if set forth in this Agreement.
T. SOLVENCY. The Company is Solvent, both before and after
giving effect to this Agreement, the other Second Priority Note Documents, the
Senior Note Documents, the Share Repurchase Documents and the Acquisition
Documents, and to the transactions contemplated hereby and thereby.
<PAGE> 48
U. EMPLOYMENT AGREEMENTS, NON-COMPETITION AGREEMENTS AND
PRINCIPAL OFFICE AGREEMENTS. Schedule 8U describes all material employment
agreements, non-competition agreements and principal office agreements to which
the Company is a party. All of the material employment agreements,
non-competition agreements and principal office agreements described on Schedule
8U are in full force and effect and no default thereunder or violation of any of
the provisions thereof exists.
V. INSURANCE LICENSES. All Insurance Licenses of the Company are
listed on Schedule 8V and are in full force and effect. No proceeding or
customer complaint has been filed with insurance regulatory authorities which
could reasonably be expected to lead to revocation, failure to renew,
limitation, suspense or restriction of any such Insurance License.
W. UNDISCLOSED LIABILITIES. The Company does not have any
Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
it giving rise to any Liability), except for (i) Liabilities set forth on the
face of the pro forma balance sheet of the Company dated as of June 30, 1997
described in paragraph 3A(xxii)(a)(ii) and disclosed in any notes thereto and
(ii) Liabilities which have arisen after June 30, 1997 in the Ordinary Course of
Business (none of which results from, arises out of, relates to, is in the
nature of, or was caused by any breach of a contract, breach of warranty, tort,
infringement, or violation of law).
X. LEGAL COMPLIANCE. The Company and each of its shareholders,
officers, independent contractors, subagents, consultants and employees who are
required by reason of the nature of their employment by the Company to be
registered or appointed as an insurance agent, insurance broker or insurance
producer with the insurance department of any state or any self-regulatory body
or other governmental entity, is duly registered or appointed as such and such
registration or appointment is in full force and effect, and neither the Company
nor any such other Persons has been enjoined, indicted, convicted or made the
subject of any consent decree or administrative order on account of any material
violation of applicable law in connection with such Person's actions in any of
the foregoing capacities or, any enforcement or disciplinary proceeding alleging
any such violation.
Y. CERTAIN TAX MATTERS. The Company is not now and has never
been (i) a member of an Affiliated Group filing a consolidated federal income
Tax Return or (ii) responsible for any Liability for the taxes of any Person
(other than the Company) as a transferee or successor, by contract, by operation
of law, or otherwise.
Z. SALES REPRESENTATIVES. To the Company's knowledge, the
shareholders, directors and officers (and employees with responsibility for
sales matters) of the Company and the Acquired Company, and all sales
representatives currently marketing the Company's and the Acquired Company's
insurance policies under
<PAGE> 49
Representative Agreements (other than William Chatfield and Bennett Meyer) are
expected to continue to perform such services after the Date of Closing, and
none has expressed an intention or desire to cease such sales activities.
AA. CONTRACTS. Except as set forth in Schedule 8AA, the Company
is not a party to, or bound by:
(i) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease
payments in excess of $20,000 per annum;
(ii) any agreement (or group of related agreements) for the
purchase or sale of supplies, products, or other personal property, or
for the furnishing or receipt of services, the performance of which
will extend over a period of more than one year, result in a material
loss to the Company, or involve consideration in excess of $25,000;
(iii) any agreement concerning a partnership or joint
venture;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any Capitalized Lease Obligation,
or under which it has imposed a Lien on any of its assets, tangible or
intangible, except for the Liens permitted by paragraph 6G(1);
(v) any agreement concerning confidentiality or
noncompetition other than with the Acquired Company or insurance
carriers and others regarding product development;
(vi) any agreement or arrangement with any of the
shareholders of the Acquired Company;
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan
or arrangement (including, without limitation, any plan or arrangement
with respect to phantom stock or any equivalent thereto) for the
benefit of its current or former directors, officers, and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $50,000 or providing severance benefits or
which is not terminable at the will of the Company;
<PAGE> 50
(x) any agreement or arrangement under which it has advanced
or loaned any amount to any of its directors, officers, and employees;
(xi) any agreement under which the consequences of a default
or termination could have a material adverse effect on the business,
condition (financial or other), prospects or operations of the
Company; or
(xii) any other agreement (or group of related agreements),
including Vendors' Contracts, the performance of which involves
consideration in excess of $10,000.
With respect to each agreement described in Schedule 8AA attached hereto: (A)
such agreement is legal, valid, binding, enforceable, and in full force and
effect; (B) such agreement will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the Acquisition, the Share Repurchases and the transactions
contemplated by this Agreement and the other Second Priority Note Documents; (C)
no party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under such agreement; and (D) no party has
repudiated any provision of such agreement. The Company is not a party to any
oral agreement.
BB. ASSIGNMENT OF INSURANCE CONTRACTS. The Company has no reason
to believe that the notices and consents required to assign the Insurance
Contracts to the Company as provided in Section 7(b) of the Acquisition
Agreement will not be obtained.
CC. SATISFACTION OF CONDITIONS PRECEDENT TO THE ACQUISITION, THE
SHARE REPURCHASES, THE SETTLEMENT AGREEMENT AND THE SHAREHOLDERS' AGREEMENT. All
of the conditions precedent to the effectiveness of the Acquisition Documents,
the Share Repurchase Documents, the Settlement Agreement and the Shareholders'
Agreements have been satisfied. None of the conditions precedent to the
effectiveness of the Acquisition Documents, the Share Repurchase Documents, the
Settlement Agreement and the Shareholders' Agreement have been waived without
the express written consent of each of the Purchasers.
DD. COMPLIANCE WITH LAWS. The Company has complied with all
applicable laws, rules, regulations and orders (including those relating to
protection of the environment) except, in any such case, where failure to comply
could not have a material adverse effect on the business, condition (financial
or otherwise), operations or prospects of the Company.
EE. CONDITION OF PROPERTY. All of the property of the Company is
in good repair, working order and condition so that the business carried on in
connection therewith may be properly and advantageously conducted at all times
in the normal course of business.
<PAGE> 51
FF. BOOKS AND RECORDS. The Company has at all times maintained
proper books of record and account in which full, true and correct entries have
been made in accordance with GAAP.
GG. ISSUANCE AND EXERCISE OF THE WARRANTS. The issuance of the
Warrants hereunder and any subsequent exercise of the Warrants (i) does not
violate any applicable law or governmental regulation (including, without
limitation, any laws or regulations applicable to Persons acting as insurance
agents, insurance brokers or insurance producers) (other than Art. 21.07-1 of
the Texas Insurance Code (but only with respect to the issuance of shares of
Common Stock upon the exercise of the Warrants) the violation of which the
Company represents and warrants will be cured by the satisfaction of the
covenant contained in paragraph 5T) or any contract, agreement or other document
to which the Company is party and (ii) could not result in a material adverse
change in the business, condition (financial or otherwise), prospects or
operations of the Company.
HH. ADDITIONAL DISCLOSURE. Schedule 8HH(1) is a true, correct and
complete schedule of all properly accrued performance bonuses payable to
employees and independent sales representatives and agents of the Company.
Schedule 8HH(2) is a true, correct and complete schedule of all Plans and
Multiemployer Plans of the Company and any ERISA Affiliates. Schedule 8HH(3) is
a true, correct and complete schedule of all trademarks, service marks, trade
dress, logos, trade names and corporate names of the Company, together with all
translations, adaptations, derivations and combinations thereof, and all
applications, registrations and renewals in connection therewith.
II. REINCORPORATION MERGER. The Company intends to consummate the
Reincorporation Merger no later than March 9, 1999. Neither the Articles of
Incorporation or the bylaws of the Company nor any agreement or document to
which the Company is a party nor any applicable law (including, without
limitation, the Texas Business Corporation Act), statute, rule or regulation
requires the affirmative vote of the holders of more than two-thirds of the
issued and outstanding shares of Common Stock to approve the Reincorporation
Merger. The consummation of the Reincorporation Merger could not have a material
adverse effect on the business, condition (financial or other), assets,
properties, operations or prospects of the Company.
JJ. SATISFACTION OF CONDITIONS PRECEDENT. All of the conditions
precedent to the effectiveness of this Agreement have been satisfied or waived
in writing by each of the Purchasers.
KK. CERTAIN AFFILIATES. The arrangements contemplated by
paragraph 5X are lawful and are customary and are recognized in the industry and
jurisdictions in which the Company operates or proposes to operate, directly or
in conjunction with Affiliates.
<PAGE> 52
9. REPRESENTATIONS OF EACH PURCHASER. Each Purchaser represents
as follows:
A. NATURE OF PURCHASE. Such Purchaser is not acquiring the
Securities to be purchased by it hereunder with a view to or for sale in
connection with any distribution thereof within the meaning of the Securities
Act, provided that the disposition of such Purchaser's property shall at all
times be and remain within its control.
B. SOURCE OF FUNDS. Such Purchaser represents that at least one
of the following statements is an accurate representation as to each source of
funds (a "Source") to be used by such Purchaser to pay the purchase price of the
Securities to be purchased by such Purchaser hereunder:
(i) the Source constitutes assets of a general account
maintained by an insurance company, and the use of such Source for the
purchase of the Notes is permitted by the terms of Prohibited
Transaction Class Exemption 95-60; or
(ii) the Source is either (a) an insurance company pooled
separate account, within the meaning of Prohibited Transaction
Exemption ("PTE") 90-1 (issued January 29, 1990), or (b) a bank
collective investment fund, within the meaning of the PTE 91-38
(issued July 12, 1991) and, except as such Purchaser has disclosed to
the Company in writing pursuant to this clause (ii), no employee
benefit plan or group of plans maintained by the same employer or
employee organization beneficially owns more than 10% of all assets
allocated to such pooled separate account or collective investment
fund; or
(iii) the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning
of Part V of the QPAM Exemption), no employee benefit plan's assets
that are included in such investment fund, when combined with the
assets of all other employee benefit plans established or maintained
by the same employer or by an affiliate (within the meaning of Section
V(c)(1) of the QPAM Exemption) of such employer or by the same
employee organization and managed by such QPAM, exceed 20% of the
total client assets managed by such QPAM, the conditions of Part I(c)
and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a
person controlling or controlled by the QPAM (applying the definition
of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more
interest in the Company and (a) the identity of such QPAM and (b) the
names of all employee benefit plans whose assets are included in such
investment fund have been disclosed to the Company in writing pursuant
to this clause (iii); or
<PAGE> 53
(iv) the Source is a governmental plan; or
(v) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Company in
writing pursuant to this clause (v); or
(vi) the Source does not include assets of any employee
benefit plan, other than a plan exempt from the coverage of ERISA.
As used in this paragraph 9B, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL
PLAN", "PARTY IN INTEREST" and "SEPARATE ACCOUNT" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
10. DEFINITIONS. For the purpose of this Agreement, the terms
defined in the introductory sentence and in paragraphs 1 and 2 shall have the
respective meanings specified therein, and the following terms shall have the
meanings specified with respect thereto below (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
A. YIELD MAINTENANCE TERMS.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to paragraph 4C or is
declared to be immediately due and payable pursuant to paragraph 7A, as the
context requires.
"DISCOUNTED VALUE" shall mean, with respect to the Called
Principal of any Note, the amount obtained by discounting all Remaining
Scheduled Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a discount
factor (applied on the same periodic basis as that on which interest on the
Notes is payable) equal to the Reinvestment Yield with respect to such Called
Principal.
"REINVESTMENT YIELD" shall mean, with respect to the Called
Principal of any Note, 0.50% over the yield to maturity implied by (a) the
yields reported, as of 10:00 a.m. (New York City time) on the second Business
Day next preceding the Settlement Date with respect to such Called Principal, on
the display designated as "PAGE 678" on the Telerate Service (or such other
display as may replace Page 678 on the Telerate Service) for actively traded
U.S. Treasury securities having a maturity equal to the Remaining Average Life
of such Called Principal as of such Settlement Date, or if such yields shall not
be reported as of such time or the yields reported as of such time shall not be
ascertainable, (b) the Treasury Constant Maturity Series yields reported, for
the latest day for which such yields shall have been so reported as of the
second Business Day
<PAGE> 54
preceding the Settlement Date with respect to such Called Principal, in Federal
Reserve Statistical Release H.15 (519) (or any comparable successor publication)
for actively traded U.S. Treasury securities having a constant maturity equal to
the Remaining Average Life of such Called Principal as of such Settlement Date.
Such implied yield shall be determined, (x) if necessary, by (1) converting U.S.
Treasury bill quotations to bond-equivalent yields in accordance with accepted
financial practice and (2) interpolating linearly between (I) the actively
traded U.S. Treasury security with the maturity closest to and greater than the
Remaining Average Life and (II) the actively traded U.S. Treasury security with
the maturity closest to and less than the Remaining Average Life and (y) by
converting all such implied yields to a payment basis in accordance with
accepted financial practice.
"REMAINING AVERAGE LIFE" shall mean, with respect to the Called
Principal of any Note, the number of years (calculated to the nearest
one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the
sum of the products obtained by multiplying (a) each Remaining Scheduled Payment
of such Called Principal (but not of interest thereon) by (b) the number of
years (calculated to the nearest one-twelfth year) which will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due date
of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to its
scheduled due date.
"SETTLEMENT DATE" shall mean, with respect to the Called Principal of
any Note, the date on which such Called Principal is to be prepaid pursuant to
paragraph 4C or is declared to be immediately due and payable pursuant to
paragraph 7A, as the context requires.
"YIELD MAINTENANCE AMOUNT" shall mean, with respect to any Note, an
amount equal to the excess, if any, of the Discounted Value of the Called
Principal of such Note over the sum of (i) such Called Principal plus (ii)
interest accrued thereon as of (including interest due on) the Settlement Date
with respect to such Called Principal. The Yield Maintenance Amount shall in no
event be less than zero.
B. OTHER TERMS.
"AAA DISTRIBUTION" shall mean the proposed $0.60 per share distribution
to the shareholders of record of Common Stock on October 31, 1997.
"AAA DISTRIBUTION NOTES" shall mean the subordinated promissory notes
of the Company to evidence the Company's borrowing from its shareholders of the
proceeds of the AAA Distribution in an aggregate principal amount not to exceed
<PAGE> 55
$4,143,623 upon terms and conditions and subject to documentation satisfactory
in all respects to the holders of the Notes.
"ACQUIRED COMPANY" shall mean Bank Compensation Strategies, Inc., a
Minnesota corporation.
"ACQUISITION" shall mean the acquisition by the Company of all or
substantially all of the assets of the Acquired Company and the assumption by
the Company of certain liabilities of the Acquired Company pursuant to the
Acquisition Documents.
"ACQUISITION AGREEMENT" shall mean that certain Asset Purchase
Agreement among the Company, the Acquired Company and certain individuals dated
as of September 5, 1997.
"ACQUISITION DOCUMENTS" shall mean the Acquisition Agreement and all
other written agreements, documents, instruments and certificates now or
hereafter executed and delivered by any Person which are required by the terms
of the Acquisition Agreement to be delivered to consummate the Acquisition, and
any and all amendments, supplements and other modifications thereof and all
renewals, extensions, restatements or substitutions from time to time of all or
any of the foregoing.
"AFFILIATE" shall mean at any time, and with respect to any Person, (i)
any other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person, and (ii) any Person beneficially owning or holding, directly
or indirectly, 10% or more of any class of voting or equity interests of the
Company or any Subsidiary or any corporation of which the Company and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
10% or more of any class of voting or equity interests. As used in this
definition, "CONTROL" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Unless the context otherwise clearly requires, any reference to an "AFFILIATE"
is a reference to an Affiliate of the Company.
"AFFILIATED GROUP" shall mean an affiliated group within the meaning of
Section 1504(a) of the Code.
"ANNUALIZED CASH FLOW" shall mean, at any time, (i) prior to September
30, 1998, Cash Flow for the period commencing September 1, 1997 through to such
date, annualized in accordance with accepted financial practice; and (ii) on or
after September 30, 1998, Cash Flow for the most recently ended four fiscal
quarters.
"ASSET DISPOSITION" shall mean, with respect to the Company or any
Subsidiary, any transaction or series of related transactions in which such
Person sells,
<PAGE> 56
conveys, transfers or leases (as lessor) or parts with control of (collectively,
for purposes of this definition, a "TRANSFER"), directly or indirectly, any of
its property or assets, including, without limitation, any Indebtedness of any
Subsidiary or capital stock of or other equity interests in any Subsidiary
(including the issuance of such stock or other equity interests by such
Subsidiary), other than transfers of cash or cash equivalents.
"ASSIGNMENT OF LIFE INSURANCE POLICY" shall mean, collectively, those
certain Assignment of Life Insurance Policy, dated September 9, 1997, executed
and delivered by the Company and W. T. Wamberg to the Collateral Agent,
substantially in the form of Exhibit E-1 and E-2 to the Senior Note Agreement,
respectively, as the same may be amended, supplemented and otherwise modified
from time to time.
"BANKRUPTCY LAW" shall have the meaning specified in clause (ix) of
paragraph 7A.
"BASIS" shall mean any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"BUSINESS DAY" shall mean any day on which banks are open for business
in New York City (other than a Saturday, a Sunday or a legal holiday) in the
State of New York.
"C CORPORATION" shall mean a corporation, or an association taxable as
a corporation under the Code, other than an S Corporation.
"CAPITAL LEASE" shall mean a lease with respect to which the lessee is
required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"CAPITAL LEASE OBLIGATION" shall mean, with respect to any Person and a
Capital Lease, the amount of the obligation of such Person as the lessee under
such Capital Lease which would, in accordance with GAAP, appear as a liability
on a balance sheet of such Person.
"CASH FLOW" shall mean, for any period, (a) the sum of (i) Consolidated
Net Income, plus Interest Charges and consolidated taxes, depreciation,
amortization and other non-cash charges to income of the Company and its
Subsidiaries for such period, but only to the extent deducted in the
determination of Consolidated Net Income, less (b) consolidated deferred taxes
or other non-cash items which constitute non-cash contributions to Consolidated
Net Income, excluding in each case all extraordinary and non-recurring items.
"CASH FLOW" for any period shall be determined after giving effect to
acquisitions and dispositions of assets by the Company or any of its
Subsidiaries during such period as if such acquisitions and dispositions had
occurred on the first day of such period.
<PAGE> 57
"CHANGE IN CONTROL" shall mean (i) (a) the failure of the members of
the Control Group to own, on a fully diluted basis, at least 23% of the then
issued and outstanding Common Stock, or (b) the sale (in a single sale or a
series of sales) by the members of the Control Group of any shares of Common
Stock held as of the Date of Closing or thereafter in excess of 500,000 shares
or (ii) any person (as such term is defined in Section 13(d) and Section
14(d)(2) of the Exchange Act as in effect on the Date of Closing) or related
persons constituting a group (as such term is used in Rule 13d-5 under the
Exchange Act as in effect on the Date of Closing) own, at any time, on a fully
diluted basis, as the result of a single transaction or a series of
transactions, at least 30% of the then issued and outstanding shares of Common
Stock.
"CLOSING" or "DATE OF CLOSING" shall have the meaning specified in
paragraph 2A.
"COCHLAN PHANTOM STOCK AGREEMENT" shall mean that certain Phantom Stock
Agreement dated as of September 5, 1997, between Steven J. Cochlan and the
Company.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COLLATERAL" shall mean the collateral described in the Security
Documents which secures payment of the Notes and payment, performance and
observance of the obligations of the Company and its Subsidiaries under this
Agreement and the other Second Priority Note Documents.
"COLLATERAL AGENT" shall mean Texas Commerce Bank, in its capacity as
Collateral Agent for the Acquired Company and the holders of Notes, the Senior
Notes and the Medium Term Notes, as provided under the Collateral Agency
Agreement, and its successors and assigns as such Collateral Agent.
"COLLATERAL AGENCY AGREEMENT" shall mean that certain Collateral Agency
Agreement, dated as of September 9, 1997 by and among the Company, the Acquired
Company, the Collateral Agent and the holders of the Notes, the Senior Notes and
the Medium Term Notes, substantially in the form of Exhibit F to the Senior Note
Agreement, as the same may be amended, supplemented and otherwise modified from
time to time.
"COLLATERAL ASSIGNMENT OF DEPOSIT ACCOUNTS" shall mean that certain
collateral assignment of deposit accounts between the Collateral Agent and the
Company and each of its Subsidiaries to be entered into after the Date of
Closing in conjunction with the execution and delivery of the Lockbox Agreements
collaterally assigning the Lockbox Accounts to the Collateral Agent, in form,
scope and substance satisfactory to the holders of the Notes, as the same may be
amended, supplemented and otherwise modified from time to time.
<PAGE> 58
"COMMISSION FEES" shall mean, at any time, 60% of the future commission
fees of the Company and its Subsidiaries payable under products whose
persistency rate is greater than 90% over the last five calendar years exclusive
of products (such as leveraged COLI) whose federal, state or local tax
advantages have been materially decreased pursuant to federal, state or local
legislation or regulations promulgated thereunder; provided, however, that at
any time 180 days after the Date of Closing, such future commission fees shall
not include any such fees which are payable pursuant to contracts or agreements
for which the Company or any of its Subsidiaries have not obtained consents to
the assignment or transfer thereof (unless such consents are not required by
applicable law (such as New York Uniform Commercial Code Section 9-318(4)).
"COMMON STOCK" shall have the meaning specified in paragraph 1B.
"COMPETITOR" shall mean any Person specified in Schedule A.
"CONFIDENTIAL INFORMATION" shall mean any material non-public
information regarding the Company that is provided to any holder of any Note,
any Person that purchases a participation in a Note and any offeree of a Note or
a participation therein pursuant to this Agreement other than information (i)
which was publicly known or otherwise known to such holder, such Person or such
offeree at the time of disclosure, (ii) which subsequently becomes publicly
known through no act or omission of such holder, such Person or such offeree or
(iii) which otherwise becomes known to such holder, such Person or such offeree
other than through disclosure by the Company or any Subsidiary.
"CONTROL GROUP" shall mean W.T. Wamberg and The Wamberg Organization,
Inc., an Illinois corporation.
"CONSOLIDATED NET INCOME" shall mean, with reference to any period, the
net income (or loss) of the Company and its Subsidiaries for such period (taken
as a cumulative whole), as determined in accordance with GAAP, after deducting,
among other items, commission expenses of the Company and its Subsidiaries and
after eliminating all offsetting debits and credits between the Company and its
Subsidiaries and all other items required to be eliminated in the course of
preparation of consolidated financial statements of the Company and its
Subsidiaries in accordance with GAAP, provided that there shall be excluded:
a) any net income or gain (but not any net loss) during such period from
any extraordinary items (including, without limitation, proceeds of life
insurance policies),
b) the net loss or any undistributed earnings of any Subsidiary that is not
consolidated with the Company in accordance with GAAP for financial
accounting purposes,
<PAGE> 59
c) the net income (or loss) of any Person accrued prior to the date it
becomes a Subsidiary or is merged into or consolidated with the Company or
a Subsidiary, and the net income (or loss) of any Person, substantially all
of the assets of which have been acquired in any manner, realized by such
other Person prior to the date of acquisition,
d) any aggregate net gain (but not any aggregate net loss) during such
period arising from the sale, conversion, exchange or other disposition of
capital assets (such term to include, without limitation, (a) all
non-current assets and, without duplication, (b) the following, whether or
not current: all fixed assets, whether tangible or intangible, all
inventory sold in conjunction with the disposition of fixed assets, and all
securities), and
e) any non-cash net income or gain (but not any net loss) during such
period from (a) any one-time change in accounting principles in accordance
with GAAP or (b) any prior period adjustments resulting from any one-time
change in accounting principles in accordance with GAAP.
"CONSOLIDATED NET WORTH" shall mean, at any time,
a) the sum of (a) the par value (or value stated on the books of the
corporation) of the capital stock (but excluding treasury stock and capital
stock subscribed and unissued) of the Company and its Subsidiaries plus (b)
the amount of paid-in capital and retained earnings of the Company and its
Subsidiaries, in each case as such amounts would be shown on a consolidated
balance sheet of the Company and its Subsidiaries as of such time prepared
in accordance with GAAP, minus
b) to the extent included in clause (i), all amounts properly attributable
to minority interests, if any, in the stock and surplus of Subsidiaries.
"CONVERTIBLE SUBORDINATED NOTES" shall mean the unsecured convertible
subordinated promissory notes of the Company in the aggregate principal amount
of $4,800,000, issued to the Acquired Company in connection with the
Acquisition, upon terms and conditions satisfactory in all respects to the
holders of the Notes.
"DISCOUNTED COMMISSION FEES" shall mean, at any time, the amount
obtained by discounting all Commission Fees payable to the Company and its
Subsidiaries for a five year period from their respective scheduled payment
dates to the date of determination, in accordance with accepted financial
practice and at a discount factor (applied on an annual basis) equal to 10% per
annum.
"EBIT" shall mean, for any period, the sum of (i) Consolidated Net
Income plus (ii) to the extent deducted in the determination of Consolidated Net
Income,
<PAGE> 60
(a) all provisions for federal, state and other income tax for such
period, and (b) Interest Charges.
"ENDORSEMENT CONTRACTS" shall mean the Agreement dated March 1, 1993,
between the Acquired Company, and the Corporation for American Banking, a
subsidiary of the American Bankers Association, as amended, and similar
endorsement contracts between the Acquired Company or the Company, as the case
may be, and any state banking association pursuant to which the Acquired Company
or the Company, as the case may be, is appointed the exclusive supplier and
marketer of benefit and salary plans for financial institutions.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA AFFILIATE" shall mean any corporation which is a member of the
same controlled group of corporations as the Company within the meaning of
section 414(b) of the Code, or any trade or business which is under common
control with the Company within the meaning of section 414(c) of the Code.
"EVENT OF DEFAULT" shall mean any of the events specified in paragraph
7A, provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening of
any further condition, event or act, and "DEFAULT" shall mean any of such
events, whether or not any such requirement has been satisfied.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXISTING BANK FACILITY" shall mean the $2,000,000 line of credit made
available to the Company pursuant to that certain Line of Credit Agreement dated
as of March 28, 1996 between Comerica Bank-Texas and the Company.
"FIXED CHARGES" shall mean, with respect to any period, the sum of (i)
Interest Charges, (ii) Lease Rentals, and (iii) the aggregate amount of
principal payments on Indebtedness of the Company and its Subsidiaries made or
to be made during such period.
"FIXED CHARGES COVERAGE RATIO" shall mean, at any time, (i) prior to
September 30, 1998, the ratio of (a) the sum of Cash Flow and Lease Rentals for
the period commencing September 1, 1997 through such date, annualized in
accordance with accepted financial practice, to (b) Fixed Charges for such
period, annualized in accordance with accepted financial practice, and (ii) on
or after September 30, 1998, the ratio of (a) the sum of Cash Flow and Lease
Rentals for the four most recently ended fiscal quarters to (b) Fixed Charges
for the four most recently ended fiscal quarters.
<PAGE> 61
"GAAP" shall have the meaning specified in paragraph 10C.
"GENERAL AGENT'S CONTRACTS" shall mean the agreements between the
Company or the Acquired Company, as the case may be, and insurance companies for
the purpose of soliciting applications for insurance and recruiting producers to
solicit applications for insurance.
"GUARANTEE" shall mean, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing or in effect
guaranteeing (whether by reason of being a general partner of a partnership or
otherwise) any indebtedness, dividend or other obligation of any other Person in
any manner, whether directly or indirectly, including (without limitation)
obligations incurred through an agreement, contingent or otherwise, by such
Person:
(i) to purchase such indebtedness or obligation or any property
constituting security therefor;
(ii) to advance or supply funds (a) for the purchase or payment of
such indebtedness or obligation, or (b) to maintain any working capital or
other balance sheet condition or any income statement condition of any
other Person or otherwise to advance or make available funds for the
purchase or payment of such indebtedness or obligation;
(iii) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such indebtedness or
obligation of the ability of any other Person to make payment of the
indebtedness or obligation; or
(iv) otherwise to assure the owner of such indebtedness or obligation
against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the obligor
under any Guarantee, the indebtedness or other obligations that are the subject
of such Guarantee shall be assumed to be direct obligations of such obligor.
"INDEBTEDNESS" shall mean, with respect to any Person, at any time,
without duplication,
(i) its liabilities for borrowed money;
(ii) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the ordinary
course of business but including all liabilities created or arising under
any conditional sale or other title retention agreement with respect to any
such property);
<PAGE> 62
(iii) all liabilities appearing on its balance sheet in accordance
with GAAP in respect of Capital Leases;
(iv) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it has assumed
or otherwise become liable for such liabilities);
(v) all its liabilities in respect of letters of credit or instruments
serving a similar function issued or accepted for its account by banks and
other financial institutions (whether or not representing obligations for
borrowed money);
(vi) Swaps of such Person; and
(vii) any Guarantee of such Person with respect to liabilities of a
type described in any of clauses (i) through (vi) hereof.
Indebtedness of any Person shall include all obligations of such Person
of the character described in clauses (i) through (vii) to the extent such
Person remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP.
"INDEPENDENT ACCOUNTANT" shall mean Ernst & Young LLP or another "Big
Six" independent accounting firm selected by the Company.
"INSURANCE CONTRACTS" shall mean the Endorsement Contracts, the General
Agent's Contracts, the Producer's Contracts, the Representative Agreements and
the Servicing Agreements.
"INSURANCE LICENSES" shall mean any license, certificate of authority,
permit or other authorization granted to the Company by any governmental
authority to engage in any life insurance brokerage or agency business.
"INTEREST CHARGES" shall mean, with respect to any period, the sum
(without duplication) of the following (in each case, eliminating all offsetting
debits and credits between the Company and its Subsidiaries and all other items
required to be eliminated in the course of the preparation of consolidated
financial statements of the Company and its Subsidiaries in accordance with
GAAP): (i) all interest in respect of Indebtedness of the Company and its
Subsidiaries (including imputed interest on Capital Lease Obligations) deducted
in determining Consolidated Net Income for such period, and (ii) all debt
discount and expense amortized or required to be amortized in the determination
of Consolidated Net Income for such period.
"INTEREST COVERAGE RATIO" shall mean, at any time, (i) prior to
September 30, 1998, the ratio of (a) EBIT for the period commencing September 1,
1997 through such date, annualized in accordance with accepted financial
practice to (b) Interest Charges for such period, annualized in accordance with
accepted financial practice and (ii)
<PAGE> 63
on or after September 30, 1998, the ratio of (a) EBIT for the four immediately
preceding fiscal quarters to (b) Interest Charges for the four immediately
preceding fiscal quarters.
"INVESTMENT" shall have the meaning specified in paragraph 6G(4).
"LEASE RENTALS" shall mean, with respect to any period, the sum of the
minimum amount of rental and other obligations required to be paid during such
period by the Company or any Subsidiary as lessee under all leases of real or
personal property (other than Capital Leases), excluding any amounts required to
be paid by the lessee (whether or not therein designated as rental or additional
rental) which are on account of maintenance and repairs, insurance, taxes,
assessments, water rates and similar charges, but including any amounts required
to be paid by the lessee (whether or not therein designated as rental or
additional rental) which are based on profits, revenues or sales realized by the
lessee from the leased property or otherwise based on the performance of the
lessee.
"LETTERS OF INTENT" shall mean that certain memorandum dated August 29,
1997 from Richard Chapman to Jim Radosavich regarding "Continued Efforts and
Production of BCS Sale Representatives After the Merger" and that certain letter
dated September 4, 1996, from and Larry Hendrickson to Mel Todd regarding the
same.
"LIABILITIES" shall mean any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for taxes.
"LIEN" shall mean any mortgage, pledge, priority, security interest,
encumbrance, contractual deposit arrangement, lien (statutory or otherwise) or
charge of any kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any lease in the nature
thereof, and the filing of or agreement to give any financing statement under
the Uniform Commercial Code of any jurisdiction) or any other type of
preferential arrangement for the purpose, or having the effect, of protecting a
creditor against loss or securing the payment or performance of an obligation.
"LITIGATION" shall mean the shareholder derivative action described in the
Settlement Agreement.
"LOCKBOX ACCOUNTS" shall mean the joint lockbox accounts of the Company
and each of its Subsidiaries created pursuant to the Lockbox Agreements.
"LOCKBOX AGREEMENTS" shall mean those certain lockbox agreements
between the Collateral Agent and the Company and each of its Subsidiaries
creating a joint lockbox account with respect to commission fees and revenues
payable to the Acquired Company and a joint lockbox account with respect to
commission fees and revenues payable to the Company to be executed and delivered
pursuant to paragraph 5M, in form,
<PAGE> 64
scope and substance satisfactory to the holders of the Notes, as the same may be
amended, supplemented and otherwise modified from time to time.
"MEDIUM TERM NOTE" shall mean the secured promissory notes of the
Company in the aggregate principal amount of $5,700,000, upon terms and
conditions satisfactory in all respects to the holders of the Notes.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "MULTIEMPLOYER
PLAN" (as such term is defined in section 4001(a)(3) of ERISA).
"NON-COMPETE AGREEMENT" shall mean that certain Non-Compete and
Confidentiality Agreement, dated as of September 4, 1997, between the Company
and W.T. Wamberg.
"NOTES" shall have the meaning specified in paragraph 1A.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of
the Company by its President, one of its Vice Presidents or its Treasurer.
"ORDINARY COURSE OF BUSINESS" shall mean the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"PARTICIPATION RIGHTS AGREEMENT" shall mean the Participation Rights
Agreement, dated September 9, 1997, substantially in the form of Exhibit F
attached hereto, by and among the Purchasers, the Company and the holders of
Common Stock listed on Schedule I thereto, as the same may be amended,
supplemented or otherwise modified from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor entity.
"PERFECTION CERTIFICATE" shall mean the Perfection Certificate, dated
September 9, 1997 and executed and delivered by the Company to the holders of
the Notes, substantially in the form of Exhibit G to the Senior Note Agreement.
"PERSON" shall mean and include an individual, a partnership, a joint venture, a
corporation, a trust, a limited liability company, an unincorporated
organization and a government or any department or agency thereof.
"PLAN" shall mean any "EMPLOYEE PENSION BENEFIT PLAN" (as such term is
defined in section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or any ERISA
Affiliate.
<PAGE> 65
"PRODUCER'S CONTRACTS" shall mean the agreements entered into between
the Acquired Company or the Company, as the case may be, and insurance companies
for the procurement or submission of insurance policies and variable annuity
contracts.
"PROPOSED PREPAYMENT DATE" shall have the meaning specified in clause
(iii) of paragraph 4C.
"PUT RIGHTS AGREEMENT" shall mean that certain Put Rights Agreement,
dated as of September 9, 1997, by and among the Company and the Purchasers,
substantially in the form of Exhibit G attached hereto, as the same may be
amended, supplemented and otherwise modified from time to time.
"QPAM EXEMPTION" shall mean Prohibited Transaction Class Exemption
84-14 issued by the United States Department of Labor.
"QUALIFIED INSTITUTIONAL BUYER" shall mean a "QUALIFIED INSTITUTIONAL
BUYER" as such term is defined in Rule 144A under the Securities Act.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights
Agreement, dated September 9, 1997, substantially in the form of Exhibit H
attached hereto, by and between the Purchasers and the Company.
"REINCORPORATION MERGER" shall mean the merger of the Company with and
into a Wholly Owned Subsidiary which is a corporation incorporated in the State
of Delaware or such other state of the United States of America as may be
selected in good faith by the board of directors of the Company (provided that
such state of incorporation is one in which the presence of the holders of the
Notes as shareholders of the Company does not result in adverse legal
consequences under the laws of such state or any other jurisdiction in which the
survivor of such merger will conduct or proposes to conduct its business), is
the survivor of such merger and, prior to the consummation of the
Reincorporation Merger, possesses a nominal capitalization.
"REPRESENTATIVE AGREEMENTS" shall mean the agreements entered into
between the Acquired Company or the Company, as the case may be, and independent
representatives for the marketing of compensation and benefit plans to financial
institutions.
"REQUIRED HOLDER(S)" shall mean the holder or holders of at least
66-2/3% of the aggregate principal amount of the Notes from time to time
outstanding.
"RESPONSIBLE OFFICER" shall mean the chief executive officer, chief
operating officer, chief financial officer or chief accounting officer of the
Company or any other officer of the Company involved principally in its
financial administration or its controllership function.
<PAGE> 66
"RESTRICTED PAYMENT" shall mean (i) the declaration of any dividend on,
or the incurrence of any liability to make any other payment or distribution in
respect of any capital stock or equity equivalent (except, in the case of a
Subsidiary, dividends or other payments or distributions in respect of its
capital stock or equity to the Company or a Wholly Owned Subsidiary) or (ii) the
distribution on account of the purchase, redemption or other retirement of any
such capital stock or equity equivalent (except, in the case of a Subsidiary,
purchases, redemptions or other retirements of its capital stock from the
Company or a Wholly Owned Subsidiary). "RESTRICTED PAYMENT" shall not include
(a) any of the Share Repurchases, (b) so long as no Default or Event of Default
exists prior thereto or would exist immediately after giving effect thereto, the
AAA Distribution and, for any tax period during which the Company is an S
corporation, quarterly S Corporation Tax Distributions to shareholders of the
Company solely to satisfy the income tax liability of such shareholders with
respect to taxable income of the Company for such period, (c) so long as no
Default or Event of Default exists prior thereto or would exist immediately
after giving effect thereto, redemptions of Common Stock pursuant to the
Shareholders' Agreement which are not payable with life insurance proceeds as
provided in Section 6 of the Shareholders' Agreement, provided that the
aggregate, cumulative amount of such redemptions may not exceed $1,000,000, (d)
after receipt of the life insurance proceeds with respect thereto, redemptions
of Common Stock pursuant to the Shareholders' Agreement which are payable with
life insurance proceeds as provided in Section 6 of the Shareholders' Agreement,
(e) the incurrence of any liability to make any payment or distribution in
respect of the phantom stock issued pursuant to the Cochlan Phantom Stock
Agreement as in effect on the Date of Closing and (f) the distribution on
account of the purchase, redemption or other retirement of the phantom stock
issued pursuant to the Cochlan Phantom Stock Agreement as in effect on the Date
of Closing.
"REVENUE MAINTENANCE EVENT" shall mean the occurrence of either (i) an
event in which W.T. Wamberg is no longer a principal of the Company, (ii) prior
to September 30, 1998, an event in which gross revenues (net of commission
expenses) of the Company and its Subsidiaries for the four immediately preceding
fiscal quarters (consisting of actual gross revenues (net of commission
expenses) for fiscal quarters ending after September 30, 1997 and pro forma
gross revenues (net of commission expenses) (giving effect to the Acquisition
and the Share Repurchases) for fiscal quarters ending prior to or on September
30, 1997) do not exceed $16,000,000, or (iii) on or after September 30, 1998, an
event in which gross revenues (net of commission expenses) of the Company and
its Subsidiaries for the four immediately preceding fiscal quarters do not
exceed $16,000,000.
"S CORPORATION" shall mean an S corporation described Section
1361(a)(1) of the Code.
"S CORPORATION TAX DISTRIBUTIONS" shall mean distributions by the
Company to its shareholders solely to satisfy the income tax liability of such
shareholders
<PAGE> 67
with respect to the taxable income of the Company for tax periods in which the
Company is an S Corporation.
"SALE-LEASEBACK TRANSACTION" shall have the meaning specified in
paragraph 6G(9).
"SECOND PRIORITY NOTE DOCUMENTS" shall mean this Agreement, the Notes,
the Warrants, the Participation Rights Agreement, the Registration Rights
Agreement, the Put Rights Agreement, the Security Documents and all other
instruments, certificates, documents and other writings now or hereafter
executed and delivered by the Company or any other Person pursuant to or in
connection with any of the foregoing or any of the transactions contemplated
thereby, and any and all amendments, supplements and other modifications to any
of the foregoing.
"SECURITIES" shall mean the Notes and the Warrants.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SECURITY AGREEMENTS" shall mean the Security Agreement, dated as of
the Date of Closing and executed and delivered by the Company to the Collateral
Agent, substantially in the form of Exhibit H attached to the Senior Note
Agreement, and all security agreements hereafter executed by any Subsidiary as
contemplated under paragraph 6Q, as each may be amended, supplemented and
otherwise modified from time to time.
"SECURITY DOCUMENTS" shall mean the Security Agreements, the Collateral
Agency Agreement, the Lockbox Agreements and the Collateral Assignment of
Deposit Accounts and all financing statements, assignments, pledges, lien entry
forms, documents and other writings executed and delivered from time to time to
secure the Notes and the obligations owed to the holders of Notes in connection
therewith (including, without limitation those executed and delivered pursuant
to paragraph 6Q) , and any and all amendments, supplements and other
modifications thereto.
"SELLER NOTES" shall mean the Medium Term Notes and the Convertible
Subordinated Notes.
"SENIOR NOTE AGREEMENT" shall mean the Note Agreement, dated of even
date herewith, by and between the Purchasers and the Company, providing for the
issuance, sale and purchase of the Senior Notes, as the same may be amended,
supplemented and otherwise modified from time to time.
"SENIOR NOTE DOCUMENTS" shall mean the Senior Note Agreement, the
Senior Notes, the Security Documents and all other instruments, certificates,
documents and other writings now or hereafter executed and delivered by the
Company, any Subsidiary or any other Person pursuant to or in connection with
any of the foregoing or
<PAGE> 68
any of the transactions contemplated thereby, and any and all amendments,
supplements and other modifications to any of the foregoing.
"SENIOR NOTES" shall mean the Senior Secured Notes due 2002 of the
Company, dated of even date with the Notes, issued and sold to the Purchasers on
the Date of Closing pursuant to the Senior Note Agreement.
"SERVICING AGREEMENTS" shall mean the servicing agreements between the
Acquired Company or the Company, as the case may be, and insureds with respect
to the servicing of insurance contracts.
"SETTLEMENT AGREEMENT" shall mean that certain Clark/Bardes,
Inc./Cochlan Group Settlement Agreement, dated as of August 22, 1997, by and
among the Company, the Wamberg Group and the Cochlan Group (each as defined
therein), as the same may be amended, supplemented and otherwise modified from
time to time.
"SHARE REPURCHASES" shall mean the share repurchases contemplated under
the Share Repurchase Agreements.
"SHARE REPURCHASE AGREEMENTS" shall mean that certain Stock Purchase
Agreement dated as of August 22, 1997 entered into between the Company and
Malcolm N. Briggs, Steven J. Cochlan, G.F. Pendleton, III and Donald R. Teasley
and the certain Stock Purchase Agreement dated as of August 22, 1997 between the
Company and Henry J. Smith, as the same may be amended, supplemented and
otherwise modified from time to time.
"SHARE REPURCHASE DOCUMENTS" shall mean the Share Repurchase Agreements
and all other written agreements, documents, instruments and certificates now or
hereafter executed and delivered by any Person which are required by the terms
of either of the Share Repurchase Agreements to be delivered to consummate the
Share Repurchases, and any and all amendments, supplements and other
modifications thereof and all renewals, extensions, restatements or
substitutions from time to time of all or any of the foregoing.
"SHAREHOLDER NOTES" shall mean (a) the unsecured, subordinated
promissory notes of the Company in an aggregate principal amount of $837,943
issued as partial consideration for the Share Repurchases, upon terms and
conditions and subject to documentation satisfactory in all respects to the
holders of the Notes, (b) the AAA Distribution Notes and (c) the unsecured,
subordinated promissory notes of the Company in an aggregate principal amount of
$337,042 issued to H.J. Smith as partial consideration for the Share Repurchase
effected pursuant to the Share Repurchase Agreement to which H.J. Smith is a
party.
"SHAREHOLDERS' AGREEMENT" shall mean that certain Second Amended and
Restated Shareholders' Agreement and Voting Agreement dated as of August 22,
1997, by
<PAGE> 69
and among the Company and the individuals parties thereto, as the same
may be amended, supplemented and otherwise modified from time to time.
"SOLVENT" shall mean, with respect to any Person as of the date of any
determination, that on such date (a) the fair value of the property of such
Person (both at fair valuation and at present fair saleable value) is greater
than the total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (d) such Person does not intend to, and
does not believe that it will, incur debts or liabilities beyond such Person's
ability to pay as such debts and liabilities mature and (e) such Person is not
engaged in business or a transaction, and is not about to engage in business or
a transaction, for which such Person's property would constitute unreasonably
small capital after giving due consideration to current and anticipated future
capital requirements and current and anticipated future business conduct and the
prevailing practice in the industry in which such Person is engaged. In
computing the amount of contingent liabilities at any time, such liabilities
shall be computed at the amount which, in light of the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"SPECIAL AUDIT" shall mean those certain agreed procedure letters
prepared by Ernst & Young LLP each dated August 27, 1997 with respect to Renewal
Commission and Renewal Fee Schedules of the Company and Renewal and Service Fee
Income Schedules of the Acquired Company as described therein.
"SUBORDINATED DEBT" shall mean the Convertible Subordinated Notes and
the Shareholder Notes.
"SUBSIDIARY" shall mean, as to any Person, any corporation, association
or other business entity in which such Person or one or more of its Subsidiaries
or such Person and one or more of its Subsidiaries owns sufficient equity or
voting interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"SUBSIDIARY" is a reference to a Subsidiary of the Company.
"SWAPS" shall mean with respect to any Person, payment obligations with
respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments, whether periodically or upon the
happening of a contingency.
<PAGE> 70
For the purposes of this Agreement, the amount of the obligation under any Swap
shall be the amount determined in respect thereof as of the end of the then most
recently ended fiscal quarter of such Person, based on the assumption that such
Swap had terminated at the end of such fiscal quarter, and in making such
determination, if any agreement relating to such Swap provides for the netting
of amounts payable by and to such Person thereunder or if any such agreement
provides for the simultaneous payment of amounts by and to such Person, then in
each such case, the amount of such obligation shall be the net amount so
determined.
"TAX ADVISORY MEMORANDUM" shall mean the memorandum of Ernst & Young
LLP received prior to the Date of Closing by the Company relating to (i) the
ability of the Company to obtain a "stepped up" basis in the intangible assets
of the Acquired Company equal to the amount the Company pays for such assets,
and (ii) the ability of the Company to amortize, for federal income tax
purposes, the cost basis of such intangible assets.
"TAX RETURN" shall mean any return, declaration, report, claim for
refund, or information return or statement relating to taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"TERMINATION EVENT" shall mean (i) a Reportable Event described in
Section 4043 of ERISA and the regulations issued thereunder (other than a
Reportable Event not subject to the provision for 30-day notice to the PBGC
under such regulations), or (ii) the withdrawal of the Company or any of its
ERISA Affiliates from a Plan during a plan year in which it was a "SUBSTANTIAL
EMPLOYER" as defined in Section 4001(a)(2) of ERISA, or (iii) the filing of a
notice of intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, or (iv) the institution of proceedings
to terminate a Plan by the PBGC, or (v) any other event or condition that might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan.
"TOTAL DEBT" shall mean, at any time, the Indebtedness represented by
the Notes and the Senior Notes.
"TRANSFEREE" shall mean any direct or indirect transferee of all or any
part of any Note or Warrant purchased by any Purchaser under this Agreement.
"TRIBUNAL" shall mean any municipal, state, commonwealth, federal,
foreign, territorial or other sovereign, governmental entity, governmental
department, court, commission, board, bureau, agency or instrumentality.
"VENDORS' CONTRACTS" shall mean obligations of continued performance
under executory vendor purchase orders for the purchase of supplies, equipment
or services entered into
<PAGE> 71
in the Ordinary Course of Business and under which the supplies, equipment or
services subject thereto have not been received by the Acquired Company prior to
the closing of the Acquisition.
"WARRANTS" shall have the meaning specified in paragraph 1B.
"WHOLLY OWNED SUBSIDIARY" shall mean any Subsidiary all of the equity
interests (except directors' qualifying shares) of which are owned, directly or
indirectly, by the Company or other Wholly Owned Subsidiaries.
"WORKING CAPITAL NOTE DOCUMENTS" shall mean the Working Capital Notes
and all other written agreements, documents, instruments and certificates now or
hereafter executed and delivered by any Person in connection with the revolving
working capital facility described in paragraph 5S, and any and all amendments,
supplements and other modifications thereof and all renewals, extensions,
restatements or substitutions from time to time of all or any of the foregoing.
"WORKING CAPITAL NOTES" shall mean the promissory notes evidencing the
Indebtedness incurred pursuant to the revolving working capital facility
described in paragraph 5S.
C. ACCOUNTING PRINCIPLES, TERMS AND DETERMINATIONS. All references in this
Agreement to "GAAP" shall be deemed to refer to generally accepted accounting
principles in effect in the United States at the time of application thereof.
Unless otherwise specified herein, all accounting terms used herein shall be
interpreted, all determinations with respect to accounting matters hereunder
shall be made, and all unaudited financial statements and certificates and
reports as to financial matters required to be furnished hereunder shall be
prepared, in accordance with generally accepted accounting principles, applied
on a basis consistent with the most recent audited consolidated financial
statements of the Company and its Subsidiaries delivered pursuant to clause (ii)
of paragraph 5A or, if no such statements have been so delivered, the most
recent audited financial statements referred to in clause (a) of paragraph 8B.
Wherever reference is made in any provision of this Agreement to a consolidated
balance sheet or other consolidated financial statement or financial computation
with respect to the Company and its Subsidiaries, if at the time that any such
provision is applicable the Company shall not have any Subsidiary, such terms
shall mean a balance sheet or other financial statement or financial
computation, as the case may be, with respect to the Company only.
11. MISCELLANEOUS.
A. NOTE PAYMENTS. So long as any Purchaser shall hold any Note, the
Company will make payments of principal of and interest on such Note, which
comply
<PAGE> 72
with the terms of this Agreement, by wire transfer of immediately available
funds for credit (not later than 12:00 noon, New York City time, on the date
due) to such Purchaser's account or accounts as specified in the Purchaser
Schedule attached hereto, or such other account or accounts in the United States
as such Purchaser may designate in writing, notwithstanding any contrary
provision herein or in any Note with respect to the place of payment. Each
Purchaser agrees that, before disposing of any Note, such Purchaser will make a
notation thereon (or on a schedule attached thereto) of all principal payments
previously made thereon and of the date to which interest thereon has been paid.
The Company agrees to afford the benefits of this paragraph 11A to any
Transferee which shall have made the same agreement as each Purchaser has made
in this paragraph 11A.
B. EXPENSES. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save each Purchaser, any
Transferee and the Collateral Agent harmless against liability for the payment
of, all out-of-pocket expenses arising in connection with such transactions,
including (i) all document production and duplication charges and the fees and
expenses of any special counsel engaged by such Purchaser, such Transferee or
the Collateral Agent in connection with this Agreement, the transactions
contemplated hereby and any subsequent proposed modification of, or proposed
consent under, this Agreement or the other Second Priority Note Documents,
whether or not such proposed modification shall be effected or proposed consent
granted, and (ii) the costs and expenses, including attorneys' fees, incurred by
such Purchaser, such Transferee or the Collateral Agent in enforcing (or
determining whether or how to enforce) any rights under this Agreement, the
Securities or the other Second Priority Note Documents or in responding to any
subpoena or other legal process or informal investigative demand issued in
connection with this Agreement, the other Second Priority Note Documents or the
transactions contemplated hereby or thereby, or by reason of such Purchaser's or
such Transferee's having acquired any Note or Warrant, including without
limitation costs and expenses incurred in any bankruptcy case. The obligations
of the Company under this paragraph 11B shall survive the transfer of any Note
or Warrant or portion thereof or interest therein by such Purchaser or any
Transferee, the payment of any Note or Warrant, the enforcement, amendment or
waiver of any provision of this Agreement or the other Second Priority Note
Documents, and the termination of this Agreement or any of the other Second
Priority Note Documents.
C. CONSENT TO AMENDMENTS. This Agreement and any of the other Second
Priority Note Documents may be amended, and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, if the Company shall obtain the written consent to such amendment, action or
omission to act, of the Required Holder(s) except that, without the written
consent of the holder or holders of all Notes at the time outstanding, no
amendment to this Agreement shall change the maturity of any Note, or change the
principal of, or the rate or time of payment of interest on any Note, or affect
the time, amount or allocation of any prepayments, or change the proportion of
the principal amount of the Notes required with respect to any consent,
amendment, waiver or declaration. Each holder of any Securities at the time or
thereafter outstanding shall be bound by any consent authorized by this
paragraph 11C, whether or
<PAGE> 73
not such Securities shall have been marked to indicate such consent, but any
Securities issued thereafter may bear a notation referring to any such consent.
No course of dealing between the Company and the holder of any Securities nor
any delay in exercising any rights hereunder or under any Securities shall
operate as a waiver of any rights of any holder of such Securities. As used
herein and in the Securities, the term "THIS AGREEMENT" and references thereto
shall mean this Agreement as it may from time to time be amended or
supplemented.
D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES. The
Notes are issuable as registered notes without coupons in denominations of at
least $100,000, except as may be necessary to reflect any principal amount not
evenly divisible by $100,000. The Company shall keep at its principal office a
register in which the Company shall provide for the registration of Notes and of
transfers of Notes. Upon surrender for registration of transfer of any Note at
the principal office of the Company, the Company shall, at its expense, execute
and deliver one or more new Notes of like tenor and of a like aggregate
principal amount, registered in the name of such transferee or transferees. At
the option of the holder of any Note, such Note may be exchanged for other Notes
of like tenor and of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Note to be exchanged at the principal office of
the Company. Whenever any Notes are so surrendered for exchange, the Company
shall, at its expense, execute and deliver the Notes which the holder making the
exchange is entitled to receive. Every Note surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the holder of such Note or such
holder's attorney duly authorized in writing. Any Note or Notes issued in
exchange for any Note or upon transfer thereof shall carry the rights to unpaid
interest and interest to accrue which were carried by the Note so exchanged or
transferred, so that neither gain nor loss of interest shall result from any
such transfer or exchange. Upon receipt of written notice from the holder of any
Note of the loss, theft, destruction or mutilation of such Note and, in the case
of any such loss, theft or destruction, upon receipt of such holder's unsecured
indemnity agreement, or in the case of any such mutilation upon surrender and
cancellation of such Note, the Company will make and deliver a new Note, of like
tenor, in lieu of the lost, stolen, destroyed or mutilated Note. Any Transferee,
by its acceptance of a Note registered in its name (or the name of its nominee),
shall be deemed to have made the representations set forth in paragraphs 9A and
9B.
E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment for
registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of and interest on such Note and for all other
purposes whatsoever, whether or not such Note shall be overdue, and the Company
shall not be affected by notice to the contrary. Subject to the preceding
sentence, the holder of any Note may from time to time grant participations in
such Note to any Person on such terms and conditions as may be determined by
such holder in its sole and absolute discretion, provided that any such
participation shall be in a principal amount of at least $100,000 and
<PAGE> 74
each holder of a Note hereby agrees that, so long as no Event of Default shall
have occurred and be continuing, it will grant participations only to Qualified
Institutional Buyers which are believed by such holder, after reasonable
inquiry, not to be Competitors.
F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All
representations and warranties contained herein or in the other Second Priority
Note Documents or otherwise made in writing by or on behalf of the Company in
connection herewith and therewith shall survive the execution and delivery of
this Agreement, the Notes, the Warrants and the other Second Priority Note
Documents, the transfer by any Purchaser of any Note or Warrant or portion
thereof or interest therein and the payment of any Note, and may be relied upon
by any Transferee, regardless of any investigation made at any time by or on
behalf of any Purchaser or any Transferee. Subject to the preceding sentence,
this Agreement, the Notes, the Warrants and the other Second Priority Note
Documents embody the entire agreement and understanding between the Purchasers
and the Company and supersede all prior agreements and understandings relating
to the subject matter hereof.
G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in this
Agreement contained by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee) whether so expressed or
not; provided, however, that each holder of a Note hereby agrees that, so long
as no Event of Default shall have occurred and be continuing, it will transfer
its Notes only to Qualified Institutional Buyers which are believed by such
holder, after reasonable inquiry, not to be Competitors.
H. DISCLOSURE TO OTHER PERSONS. The Company acknowledges that the holder
of any Note or Warrant may deliver copies of any financial statements and other
documents or materials delivered to such holder, and disclose any other
information disclosed to such holder, by or on behalf of the Company or any
Subsidiary in connection with or pursuant to this Agreement and the other Second
Priority Note Documents to (i) such holder's directors, officers, employees,
agents and professional consultants, (ii) any other holder of any Note or
Warrant, (iii) any Person to which such holder offers to sell such Note or
Warrant or any part thereof and to which such holder could then transfer such
Note or Warrant pursuant to paragraph 11G, (iv) any Person to which such holder
sells or offers to sell a participation in all or any part of such Note or
Warrant and to which such holder could then sell such participation pursuant to
paragraph 11F, (v) any Person from which such holder offers to purchase any
security of the Company and to which such holder could then transfer such Note
or Warrant pursuant to paragraph 11G, (vi) any federal or state regulatory
authority having jurisdiction over such holder, (vii) the National Association
of Insurance Commissioners or any similar organization or (viii) any other
Person to which such delivery or disclosure may be necessary or appropriate (a)
in compliance with any law, rule, regulation or order applicable to such holder,
(b) in response to any subpoena or other legal process or informal investigative
demand or (c) in connection with any litigation to which such holder is a party.
<PAGE> 75
I. NOTICES. All notices or other communications provided for hereunder
(except for the telephonic notice required by paragraph 4B) shall be in writing
and sent by first class mail or nationwide overnight delivery service (with
charges prepaid) and (i) if to any Purchaser, addressed to such Purchaser at the
address specified for such communications in the Purchaser Schedule attached
hereto, or at such other address as such Purchaser shall have specified to the
Company in writing, (ii) if to any other holder of any Note or Warrant,
addressed to such other holder at such address as such other holder shall have
specified to the Company in writing or, if any such other holder shall not have
so specified an address to the Company, then addressed to such other holder in
care of the last holder of such Note or Warrant which shall have so specified an
address to the Company, and (iii) if to the Company, addressed to it at 2121 San
Jacinto, Suite 2200, Dallas, Texas 75201, Attention: Mel Todd or at such other
address as the Company shall have specified to the holder of each Note or
Warrant in writing; provided, however, that any such communication to the
Company may also, at the option of the holder of any Note or Warrant, be
delivered by any other means either to the Company at its address specified
above or to any officer of the Company.
J. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the
Notes to the contrary notwithstanding, any payment of principal of or interest
or Yield Maintenance Amount, if any, on any Note that is due on a date other
than a Business Day shall be made on the next succeeding Business Day. If the
date for any payment is extended to the next succeeding Business Day by reason
of the preceding sentence, the period of such extension shall be included in the
computation of the interest payable on such Business Day.
K. SATISFACTION REQUIREMENT. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to any Purchaser, the holders of the Notes or to the
Required Holder(s), the determination of such satisfaction shall be made by such
Purchaser, the holders of the Notes or the Required Holder(s), as the case may
be, in the sole and exclusive judgment (exercised in good faith) of the Person
or Persons making such determination.
L. GOVERNING LAW. THIS AGREEMENT AND ALL MATTERS RELATING HERETO SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL
BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK. This Agreement may not be
changed orally, but (subject to the provisions of paragraph 11C) only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
M. WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION; LIMITATION OF REMEDIES.
a) THE COMPANY AND EACH HOLDER OF SECURITIES EACH HEREBY KNOWINGLY,
VOLUNTARILY, AND
<PAGE> 76
INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN ANY
LITIGATION OF ANY CLAIM WHICH IS BASED HEREON, OR ARISES OUT OF, UNDER, OR
IN CONNECTION WITH THIS AGREEMENT, THE NOTES, THE WARRANTS OR THE OTHER
SECOND PRIORITY NOTE DOCUMENTS, OR ANY TRANSACTIONS RELATING HERETO OR
THERETO, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
ORAL OR WRITTEN), OR ACTIONS OF THE COMPANY, THE HOLDERS OF THE SECURITIES
OR THE COLLATERAL AGENT. THE COMPANY ACKNOWLEDGES THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE PURCHASERS TO ENTER INTO THIS AGREEMENT.
b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE
NOTES, THE WARRANTS, THE OTHER SECOND PRIORITY NOTE DOCUMENTS OR ANY
TRANSACTIONS RELATING HERETO OR THERETO, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF THE
COMPANY, THE HOLDERS OF SECURITIES OR THE COLLATERAL AGENT MAY BE BROUGHT
IN THE COURTS OF THE STATE OF NEW YORK, OR THE UNITED STATES OF AMERICA FOR
THE SOUTHERN DISTRICT OF NEW YORK AND THE COMPANY HEREBY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE COMPANY AND EACH
HOLDER OF SECURITIES EACH HEREBY IRREVOCABLY WAIVES ANY OBJECTIONS,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR
BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS.
c) The Company hereby agrees that process may be served on CT Corporation
System, Inc., located at 1633 Broadway, New York, New York 10019. Any and
all service of process and any other notice in any such action, suit or
proceeding shall be effective against such parties if given by registered
or certified mail, return receipt requested, or by any other means or mail
which requires a signed receipt, postage prepaid, mailed to such parties as
herein provided in paragraph 11I. In the event CT Corporation System, Inc.
shall not be able to accept service of process as aforesaid and if the
Company shall not maintain an office in New York City, the Company shall
promptly appoint and maintain an agent qualified to act as an agent for
service of process with respect to all courts in and of the New York City,
and acceptable to the Required Holder(s), as the Company's authorized agent
to accept and acknowledge on the Company's behalf service of any and all
process which may be served in any such action, suit or proceeding.
<PAGE> 77
N. INDEMNIFICATION. The Company agrees:
(i) TO INDEMNIFY EACH HOLDER OF SECURITIES AND EACH OF THEIR
AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES, SHAREHOLDERS,
REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS ("INDEMNIFIED
PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST AND PROMPTLY UPON DEMAND
PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY MATTERS WHICH MAY BE
INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR NOT ANY
OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR IN
ANY WAY RELATED TO (I) ANY ACTUAL OR PROPOSED USE BY THE COMPANY OF THE
PROCEEDS OF THE SECURITIES, (II) THE EXECUTION, DELIVERY AND PERFORMANCE OF
THIS AGREEMENT AND THE OTHER SECOND PRIORITY NOTE DOCUMENTS, (III) THE
OPERATIONS OF THE BUSINESS OF THE COMPANY AND ITS SUBSIDIARIES, (IV) THE
FAILURE OF COMPANY OR ANY OF ITS SUBSIDIARIES TO COMPLY WITH THE TERMS OF
THIS AGREEMENT OR ANY OF THE OTHER SECOND PRIORITY NOTE DOCUMENTS OR WITH
ANY GOVERNMENTAL REQUIREMENT, (V) ANY INACCURACY OF ANY REPRESENTATION OR
ANY BREACH OF ANY WARRANTY OF THE COMPANY OR ANY OF ITS SUBSIDIARIES SET
FORTH IN THIS AGREEMENT OR ANY OTHER SECOND PRIORITY NOTE DOCUMENT, (VI)
ANY ASSERTION THAT THE COMPANY WAS NOT ENTITLED TO RECEIVE THE PROCEEDS
RECEIVED PURSUANT TO THIS AGREEMENT AND THE OTHER SECOND PRIORITY NOTE
DOCUMENTS, (VII) THE ISSUE OR EXERCISE OF THE WARRANTS (INCLUDING, WITHOUT
LIMITATION, ANY EFFECT OF SUCH EXERCISE UPON THE COMPANY'S STATUS AS AN S
CORPORATION AND ANY EFFECT OF SUCH EXERCISE UPON ANY INSURANCE LICENSE OF
THE COMPANY OR ANY SHAREHOLDER, DIRECTOR, OFFICER OR EMPLOYEE THEREOF) OR
(VIII) ANY OTHER ASPECT OF THE SECOND PRIORITY NOTE DOCUMENTS, INCLUDING,
WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL AND
ALL OTHER EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR
PREPARING TO DEFEND ANY SUCH ACTION, SUIT, PROCEEDING (INCLUDING ANY
INVESTIGATIONS, LITIGATIONS OR INQUIRIES) OR CLAIM AND INCLUDING ALL
INDEMNITY MATTERS ARISING BY REASON OF THE ORDINARY NEGLIGENCE OF ANY
INDEMNIFIED PARTY (EXCEPT AS TO THE EXTENT ANY SUCH INDEMNITY MATTERS HAVE
BEEN CAUSED BY THE GROSS
<PAGE> 78
NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY, IT BEING THE
INTENT OF THE PARTIES THAT EACH INDEMNIFIED PARTY SHALL BE INDEMNIFIED FROM
INDEMNITY MATTERS CAUSED BY THE NEGLIGENCE, WHETHER SOLE, JOINT,
CONCURRENT, CONTRIBUTORY, ACTIVE OR PASSIVE, OF SUCH INDEMNIFIED PARTY);
AND
(ii) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES
NOTWITHSTANDING THE NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER,
WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION,
INCLUDING, WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN
THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNIFIED PARTIES
OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE
OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED PARTY
COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, THIS
CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY
EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY
REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
THE INDEMNIFIED PARTY.
(iii) THE COMPANY AND ITS SUBSIDIARIES AGREE NOT TO ASSERT ANY CLAIM
AGAINST THE HOLDER OF ANY SECURITIES, ANY OF THEIR AFFILIATES, OR ANY OF
THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS, AGENTS AND
ADVISERS, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL
OR PUNITIVE DAMAGES ARISING OUT OF OR OTHERWISE RELATING TO THE SECOND
PRIORITY NOTE DOCUMENTS, ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR
THEREIN OR THE ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE SECURITIES.
(iv) The obligations of the Company and its Subsidiaries under this
paragraph 11N shall survive the termination of this Agreement and the
payment in full of the Notes and all other amounts payable hereunder.
O. RELEASE. THE COMPANY AND ITS SUBSIDIARIES EACH HEREBY RELEASE,
DISCHARGE AND ACQUIT FOREVER THE HOLDERS OF THE SECURITIES AND THEIR RESPECTIVE
OFFICERS, DIRECTORS, AGENTS, EMPLOYEES AND COUNSEL FROM ANY AND ALL CLAIMS
EXISTING AS OF THE DATE HEREOF. AS USED IN THIS
<PAGE> 79
PARAGRAPH 11O, THE TERM "CLAIM" SHALL MEAN ANY AND ALL LIABILITIES, CLAIMS,
JUDGMENTS, DEFICIENCIES, INTEREST, LIENS, COSTS OR EXPENSES (INCLUDING COURT
COSTS, PENALTIES, ATTORNEYS' FEES AND DISBURSEMENTS, AND AMOUNTS PAID IN
SETTLEMENT) OF ANY KIND AND CHARACTER WHATSOEVER, IN EACH CASE WHETHER NOW KNOWN
OR UNKNOWN, SUSPECTED OR UNSUSPECTED, ASSERTED OR UNASSERTED OR PRIMARY OR
CONTINGENT, AND WHETHER ARISING OUT OF WRITTEN DOCUMENTS, UNWRITTEN UNDERTAKINGS
OR COURSE OF CONDUCT.
P. RELATIONSHIP OF THE PARTIES. This Agreement provides for (a) the making
of loans by the Purchasers, in their capacity as lenders, to the Company, in its
capacity as a borrower, and for the payment of interest and Yield Maintenance
Amount, if any, and repayment of principal by the Company to the holders of the
Notes and (b) the sale of Warrants by the Company to the Purchasers. The
relationship between the Purchasers and the Company is limited to that of
creditors/secured parties/warrant holders, on the one hand, and debtor/issuer of
warrants, on the other hand. The provisions herein for compliance with
financial, environmental, and other covenants, delivery of financial and other
reports, and financial and other inspections, investigations, audits,
examinations or tests are intended solely for the benefit of the holders of the
Securities to protect their interests as lenders and warrant holders in assuring
payments of interest and Yield Maintenance Amount, if any, and repayment of
principal and the maintenance of the underlying value of the Warrants and
nothing contained in this Agreement or any other Second Priority Note Document
shall be construed as permitting or obligating the holders of the Notes to act
as financial or business advisors or consultants to the Company, as permitting
or obligating the holders of the Securities to control the Company or to conduct
or operate the Company's operations, as creating any fiduciary obligation on the
part of the holders of the Securities to the Company, or as creating any joint
venture, agency, or other relationship between the parties other than as
explicitly and specifically stated in this Agreement. The Company acknowledges
that it has had the opportunity to obtain the advice of experienced counsel of
its own choosing in connection with the negotiation and execution of this
Agreement and the other Second Priority Note Documents and to obtain the advice
of such counsel with respect to all matters contained herein, including, without
limitation, the provision in paragraph 11M for waiver of trial by jury. The
Company further acknowledges that it is experienced with respect to financial
and credit matters and has made its own independent decision to apply to the
Purchasers for the financial accommodations provided hereby and to execute and
deliver this Agreement and the other Second Priority Note Documents.
Q. FINAL AGREEMENT. THIS AGREEMENT AND THE OTHER SECOND PRIORITY NOTE
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT
OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.
<PAGE> 80
R. CONSTRUCTION. The Purchasers and the Company have participated jointly
in the negotiation and drafting of this Agreement and the other Second Priority
Note Documents. In the event an ambiguity or question of intent or
interpretation arises, this Agreement or other Second Priority Note Document, as
the case may be, shall be construed as if drafted jointly by the Purchasers and
the Company and no presumption or burden of proof shall arise favoring or
disfavoring any Purchaser or the Company by virtue of the authorship of any of
the provisions of this Agreement or such other Second Priority Note Document, as
the case may be.
S. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
T. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
U. MAXIMUM INTEREST PAYABLE. The Company, each Purchaser and any other
holders of the Notes specifically intend and agree to limit contractually the
amount of interest payable under this Agreement, the Notes and all other
instruments and agreements related hereto and thereto to the maximum amount of
interest lawfully permitted to be charged under applicable law. Therefore, none
of the terms of this Agreement, the Notes or any instrument pertaining to or
relating to this Agreement or the Notes shall ever be construed to create a
contract to pay interest at a rate in excess of the maximum rate permitted to be
charged under applicable law, and neither the Company, any guarantor nor any
other party liable or to become liable hereunder, under the Notes, any guaranty
or under any other instruments and agreements related hereto and thereto shall
ever be liable for interest in excess of the amount determined at such maximum
rate, and the provisions of this paragraph 11U shall control over all other
provisions of this Agreement, any Notes, any guaranty or any other instrument
pertaining to or relating to the transactions herein contemplated. If any amount
of interest taken or received by any Purchaser or any holder of a Note shall be
in excess of said maximum amount of interest which, under applicable law, could
lawfully have been collected by such Purchaser or such holder incident to such
transactions, then such excess shall be deemed to have been the result of a
mathematical error by all parties hereto and shall be refunded promptly by the
Person receiving such amount to the party paying such amount, or, at the option
of the recipient, credited ratably against the unpaid principal amount of the
Note or Notes held by such Purchaser or such holder, respectively. All amounts
paid or agreed to be paid in connection with such transactions which would under
applicable law be deemed "INTEREST" shall, to the extent permitted by such
applicable law, be amortized, prorated, allocated and spread throughout the
stated term of this Agreement and the Notes. "APPLICABLE LAW" as used in this
paragraph means that law in effect from time to time which permits the
<PAGE> 81
charging and collection of the highest permissible lawful, nonusurious rate of
interest on the transactions herein contemplated including laws of the State of
New York and of the United States of America, and "MAXIMUM RATE" as used in this
paragraph means, with respect to each of the Notes, the maximum lawful,
nonusurious rates of interest (if any) which under applicable law may be charged
to the Company from time to time with respect to such Notes.
V. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument.
W. SEVERALTY OF OBLIGATIONS. The sales of the Securities to the Purchasers
are to be several sales, and the obligations of the Purchasers under this
Agreement are several obligations. Except as provided in paragraph 3K, no
failure by any Purchaser to perform its obligations under this Agreement shall
relieve any other Purchaser or the Company of any of its obligations hereunder,
and no Purchaser shall be responsible for the obligations of, or any action
taken or omitted by, any other Purchaser hereunder.
X. ADJUSTMENTS RELATED TO NUMBER OF SHARES OF COMMON STOCK. Without in any
manner affecting the adjustment of the exercise price of the Warrants as
provided therein, in the event of any change in the number of outstanding shares
of Common Stock subsequent to the Date of Closing whether by combination,
consolidation, reclassification, stock split or otherwise, the parties hereto
agree to make appropriate adjustments, to references to numbers of shares of
Common Stock contained herein and execute amendments to this Agreement (in form,
scope and substance satisfactory to the holders of the Notes) to reflect the
same.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
<PAGE> 82
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterparts of this letter and return the same to
the Company, whereupon this letter shall become a binding agreement among the
Company and the Purchasers.
Very truly yours,
CLARK/BARDES, INC.
By:
Title:
The foregoing Agreement is
hereby accepted as of the
date first above written.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
By:
Title:
By:
Title:
LIFE INVESTORS INSURANCE
COMPANY OF AMERICA
By:
Title:
NATIONWIDE LIFE INSURANCE COMPANY
By:
Title:
<PAGE> 1
EXHIBIT 10.8
EXECUTION COPY
--------------------------------------------------------------------
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CLARK/BARDES, INC.
$14,500,000
10.50% SENIOR SECURED
NOTES DUE AUGUST 9, 2002
---------------
NOTE AGREEMENT
---------------
DATED AS OF SEPTEMBER 8, 1997
--------------------------------------------------------------------
--------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
(Not Part of Agreement)
Page
----
1. AUTHORIZATION OF ISSUE OF NOTES 1
1A. Authorization of Issues of Notes 1
2. PURCHASE AND SALE OF NOTES. 1
2A. Purchase and Sale of Notes 1
3. CONDITIONS PRECEDENT 2
3. Conditions to Closing 2
3A. Certain Documents 2
3B. Representations and Warranties; No Default; No Material
Adverse Change 4
3C. Purchase Permitted By Applicable Laws 5
3D. Completion of Due Diligence 5
3E. Information with Respect to Contemplated Sale of Common
Stock 5
3F. Other Information 5
3G. Related Proceedings 5
3H. Consummation of Acquisition, Share Repurchases and
Settlement of Litigation; Satisfaction of Conditions
Precedent to the Shareholders' Agreement 6
3I. Repurchase of Common Stock 6
3J. Termination of Existing Bank Facility 6
3K. Sale of Notes to Other Purchasers 6
3L. Proceedings 6
3M. Fees 7
4. PREPAYMENTS 7
4A. Required Prepayments 7
4B. Optional Prepayment of Notes with Yield
Maintenance Amount 7
4C. Offer to Prepay Notes in the Event of a Change in
Control or a Revenue Maintenance Event 8
4D. Partial Payments Pro Rata 9
4E. Retirement of Notes 9
5. AFFIRMATIVE COVENANTS 10
<PAGE> 3
5A. Financial Statements 10
5B. Information Required by Rule 144A 13
5C. Inspection of Property 13
5D. Covenant to Secure Notes Equally 13
5E. Corporate Existence, Licenses and Permits;
Maintenance of Properties 13
5F. Maintenance of Material Contracts 14
5G. Maintenance of Insurance 14
5H. Payment of Taxes and Other Claims 14
5I. ERISA Compliance 15
5J. Compliance with Laws 15
5K. Collateral 15
5L. Enforcement of Acquisition Documents, Share
Repurchase Documents, the Settlement Agreement
and the Shareholders' Agreement 15
5M. Lockbox Account 16
5N. Performance of Obligations 16
5O. Maintenance of Key Sales Force 16
5P. Pledge of Notes Payable 16
5Q. Offering of Common Stock 16
5R. Maintenance of Key Man and Shareholder Life
Insurance Policies 16
5S. Creation and Maintenance of Working Capital
Facility 16
5T. Reincorporation Merger 17
5U. Conversion to a C Corporation 17
5V. Certain Redemptions of Common Stock 17
5W. BCS Service Corporation 17
5X. Matters Related to Qualification and Licensure 17
6. NEGATIVE COVENANTS 18
6A. Total Debt to Annualized Cash Flow Ratio 18
6B. Limitation on Restricted Payments 18
6C. Maintenance of Minimum Consolidated Net Worth and
Consolidated Net Income 18
6D. Discounted Commission Fees to Total Debt Ratio 18
6E. Interest Coverage Ratio 19
6F. Fixed Charge Coverage Ratio 19
6G. Liens, Indebtedness, and Other Restrictions 19
6H. Change of Fiscal Year 23
6I. Change of Business 23
6J. Certificates of Incorporation; Bylaws; Trade Names 23
6K. Other Agreements 24
6L. Limitation on Certain Restrictive Agreements 24
6M. ERISA Matters 24
6N. Only One Class of Capital Stock 24
6O. Prohibition Against Payments and Prepayments of
Certain Indebtedness 24
6P. AAA Distribution 24
6Q. No Subsidiaries 25
<PAGE> 4
6R. Restrictions on Issuances of Common Stock 25
6S. Restrictions Upon the Amendment of Certain Documents 25
6T. Limitation on Amount of S Corporation Tax Distributions 26
6U. Prohibition Against Phantom Stock 26
6V. Reincorporation Merger 26
7. EVENTS OF DEFAULT 26
7A. Acceleration 26
7B. Rescission of Acceleration 30
7C. Notice of Acceleration or Rescission 30
7D. Right of Set-off 30
7E. Notice to Holders of Subordinated Debt; Payment Block 31
7F. Other Remedies 31
8. REPRESENTATIONS, COVENANTS AND WARRANTIES 31
8A. Organization and Qualification 31
8B. Financial Statements 32
8C. Actions Pending 32
8D. Outstanding Indebtedness 33
8E. Title to Properties 33
8F. Possession of Franchises, Licenses, Patents and
Trademarks 33
8G. Taxes 33
8H. Conflicting Agreements and Other Matters 34
8I. Offering of the Notes 35
8J. Use of Proceeds 35
8K. ERISA 35
8L. Governmental Consent 36
8M. Environmental Compliance 36
8N. Fiscal Year 36
8O. Disclosure 36
8P. Investment Company Act 37
8Q. Other Regulation 37
8R. Acquisition, Share Repurchase, Settlement Agreement
and Shareholders' Agreement Representations and
Warranties 37
8S. Solvency 37
8T. Employment Agreements, Non-Competition Agreements
and Principal Office Agreements 37
8U. Insurance Licenses 37
8V. Undisclosed Liabilities. 37
8W. Legal Compliance 38
8X. Certain Tax Matters 38
8Y. Sales Representatives 38
8Z. Contracts 38
<PAGE> 5
8AA. Assignment of Insurance Contracts. 39
8BB. Satisfaction of Conditions Precedent to the
Acquisition, the Share Repurchases, the Settlement
Agreement and the Shareholders' Agreement 39
8CC. Compliance with Laws 40
8DD. Condition of Property 40
8EE. Books and Records. 40
8FF. Additional Disclosure 40
8GG. Reincorporation Merger 40
8HH. Satisfaction of Conditions Precedent 40
8II. Certain Affiliates 40
9. REPRESENTATIONS OF EACH PURCHASER 41
9A. Nature of Purchase 41
9B. Source of Funds 41
10. DEFINITIONS 42
10A. Yield Maintenance Terms 42
10B. Other Terms 44
10C. Accounting Principles, Terms and Determinations 60
11. MISCELLANEOUS 60
11A. Note Payments 60
11B. Expenses 60
11C. Consent to Amendments 61
11D. Form, Registration, Transfer and Exchange of
Notes; Lost Notes 61
11E. Persons Deemed Owners; Participations 62
11F. Survival of Representations and Warranties;
Entire Agreement 62
11G. Successors and Assigns 62
11H. Disclosure to Other Persons 63
11I. Notices 63
11J. Payments Due on Non-Business Days 63
11K. Satisfaction Requirement 63
11L. Governing Law 64
11M. Waiver of Jury Trial; Consent to Jurisdiction;
Limitation of Remedies 64
11N. Indemnification 65
11O. Release 66
11P. Relationship of the Parties 67
11Q. Final Agreement 67
11R. Construction. 67
11S. Severability 68
11T. Descriptive Headings 68
11U. Maximum Interest Payable 68
11V. Counterparts 68
11W. Severalty of Obligations 69
<PAGE> 6
PURCHASER SCHEDULE
SCHEDULE 3I - SELLING STOCKHOLDERS PURSUANT TO SHARE
REPURCHASES
SCHEDULE 6G(4) - CERTAIN LOANS, ADVANCES AND INVESTMENTS
SCHEDULE 6M - DESCRIPTION OF BENEFITS PROVIDED BY PLANS
SCHEDULE 8C - LITIGATION
SCHEDULE 8D - INDEBTEDNESS
SCHEDULE 8H(1) - AGREEMENTS RESTRICTING INDEBTEDNESS
SCHEDULE 8T - MATERIAL EMPLOYMENT
AGREEMENTS, NON-COMPETITION AGREEMENTS
AND PRINCIPAL OFFICE AGREEMENTS
SCHEDULE 8U - INSURANCE LICENSES
SCHEDULE 8Z - CONTRACTS
SCHEDULE 8FF(1) - PERFORMANCE BONUSES
SCHEDULE 8FF(2) - PLANS AND MULTIEMPLOYER PLANS
SCHEDULE 8FF(3) - INTELLECTUAL PROPERTY
SCHEDULE A - COMPETITORS
EXHIBIT A - FORM OF NOTE
EXHIBIT B-1 - FORM OF OPINION OF COMPANY'S COUNSEL
EXHIBIT B-2 - FORM OF OPINION OF COMPANY'S GENERAL COUNSEL
EXHIBIT C - FORM OF OFFICER'S CERTIFICATE
EXHIBIT D - FORM OF COMPLIANCE CERTIFICATE
EXHIBIT E-1 - FORM OF ASSIGNMENT OF LIFE INSURANCE POLICY
EXHIBIT E-2 - FORM OF ASSIGNMENT OF LIFE INSURANCE POLICY
EXHIBIT F - FORM OF COLLATERAL AGENCY AGREEMENT
EXHIBIT G - FORM OF PERFECTION CERTIFICATE
EXHIBIT H - FORM OF SECURITY AGREEMENT
<PAGE> 7
CLARK/BARDES, INC.
2121 SAN JACINTO, SUITE 2200
DALLAS, TEXAS 75201
As of September 8, 1997
To Each of the Purchasers
Named on the Purchaser Schedule
Attached Hereto
$14,500,000 10.50% SENIOR SECURED NOTES DUE 2002
Ladies and Gentlemen:
The undersigned, Clark/Bardes, Inc., a Texas corporation (the
"COMPANY"), hereby agrees with the purchasers named in the Purchaser Schedule
attached hereto (the "PURCHASERS") as follows:
1. AUTHORIZATION OF ISSUE OF NOTES.
1A. AUTHORIZATION OF ISSUES OF NOTES. The Company will authorize the
issue of its 10.50% senior secured promissory notes in the aggregate principal
amount of $14,500,000, to be dated the date of issue thereof, to mature August
9, 2002, to bear interest on the unpaid balance thereof from the date thereof
until the principal thereof shall have become due and payable at a rate of
10.50% per annum and on overdue payments at the rate specified therein; such
10.50% senior secured promissory notes shall be substantially in the form of
Exhibit A attached hereto. The term "NOTES" as used herein shall include each
such 10.50% senior secured promissory note delivered pursuant to any provision
of this Agreement and each such 10.50% senior secured promissory note delivered
in substitution or exchange for any other Note pursuant to any such provision.
Capitalized terms used herein have the meanings specified in paragraph 10.
<PAGE> 8
2. PURCHASE AND SALE OF NOTES.
2A. PURCHASE AND SALE OF NOTES. The Company hereby agrees to sell to
each Purchaser and, subject to the terms and conditions herein set forth, each
Purchaser agrees to purchase from the Company the aggregate principal amount of
Notes set forth opposite such Purchaser's name in the Purchaser Schedule
attached hereto at 100% of such aggregate principal amount. The Company will
deliver to each Purchaser, at the offices of Baker & Botts, L.L.P. at 2001 Ross
Avenue, Dallas, Texas 75201, one or more Notes registered in such Purchaser's
name, evidencing the aggregate principal amount of Notes to be purchased by such
Purchaser and in the denomination or denominations specified with respect to
each Purchaser in the Purchaser Schedule attached hereto, against payment of the
purchase price thereof by transfer of immediately available funds for credit to
the Company's account no. 7831016873 at Comerica Bank - Texas, Dallas, Texas,
ABA No. 111000753, Attn: Bill Rolley, (214) 818-2113, on the date of closing,
which shall be September 8, 1997 or any other date on or before September 11,
1997 upon which the Company and the Purchasers may mutually agree (the "CLOSING"
or the "DATE OF CLOSING").
3. CONDITIONS PRECEDENT.
3. CONDITIONS TO CLOSING. Each Purchaser's obligation to purchase
and pay for the Notes to be purchased by such Purchaser hereunder is subject to
the satisfaction, on or before the Date of Closing, of the following conditions:
3A. CERTAIN DOCUMENTS. Each Purchaser shall have received the
following, each dated the Date of Closing (unless a different date is indicated
below), and each in form, scope and substance satisfactory to such Purchaser:
a) the Notes to be purchased by such Purchaser, duly executed and
delivered by the Company;
b) a certified copy of the resolutions of the Board of Directors of
the Company approving each of the Senior Note Documents to which it is a
party, and certified copies of all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to each
of the Senior Note Documents to which it is a party;
c) a certificate of the Secretary or an Assistant Secretary of the
Company certifying the names and true signatures of the officers of the
Company authorized to sign the Senior Note Documents to which it is a party
and the other documents to be delivered hereunder by the Company;
d) a certified copy of the Articles of Incorporation (certified by
the Secretary of State of the State of Texas) and bylaws, each as amended
to date, of the Company;
<PAGE> 9
e) favorable opinions of Vedder, Price, Kaufman & Kammholz, counsel
to the Company, and Keith Staudt, General Counsel to the Company,
substantially in the form of Exhibit B-1 and Exhibit B-2 attached hereto,
respectively;
f) a favorable opinion of Baker & Botts, L.L.P., who are acting as
special counsel for the Purchasers in connection with this transaction, as
to such matters incident to the matters herein contemplated as such
Purchaser may reasonably request;
g) reliance letters in respect of any other legal opinions (such
legal opinions to be in form, scope and substance satisfactory to such
Purchaser) delivered in connection with the Acquisition, the Share
Repurchases, the settlement of the Litigation and the other transactions
related thereto;
h) certified copies of Requests for Information or Copies (Form
UCC-11) or equivalent reports listing all effective financing statements
which name the Company or the Acquired Company (under any of their present
names and any previous names) as debtor and which are filed in all
jurisdictions in which the Company or the Acquired Company owns property or
conducts business, together with copies of such financing statements;
i) the Collateral Agency Agreement, duly executed and delivered by
the Collateral Agent, the Company and the holders of the Medium Term Notes;
j) the Non-Compete Agreement, duly executed and delivered by W.T.
Wamberg, the terms and conditions of which shall be in full force and
effect and shall not have been amended, modified or waived except with such
Purchaser's prior written consent;
k) the Perfection Certificate, duly executed and delivered by the
Company;
l) the Assignment of Life Insurance Policy, each duly executed and
delivered by the Company and W. T. Wamberg;
m) the Letters of Intent, duly executed and delivered by each of
Richard C. Chapman and Larry Hendricksen;
n) an Officer's Certificate substantially in the form of Exhibit C
attached hereto, duly executed and delivered by the Company;
<PAGE> 10
o) certified copies of each of the Acquisition Documents and the
Share Repurchase Documents, the terms and conditions of which shall be in
full force and effect and shall not have been amended, modified or waived
except with such Purchaser's prior written consent;
p) certified copies of the Shareholders' Agreement and the
Settlement Agreement, the terms and conditions of which shall be in full
force and effect and shall not have been amended, modified or waived except
with such Purchaser's prior written consent;
q) a certified schedule of the stockholders of the Company both
prior to and after giving effect to the Share Repurchases;
r) copies of (a) (i) a pro forma balance sheet and pro forma
statements of income, changes in shareholders' equity and cash flow for
each of the Company and each division thereof for the fiscal year ended
December 31, 1996 (giving effect to the Acquisition and the Share
Repurchases) and (ii) a pro forma balance sheet as at June 30, 1997 and pro
forma statements of income, changes in shareholders' equity and cash flow
for the three month period ended on such date for each of the Company and
each division thereof (giving effect to the Acquisition and the Share
Repurchases), certified by an authorized financial officer of the Company
and (b) good-faith, projected, pro forma financial statements (including,
without limitation, balance sheets and statements of income, changes in
shareholders' equity and cash flow) for each of the Company and each
division thereof for fiscal years 1997 through 2001 (giving effect to the
Acquisition and the Share Repurchases);
s) the Security Documents, duly executed and delivered by the
Company;
t) all Uniform Commercial Code financing statements deemed necessary
or appropriate by such Purchaser to perfect the Liens in favor of the
Collateral Agent arising under the Security Documents, duly executed and
delivered by the Company, to be recorded with the appropriate filing
offices;
u) certificates of insurance naming the Collateral Agent as loss
payee and the Collateral Agent and all holders of Notes as additional
insureds, as required by paragraph 5G;
v) certified copies of the Tax Advisory Memorandum and the Special
Audit prepared by Ernst & Young LLP;
w) written instructions from a Responsible Officer of the Company,
set forth on the Company's letterhead, authorizing and directing such
Purchaser to
<PAGE> 11
pay the purchase price of the Notes by transfer of immediately available
funds for credit to the bank account of the Company identified in paragraph
2A; and
x) additional documents, lien and judgment searches, certificates of
officers of the Company and the Acquired Company, certificates of public
officials and opinions of counsel to the Company and the Acquired Company
with respect to legal matters or corporate or other proceedings related to
the transactions contemplated hereby or by the Acquisition, the Share
Repurchases, the settlement of the Litigation or the Shareholders'
Agreement as may be requested by such Purchaser.
3B. REPRESENTATIONS AND WARRANTIES; NO DEFAULT; NO MATERIAL ADVERSE
CHANGE. The representations and warranties contained in this Agreement, the
other Senior Note Documents, the Acquisition Documents, the Share Repurchase
Documents, the Shareholders' Agreement and the Settlement Agreement shall be
true on and as of the Date of Closing, except to the extent of changes caused by
the transactions herein contemplated; there shall exist on the Date of Closing
no Event of Default or Default; there shall exist or have occurred no condition,
event or act which could have a material adverse effect on the business,
condition (financial or other), assets, properties, operations or prospects of
the Company and the Company shall have delivered to such Purchaser an Officer's
Certificate, dated the Date of Closing, to such effects.
3C. PURCHASE PERMITTED BY APPLICABLE LAWS. The offer by the Company
of, and the purchase of and payment for the Notes, to be purchased by such
Purchaser on the Date of Closing on the terms and conditions herein provided
(including the use of the proceeds of the Notes by the Company) shall not
violate any applicable law or governmental regulation (including, without
limitation, section 5 of the Securities Act or Regulation G or X of the Board of
Governors of the Federal Reserve System) (other than Art. 21.07-1 of the Texas
Insurance Code (but only with respect to the issuance of shares of Common Stock
upon the exercise of the Warrants) the violation of which the Company represents
and warrants will be cured by the satisfaction of the covenant contained in
paragraph 5T) and shall not subject such Purchaser to any tax, penalty,
liability or other onerous condition under or pursuant to any applicable law or
governmental regulation, and such Purchaser shall have received such
certificates or other evidence as it may request to establish compliance with
this condition.
3D. COMPLETION OF DUE DILIGENCE. The Company shall have completed its
due diligence investigation with respect to the business and assets of the
Acquired Company, and such Purchaser shall have received such information,
analyses and documentation with respect thereto (including, without limitation,
the projected revenues of the Acquired Company and analyses thereof (both
historical and prospective) by geographical area, agent and office and client or
prospective client) as it may request.
3E. INFORMATION WITH RESPECT TO CONTEMPLATED SALE OF COMMON STOCK.
Such Purchaser shall have received information (in reasonable detail) with
respect
<PAGE> 12
to the Company's contemplated sale during September 1997 of approximately
1,400,000 shares of Common Stock, at a price of not less than $2.40 per share,
to Richard Chapman, Larry Hendrickson and certain other individuals.
3F. OTHER INFORMATION. Such Purchaser shall have received all
documentation and information relating to the business, assets and capital
structure of the Company and the Acquired Company as it may reasonably request,
and such Purchaser shall have had an opportunity to review such documentation
and information and discuss the same with the management of the Company and the
Acquired Company.
3G. RELATED PROCEEDINGS. All corporate and other proceedings taken
or to be taken in connection with (i) the Acquisition, (ii) the Share
Repurchases, (iii) the settlement of the Litigation, (iv) the Company's
execution, delivery, issuance and sale to such Purchaser of the Second Priority
Notes pursuant to the Second Priority Note Agreement, (v) the Shareholders'
Agreement and (vi) the other transactions contemplated thereby, and all
documents incident thereto, shall be satisfactory in form, scope and substance
to such Purchaser (including, without limitation, the terms and conditions of
the conversion of the Convertible Subordinated Notes and the subordination of
(a) the Convertible Subordinated Notes and (b) any promissory note payable by
the Acquired Company or the Company to any stockholder of the Acquired Company),
and such Purchaser shall have received all such counterpart originals or
certified or other copies of such documents as it may reasonably request.
3H. CONSUMMATION OF ACQUISITION, SHARE REPURCHASES AND SETTLEMENT
OF LITIGATION; SATISFACTION OF CONDITIONS PRECEDENT TO THE SHAREHOLDERS'
AGREEMENT. Such Purchaser shall have received satisfactory evidence that the
Acquisition, the Share Repurchases and the settlement of the Litigation have
been consummated prior to or concurrently with the issuance of the Notes and the
Second Priority Notes, pursuant to and in accordance with the terms and
conditions of the Acquisition Documents, the Share Repurchase Documents and the
Settlement Agreement (no terms thereof having been amended, supplemented, waived
or otherwise modified without such Purchaser's prior written consent). Such
Purchaser shall have received satisfactory evidence that the conditions
precedent to the effectiveness of the Shareholders' Agreement have been
satisfied prior to or concurrently with the issuance of the Notes the Second
Priority Notes and the Warrants (no terms thereof having been amended,
supplemented, waived or otherwise modified without such Purchaser's prior
written consent).
3I. REPURCHASE OF COMMON STOCK. Such Purchaser shall have received
evidence that the Company has repurchased in the Share Repurchases from the
stockholders listed on Schedule 3I at least 4,197,483 shares of Common Stock and
has retired, or is holding in treasury, at least 2,793,143 shares of Common
Stock prior to or concurrently with the issuance of the Notes and the Second
Priority Notes pursuant to the Second Priority Note Agreement on terms and
conditions and subject to documentation (including, without limitation,
subordination of the Shareholder Notes, non-competition
<PAGE> 13
agreements and settlements and releases of all claims related to the
Litigation), satisfactory in all respects to such Purchaser. Such Purchaser
shall have received evidence that W.T. Wamberg has purchased 450,000 shares of
Common Stock from certain stockholders of the Company prior to or concurrently
with the Share Repurchases.
3J. TERMINATION OF EXISTING BANK FACILITY. Such Purchaser shall have
received evidence that the Existing Bank Facility has been terminated, all
amounts outstanding thereunder have been satisfied in full and all liens related
thereto have been released.
3K. SALE OF NOTES TO OTHER PURCHASERS. The Company shall have sold to
the other Purchasers the Notes to be purchased by them at the closing and shall
have received payment in full therefor.
3L. PROCEEDINGS. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby and all documents
incident thereto shall be satisfactory in substance and form to such Purchaser,
and such Purchaser shall have received all such counterpart originals or
certified or other copies of such documents as it may reasonably request.
3M. FEES. Without limiting the provisions of paragraph 11B, such
Purchaser's special counsel shall have received its fees, charges and
disbursements to the extent reflected in a statement of such special counsel
rendered to the Company at least one Business Day prior to the Closing.
4. PREPAYMENTS. The Notes shall be subject to prepayment only with
respect to the prepayments specified in paragraphs 4A, 4B and 4C.
4A. REQUIRED PREPAYMENTS. Until the Notes shall be paid in full, the
Company shall apply to the prepayment of the Notes, without premium, the sum of
$1,450,000 on each February 9th and August 9th beginning on the February 9th
immediately following the Date of Closing, and such principal amounts of the
Notes, together with interest thereon to the prepayment dates, shall become due
on such prepayment dates. The remaining outstanding principal amount of the
Notes, together with interest accrued thereon, shall become due on the maturity
date of the Notes.
4B. OPTIONAL PREPAYMENT OF NOTES WITH YIELD MAINTENANCE AMOUNT.
a) The Notes shall be subject to prepayment in whole at any time or
from time to time in part (in integral multiples of $600,000 or such lesser
amount necessary to permit compliance with paragraph 5V), at the option of
the Company, at 100% of the principal amount so prepaid plus interest
thereon to the
<PAGE> 14
prepayment date and, unless such prepayment is made pursuant to paragraph
5V, the Yield Maintenance Amount, if any, with respect to the amount(s)
prepaid; provided that the Company may not prepay the Notes pursuant to
this paragraph 4B unless (y) the Company is not making the prepayment for
the purpose of refunding the Notes by the application, directly or
indirectly, of borrowed funds and (z) the Company does not contemplate
replacing the funds applied to such prepayments by other borrowed funds.
Any partial prepayment of the Notes pursuant to this paragraph 4B shall be
applied in satisfaction of required payments of principal in inverse order
of their scheduled due dates.
b) The Company shall give the holder of each Note irrevocable
written notice of any prepayment pursuant to this paragraph 4B not less
than ten Business Days prior to the prepayment date, specifying such
prepayment date and the principal amount of the Notes, and of the Notes
held by such holder, to be prepaid on such date and stating that such
prepayment is to be made pursuant to this paragraph 4B and complies with
the proviso of paragraph 4B(i). Notice of prepayment having been given as
aforesaid, the principal amount of the Notes specified in such notice,
together with interest thereon to the prepayment date, shall become due and
payable on such prepayment date. The Company shall, on or before the day on
which it gives written notice of any prepayment pursuant to this paragraph
4B, give telephonic notice of the principal amount of the Notes to be
prepaid and the prepayment date to each holder which shall have designated
a recipient of such notices in the Purchaser Schedule attached hereto or by
notice in writing to the Company.
4C. OFFER TO PREPAY NOTES IN THE EVENT OF A CHANGE IN CONTROL OR A
REVENUE MAINTENANCE EVENT.
a) Notice of Impending Change in Control. The Company will not take
any action that consummates or finalizes a Change in Control unless at
least 30 days prior to such action it shall have given to each holder of
Notes written notice of such impending Change in Control.
b) Notice of Occurrence of Change in Control or Revenue Maintenance
Event. The Company will, within five Business Days after any Responsible
Officer has knowledge of the occurrence of any Change in Control or Revenue
Maintenance Event, give written notice of such Change in Control or such
Revenue Maintenance Event to each holder of Notes. If a Change in Control
or Revenue Maintenance Event has occurred, such notice shall contain and
constitute an offer to prepay the Notes as described in clause (iii) of
this paragraph 4C and shall be accompanied by the certificate described in
clause (vi) hereof.
c) Offer to Prepay Notes. The offer to prepay Notes contemplated by
the foregoing clause (ii) shall be an offer to prepay, in accordance with
and subject to this paragraph 4C, all, but not less than all, the Notes
held by
<PAGE> 15
each holder (in this case only, "HOLDER" in respect of any Note registered
in the name of a nominee for a disclosed beneficial owner shall mean such
beneficial owner) on a date specified in such offer (the "PROPOSED
PREPAYMENT DATE"). Such Proposed Prepayment Date shall be not less than 30
days and not more than 60 days after the date of such offer (if the
Proposed Prepayment Date shall not be specified in such offer, the Proposed
Prepayment Date shall be the 30th day after the date of such offer).
d) Rejection; Acceptance. A holder of Notes may accept the offer to
prepay made pursuant to this paragraph 4C by causing a notice of such
acceptance to be delivered to the Company at least five days prior to the
Proposed Prepayment Date. A failure by a holder of Notes to respond to an
offer to prepay made pursuant to this paragraph 4C shall be deemed to
constitute an acceptance of such offer by such holder.
e) Prepayment; Reduction of Required Prepayments. Prepayment of the
Notes to be prepaid pursuant to this paragraph 4C shall be at 100% of the
principal amount of such Notes, plus the Yield Maintenance Amount
determined for the date of prepayment with respect to such principal
amount, together with interest on such Notes accrued to the date of
prepayment. On the Business Day preceding the date of prepayment, the
Company shall deliver to each holder of Notes being prepaid a statement
showing the Yield Maintenance Amount due in connection with such prepayment
and setting forth the details of the computation of such amount. The
prepayment shall be made on the Proposed Prepayment Date. Upon any partial
prepayment of Notes pursuant to this paragraph 4C, the principal amount of
the required prepayment of the Notes becoming due under paragraph 4A on or
after the date of such prepayment shall be reduced in the same proportion
as the aggregate unpaid principal amount of Notes is reduced as a result of
such prepayment.
f) Officer's Certificate. Each offer to prepay the Notes pursuant to
this paragraph 4C shall be accompanied by a certificate, executed by a
Responsible Officer of the Company and dated the date of such offer,
specifying: (a) the Proposed Prepayment Date; (b) that such offer is made
pursuant to this paragraph 4C; (c) the principal amount of each Note
offered to be prepaid; (d) the estimated Yield Maintenance Amount due in
connection with such prepayment (calculated as if the date of such notice
were the date of the prepayment) and the details of such calculation; (e)
the interest that would be due on each Note offered to be prepaid, accrued
to the Proposed Prepayment Date; (f) that the conditions of this paragraph
4C have been fulfilled; and (g) in reasonable detail, the nature and date
of the Change in Control or Revenue Maintenance Event, as the case may be.
4D. PARTIAL PAYMENTS PRO RATA. Upon any partial prepayment of Notes
pursuant to paragraph 4A or 4B, the principal amount so prepaid shall be
allocated to all Notes at the time outstanding (including, for the purpose of
this paragraph 4D only,
<PAGE> 16
all such Notes prepaid or otherwise retired or purchased or otherwise acquired
by the Company or any of its Subsidiaries or Affiliates other than by prepayment
pursuant to paragraph 4A, 4B or 4C) in proportion to the respective outstanding
principal amounts thereof. Upon any partial prepayment of Notes pursuant to
paragraph 4C, the principal amount so prepaid shall be allocated to all Notes at
the time outstanding and held by holders who have accepted the Company's offer
of prepayment made pursuant to paragraph 4C (including, for the purpose of this
paragraph 4D only, all such Notes prepaid or otherwise retired or purchased or
otherwise acquired by the Company or any of its Subsidiaries or Affiliates other
than by prepayment pursuant to paragraph 4A, 4B or 4C) in proportion to the
respective outstanding principal amounts thereof.
4E. RETIREMENT OF NOTES. The Company shall not, and shall not permit any of
its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or in
part prior to their stated final maturity (other than by prepayment pursuant to
paragraph 4A, 4B or 4C or upon acceleration of such final maturity pursuant to
paragraph 7A), or purchase or otherwise acquire, directly or indirectly, Notes
held by any holder unless the Company or such Subsidiary or Affiliate shall have
offered to prepay or otherwise retire or purchase or otherwise acquire, as the
case may be, the same proportion of the aggregate principal amount of Notes held
by each other holder of Notes at the time outstanding upon the same terms and
conditions. Any Notes so prepaid or otherwise retired or purchased or otherwise
acquired by the Company or any of its Subsidiaries or Affiliates shall not be
deemed to be outstanding for any purpose under this Agreement, except as
provided in paragraph 4D.
5. AFFIRMATIVE COVENANTS.
So long as any Note shall remain unpaid the Company covenants that:
5A. FINANCIAL STATEMENTS. The Company will deliver to each holder in
duplicate:
a) as soon as practicable and in any event within 45 days after the
end of each quarterly period (other than the last quarterly period) in each
fiscal year, consolidating and consolidated statements of income,
shareholders' equity and cash flows of the Company and its Subsidiaries for
the period from the beginning of the current fiscal year to the end of such
quarterly period, and a consolidating and consolidated balance sheet of the
Company and its Subsidiaries as at the end of such quarterly period,
setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal year, all in reasonable detail
(including, without limitation, a breakdown by each division of the Company
and its Subsidiaries) and satisfactory in form to the Required Holder(s)
and certified by an authorized financial officer of the Company, subject to
changes resulting from year-end adjustment; provided, that delivery
pursuant to
<PAGE> 17
clause (vi) below of copies of the Quarterly Report on Form 10Q of the
Company for such quarterly period filed with the Securities and Exchange
Commission shall be deemed to satisfy the requirements of this clause (i)
with respect to consolidated financial statements if such financial
statements are included in such report;
b) as soon as practicable and in any event within 90 days after the
end of each fiscal year, consolidating and consolidated statements of
income and cash flows and a consolidated statement of stockholders' equity
of the Company and its Subsidiaries for such year, and a consolidating and
consolidated balance sheet of the Company and its Subsidiaries as at the
end of such year, setting forth in each case in comparative form
corresponding consolidated figures from the preceding annual audit, all in
reasonable detail and satisfactory in form to the Required Holder(s) and,
as to the consolidated statements, reported on by the Independent
Accountant whose report shall be without limitation as to the scope of the
audit and satisfactory in substance to the Required Holder(s) and, as to
the consolidating statements, certified by an authorized financial officer
of the Company; provided, that delivery pursuant to clause (vi) below of
copies of the Annual Report on Form 10K of the Company for such fiscal year
filed with the Securities and Exchange Commission shall be deemed to
satisfy the requirements of this clause (ii) with respect to consolidated
financial statements if such financial statements are included in such
report;
c) as soon as practicable and in any event within 90 days after the
end of each fiscal year, good faith, projected consolidating and
consolidated balance sheets and good faith, projected consolidating and
consolidated statements of income, cash flows and stockholders' equity of
the Company and its Subsidiaries as at the end of each of the next five
fiscal years, all in reasonable detail (including, without limitation, a
breakdown by each division of the Company and its Subsidiaries and an
enumeration of the assumptions underlying such balance sheets and financial
statements) and substantially in the form of the projections delivered
pursuant to paragraph 3A(xviii), certified by an authorized financial
officer of the Company (such certification to contain, among other things,
a representation and warranty that such projected financial statements are
reasonable based on the assumptions stated therein and the best information
available to the officers of the Company);
d) as soon as practicable and in any event within 30 days after the
end of each fiscal quarter, accounts receivable reports, commission renewal
reports, business reports, policy cancellation reports and reports
detailing the composition of the Commission Fees of the Company and its
Subsidiaries for or as of, as the case may be, such quarter, certified by
an authorized financial officer of the Company, all in reasonable detail
and satisfactory in form, scope and substance to the Required Holder(s);
<PAGE> 18
e) as soon as practicable and in any event within 30 days after the
end of each calendar month, a list of the shareholders and principals of
each of the Company and its Subsidiaries, certified by a Responsible
Officer, all in reasonable detail and satisfactory in form, scope and
substance to the Required Holder(s);
f) promptly upon transmission thereof, copies of all such financial
statements, proxy statements, notices and reports as it shall send to its
stockholders and copies of all registration statements (without exhibits)
and all reports which it files with the Securities and Exchange Commission
(or any governmental body or agency succeeding to the functions of the
Securities and Exchange Commission);
g) promptly upon receipt thereof, a copy of each other report
submitted to the Company or any Subsidiary by independent accountants in
connection with any annual, interim or special audit made by them of the
books of the Company or any Subsidiary;
h) as soon as practicable and in any event within five days after
any officer of the Company obtaining knowledge (a) of any condition or
event which, in the opinion of management of the Company, could reasonably
be expected to have a material adverse effect on the business, condition
(financial or other), assets, properties, operations or prospects of the
Company and its Subsidiaries, (b) that any Person has given any notice from
any Person to the Company or any of its Subsidiaries or taken any other
action with respect to a claimed default or event or condition of the type
referred to in clause (iii) of paragraph 7A, (c) of the institution of any
litigation involving claims against the Company or any of its Subsidiaries
equal to or greater than $100,000 with respect to any single cause of
action or of any adverse determination in any court proceeding in any
litigation involving a potential liability to the Company or any of its
Subsidiaries equal to or greater than $100,000 with respect to any single
cause of action which makes the likelihood of an adverse determination in
such litigation against the Company or such Subsidiary substantially more
probable, (d) of any regulatory proceeding which could reasonably be
expected to have a material adverse effect on the Company or any of its
Subsidiaries, an Officer's Certificate specifying the nature and period of
existence of any such condition or event, or specifying the notice given or
action taken by such Person and the nature of any such claimed default,
event or condition, or specifying the details of such proceeding,
litigation or dispute and what action the Company or any of its
Subsidiaries has taken, is taking or proposes to take with respect thereto;
i) promptly after the filing or receiving thereof, copies of all
reports and notices which the Company or any of its Subsidiaries files
under ERISA with the Internal Revenue Service or the PBGC or the U.S.
Department of
<PAGE> 19
Labor or which the Company or any of its Subsidiaries receives from such
corporation;
j) promptly upon receipt or distribution thereof, as the case may
be, a copy of each notice received or delivered, as the case may be,
pursuant to Section 6(f) of the Acquisition Agreement and each claim
received or delivered, as the case may be, with respect to a breach of the
representations and warranties of any party to the Acquisition Agreement;
k) with reasonable promptness, budgets and financial plans of the
Company and any of its Subsidiaries (including, without limitation, balance
sheets and statements of income, shareholders' equity and cash flows) as
such holder may request;
l) with reasonable promptness, such other information respecting the
condition or operations, financial or otherwise, of the Company or any of
its Subsidiaries as such holder may reasonably request; and
m) promptly upon transmission thereof, copies of all appraisals and
valuations of the Company and its Subsidiaries or the Common Stock as it
shall send to any Person in connection with any Share Repurchase Document
or the Shareholders' Agreement;
Together with each delivery of financial statements required by clauses (i) and
(ii) above, the Company will deliver to each holder a Compliance Certificate
substantially in the form of Exhibit D attached hereto. Together with each
delivery of financial statements required by clause (ii) above, the Company will
deliver to the holder of each Note (i) a certificate of such accountants stating
that, in making the audit necessary for their report on such financial
statements, they have obtained no knowledge of any Event of Default or Default,
or, if they have obtained knowledge of any Event of Default or Default,
specifying the nature and period of existence thereof, provided, however, such
accountants shall not be liable to anyone by reason of their failure to obtain
knowledge of any Event of Default or Default which would not be disclosed in the
course of an audit conducted in accordance with generally accepted auditing
standards and (ii) a report, in reasonable detail and in form satisfactory to
the Required Holder(s), containing a breakdown by each division of the Company
and its Subsidiaries of the financial information contained in the financial
statements described in clause (ii) above, certified by an authorized financial
officer of the Company.
The Company also covenants that immediately after any Responsible Officer
obtains knowledge of an Event of Default or Default, it will deliver to each
holder an Officer's Certificate specifying the nature and period of existence
thereof and what action the Company proposes to take with respect thereto.
<PAGE> 20
5B. INFORMATION REQUIRED BY RULE 144A. The Company will, upon the
request of the holder of any Note, provide such holder, and any Qualified
Institutional Buyer designated by such holder, such financial and other
information as such holder may reasonably determine to be necessary in order to
permit compliance with the information requirements of Rule 144A under the
Securities Act in connection with the resale of Notes, except at such times as
the Company is subject to the reporting requirements of section 13 or 15(d) of
the Exchange Act.
5C. INSPECTION OF PROPERTY. The Company will permit any Person
designated by any holder in writing, at the Company's expense during the
continuance of a Default or Event of Default and otherwise at such holder's
expense, to visit and inspect any of the properties of the Company and its
Subsidiaries, to examine the corporate books and financial records of the
Company and its Subsidiaries and make copies thereof or extracts therefrom and
to discuss the affairs, finances and accounts of any of such corporations with
the principal officers of the Company and its independent public accountants
(and by this provision the Company authorizes such accountants to discuss the
affairs, finances and accounts of such corporations), all at such reasonable
times and as often as such holder may reasonably request, provided that, in the
absence of a Default or an Event of Default, such holder shall provide the
Company at least five days' advance notice of its intent to exercise its rights
pursuant to this paragraph 5C.
5D. COVENANT TO SECURE NOTES EQUALLY. The Company will, if it or any
Subsidiary shall create or assume any Lien upon any of its property or assets,
whether now owned or hereafter acquired, other than Liens permitted by the
provisions of paragraph 6G(1) (unless prior written consent to the creation or
assumption thereof shall have been obtained pursuant to paragraph 11C), make or
cause to be made effective provision whereby the Notes will be secured by such
Lien equally and ratably with any and all other Indebtedness thereby secured so
long as any such other Indebtedness shall be so secured pursuant to such
agreements and instruments as shall be approved by the Required Holder(s), and
the Company will cause to be delivered to the holder of each Note an opinion of
independent counsel to the effect that such agreements and instruments are
enforceable in accordance with their terms and that the Notes are equally and
ratably secured with such other Indebtedness.
5E. CORPORATE EXISTENCE, LICENSES AND PERMITS; MAINTENANCE OF
PROPERTIES. The Company will at all times do or cause to be done all things
necessary to maintain, preserve and renew its existence as a corporation
organized under the laws of a state of the United States of America, will
preserve and keep in force and effect, and cause each of its Subsidiaries to
preserve and keep in force and effect, all licenses and permits necessary to the
conduct of its and their respective businesses and will maintain and keep, and
will cause each of its Subsidiaries to maintain and keep, its and their
respective properties in good repair, working order and condition, and from time
to time make all necessary and proper repairs, renewals and replacements, so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times in the normal course of business as
conducted prior to the date of repair; provided, however,
<PAGE> 21
that nothing contained in this paragraph 5E shall prevent the Company or any
Subsidiary from ceasing or omitting to exercise any right, license or permit or
to make any repair, renewal or replacement that (i) in the reasonable judgment
of the Company or such Subsidiary is no longer in the best interests of the
Company or such Subsidiary and (ii) such cessation or omission could not
reasonably be expected to result in a material adverse effect on the business,
condition (financial or other), assets, properties, operations or prospects of
the Company and its Subsidiaries taken as a whole.
5F. MAINTENANCE OF MATERIAL CONTRACTS. The Company will, and will
causes its Subsidiaries to, maintain all contracts necessary to the conduct of
its and their respective businesses (including, without limitation, employment
contracts, non-competition agreements and principal office agreements);
provided, however, that nothing contained in this paragraph 5F shall prevent the
Company or any Subsidiary from terminating any contract that (i) in the
reasonable judgment of the Company or such Subsidiary is no longer in the best
interests of the Company or such Subsidiary and (ii) such termination could not
reasonably be expected to result in a material adverse effect on the business,
condition (financial or other), assets, properties, operations or prospects of
the Company and its Subsidiaries taken as a whole.
5G. MAINTENANCE OF INSURANCE. The Company will carry and maintain,
and cause each Subsidiary to carry and maintain, insurance (subject to customary
deductibles and retentions) in at least such amounts and against such
liabilities and hazards and by such methods as customarily maintained by other
companies operating similar businesses. The Collateral Agent and all holders of
Notes shall be named as additional insureds, and the Collateral Agent shall be
named as loss payee, on each insurance policy obtained or maintained by the
Company and its Subsidiaries with respect to their properties and businesses.
5H. PAYMENT OF TAXES AND OTHER CLAIMS. The Company will and will
cause each of its Subsidiaries to file all income tax or similar tax returns
required to be filed in any jurisdiction and to pay and discharge all taxes
shown to be due and payable on such returns and all other taxes, assessments,
governmental charges, levies, trade accounts payable and claims for work, labor
or materials (all the foregoing being referred to collectively as "CLAIMS")
payable by any of them, to the extent such Claims have become due and payable
and before they have become delinquent; provided that neither the Company nor
any Subsidiary need pay any Claim if (i) the amount, applicability or validity
thereof is contested by the Company or such Subsidiary on a timely basis in good
faith and in appropriate proceedings, and the Company or a Subsidiary has
established adequate reserves therefor to the extent required by GAAP on the
books of the Company or such Subsidiary or (ii) the nonpayment of all such
Claims in the aggregate could not result in a material adverse change in the
business, condition (financial or other), assets, properties, operations or
prospects of the Company and its Subsidiaries taken as a whole.
<PAGE> 22
5I. ERISA COMPLIANCE. The Company will, and will cause each ERISA
Affiliate to, at all times:
a) with respect to each Plan, make timely payments of
contributions required to meet the minimum funding standard set forth in
ERISA or the Code with respect thereto and, with respect to any
Multiemployer Plan, make timely payment of contributions required to be
paid thereto as provided by Section 515 of ERISA, and
b) comply with all other provisions of ERISA,
except for such failures to make contributions and failures to comply as could
not have a material adverse effect on the business, condition (financial or
other), assets, properties, operations or prospects of the Company and its
Subsidiaries taken as a whole.
5J. COMPLIANCE WITH LAWS. The Company will comply, and will cause
each of its Subsidiaries to comply, with all applicable laws, rules, regulations
and orders (including those relating to protection of the environment) except,
in any such case, where failure to comply could not have a material adverse
effect on the business, condition (financial or otherwise), operations or
prospects of the Company and its Subsidiaries taken as a whole.
5K. COLLATERAL. The Company shall execute, and shall cause its
Subsidiaries to execute, any and all documents, financing statements, agreements
and instruments, and take all action (including filing Uniform Commercial Code
and other financing statements, mortgages and deeds of trust), that may be
required under applicable law, or which the Required Holder(s) or the Collateral
Agent may reasonably request in order to effectuate the transactions
contemplated by the Senior Note Documents and in order to grant, preserve,
protect and perfect the validity and priority of the security interests and
Liens created or purported to be created by the Security Documents (it being
understood that it is the intent of the parties that the obligations of the
Company and its Subsidiaries under the Senior Note Documents shall be secured
by, among other things, substantially all the property and assets of the Company
and its Subsidiaries (now or hereafter acquired or created), including, without
limitation, real and other properties acquired subsequent to the Date of
Closing). The Company agrees to provide from time to time such evidence as the
Required Holder(s) or the Collateral Agent shall request as to the perfection
and priority status of each such security interest and Lien.
<PAGE> 23
5L. ENFORCEMENT OF ACQUISITION DOCUMENTS, SHARE REPURCHASE DOCUMENTS,
THE SETTLEMENT AGREEMENT AND THE SHAREHOLDERS' AGREEMENT. The Company will
enforce, and will cause each of its Subsidiaries parties thereto to enforce, all
covenants, agreements and other obligations contained in the Acquisition
Documents, the Share Repurchase Documents, the Settlement Agreement and the
Shareholders' Agreement which are binding upon the other parties thereto and
which survive the consummation of the Acquisition or the Share Repurchases, as
the case may be, including, without limitation, all indemnification obligations.
5M. LOCKBOX ACCOUNT. No later than the earlier of (a) 90 days after
the Date of Closing and (b) the occurrence of a Default or an Event of Default,
the Company and each of its Subsidiaries shall have executed and delivered the
Lockbox Agreements and the Collateral Assignment of Deposit Accounts. Upon the
creation of the Lockbox Accounts, the Company and each of its Subsidiaries shall
maintain such Lockbox Accounts pursuant to the Lockbox Agreements.
5N. PERFORMANCE OF OBLIGATIONS. The Company will pay the Notes
according to the reading, tenor and effect thereof. The Company will, and will
cause its Subsidiaries to, do and perform every act and discharge all of the
obligations provided to be performed and discharged by the Company or such
Subsidiary, as the case may be, under the Senior Note Documents to which it is a
party (including, without limitation, this Agreement) at the time or times and
in the manner specified.
5O. MAINTENANCE OF KEY SALES FORCE. The Company will maintain, at all
times, a full time sales force equal to the greater of twenty individuals and
80% of the number of sales representatives and agents as of the end of the
immediately preceding fiscal year.
5P. PLEDGE OF NOTES PAYABLE. The Company will, and will cause its
Subsidiaries to, promptly deliver to the Collateral Agent pursuant to the
Security Documents all promissory notes payable to the Company or any of its
Subsidiaries, together with any necessary endorsements or instruments of
transfer, other than promissory notes in an aggregate principal amount, at any
time, not to exceed $2,000,000.
5Q. OFFERING OF COMMON STOCK. On or prior to September 30, 1997, the
Company shall offer to sell approximately 1,400,000 shares of Common Stock, at a
price of not less than $2.40 per share, to Richard Chapman, Larry Hendrickson
and certain other individuals.
5R. MAINTENANCE OF KEY MAN AND SHAREHOLDER LIFE INSURANCE POLICIES.
The Company shall maintain in full force and effect at all times policies of
insurance in such form and issued by such financially sound and reputable
insurers rated at least A by A.M. Best as shall be acceptable to the Required
Holder(s) insuring the life of W.T. Wamberg in an aggregate amount equal to
$15,000,000. Such policies of insurance shall name the Company as beneficiary
and shall be collaterally assigned to the Collateral
<PAGE> 24
Agent. The Company shall use its best efforts to maintain in full force and
effect at all times policies of insurance in such form and issued by such
financially sound and reputable insurers rated at least A by A.M. Best as shall
be acceptable to the Required Holder(s) insuring the lives of certain
shareholders of the Company to fund certain redemption obligations of the
Company pursuant to the Shareholders' Agreement.
5S. CREATION AND MAINTENANCE OF WORKING CAPITAL FACILITY. Within 180
days after the Date of Closing, the Company will enter into a revolving working
capital facility upon terms and conditions and pursuant to documentation in all
respects satisfactory to the holders of the Notes, provided that the aggregate
principal amount of the Indebtedness outstanding under such facility may not at
any time exceed $3,000,000, such Indebtedness may not mature later than three
years after the creation of such facility and such Indebtedness may be secured
as provided in the Security Documents. Subject to the restrictions contained in
this Agreement and the other Senior Note Documents, the Company will at all
times maintain such revolving working credit facility and will maintain its
ability to satisfy all conditions precedent to its ability to obtain advances
thereunder.
5T. REINCORPORATION MERGER. The Company will consummate the
Reincorporation Merger no later than March 9, 1999.
5U. CONVERSION TO A C CORPORATION. After the earlier of March 9, 1999
and the date upon which the Reincorporation Merger is consummated, the Company
will, upon 30 days written notice from the holder of any Warrant, convert from
an S Corporation to a C Corporation.
5V. CERTAIN REDEMPTIONS OF COMMON STOCK. With respect to the
redemptions of Common Stock described in clause (d) of the second sentence of
the definition of "Restricted Payments," the Company shall promptly furnish the
holders of the Notes a valuation (in reasonable detail and based upon the most
recent valuation prepared for the Company) of the shares of Common Stock being
redeemed and, to the extent that the life insurance proceeds attributable to the
deceased shareholder exceed the amount needed to redeem such deceased
shareholder's shares, the Company shall promptly prepay the Notes by the amount
of such excess pursuant to paragraph 4B.
5W. BCS SERVICE CORPORATION. The Company will liquidate and dissolve
BCS Service Corporation within 180 days of the Date of Closing.
5X. MATTERS RELATED TO QUALIFICATION AND LICENSURE. If the Company is
in any way unable to qualify to do business and be licensed as a "life insurance
agent" or similar entity under the laws of any state in which it desires to
conduct business (whether because of restrictions upon having corporate
shareholders or otherwise), it will take all necessary steps to create, or cause
the creation of, an Affiliate that is qualified and licensed under the laws
(including the insurance code or other similar statute) of such state and will
enter into and maintain in effect a management and service agreement or similar
arrangement between itself and the Affiliate (which shall comply with paragraph
6G(8))
<PAGE> 25
under which the net revenues of the Affiliate are paid to the Company in
consideration for services, administration and other maintenance activities
related to the business of the Affiliate.
6. NEGATIVE COVENANTS. So long as any Note shall remain unpaid the
Company covenants that:
6A. TOTAL DEBT TO ANNUALIZED CASH FLOW RATIO. The Company will not
permit the ratio of Total Debt to Annualized Cash Flow at any time during any
period specified below to exceed the ratio set forth opposite such period:
Period Ratio
------ -----
From the Date of Closing through and 5.0 to 1.0
including December 31, 1998
From January 1, 1999 through and 4.0 to 1.0
including December 31, 1999
and thereafter 3.0 to 1.0
6B. LIMITATION ON RESTRICTED PAYMENTS. The Company will not and will
not permit any Subsidiary to directly or indirectly declare, order, pay, make or
set apart any sum for any Restricted Payment.
6C. MAINTENANCE OF MINIMUM CONSOLIDATED NET WORTH AND CONSOLIDATED
NET INCOME.
a) The Company will not permit, at any time, Consolidated Net
Worth to be less than the sum of (a) $1,500,000 and (b) an aggregate amount
equal to 100% of its Consolidated Net Income (on an after-tax basis or, as
long as the Company is an S Corporation, after giving effect to any S
Corporation Tax Distributions, but, in each case, only if a positive
number) for each completed fiscal year beginning with the fiscal year
ending December 31, 1997, minus (A) amounts expended for Share Repurchases
and (B) the aggregate principal amount of the AAA Distribution Notes; and
b) The Company will not, for any fiscal quarter, permit
Consolidated Net Income to be a negative number the absolute value of which
exceeds $1,200,000 and will not, for the four most recently ended fiscal
quarters, permit Consolidated Net Income to be a negative number.
6D. DISCOUNTED COMMISSION FEES TO TOTAL DEBT RATIO. The Company will
not permit, at any time, the ratio of Discounted Commission Fees to Total Debt
to be less than 1.0 to 1.0.
<PAGE> 26
6E. INTEREST COVERAGE RATIO. The Company will not permit the Interest
Coverage Ratio at any time during any period specified below to be less than the
ratio set forth opposite such period:
Period Ratio
------ -----
From the Date of Closing through and 1.25 to 1.0
including December 31, 1998
From January 1, 1999 through and including 1.60 to 1.0
December 31, 1999
and thereafter 3.0 to 1.0
6F. FIXED CHARGE COVERAGE RATIO. The Company will not permit the
Fixed Charge Coverage Ratio at any time during any period specified below to be
less than the ratio set forth opposite such period:
Period Ratio
------ -----
From the Date of Closing through and .90 to 1.0
including December 31, 1999
From January 1, 2000 through and 1.10 to 1.0
including December 31, 2000
and thereafter 1.25 to 1.0
6G. LIENS, INDEBTEDNESS, AND OTHER RESTRICTIONS. The Company will not
and will not permit any Subsidiary to:
1. LIENS. Create, assume or suffer to exist (upon the happening of a
contingency or otherwise) any Lien upon any of its properties or assets
(including, without limitation, any documents or instruments in respect of
goods or accounts receivable), whether now owned or hereafter acquired, or
any income or profits therefrom (whether or not provision is made for the
equal and ratable securing of the Notes in accordance with the provisions
of paragraph 5D) or assign or otherwise convey any right to receive income
or profits therefrom, except:
a) Liens in favor of the Collateral Agent securing the
Indebtedness evidenced by the Notes and the payment, performance and
observance of the other obligations under this Agreement and the other
Senior Note Documents;
b) Liens in favor of the Collateral Agent securing the
Indebtedness evidenced by the Medium Term Notes and addressed in the
Security Documents;
c) Liens in favor of the Collateral Agent securing the
Indebtedness evidenced by the Second Priority Notes and the payment,
<PAGE> 27
performance and observance of the other obligations under the Second
Priority Note Agreement and the other Second Priority Note Documents
and addressed in the Security Documents;
d) Liens in favor of the Collateral Agent securing the
Indebtedness evidenced by the Working Capital Notes and addressed in
the Security Documents; and
e) Liens incidental to the conduct of business or the ownership
of properties of the Company and its Subsidiaries (including Liens in
connection with worker's compensation, unemployment insurance and
other like laws (other than ERISA Liens), warehousemen's and
mechanic's liens and statutory landlord's liens) and Liens to secure
the performance of bids, tenders or purchase, construction or sales
contracts, or to secure statutory obligations, property taxes and
assessments or governmental charges, surety or appeal bonds or other
Liens of like general nature which in each case are incurred in the
ordinary course of business and not in connection with the borrowing
of money, the obtaining of advances or credit or the payment of the
deferred purchase price of property and which do not in any event
materially impair the value or use of the property encumbered thereby
in the operation of the business of the Company and its Subsidiaries;
provided in each case, that the obligation secured is not overdue, or,
if overdue, the amount or validity thereof is being contested by the
Company or such Subsidiary on a timely basis in good faith and in
appropriate proceedings, and the Company or a Subsidiary has
established adequate reserves therefor to the extent required by GAAP
on the books of the Company or such Subsidiary;
2. LIMITATION ON INDEBTEDNESS. Create, incur, assume or permit to
exist any Indebtedness other than, without duplication:
a) Indebtedness incurred pursuant to this Agreement, as
evidenced by the Notes, and the guaranty obligations of the Company's
Subsidiaries with respect thereto;
b) Indebtedness incurred pursuant to the Second Priority Note
Agreement, as evidenced by the Second Priority Notes, and the guaranty
obligations of the Company's Subsidiaries with respect thereto;
c) Indebtedness incurred pursuant to the Working Capital Note
Documents, as evidenced by the Working Capital Notes, provided that
the aggregate principal amount of the Working Capital Notes shall not,
at any time, exceed $3,000,000;
d) Indebtedness incurred pursuant to the Acquisition Agreement,
as evidenced by the Seller Notes;
<PAGE> 28
e) Indebtedness evidenced by the Shareholder Notes;
f) Indebtedness consisting of unsecured trade payables incurred
in the ordinary course or business and maturing not more than 90 days
from the date of creation thereof; and
g) Indebtedness of the type described in clause (iii) of the
definition of "Indebtedness," provided that such Indebtedness is
incurred in connection with the leasing of office equipment and the
aggregate amount of such Indebtedness shall not, at any time, exceed
$500,000.
3. CLEAN-UP OF INDEBTEDNESS REPRESENTED BY WORKING CAPITAL NOTES.
Have, at any time, any Indebtedness outstanding under the Working Capital Notes
unless there shall have been during the immediately preceding twelve months a
period of at least 45 consecutive days during which there shall have been no
Indebtedness outstanding under the Working Capital Notes.
4. LOANS, ADVANCES, INVESTMENTS AND CONTINGENT LIABILITIES. Except
as set forth on Schedule 6G(4), make or permit to remain outstanding any loan or
advance (including, without limitation, advances of commission fees) to, or
extend credit (other than trade credit extended in the normal course of business
to any Person that is not a Subsidiary of the Company) to, or make or permit to
remain outstanding any Guarantee in connection with the obligations, stock or
dividends of, or own, purchase or acquire any stock, obligations or securities
of, or any other interest in, or make any capital contribution to, any Person
(any of the foregoing, an "INVESTMENT"), except that the Company or any
Subsidiary may:
a) endorse negotiable instruments for collection in the
ordinary course of business;
b) provide Guarantees with respect to the Indebtedness and
other obligations of the Company and its Subsidiaries under the Senior Note
Documents and the Second Priority Note Documents;
c) own, purchase or acquire (a) certificates of deposit of
commercial banks organized under the laws of the United States or any state
thereof (having capital resources in excess of $100,000,000) (provided that
neither the Company nor any Subsidiary may own, purchase, or acquire more
than $1,000,000 (in face amount) of such certificates of deposit from any
such commercial bank) due within one year from the date of purchase and
payable in the United States in United States dollars which are rated "A"
or better by at least two nationally recognized rating agencies and (b)
obligations of the United States Government, of any state, territory or
possession of the United States of
<PAGE> 29
America or any agency thereof maturing within three years after the
acquisition thereof which are rated in one of the two highest rating
classifications by at least one nationally recognized rating agency;
d) make loans and advances to employees and salespersons of the
Company (who are not shareholders of the Company or any Subsidiary) granted
in the normal and customary course of the Company's business and not to
finance the acquisition of shares of Common Stock of the Company , provided
that loans and advances in the normal and customary course of the Company's
business shall not at any time exceed $400,000;
e) acquire promissory notes of shareholders of the Company in
an aggregate principal amount not to exceed $1,320,000 executed in
connection with such shareholders' purchase of up to approximately
1,400,000 shares of Common Stock repurchased by the Company from H.G.
Smith, provided that such promissory notes are pledged to the Collateral
Agent to the extent required by paragraph 5P; and
f) make non-cash recourse loans to shareholders of the Company
in an aggregate principal amount not to exceed, at any time, $300,000,
provided that such loans may not mature more than three years after the
making thereof and the promissory note(s) representing such loans are
pledged to the Collateral Agent to the extent required by paragraph 5P.
5. CONSOLIDATION, MERGER, TRANSFER OF ASSETS, ACQUISITION, ETC.
Except in connection with the Acquisition and the Reincorporation Merger, (i)
merge or consolidate with or into any Person, (ii) convey, transfer, lease or
otherwise dispose of all or substantially all of its assets to any Person, (iii)
acquire all or substantially all of the assets or capital stock of any other
Person or division thereof, (iv) adopt or effect any plan of reorganization,
recapitalization, liquidation or dissolution except as contemplated by paragraph
5W in the case of BCS Service Corporation or (v) acquire any properties or
assets other than in the ordinary course of business.
6. LIMITATION ON ASSET DISPOSITIONS. Except as permitted under
paragraph 6G(5), make or permit to be made any Asset Disposition, other than the
following:
a) any Asset Disposition involving worthless or obsolete
equipment which is promptly replaced with equipment of comparable
suitability; and
<PAGE> 30
b) any Asset Disposition involving inventory sold in the
ordinary course of business pursuant to customary trade terms.
7. SALE OR DISCOUNT OF RECEIVABLES. Sell with recourse, discount
(other than to the extent of finance and interest charges included therein) or
otherwise sell for less than face value thereof, any of its notes or accounts
receivable, except notes or accounts receivable the collection of which is
doubtful in accordance with general accepted accounting principles.
8. TRANSACTIONS WITH AFFILIATES. Directly or indirectly, purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
or otherwise deal with, in the ordinary course of business or otherwise (i) any
Affiliate, (ii) any Person owning, beneficially or of record, directly or
indirectly, either individually or together with all other Persons to whom such
Person is related by blood, adoption or marriage, stock of the Company (of any
class having ordinary voting power for the election of directors) aggregating 5%
or more of such voting power or (iii) any Person related by blood, adoption or
marriage to any Person described or coming within the provisions of clause (i)
or (ii) of this paragraph 6G(8), except in the ordinary course and pursuant to
the reasonable requirements of the Company's or such Subsidiary's business and
upon fair and reasonable terms no less favorable to the Company or such
Subsidiary than would be obtainable in a comparable arm's-length transaction
with a Person not an Affiliate.
9. LIMITATION ON SALE-LEASEBACK TRANSACTIONS. Enter into any
arrangement with any lender or investor or to which such lender or investor is a
party providing for the leasing by the Company or any Subsidiary of real or
personal property which has been or is to be sold or transferred by the Company
or any Subsidiary to such lender or investor or to any Person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or rental obligations of the Company or any Subsidiary (each such
arrangement, a "SALE-LEASEBACK TRANSACTION").
6H. CHANGE OF FISCAL YEAR. The Company will not and will not permit
any Subsidiary to change its fiscal year from its present fiscal year (fiscal
year end of December 31).
6I. CHANGE OF BUSINESS. The Company will not and will not permit any
Subsidiary to change the general character of its business activities or
operations from its current business activities or operations or to engage in
any business activity or operation not reasonably related to its current
business activities or operations as normally conducted as of the Date of
Closing.
6J. CERTIFICATES OF INCORPORATION; BYLAWS; TRADE NAMES. The Company
will not and will not permit any Subsidiary to amend, alter, modify or restate
its
<PAGE> 31
articles or certificate of incorporation or bylaws in any way which would (i)
change its corporate name or adopt a trade name, or (ii) in any manner adversely
affect the obligations or covenants of the Company and its Subsidiaries
hereunder or under any of the other Senior Note Documents.
6K. OTHER AGREEMENTS. The Company will not and will not permit any of
its Subsidiaries to enter into or permit to exist any agreement (i) which would
cause a Default or Event of Default hereunder or (ii) which contains any
provision which would be violated or breached by the performance of the
obligations of the Company and its Subsidiaries hereunder or under any of the
other Senior Note Documents.
6L. LIMITATION ON CERTAIN RESTRICTIVE AGREEMENTS. The Company will
not, and will not permit any of its Subsidiaries to, enter into or suffer to
exist any contractual obligation, other than the Senior Note Documents and the
Senior Note Documents, which in any way restricts the ability of the Company or
any of its Subsidiaries to (i) create, incur, assume or suffer to exist any Lien
upon any of its property, assets or revenues, (ii) make any prepayments or
purchases of the Notes required under this Agreement, (iii) make any dividends
or distributions, or any payments required under this Agreement or any other
Senior Note Document or (iv) transfer any of its property or assets to the
Company or a Wholly Owned Subsidiary of the Company.
6M. ERISA MATTERS. The Company will not, and will not permit any
Subsidiary or ERISA Affiliate to, adopt a Plan or amend an existing Plan in a
manner that materially increases the total dollar amount of the benefits
provided by the Plans described in Schedule 6M. The Company will not, and will
not permit any Subsidiary or ERISA Affiliate to, permit any Plan maintained by
the Company, any Subsidiary or any ERISA Affiliate (a) to engage in any
"PROHIBITED TRANSACTION" (as defined in ERISA), (b) to incur an "ACCUMULATED
FUNDING DEFICIENCY" (as defined in section 302 of ERISA and section 412 of the
Code), or (c) to terminate such Plan in a manner which could result in the
imposition of a Lien on the property or assets of the Company or any of its
Subsidiaries.
6N. ONLY ONE CLASS OF CAPITAL STOCK. The Company will not, and will
not permit any Subsidiary to, have any class of capital stock other than its
Common Stock or common stock, as the case may be.
6O. PROHIBITION AGAINST PAYMENTS AND PREPAYMENTS OF CERTAIN
INDEBTEDNESS. The Company will not, and will not permit any of its Subsidiaries
to, prepay any Subordinated Debt or any Indebtedness evidenced by the Medium
Term Notes. Upon the occurrence and during the continuance of any Default or
Event of Default, the Company will not, and will not permit any Subsidiary to,
pay any principal of or interest or premium on any Subordinated Debt.
6P. AAA DISTRIBUTION. The Company will not consummate the AAA
Distribution unless (i) the aggregate amount of the AAA Distribution does not
exceed
<PAGE> 32
$4,143,623 and (ii) all recipients of any portion of the AAA Distribution
agree to, and concurrently with the AAA Distribution do, lend their respective
portions of the AAA Distribution to the Company, provided that such loans mature
no earlier than October 31, 2007, are not subject to prepayment other than at
maturity, bear interest at a rate not to exceed 8.50% per annum, are subject to
subordination provisions acceptable in form, scope and substance, to the holders
of the Notes and are not offset (other than on a non-cash basis) by any
obligation of any recipient of any portion of the AAA Distribution to the
Company or any of its Subsidiaries.
6Q. NO SUBSIDIARIES. Notwithstanding anything in this Agreement or
any other Senior Note Document to the contrary, the Company will not create any
Subsidiaries (other than the Wholly Owned Subsidiary described in the definition
of "Reincorporation Merger"); provided, however, that, if the holders of the
Notes consent to the creation of a Subsidiary pursuant to paragraph 11C or the
Company creates the Wholly Owned Subsidiary described in the definition of
"Reincorporation Merger," at the cost and expense of the Company, the Company
will (i) execute and deliver a pledge agreement in favor of the holders of the
Notes and in form, scope and substance satisfactory to the Required Holder(s),
(ii) cause each subsequently acquired or organized Subsidiary (contemporaneously
with such acquisition or organization) to execute and deliver a guaranty
agreement in favor of the holders of Notes and in form, scope and substance
satisfactory to the Required Holder(s), (iii) deliver or cause such Subsidiary
to deliver to the Collateral Agent a certificate representing all capital stock
of, or other equity interests in, such subsequently acquired or organized
Subsidiary, together with an undated stock power or assignment, executed in
blank by a Responsible Officer (or take or cause a Subsidiary to take such other
actions as are necessary to provide the Collateral Agent with a perfected pledge
of or security interest in such capital stock or other equity interests), and
(iv) cause such Subsidiary to secure payment of the Notes and performance and
observance of all other obligations of the Company and its Subsidiaries under
the Senior Note Documents by pledging or creating, or causing to be pledged or
created, perfected security interests and Liens with respect to such of its
assets and properties as the Required Holder(s) shall designate (it being
understood that it is the intent of the parties that such obligations shall be
secured by, among other things, substantially all the property and assets of the
Company and its Subsidiaries (now or hereafter acquired or created), including,
without limitation, real and other properties acquired subsequent to the Date of
Closing). The aforementioned security interests and Liens will be created under
the Security Documents and other security agreements, mortgages, deeds of trust
and other instruments and documents in form, scope and substance satisfactory to
the Required Holder(s) and the Collateral Agent, and the Company will deliver or
cause to be delivered to the Collateral Agent, all such instruments and
documents (including, without limitation, legal opinions, title insurance
policies, surveys and lien searches) as the Required Holder(s) or the Collateral
Agent shall request to evidence compliance with this paragraph 6Q.
<PAGE> 33
6R. RESTRICTIONS ON ISSUANCES OF COMMON STOCK. Except for the
transactions contemplated by paragraph 5Q, the Company will not issue more than
1,300,000 shares (including the 786,659 shares issuable pursuant to options
outstanding prior to January 1, 1997), on a fully diluted basis, of Common Stock
pursuant to current or future profit sharing, stock option, stock purchase,
stock appreciation or deferred compensation plans of the Company.
6S. RESTRICTIONS UPON THE AMENDMENT OF CERTAIN DOCUMENTS. The Company
will not, and will not permit any Subsidiary to, amend any principal office
agreement (including, without, limitation, the provisions related to the sharing
of commissions), any employment agreement, any Acquisition Document, any Share
Repurchase Document, the Shareholders' Agreement, the Settlement Agreement, the
Non-Compete Agreement or any Working Capital Note Document in any manner that
(i) could result in a material adverse change in the business, condition
(financial or otherwise), prospects or operations of the Company and its
Subsidiaries taken as a whole, (ii) could result in a material adverse effect on
the Company and its Subsidiaries as a going concern or (iii) could in any manner
materially adversely affect the obligations or covenants of the Company and its
Subsidiaries hereunder or under any of the other Senior Note Documents.
6T. LIMITATION ON AMOUNT OF S CORPORATION TAX DISTRIBUTIONS.
Notwithstanding any provision in this Agreement to the contrary, (i) no S
Corporation Tax Distributions may be made for any tax period during which the
Company is not an S Corporation and (ii) the aggregate amount of S Corporation
Tax Distributions that may be made by the Company for any period during which
the Company is an S Corporation shall not exceed the product of (A) the maximum
marginal federal income tax rate applicable to individuals under Section 1 of
the Code, plus 3% and (B) the net taxable income and gain of the Company for
such period, less the aggregate amount of unrecovered net taxable losses of the
Company for all prior periods.
6U. PROHIBITION AGAINST PHANTOM STOCK. The Company will not, and will
not permit any Subsidiary to, create any "phantom stock" or any equivalent
thereto (other than pursuant to the Cochlan Phantom Stock Agreement).
6V. REINCORPORATION MERGER. The Company will not amend, and will not
permit its board of directors to consent to the amendment of, its Articles of
Incorporation or its bylaws or any agreement or document to which the Company is
a party in any manner which could require the affirmative vote of the holders of
more than two-thirds of the issued and outstanding shares of Common Stock to
approve the Reincorporation Merger. The Company will not permit its board of
directors to require the affirmative vote of the holders of more than two-thirds
of the issued and outstanding shares of Common Stock to approve the
Reincorporation Merger. Notwithstanding any provision of this Agreement or any
other Senior Note Document to the contrary, prior to or contemporaneously with
the consummation of the Reincorporation Merger, the Company will not issue
shares of Common Stock if the result of such issuance would be
<PAGE> 34
that the holders of at least two-thirds of the issued and outstanding shares of
Common Stock, after giving effect to such issuance, were not parties to the
Shareholders' Agreement as of its effective date.
7. EVENTS OF DEFAULT.
7A. ACCELERATION. If any of the following events shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
a) the Company defaults in the payment of any principal of or Yield
Maintenance Amounts payable with respect to any Note when the same shall
become due, either by the terms thereof or otherwise as herein provided; or
b) the Company defaults in the payment of any interest on any Note
for more than five days after the date due; or
c) the Company or any Subsidiary (a) defaults (whether as primary
obligor or as guarantor or other surety) in any payment of principal of or
interest on any other Indebtedness (or any obligation under notes payable
or drafts accepted representing extensions of credit) beyond any period of
grace provided with respect thereto, (b) fails to perform or observe any
other agreement, term or condition contained in any agreement under which
any such obligation is created (or if any other event thereunder or under
any such agreement shall occur and be continuing) and the effect of such
failure or other event is to cause such obligation to become due (or to be
repurchased by the Company or any Subsidiary) prior to any stated maturity;
provided, that the aggregate amount of all obligations as to which such a
payment default shall occur and be continuing or such a failure or other
event causing acceleration (or sale to the Company or any Subsidiary) shall
occur and be continuing exceeds $100,000; or
d) the Company defaults in the payment of any principal of, premium
payable with respect to or interest on any Seller Note, any Working Capital
Note or any Shareholder Note when the same shall become due, either by the
terms thereof or otherwise as provided in the Acquisition Agreement, the
Working Capital Documents or the Share Repurchase Agreements;
e) any representation or warranty made by the Company or any of its
Subsidiaries herein or in any of the other Senior Note Documents, or by the
Company or any of its officers in any writing furnished in connection with
or pursuant to this Agreement shall be false in any material respect on the
date as of which made; or
<PAGE> 35
f) the Company fails to perform or observe any term, covenant or
agreement contained in paragraph 5M, 5P, 5R, 5S, 5T, 5U or 6 or Section 7
or 8 of the Security Agreement or Section 5 of the Collateral Assignment of
Deposit Accounts; or
g) the Company or any Subsidiary fails to perform or observe any
other agreement, covenant, term or condition contained herein or in any of
the other Senior Note Documents and such failure shall not be remedied (a)
within 30 days after any Responsible Officer obtains (or should have
obtained) knowledge thereof or (b) within 15 days after the Company
receives written notice of such failure from any holder; or
h) the Company or any Subsidiary makes an assignment for the benefit
of creditors or is generally not paying its debts as such debts become due;
or
i) any decree or order for relief in respect of the Company or any
Subsidiary is entered under any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or liquidation
or similar law, whether now or hereafter in effect (the "BANKRUPTCY LAW"),
of any jurisdiction; or
j) the Company or any Subsidiary petitions or applies to any
Tribunal for, or consents to, the appointment of, or taking possession by,
a trustee, receiver, custodian, liquidator or similar official of the
Company or any Subsidiary, or of any substantial part of the assets of the
Company or any Subsidiary, or commences a voluntary case under the
Bankruptcy Law of the United States or any proceedings (other than
proceedings for the voluntary liquidation and dissolution of a Subsidiary)
relating to the Company or any Subsidiary under the Bankruptcy Law of any
other jurisdiction; or
k) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any Subsidiary and the
Company or such Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein, or an order, judgment or decree is
entered appointing any such trustee, receiver, custodian, liquidator or
similar official, or approving the petition in any such proceedings, and
such order, judgment or decree remains unstayed and in effect for more than
60 days; or
l) any order, judgment or decree is entered in any proceedings
against the Company decreeing the dissolution of the Company and such
order, judgment or decree remains unstayed and in effect for more than 30
days; or
m) any order, judgment or decree is entered in any proceedings
against the Company or any Subsidiary decreeing a split-up of the Company
or
<PAGE> 36
such Subsidiary which requires the divestiture of assets representing a
substantial part, or the divestiture of the stock of a Subsidiary whose
assets represent a substantial part, of the consolidated assets of the
Company and its Subsidiaries (determined in accordance with generally
accepted accounting principles) or which requires the divestiture of
assets, or stock of a Subsidiary, which shall have contributed a
substantial part of the Consolidated Net Income for any of the three fiscal
years then most recently ended, and such order, judgment or decree remains
unstayed and in effect for more than 30 days; or
n) any final judgment or order, or series of final judgments or
orders, in an amount in excess of $100,000, is rendered against the Company
or any Subsidiary and either (i) enforcement proceedings have been
commenced by any creditor upon such judgment or order or (ii) within 30
days after entry thereof, such judgment is not discharged or execution
thereof stayed pending appeal, or within 30 days after the expiration of
any such stay, such judgment is not discharged; or
o) any Termination Event with respect to a Plan shall have occurred
and, within 30 days after the occurrence thereof, (a) such Termination
Event (if correctable) shall not have been corrected and (b) the then
present value of such Plan's vested benefits exceeds the then current value
of assets accumulated in such Plan by more than the amount of $100,000 (or
in the case of a Termination Event involving the withdrawal of a
"substantial employer" (as defined in Section 4001(a) (2) of ERISA), the
withdrawing employer's proportionate share of such excess shall exceed such
amount); or
p) the Company or any of its ERISA Affiliates as employer under a
Multiemployer Plan shall have made a complete or partial withdrawal from
such Multiemployer Plan and the plan sponsor of such Multiemployer Plan
shall have notified such withdrawing employer that such employer has
incurred a withdrawal liability in an aggregate amount exceeding $100,000;
or
q) any two of W.T. Wamberg, Mel Todd and Richard Chapman shall no
longer continue to be executive officers of the Company or engaged in the
day-to-day management of the affairs of the Company and its Subsidiaries;
or
r) after July 31, 1998, any two of W.T. Wamberg, Mel Todd, Richard
Chapman and the chief financial officer or chief operating officer of the
Company, as the case may be, shall no longer continue to be executive
officers of the Company or engaged in the day-to-day management of the
affairs of the Company and its Subsidiaries, provided that the absence of
the chief financial officer or the chief operating officer shall not result
in a Default or an Event of Default pursuant to this clause (xviii) unless
the chief financial officer or the chief operating officer is not replaced
within 180 days;
<PAGE> 37
then (a) if such event is an Event of Default specified in clause (i) or (ii) of
this paragraph 7A, the holder of any Note (other than the Company or any of its
Subsidiaries or Affiliates) may at its option, by notice in writing to the
Company, declare such Note to be, and such Note shall thereupon be and become,
immediately due and payable at par together with interest accrued thereon,
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Company, (b) if such event is an Event of Default
specified in clause (ix), (x) or (xi) of this paragraph 7A, all of the Notes at
the time outstanding shall automatically become immediately due and payable
together with interest accrued thereon and together with the Yield Maintenance
Amount, if any, with respect to each Note, without presentment, demand, protest
or notice of any kind, all of which are hereby waived by the Company, and (c) if
such event is not an Event of Default specified in clause (ix), (x) or (xi) of
this paragraph 7A, the holder(s) of 100% of the aggregate principal amount of
the Notes at the time outstanding may at its or their option, by notice in
writing to the Company, declare all of the Notes to be, and all of the Notes
shall thereupon be and become, immediately due and payable together with
interest accrued thereon and together with the Yield Maintenance Amount, if any,
with respect to each Note, without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Company.
The Company acknowledges, and the parties hereto agree, that each holder of
a Note has the right to maintain its investment in the Notes free from repayment
by the Company (except as herein specifically provided for) and that the
provisions for payment of the Yield Maintenance Amount by the Company in the
event that the Notes are prepaid or accelerated as a result of an Event of
Default are intended to provide compensation for the deprivation of such right
under such circumstances.
7B. RECISSION OF ACCELERATION. At any time after any or all of the Notes
shall have been declared immediately due and payable pursuant to paragraph 7A,
the holder(s) of 100% of the aggregate principal amount of the Notes at the time
outstanding may, by notice in writing to the Company, rescind and annul such
declaration and its consequences if (i) the Company shall have paid all overdue
interest on the Notes, the principal of the Notes which has become due otherwise
than by reason of such declaration, and the Yield Maintenance Amount, if any,
with respect to any Notes which has become due otherwise than by reason of such
declaration, and interest on such overdue interest, overdue principal and Yield
Maintenance Amount at the rate specified in the Notes, (ii) the Company shall
not have paid any amounts which have become due solely by reason of such
declaration, (iii) all Events of Default and Defaults, other than non-payment of
amounts which have become due solely by reason of such declaration, shall have
been cured or waived pursuant to paragraph 11C, and (iv) no judgment or decree
shall have been entered for the payment of any amounts due pursuant to the Notes
or this Agreement. No such rescission or annulment shall extend to or affect any
subsequent Event of Default or Default or impair any right arising therefrom.
7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be
declared immediately due and payable pursuant to paragraph 7A or any such
<PAGE> 38
declaration shall be rescinded and annulled pursuant to paragraph 7B, the
Company shall forthwith give written notice thereof to the holder of each Note
at the time outstanding.
7D. RIGHT OF SET-OFF. In addition to any rights and remedies of the
holders of the Notes provided by law (including, without limitation, other
rights of set-off, recoupment or appropriation and application) and upon the
occurrence and continuance of an Event of Default, each holder of a Note shall
have the right, without prior notice to the Company or any of its Subsidiaries,
any such notice being expressly waived by the Company and its Subsidiaries to
the extent permitted by applicable law, upon any amount becoming due and payable
by the Company or any of its Subsidiaries hereunder or under the other Senior
Note Documents or the Second Priority Note Documents (whether at the stated
maturity, by acceleration or otherwise) to set-off, recoup or appropriate and
apply, at any time and from time to time, against such amount, to the extent
permitted by applicable law, any and all commission fees and revenues and any
other credits, indebtedness or claims, in each case whether direct or indirect,
absolute or contingent, matured or unmatured, at any time held or owing or to
become owing by such holder or any affiliate thereof to or for the credit or the
account of the Company or any of its Subsidiaries, whether or not the Collateral
Agent or any holder of a Note has made any demand for payment. Any Person to
whom the holder of any Note has granted a participation pursuant to paragraph
11E of this Agreement shall, to the maximum extent permitted by applicable law,
also have the rights of set-off, recoupment or appropriation and application
provided for in this paragraph 7D in respect of its participating interest, to
the same extent as if the amount of its participating interest were owing
directly to it as a holder of a Note. Each holder of a Note agrees promptly to
notify the Company or any Subsidiary, as applicable, and the Collateral Agent
after any such set-off, recoupment or appropriation and application made by such
holder or, to its knowledge, by a Person to whom such holder has granted such a
participation, provided that, to the extent permitted by applicable law, the
failure to give such notice shall not affect the validity of such set-off,
recoupment or appropriation and application.
7E. NOTICE TO HOLDERS OF SUBORDINATED DEBT; PAYMENT BLOCK. Upon the
occurrence and continuance of any Default or any Event of Default, the Company
shall promptly notify each holder of any Subordinated Debt of such Default and
Event of Default. The Company will not, and will not permit any Subsidiary to,
pay any principal of or interest or premium on any Subordinated Debt during the
continuance of any Default or any Event of Default.
7F. OTHER REMEDIES. If any Event of Default or Default shall occur
and be continuing, (i) the holder of any Note may proceed to protect and enforce
its rights under this Agreement, such Note and the other Senior Note Documents
by exercising such remedies as are available to such holder in respect thereof
under applicable law, either by suit in equity or by action at law, or both,
whether for specific performance of any covenant or other agreement contained in
this Agreement or the other Senior Note Documents or in aid of the exercise of
any power granted in this Agreement or the other Senior Note Documents, and (ii)
both the Collateral Agent and the holders of the Notes
<PAGE> 39
may exercise any rights or remedies in their respective capacities under the
Security Documents in accordance with the provisions thereof. No remedy
conferred in this Agreement or the other Senior Note Documents upon the holder
of any Note or the Collateral Agent is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy conferred herein or now or hereafter existing at
law or in equity or by statute or otherwise.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company
represents, covenants and warrants (giving effect to the Acquisition and the
Share Repurchases) as follows:
8A. ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly organized and validly existing in good standing under the laws of the State
of Texas, and is duly licensed and in good standing as a foreign corporation in
each jurisdiction in which the nature of the business transacted or the property
owned is such as to require licensing or qualification as a foreign corporation.
The Company has no Subsidiaries (other than BCS Service Corporation). BCS
Service Corporation is engaged in the collection of consulting and
administrative service fees relating to nonqualified benefit plans and has total
liabilities (absolute and contingent) of less than $30,000. The execution,
delivery and performance by the Company of the Notes, this Agreement, the other
Senior Note Documents, the Share Repurchase Documents, the Acquisition
Documents, the Settlement Agreement and the Shareholders' Agreement to which it
is a party are within the Company's corporate powers and have been duly
authorized by all necessary corporate action.
8B. FINANCIAL STATEMENTS. The Company has furnished each
Purchaser with the following financial statements, identified by a principal
financial officer of the Company: (a) (i) a balance sheet of the Company as at
December 31 in each of the years 1992 to 1996, inclusive, and statements of
income, stockholders' equity and cash flows of the Company for each such year,
all reported on by Lane, Gorman and Trubitt, (ii) a balance sheet of the Company
as at June 30 in each of the years 1996 and 1997 and statements of income,
stockholders' equity and cash flows for the three-month period ended on each
such date, prepared by the Company and (iii) a balance sheet of the Acquired
Company as at June 30, 1997 and statements of income, stockholders' equity and
cash flows for the three-month period ended on such date, prepared by the
Acquired Company and (b) (i) a pro forma balance sheet of the Company (after
giving effect to the Acquisition and the Share Repurchases and including a
breakdown by each division of the Company) as at December 31, 1996 and pro forma
statements of income, stockholder's equity and cash flows of the Company (after
giving effect to the Acquisition and the Share Repurchases and including a
breakdown by each division of the Company) for such year, prepared by the
Company, and (ii) a pro forma balance sheet of the Company (after giving effect
to the Acquisition and the Share Repurchases and including a breakdown by each
division of the Company) as at June 30, 1997 and pro forma statements of income,
<PAGE> 40
stockholders' equity and cash flow of the Company (after giving effect to the
Acquisition and the Share Repurchases and including a breakdown by each division
of the Company) for the three-month period ended on such date, prepared by the
Company. Such financial statements (including any related schedules and/or
notes) are true and correct in all material respects (subject, as to interim
statements, to changes resulting from audits and year-end adjustments), have
been prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods involved and show all liabilities,
direct and contingent, of the Company required to be shown in accordance with
such principles. The balance sheets fairly present the historical or pro forma,
as the case may be, condition of the Company or the Acquired Company, as the
case may be, as at the dates thereof, and the statements of income,
stockholders' equity and cash flows fairly present the, historical or pro forma,
as the case may be, results of the operations of the Company or the Acquired
Company, as the case may be, and its cash flows for the periods indicated. There
has been no material adverse change in the business, condition (financial or
otherwise), prospects or operations of the Company since December 31, 1996.
8C. ACTIONS PENDING. Other than as described on Schedule 8C, there is no
action, suit, investigation or proceeding pending or, to the knowledge of the
Company, threatened against the Company, or any properties or rights of the
Company, by or before any court, arbitrator or administrative or governmental
body which, if adversely determined, might result in a liability of greater than
$100,000 or might otherwise result in any material adverse change in the
business, condition (financial or otherwise), prospects or operations of the
Company. There is no action, suit, investigation or proceeding pending or
threatened against the Company which purports to affect the validity or
enforceability of this Agreement, any Note, any of the other Senior Note
Documents, any of the Acquisition Documents, any of Share Repurchase Documents,
the Settlement Agreement or the Shareholders' Agreement.
8D. OUTSTANDING INDEBTEDNESS. The Company does not have outstanding any
Indebtedness except as permitted by paragraphs 6A, 6D and 6G(2) and all of which
is described in Schedule 8D attached hereto. There exists no default under (and
no waiver of default is currently in effect with respect to) the provisions of
any instrument evidencing such Indebtedness or of any agreement relating
thereto, and no event or condition exists with respect to any Indebtedness of
the Company that would permit (or that with notice or the lapse of time, or
both, would permit) one or more Persons to cause such Indebtedness to become due
and payable before its stated maturity or before its regularly scheduled dates
of payment.
8E. TITLE TO PROPERTIES. The Company has good and marketable title to its
real property (other than property which it leases) and good title to all of its
other properties and assets, including the properties and assets reflected in
the pro forma balance sheet as at June 30, 1997 referred to in paragraph
8B(b)(ii) (other than properties and assets disposed of in the ordinary course
of business), subject to no Lien of any kind except Liens permitted by paragraph
6G(1). All leases necessary in any material respect
<PAGE> 41
for the conduct of the business of the Company are valid and subsisting and are
in full force and effect.
8F. POSSESSION OF FRANCHISES, LICENSES, PATENTS, AND TRADEMARKS. The
Company possesses all franchises, certificates, licenses, permits and other
authorizations from governmental political subdivisions or regulatory
authorities, free from burdensome restrictions, that are necessary in any
material respect for the ownership, maintenance and operation of its properties
and assets, and the Company is not in violation of any thereof in any material
respect. The Company owns or possesses all licenses, permits, franchises,
authorizations, patents, copyrights, service marks, trademarks, trade dress,
logos, corporate names and trade names and rights thereto, that individually or
in the aggregate are material, without known conflict with the rights of others.
To the best knowledge of the Company, no product of the Company infringes in any
material respect any license, permit, franchise, authorization, patent,
copyright, service mark, trademark, trade name, trade dress, logo, corporate
name or other right owned by any other Person. To the best knowledge of the
Company, there is no material violation by any Person of any right of the
Company with respect to any patent, copyright, service mark, trademark, trade
name, trade dress, logo, corporate name or other right owned or used by the
Company.
8G. TAXES. The Company has filed all federal, state and other income
tax returns which, to the knowledge of the officers of the Company, are required
to be filed, and has paid all taxes as shown on such returns and on all
assessments received by it, and has paid, collected and withheld all other taxes
which are otherwise required to be paid, collected or withheld on or prior to
the date hereof, except such taxes as are being contested in good faith by
appropriate proceedings and for which adequate reserves have been established in
accordance with generally accepted accounting principles. There are no
unsatisfied actual or proposed adjustments or assessments for taxes against the
Company or, to the knowledge of the Company, any basis for any such assessment
or adjustment. There are no pending audits, actions, proceedings, disputes,
claims or, to the Company's knowledge, investigations with respect to any taxes
payable by or asserted against the Company. The Company has not received notice
from any governmental authority of its intent to examine or audit any tax
returns of the Company. The Company has been subject to a valid and effective
election to be an S corporation, within the meaning of section 1361(a)(1) of the
Code from the date of its organization to the date hereof, and such S
corporation election has not been terminated (within the meaning of section
1362(d) of the Code) at any time on or prior to the date hereof. As of the date
hereof, the Company does not have any amounts of "net unrealized built-in gain"
(within the meaning of section 1374(d) of the Code) on which the Company would
be required to pay taxes under Section 1374(a) of the Code if the Company were
to sell any of its assets at any time on or after the date hereof.
8H. CONFLICTING AGREEMENTS AND OTHER MATTERS. The Company is not a
party to any contract or agreement or subject to any charter or other corporate
restriction which materially and adversely affects its business, property or
assets, prospects
<PAGE> 42
or financial condition. The execution and delivery of this Agreement, the Notes,
the Security Documents (collectively, the "NOTE DOCUMENTS"), the Acquisition
Documents, the Share Repurchase Documents, the Settlement Agreement and the
Shareholders' Agreement (the Note Documents, the Acquisition Documents, the
Share Repurchase Documents, the Settlement Agreement and the Shareholders'
Agreement are collectively, the "TRANSACTION DOCUMENTS") by the Company, the
offering, issuance and sale of the Notes, the Seller Notes, the Working Capital
Notes and the Shareholder Notes (as defined in clauses (a) and (c) of the
definition of Shareholder Notes) by the Company and the conversion of the
Convertible Subordinated Notes and the fulfillment of and compliance with the
respective provisions of the Transaction Documents by the Company do not and
will not conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under, or result in any violation of, or
result in the creation of any Lien (except Liens created under the Security
Documents and any Liens created pursuant to Section 3 of the Medium Term Notes)
upon any of the properties or assets of the Company (including Purchased Assets,
as such term is defined in the Acquisition Agreement) pursuant to, or require
any authorization, consent, approval, exemption or other action by or notice to
or filing with any court, administrative or governmental body or other Person
(other than (a) routine filings after the date hereof with the Securities and
Exchange Commission and/or state Blue Sky authorities, (b) those recordations
and filings with respect to the Security Documents as are set forth in the
opinion of Keith Staudt, General Counsel of the Company, delivered pursuant to
paragraph 3A(vi)hereof and (c) other consents and approvals required by the
assignment of various licenses and contracts pursuant to the Acquisition
Agreement) or result in the revocation, suspension, limitation or imposition of
any material condition upon the license of the Company to act as a life
insurance agent in the State of Texas pursuant to the Texas Insurance Code
(other than pursuant to Art. 21.07-1 of the Texas Insurance Code (but only with
respect to the issuance of the shares of Common Stock upon the exercise of the
Warrants) or any similar license required or granted by any administrative or
governmental body or other Person pursuant to, the Articles of Incorporation or
bylaws of the Company, any applicable law (including, without limitation, any
insurance, securities or Blue Sky law), statute, rule or regulation or any
agreement (including, without limitation, (i) any Acquisition Document, any
Share Repurchase Document, the Shareholders' Agreement or the Settlement
Agreement, (ii) any agreement referred to in Schedule 8Z or any other material
agreement of the Company or the Acquired Company, if any, and (iii) any
agreement (other than the Note Documents) set forth or listed in any schedule or
exhibit to, or specifically referred to in, any Acquisition Document, any Share
Repurchase Document, the Shareholders' Agreement or the Settlement Agreement or
any instrument, order, judgment or decree to which the Company is a party or
otherwise subject (including, without limitation, by virtue of its assumption of
liabilities under the Acquisition Agreement). The Company is not a party to, or
otherwise subject to any provision contained in, any instrument evidencing
Indebtedness of the Company, any agreement relating thereto or any other
contract or agreement (including its charter) which limits the amount of, or
otherwise imposes restrictions on the incurring of, Indebtedness of the Company
of the type to be evidenced by the Notes except as set forth in the agreements
listed in Schedule 8H(1).
<PAGE> 43
8I. OFFERING OF THE NOTES. Neither the Company nor any agent acting
on its behalf has, directly or indirectly, offered the Notes or any similar
security of the Company for sale to, or solicited any offers to buy the Notes or
any similar security of the Company from, or otherwise approached or negotiated
with respect thereto with, any Person other than institutional investors, and
neither the Company nor any agent acting on its behalf has taken or will take
any action which would subject the issuance or sale of the Notes to the
provisions of section 5 of the Securities Act or to the provisions of any
securities or Blue Sky law of any applicable jurisdiction.
8J. USE OF PROCEEDS. The Company does not own or have any present
intention of acquiring any "MARGIN STOCK" as defined in Regulation G (12 CFR
Part 207) of the Board of Governors of the Federal Reserve System ("MARGIN
STOCK"). Approximately $13,500,000 of the proceeds of sale of the Notes will be
used to fund the Acquisition with the remainder to be used for general corporate
purposes including, without limitation, to repurchase and retire Common Stock of
the Company pursuant to the Share Repurchases. None of such proceeds will be
used, directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any margin stock or for the purpose of
maintaining, reducing or retiring any Indebtedness which was originally incurred
to purchase or carry any stock that is currently a margin stock or for any other
purpose which might constitute this transaction a "PURPOSE CREDIT" within the
meaning of such Regulation G. Neither the Company nor any agent acting on its
behalf has taken or will take any action which might cause this Agreement or the
Notes to violate Regulation G or any other regulation of the Board of Governors
of the Federal Reserve System or to violate the Exchange Act, in each case as in
effect now or as the same may hereafter be in effect.
8K. ERISA. No accumulated funding deficiency (as defined in section
302 of ERISA and section 412 of the Code), whether or not waived, exists with
respect to any Plan (other than a Multiemployer Plan). No liability to the PBGC
has been or is expected by the Company or any ERISA Affiliate to be incurred
with respect to any Plan (other than a Multiemployer Plan) by the Company or any
ERISA Affiliate which is or would be materially adverse to the business,
condition (financial or otherwise), prospects or operations of the Company.
Neither the Company nor any ERISA Affiliate has incurred or presently expects to
incur any withdrawal liability under Title IV of ERISA with respect to any
Multiemployer Plan which is or would be materially adverse to the business,
condition (financial or otherwise), prospects or operations of the Company. The
execution and delivery of this Agreement and the issuance and sale of the
Securities will be exempt from, or will not involve any transaction which is
subject to, the prohibitions of section 406 of ERISA and will not involve any
transaction in connection with which a penalty could be imposed under section
502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the Code.
The representation by the Company in the next preceding sentence is made in
reliance upon and subject to the accuracy of the representation of each
Purchaser in paragraph 9B as to the source of funds to be used by it to purchase
any Note.
<PAGE> 44
8L. GOVERNMENTAL CONSENT. Neither the nature of the Company, nor any
of its businesses or properties, nor any relationship between the Company and
any other Person, nor any circumstance in connection with the offering,
issuance, sale or delivery of the Notes is such as to require any authorization,
consent, approval, exemption or other action by or notice to or filing with any
court or administrative or governmental or regulatory body (other than routine
filings after the Date of Closing with the Securities and Exchange Commission
and/or state Blue Sky authorities) in connection with the execution and delivery
of this Agreement, the other Senior Note Documents, the Share Repurchase
Documents, the Acquisition Documents, the Settlement Agreement or the
Shareholders' Agreement and the offering, issuance, sale or delivery of the
Notes or fulfillment of or compliance with the terms and provisions of this
Agreement or of the Notes.
8M. ENVIRONMENTAL COMPLIANCE. The Company and all of its properties
and facilities have complied at all times and in all respects with all federal,
state, local and regional statutes, laws, ordinances and judicial or
administrative orders, judgments, rulings and regulations relating to protection
of the environment except, in any such case, where failure to comply could not
result in a material adverse effect on the business, condition (financial or
otherwise) or operations of the Company.
8N. FISCAL YEAR. The fiscal year of the Company ends as of December 31
of each year.
8O. DISCLOSURE. Neither this Agreement, the other Senior Note
Documents nor any other document, certificate or statement furnished to any
Purchaser by or on behalf of the Company in connection herewith contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein and therein not misleading.
There is no fact peculiar to the Company which materially adversely affects or
in the future may (so far as the Company can now foresee) materially adversely
affect the business, property or assets, or financial condition of the Company
and which has not been set forth in this Agreement, the other Senior Note
Documents or in the other documents, certificates and statements furnished to
any Purchaser by or on behalf of the Company prior to the date hereof in
connection with the transactions contemplated hereby. The pro forma financial
projections dated as of September 3, 1997 and previously delivered to the
Purchasers by the Company are reasonable based on the assumptions stated therein
and the best information available to the officers of the Company. The Company
and the Acquired Company have disclosed the material terms of all existing
transactions with Affiliates to the Purchasers.
8P. INVESTMENT COMPANY ACT. Neither the Company nor any Person
controlling the Company is an "INVESTMENT COMPANY," or a company "controlled" by
an "INVESTMENT COMPANY," within the meaning of the Investment Company Act of
1940, as amended.
<PAGE> 45
8Q. OTHER REGULATION. Neither the Company nor any Person controlling
the Company is subject to regulation under any federal or state statute or
regulation, as amended from time to time, which limits the ability of (i) the
Company to issue the Notes or (ii) the Company to perform its respective
obligations under this Agreement, the other Senior Note Documents, the Share
Repurchase Documents, the Acquisition Documents, the Settlement Agreement or the
Shareholders' Agreement.
8R. ACQUISITION, SHARE REPURCHASE, SETTLEMENT AGREEMENT AND
SHAREHOLDERS' AGREEMENT REPRESENTATIONS AND WARRANTIES. To induce the Purchasers
to enter into this Agreement and to purchase the Notes, the Company agrees that
the Purchasers shall be entitled to rely upon each of the representations and
warranties set forth in any of the Acquisition Documents, any of the Share
Repurchase Documents, the Settlement Agreement and the Shareholders' Agreement,
as fully as if set forth in this Agreement.
8S. SOLVENCY. The Company is Solvent, both before and after giving
effect to this Agreement, the other Senior Note Documents, the Second Priority
Note Documents, the Share Repurchase Documents and the Acquisition Documents,
and to the transactions contemplated hereby and thereby.
8T. EMPLOYMENT AGREEMENTS, NON-COMPETITION AGREEMENTS AND PRINCIPAL
OFFICE AGREEMENTS. Schedule 8T describes all material employment agreements,
non-competition agreements and principal office agreements to which the Company
is a party. All of the material employment agreements, non-competition
agreements and principal office agreements described on Schedule 8T are in full
force and effect and no default thereunder or violation of any of the provisions
thereof exists.
8U. INSURANCE LICENSES. All Insurance Licenses of the Company are
listed on Schedule 8U and are in full force and effect. No proceeding or
customer complaint has been filed with insurance regulatory authorities which
could reasonably be expected to lead to revocation, failure to renew,
limitation, suspense or restriction of any such Insurance License.
8V. UNDISCLOSED LIABILITIES. The Company does not have any Liability
(and there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against it giving
rise to any Liability), except for (i) Liabilities set forth on the face of the
pro forma balance sheet of the Company dated as of June 30, 1997 described in
paragraph 3A(xxii)(a)(ii) and disclosed in any notes thereto and (ii)
Liabilities which have arisen after June 30, 1997 in the Ordinary Course of
Business (none of which results from, arises out of, relates to, is in the
nature of, or was caused by any breach of a contract, breach of warranty, tort,
infringement, or violation of law).
8W. LEGAL COMPLIANCE. The Company and each of its shareholders,
officers, independent contractors, subagents, consultants and employees who are
required by reason of the nature of their employment by the Company to be
registered or appointed
<PAGE> 46
as an insurance agent, insurance broker or insurance producer with the insurance
department of any state or any self-regulatory body or other governmental
entity, is duly registered or appointed as such and such registration or
appointment is in full force and effect, and neither the Company nor any such
other Persons has been enjoined, indicted, convicted or made the subject of any
consent decree or administrative order on account of any material violation of
applicable law in connection with such Person's actions in any of the foregoing
capacities or, any enforcement or disciplinary proceeding alleging any such
violation.
8X. CERTAIN TAX MATTERS. The Company is not now and has never been
(i) a member of an Affiliated Group filing a consolidated federal income Tax
Return or (ii) responsible for any Liability for the taxes of any Person (other
than the Company) as a transferee or successor, by contract, by operation of
law, or otherwise.
8Y. SALES REPRESENTATIVES. To the Company's knowledge, the
shareholders, directors and officers (and employees with responsibility for
sales matters) of the Company and the Acquired Company, and all sales
representatives currently marketing the Company's and the Acquired Company's
insurance policies under Representative Agreements (other than William Chatfield
and Bennett Meyer) are expected to continue to perform such services after the
Date of Closing, and none has expressed an intention or desire to cease such
sales activities.
8Z. CONTRACTS. Except as set forth in Schedule 8Z, the Company is not
a party to, or bound by:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of $20,000 per annum;
(ii) any agreement (or group of related agreements) for the purchase
or sale of supplies, products, or other personal property, or for the
furnishing or receipt of services, the performance of which will extend
over a period of more than one year, result in a material loss to the
Company, or involve consideration in excess of $25,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it has
created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any Capitalized Lease Obligation, or under which it has imposed a
Lien on any of its assets, tangible or intangible, except for the Liens
permitted by paragraph 6G(1);
<PAGE> 47
(v) any agreement concerning confidentiality or noncompetition other
than with the Acquired Company or insurance carriers and others regarding
product development;
(vi) any agreement or arrangement with any of the shareholders of the
Acquired Company;
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement (including, without limitation, any plan or arrangement with
respect to phantom stock or any equivalent thereto) for the benefit of its
current or former directors, officers, and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $50,000 or providing severance benefits or which
is not terminable at the will of the Company;
(x) any agreement or arrangement under which it has advanced or loaned
any amount to any of its directors, officers, and employees;
(xi) any agreement under which the consequences of a default or
termination could have a material adverse effect on the business, condition
(financial or other), prospects or operations of the Company; or
(xii) any other agreement (or group of related agreements), including
Vendors' Contracts, the performance of which involves consideration in
excess of $10,000.
With respect to each agreement described in Schedule 8Z attached hereto: (A)
such agreement is legal, valid, binding, enforceable, and in full force and
effect; (B) such agreement will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the Acquisition, the Share Repurchases and the transactions
contemplated by this Agreement and the other Senior Note Documents; (C) no party
is in breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default, or permit termination, modification,
or acceleration, under such agreement; and (D) no party has repudiated any
provision of such agreement. The Company is not a party to any oral agreement.
8AA. ASSIGNMENT OF INSURANCE CONTRACTS. The Company has no reason to
believe that the notices and consents required to assign the Insurance Contracts
to the Company as provided in Section 7(b) of the Acquisition Agreement will not
be obtained.
<PAGE> 48
8BB. SATISFACTION OF CONDITIONS PRECEDENT TO THE ACQUISITION, THE
SHARE REPURCHASES, THE SETTLEMENT AGREEMENT AND THE SHAREHOLDERS' AGREEMENT.
All of the conditions precedent to the effectiveness of the Acquisition
Documents, the Share Repurchase Documents, the Settlement Agreement and the
Shareholders' Agreements have been satisfied. None of the conditions precedent
to the effectiveness of the Acquisition Documents, the Share Repurchase
Documents, the Settlement Agreement and the Shareholders' Agreements have been
waived without the express written consent of each of the Purchasers.
8CC. COMPLIANCE WITH LAWS. The Company has complied with all
applicable laws, rules, regulations and orders (including those relating to
protection of the environment) except, in any such case, where failure to comply
could not have a material adverse effect on the business, condition (financial
or otherwise), operations or prospects of the Company.
8DD. CONDITION OF PROPERTY. All of the property of the Company is in
good repair, working order and condition so that the business carried on in
connection therewith may be properly and advantageously conducted at all times
in the normal course of business.
8EE. BOOKS AND RECORDS. The Company has at all times maintained proper
books of record and account in which full, true and correct entries have been
made in accordance with GAAP.
8FF. ADDITIONAL DISCLOSURE. Schedule 8FF(1) is a true, correct and
complete schedule of all properly accrued performance bonuses payable to
employees and independent sales representatives and agents of the Company.
Schedule 8FF(2) is a true, correct and complete schedule of all Plans and
Multiemployer Plans of the Company and any ERISA Affiliates. Schedule 8FF(3) is
a true, correct and complete schedule of all trademarks, service marks, trade
dress, logos, trade names and corporate names of the Company, together with all
translations, adaptations, derivations and combinations thereof, and all
applications, registrations and renewals in connection therewith.
8GG. REINCORPORATION MERGER. The Company intends to consummate the
Reincorporation Merger no later than March 9, 1999. Neither the Articles of
Incorporation or the bylaws of the Company nor any agreement or document to
which the Company is a party nor any applicable law (including, without
limitation, the Texas Business Corporation Act), statute, rule or regulation
requires the affirmative vote of the holders of more than two-thirds of the
issued and outstanding shares of Common Stock to approve the Reincorporation
Merger. The consummation of the Reincorporation Merger could not have a material
adverse effect on the business, condition (financial or other), assets,
properties, operations or prospects of the Company.
<PAGE> 49
8HH. SATISFACTION OF CONDITIONS PRECEDENT. All of the conditions
precedent to the effectiveness of this Agreement have been satisfied or waived
in writing by each of the Purchasers.
8II. CERTAIN AFFILIATES. The arrangements contemplated by paragraph 5X
are lawful and are customary and are recognized in the industry and
jurisdictions in which the Company operates or proposes to operate, directly or
in conjunction with Affiliates.
9. REPRESENTATIONS OF EACH PURCHASER. Each Purchaser represents as
follows:
9A. NATURE OF PURCHASE. Such Purchaser is not acquiring the Notes to
be purchased by it hereunder with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act, provided that the
disposition of such Purchaser's property shall at all times be and remain within
its control.
9B. SOURCE OF FUNDS. Such Purchaser represents that at least one of
the following statements is an accurate representation as to each source of
funds (a "SOURCE") to be purchased by such Purchaser hereunder:
(i) the Source constitutes assets of a general account maintained
by an insurance company, and the use of such Source for the purchase
of the Notes is permitted by the terms of Prohibited Transaction Class
Exemption 95-60; or
(ii) the Source is either (a) an insurance company pooled
separate account, within the meaning of Prohibited Transaction
Exemption ("PTE") 90-1 (issued January 29, 1990), or (b) a bank
collective investment fund, within the meaning of the PTE 91-38
(issued July 12, 1991) and, except as such Purchaser has disclosed to
the Company in writing pursuant to this clause (ii), no employee
benefit plan or group of plans maintained by the same employer or
employee organization beneficially owns more than 10% of all assets
allocated to such pooled separate account or collective investment
fund; or
(iii) the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning
of Part V of the QPAM Exemption), no employee benefit plan's assets
that are included in such investment fund, when combined with the
assets of all other employee benefit plans established or maintained
by the same employer or by an affiliate (within the meaning of Section
V(c)(1) of the QPAM Exemption) of such employer or by the same
employee organization and managed by such QPAM, exceed 20% of the
total client assets managed by such QPAM, the conditions of Part I(c)
and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a
person controlling or controlled
<PAGE> 50
by the QPAM (applying the definition of "control" in Section V(e) of
the QPAM Exemption) owns a 5% or more interest in the Company and (a)
the identity of such QPAM and (b) the names of all employee benefit
plans whose assets are included in such investment fund have been
disclosed to the Company in writing pursuant to this clause (iii); or
(iv) the Source is a governmental plan; or
(v) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Company in
writing pursuant to this clause (v); or
(vi) the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA.
As used in this paragraph 9B, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL
PLAN", "PARTY IN INTEREST" and "SEPARATE ACCOUNT" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
10. DEFINITIONS. For the purpose of this Agreement, the terms defined
in the introductory sentence and in paragraphs 1 and 2 shall have the respective
meanings specified therein, and the following terms shall have the meanings
specified with respect thereto below (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
10A. YIELD MAINTENANCE TERMS.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the principal
of such Note that is to be prepaid pursuant to paragraph 4C or is declared to be
immediately due and payable pursuant to paragraph 7A, as the context requires.
"DISCOUNTED VALUE" shall mean, with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due dates
to the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
"REINVESTMENT YIELD" shall mean, with respect to the Called Principal of
any Note, 0.50% over the yield to maturity implied by (a) the yields reported,
as of 10:00 a.m. (New York City time) on the second Business Day next preceding
the Settlement Date with respect to such Called Principal, on the display
designated as "PAGE 678" on the
<PAGE> 51
Telerate Service (or such other display as may replace Page 678 on the Telerate
Service) for actively traded U.S. Treasury securities having a maturity equal to
the Remaining Average Life of such Called Principal as of such Settlement Date,
or if such yields shall not be reported as of such time or the yields reported
as of such time shall not be ascertainable, (b) the Treasury Constant Maturity
Series yields reported, for the latest day for which such yields shall have been
so reported as of the second Business Day next preceding the Settlement Date
with respect to such Called Principal, in Federal Reserve Statistical Release
H.15 (519) (or any comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date. Such implied yield
shall be determined, (x) if necessary, by (1) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted financial
practice and (2) interpolating linearly between (I) the actively traded U.S.
Treasury security with the maturity closest to and greater than the Remaining
Average Life and (II) the actively traded U.S. Treasury security with the
maturity closest to and less than the Remaining Average Life and (y) by
converting all such implied yields to a payment basis in accordance with
accepted financial practice.
"REMAINING AVERAGE LIFE" shall mean, with respect to the Called
Principal of any Note, the number of years (calculated to the nearest
one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the
sum of the products obtained by multiplying (a) each Remaining Scheduled Payment
of such Called Principal (but not of interest thereon) by (b) the number of
years (calculated to the nearest one-twelfth year) which will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due date
of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to its
scheduled due date.
"SETTLEMENT DATE" shall mean, with respect to the Called Principal of
any Note, the date on which such Called Principal is to be prepaid pursuant to
paragraph 4C or is declared to be immediately due and payable pursuant to
paragraph 7A, as the context requires.
"YIELD MAINTENANCE AMOUNT" shall mean,
(i) with respect to any amount prepaid pursuant to paragraph 4B (a) 4% of the
principal amount so prepaid if such prepayment date is prior to one year after
the Date of Closing, (b) 3% of the principal amount so prepaid if such
prepayment date is one year or longer, but less than two years, after the Date
of Closing, (c) 2% of the principal amount so prepaid if such prepayment date is
two years or longer, but less than three years, after the Date of Closing, (d)
1% of the principal amount so prepaid if such prepayment date is three years or
longer, but less than four years, after the Date of Closing and (e) 0% of the
<PAGE> 52
principal amount so prepaid if such prepayment date is four years or longer
after the Date of Closing; and
(ii) with respect to any amount prepaid pursuant to any other provision of this
Agreement (including, without limitation, pursuant to paragraph 4C or upon
acceleration pursuant to paragraph 7A), an amount equal to the excess, if any,
of the Discounted Value of the Called Principal of such Note over the sum of (i)
such Called Principal plus (ii) interest accrued thereon as of (including
interest due on) the Settlement Date with respect to such Called Principal. The
Yield Maintenance Amount shall in no event be less than zero.
10B. OTHER TERMS
"AAA DISTRIBUTION" shall mean the proposed $0.60 per share
distribution to the shareholders of record of Common Stock on October 31, 1997.
"AAA DISTRIBUTION NOTES" shall mean the subordinated
promissory notes of the Company to evidence the Company's borrowing from its
shareholders of the proceeds of the AAA Distribution in an aggregate principal
amount not to exceed $4,143,623 upon terms and conditions and subject to
documentation satisfactory in all respects to the holders of the Notes.
"ACQUIRED COMPANY" shall mean Bank Compensation Strategies,
Inc., a Minnesota corporation.
"ACQUISITION" shall mean the acquisition by the Company of
all or substantially all of the assets of the Acquired Company and the
assumption by the Company of certain liabilities of the Acquired Company
pursuant to the Acquisition Documents.
"ACQUISITION AGREEMENT" shall mean that certain Asset
Purchase Agreement among the Company, the Acquired Company and certain
individuals dated as of September 5, 1997.
"ACQUISITION DOCUMENTS" shall mean the Acquisition Agreement
and all other written agreements, documents, instruments and certificates now or
hereafter executed and delivered by any Person which are required by the terms
of the Acquisition Agreement to be delivered to consummate the Acquisition, and
any and all amendments, supplements and other modifications thereof and all
renewals, extensions, restatements or substitutions from time to time of all or
any of the foregoing.
"AFFILIATE" shall mean at any time, and with respect to any
Person, (i) any other Person that at such time directly or indirectly through
one or more intermediaries Controls, or is Controlled by, or is under common
Control with, such first Person, and (ii) any Person beneficially owning or
holding, directly or indirectly, 10% or more of any class of voting or equity
interests of the Company or any Subsidiary or any corporation of
<PAGE> 53
which the Company and its Subsidiaries beneficially own or hold, in the
aggregate, directly or indirectly, 10% or more of any class of voting or equity
interests. As used in this definition, "CONTROL" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. Unless the context otherwise clearly requires, any
reference to an "AFFILIATE" is a reference to an Affiliate of the Company.
"AFFILIATED GROUP" shall mean an affiliated group within the
meaning of Section 1504(a) of the Code.
"ANNUALIZED CASH FLOW" shall mean, at any time, (i) prior to
September 30, 1998, Cash Flow for the period commencing September 1, 1997
through to such date, annualized in accordance with accepted financial practice;
and (ii) on or after September 30, 1998, Cash Flow for the most recently ended
four fiscal quarters.
"ASSET DISPOSITION" shall mean, with respect to the Company
or any Subsidiary, any transaction or series of related transactions in which
such Person sells, conveys, transfers or leases (as lessor) or parts with
control of (collectively, for purposes of this definition, a "TRANSFER"),
directly or indirectly, any of its property or assets, including, without
limitation, any Indebtedness of any Subsidiary or capital stock of or other
equity interests in any Subsidiary (including the issuance of such stock or
other equity interests by such Subsidiary), other than transfers of cash or cash
equivalents.
"ASSIGNMENT OF LIFE INSURANCE POLICY" shall mean,
collectively, those certain Assignment of Life Insurance Policy, dated September
9, 1997, executed and delivered by the Company and W. T. Wamberg to the
Collateral Agent, substantially in the form of Exhibit E-1 and E-2 attached
hereto, respectively, as the same may be amended, supplemented and otherwise
modified from time to time.
"BANKRUPTCY LAW" shall have the meaning specified in clause
(ix) of paragraph 7A.
"BASIS" shall mean any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
"BUSINESS DAY" shall mean any day on which banks are open for
business in New York City (other than a Saturday, a Sunday or a legal holiday)
in the State of New York.
"C CORPORATION" shall mean a corporation, or an association
taxable as a corporation under the Code, other than an S Corporation.
<PAGE> 54
"CAPITAL LEASE" shall mean a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"CAPITAL LEASE OBLIGATION" shall mean, with respect to any
Person and a Capital Lease, the amount of the obligation of such Person as the
lessee under such Capital Lease which would, in accordance with GAAP, appear as
a liability on a balance sheet of such Person.
"CASH FLOW" shall mean, for any period, (a) the sum of (i)
Consolidated Net Income, plus Interest Charges and consolidated taxes,
depreciation, amortization and other non-cash charges to income of the Company
and its Subsidiaries for such period, but only to the extent deducted in the
determination of Consolidated Net Income, less (b) consolidated deferred taxes
or other non-cash items which constitute non-cash contributions to Consolidated
Net Income, excluding in each case all extraordinary and non-recurring items.
"CASH FLOW" for any period shall be determined after giving effect to
acquisitions and dispositions of assets by the Company or any of its
Subsidiaries during such period as if such acquisitions and dispositions had
occurred on the first day of such period.
"CHANGE IN CONTROL" shall mean (i) (a) the failure of the
members of the Control Group to own, on a fully diluted basis, at least 23% of
the then issued and outstanding Common Stock, or (b) the sale (in a single sale
or a series of sales) by the members of the Control Group of any shares of
Common Stock held as of the Date of Closing or thereafter in excess of 500,000
shares or (ii) any person (as such term is defined in Section 13(d) and Section
14(d)(2) of the Exchange Act as in effect on the Date of Closing) or related
persons constituting a group (as such term is used in Rule 13d-5 under the
Exchange Act as in effect on the Date of Closing) own, at any time, on a fully
diluted basis, as the result of a single transaction or a series of
transactions, at least 30% of the then issued and outstanding shares of Common
Stock.
"CLOSING" or "DATE OF CLOSING" shall have the meaning
specified in paragraph 2A.
"COCHLAN PHANTOM STOCK AGREEMENT" shall mean that certain
Phantom Stock Agreement dated as of September 5, 1997, between Steven J. Cochlan
and the Company.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
"COLLATERAL" shall mean the collateral described in the
Security Documents which secures payment of the Notes and payment, performance
and observance of the obligations of the Company and its Subsidiaries under this
Agreement and the other Senior Note Documents.
<PAGE> 55
"COLLATERAL AGENT" shall mean Texas Commerce Bank, in its
capacity as Collateral Agent for the Acquired Company and the holders of Notes,
the Second Priority Notes and the Medium Term Notes, as provided under the
Collateral Agency Agreement, and its successors and assigns as such Collateral
Agent.
"COLLATERAL AGENCY AGREEMENT" shall mean that certain
Collateral Agency Agreement, dated as of September 9, 1997 by and among the
Company, the Acquired Company, the Collateral Agent and the holders of the
Notes, the Second Priority Notes and the Medium Term Notes, substantially in the
form of Exhibit F attached hereto, as the same may be amended, supplemented and
otherwise modified from time to time.
"COLLATERAL ASSIGNMENT OF DEPOSIT ACCOUNTS" shall mean that
certain collateral assignment of deposit accounts between the Collateral Agent
and the Company and each of its Subsidiaries to be entered into after the Date
of Closing in conjunction with the execution and delivery of the Lockbox
Agreements collaterally assigning the Lockbox Accounts to the Collateral Agent,
in form, scope and substance satisfactory to the holders of the Notes, as the
same may be amended, supplemented and otherwise modified from time to time.
"COMMISSION FEES" shall mean, at any time, 60% of the future
commission fees of the Company and its Subsidiaries payable under products whose
persistency rate is greater than 90% over the last five calendar years exclusive
of products (such as leveraged COLI) whose federal, state or local tax
advantages have been materially decreased pursuant to federal, state or local
legislation or regulations promulgated thereunder; provided, however, that at
any time 180 days after the Date of Closing, such future commission fees shall
not include any such fees which are payable pursuant to contracts or agreements
for which the Company or any of its Subsidiaries have not obtained consents to
the assignment or transfer thereof (unless such consents are not required by
applicable law (such as New York Uniform Commercial Code Section 9-318(4)).
"COMMON STOCK" shall have the meaning specified in paragraph
1B of the Second Priority Note Agreement.
"COMPETITOR" shall mean any Person specified in Schedule A
attached hereto.
"CONFIDENTIAL INFORMATION" shall mean any material non-public
information regarding the Company that is provided to any holder of any Note,
any Person that purchases a participation in a Note and any offeree of a Note or
a participation therein pursuant to this Agreement other than information (i)
which was publicly known or otherwise known to such holder, such Person or such
offeree at the time of disclosure, (ii) which subsequently becomes publicly
known through no act or omission of such holder, such Person or such offeree or
(iii) which otherwise becomes known to such holder, such Person or such offeree
other than through disclosure by the Company or any Subsidiary.
<PAGE> 56
"CONTROL GROUP" shall mean W.T. Wamberg and The Wamberg
Organization, Inc., an Illinois corporation.
"CONSOLIDATED NET INCOME" shall mean, with reference to any
period, the net income (or loss) of the Company and its Subsidiaries for such
period (taken as a cumulative whole), as determined in accordance with GAAP,
after deducting, among other items, commission expenses of the Company and its
Subsidiaries and after eliminating all offsetting debits and credits between the
Company and its Subsidiaries and all other items required to be eliminated in
the course of preparation of consolidated financial statements of the Company
and its Subsidiaries in accordance with GAAP, provided that there shall be
excluded:
a) any net income or gain (but not any net loss)
during such period from any extraordinary items (including, without
limitation, proceeds of life insurance policies),
b) the net loss or any undistributed earnings of any
Subsidiary that is not consolidated with the Company in accordance
with GAAP for financial accounting purposes,
c) the net income (or loss) of any Person accrued
prior to the date it becomes a Subsidiary or is merged into or
consolidated with the Company or a Subsidiary, and the net income
(or loss) of any Person, substantially all of the assets of which
have been acquired in any manner, realized by such other Person
prior to the date of acquisition,
d) any aggregate net gain (but not any aggregate net
loss) during such period arising from the sale, conversion, exchange
or other disposition of capital assets (such term to include, without
limitation, (a) all non-current assets and, without duplication, (b)
the following, whether or not current: all fixed assets, whether
tangible or intangible, all inventory sold in conjunction with the
disposition of fixed assets, and all securities), and
e) any non-cash net income or gain (but not any net
loss) during such period from (a) any one-time change in accounting
principles in accordance with GAAP or (b) any prior period adjustments
resulting from any one-time change in accounting principles in
accordance with GAAP.
"CONSOLIDATED NET WORTH" shall mean, at any time,
a) the sum of (a) the par value (or value stated on
the books of the corporation) of the capital stock (but excluding
treasury stock and capital stock subscribed and unissued) of the
Company and its Subsidiaries plus (b) the amount of paid-in capital
and retained earnings of the Company and its Subsidiaries, in each
case as such amounts would be shown on a consolidated balance sheet of
the
<PAGE> 57
Company and its Subsidiaries as of such time prepared in accordance
with GAAP, minus
b) to the extent included in clause (i), all amounts
properly attributable to minority interests, if any, in the stock and
surplus of Subsidiaries.
"CONVERTIBLE SUBORDINATED NOTES" shall mean the unsecured
convertible subordinated promissory notes of the Company in the aggregate
principal amount of $4,800,000, issued to the Acquired Company in connection
with the Acquisition, upon terms and conditions satisfactory in all respects to
the holders of the Notes.
"DISCOUNTED COMMISSION FEES" shall mean, at any time, the
amount obtained by discounting all Commission Fees payable to the Company and
its Subsidiaries for a five year period from their respective scheduled payment
dates to the date of determination, in accordance with accepted financial
practice and at a discount factor (applied on an annual basis) equal to 10% per
annum.
"EBIT" shall mean, for any period, the sum of (i)
Consolidated Net Income plus (ii) to the extent deducted in the determination of
Consolidated Net Income, (a) all provisions for federal, state and other income
tax for such period, and (b) Interest Charges.
"ENDORSEMENT CONTRACTS" shall mean the Agreement dated March
1, 1993, between the Acquired Company, and the Corporation for American Banking,
a subsidiary of the American Bankers Association, as amended, and similar
endorsement contracts between the Acquired Company or the Company, as the case
may be, and any state banking association pursuant to which the Acquired Company
or the Company, as the case may be, is appointed the exclusive supplier and
marketer of benefit and salary plans for financial institutions.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
"ERISA AFFILIATE" shall mean any corporation which is a
member of the same controlled group of corporations as the Company within the
meaning of section 414(b) of the Code, or any trade or business which is under
common control with the Company within the meaning of section 414(c) of the
Code.
"EVENT OF DEFAULT" shall mean any of the events specified in
paragraph 7A, provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of time, or
the happening of any further condition, event or act, and "DEFAULT" shall mean
any of such events, whether or not any such requirement has been satisfied.
<PAGE> 58
"EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
"EXISTING BANK FACILITY" shall mean the $2,000,000 line of
credit made available to the Company pursuant to that certain Line of Credit
Agreement dated as of March 28, 1996 between Comerica Bank-Texas and the
Company.
"FIXED CHARGES" shall mean, with respect to any period, the
sum of (i) Interest Charges, (ii) Lease Rentals, and (iii) the aggregate amount
of principal payments on Indebtedness of the Company and its Subsidiaries made
or to be made during such period.
"FIXED CHARGES COVERAGE RATIO" shall mean, at any time, (i)
prior to September 30, 1998, the ratio of (a) the sum of Cash Flow and Lease
Rentals for the period commencing September 1, 1997 through such date,
annualized in accordance with accepted financial practice, to (b) Fixed Charges
for such period, annualized in accordance with accepted financial practice, and
(ii) on or after September 30, 1998, the ratio of (a) the sum of Cash Flow and
Lease Rentals for the four most recently ended fiscal quarters to (b) Fixed
Charges for the four most recently ended fiscal quarters.
"GAAP" shall have the meaning specified in paragraph 10C.
"GENERAL AGENT'S CONTRACTS" shall mean the agreements between
the Company or the Acquired Company, as the case may be, and insurance companies
for the purpose of soliciting applications for insurance and recruiting
producers to solicit applications for insurance.
"GUARANTEE" shall mean, with respect to any Person, any
obligation (except the endorsement in the ordinary course of business of
negotiable instruments for deposit or collection) of such Person guaranteeing or
in effect guaranteeing (whether by reason of being a general partner of a
partnership or otherwise) any indebtedness, dividend or other obligation of any
other Person in any manner, whether directly or indirectly, including (without
limitation) obligations incurred through an agreement, contingent or otherwise,
by such Person:
(i) to purchase such indebtedness or obligation or any
property constituting security therefor;
(ii) to advance or supply funds (a) for the purchase or
payment of such indebtedness or obligation, or (b) to maintain any
working capital or other balance sheet condition or any income
statement condition of any other Person or otherwise to advance or make
available funds for the purchase or payment of such indebtedness or
obligation;
<PAGE> 59
(iii) to lease properties or to purchase properties or
services primarily for the purpose of assuring the owner of such
indebtedness or obligation of the ability of any other Person to make
payment of the indebtedness or obligation; or
(iv) otherwise to assure the owner of such indebtedness or
obligation against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the
obligor under any Guarantee, the indebtedness or other obligations that are the
subject of such Guarantee shall be assumed to be direct obligations of such
obligor.
"INDEBTEDNESS" shall mean, with respect to any Person, at any
time, without duplication,
(i) its liabilities for borrowed money;
(ii) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable arising in
the ordinary course of business but including all liabilities created
or arising under any conditional sale or other title retention
agreement with respect to any such property);
(iii) all liabilities appearing on its balance sheet in
accordance with GAAP in respect of Capital Leases;
(iv) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether or not it
has assumed or otherwise become liable for such liabilities);
(v) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its
account by banks and other financial institutions (whether or not
representing obligations for borrowed money);
(vi) Swaps of such Person; and
(vii) any Guarantee of such Person with respect to
liabilities of a type described in any of clauses (i) through (vi)
hereof.
Indebtedness of any Person shall include all obligations of such Person
of the character described in clauses (i) through (vii) to the extent such
Person remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP.
"INDEPENDENT ACCOUNTANT" shall mean Ernst & Young LLP or
another "Big Six" independent accounting firm selected by the Company.
<PAGE> 60
"INSURANCE CONTRACTS" shall mean the Endorsement Contracts,
the General Agent's Contracts, the Producer's Contracts, the Representative
Agreements and the Servicing Agreements.
"INSURANCE LICENSES" shall mean any license, certificate of
authority, permit or other authorization granted to the Company by any
governmental authority to engage in any life insurance brokerage or agency
business.
"INTEREST CHARGES" shall mean, with respect to any period, the
sum (without duplication) of the following (in each case, eliminating all
offsetting debits and credits between the Company and its Subsidiaries and all
other items required to be eliminated in the course of the preparation of
consolidated financial statements of the Company and its Subsidiaries in
accordance with GAAP): (i) all interest in respect of Indebtedness of the
Company and its Subsidiaries (including imputed interest on Capital Lease
Obligations) deducted in determining Consolidated Net Income for such period,
and (ii) all debt discount and expense amortized or required to be amortized in
the determination of Consolidated Net Income for such period.
"INTEREST COVERAGE RATIO" shall mean, at any time, (i) prior
to September 30, 1998, the ratio of (a) EBIT for the period commencing September
1, 1997 through such date, annualized in accordance with accepted financial
practice to (b) Interest Charges for such period, annualized in accordance with
accepted financial practice and (ii) on or after September 30, 1998, the ratio
of (a) EBIT for the four immediately preceding fiscal quarters to (b) Interest
Charges for the four immediately preceding fiscal quarters.
"INVESTMENT" shall have the meaning specified in paragraph
6G(4).
"LEASE RENTALS" shall mean, with respect to any period, the
sum of the minimum amount of rental and other obligations required to be paid
during such period by the Company or any Subsidiary as lessee under all leases
of real or personal property (other than Capital Leases), excluding any amounts
required to be paid by the lessee (whether or not therein designated as rental
or additional rental) which are on account of maintenance and repairs,
insurance, taxes, assessments, water rates and similar charges, but including
any amounts required to be paid by the lessee (whether or not therein designated
as rental or additional rental) which are based on profits, revenues or sales
realized by the lessee from the leased property or otherwise based on the
performance of the lessee.
"LETTERS OF INTENT" shall mean that certain memorandum dated
August 29, 1997 from Richard Chapman to Jim Radosavich regarding "Continued
Efforts and Production of BCS Sale Representatives After the Merger" and that
certain letter dated September 4, 1996, from Larry Hendrickson to Mel Todd
regarding the same.
"LIABILITIES" shall mean any liability (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether
accrued or
<PAGE> 61
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for taxes.
"LIEN" shall mean any mortgage, pledge, priority, security
interest, encumbrance, contractual deposit arrangement, lien (statutory or
otherwise) or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any lease in
the nature thereof, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction) or any other
type of preferential arrangement for the purpose, or having the effect, of
protecting a creditor against loss or securing the payment or performance of an
obligation.
"LITIGATION" shall mean the shareholder derivative action
described in the Settlement Agreement.
"LOCKBOX ACCOUNTS" shall mean the joint lockbox accounts of
the Company and each of its Subsidiaries created pursuant to the Lockbox
Agreements.
"LOCKBOX AGREEMENTS" shall mean those certain lockbox
agreements between the Collateral Agent and the Company and each of its
Subsidiaries creating a joint lockbox account with respect to commission fees
and revenues payable to the Acquired Company and a joint lockbox account with
respect to commission fees and revenues payable to the Company to be executed
and delivered pursuant to paragraph 5M, in form, scope and substance
satisfactory to the holders of the Notes, as the same may be amended,
supplemented and otherwise modified from time to time.
"MEDIUM TERM NOTE" shall mean the secured promissory notes of
the Company in the aggregate principal amount of $5,700,000, upon terms and
conditions satisfactory in all respects to the holders of the Notes.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a
"MULTIEMPLOYER PLAN" (as such term is defined in section 4001(a)(3) of ERISA).
"NON-COMPETE AGREEMENT" shall mean that certain Non-Compete
and Confidentiality Agreement, dated as of September 4, 1997, between the
Company and W.T. Wamberg.
"NOTES" shall have the meaning specified in paragraph 1A.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the
name of the Company by its President, one of its Vice Presidents or its
Treasurer.
"ORDINARY COURSE OF BUSINESS" shall mean the ordinary course
of business consistent with past custom and practice (including with respect to
quantity and frequency).
<PAGE> 62
"PARTICIPATION RIGHTS AGREEMENT" shall mean the Participation
Rights Agreement, dated September 9, 1997, substantially in the form of Exhibit
F to the Second Priority Note Agreement, by and among the Purchasers, the
Company and the holders of Common Stock listed on Schedule I thereto, as the
same may be amended, supplemented or otherwise modified from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any successor entity.
"PERFECTION CERTIFICATE" shall mean the Perfection
Certificate, dated September 9, 1997 and executed and delivered by the Company
to the holders of the Notes, substantially in the form of Exhibit G attached
hereto.
"PERSON" shall mean and include an individual, a partnership,
a joint venture, a corporation, a trust, a limited liability company, an
unincorporated organization and a government or any department or agency
thereof.
"PLAN" shall mean any "EMPLOYEE PENSION BENEFIT PLAN" (as such
term is defined in section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company or
any ERISA Affiliate.
"PRODUCER'S CONTRACTS" shall mean the agreements entered into
between the Acquired Company or the Company, as the case may be, and insurance
companies for the procurement or submission of insurance policies and variable
annuity contracts.
"PROPOSED PREPAYMENT DATE" shall have the meaning specified in
clause (iii) of paragraph 4C.
"PUT RIGHTS AGREEMENT" shall mean that certain Put Rights
Agreement, dated as of September 9, 1997, by and among the Company and the
Purchasers, substantially in the form of Exhibit G to the Second Priority Note
Agreement, as the same may be amended, supplemented and otherwise modified from
time to time.
"QPAM EXEMPTION" shall mean Prohibited Transaction Class
Exemption 84-14 issued by the United States Department of Labor.
"QUALIFIED INSTITUTIONAL BUYER" shall mean a "QUALIFIED
INSTITUTIONAL BUYER" as such term is defined in Rule 144A under the Securities
Act.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration
Rights Agreement, dated September 9, 1997, substantially in the form of Exhibit
H to the Second Priority Note Agreement, by and between the Purchasers and the
Company.
"REINCORPORATION MERGER" shall mean the merger of the Company
with and into a Wholly Owned Subsidiary which is a corporation incorporated in
the State of
<PAGE> 63
Delaware (or such other state of the United States of America as may be selected
in good faith by the board of directors of the Company provided that such state
of incorporation is one in which the presence of the holders of the Notes as
shareholders of the Company does not result in adverse legal consequences under
the laws of such state or any other jurisdiction in which the survivor of such
merger will conduct or proposes to conduct its business), is the survivor of
such merger and, prior to the consummation of the Reincorporation Merger,
possesses a nominal capitalization.
"REPRESENTATIVE AGREEMENTS" shall mean the agreements entered
into between the Acquired Company or the Company, as the case may be, and
independent representatives for the marketing of compensation and benefit plans
to financial institutions.
"REQUIRED HOLDER(S)" shall mean the holder or holders of at
least 66 2/3% of the aggregate principal amount of the Notes from time to time
outstanding.
"RESPONSIBLE OFFICER" shall mean the chief executive officer,
chief operating officer, chief financial officer or chief accounting officer of
the Company or any other officer of the Company involved principally in its
financial administration or its controllership function.
<PAGE> 64
"RESTRICTED PAYMENT" shall mean (i) the declaration of any
dividend on, or the incurrence of any liability to make any other payment or
distribution in respect of any capital stock or equity equivalent (except, in
the case of a Subsidiary, dividends or other payments or distributions in
respect of its capital stock or equity to the Company or a Wholly Owned
Subsidiary) or (ii) the distribution on account of the purchase, redemption or
other retirement of any such capital stock or equity equivalent (except, in the
case of a Subsidiary, purchases, redemptions or other retirements of its capital
stock from the Company or a Wholly Owned Subsidiary). "RESTRICTED PAYMENT" shall
not include (a) any of the Share Repurchases, (b) so long as no Default or Event
of Default exists prior thereto or would exist immediately after giving effect
thereto, the AAA Distribution and, for any tax period during which the Company
is an S corporation, quarterly S Corporation Tax Distributions to shareholders
of the Company solely to satisfy the income tax liability of such shareholders
with respect to taxable income of the Company for such period, (c) so long as no
Default or Event of Default exists prior thereto or would exist immediately
after giving effect thereto, redemptions of Common Stock pursuant to the
Shareholders' Agreement which are not payable with life insurance proceeds as
provided in Section 6 of the Shareholders' Agreement, provided that the
aggregate, cumulative amount of such redemptions may not exceed $1,000,000, (d)
after receipt of the life insurance proceeds with respect thereto, redemptions
of Common Stock pursuant to the Shareholder's Agreement which are payable with
life insurance proceeds as provided in Section 6 of the Shareholders' Agreement,
(e) the incurrence of any liability to make any payment or distribution in
respect of the phantom stock issued pursuant to the Cochlan Phantom Stock
Agreement as in effect on the Date of Closing and (f) the distribution on
account of the purchase, redemption or other retirement of the phantom stock
issued pursuant to the Cochlan Phantom Stock Agreement as in effect on the Date
of Closing.
"REVENUE MAINTENANCE EVENT" shall mean the occurrence of
either (i) an event in which W.T. Wamberg is no longer a principal of the
Company, (ii) prior to September 30, 1998, an event in which gross revenues (net
of commission expenses) of the Company and its Subsidiaries for the four
immediately preceding fiscal quarters (consisting of actual gross revenues (net
of commission expenses) for fiscal quarters ending after September 30, 1997 and
pro forma gross revenues (net of commission expenses) (giving effect to the
Acquisition and the Share Repurchases) for fiscal quarters ending prior to or on
September 30, 1997) do not exceed $16,000,000, or (iii) on or after September
30, 1998, an event in which gross revenues (net of commission expenses) of the
Company and its Subsidiaries for the four immediately preceding fiscal quarters
do not exceed $16,000,000.
"S CORPORATION" shall mean an S corporation described Section
1361(a)(1) of the Code.
"S CORPORATION TAX DISTRIBUTIONS" shall mean distributions by
the Company to its shareholders solely to satisfy the income tax liability of
such shareholders
<PAGE> 65
with respect to the taxable income of the Company for tax periods in which the
Company is an S Corporation.
"SALE-LEASEBACK TRANSACTION" shall have the meaning specified
in paragraph 6G(9).
"SECOND PRIORITY NOTE AGREEMENT" shall mean the Note and
Warrant Purchase Agreement, dated of even date herewith, by and between the
Purchasers and the Company, providing for the issuance, sale and purchase of the
Second Priority Notes, as the same may be amended, supplemented and otherwise
modified from time to time.
"SECOND PRIORITY NOTE DOCUMENTS" shall mean the Second
Priority Note Agreement, the Second Priority Notes, the Warrants, the
Participation Rights Agreement, the Registration Rights Agreement, the Put
Rights Agreement, the Security Documents and all other instruments,
certificates, documents and other writings now or hereafter executed and
delivered by the Company or any other Person pursuant to or in connection with
any of the foregoing or any of the transactions contemplated thereby, and any
and all amendments, supplements and other modifications to any of the foregoing.
"SECOND PRIORITY NOTES" shall mean the Second Priority Senior
Secured Notes due 2004 of the Company, dated of even date with the Notes, issued
and sold to the Purchasers on the Date of Closing pursuant to the Second
Priority Note Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SECURITY AGREEMENTS" shall mean the Security Agreement, dated
as of the Date of Closing and executed and delivered by the Company to the
Collateral Agent, substantially in the form of Exhibit H attached hereto, and
all security agreements hereafter executed by any Subsidiary as contemplated
under paragraph 6Q, as each may be amended, supplemented and otherwise modified
from time to time.
"SECURITY DOCUMENTS" shall mean the Security Agreements, the
Collateral Agency Agreement, the Assignment of Life Insurance Policy and the
Collateral Assignment of Deposit Accounts and all financing statements,
assignments, pledges, lien entry forms, documents and other writings executed
and delivered from time to time to secure the Notes and the obligations owed to
the holders of Notes in connection therewith (including, without limitation
those executed and delivered pursuant to paragraph 6Q), and any and all
amendments, supplements and other modifications thereto.
"SELLER NOTES" shall mean the Medium Term Notes and the
Convertible Subordinated Notes.
"SENIOR NOTE DOCUMENTS" shall mean this Agreement, the Notes,
the Security Documents and all other instruments, certificates, documents and
other writings now or hereafter executed and delivered by the Company, any
Subsidiary or any other
<PAGE> 66
Person pursuant to or in connection with any of the foregoing or any of the
transactions contemplated thereby, and any and all amendments, supplements and
other modifications to any of the foregoing.
"SERVICING AGREEMENTS" shall mean the servicing agreements
between the Acquired Company or the Company, as the case may be, and insureds
with respect to the servicing of insurance contracts.
"SETTLEMENT AGREEMENT" shall mean that certain Clark/Bardes,
Inc./Cochlan Group Settlement Agreement, dated as of August 22, 1997, by and
among the Company, the Wamberg Group and the Cochlan Group (each as defined
therein), as the same may be amended, supplemented and otherwise modified from
time to time.
"SHARE REPURCHASES" shall mean the share repurchases
contemplated under the Share Repurchase Agreements.
"SHARE REPURCHASE AGREEMENTS" shall mean that certain Stock
Purchase Agreement dated as of August 22, 1997 entered into between the Company
and Malcolm N. Briggs, Steven J. Cochlan, G.F. Pendleton, III and Donald R.
Teasley and the certain Stock Purchase Agreement dated as of August 22, 1997
between the Company and Henry J. Smith, as the same may be amended, supplemented
and otherwise modified from time to time.
"SHARE REPURCHASE DOCUMENTS" shall mean the Share Repurchase
Agreements and all other written agreements, documents, instruments and
certificates now or hereafter executed and delivered by any Person which are
required by the terms of either of the Share Repurchase Agreements to be
delivered to consummate the Share Repurchases, and any and all amendments,
supplements and other modifications thereof and all renewals, extensions,
restatements or substitutions from time to time of all or any of the foregoing.
"SHAREHOLDER NOTES" shall mean (a) the unsecured, subordinated
promissory notes of the Company in an aggregate principal amount of $837,943
issued as partial consideration for the Share Repurchases, upon terms and
conditions and subject to documentation satisfactory in all respects to the
holders of the Notes, (b) the AAA Distribution Notes and (c) the unsecured,
subordinated promissory notes of the Company in an aggregate principal amount of
$337,042 issued to H.J. Smith as partial consideration for the Share Repurchase
effected pursuant to the Share Repurchase Agreement to which H.J. Smith is a
party.
"SHAREHOLDERS' AGREEMENT" shall mean that certain Second
Amended and Restated Shareholders' Agreement and Voting Agreement dated as of
August 22, 1997, by and among the Company and the individuals parties thereto,
as the same may be amended, supplemented and otherwise modified from time to
time.
<PAGE> 67
"SOLVENT" shall mean, with respect to any Person as of the
date of any determination, that on such date (a) the fair value of the property
of such Person (both at fair valuation and at present fair saleable value) is
greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person, (b) the present fair saleable value of
the assets of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured, (c) such Person is able to realize upon its assets and pay its
debts and other liabilities, contingent obligations and other commitments as
they mature in the normal course of business, (d) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature and (e) such Person
is not engaged in business or a transaction, and is not about to engage in
business or a transaction, for which such Person's property would constitute
unreasonably small capital after giving due consideration to current and
anticipated future capital requirements and current and anticipated future
business conduct and the prevailing practice in the industry in which such
Person is engaged. In computing the amount of contingent liabilities at any
time, such liabilities shall be computed at the amount which, in light of the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"SPECIAL AUDIT" shall mean those certain agreed procedure
letters prepared by Ernst & Young LLP each dated August 27, 1997 with respect to
Renewal Commission and Renewal Fee Schedules of the Company and Renewal and
Service Fee Income Schedules of the Acquired Company as described therein.
"SUBORDINATED DEBT" shall mean the Convertible Subordinated
Notes and the Shareholder Notes.
"SUBSIDIARY" shall mean, as to any Person, any corporation,
association or other business entity in which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient
equity or voting interests to enable it or them (as a group) ordinarily, in the
absence of contingencies, to elect a majority of the directors (or Persons
performing similar functions) of such entity, and any partnership or joint
venture if more than a 50% interest in the profits or capital thereof is owned
by such Person or one or more of its Subsidiaries or such Person and one or more
of its Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"SUBSIDIARY" is a reference to a Subsidiary of the Company.
"SWAPS" shall mean with respect to any Person, payment
obligations with respect to interest rate swaps, currency swaps and similar
obligations obligating such Person to make payments, whether periodically or
upon the happening of a contingency. For the purposes of this Agreement, the
amount of the obligation under any Swap shall be the amount determined in
respect thereof as of the end of the then most recently ended fiscal quarter of
such Person, based on the assumption that such Swap had terminated at
<PAGE> 68
the end of such fiscal quarter, and in making such determination, if any
agreement relating to such Swap provides for the netting of amounts payable by
and to such Person thereunder or if any such agreement provides for the
simultaneous payment of amounts by and to such Person, then in each such case,
the amount of such obligation shall be the net amount so determined.
"TAX ADVISORY MEMORANDUM" shall mean the memorandum of Ernst &
Young LLP received prior to the Date of Closing by the Company relating to (i)
the ability of the Company to obtain a "stepped up" basis in the intangible
assets of the Acquired Company equal to the amount the Company pays for such
assets, and (ii) the ability of the Company to amortize, for federal income tax
purposes, the cost basis of such intangible assets.
"TAX RETURN" shall mean any return, declaration, report, claim
for refund, or information return or statement relating to taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"TERMINATION EVENT" shall mean (i) a Reportable Event
described in Section 4043 of ERISA and the regulations issued thereunder (other
than a Reportable Event not subject to the provision for 30-day notice to the
PBGC under such regulations), or (ii) the withdrawal of the Company or any of
its ERISA Affiliates from a Plan during a plan year in which it was a
"SUBSTANTIAL EMPLOYER" as defined in Section 4001(a)(2) of ERISA, or (iii) the
filing of a notice of intent to terminate a Plan or the treatment of a Plan
amendment as a termination under Section 4041 of ERISA, or (iv) the institution
of proceedings to terminate a Plan by the PBGC, or (v) any other event or
condition that might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
"TOTAL DEBT" shall mean, at any time, the Indebtedness
represented by the Notes and the Senior Notes.
"TRANSFEREE" shall mean any direct or indirect transferee of
all or any part of any Note purchased by any Purchaser under this Agreement.
"TRIBUNAL" shall mean any municipal, state, commonwealth,
federal, foreign, territorial or other sovereign, governmental entity,
governmental department, court, commission, board, bureau, agency or
instrumentality.
"VENDORS' CONTRACTS" shall mean obligations of continued
performance under executory vendor purchase orders for the purchase of supplies,
equipment or services entered into in the Ordinary Course of Business and under
which the supplies, equipment or services subject thereto have not been received
by the Acquired Company prior to the closing of the Acquisition.
<PAGE> 69
"WARRANTS" shall have the meaning specified in paragraph 1B of
the Second Priority Note Agreement.
"WHOLLY OWNED SUBSIDIARY" shall mean any Subsidiary all of the
equity interests (except directors' qualifying shares) of which are owned,
directly or indirectly, by the Company or other Wholly Owned Subsidiaries.
"WORKING CAPITAL NOTE DOCUMENTS" shall mean the Working
Capital Notes and all other written agreements, documents, instruments and
certificates now or hereafter executed and delivered by any Person in connection
with the revolving working capital facility described in paragraph 5S, and any
and all amendments, supplements and other modifications thereof and all
renewals, extensions, restatements or substitutions from time to time of all or
any of the foregoing.
"WORKING CAPITAL NOTES" shall mean the promissory notes
evidencing the Indebtedness incurred pursuant to the revolving working capital
facility described in paragraph 5S.
10C. ACCOUNTING PRINCIPLES; TERMS AND DETERMINATIONS. All
references in this Agreement to "GAAP" shall be deemed to refer to generally
accepted accounting principles in effect in the United States at the time of
application thereof. Unless otherwise specified herein, all accounting terms
used herein shall be interpreted, all determinations with respect to accounting
matters hereunder shall be made, and all unaudited financial statements and
certificates and reports as to financial matters required to be furnished
hereunder shall be prepared, in accordance with generally accepted accounting
principles, applied on a basis consistent with the most recent audited
consolidated financial statements of the Company and its Subsidiaries delivered
pursuant to clause (ii) of paragraph 5A or, if no such statements have been so
delivered, the most recent audited financial statements referred to in clause
(a) of paragraph 8B. Wherever reference is made in any provision of this
Agreement to a consolidated balance sheet or other consolidated financial
statement or financial computation with respect to the Company and its
Subsidiaries, if at the time that any such provision is applicable the Company
shall not have any Subsidiary, such terms shall mean a balance sheet or other
financial statement or financial computation, as the case may be, with respect
to the Company only.
11. MISCELLANEOUS
11A. NOTE PAYMENTS. So long as any Purchaser shall hold any Note,
the Company will make payments of principal of and interest on such Note, which
comply with the terms of this Agreement, by wire transfer of immediately
available funds for credit (not later than 12:00 noon, New York City time, on
the date due) to such Purchaser's account or accounts as specified in the
Purchaser Schedule attached hereto, or such other
<PAGE> 70
account or accounts in the United States as such Purchaser may designate in
writing, notwithstanding any contrary provision herein or in any Note with
respect to the place of payment. Each Purchaser agrees that, before disposing of
any Note, such Purchaser will make a notation thereon (or on a schedule attached
thereto) of all principal payments previously made thereon and of the date to
which interest thereon has been paid. The Company agrees to afford the benefits
of this paragraph 11A to any Transferee which shall have made the same agreement
as each Purchaser has made in this paragraph 11A.
11B. EXPENSES. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save each Purchaser, any
Transferee and the Collateral Agent harmless against liability for the payment
of, all out-of-pocket expenses arising in connection with such transactions,
including (i) all document production and duplication charges and the fees and
expenses of any special counsel engaged by such Purchaser, such Transferee or
the Collateral Agent in connection with this Agreement, the transactions
contemplated hereby and any subsequent proposed modification of, or proposed
consent under, this Agreement or the other Senior Note Documents, whether or not
such proposed modification shall be effected or proposed consent
<PAGE> 71
granted, and (ii) the costs and expenses, including attorneys' fees, incurred by
such Purchaser, such Transferee or the Collateral Agent in enforcing (or
determining whether or how to enforce) any rights under this Agreement, the
Notes or the other Senior Note Documents or in responding to any subpoena or
other legal process or informal investigative demand issued in connection with
this Agreement, the other Senior Note Documents or the transactions contemplated
hereby or thereby, or by reason of such Purchaser's or such Transferee's having
acquired any Note, including without limitation costs and expenses incurred in
any bankruptcy case. The obligations of the Company under this paragraph 11B
shall survive the transfer of any Note or portion thereof or interest therein by
such Purchaser or any Transferee, the payment of any Note, the enforcement,
amendment or waiver of any provision of this Agreement or the other Senior Note
Documents, and the termination of this Agreement or any of the other Senior Note
Documents.
11C. CONSENT TO AMENDMENTS. This Agreement and any of the other
Senior Note Documents may be amended, and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it, if
the Company shall obtain the written consent to such amendment, action or
omission to act, of the Required Holder(s) except that, without the written
consent of the holder or holders of all Notes at the time outstanding, no
amendment to this Agreement shall change the maturity of any Note, or change the
principal of, or the rate or time of payment of interest on any Note, or affect
the time, amount or allocation of any prepayments, or change the proportion of
the principal amount of the Notes required with respect to any consent,
amendment, waiver or declaration. Each holder of any Notes at the time or
thereafter outstanding shall be bound by any consent authorized by this
paragraph 11C, whether or not such Notes shall have been marked to indicate such
consent, but any Notes issued thereafter may bear a notation referring to any
such consent. No course of dealing between the Company and the holder of any
Notes nor any delay in exercising any rights hereunder or under any Notes shall
operate as a waiver of any rights of any holder of such Notes. As used herein
and in the Notes, the term "THIS AGREEMENT" and references thereto shall mean
this Agreement as it may from time to time be amended or supplemented.
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST
NOTES.The Notes are issuable as registered notes without coupons in
denominations of at least $100,000, except as may be necessary to reflect any
principal amount not evenly divisible by $100,000. The Company shall keep at its
principal office a register in which the Company shall provide for the
registration of Notes and of transfers of Notes. Upon surrender for registration
of transfer of any Note at the principal office of the Company, the Company
shall, at its expense, execute and deliver one or more new Notes of like tenor
and of a like aggregate principal amount, registered in the name of such
transferee or transferees. At the option of the holder of any Note, such Note
may be exchanged for other Notes of like tenor and of any authorized
denominations, of a like aggregate principal amount, upon surrender of the Note
to be exchanged at the principal office of the Company. Whenever any Notes are
so surrendered for exchange, the Company shall, at
<PAGE> 72
its expense, execute and deliver the Notes which the holder making the exchange
is entitled to receive. Every Note surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer duly executed, by the holder of such Note or such holder's attorney
duly authorized in writing. Any Note or Notes issued in exchange for any Note or
upon transfer thereof shall carry the rights to unpaid interest and interest to
accrue which were carried by the Note so exchanged or transferred, so that
neither gain nor loss of interest shall result from any such transfer or
exchange. Upon receipt of written notice from the holder of any Note of the
loss, theft, destruction or mutilation of such Note and, in the case of any such
loss, theft or destruction, upon receipt of such holder's unsecured indemnity
agreement, or in the case of any such mutilation upon surrender and cancellation
of such Note, the Company will make and deliver a new Note, of like tenor, in
lieu of the lost, stolen, destroyed or mutilated Note. Any Transferee, by its
acceptance of a Note registered in its name (or the name of its nominee), shall
be deemed to have made the representations set forth in paragraphs 9A and 9B.
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due
presentment for registration of transfer, the Company may treat the Person in
whose name any Note is registered as the owner and holder of such Note for the
purpose of receiving payment of principal of and interest on such Note and for
all other purposes whatsoever, whether or not such Note shall be overdue, and
the Company shall not be affected by notice to the contrary. Subject to the
preceding sentence, the holder of any Note may from time to time grant
participations in such Note to any Person on such terms and conditions as may be
determined by such holder in its sole and absolute discretion, provided that any
such participation shall be in a principal amount of at least $100,000 and each
holder of a Note hereby agrees that, so long as no Event of Default shall have
occurred and be continuing, it will grant participations only to Qualified
Institutional Buyers which are believed by such holder, after reasonable
inquiry, not to be Competitors.
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein or in the other Senior Note
Documents or otherwise made in writing by or on behalf of the Company in
connection herewith and therewith shall survive the execution and delivery of
this Agreement, the Notes and the other Senior Note Documents, the transfer by
any Purchaser of any Note or portion thereof or interest therein and the payment
of any Note, and may be relied upon by any Transferee, regardless of any
investigation made at any time by or on behalf of any Purchaser or any
Transferee. Subject to the preceding sentence, this Agreement, the Notes and the
other Senior Note Documents embody the entire agreement and understanding
between the Purchasers and the Company and supersede all prior agreements and
understandings relating to the subject matter hereof.
11G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in
this Agreement contained by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee) whether so expressed or
not; provided, however, that
<PAGE> 73
each holder of a Note hereby agrees that, so long as no Event of Default shall
have occurred and be continuing, it will transfer its Notes only to Qualified
Institutional Buyers which are believed by such holder, after reasonable
inquiry, not to be Competitors.
11H. DISCLOSURE TO OTHER PERSONS. The Company acknowledges that the
holder of any Note may deliver copies of any financial statements and other
documents or materials delivered to such holder, and disclose any other
information disclosed to such holder, by or on behalf of the Company or any
Subsidiary in connection with or pursuant to this Agreement and the other Senior
Note Documents to (i) such holder's directors, officers, employees, agents and
professional consultants, (ii) any other holder of any Note, (iii) any Person to
which such holder offers to sell such Note or any part thereof and to which such
holder could then transfer such Note pursuant to paragraph 11G, (iv) any Person
to which such holder sells or offers to sell a participation in all or any part
of such Note and to which such holder could then sell such participation
pursuant to paragraph 11F, (v) any Person from which such holder offers to
purchase any security of the Company and to which such holder could then
transfer such Note pursuant to paragraph 11G, (vi) any federal or state
regulatory authority having jurisdiction over such holder, (vii) the National
Association of Insurance Commissioners or any similar organization or (viii) any
other Person to which such delivery or disclosure may be necessary or
appropriate (a) in compliance with any law, rule, regulation or order applicable
to such holder, (b) in response to any subpoena or other legal process or
informal investigative demand or (c) in connection with any litigation to which
such holder is a party.
11I. NOTICES. All notices or other communications provided for
hereunder (except for the telephonic notice required by paragraph 4B) shall be
in writing and sent by first class mail or nationwide overnight delivery service
(with charges prepaid) and (i) if to any Purchaser, addressed to such Purchaser
at the address specified for such communications in the Purchaser Schedule
attached hereto, or at such other address as such Purchaser shall have specified
to the Company in writing, (ii) if to any other holder of any Note, addressed to
such other holder at such address as such other holder shall have specified to
the Company in writing or, if any such other holder shall not have so specified
an address to the Company, then addressed to such other holder in care of the
last holder of such Note which shall have so specified an address to the
Company, and (iii) if to the Company, addressed to it at 2121 San Jacinto, Suite
2200, Dallas, Texas 75201, Attention: Mel Todd or at such other address as the
Company shall have specified to the holder of each Note in writing; provided,
however, that any such communication to the Company may also, at the option of
the holder of any Note, be delivered by any other means either to the Company at
its address specified above or to any officer of the Company.
11J. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement
or the Notes to the contrary notwithstanding, any payment of principal of or
interest or Yield Maintenance Amount, if any, on any Note that is due on a date
other than a Business Day shall be made on the next succeeding Business Day. If
the date for any payment is extended to the next succeeding Business Day by
reason of the preceding
<PAGE> 74
sentence, the period of such extension shall be included in the computation of
the interest payable on such Business Day.
11K. SATISFACTION REQUIREMENT. If any agreement, certificate or
other writing, or any action taken or to be taken, is by the terms of this
Agreement required to be satisfactory to any Purchaser, the holders of the Notes
or to the Required Holder(s), the determination of such satisfaction shall be
made by such Purchaser, the holders of the Notes or the Required Holder(s), as
the case may be, in the sole and exclusive judgment (exercised in good faith) of
the Person or Persons making such determination.
11L. GOVERNING LAW. THIS AGREEMENT AND ALL MATTERS RELATING HERETO
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE
PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK. This Agreement
may not be changed orally, but (subject to the provisions of paragraph 11C) only
by an agreement in writing signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
11M. WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION; LIMITATION OF
REMEDIES.
a) THE COMPANY AND EACH HOLDER OF NOTES EACH HEREBY
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE
TO A TRIAL BY JURY IN ANY LITIGATION OF ANY CLAIM WHICH IS BASED
HEREON, OR ARISES OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT,
THE NOTES OR THE OTHER SENIOR NOTE DOCUMENTS, OR ANY TRANSACTIONS
RELATING HERETO OR THERETO, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF THE
COMPANY, THE HOLDERS OF THE NOTES OR THE COLLATERAL AGENT. THE COMPANY
ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
PURCHASERS TO ENTER INTO THIS AGREEMENT.
<PAGE> 75
b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT, THE NOTES, THE OTHER SENIOR NOTE DOCUMENTS OR ANY
TRANSACTIONS RELATING HERETO OR THERETO, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF
THE COMPANY, THE HOLDERS OF NOTES OR THE COLLATERAL AGENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK, OR THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND THE COMPANY HEREBY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS.
THE COMPANY AND EACH HOLDER OF NOTES EACH HEREBY IRREVOCABLY WAIVES ANY
OBJECTIONS, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING
IN SUCH RESPECTIVE JURISDICTIONS.
c) The Company hereby agrees that process may be served on
CT Corporation System, Inc., located at 1633 Broadway, New York, New
York 10019. Any and all service of process and any other notice in any
such action, suit or proceeding shall be effective against such parties
if given by registered or certified mail, return receipt requested, or
by any other means or mail which requires a signed receipt, postage
prepaid, mailed to such parties as herein provided in paragraph 11I. In
the event CT Corporation System, Inc. shall not be able to accept
service of process as aforesaid and if the Company shall not maintain
an office in New York City, the Company shall promptly appoint and
maintain an agent qualified to act as an agent for service of process
with respect to all courts in and of the New York City, and acceptable
to the Required Holder(s), as the Company's authorized agent to accept
and acknowledge on the Company's behalf service of any and all process
which may be served in any such action, suit or proceeding.
<PAGE> 76
11N. INDEMNIFICATION. The Company agrees:
(i) TO INDEMNIFY EACH HOLDER OF NOTES AND EACH OF THEIR
AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES,
SHAREHOLDERS, REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND
EXPERTS ("INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM HARMLESS
AGAINST AND PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, THE
INDEMNITY MATTERS WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR
INVOLVE ANY OF THEM (WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY
THERETO) AS A RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED TO (I)
ANY ACTUAL OR PROPOSED USE BY THE COMPANY OF THE PROCEEDS OF THE NOTES,
(II) THE EXECUTION, DELIVERY AND PERFORMANCE OF THIS AGREEMENT AND THE
OTHER SENIOR NOTE DOCUMENTS, (III) THE OPERATIONS OF THE BUSINESS OF
THE COMPANY AND ITS SUBSIDIARIES, (IV) THE FAILURE OF COMPANY OR ANY OF
ITS SUBSIDIARIES TO COMPLY WITH THE TERMS OF THIS AGREEMENT OR ANY OF
THE OTHER SENIOR NOTE DOCUMENTS OR WITH ANY GOVERNMENTAL REQUIREMENT,
(V) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY
OF THE COMPANY OR ANY OF ITS SUBSIDIARIES SET FORTH IN THIS AGREEMENT
OR ANY OTHER SENIOR NOTE DOCUMENT, (VI) ANY ASSERTION THAT THE COMPANY
WAS NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THIS
AGREEMENT AND THE OTHER SENIOR NOTE DOCUMENTS OR (VII) ANY OTHER ASPECT
OF THE SENIOR NOTE DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE
REASONABLE FEES AND DISBURSEMENTS OF COUNSEL AND ALL OTHER EXPENSES
INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR PREPARING TO
DEFEND ANY SUCH ACTION, SUIT, PROCEEDING (INCLUDING ANY INVESTIGATIONS,
LITIGATIONS OR INQUIRIES) OR CLAIM AND INCLUDING ALL INDEMNITY MATTERS
ARISING BY REASON OF THE ORDINARY NEGLIGENCE OF ANY INDEMNIFIED PARTY
(EXCEPT AS TO THE EXTENT ANY SUCH INDEMNITY MATTERS HAVE BEEN CAUSED BY
THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY,
IT BEING THE INTENT OF THE PARTIES THAT EACH INDEMNIFIED PARTY SHALL BE
INDEMNIFIED FROM INDEMNITY MATTERS CAUSED BY THE NEGLIGENCE, WHETHER
SOLE, JOINT, CONCURRENT, CONTRIBUTORY, ACTIVE OR PASSIVE, OF SUCH
INDEMNIFIED PARTY); AND
<PAGE> 77
(ii) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE
INDEMNIFIED PARTIES NOTWITHSTANDING THE NEGLIGENCE OF EVERY KIND OR
CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE
ACT OR AN OMISSION, INCLUDING, WITHOUT LIMITATION, ALL TYPES OF
NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF
ONE OR MORE OF THE INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY
IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO
THE EXTENT THAT AN INDEMNIFIED PARTY COMMITTED AN ACT OF GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF
INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION OF
THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY REASON OF EVENTS OTHER
THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED
PARTY.
(iii) THE COMPANY AND ITS SUBSIDIARIES AGREE NOT TO ASSERT
ANY CLAIM AGAINST THE HOLDER OF ANY NOTES, ANY OF THEIR AFFILIATES, OR
ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS,
AGENTS AND ADVISERS, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT OF OR OTHERWISE RELATING
TO THE SENIOR NOTE DOCUMENTS, ANY OF THE TRANSACTIONS CONTEMPLATED
HEREIN OR THEREIN OR THE ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE
NOTES.
(iv) The obligations of the Company and its Subsidiaries
under this paragraph 11N shall survive the termination of this
Agreement and the payment in full of the Notes and all other amounts
payable hereunder.
11O. RELEASE. THE COMPANY AND ITS SUBSIDIARIES EACH HEREBY RELEASE,
DISCHARGE AND ACQUIT FOREVER THE HOLDERS OF THE NOTES AND THEIR RESPECTIVE
OFFICERS, DIRECTORS, AGENTS, EMPLOYEES AND COUNSEL FROM ANY AND ALL CLAIMS
EXISTING AS OF THE DATE HEREOF. AS USED IN THIS PARAGRAPH 11O, THE TERM "CLAIM"
SHALL MEAN ANY AND ALL LIABILITIES, CLAIMS, JUDGMENTS, DEFICIENCIES, INTEREST,
LIENS, COSTS OR EXPENSES (INCLUDING COURT COSTS, PENALTIES, ATTORNEYS' FEES AND
DISBURSEMENTS, AND AMOUNTS PAID IN SETTLEMENT) OF ANY KIND AND CHARACTER
WHATSOEVER, IN EACH CASE WHETHER NOW KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED,
ASSERTED OR UNASSERTED OR PRIMARY OR
<PAGE> 78
CONTINGENT, AND WHETHER ARISING OUT OF WRITTEN DOCUMENTS, UNWRITTEN UNDERTAKINGS
OR COURSE OF CONDUCT.
11P. RELATIONSHIP OF THE PARTIES. This Agreement provides for the
making of loans by the Purchasers, in their capacity as lenders, to the Company,
in its capacity as a borrower, and for the payment of interest and Yield
Maintenance Amount, if any, and repayment of principal by the Company to the
holders of the Notes. The relationship between the Purchasers and the Company is
limited to that of creditors/secured parties, on the one hand, and debtor, on
the other hand. The provisions herein for compliance with financial,
environmental, and other covenants, delivery of financial and other reports, and
financial and other inspections, investigations, audits, examinations or tests
are intended solely for the benefit of the holders of the Notes to protect their
interests as lenders in assuring payments of interest and Yield Maintenance
Amount, if any, and repayment of principal and nothing contained in this
Agreement or any other Senior Note Document shall be construed as permitting or
obligating the holders of the Notes to act as financial or business advisors or
consultants to the Company, as permitting or obligating the holders of the Notes
to control the Company or to conduct or operate the Company's operations, as
creating any fiduciary obligation on the part of the holders of the Notes to the
Company, or as creating any joint venture, agency, or other relationship between
the parties other than as explicitly and specifically stated in this Agreement.
The Company acknowledges that it has had the opportunity to obtain the advice of
experienced counsel of its own choosing in connection with the negotiation and
execution of this Agreement and the other Senior Note Documents and to obtain
the advice of such counsel with respect to all matters contained herein,
including, without limitation, the provision in paragraph 11M for waiver of
trial by jury. The Company further acknowledges that it is experienced with
respect to financial and credit matters and has made its own independent
decision to apply to the Purchasers for the financial accommodations provided
hereby and to execute and deliver this Agreement and the other Senior Note
Documents.
11Q. FINAL AGREEMENT. THIS AGREEMENT AND THE OTHER SENIOR NOTE
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT
OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.
11R. CONSTRUCTION. The Purchasers and the Company have participated
jointly in the negotiation and drafting of this Agreement and the other Senior
Note Documents. In the event an ambiguity or question of intent or
interpretation arises, this Agreement or other Senior Note Document, as the case
may be, shall be construed as if drafted jointly by the Purchasers and the
Company and no presumption or burden of proof shall arise favoring or
disfavoring any Purchaser or the Company by virtue of the authorship of any of
the provisions of this Agreement or such other Senior Note Document, as the case
may be.
<PAGE> 79
11S. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11T. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
11U. MAXIMUM INTEREST PAYABLE. The Company, each Purchaser and any
other holders of the Notes specifically intend and agree to limit contractually
the amount of interest payable under this Agreement, the Notes and all other
instruments and agreements related hereto and thereto to the maximum amount of
interest lawfully permitted to be charged under applicable law. Therefore, none
of the terms of this Agreement, the Notes or any instrument pertaining to or
relating to this Agreement or the Notes shall ever be construed to create a
contract to pay interest at a rate in excess of the maximum rate permitted to be
charged under applicable law, and neither the Company, any guarantor nor any
other party liable or to become liable hereunder, under the Notes, any guaranty
or under any other instruments and agreements related hereto and thereto shall
ever be liable for interest in excess of the amount determined at such maximum
rate, and the provisions of this paragraph 11U shall control over all other
provisions of this Agreement, any Notes, any guaranty or any other instrument
pertaining to or relating to the transactions herein contemplated. If any amount
of interest taken or received by any Purchaser or any holder of a Note shall be
in excess of said maximum amount of interest which, under applicable law, could
lawfully have been collected by such Purchaser or such holder incident to such
transactions, then such excess shall be deemed to have been the result of a
mathematical error by all parties hereto and shall be refunded promptly by the
Person receiving such amount to the party paying such amount, or, at the option
of the recipient, credited ratably against the unpaid principal amount of the
Note or Notes held by such Purchaser or such holder, respectively. All amounts
paid or agreed to be paid in connection with such transactions which would under
applicable law be deemed "INTEREST" shall, to the extent permitted by such
applicable law, be amortized, prorated, allocated and spread throughout the
stated term of this Agreement and the Notes. "APPLICABLE LAW" as used in this
paragraph means that law in effect from time to time which permits the charging
and collection of the highest permissible lawful, nonusurious rate of interest
on the transactions herein contemplated including laws of the State of New York
and of the United States of America, and "MAXIMUM RATE" as used in this
paragraph means, with respect to each of the Notes, the maximum lawful,
nonusurious rates of interest (if any) which under applicable law may be charged
to the Company from time to time with respect to such Notes.
<PAGE> 80
11V. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument.
11W. SEVERALTY OF OBLIGATIONS. The sales of the Notes to the
Purchasers are to be several sales, and the obligations of the Purchasers under
this Agreement are several obligations. Except as provided in paragraph 3K, no
failure by any Purchaser to perform its obligations under this Agreement shall
relieve any other Purchaser or the Company of any of its obligations hereunder,
and no Purchaser shall be responsible for the obligations of, or any action
taken or omitted by, any other Purchaser hereunder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
<PAGE> 81
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterparts of this letter and return the same to
the Company, whereupon this letter shall become a binding agreement among the
Company and the Purchasers.
Very truly yours,
CLARK/BARDES, INC.
By:
Title:
The foregoing Agreement is
hereby accepted as of the
date first above written.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By:
Title:
By:
Title:
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
By:
Title:
NATIONWIDE LIFE INSURANCE COMPANY
By:
Title:
<PAGE> 1
EXHIBIT 10.9
[FORM OF WARRANT]
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT.
CLARK/BARDES, INC.
COMMON STOCK PURCHASE WARRANT
NEW YORK NO. _____ NEW YORK,
SEPTEMBER 8, 1997
CLARK/BARDES, INC., a Texas corporation (the "COMPANY"), for
value received, hereby certifies that _________________ or its registered
assigns is entitled to purchase from the Company ____________ duly authorized,
validly issued, fully paid and nonassessable shares of the Company's Common
Stock, no par value per share (the "ORIGINAL COMMON STOCK"), at an initial
exercise price per share of $2.95, at any time or from time to time after the
date hereof and prior to 5:00 p.m., New York City time, on August 9, 2004 (the
"EXPIRATION DATE"), all subject to the terms, conditions and adjustments set
forth below in this Warrant; provided, that if the Company defaults in the
payment of any principal of any of the Notes (as defined below) when the same
shall become due, either by the terms thereof or otherwise as provided in the
Purchase Agreement (as defined below), the Expiration Date shall automatically
be extended to August 9, 2007, regardless whether such default is subsequently
cured or waived.
This Warrant is one of the Common Stock Purchase Warrants (the
"WARRANTS", such term to include all Warrants issued in substitution therefor)
originally issued in connection with the issue and sale by the Company of the
Company's 11% Second Priority Senior Secured Notes due August 9, 2004, in the
aggregate principal amount of $8,900,000 (the "NOTES"), pursuant to that certain
Note and Warrant Purchase Agreement dated as of even date herewith (the
"PURCHASE AGREEMENT") between the Company and Great-West Life & Annuity
Insurance Company, Life Investors Insurance Company of America and Nationwide
Life Insurance Company (each a "PURCHASER" and collectively the "PURCHASERS").
The Warrants originally so issued evidence rights to purchase an aggregate of
3,050,847 shares of Original Common Stock, subject to
<PAGE> 2
adjustment as provided herein. The term "NOTES" as used herein shall include
each Note delivered pursuant to any provision of the Purchase Agreement and each
Note delivered in substitution or exchange for any such Note pursuant to any
such provision. Certain capitalized terms used in this Warrant are defined in
section 13.
I. Exercise of Warrant.
1A. Manner of Exercise. This Warrant may not be exercised
unless the holder hereof at the time of exercise is also a holder of Notes or,
in the event the Notes have been prepaid or otherwise retired, was a holder of
Notes at the time of such prepayment or other retirement. Subject to the
foregoing, this Warrant may be exercised by the holder hereof, in whole or in
part, during normal business hours on any Business Day on or after the date
hereof to and including the Expiration Date, by surrender of this Warrant, with
the form of subscription at the end hereof (or a reasonable facsimile thereof)
duly executed by such holder, to the Company at its principal office (or, if
such exercise shall be in connection with an underwritten public offering of
shares of Common Stock (or Other Securities) subject to this Warrant, at the
location at which the underwriters shall have agreed to accept delivery
thereof), accompanied by payment, in cash or by certified or official bank check
payable to the order of the Company, in the amount obtained by multiplying (a)
the number of shares of Original Common Stock (without giving effect to any
adjustment therein) designated in such form of subscription by (b) $2.95. The
number of duly authorized, validly issued, fully paid and nonassessable shares
of Common Stock which the holder of this Warrant shall be entitled to receive
upon each exercise hereof shall be determined by multiplying the number of
shares of Common Stock which would otherwise (but for the provisions of section
2) be issuable upon such exercise, as designated by the holder hereof pursuant
to this section 1A, by a fraction of which (a) the numerator is $2.95 and (b)
the denominator is the Exercise Price in effect on the date of such exercise.
The "EXERCISE PRICE" shall initially be $2.95 per share, shall be adjusted and
readjusted from time to time as provided in section 2 and, as so adjusted and
readjusted, shall remain in effect until a further adjustment or readjustment
thereof is required by section 2.
1B. When Exercise Effective. Each exercise of this Warrant
shall be deemed to have been effected and the Exercise Price shall be determined
immediately prior to the close of business on the Business Day on which this
Warrant shall have been surrendered to the Company as provided in section 1A,
and at such time the person or persons in whose name or names any certificate or
certificates for shares of Original Common Stock (or Other Securities) shall be
issuable upon such exercise as provided in section 1C shall be deemed to have
become the holder or holders of record thereof.
1C. Delivery of Stock Certificates, etc. Promptly after the
exercise of this Warrant, in whole or in part, and in any event within five
Business Days thereafter (unless such exercise shall be in connection with an
underwritten public offering of shares of Common Stock (or Other Securities)
subject to this Warrant, in which event concurrently with such exercise), the
Company at its expense will cause to be issued in the
<PAGE> 3
name of and delivered to the holder hereof or, subject to section 8, as such
holder may direct,
a) a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such holder shall be
entitled upon such exercise, and
a) in case such exercise is in part only, a new Warrant or
Warrants of like tenor, specifying the aggregate on the face or faces
thereof the number of shares of Common Stock equal to the number of
such shares specified on the face of this Warrant minus the number of
such shares designated by the holder upon such exercise as provided in
section 1A.
1D. Company to Reaffirm Obligations. The Company will, at the
time of or at any time after each exercise of this Warrant, upon the request of
the holder hereof or of any shares of Common Stock (or Other Securities) issued
upon such exercise, acknowledge in writing its continuing obligation to afford
to such holder all rights to which such holder shall continue to be entitled
after such exercise in accordance with the terms of this Warrant, provided that
if any such holder shall fail to make any such request, the failure shall not
affect the continuing obligation of the Company to afford such rights to such
holder.
1E. Fractional Shares. No fractional shares shall be issued
upon exercise of this Warrant and no payment or adjustment shall be made upon
any exercise on account of any cash dividends (except as provided in section 2B)
on the Common Stock or Other Securities issued upon such conversion. If any
fractional interest in a share of Common Stock would, except for the provisions
of the first sentence of this section 1E, be deliverable upon the exercise of
this Warrant, the Company shall, in lieu of delivering the fractional share
therefor, pay to the holder exercising this Warrant an amount in cash equal to
the Market Price of such fractional interest.
1F. Cashless Exercise. As an alternative to exercise of this
Warrant by payment in cash (or by certified or official bank check), as provided
above in section 1A, the holder of this Warrant may exercise its right to
purchase some or all of the shares of Common Stock pursuant to this Warrant
using either or both of the following payment methods:
(a) the holder of this Warrant may instruct the Company, by so
specifying in the form of subscription submitted in connection with an
exercise of this Warrant, to effect the purchase of a specified number
of shares of Common Stock pursuant to this Warrant on a net basis
without the exchange of any funds (a "NET BASIS EXERCISE"), such that
the holder hereof receives, in exchange for a partial or complete
surrender, as applicable, of this Warrant, a number of shares of Common
Stock, such number to be determined by multiplying the number of shares
of Common Stock with respect to which this Warrant is being exercised
by
<PAGE> 4
a fraction, the numerator of which shall be the difference between the
then-current Market Price and then-current Exercise Price, and the
denominator of which shall be the then-current Market Price; or
(b) the holder of this Warrant may instruct the Company, by so
specifying in the form of subscription submitted in connection with an
exercise of this Warrant, to apply to the payment required by section
1A all or any part of the principal amount then due and of the interest
on such principal amount then accrued on any one or more Notes or Put
Notes (as hereinafter defined) at the time held by such holder (a "NOTE
APPLICATION EXERCISE"), in which case the Company will accept the
aggregate amount of principal and accrued interest on such principal
specified in such form of subscription in satisfaction of a like amount
of such payment. Within 10 days after receipt of any such notice, the
Company will pay to the holder of the Notes or Put Notes submitting
such form of subscription, in the manner provided in such Notes or Put
Notes, all unpaid interest accrued to the date of the exercise of such
Warrant on the principal amount so specified in such form of
subscription that is not applied to the payment required by section 1A
under this section 1F. In the event that the entire unpaid principal
amount of any Note or Put Note is applied to the payment required by
section 1A under this section 1F, such Note or Put Note shall be
promptly surrendered and canceled, and in the event that less than the
entire unpaid principal amount of any Note or Put Note is so applied,
such Note or Put Note shall be promptly surrendered in exchange for a
new Note or Put Note, dated so as to carry any right to unpaid interest
accrued on the Note or Put Note surrendered, which the Company shall
issue and deliver to such holder in a principal amount equal to the
unpaid principal amount of the Note or Put Note surrendered less the
amount of principal which shall have been applied to such payment.
1G. Exercise Rights Unconditional. The Company, for itself and
its stockholders, acknowledges and agrees that, subject to the terms of this
Warrant, the right of the holder hereof to exercise this Warrant at any time
prior to the Expiration Date is and shall be absolute and unconditional,
notwithstanding that such exercise may have an adverse or undesired effect on
the Company or its stockholders, including, without limitation, loss of the
Company's status as a corporation qualified under Subchapter S of the Internal
Revenue Code of 1986, as amended.
I. Protection Against Dilution or Other Impairment of
Rights; Adjustment of Exercise Price.
2A. Issuance of Additional Shares of Common Stock. In case the
Company, at any time or from time to time after September 8, 1997 (the "INITIAL
DATE"), shall issue or sell Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to section 2C or
2D) without consideration or for a consideration per share (determined pursuant
to section 2E) less than the greater of the Exercise Price or the Market Price
in effect, in each case, on the date of and
<PAGE> 5
immediately prior to such issue or sale, then, and in each such case, subject to
section 2H, the Exercise Price shall be reduced, concurrently with such issue or
sale, to a price (calculated to the nearest .001 of a cent) determined by
multiplying such Exercise Price by a fraction,
(a) the numerator of which shall be (i) the number of shares
of Common Stock outstanding immediately prior to such issue or sale
plus (ii) the number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of such
Additional Shares of Common Stock so issued or sold would purchase at
the greater of such Market Price or such Exercise Price, and
(b) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such issue or sale,
provided that, for the purposes of this section 2A, (x) immediately after any
Additional Shares of Common Stock are deemed to have been issued pursuant to
section 2C or 2D, such Additional Shares shall be deemed to be outstanding, and
(y) treasury shares shall not be deemed to be outstanding.
2B. Extraordinary Dividends and Distributions. In case the
Company at any time or from time to time after the date hereof shall declare,
order, pay or make a dividend or other distribution (including, without
limitation, any distribution of other or additional stock or other securities or
property or Options by way of dividend or spin-off, reclassification,
recapitalization or similar corporate rearrangement and any redemption or
acquisition of any such stock or Options on the Common Stock, other than (a) a
dividend payable in Additional Shares of Common Stock or in Options for Common
Stock or (b) a regular periodic dividend payable in cash and permitted to be
made under the Dividend Restrictions, then, and in each such case, subject to
section 2H, the Exercise Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of any class
of securities entitled to receive such dividend or distribution shall be
reduced, effective as of the close of business on such record date, to a price
(calculated to the nearest .001 of a cent) determined by multiplying such
Exercise Price by a fraction,
(i) the numerator of which shall be the Market Price
in effect on such record date less (x) the amount of such dividend or
distribution (if payable in cash) or (y) the Fair Value of such
dividend or distribution (if payable in securities or other property),
in each case as applicable to one share of Common Stock, and
(ii) the denominator of which shall be such Market
Price.
2C. Treatment of Options and Convertible Securities. In case
the Company, at any time or from time to time after the date hereof, shall
issue, sell, grant or assume, or shall fix a record date for the determination
of holders of any class of securities
<PAGE> 6
entitled to receive, any Options or Convertible Securities, whether or not such
Options or the right to convert or exchange any such Convertible Securities are
immediately exercisable, then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, issuable upon the
conversion or exchange of such Convertible Securities (or the exercise of such
Options for Convertible Securities and subsequent conversion or exchange of the
Convertible Securities issued), shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue, sale, grant or assumption or,
in case such a record date shall have been fixed, as of the close of business on
such record date, provided, that such Additional Shares of Common Stock shall
not be deemed to have been issued unless the consideration per share (determined
pursuant to section 2E) of such shares would be less than the greater of the
Exercise Price or the Market Price in effect, in each case, on the date of and
immediately prior to such issue, sale, grant or assumption or immediately prior
to the close of business on such record date or, if the Common Stock trades on
an ex-dividend basis, on the date prior to the commencement of ex-dividend
trading, as the case may be, and provided, further, that in any such case in
which Additional Shares of Common Stock are deemed to be issued,
(a) if an adjustment of the Exercise Price shall be made upon
the fixing of a record date as referred to in the first sentence of
this section 2C, no further adjustment of the Exercise Price shall be
made as a result of the subsequent issue or sale of any Options or
Convertible Securities for the purpose of which such record date was
set;
(b) no further adjustment of the Exercise Price shall be made
upon the subsequent issue or sale of Additional Shares of Common Stock
or Convertible Securities upon the exercise of such Options or the
conversion or exchange of such Convertible Securities;
(c) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any change in the
consideration payable to the Company, or change in the number of
Additional Shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof (by change of rate or otherwise), the
Exercise Price computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date with
respect thereto), and any subsequent adjustments based thereon, shall,
upon any such change becoming effective, be recomputed to reflect such
change insofar as it affects such Options, or the rights of conversion
or exchange under such Convertible Securities, which are outstanding at
such time;
(d) upon the expiration of any such Options or of the rights
of conversion or exchange under any such Convertible Securities which
shall not have been exercised (or upon purchase by the Company and
cancellation or retirement
<PAGE> 7
of any such Options which shall not have been exercised or of any such
Convertible Securities the rights of conversion or exchange under which
shall not have been exercised), the Exercise Price computed upon the
original issue, sale, grant or assumption thereof (or upon the
occurrence of the record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration (or such
cancellation or retirement, as the case may be), be recomputed as if:
(i) in the case of Options for Common Stock or in the
case of Convertible Securities, the only Additional Shares of
Common Stock issued or sold (or deemed issued or sold) were
the Additional Shares of Common Stock, if any, actually issued
or sold upon the exercise of such Options or the conversion or
exchange of such Convertible Securities and the consideration
received therefor was (x) an amount equal to (A) the
consideration actually received by the Company for the issue,
sale, grant or assumption of all such Options, whether or not
exercised, plus (B) the consideration actually received by the
Company upon such exercise, minus (C) the consideration paid
by the Company for any purchase of such Options which were not
exercised, or (y) an amount equal to (A) the consideration
actually received by the Company for the issue, sale, grant or
assumption of all such Convertible Securities which were
actually converted or exchanged, plus (B) the additional
consideration, if any, actually received by the Company upon
such conversion or exchange, minus (C) the excess, if any, of
the consideration paid by the Company for any purchase of such
Convertible Securities, the rights of conversion or exchange
under which were not exercised, over an amount that would be
equal to the Fair Value of the Convertible Securities so
purchased if such Convertible Securities were not convertible
into or exchangeable for Additional Shares of Common Stock,
and
(ii) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually
issued or sold upon the exercise of such Options were issued
at the time of the issue, sale, grant or assumption of such
Options, and the consideration received by the Company for the
Additional Shares of Common Stock deemed to have then been
issued was an amount equal to (x) the consideration actually
received by the Company for the issue, sale, grant or
assumption of all such Options, whether or not exercised, plus
(y) the consideration deemed to have been received by the
Company (pursuant to section 2E) upon the issue or sale of the
Convertible Securities with respect to which such Options were
actually exercised, minus (z) the consideration paid by the
Company for any purchase of such Options which were not
exercised; and
(e) no recomputation pursuant to subsection (c) or (d) above
shall have the effect of increasing the Exercise Price then in effect
by an amount in excess of
<PAGE> 8
the amount of the adjustment thereof originally made in respect of the
issue, sale, grant or assumption of such Options or Convertible
Securities.
2D. Treatment of Stock Dividends, Stock Splits, Etc. In case
the Company, at any time or from time to time after the date hereof, shall
declare or pay any dividend or other distribution on any class of securities of
the Company payable in shares of Common Stock, or shall effect a subdivision of
the outstanding shares of Common Stock into a greater number of shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in Common
Stock), then, and in each such case, Additional Shares of Common Stock shall be
deemed to have been issued (a) in the case of any such dividend or other
distribution, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend or other distribution, or (b) in the case of any such subdivision, at
the close of business on the day immediately prior to the day upon which such
corporate action becomes effective.
2E. Computation of Consideration. For the purposes of
this Warrant:
(a) The consideration for the issue or sale of any Additional
Shares of Common Stock or for the issue, sale, grant or assumption of
any Options or Convertible Securities, irrespective of the accounting
treatment of such consideration,
(i) insofar as it consists of cash, shall be computed
as the amount of cash received by the Company, and insofar as
it consists of securities or other property, shall be computed
as of the date immediately preceding such issue, sale, grant
or assumption as the Fair Value of such consideration (or, if
such consideration is received for the issue or sale of
Additional Shares of Common Stock and the Market Price thereof
is less than the Fair Value of such consideration, then such
consideration shall be computed as the Market Price of such
Additional Shares of Common Stock), in each case without
deducting any expenses paid or incurred by the Company, any
commissions or compensation paid or concessions or discounts
allowed to underwriters, dealers or other performing similar
services and any accrued interest or dividends in connection
with such issue or sale, and
(ii) in case Additional Shares of Common Stock are
issued or sold or Options or Convertible Securities are
issued, sold, granted or assumed together with other stock or
securities or other assets of the Company for a consideration
which covers both, shall be the proportion of such
consideration so received, computed as provided in clause (i)
above, allocable to such Additional Shares of Common Stock or
Options or Convertible Securities, as the case may be, all as
determined in good faith by the Board of Directors or the
Company.
<PAGE> 9
(b) All Additional Shares of Common Stock, Options or
Convertible Securities issued in payment of any dividend or other
distribution on any class of stock of the Company and all Additional
Shares of Common Stock issued to effect a subdivision of the
outstanding shares of Common Stock into a greater number of shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock) shall be deemed to have been issued without
consideration.
(c) Additional Shares of Common Stock deemed to have been
issued for consideration pursuant to section 2C, relating to Options
and Convertible Securities, shall be deemed to have been issued for a
consideration per share determined by dividing
(i) the total amount, if any, received and receivable
by the Company as consideration for the issue, sale, grant or
assumption of the Options or Convertible Securities in
question, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for
a subsequent adjustment of such consideration) payable to the
Company upon the exercise in full of such Options or the
conversion or exchange of such Convertible Securities or, in
the case of Options for Convertible Securities, the exercise
of such Options for Convertible Securities and the conversion
or exchange of such Convertible Securities, in each case
computing such consideration as provided in the foregoing
subsection (a),
by
(ii) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment
of such number) issuable upon the exercise of such Options or
the conversion or exchange of such Convertible Securities.
2F. Adjustments for Combinations, Etc. In case the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Exercise Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
2G. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in section 2I) or
to subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such as to dilute, on a basis to which the
<PAGE> 10
standards established in the other provisions of this Warrant do not apply, the
exercise rights granted by this Warrant, then, and in each such case, the
computations, adjustments and readjustments provided for in this Warrant with
respect to the Exercise Price shall be made as nearly as possible in the manner
so provided and applied to determine the amount of Other Securities from time to
time receivable upon the exercise of this Warrant, so as to protect the holder
of this Warrant against the effect of such dilution.
2H. Minimum Adjustment of Exercise Price. If the amount of any
adjustment of the Exercise Price required hereunder would be less than one
percent of the Exercise Price in effect at the time such adjustment is otherwise
so required to be made, such amount shall be carried forward and adjustment with
respect thereto made at the time of and together with any subsequent adjustment
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate at least one percent of such Exercise Price; provided,
that upon the exercise of this Warrant, all adjustments carried forward and not
theretofore made up to and including the date of such exercise shall be made to
the nearest .001 of a cent.
2I. Changes in Common Stock. In case at any time the Company
shall be a party to any transaction (including, without limitation, a merger,
consolidation, sale of all or substantially all of the Company's assets,
liquidation or recapitalization of the Common Stock) in which the previously
outstanding Common Stock shall be changed into or exchanged for different
securities of the Company or common stock or other securities of another
corporation or interests in a noncorporate entity or other property (including
cash) or any combination of any of the foregoing or in which the Common Stock
ceases to be a publicly traded security either listed on the New York Stock
Exchange or the American Stock Exchange or quoted by the Nasdaq National Market
or any successor thereto or comparable system (each such transaction being
herein called the "TRANSACTION", the date on which the Transaction is first
announced to the public being herein called the "ANNOUNCEMENT DATE", the date of
consummation of the Transaction being herein called the "CONSUMMATION DATE", the
Company (in the case of a recapitalization of the Common Stock or any other such
transaction in which the Company retains substantially all of its assets and
survives as a corporation) or such other corporation or entity (in each other
case) being herein called the "ACQUIRING COMPANY", and the common stock (or
equivalent equity interest) of the Acquiring Company being herein called the
"ACQUIRER'S COMMON STOCK", except that if the Acquiring Company shall not meet
the requirements set forth in subsections (d), (e) and (f) below and a
corporation which directly or indirectly controls the Acquiring Company (a
"PARENT") meets such requirements, "Acquiring Company" shall refer to such
Parent and "Acquirer's Common Stock" shall refer to such Parent's common stock
(or equivalent equity interests)) then, as a condition of the consummation of
the Transaction, lawful and adequate provisions (in form satisfactory to the
Required Holders) shall be made so that the holder of this Warrant, upon the
exercise thereof at any time on or after the Consummation Date (but subject, in
the case of an election pursuant to subsection (b) or (c) below, to the time
limitation hereinafter provided for such election),
<PAGE> 11
(a) shall be entitled to receive, and this Warrant shall
thereafter represent the right to receive, in lieu of the Common Stock
issuable upon such exercise prior to the Consummation Date, shares of
the Acquirer's Common Stock at an Exercise Price per share equal to the
lesser of (i) the Exercise Price in effect immediately prior to the
Consummation Date multiplied by a fraction the numerator of which is
the Market Price per share of the Acquirer's Common Stock determined as
of the Consummation Date and the denominator of which is the Market
Price per share of the Common Stock determined as of the Consummation
Date, or (ii) the Market Price per share of the Acquirer's Common Stock
determined as of the Consummation Date (subject in each case to
adjustments from and after the Consummation Date as nearly equivalent
as possible to the adjustments provided for in this Warrant),
or at the election of the holder of this Warrant pursuant to notice
given to the Company within six months after the Consummation Date,
(b) shall be entitled to receive, and this Warrant shall
thereafter represent the right to receive, in lieu of each share of
Common Stock issuable upon such exercise prior to the Consummation
Date, either (i) the greatest amount of cash, securities or other
property given to any shareholder in consideration for any share of
Common Stock at any time during the period from and after the
Announcement Date to and including the Consummation Date by the
Acquiring Company, the Company or any Affiliate of either thereof, or
(ii) an amount in cash equal to the product obtained by multiplying (x)
the number of shares of the Acquirer's Common Stock purchasable upon
the exercise or conversion of such Warrant as shall result from
adjustments thereto that would have been required pursuant to
subsection (a) above times (y) the Market Price per share for the
Acquirer's Common Stock, determined as of the day within the period
from and after the Announcement Date to and including the Consummation
Date for which the amount determined as provided in the definition of
Market Price shall have been the greatest, or, if neither the Acquiring
Company nor the Parent meets the requirements set forth in subsections
(d), (e) and (f) below, at the election of the holder of this Warrant
pursuant to notice given to the Company within six months after the
Consummation Date, or
(c) shall be entitled to receive, within 30 days after such
election, in full satisfaction of the exercise rights afforded under
this Warrant to the holder thereof, an amount equal to the fair market
value of such exercise rights as determined by an independent
investment banker (with an established national reputation as a valuer
of equity securities) selected by the Required Holders with the
approval of the Company, such fair market value to be determined with
regard to all material relevant factors but without regard to any
negative effects on such value of the Transaction.
The Company agrees to obtain and deliver to each holder of Warrants a copy of
the determination of an independent investment banker (selected by the Required
Holders with
<PAGE> 12
the approval of the Company) necessary to permit elections under subsection (c)
above within 15 days after the Consummation Date of any Transaction to which
subsection (c) is applicable.
The requirements referred to above in the case of the
Acquiring Company or its Parent are that immediately after the Consummation
Date:
(d) it is a solvent corporation organized under the laws of
any State of the United States of America having its common stock
listed on the New York Stock Exchange or the American Stock Exchange or
quoted by the Nasdaq National Market or any successor thereto or
comparable system, and such common stock continues to meet such
requirements for such listing or quotation,
(e) it is required to file, and in each of its three fiscal
years immediately preceding the Consummation Date has filed, reports
with the Commission pursuant to Section 13 or 15(d) of the Exchange
Act, and
(f) in the case of the Parent, such Parent is required to
include the Acquiring Company in the consolidated financial statements
contained in the Parent's Annual Report on Form 10-K as filed with the
Commission and is not itself included in the consolidated financial
statements of any other Person (other than its consolidated
subsidiaries).
Notwithstanding anything contained herein to the contrary, the Company shall not
effect any Transaction unless prior to the consummation thereof each corporation
or entity (other than the Company) which may be required to deliver any
securities or other property upon the exercise of Warrants shall assume, by
written instrument delivered to each holder of Warrants, the obligation to
deliver to such holder such securities or other property as to which, in
accordance with the foregoing provisions, such holder may be entitled, and such
corporation or entity shall have similarly delivered to each holder of Warrants
an opinion of counsel for such corporation or entity, satisfactory to each
holder of Warrants, which opinion shall state that all the outstanding Warrants,
shall thereafter continue in full force and effect and shall be enforceable
against such corporation or entity in accordance with the terms hereof and
thereof, together with such other matters as such holders may reasonably
request.
2J. Certain Issues Excepted. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment of the
Exercise Price in the case of the issuance of the Warrants and the issuance of
shares of Common Stock issuable upon exercise of the Warrants.
2K. Notice of Adjustment. Upon the occurrence of any event
requiring an adjustment of the Exercise Price, then and in each such case the
Company shall promptly deliver to the holder of this Warrant an Officer's
Certificate stating the Exercise Price resulting from such adjustment and the
increase or decrease, if any, in the number of
<PAGE> 13
shares of Common Stock issuable upon the exercise of this Warrant, setting forth
in reasonable detail the method of calculation and the facts upon which such
calculation is based. Within 90 days after each fiscal year in which any such
adjustment shall have occurred, or within 30 days after any request therefor by
the holder of this Warrant stating that such holder contemplates the exercise of
such Warrant, the Company will obtain and deliver to the holder of this Warrant
the opinion of its regular independent auditors or another firm of independent
public accountants of recognized national standing selected by the Company's
Board of Directors, which opinion shall confirm the statements in the most
recent Officer's Certificate delivered under this section 2K. The cost of any
such opinion delivered within 90 days after a fiscal year shall be borne solely
by the Company, and the cost of any such opinion delivered within 30 days after
any request therefor by the holder of this Warrant shall be borne equally by the
Company and such holder.
2L. Other Notices. In case at any time:
(a) the Company shall declare to the holders of Common Stock
any dividend other than a regular periodic cash dividend or any
periodic cash dividend in excess of 115% of the cash dividend for the
comparable fiscal period in the immediately preceding fiscal year;
(b) the Company shall declare or pay any dividend upon Common
Stock payable in stock or make any special dividend or other
distribution (other than regular cash dividends) to the holders of
Common Stock;
(c) the Company shall offer for subscription pro rata to the
holders of Common Stock any additional shares of stock of any class or
other rights;
(d) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another corporation or other entity;
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
(f) there shall be made any tender offer for any shares of
capital stock of the Company; or
(g) there shall be any other Transaction;
then, in any one or more of such cases, the Company shall give to the holder of
this Warrant (i) at least 15 days prior to any event referred to in subsection
(a) or (b) above, at least 30 days prior to any event referred to in subsection
(c), (d) or (e) above (or immediately after it has knowledge thereof, in the
case of any involuntary dissolution, liquidation or winding-up of the Company),
and within five days after it has knowledge of any pending tender offer or other
Transaction, written notice of the date on which the
<PAGE> 14
books of the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in respect
of any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, winding-up or Transaction or the date by which
shareholders must tender shares in any tender offer and (ii) in the case of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding-up or tender offer or Transaction known to the Company, at
least 30 days prior written notice of the date (or, if not then known, a
reasonable approximation thereof by the Company) when the same shall take place.
Such notice in accordance with the foregoing clause (i) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto, and such notice in
accordance with the foregoing clause (ii) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up, tender offer or Transaction, as the case may be. Such notice shall
also state that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act or to a
favorable vote of security holders, if either is required.
2M. Certain Events. If any event occurs as to which, in the
good faith judgment of the Board of Directors of the Company, the other
provisions of this Warrant are not strictly applicable or if strictly applicable
would not fairly protect the exercise rights of the holders of the Warrants in
accordance with the essential intent and principles of such provisions, then the
Board of Directors of the Company shall appoint its regular independent auditors
or another firm of independent public accountants of recognized national
standing which shall give their opinion upon the adjustment, if any, on a basis
consistent with such essential intent and principles, necessary to preserve,
without dilution, the rights of the holders of the Warrants. Upon receipt of
such opinion, the Board of Directors of the Company shall forthwith make the
adjustments described therein; provided, that no such adjustment shall have the
effect of increasing the Exercise Price as otherwise determined pursuant to this
Warrant. The Company may make such reductions in the Exercise Price as it deems
advisable, including any reductions necessary to ensure that any event treated
for Federal income tax purposes as a distribution of stock or stock rights not
be taxable to recipients.
2N. Prohibition of Certain Actions. The Company will not, by
amendment of its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Warrant and in the taking of all such action as may
reasonably be requested by the holder of this Warrant in order to protect the
exercise privilege of the holder of this Warrant against dilution or other
impairment, consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (a) will not increase the
par value of any shares of Common
<PAGE> 15
Stock receivable upon the exercise of this Warrant above the Exercise Price then
in effect, (b) will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of all Warrants from time
to time outstanding, (c) will not take any action which results in any
adjustment of the Exercise Price if the total number of shares of Common Stock
or Other Securities issuable after the action upon the exercise of all of the
Warrants would exceed the total number of shares of Common Stock or Other
Securities then authorized by the Company's certificate of incorporation and
available for the purpose of issue upon such conversion, and (d) will not issue
any capital stock of any class which has the right to more than one vote per
share or any capital stock of any class which is preferred as to dividends or as
to the distribution of assets upon voluntary or involuntary dissolution,
liquidation or winding-up, unless the rights of the holders thereof shall be
limited to a fixed sum or percentage (or floating rate related to market yields)
of par value or stated value in respect of participation in dividends and a
fixed sum or percentage of par value or stated value in any such distribution of
assets.
3. Stock to be Reserved. The Company will at all times reserve and keep
available out of the authorized Common Stock, solely for the purpose of issue
upon the exercise of the Warrants as herein provided, such number of shares of
Common Stock as shall then be issuable upon the exercise of all outstanding
Warrants and the Company will maintain at all times all other rights and
privileges sufficient to enable it to fulfill all its obligations hereunder. The
Company covenants that all shares of Common Stock which shall be so issuable
shall, upon issuance, be duly authorized, validly issued, fully paid and
nonassessable, free from preemptive or similar rights on the part of the holders
of any shares of capital stock or securities of the Company or any other Person,
and free from all taxes, liens and charges with respect to the issue thereof
(not including any income taxes payable by the holders of Warrants being
exercised in respect of gains thereon), and the Exercise Price will be credited
to the capital and surplus of the Company. The Company will take all such action
as may be necessary to assure that such shares of Common Stock may be so issued
without violation of any applicable law or regulation, or of any applicable
requirements of the National Association of Securities Dealers, Inc. and of any
domestic securities exchange upon which the Common Stock may be listed.
4. Registration of Common Stock. If any shares of Common Stock required
to be reserved for purposes of the exercise of Warrants require registration
with or approval of any governmental authority under any Federal or State law
(other than the Securities Act, registration under which is governed by the
Registration Rights Agreement), before such shares may be issued upon the
exercise thereof, the Company will, at its expense and as expeditiously as
possible, use its best efforts to cause such shares to be duly registered or
approved, as the case may be. Shares of Common Stock issuable upon exercise of
the Warrants shall be registered by the Company under the Securities Act or
similar statute then in force if required by the Registration Rights Agreement
and subject to the conditions stated in such agreement. At any such time as the
Common Stock is listed on any national securities exchange or quoted by the
Nasdaq National Market or any successor thereto or any comparable system, the
Company will, at
<PAGE> 16
its expense, obtain promptly and maintain the approval for listing on each such
exchange or quoting by the Nasdaq National Market or such successor thereto or
comparable system, upon official notice of issuance, the shares of Common Stock
issuable upon exercise of the then outstanding Warrants and maintain the listing
or quoting of such shares after their issuance so long as the Common Stock is so
listed or quoted; and the Company will also cause to be so listed or quoted,
will register under the Exchange Act and will maintain such listing or quoting
of, any Other Securities that at any time are issuable upon exercise of the
Warrants, if and at the time that any securities of the same class shall be
listed on such national securities exchange by the Company.
5. Issue Tax. The issuance of certificates for shares of Common Stock
upon exercise of this Warrant shall be made without charge to the holders hereof
for any issuance tax in respect thereto.
6. Closing of Books. The Company will at no time close its transfer
books against the transfer of any Warrant or of any share of Common Stock issued
or issuable upon the exercise of any Warrant in any manner which interferes with
the timely exercise of such Warrant.
7. No Rights or Liabilities as Stockholders. This Warrant shall not
entitle the holder thereof to any of the rights of a stockholder of the Company,
except as expressly contemplated herein. No provision of this Warrant, in the
absence of the actual exercise of such Warrant and receipt by the holder thereof
of Common Stock issuable upon such conversion, shall give rise to any liability
on the part of such holder as a stockholder of the Company, whether such
liability shall be asserted by the Company or by creditors of the Company.
8. Restrictive Legends. Except as otherwise permitted by this section
8, each Warrant originally issued and each Warrant issued upon direct or
indirect transfer or in substitution for any Warrant pursuant to this section 8
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"This Warrant and any shares acquired upon the exercise of this Warrant
have not been registered under the Securities Act of 1933 and may not
be transferred in the absence of such registration or an exemption
therefrom under such Act."
Except as otherwise permitted by this section 8, (a) each certificate for
Original Common Stock (or Other Securities) issued upon the exercise of any
Warrant, and (b) each certificate issued upon the direct or indirect transfer of
any such Original Common Stock (or Other Securities) shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and may not be transferred in the
absence of such registration or an exemption therefrom under such Act."
<PAGE> 17
The holder of any Restricted Securities shall be entitled to receive from the
Company, without expense, new securities of like tenor not bearing the
applicable legend set forth above in this section 8 when such securities shall
have been (a) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering such Restricted Securities,
(b) sold pursuant to Rule 144 or any comparable rule under the Securities Act,
(c) transferred to a limited number of institutional holders, each of which
shall have represented in writing that it is acquiring such Restricted
Securities for investment and not with a view to the disposition thereof, or (d)
when, in the opinion of independent counsel for the holder thereof experienced
in Securities Act matters, such restrictions are no longer required in order to
insure compliance with the Securities Act. The Company will pay the reasonable
fees and disbursements of counsel for any holder of Restricted Securities in
connection with all opinions rendered pursuant to this section 8.
9. Availability of Information. The Company will cooperate with each
holder of any Restricted Securities in supplying such information as may be
necessary for such holder to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any
Restricted Securities. The Company will furnish to each holder of any Warrants,
promptly upon their becoming available, copies of all financial statements,
reports, notices and proxy statements sent or made available generally by the
Company to its stockholders, and copies of all regular and periodic reports and
all registration statements and prospectuses filed by the Company with any
securities exchange or with the Commission.
10. Information Required By Rule 144A. The Company will, upon the
request of the holder of this Warrant, provide such holder, and any qualified
institutional buyer designated by such holder, such financial and other
information as such holder may reasonably determine to be necessary in order to
permit compliance with the information requirements of Rule 144A under the
Securities Act in connection with the resale of Warrants, except at such times
as the Company is subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act. For the purpose of this section 10, the term "qualified
institutional buyer" shall have the meaning specified in Rule 144A under the
Securities Act.
11. Registration Rights Agreement; Put Rights Agreement. The holder of
this Warrant and the holders of any securities issued or issuable upon the
exercise hereof are each entitled to the benefits of the Registration Rights
Agreement and the Put Rights Agreement, each dated as of the Initial Date, among
the Company and the Purchasers.
<PAGE> 18
12. Ownership, Transfer and Substitution of Warrants.
12A. Ownership of Warrants. Except as otherwise required by
law, the Company may treat the Person in whose name any Warrant is registered on
the register kept at the principal office of the Company as the owner and holder
thereof for all purposes, notwithstanding any notice to the contrary except
that, if and when any Warrant is properly assigned in blank, the Company, in its
discretion, may (but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes, notwithstanding any notice to the
Company to the contrary. Subject to section 8, a Warrant, if properly assigned,
may be exercised by a new holder without first having a new Warrant issued.
12B. Transfer and Exchange of Warrants. Upon the surrender of
any Warrant, properly endorsed, for registration of transfer or for exchange at
the principal office of the Company, the Company at its expense will (subject to
compliance with section 8, if applicable) execute and deliver to or upon the
order of the holder thereof a new Warrant or Warrants of like tenor, in the name
of such holder or as such holder (upon payment by such holder of any applicable
transfer taxes) may direct, calling in the aggregate on the face or faces
thereof for the number of shares of Original Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
12C. Replacement of Warrants. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction of any Warrant held by a Person other than a Purchaser or any
institutional investor reasonably satisfactory to the Company, upon delivery of
its unsecured indemnity reasonably satisfactory to the Company in form and
amount or, in the case of any such mutilation, upon surrender of such Warrant
for cancellation at the principal office of the Company, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
13. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
"ACQUIRER'S COMMON STOCK" shall have the meaning specified in
section 2I.
"ACQUIRING COMPANY" shall have the meaning specified in section 2I.
"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares
(including treasury shares) of Common Stock issued or sold (or, pursuant to
section 2C or 2D, deemed to be issued) by the Company after the date hereof,
whether or not subsequently reacquired or retired by the Company, other than the
following:
(a) shares of Common Stock issued upon the exercise or partial
exercise of the Warrants;
<PAGE> 19
(b) up to 1,404,340 shares of Common Stock held in treasury by
the Company, to be offered by the Company to, and to be purchased by,
certain existing stockholders of the Company and others not later than
December 31, 1997, for a purchase price of not less than $2.40 per
share, and upon the terms outlined in Exhibit A attached to the
memorandum dated August 14, 1997 from Mel Todd to certain
representatives of the Purchasers and of General American Life
Insurance Company;
(c) up to 786,659 shares of Common Stock issued pursuant to
Options outstanding prior to January 1, 1997 and having an exercise
price of $2.95 per share or more; and
(d) shares of Common Stock issued in connection with
acquisitions by the Company of other insurance agencies or similar
entities, provided, that the Fair Value of the consideration received
for such shares shall be at least equal to the then-current Market
Price of such shares.
"ANNOUNCEMENT DATE" shall have the meaning specified in
section 2I.
"BUSINESS DAY" shall mean any day on which banks are open for
business in New York City (other than a Saturday, a Sunday or a legal holiday in
the State of New York), provided, that any reference to "days" (unless Business
Days are specified) shall mean calendar days.
"COMMISSION" shall mean the Securities and Exchange Commission
or any successor federal agency having similar powers.
"COMMON STOCK" shall mean the Original Common Stock, any stock
into which such stock shall have been converted or changed or any stock
resulting from any reclassification of such stock and all other stock of any
class or classes (however designated) of the Company the holders of which have
the right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference.
"COMPANY" shall have the meaning specified in the initial
paragraph of this Warrant.
"CONSUMMATION DATE" shall have the meaning specified in
section 2I.
"CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares of stock (other than Common Stock) or other securities
directly or indirectly convertible into or exchangeable for Additional Shares of
Common Stock.
<PAGE> 20
"DIVIDEND RESTRICTIONS" shall mean the restrictions on the
ability of the Company to declare, order, pay or make dividends or other
distributions, as set forth in paragraph 6B of the Purchase Agreement, whether
or not such Purchase Agreement remains in effect.
"EXCHANGE ACT" shall mean the Securities and Exchange Act of
1934, as amended.
"EXERCISE PRICE" shall have the meaning specified in section
1A.
"FAIR VALUE" shall mean, with respect to any securities or
other property, the fair value thereof, as determined by an independent
investment bank, or accounting firm or other organization which is recognized
for, and experienced in valuing insurance agencies and brokers and similar
financial services firms (the "INDEPENDENT EVALUATOR"), which is, in any case,
selected and mutually agreed upon by the Majority Holders and the Company
(collectively, the "INTERESTED PARTIES"). If the Majority Holders or the Company
propose an Independent Evaluator and the Interested Parties cannot agree on that
or any other proposed Independent Evaluator within 30 days, the Majority Holders
and the Company shall each hire an Independent Evaluator within 15 days. The
cost of such appraisals shall be borne by the Company. The determination of Fair
Value by the Independent Evaluator shall be set forth within 45 days of the
engagement in a written opinion addressed to the Board of Directors of the
Company and to the holders of Warrants and shall be final, conclusive and
binding upon the Company and such holders. In the event that the Interested
Parties hire two Independent Evaluators, the Fair Value shall be the average of
the two values established unless there is a difference of more than 10%, in
which case the Independent Evaluators shall select a third Independent Evaluator
who shall establish a value within 30 days of such engagement and the Fair Value
shall be the average of the two closest prices established by the Independent
Evaluators. In the event a third Independent Evaluator is hired, the cost of
such evaluation shall be split evenly between the Company and the holders of
Warrants.
"INDEPENDENT EVALUATOR" shall have the meaning specified in
the definition of "Fair Value."
"INITIAL DATE" shall have the meaning specified in section 2A.
"INTERESTED PARTIES" shall have the meaning specified in the
definition of "Fair Value."
"MAJORITY HOLDERS" shall mean the holders of at least 50.1% of
all the Warrants at the time outstanding, determined on the basis of the number
of shares of Common Stock then purchasable upon the exercise of all Warrants
then outstanding.
"MARKET PRICE" shall mean on any date specified herein, (a)
with respect to Common Stock or to common stock (or equivalent equity interests)
of an Acquiring
<PAGE> 21
Person or its Parent, the amount per share equal to (i) the last sale price of
shares of Common Stock, regular way, or of shares of such common stock (or
equivalent equity interests) on such date or, if no such sale takes place on
such date, the average of the closing bid and asked prices thereof on such date,
in each case as officially reported on the principal national securities
exchange on which the same are then listed or admitted to trading, or (ii) if no
shares of Common Stock or no shares of such common stock (or equivalent equity
interests), as the case may be, are then listed or admitted to trading on any
national securities exchange, the last sale price of shares of Common Stock,
regular way, or of shares of such common stock (or equivalent equity interests)
on such date, in each case or, if no such sale takes place on such date, the
average of the reported closing bid and asked prices thereof on such date as
quoted in the Nasdaq National Market or, if no shares of Common Stock or no
shares of such common stock (or equivalent equity interest), as the case may be,
are then quoted in the Nasdaq National Market, as published by the National
Quotation Bureau, Incorporated or any similar successor organization, and in
either case as reported by any member firm of the New York Stock Exchange
selected by the Company, or (iii) if no shares of Common Stock or no shares of
such common stock (or equivalent equity interests), as the case may be, are then
listed or admitted to trading on any national securities exchange or quoted or
published in the over-the-counter market, the higher of (x) the book value
thereof as determined by any firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company, as of the
last day of any month ending within 60 days preceding the date as of which the
determination is to be made or (y) the Fair Value thereof; and (b) with respect
to any other securities, the Fair Value thereof.
"NET BASIS EXERCISE" shall have the meaning specified in
section 1F.
"NOTE APPLICATION EXERCISE" shall have the meaning specified
in section 1F.
"NOTES" shall have the meaning specified in the opening
paragraphs of this Warrant.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the
name of the Company by its President, one of its Vice Presidents or its
Treasurer.
"OPTIONS" shall mean rights, options or warrants to subscribe
for, purchase or otherwise acquire either Additional Shares of Common Stock or
Convertible Securities.
"ORIGINAL COMMON STOCK" shall have the meaning specified in
the opening paragraphs of this Warrant.
"OTHER SECURITIES" shall mean any stock (other than Common
Stock) and any other securities of the Company or any other Person (corporate or
otherwise) which the holders of the Warrants at any time shall be entitled to
receive, or shall have received, upon the exercise of the Warrants, in lieu of
or in addition to Common Stock, or which at
<PAGE> 22
any time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to section 2I or
otherwise.
"PARENT" shall have the meaning specified in section 2I.
"PERSON" shall mean and include an individual, a partnership,
an association, a joint venture, a corporation, a trust, a limited liability
company, an unincorporated organization and a government or any department or
agency thereof.
"PURCHASE AGREEMENT" shall have the meaning specified in the
opening paragraphs of this Warrant.
"PURCHASER" and "PURCHASERS" shall have the respective
meanings specified in the opening paragraphs of this Warrant.
"PUT NOTE" shall mean a promissory note issued by the Company
to a holder of (i) Warrants or (ii) Common Stock issued upon the exercise of
Warrants, pursuant to the Company's obligation under the Put Rights Agreement to
repurchase such Warrants or Common Stock from such holder upon such holder's
exercise of its right under the Put Rights Agreement to require the Company to
effect such a repurchase.
"PUT RIGHTS AGREEMENT" shall mean that certain Put Rights
Agreement dated as of the Initial Date by and among the Company and the
Purchasers.
"REGISTRATION RIGHTS AGREEMENT" shall mean that certain
Registration Rights Agreement dated as of the Initial Date by and among the
Company and the Purchasers.
"REQUIRED HOLDERS" shall mean the holders of at least 66 % of
all the Warrants at the time outstanding, determined on the basis of the number
of shares of Common Stock then purchasable upon the exercise of all Warrants
then outstanding.
"RESTRICTED SECURITIES" shall mean (a) any Warrants bearing
the applicable legend set forth in section 8 and (b) any shares of Original
Common Stock (or Other Securities) which have been issued upon the exercise of
Warrants and which are evidenced by a certificate or certificates bearing the
applicable legend set forth in such section, and (c) unless the context
otherwise requires, any shares of Original Common Stock (or other Securities)
which are at the time issuable upon the exercise of Warrants and which, when so
issued, will be evidenced by a certificate or certificates bearing the
applicable legend set forth in such section.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"TRANSACTION" shall have the meaning specified in section 2I.
<PAGE> 23
"WARRANTS" shall have the meaning specified in the opening
paragraphs of this Warrant.
14. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
15. Notices. All notices and other communications under this Warrant
shall be in writing and shall be mailed by registered or certified mail, return
receipt requested, addressed (a) if to any holder of any Warrant or any holder
of any Common Stock (or Other Securities), at the registered address of such
holder as set forth in the applicable register kept at the principal office of
the Company, or (b) if to the Company, to the attention of its President at the
Company's principal office, provided that the exercise of any Warrant shall be
effected in the manner provided in section 1.
16. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. The agreements of the Company contained in this Warrant other than
those applicable solely to the Warrants and the holders thereof shall inure to
the benefit of and be enforceable by any holder or holders at the time of any
Common Stock (or Other Securities) issued upon the exercise of Warrants, whether
so expressed or not. This Warrant shall be construed and enforced in accordance
with and governed by the laws of the State of New York. The section headings in
this Warrant are for purposes of convenience only and shall not constitute a
part hereof.
CLARK/BARDES, INC.
By:
Name:
Title:
<PAGE> 1
Exhibit 10.10
[FORM OF NOTE]
CLARK/BARDES, INC.
11.00% SECOND PRIORITY SENIOR SECURED NOTE DUE AUGUST [__], 2004
No. September __, 1997
$
FOR VALUE RECEIVED, the undersigned, CLARK/BARDES, INC. (the
"COMPANY"), a corporation organized and existing under the laws of the State of
Texas, hereby promises to pay to _________________________
___________________________, or registered assigns, the principal sum of
___________________________ DOLLARS ($______________) on August [__], 2004,
with interest (computed on the basis of a 360-day year -- 30-day month) (a) on
the unpaid balance thereof at the rate of 11.00% per annum from the date
hereof, payable quarterly on the ___ day of February, May, August and November
in each year, commencing with the November ___, next succeeding the date
hereof, until the principal hereof shall have become due and payable, and (b)
on any overdue payment (including any overdue prepayment) of principal, any
overdue payment of interest and any overdue payment of any Yield Maintenance
Amount (as defined in the Note Agreement referred to below), payable quarterly
as aforesaid (or, at the option of the registered holder hereof, on demand), at
a rate per annum from time to time equal to the lesser of (a) the maximum rate
permitted by applicable law or (b) the greater of (i) 2.0% over the rate of
interest then in effect with respect to this Note or (ii) 2.0% over the rate of
interest publicly announced by Citibank, N.A. from time to time in New York
City as its Base Rate.
Payments of principal of, interest on and any Yield Maintenance Amount
payable with respect to this Note are to be made at the main office of
Citibank, N.A. in New York City or at such other place as the holder hereof
shall designate to the Company in writing, in lawful money of the United States
of America.
This Note is one of a series of 11.00% Second Priority Senior Secured
Notes (the "NOTES") issued pursuant to a Note and Warrant Purchase Agreement,
dated as of September [__], 1997 (the "AGREEMENT"; capitalized terms used and
not otherwise defined herein have the meanings assigned to them in the
Agreement), between the Company, Great-West Life & Annuity Insurance Company,
Life Investors Insurance Company of America and Nationwide Life Insurance
Company, is entitled to the benefits
<PAGE> 2
thereof and is secured by each of the Security Documents in favor of the
Collateral Agent for the benefit of the holders of the Notes.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the
registered holder hereof or such holder's attorney duly authorized in writing,
a new Note of like tenor for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company shall not be affected by any notice to
the contrary.
This Note is subject to certain prepayments, as specified in the
Agreement.
If an Event of Default shall occur and be continuing, the principal of
this Note may be declared or otherwise become due and payable in the manner and
with the effect provided in the Agreement.
The Company, and the purchaser and the registered holder of this Note
specifically intend and agree to limit contractually the amount of interest
payable under this Note to the maximum amount of interest lawfully permitted to
be charged under applicable law. Therefore, none of the terms of this Note
shall ever be construed to create a contract to pay interest at a rate in
excess of the maximum rate permitted to be charged under applicable law, and
neither the Company nor any other party liable or to become liable hereunder
shall ever be liable for interest in excess of the amount determined at such
maximum rate, and the provisions of paragraph 11U of the Agreement shall
control over any contrary provision of this Note.
THIS NOTE IS INTENDED TO BE PERFORMED IN THE STATE OF NEW YORK AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAW OF SUCH STATE.
The Company and any and all endorsers, guarantors and sureties
severally waive grace, demand, presentment for payment, notice of dishonor or
default, notice of intent to accelerate, notice of acceleration (to the extent
set forth in the Agreement), protest and diligence in collecting.
CLARK/BARDES, INC.
By:
Name:
Title:
<PAGE> 1
EXHIBIT 10.11
[FORM OF NOTE]
CLARK/BARDES, INC.
10.50% SENIOR SECURED NOTE DUE AUGUST [__], 2004
No. September __, 1997
$
FOR VALUE RECEIVED, the undersigned, CLARK/BARDES, INC. (the
"COMPANY"), a corporation organized and existing under the laws of the State of
Texas, hereby promises to pay to _________________________
___________________________, or registered assigns, the principal sum of
___________________________ DOLLARS ($______________) on August [__], 2002, with
interest (computed on the basis of a 360-day year -- 30-day month) (a) on the
unpaid balance thereof at the rate of 10.50% per annum from the date hereof,
payable quarterly on the ___ day of February, May, August and November in each
year, commencing with the November ___, next succeeding the date hereof, until
the principal hereof shall have become due and payable, and (b) on any overdue
payment (including any overdue prepayment) of principal, any overdue payment of
interest and any overdue payment of any Yield Maintenance Amount (as defined in
the Note Agreement referred to below), payable quarterly as aforesaid (or, at
the option of the registered holder hereof, on demand), at a rate per annum from
time to time equal to the lesser of (a) the maximum rate permitted by applicable
law or (b) the greater of (i) 2.0% over the rate of interest then in effect with
respect to this Note or (ii) 2.0% over the rate of interest publicly announced
by Citibank, N.A. from time to time in New York City as its Base Rate.
Payments of principal of, interest on and any Yield Maintenance Amount
payable with respect to this Note are to be made at the main office of Citibank,
N.A. in New York City or at such other place as the holder hereof shall
designate to the Company in writing, in lawful money of the United States of
America.
This Note is one of a series of 10.50% Senior Secured Notes (the
"NOTES") issued pursuant to a Note Agreement, dated as of September [__], 1997
(the "AGREEMENT"; capitalized terms used and not otherwise defined herein have
the meanings assigned to them in the Agreement), between the Company, Great-West
Life & Annuity Insurance Company, Life Investors Insurance Company of America
and Nationwide Life Insurance
<PAGE> 2
Company, is entitled to the benefits thereof and is secured by each of the
Security Documents in favor of the Collateral Agent for the benefit of the
holders of the Notes.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
of like tenor for a like principal amount will be issued to, and registered in
the name of, the transferee. Prior to due presentment for registration of
transfer, the Company may treat the person in whose name this Note is registered
as the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
This Note is subject to certain prepayments, as specified in the
Agreement.
If an Event of Default shall occur and be continuing, the principal of
this Note may be declared or otherwise become due and payable in the manner and
with the effect provided in the Agreement.
The Company, and the purchaser and the registered holder of this Note
specifically intend and agree to limit contractually the amount of interest
payable under this Note to the maximum amount of interest lawfully permitted to
be charged under applicable law. Therefore, none of the terms of this Note shall
ever be construed to create a contract to pay interest at a rate in excess of
the maximum rate permitted to be charged under applicable law, and neither the
Company nor any other party liable or to become liable hereunder shall ever be
liable for interest in excess of the amount determined at such maximum rate, and
the provisions of paragraph 11U of the Agreement shall control over any contrary
provision of this Note.
THIS NOTE IS INTENDED TO BE PERFORMED IN THE STATE OF NEW YORK AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAW OF SUCH STATE.
The Company and any and all endorsers, guarantors and sureties
severally waive grace, demand, presentment for payment, notice of dishonor or
default, notice of intent to accelerate, notice of acceleration (to the extent
set forth in the Agreement), protest and diligence in collecting.
CLARK/BARDES, INC.
By:
Name:
Title:
<PAGE> 1
EXHIBIT 10.12
THIS NOTE IS NON-NEGOTIABLE AND NON-TRANSFERABLE AND NO INTEREST SHALL BE PAID
EXCEPT TO THE PAYEE NAMED HEREIN EXCEPT AS OTHERWISE NOTED HEREIN.
NEITHER THIS NON-NEGOTIABLE CONVERTIBLE SUBORDINATED NOTE NOR THE SHARES OF
COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE BEEN REGISTERED UNDER THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION (TOGETHER, THE "SECURITIES
LAWS") AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED OR
ENCUMBERED IN THE ABSENCE OF COMPLIANCE WITH SUCH SECURITIES LAWS AND UNTIL THE
ISSUER THEREOF SHALL HAVE RECEIVED AN OPINION FROM COUNSEL ACCEPTABLE TO IT
THAT THE PROPOSED DISPOSITION WILL NOT VIOLATE ANY APPLICABLE SECURITIES LAWS.
CONVERTIBLE SUBORDINATED NOTE
$4,800,000 September , 1997
FOR VALUE RECEIVED, Clark/Bardes, Inc, a Texas corporation (the "Company"),
promises to pay to Bank Compensation Strategies, Inc., a Minnesota corporation,
or its permitted assigns ("Holder"), in lawful money of the United States of
America, the principal sum of FOUR MILLION EIGHT HUNDRED THOUSAND DOLLARS
($4,800,000), together with interest in arrears on the unpaid principal balance
at a rate equal to EIGHT AND ONE-HALF PERCENT (8 1/2%) per annum, in the manner
provided below. Interest shall be calculated on the basis of a 360-day year of
twelve 30-day months.
This Note has been executed and delivered pursuant to and in accordance with
the terms and conditions of the Asset Purchase Agreement, dated September ,
1997 (the "Agreement"), by and among the Company, Holder, Lawrence H.
Hendrickson, Richard C. Chapman and Walter Hilgenberg ("Shareholders"), and is
subject to the terms and conditions of the Agreement, which are, by this
reference, incorporated herein and made a part hereof. Capitalized terms used
in this Note without definition shall have the respective meanings set forth in
the Agreement.
1. PAYMENTS.
1.1 PRINCIPAL AND INTEREST. The principal amount of this Note shall be
due and payable on September 15, 2007. Interest on the unpaid principal balance
of this Note shall be due and payable quarterly on the fifteenth (15th) day of
March, June, September and December of each year, commencing December 15, 1997
until said principal amount of the Note is paid in full or upon conversion of
the Note in accordance with Section 6 hereof.
<PAGE> 2
1.2 MANNER OF PAYMENT. All payments of principal and interest on this
Note shall be made by check at 3600 West 80th Street, Suite 200, Bloomington,
NM 55431 or at such other place in the United States of America as Holder shall
designate to the Company in writing. If any payment of principal or interest on
this Note is due on a day which is not a Business day, such payment shall be
due on the next succeeding Business Day, and such extension of time shall not
be taken into account in calculating the amount of interest payable under this
Note. "Business Day" means any day other than a Saturday, Sunday or legal
holiday in the State of Texas.
1.3 PREPAYMENT. The Company may, without premium or penalty, at any time
and from time to time, prepay all or any portion of the outstanding principal
balance due under this Note, provided that each such prepayment is accompanied
by the accrued interest on the amount of principal prepaid calculated to the
date of such prepayment. The Company shall provide Holder with not less than
forty-five (45) days written notice prior to such prepayment. In the event a
transaction described in Section 6.3 hereof is contemplated prior to or
contemporaneous with prepayment, said written notice shall include the
information specified in the notice made pursuant to Section 6.3 hereof.
1.4 RIGHT OF SETOFF. The Company shall have the right to withhold and
setoff against any amount due hereunder the amount of any claim for
indemnification or payment of damages to which the Company may be entitled
under the Agreement, as provided in Section 9 thereof.
2. DEFAULT.
2.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following
events with respect to Company shall constitute an event of default hereunder
("Event of Default"):
(a) If Company shall fail to pay when due any payment of principal or
interest on this Note and such failure continues for fifteen (15) days
after the Holder notifies the Company thereof in writing; provided,
however, that the exercise by the Company in good faith of its right of
setoff pursuant to Section 1.4 above, whether or not ultimately determined
to be justified, shall not constitute an Event of Default; and provided,
further, that in the event the exercise of the right of setoff by the
Company is determined to be all or in part unjustified, in addition to any
other remedies and rights that the Holder may have against the Company, the
Company shall pay all the Holder's reasonable costs and expenses,
including reasonable legal fees, to collect this Note, including the
amount of the setoff.
(b) If, pursuant to or within the meaning of the United States
Bankruptcy Code or any other federal or state law relating to insolvency or
relief of debtors (a "Bankruptcy Law"), the Company shall (i) commence a
voluntary case or proceeding; (ii) consent to the entry of an order for
relief against it in an involuntary case; (iii) consent to the appointment
of a trustee, receiver, assignee, liquidator or similar official; (iv) make
an assignment for the benefit of its creditors; or (v) admit in writing its
inability to pay its debts as they become due
2
<PAGE> 3
(c) If a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that (i) is for relief against the Company in an
involuntary case, (ii) appoints a trustee, receiver, assignee, liquidator
or similar official for the Company or substantially all of the Company's
properties, or (iii) orders the liquidation of the Company, and in each
case the order or decree is not dismissed within 90 days.
(d) Any declared default of the company under any Senior Debt (as
defined below) that gives the holder thereof the right to accelerate such
Senior Debt, and such Senior Debt is in fact accelerated by the holder.
2.2 NOTICE BY THE COMPANY. The Company shall notify Holder in writing
within five days after the occurrence of any Event of Default of which the
Company acquires knowledge.
2.3 REMEDIES. Upon the occurrence of an Event of Default hereunder
(unless all Events of Default have been cured or waived by Holder), Holder may
(subject to the provisions of Section 3), at its option, (i) by written notice
to the Company, declare the entire unpaid principal balance of this Note,
together with all accrued interest thereon, immediately due and payable
regardless of any prior forbearance, and (ii) exercise any and all rights and
remedies available to it under applicable law, including, without limitation,
the right to collect from the Company all sums due under this Note. The Company
shall pay all reasonable costs and expenses incurred by or on behalf of Holder
in connection with Holder's exercise of any or call of its rights and remedies
under this Note, including, without limitation, reasonable attorneys' fees.
3. SUBORDINATION.
The indebtedness evidenced by this 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 Company's Senior Debt, as hereinafter
defined.
3.1 SUBORDINATION; RESTRICTION ON SUBORDINATED DEBT. Anything in this
Note to the contrary notwithstanding, the indebtedness evidence by this Note,
including, without limitation, principal, premium, if any, and interest and any
and all fees, expenses, indemnities and all other monies owing at any time
pursuant to or in connection with this Note (the "Subordinated Debt") shall be
subordinated and junior to the extent set forth in subparagraphs (a) through
(c), inclusive, below, to all Senior Debt.
(a) If a Default or an Event of Default (as defined in Section 3.3
below) shall occur, then, unless and until such Default or Event of Default
shall have been remedied by indefeasible payment in full of all Senior Debt
in cash or otherwise cured, or expressly waived in writing by all affected
holders of Senior Debt, the Company shall not make and the Holder under
this Note shall not accept or receive any direct or indirect payment of or
on account of any Subordinated Debt; provided, however, the Holder under
this Note may receive and accept any direct or indirect payment on account
of any Subordinated Debt unless or until the
3
<PAGE> 4
Holder under this Note has received written notice of a Default or Event of
Default; for the purpose of this Section 3.1(a) written notice of Default or
Event of Default may be given to the Holder under this Note at the address set
forth in Section 1.2 hereof or such other place or places as the Holder or
Holders under this Note or any replacement hereof designate in writing to the
holder or holders of Senior Debt then outstanding at the notice address
maintained for such holder pursuant to the Purchaser Schedule maintained in
accordance with the Senior Note Agreement (as defined in Section 3.3 below) and
the SPSS Note Agreement (as defined in Section 3.3 below) and any such similar
schedule maintained under the Put Rights Agreement (as defined in Section 3.3
below).
(b) In the event of any insolvency, bankruptcy, liquidation,
reorganization or other similar proceedings, or any receivership proceedings in
connection therewith, relative to the Company, and in the event of any
proceedings for voluntary liquidation, dissolution or other winding up of the
Company, whether or not involving insolvency or bankruptcy proceedings, then
all "Senior Debt shall first be indefeasibly paid in full and in cash before
any payment is made of or on account of any Subordinated Debt.
(c) In any of the proceedings referred to in subparagraph (b) above, any
payment or distribution of any kind or character whether in cash, property,
stock or obligations, which may be payable or deliverable by the Company in
respect of this Note shall be paid or delivered directly to the holders of
Senior Debt (or to a banking institution selected by the court or Person making
the payment or delivery or designated by any holder of Senior Debt) for the
ratable application in payment thereof in accordance with the priorities then
existing among such holders, unless and until all Senior Debt shall have been
indefeasibly paid in full and in cash.
(d) In the event any of the proceedings referred to in paragraph (b)
above, the holder of this Note will, at the Required Holder(s) request, file
any claim, proof of claim or other instrument of similar character necessary to
enforce the obligations of the Company in respect of the Subordinated Debt. In
the event that the holder of this Note should fail to take such action
requested by the Required holder(s), the Required Holder(s) may, as
attorney-in-fact for the holder of this Note, take such action on behalf of the
holder of this Note, and the holder of this Note hereby irrevocably appoints
the Required Holder(s) as attorney-in-fact for the holder of this Note to
demand, sue for, collect and receive any and all such moneys, dividends or
other assets and give acquittance therefor and to file any claim, proof of
claim or other instrument of similar character and to take such other
proceedings in the Required Holder(s) own name(s) or in the name of the Holder
of this Note as the Required Holder(s) may deem necessary or advisable for the
enforcement of the terms contained in this Note; and the Holder of this Note
will execute and deliver to the Required Holder(s) such other and further power
of attorney or other instruments as the Required Holder(s) may request in order
to accomplish the foregoing.
4
<PAGE> 5
(e) If any payment or distribution of any character, whether in cash,
securities or other property, shall be received by the Holder of this Note in
contravention of any of the terms of this Note and before all the Senior Debt
shall have been indefeasibly paid in full and in cash, such payment or
distribution shall be received in trust for the benefit of the holders of the
Senior Debt at the time outstanding and shall forthwith be paid over or
delivered and transferred to the holders of the Senior Debt for the ratable
application in payment thereof in accordance with the priorities then existing
among such holders.
(f) The Holder of this Note will not commence any action or proceeding,
including, without limitation, any action to recover on a right of setoff or
similar right or remedy, against the Company to recover all or any part of the
Subordinated Debt or join with any creditor, unless the holders of the Senior
Debt shall also join, in bringing any proceedings against the Company under any
bankruptcy, reorganization, readjustment of debt, arrangement of debt
receivership, liquidation or insolvency law or statute of the Federal or any
state government unless and until all Senior Debt shall be indefeasibly paid in
full and in cash.
(g) Payment of the Subordinated Debt will not be secured by any security
interest or lien and the holder of this Note will neither request nor permit
any Person to guarantee or act as a surety for the payment of the Subordinate
Debt, unless all Senior Debt has been indefeasibly paid in full and in cash.
(h) The amount, the rate of interest charged, or the time, place, manner,
terms or amount of principal or interest payments of this Note, may not be
altered in any fashion, and the principal owing with respect to this Note may
not be paid prior to the scheduled date of payment thereof, without, in each
instance, the prior express written consent of the Required Holder(s) unless
all Senior Debt has been indefeasibly paid in full and in cash; provided,
however, the Holder under this Note may be entitled to waive defaults, defer
the time of payments, change the place for payments, and change the manner of
payments so long as no acceleration of payments occurs.
(i) Subject to the rights, if any, of the holders of Senior Debt under
this Section 3 to receive cash, securities or other properties otherwise
payable or deliverable to Holder under this Note and to restrict the Holder's
commencement of proceedings, nothing contained in this Section 3 shall impair,
as between the Company and the Holder, the obligation of the Company, subject
to the terms and conditions hereof, to pay to the Holder the principal hereof
and interest hereon as and when the same become due and payable, or shall
prevent the Holder under this Note, upon default hereunder, from exercising all
rights, powers and remedies otherwise provided herein or by applicable law.
(j) Subject to the payment in full of all Senior Debt and until this Note
shall be paid in full, the Holder shall be subrogated to the rights of the
holders of Senior Debt (to the extent of payments or distributions previously
made to such holders of Senior Debt pursuant
5
<PAGE> 6
to the provisions of Section 3.2 above) to receive payments or
distributions of assets of the Company applicable to the Senior Debt.
No such payments or distributions applicable to the Senior Debt shall,
as between the Company and its creditors, other than the holders of
Senior Debt and the Holder, be deemed to be a payment by the Company
to or on account of this Note; and for the purposes of such
subrogation, no payments or distributions to the holders of Senior
Debt to which the Holder would be entitled except for the provisions
of this Section 3 shall, as between the Company and its creditors,
other than the holders of Senior Debt and the Holder, be deemed to be
a payment by the Company to or on account of the Senior Debt.
(k) By its acceptance of this Note, the Holder agrees to execute
and deliver such documents as may be reasonably requested from time to
time by the Company or the lender of any Senior Debt in order to
implement the foregoing provisions of this Section 3.
3.2 RIGHTS OF HOLDERS OF SENIOR DEBT. The subordination provisions
of this Note shall be deemed a continuing offer to all holders of Senior Debt
to act in reliance on such provisions (but no such reliance shall be required
to be proven to receive the benefits hereof) and may be enforced by such
holders, and no right of any present or future holder of any Senior Debt to
enforce subordination as provided in this Note shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act by any such holder, or by any non-compliance by
the Company with the terms, provisions and covenants of this Note. Without in
any way limiting the generality of the foregoing, the holders of Senior Debt
may, at any time and from time to time, without the consent of or notice to the
Holder, and without impairing or releasing the subordination provided in this
Note or the obligations hereunder of the Holder to the holders of Senior Debt,
do any one or more of the following: (i) change the manner, place or terms of
payment or extend the time of payment of, or renew or alter, or waive defaults
under Senior Debt, or otherwise amend or supplement in any manner Senior Debt
or any instrument evidencing the same or any agreement under which Senior Debt
is outstanding; (ii) release any Person liable in any manner for the payment or
collection of Senior Debt; (iii) sell, exchange, release or otherwise deal with
all or any part of the property by whomsoever at any time pledged or mortgaged
to secure, or howsoever securing, Senior Debt; (iv) exercise or refrain from
exercising any rights against the Company and any other Person, including any
guarantor or surety; and (v) apply any sums, by whomsoever paid or however
realized, to Senior Debt.
3.3 DEFINITIONS FOR THE PURPOSES OF THIS SECTION 3 ONLY.
"DEFAULT" shall mean a Default as such term is defined under any
of the Senior Note Agreement, the SPSS Note Agreement, the Put Rights
Agreement, the Working Capital Note Agreement or the Medium Term Note.
"EVENT OF DEFAULT" shall mean an Event of Default as such term is
defined under any of the Senior Note Agreement, the SPSS Note Agreement, the
Put Rights Agreement, the Working Capital Note Agreement or the Medium Term
Note.
6
<PAGE> 7
"MEDIUM TERM NOTE" shall mean that certain Medium Term Note dated
of even date herewith (as the same may be amended, modified, supplemented or
restated from time to time) between the Company and Bank Compensation
Strategies, Inc., a Minnesota corporation.
"PERSON" shall mean and include an individual, a partnership, a
joint venture, a corporation, a trust, a limited liability company, an
unincorporated organization and a government or any department or agency
thereof.
"PUT RIGHTS AGREEMENT" shall mean that certain Put Rights
Agreement dated of even date herewith (as the same may be amended, modified,
supplemented or restated from time to time) among the Company, Great-West Life
& Annuity Insurance Company, Life Investors Insurance Company of America and
Nationwide Life Insurance Company; the term "Put Notes" shall mean any and all
Put Notes of the Company issued pursuant to the Put Rights Agreement.
"REQUIRED HOLDER(s)" shall mean the holder or holders of at least
50.1% of the aggregate principal amount of the Senior Debt from time to time
outstanding.
"SENIOR DEBT" shall mean all obligations (whether now outstanding
or hereafter incurred), for the payment of which the Company is responsible or
liable as obligor, guarantor or otherwise including, without limitation,
principal, premium, if any, interest (including interest incurred after the
filing of any of the proceedings referred to in Section 3.1(b) above) and any
and all fees, expenses, indemnities and all other monies whether now owing or
hereafter incurred in respect of (i) the Senior Notes or the Senior Note
Agreement (ii) the SPSS Notes or the SPSS Note Agreement, (iii) the Put Notes
or the Put Rights Agreement, (iv) the Working Capital Notes or the Working
Capital Note Agreement, or (v) the Medium Term Note; provided, however, that
notwithstanding anything contained herein to the contrary, Senior Debt shall
not include more than $4,000,000 aggregate principal amount of Working Capital
Notes and $5,700,000 aggregate principal amount of Medium Term Note, together
with premium, if any, interest (including interest incurred after the filing of
any of the proceedings referred to in Section 3.1(b) above) and any and all
fees, expenses, indemnities and all other monies whether now owing or hereafter
incurred in respect of such Working Capital Notes or Medium Term Note.
"SENIOR NOTE AGREEMENT" shall mean that certain Note Agreement
dated of even date herewith (as the same may be amended, modified, supplemented
or restated from time to time) among the Company, Great-West Life & Annuity
Insurance Company, Life Investors Insurance Company of America and Nationwide
Life Insurance Company; the term "Senior Notes" shall mean any and all Senior
Secured Notes of the Company issued pursuant to the Senior Note Agreement.
"SPSS NOTE AGREEMENT" shall mean that certain Note and Warrant
Purchase Agreement dated of even date herewith (as the same may be amended,
modified, supplemented or restated from time to time) among the Company,
Great-West Life & Annuity Insurance Company, Life Investors Insurance Company
of America and Nationwide Life Insurance Company; the term
7
<PAGE> 8
"SPSS Notes shall mean any and all Second Priority Senior Secured
Notes of the Company issued pursuant to the SPSS Note Agreement.
"WORKING CAPITAL NOTE AGREEMENT" shall mean that certain note
agreement evidencing the Company's revolving working capital facility entered
into pursuant to paragraph 5S of the Senior Note Agreement and the SPSS Note
Agreement (as the same may be amended, modified, supplemented or restated from
time to time) between the Company and General American Life Insurance Company;
the term "Working Capital Notes" shall mean any and all promissory notes of the
Company issued pursuant to the Working Capital Note Agreement.
4. TRANSFERABILITY.
4.1 Except as otherwise provided in Sections 4.2 and 7.5 below,
Holder is prohibited from transferring its right, title and interest in this
Note.
4.2 Holder shall have the right at any time, at its option, to
transfer all of its right, title and interest in this Note to Lawrence H.
Hendrickson, Richard C. Chapman and Walter Hilgenberg (hereinafter referred to
collectively as "shareholders" and individually as a "Shareholder"). Upon
written notice from Holder of such transfer, the Company shall execute and
deliver to said Shareholders new notes in such principal amounts (which
together may not exceed the then outstanding principal amount of this Note) as
set forth in written instructions provided from Holder. In addition, the Holder
shall have the right at any time, at its option, to transfer all of its right,
title and interest in the Conversion rights set forth in Sections 5 and 6
hereof ("Conversion Rights") to the Shareholders separately from this Note. To
the extent the Conversion Rights have been transferred separately to the
Shareholders, (a) the Shareholders shall have no further right to transfer the
Conversion Rights, voluntarily or involuntarily, by operation of law or
otherwise, without the prior written consent of the Company, which consent
shall not be unreasonably withheld; (b) no person or entity other than the
Shareholder shall have the right to exercise the Conversion Rights without the
prior written consent of the Company, which consent shall not be unreasonably
withheld; and (c) as a condition of the exercise of such Conversion Rights an
appropriate portion of this Note will be surrendered to the Company by the
Holder contemporaneously with the exercise of the Conversion Rights.
5. CONVERSION.
5.1 VOLUNTARY CONVERSION. At any time after December 31, 1997, the
Holder shall have the right, at the Holder's option, at any time prior to
payment in full of the principal balance of this Note, to convert this Note, in
accordance with the provisions of Section 5.2 hereof, in whole or in part, into
fully paid and nonassessable shares of Common Stock of the Company (the "Common
Stock"). The number of shares of Common Stock into which this Note may be
converted ("Conversion Shares") shall be determined by dividing the outstanding
principal amount of the Note to be converted together with all accrued interest
thereon to the date of conversion by $2.95 (the "Conversion Price"). It is a
condition to the exercise of any right of conversion pursuant to this
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<PAGE> 9
Section 5.1 that the Holder enter into the Stockholders Agreement between the
Company and its stockholders. The Company has provided the Holder a copy of its
current Stockholders Agreement and shall provide the Holder a copy of any
amendment thereto or any new stockholders agreement as soon as it is reasonably
available, but in any event not later than the notice of prepayment set forth
in Section 1.3 hereof.
5.2 CONVERSION PROCEDURE.
(a) NOTICE OF CONVERSION PURSUANT TO SECTION 5.1. Before the Holder
shall be entitled to convert this Note into shares of Common Stock, it
shall surrender this Note at the office of the Company and shall give
written notice by mail, postage prepaid, to the Company at its principal
corporate office, of the election to convert all or a portion of this Note
pursuant to Section 5.1, and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. If this Note is converted in part only, the Company shall execute
and deliver a new note to the Holder thereof in the principal amount equal
to the portion of this Note not so converted.
(b) MECHANICS AND EFFECT OF CONVERSION. No fractional shares of
Common Stock shall be issued upon conversion of this Note. Upon the
conversion of this Note pursuant to Section 5.1 above, the Holder shall
surrender this Note, duly endorsed, at the principal office of the
Company. At its expense, the Company shall, as soon as practicable
thereafter, issue and deliver to such Holder at such principal office a
certificate or certificates for the number of shares of Common Stock to
which the Holder shall be entitled upon such conversion (bearing such
legends as are required by the Agreement and applicable state and federal
securities laws in the opinion of counsel to the Company), together with a
new note for the principal amount of the Note that was not converted. In
the event of any conversion of this Note pursuant to Section 5.1 above,
such conversion shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of this Note, and the
person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of such date and shall
be bound by the terms of the Stockholders' Agreement. Upon conversion of
all or a portion of this Note, the Company shall be forever released from
all its obligations and liabilities under this Note, to the extent of the
principal amount so converted.
5.3 ADDITIONAL CONDITIONS TO CONVERSION. As a condition of the
issuance of shares of Common Stock to the Holder of this Note upon conversion,
the Company may require that the Holder make investment representations with
respect to the Common Stock similar in form and substance to the undertakings
contained in Section 3(a)(iv) of the Agreement and further may require that any
certificate for shares of Common Stock bear a legend similar in form and
content to the legend specified in Section 2(i) of the Agreement. In the event
that the Company is taxed as a Sub-Chapter S Corporation on the date of
conversion, the Company may, at its option, require as a
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<PAGE> 10
condition of the issuance of shares of Common Stock to the Holder, that the
Holder deliver to the Company an opinion of counsel reasonably acceptable to it
that the issuance of Company Common Stock to the Holder as a result of the
conversion will not terminate the Company's Sub-Chapter S status.
6. CONVERSION PRICE ADJUSTMENTS.
6.1 ADJUSTMENTS FOR STOCK SPLITS AND SUBDIVISIONS. In the event the
Company should at any time or from time to time after the date of issuance
hereof fix a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as "Common Stock
Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalents (including
the additional shares of Common Stock issuable upon conversion or exercise
thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date if fixed), the Conversion
Price of this Note shall be appropriately decreased so that the number of
shares of Common Stock issuable upon conversion of this Note shall be increased
in proportion to such increase of outstanding shares.
6.2 ADJUSTMENTS FOR REVERSE STOCK SPLITS. If the number of shares of
Common Stock outstanding at any time after the date hereof is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for this Note shall be
appropriately increased so that the number of shares of Common Stock issuable
on conversion hereof shall be decreased in proportion to such decrease in
outstanding shares.
6.3 NOTICES OF RECORD DATE, ETC. If the event of:
(a) Any taking by the Company of a record of the holders of any class
of securities of the Company for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a cash
dividend payable out of earned surplus at the same rate as that or of the
last such cash dividend theretofore paid) or other distribution or any
right to subscribe for, purchase or otherwise acquire any shares of stock
of any class or any other securities or property, or to receive any other
right; or
(b) Any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of
all or substantially all of the assets of the Company to any other person
or any consolidation or merger involving the Company; or
(c) Any voluntary or involuntary dissolution, liquidation or winding
up of the Company;
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then the Company will mail to the Holder at least twenty (20) days prior to the
earliest date specified therein, a notice specifying:
(i) The date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right; and
(ii) The date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to become effective and the record date for determining
stockholders entitled to vote thereon and a description thereof.
6.4 RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common solely for the purpose of effecting the conversion of this Note such
number of its shares of Common Stock as shall from time to time be sufficient
to effect the conversion of this Note; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of the entire outstanding principal amount of this Note,
in addition to such other remedies as shall be available to the holder of this
Note, the Company will use its best efforts to take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares to such number of shares as shall be sufficient for such
purposes.
7. MISCELLANEOUS.
7.1 WAIVER. The rights and remedies of Holder under this Notes shall be
cumulative and not alternative. No waiver by Holder of any right or remedy
under this Note shall be effective unless in a writing signed by Holder.
Neither the failure nor any delay in exercising any right, power or privilege
under this Note will operate as a waiver of such right, power or privilege and
no single or partial exercise of any such right, power or privilege by Holder
will preclude any other or further exercise of such right, power or privilege
or the exercise of any other right, power or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right of Holder arising out of
this Note can be discharged by Holder, in whole or in part by a waiver or
renunciation of the claim or right unless in a writing, signed by Holder; (b)
no waiver that may be given by Holder will be applicable except in the specific
instance for which it is given; and (c) no notice to or demand on Company will
be deemed to be a waiver of any obligation of Company or of the right of Holder
to take further action without notice or demand as provided in this Note.
Company hereby waives presentment, demand, protest and notice of dishonor and
protest.
7.2 NOTICES. Any notice required or permitted to be given hereunder shall
be given by the Company to the Holder or the Holder to the Company in
accordance with Section 11(h) of the Agreement.
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<PAGE> 12
7.3 SEVERABILITY. If any provision in this Note is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Note will remain in full force and effect. Any provision of this Note held
invalid or unenforceable only in part or degree will remain in full force and
effect to the extent not held invalid or unenforceable.
7.4 GOVERNING LAW. This Note will be governed by the laws of the State
of Minnesota without regard to conflicts of laws principles.
7.5 PARTIES IN INTEREST. This Note shall bind the Company and its
successors and assigns. This Note shall not be assigned by Holder without the
express prior written consent of Company, except as follows:
(a) by will or in default thereof by operation of law;
(b) by gift to the Holder's spouse, children, grandchildren or
parents or a trust for the benefit of such persons;
(c) by gift to any other third party but only with the express
written consent of the Company, which consent shall not be unreasonably
withheld; and
(d) to a revocable trust created by the Holder, of which the Holder
is the primary beneficiary during his lifetime.
7.6 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Note are provided for convenience only and will not affect its construction or
interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Note unless otherwise specified.
All words used in this Note will be construed to be of such gender or number as
the circumstances require. Unless otherwise expressly provided, the words
"hereof" and "hereunder" and similar references refer to this Note in its
entirety and not to any specific section or subsection hereof.
IN WITNESS WHEREOF, the Company has executed and delivered this Note as of the
date first stated above.
CLARK/BARDES, INC.
By: ______________________________
Title:____________________________
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<PAGE> 13
NOTICE OF CONVERSION
(To Be Signed Only Upon Conversion of Note)
TO CLARK/BARDES, INC.
The undersigned, the holder of the foregoing Note, hereby surrenders such
Note for conversion into shares of Common Stock of CLARK/BARDES, INC., to the
extent of $_____ of the unpaid principal amount of such Note, and requests that
the certificates for such shares be issued in the name of, and delivered to,
_______ whose address is _________________.
Dated: ______________________
__________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Note)
__________________________________________
(Address)
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<PAGE> 1
EXHIBIT 10.13
THIS NOTE IS NON-NEGOTIABLE AND NON-TRANSFERABLE AND NO INTEREST SHALL BE PAID
EXCEPT TO THE PAYEE NAMED HEREIN EXCEPT AS OTHERWISE NOTED HEREIN.
THIS NON-NEGOTIABLE MEDIUM TERM NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION (TOGETHER, THE "SECURITIES LAWS") AND MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED OR ENCUMBERED IN THE ABSENCE OF COMPLIANCE WITH
SUCH SECURITIES LAWS AND UNTIL THE ISSUER THEREFOR SHALL HAVE RECEIVED AN
OPINION FROM COUNSEL ACCEPTABLE TO IT THAT THE PROPOSED DISPOSITION WILL NOT
VIOLATE ANY APPLICABLE SECURITIES LAWS.
MEDIUM TERM NOTE
$5,700,000 September __, 1997
FOR VALUE RECEIVED, Clark/Bardes, Inc., a Texas corporation ("Maker"), promises
to pay to Bank Compensation Strategies, Inc., a Minnesota corporation
("Payee"), in lawful money of the United States of America, the principal sum
of FIVE MILLION SEVEN HUNDRED THOUSAND DOLLARS ($5,700,000), together with
interest in arrears on the unpaid principal balance at an annual rate equal to
the corporate base rate of interest publicly announced from time to time by
First Bank Minnesota (or its successor in interest), in the manner provided
below. Interest shall be calculated on the basis of a 360-day year of twelve
30-day months.
This Note has been executed and delivered pursuant to and in accordance with
the terms and conditions of the Asset Purchase Agreement, dated September __,
1997, by and between Maker, Payee, Lawrence H. Hendrickson, Richard C. Chapman
and Walter Hilgenberg (the "Agreement"), and is subject to the terms and
conditions of the Agreement, which are, by this reference, incorporated herein
and made a part hereof. Capitalized terms used in this Note without definition
shall have the respective meanings set forth in the Agreement.
1. PAYMENTS.
1.1 PRINCIPAL AND INTEREST. The principal amount of this Note shall be
due and payable in four equal consecutive annual installments commencing on
August 15, 1998, and on August 15 of each year thereafter until paid in full.
Interest on the unpaid principal balance of this Note shall be due and payable
on the fifteenth (15th) day of February, May, August and December of each year
commencing November 15, 1997, until the said principal amount of the Note is
paid in full.
1.2 MANNER OF PAYMENT. All payments of principal and interest on this
Note shall be made by check at 1600 West 80th Street, Suite 200, Bloomington,
MN 55431 or at such other
<PAGE> 2
place in the United States of America as Payee shall designate to Maker in
writing. If any payment of principal or interest on this Note is due on a day
which is not a Business Day, such payment shall be due on the next succeeding
Business Day, and such extension of time shall not be taken into account in
calculating the amount of interest payable under this Note. "Business Day"
means any day other than a Saturday, Sunday or legal holiday in the State of
Texas.
1.3 PREPAYMENT. Maker may without premium or penalty, at any time and from
time to time, prepay all or any portion of the outstanding principal balance due
under this Note, provided that each such prepayment is accompanied by accrued
interest on the amount of principal prepaid calculated to the date of such
prepayment. Any partial prepayments shall be applied to installments of
principal in inverse order of their maturity.
1.4 RIGHT OF SETOFF. Maker shall have the right to withhold and setoff
against any amount due hereunder the amount of any claim for indemnification or
payment of damages to which Maker may be entitled under the Agreement, as
provided in Section 9 thereof.
2. DEFAULTS.
2.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following
events with respect to Maker shall constitute an event of default hereunder
("Event of Default"):
(a) If Maker shall fail to pay when due any payment of principal or
interest on this Note and such failure continues for a period of fifteen
(15) days after its due date, Payee notifies Maker thereof in writing;
provided, however, that the exercise by Maker in good faith of its right of
setoff pursuant to Section 1.4 above, whether or not ultimately determined
to be justified, shall not constitute an Event of Default; and provided,
further, that in the event the exercise of the right of setoff by Maker is
determined to be all or in part unjustified, in addition to any other
remedies and rights that Payee may have against Maker, Maker shall pay all
Payee's reasonable costs and expenses, including reasonable legal fees, to
collect this Note, including the amount of the setoff.
(b) If, pursuant to or within the meaning of the United States
Bankruptcy Code or any other federal or state law relating to insolvency or
relief of debtors (a "Bankruptcy Law"), Maker shall (i) commence a
voluntary case or proceeding; (ii) consent to the entry of an order for
relief against it in an involuntary case; (iii) consent to the appointment
of a trustee, receiver, assignee, liquidator or similar official; (iv) make
an assignment for the benefit of its creditors; or (v) admit in writing its
inability to pay its debts as they become due.
(c) If a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that (i) is for relief against Maker in an
involuntary case, (ii) appoints a trustee, receiver, assignee, liquidator
or similar official for Maker or substantially all of
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<PAGE> 3
Maker's properties, or (iii) orders the liquidation of Maker, and in each
case the order or decree is not dismissed within 90 days.
(d) If Maker shall fail in any material respect to observe or perform
any covenant or agreement binding upon Maker under this Note or the
Agreement of even date herewith delivered by Maker to Payee and such
failure continues for thirty (30) days after Payee notifies Maker thereof
in writing.
(e) If Maker is declared in default under the Senior Debt (as defined
in the Convertible Subordinated Note of Maker to Payee of even date
herewith) or any portion thereof that gives the holder thereof the right to
accelerate such indebtedness and such indebtedness is in fact accelerated
by the holder thereof or the holder otherwise exercises its remedies under
the Senior Debt.
2.2 NOTICE BY MAKER. Maker shall notify Payee in writing within five days
after the occurrence of any Event of Default of which Maker acquires knowledge.
2.3 REMEDIES. Upon the occurrence of an Event of Default hereunder (unless
all Events of Default have been cured or waived by Payee), Payee may, at its
option, (i) by written notice to Maker, declare the entire unpaid principal
balance of this Note, together with all accrued interest thereon, immediately
due and payable regardless of any prior forbearance, (ii) cause the Collateral
Agent (defined in Section 3 hereof) to, and under "Certain Circumstances" (as
hereinafter defined), exercise any and all rights available to a secured party
under the Uniform Commercial Code, and (iii) exercise any and all rights and
remedies available to it under applicable law, including, without limitation,
the right to collect from maker all sums due under this Note. Maker shall pay
all reasonable cost and expenses incurred by or on h\behalf of Payee in
connection with Payee's exercise of any or all of its rights and remedies under
this Note, including, without limitation, reasonable attorney's fees. Nothing in
this Section 2.3 is intended to restrict Payee's rights under this Note or at
law, and Payee may exercise all such rights and remedies as and when they are
available and Payee may exercise or enforce any and all other rights or remedies
available by law or agreement against the Collateral, against Maker, or against
any other person or property. The purpose of the rights and remedies granted to
Payee in the Collateral in addition to those of the Collateral Trustee, is to
permit Payee to assert its security interest in the Collateral and exercise its
rights and remedies as a secured party only if (a) the Collateral Agency
Agreement (as defined in Section 3) has been terminated or is otherwise no
longer in force or effect or (b) the security interest in the Collateral granted
to the Collateral Agent is unenforceable or has been avoided ("Certain
Circumstances"), provided, however Payee shall not seek to avoid the security
interest of the Collateral Agent.
3. SECURITY INTEREST.
3.1 GRANT OF SECURITY INTEREST. To secure payment of the principal due on
this Note, together with interest and all other amounts due under this Note,
Maker has assigned and granted
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<PAGE> 4
Texas Commerce Bank National Association, as Collateral Agent (the "Collateral
Agent") for Payee (and certain other parties) under that certain Collateral
Agency Agreement of even date herewith (the "Collateral Agency Agreement"), and
further assigns and grants to Payee a security interest, in those specified
third and subsequent year commission renewals and/or fees received by Maker
described on Schedule A attached hereto (the "Collateral"); provided that the
amount of the security interest granted hereunder shall not exceed the lesser
of (i) $2,850,000 or (ii) the principal amount outstanding from time to time
under this Note, together with interest and all other amounts due under this
Note.
3.2 PROTECTION OF SECURITY INTEREST. Maker has and will maintain absolute
title to each item of Collateral free and clear of all interests, liens,
attachments, encumbrances and security interests except for Permitted Liens (as
hereinafter defined). Debtor will defend the Collateral against all claims or
demands of all persons (other than Payee) claiming the Collateral or any
interest therein. Maker will not sell or otherwise dispose of the Collateral or
any interest therein, without Payee's prior written consent; provided, however,
so long as there is no Event of Default existing, Maker may collect the
proceeds of the Collateral in the ordinary course of its business, but may not
collect any prepayments or advance payments of proceeds from the Collateral.
"Permitted Liens" shall mean the security interests granted by Maker to the
holders of Senior Debt (as defined in the Convertible Subordinated Note of even
date herewith), all of which shall be junior and subject to Payee's first
priority security interest in the Collateral.
3.3 ADDITIONAL DOCUMENTS. Maker from time to time will execute and
deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements or other agreements or
writings which are not inconsistent with the Collateral Agency Agreement and
which Payee may reasonably request in order to secure, protect, perfect or
enforce the security interest in the Collateral or other rights of Payee under
this Note.
3.4 FILING. The proper place to file financing statements to perfect
Payee's security interest in the Collateral is the Offices of the Secretary of
State of Texas and Minnesota. When the financing statements heretofore signed
by Maker are filed there, Payee will have a valid and perfected security
interest in the Collateral, subject to no prior security interest, assignment,
lien or encumbrance, except for the security interest of the Collateral Agent.
3.5 LOCATION OF MAKER AND COLLATERAL. Maker does business solely under
its own name and no other names. The chief executive office of Maker is 2121
San Jacinto Street, Suite 2200, Dallas, Texas 75201. All of Maker's records
relating to the Collateral are located at 1600 West 80th Street, Suite 200,
Bloomington, MN 55431. Maker will not change its name, identity or corporate
structure, the location of its chief executive office or the location of
Maker's records relating to the Collateral, without prior written notice to
Payee.
3.6 ANNUAL FINANCIAL STATEMENTS. Maker will deliver to each Payee within
one hundred twenty (120) days after the end of each fiscal year, a consolidated
balance sheet of the
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<PAGE> 5
Maker and its subsidiaries, as of the end of such fiscal year, together with
the related consolidated statements of operations, stockholders' equity and
cash flow for such fiscal year, setting forth in comparative form figures for
the previous fiscal year, all in reasonable detail and duly certified by the
Maker's independent public accountants, which accountants shall have given the
Maker an opinion, unqualified as to the scope of the audit, regarding such
statements.
3.7 INSPECTION. Maker will permit Payee and any of its partners, officers
or employees, or any outside representatives designated by Payee and reasonably
satisfactory to the Maker, to inspect at Payee's expense Maker's books and
records pertaining to the Collateral (and to make photocopies thereof or make
extracts therefrom), all to such reasonable extent and at such reasonable times
and intervals as such Payee may reasonably request.
4. MISCELLANEOUS.
4.1 WAIVER. The rights and remedies of Payee under this Note shall be
cumulative and not alternative. No waiver by Payee of any right or remedy under
this Note shall be effective unless in a writing signed by Payee. Neither the
failure nor any delay in exercising any right, power or privilege under this
Note will operate as a waiver of such right, power or privilege and no single or
partial exercise of any such right, power or privilege by Payee will preclude
any other or further exercise of such right, power or privilege or the exercise
of any other right, power or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right of Payee arising out of this Note can
be discharged by Payee, in whole or in part, by a waiver or renunciation of the
claim or right unless in a writing, signed by Payee; (b) no waiver that may
be given by Payee will be applicable except in the specific instance for which
it is given; and (c) no notice to or demand on Maker will be deemed to be a
waiver of any obligation of Maker or of the right of Payee to take further
action without notice or demand as provided in this Note. Maker hereby waives
presentment, demand, protest and notice of dishonor and protest.
4.2 NOTICES. Any notice required or permitted to be given hereunder shall
be given in accordance with Section 11(h) of the Agreement.
4.3 SEVERABILITY. If any provision in this Note is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Note will remain in full force and effect. Any provision of this Note held
invalid or unenforceable only in part or degree will remain in full force and
effect to the extent not held invalid or unenforceable.
4.4 GOVERNING LAW. This Note will be governed by the laws of the State of
Minnesota without regard to conflicts of laws principles.
4.5 PARTIES IN INTEREST. This Note shall bind Maker and its successors and
assigns. This Note shall not be assigned or transferred by Payee without the
express prior written consent of Maker, except as follows:
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<PAGE> 6
(a) by will or in default thereof by operation of law;
(b) by gift to Payee's spouse, children, grandchildren or parents or
a trust for the benefit of such persons;
(c) by gift to any other third party but only with the express
written consent of Maker, which consent shall not be unreasonably withheld;
(d) to a revocable trust created by Payee, of which payee is the
primary beneficiary during his lifetime; and
(e) to Lawrence H. Hendrickson, Richard C. Chapman and/or Walter
Hilgenberg.
Upon written notice from Payee of any such transfer, Maker shall execute and
deliver to said transferees new notes in such principal amounts (which together
may not exceed the then outstanding principal amount of this Note) as set forth
in written instructions from Payee.
4.6 BOARD OF DIRECTORS.
(i) Lawrence H. Hendrickson or, if he is unavailable, Richard
Chapman, shall be duly elected as a member of the Board of Directors of
Maker and shall serve in such capacity until this Note has been paid in
full; and
(ii) Upon the payment in full of this Note, the above director shall
immediately resign if requested to do so by resolution adopted by the Board
of Directors (with such director abstaining from voting). If such director
fails to resign if so requested by the Board of Directors, he may be
removed from the Board of Directors of Maker in accordance with the
Articles of Incorporation and the Bylaws of Maker.
4.7 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this Note
are provided for convenience only and will not affect its construction or
interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Note unless otherwise specified.
All words used in this Note will be construed to be of such gender or number as
the circumstances require. Unless otherwise expressly provided, the words
"hereof" and "hereunder" and similar references refer to this Note in its
entirety and not to any specific section or subsection hereof.
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<PAGE> 7
IN WITNESS WHEREOF, Maker has executed and delivered this Note as of the date
first stated above.
CLARK/BARDES, INC.
By:________________
Title:_____________
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<PAGE> 8
SCHEDULE A
Collateral
All rights to receive service fee income payable to Maker or Payee on
account of any life insurance policy now existing issued by Alexander Hamilton,
Inc. or West Coast Life Insurance Company and all payments of service fee income
now or hereafter owing or made on account of such life insurance policies, and
any proceeds thereof. For the purpose of this Schedule A, service fee income
shall mean fees paid by Alexander Hamilton, Inc. or West Coast Life Insurance
Company to Maker or Payee after the completion of the second policy year. In
order to illustrate service fee income, but not to limit the scope of service
fee income, Alexander Hamilton, Inc. currently pays service fees annually on
June 30 following the second anniversary of the insurance policy at the rate of
$0.70 per $1,000 of original face amount of the insurance policy for policy
years 3 through 15 and $0.60 per $1,000 for policy years 16 through 25. With
respect to West Coast Life Insurance Company, service fees are paid on each
policy anniversary beginning with the completion of the second policy year, at
the rate of $0.75 per $1,000 original face amount of insurance policy.
<PAGE> 1
EXHIBIT 10.14
STOCK PURCHASE AGREEMENT
BY AND AMONG
CLARK/BARDES, INC.
AND
STEVEN J. COCHLAN, MALCOLM N. BRIGGS,
G.F. PENDLETON, III and DON R. TEASLEY
AUGUST 22, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION Page
<S> <C>
1. PURCHASE AND SALE OF SHARES .........................................................................1
1.1 Purchase and Sale of Shares ..................................................................1
1.2 Consideration for Sale and Transfer of the Purchased Shares ..................................1
1.3 Purchase of Smith Shares/Sale of Shares ......................................................2
1.4 Closing ......................................................................................2
1.5 Closing Documents of Sellers .................................................................3
1.6 Closing Documents of Buyer ...................................................................4
2. REPRESENTATIONS AND WARRANTIES OF SELLERS ...........................................................4
2.1 Ability and Authorization to Carry Out Agreement; Consents....................................4
2.2 Consents and Approvals .......................................................................5
2.3 Litigation ...................................................................................5
2.4 Accuracy of Representations ..................................................................5
2.5 Title to Shares ..............................................................................6
2.6 Ownership of Shares ..........................................................................6
3. REPRESENTATIONS AND WARRANTIES OF BUYER .............................................................6
3.1 Organization of Buyer ........................................................................6
3.2 Authorization of and Ability to Perform Agreement.............................................6
3.3 Accuracy of Representations ..................................................................7
4. COVENANTS OF SELLERS AND BUYER ......................................................................7
4.1 Covenants of Sellers ............................................................................7
4.2 Covenants of Buyer ..............................................................................7
5. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS .........................................................7
5.1 Form Satisfactory to Buyer's Counsel .........................................................7
5.2 Representations and Warranties; Certificates of Compliance ...................................8
5.3 Litigation ...................................................................................8
5.4 Delivery of Documents ........................................................................8
5.5 Financing ....................................................................................8
5.6 Waiver .......................................................................................8
6. CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS ........................................................8
6.1 Form Satisfactory to Sellers' Counsel .....................................................8
6.2 Representations and Warranties; Compliance with Conditions ................................8
6.3 Litigation ................................................................................9
6.4 Delivery of Documents .....................................................................9
6.5 Waiver ....................................................................................9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
7. TERMINATION..........................................................................................9
8. OTHER AGREEMENTS ...................................................................................10
8.1 Termination of Voting Agreement . ...........................................................10
8.2 Chatfield and Meyer Transactions ............................................................10
8.3 Election to Close Buyer's Tax Year . ........................................................10
8.4 Approval of Related Financing ...............................................................10
8.5 Approval of BCSI Acquisition and Related Financing . ........................................11
8.6 Rights to Profits or Future Distributions . .................................................11
8.7 S Corp. Termination . ................................ ......................................11
8.8 Right to Participate in Future Stock Offerings ..............................................11
8.9 Call Restriction and Voting of Shares .......................................................12
8.10. Appraisal of Buyer...........................................................................13
9. ARBITRATION.........................................................................................14
10. SURVIVAL OF WARRANTIES, REPRESENTATIONS AND AGREEMENTS .............................................14
11. NOTICES.............................................................................................14
12. ENTIRE AGREEMENT ...................................................................................16
13. AMENDMENTS..........................................................................................16
14. SPECIFIC PERFORMANCE ...............................................................................16
15. FURTHER ASSURANCES .................................................................................16
16. REMEDIES CUMULATIVE; NO WAIVER; PERSONS LIABLE .....................................................17
17. COUNTERPARTS; CAPTIONS; PRONOUNS ...................................................................17
18. PARTIES IN INTEREST ................................................................................17
19. APPLICABLE LAW......................................................................................17
</TABLE>
ii
<PAGE> 4
EXHIBITS
Exhibit A - Shareholder Ownership Schedule
Exhibit B - Form of Settlement Agreement
Exhibit C - Form of Termination Agreement
Exhibit D - Form of Cochlan Phantom Stock Agreement
Exhibit E - Form of Supplemental Agreement Concerning SOP-FS
Exhibit F - Form of Shareholder Agreement
Exhibit G - Form of Teasley Office Agreement
Exhibit H - Form of Amendments to Principal Agreements - Steven J. Cochlan,
Malcolm N. Briggs, G.F. Pendleton, III., Don R. Teasley
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") made and entered into as of the
22nd day of August, 1997, by and among CLARK/BARDES, INC., a Texas corporation
("Buyer"), MALCOLM N. BRIGGS ("Briggs"), STEVEN J. COCHLAN ("Cochlan"), G.F.
PENDLETON, III ("Pendleton") and DON R. TEASLEY ("Teasley") (Briggs, Cochlan,
Pendleton and Teasley are hereinafter sometimes referred to individually as a
"Seller" or collectively as "Sellers").
W I T N E S S E T H:
WHEREAS, Sellers own certain issued and outstanding capital stock of the
Buyer in accordance with Exhibit A attached hereto; and
WHEREAS, Sellers desire to sell to Buyer, and Buyer desires to purchase
from Sellers, certain of the issued and outstanding shares of capital stock of
the Buyer (the "Shares") upon the terms and conditions herein set forth.
NOW, THEREFORE, for and in consideration of the above premises and of the
mutual covenants and promises contained herein, the parties hereto agree as
follows:
1. PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale of Shares. Subject to the terms and conditions of
this Agreement, in reliance on the representations and warranties of Buyer, and
in consideration of the obligations of Buyer herein provided, Sellers hereby
agree to sell, convey, transfer, assign and deliver to Buyer, and the Buyer
hereby agrees to purchase from the Sellers at the closing provided for in
Section 1.2 hereof (the "Closing"), an aggregate of 2,793,143 of the Shares (the
"Purchased Shares") in accordance with the terms and conditions of this
Agreement, free and clear of any and all liens, security interests, mortgages,
charges, restrictions, adverse claims, encumbrances and rights of other persons
of every nature and description whatsoever.
1.2 Consideration for Sale and Transfer of the Purchased Shares. Subject
to the terms and conditions of this Agreement, in reliance on the
representations and warranties of Sellers, and in consideration of the
obligations of Sellers herein provided and such sale, conveyance, transfer,
assignment and delivery by Sellers at the Closing of all of the Purchased Shares
and the execution and delivery by Sellers of the other documents provided for
herein, Buyer agrees to pay Sellers an amount equal to $3.00 per Share and, in
the aggregate, an amount equal to Eight Million Three Hundred Seventy-Nine
Thousand Four Hundred Twenty-Nine Dollars ($8,379,429) (the "Purchase Price").
The Purchase Price shall be payable as follows: (i) cash payment to be made to
each Seller by certified or official bank check to the order of such Seller or
by wire transfer of immediately available funds of the amount to such Seller as
provided for below; and (ii) delivery to each Seller of a Promissory Note of
Buyer in amounts as provided for below (the "Promissory Notes"). The
<PAGE> 6
number of Purchased Shares are as follows and the Purchase Price shall be
payable at the Closing as follows:
<TABLE>
<CAPTION>
NUMBER
CASH PORTION OF NOTE PORTION OF OF SHARES
SELLER PURCHASE PRICE PURCHASE PRICE PURCHASED
- ------ --------------- --------------- ---------------
<S> <C> <C> <C>
Malcolm N. Briggs $ 2,265,065 $ 251,674 838,913
Steven J. Cochlan 3,847,500 427,500 1,425,000
G.F. Pendleton, III 202,500 22,500 75,000
Don R. Teasley 1,226,421 136,269 454,230
--------------- --------------- ---------------
Totals $ 7,541,486 $ 837,943 2,793,143
=============== =============== ===============
</TABLE>
1.3 Purchase of Smith Shares/Sale of Shares. The Parties agree that:
(a) Buyer may purchase 1,404,305 shares of issued and outstanding capital
stock of Buyer owned by Henry J. Smith ("Smith") at a price of $2.40 per share
pursuant to that certain Stock Purchase Agreement dated as of August 22, 1997
between Buyer and Smith (the "Smith Purchase Agreement") at or prior to the
Closing.
(b) Within 90 days after the Closing, the Buyer shall use its best
efforts to offer up to 1,400,000 shares of capital stock of Buyer at a price of
$2.40 per share or such other price as determined in the sole discretion of
Buyer and to such third parties as are selected in the sole discretion of Buyer,
which may include one or more present shareholders of Buyer and may exclude each
or any of the Sellers; provided, however, that Buyer shall apply the net
proceeds (after deducting all applicable discounts, attorney and accountant fees
and other transaction costs) to prepay each of the Promissory Notes (as defined
in Section 1.2 hereof) and the Promissory Note to be issued to Smith pursuant to
the Smith Purchase Agreement, taken together, on a pro rata basis in the
proportion which (x) the then outstanding principal amount of each such
Promissory Note bears to (y) the total of the then outstanding principal amounts
of all such Promissory Notes.
1.4 Closing. The Closing of the transactions contemplated by this
Agreement shall be on or prior to August 29, 1997, or on such other date as may
be mutually agreed upon by Buyer and Sellers or as otherwise determined
hereunder (the "Closing Date"). At the Closing, the parties will exchange the
various documents and take such other actions as contemplated by this Agreement.
The exchanges herein provided shall take place commencing at 10:00 a.m., local
time, on the Closing Date, at the offices of Vedder, Price, Kaufman & Kammholz,
222 N. LaSalle Street, Chicago, Illinois.
1.5 Closing Documents of Sellers. At the Closing, the Sellers shall
deliver or cause to be delivered to Buyer the following duly executed documents
and other items:
2
<PAGE> 7
(i) Good and valid certificates representing all of the Purchased
Shares, free and clear of any liens, security interests, mortgages,
charges, restrictions, adverse claims, encumbrances and rights of other
persons of every nature and description whatsoever, duly endorsed for
transfer to Buyer or accompanied by duly executed stock powers, with all
applicable transfer taxes, if any, paid;
(ii) A certificate of accuracy of representations and warranties
and compliance with covenants executed by each of the Sellers;
(iii) The written opinions of counsel for the Sellers relating to
certain representations and warranties of Sellers which are reasonably
satisfactory to Buyer and to Buyer's Lenders referred to in Paragraph 8.4;
(iv) All necessary approvals or consents of third parties to the
purchase and sale of the Shares and consummation of the transactions
provided for herein;
(v) Settlement Agreement among W.T. Wamberg ("Wamberg"), the Buyer
and the Sellers in the form of Exhibit B hereto (the "Settlement
Agreement") duly executed by each Seller;
(vi) Termination of any Voting Agreement and Irrevocable Proxy,
both dated April 18, 1997, between the Sellers and other shareholders in
the form of Exhibit C hereto (the "Termination Agreement") duly executed by
parties to such Voting Agreements and Irrevocable Proxy;
(vii) Phantom Stock Agreement between the Buyer and Cochlan in the
form of Exhibit D hereto (the "Cochlan Phantom Stock Agreement") duly
executed by the parties thereto;
(viii) Supplemental Agreement Concerning SOP-FS between the Buyer and
Cochlan in the form of Exhibit E hereto (the "SOP-FS Amendment") duly
executed by the parties thereto;
(ix) Amended and Restated Shareholder Agreement among the Buyer and
each shareholder of the Buyer in the form of Exhibit F hereto (the
"Shareholder Agreement") duly executed by each of the Sellers and their
respective spouses;
(x) Agreement among the Buyer and Teasley regarding the lease of
certain office space in the form of Exhibit G hereto (the "Teasley Office
Agreement") duly executed by Teasley;
(xi) Amendment to Principal Office Agreement of each Seller in the
form attached hereto as Exhibit H (the "Principal Agreement") duly executed
by the respective Seller who is a party thereto; and
3
<PAGE> 8
(xii) Such other documents and actions as shall reasonably be
required by Buyer or by its counsel.
1.6 Closing Documents of Buyer. At the Closing, the Buyer shall deliver
or cause to be delivered to Sellers, or such other persons as appropriate, the
following duly executed documents and other items:
(i) The payment of the Purchase Price in the amounts described in
Section 1.2(i) hereof;
(ii) The executed Promissory Notes as provided for in Section
1.2(ii) hereof;
(iii) The written opinion of counsel for the Buyer relating to
certain representations and warranties of Buyer which is reasonably
satisfactory to Sellers and to Buyer's Lenders referred to in Paragraph
8.4;
(iv) A certificate of accuracy of representations and warranties
and compliance with covenants executed by the Buyer;
(v) The documents listed in Sections 1.5(a)(v), (vi), (vii),
(viii), (ix), (x), (xi) and (xii) duly executed by Buyer, and other parties
thereto (excluding the Sellers and Meyer and Chatfield) as appropriate; and
(vi) Such other documents and actions as shall reasonably be
required by Sellers or by their counsel.
2. REPRESENTATIONS AND WARRANTIES OF SELLERS.
Each Seller, severally and not jointly, for himself and not with respect to
any other Seller, represents and warrants to and covenants with Buyer as
follows:
2.1 Ability and Authorization to Carry Out Agreement; Consents. The
Seller has the full capacity, right, power and authority to enter into, execute
and deliver this Agreement and each of the following agreements to which he is
a party: the Settlement Agreement, the Termination Agreement, the Cochlan
Phantom Stock Agreement, the Supplemental Agreement Concerning SOP-FS, the
Amended and Restated Shareholder Agreement and the Teasley Office Agreement
(collectively, the "Related Agreements"), to consummate the transactions
contemplated by this Agreement and the Related Agreements, to comply with and
fulfill the terms and conditions of this Agreement and the Related Agreements,
and to sell, transfer, assign and deliver all of his Shares to the Buyer. This
Agreement constitutes a valid and binding obligation of the Seller, enforceable
in accordance with its terms and conditions. The Related Agreements each
constitute a valid and binding obligation of each Seller who is a party to such
Related Agreement, enforceable in accordance with their respective terms and
conditions. Neither the execution and delivery of this
4
<PAGE> 9
Agreement or any Related Agreement, nor the consummation of the transactions
contemplated hereby or thereby, nor compliance by the Seller with any of the
provisions of this Agreement or any Related Agreement will:
(a) In any material respect, conflict with, violate, result in a breach
of, constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or give rise to any right of
termination, cancellation, or acceleration under any of the terms, conditions or
provisions of any note, lien, bond, mortgage, indenture, license, lease,
contract, commitment, agreement, understanding, arrangement, restriction or
other instrument or obligation to which the Seller is a party or by which the
Seller or any of his respective properties or assets may be bound or subject;
(b) Violate any judgment, order, writ, injunction, or decree of any court,
administrative agency, or governmental agency or body or any law or regulation
applicable to the Seller or his properties, assets, or Shares; or
(c) Constitute an event of which, with or without notice, lapse of time,
or action by a third party, could result in the creation of any lien, charge, or
encumbrance upon his Shares.
2.2 Consents and Approvals. The execution, delivery and performance of
this Agreement and the Related Agreements by the Seller and the consummation by
the Seller of the transactions contemplated hereby or thereby will not require
any notice to, or consent, authorization or approval from any court or
governmental authority or any other third party.
2.3 Litigation. To the best of the Seller's knowledge, there is no action,
suit or proceeding or governmental investigation, judgment, order, writ,
injunction or decree outstanding, pending or threatened against or relating to
his Shares before any court or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, nor does the Seller know or have reasonable grounds to know of
any basis for any such action.
2.4 Accuracy of Representations. No representation or warranty of the
Seller contained in this Agreement and no statement contained in any exhibit,
certificate, list, schedule or other document referred to in this Agreement
contains or will contain any untrue statement of any material fact, or omits or
will omit to state any material fact necessary to make the statements contained
therein or herein not false or misleading.
2.5 Title to Shares. The Seller represents and warrants to the Buyer that
he has good title to, and is the beneficial and record owner of, all of his
Shares free and clear of any and all liens, security interests, mortgages,
charges, restrictions, adverse claims, encumbrances and rights of other persons
of every nature and description whatsoever.
5
<PAGE> 10
2.6 Ownership of Shares. The Seller represents and warrants to the Buyer
that he owns no other shares in the Buyer and has no other rights in any shares
of the Buyer other than those Shares listed on Exhibit A hereto.
3. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Sellers as follows:
3.1 Organization of Buyer. Buyer is a company duly organized, validly
existing and in good standing under the laws of the State of its incorporation
with full corporate power to execute and deliver this Agreement and to carry out
its obligations hereunder.
3.2 Authorization of and Ability to Perform Agreement. The execution,
delivery and performance of this Agreement and all other documents in connection
herewith by Buyer have been duly and validly authorized by the Board of
Directors of the Buyer and all requisite corporate action has been taken to make
them valid and binding upon Buyer in accordance with their respective terms. The
Buyer has the corporate power and authority to enter into, execute and deliver
this Agreement and the Related Agreements to which it is a party (the "Buyer
Related Agreements"), to consummate the transactions contemplated by this
Agreement and the Buyer Related Agreements, and to comply with and fulfill the
terms and conditions of this Agreement and the Buyer Related Agreements. This
Agreement and all Buyer Related Agreements each constitute a valid and binding
obligation of the Buyer, enforceable in accordance with their respective terms
and conditions. Neither the execution and delivery of this Agreement or any
Buyer Related Agreement, nor the consummation of the transactions contemplated
hereby or thereby, nor compliance by the Buyer with any of the provisions of
this Agreement or any Buyer Related Agreement will in any material respect:
(a) Conflict with, violate, result in a breach of, constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a material default) under, or give rise to any right of termination,
cancellation or acceleration under any of the terms, conditions or provisions of
any note, lien, bond, mortgage, indenture, license, lease, contract,
commitment, agreement or other instrument or obligation to which the Buyer is a
party and which would prohibit the Buyer from performing its obligations under
this Agreement; or
(b) Violate any judgment, order, writ, injunction or decree of any
court, administrative agency or governmental agency or body or any law or
regulation applicable to the Buyer which would prohibit the Buyer from
performing its obligations under this Agreement.
3.3 Accuracy of Representations. No representation or warranty of Buyer
contained in this Agreement and no statement contained in any certificate, list,
schedule, exhibit or other document referred to in this Agreement contains or
will contain any untrue statement of any material fact, or omits or will omit to
state any material fact necessary to make the statements contained therein or
herein not false or misleading.
6
<PAGE> 11
4. COVENANTS OF SELLERS AND BUYER
4.1 Covenants of Sellers. From and after Closing, or prior to
Closing if required by Buyer's lender referred to in Paragraph 8.4 or 8.5, and
for so long as Buyer is not in breach or default with respect to the terms,
provisions and covenants in this Agreement, or the respective Seller's
Promissory Note each Seller, severally and not jointly, for himself only and
not with respect to any other Seller:
(a) If shareholder approval is necessary or requested,
agrees to vote all of his shares of Buyer's capital stock in favor of: (i)
Buyer's purchase of the Shares hereunder, Buyer's purchase of its shares under
the Smith Agreement referred to in Paragraphs 1.3 (a) and 8.4 and Buyer's
purchase of assets of BCSI referred to in Paragraph 8.5, and (ii) all equity or
debt financing arrangements approved by the Buyer for purposes of funding
working capital requirements and said transactions, including the financing
arrangements referred to in Paragraphs 8.4 and 8.5; and
(b) Agrees to vote all of his shares of Buyer's capital
stock in favor of any merger or reorganization where the purpose of such merger
or reorganization is to change the Buyer's state of incorporation from a Texas
corporation to a corporation organized in Delaware or some other state of the
Buyer's choosing, and the Sellers hereby expressly waive any statutory
dissenters' rights with respect thereto.
4.2 Covenants of Buyer. Buyer hereby agrees to use its best
efforts to obtain financing for the transactions contemplated hereunder which
is reasonably satisfactory to the Buyer. Buyer hereby agrees to notify Sellers
or a representative of the Sellers upon Buyer's execution of a binding term
sheet with respect to such financing.
5. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.
All obligations of Buyer under this Agreement to consummate the
purchase and sale of the Shares and the other transactions contemplated hereby
are subject to the fulfillment prior to or at the Closing of each of the
following conditions:
5.1 Form Satisfactory to Buyer's Counsel. All proceedings taken by
the Sellers in connection with the transactions contemplated herein and all
instruments and documents required to be furnished by them in connection
herewith or incident hereto shall be reasonably satisfactory to Buyer's
counsel.
5.2 Representations and Warranties, Certificates of Compliance.
All representations and warranties of Sellers contained in this Agreement or in
any certificate or document heretofore delivered to Buyer or hereafter
delivered to Buyer pursuant hereto shall be deemed to have been made again at
the Closing and shall be true and correct in all material respects both on the
date of this Agreement and as of the Closing; and all agreements and conditions
required by this Agreement to be performed or satisfied prior to or at the
Closing (except agreements on the part of Buyer) shall
7
<PAGE> 12
have been fulfilled in all material respects; and Buyer shall have been
furnished with certificates of Sellers dated the Closing Date, certifying as to
the fulfillment of the foregoing conditions.
5.3 Litigation. No action or proceeding shall have been instituted
or threatened by third parties against Buyer or Sellers to restrain or
prohibit, or to obtain damages in respect of, the transactions contemplated by
this Agreement if such action or proceeding in the reasonable opinion of Buyer
makes it inadvisable to consummate such transactions.
5.4 Delivery of Documents. Sellers shall have delivered to Buyer
the instruments and documents referred to in Section 1.5 hereof and any other
documents referred to elsewhere in this Agreement.
5.5 Financing. Buyer's lenders shall have approved financing
arrangements on terms which are satisfactory to the Buyer and delivered all
funds to be provided under such arrangements.
5.6 Waiver. Any of the foregoing conditions may be waived in
writing by Buyer.
6. CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS.
All obligations of the Sellers under this Agreement to consummate the purchase
and sale of the Shares and the other transactions contemplated hereby are
subject to the fulfillment prior to or at the Closing of the following
conditions:
6.1 Form Satisfactory to Sellers' Counsel. All proceedings taken
by Buyer in connection with the transactions contemplated herein and all
instruments and documents required to be furnished by it in connection herewith
or incident hereto shall be reasonably satisfactory to Sellers' counsel.
6.2 Representations and Warranties; Compliance with Conditions.
All representations and warranties of Buyer contained in this Agreement or in
any certificate or document delivered pursuant hereto shall be deemed to have
been made again at the Closing and shall be true in all material respects as of
the Closing; and Buyer shall have performed and complied with all agreements
and conditions required by this Agreement to be performed or complied with by
it prior to or at the Closing; and Sellers shall have been furnished with
certificates of appropriate officers of Buyer dated the Closing Date,
certifying to the fulfillment of the foregoing conditions.
6.3 Litigation. No action or proceeding shall have been instituted
or threatened by third parties against Buyer or the Sellers to restrain or
prohibit, or to obtain damages in respect of, the transactions contemplated by
this Agreement if such action or proceeding in the reasonable opinion of a
majority of the Sellers makes it inadvisable to consummate such transactions.
6.4 Delivery of Documents. Buyer shall have delivered to Sellers
the payments, instruments and documents referred to in Section 1.6 hereof and
any other documents referred to elsewhere in this Agreement.
8
<PAGE> 13
6.5 Waiver. Any of the foregoing conditions may be waived in
writing by a majority of the Sellers.
7. TERMINATION.
7.1 This Agreement may be terminated at any time prior to the
Closing:
(a) By mutual agreement of the Buyer and Seller(s), as to
such Seller(s); or
(b) By mutual consent of Buyer and a majority of the
Sellers, as to all Sellers; or
(c) At the option of Buyer as to any Seller(s) upon the
non-satisfaction by such Seller(s) of any of the conditions precedent set forth
in Section 5 hereof, which in the reasonable judgment of Buyer, cannot be
corrected or cured on or prior to the Closing Date; or
(d) At the option of a majority of the Sellers upon the
non-satisfaction of any of the conditions precedent set forth in Section 6
hereof, which in the reasonable judgment of a majority of the Sellers, cannot
be corrected or cured on or prior to the Closing Date;
7.2 Either Buyer or any Seller as to himself, or a majority of the
Sellers as to all Sellers, may, at its/their election, waive in writing any of
its/their rights to terminate this Agreement because of the failure to satisfy
the conditions set forth in Sections 5 or 6, and shall be deemed to have waived
such rights to terminate this Agreement upon consummation of the Closing. No
such waiver shall constitute a waiver of any other rights arising from the
non-fulfillment of any such condition or otherwise. In addition, the party
entitled to waive such rights or conditions may withhold payment or delivery of
other closing documents until, and may require, performance or fulfillment of
such conditions or obligations by the breaching party. No party shall be liable
to any other party for any damages or expenses attributable to a termination
permitted by Sections 5 or 6, unless such termination results from the breach
by any of the terms of this Agreement.
8. OTHER AGREEMENTS.
8.1 Termination of Voting Agreement. Each Seller represents and
warrants to Buyer that he is not a party to, and neither his Shares nor any his
other shares of the capital stock of Buyer are subject to, any voting
agreement or voting trust agreement other than that certain Voting Agreement
and Irrevocable Proxy dated as of April 18, 1997 by and among Sellers and Meyer
and Chatfield and no other persons or entities, and true and complete copies of
the Voting Agreement and Irrevocable Proxy have been delivered to CBI. Each
Seller agrees that such Voting Agreement and Irrevocable Proxy shall be
terminated and canceled in all respects upon the Closing, and will deliver a
Termination Agreement with respect thereto in the form of Exhibit C hereto duly
executed by all of the Sellers who are parties thereto at the Closing.
8.2 Chatfield and Meyer Transactions. Each Seller acknowledges
that he has had full access to information and opportunity to become fully
informed concerning the transactions
9
<PAGE> 14
contemplated by the Chatfield/Meyer Business Agreement and the Chatfield/Meyer
Stock Purchase Agreement, hereby consents thereto and agrees that Buyer may
take all actions which in the sole discretion of Buyer are considered necessary
or appropriate to carry out the intent of such transactions, including without
limitation, the termination of Buyer's rights and marketing agreements
concerning the MCPP and Cash Value products and any rights of such Seller to
future commissions, fees or other revenues with respect thereto.
8.3 Election to Close Buyer's Tax Year and Tax Administration
Agreement. The parties hereto recognize that the contemplated purchases of
shares of the Buyer's capital stock pursuant to the Smith Purchase Agreement
will, if all other requirements are satisfied, make available the election
under Section 1377(a)(2) of the Internal Revenue Code. Accordingly, Buyer and
each Seller agree that:
(a) Buyer shall use its best efforts to obtain the
necessary consents of all holders of Buyer's capital stock
during the 1997 taxable year to such an election by the Buyer
and take such other action as is appropriate to make such an
election effective;
(b) Each Seller agrees to and hereby does consent to such
an election, will obtain the consent of any other party having
an interest in his shares as required for such election, and
will cooperate with Buyer in all other respects in order to
make such election effective; and
(c) If the Buyer's allocation of taxable net income to
its Shareholders with respect to the 1997 calendar year is
reallocated for any reason, Buyer shall make and effect
appropriate adjustments for any distributions to the
Shareholders for individual tax purposes attributable to the
1997 calendar year, including payments to correct
under-distribution and obtain credit or refunds to correct
over-distribution.
8.4 Approval of Related Financing. Each Seller acknowledges that
he has had full access to information and opportunity to become fully informed
concerning the secured debt financing arrangements, which include the issuance
of warrants for capital stock of Buyer, between Buyer and certain lenders for
the purposes of Buyer's purchases of the Shares under this Agreement and
Buyer's purchase of shares of its capital stock under the Smith Agreement, and
is in a position to make and informed decision with respect thereto. Each
Seller hereby consents to such transactions and agrees that Buyer may take all
actions which in the sole discretion of Buyer are considered necessary or
appropriate to carry out the intent of such transactions.
8.5 Approval of BCSI Acquisition and Related Financing. Each
Seller acknowledges that he has had full access to information and opportunity
to become fully informed concerning the terms and conditions and other
information related to the potential acquisition by Buyer of the assets of Bank
Compensation Strategies, Inc. ("BCSI") and the related secured debt financing
arrangements between Buyer and certain lenders for such purposes, and is in a
position to make an informed decision regarding such acquisition and financing
transactions. Each Seller hereby consents to the BCSI acquisition and related
financing transactions and, if requested, agrees to vote
10
<PAGE> 15
informed decision regarding such acquisition and financing transactions. Each
Seller hereby consents to the BCSI acquisition and related financing
transactions and, if requested, agrees to vote all of his shares of Buyer's
capital stock in favor of such transactions. Each Seller agrees that Buyer may
take all actions which in the sole discretion of Buyer are considered necessary
or appropriate to carry out the intent of such transactions.
8.6 Rights to Profits or Future Distribution. Each Seller hereby
acknowledges that after the Closing he has no rights in any portion of
accounts, earnings, profits or other funds of, or distributions by, Buyer,
including but not limited to, any portion of the S Corporation "AAA" account
attributable to the Shares.
8.7 S Corp. Termination. Each Seller acknowledges and agrees that
Buyer's S Corporation election and status under the Internal Revenue Code may
be terminated voluntarily or involuntarily and at any time and releases Buyer,
the holders of the warrants referred to in Paragraph 8.4, and the respective
directors, officers, employees, attorneys, and the respective successors and
assigns of each them from any claims arising out of or in connection with any
such termination.
8.8 Right to Participate in Future Stock Offerings. Until the
earlier of: (i) the tenth anniversary of the Closing; or (ii) the successful
completion of a firmly underwritten public offering of Buyer's Common Stock
pursuant to an effective registration statement filed under the Securities Act
of 1933, as amended, and except as provided below:
(a) Each Seller shall have the right to participate as an
offeree in any non-public offering for the sale of Buyer's
Common Stock of Buyer for cash, promissory notes or a
combination of such consideration (alone or as part of an
investment unit including other securities);
(b) The number of shares which each Seller shall be
entitled to purchase in such offering shall be determined by
multiplying the number shares of Common Stock of Buyer being
offered for sale in such offering (alone or as part of an
investment unit including other securities) by a fraction (y)
the numerator of which is the number of shares of Common Stock
of Buyer owned by such Seller, and (z) the denominator of
which is the total number of issued and outstanding shares of
Common Stock of Buyer immediately prior to the effective date
of such offering;
(c) This right to participate in a non-public offering of
shares of Common Stock of Buyer shall not apply to:
(1) The offering of up to 1,400,000 shares of
Common Stock at a purchase price of $2.40 referred to
in Paragraph 1.3 (b);
(2) The issuance or grant of shares of Common
Stock or other securities of Buyer, or options (in
any form) to acquire such shares or other securities,
11
<PAGE> 16
to present or future employees of Buyer or any
subsidiary or affiliate of Buyer or pursuant to
existing or future employee incentive and/or
compensation plans or practices;
(3) The issuance or grant of shares of Common
Stock or other securities of Buyer, or options (in
any form) to acquire such shares or other securities
to present or future members of the Board of
Directors of, or parties as either Principals,
Associates or Independent Sales Representatives to
agreements with, Buyer or any subsidiary or affiliate
of Buyer, pursuant to existing or future
incentive/and or compensation plans or practices;
(4) The issuance of shares of Common Stock or
other securities of Buyer, or options (in any form)
to acquire such shares or other securities, in
connection with debt or equity financing arrangements
with financial institutions, insurance companies,
commercial lending or venture capital transactions,
whether secured or otherwise; or
(5) The issuance of shares of Common Stock or
other securities of Buyer or options (in any form) to
acquire such shares or other securities, in
connection with any acquisition of stock or assets of
another entity or any merger, consolidation or other
reorganization involving the Buyer or any subsidiary
or affiliate of Buyer.
8.9 Call Restriction and Voting of Shares. Until the tenth
anniversary of the Closing:
(a) Buyer will not, without the consent of such Seller,
initiate the Call Option provided under Paragraph 3 of the
Amended and Restated Shareholders Agreement and Voting
Agreement, dated February 1, 1991, as currently in effect or
as hereafter amended from time to time, with respect to any
shares of Common Stock of Buyer presently owned or hereafter
acquired by such Seller;
(b) Each Seller agrees that he will vote all shares of
Common Stock of Buyer presently owned or hereafter acquired by
such Seller, or to which such Seller presently or hereafter
controls the voting rights, as specified or directed by the
Board of Directors of Buyer; and
(c) Each Seller agrees that this voting agreement is
COUPLED WITH AN INTEREST AND IS IRREVOCABLE FOR THE TEN YEAR
PERIOD SPECIFIED ABOVE, and in furtherance thereof hereby
IRREVOCABLY appoints the person serving as the Chairman and if
no person is serving as such, the person serving as the
President of Buyer from time to time, with full power of
substitution, to vote all such shares of Common Stock of Buyer
in accordance with this voting agreement with respect to all
matters submitted for vote of the shareholders of Buyer at any
meeting of its shareholders, or adjournment thereof, including
without limitation, the power
12
<PAGE> 17
to waive notice thereof or to take action with respect to any
such matters by written consent on behalf or such Seller
without a meeting of the shareholders. Upon request at any
time and from time to time, each Seller agrees to deliver a
duly executed Irrevocable Proxy conforming to the terms hereof.
8.10. Appraisal of Buyer. Until the earlier of: (i) the tenth
anniversary of the Closing; (ii) any termination of his respective Principal
Office Agreement; or (iii) the successful completion of a firmly underwritten
public offering of Buyer's Common Stock pursuant to an effective registration
statement filed under the Securities Act of 1933, as amended:
(a) If requested jointly by all Sellers who at the time
of such request own shares of Common Stock of the Buyer, an
appraisal will be obtained by the Buyer of the fair market
value of Buyer's Common Stock;
(b) The appraisal shall be obtained at Buyer's expense,
by an appraiser selected by Buyer who shall be regularly
engaged in the profession of valuation of closely-held
businesses, and the Buyer shall use its best efforts to obtain
completion of the appraisal within 45 days after receipt of
Sellers' written request therefor;
(c) The result of such appraisal shall be furnished to
the Sellers who are qualified to make such request, and shall
be kept confidential by them if and to the extent requested by
Buyer; and
(d) Notwithstanding the foregoing, Buyer shall not be
required to obtain such appraisal at Sellers' request more
often than once in any fiscal year or within less than six
calendar months after having obtained an appraisal with
includes an appraisal of the fair market value of Buyer's
Common Stock.
9. ARBITRATION.
Any dispute between the Buyer and any Seller arising out of or
relating to this Agreement or the breach, termination or validity thereof,
which has not been resolved by agreement within 30 days after notice of the
dispute is given by either party to the other shall be exclusively determined
by binding arbitration in accordance with the then current Center for Public
Resources ("CPW") Rules for Non-Administered Arbitration of Business Disputes
by a sole independent and impartial arbitrator selected pursuant to said Rules.
The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. Section 1-16, and judgment upon the award rendered
by the arbitrator may be entered by any court having jurisdiction thereof. The
place of arbitration shall be Dallas, Texas.
The arbitrator is not empowered to award damages in excess of
compensatory damages and the costs of arbitration (including the arbitrator's
fees and expenses) to be apportioned among the parties as the arbitrator shall
determine.
13
<PAGE> 18
10. SURVIVAL OF WARRANTIES, REPRESENTATIONS AND AGREEMENTS.
All representations, warranties and agreements made by a party
herein or hereunder shall be deemed to be relied upon by the other party(ies)
and shall survive the Closing for a period of two (2) years from the Closing
Date and all statements made in any certificate, list, schedule, exhibit or
other document delivered pursuant hereto prior to or at the Closing shall be
deemed warranties and representations made under this Agreement.
11. NOTICES.
All notices, consents, requests, demands and other communications
hereunder shall be in writing and shall be deemed duly given as follows to any
party or parties (a) upon delivery to the address of the party or parties as
specified below if delivered in person or by courier or if sent by certified or
registered mail upon receipt (return receipt requested), or (b) upon dispatch
if transmitted by telecopy or other means of facsimile transmission, in any
case to the party or parties at the following addresses or telecopy numbers, as
the case may be:
If to Buyer, to:
Mel Todd
Clark/Bardes, Inc.
2121 San Jacinto Street
Suite 2200
Dallas, Texas 75201
Fax No.: 214-871-7690
W. T. Wamberg
Clark/Bardes, Inc.
102 South Wynstone Park Drive
North Barrington, Illinois 60010
Fax No.: 847-304-7977
with a required copy to:
Stanley B. Block, Esq.
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Suite 2600
Chicago, Illinois 60601-1003
Fax No.: 312-609-5005
14
<PAGE> 19
If to Sellers, to:
Don R. Teasley
6526 Crestmere Drive
Dallas, Texas 75240
Fax No.: 214-871-7639
Steven J. Cochlan
Two Prudential Plaza
Suite 980
Chicago, Illinois 60601
Fax No.: 312-565-0742
Malcolm N. Briggs
1605 North Cedar Crest Blvd.
Suite 508
Allentown, Pennsylvania 18104
Fax No.: 610-821-1107
G. F. Pendleton, III
6800 Paragon Place
Suite 234
Richmond, Virginia 23230
Fax No.: 804-288-7068
with a required copy to:
William R. Hays, III, Esq.
Haynes and Boone, L.L.P.
901 Main Street, Suite 3100
Dallas, Texas 75202-3789
Fax No.: 214-651-5940
or to such other address or telecopy number as any party may hereafter
designate by written notice in the aforesaid manner. Rejection or refusal to
accept or inability to deliver because of changed address when no notice of
changed address was given, shall be deemed to be receipt.
12. ENTIRE AGREEMENT.
This Agreement, including the exhibits hereto, contains the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements between the parties hereto concerning the
subject matter hereof.
15
<PAGE> 20
13. AMENDMENTS.
This Agreement may be amended by an instrument in writing made by the
parties to be bound thereby.
14. SPECIFIC PERFORMANCE.
Each Seller acknowledges and agrees that the Shares are unique, that
damages for the failure of any Seller to transfer the Shares pursuant to this
Agreement would be an inadequate remedy, and that Buyer shall be entitled to
enforcement by judgment for specific performance.
15. FURTHER ASSURANCES.
From time to time after the Closing and without further consideration
from Buyer, Sellers shall execute and deliver such other instruments of
conveyance and transfer and such other documents, and take such other action,
as Buyer may reasonably request more effectively to convey, assign, transfer
and deliver to, and vest in, Buyer full and complete title to the Shares to
which it is entitled at the Closing and otherwise to carry out the terms,
provisions and intents of this Agreement.
16. REMEDIES CUMULATIVE; NO WAIVER; PERSONS LIABLE
All remedies of the parties provided for herein shall, to the extent
permitted by law, be deemed cumulative and not exclusive of any thereof or of
any other remedies available to the parties, by judicial proceedings or
otherwise, to enforce the performance or observance of the covenants and
agreements contained herein, and no delay or omission of a party to exercise
any right accruing upon any breach of the provisions hereof shall impair any
such right, or shall be construed to be a waiver of any such breach or an
acquiescence therein; and every remedy given herein or by law to any party
hereto may be exercised from time to time, and as often as shall be deemed
expedient, by such party.
17. COUNTERPARTS; CAPTIONS; PRONOUNS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which together shall constitute
one and the same instrument. The section and subsection headings contained in
this Agreement, references to the schedules and the exhibits hereto are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. All pronouns used herein shall be construed
in the masculine, feminine or neuter and in the singular or plural, all as the
sense requires.
18. PARTIES IN INTEREST.
This Agreement shall not be assignable by any party, shall be binding
upon the parties and their respective successors, heirs, and legal
representatives, as the case may be, and, except as otherwise expressly
provided, shall inure only to the benefit of the parties signatory to this
Agreement (and, as third party beneficiaries, the holders of the debt and
warrant instruments issued
16
<PAGE> 21
in connection with the financing arrangements referred to in Paragraphs 8.4 and
8.5) and their respective successors, heirs and legal representatives, as the
case may be; provided, however, that Buyer may assign its rights hereunder
after the Closing (including, but not limited to, any company that may acquire
all or substantially all of the assets or business of Buyer or with or into
which Buyer may be consolidated or merged).
19. APPLICABLE LAW.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Texas, without giving effect to the
principles of conflicts of laws thereof.
17
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
CLARK/BARDES,INC. /s/ MALCOLM N. BRIGGS
---------------------------------------
Malcolm N. Briggs
By: /s/ MELVIN TODD
------------------------------ /s/ STEVEN J. COCHLAN
---------------------------------------
Its: President - CEO Steven J. Cochlan
-----------------------------
/s/ G.F. PENDLETON, III
---------------------------------------
G.F. Pendleton, III
/s/ DON R. TEASELY
---------------------------------------
Don R. Teasely
18
<PAGE> 23
EXHIBIT A
<TABLE>
<S> <C>
Malcolm N. Briggs 1,118,551
Steven J. Cochlan 1,900,000
G.F. Pendleton, III 100,000
Don R. Teasley 605,640
----------
Total 3,724,191
</TABLE>
19
<PAGE> 1
EXHIBIT 10.15
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
CLARK/BARDES, INC.
AND
HENRY J. SMITH
AUGUST 22, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION Page
<S> <C> <C>
1. PURCHASE AND SALE OF SHARES..............................................................................1
1.1 Purchase and Sale of Shares.....................................................................1
1.2 Consideration for Sale and Transfer of the Shares...............................................1
1.3 Sale of Smith Shares............................................................................2
1.4 Closing.........................................................................................2
1.5 Closing Documents of Seller.....................................................................2
1.6 Closing Documents of Buyer......................................................................3
2. REPRESENTATIONS AND WARRANTIES OF SELLER.................................................................3
2.1 Ability and Authorization to Carry Out Agreement; Consents......................................3
2.2 Consents and Approvals..........................................................................4
2.3 Litigation......................................................................................4
2.4 Accuracy of Representations.....................................................................4
2.5 Title to Shares.................................................................................4
2.6 Ownership of Shares.............................................................................5
3. REPRESENTATIONS AND WARRANTIES OF BUYER..................................................................5
3.1 Organization of Buyer...........................................................................5
3.2 Authorization of and Ability to Perform Agreement...............................................5
3.3 Accuracy of Representations.....................................................................5
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4. COVENANTS OF SELLER AND BUYER............................................................................6
4.1 Covenants of Seller.............................................................................6
4.2 Covenants of Buyer..............................................................................6
4.3 Covenants of Seller and Buyer...................................................................6
5. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS..............................................................6
5.1 Form Satisfactory to Buyer's Counsel............................................................6
5.2 Representations and Warranties; Certificates of Compliance......................................6
5.3 Litigation......................................................................................7
5.4 Changes.........................................................................................7
5.5 Delivery of Documents...........................................................................7
5.6 Financing.......................................................................................7
5.7 Waiver..........................................................................................7
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
6. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS.............................................................7
6.1 Form Satisfactory to Seller's Counsel...........................................................7
6.2 Representations and Warranties; Compliance with Conditions......................................7
6.3 Litigation......................................................................................8
6.4 Delivery of Documents...........................................................................8
6.5 Waiver..........................................................................................8
7. TERMINATION..............................................................................................8
8. OTHER AGREEMENTS.........................................................................................9
8.1 Election to Close Buyer's Tax Year. ..................................................9
8.2 Approval of Related Financing. .......................................................9
8.3 Approval of BCSI Acquisition and Related Financing. ..................................9
8.4 Rights to Profits or Future Distributions. ..........................................10
8.5 S Corp. Termination. ................................................................10
9. ARBITRATION.............................................................................................10
10. SURVIVAL OF WARRANTIES, REPRESENTATIONS AND
AGREEMENTS..............................................................................................10
11. NOTICES.................................................................................................10
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
12. ENTIRE AGREEMENT........................................................................................12
13. AMENDMENTS..............................................................................................12
14. SPECIFIC PERFORMANCE....................................................................................12
15. FURTHER ASSURANCES......................................................................................12
16. REMEDIES CUMULATIVE; NO WAIVER; PERSONS LIABLE..........................................................12
17. COUNTERPARTS; CAPTIONS; PRONOUNS........................................................................13
18. PARTIES IN INTEREST.....................................................................................13
19. APPLICABLE LAW..........................................................................................13
</TABLE>
iv
<PAGE> 6
EXHIBITS
Exhibit A - Novation Agreement
Exhibit B - Settlement Agreement
v
<PAGE> 7
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") made and entered into as of
the ___ day of August, 1997, by and among CLARK/BARDES, INC., a Texas
corporation ("Buyer"), and HENRY J. SMITH ("Seller").
W I T N E S S E T H:
WHEREAS, Seller owns 1,404,340 of certain issued and outstanding
capital stock of Clark/Bardes, Inc. (the "Shares"); and
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase
from Seller, certain of the issued and outstanding shares of capital stock of
Clark/Bardes, Inc. upon the terms and conditions herein set forth.
NOW, THEREFORE, for and in consideration of the above premises and of
the mutual covenants and promises contained herein, the parties hereto agree as
follows:
1. PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale of Shares. Subject to the terms and conditions
of this Agreement, in reliance on the representations and warranties of Buyer,
and in consideration of the obligations of Buyer herein provided, Seller hereby
agrees to sell, convey, transfer, assign and deliver to Buyer, and the Buyer
hereby agrees to purchase from the Seller at the closing provided for in Section
1.2 hereof (the "Closing"), an
<PAGE> 8
aggregate of 1,404,340 of the Shares in accordance with the terms and conditions
of this Agreement, free and clear of any and all liens, security interests,
mortgages, charges, restrictions, adverse claims, encumbrances and rights of
other persons of every nature and description whatsoever.
1.2 Consideration for Sale and Transfer of the Shares. Subject to the
terms and conditions of this Agreement, in reliance on the representations and
warranties of Seller, and in consideration of the obligations of Seller herein
provided and such sale, conveyance, transfer, assignment and delivery by Seller
at the Closing of all of the Shares and the execution and delivery by Seller of
the other documents provided for herein, Buyer agrees to pay Seller an amount
equal to $2.40 per Share and, in the aggregate, an amount equal to Three Million
Three Hundred Seventy Thousand Four Hundred Sixteen Dollars ($3,370,416) (the
"Purchase Price"). The Purchase Price shall be payable as follows: (i) cash
payment to the Seller by certified or official bank check to the order of Seller
or its assigns or by wire transfer of immediately available funds in the amount
of Three Million Thirty Three Thousand Three Hundred Seventy-Four Dollars
($3,033,374); and (ii) delivery to Seller of a Promissory Note of Buyer in the
amount of Three Hundred Thirty Seven Thousand Forty-Two Dollars ($337,042) (the
"Promissory Note") dated as of the date of Closing.
1.3 Sale of Smith Shares. Within 90 days after the Closing, the Buyer
shall use its best efforts to offer up to 1,400,000 of the Shares purchased by
Buyer hereunder at a price of $2.40 per share or such other price as determined
in the sole discretion of Buyer, which may include one or more present
shareholders of Buyer
2
<PAGE> 9
and may exclude Seller; provided, however, that Buyer shall apply the net
proceeds (after deducting all applicable discounts, attorney and accountant fees
and other transaction costs) to prepay the Promissory Note (as defined in
Section 1.2 hereof) and those certain Promissory Notes to be issued to certain
shareholders of the Buyer pursuant to that certain Stock Purchase Agreement
dated as of August 22, 1997 by and among the Buyer, Steven J. Cochlan
("Cochlan"), Malcolm N. Briggs ("Briggs"), G.F. Pendleton III ("Pendleton") and
Don R. Teasley ("Teasley") (the "Cochlan Group Purchase Agreement"), taken
together on a pro rata basis in the proportion which (x) the then outstanding
principal amount of each such Promissory Note bears to (y) the total of the then
outstanding principal amounts of all such Promissory Notes.
1.4 Closing. The Closing of the transactions contemplated by this
Agreement shall be on or prior to August 29, 1997, or on such other date as may
be mutually agreed upon by Buyer and Seller or as otherwise determined hereunder
(the "Closing Date"). At the Closing, the parties will exchange the various
documents and take such other actions as contemplated by this Agreement. The
exchanges herein provided shall take place commencing at 10:00 a.m., local time,
on the Closing Date, at the offices of Vedder, Price, Kaufman & Kammholz, 222 N.
LaSalle Street, Chicago, Illinois.
1.5 Closing Documents of Seller. At the Closing, the Seller shall
deliver or cause to be delivered to Buyer the following duly executed documents
and other items:
3
<PAGE> 10
(i) Good and valid certificates representing all of
the Shares, free and clear of any and all liens, security interests, mortgages,
charges, restrictions, adverse claims, encumbrances and rights of other persons
of every nature and description whatsoever, duly endorsed for transfer to Buyer
or accompanied by duly executed stock powers, with all applicable transfer
taxes, if any, paid;
(ii) All necessary approvals or consents of third
parties to the purchase and sale of the Shares and consummation of the
transactions provided for herein;
(iii) A certificate of accuracy of representations
and warranties and compliance with covenants executed by the Seller;
(iv) A Novation Agreement (the "Novation Agreement")
regarding that certain Stock Purchase Agreement (dated as of February
28, 1997 among Seller, W.T. Wamberg ("Wamberg"), Mel G. Todd ("Todd"),
Frank Kelly, George V. Blaha, Jr., William Chatfield ("Chatfield") and
Bennett Meyer ("Meyer") in the form of Exhibit A hereto;
(v) A Settlement Agreement dated as of August 22,
1997 among Wamberg, the Buyer, the Seller, Todd, Briggs, Cochlan,
Pendleton and Teasley (the "Settlement Agreement") in the form of
Exhibit B hereto;
4
<PAGE> 11
(vi) The written opinions of counsel for the Sellers
relating to certain representations and warranties of Sellers which are
reasonably satisfactory to Buyer and to Buyer's Lenders referred to in
Paragraph 8.2;
(viii) Such other documents and actions as shall
reasonably be required by Buyer or by its counsel.
1.6 Closing Documents of Buyer. At the Closing, the Buyer shall
deliver or cause to be delivered to Seller, or such other persons as
appropriate, the following duly executed documents and other items:
(i) The cash portion of the Purchase Price as
provided for in Section 1.2(i) hereof;
(ii) The executed Promissory Note as provided for in
Section 1.2(ii) hereof;
(iii) A certificate of accuracy of representations
and warranties and compliance with covenants executed by the Buyer;
(iv) The written opinion of counsel for the Buyer
relating to certain representations and warranties of Buyer which is reasonably
satisfactory to Sellers and to Buyer's Lenders referred to in Paragraph 8.2; and
5
<PAGE> 12
(v) Such other documents and actions as shall
reasonably be required by Seller or by his counsel.
2. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to and covenants with Buyer as follows:
2.1 Ability and Authorization to Carry Out Agreement; Consents.
Seller has the full capacity, right, power and authority to enter into, execute
and deliver this Agreement, the Office Agreement, the Novation Agreement, the
Settlement Agreement and the Shareholder Agreement (collectively, the "Related
Agreements"), to consummate the transactions contemplated by this Agreement and
the Related Agreements, to comply with and fulfill the terms and conditions of
this Agreement and the Related Agreements, and to sell, transfer, assign and
deliver all of his Shares to the Buyer as provided for in this Agreement. This
Agreement and the Related Agreements constitute valid and binding obligations of
the Seller, enforceable in accordance with their terms and conditions. Neither
the execution and delivery of this Agreement or any Related Agreement, nor the
consummation of the transactions contemplated hereby, nor compliance by the
Seller with any of the provisions of this Agreement or any Related Agreement
will:
(a) Conflict in any material respect with, violate, result in a
breach of, constitute a default (or an event which, with notice or lapse of time
or both, would constitute a default) under, or give rise to any right of
termination, cancellation, or acceleration under any of the terms, conditions or
provisions of any note, lien, bond,
6
<PAGE> 13
mortgage, indenture, license, lease, contract, commitment, agreement,
understanding, arrangement, restriction or other instrument or obligation to
which the Seller is a party or by which the Seller or any of his respective
properties or assets may be bound or subject;
(b) Violate in any material respect any judgment, order, writ,
injunction, or decree of any court, administrative agency, or governmental
agency or body or any law or regulation applicable to the Seller or his
properties, assets, or Shares; or
(c) Constitute an event of which, with or without notice, lapse
of time, or action by a third party, could result in the creation of any lien,
charge, or encumbrance upon his Shares.
2.2 Consents and Approvals. The execution, delivery and performance
of this Agreement and the Related Agreements by the Seller and the consummation
by the Seller of the transactions contemplated hereby or thereby will not
require any notice to, or consent, authorization or approval from any court or
governmental authority or any other third party.
2.3 Litigation. To the best of the Seller's knowledge, there is no
action, suit or proceeding or governmental investigation, judgment, order, writ,
injunction or decree outstanding, pending or threatened against or relating to
the Seller or his Shares before any court or before or by any federal, state,
municipal or other governmental
7
<PAGE> 14
department, commission, board, bureau, agency or instrumentality, nor does the
Seller know or have reasonable grounds to know of any basis for any such action.
2.4 Accuracy of Representations. No representation or warranty of the
Seller contained in this Agreement and no statement contained in any exhibit,
certificate, list, schedule or other document referred to in this Agreement
contains or will contain any untrue statement of any material fact, or omits or
will omit to state any material fact necessary to make the statements contained
therein or herein not false or misleading.
2.5 Title to Shares. The Seller represents and warrants to the Buyer
that he has good title to, and is the beneficial and record owner of, all of his
Shares free and clear of any and all liens, security interests, mortgages,
charges, restrictions, adverse claims, encumbrances and rights of other persons
of every nature and description whatsoever.
2.6 Ownership of Shares. The Seller represents and warrants to the
Buyer that he owns no other shares in the Buyer and has no other rights in, or
other rights to acquire, any shares of the Buyer other than the Shares.
3. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Seller as follows:
3.1 Organization of Buyer. Buyer is a company duly organized, validly
existing and in good standing under the laws of the State of its incorporation
with full
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corporate power to execute and deliver this Agreement and to carry out its
obligations hereunder.
3.2 Authorization of and Ability to Perform Agreement. The execution,
delivery and performance of this Agreement and all other documents in connection
herewith by Buyer have been duly and validly authorized by the Board of
Directors of the Buyer and all requisite corporate action has been taken to make
them valid and binding upon Buyer in accordance with their respective terms. The
Buyer has the corporate power and authority to enter into, execute and deliver
this Agreement and the Related Agreements to which it is a party (the "Buyer
Related Agreements"), to consummate the transactions contemplated by this
Agreement and the Buyer Related Agreements, and to comply with and fulfill the
terms and conditions of this Agreement and the Buyer Related Agreements. This
Agreement and all Buyer Related Agreements each constitute a valid and binding
obligation of the Buyer, enforceable in accordance with their respective terms
and conditions. Neither the execution and delivery of this Agreement or any
Buyer Related Agreement, nor the consummation of the transactions contemplated
hereby or thereby will violate any provision of the Buyer's Articles of
Incorporation or Bylaws, or result in a breach of any condition or provision of,
or constitute a default under, any indenture, agreement or other instrument to
which Buyer is a party and which would prohibit the Buyer from performing its
obligations under this Agreement or any Buyer Related Agreement.
3.3 Accuracy of Representations. No representation or warranty of
Buyer contained in this Agreement and no statement contained in any certificate,
list,
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<PAGE> 16
schedule, exhibit or other document referred to in this Agreement contains or
will contain any untrue statement of any material fact, or omits or will omit to
state any material fact necessary to make the statements contained therein or
herein not false or misleading.
4. COVENANTS OF SELLER AND BUYER
4.1 Covenants of Seller. Prior to Closing if required by Buyer's
lenders referred to in Paragraph 8.2 or 8.3, Seller:
(a) Agrees to vote all of his shares of Buyer's capital stock in
favor of: (i) Buyer's purchase of the Shares hereunder, Buyer's purchase of its
shares under the Cochlan Group Purchase Agreement referred to in Paragraphs 1.3
(a) and 8.3 and Buyer's purchase of assets of BCSI referred to in Paragraph 8.4,
and (ii) all equity or debt financing arrangements approved by the Buyer for
purposes of funding working capital requirements and said transactions,
including the financing arrangements referred to in Paragraphs 8.2 and 8.3; and
(b) Agrees to vote all of his shares of Buyer's capital stock in
favor of any merger or reorganization where the purpose of such merger or
reorganization is to change the Buyer's state of incorporation from a Texas
corporation to a corporation organized in Delaware or some other state of the
Buyer's choosing, and the Seller hereby expressly waives any statutory
dissenters' rights with respect thereto.
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<PAGE> 17
4.2 Covenants of Buyer. Buyer hereby agrees to use its best efforts
to obtain financing for the transactions contemplated hereunder which is
reasonably satisfactory to the Buyer. Buyer hereby agrees to notify Seller or a
representative of the Seller upon Buyer's execution of a binding term sheet with
respect to such financing.
4.3 Covenants of Seller and Buyer. Seller and Buyer hereby agree that
the Option Agreement between Buyer and Seller dated as of January ___, 1996 with
respect to any shares of the Buyer owned by Seller as of December 6, 1997 is
hereby terminated.
5. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.
All obligations of Buyer under this Agreement to consummate the
purchase and sale of the Shares and the other transactions contemplated hereby
are subject to the fulfillment prior to or at the Closing of each of the
following conditions:
5.1 Form Satisfactory to Buyer's Counsel. All proceedings taken by
the Seller in connection with the transactions contemplated herein and all
instruments and documents required to be furnished by him in connection herewith
or incident hereto shall be reasonably satisfactory to Buyer's counsel.
5.2 Representations and Warranties; Certificates of Compliance. All
representations and warranties of Seller contained in this Agreement or in any
certificate or document heretofore delivered to Buyer or hereafter delivered to
Buyer pursuant hereto shall be deemed to have been made again at the Closing and
shall be
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<PAGE> 18
true and correct in all material respects both on the date of this Agreement and
as of the Closing; and all agreements and conditions required by this Agreement
to be performed or satisfied prior to or at the Closing (except agreements on
the part of Buyer) shall have been fulfilled in all material respects; and Buyer
shall have completed its due diligence review and be satisfied that all of the
covenants, representations and warranties contained herein are true and correct;
and Buyer shall have been furnished with the certificate of Seller dated the
Closing Date, certifying as to such truth, correctness and fulfillment.
5.3 Litigation. No action or proceeding shall have been instituted or
threatened by third parties against Buyer or Seller to restrain or prohibit, or
to obtain damages in respect of, the transactions contemplated by this Agreement
if such action or proceeding in the reasonable opinion of Buyer makes it
inadvisable to consummate such transactions other than the action pending in the
44th Judicial District Court, Dallas, Texas, as No. 97-03623, which has never
been served on any defendant and is settled in all respects under the Settlement
Agreement.
5.4 Changes. Buyer shall have, between the date of this Agreement and
the Closing, experienced no adverse change in its financial condition, assets,
liabilities or business, other than changes in the ordinary course of business,
none of which shall have been materially adverse.
5.5 Delivery of Documents. Sellers shall have delivered to Buyer the
instruments and documents referred to in Section 1.5 hereof and any other
documents referred to elsewhere in this Agreement.
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<PAGE> 19
5.6 Financing. Buyer's lenders shall have approved financing
arrangements on terms which are satisfactory to the Buyer and delivered all
funds to be provided under such arrangements.
5.7 Waiver. Any of the foregoing conditions may be waived in writing
by Buyer.
6. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS.
All obligations of the Seller under this Agreement to consummate the purchase
and sale of the Shares and the other transactions contemplated hereby are
subject to the fulfillment prior to or at the Closing of the following
conditions:
6.1 Form Satisfactory to Seller's Counsel. All proceedings taken by
Buyer in connection with the transactions contemplated herein and all
instruments and documents required to be furnished by it in connection herewith
or incident hereto shall be reasonably satisfactory to Seller's counsel.
6.2 Representations and Warranties; Compliance with Conditions. All
representations and warranties of Buyer contained in this Agreement or in any
certificate or document delivered pursuant hereto shall be deemed to have been
made again at the Closing and shall be true in all material respects as of the
Closing; and Buyer shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with by it
prior to or at the Closing;
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<PAGE> 20
and Seller shall have been furnished with certificates of appropriate officers
of Buyer dated the Closing Date, certifying to the fulfillment of the foregoing
conditions.
6.3 Litigation. No action or proceeding shall have been instituted or
threatened by third parties against Buyer or the Seller to restrain or prohibit,
or to obtain damages in respect of, the transactions contemplated by this
Agreement if such action or proceeding in the reasonable opinion of the Seller
makes it inadvisable to consummate such transactions other than the action
pending in the 44th Judicial District Court, Dallas, Texas as No. 97-03623,
which has never been served on any defendant and is settled in all respects
under the Settlement Agreement.
6.4 Delivery of Documents. Buyer shall have delivered to Seller the
payments, instruments and documents referred to in Section 1.6 hereof and any
other documents referred to elsewhere in this Agreement.
6.5 Waiver. Any of the foregoing conditions may be waived in writing
by the Seller.
7. TERMINATION.
7.1 This Agreement may be terminated at any time prior to the
Closing:
(a) By mutual consent of Buyer and the Seller; or
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<PAGE> 21
(b) At the option of Buyer upon the nonsatisfaction of any of the
conditions precedent set forth in Section 5 hereof, which in the reasonable
judgment of Buyer, cannot be corrected or cured on or prior to the Closing Date;
or
(c) At the option of Seller upon the nonsatisfaction of any of
the conditions precedent set forth in Section 6 hereof, which in the reasonable
judgment of the Seller, cannot be corrected or cured on or prior to the Closing
Date.
7.2 Either Buyer or Seller may, at its/his election, waive in writing
any of its/his rights to terminate this Agreement because of the failure to
satisfy the conditions set forth in Sections 5 or 6, and shall be deemed to have
waived such rights to terminate this Agreement upon consummation of the Closing.
No such waiver shall constitute a waiver of any other rights arising from the
non-fulfillment of any such condition or otherwise. In addition, the party
entitled to waive such rights or conditions may withhold payment or delivery of
other closing documents until, and may require performance or fulfillment of
such conditions or obligations by the breaching party. No party shall be liable
to any other party for any damages or expenses attributable to a termination
permitted by Sections 5 or 6, unless such termination results from the breach of
any of the terms of this Agreement.
8. OTHER AGREEMENTS.
8.1 Election to Close Buyer's Tax Year. The parties hereto recognize
that the contemplated purchases of shares of the Buyer's capital stock pursuant
to this Agreement will, if all other requirements are satisfied, make available
the election
15
<PAGE> 22
under Section 1377(a)(2) of the Internal Revenue Code. Accordingly, Buyer and
Seller agree that:
(a) Buyer shall use its best efforts to obtain the necessary
consents of all holders of Buyer's capital stock during the 1997 taxable year to
such an election by the Buyer and take such other action as is appropriate to
make such an election effective; and
(b) Seller agrees to and hereby does consent to such an election,
will obtain the consent of any other party having an interest in his shares as
required for such election, and will cooperate with Buyer in all other respects
in order to make such election effective.
8.2 Approval of Related Financing. Seller acknowledges that he has
had full access to information and opportunity to become fully informed
concerning secured debt financing arrangements, which include the issuance of
warrants for capital stock of Buyer, between Buyer and certain lenders for the
purposes of Buyer's purchases of the Shares under this Agreement and Buyer's
purchase of shares of its capital stock under the Cochlan Group Purchase
Agreement and is in a position to make an informed decision with respect
thereto. Seller hereby consents to such transactions and agrees that Buyer may
take all actions which in the sole discretion of Buyer are considered necessary
or appropriate to carry out the intent of such transactions.
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<PAGE> 23
8.3 Approval of BCSI Acquisition and Related Financing. Seller
acknowledges that he he has had full access to information and opportunity to
become fully informed concerning the terms and conditions and other information
related to the potential acquisition by Buyer of the assets of Bank Compensation
Strategies, Inc. ("BCSI") and the related secured debt financing arrangements
between Buyer and certain lenders for such purposes, and is in a position to
make an informed decision regarding such acquisition and financing transactions.
Seller hereby consents to the BCSI acquisition and related financing
transactions and, if requested, agrees to vote all of his shares of Buyer's
capital stock in favor of such transactions. Seller agrees that Buyer may take
all actions which in the sole discretion of Buyer are considered necessary or
appropriate to carry out the intent of such transactions.
8.4 Rights to Profits or Future Distributions. Seller hereby
acknowledges that after the Closing he has no rights in any portion of accounts,
earnings, profits or other funds of, or distributions by, Buyer, including but
not limited to, any portion of the S Corporation "AAA" account attributable to
the Shares.
8.5 S Corp. Termination. Seller acknowledges and agrees that Buyer's
S Corporation election and status under the Internal Revenue Code may be
terminated voluntarily or involuntarily and at any time and releases Buyer, the
holders of the warrants referred to in Paragraph 8.3, and the respective
directors, officers, employees, attorneys, and the respective successors and
assigns of each them from any claims arising out of or in connection with any
such termination.
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<PAGE> 24
9. ARBITRATION.
Any dispute between the Buyer and Seller arising out of or
relating to this Agreement or the breach, termination or validity thereof, which
has not been resolved by agreement within 30 days after notice of the dispute is
given by either party to the other shall be exclusively determined by binding
arbitration in accordance with the then current Center for Public Resources
("CPR") Rules for Non-Administered Arbitration of Business Disputes by a sole
independent and impartial arbitrator selected pursuant to said Rules.
The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. ss.1-16, and judgment upon the award rendered by the
arbitrator may be entered by any court having jurisdiction thereof. The place of
arbitration shall be Dallas, Texas.
The arbitrator is not empowered to award damages in excess of
compensatory damages and the costs of arbitration (including the arbitrator's
fees and expenses) to be apportioned among the parties as the arbitrator shall
determine.
10. SURVIVAL OF WARRANTIES, REPRESENTATIONS AND AGREEMENTS.
All representations, warranties and agreements made by a party
herein or hereunder shall be deemed to be relied upon by the other party(ies)
and shall survive the Closing for a period of two (2) years from the Closing
Date and all
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<PAGE> 25
statements made in any certificate, list, schedule, exhibit or other document
delivered pursuant hereto prior to or at the Closing shall be deemed warranties
and repre sentations made under this Agreement.
11. NOTICES.
All notices, consents, requests, demands and other communications
hereunder shall be in writing and shall be deemed duly given as follows to any
party or parties (a) upon delivery to the address of the party or parties as
specified below if delivered in person or by courier or if sent by certified or
registered mail upon receipt (return receipt requested), or (b) upon dispatch if
transmitted by telecopy or other means of facsimile transmission, in any case to
the party or parties at the following addresses or telecopy numbers, as the case
may be:
If to Buyer, to:
Clark/Bardes, Inc.
2121 San Jacinto Street
Suite 2200
Dallas, Texas 75201
Fax No.: 214-871-7690
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<PAGE> 26
with a required copy to:
Stanley B. Block, Esq.
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Suite 2600
Chicago, Illinois 60601-1003
Fax No.: 312-609-5005
If to Seller, to:
Henry J. Smith
2121 San Jacinto Street
Suite 2200
Dallas, Texas 75201
Fax No.: 214-871-7690
with a required copy to:
Stephen Gleboff, Esq.
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Fax No.: 713-547-2300
or to such other address or telecopy number as any party may hereafter designate
by written notice in the aforesaid manner. Rejection or refusal to accept or
inability to
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<PAGE> 27
deliver because of changed address when no notice of changed
address was given, shall be deemed to be receipt.
12. ENTIRE AGREEMENT.
This Agreement, including the exhibits hereto, contains the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements between the parties hereto concerning the
subject matter hereof.
13. AMENDMENTS.
This Agreement may be amended by an instrument in writing made by the
parties to be bound thereby.
14. SPECIFIC PERFORMANCE.
Seller acknowledges and agrees that the Shares are unique, that damages
for the failure of Seller to transfer the Shares pursuant to this Agreement
would be an inadequate remedy, and that Buyer shall be entitled to enforcement
by judgment for specific performance.
15. FURTHER ASSURANCES.
From time to time after the Closing and without further consideration
from Buyer, Seller shall execute and deliver such other instruments of
conveyance and
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<PAGE> 28
transfer and such other documents, and take such other action, as Buyer may
reasonably request more effectively to convey, assign, transfer and deliver to,
and vest in, Buyer full and complete title to the Shares to put Buyer in
possession of all assets and property belonging to the Buyer or to the use or
occupancy of which it is entitled at the Closing and otherwise to carry out the
terms, provisions and intents of this Agreement.
16. REMEDIES CUMULATIVE; NO WAIVER; PERSONS LIABLE.
All remedies of the parties provided for herein shall, to the extent
permitted by law, be deemed cumulative and not exclusive of any thereof or of
any other remedies available to the parties, by judicial proceedings or
otherwise, to enforce the performance or observance of the covenants and
agreements contained herein, and no delay or omission of a party to exercise any
right accruing upon any breach of the provisions hereof shall impair any such
right, or shall be construed to be a waiver of any such breach or an
acquiescence therein; and every remedy given herein or by law to any party
hereto may be exercised from time to time, and as often as shall be deemed
expedient, by such party.
17. COUNTERPARTS; CAPTIONS; PRONOUNS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument. The section and subsection headings contained in this
Agreement, refer ences to the schedules and the exhibits hereto are for
reference purposes only and shall
22
<PAGE> 29
not affect in any way the meaning or interpretation of this Agreement. All
pronouns used herein shall be construed in the masculine, feminine or neuter and
in the singular or plural, all as the sense requires.
18. PARTIES IN INTEREST.
This Agreement shall not be assignable by any party, shall be binding
upon the parties and their respective successors, heirs, and legal
representatives, as the case may be, and, except as otherwise expressly
provided, shall inure only to the benefit of the parties signatory to this
Agreement and their respective successors, heirs and legal representatives, as
the case may be; provided, however, that Buyer may assign its rights hereunder
after the Closing (including, but not limited to, any company that may acquire
all or substantially all of the assets or business of Buyer or with or into
which Buyer may be consolidated or merged).
19. APPLICABLE LAW.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Texas, without giving effect to the
principles of conflicts of laws thereof.
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<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
/s/ HENRY J. SMITH
-----------------------------------
Henry J. Smith
CLARK/BARDES, INC.
By: [ILLEGIBLE]
--------------------------------
Its: CHAIRMAN OF THE BOARD
-------------------------------
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<PAGE> 31
PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND CANNOT BE
TRANSFERRED EXCEPT PURSUANT TO REGISTRATION THEREUNDER OR AN EXEMPTION
THEREFROM, AS THE CASE MAY BE.
THIS NOTE IS ISSUED PURSUANT TO THAT CERTAIN STOCK PURCHASE AGREEMENT
DESCRIBED BELOW.
----------
PROMISSORY NOTE
Final Maturity September 8, 1999
$337,042.00 September 8, 1997
Dallas, Texas
Clark/Bardes, Inc., a Texas corporation (the "Maker" or the
"Company"), for value received, hereby promises to pay to the order of Henry J.
Smith or his successors or assigns ("Holder"), the principal amount of Three
Hundred and Thirty-Seven Thousand and Forty-Two Dollars ($337,042.00) and to
pay interest on the principal amount from time to time remaining unpaid hereon
at the rate of ten percent (10%) per annum, from the date hereof until
maturity, payable in twenty-four equal, consecutive installments in the amount
of Fifteen Thousand Five Hundred and Fifty-Two Dollars and Seventy-Eight Cents
($15,552.78) with the first such installment being due and payable on October
8, 1997 and with like successive installments being due and payable on the
eighth day of each calendar month occurring thereafter to and including
September 8, 1999, such installments to be applied first to all accrued and
unpaid interest due hereon and then to the outstanding principal balance
hereof.
The Maker agrees to pay interest on any overdue installment of
principal and interest (to the extent legally enforceable) at the rate of
twelve percent (12%) per annum after the due date of such payment, whether by
acceleration or otherwise, until paid. Both the principal hereof and interest
hereon are payable to Holder in lawful money of the United States of America in
same day or immediately available funds to Holder's at such account or address
as provided from time to time in a written notice from Holder to Maker.
This Note is one of a number of notes (the "Promissory Notes") issued
under and pursuant to the terms and provisions of stock purchase agreements
dated as of August 22, 1997 (the "Stock Purchase Agreements"), entered into by
Malcolm N.
<PAGE> 32
Briggs, Steven J. Cochlan, G. F. Pendleton, III, Don R. Teasley and Henry J.
Smith (individually, a "Seller" and collectively, the "Sellers").
This Note may be prepaid in whole or in part, without penalty or
premium; provided, however, that (i) Maker shall pay contemporaneously
therewith all accrued and unpaid interest on the principal amount so prepaid,
and (ii) any such prepayment may only be made if, contemporaneously therewith,
Maker also makes a pro rata prepayment of the outstanding principal balance of
each of the other Promissory Notes in an amount equal to (x) the then
outstanding principal balance of such Promissory Note, multiplied by (y) the
quotient of the principal amount so prepaid under this Note divided by the
outstanding principal balance of this Note immediately before giving effect to
such principal prepayment. Within 90 days after the Closing (as defined in the
Stock Purchase Agreement), the Maker shall use its best efforts to offer up to
1,400,000 shares of capital stock of Maker at a price of $2.40 per share or
such other price as determined in the sole discretion of Maker and to such
third parties as are selected in the sole discretion of Maker, which may
include one or more present shareholders of Maker and may exclude each or any
of the Sellers; provided, however, that Maker shall pay to Holder 28.68% of the
net proceeds received from any such sale of its capital stock (after deducting
all applicable discounts, attorney and accountant fees and other transaction
costs) up to and including the remaining unpaid principal balance hereof, plus
all accrued but unpaid interest, as a mandatory prepayment.
Maker hereby agrees to make all payments due on this Note without
reduction, offset or counterclaim. Without limiting the generality of the
foregoing, Maker hereby waives any right that it may have to a set-off or a
credit against the principal payable under this Note for any damages, costs,
expenses or losses incurred by the Maker as a result of a breach of any
representation, warranty or covenant of Holder or any other Seller pursuant to
the Stock Purchase Agreement.
SUBORDINATION OF NOTES
A. SUBORDINATION; RESTRICTIONS ON SUBORDINATED DEBTS. Anything in
this Note to the contrary notwithstanding the indebtedness evidenced by this
Note, including without limitation, principal, premium, if any, and interest
and any and all fees, expenses, indemnities and all other monies owing at any
time pursuant to or in connection with this Note (the "Subordinated Debt"),
shall be subordinate and junior to the extent set forth in subparagraphs (i)
through (iii), inclusive, below, to all Senior Debt.
(i) If a Default or an Event of Default shall occur, then, unless
and until such Default or Event of Default shall have been remedied by
indefeasible payment in full of all Senior Debt in cash or otherwise cured, or
expressly waived in writing by all affected holders of Senior Debt, the Company
shall not make and, upon receipt by the Holder of written notice from any
holder of Senior Debt, the holder of this Note shall not accept or
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<PAGE> 33
receive, any direct or indirect payment of or on account of any Subordinated
Debt;
(ii) In the event of any insolvency, bankruptcy, liquidation,
reorganization or other similar proceedings, or any receivership proceedings in
connection therewith, relative to the Company, and in the event of any
proceedings for voluntary liquidation, dissolution or other winding up of the
Company, whether or not involving insolvency or bankruptcy proceedings, then
all Senior Debt shall first be indefeasibly paid in full and in cash before any
payment is made of or on account of any Subordinated Debt;
(iii) In any of the proceedings referred to in subparagraph (ii)
above, any payment or distribution of any kind or character whether in cash,
property, stock or obligations, which may be payable or deliverable by the
Company in respect of this Note shall be paid or delivered directly to the
Holders of Senior Debt (or to a banking institution selected by the court or
person making the payment or delivery or designated by any Holder of Senior
Debt) for the ratable application in payment thereof in accordance with the
priorities then existing among such Holders, unless and until all Senior Debt
shall have been indefeasibly paid in full and in cash.
(iv) In the event of any of the proceedings referred to in
paragraph (ii) above, the Holder of this Note will, at the Required Holder(s)
request, file any claim, proof of claim or other instrument of similar
character necessary to enforce the obligation of the Company in respect of the
Subordinated Debt. In the event that the Holder of this Note should fail to
take such action requested by the Required Holder(s), the Required Holder(s)
may, as attorney-in-fact for the Holder of this Note, take such action on
behalf of the Holder of this Note, and the Holder of this Note hereby
irrevocably appoints the Required Holder(s) as attorney-in-fact for the Holder
of this Note to demand, sue for, collect and receive any and all such moneys,
dividends or other assets and give acquittance therefor and to file any claim,
proof of claim or other instrument of similar character and to take such other
proceedings in the Required Holder(s) own name(s) or in the name of the Holder
of this Note as the Required Holder(s) may deem necessary or advisable for the
enforcement of the terms contained in this Note; and the Holder of this Note
will execute and deliver to the Required Holder(s) such other and further
powers of attorney or other instruments as the Required Holder(s) may request
in order to accomplish the foregoing;
(v) If any payment or distribution of any character, whether in
cash, securities or other property, shall be received by the Holder of this
Note in contravention of any of the terms of this Note and before all the
Senior Debt shall have been indefeasibly paid in full and in cash, such payment
or distribution shall be received in trust for the benefit of the Holders of
the Senior Debt at the time outstanding and shall forthwith be paid over or
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<PAGE> 34
delivered and transferred to the Holders of the Senior Debt for the ratable
application in payment thereof in accordance with the priorities then existing
among such Holders.
(vi) The Holder of this Note will not commence any action or
proceeding, including, without limitation, an action to recover on a right of
set-off or similar right or remedy, against the Company to recover all or any
part of the Subordinated Debt or join with any creditor, unless the holders of
the Senior Debt shall also join, in bringing any proceedings against the
Company under any bankruptcy, reorganization, readjustment of debt, arrangement
of debt, receivership, liquidation or insolvency law or statute of the Federal
or any state government unless and until all Senior Debt shall be indefeasibly
paid in full and in cash; provided the Holder of this Note may commence any
action or proceeding that is necessary to preserve his rights or remedies under
this Note that would be lost upon the expiration of any applicable statute of
limitations.
(vii) Payment of the Subordinated Debt will not be secured by any
security interest or lien on any assets of, or by a guaranty from, any obligor
of the Senior Debt unless all Senior Debt has been indefeasibly paid in full
and in cash.
(viii) The amount, the rate of interest charged, or the time, place,
manner, terms or amount of principal or interest payments of this Note, may not
be increased or accelerated in any fashion, and, the principal owing with
respect to this Note may not be paid prior to the scheduled date of payment
thereof, without, in each instance, the prior express written consent of the
Required Holder(s) unless all Senior Debt has been indefeasibly paid in full
and in cash.
B. RIGHTS OF HOLDERS OF SENIOR DEBT. The subordination provisions
of this Note shall be deemed a continuing offer to all Holders of Senior Debt
to act in reliance on such provisions (but no such reliance shall be required
to be proven to receive the benefits hereof) and may be enforced by such
Holders, and no right of any present or future Holder of any Senior Debt to
enforce subordination as provided in this Note shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act by any such Holder, or by any non-compliance by
the Company with the terms, provisions and covenants of this Note.
Without in any way limiting the generality of the foregoing, the Holders of
Senior Debt may, at any time and from time to time, without the consent of or
notice to the Holders of the Notes, and without impairing or releasing the
subordination provided in this Note or the obligations hereunder of the Holders
of the Notes to the Holders of Senior Debt, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment of, or renew or alter (but not
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<PAGE> 35
increase the principal amount), or waive defaults under Senior Debt, or
otherwise amend or supplement in any manner Senior Debt or any instrument
evidencing the same or any agreement under which Senior Debt is outstanding;
(ii) release any Person liable in any manner for the payment or collection of
Senior Debt; (iii) sell, exchange, release or otherwise deal with all or any
part of the property by whomsoever at any time pledged or mortgaged to secure,
or howsoever securing, Senior Debt; (iv) exercise or refrain from exercising
any rights against the Company and any other Person, including any guarantor or
surety; and (v) apply any sums, by whomsoever paid or however realized, to
Senior Debt.
C. DEFINITIONS.
"DEFAULT" shall mean a Default as such term is defined either the
Senior Note Agreement, the SPSS Note Agreement, the Put Note Agreement, the
Working Capital Note Agreement or the Medium Term Notes.
"EVENT OF DEFAULT" shall mean an Event of Default as such term is
defined either the Senior Note Agreement, the SPSS Note Agreement, the Put Note
Agreement, the Working Capital Note Agreement or the Medium Term Notes.
"MEDIUM TERM NOTES" shall mean any and all MEDIUM TERM NOTES of the
Company issued pursuant that certain Asset Purchase Agreement dated as of
September 5, 1997 among the Company, Bank Compensation Strategies, Inc. and
certain individuals.
"PERSON" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, a limited liability company, an unincorporated
organization an a government or any department or agency thereof
"PUT RIGHTS AGREEMENT" shall mean that certain PUT RIGHTS AGREEMENT
dated of even date herewith (as the same may be amended, modified, supplemented
or restated from time to time) among the Company, Great-West Life Assurance
Company, AEGON USA Investment Management, Inc. and Nationwide Life insurance
Company; the term "PUT RIGHTS" shall mean any and all PUT RIGHTS of the Company
issued pursuant to the Put Note Agreement.
"REQUIRED HOLDER(S)" shall mean the Holder or Holders of at least
50.1% of the aggregate principal amount of the Senior Debt from time to time
outstanding.
"SENIOR DEBT" shall mean the following obligations for the payment of
which the company is responsible or liable as obligor, guarantor or otherwise
including, without limitation, principal, premium, if any, interest (including
interest
-5-
<PAGE> 36
incurred after the filing of any of the proceedings referred to in paragraph
A(ii) above) and any and all fees, expenses, indemnities and all other monies
whether now owing or hereafter incurred in respect of (i) the Senior Notes or
the Senior Note Agreement, (ii) the SPSS Notes or the SPSS Note Agreement,
(iii) the Put Notes or the Put Note Agreement, (iv) the Working Capital Notes
or the Working Capital Note Agreement or (v) the Medium Term Notes, provided,
however, that notwithstanding anything contained herein to the contrary, Senior
Debt shall not include more than $3,000,000 aggregate principal amount of
Working Capital Notes and $5,700,000 aggregate principal amount of Medium Term
Notes, together with premium, if any, interest (including interest incurred
after the filing of any of the proceedings referred to in paragraph A(ii)
above) and any and all fees, expenses, indemnities and all other monies whether
now owing or hereafter incurred in respect of such Working Capital Notes or
Medium Term Notes.
"SENIOR NOTE AGREEMENT" shall mean that certain NOTE AGREEMENT dated
of even date herewith (as the same may be amended, modified, supplemented or
restated from time to time) among the Company, Great-West Life Assurance
Company, AEGON USA Investment Management, Inc. and Nationwide Life Insurance
Company; the term "SENIOR NOTES" shall mean any and all SENIOR SECURED NOTES of
the Company issued pursuant to the Senior Note Agreement.
"SPSS NOTE AND WARRANT PURCHASE AGREEMENT" shall mean that certain
NOTE AND WARRANT PURCHASE AGREEMENT dated of even date herewith (as the same
may be amended, modified, supplemented or restated from time to time) among the
Company, Great-West Life Assurance Company, AEGON USA Investment Management,
Inc. and Nationwide Life Insurance Company; the term "SPSS Notes" shall mean
any and all SECOND PRIORITY SENIOR SECURED PROMISSORY NOTES of the Company
issued pursuant to the SPSS Note and Warrant Purchase Agreement.
"WORKING CAPITAL NOTE AGREEMENT" shall mean that certain agreement
regarding that certain revolving working capital facility which shall be
entered into by the Company with a working capital lender as determined by the
Maker within 180 days after the date hereof; the term "WORKING CAPITAL NOTES"
shall mean any and all WORKING CAPITAL NOTES of the Company issued pursuant to
the Working Capital Note Agreement.
If payment hereunder becomes due and payable on a Saturday, Sunday, or
legal holiday under the laws of the State of Texas, the due date thereof shall
be extended to the next succeeding business day, and interest shall be payable
thereon during such extension at the rate specified herein.
Regardless of any provision contained in this Note, Holder is not
entitled to contract for, charge, take, reserve, receive, or apply, as interest
on all or any part of the principal balance of this Note, any amount in excess
of the Maximum Rate, and, if Holder ever does so, then any excess shall be
treated as a partial prepayment of
-6-
<PAGE> 37
principal and any remaining excess shall be refunded to Maker. In determining
if the interest paid or payable exceeds the Maximum Rate, Maker and Holder
shall, to the maximum extent permitted under applicable law, (a) characterize
any nonprincipal payment as an expense, fee, or premium rather than as
interest, (b) exclude voluntary prepayments and their effects, and (c)
amortize, prorate, allocate, and spread the total amount of interest throughout
the entire contemplated term of the Note. However, if the Note is paid in full
before the Maturity Date, and if the interest received for its actual period of
existence exceeds the Maximum Amount, Holder shall refund any excess (and
Holder may not, to the extent permitted by law, be subject to any penalties
provided by any laws for contracting for, charging, taking, reserving, or
receiving interest in excess of the Maximum Amount). For purposes of
determining the "Maximum Rate" or the "Maximum Amount," those terms mean the
"indicated rate ceiling" from time to time in effect under Article 5069-1.04,
Title 79, Revised Civil Status of Texas, as amended. As used herein, "Maximum
Amount" and "Maximum Rate" respectively mean, the maximum non-usurious amount
and the maximum non-usurious rate of interest that, under applicable law,
Holder is permitted to contract for, charge, take, reserve, or receive on the
indebtedness evidenced by this Note.
No delay on the part of Holder or any other holder of this Note in the
exercise of any right, power or remedy shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or remedy preclude
other or further exercise thereof, or the exercise of any other right, power or
remedy. No amendment, modification or waiver of, or consent with respect to,
any provision of this Note shall in any event be effective unless the same
shall be in writing and signed and delivered by Holder or any subsequent holder
hereof.
All parties hereto, whether as makers, endorsers, or otherwise,
severally waiver presentment for payment, demand, protest, and notice of
dishonor.
In addition to and not in limitation of the foregoing, the undersigned
further agrees, subject only to any limitation imposed by applicable law, that
should the indebtedness represented by this Note or any part thereof be
collected at law or in equity or in bankruptcy, receivership or other court
proceedings, or this Note be placed in the hands of attorneys for collection,
the undersigned agrees to pay, in addition to the principal and interest due
and payable hereon, all expenses, including reasonable attorneys' fees and
legal expenses, incurred by the holder of this Note in endeavoring to collect
any amounts payable hereunder which are not paid when due.
The undersigned agrees that if default shall be made in the payment
when due of any principal of or interest on this Note, then the entire
principal balance hereof and the interest accrued hereon may be declared to be
immediately forthwith due and payable by the holder hereof, and any
indebtedness of Holder or any other holder of this Note to Maker may be offset
and applied hereon and the holder of this Note shall be entitled to exercise
any other remedies available at law, in equity or otherwise.
-7-
<PAGE> 38
This Note has been delivered at and shall be deemed to have been made
at Dallas, Texas and shall be interpreted and the rights and liabilities of the
parties hereto determined in accordance with the internal laws (as opposed to
conflicts of law provisions) and decisions of the State of Texas. Whenever
possible each provision of this Note shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provisions of this Note
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Note.
CLARK/BARDES, INC., a Texas corporation
By: /s/ MELVIN TODD
-------------------------------------
Its: President and CEO
------------------------------------
-8-
<PAGE> 39
Smith
Amortization Schedule
Principal 337,042.00 Computed Pymnt 15,552.78
Rate 10% Total to Pay 373,266.72
Term (Mos.) 24
<TABLE>
<CAPTION>
Total
Total Principal Interest Unpaid Unpaid
Month Payment Payment Payment Principal Balance
- ----------------- ---------------- ----------------- -------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Beginning Balance 337,042.00 373,266.72
1 15,552.78 12,744.10 2,808.68 324,297.90 357,713.94
2 15,552.78 12,850.30 2,702.48 311,447.60 342,161.16
3 15,552.78 12,957.38 2,595.40 298,490.22 326,608.38
4 15,552.78 13,065.36 2,487.42 285,424.86 311,055.60
5 15,552.78 13,174.24 2,378.54 272,250.62 295,502.82
6 15,552.78 13,284.02 2,268.76 258,966.60 279,950.04
7 15,552.78 13,394.72 2,158.06 245,571.88 264,397.26
8 15,552.78 13,506.35 2,046.43 232,065.53 248,844.48
9 15,552.78 13,618.90 1,933.88 218,446.63 233,291.70
10 15,552.78 13,732.39 1,820.39 204,714.24 217,738.92
11 15,552.78 13,846.83 1,705.95 190,867.41 202,186.14
12 15,552.78 13,962.22 1,590.56 176,905.19 186,633.36
13 15,552.78 14,078.57 1,474.21 162,826.62 171,080.58
14 15,552.78 14,195.89 1,356.89 148,630.73 155,527.80
15 15,552.78 14,314.19 1,238.59 134,316.54 139,975.02
16 15,552.78 14,433.48 1,119.30 119,883.06 124,422.24
17 15,552.78 14,553.75 999.03 105,329.31 108,869.46
18 15,552.78 14,675.04 877.74 90,654.27 93,316.68
19 15,552.78 14,797.33 755.45 75,856.94 77,763.90
20 15,552.78 14,920.64 632.14 60,936.30 62,211.12
21 15,552.78 15,044.98 507.80 45,891.32 46,658.34
22 15,552.78 15,170.35 382.43 30,720.97 31,105.56
23 15,552.78 15,296.77 256.01 15,424.20 15,552.78
24 15,552.78 15,424.24 128.54 -0.04 0.00
</TABLE>
Page 1
<PAGE> 40
SMITH/WAMBERG
CANCELLATION AGREEMENT
AGREEMENT entered into as of August 22, 1997 between Henry J. Smith
("Smith") and W. T. Wamberg ("Wamberg").
I. RECITALS
A. On April 23, 1997, Smith purchased from Wamberg 755,253 shares
of Common Stock of Clark/Bardes, Inc. ("CBI"), and on April 25, 1997 Smith
purchased from Wamberg an additional 313,980 shares of Common Stock of CBI,
being a total of 1,069,233 shares, each at a price of $2.40 per share, paid
with promissory notes (together the "Wamberg Share Purchases").
B. Smith has agreed to relinquish his right to purchase, and
Wamberg has agreed to relinquish his right to receive payment under or with
respect to the Wamberg Share Purchases.
II. AGREEMENT
A. Smith agrees to, and does hereby, relinquish his right to
purchase all shares of CBI under or with respect to the Wamberg Share
Purchases. Smith warrants and represents to Wamberg that he has good title and
full right and power to transfer all of such shares free and clear of any lien,
claim or encumbrances.
B. Wamberg agrees to, and does hereby, relinquish his right to
payment under or with respect to the Wamberg Share Purchases.
C. A closing shall be held at the office of Clark/Bardes, Inc.
2121 San Jacinto Street, Suite 2200, Dallas, TX on August 29, 1997, commencing
at 11:00 A.M., or such other time and place as the parties may agree, at which:
<PAGE> 41
(1). Smith will deliver to Wamberg certificates
representing all shares purchased under or with respect to the Wamberg
Share Purchases, duly endorsed, or accompanied by separate stock
powers duly endorsed, by Seller and his spouse, free and clear of all
liens, claims or encumbrances.
(2). Wamberg will deliver to Smith the promissory notes
which were delivered to Wamberg under or with respect to the Wamberg
Share Purchases, marked canceled.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
/s/ HENRY J. SMITH /s/ W. T. WAMBERG
------------------ -----------------
HENRY J. SMITH W. T. WAMBERG
<PAGE> 42
NOVATION AGREEMENT
THIS AGREEMENT dated as of August 22, 1997 is made by and among Henry
J. Smith ("Seller"), W. T. Wamberg ("Wamberg"), Mel G. Todd ("Todd"), Frank
Kelly ("Kelly"), George V. Blaha, Jr. ("Blaha"), William Chatfield
("Chatfield") and Bennett Meyer ("Meyer") (Todd, Kelly, Blaha, Chatfield and
Meyer are collectively referred to herein as "Additional Buyers").
WHEREAS, Seller, Wamberg and Additional Buyers have entered into that certain
Stock Purchase Agreement dated as of February 28, 1997 (the "Old Smith Purchase
Agreement") pursuant to which Seller sold to Wamberg 541,667 shares (the
"Wamberg Purchase") of common stock of Clark\Bardes, Inc., a Texas corporation
(the "Company"), and pursuant to which Seller intended to sell to Wamberg and
Additional Buyers 1,297,018 shares of common stock of the Company in amounts
listed on Schedule A to the Old Smith Purchase Agreement (the "Group
Purchase");
WHEREAS, the Wamberg Purchase was completed pursuant to the terms of
the Old Smith Purchase Agreement and the Group Purchase was never completed and
all rights and obligations related to the Group Purchase remain unfulfilled;
WHEREAS, Seller and the Company entered into that certain Stock
Purchase Agreement dated as of August 22, 1997 (the "New Smith Purchase
Agreement") pursuant to which the Company shall purchase 1,404,305 shares of
stock in the Company from Seller; and
WHEREAS, Seller, Wamberg, and Additional Buyers have agreed to
terminate the Old Purchase Agreement, effective as of the date hereof and
replace such agreement with the New Smith Purchase Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the payments herein provided for and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. Novation. Seller, Wamberg and Additional Buyers hereby agree
that the Old Smith Purchase Agreement is terminated and shall be considered
null and void as it relates to the Group Purchase which was not consummated and
will not be consummated in the form described in the Old Smith Purchase
Agreement. The rights and obligations of Seller, Wamberg and Additional Buyers
as they relate to the Group Purchase are of no further force and effect and the
parties shall have no further rights or obligations related thereto. Seller,
Wamberg and Additional Buyers hereby agree that the Old Smith Purchase
Agreement is replaced with the New Smith Purchase Agreement as it relates to
the Group Purchase. Any proxies executed and
1
<PAGE> 43
delivered in accordance with the Old Smith Purchase Agreement shall be deemed
terminated and of no further effect.
2. Entire Agreement. This Agreement contains the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements between the parties hereto concerning the
subject matter hereof.
3. Applicability to Parties. This Agreement shall be binding upon
each party hereto effective upon such party executing the Agreement.
4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
5. Applicable Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Texas,
without giving effect to the principles of conflicts of laws thereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
/s/ HENRY J. SMITH
---------------------------------
Henry J. Smith
/s/ W. T. WAMBERG
---------------------------------
W. T. Wamberg
/s/ MEL G. TODD
---------------------------------
Mel G. Todd
---------------------------------
Frank Kelly
---------------------------------
George V. Blaha, Jr.
/s/ WILLIAM CHATFIELD
---------------------------------
William Chatfield
/s/ BENNETT MEYER
---------------------------------
Bennett Meyer
2
<PAGE> 44
CLARK/BARDES, INC.
FEIN
FORM 1120S
YEAR ENDED DECEMBER 31, 1997
ELECTION TO CLOSE BOOKS UPON TERMINATION BY S CORPORATION SHAREHOLDER
Clark/Bardes, Inc. with the consent of all its shareholders during the taxable
year ending December 31, 1997, elects under IRC Section 1377(a)(2) and
Treasury Regulation Section 1.1377-1(b) to have the rules under IRC Section
1377(a)(1) prorating S corporation items, apply as if the taxable year
consisted of the following taxable years:
<TABLE>
<CAPTION>
Percent
Period Covered Stockholder Owned
----------------------------- -------------- ------------
<S> <C> <C>
Year #1 1/01/97 - / /97 Henry J. Smith
Year #2 / /97 - 12/31/97 Henry J. Smith
</TABLE>
This election is made with the consent of the corporation and all its
shareholders and with respect to the termination of the interest of Henry J.
Smith, who terminated his interest in the corporation on
_______________________, 1997. The manner of the termination was the
redemption by Clark/Bardes, Inc. of all shares owned by the stockholder.
Under penalties of perjury, I declare that I have examined this election and
to the best of my knowledge and belief, it is true, correct and complete.
Clark/Bardes, Inc.
----------------------
Date By
---------------------------------
(Name, Title)
CONSENT OF SHAREHOLDER
The undersigned shareholder owning stock during the taxable year ending
December 31, 1997, consents to the above election by the corporation under
IRC Section 1377(a)(2) and Treasury Regulation Section 1.1377-1(b) to have
the rules of IRC Section 1377(a)(l) apply as if the taxable year consisted of
two taxable years.
9-4-97 /s/ HENRY J. SMITH
---------------------- -----------------------------------
Date Henry J. Smith
SSN 525443665
---------
<PAGE> 1
EXHIBIT 10.16
STANDARD OFFICE LEASE AGREEMENT (NET)
THIS LEASE AGREEMENT (hereinafter called the "Lease Agreement") made as of the
24th day of April, 1998, by and between NORTHLAND CENTER LIMITED PARTNERSHIP, a
Minnesota limited partnership having offices at Suite 200, 3500 West 80th
Street, Bloomington, Minnesota, 55431 (hereinafter called the "Landlord"), and
CLARK/BARDES, INC. D/B/A BANK COMPENSATION STRATEGIES GROUP, a Texas
corporation (hereinafter called the "Tenant").
WITNESSETH
A. FOR AND IN CONSIDERATION of the sum of One Dollar ($1.00) in hand
paid by each of the parties to the other, and other good and valuable
consideration, receipt and sufficiency of which is hereby acknowledged,
Landlord does hereby lease and let unto Tenant, and Tenant does hereby hire,
lease and take from Landlord, that area depicted on Exhibit A-1 attached
hereto, and by this reference incorporated herein, and described as Suite 200
containing approximately 14,784 rentable square feet (hereinafter called the
"Premises") of the building at 3600 West 80th Street (the "3600 Building"), in
the City of Bloomington, County of Hennepin, State of Minnesota. The term
Building as it is used herein shall consist of the 3600 Building and the
building at 3500 West 80th Street, Bloomington, Minnesota and the land
thereunder all as set forth in Exhibit A-2 hereto.
B. Notwithstanding anything in this Lease Agreement to the contrary,
until Substantial Completion (as defined below) of the Tenant Improvements (as
defined below) to the Premises, Tenant shall occupy under this Lease Agreement
that portion of the 3600 Building consisting of (i) the Existing Premises (as
defined below) and (ii) Suite 140 (as defined below) containing approximately
2,567 rentable square feet and graphically shown on Exhibit A-3 attached hereto
("Suite 140"), which Suite 140 shall be leased by Tenant in its current "as is"
condition; provided, however, Tenant shall temporarily vacate and surrender
possession to Landlord of both Suite 230 (as defined below) and Suite 235 (as
defined below), all in accordance with the provisions of Article 5 below
(hereinafter the Existing Premises together with Suite 140 are referred to as
the "Transition Space").
ARTICLE 1 - TERM
To have and to hold (i) said Transition Space for a term (for purposes of
Articles 3 and 6 below, the "Transition Term") commencing upon full execution
of this Lease Agreement and ending upon Substantial Completion of the Tenant
Improvements to the Premises and (ii) said Premises for a term (for purposes of
Articles 3, 5, 6 and 32 below, the "Premises Term") commencing upon Substantial
Completion of the Tenant Improvements to the Premises upon the rentals and
subject to the conditions set forth in this Lease Agreement, and the Exhibits
attached hereto (hereinafter the Transition Term and the Premises Term are
collectively referred to as the "Term").
ARTICLE 2 - USE
The Transition Space and the Premises shall be used by the Tenant solely
for the following purposes: General office use
ARTICLE 3 - RENTALS
During the Transition Term Tenant shall pay to the Landlord as minimum
rental (hereinafter called "Minimum Rental") for the Transition Space $8,146.00
per month without notice, set-off or demand. During the Premises Term, Tenant
shall pay to Landlord as Minimum Rental for the Premises, without notice,
set-off or demand, the following amounts per month:
<TABLE>
<CAPTION>
Period of Premises Term Annual Rate Per Rentable Square Foot Monthly Minimum Rental
----------------------- ------------------------------------ ----------------------
<S> <C> <C>
Calendar months 1 to 36, inclusive $ 14.00 $ 17,248.00
Calendar months 37 to 84, inclusive $ 15.00 $ 18,480.00
</TABLE>
said monthly installments to be due and payable by Tenant in advance on the
first day of each calendar month during the Term of this Lease Agreement, or
any extension or renewal thereof, at the office of Landlord set forth in the
preamble to this Lease Agreement or at such other place as Landlord may
designate. In the event of any fractional calendar month, Tenant shall pay for
each day in such partial month a rental equal to 1/30 of the Minimum Rental.
Tenant agrees to pay, as Additional Rent, which shall be collectible to the
same extent as Minimum Rental, all amounts which may become due to Landlord
hereunder and any tax, charge or fee that may be levied, assessed or imposed
upon or measured by the rents reserved hereunder by any governmental authority
acting under any present or future law before any fine, penalty, interest or
costs may be added thereto for non-payment. Pursuant to Article 6 hereof,
Landlord's estimated Operating Expenses for 1998 are $6.31 per rentable square
foot and estimated Real Estate Taxes payable in 1998 are $4.92 per rentable
square foot.
ARTICLE 4 - CONSTRUCTION
Plans and/or a description for permanent improvements to the Premises are
attached hereto as Exhibit A-4 and by this reference incorporated herein
(hereafter called the "Plans"). The Plans have been approved by each of
Landlord and Tenant. The parties acknowledge that the Plans are to modify the
Premises to accommodate Tenant's intended use. Landlord shall be responsible
for constructing the improvements as shown on the Plans (hereafter called
"Tenant Improvements") for and on behalf of Tenant. Landlord and Tenant have
agreed that the costs of such Tenant Improvements shall be paid by Tenant,
although initially advanced by Landlord, with said costs to be reimbursed to
Landlord by Tenant as part of Tenant's payments of Minimum Rental as set forth
in Article 3 above. Any improvements to the Premises, other than as shown on
the Plans, and the furnishing of the Premises, shall be made by Tenant at the
sole cost and expense of Tenant, subject to all other provisions of this Lease
Agreement, including compliance with all applicable governmental laws,
ordinances and regulations.
ARTICLE 5 - POSSESSION
A. Tenant acknowledges that it is currently in possession of a portion
of the Premises hereunder in the 3600 Building consisting of (i) Suite 200
containing approximately 7,549 rentable square feet ("Suite 200"), (ii) Suite
230 containing approximately 1,368 rentable square feet ("Suite 230") and
(iii) Suite 235 containing approximately 783 rentable square feet ("Suite 235")
(hereinafter Suite 200, Suite 230 and Suite 235 are together referred to as the
"Existing Premises") pursuant to the terms of the Existing Lease (as defined in
Article 33 below). In order to accommodate the Tenant Improvements to be made
to those portions of the Premises comprising the Existing Premises, Tenant
agrees (i) upon notice from Landlord, temporarily vacate and surrender
possession of Suite 230 and Suite 235 to Landlord and (ii) the
Tenant Improvements shall be performed in phases and/or stages ("Phases") at
such times and in such areas ("Construction Areas") as Landlord and Tenant
shall mutually agree. Subject to Article 32 below, Tenant shall be responsible
for any relocating of its furniture, equipment and employees out of and into
Construction Areas and Suite 140 prior to and after completion of the given
Tenant Improvements to be performed in a Construction Area, including the
disassembling, relocating and reassembling of work stations and the
disconnecting and reconnecting of Tenant's telecommunications lines. Landlord
and Tenant shall cooperate in the scheduling and coordinating of the timing of
the Phases so as to minimize, to the extent reasonably possible, the costs of
such work and the disruption of Tenant's business. Upon Substantial Completion
of the Tenant Improvements to the Premises, Tenant shall vacate and deliver
possession of Suite 140 to Landlord leaving same in the condition required by
this Lease Agreement.
- 1 -
<PAGE> 2
B. As used in this Lease Agreement, "Substantial Completion" of the
Tenant Improvements shall mean that date when the Tenant Improvements to the
Premises have been completed to such an extent that Tenant may lawfully occupy
the entire Premises and use the entire Premises for their intended purpose. By
occupying the Premises as a Tenant, Tenant shall be conclusively deemed to have
accepted the same and to have acknowledged that the Premises are in the
condition required by this Lease Agreement, except items which are not in
compliance with the Plans and for which Tenant has given Landlord a written
"punch list" within thirty (30) days of Tenant's first occupancy of the
Premises, which "punch list" items Landlord agrees to complete, at its expense,
as soon as reasonably possible. Immediately after Substantial Completion of the
Tenant Improvements to the Premises, the Landlord and Tenant shall execute a
ratification agreement which shall set forth the commencement and termination
dates for the Premises Term and shall acknowledge the Minimum Rental, the square
footage of the Premises, and delivery of the Premises in the condition required
by this Lease Agreement.
ARTICLE 6 - TENANT'S PRO RATA SHARE OF REAL ESTATE TAXES AND OPERATING EXPENSES
A. During each full or partial calendar year during the Term of this
Lease Agreement, Tenant shall pay to Landlord, as Additional Rental, an amount
equal to the Real Estate Taxes and Operating Expenses (both as hereinafter
defined) per square foot of rentable area in the Building multiplied by (i)
9,700 square feet of rentable area during the Transition Term and (ii) the
number of square feet of rentable area in the Premises during the Premises Term,
prorated for the period that Tenant occupied the Transition Space or Premises,
as the case may be. Notwithstanding the preceding sentence, Tenant's share of
the following Operating Expenses shall be computed on the basis of the cost of
said expenses per rentable square foot of area within the Building actually
occupied: cleaning, management, and energy expenses.
B. Landlord shall, each year during the Term of this Lease Agreement,
give Tenant an estimate of Operating Expenses and Real Estate Taxes payable per
square foot of rentable area for the coming calendar year. Tenant shall pay, as
Additional Rental, along with its monthly Minimum Rental payments required
hereunder, one twelfth (1/12) of such estimated Operating Expenses and Real
Estate Taxes and such Additional rental shall be payable until subsequently
adjusted for the following year pursuant to this Article.
C. As soon as possible after the expiration of each calendar year,
Landlord shall determine and certify to Tenant the actual Operating Expenses
and Real Estate Taxes for the previous year per square foot of rentable area
in the Building and the amount applicable to the Premises. If such statement
shows that Tenant's share of Operating Expenses and Real Estate Taxes exceeds
Tenant's estimated monthly payments for the previous calendar year, then Tenant
shall, within twenty (20) days after receiving Landlord's certification, pay
such deficiency to Landlord. In the event of an overpayment by Tenant, such
overpayment shall be refunded to Tenant, at the time of certification, in the
form of an adjustment in the Additional Rental next coming due, or if at the
end of the Term by a refund.
D. For the purposes of this Article, the term "Real Estate Taxes" means
the total of all taxes, fees, charges and assessments, general and special,
ordinary and extraordinary, foreseen or unforeseen, which become due or payable
upon the Building. All costs and expenses incurred by Landlord during
negotiations for or contests of the amount of Real Estate Taxes shall be
included within the term "Real Estate Taxes." For purposes of this Article, the
term "Operating Expenses" shall be deemed to mean all costs and expenses
directly related to the Building incurred by Landlord in the repair, operation,
management and maintenance of the Building including interior and exterior and
common area maintenance, management fees, cleaning expenses, energy expenses,
insurance premiums, and the amortization of capital investments made to reduce
operating costs that are necessary due to governmental requirements, all in
accordance with generally accepted accounting principles.
E. Landlord may at any time designate a fiscal year in lieu of a
calendar year and in such event, at the time of such a change, there may be a
building for the fiscal year which is less than 12 calendar months.
F. Landlord reserves, and Tenant hereby assigns to Landlord, the sole
and exclusive right to contest, protest, petition for review, or otherwise seek
a reduction in the Real Estate Taxes.
ARTICLE 7 - UTILITIES AND SERVICE
A. Landlord agrees to furnish water, electricity, elevator service, and
janitorial service. In the event Tenant's requirements and/or usage of such
utilities and services is substantially greater than is customarily supplied to
a typical tenant in the Building, Landlord or Tenant may request that the
difference in such requirement and/or usage be determined and that appropriate
adjustments be made in the Minimum Rental provided for in Article 3 of this
Lease Agreement.
B. Landlord agrees to furnish heat during the usual heating season and
air conditioning during the usual air conditioning season, all during normal
business hours as defined in this Lease Agreement.
C. No temporary interruption or failure of such services incidental to
the making of repairs, alterations or improvements, or due to accidents or
strike or conditions or events not under Landlord's control, shall be deemed as
an eviction of the Tenant or relieve the Tenant from any of the Tenant's
obligations hereunder.
D. for the purposes of this Article 7, normal business hours shall be
deemed to mean the period of time between 8:00 a.m. and 5:00 p.m., Monday
through Friday, and specifically excluding Saturdays, Sundays and legal
holidays.
ARTICLE 8 - NON-LIABILITY OF LANDLORD
Except in the event of negligence of Landlord, its agents, employees or
contractors. Landlord shall not be liable for any loss or damage for failure to
furnish heat, air conditioning, electricity, elevator service, water, sprinkler
system or janitorial service. Landlord shall not be liable for personal injury,
death or any damage from any cause about the Premises or the Building except if
caused by Landlord's gross negligence.
ARTICLE 9 - CARE OF PREMISES
A. Tenant agrees:
1. To keep the Premises in as good condition and repair as they were in
at the time Tenant took possession of same, reasonable wear and tear and damage
from fire and other casualty for which insurance is normally procured excepted;
2. To keep the Premises in a clean and sanitary condition;
3. Not to commit any nuisance or waste on the Premises, overload the
Premises or the electrical, water and/or plumbing facilities in the Premises or
Building, throw foreign substances in plumbing facilities, or waste any of the
utilities furnished by Landlord;
4. To abide by such rules and regulations as may from time to time be
reasonably promulgated by Landlord;
5. To preserve and protect all carpeted areas; and
6. To obtain Landlord's prior approval of the interior design of any
portion of the Premises visible from the common areas or from the outside of the
Building. "Interior design" as used in the preceding sentence shall include but
not be limited to floor and wall coverings, furniture, office design, artwork
and color scheme.
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B. If Tenant shall fail to keep and preserve the Premises in the state
of condition required by the provisions of this Article 9, the Landlord may at
its option put or cause the same to be put into the condition and state of
repair agreed upon, and in such case the Tenant, on demand, shall pay the cost
thereof.
ARTICLE 10 - NON-PERMITTED USE
Tenant agrees to use the Premises only for the purposes set forth in
Article 2 hereof. Tenant further agrees not to commit or permit any act to be
performed on the Premises or any omission to occur which shall be in violation
of any statute, regulation or ordinance of any governmental body or which will
increase the insurance rates on the Building or which will be in violation of
any insurance policy carried on the Building by the Landlord. Tenant, at its
expense, shall comply with all governmental laws, ordinances, rules and
regulations applicable to the use of the Premises and its occupancy and shall
promptly comply with all governmental orders, rulings and directives for the
correction, prevention and abatement of any violation upon, or in connection
with the Premises or Tenant's use or occupancy of the Premises, including the
making of any alterations or improvements to the Premises, all at Tenant's sole
cost and expense. The Tenant shall not disturb other occupants of the Building
by making any undue or unseemly noise or otherwise and shall not do or permit
to be done in or about the Premises anything which will be dangerous to life or
limb.
ARTICLE 11 - INSPECTION
The Landlord or its employees or agents shall have the right without any
diminution of rent or other charges payable hereunder by Tenant to enter the
Premises at all reasonable times for the purpose of exhibiting the Premises to
prospective tenants or purchasers, inspection, cleaning, repairing, testing,
altering or improving the same or said Building, but nothing contained in
this Article shall be construed so as to impose any obligation on the Landlord
to make any repairs, alterations or improvements.
ARTICLE 12 - ALTERATIONS
Tenant will not make any alterations, repairs, additions or improvements
in or to the Premises or add, disturb or in any way change any plumbing,
wiring, life/safety or mechanical systems, locks, or structural components of
the Building without the prior written consent of the Landlord as to the
character of the alterations, additions or improvements to be made, the manner
of doing the work, and the contractor doing the work. Such consent shall not be
unreasonably withheld or delayed, if such alterations, repairs, additions or
improvements are required of Tenant or are the obligation of Tenant pursuant to
this Lease Agreement. All such work shall comply with all applicable
governmental laws, ordinances, rules and regulations. The Landlord as a
condition to said consent may require a surety performance and/or payment bond
from the Tenant for said actions. Tenant agrees to indemnify and hold Landlord
free and harmless from any liability, loss, cost, damage or expense (including
attorney's fees) by reasons of any said alteration, repairs, additions or
improvements.
ARTICLE 13 - SIGNS
Tenant agrees that no signs or other advertising materials shall be
erected, attached or affixed to any portion of the interior or exterior of the
Premises or the Building without the express prior written consent of Landlord.
Tenant shall have the right to have its name listed on the directory in the
lobby of the 3600 Building and, in addition, to have listed said directory up
to two (2) additional suites for subtenants of Tenant.
ARTICLE 14 - COMMON AREAS
A. Tenant agrees that the use of all corridors, passageways, elevators,
toilet rooms, parking areas and landscaped area in and around said Building, by
the Tenant or Tenant's employees, visitors or invitees, shall be subject to
such rules and regulations as may from time to time be made by Landlord for the
safety, comfort and convenience of the owners, occupants, tenants and invitees
of said Building. Tenant agrees that no awnings, curtains, drapes or shades
shall be used upon the Premises except as may be approved by the Landlord.
B. In addition to the Premises, Tenant shall have the right of
non-exclusive use, in common with others, of (a) all unrestricted automobile
parking areas, driveways and walkways, and (b) loading facilities, freight
elevators and other facilities as may be constructed in the Building, all to be
subject to the terms and conditions of this Lease Agreement and to reasonable
rules and regulations for the use thereof as prescribed from time to time by
Landlord.
C. Landlord shall have the right to make changes or revisions in the
site plan and in the Building so as to provide additional leasing area.
Landlord shall also have the right to construct additional buildings on the
land described on Exhibit A-2 for such purposes as Landlord may deem
appropriate. Landlord also reserves all airspace rights above, below and to all
sides of the Premises, including the right to make changes, alterations or
provide additional leasing areas.
D. Landlord and Tenant agree that Landlord will not be responsible for
any loss, theft or damage to vehicles, or the contents thereof, parked or left
in the parking areas of the Building and Tenant agrees to so advise its
employees, visitors or invitees who may use such parking areas. The parking
areas shall include those areas designated by Landlord, in its sole discretion,
as either restricted or unrestricted parking areas. Any restricted parking
areas shall be leased only by separate license agreement with Landlord. Tenant
further agrees not to use or permit its employees, visitors or invitees to use
the parking areas for overnight storage of vehicles.
ARTICLE 15 - ASSIGNMENT AND SUBLETTING
A. Tenant agrees not to assign, sublet, license, mortgage or encumber
this Lease Agreement, the Premises, or any part thereof, whether by voluntary
act, operation of law, or otherwise, without the specific prior written consent
of Landlord in each instance. Notwithstanding anything herein to the contrary,
(i) Tenant shall have the right to sublease up to approximately 1,562 rentable
square feet of the Premises to Lawrence H. Hendrickson and up to approximately
720 rentable square feet of the Premises to Walter H. Hilgenberg, without the
consent of Landlord (the "Approved Subtenants") and (ii) Tenant may assign this
Lease Agreement to any Affiliate of Tenant without the consent of Landlord. As
used herein, an "Affiliate" shall be any entity which either controls, is
controlled by or is under common control with Tenant. If Tenant is a
corporation or a partnership, transfer of a controlling interest of Tenant
other than by the issuance of shares of stock of Tenant in a public offering of
such stock shall be considered an assignment of this Lease Agreement for
purposes of this Article. Consent by Landlord in one such instance shall not be
a waiver of Landlord's rights under this Article as to requiring consent for
any subsequent instance. In the event Tenant desires to sublet a part or all of
the Premises, or assigns this Lease Agreement, whether to an Affiliate or an
approved Subtenant, Tenant shall give written notice to Landlord at least
thirty (30) days prior to the proposed subletting or assignment, which notice
shall provide the name of the proposed subtenant or assignee, the terms of any
sublease or assignment documents and copies of financial reports or other
relevant financial information of the proposed subtenant or assignee. At
Landlord's option, any and all payments by the proposed assignee or sublessee
with respect to the assignment of sublease shall be paid directly to Landlord.
In any event no subletting or assignment, including to an Affiliate or an
Approved Subtenant, shall release Tenant of its obligation to pay the rent and
to perform all other obligations to be performed by Tenant hereunder for the
Term of this Lease Agreement. The acceptance of rent by Landlord from any other
person shall not be deemed to be a waiver by Landlord of any provision hereof.
At Landlord's option, Landlord may terminate the Lease Agreement in lieu of
giving its consent to any proposed assignment of this Lease Agreement or
subletting of the Premises (which termination may be contingent upon the
execution of a new lease with the proposed assignee or subtenant).
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<PAGE> 4
B. Landlord's right to assign this Lease Agreement is and shall remain
unqualified upon any sale or transfer of the Building and, providing the
purchaser succeeds to the interests of Landlord under this Lease Agreement,
Landlord shall thereupon be entirely freed of all obligations of the Landlord
hereunder and shall not be subject to any liability resulting from any act or
omission or event occurring after such conveyance.
ARTICLE 16 - LOSS BY CASUALTY
If the Building is damaged or destroyed by fire or other casualty, the
Landlord shall have the right to terminate this Lease Agreement, provided it
gives written notice thereof to the Tenant within ninety (90) days after such
damage or destruction. If a portion of the Premises is damaged by fire or other
casualty, and Landlord does not elect to terminate this Lease Agreement, the
Landlord shall, at its expense, restore the Premises to as near the condition
which existed immediately prior to such damage or destruction, as reasonably
possible, and the rentals shall abate during such period of time as the Premises
are untenantable, in the proportion that the untenantable portion of the
Premises bears to the entire Premises. Notwithstanding anything herein to the
contrary, if the Premises are damaged or destroyed and in the reasonable opinion
of Landlord, Landlord is unable to restore the Premises to as near the condition
thereof which existed immediately prior to such damage or destruction within six
(6) months from the date of such damage or destruction, then Tenant shall have
the right to terminate this Lease agreement effective on the date of such damage
or destruction by giving written notice to Landlord of such termination.
ARTICLE 17 - WAIVER OF SUBROGATION
Landlord and Tenant hereby release the other from any and all liability or
responsibility to the other or anyone claiming through or under them by way of
subrogation or otherwise for any loss or damage to property caused by fire or
any of the extended coverage or supplementary contract casualties, even if such
fire or other casualty shall have been caused by the fault or negligence of the
other party, or anyone for whom such party may be responsible, provided however,
that this release shall be applicable and in force and effect only with respect
to loss or damage occurring during such times as the releasing party's policies
shall contain a clause or endorsement to the effect that any such release would
not adversely affect or impair said policies or prejudice the right of the
releasing party to recover thereunder. Landlord and Tenant agree that they will
request their insurance carriers to include in their policies such a clause or
endorsement. If extra cost shall be charged therefore, each party shall advise
the other of the amount of the extra cost, and the other party, at its election,
may pay the same, but shall not be obligated to do so.
ARTICLE 18 - EMINENT DOMAIN
If the entire Building is taken by eminent domain, this Lease Agreement
shall automatically terminate as of the date of taking. If a portion of the
Building is taken by eminent domain, the Landlord shall have the right to
terminate this Lease Agreement, provided it gives written notice thereof to the
Tenant within ninety (90) days after the date of taking. If a portion of the
Premises is taken by eminent domain and this Lease Agreement is not terminated
by Landlord, the Landlord shall, at its expense, restore the Premises to as near
the condition which existed immediately prior to the date of taking as
reasonably possible, and the rentals shall abate during such period of time as
the Premises are untenantable in the proportion that the untenantable portion of
the Premises bears to the entire Premises. All damages awarded for such taking
under the power of eminent domain shall belong to and be the sole property of
Landlord, irrespective of the basis upon which they are awarded, provided,
however, that nothing contained herein shall prevent Tenant from making a
separate claim to the condemning authority for its moving expenses and trade
fixtures. For purposes of this Article, a taking by eminent domain shall include
Landlord's giving of a deed under threat of condemnation.
ARTICLE 19 - SURRENDER
On the last day of the Term of this Lease Agreement or on the sooner
termination thereof in accordance with the terms hereof, Tenant shall peaceably
surrender the Premises in good condition and repair consistent with Tenant's
duty to make repairs as provided in Article 9 hereof. On or before said last
day, Tenant shall at its expense remove all of its equipment from the Premises,
repairing any damage caused thereby, and any property not removed shall be
deemed abandoned. All alterations, additions and fixtures other than tenant's
trade fixtures, which have been made or installed by either Landlord or Tenant
upon the Premises shall remain as Landlord's property and shall be surrendered
with the Premises as a part thereof, or shall be removed by Tenant, at the
option of Landlord, in which event Tenant shall at its expense repair any damage
caused thereby. It is specifically agreed that any and all telephonic, coaxial,
ethernet, or other computer, wordprocessing, facsimile, or electronic wiring
installed by Tenant within the Premises (hereafter "Wiring") shall be removed at
Tenant's cost at the expiration of the Term, unless Landlord has specifically
requested in writing that said Wiring shall remain, whereupon said Wiring shall
be surrendered with the Premises as Landlord's property. If the Premises are not
surrendered at the end of the Term or the sooner termination thereof, Tenant
shall indemnify Landlord against loss or liability resulting from delay by
Tenant in so surrendering the Premises, including, without limitation, claims
made by any succeeding tenant founded on such delay. Tenant shall promptly
surrender all keys for the Premises to Landlord at the place then fixed for
payment of rental and shall inform Landlord of combinations on any locks and
safes on the Premises.
ARTICLE 20 - NON-PAYMENT OF RENT, DEFAULTS
If any one or more of the following occurs; (1) a rent payment or any other
payment due from Tenant to Landlord shall be and remain unpaid in whole or in
part for more than ten (10) days after same is due and payable; (2) Tenant shall
violate or default on any of the other covenants, agreements, stipulations or
conditions herein, or other agreements between Landlord and Tenant relating to
the Premises, and such violation or default shall continue for a period of
thirty (30) days after written notice from Landlord of such violation or
default; or (3) if Tenant shall commence or have commenced against Tenant
proceedings under a bankruptcy, receivership, insolvency or similar type of
action; then it shall be optional for Landlord, without further notice or
demand, to cure such default or to declare this Lease Agreement forfeited and
the said Term ended, or to terminate only Tenant's right to possession of the
Premises, and to re-enter the Premises, with or without process of law, using
such force as may be necessary to remove all persons or chattels therefrom, and
Landlord shall not be liable for damages by reason of such re-entry or
forfeiture; but notwithstanding re-entry by landlord or termination only of
Tenant's right to possession of the Premises, the liability of Tenant for the
rent and all other sums provided herein shall not be relinquished or
extinguished for the balance of the Term of this Lease Agreement and Landlord
shall be entitled to periodically sue Tenant for all sums due under this Lease
Agreement or which become due prior to judgment, but such suit shall not bar
subsequent suits for any further sums coming due thereafter. Tenant shall be
responsible for, in addition to the rentals and other sums agreed to be paid
hereunder, the cost of any necessary maintenance, repair, restoration, reletting
(including related cost of removal or modification of tenant improvements) or
cure as well as reasonable attorney's fees incurred or awarded in any suit or
action instituted by Landlord to enforce the provisions of this Lease Agreement,
regain possession of the Premises, or the collection of the rentals due Landlord
hereunder. Tenant shall also be liable to Landlord for the payment of a late
charge in the amount of $500.00 if any sum due Landlord hereunder has not been
received within ten (10) days from the date said payment becomes due and
payable, or cleared by Landlord's bank within three (3) business days after
deposit. Tenant agrees to pay interest at the highest permissible rate of
interest allowed under the usury statutes of the State of Minnesota, or in case
no such maximum rate of interest is provided, at the rate of 12% per annum, on
all rentals and other sums due Landlord hereunder not paid within ten (10) days
from the date same become due and payable. Each right or remedy of Landlord
provided for in this Lease Agreement shall be cumulative and shall be in
addition to every other right or remedy provided for in this Lease Agreement now
or hereafter existing at law or in equity or by statute or otherwise.
ARTICLE 21 - LANDLORD'S DEFAULT
Landlord shall not be deemed to be in default under this Lease Agreement
until Tenant has given Landlord written notice specifying the nature of the
default and Landlord does not cure such default within thirty (30) days after
receipt of such notice or within such reasonable time thereafter as may be
necessary to cure such default where such default is of such a character as to
reasonably require more than thirty (30) days to cure.
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ARTICLE 22 - HOLDING OVER
Tenant will, at the expiration of this Lease Agreement, whether by lapse
of time or termination, give up immediate possession to Landlord. If Tenant
fails to give up possession the Landlord may, at its option, serve written
notice upon Tenant that such holdover constitutes any one of (i) renewal of this
Lease Agreement for one year, and from year to year thereafter, or (ii)
creation of a month-to-month tenancy, or (iii) creation of a tenancy at
sufferance. If Landlord does not give said notice, Tenant's holdover shall
create a tenancy at sufferance. In any such event the tenancy shall be upon the
terms and conditions of this Lease Agreement, except that the minimum Rental
shall be double the Minimum Rental Tenant was obligated to pay Landlord under
this Lease Agreement immediately prior to termination (in the case of tenancy
at sufferance such Minimum Rental shall be prorated on the basis of a 365 day
year for each day Tenant remains in possession); excepting further that in the
case of a tenancy at sufferance, no notices shall be required prior to
commencement of any legal action to gain repossession of the Premises. In the
case of a tenancy at sufferance, Tenant shall also pay to Landlord all damages
sustained by Landlord resulting from retention of possession by Tenant. The
provisions of this paragraph shall not constitute a waiver by Landlord of any
right of re-entry as otherwise available to Landlord; nor shall receipt or any
rent or any other act in apparent affirmance of the tenancy operate as a waiver
of the right to terminate this Lease Agreement for a breach by Tenant hereof.
ARTICLE 23 - SUBORDINATION
Tenant agrees that this Lease Agreement shall be subordinate to any
mortgage(s) that may now or hereafter be placed upon the Building or any part
thereof, and to any and all advances to be made thereunder, and to the interest
thereon, and all renewals, replacements, and extensions thereof, provided the
mortgagee named in such mortgage(s) shall agree to recognize this Lease
Agreement or Tenant in the event of foreclosure provided the Tenant is not in
default. In confirmation of such subordination, Tenant shall promptly execute
and deliver any instrument, in recordable form, as required by Landlord's
mortgagee. In the event of any mortgagee electing to have the Lease Agreement a
prior incumbrance to its mortgage, then and in such event upon such mortgagee
notifying Tenant to that effect, this Lease Agreement shall be deemed prior in
incumbrance to the said mortgage, whether this Lease Agreement is dated prior
to or subsequent to the date of said mortgage.
ARTICLE 24 - INDEMNITY, INSURANCE AND SECURITY
A. Tenant will keep in force at its own expense for so long as this
Lease Agreement remains in effect public liability insurance with respect to
the Premises in which Landlord shall be named as an additional insured, in
companies and in form acceptable to Landlord with a minimum combined limit of
liability of Two Million Dollars ($2,000,000.00). This limit shall apply per
location. Said insurance shall also provide for contractual liability coverage
by endorsement. Tenant shall further provide for business interruption
insurance to cover a period of not less than six (6) months. Tenant will
further deposit with Landlord the policy or policies of such insurance or
certificates thereof, or other acceptable evidence that such insurance is in
effect, which evidence shall provide that Landlord shall be notified in writing
thirty (30) days prior to cancellation, material change, or failure to renew
the insurance. Tenant further covenants and agrees to indemnify and hold
Landlord and Landlord's manager of the Building harmless for any claim, loss or
damage, including reasonable attorney's fees, suffered by Landlord, Landlord's
manager or Landlord's other Tenants caused by: i) any act or omission by
Tenant, Tenant's employees or anyone claiming through or by Tenant in, at, or
around the Premises or the building; ii) the conduct or management of any work
or thing whatsoever done by Tenant in or about the Premises; or iii) Tenant's
failure to comply with any and all governmental laws, rules, ordinances or
regulations applicable to the use of the Premises and its occupancy. If Tenant
shall not comply with its covenants made in this Article 24, Landlord may, at
its option, cause insurance as aforesaid to be issued and in such event Tenant
agrees to pay the premium for such insurance promptly upon Landlord's demand.
B. Tenant shall be responsible for the security and safeguarding of the
Premises and all property kept, stored or maintained in the premises. Landlord
will make available to Tenant, at Tenant's request, the plans and specifications
for construction of the Building and the Premises. Tenant represents that it is
satisfied that the construction of the Building and the Premises, including the
floors, walls, windows, doors and means of access thereto are suitable for the
particular needs of Tenant's business. Tenant further represents that it is
satisfied with the security of said Building and Premises for the protection of
any property which may be owned, held, stored or otherwise caused or permitted
by Tenant to be present upon the Premises. The placement and sufficiency of all
safes, vaults, cash or security drawers, cabinets or the like placed upon the
Premises by Tenant shall be at the sole responsibility and risk of Tenant.
Tenant shall maintain in force throughout the Term, insurance upon all contents
of the Premises, including that owned by others and Tenant's equipment and any
alterations, additions, fixtures, or improvements in the Premises acknowledged
by Landlord to be the Tenant's.
C. Landlord shall carry and cause to be in full force and effect a fire
and extended coverage insurance policy on the Building, but not contents
owned, leased or otherwise in possession of Tenant. The cost of such insurance
shall be an Operating Expense.
ARTICLE 25 - NOTICES
All notices from Tenant to Landlord required or permitted by any
provisions of this Lease Agreement shall be directed to Landlord postage
prepaid, certified or registered mail, at the address provided for Landlord in
the preamble to this Lease Agreement or at such other address as Tenant shall
be advised to use by Landlord. All notices from Landlord to Tenant required or
permitted by any provision of this Lease Agreement shall be directed to Tenant,
postage prepaid, certified or registered mail, at the Premises and at the
address, if any, set forth on page 6 of this Lease Agreement. Landlord and
Tenant shall each have the right at any time and from time to time to designate
one (1) additional party to whom copies of any notice shall be sent.
ARTICLE 26 - APPLICABLE LAW
This Lease Agreement shall be construed under the laws of the State of
Minnesota.
ARTICLE 27 - MECHANICS' LIEN
In the event any mechanic's lien shall at any time be filed against the
Premises or any part of the Building by reason of work, labor, services or
materials performed or furnished to Tenant or to anyone holding the Premises
through or under Tenant, Tenant shall forthwith cause the same to be discharged
of record. If Tenant shall fail to cause such lien forthwith to be discharged
within Five (5) days after being notified of the filing thereof, then, in
addition to any other right or remedy of Landlord, Landlord may, but shall not
be obligated to, discharge the same by paying the amount claimed to be due, or
by bonding, and the amount so paid by Landlord and all costs and expenses,
including reasonable attorney's fees incurred by Landlord in procuring the
discharge of such lien, shall be due and payable in full by Tenant to Landlord
on demand.
ARTICLE 28 - SECURITY INTEREST
(Intentionally Omitted)
ARTICLE 29 - BROKERAGE
Each of the parties represents and warrants that with the exception of any
brokerage commissions payable to United Properties Brokerage Company which
shall be paid by Landlord, there are no claims for brokerage commissions or
finder's fees in connection with this Lease Agreement, and agrees to indemnify
the other against, and hold it harmless from all liabilities arising from any
such claim, including without limitation, the cost of attorney's fees in
connection therewith.
ARTICLE 30 - SUBSTITUTION
(Intentionally Omitted)
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ARTICLE 31 - ESTOPPEL CERTIFICATES
Each party hereto agrees that at any time, and from time to time during
the Term of this Lease Agreement (but not more often than twice in each
calendar year), within ten (10) days after request by the other party hereto,
it will execute, acknowledge and deliver to such other party or to any
prospective purchaser, assignee or mortgagee designated by such other party, an
estoppel certificate in a form acceptable to Landlord. Tenant agrees to provide
Landlord (but not more often than twice in any calendar year), within ten (10)
days of request, the then most current financial statements of Tenant and any
guarantors of this Lease Agreement, which shall be certified by Tenant, and if
available, shall be audited and certified by a certified public accountant.
Landlord shall keep such financial statements confidential, except Landlord
shall, in confidence, be entitled to disclose such financial statements to
existing or prospective mortgagees or purchasers of the Building.
ARTICLE 32 - ALLOWANCES
Upon commencement of the Premises Term, Landlord shall pay to Tenant
allowances for the following purposes:
Cabling - $15,000.00; and
Dismantling Workstations - $10,000.00
ARTICLE 33 - EXISTING LEASE
The parties hereto acknowledge that Tenant is currently in possession of
the Existing Premises pursuant to that certain lease agreement entered into by
Tenant's predecessor in interest with Landlord dated March 30, 1990, as amended
on July 23, 1990, January 20, 1994, March 28, 1994, October 3, 1995, March 31,
1997 and again on December 9, 1997 (the "Existing Lease"). Upon full execution
of this Lease Agreement (the "Effective Date") by the parties hereto, the
Existing Lease shall terminate and be of no further force or effect, provided,
however, the Existing Lease shall continue in full force and effect with
respect to events or conditions occurring prior to the Effective Date.
ARTICLE 34 - OPTION TO RENEW
Provided Tenant is not in default under this Lease Agreement at the time
of giving the Renewal Notice (as defined below) or at any time thereafter to
and including the commencement of the Extended Term (as defined below), Tenant
shall have the right to extend the Term of this Lease Agreement for one (1)
additional period of at Tenant's option, two (2) years, three (3) years or (5)
years (the "Extended Term"). Tenant shall exercise its right to extend the Term
of this Lease Agreement by giving written notice to Landlord of Tenant's
intention to do so no later than seven (7) months prior to commencement of the
Extended Term and specifying therein whether a two (2) year, a three (3) year
or a five (5) year Extended Term has been elected by Tenant, time being of the
essence (the "Renewal Notice"). If no such renewal Notice is timely given, the
Lease Agreement shall expire as of the end of the initial Term. If such
Renewal Notice is timely given, all of the terms, covenants and conditions of
this Lease Agreement shall apply to the Extended Term; provided, however, Tenant
shall have no further right to extend the Term of this Lease Agreement, the
Premises shall be leased by Tenant during the Extended Term in their then
current "as is" condition without any obligation of Landlord to make any
improvements or betterments of any kind, and the Minimum Rental payable during
the Extended Term shall be at the market rate as reasonably determined by
Landlord.
ARTICLE 35 - GENERAL
This Lease Agreement does not create the relationship of principal and
agent or of partnership or of joint venture or of any association between
Landlord and Tenant, the sole relationship between Landlord and Tenant being
that of landlord and tenant. No waiver of any default of Tenant hereunder shall
be implied from any omission by Landlord to take any action on account of such
default if such default persists or is repeated, and no express waiver shall
affect any default other than the default specified in the express waiver and
that only for the time and to the extent therein stated. The covenants of
Tenant to pay the Minimum Rental and the Additional Rental are each independent
of any other covenant, condition, or provision contained in this Lease
Agreement. The marginal or topical headings of the several Articles,
paragraphs and clauses are for convenience only and do not define, limit or
construe the contents of such Articles, paragraphs or clauses. All preliminary
negotiations are merged into and incorporated in this Lease Agreement. This
Lease Agreement can only be modified or amended by an agreement in writing
signed by the parties hereto. All provisions hereof shall be binding upon the
heirs, successors and assigns of each party hereto. If any term or provision of
this Lease Agreement shall to any extent be held invalid or unenforceable, the
remainder shall not be affected thereby, and each other term and provision of
this Lease Agreement shall be valid and be enforced to the fullest extent
permitted by law. If Tenant is a corporation, each individual executing this
Lease Agreement on behalf of said corporation represents and warrants that he
is duly authorized to execute and deliver this Lease Agreement on behalf of
said corporation and in accordance with a duly adopted resolution of the Board
of Directors of said corporation or in accordance with the Bylaws of said
corporation, and that this Lease Agreement is binding upon said corporation in
accordance with its terms. No receipt or acceptance by Landlord from Tenant of
less than the monthly rent herein stipulated shall be deemed to be other than a
partial payment on account for any due and unpaid stipulated rent; no
endorsement or statement of any check or any letter or other writing
accompanying any check or payment of rent to Landlord shall be deemed an accord
and satisfaction, and Landlord may accept and negotiate such check or payment
without prejudice to Landlord's rights to (i) recover the remaining balance of
such unpaid rent or (ii) pursue any other remedy provided in this Lease
Agreement. (Neither party shall record this Lease Agreement or any memorandum
thereof, and any such recordation shall be a breach of this Lease Agreement
void, and without effect.) Time is of the essence with respect to the due
performance of the terms, covenants and conditions herein contained. Submission
of this instrument for examination does not constitute a reservation of or
option for the Premises, and this Lease Agreement shall become effective only
upon execution and delivery thereof by Landlord and Tenant.
ARTICLE 36 - EXCULPATION
Tenant agrees to look solely to Landlord's interest in the Building for
recovery of any judgment from Landlord, it being agreed that Landlord and
Landlord's partners, whether general or limited (if Landlord is a partnership)
or its directors, officers or shareholders (if Landlord is a corporation),
shall never be personally liable for any such judgment.
IN WITNESS WHEREOF, this Lease Agreement has been duly executed by the
parties hereto as of the day and year indicated above.
TENANT: LANDLORD:
CLARK/BARDES, INC. NORTHLAND CENTER LIMITED PARTNERSHIP
D/B/A BANK COMPENSATION By: The Northland Company
STRATEGIES GROUP Managing General Partner
By: /s/ RICHARD C. CHAPMAN By: /s/ BOYD B. STOFER
------------------------ ------------------------
Richard C. Chapman Boyd B. Stofer
President & CEO, Vice President
BCS Division
By: /s/ FRANK J. DUTKE
------------------------
Frank J. Dutke
Assistant Secretary
- 6 -
<PAGE> 7
EXHIBIT A-1
[FLOOR PLAN]
SUITE #200
NORTHLAND EXECUTIVE OFFICE CENTER
SECOND FLOOR
3600 W. 80TH STREET
BLOOMINGTON, MINNESOTA
<PAGE> 8
EXHIBIT A-2
[MAP]
Legal Description:
Lot 1 (3500 W. 80th Street) and Lot 2 (3600 W. 80th Street), Block 1, Northland
Center 2nd Addition according to the recorded plat thereof, Hennepin County,
Minnesota.
NORTHLAND EXECUTIVE OFFICE CENTER
3500/3600 WEST 80TH STREET
BLOOMINGTON, MINNESOTA 55431
<PAGE> 9
EXHIBIT A-3
[FLOOR PLAN]
SUITE #140
NORTHLAND EXECUTIVE OFFICE CENTER
FIRST FLOOR
3600 W. 80TH STREET
BLOOMINGTON, MINNESOTA
<PAGE> 10
EXHIBIT A-4
[FLOOR PLAN]
<PAGE> 11
STORAGE AREA
LICENSE AGREEMENT
This License Agreement made this 24th day of April, 1998, by and between
NORTHLAND CENTER LIMITED PARTNERSHIP, a Minnesota limited partnership
("Licensor") and CLARK/BARDES, INC. D/B/A/ BANK COMPENSATION STRATEGIES GROUP,
a Texas corporation ("Licensee").
WITNESSETH:
In consideration of the covenants and agreements contained herein, and
other good and valuable consideration, receipt and sufficiency of which is
acknowledged, Licensor and Licensee mutually agree as follows:
1. GRANT: Licensor hereby grants to Licensee, for the sole purpose of
storage of files, papers and other office business property, 127 square feet of
storage space located in the basement level of the building at 3600 West 80th
Street, Bloomington, Minnesota, and (if so attached) covering the specific area
designated on Exhibit A to this License.
2. TERM: The term of this License shall be coterminous with the term of
the Office Lease (as defined below).
3. LICENSE FEE: Licensee shall pay as its fee for this License for the
storage space the sum of $9.00 per square foot per year in 12 equal installments
of $95.00 on or before the first day of each month to United Properties,
Northland Executive Office Center, 3500 West 80th Street, Suite 200,
Bloomington, Minnesota, 55431, or at such other address that Licensor may
designate. In the event the term of this License commences on other than the
first day of a month, the fee will be prorated for such month.
4. RIGHT OF RE-ENTRY: Licensee agrees that this License is made upon the
condition that if the Licensee shall fail to pay the license fee when due, fail
to keep any term or condition of this license, or shall neglect or fail to keep,
observe and perform any of the rules and regulations from time to time adopted
and promulgated by Licensor for the operation of the storage area, then in any
of said cases the Licensor may immediately or at any time thereafter and
without notice or demand, retake possession of the storage area, without such
re-taking working a forfeiture of the license fee to be paid by Licensee for
the full term of this License and may, at Licensor's election, license the
storage area on such terms and conditions and for such fees and for such time as
Licensor may elect. In the event of such retaking Licensee agrees to return to
Licensor any and all keys and/or admittance cards, upon notice from Licensor.
5. STORAGE AREA OPERATION: It is specifically understood and agreed that
the storage area is operated without constant staffing and that Licensor shall
not be responsible for any loss, damage or casualty sustained by Licensee for
the loss of any articles, personal property or any such other items from
Licensee's licensed storage area. Licensor shall not be liable to Licensee for
any water damage to Licensee's property by reason of water leakage or water
seepage through concrete or dampness.
6. OFFICE LEASE: Licensee presently has (or is contemporaneously
executing) a lease for office space within the building or building complex in
which the storage area is located ("Office Lease"). For purposes of this License
Agreement, the following terms and conditions of the Office Lease are
incorporated herein by reference and shall be applicable to the storage space:
Article 8 (Non-liability of Landlord); Article 9 (Care of Premises);
Article 10 (Non-Permitted Use); Article 11 (Inspection); Article 12
(Alterations); Article 16 (Loss by Casualty); Article 17 (Waiver of
Subrogation); Article 18 (Eminent Domain); Article 19 (Surrender); Article
21 (Landlord's Default); Article 23 (Subordination); Article 24 (Indemnity,
Insurance and Security); Article 25 (Notices); and Article 31 (Estoppel
Certificates).
A termination of the Office Lease, whether by expiration of the term or
otherwise, shall automatically constitute a termination of this License
Agreement.
7. SUBSTITUTION: Licensor has the right to substitute storage space at a
location other than as shown in Exhibit A, provided, however that the
substituted space shall contain substantially the same square footage, shall be
within the same building or building complex and the cost of moving any of
Licensee's stored property shall be at Licensor's sole expense.
(LICENSEE) (LICENSOR)
CLARK/BARDES, INC. NORTHLAND CENTER LIMITED PARTNERSHIP
D/B/A/ BANK COMPENSATION STRATEGIES GROUP By: The Northland Company
Managing General Partner
By: /s/ RICHARD C. CHAPMAN By: /s/ FRANK J. DUTKE
------------------------ ------------------------
Richard C. Chapman Frank J. Dutke
President and CEO, BCS Division Assistant Secretary
<PAGE> 12
PARKING GARAGE LICENSE AGREEMENT
Parking Stalls: 46, 48, 52 and 65 Address: 3600 West 80th Street
Bloomington, Minnesota
This License Agreement made this 24th day of April, 1998, by and between
NORTHLAND CENTER LIMITED PARTNERSHIP, a Minnesota limited partnership
("Licensor") and CLARK/BARDES, INC. D/B/A/ BANK COMPENSATION STRATEGIES GROUP,
a Texas corporation ("Licensee").
WITNESSETH:
In consideration of the covenants and agreements contained herein, and
other good and valuable consideration, receipt and sufficiency of which is
acknowledged, Licensor and Licensee mutually agree as follows:
1. GRANT: Licensor hereby grants to Licensee, for the sole purpose of
parking the automobile(s) described in Licensee's application attached hereto,
four (4) assigned parking stall(s) in the parking garage ("GARAGE") located in
the basement level of the building at the above referenced address and covering
the specific stall(s) designated at the top of the page of this License.
2. TERM: This License shall be coterminous with the term of the Office
Lease (as defined below).
3. LICENSE FEE: During the initial Term of the Office Lease, Licensee
shall pay as its fee for this License the sum of $85.00 per month per parking
stall on or before the first day of each month to United Properties, 3500 West
80th Street, Bloomington, Minnesota 55431, or at such other address that
Licensor may designate; together with any sales, use or other tax (excluding
income tax) payable or which may become payable by Licensor as a result of said
fee. In the event the term of this License commences on other than the first
day of a month, the fee will be prorated for such month. The License Fee shall
commence on the date Licensor delivers a GARAGE door operator(s) or admittance
card(s) to Licensee. The License Fee shall terminate on the expiration date of
the license or on the date the Licensee returns the GARAGE door operator(s)
and/or admittance card(s) whichever occurs last. The fee for GARAGE parking may
be adjusted from time to time beginning June 1, 2001, to whatever fee Licensor
is then charging for GARAGE parking stalls.
4. NEGATIVE COVENANTS: Licensee shall not:
a) Park more than one (1) standard sized (or smaller) automobile per
parking stall licensed herein, in the GARAGE, at the same time.
b) Allow any non-authorized automobile to be parked in Licensee's
parking stall(s).
c) Allow any automobile to be stored overnight in the Parking Garage.
Upon breach of any covenant set forth in this Paragraph 4 by Licensee, Licensor
may, at its option, and in addition to Licensor's remedies provided in paragraph
5 hereof, charge Licensee the sum of $30.00 for each day of any such violation,
and/or may tow or have towed any automobile which is parked in violation of any
covenant set forth in this paragraph 4, and in such case Licensee agrees to pay
Licensor as an additional license fee hereunder all towing and storage costs
associated with said towing.
5. RIGHT OF RE-ENTRY AND EXPIRATION: Licensee agrees that this License
is made upon the condition that if the Licensee shall fail to pay the License
Fee when due, fail to keep any term or condition of this License, or shall
neglect or fail to keep, observe and perform any of the rules and regulations
from time to time adopted and promulgated by Licensor for the operation of the
GARAGE, then in any of said cases the Licensor may immediately or at any
time thereafter and without notice or demand, retake possession of the parking
stall(s), without such re-taking working a forfeiture of the License Fee to be
paid by Licensee for the full term of this License and may, at Licensor's
election, license the parking stall(s) on such terms and conditions and for
such fees and for such time as Licensor may elect. In the event of such
retaking or at the end of the Term, Licensee agrees to return to Licensor any
and all GARAGE door operator(s) and/or admittance cards, upon notice from
Licensor. Licensee shall pay to Licensor, Licensor's replacement/lost fee for
all such operator(s) and/or admittance cards not returned.
6. PARKING GARAGE OPERATION: It is specifically understood and agreed
that the GARAGE area is operated without constant staffing and that Licensor
shall not be responsible for any loss, damage or casualty sustained by
Licensee's automobile or for the loss of any articles, personal property or any
such other items from Licensee's automobile, unless cause by the willful acts
or negligence of Licensor, its agents and employees. Licensor shall not be
liable to Licensee for any water damage to Licensee's property by reason of
water leakage or water seepage through concrete into or on the automobile.
7. OFFICE LEASE: Licensee presently has (or is contemporaneously
executing) a lease for office space within the building in which the Garage is
located.
a. A default in this License Agreement shall constitute a default under
Licensee's Office Lease with Licensor and entitle Licensor to all remedies
provided therein including the termination of the Office Lease.
b. A termination of the Office Lease, whether by expiration of the term
or otherwise, shall automatically constitute a termination of this License
Agreement.
IN WITNESS WHEREOF the parties hereto have executed this License Agreement
as of the day and year first above written.
(LICENSEE) (LICENSOR)
CLARK/BARDES, INC. NORTHLAND CENTER LIMITED PARTNERSHIP
D/B/A/ BANK COMPENSATION STRATEGIES GROUP By: The Northland Company,
Managing General Partner
By: /s/ RICHARD C. CHAPMAN By: /s/ FRANK J. DUTKE
------------------------ ------------------------
Richard C. Chapman Frank J. Dutke
President and CEO, BCS Division Assistant Secretary
<PAGE> 13
LICENSE AGREEMENT
NORTHLAND EXECUTIVE OFFICE CENTER
PARKING RAMP
This License Agreement made this 24th day of April, 1998, by and between
NORTHLAND CENTER LIMITED PARTNERSHIP, a Minnesota limited partnership
("Licensor") and CLARK/BARDES, INC. D/B/A/ BANK COMPENSATION STRATEGIES GROUP,
a Texas corporation ("Licensee"),
WITNESSETH:
In consideration of the covenants and agreements contained herein, and
other good and valuable consideration, receipt and sufficiency of which is
acknowledged, Licensor and Licensee mutually agree as follows:
1. GRANT: Licensor hereby grants to Licensee, for the sole purpose of
parking the automobile(s) described in Licensee's application attached hereto,
30 unassigned parking space(s) in the restricted parking areas of the parking
ramp ("RAMP") located at the Northland Executive Office Center, 3500-3600 West
80th Street, Bloomington, Minnesota.
2. TERM: The term of this License shall be coterminous with the term of
the Office Lease (as defined below).
3. LICENSE FEE: Licensee shall pay as its fee for this License the sum of
$10.00 per admittance card on or before the first day of each month to United
Properties, Northland Executive Office Center, 3500 West 80th Street,
Minneapolis, Minnesota, 55431, or at such other address that Licensor may
designate; together with any use, sales or other tax (excepting income tax)
payable or which may become payable by Licensor as a result of said fee. In the
event the term of this License commences on other than the first day of a month,
the fee will be prorated for such month. The License Fee shall commence on the
date Licensor delivers a RAMP gate operator(s) or admittance card(s) to
Licensee. The License Fee shall terminate on the expiration date of the license
or on the date the Licensee returns the RAMP gate operator(s) and/or admittance
card(s) whichever occurs last. The fee for RAMP may be adjusted from time to
time beginning June 1, 2001, to whatever fee Licensor is then charging for RAMP
parking stalls.
4. NEGATIVE COVENANTS: Licensee shall not:
a) Park more than one (1) standard sized (or smaller)
automobile per admittance card in the RAMP, at any one time.
b) Allow any non-authorized automobile to be parked in the
RAMP through use of Licensee's issued admittance card.
c) Allow any automobile to be stored overnight in the RAMP.
Upon breach of any covenant set forth in this Paragraph 4 by Licensee,
Licensor may, at its option, and in addition to Licensor's remedies provided in
paragraph 5 hereof, charge Licensee the sum of $25.00 for each day of any such
violation, and/or may tow or have towed any automobile which is parked in
violation of any covenant set forth in this paragraph 4, and in such case
Licensee agrees to pay Licensor as an additional license fee hereunder all
towing and storage costs associated with said towing.
5. RIGHT OF RE-ENTRY AND EXPIRATION: Licensee agrees that this License is
made upon the condition that if the Licensee shall fail to pay the license fee
when due, fail to keep any term or condition of this license, or shall neglect
or fail to keep, observe and perform any of the rules and regulations from time
to time adopted and promulgated by Licensor for the operation of the RAMP, then
in any of said cases the Licensor may immediately or at any time thereafter and
without notice or demand, retake possession of the parking stall(s), without
such re-taking working a forfeiture of the license fee to be paid by Licensee
for the full term of this License. In the event of such retaking or at the end
of the Term, Licensee agrees to return to Licensor any and all RAMP gate
operator(s) and/or admittance cards, upon notice from Licensor. Licensee shall
pay to Licensor, Licensor's replacement/lost fee for all such operator(s) and/or
admittance cards not returned.
6. PARKING RAMP OPERATION: It is specifically understood and agreed that
the RAMP area is operated without constant staffing and that Licensor shall not
be responsible for any loss, damage or casualty sustained by Licensee's
automobile or for the loss of any articles, personal property or any such other
items from Licensee's automobile. Licensor shall not be liable to Licensee for
any water damage to Licensee's automobile by reason of water leakage or water
seepage through concrete into or on the automobile.
7. OFFICE LEASE: Licensee presently has (or is contemporaneously
executing) a lease for office space within Northland Executive Office Center
("Office Lease").
a. A default in this License Agreement shall constitute a default
under Licensee's Office Lease with Licensor and entitle Licensor to
all remedies provided therein including the termination of the Office
Lease.
b. A termination of the Office Lease, whether by expiration of the
term or otherwise, shall automatically constitute a termination of
this License Agreement.
8. AUTHORIZED VEHICLES: Licensee agrees, upon request from Licensor, to
furnish Licensor or its authorized agent, the state automobile license number(s)
assigned to those automobile(s) of those persons employed on the premises and
who are designated by Licensee to use the RAMP. Any such designation shall not
exceed the number of stalls licensed hereunder. If any automobile of Licensee or
of Licensee's officers, agents or employees who is not designated to park in the
RAMP is parked therein, then Licensee shall pay to Licensor an amount equal to
$25 per day for each such vehicle for each day, or a part thereof, such amount
to be due and payable by Licensee within three (3) days after demand therefor.
9. Licensor shall have the right, upon thirty (30) days prior written
notice to Licensee, to cancel this License Agreement and allow the Parking RAMP
to be used on an unrestricted basis for all tenants and their invitees.
Licensee from and after the cancellation date specified in such written notice,
shall have no further obligation for the payment of rental hereunder but the use
of such Parking RAMP shall be subject to the terms of paragraphs 4(c), 6 and 7
hereof.
(LICENSEE) (LICENSOR)
CLARK/BARDES, INC. NORTHLAND CENTER LIMITED PARTNERSHIP
D/B/A BANK COMPENSATION STRATEGIES GROUP By: The Northland Company
Managing General Partner
By: /s/ RICHARD C. CHAPMAN By: /s/ FRANK J. DUTKE
------------------------------------ ----------------------------------
Richard C. Chapman Frank J. Dutke
President and CEO, BCS Division Assistant Secretary
<PAGE> 1
EXHIBIT 10.17
LEASE
THIS LEASE AGREEMENT (this "LEASE") is entered into as of December ___,
1994, between C.W #5, LTD., a Texas limited partnership ("LANDLORD"), and
CLARK/BARDES, INC., a _____________ corporation ("TENANT").
DEFINITIONS AND BASIC PROVISIONS
1. The definitions and basic provisions set forth in the Basic Lease
Information (the "BASIC LEASE INFORMATION") executed by Landlord and Tenant
contemporaneously herewith are incorporated herein by reference for all
purposes.
LEASE GRANT
2. Subject to the terms of this Lease, Landlord leases to Tenant, and
Tenant leases from Landlord, the Premises.
TERM
3. If the Commencement Date is not the first day of a calendar month,
then the Term shall be extended by the time between the Commencement Date and
the first day of the next month. If this Lease is executed before the Premises
are ready for occupancy by Tenant, then (a) Tenant's obligation to pay Rent
hereunder shall be waived until Landlord tenders possession of the Premises to
Tenant, (b) the Term shall be extended by the time between the scheduled
Commencement Date and the date on which Landlord tenders possession of the
Premises to Tenant (which date will then be defined as the Commencement Date),
(c) Landlord shall not be in default hereunder or (except as provided in Exhibit
D) be liable for damages therefor, and (d) Tenant shall accept possession of the
Premises when Landlord tenders possession thereof to Tenant. By occupying the
Premises, Tenant shall be deemed to have accepted the Premises in their
condition as of the date of such occupancy, subject to the performance of
punch-list items that remain to be performed by Landlord, if any. Tenant shall
execute and deliver to Landlord, within ten days after Landlord has requested
same, a letter confirming (1) the Commencement Date, (2) that Tenant has
accepted the Premises, and (3) to the extent true, that Landlord has performed
all of its obligations with respect to the Premises (except for punch-list items
specified in such letter and latent defects).
RENT
4. (a) PAYMENT. Tenant shall timely pay to Landlord the Basic Rental and
all additional sums to be paid by Tenant to Landlord under this Lease, including
the amounts set forth in Exhibit C, without deduction or set off (except as
specifically set forth herein), at Landlord's Address (or such other address as
Landlord may from time to time designate in writing to Tenant). Basic Rental,
adjusted as herein provided, shall be payable monthly in advance. The first
monthly installment of Basic Rental shall be payable on the Commencement Date;
thereafter, monthly installments of Basic Rental shall be due on the first day
of the second full calendar month of the Term and continuing on the first day of
each succeeding calendar month during the Term. Basic Rental for any fractional
month at the beginning of the Term shall be prorated based on 1/365 of the
current annual Basic Rental for each day of the partial month this Lease is in
effect, and shall be due on the Commencement Date.
(b) CONSUMER PRICE INDEX INCREASES TO BASIC RENTAL [Intentionally
Deleted.]
(c) ELECTRICAL COSTS. Tenant shall pay to Landlord an amount equal to
the product of (1) the cost of all electricity used by the Building ("ELECTRICAL
COSTS"), multiplied by (2) Tenant's Proportionate Share. Such amount shall be
payable monthly based on Landlord's estimate of the amount due for each month,
and shall be due on the Commencement Date and on the first day of each calendar
month thereafter. Landlord may, from time to time and in good faith, re-estimate
the Electrical Costs to be due by Tenant during any calendar year and deliver a
copy of the re-estimate to Tenant, in which case, Tenant shall pay its share of
Electrical Costs based on such re-estimate.
(d) ANNUAL COST STATEMENT. By April 1 of each calendar year, or as
soon thereafter as practicable, Landlord shall furnish to Tenant a statement of
Landlord's actual Electrical Costs (the "ANNUAL COST STATEMENT") for the
previous year adjusted as provided in Section 4.(e). If the Annual Cost
Statement reveals that Tenant paid more for Electrical Costs than Tenant's
Proportionate Share of Electrical Costs in the year for which such statement was
prepared, then Landlord shall reimburse or credit Tenant for such excess within
30 days after delivery of the Annual Cost Statement in question; likewise, if
Tenant paid less than Tenant's Proportionate Share of Electrical Costs, then
Tenant shall pay Landlord such deficiency within 30 days after delivery of the
Annual Cost Statement in question.
(e) ADJUSTMENTS TO ELECTRICAL COSTS. With respect to any calendar
year or partial calendar year in which the Building is not occupied to the
extent of 95% of the rentable area thereof the Electrical Costs for such
period shall, for the purposes hereof, be increased to the amount which would
have been incurred had the Building been occupied to the extent of 95% of the
rentable area thereof.
1
<PAGE> 2
DELINQUENT PAYMENT; HANDLING CHARGES
5. If Tenant fails to pay Rent when due and such failure continues for a
period of ten days after Landlord delivers to Tenant written notice thereof,
then Landlord may charge Tenant, and Tenant shall pay, a fee equal to 5% of the
delinquent payment; however, if (a) Tenant fails to pay Rent when due and (b)(1)
Tenant was delinquent in paying Rent the previous month or (2) Tenant was
delinquent in paying Rent twice during the previous 12-month period, then
Landlord may charge the 5% fee immediately without delivering to Tenant notice
of the delinquency in question. This late charge is to reimburse Landlord for
its cost and inconvenience incurred as a consequence of Tenant's delinquency. In
no event, however, shall the charges permitted under this Section 5 or elsewhere
in this Lease, to the extent the same are considered to be interest under
applicable law, exceed the maximum lawful rate of interest.
SECURITY DEPOSIT
6. [Intentionally Deleted.]
LANDLORD'S OBLIGATIONS
7. (a) SERVICES. Landlord shall furnish to Tenant (1) water (hot and
cold) at those points of supply provided for general use of tenants of the
Building; (2) heated and refrigerated air conditioning as appropriate, at such
times as Landlord normally furnishes these services to all tenants of the
Building, and at such temperatures and in such amounts as are reasonably
considered by Landlord to be standard; (3) janitorial service to the Premises on
weekdays other than holidays for Building-standard installations (Landlord
reserves the right to bill Tenant separately for extra janitorial service
required for non-standard installations) and such window washing as may from
time to time in Landlord's judgement be reasonably required; (4) elevators for
ingress and egress to the floor on which the Premises are located, in common
with other tenants, provided that Landlord may reasonably limit the number of
elevators to be in operation at times other than during customary business hours
and on holidays; (5) replacement of Building-standard light bulbs and
fluorescent tubes, provided that Landlord's standard charge for such bulbs and
tubes shall be paid by Tenant; and (6) electricity at all times at the
electrical panels on each floor on which the Premises are located of not less
than 5.0 watts of demand power per usable square foot for lighting and
convenience electricity ("BUILDING STANDARD CAPACITY") up to 1.0833 kilowatt
hours, per usable square foot, per month ("BUILDING STANDARD ELECTRICAL
CONSUMPTION"). Landlord shall maintain the common areas of the Building in
reasonably good order and condition. Currently, it is Landlord's policy to
provide the services set forth in clause (2) of this Section 7.(a) at all times
at no extra charge to tenants of the Building (other than as an electricity or
operating expense pass-through charge). Nevertheless, Landlord may change such
policy if it deems such change advisable or if required to do so by the supplier
of any such service or because of government regulations. If Landlord changes
such policy, Landlord shall (subject to the provisions of Section 7.(c)) provide
such service during normal business hours. If Tenant desires any of the services
specified in this Section 7.(a) at any time other than times herein designated,
such services shall be supplied to Tenant upon the verbal request of Tenant
delivered to Landlord before noon on the business day such extra usage is
desired, and Tenant shall pay to Landlord the cost of such services within ten
days after Landlord has delivered to Tenant an invoice therefor. Landlord shall
provide the services described in this Section 7.(a) and shall maintain the
common areas and the mechanical systems of the Building at a level that is
substantially similar to the level of service and maintenance that is typical in
similar buildings in the area known as the Central Business District of Dallas,
Texas (the "CBD"). "NORMAL BUSINESS HOURS" means 7:00 a.m. to 6:00 p.m. on
business days and 8:00 a.m. to 1:00 p.m. on Saturdays (other than holidays);
"BUSINESS DAYS" means Monday through Friday (except for holidays); and
"HOLIDAYS" means New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
(b) EXCESS UTILITY USE. Landlord shall use reasonable efforts to
furnish electrical current for equipment that requires more than Building
Standard Capacity through the then-existing feeders and risers serving the
Building and the Premises, and Tenant shall pay to Landlord the cost of such
service within ten days after Landlord has delivered to Tenant an invoice
therefor. Landlord may determine whether Tenant's electricity consumption
exceeds Building Standard Capacity or Building Standard Electrical Consumption
by either or both: (1) a survey of standard or average tenant usage of
electricity in the Building performed by a reputable consultant selected by
Landlord and paid for by Tenant; or (2) a separate meter in the Premises
installed, maintained, and read by Landlord, at Tenant's expense. Tenant shall
pay to Landlord the cost of electricity consumption in excess of Building
Standard Electrical Consumption within ten days after Landlord delivers to
Tenant an invoice therefor. Tenant shall not install any electrical equipment
requiring special wiring or requiring voltage in excess of Building Standard
Capacity unless approved in advance by Landlord. The use of electricity in the
Premises shall not exceed the capacity of existing feeders and risers to or
wiring in the Premises. Any risers or wiring required to meet Tenant's excess
electrical requirements shall, upon Tenant's written request, be installed by
Landlord, at Tenant's cost, if, in Landlord's sole and absolute judgement, the
same are necessary and shall not cause permanent damage or injury to the
Building or the Premises, cause or create a dangerous or hazardous condition,
entail excessive or unreasonable alterations, repairs, or expenses, or interfere
with or disturb other tenants of the Building. If Tenant uses machines or
equipment (other than general office machines, excluding computers and
electronic data processing equipment) in the Premises which affect the
temperature otherwise maintained by the air conditioning system or otherwise
overload any utility, Landlord may install supplemental air conditioning units
or other supplemental equipment in the
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Premises, and the cost thereof, including the cost of installation, operation,
use, and maintenance, shall be paid by Tenant to Landlord within ten days after
Landlord has delivered to Tenant an invoice therefor.
(c) DISCONTINUANCE. Landlord's obligation to furnish services under
Section 7.(a) shall be subject to the rules and regulations of the supplier of
such services and governmental rules and regulations.
(d) RESTORATION OF SERVICES; ABATEMENT. Landlord shall use reasonable
efforts to restore any service that becomes unavailable; however, such
unavailability shall not render Landlord liable for any damages caused thereby,
be a constructive eviction of Tenant, constitute a breach of any implied
warranty, or, except as provided in the next sentence, entitle Tenant to any
abatement of Tenant's obligations hereunder. However, if Tenant is prevented
from making reasonable use of the Premises for more than seven consecutive days
because of the unavailability of any such service, Tenant shall, as its
exclusive remedy thereof, be entitled to a reasonable abatement of Rent for each
consecutive day (after such seven-day period) that Tenant is so prevented from
making reasonable use of the Premises.
IMPROVEMENTS; ALTERATIONS; REPAIRS; MAINTENANCE
8. (a) IMPROVEMENTS; ALTERATIONS. The initial tenant improvements to the
Premises shall be installed in accordance with Exhibit D. Except as provided in
the next sentence, after the initial tenant improvements are made, no
alterations or physical additions in or to the Premises may be made without
Landlord's prior written consent, which shall not be unreasonably withheld or
delayed; however, Landlord may withhold its consent to any alteration or
addition that would adversely affect the Building's structure, the Building's
HVAC, plumbing, mechanical, electrical, or other utility transmission systems,
or affect the exterior appearance of the Building or the appearance of the
Building's common areas or elevator lobbies. Tenant may make alterations or
physical additions to the Premises without Landlord's prior written consent,
provided that (1) Tenant delivers to Landlord or the Building manager, at least
ten days before beginning such work, written notice thereof and plans and
specifications therefor, (2) such alterations do not (A) adversely affect the
Building's structure or HVAC, mechanical systems, electrical, plumbing, or other
utility transmission facility (other than the installation or removal of
standard electrical plugs), (B) affect the exterior appearance of the Building
or (C) affect the appearance of the Building's common areas or elevator lobbies
and (3) the cost of such work, when added to the cost of all other alterations
or additions made to the Premises during the previous 12-month period, will not
exceed $30,000. Tenant shall not paint or install lighting or decorations,
signs, window or door lettering, or advertising media of any type on or about
the Premises without the prior written consent of Landlord, which consent shall
not be unreasonably withheld or delayed; however, Landlord may withhold its
consent to any such painting or installation which would affect the appearance
of the exterior of the Building or of any Building common areas or elevator
lobbies. All alterations, additions, or improvements (whether temporary or
permanent in character, and including without limitation all air-conditioning
equipment and all other equipment that is in any manner connected to the
Building's plumbing system) made in or upon the Premises, either by Landlord or
Tenant, shall be Landlord's property at the end of the Term, shall remain on the
Premises without compensation to Tenant, and (except as provided in Exhibit D)
shall be at Tenant's expense. Approval by Landlord of any of Tenant's drawings
and plans and specifications prepared in connection with any improvements in the
Premises shall not constitute a representation or warranty of Landlord as to the
adequacy or sufficiency of such drawings, plans and specifications, or the
improvements to which they relate, for any use, purpose, or condition, but such
approval shall merely be the consent of Landlord as required hereunder. As
between Landlord and Tenant, Tenant shall bear the risk of complying with Title
III of the Americans With Disabilities Act of 1990 and Article 9102 of the Texas
Revised Civil Statutes, and all rules, regulations, and guidelines promulgated
under each such act, as they may be amended from time to time (collectively, the
"ADA"), in the Premises, and Landlord shall bear the risk of complying with the
ADA in the common areas of the Building, other than compliance that is
necessitated by the use of the Premises for other than the Permitted Use (which
risk and responsibility shall by borne by Tenant). For purposes of the previous
sentence, the elevator lobbies and the bathrooms in the Premises shall be
considered common areas.
(b) REPAIRS; MAINTENANCE. Tenant shall maintain the Premises in a
clean, safe, operable, attractive condition, and shall not permit or allow to
remain any waste or damage to any portion of the Premises. Subject to Section
11.(b), Tenant shall repair or replace, subject to Landlord's direction and
supervision, any damage to the Building caused by Tenant or Tenant's agents,
contractors, or invitees. If Tenant fails to make such repairs or replacements
within 15 days after the occurrence of such damage, then Landlord may make the
same at Tenant's cost. In lieu of having Tenant repair any such damage outside
of the Premises, Landlord may repair such damage at Tenant's cost. The cost of
any repair or replacement work performed by Landlord under this Section 8 shall
be paid by Tenant to Landlord within ten days after Landlord has delivered to
Tenant an invoice therefor. Landlord shall repair any damage to the Premises
caused by Landlord or its contractors promptly after Tenant has delivered to
Landlord written notice thereof.
(c) PERFORMANCE OF WORK. All work described in this Section 8 shall
be performed only by Landlord or by contractors and subcontractors approved in
writing by Landlord, which shall not be unreasonably withheld or delayed. Tenant
shall cause all contractors and subcontractors to secure and maintain insurance
coverage against such risks, in such amounts, and with such companies as
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Landlord may reasonably require, and to procure payment and performance bonds
reasonably satisfactory to Landlord covering the cost of the work. All such
work shall be performed in accordance with all legal requirements and in a good
and workmanlike manner so as not to damage the Premises, the primary structure
or structural qualities of the Building, or plumbing, electrical lines, or
other utility transmission facility. All such work which may affect the
Building's HVAC, electrical, plumbing, or other utility transmission system
must be approved by the Building's engineer of record.
(d) MECHANIC'S LIENS. Tenant shall not permit any mechanic's liens
to be filed against the Premises or the Building for any work performed,
materials furnished, or obligation incurred by or for Tenant (other than those
arising in connection with the installation of the initial tenant improvements
under Exhibit D). If such a lien is filed, then Tenant shall, within 30 days
after Landlord has delivered notice of the filing to Tenant, either pay the
amount of the lien or diligently contest such lien and deliver to Landlord a
bond or other security reasonably satisfactory to Landlord. If Tenant fails to
timely take either such action, then Landlord may pay the lien claim without
inquiry as to the validity thereof, and any amounts so paid, including expenses
and interest, shall be paid by Tenant to Landlord within ten days after
Landlord has delivered to Tenant an invoice therefor.
USE
9. Tenant shall use the Premises only for the Permitted Use and shall
comply with all laws, orders, rules, and regulations relating to the use,
condition, and occupancy of the Premises. The Premises shall not be used for
any use which is disreputable or creates extraordinary fire hazards or results
in an increased rate of insurance on the Building or its contents or the
storage of any hazardous materials or substances. If, because of Tenant's acts,
the rate of insurance on the Building or its contents increases, then Tenant
shall pay to Landlord the amount of such increase on demand, and acceptance of
such payment shall not constitute a waiver of any of Landlord's other rights.
Tenant shall conduct its business and control its agents, employees, and
invitees in such a manner as not to create any nuisance or interfere with other
tenants or Landlord in its management of the Building.
ASSIGNMENT AND SUBLETTING
10. (a) TRANSFERS; CONSENT. Tenant shall not, without the prior written
consent of Landlord (which, subject to the next sentence, Landlord may grant or
deny in its sole discretion), (1) use the picture or the name of the Building
(except in fliers distributed to the real estate brokerage community) or use
the name Trammell Crow or the logo for the Building or Trammell Crow Company in
any advertising regarding the Premises or the subletting or assignment thereof,
(2) assign, transfer, or encumber this Lease or any estate or interest herein,
whether directly or by operation of law, (3) permit any other entity to become
Tenant hereunder by merger, consolidation, or other reorganization (other than
a Permitted Transfer [defined below]), (4) permit the transfer of an ownership
interest in Tenant if Tenant has conveyed substantially all of its assets to
another corporation without transferring this Lease to such corporation, (5)
sublet any portion of the Premises, (6) grant any license, concession, or other
right of occupancy of any portion of the Premises other than to independent
contractors contracted by Tenant in its ordinary course of business to provide
services to Tenant that are incidental to Tenant's business operations in the
Premises (including, but not limited to, a sales office of Tenant), or (7)
permit the use of the Premises by any parties other than Tenant (any of the
events listed in Sections 10.(a)(2) through 10.(a)(7) being a "TRANSFER").
Landlord shall not unreasonably withhold or delay its consent to any Transfer
to a party which (A) is, in the reasonable judgment of Landlord, of a character
or reputation or is engaged in a business which would not be harmful to the
image and reputation of the Building, (B) will not use the Premises in a manner
that would conflict with any exclusive use agreement or any other similar
agreement entered into by Landlord with any other tenant of the Building, and
(C) will not compete with the business of another Building tenant that is
leasing more than 30,000 rentable square feet in the Building (however, if in
Landlord's reasonable judgment, the proposed transferee's presence in the
Building will not adversely affect Landlord's ability to renew or extend such
competing tenant's lease or to lease expansion space in the Building to the
competing tenant, than Landlord shall not unreasonably withhold or delay its
consent to such Transfer). Without limiting the foregoing, Landlord may (in its
sole discretion) withhold its consent to any assignment or subletting of the
Premises to any party which is a (i) governmental entity (or subdivision or
agency thereof), (ii) would use the Premises in whole or in part for other than
the Permitted Use, or (iii) which is (A) a prospective tenant that is in active
lease negotiations with Landlord and to which Landlord has submitted a draft of
a lease for space in the Building before Tenant or its agents contact such
party. Additionally, Landlord may (in its sole discretion) withhold its consent
to any Transfer to an occupant of the Building, if the Transfer in question
would cause the aggregate number of rentable square feet transferred by Tenant
to occupants of the Building to exceed 10,000 rentable square feet. If Tenant
requests Landlord's consent to a Transfer, then Tenant shall provide Landlord
with a written description of all terms and conditions of the proposed
Transfer, copies of the proposed documentation, and the following information
about the proposed transferee: name and address; reasonably satisfactory
information about its business and business history; its proposed use of the
Premises; banking, financial, and other credit information; and general
references sufficient to enable Landlord to determine the proposed transferee's
creditworthiness and character. Landlord shall notify Tenant whether it
consents to a Transfer within ten days after Landlord receives the information
described in the previous sentence. If Landlord fails to notify Tenant that it
disapproves of a Transfer within such 10-day period, then Landlord shall be
deemed to have approved the Transfer in question. Tenant shall reimburse
Landlord for its reasonable attorneys' fees and other expenses incurred in
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connection with considering any request for its consent to a Transfer. If
Landlord consents to a proposed Transfer, then the proposed transferee shall
deliver to Landlord a written agreement whereby it expressly assumes the
Tenant's obligations hereunder; however, any transferee of less than all of the
space in the Premises shall be liable only for obligations under this Lease that
are properly allocable to the space subject to the Transfer, and only to the
extent of the rent it has agreed to pay Tenant therefor. Landlord's consent to a
Transfer shall not release Tenant from performing the obligations of "Tenant"
under this Lease, but rather Tenant and its transferee shall be jointly and
severally liable therefor. Landlord's consent to any Transfer shall not waive
Landlord's rights as to any subsequent Transfers. If an Event of Default occurs
while the Premises or any part thereof are subject to a Transfer, then Landlord,
in addition to its other remedies, may collect directly from such transferee all
rents becoming due to Tenant and apply such rents against Rent. Tenant
authorizes its transferees to make payments of rent directly to Landlord upon
receipt of notice for Landlord to do so.
(b) CANCELLATION. Landlord may, within 30 days after submission of
Tenant's written request for Landlord's consent to a Transfer, cancel this Lease
(or, as to a subletting or assignment which would cause the aggregate number of
rentable square feet transferred by Tenant to exceed 10,000 rentable square
feet, cancel as to the portion of the Premises proposed to be sublet or
assigned) as of the date the proposed Transfer was to be effective. If Landlord
cancels this Lease as to any portion of the Premises, then this Lease shall
cease for such portion of the Premises and Tenant shall pay to landlord all Rent
accrued through the cancellation date relating to the portion of the Premises
covered by the proposed Transfer and all brokerage commissions paid or payable
by Landlord in connection with this Lease that are allocable to such portion of
the Premises. Thereafter, Landlord may lease such portion of the Premises to the
prospective transferee (or to any other person) without liability to Tenant.
(c) ADDITIONAL COMPENSATION. If no Event of Default exists, all
compensation received by Tenant for a Transfer in respect of the interval in
question that exceeds the Basic Rental and Tenant's share of Electrical Costs
and Excess allocable to the portion of the Premises covered thereby for the
same interval shall be payable as follows:
(1) first, to Tenant until Tenant has received an amount equal to
all actual, third-party, out-of-pocket costs incurred by Tenant in
connection with such Transfer (including, without limitation, brokerage
commissions, attorneys' fees and expenses, tenant-finish-work, and other
tenant inducements); and
(2) thereafter, 50% to Landlord and 50% to Tenant.
If an Event of Default exists, all such excess compensation shall be payable to
Landlord. Tenant shall hold all amounts it receives which are payable to
Landlord in trust and shall deliver all such amounts to Landlord within ten
days after Tenant's receipt thereof.
(d) PERMITTED TRANSFERS. Notwithstanding the foregoing, Tenant may
Transfer all or part (a "PERMITTED TRANSFER") of its interest in this Lease or
all or part of the Premises to the following types of entities (a "PERMITTED
TRANSFEREE") without the written consent of Landlord:
(1) any person or entity who or which controls, is controlled
by, or is under common control with Tenant (an "AFFILIATE");
(2) any corporation in which or with which Tenant, or its
corporate successors or assigns, is merged or consolidated, in
accordance with applicable statutory provisions governing merger and
consolidation of corporations, so long as (A) Tenant's obligations
hereunder are assumed by the corporation surviving such merger or
created by such consolidation; and (B) the net worth of the surviving
or created corporation is not less than the net worth of Tenant as of
the date hereof; or
(3) any corporation acquiring all or substantially all of
Tenant's assets if such corporation's net worth after such acquisition
is not less than the net worth of Tenant as of the date hereof.
Tenant shall promptly notify Landlord of any such Permitted Transfer.
INSURANCE; WAIVERS; SUBROGATION; INDEMNITY
11. (a) INSURANCE. Tenant shall at its expense procure and maintain
throughout the Term the following insurance policies: (1) commercial general
liability insurance in amounts of not less than a combined single limit of
$2,000,000 (the "INITIAL LIABILITY INSURANCE AMOUNT") or such other amounts as
Landlord may from time to time reasonably require, insuring Tenant, Landlord.
Landlord's agents and their respective affiliates against all liability for
injury to or death of a person or persons or damage to property arising from the
use and occupancy of the Premises, (2)contractual liability insurance
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coverage sufficient to cover Tenant's indemnity obligations hereunder, (3)
insurance covering the full value of Tenant's property and improvements, and
other property (including property of others), in the Premises, and (4)
workman's compensation insurance, containing a waiver of subrogation endorsement
reasonably acceptable to Landlord. Tenant's insurance shall provide primary
coverage to Landlord when any policy issued to Landlord provides duplicate or
similar coverage, and in such circumstance Landlord's policy will be excess over
Tenant's policy. Tenant shall furnish certificates of such insurance and such
other evidence satisfactory to Landlord of the maintenance of all insurance
coverages required hereunder, and Tenant shall obtain a written obligation on
the part of each insurance company to notify Landlord at least 30 days before
cancellation or a material change of any such insurance. All such insurance
policies shall be in form, and issued by companies, reasonably satisfactory to
Landlord.
(b) WAIVER OF NEGLIGENCE CLAIMS; NO SUBROGATION. Landlord shall not
be liable to Tenant or those claiming by, through, or under Tenant for any
injury to or death of any person or persons or the damage to or theft,
destruction, loss, or loss of use of any property or inconvenience (a "LOSS")
caused by casualty, theft, fire, third parties, or any other matter beyond the
reasonable control of Landlord. Landlord and Tenant each waives any claim it
might have against the other for any damage to or theft, destruction, loss, or
loss of use of any property, to the extent the same is insured against under
any insurance policy that covers the Building, the Premises, Landlord's or
Tenant's fixtures, personal property, leasehold improvements, or business, or
is required to be insured against under the terms hereof, REGARDLESS OF WHETHER
THE NEGLIGENCE OR FAULT OF THE OTHER PARTY CAUSED SUCH LOSS; HOWEVER,
LANDLORD'S WAIVER SHALL NOT INCLUDE ANY DEDUCTIBLE AMOUNTS ON INSURANCE
POLICIES CARRIED BY LANDLORD. Each party shall cause its insurance carrier to
endorse all applicable policies waiving the carrier's rights of recovery under
subrogation or otherwise against the other party.
(c) INDEMNITY. Subject to Section 11.(b), Tenant shall defend,
indemnify, and hold harmless Landlord and Landlord's agents and their respective
shareholders, directors, officers, employees, and partners from and against all
claims, demands, liabilities, causes of action, suits, judgments, and expenses
(including attorneys' fees) for any Loss arising from any occurrence on the
Premises (other than a Loss arising from the sole or gross negligence of
Landlord or its agents). Subject to Section 11.(b), Landlord shall defend,
indemnify, and hold harmless Tenant and its shareholders, directors, officers,
employees, and partners from and against all claims, demands, liabilities,
causes of action, suits, judgments, and expenses for any Loss arising from any
occurrence in the common areas of the Building, unless caused by the sole or
gross negligence of Tenant, its subtenants, its assignees, or any of their
respective employees, contractors, agents, or invitees. THE INDEMNIFICATION
OBLIGATIONS PROVIDED IN THE TWO PRECEDING SENTENCES ARE INTENDED TO APPLY
REGARDLESS OF THE JOINT, COMPARATIVE, OR CONCURRENT NEGLIGENCE OF THE
INDEMNIFIED PARTIES THEREUNDER. This indemnification provision of this Section
11.(c) shall survive termination or expiration of this Lease.
(d) LANDLORD'S INSURANCE. Landlord shall maintain such insurance as
Landlord may deem appropriate for the Building, which must include, without
limitation, fire and extended coverage or similar coverage for the full
replacement cost of the Building and commercial general liability insurance in
amounts not less than a combined single limit of $5,000,000, in all cases
subject to such deductibles as Landlord may determine.
SUBORDINATION ATTORNMENT; NOTICE TO LANDLORD'S MORTGAGEE
12. (a) SUBORDINATION. This Lease shall be subordinate to any deed of
trust, mortgage, or other security instrument (a "MORTGAGE"), or any ground
lease, master lease, or primary lease (a "PRIMARY LEASE"), that now or hereafter
covers all or any part of the Premises (the mortgagee under any Mortgage or the
lessor under any Primary Lease is referred to herein as "LANDLORD'S MORTGAGEE").
The subordination of Tenant's rights hereunder to any future Landlord's Mortgage
under this Section 12.(a) shall be conditioned upon such future Landlord's
Mortgagee's execution and delivery of a commercially reasonable non-disturbance
and attornment agreement. Landlord shall use best efforts to obtain a
non-disturbance and attornment agreement from the current Landlord's Mortgagee
within 60 days after the date hereof.
(b) ATTORNMENT. Tenant shall attorn to any party succeeding to
Landlord's interest in the Premises, whether by purchase, foreclosure, deed in
lieu of foreclosure, power of sale, termination of lease, or otherwise, upon
such party's request, and shall execute such agreements confirming such
attornment as such party may reasonably request.
(c) NOTICE TO LANDLORD'S MORTGAGEES. Tenant shall not seek to enforce
any remedy it may have for any default on the part of the Landlord without
first giving written notice by certified mail, return receipt requested,
specifying the default in reasonable detail, to any Landlord's Mortgagee whose
address has been given to Tenant, and affording such Landlord's Mortgagee a
reasonable opportunity to perform Landlord's obligations hereunder.
RULES AND REGULATIONS
13. Tenant shall comply with the rules and regulations of the Building
which are attached hereto as Exhibit B. Landlord may, from time to time, change
such rules and regulations for the safety, care, or cleanliness of the Building
and related facilities, provided that such changes are applicable to all
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tenants of the Building and will not unreasonably interfere with Tenant's use
of the Premises. Tenant shall be responsible for the compliance with such rules
and regulations by its employees, agents, and invitees.
CONDEMNATION
14. (a) TAKING -- LANDLORD'S AND TENANT'S RIGHTS. If any part of the
Building is taken by right of eminent domain or conveyed in lieu thereof (a
"TAKING"), and such Taking prevents Tenant from conducting its business in the
Premises in a manner reasonably comparable to that conducted immediately before
such Taking, then Tenant may terminate this Lease as of the date of such Taking
by giving written notice to Landlord within 60 days after the Taking, and Rent
shall be apportioned as of the date of such Taking. If Tenant does not
terminate this Lease, then Rent shall be abated on a reasonable basis as to
that portion of the Premises rendered untenantable by the Taking.
(b) TAKING - LANDLORD'S RIGHTS. If any material portion, but less
than all, of the Building becomes subject to a Taking, or if Landlord is
required to pay any of the proceeds received for a Taking to Landlord's
Mortgagee, then this Lease, at the option of Landlord, exercised by written
notice to Tenant within 30 days after such Taking, shall terminate and Rent
shall be apportioned as of the date of such Taking. If Landlord does not so
terminate this Lease, then this Lease will continue, but if any portion of the
Premises has been taken, Basic Rental shall abate as provided in the last
sentence of Section 14.(a).
(c) AWARD. If any Taking occurs, then Landlord shall receive the
entire award or other compensation for the Land, the Building, and other
improvements taken, and Tenant may separately pursue a claim against the
condemnor for the value of Tenant's personal property which Tenant is entitled
to remove under this Lease, moving costs, loss of business, and other claims it
may have.
FIRE OR OTHER CASUALTY
15. (a) REPAIR ESTIMATE. If the Premises or the Building are damaged by
fire or other casualty (a "CASUALTY"), Landlord shall, within 30 days after
such Casualty, deliver to Tenant a good faith estimate (the "DAMAGE NOTICE") of
the time needed to repair damage caused by such Casualty.
(b) LANDLORD'S AND TENANT'S RIGHTS. If a material portion of the
Premises or the Building is damaged by Casualty such that Tenant is prevented
from conducting its business in the Premises in a manner reasonably comparable
to that conducted immediately before such Casualty and Landlord estimates that
the damage caused thereby cannot be repaired within 120 days after the
Casualty, then Tenant may terminate this Lease by delivering written notice to
Landlord of its election to terminate within 30 days after the Damage Notice
has been delivered to Tenant. If Tenant does not terminate this Lease, then
(subject to Landlord's rights under Section 15.(c)) Landlord shall repair the
Building or the Premises, as the case may be, as provided below, and Rent for
the portion of the Premises rendered untenantable by the damage shall be abated
on a reasonable basis from the date of damage until the completion of the
repair, unless Tenant caused such damage, in which case, Tenant shall continue
to pay Rent without abatement.
(c) LANDLORD'S RIGHTS. If a Casualty damages a material portion of
the Building, and Landlord makes a good faith determination that restoring the
Premises would be uneconomical and elects to terminate all other leases for
premises affected by such Casualty, or if Landlord is required to pay any
insurance proceeds arising out of the Casualty to Landlord's Mortgagee, then
Landlord may terminate this Lease by giving written notice of its election to
terminate within 30 days after the Damage Notice has been delivered to Tenant,
and Basic Rental hereunder shall be abated as of the date of the Casualty.
(d) REPAIR OBLIGATION. If neither party elects to terminate this
Lease following a Casualty, then Landlord shall, within a reasonable time after
such Casualty, commence to repair the Building and the Premises and shall
proceed with reasonable diligence to restore the Building and Premises to
substantially the same condition as they existed immediately before such
Casualty; however, Landlord shall not be required to repair or replace any part
of the furniture, equipment, fixtures, and other improvements which may have
been placed by, or at the request of, Tenant or other occupants in the Building
or the Premises, and Landlord's obligation to repair or restore the Building or
Premises shall be limited to the extent of the insurance proceeds actually
received by Landlord for the Casualty in question. If such damage is not
substantially repaired within 30 days after the later of the estimated
restoration completion date specified in the Damage Notice or 120 days after
the Casualty, then Tenant may terminate this Lease by delivering to Landlord,
before the repairs are substantially completed, written notice of its election
to terminate this Lease; however, if Landlord is diligently pursuing the
completion of such repairs at the end of the 30-day period, then such 30-day
period shall be extended by an additional 60 days.
TAXES
16. Tenant shall be liable for all taxes levied or assessed against
personal property, furniture, or fixtures placed by Tenant in the Premises. If
any taxes for which Tenant is liable are levied or assessed against Landlord or
Landlord's property and Landlord elects to pay the same, or if the assessed
value of Landlord's property is increased by inclusion of such personal
property, furniture or fixtures and Landlord
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elects to pay the taxes based on such increase, then Tenant shall pay to
Landlord, upon demand, that part of such taxes for which Tenant is primarily
liable hereunder.
EVENTS OF DEFAULT
17. Each of the following occurrences shall constitute an "EVENT OF
DEFAULT":
(a) Tenant's failure to pay Rent (or rent under any other lease
executed by Tenant for space in the Building), when due and such failure
continues for more than ten days after written notice from Landlord to Tenant
thereof; however, Tenant's failure to pay Rent when due shall be an immediate
Event of Default without notice thereof, if Landlord has delivered to Tenant at
least two notices of default under this Section 17.(a) during the preceding
12-month period;
(b) Tenant's failure to perform, comply with, or observe any other
agreement or obligation of Tenant under this Lease (or any other lease executed
by Tenant for space in the Building) and such failure continues for more than
30 days after written notice thereof from Landlord; however, if (1) such failure
cannot be cured by the payment of money and it cannot be cured within such
30-day period and (2) Tenant commences to cure such failure within such
30-period and thereafter diligently and continuously prosecutes the cure
thereof to completion, then such failure shall not be an Event of Default;
(c) the filing of a petition by or against Tenant (the term "Tenant"
shall include, for the purpose of this Section 17.(c), any guarantor of the
Tenant's obligations hereunder) (1) in any bankruptcy or other insolvency
proceeding; (2) seeking any relief under any state or federal debtor relief
law; (3) for the appointment of a liquidator or receiver for all or
substantially all of Tenant's property or for Tenant's interest in this Lease;
or (4) for the reorganization or modification of Tenant's capital structure;
however, if such petition is filed against Tenant, such filing shall not be an
Event of Default unless Tenant fails to have the proceedings initiated by such
petition dismissed within 60 days after the filing thereof; and
(d) the admission by Tenant that it cannot meet its obligations as
they become due or the making by Tenant of an assignment for the benefit of its
creditors.
REMEDIES
18. Upon any Event of Default, Landlord may, in addition to all other
rights and remedies afforded Landlord hereunder or by law or equity, take any
of the following actions:
(a) Terminate this Lease by giving Tenant written notice thereof, in
which event, Tenant shall pay to Landlord the sum of (1) all Rent accrued
hereunder through the date of termination, (2) all amounts due under Section
19.(a), other than costs incurred in altering, remodeling, or otherwise putting
the Premises into a condition acceptable to a new tenant, and (3) an amount
equal to (A) the total Rent that Tenant would have been required to pay for the
remainder of the Term discounted to present value at a per annum rate equal to
the "Prime Rate" as published on the date this Lease is terminated by The Wall
Street Journal, Southwest Edition, in its listing of "Money Rates", minus (B)
the then present fair rental value of the Premises for such period, similarly
discounted; or
(b) Terminate Tenant's right to possession of the Premises without
terminating this Lease by giving written notice thereof to Tenant, in which
event Tenant shall pay to Landlord (1) all Rent and other amounts accrued
hereunder to the date of termination of possession, (2) all amounts due from
time to time under Section 19.(a), and (3) all Rent and other sums required
hereunder to be paid by Tenant during the remainder of the Term, diminished by
any net sums thereafter received by Landlord through reletting the Premises
during such period. Landlord shall use reasonable efforts to relet the Premises
on such terms and conditions as Landlord in its sole discretion may determine
(including a term different from the Term, rental concessions, and alterations
to, and improvement of, the Premises); however, Landlord shall not be obligated
to relet the Premises before leasing other portions of the Building. Landlord
shall not be liable for, nor shall Tenant's obligations hereunder be diminished
because of, Landlord's failure to relet the Premises or to collect rent due for
such reletting. Tenant shall not be entitled to the excess of any consideration
obtained by reletting over the Rent due hereunder. Reentry by Landlord in the
Premises shall not affect Tenant's obligations hereunder for the unexpired Term;
rather, Landlord may, from time to time, bring action against Tenant to collect
amounts due by Tenant, without the necessity of Landlord's waiting until the
expiration of the Term. Unless Landlord delivers written notice to Tenant
expressly stating that it has elected to terminate this Lease, all actions taken
by Landlord to exclude or dispossess Tenant of the Premises shall be deemed to
be taken under this Section 18.(b). If Landlord elects to proceed under this
Section 18.(b), it may at any time elect to terminate this Lease under Section
18.(a).
Additionally, without notice, Landlord may alter locks or other security
devices at the Premises to deprive Tenant of access thereto, and Landlord shall
not be required to provide a new key or right of access to Tenant.
PAYMENT BY
19. (a) PAYMENT BY TENANT. Upon any Event of Default, Tenant shall pay
to Landlord all costs incurred by Landlord (including court costs and
reasonable attorneys' fees and expenses) in
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TENANT; NON-WAIVER
(1) obtaining possession of the Premises, (2) removing and storing Tenant's or
any other occupant's property, (3) repairing, restoring, altering, remodeling,
or otherwise putting the Premises into condition acceptable to a new tenant,
(4) if Tenant is dispossessed of the Premises and this Lease is not terminated,
reletting all or any part of the Premises (including brokerage commissions,
cost of tenant finish work, and other costs incidental to such reletting), (5)
performing Tenant's obligations which Tenant failed to perform, and (6)
enforcing, or advising Landlord of, its rights, remedies, and recourses arising
out of the Event of Default.
(b) NO WAIVER. Landlord's acceptance of Rent following an Event of
Default shall not waive Landlord's rights regarding such Event of Default. No
waiver by either party of any violation or breach of any of the terms contained
herein shall waive such party regarding any future violation of such term or
violation of any other term.
LANDLORD'S LIEN
20. Landlord hereby waives its statutory lien against the property of
Tenant in the Premises.
SURRENDER OF PREMISES
21. No act by Landlord shall be deemed an acceptance of a surrender of
the Premises, and no agreement to accept a surrender of the Premises shall be
valid unless the same is made in writing and signed by Landlord. At the
expiration or termination of this Lease, Tenant shall deliver to Landlord the
Premises with all improvements located thereon in good repair and condition,
reasonable wear and tear (and condemnation and fire or other casualty damage
not caused by Tenant, as to which Sections 14 and 15 shall control) excepted,
and shall deliver to Landlord all keys to the Premises. Provided that Tenant
has performed all of its obligations hereunder, Tenant may remove all
unattached trade fixtures, furniture, and personal property placed in the
Premises by Tenant (but Tenant shall not remove any such item which was paid
for, in whole or in part, by Landlord). Additionally, Tenant shall remove such
alterations, additions, improvements, trade fixtures, equipment, wiring, and
furniture as Landlord may request. Tenant shall repair all damage caused by
such removal; however, Tenant shall not be required to remove the initial
improvements installed in accordance with Exhibit D or any other addition,
alteration, or improvement if Landlord specifically agreed in writing that such
item would not have to be removed at the end of the Term. All items not so
removed shall be deemed to have been abandoned by Tenant and may be
appropriated, sold, stored, destroyed, or otherwise disposed of by Landlord
without notice to Tenant and without any obligation to account for such items.
The provisions of this Section 21 shall survive the end of the Term.
HOLDING OVER
22. If Tenant fails to vacate the Premises at the end of the term, then
Tenant shall be a tenant at will and, in addition to all other damages and
remedies to which Landlord may be entitled for such holding over, Tenant shall
pay, in addition to the other Rent, a daily Basic Rental equal to the greater
of (a) 125% of the daily Basic Rental payable during the last month of the
term, or (b) the prevailing rental rate in the Building for similar space.
CERTAIN RIGHTS RESERVED BY LANDLORD
23. Provided that the exercise of such rights does not unreasonably
interfere with Tenant's occupancy of the Premises, Landlord shall have the
following rights.
(a) to decorate and to make inspections, repairs, alterations,
additions, changes, or improvements, whether structural or otherwise, in
and about the Building, or any part thereof; for such purposes, to enter
upon the Premises and, during the continuance of any such work, to
temporarily close doors, entryways, public space, and corridors in the
Building; to interrupt or temporarily suspend Building services and
facilities; and to change the arrangement and location of entrances or
passageways, doors, and doorways, corridors, elevators, stairs, restrooms,
or other public parts of the Building;
(b) to take such reasonable measures as Landlord deems advisable for
the security of the Building and its occupants, including without
limitation searching all persons entering or leaving the Building;
evacuating the Building for cause, suspected cause, or for drill purposes;
temporarily denying access to the Building; and closing the Building after
normal business hours and on Saturdays, Sundays, and holidays, subject,
however, to Tenant's right to enter when the Building is closed after
normal business hours under such reasonable regulations as Landlord may
prescribe from time to time which may include by way of example, but not of
limitation, that persons entering or leaving the Building, whether or not
during normal business hours, identify themselves to a security officer by
registration or otherwise and that such persons establish their right to
enter or leave the Building;
(c) to change the name by which the Building is designated; and
(d) to enter the Premises at all reasonable hours to show the
Premises to prospective purchasers, lenders, or, during the last 13 months
of the Term, tenants.
SUBSTITUTION SPACE
24. [Intentionally Deleted.]
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MISCELLANEOUS
25. (a) LANDLORD TRANSFER. Landlord may transfer, in whole or in part,
the Building and any of its rights under this Lease. If Landlord assigns its
rights under this Lease and the assignee assumes Landlord's obligations
hereunder, then Landlord shall thereby be released from any further obligations
hereunder.
(b) LANDLORD'S LIABILITY. The liability of Landlord to Tenant for
any default by Landlord under the terms of this Lease shall be limited to
Tenant's actual direct, but not consequential, damages therefor and shall be
recoverable from the interest of Landlord in the Building and the Land, and
Landlord shall not be personally liable for any deficiency. This section shall
not be deemed to limit or deny any remedies which Tenant may have in the event
of default by Landlord hereunder which do not involve the personal liability of
Landlord.
(c) FORCE MAJEURE. Other than for Tenant's monetary obligations
under this Lease and obligations which can be cured by the payment of money
(e.g., maintaining insurance), whenever a period of time is herein prescribed
for action to be taken by either party hereto, such party shall not be liable
or responsible for, and there shall be excluded from the computation for any
such period of time, any delays due to strikes, riots, acts of God, shortages
of labor or materials, war, governmental laws, regulations, or restrictions, or
any other causes of any kind whatsoever which are beyond the control of such
party.
(d) BROKERAGE. Landlord and Tenant each warrant to the other that it
has not dealt with any broker or agent in connection with the negotiation or
execution of this Lease, other than Fults Associates and Trammell Crow
Dallas/Fort Worth, Inc., whose commissions shall be paid by Landlord. Tenant
and Landlord shall each indemnify the other against all costs, expenses,
attorneys' fees, and other liability for commissions or other compensation
claimed by any other broker or agent claiming the same by, through, or under
the indemnifying party.
(e) ESTOPPEL CERTIFICATES. From time to time, Tenant shall furnish
to any party designated by Landlord, within ten days after Landlord has made a
request therefor, a certificate signed by Tenant confirming and containing such
factual certifications and representations as to this Lease as Landlord may
reasonably request.
(f) NOTICES. All notices and other communications given pursuant to
this Lease shall be in writing and shall be (1) mailed by first class, United
States Mail, postage prepaid, certified, with return receipt requested, and
addressed to the parties hereto at the address specified in the Basic Lease
Information, (2) hand delivered to the intended address, or (3) sent by prepaid
telegram, cable, facsimile transmission, or telex followed by a confirmatory
letter. Notice sent by certified mail, postage prepaid, shall be effective
three business days after being deposited in the United States Mail; all other
notices shall be effective upon delivery to the address of the addressee. The
parties hereto may change their addresses by giving notice thereof to the other
in conformity with this provision.
(g) SEPARABILITY. If any clause or provision of this Lease is
illegal, invalid, or unenforceable under present or future laws, then the
remainder of this Lease shall not be affected thereby and in lieu of such
clause or provision, there shall be added as a part of this Lease a clause or
provision as similar in terms to such illegal, invalid, or unenforceable clause
or provision as may be possible and be legal, valid, and enforceable.
(h) AMENDMENTS; AND BINDING EFFECT. This Lease may not be amended
except by instrument in writing signed by Landlord and Tenant. No provision of
this Lease shall be deemed to have been waived by either party unless such
waiver is in writing signed by the waiving party, and no custom or practice
which may evolve between the parties in the administration of the terms hereof
shall waive or diminish the right of either party to insist upon the
performance by the other in strict accordance with the terms hereof. The terms
and conditions contained in this Lease shall inure to the benefit of and be
binding upon the parties hereto, and upon their respective successors in
interest and legal representatives, except as otherwise herein expressly
provided. This Lease is for the sole benefit of Landlord and Tenant, and, other
than Landlord's Mortgagee, no third party shall be deemed a third party
beneficiary hereof.
(i) QUIET ENJOYMENT. Provided Tenant has performed all of the terms
and conditions of this Lease to be performed by Tenant, Tenant shall peaceably
and quietly hold and enjoy the Premises for the Term, without hindrance from
Landlord or any party claiming by, through, or under Landlord, subject to the
terms and conditions of this Lease.
(j) JOINT AND SEVERAL LIABILITY. If there is more than one Tenant,
then the obligations hereunder imposed upon Tenant shall be joint and several.
If there is a guarantor of Tenant's obligations hereunder, then the obligations
hereunder imposed upon Tenant shall be the joint and several obligations of
Tenant and such guarantor, and Landlord need not first proceed against Tenant
before proceeding against such guarantor nor shall any such guarantor be
released from it guaranty for any reason whatsoever.
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(k) CAPTIONS. The captions contained in this Lease are for
convenience of reference only, and do not limit or enlarge the terms and
conditions of this Lease.
(l) NO MERGER. There shall be no merger of the leasehold estate
hereby created with the fee estate in the Premises or any part thereof if the
same person acquires or holds, directly or indirectly, this Lease or any
interest in this Lease and the fee estate in the leasehold Premises or any
interest in such fee estate.
(m) NO OFFER. The submission of this Lease to Tenant shall not be
construed as an offer, nor shall Tenant have any rights under this Lease unless
Landlord executes a copy of this Lease and delivers it to Tenant.
(n) EXHIBITS. All exhibits and attachments attached hereto are
incorporated herein by this reference.
Exhibit A - Outline of Premises
Exhibit B - Building Rules and Regulations
Exhibit C - Operating Expenses Escalator
Exhibit D - Tenant Finish-Work: Allowance
Exhibit E - Parking
Exhibit F - Expansion Option
Exhibit G - Tenant's Preferential Right to Lease
Exhibit H - Extension Option
Exhibit I - Fair Market Rental Rate
(o) ENTIRE AGREEMENT. This Lease constitutes the entire agreement
between Landlord and Tenant regarding the subject matter hereof and supersedes
all oral statements and prior writings relating thereto. Except for those set
forth in this Lease, no representations, warranties, or agreements have been
made by Landlord or Tenant to the other with respect to this Lease or the
obligations of Landlord or Tenant in connection therewith.
SPECIAL PROVISIONS
26. (a) SATELLITE DISH. Provided that Tenant complies with terms of this
Section 26, Tenant may, at its risk and expense, install a satellite dish and
related wiring (collectively, the "SATELLITE DISH") on the roof of the Building
at a location approved by Landlord. Before installing the Satellite Dish,
Tenant shall submit to Landlord for its approval (which approval shall be in
Landlord's sole discretion) plans and specifications which (1) specify in
detail the design, location, size, and frequency of the Satellite Dish and (2)
are sufficiently detailed to allow for the installation of the Satellite Dish
in a good and workmanlike manner and in accordance with all laws. If Landlord
approves of such plans, Tenant shall install (in a good and workmanlike
manner), maintain and use the Satellite Dish in accordance with all laws, rules
and regulations and shall obtain all permits required for the installation and
operation thereof; copies of all such permits must be submitted to Landlord
before Tenant begins to install the Satellite Dish. Tenant shall thereafter
maintain all permits necessary for the maintenance and operation of the
Satellite Dish while it is on the Building and operate and maintain the
Satellite Dish in such a manner so as not to unreasonably interfere with any
other satellite, antennae, or other transmission facility on the Building's
roof or in the Building. Landlord may require that Tenant screen the Satellite
Dish with a parapet wall or other screening device in each case acceptable to
Landlord. Tenant shall maintain the Satellite Dish and the screening therefor
in good condition and repair. Tenant shall, at its risk and expense, remove the
Satellite Dish, within five days after the occurrence of any of the following
events: (A) the termination of Tenant's right to possess the Premises; (B) the
termination of the Lease; (C) the expiration of the Term; or (D) Tenant's
vacating the Premises. If Tenant fails to do so, Landlord may remove the
Satellite Dish or store or dispose of it in any manner Landlord deems
appropriate without liability to Tenant; Tenant shall reimburse Landlord for
all costs incurred by Landlord in connection therewith within ten days after
Landlord's request thereof. Tenant shall repair any damage to the Building
caused by or relating to the Satellite Dish or the screening device, including
that which is caused by its installation, maintenance, use, or removal and
shall indemnify Landlord against all liabilities, losses, damages, and costs (a
"LOSS") arising from the installation, maintenance, use, or removal of the
Satellite Dish, INCLUDING THAT CAUSED BY LANDLORD'S NEGLIGENCE (UNLESS THE LOSS
IN QUESTION WAS CAUSED BY LANDLORD'S SOLE OR GROSS NEGLIGENCE OR WILFUL
MISCONDUCT). All work relating to the Satellite Dish shall, at Tenant's
expense, be coordinated with Landlord's roofing contractor so as not to affect
any warranty for the Building's roof.
(b) EXCHANGE CLUB. Landlord shall cause the owner of the Exchange
Club to waive the initiation fee for up to 40 memberships. The persons using
such memberships shall be responsible for all dues and other charges relating
thereto.
LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY THAT THE PREMISES
ARE SUITABLE FOR TENANT'S INTENDED COMMERCIAL PURPOSE, AND TENANT'S
11
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OBLIGATION TO PAY RENT HEREUNDER IS NOT DEPENDENT UPON THE CONDITION
OF THE PREMISES OR THE PERFORMANCE BY LANDLORD OF ITS OBLIGATIONS
HEREUNDER, AND, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, TENANT
SHALL CONTINUE TO PAY THE RENT, WITHOUT ABATEMENT, SETOFF, DEDUCTION,
NOTWITHSTANDING ANY BREACH BY LANDLORD OF ITS DUTIES OR OBLIGATIONS
HEREUNDER, WHETHER EXPRESS OR IMPLIED.
DATED as of the date first written above.
LANDLORD:
C-W #5, LTD.
By: Trammell Crow Dallas Fort Worth, Inc.,
its manager
By: /s/ CHARLES A. ANDERSON
----------------------------------
Name: Charles A. Anderson
--------------------------------
Title: Executive Vice President
-------------------------------
TENANT:
CLARK/BARDES, INC.
By: /s/ MELVIN TODD
----------------------------------------
Name: Melvin Todd
--------------------------------------
Title: President & CEO
-------------------------------------
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22ND FLOOR PLAN
Exhibit A
The Premises
Suite 2200
27,655 usable square feet
29,686 rental square feet
<PAGE> 14
EXHIBIT A
21ST FLOOR PLAN
The Additional Space
<PAGE> 15
EXHIBIT B
BUILDING RULES AND REGULATIONS
The following rules and regulations shall apply to the Premises, the
Building, the parking garage associated therewith, the Land and the
appurtenances thereto:
1. Sidewalks, doorways, vestibules, halls, stairways, and other similar
areas shall not be obstructed by tenants or used by any tenant for purposes
other than ingress and egress to and from their respective leased premises and
for going from one to another part of the Building.
2. Plumbing, fixtures and appliances shall be used only for the purposes
for which designed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or deposited therein. Damage resulting to any such
fixtures or appliances from misuse by a tenant or its agents, employees or
invitees, shall be paid by such tenant.
3. No signs, advertisements or notices shall be painted or affixed on or
to any windows or doors or other part of the Building without the prior written
consent of Landlord. No nails, hooks or screws shall be driven or inserted in
any part of the Building except by Building maintenance personnel (other than
those which are necessary to hang paintings, prints, pictures, or other similar
items on the Premises' interior walls). No curtains or other window treatments
shall be placed between the glass and the Building standard window treatments.
4. Landlord shall provide and maintain an alphabetical directory for all
tenants in the main lobby of the Building.
5. Landlord shall provide all door locks in each tenant's leased
premises, at the cost of such tenant, and no tenant shall place any additional
door locks in its leased premises without Landlord's prior written consent,
which shall not be unreasonably withheld or delayed. Landlord shall furnish to
each tenant a reasonable number of keys to such tenant's leased premises, at
such tenant's cost, and no tenant shall make a duplicate thereof.
6. Movement in or out of the Building of furniture or office equipment,
or dispatch or receipt by tenants of any bulky material, merchandise or
materials which require use of elevators or stairways, or movement through the
Building entrances or lobby shall be conducted under Landlord's supervision at
such times and in such a manner as Landlord may reasonably require. Each tenant
assumes all risks of and shall be liable for all damage to articles moved and
injury to persons or public engaged or not engaged in such movement, including
equipment, property and personnel of Landlord if damaged or injured as a result
of acts in connection with carrying out this service for such tenant.
7. Landlord may prescribe weight limitations and determine the locations
for safes and other heavy equipment or items, which shall in all cases be
placed in the Building so as to distribute weight in a manner reasonably
acceptable to Landlord which may include the use of such supporting devices as
Landlord may reasonably require. All damages to the Building caused by the
installation or removal of any property of a tenant, or done by a tenant's
property while in the Building, shall be repaired at the expense of such
tenant.
8. Corridor doors, when not in use, shall be kept closed. Nothing shall
be swept or thrown into the corridors, halls, elevator shafts or stairways. No
birds or animals shall be brought into or kept in, on or about any tenant's
leased premises. No portion of any tenant's leased premises shall at any time be
used or occupied as sleeping or lodging quarters.
9. Tenant shall cooperate with Landlord's employees in keeping its
leased premises neat and clean.
10. To ensure orderly operation of the Building, no ice, mineral or other
water, towels, newspapers, etc. shall be delivered to any leased area except by
persons approved by Landlord, which approval shall not be unreasonably withheld
or delayed.
11. Tenant shall not make or permit any improper, objectionable or
unpleasant noises or odors in the Building or otherwise interfere in any way
with other tenants or persons having business with them.
12. No machinery of any kind (other than normal office equipment) shall
be operated by any tenant on its leased area without Landlord's prior written
consent, nor shall any tenant use or keep in the Building any flammable or
explosive fluid or substance.
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<PAGE> 16
13. Landlord will not be responsible for lost or stolen personal
property, money or jewelry from tenant's leased premises or public or common
areas regardless of whether such loss occurs when the area is locked against
entry or not.
14. No vending or dispensing machines of any kind may be maintained in
any leased premises (other than for use by Tenant and its employees) without
the prior written permission of Landlord.
15. All mail chutes located in the Building shall be available for use by
Landlord and all tenants of the Building according to the rules of the United
States Postal Service.
B-2
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EXHIBIT C
OPERATING EXPENSE ESCALATOR
1. Tenant shall pay an amount (per each rentable square foot in the
Premises) equal to the excess ("EXCESS") from time to time of Basic Cost per
rentable square foot in the Building over the per-rentable-square-foot Basic
Cost for the calendar year 1995 (the "EXPENSE STOP"). Landlord may collect such
amount in a lump sum, to be due within 30 days after Landlord furnishes to
Tenant the Annual Cost Statement. Alternatively, Landlord may make a good faith
estimate of the Excess to be due by Tenant for any calendar year or part
thereof during the Term, and, unless Landlord delivers to Tenant a revision of
the estimated Excess, Tenant shall pay to Landlord, on the Commencement Date and
on the first day of each calendar month thereafter, an amount equal to the
estimated Excess for such calendar year or part thereof divided by the number
of months in such calendar year during the Term. From time to time during any
calendar year, Landlord may estimate an re-estimate the Excess to be due by
Tenant for that calendar year and deliver a copy of the estimate or
re-estimate to Tenant. Thereafter, the monthly installments of Excess payable
by Tenant shall be appropriately adjusted in accordance with the estimations so
that, by the end of the calendar year in question, Tenant shall have paid all
of the Excess as estimated by Landlord. Any amounts paid based on such an
estimate shall be subject to adjustment pursuant to paragraph 3 of this Exhibit
when actual Basic Cost is available for each calendar year.
2. For the purposes of this Exhibit, the term "BASIC COST" shall mean
all expenses and disbursements of every kind (subject to the limitations set
forth below) which Landlord incurs, pays or becomes obligated to pay in
connection with the ownership, operation, and maintenance of the Building
(including the associated parking facilities), determined in accordance with
generally accepted federal income tax basis accounting principles consistently
applied, including but not limited to the following:
(a) Wages and salaries (including management fees) of all employees
engaged in the operation, repair, replacement, maintenance, and security of the
Building, including taxes, insurance and benefits relating thereto;
(b) All supplies and materials used in the operation, maintenance,
repair, replacement, and security of the Building;
(c) Annual cost of all capital improvements made to the Building
which although capital in nature can reasonably be expected to reduce the normal
operating costs of the Building, as well as all capital improvements made in
order to comply with any law hereafter promulgated by any governmental
authority, in each case, as amortized over the useful economic life of such
improvements as determined by Landlord in its reasonable discretion (without
regard to the period over which such improvements may be depreciated or
amortized for federal income tax purposes);
(d) Cost of all utilities, other than the cost of utilities actually
reimbursed to Landlord by the Building's tenants (including Tenant under Section
7.(b) of this Lease);
(e) Cost of any insurance premiums and, except as provided below,
costs incurred for insured losses that are within the deductible amounts under
Landlord's insurance coverage.
(f) All taxes and assessments and governmental charges whether
federal, state, county or municipal, and whether they be by taxing or management
districts or authorities presently taxing or by others, subsequently created or
otherwise, and any other taxes and assessments attributable to the Building (or
its operation), and the grounds, parking areas, driveways, and alleys around the
Building, excluding, however, franchise taxes and other federal and state taxes
on income (collectively, "TAXES"); if the present method of taxation changes so
that in lieu of the whole or any part of any Taxes levied on the Land or
Building, there is levied on Landlord a capital tax directly on the rents
received therefrom or a franchise tax, assessment, or charge based, in whole or
in part, upon such rents for the Building, then all such taxes, assessments, or
charges, or the part thereof so based, shall be deemed to be included within the
term "Taxes" for the purposes hereof;
(g) Cost of repairs, replacements (except as provided below), and
general maintenance of the Building, other than repair, replacement (except as
provided below), and general maintenance of the roof, foundation and exterior
walls of the Building; and
(h) Cost of service or maintenance contracts with independent
contractors for the operation, maintenance, repair, replacement (except as
provided below), or security of the building (including, without limitation,
alarm service, window cleaning, and elevator maintenance).
There are specifically excluded from the definition of the term "Basic Cost"
costs (1) for capital improvements made to the Building, other than capital
improvements described in Section 2.(c) above and except for items which, though
capital for accounting purposes, are properly considered maintenance and repair
items, such
C-1
<PAGE> 18
as painting of common areas, replacement of carpet in elevator lobbies, and the
like, as opposed to costs for physical renovations of common areas or other
portions of the Building; (2) for repair, replacements and general maintenance
paid by proceeds of insurance or condemnation awards or by Tenant or other third
parties, and alterations attributable solely to tenants of the Building; (3) for
interest, amortization or other payments on loans to Landlord; (4) for
depreciation of the Building; (5) for leasing commissions; (6) for legal
expenses, other than those incurred for the general benefit of the Building's
tenants (e.g., tax disputes); (7) for renovating or otherwise improving the
Premises or space for other occupants of the Building or vacant space in the
Building; (8) for federal or state income or franchise taxes imposed on or
measured by the income of Landlord from the operation of the Building; (9) for
which Landlord is entitled to be reimbursed by tenants of the Building other
than pursuant to pass-through provisions similar to Section 4.(c) of this Lease
and this Exhibit; (10) for advertising and promotional expenses; (11) incurred
due to violation by Landlord of law (other than costs incurred to comply with
laws hereafter in effect) or any of the terms and conditions of this Lease or
any other lease relating to the Building; (12) for installing, operating and
maintaining any specialty service, such as an observatory, broadcasting
facilities, luncheon club, or athletic or recreational club; (13) for salaries
of officers and executives of Landlord other than the building's manager; (14)
for any work or service performed for any tenant of the Building to a materially
greater extent or in a materially more favorable manner than that furnished or
offered generally to the tenants and other occupants (including Tenant); (15)
for any work or service performed for any facility other than the Building; (16)
for rental under any ground lease or other underlying lease; (17) for payments
to any person or entity related to Landlord which are in excess of the amount
which would have been paid in the absence of such relationship; (18) to correct
violations by Landlord of any legal requirement that was in effect as of the
date hereof, and to remove any hazardous materials installed by or on Landlord's
behalf in the Building; (19) for acquiring artwork located in the Building, but
the cost of insuring and maintaining such artwork shall be included in Basic
Cost; (20) for repairing, replacing or otherwise correcting defects (but not
costs of repair for normal wear and tear) in the design and construction of the
improvements comprising the Building; and (21) for losses caused by the
negligence or wilful misconduct of Landlord or its agents or contractors.
3. The Annual Cost Statement shall include a statement of Landlord's
actual Basic Cost for the previous year adjusted as provided in Section 4 of
this Exhibit. If the Annual Cost Statement reveals that Tenant paid more for
Basic Cost than the actual Excess in the year for which such statement was
prepared, then Landlord shall credit or reimburse Tenant for such excess within
30 days after delivery of the Annual Cost Statement; likewise, if Tenant paid
less than the actual Excess, then Tenant shall pay Landlord such deficiency
within 30 days after delivery of the Annual Cost Statement.
4. With respect to any calendar year or partial calendar year in which
the Building is not occupied to the extent of 95% of the rentable area thereof,
the Basic Cost for such period shall, for the purposes hereof, be increased to
the amount which would have been incurred had the Building been occupied to the
extent of 95% of the rentable area thereof.
5. For purposes of calculating Excess, the maximum increase in the
amount of Controllable Basic Cost (defined below) that may be included in
calculating Excess for each calendar year after 1995 shall be limited to 6% per
calendar year on a cumulative, compounded basis; for example, the maximum
amount of Controllable Basic Cost that may be included in the calculation of
Excess for each calendar year after 1995 shall equal the product of the 1995
Controllable Basic Cost and the following percentages for the following
calendar years: 106% for 1996; 112.36% for 1997; 119.10% for 1998; 126.25% for
1999; etc. "CONTROLLABLE BASIC COST" shall mean all Basic Cost which are within
the reasonable control of Landlord; thus, excluding Taxes, insurance, and
utilities.
6. Tenant may, after giving Landlord 30-days' prior written notice
thereof, inspect or audit Landlord's records relating to Electrical Costs and
Basic Cost for 1995 and any periods of time within two years before the audit or
inspection; however, no audit or inspection shall extend to periods of time
before 1995. Tenant's audit or inspection shall be conducted only during
business hours reasonably designated by Landlord. Tenant shall pay the cost of
such audit or inspection, including $150 per hour of Landlord's or the Building
manager's employee time devoted to such inspection or audit (up to $750, the
"ADMINISTRATIVE CHARGE") to reimburse Landlord for its overhead costs allocable
to the inspection or audit, unless the calculation of Electrical Costs and Basic
Cost in an Annual Cost Statement for the time period in question is determined
to be in error by more than 2% and, as a result thereof, Tenant paid more than
the actual Electrical Costs and Excess due for such time period, in which case
Landlord shall pay Tenant's actual reasonable audit cost and Tenant shall not be
required to pay the Administrative Charge for such inspection or audit. Tenant
may not conduct an inspection or have an audit performed more than once during
or for any calendar year. If such inspection or audit reveals that an error was
made in the Electrical Cost or Excess previously charged to Tenant, then
Landlord shall refund to Tenant any overpayment of any such costs for the year
in question and for each year the same error was made, or Tenant shall pay to
Landlord any underpayment of any such costs for the year in question and for
each year the same error was made, as the case may be, within 30 days after
notification thereof. Tenant shall maintain the results of each such audit and
inspection confidential and shall not be permitted to use any third party (other
than the accounting firm that is then engaged to perform Tenant's corporate
accounting work or one of the big six accounting firms
C-2
<PAGE> 19
to perform such audit and inspection unless such third party is reasonably
acceptable to Landlord and agrees with Landlord in writing to maintain the
results of such audit or inspection confidential.
C-3
<PAGE> 20
EXHIBIT D
TENANT FINISH WORK ALLOWANCE
1. By noon January 16, 1995, Tenant shall provide to Landlord for its
approval final working drawings, prepared by Interprise or another architect
that has been approved by Landlord (which approval shall not be unreasonably
withheld), of all improvements that Tenant proposes to install in the Premises;
such working drawings shall include the partition layout, ceiling plan,
electrical outlets and switches, telephone outlets, drawings for any
modifications to the mechanical and plumbing systems of the Building, and
detailed plans and specifications for the construction of the improvements
called for under this Exhibit in accordance with all applicable governmental
laws, codes, rules, and regulations. Further, if any of Tenant's proposed
construction work will affect the Building's HVAC, electrical, mechanical, or
plumbing systems, then the working drawings pertaining thereto shall be prepared
by the Building's engineer of record, whom Tenant shall at its cost engage for
such purpose. Landlord's approval of such working drawings shall not be
unreasonably withheld, provided that (a) they comply with all applicable
governmental laws, codes, rules, and regulations, (b) such working drawings are
sufficiently detailed to allow construction of the improvements in a good and
workmanlike manner, and (c) the improvements depicted thereon conform to the
rules and regulations promulgated from time to time by the Landlord for the
construction of tenant improvements (a copy of which has been delivered to
Tenant). As used herein, "Working Drawings" shall mean the final working
drawings approved by Landlord, as amended from time to time by any approved
changes thereto, and "WORK" shall mean all improvements to be constructed in
accordance with and as indicated on the Working Drawings. Approval by Landlord
of the Working Drawings shall not be a representation or warranty of Landlord
that such drawings are adequate for any use, purpose, or condition, or that
such drawings comply with any applicable law or code, but shall merely be the
consent of Landlord to the performance of the Work. Tenant shall, at Landlord's
request, sign the Working Drawings to evidence its review and approval thereof.
All changes in the Work must receive the prior written approval of Landlord
(which shall not be unreasonably withheld or delayed), and in the event of any
such approved change Tenant shall, upon completion of the Work, furnish Landlord
with an accurate, reproducible "as-built" plan (e.g., sepia) of the improvements
as constructed, which plan shall be incorporated into this Lease by this
reference for all purposes.
2. Landlord shall submit the Working Drawings and related bid-package
information to up to five contractors reasonably acceptable to Tenant. The
bid-package shall provide that the contractor shall enter into a contract with
Landlord which shall contain, among other things, a liquidated damages
provision for delays acceptable to Landlord. The contractor submitting the
lowest, qualified bid shall be the contractor for the Work. All contractors and
subcontractors shall be required to procure and maintain (a) insurance against
such risks, in such amounts, and with such companies as Landlord may reasonably
require and (b) payment and performance bonds covering the cost of the Work and
otherwise reasonably satisfactory to Landlord. Certificates of such insurance,
with paid receipts therefor, and copies of such bonds must be received by
Landlord before the Work is commenced. The Work shall be performed in a good
and workmanlike manner that is free of defects and is in substantial
conformance with the Working Drawings, and shall be performed in such a manner
and at such times as to maintain harmonious labor relations and not to
interfere with or delay Landlord's other contractors, the operation of the
Building, and the occupancy thereof by other tenants. All contractors and
subcontractors shall contact Landlord and schedule time periods during which
they may use Building facilities in connection with the Work (e.g., elevators,
excess electricity, etc.).
3. If a delay in the performance of the Work occurs because of Tenant
Delay Days, then, notwithstanding any provision to the contrary in this Lease,
Tenant's obligation to pay Basic Rental and Tenant's share of Excess and
Electrical Costs hereunder shall commence on the scheduled Commencement Date
plus (a) the number of days of delay that are not Tenant Delay Days plus (b) up
to, but not more than, five Tenant Delay Days. If the Premises are not ready
for occupancy and the Work is not substantially completed (as reasonably
determined by Landlord) on the scheduled Commencement Date, then the
obligations of Landlord and Tenant shall continue in full force and Basic
Rental and Tenant's share of Excess and Electrical Costs shall be abated until
the date the Work would have been substantially completed but for the Tenant
Delay Days, which date shall be the Commencement Date.
4. Tenant shall bear the entire cost of performing the Work (including,
without limitation, design of the Work and preparation of the Working Drawings,
costs of construction labor and materials, electrical usage during
construction, additional janitorial services, general tenant signage, related
taxes and insurance costs, the construction supervision fee, all of which costs
are herein collectively called the "TOTAL CONSTRUCTION COSTS") in excess of the
Allowance (hereinafter defined). Upon approval of the Working Drawings and
selection of a contractor, Tenant shall promptly (a) execute a work order
agreement prepared by Landlord which identifies such drawings, itemizes the
Total Construction Costs and sets forth the Allowance, and (b) pay to Landlord
50% of the amount by which the estimated Total Construction Costs exceed the
Allowance. If the Work will not be substantially completed before the
expiration of the first full calendar month after the approval of the Working
Drawings and selection of a contractor, the remaining portion of such excess
shall be payable in equal monthly installments on the first day of each month,
beginning the first day of the second full calendar month after the date
hereof, and on the substantial completion date. The monthly installments
D-1
<PAGE> 21
due on the first day of each month shall equal the portion of such excess
divided by the number of scheduled payment dates (including the substantial
completion date) from the date hereof through the estimated substantial
completion date for the Work. Upon substantial completion of the Work and
before Tenant occupies the Premises to conduct business therein, Tenant shall
pay to Landlord an amount equal to the Total Construction Costs (as adjusted
for any approved changes to the Work), less (1) the amount of the payments
already made by Tenant, (2) the amount of the Allowance, and (3) the cost
reasonably estimated by Landlord for completing all "punch list" items;
finally, upon completion of the punch list items, Tenant shall pay to Landlord
the costs incurred in completing the same.
5. Landlord shall provide to Tenant a construction and moving
allowance (the "ALLOWANCE") equal to $22.00 per rentable square foot in the
Premises. If the Total Construction Costs and Moving Costs (defined below) are
less than the amount described in previous sentence, then the difference may be
offset against Basic Rental under this Lease as it accrues. "MOVING COSTS"
shall mean the actual costs incurred by Tenant in moving to the Premises, for
telephone system installation and cabling costs (but not the acquisition of
equipment), and for replacement of stationery on hand before the move. Within
ten days after the final Working Drawings are delivered to Landlord, Landlord
shall pay from the Allowance the cost of preparing the space plans for the
Premises and the Working Drawings.
6. Landlord or its affiliate shall supervise the Work, make
disbursements required to be made to the contractor, and act as a liaison
between the contractor and Tenant and coordinate the relationship between the
Work, the Building, and the Building's systems. In consideration for
Landlord's construction supervision services, Tenant shall pay to Landlord a
construction supervision fee equal to five percent of the Total Construction
Costs.
7. To the extent not inconsistent with this Exhibit, Section 8.(a)
of this Lease shall govern the performance of the Work and the Landlord's and
Tenant's respective rights and obligations regarding the improvements installed
pursuant thereto.
8. Landlord shall use reasonable efforts to substantially complete
the Work and tender the Premises to Tenant by noon on April 21, 1995; however,
it shall have no liability if the Work is not substantially completed by that
date. If the Work is not substantially completed by noon on April 28, 1995,
plus the number of Tenant Delay Days in excess of five and as a result thereof
and after using reasonable diligence Tenant is unable to move into the Premises
by April 30, 1995, then Landlord shall pay to Tenant on the Commencement Date
the amount obtained by performing the following calculation:
(A - B) x C; where
A = the amount Tenant paid for base rent and operating expenses
under its lease for its current premises at 3811 Turtle Creek
Boulevard, Suite 1200, Dallas, Texas (as the same may be
increased in such lease because of Tenant's holdover) for the
Reimbursement Period (defined below) divided by the number of
days in the Reimbursement Period;
B = the daily Rent payable by Tenant to Landlord under this Lease
during the first year of the Term; and
C = the number of days in the period (the "REIMBURSEMENT PERIOD")
beginning on the later of April 28, 1995, plus the number of
Tenant Delay Days in excess of five or May 1, 1995, and ending
on the earliest of (a) if the Premises are tendered on a
Saturday, the second Sunday following such date, (b) if the
Premises are tendered on any other day, the following Sunday,
or (c) the date Tenant moves into the Premises.
"TENANT DELAY DAYS" shall mean each day after January 16, 1995, that final,
acceptable Working Days are not delivered to Landlord (if such Working Drawings
are not delivered by noon on a business day, then they shall be deemed
delivered on the next business day), and days of delay caused by (1) changes in
the Working Drawings after final approval by Tenant and Landlord, (2) Tenant's
failure to notify Landlord whether it approves or disapproves of a contractor
within three business days, (3) any specification by Tenant of materials or
installations which are not readily available or whose installation is
materially more time consuming than Building-standard finish work, provided
that Landlord promptly notifies Tenant thereof, and (4) the action or inaction
of Tenant or its agents or contractors (the contractors described in Section 2
of this Exhibit are not Tenant's contractors). Tenant shall use all reasonable
efforts to promptly move into the Premises after they are tendered to Tenant,
but Tenant shall not be required to move on days other than Saturday or
Sunday.
D-2
<PAGE> 22
EXHIBIT 3
PARKING
Tenant shall be permitted to use 18 vehicular parking spaces in the parking
garage in the building (the "PARKING GARAGE") during the initial Term subject to
such terms, conditions and regulations as are from time to time applicable to
patrons of the Parking Garage. Tenant may from time to time elect for such
spaces to be reserved or undesignated by delivering to Landlord prior written
notice thereof; however, an election for reserved spaces shall be subject to the
availability thereof when such election is made. Each election shall be
effective as of the first day of the month following the date Landlord receives
written notice of Tenant's election. Tenant initially elects to use four
reserved spaces. The rates applicable to the parking spaces shall be the
following amount for the following months of the Term:
<TABLE>
<CAPTION>
===============================================================================
Months Reserved Undesignated
- -------------------------------------------------------------------------------
<S> <C> <C>
1 - 36 $110 $0.00
- -------------------------------------------------------------------------------
37-48 $110 $50
- -------------------------------------------------------------------------------
49-72 $195 $75
- -------------------------------------------------------------------------------
Renewal Term Market Market
================================================================================
</TABLE>
Tenant shall be entitled to one additional parking space for each 2,000 rentable
square feet that tenant hereafter leases in the Building, which parking spaces
may be reserved or undesignated as Tenant may elect. If Tenant leases additional
space in the building pursuant to the expansion option provided in Exhibit F,
then the rate applicable to such parking spaces shall be as set forth above;
otherwise, the rates shall be the then prevailing rates generally applicable in
the Parking Garage for similar spaces.
Tenant's employees may use the Parking Garage free of charge on the
following days during the following time periods: on each of Monday, Tuesday,
Wednesday, and Thursday from 4:30 p.m. until 6:00 a.m. the following day; and
from 4:30 p.m. Friday through 6:00 a.m. Monday. Such use shall be subject to the
terms, conditions and regulations as are from time to time applicable to patrons
of the Parking Garage.
If, for any reason, Landlord fails or is unable to provide, or Tenant is
not permitted to use, all or any portion of the parking spaces to which it is
entitled hereunder, then Tenant's obligation to pay for such spaces shall be
abated for so long as Tenant does not have the use thereof; this abatement shall
be in full settlement of all claims that Tenant might otherwise have against
Landlord because of Landlord's failure or inability to provide Tenant with such
parking spaces.
E-1
<PAGE> 23
EXHIBIT F
EXPANSION OPTION
1. OPTION; EXERCISE. Provided no Event of Default exists and Tenant is
occupying the entire Premises at the time of such election, Tenant may lease up
to 12,000 rentable square feet of additional space in the Building designated on
Exhibit A as the "EXPANSION AREA" (herein so called). Tenant may exercise its
option as to all of the Expansion Area or as to increments thereof containing at
least 2,500 contiguous rentable square feet, provided that the remaining portion
of the unleased Expansion Area contains at least 2,500 contiguous rentable
square feet. Tenant may exercise this option by delivering written notice
thereof to Landlord by October 1, 1997 (each, an "ELECTION NOTICE"), which
notice shall specify the number of rentable square feet as to which Tenant is
exercising the option.
2. LOCATION. If Tenant delivers an Election Notice for less than all of
the unleased portion of the Expansion Area, then Landlord may designate the
location of the Expansion Area in question, provided that, if Tenant has
previously leased Expansion Area, the space shall be contiguous to the
previously leased Expansion Area. Additionally, Landlord may relocate the
Expansion Area and the Additional Space under Exhibit G to a contiguous block
of space of the same size on the 21st floor of the Building or the 23rd floor
of the Building; however, after Tenant is occupying any portion of the
Expansion Area or the Additional Space, then Landlord may not relocate the
remaining Expansion Area or Additional Space unless it will be contiguous to,
and on the same floor as, the Expansion Area or Additional Space occupied by
Tenant.
3. DELIVERY OF EXPANSION AREA. Within 30 days after Landlord receives an
Election Notice, Landlord shall designate the date Landlord will deliver to
Tenant the Expansion Area requested in the Election Notice in question, which
date shall be the earlier of April 1, 1998, or the date such space is available
for lease by Tenant (that is, unoccupied and not subject to a lease or other
occupancy agreement); however, if the Election Notice is delivered during the
period beginning September 1, 1997, and ending October 1, 1997, and Tenant
specifies in such notice that it does not want the requested Expansion Area to
be tendered before April 1, 1998, then Landlord shall deliver to Tenant such
Expansion Area on April 1, 1998. The Expansion Area shall be delivered to
Tenant in an as-is condition and, except as provided below, Landlord shall not
provide to Tenant any allowances (e.g., moving allowance, construction
allowance, and the like) or other tenant inducements in connection therewith.
4. BASIC RENT; CONSTRUCTION ALLOWANCE. The Basic Rental rate shall be the
then-effective Basic Rental rate set forth in the Basic Lease Information and
will thereafter adjust when adjustments are made to the Basic Rental rate under
the Basic Lease Information, and Landlord shall provide to Tenant a construction
allowance equal to the product of (a) $21.00, (b) the number of rentable square
feet in the Expansion Area in question, and (c) a fraction whose numerator is
the number of full calendar months in the initial Term after Tenant's obligation
to pay Basic Rental begins in respect of such Expansion Area and whose
denominator is 72. Tenant shall begin paying Basic Rental and Tenant's share of
Electrical Costs and Excess for the Expansion Area on the earlier of the date
Tenant begins using such space in connection with its business operations or 90
days after Landlord tenders possession thereof to Tenant.
5. AMENDMENT. Within 30 days after an Expansion Area is tendered to
Tenant, Tenant and Landlord shall execute amendment to this Lease including the
Expansion Area in question in the Premises on the same terms as this Lease,
except the number of rentable square feet in the Premises shall increase by the
number of rentable square feet in the Expansion Area, Tenant's Proportionate
Share shall be adjusted accordingly, and the terms set forth in this Exhibit
shall apply.
6. TERMINATION. Tenant's rights under this Exhibit shall terminate if
(a) this Lease or Tenant's right to possession of the Premises is terminated
because of an Event of Default, (b) Tenant assigns any of its interest in this
Lease or sublets any portion of the Premises (other than to a Permitted
Transferee), or (c) Tenant fails to timely exercise its option under this
Exhibit, time being of the essence with respect to Tenant's exercise thereof.
Tenant's rights hereunder are not assignable to any party other than a
Permitted Transferee of the entire Premises.
F-1
<PAGE> 24
EXHIBIT G
TENANT'S PREFERENTIAL RIGHT TO LEASE
1. Landlord shall first offer to lease to Tenant the Expansion Area and
the additional 3,000 rentable square feet of space designated on Exhibit A as
the Additional Space (such space shall be collectively called the "ADDITIONAL
SPACE" in this Exhibit) in an "as is" condition before leasing such space to
third parties; such offer shall be in writing and specify the rent to be paid
for the Additional Space and the date on which the Additional Space shall be
included in the Premises (the "OFFER NOTICE"). Tenant shall notify Landlord in
writing (an "EXERCISE NOTICE") whether Tenant elects to lease the entire
Additional Space on the terms set forth in this Exhibit, within ten days after
Landlord delivers to Tenant the Offer Notice. If Tenant timely elects to lease
the Additional Space, then Landlord and Tenant shall execute an amendment to
this Lease, effective as of the date the Additional Space is to be included in
the Premises, on the same terms as this Lease except that (a) the rentable area
of the Premises shall be increased by the rentable area in the Additional Space
(and Tenant's Proportionate Share shall be adjusted accordingly), (b) Landlord
shall not provide to Tenant any allowances (e.g., moving allowance,
construction allowance, and the like) or other tenant inducements except as
provided in clause (d), (c) if Tenant will begin paying Basic Rental for the
Additional Space in question after March 31, 1999, then the lease term for the
Additional Space in question shall be that set forth in the Offer Notice, and
(d) the Basic Rental and the construction allowance shall be determined as
follows:
(1) if Tenant's obligation to pay Basic Rental for the Additional
Space leased under this Exhibit begins before April 1, 1998, then the Basic
Rental shall be the then-effective Basic Rental rate set forth in Basic
Lease Information and will thereafter adjust when adjustments are made to
the Basic Rental rate in accordance with the Basic Lease Information, and
Landlord shall provide to Tenant a construction allowance equal to the
product of (i) $21.00, (ii) the number of rentable square feet in the
Additional Space in question, and (iii) a fraction whose numerator is the
number of full calendar months in the initial Term after Tenant begins
paying Basic Rental for the Additional Space and whose denominator is 72;
(2) if Tenant's obligation to pay Basic Rental for the Additional
Space leased under this Exhibit begins on or after April 1, 1998, then the
Basic Rental rate and construction allowance shall be the amounts set forth
in the Offer Notice (but Landlord shall not be required to provide
construction allowance in the Offer Notice).
If Tenant fails or is unable to timely exercise its right hereunder, then such
right shall lapse, time being of the essence with respect to the exercise
thereof, and Landlord may lease the Additional Space to third parties subject
to Tenant's rights under Exhibit F and on the following terms:
(A) If the Offer Notice specifies a rent commencement date that is on
or before March 31, 1998, then Landlord may lease the Additional Space in
question on such terms as Landlord may elect;
(B) If the Offer Notice specifies a rent commencement date that is
after March 31, 1998, and before April 1, 1999, then Landlord may lease the
Additional Space in question on such terms as Landlord may elect, provided
that the economic terms set forth in any such third-party lease are not
substantially more favorable than those which were offered to Tenant in the
Offer Notice taking into account the duration of the lease term and the
other terms thereof and of this Lease; and
(C) If the Offer Notice is delivered on or after April 1, 1999, then
Landlord may lease the Additional Space in question on such terms as
Landlord may elect, provided that the rental rate set forth in any such
third-party lease is not substantially more favorable than that which is
offered to Tenant, regardless of the other terms set forth in the
third-party lease.
If Landlord fails to enter into a lease for any Additional Space set forth in
an Offer Notice as provided above within six months after the delivery of the
Offer Notice for such space, then Landlord must offer such space to Tenant
under this Exhibit before leasing such space to another party. Tenant may not
exercise its rights under this Exhibit if an Event of Default exists or Tenant
is not then occupying the entire Premises.
2. Tenant's rights under this Exhibit shall terminate if (a) this Lease
or Tenant's right to possession of the Premises is terminated because of an
Event of Default or (b) Tenant assigns any of its interest in this Lease or
sublets any portion of the Premises (other than to a Permitted Transferee).
Tenant's rights hereunder are not assignable to any party other than a
Permitted Transferee of the entire Premises.
G-1
<PAGE> 25
EXHIBIT H
EXTENSION OPTION
Provided no Event of Default exists, Tenant may renew this Lease for one
additional period of five years on the same terms provided in this Lease
(except as set forth below), by delivering written notice of the exercise
thereof (an "EXERCISE NOTICE") to Landlord not later than 13 months before the
expiration of the Term. On or before the commencement date of the extended
Term, Landlord and Tenant shall execute an amendment to this Lease extending
the Term on the same terms provided in this Lease, except as follows:
(a) The Basic Rental payable for each month during the extended Term
shall be the Fair Market Rental Rate as determined in accordance with
Exhibit I;
(b) Tenant shall have no further renewal options unless expressly
granted by Landlord in writing; and
(c) Landlord shall lease to Tenant the Premises in their
then-current condition, and Landlord shall not provide to Tenant any
allowances (e.g., moving allowance, construction allowance, and the like)
or other tenant inducements; however, this will be taken into account in
determining the Fair Market Rental Rate.
If Landlord and Tenant are unable to agree upon the Fair Market Rental Rate
for the extended Term, the determination of the Fair Market Rental Rate is
submitted to an appraiser under Exhibit I, and Tenant's assessment of the Fair
Market Rental Rate is not selected by the appraiser, then Tenant may elect to
rescind its election to extend the Term by delivering to Landlord written notice
thereof at least 11 months before the expiration of the term. Time is of the
essence with regard to the delivery of such notice.
Tenant's rights under this Exhibit shall terminate if (1) this Lease or
Tenant's rights to possession of the Premises is terminated because of an Event
of Default, (2) Tenant assigns any of its interest in this Lease or sublets any
portion of the Premises (other than to a Permitted Transferee), or (3) Tenant
fails to timely exercise its option under this Exhibit, time being of the
essence with respect to Tenant's exercise thereof. Tenant's rights hereunder are
not assignable to any party other than a Permitted Transferee of the entire
Premises.
H-1
<PAGE> 26
EXHIBIT I
FAIR MARKET RENTAL RATE
1. DEFINITION. The term "FAIR MARKET RENTAL RATE" shall mean the market
rental rate for the time period such determination is being made for office
space in office buildings in the CBD of comparable age, quality and condition
for space of equivalent quality, size, utility, and location. Such
determination shall take into account all relevant factors, including, without
limitation, the following matters: the credit standing of Tenant; the length of
term; expense stops; and construction allowances and other Tenant concessions
or lack thereof.
2. DETERMINATION. Landlord shall deliver to Tenant notice confirming the
Fair Market Rental Rate (the "FMRR NOTICE") for the extended Term within 20 days
after Tenant exercises the option giving rise for the need to determine the
Fair Market Rental Rate. If Tenant disagrees with Landlord's assessment of the
Fair Market Rental Rate specified in a FMRR Notice, then it shall so notify
Landlord in writing within ten days after delivery of such FMRR Notice;
otherwise, the rate set forth in such notice shall be the Fair Market Rental
Rate. If Tenant timely delivers to Landlord written notice that it disagrees
with Landlord's assessment of the Fair Market Rental Rate, then Landlord and
Tenant shall meet to attempt to determine the Fair Market Rental Rate. If
Tenant and Landlord are unable to agree on such Fair Market Rental Rate within
ten days after Tenant notifies Landlord of its disagreement with Landlord's
assessment thereof, then (within the next ten days) Landlord and Tenant shall
jointly appoint an independent real estate appraiser with at least five-year's
commercial real estate appraisal experience in the CBD market and submit their
respective assessments of the Fair Market Rental Rate to the appraiser. If the
parties are unable to agree on an independent real estate appraiser, then
either party may apply to any District Court in Dallas County, Texas to appoint
an appraiser having the qualifications described in the previous sentence, in
which case the date that Tenant may exercise its rescission election under
Exhibit H shall be extended for up to 15 additional days. The appraisers shall
then, within ten days after his designation, select the assessment (i.e.,
either Landlord's or Tenant's) that is closest to his determination of the Fair
Market Rental Rate, which assessment shall then be the Fair Market Rental Rate
for the extended Term. The party whose assessment was not chosen by the
appraiser shall pay the fees and expenses of the appraiser.
I-1
<PAGE> 1
EXHIBIT 10.18
[CLARK/BARDES INC. LETTERHEAD]
June 11, 1998
Mr. J. Philip Raiford
Vice President & Product Manager
Brokerage & Corporate Life Insurance
Nationwide Life Insurance Company
One Nationwide Plaza
Columbus, Ohio 43215
RE: PRODUCTION AGREEMENT
Dear Phil:
Clark/Bardes is entering into a Production Agreement with Nationwide Life
Insurance Company ("Nationwide") in consideration of our continued business
relationship and current financing activities. We agree that Clark/Bardes will
do the following:
1. Use commercial best efforts to sell and service products offered by
Nationwide in those markets in which Nationwide is generally recognized as
being "competitive". For such purpose, "competitive" shall be defined as
either:
A. Being one of the top five companies offering products in a particular
market, or,
B. Being in the top 50% of the companies offering products in a particular
market.
Such assessment shall be based on all salient product features including,
but not limited to, cash values, death benefits, compensation, company
ratings and financial strength, and customer services.
This effort will be made with both existing clients and future clients
and/or clients of companies which we acquire.
This effort will require Clark/Bardes to illustrate and/or present
Nationwide products in those cases in which Nationwide is "competitive".
<PAGE> 2
Letter to Mr. J. Phillip Raiford
June 11, 1998
Page Two
2. We agree to commit annually, for a period of 5-years, to produce and sell
enough business with Nationwide to meet the following criteria:
o Clark/Bardes will earn, from Nationwide, a minimum of 10% of its total
first year annualized commissions in each market that Nationwide
provides a "competitive" non-exclusive product, or at least 15% of
such total commissions in all such markets.
o Clark/Bardes will earn, from Nationwide, a minimum of 15% of its total
first year annualized commissions in each market that Nationwide
provides a "competitive" exclusive product, or at least 25% of such
total commissions in all such markets.
o Clark/Bardes will earn, from Nationwide, at least $3 million of first
year annualized commissions during each consecutive 12 month period.
3. At the end of each 12 month period following the effective date of this
Agreement, Nationwide will determine if the production criteria in
paragraph (2) have been met. If Clark/Bardes fails to meet those production
criteria, Clark/Bardes will have an additional 12 month period to come into
cumulative compliance determined with respect to paragraph (2).
The penalty for non-compliance shall be $150,000 for any 12 month period.
4. Any penalty due pursuant to the formula above shall reduce future
commissions otherwise due to Clark/Bardes over the subsequent 12 month
period. If such commission reduction is not allowed under Clark/Bardes'
current financing documents, other security will be provided.
5. This letter agreement, which shall be binding upon Clark/Bardes and
Nationwide, shall be incorporated into a formal document on or before July
1, 1998, which agreement shall contain provisions regarding, among others,
term and termination, confidentiality, governing laws, and legal opinions
from Clark/Bardes outside counsel regarding this agreement.
Signed
/s/ MELVIN G. TODD /s/ J. PHILIP RAIFORD
- ---------------------------- ----------------------------
Mr. Melvin G. Todd Mr. J. Philip Raiford
President Vice President & Product Manager
Clark/Bardes, Inc. Brokerage & Corporate Life Insurance
Nationwide Life Insurance Company
6/12/98 6/12/98
- ------- -------
Date Date
CLARK/BARDES
inc.
<PAGE> 3
[CLARK/BARDES, INC. LETTERHEAD]
June 11, 1998
VIA FACSIMILE
Nationwide Life Insurance Company
Attention: Mark Poeppelman
One Nationwide Plaza (1-32-05)
Columbus, Ohio 43215-2220
Ladies and Gentlemen:
In anticipation of the initial public offering (the "IPO") of common
stock in Clark/Bardes Holdings, Inc. ("CBH"), Clark/Bardes, Inc., a Texas
corporation ("we" or "the Company"), has offered to purchase from you the
Common Stock Purchase Warrants (the "Warrants") of the Company issued to and
held by you pursuant to that certain Note and Warrant Purchase Agreement dated
as of September 8, 1997 (the "Agreement").
On the terms and conditions herein stated, we agree to purchase the
Warrants, and by your execution hereof you agree to sell the Warrants, for the
consideration set forth on Annex A hereto. Upon the purchase and sale of the
Warrants as contemplated hereby, the Registration Rights Agreement and the
Participation Rights Agreement (as both such terms are defined in the
Agreement) shall be of no further force and effect, and the Company shall
immediately cancel the Warrants.
Our obligation to purchase the Warrants, and your obligation to sell
the Warrants, are expressly conditioned upon the satisfaction of each of the
following conditions precedent:
<PAGE> 4
-2- June 11, 1998
(a) The IPO shall have been consummated not later than December
31, 1998;
(b) CBH shall have received net proceeds from the IPO (i.e., net
of underwriting discounts and commissions and net of expenses payable in
connection with the IPO) of at least $35,000,000; and
(c) CBH shall have contributed at least 95% of the net proceeds
from the IPO to the Company (or to its successor from the contemplated
reincorporation merger of the Company with and into Clark/Bardes, Inc., a
Delaware corporation).
In order to induce you to enter into this letter agreement, the Company
hereby represents and warrants as of the date hereof and, except with respect to
the representation and warranty set forth in clause (v) below, as of the date of
the sale and purchase of the Warrants, as follows:
(i) The Company has all requisite corporate and other power and
authority to execute, deliver and perform its obligations under this letter
agreement.
(ii) The execution, delivery and performance by the Company of
this letter agreement have been duly authorized by all requisite corporate
action on the part of the Company. The Company has duly executed and delivered
this letter agreement, and this letter agreement constitutes the legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms.
(iii) Neither the execution and delivery of this letter agreement
by the Company nor compliance by the Company with the terms and provisions
hereof, will conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under, or result in any violation of, or
result in the creation of any security interest, lien or other encumbrance upon
any of the properties or assets of the Company pursuant to, its articles of
incorporation or bylaws, any award of any arbitrator or any agreement (including
any agreement with shareholders), instrument, order, judgment, decree, statute,
rule or regulation to which the Company is subject.
(iv) No authorization, consent, approval, exemption or other
action by or notice to or filing with any court or administrative or
governmental body or any other person or entity is required in connection with
the execution and delivery of this letter agreement by the Company or the
fulfillment of or compliance with the terms and provisions hereof by the
Company.
(v) The current Exercise Price (as defined in the Warrants) of
the Warrants is $2.95 per share, and no event has occurred since September 8,
1997 which, under the terms of the Warrants, would cause or require an
adjustment to such Exercise Price.
<PAGE> 5
-3- June 11, 1998
required in connection with the execution and delivery of this letter agreement
by the Company or the fulfillment of or compliance with the terms and provisions
hereof by the Company.
(v) The current Exercise Price (as defined in the Warrants) of the
Warrants is $2.95 per share, and no event has occurred since September 8, 1997
which, under the terms of the Warrants, would cause or require an adjustment to
such Exercise Price.
If you are in agreement with the foregoing, please sign in the space provided
below and fax a copy of this letter agreement to the Company (214) 871-7690,
Attention: Melvin G. Todd, whereupon this letter agreement shall become a
binding agreement between us.
Very truly yours,
Clark/Bardes, Inc.
By: /s/ MEL TODD
--------------------------
Name: Mel Todd
--------------------
Title: President & CEO
--------------------
Nationwide Life Insurance Company
By: /s/ MARK W. POEPPLEMAN
----------------------------------
Name: Mark W. Poeppleman
----------------------------
Title:Investment Officer
----------------------------
<PAGE> 6
-4-
Annex A
CONSIDERATION FOR PURCHASE OF WARRANTS
Consideration for Nationwide Life Insurance Company's sale to the Company of
1,016,949 Warrants issued pursuant to that certain Note and Warrant Purchase
Agreement dated as of September 8, 1997 is as follows:
1) The greater of (a) 75% of the IPO price, less $2.95 per share
multiplied by 1,016,949, provided that if, at any time after the date
hereof and prior to the purchase and sale of the Warrants, any stock
split, reverse stock split, reclassification or other event occurs
which would cause the Exercise Price (as defined in the Warrants) of
the Warrants to be adjusted or cause the number of shares of the
Company to be adjusted according to the terms of the Warrants
(including, without limitation, the merger of the Company with and
into Clark/Bardes, Inc., a Delaware corporation, as contemplated in
the draft registration statement for the IPO previously provided to
you), then in each such case the above-specified price per share of
common stock or number of shares of common stock shall be
proportionately adjusted; or (b) $1,600,000; and
2) Simultaneously with the execution of this letter agreement, the
execution by the Company of that certain letter of agreement between
the Company and Nationwide Life Insurance Company dated June 11, 1998.
Within 15 days of the IPO being consummated, any amounts due to Nationwide will
be paid by wire transfer of immediately available funds for credit to an
account designated by Nationwide at a later date.
Nationwide Life Insurance Company
By: /s/ MARK W. POEPPELMAN
-----------------------------
Mark W. Poeppelman
- ---------------------------------
[Printed Name]
Investment Officer
- ---------------------------------
[Title]
CLARK/BARDES, INC.
By: /s/ MEL TODD
-----------------------------
Mel Todd
- ---------------------------------
[Printed Name]
President & CEO
- ---------------------------------
[Title]
<PAGE> 1
EXHIBIT 10.19
CLARK/BARDES, INC.
2121 SAN JACINTO STREET
SUITE 2200
DALLAS, TEXAS 75201-7906
June 11, 1998
VIA FACSIMILE
Life Investors Insurance Company
of America
c/o AEGON USA Investment Management, Inc.
Attention: Director of Private Placements
4333 Edgewood Road N.E.
Cedar Rapids, Iowa 52499-5335
Ladies and Gentlemen:
In anticipation of the initial public offering (the "IPO") of common stock
in Clark/Bardes Holdings, Inc. ("CBH"), Clark/Bardes, Inc., a Texas corporation
("we" or "the Company"), has offered to purchase from you the Common Stock
Purchase Warrants (the "Warrants") of the Company issued to and held by you
pursuant to the certain Note and Warrant Purchase Agreement dated as of
September 8, 1997 (the "Agreement").
On the terms and conditions herein stated, we agree to purchase the
Warrants, and by your execution hereof you agree to sell the Warrants, for the
consideration set forth on Annex A hereto. Upon the purchase and sale of the
Warrants as contemplated hereby, the Registration Rights Agreement and the
Participation Rights Agreement (as both such terms are defined in the Agreement)
shall be of no further force and effect, and the Company shall immediately
cancel the Warrants.
<PAGE> 2
June 11, 1998
Our obligation to purchase the Warrants, and your obligation to sell the
Warrants, are expressly conditioned upon the satisfaction of each of the
following conditions precedent:
(a) The IPO shall have been consummated not later than December 31, 1998;
(b) CBH shall have received net proceeds from the IPO (i.e., net of
underwriting discounts and commissions and net of expenses payable in
connection with the IPO) of at least $35,000,000; and
(c) CBH shall have contributed at least 95% of the net proceeds from the
IPO to the Company (or to its successor from the contemplated reincorporation
merger of the Company with and into Clark/Bardes, Inc., a Delaware corporation).
In order to induce you to enter into this letter agreement, the Company
hereby represents and warrants as of the date hereof and, except with respect
to the representation and warranty set forth in clause (v) below, as of the
date of the sale and purchase of the Warrants, as follows:
(i) The Company has all requisite corporate and other power and authority
to execute, deliver and perform its obligations under this letter agreement.
(ii) The execution, delivery and performance by the Company of this letter
agreement have been duly authorized by all requisite corporate action on the
part of the Company. The Company has duly executed and delivered this letter
agreement, and this letter agreement constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
(iii) Neither the execution and delivery of this letter agreement by the
Company nor compliance by the Company with the terms and provisions hereof,
will conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under, or result in any violation of, or
result in the creation of any security interest, lien or other encumbrance
upon any of the properties or assets of the Company pursuant to, its articles
of incorporation or bylaws, any award of any arbitrator or any agreement
(including any agreement with shareholders), instrument, order, judgment,
decree, statute, rule or regulation to which the Company is subject.
(iv) No authorization, consent, approval, exemption or other action by or
notice to or filing with any court or administrative or governmental body or
any other person or entity is required in connection with the execution and
delivery of this letter agreement by the Company or the fulfillment of or
compliance with the terms and provisions hereof by the Company.
-2-
<PAGE> 3
June 11, 1998
(v) The current Exercise Price (as defined in the Warrants) of the
Warrants is $2.95 per share, and no event has occurred since September 8, 1997
which, under the terms of the Warrants, would cause or require an adjustment to
such Exercise Price.
If you are in agreement with the foregoing, please sign in the space
provided below and fax a copy of this letter agreement to the Company at (214)
871-7690, Attention: Melvin G. Todd, whereupon this letter agreement shall
become a binding agreement between us.
Very truly yours,
Clark/Bardes, Inc.
By: /s/ MEL TODD
---------------------------
Name: Mel Todd
Title: President & CEO
Life Investors Insurance Company
of America
By: /s/ GREGORY W. THEOBALD
------------------------------
Name: Gregory W. Theobald
Title: Vice President &
Assistant Secretary
-3-
<PAGE> 4
-4-
ANNEX A
CONSIDERATION FOR PURCHASE OF WARRANTS
Date: June 11, 1998
To: Keith Staudt
Re: Common Stock Purchase Warrants of Clark/Bardes, Inc.
Dear: Mr. Staudt
This letter describes the agreement between Clark/Bardes, Inc. and Life
Investors Insurance Company of America ("Life Investors") as to the treatment
of the 1,016,949 Common Stock Purchase Warrants held by Life Investors.
Clark/Bardes, Inc. intends in the near future to file a Registration Statement
with the Securities and Exchange Commission in order to make an initial public
offering ("IPO"). Life Investors has the right pursuant to the Registration
Rights Agreement, dated September 9, 1997, to include its warrants in any
Registration Statement filed by Clark/Bardes, Inc. In exchange for Life
Investors not requesting registration of its Warrants in this Registration
Statement, Clark/Bardes, Inc. will pay $3,000,000 in cash to Life Investors in
exchange for all of the Warrants held by Life Investors. This $3,000,000
payment shall be received via fed wire by Life Investors before or simultaneous
with the completion of the IPO.
This offer is conditioned upon the completion of the IPO by December 31, 1998
and successful completion of satisfactory documentation evidencing this
agreement.
Life Investors Insurance Company of America
By: /s/ GREGORY W. THEOBALD
------------------------------------
Gregory W. Theobald
Vice President & Assistant Secretary
Clark/Bardes, Inc.
By: /s/ MEL TODD
------------------------------------
Mel Todd
President & CEO
<PAGE> 1
EXHIBIT 10.20
[CLARK/BARDES INC. LETTERHEAD]
June 11, 1998
Mr. Robert K. Shaw
Sr. Vice President
Individual Markets
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, Colorado 80111
RE: PRODUCTION AGREEMENT
Dear Bob:
Clark/Bardes is entering into a Production Agreement with Great-West Life &
Annuity Insurance Company ("Great-West") in consideration of our continued
business relationship and current financing activities. We agree that
Clark/Bardes will do the following:
1. Use commercial best efforts to sell and service products offered by
Great-West in those markets in which Great-West is generally recognized as
being "competitive". For such purpose, "competitive" shall be defined as
either:
A. Being one of the top five companies offering products in a particular
market, or,
B. Being in the top 50% of the companies offering products in a particular
market.
Such assessment shall be based on all salient product features including,
but not limited to, cash values, death benefits, compensation, company
ratings and financial strength, and customer services.
This effort will be made with both existing clients and future clients
and/or clients of companies which we acquire.
This effort will require Clark/Bardes to illustrate and/or present
Great-West products in those cases in which Great-West is "competitive".
<PAGE> 2
Letter to Mr. Robert K. Shaw
June 11, 1998
Page Two
2. We agree to commit annually, for a period of 5-years, to produce and sell
enough business with Great-West to meet the following criteria:
o Clark/Bardes will earn, from Great-West, a minimum of 10% of its total
first year annualized commissions in each market that Great-West
provides a "competitive" non-exclusive product, or at least 15% of
such total commissions in all such markets.
o Clark/Bardes will earn, from Great-West, a minimum of 15% of its total
first year annualized commissions in each market that Great-West
provides a "competitive" exclusive product, or at least 25% of such
total commissions in all such markets.
o Clark/Bardes will earn, from Great-West, at least $3 million of first
year annualized commissions during each consecutive 12 month period.
3. At the end of each 12 month period following the effective date of this
Agreement, Great-West will determine if the production criteria in
paragraph (2) have been met. If Clark/Bardes fails to meet those production
criteria, Clark/Bardes will have an additional 12 month period to come into
cumulative compliance determined with respect to paragraph (2).
The penalty for non-compliance shall be $150,000 for any 12 month period.
4. Any penalty due pursuant to the formula above shall reduce future
commissions otherwise due to Clark/Bardes over the subsequent 12 month
period. If such commission reduction is not allowed under Clark/Bardes'
current financing documents, other security will be provided.
5. This letter agreement, which shall be binding upon Clark/Bardes and
Great-West, shall be incorporated into a formal document on or before July
1, 1998, which agreement shall contain provisions regarding, among others,
term and termination, confidentiality, governing laws, and legal opinions
from Clark/Bardes outside counsel regarding this agreement.
Signed
/s/ MELVIN G. TODD /s/ ROBERT K. SHAW
- ---------------------------- ----------------------------
Mr. Melvin G. Todd Mr. Robert K. Shaw
President Senior Vice President
Clark/Bardes, Inc. Individual Markets
Great-West Life & Annuity Insurance Co.
6/11/98 6/11/98
- ------- -------
Date Date
CLARK/BARDES
inc.
<PAGE> 3
[CLARK/BARDES, INC. LETTERHEAD]
June 11, 1998
VIA FACSIMILE
Great-West Life & Annuity Insurance Company
Attention: Mark Corbett
8515 East Orchard Road
3rd Floor, Tower 2
Englewood, Colorado 80111
Ladies and Gentlemen:
In anticipation of the initial public offering (the "IPO") of common
stock in Clark/Bardes Holdings, Inc. ("CBH"), Clark/Bardes, Inc., a Texas
corporation ("we" or "the Company"), has offered to purchase from you the
Common Stock Purchase Warrants (the "Warrants") of the Company issued to and
held by you pursuant to that certain Note and Warrant Purchase Agreement dated
as of September 8, 1997 (the "Agreement").
On the terms and conditions herein stated, we agree to purchase the
Warrants, and by your execution hereof you agree to sell the Warrants, for the
consideration set forth on Annex A hereto. Upon the purchase and sale of the
Warrants as contemplated hereby, the Registration Rights Agreement and the
Participation Rights Agreement (as both such terms are defined in the
Agreement) shall be of no further force and effect, and the Company shall
immediately cancel the Warrants.
<PAGE> 4
-2- June 11, 1998
(a) The IPO shall have been consummated not later than December
31, 1998;
(b) CBH shall have received net proceeds from the IPO (i.e., net
of underwriting discounts and commissions and net of expenses payable in
connection with the IPO) of at least $35,000,000; and
(c) CBH shall have contributed at least 95% of the net proceeds
from the IPO to the Company (or to its successor from the contemplated
reincorporation merger of the Company with and into Clark/Bardes, Inc., a
Delaware corporation).
In order to induce you to enter into this letter agreement, the Company
hereby represents and warrants as of the date hereof and, except with respect to
the representation and warranty set forth in clause (v) below, as of the date of
the sale and purchase of the Warrants, as follows:
(i) The Company has all resquisite corporate and other power and
authority to execute, deliver and perform its obligations under this letter
agreement.
(ii) The execution, delivery and performance by the Company of
this letter agreement have been duly authorized by all requisite corporate
action on the part of the Company. The Company has duly executed and delivered
this letter agreement, and this letter agreement constitutes the legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms.
(iii) Neither the execution and delivery of this letter agreement
by the Company nor compliance by the Company with the terms and provisions
hereof, will conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under, or result in any violation of, or
result in the creation of any security interest, lien or other encumbrance upon
any of the properties or assets of the Company pursuant to, its articles of
incorporation or bylaws, any award of any arbitrator or any agreement (including
any agreement with shareholders), instrument, order, judgment, decree, statute,
rule or regulation to which the Company is subject.
(iv) No authorization, consent, approval, exemption or other
action by or notice to or filing with any court or administrative or
governmental body or any other person or entity is required in connection with
the execution and delivery of this letter agreement by the Company or the
fulfillment of or compliance with the terms and provisions hereof by the
Company.
<PAGE> 5
-3- June 11, 1998
(v) The current Exercise Price (as defined in the Warrants) of the
Warrants is $2.95 per share, and no event has occurred since September 8, 1997
which, under the terms of the Warrants, would cause or require an adjustment to
such Exercise Price.
If you are in agreement with the foregoing, please sign in the space
provided below and fax a copy of this letter agreement to the Company at (214)
871-7690, Attention: Melvin G. Todd, whereupon this letter agreement shall
become a binding agreement between us.
Very truly yours,
Clark/Bardes, Inc.
By: /s/ MEL TODD
------------------------
Name: Mel Todd
-------------------
Title: President & CEO
------------------
Nationwide Life Insurance Company
By: /s/ MARK W. POEPPELMAN
---------------------------------
Name: MARK W. POEPPELMAN
----------------------------
Title: Investment Officer
---------------------------
<PAGE> 6
-4-
ANNEX A
CONSIDERATION FOR PURCHASE OF WARRANTS
Consideration for Great-West Life & Annuity Insurance Company's sale to the
Company of 1,016,949 Warrants issued pursuant to that certain Note and Warrant
Purchase Agreement dated as of September 8, 1997 is as follows:
1) The greater of (a) 75% of the IPO price, less $2.95 per share
multiplied by 1,016,949 provided that if, at any time after the date
hereof and prior to the purchase and sale of the Warrants, any stock
split, reverse stock split, reclassification or other event occurs
which would cause the Exercise Price (as defined in the Warrants) of
the Warrants to be adjusted or cause the number of shares of the
Company to be adjusted according to the terms of the Warrants
(including, without limitation, the merger of the Company with and
into Clark/Bardes, Inc., a Delaware corporation, as contemplated in
the draft registration statement for the IPO previously provided to
you), then in each such case the above-specified price per share of
common stock or number of shares of common stock shall be
proportionately adjusted; or (b) $1,600,000; and
2) Simultaneously with the execution of this letter agreement, the
execution by the Company of that certain letter of agreement between
the Company and Great-West dated June 11, 1998.
Within 15 days of the IPO being consummated, any amounts due to Great-West will
be paid by wire transfer of immediately available funds for credit to an
account designated by Great-West at a later date.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
By: /s/ MARK CORBETT By: /s/ WAYNE HOFFMAN
--------------------------- -------------------------
Mark Corbett Wayne T. Hoffman
- --------------------------- ---------------------------
[Printed Name] [Printed Name]
Vice President Vice President
Investments Investments
- --------------------------- ---------------------------
[Title] [Title]
CLARK/BARDES, INC.
By: /s/ MEL TODD
-----------------------------
Mel Todd
- ---------------------------------
[Printed Name]
President & CEO
- ---------------------------------
[Title]
<PAGE> 1
EXHIBIT 16
[LANE GORMAN TRUBITT, LLP LETTERHEAD]
June 12, 1998
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Gentlemen:
We have read the statements made by Clark/Bardes Holdings, Inc. (the
"Company"), which we understand will be filed with the Securities and Exchange
Commission, pursuant to Item 11(i) of Form S-1, as part of the Company's
registration statement on Form S-1. We agree with the statements concerning our
firm in such Form S-1.
/s/ LANE GORMAN TRUBITT, LLP
Lane Gorman Trubitt, LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 18, 1998 (except for Note 15, as to which
the date is June , 1998) in the Registration Statement (Form S-1) dated June
12, 1998 and related Prospectus of Clark/Bardes Holdings, Inc. for the
registration of shares of its common stock.
/s/ ERNST & YOUNG LLP
------------------------------------
ERNST & YOUNG LLP
Dallas, Texas
June 12, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF LANE GORMAN TRUBITT, L.L.P.
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 7, 1997, with respect to the financial
statements of Clark/Bardes, Inc. included in the Registration Statement (Form
S-1) of Clark/Bardes, Inc. for the registration of its Common Stock.
/s/ LANE GORMAN TREELITT, L.L.P.
------------------------------------
LANE GORMAN TREELITT, L.L.P.
Dallas, Texas
June 11, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated February 18, 1997, related to the financial statements of Bank
Compensation Strategies Group as of December 31, 1996 and December 31, 1995, and
for the years then ended. We also consent to the reference to our Firm under the
caption "Experts" in the Prospectus.
/s/ MCGLADREY & PULLEN, LLP
------------------------------------
MCGLADREY & PULLEN, LLP
Minneapolis, Minnesota
June 12, 1998
<TABLE> <S> <C>
<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> 3,782,941 4,723,227
<SECURITIES> 0 0
<RECEIVABLES> 8,286,859 4,112,640
<ALLOWANCES> 78,000 78,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 12,037,611 8,881,542
<PP&E> 2,229,121 2,240,227
<DEPRECIATION> 1,513,267 1,593,227
<TOTAL-ASSETS> 36,901,890 33,405,641
<CURRENT-LIABILITIES> 9,743,367 7,436,000
<BONDS> 32,383,143 31,388,143
0 0
0 0
<COMMON> 5,162,281 5,162,281
<OTHER-SE> 3,188,699 3,371,875
<TOTAL-LIABILITY-AND-EQUITY> 36,901,890 33,405,641
<SALES> 0 0
<TOTAL-REVENUES> 49,455,419 13,754,466
<CGS> 0 0
<TOTAL-COSTS> 32,439,092 9,132,248
<OTHER-EXPENSES> 11,800,965 3,591,825
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,111,995 920,604
<INCOME-PRETAX> 4,293,889 185,176
<INCOME-TAX> 60,000 2,000
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,233,889 183,176
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
